Select pages from a 62-page, follow up market research study Mountain Stream Group conducted to determine a.) the size of the control valve market as it relates to positioning and proportional control, b.) who the players are, and c.) what the opportunities and challenges a new company might find.

3. TABLE OF CONTENTS
Subject Page
Purpose......................................4
Methodology ..............................4
HR Textron Purchase ...................5
Control Valve Industry ................6
SunStream Scientific Identity .....23
© 2009. All right reserved. Mountain Stream Group, Inc.

4. PURPOSE METHODOLOGY
During our teleconference of January To obtain the necessary information to
2nd, there were 4 basic questions or achieve the goal of this study, Mountain
requests made by you and your partner. Stream Group, Inc. employed a multi-
stage approach, which included:
1. What is HR Textron’s involvement in
the market and where do they see • contacting various trade groups and
the servopneumatic market going? organizations,
2. What is the makeup of the control • searching the Internet to find
valve market and what type of pertinent data and information
specifications are they looking for? related to the study’s goals,
Size, actuation type, etc. • having discussions with key industry
contacts.
3. Develop a set of specifications to
which SunStream should build The following are the findings.
product to.
4. Find testing facilities that can test
the valve, cylinder and/or valve-
cylinder combination to establish
and/or confirm what the product
can do.
5. Additionally, SunStream had asked
if there is any data on the size of the
rod end alignment coupler market.
© 2009. All right reserved. Mountain Stream Group, Inc.

5. SALE OF HR TEXTRON
Effective April 3, 2009, HR Textron, Inc. the sale and ownership change, HR
has changed ownership from Textron Textron was one of seven operating
to Woodward Governor Corporation. businesses in the Textron Systems unit.
The company’s name is now Wood- According to the sale announcement
ward HRT, Inc. The focus of the new HR Textron’s 2008 total sales were
company is the aerospace & aviation approximately $260 million or 12.3%
industry and will be part of of the unit’s total.
Woodward’s Airframe Group.
HR Textron has been in the industrial
However, according to my contact at servo valve market for nearly 25 years.
HRT, they are currently working Today, HR Textron states of that
through an integration of the servopneumatic valves account for
Woodward HRT business with other approximately 25% of their industrial
parts of Woodward and there is no servo valve segment business, and the
decision on how the businesses will be servopneumatic segment is seeing
reorganized. In the meantime, they modest growth.
are continuing to operate our
company as before. While the focus Just as others have said and we
will be the aerospace & aviation indus- documented in the report, they believe
try, they plan to continue production of the success and growth of this technol-
servohydraulic and servopneumatic ogy lies in communication, promotion
valves for their industrial customers. and education.
Textron Corporation’s annual report
states defense, aerospace and general
aviation markets provided 15% of
Textron Systems revenues of $2.216
million in 2008. Additionally, prior to
© 2009. All right reserved. Mountain Stream Group, Inc. 05

6. Key control valve industry facts.
1. There is no single trade organization that covers this industry worldwide.
2. There are at least 7 market research companies who study this industry. Each
has a different definition of the industrial control valve industry and particu-
larly the automated control valve segment.
3. The industrial control valve industry is fairly large with anticipated worldwide
shipments ranging between $6 billion and $77 billion.
4. The US control valve market is estimated to be $3.8 billion in 2009 with $1.2
billion in automated valves. The automated valve segment is the fastest
growing segment due to process and plant automation.
5. The US market accounts for between 25% and 35% of the total worldwide
volume.
6. In 2010, China is expected to overtake the US as the world’s largest control
valve market with over $5 billion in shipments.
7. Seventy-five percent of control valves are on/off applications.
8. Twenty percent of automated control valves use linear actuation.
9. Growth of the control valve market is being stunted by the global economic
recession.
10. There is a 6 to 9 month lag time for the industry for when the industry will
turn around. It’s anticipated growth will begin once again in the Q2 of 2010.
11. The industry consists of a lot of small and fragmented companies.
12. The top 3 control valve manufacturers are: Tyco, Emerson and Flowserve.
13. The VMA reports in 2009 the top industries by usage of control valves are
Water & Wastewater (18%), Chemical (16%), Petroleum Production (12%),
Petroleum Refining (12%) and Power Generation (11%).

