CSY cmc power systems limited

ready to take off

  1. 613 Posts.

    HOMEX - Sydney

    Five months ago, at our Annual General Meeting in November last year,
    I spoke to the large group of shareholders in attendance about the
    very buoyant position our company was in at that time.

    The most pleasing thing was to see the strategy the Board had chosen
    - development of the Auxiliary Power Unit as the quickest route to
    market for the SYTEC engine - was proving to be correct.

    Interest was building rapidly in our technology from three aspects:

    * the use of the APU to provide 120 and 240 volt power for emergency
    and trade vehicles and vacationers;

    * the use of the APU to generate 42-volt power for the global upgrade
    from 12 to 42 volts;

    * the use of the APU to provide Distributed Power Generation, that
    is, as a power unit for homes, offices and shops particularly in
    developing nations where the power grid is not fully developed, and
    also as remote area power supply and backup power supply in developed

    Earlier this year, however, the Company experienced a temporary short
    fall in available funding. This change followed a decision by one of
    the investors not to proceed at this time, and has necessitated the
    introduction of the convertible note and the share purchase plan.
    Fortunately, due in particular to the strenuous efforts of our team,
    the company has identified a new source of investment funds which
    will soon return our company to the secure position of which I spoke
    last year.

    We have every reason to believe that in the very near future we will
    lock in a reliable source of income to finalise the development of
    our Auxiliary Power Unit.

    Earlier this month, we announced that a Memorandum of Agreement had
    been signed between two Malaysian companies, who will form a joint
    venture to develop the APU for a specific application. The Australian
    Stock Exchange announcement of the 14th of May was released to the

    This is a unique and very welcome development in our company's
    20-year history. Throughout our work to commercialise the SYTEC
    engine, our research and development has been mainly financed by
    shareholders, but now for the first time we will have a reliable
    ongoing revenue stream to support engine development.

    Negotiations are continuing in Malaysia with a large customer who
    will provide the funding to CMC via the joint venture company, in
    return for manufacturing licence rights for the ASEAN region. We have
    had very positive indications from the parties concerned, and we are
    confident that our efforts will be rewarded in the near future. The
    customer is enthusiastic about acquiring our technology initially for
    a mobile Auxiliary Power Unit for a fleet of specialized vehicles,
    and later for a variety of automotive and DistributedPower

    Welcome though this news is, there is more that I would like to tell
    you today about what your directors and company employees have been
    doing over the past half year.

    During this time, CMC Power Systems Limited has been responding to a
    number of inquiries from the US, Germany and India as well as the one
    I have already spoken about, from Malaysia, regarding use of the
    SYTEC engine for direct automotive power and for electricity
    generation for hybrid petrol-electric vehicles.

    The details are:

    * The first is from a global automotive company which wishes to
    conduct in-vehicle fuel economy and emissions tests of the 2.2 litre
    4 cylinder SYTEC engine fitted to the VW Passat, with a view to
    possible manufacture of four and eight cylinder engines; (Vehicle
    being prepared at Cosworth Technology for shipment to a destination
    in Europe);

    * In US, a large manufacturer of defense equipment has asked CMC for
    detailed information on its two cylinder 500cc Auxiliary Power Unit
    (APU), as a possible unit to provide auxiliary power for a military
    vehicle; (Proposal forwarded)

    * Third, a large US earthmoving equipment manufacturer is interested
    in CMC's APU for the off-highway truck market to eliminate the need
    to idle the main diesel engines when the units are stationary.
    (Proposal forwarded)

    * Fourth, a major producer of heavy equipment for the Indian steel
    industry is diversifying into the manufacture small vehicles, and is
    seeking our 500cc two cylinder engine technology for a new vehicle it
    is planning to produce from the year 2005 onwards. The requirement
    will be 15,000-20,000 engines a year; (A five-person delegation led
    by the Companys Managing Director visited CMC in Melbourne on
    Tuesday this week to set up collaboration)

    * Fifth, a large US electric utility, through an agent, has asked to
    obtain a CMC APU for conversion and testing as a range extender for
    electric vehicles; (inquiry answered and negotiations about to

    * Sixth, an automotive engineering and design group in Wolfsburg,
    German, has offered to host for CMC a workshop of German after-market
    builders of recreational, trade and emergency vehicles specifically
    to demonstrate the APU functioning in our Ford Navigator
    demonstration vehicle; (Awaiting finalization of Phase II APU in
    Navigator vehicle)

    * Seventh, a well-known prestige German auto manufacturer has made
    detailed technical inquiries about the APU including the cost of
    producing 1,000 and 10,000 units per year. (Proposal forwarded);

    Any one of these inquiries, successfully completed, would result in
    substantial income from engineering and licensing fees. The adoption
    of the technology for just one application would open the way for
    further applications, for which there are huge markets.

    I say to you today, my friends, that in spite of the frustrations we
    have experienced over the past six months, I have the same vision
    that inspired me 20 years ago when I was a co-founder of this

    This is a vision deeply rooted in my belief that the SYTEC mechanism
    is the way reciprocating internal combustion engine should be
    designed in the future.

    The advantages of SYTEC engines were dramatically demonstrated last
    year in independent tests conducted by Cosworth Technology in the UK.
    Cosworth compared a prototype SYTEC four cylinder engine with four of
    the world's best four cylinder volume production engines from 2002
    models. The results were astounding: it performed better or as well
    as all the others, and engineers estimated that with further work to
    bring the SYTEC engine closer to volume production, it could be:

    * up to 15 per cent better than the world's best in quietness,
    smoothness and low friction;

    * up to 10 per cent better in exhaust emissions and fuel economy, and

    * up to 5 per cent better in power and torque.

    These results from one of the world's most reputable engine
    developers have provided further proof, if proof were needed, of the
    correctness of this technology.

    In closing, I am announcing a 21-day extension of our Share Purchase
    Plan, which will now remain effective until 12 June 2003.

    Your Board has decided on this measure to enable shareholders to take
    advantage of the improvement in our outlook and, hopefully, of the
    general stock market outlook. The recent dampening effects of the
    Iraq War and the SARS epidemic have been felt in our share price as
    they have been in the market generally, but this doesnt reflect the
    true value of our technology and its ongoing development. Our
    expectation is that there should be a marked improvement in our share
    price as, over the next few weeks, as we firm up some of the current

    As I mentioned, our large Malaysian customer has verbally confirmed
    its desire to access our technology. When the documentation is
    completed we will be in a position to make a further ASX
    announcement, and this information alone should be sufficient to lead
    to an increase in our share price. In addition, there could be
    further announcements regarding other projects which will stimulate
    global interest in our technology and our stock.

    For shareholders who have already subscribed to the Share Purchase
    Plan, I thank you very much for your support and I expect that
    developments over the next two weeks will make you glad that you
    chose to participate. For shareholders who have not yet taken up
    their offer, there will still be time to help your company and at the
    same time benefit from the progress we have been making.

    The vision is being engineered into reality.

    G Fountain

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