Modern economies are highly dependent on the performance and reliability of the electricity grid. Electric utilities now face real and immediate challenges in providing reliable power. These challenges exist mainly because of aged centralized electric utility grids that are increasingly unable to accommodate increasing consumption and customer requirements. Refurbishment by utility companies of their infrastructures would take years and require major capital expenditures.

Additionally, while expensive long term refurbishment of the systems may increase reliability of the energy supply, it would not necessarily solve problems associated with spikes in energy demand that can only be satisfied by the release of excess energy that has been previously stored from the generation source.

Energy storage itself is not new for the utility companies and storage systems in the form of hydro-electric have been utilized in the industry for some time. However, use of these technologies require significant capital and space resources. In light of the capacity constraints and aging infrastructure of electricity grids in the United States and many other countries, electricity can be delivered most efficiently by placing energy storage systems near customers with variable power demands and at substations closest to the areas of greatest electricity usage.

Performance problems in electricity distribution grids vary in nature and severity. One way for a utility company to address deficiencies in the electricity grid is by using the back-up energy provided by energy storage systems to provide uninterrupted power supply. Distributed energy generally refers to the deployment of energy generation and energy storage resources in the transmission and distribution networks of the electricity grid. Typically, distributed energy solutions are deployed close to the customer base, at the utility substation level or at the lower voltage levels in the distribution network.

Utility companies attempt to even-out the on-demand supply of electricity from the grid by the storage of electricity during low-load (low demand) periods, and the subsequent supply of stored electricity during high-load (high demand) periods. In the industry, these techniques are known as load shifting, peak shaving and peaking capacity.

These modules function either as stand-alone units or serve as the building blocks that larger storage systems require. Any number of modules can be placed in multiple parallel and series arrangements to meet the varying energy capacity needs of the customers.

The first products the Company developed were “turnkey” 400 kWh energy storage systems that consisted of eight 50 kWh modules. The Company manufactured and conducted successful trials of two 400 kWh systems in power utility applications in both the United States and Australia.

One of the characteristics of the Company’s zinc bromine based systems is that they can be fully charged in 4.5 hours and can then discharge 100% of the stored energy, typically at rates from two to eight hours, and sometimes longer, depending on the customers’ demand for energy. By comparison, lead-acid based systems typically take longer to charge and can only discharge approximately 65% of their stored energy without degradation to the battery during regular cycling.

The Company has also used its zinc bromine and manufacturing technologies to develop a non-flow battery product that, unlike the F2500, does not require a circulating electrolyte system. This non-flow battery product is known as the N-F800 battery. The N-F800 provides less power and is much simpler in its construction as it does not require the electrolyte storage and circulation systems of the F2500.

Prototypes of the NF-800 currently on life cycle tests have passed the 3,000 cycle mark and still achieve total return energy efficiency of over 70%. This battery is designed for use in small electric vehicles such as golf carts, materials handling equipment, wheel chairs, electric scooters and lawn mowers and in other applications such as telecommunication applications.

Interest income for the year ended June 30, 2006 was $4,287, down from $21,680 in the year ended June 30, 2005.

Total expenses in the year ended June 30, 2006 were $3.1 million, which represents an increase of $445,635 from expenses of $2.6 million in the year ended June 30, 2005.

Cost of contracts in the year ended June 30, 2006 was $524,320, which represented an increase of $113,319 from the year ended June 30, 2005 expenses of $411,001.

Net loss in the year ended June 30, 2006 was $2.9 million, an increase of $247,765 from $2.7 million in the year ended June 30, 2005.