Business Plan for AAA POWER INC.

June 2001

Near Zero Emissions

Green Power

This plan contains business information that is confidential to AAA POWER INC. It is being provided to the recipient for the purpose of evaluating a potential business opportunity with AAA POWER INC. By receiving this plan, the recipient agrees that this information will be maintained in strictest confidence.
Table of Contents

1	Executive Summary…………………………………………………		  3
2	The Company………………………………………………………. 		  4
2.1	Vision/Strategy…………………………………………….  	 	  4
2.2	AAA: Past, Present and Future…………………………….			  4
2.3	Management Team…………………………………………		  5
2.4	Organizational Structure………………………………….			  5
2.5	Staffing……………………………………………………..			  6
3	The Market…………………………………………………	………		  7
3.1	Niches of The Sulfur Recovery Market…………………..			  7
3.2	AAA Sales Projections…………………………………….			  8
3.2.1	Direct Treat Sales………………………………….			  9
3.2.2	HDS Recycle Sales…………………………………			12
3.2.3	Claus Tail Gas Treatment Sales……………………			13
3.2.4	Comparing Projected Growth Of UCSRP ……….			15
4	Products / Services……………………………………………….			16
4.1	UCSRP – Ready for Market……………………………….			16
4.1.1	History of the UCSRP……………………………..			17
4.1.2	Description of the UCSRP…………………………			17
4.1.3	Delivery UCSRP to Customers……………………			18
4.2	Future Products…………………………………………….		18
4.3	Understanding Our Competitors………………………….		19
5	Sales and Marketing……………………………………………….			20
5.1	Approach to Sales and Marking……………………………		20
5.2	“Above the Funnel” Marketing……………………………		20
6	Financial Summary…………………………………………………………		22
6.1	Ten Year Financial Forecast………………………………………		24
6.2	Estimated Stock Value 2001 to IPO……………………………….		25

1	Executive Summary

AAA POWER INC. is commercializing the University of California Sulfur Recovery Process (UCSRP). The UCSRP is a new process for converting hydrogen sulfide (H2S) recovered from sour gas streams to elemental sulfur in medium- to large-size sulfur removal applications.  Other alternatives for this medium- to large-size market have higher capital and operating costs as well as operability limitations.  The UCSRP sulfur recovery rate can be as high as 99.99+%.  The process is economical for recovering sulfur from H2S in amounts as low as 1 LT/d; there is no upper limit to the quantity of sulfur the system can handle.  The process will produce a tail gas with well below 100 parts per million of SO2 by volume (ppmv), which easily meets California air-quality standards; the atmospheric emissions are thus effectively zero for this process since no other sulfur-containing compounds are present in the off-gas.   

Engineers at the University of California, Berkeley, developed the UCSRP over the past fifteen years. The UCSRP was designed to replace a Claus plant and the associated tail-gas unit. In contrast to the Claus process, the UCSRP makes a very high recovery of sulfur relatively easy to achieve. The UCSRP performance and pre-engineering costs have been estimated by Kellogg Brown & Root, Inc. of Houston, Texas in a study funded by the Gas Research Institute (now the Gas Technology Institute), Des Plaines, Illinois.  

The UCSRP is being exclusively licensed to AAA POWER INC. on a worldwide basis to commercialize. Customer interest has been validated through numerous discussions with industry contacts.  

This medium- to large-size sulfur recovery market is poised for considerable growth due to the following trends:  It is recognized that worldwide, crude oil, and to some extent natural gas, is becoming sourer.  As sweeter natural gas and crude oil supplies are depleted, more and more dependence is placed on less desirable feed stocks.  During the past decade, the production of sulfur derived from oil in the United States and Canada has tripled according to annual reports in the Oil and Gas Journal.  The sulfur compound in natural gas and from the desufurization of crude oil is generally hydrogen sulfide (H2S). The conventional means of recovering the sulfur contained in H2S is the modified Claus process. The gas leaving a Claus plant is called the tail gas. In the past, the Claus tail gas was burned to convert the unreacted H2S to sulfur dioxide (SO2), which is much less toxic and less odorous.  The incinerated tail gas was then vented to the atmosphere.

Currently, Canada, the U.S. and the European countries, as well as many other regions in the world limit, the amount of sulfur that can be emitted to the atmosphere.  To meet these environmental policies, tail gas clean-up units (TGCUs) have and are being added to treat the Claus tail gas stream to recover additional sulfur.  These units often have capital and operating costs as great as the parent Claus plant. Another option that has been employed by the industry is acid-gas injection.  This involves the re-injection of the H2S-rich gas back into an empty cavity formation in the earth rather than sending it to a Claus plant.  This method in not well liked by the pubic at large and is also costly.

Kellogg’s pre-engineering cost analysis determined that for a 76-LT/d sulfur plant, capital costs were about 60% and operating costs about 68% of those for a three-stage Claus plant plus a Shell Claus Off-gas Treatment (SCOT) unit.

In the past two months, marketing efforts have identified targets for the UCSRP to be used either in conjunction with a plant to produce green power or for the resale of sweetened gas.  We now have dozens of potential projects and customers.  We are also in the process of forming an alliance with a well-recognized Engineering Company in Calgary for detailed design for our initial plant and future plants and a fabricator for construction of our plants.

The financial projections for AAA POWER INC. show revenues from AAA POWER INC. exceeding $156 million in five years and a company evaluation of over $150 million in three years based on before tax earnings.

2	The Company

2.1	Vision/Strategy

AAA POWER’s mission statement is as follows:

AAA POWER INC. will acquire, develop, and commercialize environmental technology to reduce costs, enhance operating reliability, and generate zero emissions from sour gas in the energy sector worldwide.

The vision for the company in the year 2010 is given below:

AAA POWER INC. will become the largest provider worldwide of power that is generated from sour gas using its patented UCSRP technology. AAA POWER INC. will also become a leading provider of emissions-control technology for the energy sector worldwide.

Jointly, these two statements clearly define the core concepts behind AAA POWER INC.:  A FOCUS ON GENERATING GREEN POWER that strengthens the bottom lines in the global energy sector, a commitment to creating shareholder value, and an emphasis on NEAR Zero Emissions.

2.2	AAA POWER: Past, Present and Future

Although AAA POWER INC. is a young company the executive is experienced and the Board of Directors brings a balance of knowledge in oil and gas, legal and governmental policies, and engineering process control.  

It was the ability to recognize a changing energy market due to environmental legislation and market supply of sweet gas that led to the formation of the company.  As of January, 2001 AAA POWER INC. was formed and began research and development into power generation business opportunities focused on using sour gas.  

AAA POWER INC. reviewed the market for potential business opportunities using sour gas for power generation. Its findings showed that nearly all the upstream gases, as well as new gas wells being drilled, are sour to some percentage.  In addition, nearly all of the 600 existing gas plants in Alberta will have to increase their sulfur-emission controls standards to meet 2004 SO2 guidelines.  With these findings it became evident that the only real way the company could effectively target sour-gas prospects was to own or control new sulfur-removal technologies that could remove 99.9+% of the H2S under pressure from the gas stream.  Owning or controlling new Sulfur-Removal technologies that meet the new sulfur emission guidelines meant that commercial opportunities would become available.

