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02/21/2007

VIASPACE Reports on Demand for Fuel Cell Cartridges and Strategy for Direct Methanol Fuel Cell Business

 
PASADENA, CA?February 20, 2007?VIASPACE Inc. (OTCBB: VSPC), a company commercializing proven technologies from NASA and the US Department of Defense, today reported on the emergence of fuel cell technology for portable electronics and the strategy of its Direct Methanol Fuel Cell Corporation subsidiary to capture a significant share of the growing market for direct methanol fuel cell cartridges.

 VIASPACE subsidiary Direct Methanol Fuel Cell Corporation (DMFCC) is engaged in developing, obtaining safety certification, manufacturing and distributing disposable methanol fuel cartridges to provide the energy source for laptop computers, cell phones and other portable electronic devices powered by direct methanol fuel cells. DMFCC?s business model is to profit from the growing market for micro fuel cells by providing the global fuel cartridge manufacturing, distribution and sales infrastructure the industry required to support fuel cell enabled portable electronic devices. The company also offers patent protection for OEMs and manufacturers of direct methanol and other liquid hydrocarbon fuel cells.

Micro Fuel Cell Market Potential

 Methanol fuel cells are expected to gain a substantial market share because they offer operating time two to three times longer than current lithium ion batteries, can support the increased power demands of additional features, are small in size, are environmentally friendly and may be instantaneously recharged by simply replacing the disposable fuel cartridge. According to analysts at Freedonia Group commercial demand for fuel cell products and services will increase nearly sevenfold to $2.6 billion in 2009. By 2014, those revenues are expected to reach $13.6 billion. The Darnell Group, ABI Research and other analysts predict an estimated 14 to 22% of notebook computers and 2.5% of mobile phones and other devices will be powered by fuel cells in 2012.  Using industry projections for the number of computers and cell phones with an average usage of 2 to 4 cartridges per month leads to a projection of 2 to 6 billion cartridges sold annually. With an estimated retail price of $3 for phone cartridges and $5 for computers, the DMFCC addressable fuel cartridge market has the potential to reach $8 to 24 billion annually.

 Many companies including NEC, Toshiba, Hitachi, Fujitsu, Sanyo and others in Japan as well as Samsung and LG in Korea have demonstrated portable electronic devices using direct methanol fuel cells.  Hitachi has announced the intention to go into initial production in 2007. Overall, the Asian companies have invested hundreds of millions of dollars and have in-house R&D teams working on direct methanol fuel cells and products using them.

 DMFCC fuel cell cartridge market strategy

DMFCC is in a unique position to help establish and benefit from the growth of the fuel cell industry. The company has licensed a large intellectual property portfolio including 56 issued and 62 pending patents on direct methanol fuel cell technology from Caltech and the University of Southern California.  VIASPACE believes the broad and early patents are directly applicable to many of the direct methanol fuel cells being commercialized today and that the majority of the major direct methanol fuel cell players will likely need this patent protection.  As part of an overall strategy, DMFCC and its shareholders, including Caltech and USC, are offering crucial patent protection to manufacturers of fuel cells and portable electronics in exchange for using use cartridges produced and distributed by DMFCC and its partners.  DMFCC's goal is to establish a global cartridge infrastructure which is necessary for the success of the industry and can be much more profitable than simple patent licensing. The company is also willing to work with OEMs that are interested in being in the cartridge business themselves.

 Current Cartridge Partners

 Also key to DMFCC?s strategy for growth are relationships with worldwide cartridge manufacturing partners that are already trusted suppliers to the portable electronics OEMs that produce products powered by fuel cells, and distribution partners with known brands and existing channels to the retail market. The fuel cell cartridge business requires the following capabilities: cartridge design and safety certification; cartridge manufacturing; branding and marketing; distribution and sales. DMFCC?s strategy is to concentrate on its corporate strategic vision and strength in cartridge design and certification and build a global network of partners to fill out the team's capabilities. 

