TRANSCRIPT OF THE DECEMBER 28, 2000 ADVANCED ENGINE TECHNOLOGIES, INC. ANNUAL SHAREHOLDER MEETING
Los Angeles Airport Hilton Hotel, Los Angeles, California
The following is a transcription of the proceedings at the December 28, 2000 Annual Meeting of Advanced Engine Technologies, Inc. held at the Los Angeles Airport Hilton Hotel. Officiating and attending the meeting were Carroll Shelby, President and Director, Alexandria Phillips, Treasurer and Director, Neil Cummings, Secretary and Corporate Counsel, Steven Manthey, OX2 engine inventor, and, chairing the meeting, John Luft, Vice President, Business Development. About 20 stockholders were in attendance.
The official business of the meeting was to elect 4 of 5 nominees to the company Board of Directors and to ratify Neff & Ricci LLP as the Company's auditors for the fiscal year ended June 30, 2000. The board nominees were: Noel Holmes, George Hunt, Alexandria Phillips, Richard C. Ronzi, and Carroll Shelby.
The meeting began at 10:00 a.m. with opening statements by Carroll Shelby who welcomed all to the meeting and stated, "I wish we had a better turnout, however this was the only time we could hold it before the end of the year." Mr. Shelby then turned the meeting over to John Luft to chair the formal election portion of the meeting. Mr. Luft introduced the Company panel and outlined the meeting agenda which was to consist of the election and ratification, followed by a Company Update, followed by an OX2 Engine Update, and concluding with an Open Discussion answering questions from the shareholders. Mr. Luft turned the meeting over to Mr. Cummings who certified that as of Dec. 6, 2000 there were 33,175,000 shares outstanding and that, counting proxies already received, 23,578,927 (or 71%) shares were represented. A quorum was, accordingly, declared present. Mr. Luft and Mr. Cummings proceeded with further election formalities and ballots were casted by those voting in person. Mr. Cummings then certified the election results. Noel Holmes, Alexandria Phillips, Richard C. Ronzi, and Carroll Shelby were elected to the Board of Directors, and Neff & Ricci LLP had been ratified as the Company's auditors for the fiscal year ended June 30, 2000. Mr. Luft then adjorned the formal portion of the meeting.
This transcription now commences at this point in the meeting with John Luft presenting a Company Update. Note that this transcription contains minor edits and omissions to improve flow. Abbreviations are used for company names and in other appropriate instances.
TRANSCRIPT
John Luft:
We'd like to spend the next several minutes bringing you all the message of progress, our plans, and how we will be moving the Advanced Engine Technology Company forward, and the development of the OX2 engine. We're going to cover a number of subjects that we feel are important, and I would like to remind you to please hold your questions until the end of the meeting. We will field questions and respond appropriately. We'll cover management and financial information. We would like to take a few moments to discuss the recent stock investment that we were so graciously to receive, the OX2 engine update, and then, as mentioned, open discussion. Now the Company Update...
In the past, the Company has made commitment to provide shareholders with timely and consistant information. We've taken a number a number of steps to accomplish that. In fact, we've retained a PR firm called JMPR. They happen to have qualifications that are within the automotive industry as well as a number of cross-industry qualifications. We have also, and this will be the first time we've announced this, with JMPR facilitating press release information to the wire service, we have supplemented that effort with an information line. Now this information line is designed to provide more of a real-time, up-to-date, where-we-are type information. Understand in managing PR and information, as a publicly traded company, you set a precedence. The manner in which you use press releases and the wire is a precedent that you have to be consistant with throughout the life of the company. So the PR release and wire service is not the service to provide day-to-day or week-to-week or month-to-month just progress updates. That is a venue that provides milestone accomplishments, test results because when you go to a public market with information you can a will affect share price. So we have a fiduciary responsibility to ensure that that information is accurate and that it is reliable, and we can use that venue when appropriate. Now when it comes to the month-to-month update, as Steven will discuss in a few moments, progress we're making and things that we feel, like ground that we're gaining, we'll use this information line. And as you can see, the number is (310) 323-2895. That is a number that can be called at anytime. It will have updated information that we feel that would be important to every shareholder to know, real-time, the progress and status of the development of the OX2 engine. And then, of course, as we discussed a few moments ago, the timely issuance of press releases... we would use the wire and press release venues to provide the market with real-time information that addresses accomplishments, milestones, and distinct progress made on this development.
In addition we've instituted a number of procedures. Obviously we won't go into the historical facts on what procedures may or may not have existed in the past. Fact is, in a go forward basis, we have accounting, purchasing, and approval processes in place. These processes basically provide multiple checks and balances on how money is spent in this company. Currently we have an approval process that requires Board approval for expenditures over a certain level. This was not present in the past. Again, this avoids the singling out and scrutiny of any one individual making any one given decision. It allows the company to be run through its Board of Directors and its management staff in a concensus type basis.
The University of California Riverside plays a very strategic role in our progress. As I have met with Joe Norbeck just a few weeks ago, they feel their role with the ongoing growth and development of the OX2 engine is testing and validation. As Dr. Norbeck has basicially informed me, they're not of the capabilities to help in the development. They don't have the expertise to codevelop. It would take too much time to really get up to speed on how the internal workings of this engine actually effect development, and they feel like that their core competency in the involvement is to validate testing. We will use the University as we have in the past to validate the test numbers. We have a responsibility to manage that expense. In managing that expense, we will run the engines on our internal engine test facilities. We currently have one engine test facility at the Shelby test facility in Gardina. There we refine, fine tune, really measure the performance in variety of areas so that as the engine is performing at a competitive level, we then will place the engine at the University, allow the University as a third party endorsement, credible industry endorsement, to validate the performance numbers we already know the engine performing at. And those numbers will be the numbers we'll publish. That is critical for, obviously, third party endorsement and credibility of the engine in the market. They are very comfortable with that role, and we are very, very fortunate to have them as a strategic partner in the ongoing growth of this engine.
Talking of stategic partnerships. I think it's important to mention a number of those that have had early conversation, early discussion and give you an update of where we're at. Early on there was conversation with AET and GM regarding their interest in the OX2 engine. At that time it was clear, and the University endorses this, that the engine was really too premature to place in the hands of GM. The engine was running, as I understand it, minutes at a time, and we could not sustain ongoing run time that would allow anybody to understand the potential of that engine. It was far too premature. I have had conference calls with GM as of a week ago, and in my conversations with GM we have agreed to work together. We currently are under a letter of intent with GM that gives them the opportunity to obtain test results that the University, as the University completes the first phase of testing, will provide to them. We think that proactively we have gained tremendous amount of ground. As you will see through the engine update information, we have 3 engines that are running. At the time that the letter of intent was agreed upon there was one engine that maybe would run, maybe wouldn't. We're in much better position to have a much stronger relationship and have a responsibility to every shareholder to position the company to the best interest of every shareholder. And what that's NOT, is prematurely handing over the technology to any large company for them to lay claim to codevelopment matriculation. So we are managing that responsibility through strategic partnering. Early conversations with OMC have occurred. Again, same issues. Same thing as you see with Caterpillar. It was too premature to pull these vested brand companies in and expect them to draw any conclusion on future involvement. As we discuss our test plan for the next 24 months, you will see that we've identified, chronologically, a point where we strategically ally with these vested brand companies, again, keeping our shareholder interests first and foremost in our minds and insuring that those relationships are mutually beneficial and not one-sided.
