**U.S. SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

 

**FORM 10-QSB**

 

Quarterly Report Under

the            Securities Exchange Act of 1934

 

For            Quarter Ended: June 30, 2007

 

Commission File Number: 0-28031

 

**PACIFIC FUEL CELL CORP.**

(Exact name of small business issuer as specified in its            charter)

 

**Nevada**

(State or other jurisdiction of incorporation or            organization)

 

**80-0043875**

(IRS            Employer Identification No.)

 

**131 N. Tustin Ave.**

**Suite 100**

**Tustin, CA**

(Address of principal place of business)

 

**92780**

(Zip            Code)

 

**(714) 564-1693**

(Issuer’s Telephone Number)

 

Check            whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of            the Securities Exchange Act of 1934 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 ____.

 

The            number of shares of the registrant’s only class of common stock issued and            outstanding as of August 20, 2007, was 74,510,248 shares.

 

Indicate by check mark whether the registrant is a shell company (as            defined in Rule 12b-2 of the Exchange Act) [__] YesxNo

 

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**PART I**

 

| **ITEM 1.** | **FINANCIAL STATEMENTS.** |
|-------------|---------------------------|

 

PACIFIC FUEL CELL CORP.

(A            DEVELOPMENT STAGE COMPANY)

CONSOLIDATED BALANCE SHEET

June            30, 2007

(UNAUDITED)

 

| ASSETS                                                                                                                              |   |   |       |   |
|-------------------------------------------------------------------------------------------------------------------------------------|--------|--------|------------|--------|
|                                                                                                                                |   |   |       |   |
| CURRENT ASSETS                                                                                                                      |   |   |       |   |
| Cash                                                                                                                                |   | $      | 299,922    |   |
| Accounts receivable                                                                                                                 |   |   | 62,397     |   |
| Inventory                                                                                                                           |   |   | 22,248     |   |
| Prepaid expenses                                                                                                                    |   |   | 2,845      |   |
| Total current assets                                                                                                                |   |   | 387,412    |   |
|                                                                                                                                |   |   |       |   |
| Property and equipment, net                                                                                                         |   |   | 275,378    |   |
|                                                                                                                                |   |   |       |   |
| Other Assets                                                                                                                        |   |   |       |   |
| Deposits                                                                                                                            |   |   | 25,562     |   |
|                                                                                                                                |   |   |       |   |
|                                                                                                                                |   | $      | 688,352    |   |
|                                                                                                                                |   |   |       |   |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                          |   |   |       |   |
|                                                                                                                                |   |   |       |   |
| CURRENT LIABILITIES                                                                                                                 |   |   |       |   |
| Accounts payable                                                                                                                    |   | $      | 153,394    |   |
| Total current liabilities                                                                                                           |   |   | 153,394    |   |
|                                                                                                                                |   |   |       |   |
| STOCKHOLDERS’ EQUITY                                                                                                          |   |   |       |   |
| Preferred stock $0.01 par value,

1,000,000 shares authorized, none outstanding                                                     |   |   | —    |   |
| Common stock, $0.001 par value, 200,000,000

shares authorized, 74,310,248 shares issued and                            outstanding |   |   | 74,310     |   |
| Additional paid in capital                                                                                                          |   |   | 4,131,402  |   |
| Deferred stock compensation                                                                                                         |   |   | (15,000    | )      |
| (Deficit) accumulated during the development                            stage                                                       |   |   | (3,655,754 | )      |
|                                                                                                                                |   |   | 534,958    |   |
|                                                                                                                                |   | $      | 688,352    |   |

 

The            accompanying notes are an integral part of the financial statements

 

2

 

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PACIFIC FUEL CELL CORP.

