UPDATE MAY 1, 2019
In this update I will highlight some of the significant events that occurred in 2018. Since our last update there has been no change in what we’re trying to accomplish for our shareholders. Catalytec’s primary goal is the completion and operation of a full scale CFC™ ™ System. Of course, to accomplish this the company has to secure financing to build the system in Germany and thereafter commence operations in the United States of America.
ALCOA
As you are familiar, we had hoped to finally complete a Catalytec CFC™ 300 liter system at Alcoa’s Warrick Operations. You’ll also remember that Alcoa split into two companies. The “old” Alcoa did not have the resources to continue to supply their watery - oil feedstock, or budget for their necessary infrastructure changes. With the loss of the Alcoa project, and its projected revenues, our Investment bankers advised it would be very difficult to raise funds from institutional investment firms, or structure a merger transaction with an existing publicly traded corporation. As we advised in our past update, management decided not to immediately commence legal action against Alcoa because we had several connections with previous executive officers and engineers at Alcoa who were familiar with our technology and very much supportive of it. Management reasoned it made no sense to run the risk of alienating Alcoa’s corporate hierarchy if a potential future collaboration was being pursued with the executive officers and engineers. In addition, we still had time under the applicable statutes of limitations to defer any legal action against Alcoa. As will be described further on in this update, one of those engineers championed a joint development agreement we entered with the “new” Alcoa named “Arconic.”
CATALYTEC PHASE ONE SYSTEM
The Catalytec Phase One System that was installed at the Warwick operations is still in storage at Alcoa. Management has been diligent in assessing the prospects for producing revenues from the Phase One System. The Phase One System was designed specifically for Alcoa’s needs in separating watery - oil waste, aluminum and small particulate matter suspended in the watery – oil waste. Because of the specialized design of the system it was necessary to approach companies that had a similar watery – oil waste management problem. As you will recall from our previous updates, the Phase One System was designed to eventually be connected to a CFC™ System. Therefore, we focused on identifying potential sites where the Phase One System could be moved, and eventually connect it to a full CFC™ System to produce fuel oil.
Our initial strategic approach targeted to these companies was similar to our approach at Alcoa. The waste site would provide us with their waste watery – oil at no cost, and Catalytec would sell the separated used oil after processing it through the Phase One System. Throughout 2018 we were unable to secure any contract for this approach. Necessarily, we shifted to another strategy that would allow a potential waste site to keep the separated used oil produced by the Phase One System rather than waste site assigning the contract rights of re-sale of the separated used oil to Catalytec. In exchange for receiving the proceeds of the sale of the used oil, the company would pay a service fee to Catalytec based on the number of gallons processed by the Phase One System. We have been exploring this new economic strategy in Las Vegas, Carson City, Evansville and Nashville. As of that date of this writing we have not secured any letters of intent or contracts. We continue to pursue this strategy as it is in management’s opinion more likely to procure a site where we can reconnect the Phase One System. If we are able to enter into such an agreement with a waste site we will post an announcement to our web site.
FUNDING - POST ALCOA
In our last update we advised that the company had engaged in a separate funding strategy by hiring a lobbying firm in Washington, DC to secure a research and development grant to build one or more CFC™ Systems. Our first attempt at a research grant to the department of energy was met with a denial based on budgetary constraints. Our lobbyist advised this was primarily due to continuous failures by Congress to pass an annual budget. Further, our lobbyist indicated in several conference calls with Catalytec’s management that a full budget and appropriations bill was continuously being postponed throughout 2018. In response, and to not stand still while the lobbying efforts continued, management solicited various plastics waste management and plastics waste collection companies in hopes of securing a joint development project. We decided to focus on plastics as they are an excellent feedstock for a CFC™ System. Plastics have a high hydrocarbon efficiency ratio when used as a feedstock for catalytic deploymerization conversion into fuel oils. Equally attractive was plastic waste has become an escalating environmental problem with heightened public awareness. This heightened awareness of the problem of land and ocean plastic waste pollution has increased exposure to environmental funding sources focused on the removal of plastic waste from the environment.
