GMCC REMAT Part 2: Lee M Webb Interview

Lee M Webb interviewed GMCC President Bruce McKenzie for an article in Stockwatch. Lee put portions of the interview into the public domain.

Since 2004, the company has claimed to have a self-powered motor that represents the Solution For The World's Power and Energy Needs. The company even published a report by an engineer supporting their claims of a breakthrough, which we discussed in part 1. Indented items below are quotes from Webb's interview. I have edited his quotes for formatting and to add links not part of his article.

What does the company say?

When asked about the company's earlier claims about the greater than unity observations, Mr. McKenzie attempted to put some distance between GMC's current focus and that topic.

"The greater than unity tests were all visual," Mr. McKenzie said. "They were not double-blinded or triple-blind studied by engineers."

GMC's president said the phenomenon was observed and the company has to take responsibility for the news release; nonetheless, he was clearly not comfortable with those claims.

"The world we're in is not truly trying to be over unity and those words -- perpetual motion, over unity -- those are not the claims I would like to see the company's direction," Mr. McKenzie said. "That's why you haven't seen any more of that.

"Richard Brace is the CEO and I'm the president and we've got more reality from engineering groups that have educated some of the marketing people around here."

According to Mr. McKenzie, part of that education involved making clear that claims about the technology had to be run by "an educated source" before news releases were issued.

"It was lax on our part with some engineers that interpreted (the test observations) and there was a marketing guy standing around -- he's no longer with us -- and he took it and ran with it before anybody could control it," Mr. McKenzie said.

According to Mr. McKenzie, the company plans to issue a series of properly vetted news releases soon, but investors will not hear anything about over unity devices from him.

While Webb finds that the company shied away from its claims of a self-powered motor in his interview, the claims are still on their website. The "marketing guy" who is no longer with them most likely refers to William Windsor, who is still on the officers list for GMCC and another company, MOGENIX, INC. with GMCC CEO Richard Brace. William J Windsor has by means of default judgement been made subject to an SEC enforcement action over the "prime bank" high yield investment scheme The Gateway Association. The SEC complaint states that Windsor was also has six state securities fraud convictions for defrauding investors and a federal conviction for money laundering.

Webb asks also about the mobile lab announced in September.

What about the mobile lab?

GMC's president was asked what had become of the mobile lab that the company claimed was being constructed and equipped to demonstrate the REMAT motors last September.

"Actually, that was not necessary because the people showed so much interest that we didn't have to put a road show on the road to go pursue our end buyers," Mr. McKenzie said.

"We have three or four people to the table right now that are interested," he continued. "They've flown in, they've brought their engineers in and we're negotiating now with one of those buyers."

The buyers refers to the announcement by GMCC that this motor that powers itself (but you didn't hear it from him) has attracted attention form fortune 500 companies (but you wont hear it from them) and that GMCC plans to sell it and pay a dividend to its shareholders.

What about the price tag?

Mr. McKenzie was then asked about the $350-million to $500-million price tag suggested in the news release.

"We've had verbal evaluations on our technology and now we're actually going to have meetings in the next two days for written validation and confirmation of those numbers," GMC's president replied.

What about the audit?

Turning to some earlier news releases, Mr. McKenzie was asked about the status of the company's audit, which was announced last August.

"Well, that auditing firm has been tied up with a lot of other large business firms here and we are in negotiations with them to pass it off to another firm that can give it more time," Mr. McKenzie explained. "We're trying to accelerate that picture more than we are to dead-end the picture.

"We've interviewed two other firms already and we're thinking about transferring the work to these other two firms.

"Hopefully we'll have all our auditing done in the next three to four weeks."

End buyers?

Mr. McKenzie was asked whether GMC had produced or sold any of the motors.

"We're an R and D firm and we're preparing to license a few entities that have the infrastructures to take our technology to the marketplace, if they desire," Mr. McKenzie said.

"We're discussing licensing here, not manufacturing," he added.

"We haven't signed up with anyone, yet," Mr. McKenzie replied when asked whether the company had any licensees.

This should be our antepenultimate article on GMCC. We'll check back in a month to see how those meetings with buyers went, how the audit has progressed, and if the company has removed the overunity claims from its website now that its president says that investors will not hear anything about over unity devices from him.

GMCC REMAT Part 1: The Law of Experiments

John Brignell has compiled a list of "laws" including Langmuir's Laws of bad science and Maier's Law, to which he adds insightful laws of his own, including this The Law of Experiments:

The law of experiments

The first trial always produces a result that is bizarre and points to a great scientific breakthrough.