AAA POWER INC. surveyed the market to identify any new Sulfur-removal processes. Three technologies were short-listed. AAA POWER INC. selected the UCSRP as the key technology that showed the greatest economic potential. 

AAA POWER INC. has entered into a memorandum of understanding with the University of California at Berkley for the exclusive worldwide licensing of the UCSRP.  Final terms of the license agreement are yet to be finalized.  In general, UC is to grant to AAA POWER INC. the “Exclusive License” to use the resulting Sulfur-Removal Technology worldwide, and to develop, manufacture and/or market any and all Sulfur-Reducing products, systems and devices in whole or in part in accordance with the terms of the Agreement (the “License”).

At this time, AAA POWER faces three immediate challenges: a) securing a limited amount of private (“startup”) financing to cover the first pilot plant with its associated engineering, b) covering the costs of commercial validation, as well as sales, marketing and others, and c) forming alliances with key vendors and customers, tto allow preliminary closing on initial sales of the UCSRP.
The use of targeted alliances with key vendors and customers is planned to enhance AAA’s ability to deliver the overall process package to the customer and to provide additional plant sales, lease contracts or turn-key solutions.  Observing other process vendors has shown that delivery of a process blueprint alone, without extensive engineering without noticing important factors during installation, often leads to engineering problems that ultimately tarnish the process, regardless of the origin of the problems.  The Company plans to form alliances with a team of engineering companies and fabrication shops so that AAA design and construction expertise is developed and maintained.  AAA POWER views that by forming an alliance in principal with engineering firms such as, Colt Engineering or Lavalin Engineering would greatly enhance its marketing position.  In addition, AAA views that an alliance with its major chemical supplier, Dow Chemical would not be out of the long-term strategy.  Other alliances with power companies such as; Epcor, ATCO, Trans-Alta, Enron, Engage, Duke or Calpine could be beneficial to the company for accelerated expansion.

Locating supplementary financing is also essential to AAA POWER’s future plans for accelerated growth of the business.  Increasing the sales and technical staff to a level that can support these projects, as well as providing funds for moving these projects through engineering and fabrication stages, will require significant additional capital.  AAA is currently negotiating with a two financing sources that will provide senior capital for expansion. 

As noted the UCSRP process is the primary technology of AAA POWER INC. at this juncture. As stated the Company vision statement, AAA POWER will also be acquiring or developing other technologies during the time period of commercializing of the UCSRP technology.  AAA POWER has the opportunity to acquire a scavenger H2S removal technology, a mid-stream H2S removal technology and a CO2 removal technology.

2.3	Management Team

Mr. Jeremy P. White, a native Calgarian, was educated at the University of Alberta majoring in Economics and political science and Mr. White has served in executive positions over the past 10 years in various small private and public companies. With a strong computer background, a balance of accounting experience, highly skilled at analyzing and structuring business deals Mr. White leads a highly respected chosen board of directors and sub-contractors who specialize in all aspects of the energy market. The company is registered under the laws of Alberta.

2.4	Organizational Structure 

AAA POWER INC. will be owned by a group of investors and operated by Mr. Jeremy White and a key support group of oil and gas specialists. Mr. White will be responsible for securing contracts, business strategy and designing the overall infrastructure requirements. A number of consultants will be used on a contract-to-contract basis. All contractors will be encouraged to bring in business as well in return for a negotiable finders fee.  

Existing Board of Directors

	Directors, Executive Officers, Promoters, and Principal Holders of Securities. 
-
Name and Relationship to the Company	Position Last Five Years	Occupation Last Five Years	Residence 	Shares
Owned	
Jeremy P. White 

Director, 
President CEO	Past President/CFO of Adam Electronics Inc. Past VP of Proprietary Industries Inc., Past Fund Manager, Mega Financial Services Inc. and Businessman	President, Chief Executive Officer
Management	#32 Arbour Lk. Pl NW Calgary, AB
T3G 3W9	  700,000	
William D. Dickie Q.C.
Chairman	Retired senior law associate with Borden Ladner Gervis formerly Howard Mackie.  Former Minister of Energy, Government of Alberta	Retired	#68 Bay Crest Pl SW
Calgary, AB T2V 0K6	

Thomas J. Storey CMA
Director	Past CFO Canadian Western Natural Gas
Past VP Business Development Canadian Utilities Ltd.	Executive, Accountant, Retired	117 Rundle Pt. Canmore, AB T1W2P4

	
Scott Lynn
Director	Professor Emeritus at University of Berkeley, California	Active Scientist	Pleasant Hill, CA		
Tom De Jonghe
Director	Senior Council, Chevron, USA	Working as lawyer for Chevron	San Francisco, CA	   	
G. Gordon Stewart
Director	Current P. Eng., over 33 years workings as a H2S process design engineer	Semi-Retired	54034 Range Rd. Ardrossan, AB		

2.5	Staffing 

Mr. White will be selecting key staff on an as need to basis will mainly draw from a group of key consultants to provide services for the company until substantial cash flow has been established.

3	The Market

The successful commencement and growth of AAA POWER INC. is reliant on the commercialization of the UCSRP. This section describes the UCSRP market position and summarizes the sales projections for the UCSRP.

3.1	The Niches Of the Sulfur Recovery Market

Hydrogen sulfide (H2S) is a toxic, acidic gas that occurs naturally in a least one-fourth of the natural gas resources worldwide and is also produced when sour crude oil is processed.  It must be removed to levels of only a few parts per millions before natural gas can be transported in typical pipelines.  It cannot be vented due to odor problems and cannot be burned or flared in large quantities as ignition forms sulfur dioxide (SO2), which is also an air pollutant.

Prior to environmental guidelines of SO2 emissions, the market for processes to remove H2S and/or recover sulfur from gas streams could have been divided roughly into two primary markets, the small size and the large size.  With no regulation, there was little need for processes to handle medium-sized applications.  However, after SO2 emission regulations were introduced, high sulfur-recovery efficiencies became a requirement.  As a result, additional process steps and costs were required in order to increase the sulfur-recovery efficiency of the predominant process (the modified Claus process) in the large-size market.  A gap between the two niches occurred and widened as removal requirements gradually became more stringent.  In this new medium-size sulfur-recovery niche, both the small-sized processes and the existing large-sized processes were too expensive to implement for many cases.  As a result, industries have tended to bypass or avoid processing gas streams in the middle-size sulfur market.  What also happened is that the large-end market needed new technology to keep current with immanent stiff emission regulations.  Because of economic pressures the ability to avoid treating gas in the market is ending, thus creating a new business opportunity for the millennium.  Zero-emission sulfur removal technology is required.

The following discussion outlines the differences between these three markets (small, medium and large), the types of technologies that have been applied, and why there is a strong need within the medium- to large-size market for the UCSRP process.