(A            DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

|                                                                              |   |                   |       |                 |   |         |   |            |   |   |       |         |   |   |   | **FOR THE PERIOD** |   |
|-----------------------------------------------------------------------------------|--------|------------------------|------------|----------------------|--------|--------------|--------|-----------------|--------|--------|------------|--------------|--------|--------|--------|--------------------|--------|
|                                                                              |   | **THREE MONTHS ENDED** |       | **SIX MONTHS ENDED** |   |         |   | **MAY 5, 1998** |   |
|                                                                              |   | **JUNE 30,**           |       |                 |   | **JUNE 30,** |   | **JUNE 30,**    |   |   |       | **JUNE 30,** |   |   |   | **(INCEPTION) TO** |   |
|                                                                              |   | **2007**               |       |                 |   | **2006**     |   | **2007**        |   |   |       | **2006**     |   |   |   | **JUNE 30, 2007**  |   |
|                                                                              |   |                   |       |                 |   |         |   |            |   |   |       |         |   |   |   |               |   |   |   |   |   |   |
| REVENUE                                                                           |   |                   |       |                 |   |         |   |            |   |   |       |         |   |   |   |               |   |   |   |   |   |   |
| Sales                                                                             |   | $                      | 135,923    |                 |   |         | $      | —         |   | $      | 135,923    |         |   |   | $      | —            |   |   |   | $ | 207,911 |   |
| Grants                                                                            |   |                   | —    |                 |   |         |   | —         |   |   | —    |         |   |   |   | —            |   |   |   |   | 99,901 |   |
|                                                                              |   |                   | 135,923    |                 |   |         |   | —         |   |   | 135,923    |         |   |   |   | —            |   |   |   |   | 307,812 |   |
|                                                                              |   |                   |       |                 |   |         |   |            |   |   |       |         |   |   |   |               |   |   |   |   |   |   |
| COSTS AND EXPENSES                                                                |   |                   |       |                 |   |         |   |            |   |   |       |         |   |   |   |               |   |   |   |   |   |   |
| Operating expenses                                                                |   |                   | 160,906    |                 |   |         |   | 25              |   |   | 313,861    |         |   |   |   | 481                |   |   |   |   | 361,520 |   |
| General and administrative                                                        |   |                   | 194,658    |                 |   |         |   | 57,653          |   |   | 347,849    |         |   |   |   | 92,838             |   |   |   |   | 1,777,920 |   |
| Research and development                                                          |   |                   | 10,360     |                 |   |         |   | 97,305          |   |   | 108,542    |         |   |   |   | 105,682            |   |   |   |   | 409,268 |   |
| Stock compensation                                                                |   |                   | 15,000     |                 |   |         |   | —         |   |   | 30,000     |         |   |   |   | —            |   |   |   |   | 342,800 |   |
| Depreciation and amortization                                                     |   |                   | 15,631     |                 |   |         |   | —         |   |   | 22,448     |         |   |   |   | —            |   |   |   |   | 56,271 |   |
| Change in value of derivative instruments,                            net         |   |                   | —    |                 |   |         |   | —         |   |   | —    |         |   |   |   | —            |   |   |   |   | 460,498 |   |
| Loss on extinguishment of debentures                                              |   |                   | —    |                 |   |         |   | —         |   |   | —    |         |   |   |   | —            |   |   |   |   | 16,706 |   |
| Loss on asset impairment                                                          |   |                   | —    |                 |   |         |   | —         |   |   | —    |         |   |   |   | —            |   |   |   |   | 510,667 |   |
| Loss on disposal of property and equipment                                        |   |                   | —    |                 |   |         |   | —         |   |   | —    |         |   |   |   | —            |   |   |   |   | 3,391 |   |
|                                                                              |   |                   | 396,555    |                 |   |         |   | 154,983         |   |   | 822,700    |         |   |   |   | 199,001            |   |   |   |   | 3,939,041 |   |
|                                                                              |   |                   |       |                 |   |         |   |            |   |   |       |         |   |   |   |               |   |   |   |   |   |   |
| OPERATING (LOSS)                                                                  |   |                   | (260,632   | )                    |   |         |   | (154,983        | )      |   | (686,777   | )            |   |   |   | (199,001           | )      |   |   |   | (3,631,229 | ) |
|                                                                              |   |                   |       |                 |   |         |   |            |   |   |       |         |   |   |   |               |   |   |   |   |   |   |
| OTHER INCOME (EXPENSE)                                                            |   |                   |       |                 |   |         |   |            |   |   |       |         |   |   |   |               |   |   |   |   |   |   |
| Interest income                                                                   |   |                   | 226        |                 |   |         |   | 99              |   |   | 426        |         |   |   |   | 298                |   |   |   |   | 8,027 |   |
| Interest expense                                                                  |   |                   | —    |                 |   |         |   | —         |   |   | —    |         |   |   |   | (232               | )      |   |   |   | (66,709 | ) |
| Foreign currency transaction gain (loss)                                          |   |                   | —    |                 |   |         |   | —         |   |   | —    |         |   |   |   | —            |   |   |   |   | (168 | ) |
| Other                                                                             |   |                   | —    |                 |   |         |   | —         |   |   | —    |         |   |   |   | —            |   |   |   |   | (1,175 | ) |
|                                                                              |   |                   | 226        |                 |   |         |   | 99              |   |   | 426        |         |   |   |   | 66                 |   |   |   |   | (60,025 | ) |
|                                                                              |   |                   |       |                 |   |         |   |            |   |   |       |         |   |   |   |               |   |   |   |   |   |   |
| NET (LOSS) BEFORE EXTRAORDINARY ITEM                                              |   |                   | (260,406   | )                    |   |         |   | (154,884        | )      |   | (686,351   | )            |   |   |   | (198,935           | )      |   |   |   | (3,691,254 | ) |
|                                                                              |   |                   |       |                 |   |         |   |            |   |   |       |         |   |   |   |               |   |   |   |   |   |   |
| EXTRAORDINARY ITEM, Gain on forgiveness

