TRANSCRIPT OF THE NOVEMBER 21, 2002 ADVANCED ENGINE TECHNOLOGIES, INC. ANNUAL SHAREHOLDER MEETING
Los Angeles Airport Hilton Hotel, Los Angeles, California
The AET annual shareholder meeting was held on Nov. 21, 2002 at the Los Angeles Airport Hilton Hotel. With Carroll Shelby off in Texas for a hometown "Carroll Shelby Days" celebration, Noel Holmes and Steven Manthey tied up in Australian courts by litigation brought on by a partner of Ebbage, and Richard Ronzi remaining at home in Florida, only Alexandria Phillips, Director/Treasurer, from the BoD was present along with John Luft, COO, and Neil Cummings, Secretary/Legal Counsel to conduct the meeting. Rounding out AET staff at the meeting were Lori Newman as "Inspector of Elections" and engineering staff members, Steve Wells, Paul Davenport and Ian Mann. These 7 AET people outnumbered the 5 shareholders who attended the meeting.
On display were OX2 engine parts, the OX2 cutaway model, and an OX2 prototype. Videos of OX2 dynamometer tests were run prior to the start of the meeting.
John Luft acted as chairman and conducted the meeting. Of 33,705,000 outstanding AENG shares, at least 21,570,349 shares were represented for a quorum of 63.9%.
The current BoD directors, Holmes, Manthey, Phillips, Ronzi, Shelby, were re-elected and the current independent auditors, Singer, Lewak, Greenbaum & Goldstein LLP were re-ratified during the official portion of the meeting.
TRANSCRIPT
John Luft:
You know this is good news. Alexandria reminded me that when people are comfortable with the progress or at least what the company is doing, then, often as not, attendance is low at a shareholder meeting. Usually attendance is high when people want to be heard and have got some things that want to be said. So I'll take this low attendance as a very positive thing, and I appreciate all of you that have come.
Anyway, we're going to be going through 2 parts of the meeting today. We'll have a very quick introduction. We'll go through the formal part of the meeting where we will discuss things that are on the proxy to be voted for. And then we'll adjoin the meeting. We'll have an AET company update which, I think, will probably be the most meaningful and, I think, productive company update we've ever done. So tell all your friends, please. And then we'll open it up for discussion and close the meeting after that. So, anyway, let's go ahead and get on with it.
My name is John Luft. I am the Chief Operating Officer for Advanced Engine Technologies. I'm going to act as chairman today, and I will be conducting the meeting. And Neil Cummings will be the company's Secretary. We have present Alexandria Phillips who is Board of Directors. Carroll Shelby sends his regards. He is not able to attend. In the great state of Texas they declared Shelby Days in his hometown, and he's back there in Texas, I guess, tending to his cattle and having Shelby Days. We have Noel Holmes who is on the Board of Directors. Noel and Steven Manthey are actually back in Australia. They are... Steven is involved in some litigation amongst his previous partner's partner, and I can't go into any details other than the fact that their court case amongst themselves is highly involved at this point. And Mr. Holmes, as a director, is part of that suit. So they will be unable to attend as well. And last, but not least, is Dick Ronzi. Dick Ronzi has made probably 3 different visits out here over the last several months... I think 6 or 8 months... In the testing that we've seen on the video, Dick, being the retired engineer from Ford, was very influential in the testing that we conducted previously over the last 6 months or so. So we've let Dick lie on the beach in Florida where he spends most of the wintertime with his wife. So your officers and director... we're them, and if you have any questions, feel free to ask us at a later date.
We'll first conduct the formal business of the meeting. We'll give you some periods of open discussion, and respond to any questions you might have. At this time I'm going to ask Mr. Cummings to take care of some of the formalities of the meeting.
Neil Cummings:
Good morning. My name is Neil Cummings, and I apologize for the hold up at the beginning of the meeting. The bad news is I was in court, that was my excuse. The good news, it was not an AET matter. But the company has received an affidavit of mailing indicating that notice of this meeting together with a proxy statement and proxy card were mailed to each holder of record of the company's common stock at the close of business on October 23, 2002. Copies of the notice of the meeting and the affidavit of mailing will be filed with the minutes of the meeting. Lori Newman has been appointed as Inspector of Elections, back there at the table waving at everybody, and has delivered her oath with the Secretary to be filed with the minutes. With the submission, the certified list of shareholders of the company as of October 23, 2002 will be open for inspection during the meeting. Out of a total of 33,705,000 shares of common stock entitled to vote at this meeting, there are present in person or by proxy at least 22,570,349 shares of common stock or 63.9% of such outstanding shares. Accordingly, I declare this meeting has been duly called, that a quorum is present, and the meeting is lawfully convened for transaction of the business for which it has been called.
John Luft:
Thank you, Neil. It would be in order to read and approve the annual minutes of the last annual meeting held on November 20, 2001 unless such reading approval is waived. Those minutes are available for review by any shareholder, and feel free to do so. Do we have a motion to waive the reading and approval of the last minutes?
[The motion was made, seconded and passed.]