The small-size market is distinguished by gas that contains very little sulfur, generally less than about one  long tons per day (LT/D) and in H2S concentrations of 0.01 vol% (100 ppmv) up to 2.0% or 20,000 ppm.  This gas can be cost-effectively treated with nonregenerable scavenging chemicals.  This is performed by injecting a liquid chemical reactant directly into a pipe through which the sour gas is flowing (direct injection) or by passing the sour gas through a tower containing a liquid or solid scavenger.  The liquid or solid products from this operation are then discarded. Chemical costs for scavenging operations are generally very high, of the order of $1,000 to $10,000 per long ton of sulfur, which is why these processes are typically limited to gas streams containing less than 0.2 LTDP and flowing at rates up to 1 MMscf/d.  Sulfur recoveries are in the 90% to 98% range.

The large-size market is distinguished by gas flows that contain more than about 20 LT/D of sulfur. This sour gas can be treated by first separating the H2S with an amine (or other solvent) unit, processing the separated H2S by acid-gas injection or in a Claus plant to produce liquid elemental sulfur, and then treating the Claus plant vent gases in a tail-gas treating unit.  Sulfur recovery is in the 95% to 98% range in the Claus plant; the tail-gas unit can raise the recovery to 99+%. 

The UCSRP was designed to replace the Claus plant and the associated tail-gas unit. In contrast to the Claus process alone, the UCSRP makes a very high recovery high recovery of 99.9+% easy to achieve with combined capital cost savings of about 60% and operating cost savings of about 68% relative to a Claus plant plus a tail-gas unit.  

The middle-size market, sulfur recovery from streams containing 1 to about 20 LT/D of sulfur, has generally posed treatment challenges to industry.  Aqueous redox processes appeared to be the cost-effective choice for treating gas in this market.  However, it is well documented that these plants have serious operability and dependability problems.  Furthermore, no aqueous redox technology has been demonstrated to treat gas streams reliably where the gas pressure is greater than about 250 psig.  As a result, the aqueous redox processes have only penetrated a small portion of the medium-size market.  There are a couple of nonaqueous systems, most notably CrystaSulf and Apollo that are in the process of being introduced to the market. However, it is well recognized that these two processes have serious operability and dependability problems. Both still cannot demonstrate their cost savings and reliability.

As a result of its unique properties, the UCSRP differs from the numerous processes that have been patented in the past.  Its unique feature is a column-type reactor in which gaseous H2S and SO2 react while flowing counter-currently to a catalytic solvent.  Liquid sulfur is produced. The rest of the equipment is conventional and consists of a furnace with waste-heat boiler, an SO2 absorber/stripper, and a sour-water stripper that treats the net water produced in the reaction.  It features relatively low numbers of pumps, heat exchangers, instruments and pipes.  

Advantages:

•	The process is a net exporter of energy in the form of steam at 150 to 200 psia or higher.
•	SO2 reacts to extinction in the presence of excess H2S; under the stipulated processing conditions there is no equilibrium limitation.  The resulting sulfur forms a second liquid phase.
•	Molten sulfur, of marketable quality, is produced directly from the reaction.  In contrast to aqueous redox systems (such as LoCat, Stretford or Sulferox), make-up chemicals are required only to offset mechanical losses such as evaporation or entrainment.
•	The process will produce a tail gas that meets air-quality standards (< 100 ppmv SO2).  In addition the process can be designed to tolerate a large amount of CO2.  Mercaptans, COS, hydrocarbons, and ammonia are burned in the furnace without forming soot, CO or NOx.
•	The process is economical for sulfur duties as low as one ton per day; there is no upper limit to the capacity.
•	The process configuration can be varied depending on the gas to be treated.  For example, to treat a sour natural gas at pipeline pressure, one would only add a high-pressure absorber and a stripper to the list of equipment above; the gas would be dried as well as sweetened.
•	Carbon steel can be used for much of the equipment; the exceptions are the items that are contacted with wet SO2.

3.2	AAA Sales Projections

The market for the UCSRP can be broken into three general segments.

•	Direct-Treat  (1 – 25 LT/D and higher) – Applications where H2S is removed from sour gas streams (e.g. high-pressure sour natural gas, miscellaneous oil and gas industry sour gas streams, geothermal vent gas streams, other streams that fall in the traditional liquid redox market, other streams that fall in the traditional amine process plant with acid-gas injection).  

•	HDS Recycle  (1 – 25 LT/D and higher) – Applications where H2S is removed from the hydrogen recycle stream of a hydrotreater (hydrodesulfurization units).  This segment is treated separately from the direct-treat segment listed above for several reasons.  The sizes of the applications are generally larger (the average HDS recycle application is 2 – 3 times greater than the average direct-treat application) and the applications may have other unique differences such as the desire to selectively remove hydrocarbons and ammonia from the recycle stream.

•	Claus Tail Gas – Large-sized (greater than 25 LTPD) applications where the modified Claus process is used as the primary sulfur recovery unit and where a separate tail gas treating process is required. The tail gas exiting the Claus plant contains 2,000 to 6,000 ppm of untreated H2S and SO2 and must be treated in a tail gas unit.  The tail gas unit is about expensive as the Claus plant, uses a substantial amount of energy and does not completely eliminate sulfur emissions.  The UCSRP replaces the Claus plant but can utilize the existing Claus furnace and, in some cases, some of the other equipment.  (The details of a retrofit installation will vary with the location and will be determined on a case-by-case basis.)  Added capital costs are estimated to be about the same as those for a Shell Claus Off-gas Treatment (SCOT) unit.  The atmospheric emissions of sulfur-containing compounds are effectively zero for the UCSRP.  
 
Table 3-1 summarizes the sales projections for AAA POWER in these three market segments.

3.2.1	Direct Treat Sales

Estimated sales to the natural gas direct treat segment are summarized in Table 3-2.

Table 3-2 Direct Treat Sales Projections

As shown in Table 3-2, potential AAA POWER sales in the direct treat segment occur in 4 major areas: new sour gas in Canada, new sour gas in the U.S., new sour gas in the rest of the world, and the traditional application which have been sources of sales for the existing liquid redox processes.  Sales numbers for the years indicated will result in contracts signed and project revenues in the following year.

New Sour Gas In Canada

Western Canada is gearing up to increase gas production to help furnish the U.S. demand estimated over the next decade and beyond.  It is well know that western Canada has much sour natural gas.  Fact is that during 2000 approximately 16,000 new oil and gas wells were drilled.  Of the 16,000 new wells approximately 65% to 70% were gas wells.  All new gas wells have H2S concentrations in a range of 0.0005% or 0.5 ppm up to 30% or 300,000 ppm.  A University of Alberta study carried out during 1999 reported that nearly one-third of all sour gas wells averaged approximately 1% or 10,000 ppm or less of H2S.  As a point, all gas has to meet pipeline grade quality, which is approximately 0.004% or 4 ppm.

In the past, most of the production has been on the eastern side of Alberta where the reservoirs are very large and much of the gas contains high H2S concentrations  – up to 20 or more percent.  The trend in western Canada is for future drilling and production to be on the western side of Alberta on the eastern slopes of the Rockies.  Here the reservoirs tend to be smaller, more fractured, and many contain H2S levels of less than 2 – 3 percent. A database obtained from the Energy Utilities Board (EUB) in Alberta provided a listing of stream compositions of wells drilled in Alberta over a three-year period from 1995-1997.  A sort on that database indicated that 375 of the wells contained H2S levels between 0.01% and 100 ppm to 2.5% or 25,000 ppm.  (Said another way, the data indicates that about 400 – 500 wells per year fit the medium- to large-size market for direct gas).  Medium to deep wells in Alberta and British Columbia have initial production capacities between 1.2 and 5 million standard cubic feet per day (MMscf/d) according to a report issued by the Canadian National Energy Board in 1999 (“Canadian Energy Supply and Demand to 2025,” Table 3-4).  These concentrations and flow rates put much of this new Canadian gas within the medium- to large-size sulfur-recovery market.