Management updates, as you see on the image chart, this is the organizational chart. Understand as you see different individuals as Carroll Shelby, being president, Neil Cummings, Alexandria Philips, and myself, I'm the most recent addition. And I've come on as Vice President, Business Development, as in running the day-to-day business of the company. Somebody has to look at every single bill. Somebody has to look at every penny that's spent, and manage the process, manage the University, as well as consder how we're going to take this to market. Obviously very critical. And the most successful of ideas and concepts, those that have failed, failed because they were unable to deliver to the market or take to the market in an agressive marketing venue. Very critical to the growth and success of this company. It's not a mistake that CEO and president of Microsoft, Steve Ballmer, is from sales and marketing. I was at a meeting the other day, he said he's never written one bit of code in his entire life. He doesn't even know how. And, you know what, I think on behalf of the Microsoft shareholders, they don't want him to write code. They want him to bring the products to market. Its critical to the growth and success of the company. So as you can see we have support staff. As I'll mention, many of these staff individuals are all shared expense. We have the fortune of sharing expenses, sharing resources, without having dedicated resources. We have, again, at this stage in the development of the company and the growth of the company, we have a responsibility to manage the financial aspect of it, and we are doing that through leveraging shared resources.
Financial update... this area we're going to talk about two subjects. One is that, in your handout, you will have the latest "Q" that was published, and I think it's important that we address the recent $10 million stock investment. There's been a number of questions that have surfaced, and I would like to not only state those questions to you now, but give you the answers. First question that was raised was, who within AET made the decision to accept this $10 million stock investment? The subscription and investment agreement was presented to the AET BoD prior to their August 31, 2000 meeting. Subsequently, the details of this offering were discussed in detail at this meeting resulting in unanimous Board approval. Again, the Board of Directors who have been empowered to manage and make decisions on behalf of every shareholder had the details of that subcription agreement, discussed in detail, and the Board unanimously chose to accept that. The next question that had surfaced was, why a letter of credit was used? Why couldn't we just accept it as cash and deposit it in our account? Well, at the time of this offering, AET had depleted their capital funds. That's just a fact. It was at a dangerously low level. There was no other investment or funding solution present at the time. No other options existed. The funds were of such that had we not had the opportunity to accept the $10 million investment we would probably not be having this shareholder meeting. They were depleted at that low a level. And I'm very thankful for that. I think we should all thank the investor who stepped up and had the faith in the Company, and thank Carroll Shelby because Carroll was the one who was out agressively looking for investors to invest in the Company and not invest in buying stock that went into an individuals pocket. And I'm very thankful for Carroll's effort there.
The next question that surfaced was, why did AET not take advantage of interest income potential? And of course that goes back to why we went through a letter of credit rather than deposit it in an interest bearing account. Well, let's understand the facts, and these are facts as I have been told them. Many of you are here and were here during that time, but thate fact is that history tells us the 22 million shares were issued, $2 million spent by AET, and the Company still had no ongoing running prototype. It was patched, pieced together. Steven was asked just to keep the one they had running and not develop a new engine. As a result the investor insisted that full Board control of these funds be executed through a letter of credit. This condition basically prohibits AET from depositing the funds into their bank account, however, allows and empowers AET to draw against these funds anytime and any amount. I think it's clear the Board successfully negotiated this stipulation as the only condition of investment. Any of you that have been involved in large investment opportunities clearly know and understand that most often these investments are conditional with a variety of stipulations. I applaud the Board for holding the stipulations to this one condition. And I think they represented the shareholders in a very agressive and professional manner.
And the last question that continues to surface, and is very easy to answer, is this letter of credit revocable? No, this is an irrevocable letter of credit.
Okay, Engine Update... this is, as I know, what we've all been waiting for. At this time, Steven Manthey, inventor, developer, become a very good friend of many of you. And we feel through his insight and just pure drive combined with a professional manner, in which we are and will operate this company, we'll all benefit as shareholders. Steven, would you please join us at this time...
Steven Manthey:
Good morning. What are we doing, what have we been doing, where are we going, that's what I'm going to talk about. I was going to run through items of the engine and explain its operation, but it seems, the numbers of you here, I guess I'd be better off talking and doing it with you personally, later on, if that's acceptable. I work better that way.
We've decided that the best place to put this initially, with slotting(?) and the idle to achieve and market potential, would be in stationary engine application, initially. So what we've been doing is directing our development specifically in that area. We've agreed amongst ourselves to have a 24 month program of development in which we believe we can achieve at the end of the 24 months a marketable product in the area of stationary engine application, more particularly generators. That will naturally follow through to compressors and pumps and so on. What we've been doing, thanks to Carroll, is we have a dyno setup at his shop. He's currently setting up a second one as well, because what we need to do is performance-target to be able to get the engine fuel efficient, emissions efficient, size, packaging, weight, all that type of thing to give us a good competitive edge, without manufacturers, of course, for them to go into wanting to produce the product. And another part of the performance-targetting, of course, is reliablity and durability. So what we've currently got is 3 engines running, 2 of which I've supplied myself. One of the engines is for longevity running which will run at step runs, 70 hours at 400 rpm, 70 hours at 450, 500 and so on. So that will be continually running. We currently are working on a program to produce another 5 or 6 of those engines. So that as we have a failure we'll modify whatever the failure is, and then retrofit to the other engines and carry on. So that at the end of the 24 month period we should be getting good performance and durability from the engines. On the pure performance side of the engines, because it's a completely new concept, also runs a standard 4-stroke system which is common to most of us, and anyone who's had much to do with them would understand the principles... because it's cam generated and we don't have valves and the like, and there's a number of aspects which you can best guess that we need to hone them down to get the better performance along with fuel injection systems, aspiration systems, ignition systems, compression ratios, porting shapes and sizes, bore to stroke ratios, cam shapes, etc., etc. Obviously in a generator application we can target that much more easily because it's a narrow field generally running around 1800 rpm. As you can imagine, a car application has got a huge rpm range where it has to perform good and there's a lot of development required to achieve the best result at every rpm range, whereas a generator or stationary engine application, you can target that much more simply. And initially, you know it's a multimillion dollar business, so initially it seems like a good target to aim for.