of debt, net of income taxes of $12,070  |   |                   | —    |                 |   |         |   | —         |   |   | —    |         |   |   |   | —            |   |   |   |   | 23,430 |   |
|                                                                              |   |                   |       |                 |   |         |   |            |   |   |       |         |   |   |   |               |   |   |   |   |   |   |
| NET (LOSS) BEFORE INCOME TAX EXPENSE                            (BENEFIT)         |   |                   | (260,406   | )                    |   |         |   | (154,884        | )      |   | (686,351   | )            |   |   |   | (198,935           | )      |   |   |   | (3,667,824 | ) |
|                                                                              |   |                   |       |                 |   |         |   |            |   |   |       |         |   |   |   |               |   |   |   |   |   |   |
| INCOME TAX EXPENSE (BENEFIT)                                                      |   |                   | —    |                 |   |         |   | —         |   |   | —    |         |   |   |   | —            |   |   |   |   | (12,070 | ) |
|                                                                              |   |                   |       |                 |   |         |   |            |   |   |       |         |   |   |   |               |   |   |   |   |   |   |
| NET (LOSS)                                                                        |   | $                      | (260,406   | )                    |   |         | $      | (154,884        | )      | $      | (686,351   | )            |   |   | $      | (198,935           | )      |   |   | $ | (3,655,754 | ) |
|                                                                              |   |                   |       |                 |   |         |   |            |   |   |       |         |   |   |   |               |   |   |   |   |   |   |
| PER SHARE INFORMATION:                                                            |   |                   |       |                 |   |         |   |            |   |   |       |         |   |   |   |               |   |   |   |   |   |   |
|                                                                              |   |                   |       |                 |   |         |   |            |   |   |       |         |   |   |   |               |   |   |   |   |   |   |
| WEIGHTED AVERAGE SHARES OUTSTANDING -BASIC AND                            DILUTED |   |                   | 74,006,248 |                 |   |         |   | 66,677,538      |   |   | 73,136,701 |         |   |   |   | 66,677,538         |   |   |   |   |   |   |
|                                                                              |   |                   |       |                 |   |         |   |            |   |   |       |         |   |   |   |               |   |   |   |   |   |   |
| NET (LOSS) PER COMMON SHARE (BASIC &                            DILUTED)      |   | $                      | (0.00      | )                    |   |         | $      | (0.00           | )      | $      | (0.01      | )            |   |   | $      | (0.00              | )      |   |   |   |   |   |

 

The            accompanying notes are an integral part of the financial statements

 

3

 

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PACIFIC FUEL CELL CORP.

(A            DEVELOPMENT STAGE COMPANY)

STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

|                                                                                |   |   |   | **SIX MONTHS ENDED** |     |   |   |         |   |
|-------------------------------------------------------------------------------------|--------|--------|--------|----------------------|----------|--------|--------|--------------|--------|
|                                                                                |   |   |   | **JUNE 30,**         |     |   |   | **JUNE 30,** |   |   |   | **FOR THE****PERIOD****MAY 5, 1998****(INCEPTION) TO** |   |
|                                                                                |   |   |   | **2007**             |     |   |   | **2006**     |   |   |   | **JUNE 30, 2007** |   |
|                                                                                |   |   |   |                 |     |   |   |         |   |   |   |   |   |   |   |   |
| OPERATING ACTIVITIES                                                                |   |   |   |                 |     |   |   |         |   |   |   |   |   |   |   |   |
| Net cash (used in) operating activities                                             |   |   |   | $                    | (597,749 | )      |   |         | $      | (103,951 | ) |   |   | $ | (1,737,990 | ) |
|                                                                                |   |   |   |                 |     |   |   |         |   |   |   |   |   |   |   |   |
| INVESTING ACTIVITIES                                                                |   |   |   |                 |     |   |   |         |   |   |   |   |   |   |   |   |
| Purchase of fixed assets                                                            |   |   |   |                 | (164,481 | )      |   |         |   | — |   |   |   |   | (224,080 | ) |
| Cash received in purchase of Cellfoods                                              |   |   |   |                 | —  |   |   |         |   | — |   |   |   |   | 16,898 |   |
| Deposit on Equipment                                                                |   |   |   |                 | 55,425   |   |   |         |   | — |   |   |   |   | (114,575 | ) |
| Investment in mineral claims                                                        |   |   |   |                 | —  |   |   |         |   | — |   |   |   |   | (5,000 | ) |
| Net cash (used in) investing activities                                             |   |   |   |                 | (109,056 | )      |   |         |   | — |   |   |   |   | (326,757 | ) |
|                                                                                |   |   |   |                 |     |   |   |         |   |   |   |   |   |   |   |   |
| FINANCING ACTIVITIES                                                                |   |   |   |                 |     |   |   |         |   |   |   |   |   |   |   |   |
| Proceeds from loans payable –                            shareholders         |   |   |   |                 | —  |   |   |         |   | — |   |   |   |   | 285,462 |   |
| Payments on loans payable –                            shareholders           |   |   |   |                 | —  |   |   |         |   | — |   |   |   |   | (11,083 | ) |
| Deferred debenture costs                                                            |   |   |   |                 | —  |   |   |         |   | — |   |   |   |   | (136,000 | ) |
| (Payments) proceeds of convertible redeemable                            debentures |   |   |   |                 | —  |   |   |         |   | — |   |   |   |   | 776,855 |   |
| Payments on loan payable - related parties                                          |   |   |   |                 | —  |   |   |         |   | — |   |   |   |   | (60,000 | ) |
| Proceeds from stock sales, net of issuance                            costs         |   |   |   |                 | 893,000  |   |   |         |   | — |   |   |   |   | 1,509,435 |   |
| Net cash provided by financing activities                                           |   |   |   |                 | 893,000  |   |   |         |   | — |   |   |   |   | 2,364,669 |   |
|                                                                                |   |   |   |                 |     |   |   |         |   |   |   |   |   |   |   |   |
| Net increase (decrease) in cash                                                     |   |   |   |                 | 186,195  |   |   |         |   | (103,951 | ) |   |   |   | 299,922 |   |
|                                                                                |   |   |   |                 |     |   |   |         |   |   |   |   |   |   |   |   |
| CASH AT BEGINNING OF PERIOD                                                         |   |   |   |                 | 113,727  |   |   |         |   | 166,130 |   |   |   |   | — |   |
|                                                                                |   |   |   |                 |     |   |   |         |   |   |   |   |   |   |   |   |
| CASH AT END OF PERIOD                                                               |   |   |   | $                    | 299,922  |   |   |         | $      | 62,179 |   |   |   | $ | 299,922 |   |
|                                                                                |   |   |   |                 |     |   |   |         |   |   |   |   |   |   |   |   |
| SUPPLEMENTAL CASH FLOW INFORMATION                                                  |   |   |   |                 |     |   |   |         |   |   |   |   |   |   |   |   |
| Cash paid for interest                                                              |   |   |   | $                    | —  |   |   |         | $      | — |   |   |   | $ | 375 |   |
| Cash paid for income taxes                                                          |   |   |   | $                    | —  |   |   |         | $      | — |   |   |   | $ | 2,400 |   |
|                                                                                |   |   |   |                 |     |   |   |         |   |   |   |   |   |   |   |   |

 

The            accompanying notes are an integral part of the financial statements.

 

4

 

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**PACIFIC FUEL CELL CORP.**

**(A            DEVELOPMENT STAGE COMPANY)**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**June 30, 2007**

**(UNAUDITED)**

 

**Note 1. Basis of Presentation and Accounting Policies**

 

The            accompanying unaudited consolidated financial statements have been prepared in            accordance with accounting principles generally accepted in the United States of            America for interim financial information. They do not include all of the information            and footnotes required by accounting principles generally accepted in the United States            of America for complete financial statements. In the opinion of management, all            adjustments, consisting only of normal recurring adjustments, considered necessary for            a fair presentation, have been included in the accompanying unaudited financial            statements. Operating results for the periods presented are not necessarily indicative            of the results that may be expected for the full year. For further information, refer            to the financial statements and notes thereto, included in the Company’s Form            10-KSB as of December 31, 2006, and for the years ended December 31, 2006 and            2005.

 

Inventories

Inventories consist of raw materials and are carried at the lower of            cost or market, with cost determined using the first in, first out (FIFO)            method.

 

Accounts receivable

The            Company evaluates trade receivables that are past due to determine the appropriate            allowance for doubtful accounts. The receivables are charged off in the period in which            they are deemed uncollectible. The allowance for doubtful accounts at June 30, 2007 was            $-0-.