Assuming that the average production rate for new wells that would generally fall within the medium- to large-size market is 2.5 MMscfd, then 16 of these wells would need to be combined in a gathering system to provide the gas for one UCSRP model plant.  Dividing the 500 wells per year into 16 wells per 40 MMscf/d-model plant, yields an estimate that are potentially 31 AAA POWER sales per year in Alberta alone.  The Company believes that the number of 31 sales per year could easily be reached if third-party financing were available to accelerate the marketing program.  The number of 500 wells per year represents only 4.5% of the gas wells drilled in Alberta during 2000.  Other sources have reported that with all Alberta gas production taken into account approximately 10% of Alberta wells come in the sour range, with H2S between 0.01% or 100 ppm and 3% or 30,000 ppm, which represents approximately 1,100 to 1,200 wells per year.  Sources go on to say that based upon the amount of drilling in the eastern slopes and foothills of the Rockies that the H2S levels will increase to 15.0% or 150,000 ppm to 20.0% or 200,000 ppm from 2005 on as the drilling in the eastern slopes increases. We have used these higher numbers for our sales projections because the UCSRP technology covers the range of sulfur capacity that would result from these high concentrations of H2S (up to 70% or 700,000 ppm).

As was shown in Table 3-2, over the period from 2003 to 2011, the sales to Canada represent 39 potential sales.  We are estimating actual sales of 3 plants for the year of 2003, 2004 and for 2005.  Over all, the company views that with emission-control standards for H2S now being the focus, the company’s zero-emission control technology will set the new standard.  The UCSRP will be able to compete in the medium- and large-size market, so capturing over 20% of the medium- and 20% of the large-size markets here in Canada is not unrealistic.

New Sour Gas in the U.S.

U.S. gas production in 1999 was 17.1 TCF/yr (48,200 MMscf/d) and demand is expected to approach 30 TCF/yr (82,200 MMscf/d) by 2010.  Table 3-3 shows the annual gas rates that would be required to meet 28.6 TCF/yr by 2010 and the amount of gas that would need to be treated within the medium- to large-size sulfur-recovery market.  The table also shows the potential number of UCSRP plants that would be needed to treat this gas.

Table 3-3 Potential Sales for U.S. Direct Treat Applications

The amount of gas within the medium- to large-size sulfur-recovery market was estimated from earlier information developed form the API survey which indicated that 10.34% of U.S. production was from wells that had more than 100 ppm H2S but contained less than 20 tons of sulfur per day.  U.S. gas is undoubtedly sourer now than when the API survey was taken (1982), but if one uses the same analysis as in Alberta then the trend is toward increased H2S in every well drilled.  The model for increased business growth is definite.  Some experts view that the number of 10.34% of U.S. production has risen to the range of 30.0% to 40.0% of U.S. production.  The number of AAA plants (40 MMscfd, >5LT/D) is calculated as follows.  One Bcf/d of total gas contains 103 MMscf/d of gas within the medium – large sulfur-recovery market and that gas could contains 37 to 60 LT/D of sulfur.  If one assumed that by calculating the number of plants based upon the gas rate would yield 2.6 plants per Bcf/d of total gas, then calculating the number of plants based on the amount of sulfur in the gas gives 12.5 plants per BCF/d of total gas. Basing the plant number upon total sulfur is likely more representative since the plant cost to treat a given stream is more a function of the sulfur rate that the gas rate.  However a 12-LT/d plant does not have a cost 4 times that of a 3-LTPD plant, due to economies of scale.  Therefore, to take this into account, a weighted average of 8 model plants per Bcf/d of total gas was used for the potential AAA plant sales estimate in Table 3-3.

The estimated AAA sales shown in Table 3-3 represent 13% of the potential sales combining both the medium- and large-size markets.  This estimate is quite conservative with respect to the next 5 years.  Industry sources indicate that companies such as Marathon Oil, Exxon-Mobile, and BP/Amoco, just to mention a few, have numerous high-pressure natural gas streams, which contain medium amounts of sulfur that must be treated.  Just one of these potential clients could easily purchase 20 plants over the next five years. 

There is ample anecdotal evidence of large quantities of high-pressure medium-market gas for which there was no suitable technology since there was not sufficient demand for natural gas.  A commercial-scale AAA-UCSRP demonstration plant will have a major impact on the market.  The validation of AAA’s technology to treat this gas combined with a very strong U.S. demand for natural gas over the next decade and beyond could very well mean that many more previously-bypassed gas streams will be candidates for production using the UCSRP.

New Sour Gas in the Rest of the World (outside Canada and the U.S.)

While Canada and the U.S. represent the greatest concentration of potential sales for direct treatment of natural gas, the rest of the world does, cumulatively, represent a significant potential market.  The approach used to estimate this market is as follows.  First, countries with questionable political or business climate were eliminated from consideration.  This left 25 countries with markets for gas processing.  These countries had a combined gas production in 1999 of 11.9 TCF/yr (32,610MMscf/d) according to the 1999 Oil and Gas Journal Worldwide Gas Processing Survey.

It is widely believed that natural gas demand and production will increase over the next 10 to 20 years, and at greater rates than seen in the last decade.  According Oil and Gas Journal survey, the worldwide increase in gas production was 2.9% per year from 1997 to 1999.  We used this rate to estimate the increase in gas production in the other countries over the next ten years.  Based upon this new production, we estimated potential and actual AAA sales for these countries outside Canada and the U.S. using an approach similar to that just described for the U.S. (i.e., 8 model plants for every Bcf/d of total gas).  We may well find that there are bypassed medium-sized market reserves outside the U.S. and Canada too, and therefore our sales estimate, based only on calculated new drilling, will be low.  However, there is really no way to quantify this bypassed gas, so we cannot use it for estimates.
The potential AAA sales to treat natural gas in the rest-of-the-world segment was shown earlier in Table 3-2.  We are estimating total potential sales of 460 plants with a capture of only 2% (10 plants). We used this unrealistically low capture rate to be conservative.  The company will pursue sublicensing the process to qualified companies for specific geographical regions and generating profits through royalties or other mechanisms.

Sales to Existing Liquid Redox Market

The existing aqueous iron redox processes are unable to treat high-pressure natural gas directly and therefore have been unable to treat economically the medium-size market gas that has been discovered to date.  None-the-less, these processes do find occasional use in a wide variety of industries and low-pressure applications.  While these applications are not in our primary target zones, we know that we can successfully compete against LoCat, Stetford or Sulferox because these systems are dependant upon make-up chemicals to off-set losses by degradation, evaporation and/or entrainment.  We believe it is reasonable for us to project some small number of sales in this traditional application area. LoCat and Sulferox sales combined were about 13 per year during the period 1987 to 1996.  Both are being actively marketed today and their sales may increase as they pursue the varied opportunities associated with more streams containing small amounts of sulfur being encountered with increasing frequency by many industries.  Reportedly, industry sources indicated that Shell have sold 15 Sulferox licenses, which represents an increase in demand.  Based on these sales rates, we are projecting selling one plant per year in this segment initially and increasing that capture to 3 plants per year by 2010.  As shown in Table 3-2, the 20 plant sale in this segment over the next 10 years represents a 20% capture rate.