Okay, we have 2 items of business on the agenda today... the election of 5 directors and the ratification of the independent auditors. Before voting, I would like Mr. Cummings to explain the voting procedures.
Neil Cummings:
If you have returned your proxy card, your shares will be voted in accord with your instructions unless you wish to change your vote at this time. If you are holding a proxy card and wish to have it recorded please raise your hand so we can give it to the inspector of elections now. [No proxies presented.]
John Luft:
Thank you Mr. Cummings. The polls are now open. We will present both items on the agenda. And then after any discussion, we will vote on both proposals. Please restrict your questions or comments at this time to the items being voted on. General questions will be welcome later in the informal part of the meeting.
First item on the agenda is the election of directors. 5 directors are to be elected, each to hold office until the next annual meeting of shareholders or until his or her successor is elected and qualified. Management has nominated the current 5 directors of the company. The nominess are Noel Holmes, Steven Charles Manthey, Alexandria Phillips, Richard C. Ronzi, Carroll Shelby. I now ask that these persons be placed in nomination.
[The motion was made, seconded and passed.]
If there are no other nominations, I declare the nominations closed. The last item of business is the ratification of the companies appointment of Singer Lewak Greenbaum & Goldstein LLP as independent public auditors for the fiscal year ended June 30, 2002. A motion would be in order.
[The motion was made, seconded and passed.]
Any discussions? Okay, moving right along. If you are voting in person, please mark your ballots with repect to the election of directors and ratification of the auditors. When you are finished, please raise your hand so that we can have the ballots collected. And we had none of that, so the polls are now closed. Will the Inspector please collect no ballots... none are necessary, prepare the certificate of voting, and advise Mr. Cummings of the results.
[A brief discussion was raised by one attending shareholder concerning the total number of shares listed in the proxy statement for directors, officers and principal shareholders. The stock options were included in the totals and the grand total exceeded the total amount of outstanding shares of the company's common stock. It was suggested and noted that future proxy statements should list stock option figures separate from the actual issued common stock figures.]
Neil Cummings:
The inspector's certificate indicates that each nominee has been elected as a director of the company and the appointment of the independent auditors has been ratified.
John Luft:
Okay. I hearby declare that Noel Holmes, Steven Charles Manthey, Alexandria Phillips, Richard C. Ronzi, and Carroll Shelby have been duly elected as directors of the company, and the appointment of Singer Lewak Greenbaum & Goldstein LLP as the company independent public auditors for the fiscal year ended June 30, 2002 has been ratified. We have now concluded the formal portion of this meeting. I will entertain a motion to adjourn.
[The motion was made, seconded and passed.]
The motion has been carried and the meeting is adjourned. Now that we're done with that part, let's get to the meat of this.
For many of you, you've been longtime shareholders. You have been a shareholder at times when the stock was trading at higher end. I get calls every day from shareholders from 2 years ago when I first started. We've had many shareholders who have, 2 years ago, often would call and were quite displeased with the lack of information, the lack of progress... confusion, a lot of confusion. I can tell you that we've made great inroads to really provide a clean, reputable, and without spot of blemish company. We did this without any, obviously, forethought of an Enron or a WorldCom ever coming to surface, much less the SEC and other audit agencies scrutinizing publically trading companies. I feel like we were very fortunate, though, that people like Carroll Shelby, Alexandria Phillips, and Neil Cummings were active in making sure that this company was squeaky clean. And I think, you know, I'm personally grateful for everybody involved because the scrutiny that many companies are under today is more than I would care to bear. So having said that, let's move forward, and let's go through a very quick company update. But I think you'll enjoy the information that we're preparing.
For those that may not be aware of the organizational chart, Carroll Shelby is the President of the company. Carroll is Chairman of the Board. I am the Chief Operating Officer. I oversee the U.S. facility engineering and testing, the engineers that we have working in our facility. Many of you know Steve Wells. Steve Wells is probably the long term engineer and has his tremendous history and insight of the engine's development. We've had the very good fortune of bringing on Ian Mann. Ian is a degree'd engineer out the University of Illinois - Urbana, Champagne, south of Chicago. Ian has had involvement and a tremendous insight in how our injection system and fuel management system works. Many of you know Paul Davenport. Paul worked on the engine early on. Paul's company, Malaylee [sic?] International, is being contracted by AET to take an active role in, basically, reverse-engineering the engine. And we'll get into a few of these details in a bit, but our 3 top engineers are right over there wearing the famous black AET shirt. So we will have a chance, afterwards, to go through any question and answer of the parts and pieces after the meeting.
This section is a couple of issues that I think would be appropriate for Neil to explain to us. 2 areas. One is, some of the new requirements that we're facing under our quarterly and year-end audits. This has been a little extensive in some of the recent acts that have created this increased workload. And if Neil could come in on this at this time.