The shift in strategy, to use plastics as a feedstock for a CFC™ System, changed our strategic direction from focusing on municipal solid waste or used watery – oil as feedstocks. We placed several preliminary proposals in front of three separate plastic waste collection sites in Nevada and Tennessee. The companies were keenly interested in supplying our system with their plastic waste and locating our CFC™ System at their site. However, the financial side of any joint venture requiring the site ownership to financially contribute to the project was not mutually satisfactory. Confidentiality and non-disclosure agreements prevent us from providing more details at this time.
FUNDING – DEPARTMENT OF ENERGY GRANT
As mentioned earlier in this update In an effort to raise capital critical for building a full Catalytec CFC™ System we engaged the services of the lobbying firm Burkman Associates, LLC with offices located in Washington D.C. We provided a copy of our Department of Energy proposal in our last update. Needless to say 2018 was very frustrating for us as well as for Burkman Associates, LLC. We continuously received reports that the budget had not been passed in Congress. Instead, continuing resolutions funded the government without passage of a full funding omnibus bill. However, with the passage of the omnibus budget, signed by president Trump after several government partial shutdowns in 2018, our lobbyist has again made efforts to secure a research and development grant with the Department of Energy.
The research grant proposal is focused on the removal of waste plastics from the environment by converting the plastic waste into fuel oils with Catalytec’s proprietary CFC™ deploymerization system. Our lobbyist informed us that the former governor of Texas, Rick Perry is now the new director of the Department of Energy. The attractiveness of converting plastic waste into fuel oil is what the lobbying effort will focus on to locate a CFC™ System in Perry’s home state of Texas. The amount of the grant will be negotiated directly by our lobbyist, but it has been made clear that at least one full CFC™ System is the minimum funding amount. We cannot say at this time if are lobbying efforts will be successful, but we continue to pursue this avenue of funding. Check our web site, which will be updated with further developments.
This is not to misconstrue our research grant proposal and lobbying efforts with Burkman & Associates as abandoning a potential “go public” transaction. However, we must first be successful in locating a waste site that needs a Phase One System for separation of waste watery – oils. This is a critical goal we must meet in order to generate operating revenues and become an “operating company.” Our investment banker advises Catalytec must become an operating company in order to attract a publicly traded “shell” corporation to structure a merger, or initiate a public offering of Catalytic stock. Both strategies are designed to result in Catalytec’s shares becoming publicy traded on a recognized stock market exchange in order to provide liquidity and attract institutional investment firms.
NEW DEVELOPMENTS – ARCONIC/CATALYTEC
As previously described, management continues to maintain communications with several officers and engineers at Alcoa. As a result of those discussions we successfully entered into a joint development agreement (“JDA”) with Arconic in 2018. The JDA requires the companies to collaborate for purposes of evaluating and developing a new design for automotive catalytic converter filters. The design will be produced through the newest powder bed additive manufacturing and computer 3D metal printing using Arconic developed high temperature aluminum powder. The newly designed “lattice” filter incorporates our catalyst reactive crystal technologies. The lattice design combined with Catalytec’s catalyst has the potential to convert harmful internal combustion engine exhaust gases without the use of, or with reduced quantities of, expensive platinum/rhodium currently in use for internal combustion engines.
The first Arconic/Catalytec 3D printed lattice prototypes were jointly designed and 3D printed by Arconic’s research and development division. These prototypes were shipped to Catalytec’s research and development partner Catalytic GMBH in Germany. The proprietary process of “coating” the prototypes actually involves growing reactive catalyst crystals in the microscopic pores naturally present in unpolished aluminum. This allows for the chemically bonding process to the microscopic pores in the lattice structure‘s “channels” to occur. Unpolished aluminum creates thousands of microscopic pores that would normally not be present if the aluminum was polished and finished for industrial use.
