Now, I am going to turn the microphone over to Sam Higgins, Secretary, Treasurer of Axial Vector Engine Corporation. Sam, hello.
(SJ): Thank you Jens, and welcome ladies and gentlemen. During the course of the final development stages for our engines and generators, several new and exciting applications have been discovered, the details of which Dr. Brouzes will be sharing with you today. Before he begins that overview, it's my pleasure to take a minute to update you on the reporting filings and our private placement.
Our restated financials are being internally finalized today, and we expect to file this week with no major changes to our overall financial picture. Further, we are well advanced towards the preparation of our annual report filing. While the report is not due until September 30th, we expect to file around the 15th of September. This will allow us to turn our full attention to the licensing negotiations and preparations for the World POWER-GEN Conference in Orlando at the end of November. Because of the enormous opportunity the new products present to the company and the need to protect this intellectual property aggressively, we are extending our private placement until October 1st, 2006.
To date, we've raised $1.6 million. Doing the financing now puts us in position to launch the POWER-GEN show with full products and materials available. We will be operating at 200 KW GENSET outside in the tent powering large electricity consumption devices and inside of a variety of motors and generators. We will also feature a live remote of Beta Site operations via satellite so everyone can see our inexpensive remote portable power being fed into a grid for augmentation. We are also hopeful of having at least one joint venture signed with significant revenue, which will also include a license to manufacture. So, we have lots of units to start providing electricity around the world on a per kilowatt basis. I would now like to turn it over to our President and CEO, Dr. Raymond Brouzes.
(RBz): Thank you very much Sam. Ladies and gentlemen, welcome and thank you for joining us. I would like to provide you with an update into the technology that have been developed and why we believe we have some extraordinary products and technologies with immense market opportunities.
I would like to, in my presentation, walk through in a systematic fashion beginning with the bit of background, introduce you to the team of high quality people we have around us, I'd like to tell you a bit about the products that are emerging and the products we have under development and applications, tell you a bit about our business model, about our emerging relationships with other potential joint venture partners, about the patents, our intellectual property and what we are going to do to protect we are doing and going to continue doing in protecting that and tell you a bit about the products that are ready to go to the market and others that are just being polished off to join the earlier leaders and finally end up with a bit of a budget overview.
In the early days of AVEC we met with the President of Tactronics who was interested in our gasoline fueled Axial Vector Engine. His company which designs, develops, and manufactures sophisticated integrated systems and solutions for electronics, communications, armor, and special tactical vehicles was quite interested in what we had. He had just completed a review of all known and experimental engines available that could possibly meet the growing needs for gasoline free propulsion systems. It had to be a multi-fuel engine sort of diesel JP5, JP8 that type of fuel perhaps kerosenes, that to have high fuel efficiency, high torque, high horsepower, and simpler design was better as well as lightweight and smaller size.
The president of that firm was so convinced that our Axial Vector was what he had been looking for, that in no time we struck a deal that would have a profound effect on the direction of our evolution. He offered to modernize our existing Gasoline Axial Vector, with the best electronics and control systems and modern materials that could meet performance requirements.
He would undertake a redesign of the entire engine that would include engineering, machining, electronics, control systems, assembling and testing at his own expense providing. That he was given an exclusive right to manufacture, sell and service all of our Axial Vector products to the military of NATO member countries. He did not want the IP rights or patents that flowed from the work. The IP in its entirety would flow to AVEC.
In addition, APS agreed to pay AVEC 20% on all APS gross revenues. We agreed to pay them 5% on all our global gross revenue. The deal was signed. It was a great deal and neither side has looked back since.