So what we've currently got with the single engine which I've provided, I call it a bit of a "Transformer", it doesn't look all that good. It's been designed to be able to switch and swap porting scenarios so we've got half a dozen porting situations which can just readily be unbolted and bolted on to learn what overlaps what event on the intake... when you should shut it open, and shutting the exhaust portings, and sizes, all that type of thing. And we can hone into whether we go the wrong way or the right way. At least, you go the wrong way, you know you go the other way and visa versa. Then we can start honing in on what sort of porting would suit that sort of application best for the best performance. Similarly, bore and stroke ratio, because it's cam generated and we can have much longer dwell times, etc. Stroke has obviously got to do with rpm. You should know with any crank engine, the longer stroke, the slower rpm. And bore is obviously to keep the capacity up. So we're playing with bore and stroke ratio and current building a 3rd engine at the moment which we should have finished within the next few months. The existing engine has a 62 mm bore, or about 2 1/2 inches, and 45 mm stroke, about 1 3/4 inch. The new engine I'm currently building now has a 70 mm bore and it's dropping to a 40 mm stroke. We've got 4 different cam shapes we can switch and swap at the moment in the engine. I'm building more of them as well. All giving us varying degrees of dwell on the top of the stroke and on the bottom of the stroke. Differing cam angles and the drive angles are also being shaped to best optimize the travel of the piston and expanding gases in the cylinder which drive the piston because obviously we want to drive the piston all the way to the bottom of the bore or as far as we can get it. And so these basically are the things we are working on, along with the port seal design. The port seal is very important. Something I had originally thought I'd have a lot of trouble with. We've actually have had no trouble with it. When I say trouble, I mean wear of the seal. I've had no trouble with the wear. I've had no trouble with the sealing. However, It's a delicate balance to get the sealing with a minimal pressure. Otherwise, you get a bit of a disstrike(?) effect, you know on the pull the engine up.(????) [misfire revving up the engine?] So we've made a lot of little cuts and shapes, and so on, so forth that you experiment with so that it neutralizes the pressures. And the only thing keeping the seal not working is the way it hard surfaces minimal pressure, of course. The hard facing on the port plate facings has got coolant behind it. We had no problem with that getting too hot or any such thing. So these are basically the things we're working on with a number of engines at the moment in the main testing side of it. And as I said, we have one engine currently and I'm building another 5 to 6 engines for the durability side of it. So that hopefully at the end of the 24 months we'll have a gen-set. Also in the process of acquiring a gen-set around 25 KW which we'll be retro-fitting the engines to and start testing them directly on that simultaneously with the rest which I've already explained to you. As I said earlier, probably it's best if afterwards I stand here with you and point to the engine and just discuss things on a one-to-one basis.
John Luft:
As Steven mentioned earlier, we do have a point of entry we think that is to the best interest of getting to a commercialized product. We can invent and invent and design and design, but at a certain point you've got to put a stake in the ground and start driving top-line revenue. We realize and clearly agree that stationary engines have a number of distinct advantages as far as a commercialized point of entry. One is, as Steven mentioned, it's a multi-million dollar per year industry. It's overall a billion dollar industry. Secondly, it provides us with a reasonable development curve that allows us to set a goal of 24 months to be in the market with a commercialized product. Thirdly, it crosses a variety of industries. These types of applications find their way into marine applications, straight gen-sets, pumps, compressors, oil and gas. Many, many industries rely on this type of technology to drive their product. It is a clear point of entry that we think is achievable. And again, our goal is having a commerialized product within 24 months and start driving top-line revenue. This is a look of what's currently out in the market. [looking at a projection screen] The stationary engine is found in generator-type applications to large industrial applications. There's a number of competitors out there. Whether it's Caterpillar, Panda, Detroit Diesel... whether it's Kohler, Honda, whoever it might be, Onan... fact is, that as we move forward and go to market with this product, we will then strike strategic partnerships through a licensing opportunity with these vested brand companies. These brands have been selected brands of choice in this stationary engine market for years. They spent millions and hundreds of millions of dollars marketing, promoting and postioning their brand for product selection in this market. Clearly, providing them alternative opportunies with a lighter, smaller, equal to or greater than fuel efficient product, with the ability to run on fossil fuel, CNG, LPG, methane... again meets and exceeds any current emission and future emission restrictions... And we clearly see that this will be an opportunity for many of these vested brand companies to deliver a new product to market. Many of you are aware that currently many of our utility districts are buying supplemental power. For those who live here in California, it's been top of mind for the last several months. And in some cases we've had where the utility demands are exceeding their ability to provide. Many of these districts are buying supplemental power. Currently that is at approximately 40 to 41 cents per kilowatt. And many of you may or may not be aware that there's legislation in place right now that will eventually prohibit the use of diesel generation. Many of these utility districts are relying on diesel generators for supplemental power. I think this hotel here has a diesel generator. Hospitals... I think these applications are very widespread. And I know there is a sundown to the use of diesel generators in our future. And we are at the cusp of really being able to be the alternative solution for these applications and many, many more.
So let's talk about the future of the OX2. We talked about stationary engines as the point of entry, and it's to no surprise the potential and diversity these engines can provide to many.many other industries. Light aircraft, the marine industry, to, as GM is observing, the potential of hybrid car use. Now many of these applications have a very lengthy development curve. And we need to be aware that, as Carroll having tremendous experience with the big 3 automakers, experience clearly states the curve in which conversation, codevelopment, involvement to point of production and a product in the market can be anywhere from 6 years to 8 years to 10 years in the automotive industry. I don't know, of any of you here, but I expect this company to drive top-line revenues sooner than 6 to 8 to 10 years. So that, obviously, reinterates the selection of stationary engines. But as we see in stationary engine technology, in the marine industry for example, for required-purpose-build efforts, as Steven has mentioned, a purpose-build marine application for the boating industry is a lengthy project. When you drop the same product in an outboard, it's even lengthier. Carroll has stated, you drop it into hybrid vehicle use, it's even longer. These are the obvious future opportunities for this engine, and we will pursue those agressively when appropriate. But we have fiduciary responsibility to drive revenue at its earliest point of entry with a commercial product. We have selected stationary engines as the application, and our goal is to achieve that in 24 months.
Okay. This is the time you've all been waiting for. Before we start fielding any questions, I would like Carroll to step up to the mike. Carroll is a great history and, certainly, his involvement here, he has probably the best view of what the current management had inherited. Some of the issues you may or may not know, you may not want to hear them. But I think Carroll can probably provide us the best history of what got us to this point. Carroll...
