Good morning. Thank you for the introduction. Just to reiterate, we are a holding company. We're a fully reporting public company. This company became public back in the '90s. It was OEM manufacturer for telecom process control equipment. It was called computer automation systems.
When the telecom industry turned down back in the late '90s and early 2000s, this company basically had its business dry up. And I put together a group of investors that kept the accounting and the filings current, while we look for new opportunities. At the beginning of 2004, we recapped the license and changed the name in 2004 to American Security Resources Corporation.
We went into the market looking for businesses that were in homeland security or national defense. And we came across a company in the Portland, Oregon area that was created by some technology people at Intel Corporation that had advanced the technology and science of hydrogen fuel cells. We examined it, thought this was a good opportunity, and we thought what is more central to the security of the United States and energy security. So we purchased this company.
It was called eGO Design at that time, and their intellectual property was they had filed three provisional patents on advance the science of fuel cells. As I mentioned, the hydrogen fuel cell that is protected by those patents has an extended lifetime, low cost of manufacturing and a much higher efficiency and the use of hydrogen at any existing hydrogen fuel cell.
We made that company our Hydra Fuel Cell Corporation. It is committed to developing clean, quiet, green energy. We think we're doing that fairly well. A year ago, when we bought the company -- it was acquired at the end of October of 2005 -- we created a proof of concept prototype in the first three months that we had the company.
And today we have finished product that is in the process of final testing for submission to the Underwriters Laboratory and the CSA for certification. And we will go to the market, if not by the end of this month, certainly in March selling hydrogen power fuel cells that generate electricity.
Now the items that you see there are standard computer industry cases. What we currently use is off the shelf. So we don't have any problem at all ramping production. It's all available in quantity and very good quality. And because our founding scientists all came out of the computer industry and tell us specifically where to get these things at probably low price and ready availability for us.
The product that we have the intellectual property on, you can see it. It's inside there and those are our stacks which advanced. They had taken the technology and had advanced it into these designs that you see today. The fuel cell that's on the upper right corner there is a conventional fuel cell.
And if you look at it, it has a serpentine channel. That's the channel through which the hydrogen flows to address the membrane. The membrane is where the transaction takes place that converts hydrogen and oxygen into water and releases an electron. And that released electron becomes electrical flow. That is the electricity generated by the fuel cell.
Now, the lower unit the schematic there shows the difference and design. We used flat plates and those are printed circuit board type plates. We drill literally thousands of holes and we flood the membrane with hydrogen so that effectively 98% of the membrane that is available for that hydrogen oxygen transaction is actually used.
So you have instant-on, you have a vastly more productive fuel cell in that 98% of the surfaces being used, so a very high percentage of the hydrogen is actually turned into the water vapor and electricity, electric flow.
Now one of the problems with the top design there is because the only place that the hydrogen touches the membrane is on that channel that part of the membrane was out very quickly. It becomes embedded with impurities and gets very hot because there is heat released in the chemical transaction. And so they were out, they become brittle and they become less efficient the longer you operate them and they become crocked with impurities from the hydrogen stream.
And so those fuel cells while they cost a lot of money don’t last very long and they are not very efficient. We have solved all of those items and the bullet points down there are basically the items that we have patented in seven additional patent applications that we filed in 2006 that protect the difference in our fuel cell from that in the marketplace.
A little better view of it here, we call it the HydraStax. We have it -- it is now registered trademark. It was -- and it’s registered now, or as we just said, it was the TMR, but it is actually registered now. We have plates that we flow hydrogen and oxygen through. We build these in kilowatt stacks. You can stack as many of them as you need. This is a fixed power application not a mobile application.
The benefits, of course, very readily you can put together anywhere from half a kilowatt to five kilowatts in one of those cases that we showed in the earlier picture, very high electrical efficiency, of course, because of the design. The cost for making a kilowatt of this generating capability is much, much lower because we have designed these to use the manufacturing efficiencies that are currently used in the computer industry. And you know when they are making a computer that’s basically all of its commodity except the memory, we are using the benefits of all that commodity manufacturing, so we have lowered the cost of making a kilowatt of our clean green power electrical generators using hydrogen.
Again, our product is called HydraStax. It is now registered instead of just a trademark. The power is one to five kilowatts. It’s instant on. It’s normal 12 volt 400 amps. You, as a customer, can specify how you want the power, plus or minus 12 volt direct current, 24 or 48 direct current or 120 volts alternating current, all optional, we just use converters to change that.
In the meantime before failure, we have it on here stated that it’s rated for continues uptime. Our design parameters suggest that these will operate for 40,000 hours that to be proven with the additional testing but that’s what the designs count for.
Again, our scientists are pretty good. They said that’s the original Stax would generate 250 kilowatt to 350 kilowatts. They are currently operating over 500 kilowatt. So they seem to know what they are doi0ng. And they design and development of this, so we think that with a 40,000 hour capability of operation that these will become not only backup power, which is the primary market today. But they will also be utilized as primary power in order words instead of using a great power you would use these fuel cells for, you know, your basic power and you would use the great as a backup for some other backup.
