Libralato Holdings Ltd. Business Plan

June 2009

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Copyright This Business Plan is copyright protected. Neither the business plan itself nor information contained in it may be reproduced or passed to third parties without the permission of Libralato Holdings Ltd.

Table of Contents

1) Executive Summary 3

2) Background and Rationale 7

3) Global Engine Industry 10

4) Product 16

5) Market Opportunities 37

6) Operations 47

7) Management 49

8) Implementation Plan 50

9) Financial Plan 54

10) Risks 57

11) Appendices 58

2 1) Executive Summary

The Libralato rotary engine is a breakthrough technology – an eco‐engine for the 21st century. It has a completely new thermodynamic cycle which is predicted to achieve over 40% efficiency using gasoline and over 50% using diesel (higher compression) because of its asymmetrical expansion and compression volumes and because it does not need to convert linear motion into rotary motion. It has a unique exhaust gas recirculation integral to the design, a power stage in every revolution, high and constant levels of torque, very low vibration, no need for valves, pistons, con‐rods, crankshafts, cam shafts etc. and very low exhaust gas noise and temperature.

A proof of concept engine mechanism was built in 2005. See www.libralato.co.uk. Work is underway to produce a basic test bed demonstration of the engine.

The engine design is exceptionally compact and robust, approximately half the size and weight of a conventional reciprocating engine. It is ideally suited to a wide range of applications 1kW ‐ 150kW, particularly where space, weight, emissions, noise and vibration restrictions apply; constant speeds are required and the engine is able to operate in its peak efficiency zone.

The Libralato engine is predicted to deliver a 25% efficiency gain compared to equivalent reciprocating diesel engines for a cost reduction of about 30%. This efficiency gain would include a corressponding increase in fuel economy (BSFC~ 165g/kWh) and a decrease in CO2 emissions. The engine is predicted to cost about 30% less due to its mechanical simplicity and compactness. The predicted high RPM (~ 5,000 rpm) and low BMEP (~7.6 Bar) of the engine mean that manufacturing tolerances should be much higher, again lowering costs.

Invented by Ruggero Libralato; a teacher of electrical engineering by trade, Mr. Libralato’s keen interest in combustion engines from a young age led him to design a new combustion engine at the age of 27. Over 20 years, through various design iterations, the profound study of thermodynamics and theory of machines, Ruggero Libralato has invented a completely new design and a new thermodynamic cycle which deserves to rank alongside the names of Otto, Diesel and Wankel.

It is very difficult to substantiate these claims in advance of proper test results; however reasonable estimates can be drawn from the fundamental mechanical and thermodynamic advantages of the engine design compared against industry benchmarks. The average gasoline reciprocating engine is widely acknowledged to be about 30% efficient. One of the most efficient gasoline engine’s in the world, the Toyota Prius engine, has been tested to be 36% efficient. This is largely due to it’s Atkinson/ Miller cycle which utilizes a greater expansion ratio (1:13.5) compared to its compression ratio (9.5:1). The Libralato engine also has an asymmetrical expansion ratio (1:~14.2) and compression ratio (~10:1). Secondly, the currently claimed ‘most efficient gasoline engine in the world’, the REVETEC engine achieves 38.5% efficiency mainly because it uses a novel tri‐lobular cam and roller instead of connecting rods and crankshafts. The mechanical advantage of a rotary engine is even greater than a cam and roller assembly because the force from the exapnsion phase is transferred directly to the output shaft. The third efficiency advantage is due to the way the engine cycle partially recirculates exhaust gases. Industry studies show efficiency improvements of about 3% from this technique and emissions reductions of up to

3 50% of NOx and particulate matter. The three aspects highlighted provide a sound basis for predictions of at least a 10% absolute efficiency improvement and a 33% improvement relative to average gasoline engines.

The Libralato engine has not already been commercially exploited because the inventor Ruggero Libralato does not have the necessary entrepreneurial skills. Fiat‐GM offered to buy the engine patent but withdrew the offer in the course of the break up of their alliance in 2005. In response to a recent submission to an SAE conference on powertrains, Thomas Wallner of the Argonne National Lab (USA) scored the paper 10 out of 10 for innovation. He wrote, "The paper describes an innovative concept which really aims at being a breakthrough technology. Nevertheless I suggest the authors to provide further data (more than "theoretical gains" over conventional engines) on performance, emissions and costs". Seed funding is required to produce the data necessary to assess/validate the engine's fundamental thermodynamic cycle and geometry.