3.2.2.	HDS Recycle Sales

Estimated sales to HDS recycle gas are summarized in Table 3-4.

Table 3-4 HDS Recycle Sales Projections

Decreasing the level of sulfur in gasoline and diesel used as motor fuel is now mandated in Canada and U.S. while similar standards are being adopted in the rest of the industrialized world.  At the 2000 and 2001 NPRA national meetings, a major topic was how this lowering of fuel-sulfur levels would be accomplished and what the economic impact would be.  Virtually all refineries will have to increase the degree of desulfurization of their gasoline and diesel streams.  In many cases the capacity of their present sulfur plants will have to be expanded, and when this is done the upgraded facility will be required to meet current emission standards.  For at least 1/3 of the refineries in Canada and the U.S., the UCSRP appears to be the process of choice for effecting this expansion.
 
In general, an aqueous-based amine absorber/stripper operation is inserted in the HDS recycle hydrogen loop to remove H2S.  The separated H2S is then processed in the refinery Claus sulfur plant.  The tail gas from the Claus unit may then be processed in a tail gas-treating (TGT) unit, which still usually doesn’t provide 99.99% recovery of sulfur.  For many plants, this amine/Claus/TGT approach is probably the best way to handle the H2S created in the HDS unit in an existing operation. However, many refineries do not have excess Claus plant capacity or will require a permit modification to increase their Claus throughput.  Other refineries do not have a sulfur plant.  For these refineries, the UCSRP is an attractive processing choice for increasing their system’s capacity.  For a refinery with an existing Claus plant at or near capacity, adding a UCSRP plant can be done while utilizing much of the existing equipment.  (The details of a retrofit installation will vary with the location and will be determined on a case-by-case basis.)  For a refinery with no sulfur plant (which is only probable if the sulfur throughput is relatively small), installing an amine plant plus the UCSRP will be much more economical than trying to install a small Claus plant and a similarly small TGT unit.  Claus plants are typically limited to 20 LT/d and larger sulfur duties.  The UCSRP has the flexibility to turn down to meet the varying rates from seasonal shifts in gasoline and diesel demand since it has near infinite turndown capability.

The use of a physical solvent instead of an amine to separate H2S from the HDS recycle loop can also reduce hydrogen blow down in an HDS unit, another strong advantage over the traditional amine/Claus/TGT approach.  Light hydrocarbons (primarily methane) tend to build up in the HDS recycle loop.  To keep the concentration of the light hydrocarbons low, a portion of the hydrogen recycle stream is purged/vented.  A suitable physical solvent will to scrub the light hydrocarbons from the recycle stream together with the H2S.  This means that the purge/vent stream can be smaller, possibly as much as 70% smaller.  The UCSRP tolerates the presence of hydrocarbons very well, and their presence adds to the amount of steam produced in the waste-heat boiler.  For one HDS unit that is being evaluated (at 550 psig operating pressure), the use of the UCSRP is projected to reduce the hydrogen requirement of the HDS unit by 10%.  Depending on the cost of hydrogen, the savings that result could offset the cost of operating the UCSRP by 100% or greater.

To estimate the potential size of this UCSRP market segment we consulted industry experts.  Their database of information covered 80.0% of the refineries in Canada and the U.S. and gave the sulfur levels in the gasoline and diesel streams of each plant and the size of those streams.  In addition, the database identified whether the refinery had Claus sulfur units and gave the capacity and throughput of each.  Table 3-5 gives information on the sulfur plant status of the refineries in the database.

Table 3-5 Canadian and U.S. Refinery Sulfur Plant Status from Proprietary Database.

Counting only the refineries in the survey (there are actually 176 refineries), 48 refineries (33% of the total) are excellent candidates for the UCSRP since they are at sulfur plant capacity or do not have sulfur plants (and are not expected to shut down).  The estimated sales to the HDS market in Canada and the U.S. in Table 3-4 represents only a 35% capture of this market.  The Company views that this is very conservative since the market information is very good and the Company removed 66% of the refineries from the potential market estimates due to that information.

Table 3-4 also gives an estimate of the potential market for treating refinery HDS streams outside Canada and the U.S.  This estimate was made as follows.  First we eliminated from consideration countries where political or other factors would seem to make sales questionable.  That left 50 countries for a total of 358 refineries.  Assuming a similar distribution of those with sulfur plants at capacity or having no sulfur plant, and discounting 20% to account for the lack of good data, yields an estimate of 96 potential sales.  The actual sales were estimated to be 11% of this number, or 12 sales.  Here again the Company feels this estimate may be very low.

3.2.3	Claus Tail Gas Treatment Sales

Estimated sales to the Claus tail gas treatment segment are summarized in Table 3-6.

Table 3-6 Claus Tail Gas Treatment Sales Projections

The market for UCSRP as an alternative to installing a Claus tail gas treating process is quite large.  Table 3-7 gives the number of Claus units worldwide and summarizes their status regarding tail gas treatment as given in the Oil and Gas Journal’s 1999 Worldwide Sulfur Production survey.  The Company is basing its sales projections only on providing an alternative to installing new tail gas treatment or upgrading the recovery of plants with low-efficiency tail gas treatment on existing Claus plants by retrofitting such plants with the UCSRP and making use of some of the existing equipment.  (The details of a retrofit installation will vary with the location and will be determined on a case-by-case basis.)  Data from an August 1999 course given by Sulfur Experts (Alberta) indicated that number of Claus units worldwide is actually around 700.  Therefore, using the Oil and Gas Journal survey information as a basis plus using a factor of 1.50 for a conservative increase would provide a more realistic estimate of the market size.

Table 3-7 Claus Plant Summaries and Tail Gas Treatment Status. 

As shown in Table 3-7, over 80 percent or approximately 546 units of the 667-estimated Claus plants installed worldwide is large.  In Western Canada, the regulators have recently announced that the grandfather exemption for existing Claus plants with tail gas treatment is being removed.  All of the 35 Claus units in Western Canada will have to make some provision for greater recovery and only one of theses will be required to use high-efficiency TGT (it has greater than 2000 LT/D sulfur throughput).  The UCSRP is the most cost-effective approach for all of these plants to decrease their SO2 emissions. The Company’s sales forecast shown in Table 3-6 assumes that 33 Canadian Claus plants will use UCSRP, or about 67% of the 49 plants in Canada without tail-gas treating.  The worldwide trend is for more sulfur to be found in natural gas, crude oil, and other fossil fuels and for existing and new Claus plants to be required to install tail-gas treating.  The trend is also for an increase in the demand for all fuels.  These factors will put pressure on many of the 500+ Claus plants without tail-gas treating to increase throughput and to install tail-gas treating.  The requirement to install high-efficiency tail-gas treating has been limited to the U.S. and Western Europe.  Since the incremental cost of removing the last 0.1 percent of sulfur is now regarded as extreme in many areas (e.g., Canada), the new regulations will force these plants to adopt the high standards for lower emissions.  The UCSRP is the only process for effectively Zero Emissions.