Neil Cummings:
You see up there, at the bottom, the name "Sarbanes-Oxley Act - 2002". That's the new law that really sprung from the whole Enron scandal, etc. as Congress's attempt to right the ship. It's highly analogous to what happened to the savings and loan industry back in the 80's. A lot of loopholes, whatever you want to call them, led to a number of abuses of the capitol debt and equity ratio requirements and the organizational requirements in operations, really, of Savings and Loans. And that led to the failure of a few Savings and Loans, as you know. Congress stepped in, I hope this doesn't sound too cynical, but what happens is, the Congress steps into these situations after the fact and tries to enact new laws that: Number 1, plug some of the gaps; Number 2, make themselves look good, like they were involved the whole time but they really know what they're doing. And what happens is, as with the Savings and Loan industry, the act that the Congress passes is, a lot of times, overkill. And, in fact, the Savings and Loan industry went much more downhill after the Congress passed the new laws than it was in the shape before the new laws.
I think what's happened with the Sarbanes-Oxley Act, it's too early to tell, it's probably not going to have the same significance or impact as the Savings and Loan debacle, the new laws there, because these new laws actually changed the debt equity requirements and immediately overnight put a lot of Savings and Loans in bankruptcy. That's not what the Sarbanes-Oxley Act does. Primarily what it does, I'd say to characterize it generally, is it imposes a lot more reporting requirements, a lot more certifications of officers and directors. It's going to be a lot of increased work for the auditors and the lawyers. So I'm sure you're happy to hear that. But that's what it does. I think for a company like AET it's not going to have much of an impact. We're a relatively small company, you know. The Act is really intended to get to these really mega-large companies where there's been some accounting issues and/or shenanigans in the past. But the bottom line is, for us, the impact is going to be additional work and, to a certain extent, some delay which we've experienced recently with the annual filing and the quarterly filing. We don't expect those delays in the future because we're kind of up to speed on the changes in the law, the new requirements that the auditors have to do and the securities attorneys have to do. As you see, Irell & Manella is our securities counsel and Singer Lewak our auditors. It's really their job to make sure that all of these additional requirements are met. They have the expertise and the background to do that so that we're not concerned. We're fortunate to have companies such as this working for the company. But it is going to require a lot more work on their part, and we will get these things ironed out as we go along. But there has been, as John knows dealing with this every day, there has been quite a bit of additional work and expense and delay because of this new act. But, as I said, fundamentally, it's not going to have an impact on the activities of AET as a business. And, of course, that's the main focus of what John will be talking about now, which is the business of commercializing the engine. Oh, I have to do one other thing.
Simply, a summary of the development agreement that the company has entered into with Steven Manthey and his Australian company about a year ago. It was a 4 phase development program, and we are finished with the first 3 phases. And we have additional engines now to test and to develop. We are still owed an engine. it's in Australia, which is engine #4. This will be the "Manthey Genset" engine, we've dubbed it, which is an engine that is a slight redesign of the engine #5 which we call the "Ronzi" engine, but is meant to improve. Each of these engines that are listed in the development phase, the concept of the development phase, the 2 fundamental concepts were: to improve the design of the working parts and pay as we go for that; and improve the overall design and performance of the engine itself and pay as we go for that. Right now, phase #4 you'll see is pending. The reason for that is because we need to really evaluate more carefully the work that's been done to date, the results of the testing to date, the design of the parts, the design of the overall engine with a view towards more near-term commercial application which, of course, is how the company is going to eventually make money. And once all the experts and the engineers agree on what really should be done next in this phase #4, that's when we will proceed with a phase #4. And that's when we'll decide how much of that phase is going to be done here versus how much of that phase would be done in Australia. But to remind everyone, too, we have an ongoing consulting agreement with Steven Manthey that's a 3 year agreement, renewable, which exists now and has existed for a year. And so, that's independent of the development agreement. So in addition to the development agreement which is really an agreement that's aimed at taking maximum advantage of the Australian capabilities and also the maximum capabilities of the American facility. The consultation agreement overlays that as well. So we think we have all the bases covered. There's a lot of very knowledgable creative people that are working on this project now. I think that this is where John will go into a little more detail about the engine development.
John Luft:
Thank you, Neil.
Well, many of you are familiar with the breakdown of the OX2 engine. We tout it as having a 3rd fewer moving parts than most engines... most conventional engines. Here is a typical breakdown of the engine parts and boarded up as we demonstrate at the test facility. Part of that testing process includes the engine testrooms which are 2 fully equipped SuperFlow dynamometers. Here's a visual of engine #2 with the viewing room, the SuperFlow console. And, as you can see here, we incorporate that with the interfaced PC's, and then, of course, adding a combustion analyzer to that process. All this equipment combined gives us a clearcut view and test capabilities 2nd to none to be able to really progress the engine to its full commercialization.
I'm going to take a moment to take you through each engine. You know, I don't know that this has ever been done, but I'd like to tell you, from the first engine through the latest engine, when it arrived on the scene, what its peak performance was, what the status of it is today.
Engine #1. This OX2 engine was the first engine of Design Level 2. Testing at the University of California Riverside in May 2000 resulted in a lower end failure and was subsequently shipped back to OX2 Engine Development facility in Australia where it is currently under repair. This engine, at its peak performance, delivered 680 rpm with 165 ft-lbs of torque, created 21 hp, and had a total of 10 hours of runtime.