Company Background

Libralato Holdings Ltd. is a start up company, registered 30 May 2008. Based in Hulme, Manchester, UK, the Libralato Holdings Ltd management team consists of: Share distribution

Ruggero Libralato (IT) ‐ the sole inventor of the Libralato Engine 51% Dan Aris – (UK) – Social entrepreneur and Managing Director 5% Fred Chapman (USA) – former Vice President and Treasurer of Lucas Varity plc 1% Francois Badoux (CH) – former CEO of Mistral Engines SA 2% John Travis (UK) ‐ Director of A1GP Technology 1% Karl Niklass (AT) – Motorsport Consultant Engineer 2% Anthony Brown (UK) – Urban regeneration and business consultant 1% Ingrid Scholtheis (AT) – Languages, business administration 1% Unallocated 36%

The management of Libralato Holdings Ltd. has broad experience of: project and business development, EU funding, Auto OEM finance, venture capital and rotary engine manufacturing.

Intellectual Property Rights

The Libralato Engine is currently protected by three Italian patents, a broader international patent pending, covering all of Europe and a recent patent application for the engine’s thermodynamic cycle. WIPO Reference Number Date of Issue Patent 1 IT1234406 23/01/1989 Patent 2 IT1234679 01/06/1989 Patent 3 IT1234671 05/09/1989 Patent 4 WO2004020791 A1 11/03/2004 Patent 5 # Pending 06/10/2008

Market Opportunity

Over the past year, Libralato Holdings has been in diaologue with a number of engine manufacturers including: BMW, Perkins (Caterpillar), Cummins, Rolls Royce, Argentum (India), Deutz and JCB. These OEMs have declined to be associated with the engine until further data validating claims is produced, although none of them has pointed out any serious flaws in the design. Helmut Riedl, Director of Engineering and Gunter Eckhardt General Manager of Powertrains at BMW wrote in May 2008, describing the engine as "a promising project". We consider this very serious recognition. JCB in particular are keeping a watching brief of the project.

4 The global engine market is worth approx $166 Bn per year. Annual automotive engine sales of 70m per year are worth approx $126 Bn. Global automotive sales have slumped due to the current recession (down 10% in 2008, ACEA), but this crisis is only increasing the demand for more fuel‐efficient vehicles. Other market segments include: Portable (Chainsaws, Brush Cutters, Leaf Blowers, Hedge Trimmers) Stationary (Power Generators, Compressors) Mobile (Lawn Mowers, Cultivators, Snow Throwers) Industrial (Pumps, Mobile Generators) Light Boats (Outboard motors) Light vehicles (Scooters, Motorcycles, Snowmobiles) Light trucks and light airplanes.

The greatest market opportunity for the engine is in the application as a range extender/ generator in plug in hybrid electric vehicles (PHEV). Due to the size and weight savings of the Libralato engine and a reduced battery size (5kWh = EU daily driving distance, 27km), all the hybrid components can be fitted into conventional engine cavities – enabling any vehicle model to be fitted or retrofitted as a PHEV. Studies show that a vehicle of this nature will tend to be driven 2/3rds of the time as an electric vehicle, with zero urban emissions, 75% fuel cost savings and 50% W‐T‐W CO2 savings.

Business Model

The combustion engine industry is composed of relatively few key industrial players and has a very elaborate supply chain network. Libralato Holdings Ltd. will focus on R&D and commercialization of the Libralato engine within the portable, mobile, automotive and industrial engine sectors. Revenues will be generated by license fees, production royalties and consultant engineering for specific applications.

Libralato Holdings ltd. subsidiary company Libralato Engines ltd. will hold an exclusive license to manufacture and sell the Libralato engine within the UK. Libralato Engines Ltd. Libralato Engines Ltd. will establish an assembly plant in Manchester in partnership with an OEM licensee and will utilize a global supply chain for parts. This arrangement will fulfill social objectives to revive the legacy of Rolls Royce in Manchester, to create powertrains fit for the 21st Century and to create knowledge economy sustainable jobs in a UK urban regeneration area experiencing severe disadvantage.

