Letter to Shareholders
Mar 13, 2006
Dear Axial Vector Shareholders and Friends,
Axial Vector Engine Corporation ( AVEC ) is aware of a number of questions on the minds of our investors and supporters subsequent to recent comments on the Internet and other media. We believe the information provided was poorly researched, and we are deeply saddened to see it causing widespread concern for those of whom have taken a special interest in AVEC.
We believe our technology is revolutionary; thus, disruptive. AVEC does not take kindly to being attacked, naturally, but we also believe a rebuttal to be counterproductive. Our most simple, compelling and irrefutable response is the introduction of our product lines over the next six months and beyond.
The following Q&A drafted by Dr. Raymond Brouzes, CEO and President of AVEC, addresses a number of investors questions and concerns in an effort to put your mind and ours at ease.
We thank you again for your continued support and interest in Axial Vector Engine Corporation.
Sincerely,
Axial Vector Engine Corporation
Will production of the Genset be complete by the end of March 2006?
The prototypical Genset was scheduled for the end of March, 2006. This expected completion date has moved to the end of April 2006. This delay was caused by delays in the delivery of castings, but it is not expected to impact Beta testing dates set for June - July 2006. At that time, the prototype Gensets will undergo a period of trials, testing and modifications, if required, before they are sent off to our four Beta sites for "real-world" operations for an additional three-month period. During these trials we will collect a wide range of data to determine things such as cost efficiency per kilowatt hour of electricity and "mean time between major overhauls." We have designed this mean time for 30,000 hours. Any design improvements that emerge from the Beta testing will be incorporated into the final manufacturing design specifications. It is hoped that production manufacturing will start in October 2006, barring problems encountered during the testing processes.
Did Adaptive Propulsion Systems (APS) actually open and staff the office in Detroit?
APS has opened its facility in Detroit; however, it currently expects to relocate to a larger facility to support expanded engineering, work spaces for prototype and limited production capability. Current staff is approximately 15 people. As the automotive capital of the world, Detroit is an ideal location to recruit engineers and other professionals with important skill sets and experience.
Are the generators actually being tested and did testing of any of the components actually begin in January 2006?
Yes, the bench test generator validated the concept and model of our Axial Flux generator. Currently the generator is being "productionized" taking lessons learned from bench testing and incorporating in the prototypical design. Our first product is a light-weight, iron-free, high power density rare earth permanent magnet generator. It will be used in our 200 kW Genset spun by a 352 HP Axial Vector engine at the Beta sites.
Have the beta test sites actually been selected and is the actual testing going to be initiated on schedule?
Three of the sites have been selected and approved. We are presently completing the final legal details related to the fourth Beta site. We are very serious and intent on getting the Beta sites under operation as quickly as we can; however, we are also very cautious to make sure things are done right the first time and will not rush the process just to move it forward.
What progress has been made in making alliances with dominant industry players?
No formal alliances have been made at this time; however, we have made progress on a number of fronts, especially related to the manufacturing of the engine and Gensets for distribution in a number of major markets. We plan to invite a number of market leaders in power generation and engines, such as Kirloskar, to visit our Beta sites. We also plan to have a significant presence at the Power Gen International show in Orlando, Florida where we will launch our product to the international market.
How reliable are the earnings and especially the timing of the earnings projections previously made?
Our calculation of earnings estimates was based on identifying the markets in which we expect to execute License Agreements before the end of fiscal year commencing in July 2006 (inadvertently previously described as the fiscal year ending June 2006). The same is true for our projected earnings of $140 million for the following year. We expect other income to be generated by our operations during this time period, but do not expect it to be as significant.
In general, we are still of the belief that these projections are reliable (within the corrected time periods). Nonetheless, we recognize that projecting revenues is at best an inexact science that more often than not does not match actual results. Thus, we can expect the results to vary from projections based on events that invariably occur during the interim time periods. This is especially true in the case of the development of a new product and its introduction into the market, such as is involved in our business plan. Consequently, we plan to be vigilant in tracking our progress in seeking these projected revenues and providing investors with updated information and revised projections (where applicable) as we are made aware of changed circumstances surrounding the basis for our projections. For the time being, shareholders and potential investors should treat these projections as what they are, forward looking statements which represent managements best guess at this time of future earning. They should not to be considered as guaranteed or part of any assurance of operating results in the future.
Regarding the MOU with Emirates Advanced Investment ( EAI ) : It was to be concluded in late January 2006. It is now March 2006. Please provide an update on this significant event.
An MOU was signed and disclosed in an SEC 8-K filing in early January as a first step leading toward the completion a Joint Venture Agreement. The Emirates Advanced Investment (EAI) remains very interested in our technology. In fact they are in the process of completing an agreement with Adaptive Propulsion Systems (our first US Licensee) to build and manage an assembly line for the manufacturing of our Axial Vector Engine and our Axial Flux Gensets. EAI has been examining its various options to introduce our technology to meet the many commercial opportunities in the six GCC countries. EAI is now going through the process of deciding if they will create a Joint Venture with AVEC or request that we sell them a license. They would then pay royalties based on gross revenue generated from our products. We expect a final decision within the next several weeks; however, EAI has an extremely large organization with varied interests and the exact timing of this final agreement remains uncertain.Why has the unfolding of the due diligence with Kirloskar been postponed from the initial proposed date of January 2006 to July 2006?
The agreement with Kirloskar included a visit to the Adaptive Propulsion System (APS) facilities in Long Island, NY as part of their due diligence in determining to if they wished to become a manufacturer or distributor of our Genset. Early January 2006 had initially been the provisional timing for their visit. Schedules could not accommodate the set aside date and we cancelled the visit. Rather than rescheduling, AXVC recommended that they might find it more informative and productive to visit one of the four Beta sites the company was planning to carry out trials run on the 200 kW generators operating for a period of three month. This would allow them to see everything for themselves with regards to the performance and cost efficiency of the new technology. This also provided them with flexibility to carry out their due diligence according to their agenda during the 90 day trials. Following the Beta site, they would wrap up with a plant visit to Long Island. Thus the push back to July was not from a lack of interest, but changing circumstances as time unfolded. We think this new date is the best and most productive use of time for all involved.
We cannot anticipate all the major issues and difficulties that we may encounter or that will be laid across our path as we move forward. We shall endeavor to keep our shareholders and the public, informed as best as we can. We remain convinced that our technology is outstanding and that it will have a major beneficial impact on the technology sectors dealing with "propulsion" and "electric power generation" in the future.
Thank you for your continued support of Axial Vector.
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