Issue: Sep 2009


AVEC has now broken new ground for creating energy...



TO THE CURRENT AND FUTURE SHAREHOLDERS OF AXIAL VECTOR ENERGY CORPORATION

by Samuel Higgins, Chairman and Sanjai Chhaunker, Pre

TO THE CURRENT AND FUTURE SHAREHOLDERS OF AXIAL VECTOR ENERGY CORPORATION

Ladies and Gentlemen:

WE HAVE A PRODUCT

While this may not be as important as the “The Eagle Has Landed” on July 1969 when Apollo 11 touched down on the moon’s surface, for shareholders of AVEC it is a very close second.

There are other comparisons worth noting. Apollo 11 broke new ground for mankind with its moon mission and AVEC has now broken new ground for creating energy. A unique position has been created for AVEC in that the engines you see running in the videos posted on our new website can indeed run beautifully on “non fossil fuels”, an incredible breakthrough in non polluting, renewable products, which do not take a toll on our food supply and have no negative energy impact.

These are the building blocks of the future and provide enormous future profit potential for the investors and licensees of AVEC. For current and soon to be shareholders of AVEC, we think there is an even more important reason to feel good about having products that can now be sold and licensed around the world. That is that we are also able to use “any other” type of fuel and deploy engines and generators globally with the existing distribution and supply system in place today.

Diesel and Kerosene, to name only two, are available everywhere. AVEC engines use 25% less of it for the same power with much lower emissions. Using less energy is the same as achieving large conservation programs for energy or mandating higher mpg requirements. The economy and the air we breathe are both big beneficiaries of this accomplishment.

If all ICE (Internal Combustion Engines) were converted to AVEC engines in the USA alone, how many fewer barrels of oil would we need to import? A huge number.
While this letter is signed by both the Chairman of the Board of Directors Samuel Higgins and President and CEO Sanjai Chhaunker we would like to thank many people who have had an input including our directors, engineers, prospective customers, investors and our very vocal and intelligent shareholders. We are using this letter to tell it like it is for the collective version of how to make AVEC one of the real success stories of this decade.

WHERE ARE WE GOING?

Beginning today, AVEC operates as a holding company. Our wholly owned subsidiary “Adaptive Propulsion Systems” (APS) will serve as our development arm and license vehicle for our Engines, Generators, Engine Control Systems and Gensets. We acquired APS from Tactronics Holding LLC in a negotiated sale. Originally the purchase price was $2,000,000. In exchange for not having Tactronics do two other engines, we were able to purchase it for $1.00. Assets transferred to us included new intellectual property which is now being added to our patent portfolio and design and testing tools, equipment and inventory valued at over $1,000,000. We also now have the exclusive rights to see our products in the United States Military and other NATO militaries receiving the full value of this for AVEC shareholders. The IP is we believe worth much more and under our new product development program with “Engine Tec”. We are positioned to transfer our current technologies to licensees and develop and market new products from our original breakthroughs. Headed by Douglas Hahn, whom you will see in our videos today conducting the engine tour, is the “glue that welded all the pieces together” to finally complete our units that can now be licensed and transferred to create our revenue streams which we believe will be quite large.

APS will have a new updated website soon and we have uploaded lots of technical data including Dyno reports and are registering OEMs now for an easy due diligence process to facilitate licenses. Operating APS this way will also give us a pathway to finance further marketing costs utilizing Debt or Equity finance from APS. We are also in discussions with a major group on making a large investment in APS because of the results we can now show.