Carroll Shelby:
I imagine most of you want to know why the shares are 6 bits instead of $29 like they were. I've been involved in this 3 years now, and it's been a tough 3 years. When I got into it Paul Ebbage was alive. Murray Bailey was traveling around the country with the prototype engine showing at different places. And they had a PR firm that, as it was shown places, made some statements, sent some statements out... some of them were... nothing was stated maliciously... but some of them overstated what the engine would do... what state it was in. We inherited an engine that never ran over 5 minutes. Yet the PR firm probably sold it as the greatest thing since sliced bread. And I'm not here to blame anybody. I'm here to tell you that 3 days after I became involved with it and they announced it, we had a test back in Detroit. The shares went to $29. And I liked the idea of the engine. And I came to California, and Steven Manthey came over here. We had met in Texas with Murray Bailey and Steven and Paul Ebbage. As I said, I felt the engine seemed to have potential. Immediately I was scared when the shares jumped up like that. Probably because I came on board and was in a couple of press releases. And when we got into it out here, we found out that that was the only engine, and the "shorters" got into it. Anytime you don't have a product that is ready for market or is built on PR and not based in concrete, based in a lot of PR hype, the shorters get into it. And I went to my friend Bob Petersen, and he started buying some of the shares trying to work with David Travis in Denver, Patterson-Travis who were our market-makers. And he invested several million dollars propping the shares up. Anyway, it got to the point that there was no sense trying to hold it up anymore because we didn't have an engine to prove it. We didn't have anything to go before the public or the shareholders and say that it was even remotely a $28 or $29 stock or a $10 stock. I won't go on and on and bore you, but anyway, I met Steven Manthey then and we got to talking. And Bob Petersen and I decided to get involved. And about that time Paul Ebbage, who was Steven's partner, passed away on Australia. And there became a lot of controversy over who owned what and what was going to happen. We decided at that time that we had to build some engines or we had nothing. And we had to find out what we really had. The previous management brought some people in that they felt possibly knew more about the engine than Steven Manthey did. And about that time we went to the University at Riverside and said we needed someone that can authenticate what we have or don't have. We don't know where we are. And Dr. Joe Norbeck came aboard, and he recommended a Dr. Roberta Nichols who's a world-renowned expert in internal combustion engines. We put a contract together with her and Dr. Norbeck at the University. And they told us they felt that we possibly had something. That it was worth following. We then started building these engines here and spent 6 months and what should originally have been around $150,000 wound up $600,000 of company money. And that's when the management changed. We knew there had to be a change, and that's when I became president of the Company, not that I wanted to, when I saw that I had gotten my friend Bob Petersen into this for $14 million. And I know a lot of you have some money in it, a lot of money in it, but the money that he had put in it had gone to some of the shareholders to sell instead of to the development of the engine. And, as I say, I'm not blaming anybody, but we had to make some changes. So, we were running out of money, and I went to Bob and I said, "Bob do we want to file bankruptcy, let this thing go by the wayside and start all over. Or do you want to put some money in it and carry on as it is with the present shareholders." We had a choice. You guys had nothing at that time. It wasn't worth 15 cents. And Bob Petersen said, "No, I don't think that we can drop these people by the wayside. That wouldn't be fair." So he said, "I'll put $10 million in it one more time if the money goes into the development of the engine and none of this crap that's been going on before." So that's where the $10 million came from, and that's the reason restrictions are on it. The people that were brought in were knowledgeable not to the extent, though, that Steven Manthey is as the inventor of the engine. He had worked on this 8 years before he ever met Paul Ebbage. And Steven is the one, in my opinion, that if this engine works and gets to market and makes any money, he will be responsible for the invention and development of the engine. So, I just wanted to bring you a little up-to-date of where we are. We've appointed Dick Ronzi who was in charge of research at Ford for 20 years. Beyond any doubt, a reputation that we're very lucky to have on the Board. And from now on you're going to have the line that you can call in, find out what we're doing. I'm not promising you'll ever see a dime. I'm just telling you that I think you're getting a roll for your money and Bob Petersen saved this company and gave all of us another chance. With that, I'll shut up and let you get asking questions about the engine.
John Luft:
Thank you Carroll. You know nothing can take the place of history, and I don't think it's any secret what an industry leader Carroll has been. It gives us a tremendous amount of faith. At this time let's open the floor for discussion. Again, I will ask to direct questions to the chair, myself, and I will ask the response to be conducted appropriately.
Questioner 1:
When does the 24 months begin, when he was talking about [stationary engines] as far as research?
John Luft:
January 1, 2001
Questioner 2:
Is the University of California represented here today?
John Luft:
They are not.
Questioner 2:
They [UCR] certainly have a vested interest in the engine which leads me to believe that maybe things aren't going well with the testing and so on and so forth. Or am I wrong?
Carroll Shelby:
No, they're going fine. They are not there to develop the engine. They're there to certify what we develop and present to them. And it's working just fine with them. I'm sorry that we don't have Dr. Ronzi [Nichols?] or Dr. Joe Norbeck here, but they had other commitments and we just couldn't get them here. There's absolutely nothing wrong with our relationship. You know Riverside and the University of Wisconsin are the 2 universities in the country that are most respected as far as certification of these things. Both of them do a lot of work with the automobile companies and the government, and our relationship with them is just fine. There's no problem.
Questioner 2:
They'll be continuing the testing on all future engines?
Carroll Shelby:
They'll be certifying. They will not be developing.
Questioner 3:
Going back to 1997, when they all heard about the stationary engines, water pumps, oil pumps, and so on and so forth... And then Carroll's name was mentioned, and then all of sudden, "Boom", that automatically opened everybody's mind to cars. And I don't know what Steve was thinking all this time. Steve, I think, is maybe way ahead of a lot of people, and it's just putting his ideas together. I think my question would be, if there is a first engine in your mind, Steve and Carroll, what would it be applied for?
Steven Manthey:
Right from the outset when I conceived these ideas about how you're going to be using it... my daughter was just born, that's how I can remember it so easily... and stationary engine application... I was never so grandiose as to think I could get it into automotive quickly. The infrastructure and lead time is too great, and the refinements involved in automotive... many millions of hours, a hundred odd years, and thousands and thousands of people... and you'd be dreaming if you think you could get it to a stage and get it in automotive and be competitive anywhere in the near future. I was always telling my ex-partner, now deceased, that we need to set this up in a gen-set situation. People can see that application. We'll be able to get it into the market. And we'll be able to do that relatively easily. Unfortunately, I was only the inventor and the fella doing the work, and they were the business minds and they had better ideas. The press releases and other things were not of my conception. I often, in fact all the time, when I was alone with them said, "What are we doing here? You're getting the cart before the horse. We need to stop spending money jogging around the countryside and doing this type of thing. We need to get on with developing the engine." And they would continually tell me to, "Patch what we got. We're going to show it again." I'd say, "Why are we showing it? We're wasting our time. We need to build another engine. We've learned enough from this one. We know what the mistakes are. We've got to improve it." And they would say, "We need the money to do that."... as it turned out, we had money to do that, but I was kept in the dark as to that... And, ah, "...we need the money to do that, and the only way we do that is to jog around the countryside." As it turns out that was obviously the thing to sell stock. They're the facts. So I'll give you a little bit of the history as well. Before my partner died, I became so frustrated because all I've ever wanted to do was get this in the market I've got, probably most of them jointly invested, you know, in groups as syndicates... so I've probably got about 100 of my friends invested in this. There's no way on earth I'll let them lose one dime if I can help it. So I just put my head down and wished I was secretly building another engine, which is the first engine I supplied after Paul died, because my partner wouldn't let me build anything else. Wouldn't supply us the money to do it or anything. We started secretly doing it. And since he's died, we've been going ahead in leaps and bounds. I'm not in control of the Company here at all. I'm not on the Board. You know Carroll and I have gained a great friendship. Carroll's a fair man, and I respect him greatly, and if it wasn't for Carroll I probably wouldn't be here now. I was able to get through to Carroll the truth of the matter on what was going on, and we've been moving forward. I can understand from the shareholders' viewpoint, because, as I say, I have about 100 odd shareholders back at home who invested right at the beginning. And the reason they invested is because they knew me. I've lived in the one area all my life. I'm very well known now. I'm liked in the area and respected and trusted... on the fact I survived and the fact I can be trusted. And if I say something , I do it, or I'll die doing it.
Questioner 3:
Now, of course, Carroll mentioned Murray's dog and pony show, but there's one guy that we met, and it was a guy named Paul Davenport, I believe it was. I don't know what happened to him, but he seemed sincerely interested in the Company and the engine. And I know he married an Australian girl, and he's probably having more fun over there. What's happened there?