 

**Note 2. Going Concern**

 

The            accompanying financial statements have been prepared in conformity with accounting            principles generally accepted in the United States of America, which contemplates            continuation of the Company as a going concern. The Company has incurred losses since            inception of $3,655,754 and is reliant on raising capital to initiate its business            plan. The Company has purchased equipment and has obtained licensing rights to produce            bipolar plates, and on a limited basis, began selling these plates to generate revenue.            The Company is exploring options to expand operations and raise additional funds            through equity and debt financing, however, the Company has no commitment from any            party to provide additional capital and there is no assurance that such funding will be            available when needed, or if available, that its terms will be favorable or acceptable            to the Company.

 

The            financial statements do not include any adjustments to reflect the possible future            effects on the recoverability and classification of assets or the amounts and            classification of liabilities that may result from the possible inability of the            Company to continue as a going concern.

 

5

 

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**Note 3. Earnings Per Share**

 

The Company calculates net income (loss) per share as required by            Statement of Financial Accounting Standard 128, "Earnings per Share." Basic earnings            (loss) per share is calculated by dividing net income (loss) by the weighted average            number of common shares outstanding for the period. Diluted earnings (loss) per share            is calculated by dividing net income (loss) by the weighted average number of common            shares and dilutive common stock equivalents outstanding. During the periods presented,            common stock equivalents were not considered, as their effect would be            anti-dilutive.

 

**Note 4. Research and Development**

 

On            August 21, 2002 the Company entered into a one-year agreement with the University of            California (the “University”) to develop a commercially viable fuel cell.            The Company and the University entered into an agreement to extend the completion date            to February 29, 2004. On May 4, 2004, the agreement was further extended through April            30, 2007. A new amendment to further extend the completion date to May 10, 2008 was            completed on June 26, 2007. The payments come due as follows: $35,395 is currently due            and $50,252 to be paid on or before December 31, 2007.

 

**Note 5. Merger Agreement**

 

Effective May 14, 2004, the Company, Cellfoods Corporation            (“Cellfoods”) and a wholly-owned subsidiary of the Company, PFCE            Acquisition Corp. (“Sub”) consummated an Agreement and Plan of Merger,            whereby Sub was merged with and into Cellfoods. All of the Cellfoods’ issued and            outstanding common shares were exchanged for 6,100 shares of the Company’s $.001            par value common stock, at a conversion ratio of .01 to 1, as a tax-free reorganization            pursuant to Section 365(a) of the Internal Revenue Code. The shares were issued at            their fair market value of $2,562, which has been charged to operations as purchased            research and development during 2004. Cellfoods has had minimal activity to date. On            May 25, 2005 the Company's Board of Directors approved the spin-off of Cellfoods, but            the applicable registration statement has been placed on hold as of the date of this            filing.

 

**Note 6. Common Stock**

 

During the three months ended March 31, 2007, the Company sold 2,142,852            shares of its restricted stock at a price of $.14 per share, for cash proceeds of            $300,000; and, 1,232,000 shares of its restricted stock at a price of $.25 per share,            for cash proceeds of $308,000.

 

During the three months ended June 30, 2007, the Company sold 1,140,000            shares of its restricted stock at a price of $.25 per share, for cash proceeds of            $285,000.

 

6

 

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**Note 7**.**COMMITMENTS AND CONTINGENCIES**

 

Effective December 18, 2006, pursuant to an Assignment and Assumption of            Equipment Purchase Agreement, the Company was assigned all rights of TDM, LLC 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, LLC (TDM) wherein the Company acquired 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.            The purchase price of the equipment is $200,000. A balance of $100,000 was due on or            before June 30, 2007 and has been            paid.

 

On            January 24, 2007 the Company entered into a new lease agreement for 23,886            square feet of commercial space located in Willoughby, Ohio. The lease is for two years            starting on March 1, 2007 and ending February 28, 2009. The future minimum payments            required under the lease are $53,952, $96,644 and $16,931 for 2007, 2008 and 2009            respectively.

