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FlexFormer

Commercialization Plan

Executive Summary
1. Value Proposition
1.1 The Problem
Multiple problems are associated with the use of traditional fossil fuels. Concern
over emission of CO2 and other pollutants is increasing as worldwide demand for
electricity grows. Fluctuations in the price of fossil fuels also negatively impacts national
economies. Finally, dependence on fossil fuels can leave societies vulnerable to supply
interruptions.
The fuel cell offers a high-efficiency, low-emission alternative to coal burning
power plants and gasoline engines. The clean generation system uses hydrogen as a fuel
to produce electricity, with water as a byproduct. Though it has great potential and is
embraced by industrial giants such as General Electric, Siemens, and Bosch, obstacles to
adoption include (a) lack of hydrogen infrastructure, (b) short useful life of certain
component parts, (c) reliance on fossil fuel as hydrogen source, and (d) high unit cost.
Fuel cell companies have not yet been profitable. High R&D costs offset revenue
gained from the sale of fuel cell units.

1.2 The Solution


FlexFormer is an innovation that can extract fuel-cell-grade hydrogen and carbon
monoxide from biomass of varying composition. It eliminates the need for hydrogen
distribution and storage infrastructure by enabling on-site generation. It also eliminates
dependence on fossil fuels and extends the life of fuel cell components by eliminating
impurities from the H2 and CO. Thus, the FlexFormer represents a significant step
toward broader market acceptance of fuel cells.
FlexFormer builds on prior innovations that could extract hydrogen from a
specific fossil or cellulosic fuel. Prior competing systems lacked the feedstock flexibility
that would allow the same unit design to be used with locally available feedstock in
different geographies. FlexFormer provides a universal solution that can be easily
integrated into a current fuel-cell design. This significantly reduces cost and time
required to redesign the fuel-cell system to fit a certain feedstock.
FlexFormer will be paired with a fluidized bed gasifier in a configuration that will
complement a 5-kW fuel cell. It will be suitable for use in stationary, mobile and
auxiliary power applications. Our target price point is $2,000 for the gasifier/FlexFormer
unit.

2. Fuel Cell Market Growth and Projection


2.1 Market Size
The size of the potential market can be ascertained based on the number of
companies involved in the development and sale of fuel cells. The 2007
PriceWaterhouseCoopers survey of public fuel cell companies indicated that 26 public
companies are engaged in the development and sale of fuel cells and fuel cell
components. In addition, many private companies and public conglomerates are also
involved in the industry. Notably, none of the 26 public companies were profitable in
2006, as their efforts were concentrated on R&D.
The Department of Energy has dedicated $350 million in grant funds to encourage
the development of a 3-10 kW fuel cell at a price point of $400 per kW. Thus, there is a
great deal of development activity for this type of unit.
The size of the portable fuel cell market in North America was $600 million in
2006 and is projected to grow at a compound annual growth rate in excess of 35%
through 2013. High growth is projected to be driven by the growing use of backup and
auxiliary power units (APU) in military and telecommunications. These very applications
would be a best fit for the FlexFormer, since it dramatically reduces vulnerability to
supply chain interruptions.

2.2 Initial Customer


Our product is an enhancement to fuel cell system. The high cost of fuel cell
units remain problematic at $4,000 - $6,000 per kW, compared to a DOE target price
point of $400 per kW. However, prices continue to come down and elimination of other
obstacles will likely result in cost efficiencies from mass production.
We intend to initially position our FlexFormer as an enhancement to both the
sales efforts and R&D efforts of fuel cell companies. We will target fuel cell developers
as our primary market, while targeting military as the primary end user. The military
would be a suitable initial end user because it is:
 already the largest purchaser of fuel cells (47% of the market)
 relatively price insensitive compared to other buyers
 placing a high value on grid-independence and feedstock flexibility due to supply
chain challenges in war zones
 is in need of portable and flexible power generation to support base operations

2.3 Macro Customer


As fuel cell developers continue to make progress in reducing cost and increasing
longevity of components, the range of end users will expand dramatically. Additional
markets would include:
 Low-income population in developing countries where much of them is off-grid
 Clean power generation for price-insensitive wealthy community
 Industrial applications to transform waste into energy
 Ships and island resorts

3. Business Model
We have grant funding in hand for development of a prototype unit. Upon
successful completion of the prototype, we will seek strategic and financial partners to
manufacture and market the FlexFormer.
Strategic partners will include a gasifier manufacturer and a fuel cell developer.
Partners will be recruited based upon their complementary capabilities, market niche and
network. Each will benefit from participation in the new company based on the potential
to reach a broader market than they would without this collaboration.