Early in our relationship it was decided that APS would focus on engine development for the broad needs of propulsion applications, while AVEC would concentrate on power generation and GENSETS. AVEC deliberately selected Power Generation for the first application of our engine. We could prove our technology without facing the barriers of entry that the automotive sector was likely to erect. Initially we had conceived of integrating a high-quality though existing generator to our engine. We've realized that our generator set, the engine, generator, and control system would needed to be fully integrated to give us a leg up in the market. We had the good fortune of discovering or Oyvin Haugan who had worked with Onan, Cummins, John Deer, and Caterpillar related in their generator divisions. Oyvin had developed in 1970s the small generators that Onan developed for the RV market that helped Onan capture 90% of that market.
Based on a life time of innovation and experience, Oyvin had a number of ideas bubbling away in the back of his mind on how to improve generators that would use rare-earth permanent magnets, that would be core-less and would have an Axial flux design that would not only act as a generator, but would also act as an electric motor. This was the innovative generator design that we were looking for. Oyvin joined us and was put in charge of the design of a high efficiency generator to be fully integrated and harmonize with our engine and the electronic control system that integrates the engine function and the generator output.
The first core patent surrounding the generator motor application is 63 pages long with 52 claims. And this, ladies and gentlemen, is an area that apparently is already saturated with technology. So, we think that Oyvin has done a magnificent job on what he has come up with.
Now this core patent will be further strengthened with a whole thicket of subsequent and other patents that will come out once the core patent has been well received and we implement the technology.
Now the benefits of this axial flux generator that Oyvin let us into is that it has a greater power density, and all that means is that it produces more kilowatts per pound of generator. It's lighter weight, it's smaller in size, and there is no in rush of current on start-up of an electric motor because of the permanent magnates that are used in the generator and this is very, unlike the induction motors, which need to generate a magnetic field in order to start up. The power factor is better than 0.98 in our system compared to the 0.75 to 0.92 efficiencies of an induction motor.
So, in other words, we have a system that's 98.5% efficient, compared to the closest rival of 92%. This type of generator, this Axial flux generator is ideal for a wide variety of applications and we hope to aggressively follow them up. They are ideal for distribution, for distributed power systems in developing countries, in remote regions, and cottage country and small tourist islands, or in industrial complexes in developed and developing countries. This generator, as I've also just briefly alluded, can also serve as a small lightweight super-efficient electric motor. Now, I'd like to tell you more about the electric motor in a few minutes, but I'll just leave it there for the time being. I'd like to tell you a bit more about the effort we put into developing the Workhorse 7.2 which had a guiding principle. Its basic tenant was to be very efficient at converting energy, converting fuel into electric energy and that fuel into kilowatts. This was done by putting together a top notch team of engineers that now consists of a team of 20 engineers and technical people. The team is led by APS's Managing Director Art Gopalan who has 35 years of experience with General Electric and where he was directly involved with GE Power Systems and GE Aircraft Engines. Art Gopalan - very rich, very steep in the culture of GE - brought that fine discipline and intellectual rigor to the company.
We also have some very other great stars. We have (Larry Kubas) who is Director of Engineering and he is the former head of the Ford NASCAR engineering design crew, which is extremely valuable, alloy and engine design. We have Pierre-Louis Varhnes who is a former senior engineer in the Peugeot Formula 1 race team. And we also have Chris Lambert who is the headed up or worked in senior position with the Chevy race car team and we have others, and there are another 16 which I don't want to take all the time to introduce them, but it's that high quality of individuals we have.
Now, we needed a third leg to the stool. We have excellent generator design by Oyvin. We have excellent engine design headed up by Art Gopalan and some of the other engineers I mentioned. We needed someone for the power generation guidance, and we had the good fortune of meeting Dr. John Walter who is now a consultant to AVEC. The first half of his career was with the Westinghouse Electric Corporation. And he dedicated his efforts to the development of the United States Naval Nuclear Submarine program and he played a very senior role over there and worked quite closely with Admiral Hymen Rickover. Leaving, after the nuclear program, the submarines, Jack undertook a number of very interesting career moves. He was Director of Engineer with Gulf & Western in their pipeline and nuclear equipment manufacturing. He was also President of G&W fluid systems division, and as President of Ogden Power Corporation. He took Ogden into the electrical power generation business.