Carroll Shelby:
I think I can explain that. Paul Davenport was a friend of Murray Bailey's. They'd built electric cars in Bakersfield. Murray was in charge of the company. And Murray felt that Paul Davenport probably knew more about the engine than Steven did. We spent about $30,000 on computer-based technology so that you could build engines. And that went on for about a year and a half. Murray decided that we should build some engines here in this country, and we had some bids which started out at about $150,000, and the first thing that we knew 4 months later, I had nothing to do with this, was we were up to $600,000. We had pieces and parts for 4 engines. We put them on the dyno, and they didn't run. We started checking the pieces and parts that had been made, and they didn't fit. And with that... Paul was very sincere about what he was doing and he could speak very knowledgeably... But the people at Riverside... we went to them with our problem... Dr. Norbeck, and we talked to Roberta Nichols... They both said, "Something's got to be done here if we are going to be into this any further because Steven Manthey is the one that understands the engine. And Steven Manthey knows the problems with the engine." And with that we had to discard a lot of those parts, going in the trash can. And Steven Manthey was put in charge of all research and development on the engine. And I hope that Paul is happy in Australia. He did his best, but it didn't work out. And that was when Neil and Steven, Noel Holmes, who was on the board, decided some changes had to be made in the Company. And that's when I said, reluctantly... I don't want to be president... I'm 78 years old, and I don't need these kind of headaches, but I've gotten Bob Petersen in it so far that I've got to look after his interests and the shareholders' interests. So, does that explain it to you?
Questioner 3:
Yeah. And you're 78 and I'm 68, and that 8 to 10 year projection is pretty optimistic on our part.
Carroll Shelby:
I won't be here. I don't care to be president of the Company at all. I just want to hang around long enough that the shareholders and Bob Petersen... that their money is in the best hands that I can leave it in. That's the only reason that I'm here.
Questioner 4:
What's the longest time period the engine has run?
Steven Manthey:
The engine that we supplied the University... must have been 12 months ago now... we ran it for 5 hours straight at home before we sent it over here. We ran it for another 8 hours at the University. It had a rocker problem in it which we subsequently rectified. It was actually a hardening problem. Because we're doing so few parts and to get a good foundary doing the job, they do a massive number of parts at once, and basically you don't get what you want.
Questioner 4:
You're going to be using it for a generator or a pump so that it would have to run 24 hours a day... perhaps months at a time.
Steven Manthey:
That's correct. The only problems we've had with the engine to date have all revolved around foundary or had design fault. Everytime we fix something we actually have overcome that problem... we've moved on to a fresh problem.
Questioner 4:
Do you think it will run continuously?
Steven Manthey:
Yes, yes! I have no doubt of it at all. You know I'm being honest with you. The last one... not the last one... the one before that... we ran 5 hours at home. We ran it for about 8 hours at the University. They rang me up and said, "they'd been running it and it broke." And I said, "We'll don't touch anything. Send it back so I can ascertain what went wrong first." And I went right through it. And it turned out that I decided that the rockers had failed, which were safety measures for misfires and to start up and that type of thing. And I thought, well, I'll test them for hardness. So I sent them off, and lo and behold they turned out to be 58 Rockwell C which would shatter. And they were supposed to be 45 Rockwell C which will have a part bend before it breaks. At 45 Rockwell C each rocker will handle 4 ton of pressure. These were shattering at about 150 lbs. So basically it was a foundary problem. I'm not trying to pass the fact, but that was the facts. So we simply refitted with same rockers that had been hardened correctly.
Questioner 4:
Another question...your partner Paul... what did he die from?
Steven Manthey:
Meningococcal. [Meningitis]
Questioner 5:
This is a question for Steven or Carroll. Could you explain in layman's terms about the last questions that we talked about... changes in the cam in order to increase horsepower and rpm?
Steven Manthey:
A large part of the performance... obviously you're talking power performance... revolves around the porting. It revolves around how well you can aspirate an engine and dwell times and so forth. This is not about getting magical power form nowhere. This is about cutting all the losses that you have with a normal engine. It's well known, and a lot of people have experimented with it, and they still are, by putting rotary cams in engines. There's a lot of power lost for a driving camshaft and valve gear, etc. so there's a saving when you don't have to keep what what don't need. Getting more specifically down to the cam shapes... any normal engine, if you had a 4 inch stroke, you got a 2 inch thrag(???). In other words a circle is always 360 degrees. It doesn't matter how big you make it or how small you make it, it's always 360 degrees. Because we're cam generated we can have a short stroke of 45 mm, but we can have a dwell as though you had a stroke of 4 inches. So now what you can do is you can advance the timing a tremendous amount with very little piston movement. And the earlier you can throw your spark and get your fuel burning, the bigger advantage you're going to get for the drive side. The disadvantage is you'll start preigniting, knocking, and you'll literally stop the piston going up the bore. Any time you throw your spark to ignite your fuel before top dead center, which you always do, you get better performance because you get your burn going before you're on the downstroke. And, ideally, you'd like to advance it as much as you can, but there's resistance that's building up while the piston's still going up the bore. There's a negative effect. If you can build in more and more dwell time, you can spark further and further ahead and you can get all the burn before you do the driving without the negative effect. What happens is as we build compression and as we increase dwell time, we'll have that angle very slight so the piston's moving 3 mm for the whole dwell. So there's very little negative effect. On the drive side area we'll drop it off really quickly so that we have a full torque situation as though there were a 90 degree crank angle. Unfortunately, in the normal engine piston velocity is accelerated greatly and the advantage is lost in the first 45 degrees on a normal crank engine because of the rapid acceleration of the piston... you gain leverage but you've expanded the area [volume?] reducing pressure. So what we're able to do on this is we do the 3 mm of piston travel at full leverage when you still got the smallest area [volume?] you've had the maximum time to burn so you got a great deal of power. So obviously cam shapes can alter the performance of the engine a great deal. And in a generator application we're at a specific rate when we're running things so we can really hone in on what would be the best shape to optimize performance at that rpm. So that's why we're experimenting with cam shapes.
Questioner 5:
What type of horsepower are you shooting for?
Steven Manthey:
I'm not shooting for any horsepower. What I'm shooting for is the maximum torque I can get at 1800 revs, possibly even 1200 revs and put more poles in the generator. The idea of that, of course, is bearing speed is lower, everything's lower... better for pumps, better for everything. You got to understand the equipment that the engines are normally bolted to these days is designed to suit how the existing crankshaft engine performs. We've got a whole new deal going here and that stuff will slowly turn around but we can't expect that to happen immediately so we've got to retrofit. So we got to tie it close to what they're doing presently. So what we're doing at the moment is the Company is gathering information on 25 KW gen-sets for the performance, etc. I'm in the process of acquiring one which I will then test myself. And then what we're going to be doing is retrofitting the engines because we know we can do that job. And we will continue to refine the engine until it does that job. And whatever that takes we will do it. Something I didn't mention before which probably the shareholders are unaware... I have a facility, obviously cause I build everything. Everything we do is built in house. We need to change something, we literally change it at that second. We've got everything we need [all types of machinery.] The facility is totally dedicated. It's a closed shop. No business. No one comes in there. We have a team... 5 of us altogether. Problem is to get guys who know what they're doing. We work as a team, and this is all we work on every day.
Questioner 6:
People. How many people? How many engineers? And is Steve 100% in the development?
Carroll Shelby:
He has 5 people in his shop.
Questioner 6:
Are they all engineers?
Steven Manthey:
Yes and no. My guys are guys I've known all my life. They're as almost as I am. They're all maverick-like if you will. They're guys that can tune the engine, do anything. I plucked them from around the place. For many years I owned panel [body] shops, and I was building cars actually... sports cars. You get to know who can and who can't do things. I went around and plucked the ones who could. One of them, my more senior guys, he's about 55, I gave him a good deal so he came on... 25 years engine rebuilding....