Financing

A staged approach to the development of the Libralato engine provides a managed risk approach to the engine design and development. Small, low cost steps will be taken to validate and simulate the engine’s performance before more significant investment is required to produce a full working prototype. Costs are based on quotation by Ricardo UK Ltd.

Cost (£) Duration (weeks)

Phase 1 – Validation Study 42,600 4

Phase 2 – Thermodynamic & 77,800 6 Kinematic Simulation

Phase 3 – CAD Design 550,000 – 650,000 22

Phase 4 – Prototype Build & Test 200,000 – 300,000 12

A combination of equity and Government grants is being sought for Phases 1 – 4. Phases 1 represents the highest risk, because the engine is not yet independently validated. Libralato Holdings Ltd. and Libralato Engines Ltd. have access to EU and UK Government financial

5 support including Carbon Trust Applied Research and Development Grant, NWDA Business Start Up Funding, NESTA Young Innovative Enterprise Scheme, JESSSICA sustainable urban regeneration funding and EU FP7 and Eurostars programmes.

In addition to the costs quoted by Ricardo UK Ltd. expenses are required for Ruggero Libralato to come to the UK to work on the project with Ricardo UK; approximately £20,000 is required to extend the existing European patents world wide. For phase 1 costs of £70,000 we are willing to offer 8% equity; for phase 2 costs of £80,000 we are willing to offer a further 5% equity; for phase 3 and 4 costs of £850,000 we are willing to offer a further 23% equity.

Exit

The product portfolio and business model for Libralato Holdings Ltd. has the potential to grow very substantially since it addresses one of the greatest and most acute needs of the global economy. Our conservative estimates for generating license fees and production royalties, value the company at approximately £25m by 2015.

A share buy‐back is planned as exit for the VC‐shareholders in 2015 rather than an IPO, due to previous experiences of Libralato directors. Equity investment in early stages would yield in the order of x 15 return. Libralato Holdings Ltd. could at some point become a strategic acquisition for a major engine OEM. For comparison the Wankel engine earned over $200m in license fees alone and the Libralato engine solves the problems of the Wankel engine.

6 3) Background and Rationale

“With eight hundred million vehicles in the world today, potentially doubling by 2030, the longer we focus on incremental improvements – choosing to ignore our fundamental dependency on liquid hydrocarbon fuels – the more we will be forced to confront additional challenges: pressure on governments to open up National Parks and other protected areas for oil exploration, widespread support for destructive unconventional ‘solutions’ like oil sands and coal‐to‐liquids, increasing geopolitical conflicts and human rights abuses, and the resulting rapidly growing CO2 emissions from hundreds of millions of vehicle tailpipes.

Remaining reserves of crude oil are concentrated in relatively few countries. With the exception of Russia, all the major oil consuming nations – US, EU, China, Japan, and India – are significant net importers. They now face a liquid fuels crisis, which can be solved neither by the threat of military action nor by turning to so‐called ‘alternative’ but in fact highly polluting hydrocarbon resources. The only sustainable approach to this crisis is to tackle its root cause: the unchallenged dominance of the internal combustion engine (ICE) which drives transport’s ninety‐five percent dependency on liquid hydrocarbon fuels.”1.

The EIA and IEA both expect oil demand to exceed 100 mb/d by 2015, up from current demand of 87.5 mb/d. Deutsche Bank’s oil analysts believe oil could rise to $150/bbl oil in the intermediate term. Under such a scenario, Deutsche Bank estimate sustained gasoline prices of $4/gallon U.S. ($5.95 per gallon in Brazil, $8.38 in the UK, $8.73 in Norway, and $9.28 in Germany)2. In UK terms, these prices (£1.26 / litre at current exchange rates) were nearly reached in July 08 with oil at $140/bbl oil. Even though the price has since receded, the underlying trends will surely return to at least this level. In crude terms ‘peak oil is driving change’. The onset of a global recession in 2008 is already having profound effects on the auto industry, which is experiencing unprecedented shifts in segment mix away from less fuel efficient vehicles.