Jack took, many other presidencies of other companies leading and senior posts on boards of companies after he retired in October 2000 from the presidency of Constellation Power, which is an independent power subsidiary of Constellation Energy Group on the New York Stock Market. The highly successful CPI subsidiary under Dr. Walter's leadership developed, owned, and operated over 40 energy generation plants and fuel generation facilities throughout the United States and Latin America, including the largest electric distribution company in Panama, Electrica Norte. These facilities generated over $5 billion of revenue annually. So, it's quite evident that with his background Dr. Walter is a perfect candidate to help us. The AVEC Board has just appointed Dr. Walter, as Chairman of the AVEC advisory council, a body composed of retired former senior industrial leaders and executives who meet regularly to provide strategic guidance to me in our present areas of business interests, and emerging opportunities.
A few minutes ago I mentioned the Workhorse 7.2 and the 7.2 stands for 7.2 liters. And I'd like to tell you a bit about that engine. It's a 352 horsepower digitally controlled, linearly reciprocating engine with no side loading on the cylinder walls, thus eliminating most of the friction. And the engine is designed to run at a constant optimal speed for greater fuel deficiency and greater longevity. Its ideal speed is about 1100 RPM. It produces a torque of approximately the same figure of 1100 foot-pounds, but has a very nice horsepower-to-torque ratio. It is not spark-assisted and we've deliberately done that to let it ignite on compression for maximum energy extraction. And The Holy Grail in this design was 0.26 pounds of fuel per horsepower per hour. The engine is as I previously mentioned diesel, it runs on JP5 and JP8, I think these are tactical military fuels and can be found at airports, but it can also run on bio-diesels and other similar combustibles such as alcohol or natural gas and propane. One needs a different fuel handling system though for natural gas and propane.
The engine is designed to run 40,000 hours between major overhauls. Now, I know that doesn't mean much to many, but if you consider that that engine might be running an equivalent to 50 miles per hour, that represents 2 million miles between major overhauls and that's equivalent to about 4.6 years of continuous operation.
The conversion of the mechanical energy from our engine to electrical energy from our generator is about 98 to 98.5% efficient. And that provides one of the highest, if not the highest, energy efficiency in internal combustion engine systems for electrical production. A 10% increase in power production for the same amount of fuel consumed represents vast savings for the power generators and transportation companies. We will be getting very soon the precise power savings we - our combination of technologies will produce. We are presently, as some of you know, are undertaking third-party facilities testing in Detroit, and that should be completed we hope within -- there is always time slippages when you are developing new engines, but I expect it to be completed within 10 days.
Now, once we've finished the engine efficiency, we will be putting this together into a GENSET and I'll be speaking a bit more on that, and we will be sending this system off to Panama for testing at a real power station located in remote tropical maritime climates, in remote regions, island locations, so some pretty tough conditions to operate under and we want to see how well it hangs in there with existing big generating stations. So, all of this will be very carefully monitored and reported in -- at the Power-Gen Show in Orlando. We will also be carrying out trials in New Zealand. They are a completely different setting, more coolish climate, more mountainous. So, we will be putting our system to test in very interesting and rigorous environments.
The generator, I said I'd come back to because it has an interesting property, it can either be a generator or a motor, and with the same -- essentially the same design, not quite the same but very similar. This high efficiency, small, lightweight generator is reversible and that can operate as an electric motor when supplied with electricity, and therefore we call it the generator motor or generator/motor. Of course, all of this has to be controlled by sophisticated electronic control devices that have been developed as part of the material that will be patented. The electric generator and motor along with new materials high efficiency lightweight batteries capable of handling large and at rapid in-rushes and out-rushes electricity opens the door to a wide variety of applications. For example, we see it as the technology that will replace the present struggle for hybrid power systems in the automotive sector. Because of the small size of our motor and its high efficiency, we see it fitting nicely into compressors for air-conditioning and refrigerators. In fact, we see our motor designed and built into the compressors with our Axial Flux motors ranging in size from 0.5 to 5 horsepowers. This market alone is some 15 to 30 million units a year in the US alone. The US EPA mandated energy efficiency standards for 2008 and 2010 will require improved electrical efficiency. Cost efficiency will be certainly passed onto the consumer, and we have a licensable solution for those companies that will not be able to meet the mandated standards. Reduction of the inrush current is noticeable and is a positive marketing feature for us.