Carroll Shelby:
We have 5 people down there in Australia, and we will have a maximum of 4 people here. What we're gonna do is build the pieces and parts in Australia. Steven will do that. We will do the testing here. This is where the first market for the product will be. And we will assemble, disassemble and test the engines here, and then send them to the University. But getting back to the automobile application... you're never gonna sell the automobile companies anything. They come and take it away from you. However, the ones that we talked to think the engine will be applicable, if it is ever applicable in the automobile industry, to hybrid vehicles which is nothing except running another generator.
Questioner 6:
So essentially there are 2 work groups, one in Australia and one here. And then the University to authenticate.
Carroll Shelby:
Yes. And then we have our general manager [John Luft] whose job is to sell it when we're ready.
Questioner 6:
Is he a qualified salesman for that purpose?
Carroll Shelby:
I think so. He was in charge of franchising for Hilton. He worked at Disney, and I think that we're very lucky to have John Luft to run this company right now.
Questioner 7:
Could somebody talk about the GM deal? There's been some confusion, I think, about a possible contract or agreement with GM. Can anybody just put that to rest?
Neil Cummings:
The GM deal is a letter of intent between AET and GM, and really it's focused on the phase 1 testing. The original concept which previous management had arranged... and by the way, let me just make a general statement that GM is very interested in the developmemt of the engine. They very much would like to participate as the engine moves along. I think it's up to management and the shareholders and the board to decide how that involvement will progress. But as Mr. Shelby just pointed out, the car companies, they take it if you give it to them. We have to be very careful in terms of the intellectual property that we own that we protect that intellectual property for the benefit of the shareholders. The last thing that we want is for trade secret information to be disseminated to any large organization, whether it be GM or anybody else. So that the relationship we have with GM is very much an arm's length one, but they are going to be looking at the test results in phase 1. They're interested in having some sort of a first right of refusal to market and in the production of the engine when that time comes. It's not one of these 25-35 page agreements that you hear about that the lawyers put together. It's a very simple straightforward letter of intent which fundamentally says that they will work with us and we will work with them. In terms of the initial test results, we'll share the information with them. And we'll see where it goes from there. But there has been a lot of talk about the GM deal, etc. Though one of the things we've been careful about, again, is protection of the intellectual property. And GM has an internal policy of not signing confidentiality agreements. Well that's kind of a problem for us. Again our intellectual property is really everything we got. We gotta protect that. So that's kinda the tug and pull of GM.
Questioner 7:
So no money has come from GM?
Neil Cummings:
No. The only money that was contemplated would come from GM would be approximately $90,000, I believe, which would go to the University to help fund the testing of the engine. That money has not gone to the University as of yet. But that's not GM's fault. It's just that the University hasn't asked for it, and we haven't needed it. Again we're talking about the money that's been invested in the Company itself. The Board has been very careful to shepard those resources through, but one certainly very good use of that money is to internally fund the development and testing of the engine to the extent it can be done internally because you keep the information at hand. So GM has not paid the money yet, but if the University would ask for it in the phase 1 testing they would pay it if we approve it.
Questioner 8:
Who has been paying?
Neil Cummings:
We have.
Questioner 9:
Where's the money coming from to pay salaries for the next few years?
John Luft:
Well as I mentioned earlier the funds had been depleted to a very low level, I believe that number was $150-200,000. With the recent $10 million stock investment we are fully funded to cover expenses... engine development and the operating of the company. Any financial investment this company has is covered by that stock investment.
Questioner 9:
What is the Company doing to prevent the stock from dropping to where it's at now around 75 cents to a dollar? What's keeping it floating at around a dollar?
Carroll Shelby:
Just whatever you think its worth. That's what keeps it going.
Questioner 9:
But if the Company doesn't say something positive about the engine...
Carroll Shelby:
I'd like to say something there. We said that we were going to send out information on a regular basis. The engine broke down at Riverside. We wanted to send out that information that the engine broke. We were denied by our lawyers not send out bad information, and I said, "That's a bunch of crap." We're going to send out the good and the bad from now on. And that's where we've made a change in our policies so that you will know exactly what's happening, good or bad. In my opinion, the shares should be worth more than they are now.
They aren't because we don't have an engine that is commercially viable yet so it's worth whatever anybody wants to think it is.
They aren't because we don't have an engine that is commercially viable yet so it's worth whatever anybody wants to think it is.
Questioner 9:
And I can guess you're not taking a salary because you'd be taking money from Petersen put into your pocket. You're saying this for to help get Petersen back with his money, so you'd like to see the shares go up for his sake, at least.
Carroll Shelby:
I want to see the shares go up, but I don't want to see the shares go up like they went up the last time so that the "shorters"... you know... until we're based in concrete and have an engine that is viable for commercial reasons. And we don't have that engine yet. So to try to get the shares to go up based on something like... there's a company out there called Capstone, that you've probably been reading about, that has a turbine that's a generator. They raised hundreds of millions of dollars, and in my opinion and a lot of people's opinions, a turbine can never be as efficient as an engine like ours, or even the internal combustion engine as we know it today, to power generators. But our stock was run up on...I don't want to say false information...but the PR people releasing some things that were released before the engine was viable. We're not going to send out information through a PR company that "we believe that this is the greatest engine that's ever come along." It's got to be proven. And when we prove it, we will put that information out. And I believe that the shares will go up then if you reach that note.
Questioner 9:
I think it went up because of your name.
Carroll Shelby:
That was one of the reasons, but there were some press releases put out by some people also that helped pump it up too. Whenever that happens, the shorters are going to come in and kill you. They'll do it every time. There's billions of dollars sitting out there just waiting for people in the situation that we were in, and we don't want to get back into that situation. That's the reason we haven't tried to bump the stock up for anybody. I'd much rather be very honest about it and tell the people what is wrong with the engine rather than say, "There's nothing wrong. Everything's coming along just fine. We're doing our development work, and we believe we have the greatest engine in the world." I personally think that there is a lot of potential here, and Robert Petersen does or he wouldn't have invested $24 million so far. But until that's proven, it's a gamble... just like rollin' of the dice.
Questioner 10:
I'd like to complement Carroll for this update. I been a shareholder over 3 years, and this is the first time I've seen a picture of what's happened for the last 3 years. Also I'd like to complement Mr. Petersen for putting his money where his mouth is, I presume, and putting $24 million dollars in. But I do have some questions about that, if I may. Let's talk about the $10 million. I'm a little bit confused here. You said it's a letter of credit. Who underwrote this letter of credit?
Alexandria Phillips:
Wells Fargo.
Questioner 10:
Then it was mentioned that these funds are available anytime in any amount. Then why would it be that you couldn't take this $10 million and invest it and receive back $700,000 to $1 million in interest alone and use that money to run your company and don't touch the $10 million... only if you had to later. If the money's available, I see no reason why you can't use that interest to run your company... or our company.
Carroll Shelby:
Well I can answer that. Mr. Petersen is not going to turn that money loose for it to be squandered like we feel that some of it was squandered before.
Questioner 10:
I understand that. But he's already put it in an irrevocable letter and you stated it could funded at anytime in any amount... [Then why not have the Board approve $10 million] and take that money and invest it at 7-10% interest and get your $700,000 to $1 million a year which will more than run the Company?