Now, the main certifications that we are going after a straight away are the underwriter’s laboratory and a CFA, FCC certification, the NEB certification and then the common market or the EU certification which is at CE. The design needs to be installed in remote locations. Our principle market right out of this shoot will be the telecom and back-up power market. Then there is a lot of remote facilities that people are not in attendance that. So we’ve design needs to be accessible from the web, each one of would have a URLs basically, a web address and the outputs can be monitored and they can be changed remotely.
Any high-end system would have similar qualification qualities. The fuel body is of course, hydrogen standard investor related hydrogen, which comes from primarily the [symphysis] of natural gas is 99.95% pure and that 0.05% of impurity is the big problem with fuel cells today, is that those impurities clog up the proton exchange membrane, which is where the transaction takes place. It releases the electron because of the way we designed their fuel cell where we have 1000 of holes and we flooded immediately with hydrogen for instance on and we also can reverse that flow and back wash the proton exchange membrane to remove the impurities from it.
In the process of reversing the flow, we actually generate hydrogen. You know it works in reverse and that, you know, a bonus that can be used. Ultimately to reverse them in and make the basic fuel that you’re going to run through it to make electricity again. The fuel is expected with the continuous feed. There are number of different methods of creating hydrogen, which will address in a minute. It operates at very low pressure and is very efficient. And its consumption out of stationery fuel market -- fuel cell market is divided into numerous segments.
The two big segments that we are operating in where there is a micro cell or a micro fuel cell market that is -- less then half a kilowatt and actually way less then half a kilowatt. And that would be for electric devices like phones and computers. We are in the half a kilowatt to 10 kilowatt range. We can certainly put multiple units together and make more than 10 kilowatts.
But the big units today that are 10 kilowatts and above up to megawatt are very high temperature molten carbonate fuel cell systems. We are in the half of kilowatt to 10 kilowatt range last year -- excuse me -- in 2005 which is the last year we have statistics. Over 10,500 fuel cells were sold in that range that we've targeted.
The "Sweet spot" that we're going at, are market that already understand the value of hydrogen fuel cells and bought 10,000 plus of them. And our number one markets is and we haven't rated down here as Telco is number one and then Back-up for Data-Center and then to electric -- educational facilities and military uses. There are number of interested parties in the military establishment for these portable highly efficient light weight fuel cells.
But there's a much longer sale cycle to that group. And so we're going right at the market that's already buying fuel cells with more efficient less expensive fuel cells. Now the prices are in there, I'll tell you what the cost of an installed kilowatt of generating capacity is. And that ranges from and these are list prices that we've got it from other fuel cell manufacturers. It ranges from $3,000 per kilowatt to over $20,000 per kilowatt of installed capacity.
Well our ability today is we have the ability to manufacture a kilowatt of generating capacity for about $600 and we will sell it for anyway near that. We will come in under that $3000 15% 20% maybe under that $3000 to sell a kilowatt of installed power. And we'll go right at these markets that are in the lighter block there on the bottom.
This is a schematic that, as a compellation of Department of Energy and our -- and the fuel cell industry association, that shows where the growth and installed fuel cell capacity will be. And again we're going at the back-up power for telecom and data-centers first educational campuses and small enterprises.
We expect that by the end of 2008 we will have the certifications and the testing results to prove that, it has the lifetime sufficient to be used as a primary tower system for a residents or small business. And we expect to sell into that market. The economics of course are driven by the cost of hydrogen, but more importantly we’ll be using it as a primary power instead of as the power that has been run through a boiler somewhere and distributed over the grid where you’re basically paying.
You’re only getting about 30% of that primary power if you’re buying it from the grid. So we think it would be competitive with today’s cost of hydrogen that by the end of 2008 with be high efficiency of our system it could be installed as a backup power system or as a primary power system at residence.
You know the significance of that when electric utility announces that they’re going to build a new multi megawatt power plant that was putted in terms of, it’s enough power for 25,000 homes. Or it’s enough power for 40,000 homes. Well, if we install 25,000 fuel cells at 25,000 homes, we’ve eliminated the need for public. So if we go to (inaudible) key span or whomever it is. In whatever part of the country it is and say look, here’s fuel cells, you guys are builders and developers in your area and you put in 25,000, I mean you don’t have to build this $1multi billion comply anymore.
You put them in, they run all the day, provide all the power that the house needs, and you take the rest of it back into the grid and you distribute it around. Well, where they may have to compel in arguments. It’s also compelling argument to the guy that owns the house who buys it for himself and generates all the power he needs, all he spend for is the hydrogen, and then he’s selling the difference back into grid and then he gets the check at the end of the month from the utility instead of a bill.
We think there is a great future in the residential market and we’re headed right at that. Today the searches the fuel which is hydrogen primarily from natural gas. We’d like to get out of the hydrocarbon stream, so that we really are clean and green. But clearly, we want to sell fuel cells, so we’ll take the hydrogen from the natural gas and we’ll use it for electric.