It is difficult to estimate the number of AAA sales to this market since there are a wide variety of geographical, economic, and regulatory factors for which the Company does not have the information. However, the large numbers of existing Claus plants without tail-gas treating suggests a reasonable opportunity in sales.  As shown in Table 3-6, our sales forecast assume that only 31% of the U.S. Claus plants without tail-gas treating will use the UCSRP and only 11% outside of Canada and the U.S.
3.2.4	Comparing Projected Growth of UCSRP with Data from other Sulfur Businesses

Figure 3-1 shows projected licensed applications of UCSRP along with publicly available data on numbers of actual licensed application for other established sulfur recovery offering.  Data on the LoCat process indicate that approximately 75% of licensed applications result in actual plants built.  One other contact previously involved with Sulferox indicated that a similar percentage of licenses ended up as actual plants.  The Company believes that this trend is over for two main reasons; emission guidelines to increase efficiency are now immanent, which leaves the client no time to put off the inevitable, plus AAA has now arrived on the market with the UCSRP which provides for effectively zero emissions.  

Existing Aqueous Redox Processes:

The data on licenses for LoCat and Sulferox illustrate the potential of the low-pressure direct treat market.  The low-pressure direct-treat market is expected to be only a small portion of the total market for UCSRP, because the largest number of potential direct-treat applications is in high-pressure natural gas treating.  However, it is still interesting to note the number of sales that have historically occurred in this market.

LoCat and Sulferox are the dominant technologies for low-pressure H2S removal in the low-pressure aqueous redox portion of the direct-treat market.  The data for both processes were added together to form a determination of total sales of licenses for the two technologies.  The data showed that through the late 1980s and mid-1990s they averaged approximately 16 sales per year.  The Company has forecast that it will penetrate the low-pressure market with significant annual sales but the greatest opportunity exists for the high-pressure gas market, which is virtually untapped. LoCat and Sulferox cannot process high-pressure gas. CrystaSulf, another new technology, is not a proven technology and is in the same position as the UCSRP.  It has limitations on the maximum percentage of H2S that it can process, which from reports is 2.0% or 20,000 ppm making it very limited in all the markets.

Claus Tail Gas:

The data for the Super Claus show the number of licensed applications that have been achieved by this very successful gas treating technology.  This data illustrates the potential of the tail gas treating market segment.  AAA views that because the UCSRP brings zero emission technology, combined with reduced capital and operating costs it will make the UCSRP the new technology to replace the Super Claus system on a worldwide basis.  AAA is forecasting 100 plants over the next 10 years, which represents over $750,000,000 in sales.

HDS Recycle:

Due to lack of data, this market is not commented on.

AAA/UCSRP Sales:

The plan rate is to average 20 sales per year over the next ten years.  AAA is in three separate markets segments, (Direct-Treat, HDS recycle and Claus tail gas).  All three market segments are virtually wide open.  

References for section 3

1.	Hobbs, G. Warfield. “Oil, Gas, Coal, Uranium, Tar Sand Resource Trends on Rise.” Oil and Gas Journal September 4, 1995. p. 105.
2.	Baxter, Richard P., Theresa Saucier Silveira, and Stuart L. Harhberger, 1995, Edition of the GRI Baseline Projection:  Forecast Summary, GRI Topical Report.
3.	Oil and Gas Journal, 2 June 1997, page 51.
4.	Shirly, John. “Issues, Drivers, and Opportunities:  the Changing Face of the Gas Processing Sector.” Presented at Insight conference on Strategies for Optimizing Gas Processing Effectiveness. Calgary, Alberta February 19, 1998.
5.	SO2 Emissions in Natural Gas Production Industry – Background Information for Proposed Standards, EPA-450/3-82-023a, November 1983, pp G-21 to G-61.
6.	Cornot – Gasdolphe, Sylvie.  “Changes in World Gas Reserves and Resources.”  Energy Exploration Exploitation.  Volume 13, November 1, 1995, pp 3-16.
7.	Oil and Gas Journal, 21 April 1997.
8.	Oil and Gas Journal, Worldwide Gas Processing Survey, 14 June 199, pp. 54-93.
9.	Oil and Gas Journal, Worldwide Sulfur Production Survey, 14 June 1999, pp 94-98.

4	Products / Services

AAA will develop process technologies for the energy industries.  The company will focus on technology that can fill the markets we identify.  At the beginning, the Company’s focus will be on the UCSRP, the company’s corner stone technology.  However, the Company recognizes that diversification is important to ensure the long-term success and growth of the company.  The discussion that follows first gives a summary of the UCSRP, the product that is ready to commercialize.

4.1	UCSRP – Ready for Market

4.1.1	History of the University of California (Berkeley) Sulfur Recovery Process (UCSRP)

The UCSRP is a newly discovered solvent-based sulfur recovery process that converts hydrogen sulfide (H2S) removed from gas streams into elemental sulfur.  This new Sulfur Recovery Process was designed by chemical engineers at Berkley to replace a Claus plant and the associated tail-gas unit.  In contrast to the Claus process, the UCSRP makes a very high recovery of sulfur relatively easy to achieve.  Professor Emeritus Scott Lynn, of the University of California, Berkeley, invented the process.  The process is patented in Canada, the U.S. and other major countries.

Lab and bench scale development of the UCSRP was successful.  Kellogg Brown & Root, Inc completed a full-scale evaluation, based on a simulation of the process provided by Prof. Lynn. The pre-engineering cost analysis determined that for a 76-LT/d sulfur plant, capital costs were estimated to be about 60%, and operating costs about 68%, of those for a three-stage Claus plant plus a Shell Claus Off-gas Treatment (SCOT) unit.  Overall sulfur recovery of the UCSRP Process is 99.99+%.  Gas feeds containing relatively high ratios of H2S/CO2 (67%/33% and 30%/70%) were shown to be feasible.

Presentations of papers describing the process have been made to the 9th GRI Sulfur Recovery Conference in San Antonio, TX, in October 1999, and to the Sulfur 2000 Conference in San Francisco, CA, in October 2000.  In the fall of 2001 another presentation will be made at the International Gas Research Conference in Amsterdam, The Netherlands.

4.1.2	Description of the UCSRP

The UCSRP is a solvent-based process for reacting hydrogen sulfide (H2S) and sulfur dioxide (SO2) to form elemental sulfur.  The reaction medium is an organic liquid that catalyzes the reaction.  The process flow diagram is shown in Figure 4.  The H2S-rich gas entering the UCSRP is typical of a Claus-plant feed at about 50 oC and 1.7 bara (120  oF and 25 psia) .  An SO2-rich gas stream enters the reactor column below the bottom bubble-cap tray.  The H2S-rich stream enters a tray above and is in substantial excess at all higher points.  Some of the inlet H2S bypasses the reactor to reduce the gas flow through it.  (Although some ammonia can be tolerated within the reactor, it is generally preferable for most of the ammonia-containing H2S to flow directly to the furnace.)  The reacting gases are absorbed into the hot solvent where the exothermic reaction takes place.  The reactor is kept nearly isothermal by injecting water into the solvent flowing between trays to absorb the heat of reaction.  The sulfur forms a second liquid phase.  The solvent, which is recycled in two circulation loops in the lower and upper parts of the reactor column, is saturated at all times with elemental sulfur.  