John Luft:
I think I can answer it very simply. It wasn't an option. The fact is this company was a few $100,000 away from being out of business. It was a stipulation and a condition that was not up for vote. We could set here and not have this meeting without it. Fact is, that was the only condition that Mr. Petersen put on it. And there were no other funding opportunities. No shareholder stepped up and had any other outside funding available, and for the ongoing success and life of the Company we had to acquiesce to that stipulation.
Questioner 10:
Do I understand that Mr. Petersen has a liaison on the Board of Directors?
Alexandria Phillips:
That's me.
Questioner 10:
And you respresent his interests?
Alexandria Phillips:
I represent the interest of all the other shareholders.
Questioner 10:
So why is it if it's irrevocable and it's underwritten by Wells Fargo... why isn't that $10 million put in a trust account and you draw interset to run the Company?
John Luft:
It wasn't an option at the point that we entered the agreement... it wasn't an option.
Questioner 10:
If it's irrevocable, there is no option.
John Luft:
Well I tell you what... we do take your objection. It's duly noted. It will be reflected in the minutes.
Questioner 10 ET AL:
[Objections and protests spoken all around questioning where is the interest going if not to the Company?]
Neil Cummings:
This was a negotiated transaction. The Board made the best deal it could make under the circumstances. I understand your objections. It's duly noted. If you look at major investments in companies... especially a startup company that really does not have a proven product... if you could even find an investment like this... Investments are subject to any number of restrictions... major restrictions. The restriction here is the discretion of the Board and the Board's good judgment about the proper use of the money. Granted... no one's arguing with you that in fact if this money were in an interest bearing bank account there would be additional interest being earned by the Company. That is under the best arrangement that could be negotiated by the Board. This is the arrangement, and it does not include earning interest.
Questioner 10:
[More objections and more of the same arguments repeated over and over again. Side "A" of this recording tape runs out at this point and is flipped over to side "B"... Mr. Shelby offers to talk to Mr. Petersen about getting interest.]
Carroll Shelby:
We'll take that up to him. It's something that is to be considered and we'll see what Mr. Petersen says.
Questioner 11:
I think that Southern California Edison and one of the other utility companies are going to be asking for a 50% increase in utility rates. The people that have pool pumps... could this engine work to generate enough power for a pool pump that would be cheaper than whatever KW hours would be paid to an electric company?
Steven Manthey:
The engine can be turned to almost any application that you can think of. The question is how long does it take us to develop it for that application, and we don't want to start darting-off in a totally different direction. I think that the direction... and I strongly feel, and I think the board obviously does too... I think that the direction we've chosen, to keep your eye on the ball, is enough for me to deal with. We don't want to start getting a workforce. I have many people I use externally... experts in electronics, experts in all sorts of things... you know, I can get them when I need them.
Questioner 11:
Is this engine generally quiet... quiet enough to be put in a backyard somewhere?
Steven Manthey:
Yes. It requires muffling like any engine requires muffling. Pumps... air pumps smaller than its present size... [unintelligible] because I happen to have 2 compressors myself and anybody in any industry usually does... The applications are there... we just have to get to that point.. that's all tomorrow.
Carroll Shelby:
2 years ago CBA came to us and said, "This looks like an answer. We believe that 10 years from now many, many households in this country are going to have their own generators, and this looks like the best thing that we've seen for that application. Would you be interested in working with us?" We said that, "We don't have an engine that we even know whether it will run or not, and we will stay in touch with you until we get an engine that works."
Questioner 12:
Is it a possibility to come to the facility here locally and actually see the engine run?
John Luft:
Yes. In fact, we'd discussed and had determined that we will publish a date in which any interested parties can come to the test facility and actually observe the engines run. We will inform people of that opportunity and that date on the information line.
Questioner 13:
Carroll mentioned Patterson-Travis... David Travis... and I met him a couple of times... Depending on who you talk to, when you mention his name you get a whince or you get, "Yeah. He's a market-maker" or whatever, but I'm trying to figure out what his role is... whether he's friend or a foe... whether he was a friend, now he's a foe [laughter from Carroll Shelby]... or what the heck's going on. I'm fairly aware of the fact that he owns quite a bit of stock, and may be buying a bunch of it up at the same time. What is the situation with Patterson-Travis? Do we have a market-maker? Is a market-maker necessary? What the heck is all this stuff?
Carroll Shelby:
That's one of the things that the Board has to have under consideration, and that's a very pertinent question, and we need more than one market-maker. As soon as we get around to knowing that we have an engine that works that's one of John's responsibilities.
Questioner 13:
I'm like you, Carroll, I'm an engine builder. I'm a hands on guy, and that's what I do for a living, and a lot of this is way too slick for me. I look at things from the fiscal standpoint. I see a $10 million... call it "loan".. from Mr. Petersen. It's credit... which means he's gotta get something back for it Either he's gotta get his money paid back to him with interest, or he gets another chunk of the Company... something.
Carroll Shelby:
For all practical purposes Mr. Petersen controls this company.
Neil Cummings:
It is not a loan in that sense. The money is irrevocably dedicated to the Company. But what I was going to comment on as far as the market-maker concept... the whole term "market-maker" doesn't have any legal meaning that I know of. We did do a check, our own internal check, on what brokers are out there buying and selling the stock... making the market, if you will... and I can tell you that we came back with a list of the 10 brokers most frequently buying and selling the stock... this was several months ago... and Patterson-Travis was not in the top 7. So it's not like they're the only ones buying and selling the stock. I don't know... I couldn't answer anything more in detail about your question...
Carroll Shelby:
Very basically, David Travis is the one who took this company public. And that's the reason he's been so prominent lately... because he is the person that brokered the company and took it public. That's where he came from, but keep in mind, there's a lot of other companies out there trading this stock.
Questioner 14:
There was some talk, back, of going on the NASDAQ. Is that still a viable concept?
Carroll Shelby:
There are requirements. You have to be up to a certain volume and the shares have to reach a certain plateau... I'm not sure what it is... but $4 or $5 that it has to reach and remain there for a certain period of time.. but I don't think the Company stayed up there long enough to qualify.
Questioner 15:
Carroll mentioned a new policy of releasing information. When will that begin, and how frequently can we expect that?
John Luft:
Well, the policy starts January 1, 2001. The information... what we won't do is tell you there will be a fresh release every month. It may not be appropriate. What we will say is that as we accomplish milestones that happen to or issues regarding the engine that require us to inform the shareholders, we will use press wire venues to get that done. On an ongoing update, which is pure conversational, we will update the information line once a month with what we're testing... the progress we're making. This is a line that you'll be able to dial into at any time to hear that updated information. A combination of that, strategically, with the press release or the PR firm will provide the necessary and appropriate information.
Questioner 16:
Getting back to this manpower situation... With maybe 10 people we're apparently talking about now that are going to be working on it to achieve this objective in 2 years, what about getting 20 people and making it one year?
Steven Manthey:
Obviously, many hands make light work. Unfortunately, the fact of the matter this is called "R&D". R&D requires something to go wrong, and then you modify it, and we make a single part. If we had 20 people working on it, we could produce 20 times the same part. We test, we break, we modify. That doesn't require anymore expense. We can make any of those changes. We can make any change in the motor within, basically, a week or build any single part within that time.
Questioner 17:
Are there early indications at this point about scale... that you could scale up, scale down to? Like could it ever be scaled down to something like a leaf blower?