First corollary

The effect never reappears in any subsequent trials.

Second corollary

In fields such as epidemiology and drug testing there is only one trial.

A classic example of the law and corollary 1 can be seen in Gene Augistin's study of the GMCC REMAT Fuelless Motor. In June 2005 professional engineer Gene Augustin tested the REMAT and the company issued a press release with the following summary of the test:

ORLANDO, Fla., July 1 /PRNewswire-FirstCall/ -- GMC Holding Corporation (OTC Pink Sheets: GMCC) (http.www.gmcholdings.com ) announced today results of internal testing and independent verification of its high-efficiency electromagnetic pulse motor-genarator. Mr. Eugene Augustin, PE, was asked to opine on the performance tests of GMC'S REMAT technology. Augustin indicated that the first test, measuring input/output power ratio, produced about 140%efficiency. In following tests, using a capacitor bank with a resistive load, the observed efficiency was 150%. According to Augustin, "These observations were demonstrating a 'greater than unity performance' device, which I thought that I would never see in my lifetime. In my 50 years of professional experience that includes patents on several inventions, teaching AC DC machinery, including electric motors and generators, numerous designs in the field of microwave radiation and propagation and professional consulting in these fields, I believed that 'greater than unity devices' were an impossibility. I am now convinced that REMAT devices need to be explored, researched and tested so that this unique technology can be utilized for all the world."

That sounds like a confident assessment by an experienced engineer announcing great scientific breakthrough. But was it based on a completed testing and double checked? Or was this a preliminary test with a bizarre result? The full version of Augustin's full REMAT report shows that it was a preliminary test, undertaken without a test plan, with very limited data collection, which were called short when the REMAT stopped working completely.

Page 1

Page 2

As for corollary 1, that the bizarre result indicating a great breakthrough not hold up in subsequent testing, Gene Augustin has subsequently said:

Finally, the last three paragraphs of my report state that much more investigation is needed. There has been much investigation by GMC, but I have not observed a repetition of the phenomenon.

Unfortunately the failure to replicate the result is not always enough to convince an interested party than his great breakthrough isn't real. As Lee M Webb shows in his stockwatch article the failure to replicate the result has not led GMCC to conclude that it's great breakthrough isn't real. Though it's not clear what they now think their great breakthrough is.

Let's Do It Again

Shipping out metal plates and submersing them in water to produce Hydrogen is an expensive way of producing Hydrogen, and an extravagant way of producing energy. Sooner or later, investors will figure this out. So the next step is to focus on the value of the oxides or hydroxides also produced in this reaction. Before going over the recent announcements from AEC, take a quick review of the Hydrogenerate claims that Alternate Energy Corporation is recycling.

In 2002-08, Hydrogenerate announced that their process produced Hydrogen at a cost of 6 cents per cubic foot, which is not so great. In 2003-09 they announced that recycling could reduce the cost by 25%. Just before Hydrogenerate stopped financial reporting, they issued a press release claiming that they had even sold some of their "by-product".

AEC does one better than rehash Hydrogenerate's story. With their unique combination of hyperbole and innumeracy, AEC is now making claims indicating that Hydrogen represents much less than 1% of the value of their process, with most of the value coming from converting metal into "valuable" rust. One wonders why management attention is so focused on the tangential Hydrogen issue. If their latest announcements are correct, 99% of the value of their process comes from a material they haven't even named!

This is a long post since I'll include the entire press release and a quote from the SB-2. Any bolding is my emphasis.

2006-01-18 Press release

Alternate Energy Corp. Announces Upgraded Business Model
Wednesday, January 18, 2006
Opens Up a Billion Dollar Worldwide Market of Opportunity BURLINGTON, ONTARIO--(CCNMatthews - Jan. 18, 2006) - Alternate Energy Corporation (AEC) (OTCBB:ARGY) on November 14, 2005 announced that it had filed a provisional patent on a new production process by which it can economically produce pure hydrogen and commercially saleable commodity chemical products that open up a billion dollar worldwide market to the Company.
These developments have resulted in AEC re-defining its business model, while positioning the Company to become a player in the production of pure hydrogen for a wide spectrum of commercial applications.

