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High-tech firm closes in on new round of financing

Producing a hydrogen gas leak detector, the firm attracted global companies as customers

Posted: May 16, 2013 2:00 a.m.
Updated: May 16, 2013 2:00 a.m.

Dennis Reid President and CEO, left, and operations manager Jeff Khamnei of H2Scan display three types of hydrogen monitors produced by the company in Valencia. Photo by Dan Watson

 

H2scan of Valencia is currently working on a final offer of equity in exchange for a new round of financing, and the firm is very close to releasing a new technology, said founder Dennis Reid.

The high-tech firm specializes in the highly flammable gas – hydrogen, the very same gas that famously brought down the Hindenburg.

The firm’s expertise, however, is in designing devices that monitor and detect leaks to prevent such catastrophes from occurring.

Founded in late 2002, Valencia-based H2scan got its first infusion of outside capital in 2004 when the firm received $2.54 million from Chrysalix Energy, Pasadena Angels and Tech Coast Angels. Today, the firm’s chairman of the board, Al Schneider, is also chairman of the Pasadena Angels.

Early investors helped fund the company’s research and development of its commercial products – patented hydrogen gas leak detectors and gas monitors, Reid said.

Calling hydrogen the resource of the future, it’s one of the only odorless, colorless gases that can be embedded in oil, he said. It’s highly flammable, but perhaps more importantly, it’s also far less expensive than using helium, which is very hard to find. As a result, more and more large companies are converting to hydrogen, Reid said.

The combustible gas is used in a number of industries from manufacturing to plastics and medical to petrochemical, he said. Even Intel chips go through a process that uses hydrogen, he said.

Oil refineries also use the gas; 98 percent of the world’s hydrogen is used in the oil and gas process, he said. Hydrogen is either used as a process control, or it becomes a byproduct of a process used by many manufacturers.

“With a leak above 4 percent into the air, you have an ignition source that can result in a fire or explosion,” Reid said. “The Hindenburg exploded due to hydrogen. And the refinery explosion in Sylmar that killed three people was caused by hydrogen.”

H2scan produces sensors, portable and permanent analyzers and monitors to detect hydrogen leaks. A nuclear power station in Washington State recently purchased a portable hydrogen analyzer to detect any hydrogen leaks during a storage welding process.

And, the company is also very close to releasing a new line for every gas chromatograph, he said. The company’s hydrogen sensors will fit inside the devices that separate and analyze gases.

“It’s in field trials at one of the largest oil company’s in the world,” he said. “We worked with them to design the new product.”

Before H2scan achieved all these milestones, however, it first had to spend years in research and development.

 

Origins

The technology was originally developed at Lockheed Martin’s Sandia National Laboratories.

A company by the name of DCH Technology was developing equipment for use in the aerospace industry. At the time, NASA was driving DCH to develop a sensor that was hydrogen-specific to meet the needs of NASA, Reid said.

By March of 2000, DCH reported losses of $1.4 million.

“I was an investor in DCH and was a consultant for them from 1999 to 2001. I was also a very heavy investor with them and knew they were going to be putting the company up for sale,” Reid said. “I really saw the potential; I knew the market was there – if we could develop the company, we could make a go of it.”

In 2002, H2scan was the top bidder in an asset sale.

After acquiring the old company, Reid licensed the technology with Sandia. Now it’s licensed with the U.S. Dept. of Energy with an exclusive license, he said.

The company then spent the nine years developing the technology for commercial use, he said. Today it has a host of global customers – British Petroleum, Exxon Mobile, Shell, Chevron, Teledyne, Bechtel, Boeing, General Electric and more.

By late 2011, the company moved to a larger facility in Valencia – 16,800 square feet – five times larger than its last office.

The move allowed H2scan to speed up delivery times by producing the products locally, in the same space used by its sales and marketing teams, Reid said. It also allowed H2scan to ramp up production and roll out hydrogen monitors for electrical transformers used by utility companies.

“The transformer market is a $3.6 billion market,” he said. “Our sensors can tell a utility if something is going on with their transformers that could result in catastrophic failure,” he said.

H2scan changed the original business model by not selling directly to customers, but by distributing the products through original equipment manufacturers. The move took the firm away from being a company with installers and service teams.

“It wasn’t feasible to develop new technology and grow the company if it was working directly with the customers,” Reid said.

Since 2010, when the retail sales began, H2scan has grown in excess of 60 percent per year, each year, Reid said. He expects the same growth rate in 2013 and a 100 percent growth rate in 2014 and 2015.

In 2002, Reid said he began with a staff of only seven. Today it has in excess of 500 customers and 32 employees.

“It’s not easy to manage that rapid growth. It’s a lot of hard work,” he said.

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