Market Opportunity & Approach

AEC's initial market approach had been to secure revenues exclusively through the sale of bulk hydrogen to new and established markets as well as the sale of HPU's to alternative energy early adopters. By virtue of AEC's by-product discovery, the company's product offering and market strategy has been significantly enhanced.

As part of its near term plan, AEC's marketing strategy is to accelerate the commercialization of its by-products by developing effective relationships with businesses that would benefit from low-cost, on-site hydrogen for their manufacturing processes. By-product sales will be generated through agreements made with companies that possess well-established sales channels in the food ingredients industry as well as commodity traders that operate globally.

AEC leads with a two-pronged approach to the market since its hydrogen is now simultaneously produced with a number of valuable commodity by-products. Though the identity of these by-products has yet to be announced, a brief description of their market sizes and respective approaches are listed below. AEC's initial project focus, its Hydrogen Production Unit (HPU) for residential and small commercial power markets is also described briefly.

Hydrogen

Market Background & Approach

Hydrogen enjoys an estimated US$3.37Bn global market (2005 figures), and growing. The Company has initially targeted the food oil hydrogenation industry as a market for its hydrogen. Players in this industry can benefit greatly from a significant reduction of their overall cost of hydrogen from an on-site patented hydrogen production plant, since trucking and storage costs are virtually eliminated. The Company has already developed an interest with a number of the largest food oil producers in the world, with prospective facilities being considered in the U.S., Brazil and abroad.

AEC's business model for its bulk hydrogen dovetails cleanly with its model for the by-products the process produces. As mentioned above, AEC's strategy is to target remote bulk users of hydrogen, where a premium is being paid for either delivery or on-site production. AEC continues to develop strategic relationships with large industrial hydrogen users who are interested in benefiting from on-site hydrogen gas production - namely, significantly reduced cost, eliminated need for storage and increased safety. AEC's research has uncovered that by eliminating a hydrogen user's transportation cost, it can in some cases, benefit from a reduction of up to 40%, or more. Additionally, 'green credits' provide a financial incentive to organizations that avoid or reduce CO2 emissions, where earned credits can be exchanged for dollars. Since many of AEC's processes avoid the production of C02, in many applications, green credits for the company can be accumulated.

Chemical By-Products

Market Background & Approach

All by-products that AEC produces are known commodities and open up a combined US$5Bn dollar market to the Company. Extensive research has been conducted by the company to determine individual by-product market size and a range of selling prices, considering in all cases, volume, quality (purity) origin and shipping. Recent estimates place the global market of the Company's largest by-product at US$3.4Bn with annual growth of 4% (CAGR, 10% in Asia). Initial by-product market focus will concentrate on the food ingredient markets in Asia, Europe and North America. Their size, market growth and ability to absorb a significant volume of production without causing a depressive effect on price were key factors in this market strategy.

Other by-product markets include the pharma/nutraceutical and food ingredient industries, which have an estimated global market of US$750M to US$1Bn. Though comparatively smaller in market size than the first by-product, these by-products command more than double the unit (Kg) price. By virtue of their high bioavailability (absorption) and solubility - the highest in their category, they are considered premium products and two of the most healthy mineral supplement forms on the market. These health-enhancing by-products are often found combined in a wide variety of foods (i.e. baby, pet, juices) and as supplemental mineral tablets. Other markets for these by-products include; sports drinks, antacids, laxatives, an analgesic in homeopathy, a supplement to prevent osteoporosis and an ingredient in rapid hardening cement.

AEC's HPU

Market Background

Management believes that AEC's long-term growth prospects are positively affected by several market and industry trends including:

• Continued uncertainty about the price and long-term availability of fossil fuels.
• Growth in specific food industry market segments (i.e. nutri/pharmaceuticals) which are in the early stages of a long expansion phase, where demand for many of the Company's by-products are increasing and expected to stay strong.
• Continued concerns about the impact of fossil fuels and greenhouse gases on the global environment.
• Growing commercial and consumer demand for a reliable alternative to the public electric power grid.
• Serious concerns with the increasing reliance on imported fossil fuels for Western nations.
• The need for more distributed energy and cogeneration energy projects.

In today's energy sector, we have recently witnessed the unprecedented increase in fossil fuel costs alongside skyrocketing demand globally. Combining these concerns with potential supply issues abroad ensures, with significant certainty, that alternative fuels are and will be a very high priority issue for all industry, governments, NGOs and consumers in the very near future. There is little doubt that once oil and gas prices reach intolerable levels, lower cost alternative power such as; pure hydrogen fuel power generators, portable power products, back-up power units and eventually hydrogen-fueled transportation will have strong market appeal. Two examples of the predicted demand for alternative sources for power such as hydrogen is described below, however more detailed information can be found in the 'News - Supporting Documentation' section.

• The fuel cell and distributed hydrogen market will grow from a current $700 million industry to $13.6 billion within 10 years. The combined three high growth clean energy markets (fuel cell and distributed hydrogen, wind power and solar PV) expanded from $9.5 billion in 2002 to $12.9 billion in early 2004, to an estimated $92 billion market in 2013. Source: Clean Energy Trends March 2004 Report, Clean Edge Inc.
• World energy consumption is projected to increase by 54% from 2001 through to 2025. To note, total net energy consumption in developing Asian nations, primarily China and India, will almost double from 139.2 quadrillion Btu in 2001 to estimated 265.9 quadrillion Btu in year 2025. Source: U.S. Department of Energy, Energy Information Administration International Energy Outlook 2004 Report.

Market Approach

Though the Company's business model has shifted to focus on other bulk applications for its technology (such as hydrogenation), AEC's hydrogen production unit (HPU) continues to be a viable solution for small-medium power applications. The Company intends to market these units at a time when the demand in alternative energy consumer and small commercial market makes it lucrative to do so.

Overall Competitive Analysis

At this time, it appears that AEC does not have any direct competitors with the complete blended product offerings of an economically viable on-demand hydrogen production technology with saleable by-products to a ready market, all of which are produced using environmentally friendly processes, with no toxic residue or waste, start to finish - economically.