Michael Moore, Andy Turnbull, H. Dean Haley, John Cooper, and Andy Larson

How We Got the Money--Zinc Air Technology: Go Public

June / July 2006 By: Remy Kozak and H. Dean Haley Volume 4 Number 3

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The problem with finding venture or angel capital for new technology is that most investors with deep pockets want control of your company; they are also very risk averse. So where do you turn when you have a technology at prototype stage, and you know it has commercial potential, but you are having trouble refining your story to a point where larger investors see a clear path to returns?

Surprisingly, you can turn to the public markets earlier than you might think. Dean Haley, the founder of Power Air Tech, Inc. (PAT) and the entrepreneur who pursued Lawrence Livermore National Laboratory's Zinc Air Fuel Cell (ZAFC) technology through the late —€˜90s and into the new millennium, will attest to this fact.

In March 2005, Haley had investigated just about every avenue he could think of to commercialize the ZAFC technology. The underlying fuel cell design had been initially developed at LLNL in the mid-'90s, funded jointly by the lab, the Department of Energy and the International Lead Zinc Research Organization (ILZRO). Dr. John Cooper of Livermore had solved several problems inherent to metal-air (and specifically the Zinc Air) technology and registered patents to protect his work. Power Air Tech partnered with an Australian energy fund, Power Air Dynamics Ltd. to contribute additional capital and entered into a multi-year CRADA with LLNL. The funding allowed PAT and the lab to expand the basic research into several generations of working prototypes.

But venture capitalists and alternative energy funds were not interested in zinc-based fuel cells—€”the buzz was about hydrogen—€” and few outside of Power Air, Power Air Dynamics and LLNL understood the importance of the patents.
Following a very successful demonstration in China, the project went dormant as Haley became increasingly frustrated in his efforts to raise funds to continue commercialization.

Enter Fortune Business Partners, a boutique investment group out of Vancouver, Canada—€”a location known for its heavy investment in fuel cell R&D. Fortune was outsourcing business opportunities for a publicly traded company whose existing operations were not growing. When Haley's financial advisors introduced PAT to Fortune, both parties saw the potential for combining the right management with an already strong story. With the automotive and fuel cell sectors experiencing high turnover, Fortune felt it could assemble a strong senior management team in advance of raising funds.

From March until September 2005, while Fortune, PAT and PADL hammered out the details of their merger and reverse takeover by the public company, Fortune was busy assembling the core management team. On October 3, 2005, Fortune announced the deal, the new management team and a private placement of $2 million to initiate operations. The Company has subsequently changed its name to Power Air Corporation (PAC) and trades under the symbol PWAC on the NASD:OTCBB.

Public markets work because they:

—€ Allow for many smaller (but sophisticated) investors to risk smaller amounts in a technology and management team they feel strongly about. In the case of LLNL's ZAFC this was the environment of alternative energy;

—€ Give investors a clear timeline and mechanism to liquidate their investment when they need to, or when their belief in the technology or management wanes;

—€ Allow the company to attract high quality senior management with stock options, and ensure alignment of objectives; and finally

—€ Allow the company to continue to raise funds in stages, as it meets internal and business targets and more clearly identifies a path to revenues and profits.

In its first six months of operation, PAC's new management team established physical presence in both Livermore and Vancouver, identified a go-to-market strategy, completed a detailed business plan and filled out the remaining senior posts. Based on these results and a clearer path to revenues, PAC has initiated a second round of financing, capped at $2.5 million, which should see PAC through to delivery of initial customer trials. The company has maintained a close relationship with LLNL and has ongoing consulting relationships with several key LLNL staff including Dr. Cooper.

Remy Kozak is Vice President, Corporate Development of Power Air Corporation; H. Dean Haley is Executive Chairman and Chief Operating Officer.