Over the past year, AEC has worked closely with a nationally recognized, independent chemical laboratory in Toronto, Ontario, Canada, to further refine its process. The revised formulation has improved hydrogen production significantly, with the added creation of valuable commodity chemicals. Since the commodity chemicals have a much higher market value/weight than the hydrogen itself, subsidization of the hydrogen's selling price via the sale of these chemicals can easily bring it more into line to compete directly with current gasoline prices. Long awaited by the automotive industry, AEC's solution could be society's closest answer to the hydrogen economy becoming a reality and make driving a hydrogen fueled automobile affordable. For example, AEC's solution could be an ideal candidate for the "Hydrogen Highway" in California, due to the overall low cost required to produce the required hydrogen fuel for future hydrogen powered cars - on the spot.

Prior to these recent developments, AEC had been focused on small, portable, on-demand hydrogen production systems which it continues to refine. These recent improvements to its process have resulted in the production of commercially saleable commodity chemical products. This has opened a large door for AEC - bulk hydrogen production at stationary customer sites, with the simultaneous production of chemical commodity products, recovered as a routine part of the production process.

Mr. Blaine Froats, Chairman & CEO of AEC, stated, "As reported earlier, we have recently filed a provisional patent with the U.S. Patent Office relating to significant improvements to our hydrogen production process that resulting in, not only increased hydrogen production capabilities and a more efficient production process, but also the ability to produce a number of broadly used chemical commodity products which have demand in existing multi-million dollar global markets."

Mr. Froats commented further, "These discoveries and developments have substantially impacted our business model, and have afforded us the ability to offset the cost of producing hydrogen to such an extent that we believe our prices can be very competitive in the bulk hydrogen market, while also moving into the commodity chemicals marketplace with certain products that are valued at market prices greatly exceeding the value of the hydrogen being produced."

AEC's research indicates that the market for bulk hydrogen gas is enormous, currently estimated at approximately US$3 billion globally. In an attempt to clarify for the shareholders what the impact of the Company's new business model might have going forward, the following example should be helpful. By locating just one stationary hydrogen production unit at the site of a food oil manufacturing facility, AEC could supply on-demand, high-quality hydrogen to the plant to satisfy the needs of their hydrogenation process and fuel for in-plant power generation, while also producing its commodity chemical products from the same facility. The Company would expect such an installed system to typically result in gross revenues to the Company of about $80 million, with gross profits exceeding $30 million at current market prices for the produced hydrogen and commodity chemicals.

AEC's commodity chemical "by-products" clearly meet industry standards after having been thoroughly analyzed by an independent laboratory for quality and purity. Mr. Froats went on to say "These recent developments at AEC have changed our outlook for the future of our company. While we initially were solely in the "hydrogen" business, the financial opportunity, as presented to us by these developments, has clearly opened up the commodity chemicals business to the Company. It is also interesting to note that these developments have caught the eye of a number of world class players in the hydrogen and chemicals businesses and could lead to AEC forming a number of large scale joint ventures in the near future."

From the 2006-01-19 SB-2/A

We believe that the by-product can be used by the pharmaceutical, food, and fertilizer industries worldwide. The by-product is produced in a liquid form and is later dried into a powder, which can be blown into plastic containers, sealed and shipped. For every 0.0893 Kg of hydrogen produced, 8.5 Kg of the by-product is produced. Throughout the entire process, everything is either sold or used again.
...
The worldwide bulk hydrogen market amounts to 45 billion Kilograms per year. This amounts to approximately $3.37 billion in sales in Canadian funds. The majority of the sales are generated from the following industries

The average price they are estimating for Hydrogen seems low. $3.37 billion Canadian for 45 billion kilograms is 7.5 cents Canadian per kilo. A kilo of Hydrogen has about as much energy as a gallon of gasoline. 7.5 cents is just too cheap. But why should AEC spend a lot of time validating the economics of the Hydrogen side of their business when the other figures they report show that it's a miniscule sideline.

The mass ratios presented are extreme. 8.5 kg of by-product for 0.0893 kg of Hydrogen is 95 / 1. That's awful. (More in another post.) I think this is a calculation error on their part, but it's their number, so I'll use it.

The values presented are also extreme. They say that the byproduct has a much higher market value/weight than the hydrogen itself. I think this is another calculation error on their part, but it's their claim, so I'll use it. Since the process produces, by weight, 95 times as much by-product as Hydrogen, the by-product must be worth much more than 95X as much than the corresponding Hydrogen produced. So the Hydrogen is worth much less than 1.0% of the economic output of this process. So, Hydrogen is a side-issue, and their main business is producing the by-product. What's that? They don't say, but we'll learn in May, when their patent application publishes. Anyway, AEC's main business is producing "by-product", and they haven't said what the "by-product" is. Why don't they want to say what business it is they are in?