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Hydrogen Engine Center is about to ship their
ammonia engines, which are more cost effective, offer low emissions and great availability
since ammonia is the second most prevalent chemical in the world
Energy
(HYEG-OTC: BB)
Hydrogen Engine Center, Inc.
2502 E Poplar Street
Algona, IA 50511
Phone: 515-295-3178
Fax: 515-395-1877
Ted Hollinger
Chairman, Pres. & CEO
Sandra Batt, CFO
Interview conducted by:
Lynn Fosse, Senior Editor
CEOCFOinterviews.com
Published - November 24, 2006
BIO:
Theodore G. Hollinger
Chairman, President and CEO
Ted Hollinger started his career in 1964, at Fairchild Semiconductor as a digital
integrated circuit designer. In 1969, he joined the design team at Advanced Micro Devices
where he also designed integrated circuits. In 1973, he joined Amdahl Computer to head
their computer memory system design effort. In 1975, Mr. Hollinger retired and served as a
consultant on integrated circuit design and processing to Lockheed Missiles and Space and
Linkabit Corp. In 1978, he joined Siliconix as applications manager for all integrated
circuits and in 1979; he became the Chief VMOS Engineer.
Mr. Hollinger founded Advanced Power Technology (“APT”), a power semiconductor
company in Bend, Oregon in 1984. Mr. Hollinger holds several key power device patents now
assigned to APT. In, 1988, he founded Advanced Power Controls – ONSITE as a
subsidiary of Pacific Power & Light. In 1991, he moved the company to Tennessee and
incorporated it under the name APC-ONSITE. Over the course of his career, Mr. Hollinger
has been granted more than a dozed patents. Mr. Hollinger joined Ford’s Escostar
division in November of 2000 as the Director of Power Conversion Energy, and from 2001 to
2002, he was Vice Presidentof power conversion at Ballard Power Systems. In 2003, Mr.
Hollinger founded HEC Iowa and presently serves as its President and Chief Executive
Officer.
Company Profile:
Hydrogen Engine Center, Inc. (the “Company” “HEC”) designs,
manufactures and distributes alternative-fuel internal combustion engines for the
industrial and power generation markets. The engines run efficiently with minor
adjustments on hydrogen, gasoline, propane, natural gas and ethanol. When using hydrogen
fuel, emissions are near-zero. Most importantly, HEC engines are able to achieve the same
or better fuel consumption costs as traditional gasoline engines.
CEOCFO: Mr. Hollinger, what was your vision when you founded
the company, and how has that developed?
Mr. Hollinger: “Our vision was that we could be part of
the solution to the energy problems in the world and I think we are pretty much on track.
We need to develop a new engine, put a factory together and we are very close to being on
the plan.”
CEOCFO: What are some of
the latest developments and where is the industry?
Mr. Hollinger: “Over the last three years we developed
an engine from scratch and we are shipping those engines out, it is shipped under the name
Oxx Power™ and we build it here in Iowa. Over last year we built a facility; we
brought on about 60,000 square feet of manufacturing space. We have added about 28 people,
both here and in Canada, and we are on schedule.”
CEOCFO: Who is using
these engines?
Mr. Hollinger: “We are selling them to industrial users
and we have a 10-distributor network in North America, 8 in the United States and 2 in Canada,
and often we do not know where they go. All of the engines so far that I know have been
sold into the industrial market and none of them is on the road in cars or trucks.”
CEOCFO: What is the
competitive landscape?
Mr. Hollinger: “The competition on these engines now
would be Ford Motor Company (NYSE: F) and through their component sales and people buying
engines from salvage yards and rebuilding them; those are only two ways that you could get
this. We also have some competition from other industrial engine suppliers. The biggest
competition for a given application would come from diesel engines. If you are already
using a spark-ignited engine then the competition is fairly limited. On the hydrogen
engine side, a number of people are talking about it. Our biggest competition comes from
fuel cells, but neither the fuel cell people nor the other people talking about hydrogen
engines are actually shipping any of any quality. So we are not sure which of these
potential competitors is going to rise up and be competition for us. The more successful
we are the more likely we are going to have strong competition.”
CEOCFO: What is the
demand today?
Mr. Hollinger: “The beauty of our plan is that we are
selling engines into gasoline, natural gas, propane side of the market, and probably 95%
of our engines are going on that side of the market. We are also shipping a genset this
week to Xcel Energy (NYSE: XEL) and NREL (U.S. Department of Energy’s National
Renewable Energy Laboratory), we’ve got another big genset that is going out to
Natural Resources Canada next month and just finishing that one up and we’ve got some
other items for hydrogen engines. However, there are not a lot of people buying hydrogen
engines yet.”
CEOCFO: How do we
encourage interest?
Mr. Hollinger: “There are a couple of problems with
hydrogen engines, one is the availability of fuel and one is the storage of hydrogen. The
infrastructure is still not there yet, but it’s coming slowly.”
CEOCFO: Will you tell us
about the ammonia area?