Both liquid phases flow down the column, being separated by decantation at the points where the solvent streams are collected for recycle.  At the bottom of the lower section, H2S is stripped from the solvent by the entering SO2.  In addition, H2S is also stripped (or reacted away) from the liquid sulfur flowing through this section.  The liquid sulfur from the reactor then flows to a sulfur pit.  The overhead vapor from the reactor column is scrubbed with a water reflux to remove solvent vapor, then passes through a direct-contact condenser.  Part of the water separated from the reactor off-gas is pumped back to the reactor as reflux.  The net condensed water is sent to a sour-water stripper where dissolved H2S and CO2 are stripped overhead and pure water is produced. 

Figure 4-1 PFD for the UC Sulfur Recovery Process

Unreacted H2S leaves the direct-contact condenser, mixes with the bypassed acid-gas feed and flows to the furnace where it is burned with slightly substoichiometric air to form SO2 and a small amount of S2.  The S2 eliminates residual O2 and prevents the formation of SO3 and NOx, while the high SO2 concentration oxidizes hydrocarbons, COS, CS2 and mercaptans completely without formation of soot, H2 or CO.  Because the furnace is down-stream of the reactor, and the SO2 is returned to the reactor, control of the overall stoichiometry is automatic.

The University of California, Berkley holds the patent on the process.  The AAA POWER INC./UC business deal for the exclusive worldwide license is effective for June 2001.

Future AAA / UC Research and Development

Although the process is currently ready for market, research and development activities will continue to play a key role in the commercialization and extension of the UCSRP and any other process or technology that AAA acquires.  The long-term goals of many of the R&D efforts are to lower plant capital and operating costs even further, to increase our competitive advantage and enhance profit margins.  One theme in the R&D efforts will be finding ways to increase the kinetics of the reaction between H2S and SO2.  Increasing the rates of these reactions will decrease the size of the equipment needed and the volume of chemical needed.  Both of these will reduce the cost of the process and allow increased profit margins for both AAA and its customers.  (However, it should be noted that computer simulation has shown that the reaction rate obtained at ambient temperature is fast enough to obtain substantially complete removal of SO2 in 11 theoretical stages.  The rate of reaction above the melting point of sulfur will be still faster.)

R&D efforts will also be needed to evaluate the treatability of gas streams containing unusual chemical components or that are available under unusual physical conditions.  Another continuing R&D effort is the generation of data needed to improve process model and to utilize the process model to determine the applicability of the process in various commercial opportunities and to design new plants.  

The R&D efforts are synergistic with the services part of the business since much of the analytical instrumentation needed is common to both efforts, and the R&D group develops methods that will be used by the analytical services branch.

4.1.3	Delivering UCSRP to Customers 

Initially, AAA will deliver the UCSRP process to the market as skidded (modular) equipment package.  The size of the equipment for most prospective applications in the near future is conducive to this approach.  AAA will develop a front-end engineering design (FEED) package that will be fed to one of a few carefully selected engineering contractors who will do the detailed design of the skids and follow the shop fabrication.  This approach, offering skidded equipment and working closely with only a few engineering contractors, will allow us to develop good relationships with the engineering contractors and better control the quality of the finished product.  Although more of the fabrication will occur in the relatively controlled environment of the fabrication shop than in the field, about 15-40% of the overall effort will still be field installation, which can be given to our clients’ local contractors if they so desire it and it is important for the sale.

Following the installation and successful startup of an AAA plant, we will provide ongoing support to our clients in the form of chemical analyses, on-site troubleshooting, process optimization expertise, and make-up chemicals.  These support items will be provided on a contract basis to each client on a performance/success fee basis for as long as the installation is active.

4.2	Future Products – Diversification and Growth

Although we will focus on the UCSRP in the near term and long term, there are significant prospects for future gas processing technologies that can provide diversification and additional growth for the company once the success of the UCSRP is established.  Our connections in the gas processing industry and numerous business relationships with technology developers and potential clients have put us in a unique position to capitalize on commercialization opportunities related to other gas processing technologies over the next 5-10 years and beyond.  Our vision provides for having 2 to 3 gas processing technologies in commercialization and 6 in the pipeline by 2005.  We may also develop or acquire non-gas processing technologies but with key emphasis on reducing emissions.  These additional technologies will be evaluated and included in our future plants if appropriate based on their potential for market success and consideration of our main focus of commercializing the UCSRP.  One technology already identified is a portable natural gas desufurization plant for extracting the sulfur from natural gas to convert the fuel to diesel for the U.S. army

For each new product, we envision handling the delivery of the product in much the same way we will do with UCSRP, using skidded equipment packages and a few carefully selected engineering contractors.  As products mature, they may be spun off into separate operating companies to allow further specialization and efficiency.

4.3	Understanding Our Competitors

The competitors of AAA POWER INC. and the UCSRP will be process technology vendors (typical engineering companies) who offer single or multiple process units that accomplish the same general function as the UCSRP unit.  The Company recognizes that both the vendors and the technologies that we are competing with often have a well-established reputation with the industry.  However, our technology offers strong advantages that will allow us to compete successfully. 

Our Competitors’ Offerings:

For most of our initial target markets, one UCSRP unit will be all that is required to meet our clients’ needs.  Our competition must use multiple process units.  This gives us very strong cost advantages that will allow us to capture a sizable share of these markets. 

There are two examples where AAA and our competition both offer well-established processes that can meet user’s requirements:  1) the Claus tail-gas market segment, and 2) the low-pressure portion of the direct-treat market segment.  These two areas represent 38% and 48% of our projected sales, respectively.

In the Claus tail-gas market segment, the competition (multiple companies) offers various well-proven process units, but these units require the gas to flow through three to four large gas-handling operations, whereas UCSRP typically requires only two such steps and replaces the Claus reactors at the same time.  Claus tail-gas applications have very large volumes of gas, and capital cost is strongly affected by the number of pieces of gas handling equipment.  Since UCSRP has much less gas handling equipment, UCSRP has a very strong cost advantage that should allow us to compete well.  Another driving factor is that the UCSRP can provide 99.99+% sulfur removal, i.e., effectively zero emissions.

In the low-pressure portion of the direct treat market segment, the competition is vendors of iron containing aqueous redox process.  All of the aqueous redox processes have well-publicized, inherent problems that give the UCSRP a distinct advantage.  The Company believes that for these reasons the UCSRP will be a major market candidate.

Our Competitors’ Operations:

We believe our UCSRP offering has strong advantages in all of our market segments, but we also know that we can learn much from our competitors.  We have examined some of our competitors’ operations with regard to: business plan, overall organization, numbers and types of staff in relation to the number of plant sales, their marketing methods, numbers of inquires received per license sale and per plant sale, inquiry handling approaches, how they packaged their process, how they executed their projects, and the strengths and weaknesses of their technologies.  We have taken this information into consideration in planning our own operations.