 The company has key manufacturing and distribution partnerships in place. Its cartridge manufacturing partners in Korea -- Elentec, SMC and Hyun Won -- are current and trusted suppliers of lithium ion batteries and other products to Samsung and LG. DMFCC?s Japanese cartridge manufacturing partner, Sato Group, currently supplies printer and other cartridges to Japanese OEMs, and partner NYPRO has global operations and provides plastic components to many companies. These cartridge partners have provided engineers to work with DMFCC to produce cartridge prototypes and to demonstrate their safety certification. The prototype cartridges have been shown to OEMs and at trade shows, and are in testing.

 DMFCC Sales and Distribution Strategy

 A crucial part of the cartridge infrastructure is distribution and sales, enabling the consumer to buy fuel cartridges for their laptop computer or mobile phone everywhere they concurrently buy disposable AA batteries; such as computer stores, office supply stores, grocery stores, hardware stores and convenience stores. This requires a distribution and sales strategy to the mass-market. DMFCC plans to partner with established companies that already have established retail channels and possibly even consumer branding to enhance sales. The company is in discussions with potential distribution partners and VIASPACE has added Mr. Rick Calacci to its Board of Directors to help with the distribution and sales strategy. 

 Dr. Carl Kukkonen, CEO of VIASPACE, commented: ?DMFCC is helping the micro fuel cell industry solve two critical issues?intellectual property protection and a global fuel cartridge supply infrastructure. With groundbreaking proprietary direct methanol fuel cartridge products, a global manufacturing network, and a comprehensive suite of fundamental fuel cell patents, DMFCC is in position to maximize penetration of this exciting new market.?

 An expanded background of the fuel cell business and VIASPACE?s role in it can be found below.

 About VIASPACE:  Originally founded in 1998 with the objective of transforming proven space and defense technologies from NASA and the Department of Defense into hardware and software solutions that solve today's complex problems, VIASPACE benefits from important patent and software licenses from Caltech, which manages NASA?s Jet Propulsion Laboratory.  For more information, please visit our website at www.VIASPACE.com, or contact for Investor Relations, Dr. Jan Vandersande, Director of Communications at 800-517-8050, or IR@VIASPACE.com.

Press contact: Carl Kukkonen 626-768-3360

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This news release includes forward-looking statements intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995.  These forward-looking statements relate to future events or our future performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.  Such factors include the risks outlined in our periodic filings with the U.S. Securities and Exchange Commission, including our Annual Report on Form 10-KSB for the fiscal year ended December 31, 2005 and our Quarterly Report on Form 10-QSB for the quarter ended September 30, 2006, as well as general economic and business conditions, the ability to acquire and develop specific projects and technologies, the ability to fund operations, changes in consumer and business consumption habits, and other factors over which VIASPACE has little or no control.

 

DISCUSSION ON FUEL CELLS

 
TODAY RECHARGEABLE BATTERIES.  
Portable electronics manufacturers currently power most of their products with rechargeable lithium ion batteries.  Some of these lithium ion batteries have had recent problems with explosions and fires and many companies including Toshiba, HP, Apple, IBM/Lenovo and Dell have recalled these batteries.   Apart from any issues of safety, lithium ion batteries are reaching their limit in the amount of energy they can store in a given size and weight.

 While lithium ion batteries give satisfactory operating results in some applications, manufacturers of portable electronics are continuing to add additional features desired by the consumer, which consume more and more power and reduce the operating time of their products.  All notebook computers have wireless capability and play DVDs.  Wireless television and interactive gaming and Internet are here.  Mobile phones have Internet conductivity, play music and the new phones have television.  These new capabilities use considerable power and notebook computer operating time is often well below two hours and mobile phones can be even lower when watching television.  Lithium ion batteries also take several hours to recharge.

 Manufacturers can always increase operating time by putting in a much larger lithium ion battery, but do not like this approach which increases the size and weight of their products.  Chip manufacturers like Intel and AMD are working hard to reduce power consumption of their chips, but their considerable success to date has not matched the power requirements of the devices.