Engine #2. Engine #2 was delivered in late 2000. It is proven to be probably the most reliable engine to date. We have managed to put this engine through a variety of tests over the past 2 years. During our turbo testing, we found a port seal failure as a result of the increased pressure that turbos create. This engine had an optimum rpm of 650 rpm, direct generated 135 ft-lbs of torque, created 17 hp, and has a total runtime of 40 hours. This engine has had its port seals repaired. This engine is back online, as you can see. Now if you'll recall we published a press release talking about the turbo results of engine #2. During that turbo testing we achieved 145 kpa, or maybe commonly known as 7 pounds of boast. The increased pressure, as I said earlier, put a strain on the seals. These seals had approximately 40 hours of runtime at the point that we turbo'd engine #2, and it created a failure in these seals. We have subsequently manufactured new seals here in the States, have installed them, and, as you saw earlier, engine #2 is back online. Engine #2 in a turbo environment at 735 rpm created 215 ft-lbs of torque, 30 hp, and, under a turbo environment, had about 8 hours of runtime.
Engine #3 is kind of a different story. This engine was first received in the US in the 3rd quarter of the year 2000. Water and pressure seal problems have plagued this engine from the very beginning. It's been returned to the OX2 Engine Development facility in Australia twice for repairs, and is currently there for its 3rd repair resulting from a piston plate wearpad failure. This engine at its optimum performance ran at 800 rpm, created 146 ft-lbs of torque, generated 22 hp, but only had a total of 4 hours of runtime. This engine has been the problem-child of all the engines. Its latest failure resulted from a broken piston shaft. Here's an example. In that failure, the shaft was sheared. As a result, we had a damaged piston, a broken rocker, and the broken rocker created interior damage to the inner block. All of this didn't make a lot of sense. What had caused this, in further breakdown and further analysis, we found that the culprit happened to be the shear wearpads. If you notice, these are little tiny pads. These pads are pressed into the piston plate where the rockers ride, and as you can see in the 2 on the lower right corner the pins that actually are pressed into that plate are sheared off. This clearly identified, as we increased the pressure and the rpms of this engine, it clearly identified an area that needed improvement. Here's kind of what that skidpad looks like. It's a heat-treated wearpad that's pressed into the piston plate itself. The new design of this wearpad includes an increased diameter of the 2 pins, plus they're lengthened so that they grab further into the piston plate. It has a grooved lubricating channel that allows the oil to sit longer reducing friction. And, as a result, these are now being machine pressed into the piston plate rather than hand pressed. You know that I've got to say here that part of development is "failures beget results." When we test.. push the engines to their limit and beyond, it should and will always result in a breakdown of the weakest link. We found the weak link in the wearpads. We've reengineered those, and we're very comfortable in saying that we anticipate no failure in the future.
Engine #4. This engine is currently at the OX2 Engine Development facility in Australia. It has been reported that this engine is currently outperforming all other OX2 engines and is expected to ship to the U.S. for further testing and performance validation. Now if you'll notice that it's reported optimum rpm was 1039. It was reported it generated 249 ft-lbs of torque. It was reported it generated almost 50 hp [49 hp]. And the amount of hours run on this engine are unknown.
Now I've got to say that engine #5, as you'll see in a moment, we have received. And engine #4 is still in Australia. We are both conducting further testing on both these engines. As you see, engine #5, this engine has been the best validated performer out of all the engines. Again, the difference is that fact that engine #4 we have not taken possession of. We've not been able to validate the performance numbers that we've received... a very critical step. We have received engine #5. We have validated it's performance. A minor piston failure and fix uncovered a hairline crack on the piston plate. We susequently conducted FEA testing, identified the need for changes in the metallurgy. The redesign and the production has already commenced in the metallurgy change. Now this engine we measured at, as is very typical in engine testing, its peak torque and peak horsepower performance. You'll notice at its peak horsepower performance it liked 800 rpm. At that performance level it created 160 ft-lbs of torque, 24 hp with a total runtime of 10 hours. Now its peak torque, however, liked 600 rpm where it achieved its best torque at 171 ft-lbs but experienced a drop in horsepower [20 hp]. Now, again I want to reinterate the fact that when this engine was shipped from Australia it was reported to create so much horsepower and so much torque at a certain rpm. Part of our responsibility is to validate those performance numbers as reported in Australia, and validate that before we publish. We've had a discrepancy in the reported performance to the actual. The discrepancy is about 25% difference. So when we look at engine #4, we're very excited to think that at 1039 rpm we could gain almost 50 hp and almost 250 ft-lbs of torque. We have gone back and calibrated our dynamometers to ensure correct measurement of torque and horsepower, but right now we've experienced about a 20-25% difference between the reported performance torque in Australia compared to here. So as soon as we receive engine #4, we're not going to publish these numbers until we can validate for our shareholders.