We have all the technology under one roof to build a new powertrain system for propulsion of hitherto unrivaled efficiency. It looks something as follows. I have already briefly touched upon the power generation with the Workhorse 7.2. That engine, as you know, runs a constant speed, its sweet spot for optimal efficiency and that motor just runs at that speed and the generator just varies according to the load demand that's being placed on it. And as I mentioned previously, it's an ideal system for power distribution. And we intend to go into that market around the world in many developing countries, and indeed in the US where we can help in the aging grids or after storms such as Ernesto I guess.
The vehicular propulsion, we have two designs that are emerging. One is a constant speed engine as we do for the power generation, and the other one is for a throttle response engine. With the constant engine speed for vehicles, it spins the generator, sends that power to the four Axial Flux electric wheel motors we have in the vehicle, or to a highly sophisticated battery ideal for our needs. When the vehicle needs more power going uphill or other loads, it draws upon stored electricity from the battery as well as instantaneous electricity being produced from the engine and generator set. When the vehicle is going downhill or wants to decelerate, the energy is used by the wheel motor generate electricity for the storage of the battery. So, the propelling -- the motors, the traction motors can either pull the vehicle or when the vehicle wants to slow down or is going downhill can just change its role in life and become a generator (indiscernible) rather than a motor. That's a very nice feature.
Another interesting area with this electric motor is the recovery of power. Normally, to lift load say in an elevator, electric energy is consumed to lift the load and the energy is expended through brake mechanisms as the load is lowered back to the ground. Our systems allow us to recover the energy when the lower the load by reversing the electric motor into a generator and accumulating that electric energy into the battery. That stored power is then used to help lift the next load. The amount of recoverable energy is phenomenal and presents another very large market opportunity for us.
There are maritime applications which are very interesting with electrical generation. We can eliminate the power shaft and the need for two engines in a boat and use electrically driven propellers for maneuverability. With the elimination of a driveshaft and a transmission in automobiles or in trucks or whatever vehicle, we eliminate the drag on the underside of the car or vehicle that driveshafts create. So, money and fuel consumption will be saved by a better design, better aerodynamic design.
As we've roamed around in developing countries, aeolian power, windmill power is also very attractive there and our motor, the wheel motor can also serve as a generator for windmills, and this allows us then to integrate a whole very interesting and sophisticated system from windmill as the basic power source, but when there is not enough wind, the generator system kicks in, the engine and the alternative generator comes in and we make sure that we have a constant supply of electricity. When the evening comes and there is a lower power demand, we can continue using that power capacity we have by using that electricity to produce desalinated water through reverse osmosis, and the costs are considerably lower than what water sells for in many of these islands or remote regions.
We have developed also with another firm an agreement where they have tailor-made desalination unit to fit hand-in-glove with our system and it runs through our FADEC, the Full Authority Digital Engine Control to manage the desalination program. So, remote islands will increasingly probably you will find our systems in these areas.