ENTER FUEL CELLS.   Everyone is looking for potential new power sources for portable electronic devices.  Because portable electronics need more energy storage, and because better battery solutions have not been forthcoming, the industry has moved to fuel cells as an alternative.

 A fuel cell is an electrochemical device that converts a fuel, usually hydrogen, and oxygen from the air directly into electricity without burning.  The conventional way to produce electricity is to burn the fuel in an engine, which creates mechanical power that turns a generator.  A fuel cell produces electricity at about twice the efficiency of a generator.  There are many kinds of fuel cells.  Some are being developed to provide power to buildings and residences, some are being developed for automotive use and micro fuel cells are being developed for portable electronics and other mobile applications.  The only output of a fuel cell is water any and possibly a small amount of carbon dioxide and thus produce no pollution at the site of use.  Fuel cells are a green technology.

 Fuel cells are considerably more expensive than motors and generators which is a major challenge particularly for automotive applications.  However current lithium ion batteries are relatively expensive themselves.    This increased price is willingly paid by companies for increased productivity and by consumers for the convenience mobility. Fuel cells will likely see their first mass commercial application in this next generation of innovative portable electronics.

 FUEL CARTRIDGES.  Fuel cells will continuously produce electricity as long as fuel supplied.  For portable electronic devices, the fuel must be provided in safe sealed disposable containers called cartridges.  The advantages of a fuel cell are longer operation than a lithium ion battery, and instantaneous refueling by simply replacing the cartridge.  An electrical plug and power for recharging is not needed.  Like current systems a notebook computer using a fuel cell can also be plugged into power, and no fuel is used while plugged in.  When unplugged, the computer would run for up to 10 hours on a single cartridge.  A mobile phone would only use fuel cartridges and never be plugged into the wall for recharging.  It?s estimated that a small cartridge would yield up to 600 minutes of talk time and a month of standby time.

 Hydrogen fuel cells have several problems.  Among these are how to distribute hydrogen which is a gas, and how to safely store it in your notebook computer or mobile phone.  A hydrogen gas cylinder compressed to 3000 psi would be the size of a soda can which is too large.  Another problem is that the International Civil Aviation Organization has ruled not to allow hydrogen on airplanes.

 INTRODUCTING DIRECT METHANOL FUEL CELLS.  Many major companies have decided that the best candidate fuel cell for portable electronics is a direct methanol fuel cell.  This fuel cell uses liquid methanol, chemical formula CH3OH, directly as a liquid without having to create hydrogen gas.  This leads to a six times smaller fuel tank and represents the major system advantage for methanol.  Many companies including NEC, Toshiba, Hitachi, Fujitsu, Sanyo and others in Japan as well as Samsung and LG in Korea have demonstrated portable electronic devices using direct methanol fuel cells.  Hitachi has announced the intention to go into initial production in 2007.  Overall, consumer electronics companies have invested hundreds of millions of dollars and dedicated R&D teams working on direct methanol fuel cells and products using them.

 TRAVELING SOON WITH FUEL CELLS.  Japanese companies and a US team led by the Underwriters Laboratories (UL) with DMFCC as a member, have joined together under the International Electrotechnical Commission (IEC) to write safety rules for fuel cells and fuel cartridges.  The IEC safety specifications state that the fuel cartridge should not be refillable by the consumer because of safety reasons, and disposable cartridges are preferred.  With these safety and rules in hand, the International Civil Aviation Organization (ICAO), a UN body, decided to approve the use of methanol fuel cells on airplanes.  Hydrogen fuel cells were not approved.  Local air transportation bodies such as the FAA are now considering the case, and a favorable decision is expected in 2007.

 With this progress and regulations, the direct methanol fuel cell industry is moving towards introducing products in 2007 and 2008.  Notebook computers and mobile phones are expected to be amongst the first products.  The direct methanol fuel cells themselves are being developed and engineered mostly by the portable electronics manufacturers themselves.  Getting the fuel cell lifetime up to 10,000 hours has been accomplished.  Miniaturization in order to get the fuel cell into the product is a major development focus as well as cost reduction.

