Irvine, California, October 19, 2006
Dear Shareholders,
These are very exciting times at CTC and I want to share our progress with you.
This year has seen commercial breakthroughs in our ACCC conductors with repeat orders from a major US utility and an expansion into international markets where two manufacturers are now beginning production of ACCC conductors to service markets outside the US.
In addition, we have acquired a renewable energy wind turbine business with German technology that we believe will transform the economics of wind power generation. We believe that there is unprecedented demand for wind energy that will only increase over the next few years. Utilities and energy companies are moving to secure wind generation businesses.
Turning first to ACCC conductors:
Solid Fundamentals for ACCC Conductors:
* Intellectual Property - we have just received Notices of Allowance
from the US Patent Office for two key US patents on our ACCC
conductors which add to key patents previously granted for our
connector hardware and other related patents. These patents deal
directly with our novel ACCC core, and provide us with protection for
not only our current versions but also numerous "equivalent"
variations. This brings our total number of granted patents in the
US to five, in addition to four patents based on our international
filings. We are maintaining numerous additional international
applications and preparing a new round of applications at this time.
We believe that our consistent aggressive intellectual property
strategy will continue to strengthen our commercial position
worldwide.
* Quality Control program - as part of our commitment to meet the
highest quality ACCC core manufacturing standards, we have
participated in rigorous quality and manufacturing audits conducted
by representatives of General Cable, the US conductor manufacturer
that strands aluminum wire on our composite core for use in Canada
and the US. We recently completed our pre-ISO audit, and we are now
undergoing a full assessment for ISO9001:2000 certification that is
expected prior to the year end. ISO Certification will assure our
global clientele that we manufacture to the recognized international
standards of excellence and reliability.
* Production team - we have a stable, talented and strong team that
manufactures with consistence a high quality product with timely
execution. The experienced team has brought our manufacturing
efficiency to an all time high for CTC Cable.
* European conductor manufacturing - we have taken a significant step
forward to unlocking the European market, a European manufacturer has
successfully stranded aluminum wire on our ACCC core. They are now
ready to produce for our customers in Europe and other locations
* Middle East conductor manufacturing and distribution - a major
conductor manufacturer in the Middle East is also expected to produce
their first ACCC conductor utilizing our core by the end of this
month. They have already received several requests for quotations
for ACCC conductors from their customer base in the Middle East,
Africa, and India and expect to convert a number of these quotations
to firm orders prior in due course.
* Chinese conductor manufacturing and distribution - we are in detailed
contractual discussions with a conductor manufacturer in China that
has been actively selling ACCC conductors. With the demand and
increasing awareness of our ACCC conductors, we are diligently
working to establish stranding operations in China.
* ACCC core production capacity - our facility in Irvine, California,
has just expanded its capacity to produce 4,600 miles (7,400 kms) of
ACCC core annually to meet the anticipated demand from quoted
projects.
* Raw materials availability - the availability of raw materials is
acceptable for near term projections, including carbon supplies.
Nevertheless, we continue our efforts to qualify multiple suppliers
for every key component and service.
* Hardware (connector) production - we continue to produce all of the
internal components for our patented connector hardware from our
Irvine facility. We are in the final stages of negotiating a supply
agreement with a FCI Burndy for components and have secured alternate
sources for components as required to meet customer needs.
Marketing of ACCC Conductors - Now a Proven Solution for Congested Grid
Lines:
* Marketing of ACCC conductors - our conductors have now been accepted
by an increasing number of electrical line designers. We are
confident the industry is beginning to understand that our ACCC
conductors represent the optimal overhead line solution for
increasing electrical capacity, since there is no competing product
on the market that can achieve the performance/price solution we
offer.
* Market size - we estimate that the potential market for our
conductors is over $20 billion worldwide with approximately 10% of
that in the US. Current installations are providing actual
demonstration of the advantages of using our conductors to increase
capacity, including the initial savings in capital cost, since ACCC
conductors often allow the use of existing towers or in new
installations require fewer towers to achieve the same power capacity
goals.