Now we talked about the failure on engine #5. Again, part of progress in developing engines is pushing the engine to the point where you have failures. It identifies a weak link or a weak condition that allows us to apply science and engineering to improve and get this engine to its commercial point. The failure was a simple one. It was an easy one. As you can see that piston plate which resides in the engine, if you'll notice on either side of that threaded post where there's no piston, those are those wearpads we talked about earlier. That's where, in the previous design, those wearpads actually came loose and rattled around in the engine. Here is how the pistons are attached to their shafts. Those pistons are actually screwed on to that threaded shaft, and that's what holds the piston in place. Now we had one of those pistons come loose, and as a result it created no damage in the engine, but upon the teardown of that engine, we determined that the reason it came loose is, at the assembly point, they basically didn't apply enough Loctite. Loctite is applied to the threads. The pistons are screwed down. That holds the pistons in place. Not enough Loctite was on the thread. It was kind of a minor error, but the very interesting thing that resulted from this was the fact that at the point we were reassembling, applying Loctite to that piston, and putting the piston back in place to reassemble the engine, we found hairline cracks. If you'll notice right there on that bolthole is a hairline crack and on this other bolt area is a hairline crack. These are cracks that seem to either happen as a result of an impact or possibly stress. As we looked throught the design of this, we see that those boltholes are actually aligned right with the cv's [cross vanes?] that allow the up and down motion of the piston plate. This resulted in us conducting what's called FEAs or Finite Element Analysis. The best way to describe an FEA is, when you do FEA testing, if I were to take this glass and wrap it with chicken wire, every place the wire intersects is the point that an analysis is conducted. So because of these hairline cracks, our engineers here in the States said, "Well before we reassemble this engine, let's put this piston plate through that testing to make sure that: (1) the design is sound; (2) that the metallurgy is correct." So here's a result of that FEA testing. If you'll notice the majority of this piston plate is in blue. That means it's all within the stress loads that are acceptable within this metallurgy and design. However, you can see where it's turning yellow, and then there's little points where it's almost red. That is increased or excessive stress or excessive pressure on that piston plate that's beyond that piston plate's capabilties. And here's an example of what happens. When that piston plate is put into motion... Now I have to explain that this action, this twisting is 600 times more than what the engine actually does. However, we've amplified 600 times just so that you can see the visual. The fact is when the engine makes its up and down motion, there's a certain bit of twisting. That twisting action is what has caused stress. And you'll see behind each of those posts there are those boltholes where those cracks occurred. This is what the FEA or the Finite Element Analysis provides us with... is finding those points that are potential weaknesses So as a result we have determined through the FEA that the design is actually fairly sound. When we conducted FEA testing using a different material, such as steel, we found that the FEA testing all stayed within the acceptable parameters on that piston plate and have resulted in a change of materials for that piston plate.
We've moved on in testing and development of port seals. If you'll remember in engine #2, we tested that engine in turbo'd conditions... increased the pressure of the engine. We experienced seal failure. These are the port seals that failed. We had 40 hours on these seals prior to turbo testing. We determined that we needed to basically extend the life of these port seals, and the only way we could determine how to do that was to go in and test the different metallurgy options that we have in determining what type of materials would create the best seal, the longest wear, and optimize the engine's performance. The current seals used in port seals are phosphorous bronze. We have developed SAE64 low-friction bronze seals. We've, in addition, created leaded phosphorous bronze, and the last, aluminum bronze. We have equipped engine #2 with all 4 types of different metals on these port seals. We will be running engine #2. We will break it down. And we'll measure the wear and the seal efficiency of these port seals to really narrow down what's the right material to use in these port seals under a load condition.
We've started flowbench testing of the OX2. A flowbench by design is meant to do one thing, in this case, and that is measure the flow of intake and exhaust, the velocity of air coming in and out of the chamber while under an operating condition. You can see the we have taken the combustion plate... and note that that round disk on the flowbench itself, those cutouts are actually the current port configurations on all of the engines to date. The raised piece of metal is an insert. These inserts... we are modifying the shape and design of that port to determine what's the best way to optimize the velocity of intake and the velocity of exhaust for this engine. Now simply put to a layman, it's pretty simple. If youu walk down the street, and you put your hand over your mouth, and you're walking at a slow pace, you can still draw enough air through your fingers that you can successfully walk a block. If you were to put your hand over your mouth and run down that block, you would need a greater amount of air to draw in, yet the restriction by you hand...
[The tape ran out here. While the tape was being turned over, John Luft stated that flowbench testing has led to design changes in the intake and exhaust port size and shape which should result in intake flow efficiency being improved by 25% and exhaust flow being improved by 3 times (300%) better than the current design.]
... and become far more efficient and allowed the energy from the lead car to pull him around the track. This is the same principle here. By increasing the intake and exhaust velocity, we're able to actually become more mechanically efficient. And remember earlier we talked about turbo'ing engine #2. Well, we're going to talk about what we did on the turbo later, but the fact is that a turbo is driven by the exhaust side of the engine. By increasing the exhaust velocity 3 times, it will allow us to drive a larger turbo. And the best way to describe that exhaust side, if the current exhaust was running at 100 mph, we would be able to achieve 300 mph by just modifying the exhaust porting. And here's some examples of how we've clayed these up. You can see the existing port at the bottom of this combustion plate is the size and shape of the current exaust port. I have to remind you, this is the size of the intake and exhasut on all of the engines we have been running. We've achieved horsepower, torque and performance under very ineffcient intake and exhaust porting. We're really excited about this because the fact is under this inefficient design, having clayed-up on the flowbench the proper intake design, proper exhaust design, we'll absolutely, dramatically impact the performance of this engine. Like holding your had over your mouth, if you're running down the street and you can't breath, you're going to pass out cause you can't breath. This engine with the modified intake and exhaust shape and size will dramatically improve the efficiency of this engine. And I applaud our U.S. development team for coming up with this flowbench testing and its great, great progress. We're very close to modifying these ports and actually trying it on an engine.
