To OTC Journal Members:

On June 4, 2002, one of the OTC Journal's editors was invited to visit Ford's top secret "Skunk Works" in Dearborn, Michigan to experience a revolutionary new technology which could end up, in some form, on nearly all cars. Its potential was compared to fuel injection, air bags, and anti lock brakes in the early stages.

The visit was hosted by Cliff Carlson, Senior Technical Specialist from Ford who heads the Advanced Power Train Architecture & Propulsion Concepts department. This same Ford executive headed up the General Motors team that developed the technology to convert nearly all newly made cars from carburetors to fuel injection in the late 1970s.

The giant facility was a car enthusiast's dream. We were greeted with a row of "black car" Aston Martins and several high tech looking Jaguars.

Nestled amongst these thoroughbred sports cars, and looking like an NBA center at a jockey convention, was a a slightly worn 2001 Lincoln Navigator outfitted with a 4.0-liter Jaguar V8. Underneath the vehicle, bolted to the frame on either side of the gas tank, were two long cylinders, each about twice the size of a SCUBA tank.

Mounted on the center console was a full computer screen with keyboard, attached to a CPU bolted to the floor between the two front seats. The computer screen allowed the driver to monitor the performance of the system. Performance adjustments could be made with keyboard entries.

Two years of experimentation with the system has led Ford to conclude the following:

• Fuel Economy improved by 38%- The normal 13 MPG in city driving was improved to 18 MPG (miles per gallon).
• The 275 Horsepower engine generated 360 horsepower when accelerating uphill from a stop.
• Pollution emissions were reduced by 50%.
• Brake Life improved by 77%.

For your consideration, an idea that's too risky for most investors:
 

February Profile: SHEP Technologies Inc. (OTC BB: STLOF)

• Stock Listing: OTC BB: STLOF
• Estimated Shares Issued and Outstanding: 22 Million
• Estimated Public Float: 8 Million
• Last Closing Price: $1.75
• Market Capitalization: $38.5 Million
• 52 High and Low: $1.90 x $.45
• Corporate Web Site: www.shepinc.com

A test drive in the parking lot of a shopping mall was all we needed. The experience convinced us this technology had the potential to end up on millions of vehicles world wide, and as such was a microcap investor's dream. Here's the story:
 

SHEP- Stored Hydraulic Energy Propulsion

Over the past thirty years there have been many improvements in the safety of motor vehicles. However, due to inefficiencies, there is still a great deal of energy wasted while driving.

The SHEP (stored hydraulic energy propulsion) system captures energy used during braking and recycles the energy back into the vehicle at the time it needs it most; when accelerating from a dead stop. At this time, the engine is performing least efficiently, burning the most fuel, and emitting the most pollutants.

After nearly two years of testing and fine tuning, Ford has been able to capture a full 70% of the energy wasted in braking in the Proof of Concept Navigator, an astounding accomplishment by engineering standards.

There are three components to the system as follows:

• The Ifield Motor/Pump: Attached directly to the drive shaft of the vehicle, the Ifield Pump makes it happen. When the driver applies the brakes, the Ifield Pump actually grabs the drive shaft and helps slow the vehicle to a stop. Ford estimates the pump extends brake life by 77%. The pump transfers the energy created by the turning of the drive shaft to the:
• Unitised Accumulator System: This is a hydraulic tank which stores the energy provided by the Ifield pump during the braking process. The energy can then be transferred directly back to the pump and used to turn the drive shaft as the vehicle accelerates from a dead stop. The entire process is controlled by the:
• Electronic Control System: The brains of the operation. It is software which tells the pump what to do during the braking and accelerating process.

When accelerating from a stop, the electronic control systems instructs the built up pressure to turn the pump, and the pump turns the drive shaft until the pressure is dissipated. The engine then takes over. Visit SHEP's corporate web site at www.shepinc.com for a virtual demonstration.

We were astounded when we actually had the opportunity to drive Ford's "Proof of Concept" Navigator and experienced SHEP working first hand. In a shopping mall parking lot directly across from a top secret Ford facility in Dearborn, Michigan, we drove the SUV. After achieving a speed of about 35 miles per hour, our editor brought the vehicle to a stop. The computer screen which had been rigged up between the driver and passenger seats showed the hydraulic pressure building in the accumulator system during braking.

When accelerating from a dead stop, the tachometer did not move above idle speed until the Navigator was already traveling about 25 miles per hour, meaning the engine had not engaged. It was simply idling. At about 25 MPH the tachometer jumped from 1100 to about 3000 RPMs, indicating the engine was now moving the vehicle. The transition was quiet and seamless; virtually unnoticeable if you weren't aware of it.

Since the engine is not used during the start up phase, Ford has determined the SHEP system as fitted on the Proof of Concept Navigator yields the following result:

• 38% improvement in fuel economy.
• 32% faster acceleration from a stop.
• 51% less pollution.
• 77% longer brake life.

What SHEP Technologies Owns

Currently, SHEP Technologies Inc has offices in England and Canada. The company owns multiple world wide patents on the Ifield Pump. A new generation of the pump is being developed now, and new patents will be applied for. The pump was originally developed by Richard Ifield, an Australian born engineer who spent his career in England.

Richard Ifield was a member of Sir Frank Whittle's team that invented the jet engine, and Ifield is credited with developing the fuel delivery systems. The Ifield pump was used on the first Concorde.