Mr. Hollinger: “Ammonia solves the storage problem and
the availability problem. Ammonia is the second most prevalent chemical in the world,
second to sulfuric acid. The ammonia we are talking about is anhydrous ammonia that is
used for fertilizer. If we can make that burn in an engine, which is what we are working
on, and we can, then we solve a lot of the problems associated with hydrogen. Another
thing about ammonia is it does not contain any carbon the chemical formula for ammonia is
NH3 there is more hydrogen in ammonia, than there is in the same volume of liquid
hydrogen. It stores just like propane. Another thing you should know about ammonia is you
can’t run on ammonia engine unless you can run a hydrogen engine. You have to do
hydrogen before you can do ammonia. I skipped to ammonia because it is a deliverent, if I
call it up today and wanted 500 gallons of ammonia delivered I could get it delivered in
the morning. It does not have any permitting problems, it does not have storage life
problems, it is reasonably priced and if I could use it in an engine, I don’t have
any emissions, just like hydrogen. I think of ammonia as the other hydrogen.”
CEOCFO: People have not
gotten used to hydrogen yet; will they make the jump to ammonia?
Mr. Hollinger: “I think they will because of
availability. If you go down to the service station needing gas and you could by E10,
which is 10% ethanol in the gas, you actually have to think about the chemistry of the gas
you are putting in your car. I however, don’t. If I have to make the choice between
hydrogen and ammonia, and I know that both are available I’m going to pick the one
that is the most cost effective and available. Neither one gives me emissions, but if it
is cheaper to buy a vehicle that runs on ammonia than hydrogen, then that is what I’m
going to buy.”
CEOCFO: Will you tell us
about the financial picture of the company?
Mr. Hollinger: “We went through a reverse merger last
year. We raised about $4 million. During the summer, we raised another $3 million. We are
in the process of going through another round of financing right now and that is well
underway. We are shipping a little bit which is nice, so it is not totally development and
we have been well received in the marketplace. Our finances are tight right now, but we
are going to be just fine. I am pleased with the progress we made over the last year and I
think we got our financing without taking too much dilution.”
CEOCFO: What are the
challenges going forward?
Mr. Hollinger: “One of the pitfalls we are overcoming is
that we need someone to back me up in management with experience at $100 million dollars
and above levels and we are in the process of doing that. Another risk is that when gas
goes down to $1.50 a gallon and the country doesn’t have to worry about emissions
anymore, if the EPA backs off and our market penetration will be much slower. We would
still be selling gasoline engines and other engines so we wouldn’t be in the same
position as the fuel cell people are with no backup position at all. I think the ammonia
engine offers a very large upside with a minor amount of downside risk. The possibility is
I am wrong and that it will not be accepted as an alternative fuel and some of the upside
potential will be taken away. Other economic conditions could also change our businesses;
Ford Power Products was in business from 1947 up through the end of last year, they have
since been merged and essentially gone out of business. They sold engines in that market
for all that time. We have been able to step in and replace them in that market. We think
there is a market there and we have reduced the risk.”
CEOCFO: What should
potential investors be looking for to know you are on track?
Mr. Hollinger: “They need to watch our progress and make
sure we are continuing to move forward and keep an eye on our people, make sure we are
attracting and retaining good people. I think our plan is excellent; of course, we have to
adjust. If you want most things you will find that if there is a major change in the
marketplace on emissions or the price of oil goes back up like it did this year next year,
that plays into our hands if it goes way down, that weakens our position a bit. I do not
think the need for energy going away but if it were, that would affect us.”
CEOCFO: Do you think
people really get it now this time around?
Mr. Hollinger: “I hope so, but I remember in the
1970’s when we went through the oil embargo, I thought people got it then after they
had to stand inline to get gasoline, but as soon as gas prices went down, they didn’t
get it anymore. I am not sure; we are a little spoiled as a nation.”
CEOCFO: Why is this a
good time for potential investors to be looking at Hydrogen Engine?
Mr. Hollinger: “We have completed the first stage of our
business; building an engine, shipping an engine, getting the people together and building
up, all of the foundation building of the business is in place. We have done that
successfully and if you look at our track record, we have pretty much delivered on our
promise. In addition, the best is yet to come. There is some good technology coming with
ammonia being part of it and if that is the case, then I think the upside is there. If we
are successful in developing the new technology whatever it is, then I think this is a
good time for investment. The other think that has happened is that on August 31st
(2006), the Rule 144 went into effect on the reverse merger. Therefore, we are at the
lowest point in a year on stock price. However if energy issues haven’t gone away, I
would invest--- but I guess I already have. We don’t try to hide our position; we
just think we are part of a very good solution. Over time there are going to be a number
of companies that do well because of energy issues and I hope that we are one of them. We
are positioned to do that and whether we execute or not is something we watch and see. If
you look at our track record, particularly in the last year when it has been very visible,
the people that we have, what we said that we were going to do; I think that there is good
hope that we are going to continue the trend.”
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