Profile Report - Oct. 12, 2005

Issued by:
Shailesh Dhuri, CFA
Senior Financial Analyst

Company Overview

Headquartered in Plano, Texas, Energy & Engine Technology Corporation (OTCBB: EENT) is engaged in the development and marketing of auxiliary power units (APUs) for the long haul trucking industry under the AXP 1000 brand name. The Company’s products primarily focus on limiting fuel consumption while trucks are parked and idling, thereby reducing noxious emissions into the environment. Energy & Engine Technology Corporation owns and operates its own assembly facility for the AXP 1000 in Pompano Beach, Florida (capable of producing over 250 units per month). It also has its own Over-the-Road Comfort Systems (HVAC) facility in Tampa, Florida. To strengthen its position, Energy & Engine has solidified its supply chain for major components, which should enable it to handle increases in orders to maximize capacity. The firm’s various businesses are mentioned below:

Anchor Manufacturing — Energy & Engine Technology Corporation’s subsidiary — Anchor Manufacturing — not only supplies the “Over the Road Comfort System” HVAC unit for AXP 1000, but also manufactures the “Marine Comfort System” for both pleasure and commercial marine craft. It also sells directly to over 30 original equipment manufacturers and provides an exciting new distribution channel for BMZ’s marine generator products. This subsidiary provides a vital, and profitable cornerstone for the company’s product line.

Dallas Installation Facility - EENT has a facility in Dallas dedicated to installing auxiliary power units. This facility will enable Energy & Engine Technology Corporation to meet the increasing installation demand for its products.

BMZ Generators Technology, Inc. — Energy & Engine Technology Corporation’s subsidiary — BMZ Generators Technology Inc. — assembles the AXP 1000 product as well as manufactures and markets various other generator products.

Investment Highlights

AXP 1000

The Company’s flagship product — the AXP 1000 auxiliary power generator - is expected to lead its future growth prospects. The product is basically a unit installed on long haul trucks that provides power to run “creature comforts” inside the cab and charges the battery without idling the main engine. It is run by a 4 cylinder air-cooled 7.5-hp Lombardini diesel engine that conforms to the current Clean Air Act and CARB standards. The generator is operated independently of the much larger primary drive engine and is capable of producing 5kW AC current at 120 volts continuous plus 40 amps DC power – which is sufficient to power several devices in the cab. Additionally, a variety of heater and air conditioner options can be paired with the system and are available as a complete package. This power generator generates electricity efficiently, burning only about 1.2 pints of diesel per hour compared to more than a gallon per hour when idling a truck engine. This is a cost savings of nearly 85% to the truck operator, compared to idling the main engine. Considering that diesel fuel runs about $3.00 at current levels, and the average truck idles around 10 hours per day, this is a savings of $25 each and every day – not to mention the benefits to the environment and economy from lower fuel usage. When considering that the average truck is in operation for approximately 250 days per year, this equates to an estimated fuel cost savings of over $6000 per year to the truck operator!

The utilization of the idle-reduction technology is anticipated to lead to savings of over $3.5 billion and reduce diesel fuel consumption by over 1.2 billion gallons every year.

The product, an idle-reduction technology device, can be installed on both new and retrofitted on semi truck tractors. The product provides the main engine with idle-free power, which can be utilized to run truck heating, ventilation, and air conditioning systems (HVAC), microwaves, televisions, appliances and other devices. The AXP 1000 can automatically detect when batteries get low and charge them. The generator, being less expensive, lighter weight and easier to install and maintain, has far more advantages than other competitive products available in the market. The company has already spent over $7 million for the development of the AXP 1000 and related technologies and currently has several patents pending for its technology.

Huge Market Potential

Until recently, idling a truck’s engine was the only practical way a driver could control the temperature in the cab/sleeper and provide power to the auxiliary devices when the truck was parked. This led to millions of gallons of diesel fuel wasted every year. Idle reduction primarily refers to the technology that reduces the time, which heavy-duty truckers spend idling their engines. With the use of the AXP 1000, the truck operator can realize huge benefits on account of diesel savings as well as environment pollution reductions.

Besides, engine idling leads to pollution, which has been identified to be a serious problem nationwide. It has been estimated that the utilization of the idle reduction technology on the long haul trucks could reduce nitrogen and carbon oxide emissions by over 150,000 tons and 11 million tons, respectively per year. Idling of the heavy-duty truck engines also creates noise pollution. By reducing the idle time utilizing the AXP 1000, drivers can also reduce the engine idling noise and meet a variety of noise standards.

Additionally, a government mandate has made it necessary for truck drivers to rest for ten hours after having driven 11 hours, in an attempt to limit the aggregate idling time available to truck drivers. By reducing the time that the truck idles, both engine wear and associated maintenance costs can be greatly reduced. This mandate has in turn created a significant market opportunity for Energy & Engine, as during rest periods, the AXP 1000 can be utilized to produce power for running the various amenities on the truck. Management believes that this situation created by the conflicting Federal and State regulations has led to the creation of a potentially $20 billion new industry.

Recent News

On October 4, Energy & Engine Technology Corporation announced unaudited third quarter (ended September 2005) results for the sale of AXP 1000 and marine air conditioner of Anchor Manufacturing, Inc. The company installed 36 AXP 1000 units, generating sales revenue of $228,270, while marine air conditioner sales of Anchor Manufacturing was $211,315 during in the same period. The total revenue of the company $439,585 marks a 125% growth over the second quarter alone. For the month of October, management anticipates 20 AXP 1000 installations at its Dallas Installation facility and 10 third party installations, which would alone generate sales of $190,230 in the month of October.

Management expects its fourth quarter results to be exceptionally strong taking into account the strong market and promising sales of the AXP 1000. The current production of 15 units per week is expected to increase to 25 units per week by mid-November. Sales have also been exceptionally strong since the trucking show held in August and this trend is expected to continue going forward.

Conclusion

Energy & Engine Technology Corporation is currently trading at $0.08 per share. We see this as an opportunistic time for investors, as the Company’s future growth prospects appear to be very bright. Given the huge market potential, experienced management team, innovative technology, and capital resources (the Company raised $3.5 million in 2004), the firm is expected to have a bright near and long term future.

Energy & Engine already has a strong foothold in the industry and is expected to tap the growing and lucrative Auxiliary Power Unit (APU) market. Even a small portion of this industry would lead to significant revenues for the company. Although APUs have been around for several years, the recent surge in global oil prices, combined with stricter enforcement, has placed a spotlight on this industry. According to recent estimates it has the potential to become a $3.5 billion dollar per year industry. The Company has been actively marketing its products with special emphasis on the AXP 1000 to capitalize on this trend. In line with this, it has participated in many trucking shows as well over the past three years.