Potential strategic partners that we have identified so far include:


 FuelCell Energy, Inc. Owns and operates a manufacturing plant in Torrington,
Connecticut. This location is also the hub for the company’s monitoring system,
which remotely monitors and operates more than 60 commercial fuel cell units.
 Protonex Technology Corp, A leading provider of advanced fuel cell power
solutions for portable, remote and mobile applications in the 1-10 kW range.
Strong presence in military niche.
 Energy Products of Idaho, Established gasifier company with a niche in waste to
energy solutions.

Potential venture capital partners include:


 Conduit Ventures Ltd. specializes in fuel cells and related H2 technologies.
 Nth Power dedicated exclusively to high potential investments resulting from
restructuring of the global energy industry.

4. Financial Overview
We need to capture only 4% of the burgeoning fuel cell market to achieve profitability in
Year 5.
2008 2009 2010 2011 2012
Revenue

F uel cell market size (25% CAGR) $1,171,875,000 $1,464,843,750 $1,831,054,688 $2,288,818,359 $2,861,022,949
Penetration Rate (of total fuel cell market) 0.0% 0.0% 0.5% 2.0% 4.0%
Licensing Fee Percent of F uel Cell Retail Price 2.0% 2.0% 2.0% 2.0%
Total Revenue $0 $0 $183,105 $915,527 $2,288,818

Expenses
Professional Labor + Direct Overhead
Executive Management (CEO, COO, CFO etc.)
F TE Headcount - Executive 1 1 1 2 2
$ annual labor expense - Executive $90,000 $120,000 $120,000 $240,000 $240,000
Technical Staff (R&D)
F TE Headcount - Technical Staff 3.5 5 4 4 5
$ annual labor expense - Technical $315,000 $450,000 $360,000 $360,000 $450,000
Sales/Marketing
F TE Headcount - Sales/Marketing 0.25 1.5 3 3 3
$ annual labor expense - Sales/Marketing $17,500 $105,000 $210,000 $210,000 $210,000
Customer Service
F TE Headcount - Customer Service 0 1 3 3 3
$ annual labor expense - Customer Service $0 $70,000 $210,000 $210,000 $210,000

Indirect O/H
Indirect O/H rate (% Labor + Direct O/H) 25% 25% 25% 25% 25%
$ Indirect O/H $105,625 $186,250 $225,000 $255,000 $277,500

Totals
Headcount FTE (professional staff) 4.75 8.5 11 12 13
Labor + Direct Overhead $422,500 $745,000 $900,000 $1,020,000 $1,110,000
Indirect Overhead $105,625 $186,250 $225,000 $255,000 $277,500
TOTAL EXPENSES $528,125 $931,250 $1,125,000 $1,275,000 $1,387,500

Operating Income
Operating Income (loss) $ (528,125) $ (931,250) $ (941,895) $ (359,473) $ 901,318
Cummulative Cash F low from Operations ($528,125) ($1,459,375) ($2,401,270) ($2,760,742) ($1,859,424)
Performance Metrics
Operating Margin -514% -39% 39%
Headcount 4.75 8.5 11 12 13
Revenue per Employee $0 $0 $16,646 $76,294 $176,063
% of Revenue
R&D 197% 39% 20%
S elling & Marketing 229% 46% 18%
G&A 188% 54% 23%
Cost of Capital
Terminal Value (20% Growth rate)
NPV
Financing
F inancing Income
Round 1 $750,000
Round 2 $1,500,000
Round 3 $1,000,000
Cash Balance $221,875 $790,625 $848,730 $489,258 $1,390,576

5. Management Team
Chief Executive Officer, to be determined
Ideal candidate will have experience with start up companies, military experience or
energy industry experience.
Chief Marketing Officer, to be determined
Ideal candidate will have experience in both engineering and business to business
marketing.
Chief Operations Officer, to be determined
We hope to borrow talent from a strategic partner to assist with manufacturing &
assembly.
Chief Technical Officer, Johannes Schwank, Ph.D.
Johannes Schwank is a Professor of Chemical Engineering at the University of Michigan.
He has extensive research experience in the area of heterogeneous catalysts and currently
serving as a Director of Transportation Energy Center.

6. Milestone Plan and Investment Proposal


We have received $1.8 million funding to finish an initial prototype. We are currently
seeking $4 million to refine the prototype that will be finished in 2009 and start
marketing to our first customers.
Year Milestones Funding Required
2007 Proof of concept
2008 Demonstration of initial prototype $0.75M (1st round)
2009 - Test & refine prototype $1.5M (2st round)
- Start marketing to 1st customer
2010 Begin Licensing $1.0M (3rd round)

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