 DIRECT METHANOL FUEL CELL CORPORATION.  DMFCC is helping the micro fuel cell industry solve two of its major remaining issues-- intellectual property protection and the global fuel cartridge supply infrastructure.  DMFCC is a fuel cartridge company-- developing, obtaining safety certification, manufacturing and distributing disposable methanol fuel cartridges.  DMFCC is also offering crucial intellectual property (patent) protection to manufacturers of fuel cells and portable electronics.  DMFCC has licensed a large portfolio-- 56 issued and 62 pending patents on direct methanol fuel cell technology from Caltech and University of Southern California.  The patents are very early and very broad and are expected to apply to the direct methanol fuel cells being commercialized today.   With the major direct methanol fuel cell players likely to need this patent protection, DMFCC and its shareholders, including Caltech and USC, would like to provide this patent protection to all manufacturers.  DMFCC business plan is to establish a business arrangement with manufacturers to use a cartridge produced and distributed by DMFCC and its partners in exchange for traditional license fees and royalties.  DMFCC's goal is to profit by helping enable the fuel cell industry adoption and establishing a global cartridge infrastructure business, which is necessary for the success of the industry.

 DMFCC PARTNERS.  The fuel cell cartridge business requires the following capabilities:  cartridge design and safety certification; cartridge manufacturing; branding and marketing; distribution and sales.  DMFCC?s strategy is to concentrate on its corporate strategic vision and strength in cartridge design and certification.  DMFCC is building a global network of partners to fill out the team's capabilities.  These partners are chosen for their business abilities and their strong trusted relationships with manufacturers of fuel cells and portable electronics.  The cartridge business must be developed in parallel with the fuel cell-based products and be available at the same time.  No one will buy a fuel cell powered notebook computer unless the fuel is readily available.

 For example, our cartridge manufacturing partners in Korea -- Elentec, SMC and Hyun Won -- are current and trusted suppliers of lithium ion batteries and other products to  Samsung and LG.  A Korean OEM finds it easier to do business with a supplier that it knows and trusts, rather than a California company it has never done business with in the past.  Our Japanese cartridge manufacturing partner, Sato Group, currently supplies printer and other cartridges to Japanese OEMs, and our partner NYPRO has global operations and provides plastic components to many companies..  These cartridge partners have provided engineers to work with DMFCC to produce cartridge prototypes and to demonstrate their safety certification.  It is a team effort and not just outsourced manufacturing.  These prototype cartridges have been shown to OEMs and at trade shows, and are in testing.

 A crucial part of the cartridge infrastructure is distribution and sales.  Remember that the notebook computer or mobile phone OEM is not the big customer for fuel cartridges. They may buy one or two to be shipped with the product.  Fuel cartridges are purchased by the consumer who bought the notebook computer.  The consumer wants to be able to buy fuel cartridges everywhere they concurrently buy disposable AA batteries -- computer stores, office supply stores, grocery stores, hardware stores and convenience stores.  This requires a distribution and sales strategy to the mass-market.  DMFCC does not intend to create new channels to the mass-market for its cartridge products.  The company plans to partner with established companies that already have the channel and possibly even a brand name to enhance sales.  The company is in discussions with potential distribution partners and VIASPACE has added Mr. Rick Calacci to its Board of Directors to help with the distribution and sales strategy.  Certain distribution partners and certain brands are strong in Japan, others in Korea and Asia, others in the US and still others in Europe.  Several partners may be required for a global approach.

 DMFCC's partners share our vision of creating a new fuel cell cartridge industry that does not exist today.  Our strategy is to create a team committed to the vision, willing to share the risks today for a strong and profitable business in the future.

 BUSINESS SUMMARY.  DMFCC and its partners are working to provide highest quality cartridges, meeting all of the safety standards, and with a global distribution network for fuel cell powered portable electronics industry.  Fuel cartridges are necessary for the success of the industry, and DMFCC is using its important IP protection as an incentive for OEMs to adopt DMFCC cartridges and grow the industry in general.