References for Section 4

1.	“The University of California Sulfur Recovery Process: A New Approach”, for presentation at Sulfur 2000, 29 October – 1 November 2000, San Francisco, Ca (with Michael Quinlan & Daniel Velasquez, Kellogg Brown & Root, Inc. and Dennis Leppin, Gas Research Institute).
2.	“The University of California Sulfur Recovery Process: A New Approach”, for presentation at Sulfur 2001, 5 November – 8 November 2001, Amsterdam, The Netherlands (with Michael Quinlan & Daniel Velasquez, Kellogg Brown & Root, Inc. and Dennis Leppin, Gas Research Institute).
3.	U.S. patent: 5,928,620, July 1999. “Process employing single-stage reactor for recovering sulfur from H2S bearing gas”.
4.	U.S. patent: 5,397,556 march 14, 1995. “Process for Zero Emission Recovery of Sulfur from Acid Gas”.

5	Sales and Marketing 

The following sections describe our approach to sales and marketing, including our sales model and staffing, as well as plans for marketing and promotions.

5.1	Approach to Sales and Marketing

In general, we will use in-house marketing and sales staff, consisting of Jeremy White and Gordon Stewart, as the initial stages of the company will be of high importance.  As working capital is injected into the company key individuals will be sought out.

Our sales model will be direct sales to our customers.  As we form alliances, especially with engineering companies, we expect that our alliance partners will assist in the marketing and sales efforts, particularly in identifying customers with potential needs and in helping to develop leads.  We expect these to be cooperative sales efforts between AAA POWER INC. and our alliance partners.  However, our present business model requires that all customer contacts will be direct contacts from AAA POWER INC., so our staff will be heavily involved in the final closing of the sales.

We also anticipate utilizing one or more people who have experience in selling competing processes.  We view that this key move strengthens our understanding of the industry.

5.2	“Above the Funnel” Marketing

AAA will follow the Miller-Heiman sales approach to guide and inform its overall sales and marketing efforts for start-up situations and ongoing marketing programs.  Many companies have used the Miller-Heiman process worldwide.  Miller-Heiman uses the concept of the sales funnel (since a funnel is broad at the top and narrow at the bottom) to identify a universe of potential sales prospects but then to focus on those that have the greatest likelihood of becoming sales.

“Above the funnel” marketing is directed at developing general awareness of the key technologies and establishing brand/name recognition for AAA POWER INC. and its products.  Again, the near-term marketing in this area will be focused on the UCSRP.  Traditionally, the vast majority of the leads for sales of aqueous redox processes come from potential buyers who become aware of the process offering through “above the funnel” marketing activities.  This indicates that conference presentations, hospitality suites, journal articles, advertising, web site, and other general marketing activities are and will continue to be a very important component of our sales effort.  Our marketing approach to UCSRP will also include a significant component of targeted sales activities, however.  These were not particularly effective for the aqueous iron processes, but that may be in part due to the fact that these processes were offered for a very wide variety of mainly low-pressure, low-sulfur-duty applications in many industries to hundreds of different clients.  While the UCSRP will very competitive for these “traditional” aqueous redox applications, the Company’s process will also be able to find numerous sales in other areas.  These include companies that are bringing new gas to market to meet the growing demand for new gas and refiners who must increase their sulfur removal efficiency.  All of these are well enough defined markets and potential clients that we are able to target specific sales activities.

In marketing UCSRP, the Company will be focusing on the two strongest buying influences for these systems.  The first is normally a plant engineer (or equivalent, such as someone in a corporate support group) who is searching for technology to meet a particular processing new (the “user buyer”).  The second is the “economic buyer”, who must approve the financial aspects of the purchase and ensure that it makes financial sense for the company.  This is typically the engineer’s supervisor (in a smaller company) or a business unit manager (in larger companies).

Typically, the technology is first identified as a possible solution for a given application by the user buyer who will ultimately recommends a technology to the economic buyer.  As a result, our “above the funnel” marketing or promotional activities are geared towards “places” (meetings, publications, etc.) where the user buyers congregate.  This does not exclude the reverse from occurring (i.e., the higher level economic buyer will suggest that his user buyer review a technology), and some of our marketing is aimed at these situations as well (e.g., U.S. Oil and Gas meeting as well as high level personal contacts within our customer’s industires0; however, we believe in many cases that the user buyer is the primary entry point for beginning the sales process.

The objective of this marketing approach is to develop general awareness of UCSRP and its benefits so that when user buyers have a need, they think of UCSRP as a solution.  The buyers will then contact us for information, and we will be able to pursue a specific sales objective.  With the user buyers, technical credibility and cost-effectiveness are normally the two most important considerations, and we believe that this matches well with the strengths of our process.  Using this approach, we will pursue presentations in settings that facilitate the delivery of this message (e.g., Laurance Reid Gas Conditioning Conference).

The above-the-funnel activities include items such as presentations and booths at conferences and meetings, contacts with industry groups (often through meetings), journal articles, press releases, web sites, hard copy and e-mail mailings to prospective clients, and specific meetings/visits that we will make to targeted companies that we consider as prospective customers for these processes.

6	Financial Summary

Table 6-1 gives the projected 10-year cash flows for AAA POWER INC. based solely on the UCSRP projects.  While we anticipate adding additional technologies to the company’s products and services offerings once UCSRP has been successfully launched, we have not included any revenues or profits from those technologies in our financial projections.  Also included is the complete analysis of the power-generation market.  It is envisioned that AAA POWER INC. would joint venture with a major power player, incorporating the UCSRP technology to secure low-cost fuel.  In operation, the JV gets a guaranteed long-term supply of the high-H2S natural gas.  The JV gains from the sale or use of the two by-products: sweet natural gas and CO2 credits that result from displacing coal in power production.  The sweet natural gas could be resold or turned into green power.  This has major implications both here in Canada where natural gas is high priced and cannot compete against low priced coal and in the U.S., especially California where power prices have been as high as $300/MW-hr.

As shown in Table 6-1, revenues are projected to exceed $150 million per year in 5 years, and net income before taxes (NIBT) to reach $40 million.  The revenues, costs of goods, expenses, overhead and other items shown in the table have been developed using a detailed bottom-up financial spreadsheet model.  They reflect realistic, conservative estimates based on information from industry experience.  As shown in the table, this financial summary also includes royalty payments to the University of California, Berkeley (UC), and allowances for modifications to the early plants to fix unforeseen problems should they arise (which would not be unusual for first commercial plants).

Table 6-2 gives the estimated value of AAA POWER INC. common stock from June 25, 2001, through the projected NASDAQ – IPO in late spring to fall of 2002.  The value of the company at IPO is based on the net income before taxes a project P/E ratio.  The projected NIBT for 2003 is $11.1 million, for 2004 it is $21.9 million.  For the valuation calculation, we have assumed a Present Net Discount Valuation of future new cash flows of the Company.  We used an invested capital figure of $10.0 million based upon our minimum IPO amount. The discount rate used was 30%, which we view as conservative.  The going NASDAQ public value of the company is projected to be $60 million USD in one year or less.