As you can see we have gone ahead and, here in the U.S., designed a new port plate. It's actually over here on this table. This is a billet port plate style. It is a port plate that allows us to do a couple of things. One is, the new design port plate allows us to bolt this port plate up to any one of the 5 engines. Currently the port plates manufactured out of Australia are specific to each engine and cannot interchange amongst each other. So we have universal application of this port plate. Technically, you will notice the inserts to either side of that combustion plate. Those inserts are billet inserts. Those allow us to, once we identify the optimum porting size and shape, we'll machine those inserts to match those shapes. Those slide into this port plate and will allow us to very quickly give a runtime analysis of how efficient that port configuration can actually be.
We've gone as far as testing oil composition and viscosity You know we're looking to gain every horsepower we can as we advance this engine Surprisingly, you know I think this is an interesting screen, because what we found is, all these dots are very confusing, but to really provide a summary, we gained 10% increase in horsepower by identifying the optimum type of oil to use in this engine. The optimum oil is a single weight viscosity synthetic oil which created a 10% incrrease in horsepower. The worst oil to use on this engine is a multiviscosity non-synthetic. So we gained 10% increase just by oil testing.
Combustion plate seals. We talked earlier about how engine #3 had a chronic problem with its sealing. It had a problem between the combustion gas and the water. Upon analysis of how these seals are being used, we found, if you'll note the top seal is a single lip seal rated for 2 psi at the max... one side's holding combustion gas, and the other side reaches water pressure. We know that in an engine water pressure is often going to exceed 2 psi obviously identifying the new water problem. The same manufacturer creates a double-lipped seal, down below. We have changed one diameter size in the machining. We now are incorporating the double-lip seal, at the bottom, rated for a maximum of 12 psi. We have eliminated the problem with the combuston gas and water leakage, and have successfully moved on.
We talked about engine #2 being turbo tested. If you'll notice that on the right we've got the small turbos that we ran the engine on. Those turbos have the capability of generating 4 pounds of boost. The turbos on the left can generate up to 15 pounds of boost. Early on in engine #2 turbo testing we achieved 6 pounds of boost running on a small turbo. We spun the guts out of the turbo, that's what it comes right down to. Fact is though, we didn't have enough exhaust velocity to drive the big ones. Why do you think we didn't have enough exhaust? Well, back to our chart we are achieving 33% of our optimum velocity of exhaust. The porting changes that we're making will allow us to increase that 3 times, will give us far more velocity on the exhaust stroke giving us the ability to drive the larger turbos. We know what the result is there... increased performance of the OX2.
With that testing, we have installed in the new billet port plate pressure sensors. These sensors will measure the intake and exhaust flow in runtime model. These are tied to the combustion analyzer and will give us validation of what the flowbench has told us. And that is our modeling up and redesigning intake and exhaust, creating 3 times the exhaust velocity and a quarter more intake velocity. This will give us the realtime sensors necessary to validate what we feel like we've learned on the flowbench.
We've gone as far as modifying the spark control. Currently, the spark plug on the left is a hand-machined spark plug that's made in Australia. The Australian facility takes this plug, they machine it, they modify it, and when it's all said and done, the spark plug costs $30. We have identified an off-the-shelf spark plug which is a Champion plug on the right. That plug is a $6 plug, gives us the same performance, however, gives us the flexibility to test different heat ranges in that spark plug family.
As we move to the waterflow testing, in part of our additional testing in the U.S. facility, we've identified that through waterflow testing of the engine, we are basically overcooling the OX2 When we look at the energy to the radiator, we're losing 50 hp... 50 hp... to the radiator. And conventional wisdom says that your horsepower to the shaft should be equal to the horsepower to the radiator. We're not doing that. We're losing 30 hp through the radiator. This is a result of overcooling. This overcooling obviously creates a number of issues. One is, it gets into the issue of whether we incorporate dry sleeves or whether we use our wet sleeves. We've got to increase the heat in the combustion chamber in the cylinder wall which increases the pressure. And this is where you get a quenching effect... when it's running too cool, you get a quenching effect, you drop in pressure, and you lose the horsepower as it flows through the radiator. Our development team here in the States are working on that aspect and are going to recapture a percentage of that horsepower lost to the radiator.