Steven Manthey:
I never originally envisioned having it into small engine applications. Suffice to say my thoughts would be stationary engine... ride-on mower and up. The principles of the thing gain dramatically as you go up in size... not from an rpm point of view, but from torque. Torque is work. Torque is doing the job. Cars nowadays are lower revving where they bring in their torque. They bring in high torque at lower revs. And they can't build more powerful because torque does the job, not horsepower. Horsepower is a figure you get when you multiply torque by your rpm's and divide by 5252. So the high revs you get, you'll get more horsepower, but horsepower doesn't do the work. Torque does the work. Brute force does the work. What we've got is a high torque, low rev engine which is typical diesel application. Really diesel engines are low rev, high torque applications, and that's why diesel engines are the workhorses of the world... because that does the job. Now with boating engines, rpm's then come into it, but then you got a lot of problems, of course.
Questioner 17:
So this could go into an application eventually like the diesel electric locomotive perhaps?
Steven Manthey:
Any workhorse application is ideally suited towards shipping it. Any diesel-type application is the first application to get this thing into. And stationary engine... with the workforce we got and the stage of development the engine is in... stationary engine application... on timely developing for a generator... that's your target.. Once you've developed for a generator, it's ready for pumps and all sorts of other things. So when people talk, people know what we're aiming for. But the applications are endless. There's probably applications we haven't even thought about yet.
Questioner 17:
Right now it's just air cooled. When it gets much larger it will have to be redesigned so it will be water cooled...
Steven Manthey:
No. Firstly it can be built any size to answer your first question, but I wouldn't get the engine too small. The gains aren't there once you get too small. It's currently actually water cooled. It can, however, be air cooled.
Questioner 18:
Did Steven come up especially for this meeting?
Steven Manthey:
That's correct.
Questioner 18:
You knew about about it maybe more than 2 months ago. Did you plan on bringing anything with you from your factory in Australia?
Neil Cummings:
Technically, legally speaking, these shareholder meetings... I don't know how many you've been to... public company shareholder meetings... they typically last 10 minutes. We wanted this meeting to be longer. It was really our idea, internally, to bring the engine here... to bring Steven... We actually asked Steven Manthey to come up just 2 to 3 weeks ago because we decided we wanted to give an update to the shareholders who came to the meeting. So it's actually unusual that this type of preparation goes into a meeting, but Steve Manthey was able to make himself available.
Questioner 19:
Another financial question...you have a certain amount of money it costs to operate this company, do the development, pay the employees... whatever you want to call it. We all have a nut to crack that own businesses. We know what the bottom line is if you don't do a certain amount of business. You're going backwards. Well, you know right now we have a $10 million bank account, and we have no income to speak of. What kind of timeline are we on to get this thing done with a $10 million bank account and no income?
John Luft:
The timeline is and the goal is 24 months or sooner.
Questioner 19:
You might have a breakthrough one day...
John Luft:
You know what... absolutely right...
Carroll Shelby:
We were hoping we'd have a breakthrough right now, but we can't promise that to you because we don't know what's going to break next.
John Luft:
But you're exactly right, and we are adequately funded to achieve a commercialized product.
Carroll Shelby:
But we're not funded to the point that... we're not kidding ourselves... unless we have income coming in, it's going to take much more than the $10 million to bring it to completion. We'll cross that bridge when we get to it. Let's try to get the engine running for 100 hours under full power as quickly as we can. Then we can go to somebody and realistically say, "we're ready to sit down and talk to you now"... Caterpillar, whoever...
Questioner 20:
I've actually never heard this engine run with a muffler on it. I've actually heard it run quite a few times unmuffled. When it's running without a muffler, is it fairly quiet? Mechanical sounds are pretty absent?
Steven Manthey:
The only mechanical sounds with in the engine are like rollers following the cam and the rockers. One of the stages of development that we've been doing has been to, if you will, put a hydraulic lifter into it... only there's no way for such a thing. So what we've actually been doing is designing the rocker assemblies as a lift-spring to eliminate any mechanical noise. And we've gotten the thing very quiet. And we're still working in that area. Obviously while were running, the aluminum housing has certainly got an amount of resonance there alone... it's got a drone. Also, I don't know how many of you have played with straight engines, especially high perfomance engines... incredibly noisy. It's got nothing to do with combustion, it's got to do with porting, and that's for ongoing development past the generator stage... we'll get the porting, and we should be able to get the thing darn quiet.
Carroll Shelby:
I'd like to add to the answer to the question as to why we can't put 20 people on it and reduce the time. We could sit and build 20 engines, probably within the next 6 months, but we'd probably build 20 engines that break... all for the same reason. And that's the reason you have to take it one step at a time. That's what's R&D.
Questioner 21:
Has anyone looked into applying computer modeling methods to some of the problems of gas flow and burning in the engine that you can't really see? This would be like computational fluid dynamics, which I know the University Of Wisconsin, Madison has a great amount of expertise in with a program called KIVA developed specifically for engines at Los Alamos. You can really see a lot in the way of where the gas goes. It might be moving prematurely into walls. It might not be burning right or mixing properly... and all these things would be very useful, and you just can't see them.
Steven Manthey:
I'm not a computer expert. I have people that do that. The Company does have the capabilty and the program which does all of that modeling and can show ways its going to fail. It can show it running. And it's supposed to be able to work out where we should put portals at. As yet I've not had a guy expertise enough on the computer to be able to work all this out who understands the engine well enough. There's a number of complications with the programs that are available because they are designed around the state of the internal combustion engine technology which doesn't have the whole engine rotating at the same time. This creates problems with the modeling. Suffice to say, it's got a piston in a cylinder and a combustion chamber which can be made any shape as a piston can be. So it shouldn't be too much of a problem getting the design right resolved on that engine. I was actually standing over you earlier... I heard you talking about the engine robbing air from one side to the other and running on one side. Initially the engine had a lot of trouble positions on a top of 5% [throttle] and lower with no load... literally does start up on one side for the very reason you said. Once you get in throttle position or, particularly, any load on, the other side cuts in and runs perfectly evenly. What we've done to overcome this, and we've been somewhat successful... sometimes it works, sometimes it doesn't, so we've got to refine it a bit more... we've moved the throttle bodies from way high out right up close to the ports and we haven't had much of a problem... it's running pretty good there. The other thing is, I didn't think it necessarily think it was such a bad thing... particularily if we decide to have the second injector phase in... and we just run on one side of the engine when the power's not needed.
Questioner 21:
I know that you can contiunue to play with the motor, but having these models and the proper graphics of it can really dramatically illustrate something that you just cannot play with or see, and it can really save you a lot of time if it happens to pick up something like that.
Steven Manthey:
I agree with you 100% and that needs to be worked on. I've had some frustration in getting people to work on that so eventually that needs to be done.
John Luft:
The good news is we have the software and the modeling capability.
Steven Manthey:
We're at the end of the thing, at the moment, where we're concentrating less on that, at the moment, and more on the big leaps. Obviously you can refine and refine and refine. As you well know, in the last 5 years the refinements on automotive internal combustion engines is very phenomenal. So you can have something that you think's right there, and you can just go on and on forever. And your point's well taken, and I'll probably get people working on that.
John Luft:
We'd like to take this time to thank everybody for attending the meeting. Any information... questions you may have regarding the engine, Steven will be available at the "cutaway" [model], and safe travels home.