Transport is the worst performing sector under Kyoto Treaty/Protocol and seriously jeopardises the achievement of the targets. Transport CO2 emissions in the EU grew by 35% between 1990 and 2006. Other sectors reduced their emissions by 3% on average over the same period. The share of transport in CO2 emissions was 21% in 1990, but by 2006 this had grown to 28%. The European 3 Environment Agency estimates that cars are responsible for 14% of CO2 emissions .

1 Fig 1. World Crude Oil Prices, 2000 – 2008 Source: Plugged‐in: the End of the Oil Age, WWF, 2008 Fig 2. Automotive CO2 Emissions Standards 2 Source: Deutsche Bank: Auto Manufacturing Electric Cars: Plugged In, June 2008 3 Source: European Federation for Transport and Environment, Aug 08 7 The BP Statistical Review of World Energy 2007 shows that current world oil reserves total 1.208 trillion barrels, can sustain world oil consumption of 83.7m barrels per day (30,557m barrels per year) for 39.5 years at current rates. The diagram below illustrates the distribution of these reserves.

Fig. 3 Proven World Oil Reserves

In July 07, the International Energy Agency issued a medium term (5‐year) report which assesses world economic growth, the consequent demand for oil, and the likely growth in oil and gas supplies. The report draws the conclusion that there will not be enough annual production capacity of oil to permit the world’s economy to grow at 4.5 percent a year for the next five years, since this would imply worldwide oil consumption increasing to 95 million barrels a day from the current 86 million.

Although the IEA figure of 86m barrels per day differs with the BP Statistical Review figure of 83.7m barrels per day, the IEA report confirms the increasingly widespread view that the world has reached a stage of ‘peak oil’ in which both production and reserves have reached peak levels.

Fig 4. World Peak Oil Scenario4

4 Source: C.J Campbell and Anders Siverston, “Updating the Oil Depletion Model”, 2005 8 According to the BP Statistical Review of World Energy 2007, over the past 10 years, 1996 – 2006, world oil consumption has increased by 17%. If world oil consumption continues to increase at an annual rate of 1.5915%, the total known oil reserves (including 163,500m barrels of Canadian oil tar sands) will be completely exhausted by 2040, in approximately 31 years.

The counter argument is that new reserves are continuingly being discovered and that these will provide for increasing demand. The only significant increases in reserves have been in Eurasia, Europe and Africa. In fact between 1986 and 2006 the Middle East passed its peak reserves point. With increasing global political instability and conflict, the IEA now expects there will be no net increase in oil production capacity in Iran, Iraq, and Venezuela in the next five years, and the oil production currently shutdown by insurgents in Nigeria will remain that way for the foreseeable future.

So, what’s the solution?

“Automotive transport is ripe for transformation. We need to accelerate the commercialisation of vehicles with diversified primary energy sources, high efficiency and compatibility with a sustainable, renewable energy future. The electrification of automotive transport offers a promising way to achieve this objective. Grid connected vehicle technology – enabling all or part of every journey to be powered by electricity taken from the grid – is available based on existing infrastructure and current technology. Battery electric vehicles (BEVs) and plug‐in hybrid electric vehicles (PHEVs) supplemented by sustainable biofuels for range extension – can dramatically reduce the crude oil dependency of automotive transport in an efficient and sustainable manner.”5

Fig. 5 Diversified primary energy sources for road transport6

5 from: “Plugged‐in: the End of the Oil Age”, WWF, 2008; Dr Gary Kendall, Senior Energy Business and Policy Analyst for the WWF Global Climate Change and Energy Programme 6 Source: Micky Bly, Director of Engineering‐ Hybrid Integration and Controls, General Motors, 2007 9 3) Global Engine Industry

The global combustion engine market is enormous (about $170 billion worldwide). The annual volume of the different product segments is indicated in table below.