 

On            February 28, 2007 the Company was named as a defendant in a lawsuit pending in the            Court of Common Pleas for Lake County, Ohio, captioned            “*SKRL Tool & Die, Inc., et al. v. William Berwald,            et al.*, Case No. 07-CV-000567.” In their complaint,            Plaintiffs allege that two of their former employees – current employees of the            Company in Willoughby, Ohio, manufacturing facility – possess confidential and            proprietary trade secrets of SKRL pertaining to the manufacturing of bipolar plates for            fuel cells. Plaintiffs have asserted against these employees and us claims for, among            other things, unfair competition, misappropriation of trade secrets and tortuous            interference with business relationships and seek compensatory and punitive damages, as            well as injunctive relief that would preclude the two former SKRL employees from            continuing to be employed by the Company . The Company believes these claims are            without merit, in that the employees possess no trade secrets of SKRL, and moreover,            the Company would have no use for such trade secrets, as its current employees (other            than the two defendants) possess far more technological and marketing information in            the industry than the SKRL employees would ever have been privy to. The Company is,            therefore, vigorously defending the Company’s interests, and believes the defense            will ultimately be successful. The Company has filed counterclaims against the            Plaintiffs in this matter, alleging unfair competition, tortious interference with            business expectancy and tortuous interference with employment relationships and has            requested that the court award the Company damages as a result. The Plaintiff’s            Notice of Withdrawal of Motion for Temporary Restraining Order and Preliminary            Injunction was filed on April 26, 2007 with the Court.

 

On            May 11, 2007, the Company made a deposit of $14,575 to purchase two milling machines            totaling $145,750. These machines were delivered in July 2007.

 

In            July, 2007, the Company received $50,000 for the sale of 200,000 common shares at $.25            per share.

 

7

 

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| **ITEM 2.** | **MANAGEMENT’S DISCUSSION AND ANALYSIS                            OF** |
|-------------|------------------------------------------------------------------------------|

|   | **FINANCIAL CONDITION AND RESULTS OF                            OPERATIONS** |
|--------|------------------------------------------------------------------------------|

 

The following discussion should be read in conjunction with our            unaudited 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.

 

**RESULTSOFOPERATIONS**

 

*Comparison of Results of Operations for the three-month periods ended            June 30, 2007 and 2006*

 

During the three-month period ended June 30, 2007 we generated aggregate            revenues of $135,923. These revenues were generated as a result of development of our            new business of manufacturing bipolar plates more fully described under “Plan of            Operation” below. During the similar period in 2006, we did not generate any            revenues.

 

*Comparison of Results of Operations for the six-month periods ended            June 30, 2007 and 2006*

 

During the six-month periods ended June 30, 2007 we generated aggregate            revenues of $135,923. These revenues were generated as a result of development of our            new business of manufacturing bipolar plates more fully described under “Plan of            Operation” below. We had previously advised in our Form 10-QSB for the            three-month period ended March 31, 2007 that we expected to begin generating revenues            during the second quarter of 2007. During the similar period in 2006, we did not            generate any revenues.

 

During the six month period ended June 30, 2007, we incurred costs and            expenses totaling $822,700, compared to costs and expenses of $199,001 during the            similar period in 2006, an increase of $623,699. This significant increase in costs and            expenses is primarily attributable to the development of our new business of            manufacturing bipolar plates more fully described under “Plan of Operation”            below. The costs and expenses incurred during the six-month period ended June 30, 2007            included $313,861 in operating expense relating to our new business of manufacturing            bipolar plates, $108,542 in research and development costs that were attributable to            our continued efforts to improve our proprietary MEA (membrane electrode assembly) and            $347,849 in general and administrative expense. During the six-month period

 

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ended June 30, 2006, we incurred $105,682 in research and development            costs and $92,838 in general and administrative expense. The increase in general and            administrative expense during the three month period ended June 30, 2007, compared to            the similar period in 2006, arose as a result of our hiring of additional employees            relevant to our factory for the purpose of manufacturing bipolar plates, as we have            added an aggregate of 10 employees to work at our factory since the six-month period            ended June 30, 2006.

 

As a result, we incurred a net loss of ($686,351) during the six-month            period ended June 30, 2007 (approximately $.01 per share), compared to a net loss of            ($198,935) for the similar period ended June 30, 2006. Because we did not generate            revenues during the three month period ended June 30, 2007, following is our Plan of            Operation.

 

**PLANOFOPERATION**

 

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. In order to allow us to make the            aforesaid payments, we borrowed funds from Fullerene, our largest shareholder and a            company owned by certain of our officers and directors, which were subsequently have            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. These funds            are being provided directly to UCR for our research projects. 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.

 

On October 13, 2006, an amendment was executed with UCR requiring            aggregate payments of $135,876, of which $50,252 has been paid as of the date of this            report. On June 26, 2007 we executed another new amendment which provides for two            payments totaling $85,647 to be paid as follows: $35,395 to be paid upon execution of            this Amendment and $50,252 to be paid on or before December 31, 2007. We expect to make            the $35,395 payment in the foreseeable future.