PETRO AVEC

Our 60/40 JV between Petrosonics LLC (60%) and AVEC (40%) now seems to be getting traction. As this is written both by Dr. Mark Cullen, founder of Petrosonics, and us are in India. We have been here in June giving technical presentations and negotiations with three entities, and have progressed to being invited back to discuss terms of a deal. We seek a co-development partner here where they will invest at least $10,000,000 to start. This will allow us to complete our investment of $7,000,000 to acquire ownership in full to our 40% of PETRO AVEC. We will also then provide an option to the winning group to a discounted license and a reduced royalty per barrel, which can cover all of India. While this leaves enormous sums on the table for the others versus what the license is valued at based on world standards, we feel it is critical to get into production quickly. An agreement based on standards of the above will force the rest of the world to quickly adopt our technology or risk being run out of the business by other refiners who can deliver “near zero” sulphur finished product at a price unheard of in today’s processing cost standards. The world’s oil producers and consumers are starting to take notice of us also. PETRO AVEC will be presenting at the World Refiners Conference this year in Houston as well as the Petrochem Arabia conference to be held in Saudi Arabia. We think it will not be long before we have field units operating creating royalty streams and in 2010 it is likely that one of the national oil companies will want to own the whole business.

AVEC TECHNOLOGY CORP.

Today is the first day of business for AVEC Technology Corp., our wholly owned subsidiary. Over the years we have acquired a lot of experience in commercializing technologies in many different fields. We will now put that collective experience to work here by acquiring patented products that are fully developed and ready to sell. No R&D work will be done here. This division will concentrate on marketing, sales and licenses. Significant revenue is possible here as there are a great many “market ready” products that will fit nicely into the substantial network that the company principals have. Generating enough revenue to cover all divisions overhead is the goal here. Excess profits greater than that will be welcome and will strengthen the foundation of the company. The first of these acquisitions is expected to be announced by October 1, 2009. We will notify all of you then, so watch close as we are confident you will be pleasantly surprised.

MOVING TO A HIGHER MARKET

We have retained the law firm of Novack, Burnbaum, Crystal of New York City to coordinate all our legal and accounting work. Long experienced in corporate and regulatory needs, they have worked with both of us to establish a plan to move us to a higher trading market. Our target is the small cap NASDAQ. We will need to file our form 10, get a 4.00 share price and meet other requirements and we believe we can do all of these things. In the meantime we will start reporting as if we were on a higher market already by filing 8k and other events as outlined by the attorneys.

HOW WE GOT HERE

Since assuming leadership, we have conducted an intensive internal review of our company's systems, procedures and internal controls as AVEC embarks upon this significant new phase of its existence. During the next 60 days we will be devoting considerable focus toward working with our independent auditors as they complete the annual audit for our fiscal year that ended December 31. We will also be completing the preparation and filing of SEC Form 10-K for that fiscal year, which will then be followed shortly thereafter by the filing of Form 10-Q for the third quarter of the current year.

Financial information to be publicly filed or released during the next few months will show the company has existed on a skeleton budget, which was provided by small private offerings of stock and loans from friends and or officers and directors. We have settled some debt claims against us and won a hard and expensive four-year battle on frivolous litigation.

If you are a negative person you have been having a lot to be right about on AVEC for some time. We waited too long for the engine to be finished which eroded our ability to do anything else and made lots of other mistakes too. The actions being taken now however have reversed course and we will not make the same mistake twice. 

We are restructuring our remaining debt so that we will be on time with current payables, and we have a $52,000,000 of tax loss carry forwards to apply against future earnings as permitted by applicable laws.

As a small company, the outsourcing of licensing activities for our patent portfolio provides us with the basis to plan for a revenue stream without the need to devote further resources to create and sustain an in-house licensing and support team. We intend to shape our business plan to keep expenses relatively low and allow current or future employees to focus on their areas of expertise so that we may focus on future growth. With the economy the way it is we can contract for top flight help at one half of what we used to have to pay.

A CFO will be hired who knows how to say yes and no. We cannot call him (or her) a new CFO, as we have never had one. Another of those mistakes now being corrected.

Advisory Board. We will be reactivating AVEC’s Advisory Board within the next 30 days with a renewed focus and some new faces. In order to have the benefit of input from the perspective of our shareholders, we are initiating a new policy of having a shareholder representative occupy one of the seats on the Advisory Board. Anyone wishing to apply please send us an email.