And, I briefly mentioned about throttle response engines. We both have diesel and gasoline that have that capacity. We have been pushing diesel very much because of the energy efficiency and demand for only diesel engines now. But, our earlier gasoline Axial Vector engine, the engine that introduced us to APS and Tactronics, has just come off a (dyno) trial in - I forget the name of the firm, its not important I guess, but technical services in Indiana, and they confirmed that to the nominal 200 horsepower engine is really 196 horsepower and it turns out 611 or 612 foot-pounds of torque. During the test, we discovered or identified that the aspirated fuel system was not working well, had not been working well for a long time, so we are going to change that fuel system to a fuel injection system and we expect that that 198 horsepower will now be something more (technical difficulty) horsepower with an increase in torque as well. This is a light engine, weighs about 200 some odd pounds, (technical difficulty) 612 foot-pounds of torque will make a very, very interesting engine for things like powerboats, light aircrafts and small helicopters. So, we will continue to push the market in that direction, because I know gasoline will still be popular and not totally replaced by diesel.
I'd like to take a couple of minutes to talk about our business model. We do not plan to build factories to produce engines and generators and motors and electronic control systems that would be competing with existing top-notch firms. We'll really have an excellent access to markets and we don't want to compete with them, they are good what you are doing. Rather what we want to do is let them build or distribute our products as exclusive licensees or distributors. We shall collect a royalty as a percent of gross sales or in the case of joint ventures we shall separate profits according to percentage of ownership. We shall maintain a center of excellence for propulsion and power generation in Detroit to keep our technology fresh and develop new products as well as a training center for licensees.
A number of relationships are emerging. One that we are very proud of and we want to cultivate and we hope will come to fruition is with Kirloskar Oil Engines of India. They represent considerable in-depth skills. It's a company that's over 100 years old, and they have been accredited, given one of the highest accreditations by Toyota. They-ve even -- Toyota has even created a joint venture with them called the Toyota Kirloskar Motor Private Limited, (TKM) and Toyota has as a matter of fact bought that division from Kirloskar and I think left them Kirloskar with 11% of the shares. But, their quality control of workmanship and material is second to none. So, with that type of accolade coming from Kirloskar, we feel kind of comfortable to pursue our relationship with Kirloskar.
The vehicle for those of you who are familiar with vehicles is the Hilux, and we can see a profitable and fruitful relationship with Kirloskar in allowing them to manufacture or a joint venture for engines. These engines would be fitted into tractors or industrial OEM equipment. It could be water pumps for irrigation, for power generation. So, there is a lot of opportunities in a country which has over a billion people right now.
Our product line, we have a number of products that are under test and will soon be out, but we also have some that are ready to go into the final assembly -- the final production. But, let me go through them for you. We have the engine -- the diesel engines, we have the 352 horsepower, heard about we have a 100 horsepower and a 25 horsepower waiting to be built once we have poofed up or debugged the 352. Likewise, we have this gasoline 200 horsepower that I just talked about and we can see making larger and (audio gap) of that engine.
We have the generators -- presently, we have the 100 kilowatt generator which is the real work (audio gap). And, once that is proven out, again, that should be done in within two or three weeks, we shall be building the 50, the 25, the 15 and 7.5 kilowatt generators. Marrying an engine with a generator produces something called a GENSET, and the GENSETs we are planning will be 7.5. This is all in kilowatts now. 7.5, 50, 25, 50, 100, 200, 400, 600 and a 1,000 kilowatts - a wide range of GENSETs. By the way, these are high-end GENSETs, these are not the GENSETs that you will go to Home Depot and buy for a couple of hundred bucks or 700 or 800 bucks. These will be very sophisticated, very with, you know, with 40,000 hour capability motor or engines on them. They will go into high-end applications.
Electric motors, this is the generator put in reverse, we are going to be building them from a 0.5 horse power -- I am sorry, 0.5 a kilowatt to 5 kilowatt mainly for refrigerator and airconditioning compressors. Massive market there and continues to grow. Then, we have the electric motor of course for wheel propulsions, 15, 100 and 200 kilowatt propulsion for land, air, water applications, even 18 wheelers. Our 352 horsepower engine with this generator will amply drive a 18 wheeler truck. And, of course, the 18 wheeler won't have to shift gears anymore and won't need a transmission and drive shafts and things like that. Wheels will be traction wheels.