Cam profiling. We've been profiling the cams that come from Australia. The reason for this is really twofold. One is to verify the ramp angle and speed because, if you'll recall, the pistons travel on this cam. It's like a roller coaster. Pistons go up and down as they ride on this cam. Now the angle of that determines basically the force that's placed on the rockers, the force that's placed on those wearpads, the force that's placed on that cam itself. When you back calculate that acceleration and force, it helps you determine a couple of things. One is, are we putting at that angle the right angle to optimize the amount of force? Could it be that the angle is incorrect, it created too much force, it created too much pressure on that wearpad to cause that wearpad to fail? So measuring that ramp angle gives us the opportunity to basically harmonically balance the cam ramp and angle and speed to all the other parts that come in contact with that pressure.
We've undertaken a reverse engineering in the OX2 engine. We requested 6 months ago a set of CAD drawings of the OX2 engine. Upon receipt of these drawings, we found that they were very primative, and in fact they were primitive enough that we were unable to use them to hand to a machine shop to have any part machined. We've been very fortunate to have Paul Davenport and his company join us and work for us parttime, basically providing us with Paul's expertise on the engine and his abilities in SolidWorks, which is our computer assisted drawing program. Paul and the development team have been undertaking a complete reverse engineering in the engine, as you can see, from the inner block to this camshaft lockplate. And as a result you can see how we've changed this lockplate. In that process, the old design to the right basically has that cam locked down at one fixed position. The new cam locking plate gives us a spline in which we can adjust the cam. Obviously that's important to be able to determine where we're firing at what point in the intake and stroke cycle. Having the ability to adjust that allows us to, in realtime, make those adjustments in engine optimization. As you can see, this is a typical port plate, it's cast, that we had been using in the past. As we mentioned earlier, here is a new designed port plate... universal, works on all 5 engines, has all the sensor penetrations for measuring intake and exhaust velocity pressure, gives us the ability to provide the inserts in modifying intake and exhaust port sizing and configuration. And here's kind of how it all bolts up. You'll see that the adjusting cam plate, in the back, with the new billet port plate... you can see that the 2 port inserts slide in as we modify the size and shape of those inserts. Then the combustion plate is applied. And then that new double-lip seal is then placed in the front of the engine. These are all redesigns and modifications that we've done right here in the States.
So let's talk about what we've been doing here in the U.S. These are the parts that we have successfully designed, manufactured, and machined here in the States. As you can see the collection of port plate, combustion plate and inserts to the port seals on the top right corner. The block we cast here in the U.S. But in addition to that, when you look at it, you know the reality is that all the foundary, the cam plates, inner blocks, outer housings, the manifolds, the pistons, all the patterns, all of these are here in the States. We cast them here in the States, and we actually send them to Australia for machining and assembly.
Okay, so we've given you an update of where we're at, and we feel lke that it's to no surprise we'll once again tell you the point of commercial entry is stationary engines. We anticipate that at further maturization it will find its way into marine and hybrid car use, at a modified size even in outboard engines. We have made great progress, and I think for the first time I know since I've been here, we've given you hard numbers, hard results. And we've given you factual information on what we're doing from double-lipped seals, to cam optimization, to port seals. And I hope that you'll agree that we're making progress and that we're living up to our responsibility to increase you shareholder value through the development of this engine. So are there any questions? We'll have a sidebar after the meeting. Any engineering questions that you may have can be asked of Paul, Steve or Ian. But I will be willing to field any question I can at this point that you may have.
Questioner #1:
Can you discuss the implications of NASDAQ going off the over-the-counter bulletin board to the new system and what it's going to mean?
John Luft:
You know, who would be the best one to answer that. Alexandria, do you know enough about that?
Alexandria Phillips:
Not really enough.
John Luft:
Okay. You know what? Here's what we've done. We've asked our public audit firm, not Singer Lewak, we've asked Gilderman Johnson. They have provided a 5 page analysis of what the new board represents. It's something that we don't have to consider until mid next year, but they'e giving us, basically, an opinion letter to advise us on what's the correct positioning for the new board. For those that may not be aware, OTC is going away, and it's being replaced by BBX, I believe. And so we have asked them to provide us with an opinion letter. They have assured us, though, that it's not necessary to take any action until mid next year. It wil require some funding because you have to pay an application fee to go on this new board. And as they slowly wind down, OTC will make that migration. We want to do it correctly through the advice of people that wake up every day doing that for a living.
Questioner #1:
There's no reason to expect we won't find our stocks on the open market, though?
John Luft:
No. Any other questions? Anyone? Well I thank you very much. Again, any question you may have of our crack engineering team... they're there ready to take you through any issues you may have. And I thank you for being a supporter of the company. We wake up every day working on development of the engine. And we think that we've gained tremendous progress... Yes, sir?
Questioner #2:
As we sat here 2 years ago, Carroll Shelby made the statement that the company needs 2 years of development before it would have a marketable product on the market. It's now been 2 years. Where are we?
John Luft:
Well, I don't recall Carroll saying it would be 2 years, but if he did...
Questioner #2:
He did.