7. CONTROL VALVES
Market size depends on the source and market definition.
Editor’s Note: All sales, revenue and shipment
VALVE TYPES figures stated in the report are US dollars.
As reported in our December 2008
Ball valve, for on/off control without
pressure drop. study, The Freedonia Group estimates
Butterfly valve, for flow regulation in that the global industrial control valve
large pipe diameters. market would exceed $77.6 billion in
Choke valve, a valve that lifts up and 2011 for standard multi-turn, conven-
down a solid cylinder which is placed
tional quarter-turn, automatic control,
around or inside another cylinder which
has holes or slots. Used for high pressure automatic regulator, and automatic
drops found in oil and gas wellheads. actuators. This study states Asia Pacific
Diaphragm valve, some are sanitary is the largest segment at 34% followed
predominantly used in the pharmaceutical by Western Europe at 27% and North
and foodstuff industry.
America at 25%.
Expansion valve, used pressure reduc-
tion of fluid in general. Type of restrictor
valve to reduce refrigerant pressure and While North America is the 3rd largest
temperature in short period of time in market segment, the United States is
adiabatic expansion. one of the largest valve producers.
Gate valve, mainly for on/off control,
Together the US, Germany, Italy and
with low pressure drop.
Globe valve, good for regulating flow. Japan produced nearly half of the
Knife valve, for slurries or powders global valve shipments in 2006
on/off control. according to Freedonia. China is
Piston valve, for regulating fluids that quickly becoming a key valve manu-
carry solids in suspension.
facturer with production of $5.6 billion
Pinch valve, for slurry flow regulation.
Plug valve, slim valve for on/off control in 2006. Other notable valve producers
but with some pressure drop. are France, Russia, Taiwan and the
United Kingdom — each with more
© 2009. All right reserved. Mountain Stream Group, Inc. 07

8. than $1.6 billion in annual shipments.
That’s just one of many studies on the
industrial valve market. Other study
providers include ARC Advisory Group,
European Industry Forecasting, Frost &
Sullivan, Global Industry Analysts,
McIlvaine, and Supplier Relations US.
Each company has a different definition
of what products make up the industrial
valve market, and a different outlook of
what the worldwide industrial valve and
actuator market size is, or will be in the
future. The following are highlights
from these various studies. The stated
estimates are all based on studies done
before the recession hit.
Automated ball valve with rack & pinion actuation.
European Industry Forecasting estimates
the world industrial valve & actuator
market at about $29 billion with $8.5
billion in Europe, $3.1 billion in
Africa/Middle East, $9 billion in Asia and
$8.3 billion in America. This estimate
focuses on 7 valve types: gate/
globe/check, quarter-turn, diaphragm/
pinch, safety/relief, pressure reducing
and control valves, and on/off actuators.
The Frost & Sullivan 2008 World Indus-
trial Valves and Actuators Markets
report studied quarter-turn, multi-turn,
self-acting and control valves, and
actuators (electric, pneumatic and
hydraulic). They state the global market
was $26.69 billion in 2007 and
estimates the market to be $49.18
billion in 2014 — a 9.1% growth rate.
Automated choke valves are used in the
gas/oil production.
© 2009. All right reserved. Mountain Stream Group, Inc.

9. The Industrial Valves World Markets
study by McIlvaine states the global
market for automatic & regulating
control, ball, butterfly, gate & globe,
industrial plug, and other valves was
$47.2 billion in 2008, and projects the
market to be $56.3 billion in 2012.
ARC Advisory Group has the narrowest
definition for control valves — regulat-
ing the rate of fluid flow as the position
of the valve plug or disk is changed by
an actuator. ARC’s 2008 Control Valve
Worldwide Outlook study says this
narrowly defined market reached $4.8
billion and projects it will grow to $6.4
in 2012.
Automated knife gate valves are used to control slurries
in industries like pulp and paper.
They found the North American market
has the largest share at 35% followed
by Asia Pacific at nearly 28% and
Europe at 16.1%.
In their 2008 Industrial Valves: A
Global Strategic Business Report,
Global Industry Analysts (GIA) forecasts
the global valve market will reach $72
billion by 2010. The product segments
they analyzed for the report include:
globe and check valves, ball valves,
control valves, butterfly valves, water-
works valves, solenoid valves, nuclear
valves, and other valves. GIA states
Europe is the largest industrial valves
Automated globe valves are used to control the flow of
market at 38%. liquids and gases .
© 2009. All right reserved. Mountain Stream Group, Inc. 09