* Sales engineering team - we emphasize the technical and economic
content of our sales approach so that customers and specifying
agencies understand the Value Proposition offered by ACCC conductors.
Additional personnel have been recruited and are being educated with
a complete technical understanding of the value proposition and
related product knowledge.
* PLAT(TM) software - to support the international quotation of
business, we plan to upgrade our PLAT sales tool ('Power Line
Analysis Tool') that has been instrumental in demonstrating the
immediate value proposition of using ACCC conductors.
* Technical Conference presentations - as part of our continuing effort
to raise the technical awareness of ACCC conductors, we have
maintained a constant presence at technical symposiums around the
world and plan for a full schedule of presentations and papers in the
coming year.
* Articles - we have been the topic of multiple articles in the U.S and
internationally and anticipate increased coverage.
Sales of ACCC Conductors - Now Accepted by Major Power Companies:
US Sales activities:
* Most significantly, in the last two months we have received orders
for the 2nd and 3rd ACCC conductor installations from American
Electric Power (AEP). This is an important vote of confidence by AEP
in our ACCC conductors.
* We have an increased demand for quotations through our sales and
engineering team with open quotations for 264 miles (586 kms)
representing approximately $8.4 million in conductor sales. We
anticipate that most of these quotations will be converted into
orders as purchasing utilities schedule outages and other logistics.
* Additional prospects are currently under discussion with customers
for projects totaling 1,615 miles (2,600 kms) worth approximately
$42.6 million.
International Sales activities:
* We currently have open quotations for international ACCC deliveries
of a total of 4,331 miles (6,969 kms) representing approximately
$65.7 million in conductor sales.
* China - has been our strongest single market with over 100 kilometers
installed and another 100 kilometers being produced at this time. We
are in discussions with one customer alone that requires 5,593 miles
(9,000 kms).of ACCC conductors in their province over a 5 year
period.
* Europe - demonstration lines and various tests continue in France and
efforts have been expanded into the U.K., with a first installation
anticipated next month a part of the process for National Grid type
certification.
* Other international markets - we are pursuing a number of
international markets for ACCC conductors including Mexico, Brazil,
India, Korea, Australia, New Zealand, Morocco and the Middle East.
* We are actively seeking conductor manufacturers capable of producing
and distributing ACCC conductors worldwide.
We believe our ACCC conductor product is positioned to set a "new industry standard." Its ability to maximize power carried and to reduce losses over existing lines being essential to grid improvement.
The EU Energy Acquisition - our entry into the renewable energy sector:
In addition to progress in ACCC conductors, over the past few months, we have been consolidating our acquisition -- transitioning from a single product company to a multi-product company with production both in Germany and the US. We have integrated the management of the businesses and refocused our strategies.
There is a great deal to be gained from synergy between the two products, one setting a new standard for economically viable and environmentally conscious wind-based power generation and the other for power transmission. This has been confirmed by wind farm developers approaching CTC interested in the advantages of our ACCC conductors for transmission lines to link to the grid system as well as an alternative to allow expansion of the existing line capacity to accept additional renewable power.
The company is organizing the production of EU Energy's new model DeWind 8.2 for the North American Market, followed by the D8.1 for 50Hz markets internationally. Production of these turbines means assembly from pre-sourced components and can be carried out at any appropriate manufacturing facility. Marvin Sepe, who has significant experience in organizing such production and who has more recently completed the overhaul of ACCC core production, has been put in charge of this task.
Turbines are usually sold commencing with the signature of a framework agreement that sets out the reservation of the turbines required and fixes certain deposits necessary to secure and initiate the order, the form and timing for delivery confirmation and other essentials. We have concluded a number of such agreements and are expecting deposits on orders to be delivered in the last calendar quarter of 2007 and hold fees for deliveries in 2008. Typical pricing for wind turbines can be estimated at approximately $1.2 million per megawatt.