John Luft:
Okay. I can tell you that in the development process, and anybody who's ever been in development knows, to build an engine, you have to break an engine. We've had progress, and I'd say more progress in the last 12 months than we've probably had in the last 3 or 4 years. We're not ready to have a commercial product yet. You know, I have to say you have to expect the unexpected when you're doing something from scratch. I couldn't look you in the eye and say that "we'll be there 2 years from now." Let me tell you that our goal is... our goal is to achieve commercailization as soon as possible. With the progress we've made, for the first time we have an engine that is creating enough horsepower and enough torque to drive a 30 kw generator... for the first time in this company's history. We will, probably by mid year 2003, will be beta testing our first OX2 bolted up to a generator. So we will have by mid year next year a genset spun by an OX2. That is our goal. And we feel like with the performance we're gaining out of the engines today, we're going to be able to achieve that. Now many of you know the history, and you know that there was a group that introduced the OX2 to the U.S. market and went around the country telling a story with an engine that performed far below what these engines are performing today. You know, typically you only have once to go before these companies. We're believing that we will at least get a second shot because many of the companies, from Caterpillar to Honda to even some of automakers were touted this great invention, OX2, and the engine had no history to perform more than 10 or 15 minutes at a time, and certainly wasn't close to the product that it is today... so, we assume that we will have on more shot at these people. We certainly don't want to embarass ourselves by going to something less than marketable, less than acceptable to their needs, and something that the general market is wanting
.
Did that answer your question? Okay. Yes.
Questioner #3:
You can ask questions. I'm hoping that I can suggest something, that the company focus on efficiency above and beyond anything. Take it or leave it for what you you think. I think that's where the engine can... that's going to open people's minds, the efficiency, not the torque or the speed or anything, but the efficiency. If you can beat existing efficiencies of engines or if you can run on hydrogen, I think you're going to open up a lot of doors.
John Luft:
You know, you're absolutely right. In fact, part of that efficiency is, and certainly our engineers can support that and be more than happy to talk about that in detail with you afterwards, but you're right. Part of it is getting the engine performing at a level that can be competitive, and then focusing on the efficiencies, from fuel consumption to emissions... obviously, its multifuel platform from methane to lpg and even hydrogen... Let's face facts. At the end of the day, what drives the buying decision? And, I think you're right, I think efficiency is very high in the driving the buying decision process. What we have learned on generators is the fact that its durbility is critical and there's other indicators that drive the buying decision. Size is another one. So when we look at our efficiencies... besides the obvious which is fuel consumption and emissions... its size, power to weight... I think those issues will be very efficient and will be very instrumental in our ability to commercialize this engine.
Any other questions? Well thank you very much, and, certainly, feel free to call us anytime with any questions. And thank you for attending.
END OF TRANSCRIPT
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Who's Ian Mann?
Ian Mann's former employment with Motec and experience with fuel injection and ignition control systems is what caught AET's attention. OX2 prototypes use Motec fuel injection systems.
Ian Mann is a EE graduate of the Department of Electrical and Computer Engineering, College of Engineering, University of Illinois Urbana-Champaign.
Before attending U of I, Ian started out as an automobile technician and still retains his ASE Master Technician and Advanced Engine Performance certifications. After graduating he was asked to stay on to work on projects and help train students. He also interned with a couple of companies before working for Motec.
Here's a 1998 U of I article showing Ian on a team designing a hybrid electric vehicle for a 1998 FutureCar Challenge National Collegiate Design Competition.
"U of I FutureCar team members pose for a picture after removing the OEM drivetrain from their car. Kneeling left to right are: Ian Mann and Ben Paney (EE). Standing from left to right are: Troy Shawgo, Kevin Smith, Doug Hull, David Ott, Minn Thein (EE), Dennis Brown (EE), Randy Clark,Calvin Tran, and Jeremy Cellarius."
Ian Mann was designing Motec fuel injection and ignition control systems when Carrol Shelby was consulting with Motec to get the OX2 prototypes running. However, it was another Motec employee who actually consulted with Shelby. According to Ian, this employee pumped Ian for info and advice "on getting this strange engine to work" and then passed it on to Shelby. Ian wasn't aware of the OX2 at the time.
Eventually Ian decided to strike out on his own, starting his own business, Mann Instrumentation, with an idea of providing instrumentation and control systems to the race car industry to make the systems more race-car driver friendly. One of his clients was Ron Main and his Flatfire Vortech Millennium Ford Flathead V-8 Engine speed vehicle. (1946 Ford 59a V-8 engine; 3.307" Bore; 4.375" Stroke; 301 cu.in.; 653 hp)
Mann Instrumentation
Ian Mann
1198 Coe St.
Camarillo, CA. 93010
voice: 805-383-7176
e-mail: ianmann@earthlink.net
Ron Main's Flatfire Team:
Ian's racing car contacts finally lead him to Carroll Shelby and the OX2. He finally learned that he had already been indirectly providing Shelby with advice on the Motec system for the OX2.
In my conversation with Ian at the AET meeting, I found him to be extremely, sharp, enthusiastic, and knowledgeable. He is well-educated, knows internal combustion engines, knows engineering, knows math, knows physics. I have great confidence that Ian will squeeze out all that the OX2 engine promises to give and expect to see great improvements in OX2 engine performance over the coming year.
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Information about flowbench testing can be found at:
AET has a SuperFlow 110 Flowbench.