10. Reitz International — a Chinese control
valve manufacturer — states in a June
2009 press release that the world
market for automatic control valves was
$10 billion in 2002 and it’s estimated
to grow to $23 billion in 2008. They
also stated the European market was
expected to be $4.1 billion in 2008. A
Chinese valve blog has a post — which
sites the same information as Reitz —
stating the control valve market share
is broken down as follows: Middle East,
Europe, Africa 37.3%; North America
36.8%; Japan 13.5%; Asia other
10.7%; Latin America 1.7%.
Note: The information sited by both sources
vaguely references a study by ARC Advisory
Slide gate valves are designed to shut off product flow
from outlets of storage bins, silos, conveyors, and other
discharge points handling dry bulk materials.
Group, however, the data doesn’t mesh with that
of the ARC study and in a conversation with an
ARC representative they had no idea where the
data came from as well.
Suppliers Relations US states in a 2008
report the industrial valve market for
the United States was $12.4 billion. In
a Q2 2009 update, they revised this
revenue figure to $11.6 billion with an
estimated gross profit of 37.14%.
Valve Manufacturers Association of
America (VMA) data states their mem-
bers had shipments of $4 billion in
2008 to Canada and the United States.
Automated diaphragm valves provide throttling and on/off They further stated that their members
service in applications ranging from water treatment to produced 80% of the total shipments of
chemical abrasion processes.
© 2009. All right reserved. Mountain Stream Group, Inc.

11. PRODUCT TESTING
Failure and functionality characteristics testing to standards.
As we stated in the original report there they were highly capable of testing
are several new standards for product pneumatic components and systems,
failure and functionality characteristics the accuracy and repeatability resolu-
testing that will affect the design of the tion (0.001”) was out of their abilities
SunStream Scientific products and the since they didn’t have the equipment to
sales literature that goes with them. test to those resolutions. The only firm
These standards include the following: with any knowledge of servopneumatics
and who had the capability to test the
• ISO 10041-1 and 10041-2 product was the fluid power research
institute in Germany called IFAS -
These standards describe how to
Institute for Fluid Power Drives
test, collect and present the
and Controls.
operational, control and flow char-
acteristics of a servopneumatic
In order for us to obtain a proposal
(electro-pneumatic) 3-port or 5-port
from them we had to put the following
directional control valve.
testing plan together.
• ISO 19973-2:2007
Phase 1: Valve/Cylinder capabilities
This standard describes how to test vs. manufacturer’s claims
directional control valves for life-
4 sizes (1-1/4”, 2”, 3-1/4” & 4”)
cycle reliability.
a. Acceleration (claim is ± 3g)
b. Velocity (claim is >80 in/sec)
• ISO 19973-3:2007
c. Accuracy of position (claim is 0.020”),
This standard describes how to test d. Repeatability (claim is 0.001” or less),
cylinders with piston rods for life- e. Hysteresis (claim is <0.2%),
cycle reliability. f. Response time
(claim is <3 msec with no overshoot)
We used these standards in our attempt g. Settling time
to find a testing facility that could test (claim is @90 psi supply pressure and 65 lb load;
the SunStream Scientific products. All of 0.0100”(40 msec); 0.0010” (140 msec); 0.0003” (240
the testing laboratories in the United msec))
States knew absolutely nothing about
these standards. Additionally, while
© 2009. All right reserved. Mountain Stream Group, Inc. 59

12. h. Phase shift (claim is 15O at 5 Hz) Phase 4: Valve/Cylinder Reliability
i. Cycle time (claim is 9 inches of point-to-point Testing to ISO 19973
travel in <400 msec @ load=100lb, supply pres-
sure=80 psi, 2” bore x 10” total stroke length) Put the valve/cylinder through the
complete battery of testing per ISO
Phase 2: Valve/Cylinder capabilities 19973. The manufacturer estimates the
tested to ISO 10041-2, MTTF is 10 million cycles.
19973, and 10099
Phase 5: Servopneumatic valve testing
Attempt to test the product to as many to ISO 10041 & 19973
of the principals of the above standards
Remove valve from the cylinder. Manu-
a. Accuracy-is it possible to achieve
facture a sub-base and test valve to the
<0.020”?
above standards and develop the all
b. Sensitivity,
the appropriate charts per ISO 10041.
c. Linearity,
d. Response time with no load
e. Settling time with no load
f. Leakage rate at null
g. Coil resistance
h. Coil inductance
i. Leakage rate across the cylinder pis-
ton per ISO 19973 and 10099.
j. Threshold at -3dB, 90O phase lag
and full stroke (Is it possible for the
cylinder to achieve 100Hz?)
Phase 3: Valve/Cylinder capabilities
a. Develop velocity and acceleration
curves (no load) at various pressure
settings starting at 2-3 bar with 2-3
bar increments up to 17 bar (if you
can produce 17 bar).
b. Determine the minimum pressure
the cylinder will move at with and
without load (testing for friction),
c. At maximum frequency what
happens to the valve/cylinder in its
ability to achieve accuracy, repeata-
bility, hysteresis, etc.
© 2009. All right reserved. Mountain Stream Group, Inc.