In addition, the unique 3D designed lattice internal structure allows for the necessary turbulence to occur sufficient for the catalyst to chemically convert the harmful carbon monoxide exhaust gas emissions. The joint development agreement with Arconic provides that all “background” technologies are the sole intellectual property of each company which protects our proprietary catalyst technologies. Only newly developed technologies that result from the collaboration between the companies are owned equally.
The next phase is for the “coated” prototypes to be comparison tested and benchmarked against platinum filters. This phase will be performed in cooperation the Universität Erlangen-Nürnberg located in Erlangen, Germany. The University is one of the largest universities in Germany, and is a leading research university with an international perspective. The university specializes in research and development of reactive chemical catalysts. A non-disclosure and non circumvention agreement was successfully negotiated and entered into in January of 2019. The university will coat platinum filters to establish benchmark exhaust gas performance results using platinum, and thereafter compare those results with the Arconic/Catalytec 3D printed lattice prototype filters coated with our reactive catalyst crystals. Further developments will be announced as they occur and posted on Catalytec’s website.
NEW DEVELOPMENTS – EXCLUSIVE DISTRIBUTION AGREEMENT
Also in 2018, Catalytec obtained an exclusive marketing and distribution license from our research and development affiliate Catalytec GmbH in Germany. The agreement calls for the introduction into the United States of GmbH’s existing catalyst technology for the cleaning of air – born volatile organic compounds (“VOCs”) produced by various industrial and manufacturing processes. Management decided to enter into this agreement in order to potentially create much needed revenue to support the company’s goal of being a revenue producing operating company and listing its shares on a publicly traded exchange.
Catalytec GmbH has produced these systems in Europe for many years. The reason why these catalytic systems have not been marketed in the United States is because of the relatively inexpensive cost per kw/hr. of fossil fuels in this country compared to the much higher costs in Europe. VOCs are simply burned off in fossil fuel oxygenation systems here in the United States while in Europe the high cost of the fossil fuels precludes these types of oxygenation burning systems. In Europe VOC systems utilize electricity not fossil fuels to generate the heat energy per kw/hr. to achieve VOC removal from the ambient air inside a particular manufacturing plant.
However, new developments in environmental legislation designed to curb the use of fossil fuels in the United States is seen by us as an opportunity to bring this technology to the market. As an example, California passed new legislation in late 2018 that requires the elimination of the use of fossil fuels to generate energy by the year 2045. The renewable energy measure would require California's utilities to generate 60 percent of their energy from wind, solar and other specific renewable sources by 2030. The goal would then be to use only carbon-free sources to generate electricity by 2045. In addition, California has created a "cap and trade" program to put a price on carbon emissions, creating incentives to discourage the use of fossil fuels. A further indication of this trend is that California's renewable energy goal is not as ambitious as is Hawaii’s. The state has adopted a 100 percent renewable energy mandate.
Management is of the opinion these recent developments will open United States markets for the use of non - fossil fuel burning catalyst VOC cleaning system technologies. Catalytic VOC cleaning systems have been operating successfully in Europe for decades. Catalytec and its research affiliate Catalytec GmbH entered into an exclusive distribution and marketing agreement in 2018 for that purpose. Catalytec will advertise and solicit proposals from companies that currently use fossil fuels to burn VOCs that want to switch to the more environmentally friendly catalyst system. Each catalytic VOC system will be designed in Europe depending on each customer’s specifications and requirements and then container shipped to the United States for installation. The companies plan on equally sharing net profits from each project. To date we are sending requests for proposal to other European companies that have the catalyst VOC cleaning systems. We are doing this in order to assess the price point at which our systems can be marketed in the United States with gross margins sufficient to maintain profitability. Of course, we will make further announcements as the situation warrants.
I hope this will give you some insight as to how we continue to work hard to achieve potential success for all our investors and shareholders. While I cannot guarantee any of the above strategies will materialize, I can guarantee to all of you that I will continue to vigilantly pursue them as well as other new technologies as we develop them.
Christian Koch, Chief Executive Officer