We can crack it from methanol, ethanol, biomass and ammonia. And this is extremely important, because our Chief Technology Officer [Bean Shafer] is a nuclear physicist. He spends a lot of time in research searching for technologies that will advance what we’re doing. And he has discover a method, for making hydrogen from ammonia that is the equivalent of what Spindletop represented for turning oil into the major low cost energy fuel that fuel the industrial development of the United States.
We’ve been producing oil for the 50 years when Spindletop in Texas blew in, when it blew in, it lowered the price equivalent created specially supply of it as to fuel the industrial development of the western world. That is what we think, we have discovered in university research and have now up-scaled to prove that the technology is up-scalable and that the economic research that our hydrogen formulator could actually bring the cost of hydrogen down to a range where it will actually enable the hydrogen economy.
Now the first step, of course, we'll use it for our fuel cells, but the second step will be moving up to major industrial production levels and start producing hydrogen that will be sold to everybody that needs hydrogen from other cell manufacturers, other fuel cell users to, automobile industry and everybody else that needs and wants hydrogen to free themselves from hydrocarbon.
Economy now, formulator works by basically putting a patented, catalyst or anode and cracking ammonia into nitrogen gas and hydrogen gas. It does it at basically standard temperature and pressure. And it does it with a very low external electrical energy input.
Now that's the formula right down there, and it makes us all regret that we didn't pay more attention in high school, but that is basically the formula we have operated, we discovered this in the university's research and we designed an experiment and have a university performing experiment to operate it from megawatt to 4 wattage 5 watt.
And we're now going to take it on from there. Now the department of energy has set a target of $2 per kilogram as a commercial price for hydrogen to be competitive with other boiler fuels with other fuel sources that will make the hydrogen economy economically competitive with other energy sources and other form of generating electricity today.
They are using the best commercial electrolyzer, and that's what we're doing is, we're electrolyzing ammonia. Using the best commercial electrolyzer and using the best commercial electrical rate, which is basically the hydro power rate, that's $0.07 per kilowatt for the electricity.
The amount of electricity that it takes today, to hydrolyze hydrogen is over $3.70 per kilogram of hydrogen. We're using the ammonia electrolysis method that we discovered and that we're upgrading, I say we discovered, we discovered in the research in the university, we discovered by university and it uses about $0.30 of electricity, so less than the tenth of the inputted energy cost to crack the hydrogen out.
Well, this gives you the schematic of the cost of hydrogen and compares it to a gallon of gasoline equivalent, so that we have an apple-to-apple comparison of what this means. In 2004 and 2005, the cost of the hydrogen was approximately $10 per kilogram. And you know the price of gasoline was going up quite a bit during that period of time.
In 2006, there have been some advances in the technology and it's brought the price down to $7 to $8 per kilogram using the traditional methods of hydrolyzing, or of making hydrogen in the refining industry, they use high pressure and high temperature steam and high pressure to crack hydrogen. But electrolytically steam cracking is still around $7 to $8 per kilogram of hydrogen.
Using our method, in 2007, it drops it to $0.89 per kilogram. Now that's the cost of the ammonia and the electricity. It doesn't have any infrastructure cost in there. So we still believe they can be delivered for way under the $2 that the Department of Energy has as the tipping point for hydrogen to become universally usable and competitive with other types of energy sources in the United States. And it will, for that matter.
Now our view, of course, is that we, first and foremost, will use this as a hydrogen generator for our fuel cells. When a customer orders a fuel cell from us they'll get a complete system. They'll have the source of the hydrogen, they'll have the fuel cell, and they'll have the -- all the transfer capabilities to put it into whatever application they're using, whether it's a electrical -- whether it's a telecom facility at a remote location or whether it's in a data center or hospital or at a house, it will be a complete system.
Second item is that we design our systems based on what the customer says his needs are. We don't say, look get 1 kilowatt, 2 kilowatts or 5 kilowatts. You're going to have buy one of these and make it work for you. They say we got 1.5 kilowatt application and we have a 7.5 kilowatt application, we stack units together and give them exactly what they are looking for.
First application of the electrolyzer, of course, will be for our fuel cells, the second one would be to scale it up to production levels. We are working with the university. We have designed the experiments. We were paying for the experiments to upscale all of this and they will participate in the revenue to be generated from that.
Now this is a schematic to show you where we're going with the fuel cells only putting after -- there are two arrows on this. Fist of all take the Qs on the top and advance them back this way because Q1 is this first column, and where we have the Q4, that's actually the full year. And then in Q3, which is now our Q4, that number is not 500,000, it's 300,000 on the materials and equipments. But we will be probably selling fuel cells by the end of this quarter. We won't receive the revenue for them until the second quarter.
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Recap similar to above post with new information. They are laying out an exciting business plan, imo, to use wind turbines to crack ammonia (when they are not delivering power to the grids) to generate H2 to supply their new fuel cells.
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