Solid Fundamentals of DeWind Turbines:
* Proven Turbines - designed by our excellent German engineering team
in Lubeck, Germany, the 1.25 megawatt DeWind D6 has been in service
for 5 years and the 2 megawatt DeWind D8 turbine for 3 years with
151 installations, mostly in Germany and Austria.
* Reliability - our German insurers have stated that there have been no
gearbox claims in 5 years for either of the currently manufactured
2 megawatt D-8 or the 1.25 megawatt D-6 turbines. This puts our two
currently manufactured turbine models at the top of the reliability
ratings.
* High availability rating - our turbines are rated at
97% availability, meaning that, with wind at operating levels, the
turbine is functional 97% of the time; this is higher than most
competing models.
* Noise level - our turbines are quieter when compared to other
turbines of similar capacity, measured at similar conditions.
* Performance - our turbines have the highest performance compared to
competing models of similar capacity in the same Wind Class
environment.
* Service and maintenance - DeWind turbines are continuously monitored
in a remote control center manned by our service company, E Energy
Service GmbH. Thus conditions are monitored in real time and the
turbine can be started, stopped, and diagnosed from this monitoring
center.
* Excellent Design and Engineering Team in Germany - DeWind has been
operating since 1995. Its design and engineering team is now
developing the next DeWind turbine models as well as those for 60Hz
frequency operation, such as those used in the US and Canada.
The Latest DeWind Models D8.2 and D8.1 Turbine Prototypes In Final Testing
* The DeWind 2 megawatt D8.2 model in 60Hz for the US and Canadian
market and its sister model the D8.1 in 50 Hz for European and
Worldwide markets are now being assembled in Germany. The completed
turbines will soon be placed on a major test bed in Germany, allowing
them to be run at various speeds and torques to simulate actual wind
conditions.
* The site at Cruxhaven in Germany is being prepared so that the first
D8.1 turbine can be erected for final tests and certification by an
internationally accepted German organization.
* These latest models use the WinDrive, a hydro-dynamic torque
converter that enables the use of a constant speed standard
synchronous generator. This feeds AC power at a fixed frequency to
the grid without the use of power conversion electronics. The
WinDrive is made by Voith AG, a major privately held German company,
exclusively for our turbines up to 2.6 megawatts. The WinDrive is
directly based on their 55 years of experience producing a highly
reliable hydro-dynamic torque converter for very large boiler feeds
and gas compressors. The combination of their Mean Time Between
Failure ('MTBF') of greater than thirty years and the proven
reliability of our D-8 turbine, together with the absence of power
electronics should render a reliability factor second to none.
* Initial production is slated to begin at a facility in Germany in
2007, with US production being organized to start at about the same
time.
* Production of these latest models will be ramped up as the number of
WinDrives produced by Voith AG is increased.
* We have signed framework agreements from several wind farm developers
for over 1,700 megawatts for delivery over six years. Certain of
these framework agreements call for Turbine Reservation Agreements to
be signed immediately with deposits for those turbines that are to be
scheduled for delivery in the 4th quarter of 2007 and beyond. There
are additional Turbine Reservation Agreements with hold-fees required
for the 2008 scheduled deliveries.
* We are in discussion with various insurance companies to provide
extended warranty coverage beyond the industry standard 2-year
turbine warranty.
Recent Developments:
* E Energy Service GmbH is the new name of our service and maintenance
company that is now owned 50% by Enertrag AG, one of Germany's most
successful wind farm developers and owner-operators. E Energy
Service now has approximately 900 turbines of all makes under service
contracts, which makes it one of the largest independent wind service
companies in Europe. It is now jointly managed by the two former
heads of our service company and Enertrag's service company. We
project that the new service company will benefit from cost savings
and more effective and efficient service teams. The match brings us
the benefit of the experience of an excellent wind farm
owner-operator which has personnel experienced in all makes of
turbines as well as all aspects of new site development, turbine
selection, construction, installation, commissioning, and operating
for wind farms.
* We are actively involved in discussions with a major international
ISO certified manufacturing company in the US as the first phase
towards developing a contract production agreement to assemble our
turbines in the US. When finalized, we intend to have our D8.2 and a
60Hz version of the D6 produced under this agreement starting in
2007.