And, then, there is the electric motor for recoverable energy, and we talked about briefly about that in elevators. But, there are many, many other industrial applications. And, the lifting now will only be a matter of overcoming the friction because -- and lifting the first load, then compensating for the friction. So, that will be, we think, an important area. The electronics of course, and we can thank our good friends at APS, Adaptive Propulsion Systems for a lot of the technology that they pioneered in satellite communication. We will use that to do remote diagnostics on our systems. We have a FADEC. FADEC is an acronym for Full Authority Digital Engine Control, and that is the master that controls the integration of all the components go into these systems. We have engine control unit which is a slave to the FADEC and a generator control unit with another slave and we have operator interfaces for whatever it might be if it's power generation or vehicles and satellite communication. And, then, mixed into this we put in rectifiers and invertors to harmonize and integrate all the power sources that we will be creating from windmills to these generator sets.
And, IP protection, let me touch on that very briefly, we are indeed on the very threshold of introducing groundbreaking technologies into the markets around the world, technologies related to propulsion for land, water and air vehicles, moving platforms, airframes, off-road, on-road and rail vehicles. We also have developed unique, exciting and patentable technologies related to generators and electric motors. A lot of that technology is patentable and needless to say we want to have maximum IP protection in place before we increasingly introduce our products into the market. Not only is our strategy to patent the new ideas, but we also want to patent the applications of our technology. At one point, we counted 18 major patentable ideas in the engine alone. I am not certain what the exact count will end-up being, but we will do all we can to put a thicket of patents and secrecy to protect all our new technologies.
As I mentioned earlier, the first core patent surrounding the generators, a 63 page document, we expect that there will be -- some of the claims which may not pan-out, but there will be an awful lot that will be good nuggets or gems and we will harvest those and protect them even further. We are presently using an excellent firm called Kenyon & Kenyon who is our patent law office. They are a very large firm, a top quality firm from New York and we are very happy with the strategic direction and guidance we are getting from them and the robustness of the patents they are preparing.
We have 10 patents that have been either filed or in the process of being filed. We expect that number to continuously increase as we put in applications or more minor patents surrounding the core patents. As I said before, we will have a center of excellence in Detroit, and one of its key activities other than the commercial and licensing and joint venturing and marketing activities will be the creation of new technologies and helping train some of our licensees.
There is about $2 million that goes into completion of the suite of generators and engines and motors that are under development. So far, we are developing the prototypical model for each one of them, for the diesel engine for the wheel motor, for the generator, for the GENSETS. Once those are proven and then we will start rolling out the next smaller size or these are larger sizes, as appropriate, but that requires money. Well, that's part of the $2 million there, and that includes some of the testing costs as well. We have our trials and testing at 1.6 million, that's the next highest item. One of the reasons why trials and testing are expensive is that we probably pay 10 to 15 times more for a prototypical engine than a production engine. If an engine is worth $30,000, we at this prototype stage have paid for the one we are working on right now some $300,000, and we need some of these engines and generators and GENSETs to go to beta sites to irrefutably prove all our claims and the value of our technology. So, that's expensive. And, then, we got engineers and designers and interface, lot of activity there. The next probably most expensive is our IP protection, patent preparation, patent filings, patent strategy. And, then, we have salaries, and well that's up the next slide. Salaries is probably amongst the lowest. Building and facilities would be probably the next at 531,000. We have miscellaneous items around 386, and that's mainly to do with the conference in Orlando. And, finally, comes the salaries that are approximately -- I am sorry, the salaries are about 450,000. So, they are not the lowest. So, that's our budget. That works out to 5.9 million.
If you would be good enough if there are questions, and I am certain I haven't covered everything you want to know, don't hesitate to send an e-mail to either Sam or myself. And, we will do our very best to answer.
At that point, Jens, I would like to turn it back to you. Thank you.
(JD): Thank you, Dr. Brouzes. Very informative. This concludes our Axial Vector update today. Thank you everyone for joining us.