Perry expounds on the differences between Global's signature SOFC and Ballard Power Systems' [T.BLD] proton-exchange membrane (PEM) cells. Whereas Ballard uses methanol and pure hydrogen fuel, Global uses natural gas, possibly a more desirable alternative for automobiles. The two run at significantly different temperatures. He does not believe Ballard's technology "...is 'better' per se - it is different one is more applicable than the other, depending on where you want to use it and what kind of fuel you want to use". Instead, Perry stresses the merits of SOFC and suggests a possible foray into the home co-generation, telecom, utility-based or auto mass markets. He does not want to "tackle them directly without a partner"; instead, "...the place [we] will go commercial first is the remote power business because that is the business [we] are already in".

StockHouse: Currently you have three revenue streams, which include thermoelectric generators, diesel-fired heaters and fuel cell research. Can you give us an idea of where you are with the fuel cell program?

Jim Perry: The fuel cell program, as you know, is working to develop solid oxide fuel cells [SOFC], which are somewhat different from some of the other technology that is out there. Basically, we have taken the technology which we got from Germany (Forschungszentrum Juelich is a partner of GLE and a global leader in SOFC technology) and we have moved it ahead quite a bit, to the point where, as far as we know, we now have the highest power density of any solid oxide system around. We will be presenting three papers at the Solid Oxide Fuel Cells Conference in Hawaii in October.

StockHouse: Global Thermoelectric has been described in the national news as a 'baby Ballard', referring of course to Ballard Power. How does your fuel cell technology differ, and what makes it better than Ballard's product?

Jim Perry: I don't think it is 'better' per se, it is different. Depending on the application, the different technologies may be better or not quite as good, but to say one is better than the other is not really the right thing to do. It's more that one is more applicable than the other, depending on where you want to use it and what kind of fuel you want to use. The biggest single difference between the solid oxide technology and (Ballard's) Proton Exchange Membrane [PEM] technology is the operating temperature. PEMs operate at about 80° centigrade and solid oxides operate anywhere from 700 to 1000° centigrade.

StockHouse: Can you explain a little bit more about the difference between the PEM and the SOFC?

Jim Perry: There are quite a number of differences. A lot of them having to do with the material that the different products are made from. The solid oxide cell is, of course, a ceramic membrane whereas the PEM membrane is basically a polymer membrane that has water in it. The operating characteristics that flow from the construction do make a difference as to where you can most properly apply them. For instance, the solid oxide system, being ceramic, is somewhat tolerant to impurities. We can run between 10 and 12 parts per million (ppm) sulfur through the cell without damage, whereas the PEM requires almost pure hydrogen, less than 1 ppm sulfur. The solid oxide membrane, of course, being a ceramic, will not freeze. The PEM, because it has water in it, has to be guarded against freezing.

Probably one of the bigger application-specific benefits with the solid oxide system is that the reforming for solid oxide systems is significantly simpler and cheaper than reforming for the PEM (Ballard) system.

StockHouse: What is involved in the reforming process?

Jim Perry: Reforming is the process with a hydrocarbon fuel where the bond between the carbon and the hydrogen is broken so as to allow the free hydrogen to go into a fuel cell. All fuel cells require hydrogen as a fuel. If you have pure hydrogen from somewhere, that is all very nice and all systems will run very well on hydrogen, but we don't have a hydrogen infrastructure at the moment, and it is going to be a long period of time before we get one. We have been told there is as much as $200 billion worth of gasoline station infrastructure in the world. There are gas stations everywhere - and they can't handle hydrogen, though they can certainly handle gasoline.

Another big difference between the PEMs and the solid oxide cells is that carbon monoxide is a poison to the PEM. You have this stream of gas coming out of the catalyst chamber, which is a mixture of carbon monoxide and hydrogen. For the PEM, you have to separate the two gasses. That is expensive and not easy to do. With the solid oxide technology you don't have to worry about that. Carbon monoxide is actually a fuel for the solid oxide cell. In fact we have run our cells on 100% carbon monoxide and they work very well.

"Probably one of the bigger application-specific benefits with the solid oxide system is that the reforming for solid oxide systems is significantly simpler and cheaper than reforming for the PEM (Ballard) system."

The other thing you have to recognize is, if the PEM guys are going to use a hydrocarbon fuel, and that is the fuel that is out there today, their reformer still has to have a high temperature catalyst in it as well, so they have to heat it up to the high temperature anyway. Then the PEM runs at 80°C, so it has to be cooled back down. For us, our cells and our reformer operate at the same temperature. We just attach one to the other. We don't have to have a separate heating system. It is actually heated up by the cell. No moving parts, no pumps, no valves, nothing. It is very, very simple. So on hydrocarbon fuels there is a big advantage to the solid oxide cells.