* We have recently entered into a license agreement with GE that will
allow us to produce and sell our D6 model in countries, such as the
US, where GE enjoys patent protection on certain power electronics.
This license agreement also allows us to produce and sell our
standard D8 model in its 50Hz version in any country where GE has a
patent position on certain power electronics.
* We are completing a Joint Venture ('JV') in India with a major Indian
engineering company. This JV has commenced plans for assembly of our
D6 turbine in India for sale to the large internal market and certain
other countries and begun sourcing parts in India, Indonesia and
worldwide. Under the proposed terms, CTC has retained the right to
sell turbines produced by this Joint Venture for certain markets in
the world including Europe, Eastern Europe, and South America. We
expect to derive licensing revenues as well as JV profit from these
operations.
* We are in negotiations for a Joint Venture in China to manufacture
blades for our turbines.
* We have received a letter of commitment from a wind farm developer to
purchase 400 megawatts of D6 turbines for delivery in the US. We
anticipate final agreements will be signed and initial payments made
in the first quarter of 2007.
License Agreements for DeWind D6 and D8 in China Have Started First
Phases:
* We have signed license agreements with 4 manufacturers in China to
produce the existing 50Hz models of the D6 or the D8 for sale to the
Chinese market. Down payments on the license fees have been received
and the first phase of documentation has been sent to certain
licensees, which have already sent teams for initial training and
ordered both sample assembled turbines, un-assembled turbines, and an
inventory of parts to manufacture several turbines. Shipments have
been made and payments have been received. The market for wind
turbines in China is large enough that it will be a challenge to
produce enough to satisfy the demand for renewable power.
Corporate Issues:
There have been a number of important changes to our management. Let me take this opportunity to welcome Michael Porter (formerly Chairman and CEO of EU Energy plc), as the President of CTC with the responsibility for group operations. Our Vice President Production, Marvin Sepe, will now manage production of wind turbines as well as ACCC core. We welcome on our management team Andrew Lockhart as Vice President, Marketing, Stephen Bircher as Vice President, Business Development, and Victor Lilly as Chief Technology Officer. We are additionally seeking certain key management professionals, including a Chief Financial Officer as well as two independent members for our Board of Directors who will bring industry knowledge and contacts, as well as experienced guidance for our rapidly growing company.
We have recently paid back certain short term debt, leaving us with approximately $6 million in 6% convertible debenture debt. As of today's date, our outstanding shares of common stock total 178,335,325, with potential further dilution as follows: the convertible debentures which, if, converted would result in the issuance of 3,887,259 additional shares; 11,448,393 in outstanding warrants convertible into an equivalent number of shares; and 15,851,313 non qualified stock options outstanding to directors, employees and consultants.
As part of the acquisition of EU Energy, CTC agreed to register certain shares of CTC common stock issued to former EU Energy shareholders. The filing of this registration statement was delayed as a result of various financing activities which precluded us from filing a registration under applicable securities regulations.
The officers and directors of CTC continue to have great confidence in the strength of our business. We maintain that no solution has been proposed that provides a better increase of capacity on grid lines as viably as the ACCC solution; and renewable wind energy is a socially responsible necessity due to rising energy costs and global warming. We believe the timing for market acceptance for our products is excellent and the products themselves are exceptional.
We are mindful that the diligent execution of our plan and careful cash management are paramount to success. Our plan requires us to expand our production capacity to meet committed orders. We may need additional financing to meet the needs of working capital for the required purchases of materials to manufacture our products.
Additionally, we are working towards the goal of moving our present public listing to a national exchange.
I am convinced that recent developments have added significant value to CTC by expansion into renewable energy. I hope this letter has conveyed to you, our shareholders, some of the excitement and potential of our company. We sincerely appreciate your continued support.
Sincerely,
By: /s/ Benton H Wilcoxon
Benton H Wilcoxon
Chairman and CEO |