THE BEST MOUSE TRAP IN THE WORLD (Market Awareness)

There is an old saying that “the best mouse trap in the world isn’t worth anything if nobody knows about it”. It is time to tell and show the world just how good AVEC products are and we will. While Sanjai has been charged by the Board to run the company, Sam has been charged with hitting all the roads and telling the story. Some of the things we will do are boost awareness among USA business media, as well as among the local financial community in Dubai United Arab Emirates, that AVEC is a visionary technology solutions provider offering innovative products and services for a wide variety of industries.

We will also be boosting awareness among regional and national trade media, industry market analysts, prospective customers and partners by successfully introducing and promoting all existing and future products. Create media placements that can be used in cross-promotional marketing - as a sales piece or published on the Web. The Fox airing of the AVEC story on September 27th will be a great start to this. Be sure to go to the AVEC website,www.axialvectorenergy.com, and see the two videos that were filmed the same day the FOX piece was shot.

We welcome your feedback. Although we wish we could answer every one of our shareholder's calls, letters and emails, many of which we receive daily, it's not physically possible without diverting our attention from business operations focused on our goal of creating added shareholder value. Also, taking time to communicate on a one-to-one basis with individual shareholders is often unproductive, for we spend much time explaining that no matter how much we might like to answer all their probing questions, in order to comply with applicable securities laws we cannot divulge certain information to one person unless the same time is publicly disclosed.
We will make our best effort to see that your questions, compliments, concerns or complaints are addressed in a timely fashion.

GREEN, GREEN AND MORE GREEN

This is our time. Our products and JV’s are all Green, environmentally beneficial and solve real problems in energy consumption, the air we breathe and the way we produce fuels for our energy. We have applied for millions of dollars of grants, zero interest loans and other incentives being provided by the US Government. Companies with much less to show than what we have received grants for development that in some cases exceeded 100 million dollars. Over five billion dollars is available and we are going after it aggressively. This is the first round of some $3 billion in direct payments to companies in lieu of tax credits to eventually support an estimated 5,000 biomass, solar, wind and other renewable energy production facilities.

"These grants will help America's businesses launch clean energy projects, putting Americans back to work in good construction and manufacturing jobs," said Energy Secretary Steven Chu.

"This renewable energy program will spur the manufacture and development of clean energy in urban and rural America, allowing us to protect our environment, create good jobs and revitalize our nation's economy," said Treasury Secretary Tim Geithner.

Chinese green grants are also available and we are applying there as well. The speed at which some of them have been granted is amazing. We will communicate all to you as progress develops. Even the World Bank has joined the show with announcements like this.

The World Bank completed a PIPE investment in Suntech Power Holdings on Friday, providing the Chinese maker of solar panels with $50 million to refinance debt and switch to a higher-quality solar technology

SUMMARY

We have created three carved in stone principles for AVEC.

1. Turn what we have into cash and earnings streams.

2. Grow our share price so that our equity can be used to acquire additional technologies which can easily transcend into earnings streams.

3. Pay it out. Keep 20% of our profits as retained earnings for additional technology projects and pay the balance net to shareholders.

We have received a lot of critical comments (lots of it deserved) and lots of it by manipulators for there own benefits. We respect the ability of Americans to do this and believe in the system as it applies itself to small companies. If you do not like the way things look, people should tell. If you do become a shareholder or increase the position you already have. This company has been like the Wild West in its volatility from 0.04 cents to 6.85 then back to 0.04 and now at plus 20 cents. If this plan is correct and carried out correctly a real “game changing” business will emerge quickly.

Reality is like “proof is in the pudding”. If we implement this plan correctly we will build a highly profitable and socially significant contributor to good. 

You have our assurance that the new management team is approaching its role enthusiastically, with a positive attitude toward shouldering the added burdens of compliance and a determination to do our best to produce added shareholder value to merit your confidence and support.

We thank you for your future support,

Samuel Higgins, Chairman and Sanjai Chhaunker, President & CEO, AXIAL VECTOR ENERGY CORPORATION

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