I certainly don't want to try and give you the impression that solid oxide is the be all and end all, because there are some operating characteristics that you have to be aware of. Number one, being the fact that the solid oxide runs at a high temperature. So, if it is at room temperature, to bring it up to the right temperature takes time - ½ to ¾ of an hour. This has been one of the reasons why the PEMs have always been thought to be the ideal solution for an automotive use. You hit the PEM with hydrogen and you have power right away. Whereas with the solid oxide cell, it takes time to come up to temperature. With that being said, number one,there are engineering ways around this, and number two, are we ever going to see a fuel cell as the entire mode of power for a vehicle? There is a real debate in the industry on that one!

StockHouse: With SOFC's operating at 700-1000 degrees centigrade, at those temperatures, are there problems relating to the long term stability of the cell?

Jim Perry: The earlier versions of solid oxide cells were running between 900 and 1000°C. That is the temperature we got from Germany. Since that time, we have advanced the technology to the point where we can now make very good power at 700°C.

StockHouse: Have you lost any performance?

Jim Perry There is some modest decrease in performance, but worth it, compared to the advantages it brings you. At 900°C you have to use very, very expensive exotic alloys in your system. At 700°C you can use a very common stainless steel. So although you do lose some amount of power, you more than make up for it in cost effectiveness because you can use very common materials now.

StockHouse: I understand once a solid oxide fuel cell combusts, it can't be shut down until the cell is empty. Is that a concern?

Jim Perry: Yes, that is something that is a concern, but it can be engineered around.

StockHouse: Methanex is currently suing the US government for $970 million seeking compensation for the March decision to essentially phase out Methanol by 2002 due to it's potential for groundwater contamination. Yet, Ballard as recently as June has announced an alliance with Methanex to lay the groundwork for supply and distribution of methanol for their fuel-cell vehicles. Has this decision to phase out methanol affected your development plans?

Jim Perry: No. It's transparent to us. It doesn't matter.

StockHouse: Why is Ballard so committed to methanol?

Jim Perry: I don't know. You would have to talk to Ballard on that one. I could speculate that methanol is easier to reform and can be done at a lower temperature than gasoline or natural gas. However, you still have to heat it up, but not to the same temperatures as hydrocarbons.

StockHouse: Tell me about your alliance with Delphi Automotive.

Jim Perry: What we have with Delphi [DPH] is they have announced that they are producing a solid oxide based auxiliary power unit for BMW. It has also been announced that we are providing Delphi with solid oxide equipment. That is all that has been officially announced.

StockHouse: Can you give us any ideas as to when we can expect a production date with Delphi?

Jim Perry: I would suspect we are looking at a couple of years, at least.

StockHouse: Have you in effect targeted the auto market as a concentration for your cells?

Jim Perry: What we are looking at for any mass market is, we want to go in with a partner. The home co-generation market, the communications market, the utility based market, the auto market - all of those are mass markets - they are huge markets, and we don't see ourselves tackling them directly without a partner.

"Probably the place where we will go commercial first is the remote power business, because that is the business we are already in." "Probably the biggest potential application, other than automotive is in home co-generation. There is no way that PEMs are going to be as cheap in home applications as SOFCs."

StockHouse: You have mentioned the telecom market. How is your technology going to apply here?

Jim Perry: Basically, it's for remote power. That is our business anyway. For cell sites, for instance, which are away from grid power - right now the only solution they have, is diesel which is a lousy solution. The maintenance cost kills you.

Probably the place where we will go commercial first is the remote power business, because that is the business we are already in. In the remote power business there are a lot fewer constraints because the size, surface temperature and weight of the device really doesn't matter a lot. There are many other constraints that you would have in an automotive application that are not constraints in remote power.

StockHouse: What other niche applications are you looking at?

Jim Perry: Probably the biggest potential application, other than automotive is in home co-generation, where you would actually have a fuel cell system that would provide heat and power for your house. The beauty of the solid oxide system is that running on natural gas is so simple. There is no way that PEMs are going to be as cheap in home applications as SOFCs. Reforming for a PEM is a two-step operation, you have got to break the bond and purify the gas stream. We don't have to purify the gas stream. Our reformer is a very cheap and simple device. This is not rocket science.

StockHouse: There are other players in the solid oxide market. I am thinking of Westinghouse who announced a $250 million fuel cell project which was financed largely by the private sector.

Jim Perry: I know Westinghouse has this huge project, but basically they are looking at multi-megawatt power plants. It is a very different implementation of the technology.