 

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As a result of our 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.

 

**ACQUISITIONOFNEWBUSINESS**

 

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 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, which has been paid in            full as of June 30, 2007. We utilized the proceeds received from our recent private            offerings described below to pay this obligation.

             

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. As of the date of this report, we have            manufactured and shipped product and have acquired more than 10 customers.

             

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 who 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.

 

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**LIQUIDITYANDCAPITALRESOURCES**

 

At June 30, 2007, we had $299,922 in cash. We had $153,394 in accounts            payable reflecting equipment, materials and supplies we have purchased for the            production of bi-polar plates. We had $62,397 in accounts receivable.

 

In August 2006, we closed a private offering of restricted shares of our            Common Stock (the “August Shares”). We received proceeds of $338,500 from            the sale of 2,417,858 Shares ($0.14 per share). The August 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 January 2007, we issued an aggregate of 2,142,852            “restricted” shares of our Common Stock (the “January 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. The proceeds from this            offering have been used for our new operations described above under “Plan of            Operation.”

 

We are currently engaged in a private offering of our common stock            whereby we intend to raise up to $3 million in subscriptions there from. As of the date            of this report we have sold an aggregate of 2,572,000 “restricted” shares            of our Common Stock (the “Shares”). We received proceeds of $643,000 from            the sale thereof ($0.25 per share).   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 will be            used for our new operations described in above, as well as for continued development of            our fuel cell technology, provided that we raise the full $3 million, of which there            can be no assurance. The initial funds received in this offering shall be utilized for            our new business, described elsewhere herein.

 

We believe that we currently have sufficient funds available for us to            continue to implement our business plan for the next 3 months. To remedy this            situation, we are engaged in a private offering of our Common Stock, described above.            We estimate that we will require an additional $3 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, this amount may            decrease if we can generate profits from our new business described herein. 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. Our inability to            obtain sufficient funds from external sources when needed will have a material adverse            affect on our plan of operation, results of operations and financial            condition.

 

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**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 $3            million in additional funding in order to allow us to produce and demonstrate to fuel            cell manufacturers a commercially viable component.

 

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 in the            automobile industry.

 

Management believes that the use of fuel cells as currently developed as            a power source for forklifts in warehouse operations. This belief is based, in part,            upon the fact that it believes that transportation company hubs are currently            experiencing significant growth due to the expansion of Internet merchandise sales.            Each hub utilizes a large numbers of forklifts. We believe that fuel cells may be more            suitable as a power source for these forklifts, which currently are battery powered.            The battery lasts only 4 to 6 hours in many cases and must be brought to the recharging            center. That is creating inefficiency in the transportation hub operation. Fuel cell            powered forklift can operate for a few days before refueling and maintenance. As of the            date of this report we are exploring the economic viability of this market and there            can be no assurances that we will expand our business plan to sell fuel cells to            warehouses, or if we do attempt to expand in this manner, that our efforts will be            successful. However, if so successful, management believes that this may be the first            commercially viable use of fuel cells on a large scale.

 

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**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 the six-month period ended June 30, 2007.

 

| **ITEM 3.** | **CONTROLS AND PROCEDURES** |
|-------------|-----------------------------|

 

Within 90 days prior to the date of filing of this quarterly report on            Form 10-QSB, we carried out an evaluation, under supervision and with the participation            of our management, including our CEO and CFO, of the effectiveness of the design and            operation of our disclosure controls and procedures pursuant to Exchange Act Rule            13a-14. Based upon that evaluation, our CEO and CFO concluded that our disclosure            controls and procedures are effective in timely alerting them to material information            relating to us required to be included in our periodic SEC filings. Subsequent to the            date of that evaluation, there have been no changes in internal controls or in other            factors that could significantly affect internal controls, nor were any corrective            actions required with regard to significant deficiencies and material            weaknesses.

 

**PART II. OTHER INFORMATION**

 

| **ITEM 1.** | **LEGAL PROCEEDINGS** |
|-------------|-----------------------|

 

We have been named as a defendant in a lawsuit pending in the Court of            Common Pleas for Lake County, Ohio, captioned “*SKRL Tool            & Die, Inc., et al. v. William Berwald, et al.*, Case No.            07-CV-000567.” The case was filed on February 28, 2007.