SHEP has also applied for two comprehensive world wide patents on its unique UAS (Unitised Accumulator System), the hydraulic storage system.

SHEP has two formal agreements in place at this time. The first is with Eaton Corporation (NYSE: ETN). Eaton is a global manufacturer of highly engineered products that serve industrial, vehicle, construction, commercial, aerospace and semiconductor markets. Eaton is Ford's selection to be the Tier 1 manufacturer and supplier of the mass produced SHEP system. For the fiscal year ended 12/31/02, Eaton's world wide sales were $7.21 billion.

The second agreement is with:
 

PI Technologies Signs On To Develop the SHEP Jaguar

On February 6th, it was announced that SHEP had entered into an agreement with PI Technologies to deliver a working prototype of the SHEP system on a Jaguar X type before the end of 2003. PI Technologies, a subsidiary of PI Group, is a British based company considered by many to be the foremost worldwide expert in the design and development of automotive electronics.

PI is owned by Ford, but only 40% of their business is Ford related. They are more well known as the premier provider of electronic control systems for Formula 1, NASCAR, and many other OEMs in the automotive world. The company employees 130 engineers in their worldwide operations.

In the near term, we anticipate the relationship with PI Technologies will open many doors for SHEP Technologies. They have relationships with all the major auto manufacturers world wide, and many governmental agencies with a mandate to reduce emissions and improve efficiencies.

PI will focus most of its energies on the electronic control systems. This is the brains of the operation, and tells the system when to engage and disengage. Fine tuning of the process can lead to significant performance enhancements. Upon conclusion, SHEP will own the computer software PI develops on their behalf.
 

Revenue Model

SHEP Technologies is not a capital intensive company. They own patents, development agreements, technological expertise, and a concept. They don't have a lot of hard assets. They only need several world wide offices and engineers to interface in development with Ford, Eaton, and PI Technologies. Therefore, their need for cash is minimal and their burn rate is very low.

They plan to generate revenues through licensing agreements, and strategic manufacturing partnerships.

It is contemplated Eaton will pay SHEP an initial licensing fee, and royalties in the 3% to 7% range for every SHEP system it produces. Once this money begins to flow, it will have minimal cost and be mostly profit.

It will be years before the SHEP system is widely available on standard passenger cars. The initial market for the system will be in small to mid sized truck fleets who's use requires a lot of stopping and starting, where the return on investment will be greatest. Specific examples include delivery trucks (FEDX, UPS, Postal, etc.), garbage trucks, municipal buses, etc. These types of vehicles have the best chassis design for adding the system. No major modifications to their design are required. Due to the nature of their use, they will also get the most benefit.

Pictured here is the highly publicized Ford Tonka Truck, the truck of the future which has been widely demonstrated at car shows for the past two years. The truck employs HLA technology (hydraulic launch assist), Ford's proprietary designation for the SHEP System. This is the truck of the future, and uses the SHEP Technology.
 

Suggested Trading Strategy

When considering the market for the SHEP Technology it is evident that any investor who participates in the speculative end of the market should own shares of SHEP Technology. After all, there are sixty million vehicles manufactured world wide annually, and that's just motor vehicles. The SHEP technology also works on any mode of transportation where energy is wasted in the braking process. For example, the company is currently demonstrating the technology to the London Subway system where vast amounts of energy wasted could be recaptured.

Whether you are talking about a hybrid electric car, President Bush's hydrogen car of the future, or a city bus, they all need to come to a stop and then get started again. In fact, anything that isn't airborne is a candidate for SHEP technology.

We also believe you must plan to participate in SHEP for at least two years if you hope to experience a once-in-a-lifetime gain. Undoubtedly, there will be trading opportunities around corporate developments, but major commercial deployment is probably two years out. The remainder of 2003 will be development oriented. SHEP is working on financing from government agencies with a pollution control mandate, further relationships like the one with Ford, and high profile publicity. We don't expect the company to generate significant revenues until 2004.

Because of the enormous upside potential, we recommend you allocate 10% of your risk capital to an investment in SHEP. However, a prudent strategy would be to make your initial investment only be 25% of the amount you intend to allocate.

• Use a limit order- don't pay more than Friday's closing price or even less, and be prepared to wait a few days to get filled if you have to.

By starting with only 25% of the capital you intend to invest, you are in a position to acquire a larger number of shares for the same money in a declining market. If corporate developments lead to higher levels, as you accumulate you will still have an average cost below the current market.

Early investors in companies developing fuel injection, air bags, and anti lock brakes undoubtedly made enormous fortunes over time. The same opportunity exists here for investors. These products first appeared on a few high end models, and several years later were incorporated into nearly every vehicle on the road. SHEP has the same potential.

Very few investors know about this company, and the OTC Journal is the first to publish on a widespread basis. This first look gives you the competitive advantage.

Reference Links

• SHEP Technologies, Inc corporate web site- www.shepinc.com- Click Here
• Ford Announces first demonstration of Proof of Concept Navigator- Click Here
• Business Description of Eaton Corp.- Click Here
• Article in Popular Science on Revolutionary Propulsion system in Ford Tonka Truck- Click Here
• Read about Ford's Tonka Truck- the Truck of the Future- Click Here
• EPA Press release on Ford's commitment to energy efficient vehicles- Click Here

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