StockHouse: Are you working on further alliances in the auto market outside of Delphi?

Jim Perry: We are having lots of talks with lots of people in lots of industries. If something were to happen, we would announce it, but we are just keeping all our options open.

StockHouse: How has your recent $25 million special warrant financing with Sprott Securities been subscribed?

Jim Perry: The closing is set for October 5th, and you know how these things go. Everything happens right at the last minute.

StockHouse: With part of the capital, you intend to open a new facility in Calgary, with production for pilot fuel sell stacks expected to begin next year. Is that on target?

Jim Perry: That's right. Of course we have to close the financing first. That is certainly doable.

StockHouse: How is the Thermoelectric generator division doing?

Jim Perry: Very well. As you know we have received the largest contract to date, which is a $19 million contract with the Gas Authority of India, which is their state-owned natural gas utility. This is our second big contract with them. This is not the first time we have worked in India. We are busy beavering away building stuff on that contract even as we speak.

StockHouse: You consider yourself the world's largest supplier of thermo-electric power generation equipment. Who are your competitors in this market?

Jim Perry: There really isn't much in the way of competitors. The only other one really, is Teledyne Brown [ALT] in the US.

"We don't see Ballard as a competitor at all, really."

StockHouse: Is Ballard Power involved in stationary power?

Jim Perry: They have certainly done some work in stationary power, generally in larger sized devices. The problem being that, again, reforming gets you. If you have a unit on top of a mountain, with a radio repeater, you could build a PEM cell for use up there but, where is the hydrogen going to come from, and in these remote applications a lot of times freezing is a problem. We don't see Ballard as a competitor at all, really. They are doing a lot of different things. Give them credit, they have done a great job, five years ago nobody had even heard of the fuel cell.

StockHouse: Who are your major clients in the power generation market?

Jim Perry: Last year we sold to about 250 different customers, all around the world. My biggest customer last year was in Mexico. This year of course, India will be the biggest. We sell about 75% of our products outside of Canada.

StockHouse: In your latest financials, you indicated that the generator division was going through a weak period. What percentage of your generator revenues are derived from the oil and gas market?

Jim Perry: That is hard to say. Because we are in distribution on an offering, I can't give any numbers.

StockHouse: Are you looking at markets outside of India with other developing nations or perhaps the European market?

Jim Perry: I sell to forty-six different countries right now. Basically wherever there is an oil and gas business, we sell.

StockHouse: So this is a constantly expanding market for you?

Jim Perry: Yes, it is a lumpy market, I guess, in that it is contract driven. We get a big contract and have a really good year. There are other times when it is not so swift.

StockHouse: Let's talk about your order backlog for power generators which is currently at its highest level ever. Are you going to have problems delivering the product?

Jim Perry: Hopefully not.

StockHouse: Can you keep up with the demand?

Jim Perry: We have hired 25 extra people over the last couple of months. We believe we can keep up.

StockHouse: The production delays you have had in the past - is that something you have dealt with?

Jim Perry: We haven't had anything serious on the generator side. We have had some problems on the heater side, but I think we have most of those resolved. Recognizing that we build 85% of the generators in-house, we have pretty good control over all the parts and pieces.

StockHouse: How is your diesel-fired heater division doing?

Jim Perry: A couple of days ago we put out a press release announcing another $8 million in orders. The backlog on that will take us just about through the end of year 2000.

StockHouse: The US Army contract represents approximately 98% of revenues. Are you looking to expand your customer base? What happens when TACOM (Tank-Automotive Armaments Command ) qualifies another supplier?

Jim Perry: That would take some time. Having just been through that process it is very arduous and painful. For them to do something with somebody else - that's not going to happen in the short term.

StockHouse: Is diesel fuel the best application here?

Jim Perry: That is what the Army has decided to go to. They will do nothing but diesel.

StockHouse: You are currently operating at a deficit, with a loss of $0.01 a share. How can you reassure investors that these numbers can be turned around?

Jim Perry: Well, just look at the order backlog. I have an order backlog that is bigger than my last two years' revenues.

StockHouse: Who are your major shareholders?

Jim Perry: We have one shareholder that is above 10%. They are a group called Foundation Equity out of Edmonton which is a venture capital group. They have been with us since 1993. They own about 4.8 million shares, out of 23 million.

StockHouse: Is your IR department looking to increase institutional buying and representation?

Jim Perry: This high equity offering we are doing right now is strictly institutional.

StockHouse: What major announcements can we can expect next from Global?

Jim Perry: You will find out when we announce them.

StockHouse: I appreciate you taking the time to speak with us today Mr. Perry.