In their complaint, Plaintiffs allege that two of their former employees            – current employees of ours in our Willoughby, Ohio, manufacturing facility            – possess confidential and proprietary trade secrets of SKRL pertaining to the            manufacturing of bipolar plates for fuel cells. Plaintiffs have asserted against these            employees and us claims for, among other things, unfair competition, misappropriation            of trade secrets and tortious interference with business relationships and seek            compensatory and punitive damages, as well as injunctive relief that would preclude the            two former SKRL employees from continuing to be employed by us. As indicated below, the            claim for preliminary injunctive relief has been withdrawn.

We believe these claims are without merit, in that the employees possess            no trade secrets of SKRL, and moreover, we would have no use for such trade secrets, as            our current employees (other than the two defendants) possess far more technological            and marketing information in the industry than the SKRL employees would ever have been            privy to. We are therefore vigorously defending the Company’s interests, and            believe the defense will ultimately be successful. We have filed counterclaims against            the Plaintiffs in this matter, alleging unfair competition, tortious interference with            business expectancy and tortuous interference with employment relationships and have            requested that the court award us damages as a result. The Plaintiff’s Notice            of

 

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Withdrawal of Motion for Temporary Restraining Order and Preliminary            Injunction was filed on April 26, 2007 with the Court.

 

We are not a party to any other pending legal proceedings, nor are we            aware of any other pending or threatened claims.

 

| **ITEM 2.** | **CHANGES IN SECURITIES.** |
|-------------|----------------------------|

 

In August 2006, we closed a private offering of restricted shares of our            Common Stock (the “August Shares”). We received proceeds of $338,500 from            the sale of 2,417,858 Shares ($0.14 per share). The August 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 January 2007, we issued an aggregate of 2,142,852            “restricted” shares of our Common Stock (the “January 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 above under “Plan of            Operation.”

 

We are currently engaged in a private offering of our common stock            whereby we intend to raise up to $3 million in subscriptions therefrom. As of the date            of this report we have sold an aggregate of 2,372,000 “restricted” shares            of our Common Stock (the “New Shares”). We have received proceeds of            $593,000 from the sale thereof ($0.25 per share). Thus far the New Shares have been            sold to a total of 13 investors, of which 6 are “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 these New Shares. The proceeds from this offering will be used for            our new operations described in above, as well as for continued development of our fuel            cell technology, provided that we raise the full $3 million, of which there can be no            assurance. The initial funds received in this offering shall be utilized for our new            business, described elsewhere herein.

 

**SUBSEQUENTEVENT**

 

In July 2007, we sold an aggregate of 200,000 shares of our Common Stock            at a purchase price of $.25 per share for aggregate proceeds of $50,000 to one            investor. We relied upon the exemption from registration afforded by Regulation D            and/or Section 4/2, promulgated under the Securities Act of 1933, as amended, to issue            these shares.

 

| **ITEM 3.** | **DEFAULTS UPON SENIOR SECURITIES**- None |
|-------------|-------------------------------------------|

 

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| **ITEM 4.** | **SUBMISSION OF MATTERS TO A VOTE OF SECURITY                            HOLDERS**– |
|-------------|-------------------------------------------------------------------------------------------|

 

|   | None |
|--------|------|

 

| **ITEM 5.** | **OTHER INFORMATION –**None |
|-------------|-----------------------------------|

 

| **ITEM 6.** | **EXHIBITS AND REPORTS ON FORM 8-K -** |
|-------------|----------------------------------------|

 

|   | (a) | Exhibits |
|--------|-----|----------|

 

| 31.1   |   | Certification of Chief Executive Officer Pursuant to                            Section 302 of the Sarbanes-Oxley Act of 2002. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                           |
| 31.2   |   | Certification of Chief Financial Officer Pursuant to                            Section 302 of the Sarbanes-Oxley Act of 2002. |
|   |   |                                                                                                                           |
| 32.1   |   | Certification of Chief Executive Officer Pursuant to                            Section 906 of the Sarbanes-Oxley Act of 2002. |
|   |   |                                                                                                                           |
| 32.2   |   | Certification of Chief Financial Officer Pursuant to                            Section 906 of the Sarbanes-Oxley Act of 2002. |

 

|   | (b) | Reports on Form 8-K. |
|--------|-----|----------------------|

 

We did not file any reports on Form 8-K during the six-month period            ended June 30, 2007.

 

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**SIGNATURES**

 

Pursuant to the requirements of Section 12 of the Securities and            Exchange Act of 1934, the Registrant has duly caused this report to be signed on its            behalf by the undersigned, thereunto duly authorized.

 

 

| Dated: August 20, 2007 | **PACIFIC FUEL CELL CORP.**

(Registrant)

                             

                             

By:___s/Ken                            Inouye_________________

Ken Inouye, Secretary and Treasurer |
|------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

 

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