Product Examples Needs (Key Volume in Average Volume in segment design criteria) m units price in $ $m Portable Chainsaws Low Weight Low Brush cutters vibration Low noise Leaf blower High power to 16.0 270 4,320 Hedge trimmers weight ratio Cut‐off saws Stationary Power generators Low noise Compressors Reliability 0.5 900 450 Mobile Lawn mowers Low noise Low Cultivators weight High power 20.0 270 5,400 Snow throwers to weight ratio Industrial Excavators Reliability Skid steer loaders 1.0 4,500 4,500 Dumper trucks Light boats Outboard motors Low noise Low 1.0 3,800 3.800 pollution Light vehicles Scooters Low noise Motorcycles Low pollution 40.0 540 21,600 Snowmobiles Road vehicles Cars High efficiency Racing cars Low pollution 70.0 1,800 126,000 Light trucks Reliability Light airplanes Airplanes Low Weight High power to 0.01 6,000 60 weight ratio

Total 148.51 166,130

Table 1. Global Engine Market Size and Volume

The table below provides detail of current engine manufacturing scale in the UK7.

Table 2. Volume Engine Manufacturing in the UK 7 source: SMMT, 2008 10 Engine development and manufacture are major strengths of the UK automotive sector and have undergone a period of impressive growth in recent years. In 2004 production exceeded 2.7million automotive engines with non automotive output taking the total to over 3 million. Substantial new investments have been made at a number of locations both in developing existing facilities and establishing new ones. The UK is a significant net exporter of automotive engines.

UK engine production is principally for passenger cars; however engines for commercial vehicles, agriculture, Motorsport, motorbikes and non automotive sectors, for example marine and power generation, are also of significance. Ford is by far the largest engine producer in the UK with two major plants: Bridgend and Dagenham producing around 25% of their global engine supply in the UK. Toyota, Nissan, Honda and BMW have medium to high volume plants. Cummins (commercial vehicle engines) and Perkins (commercial vehicle engines and non automotive engines) have major production facilities in the UK.

NB: The only UK volume Auto OEM without a corresponding engine plant is GM Vauxhall at Ellesmere Port (Liverpool).

Fig 6. UK Powertrain Plants 11 Global Automotive Powertrain Industry

The chart below illustrates that global light vehicles and engines assembly is expected to rise from 68 m in 2008 to 83m in 2015. The assembly growth in emerging markets is expected to represent 100% of global growth as mature markets contract. BRIC countries (Brazil, Russia, India China) are expected to represent 60% of this global growth.

Fig 7. Global Light Vehicle Assembly Outlook8

PwC analysis predicts volume growth in emerging markets (especially BRIC countries) due to low penetration rates to date. All global economies are experiencing major down turns as the result of the financial crises and stock market crashes of 2008, however the medium term forecast is still a growth rate of 5%.

Fig 8. Penetration of Passenger vehicles per 1,000

8 source: PriceWaterhouseCoopers Automotive Institute 2008 Q4 Interim Data Release 12 Many OEMs and tier 1 suppliers are combining the opportunity of growth in emerging markets with the opportunity to reduce labour costs and are establishing production facilities in these countries. In addition to manufacturing for the market in which they are located, these facilities are expected to supply back into the highly diversified global assembly footprints of OEMs.

Fig 9. Global Light Vehicle Assembly Growth by Region

Market Drivers

Beyond the basic criteria of mobility, cost, comfort and compliance; developed and developing markets have different needs. Key differentiators are the relative, importance of comfort, features and image for developed markets and low cost, ease of maintenance and durability for developing markets.

Fuel economy tends to feature much lower on the agenda of developed markets, however the fuel price spike of 2008 has greatly increased consumer sensitivity to this factor. Fig 10. Developed & Developing Market Differences9

Speaking at the Detroit Auto Show, Jan 09, Irv Miller, Toyota Motor Sales U.S.A. group vice president said. "Last summer's $4‐a‐gallon gasoline was no anomaly. It was a brief glimpse of our future."

9 source: Knibb Gormezano & Partners, Engine Expo 2008 13 The table below provides more detail the key features of different key automotive markets10.

Key Global Automotive Markets

Key Market Characteristics

USA W. Europe Russia India China Brazil Japan Avg. Engine

Displacement 3600cc 1865cc 1780cc 1450cc 1875cc 1410cc 1944cc Diesel Share 5.5% in 51% in 2007 9.5% in 9.5% in 9.5% in 3.7% in 7% in 2007 2007 2007 2007 2007 2007

Automatic Share >90% 20% <5% 10% 30% <2% 75% Fuel Economy CAFÉ 130g/km by None None Weight None Weight Std proposed 25 2015 based fuel based fuel mpg 95g/km by economy economy combined 2020 standard target for by 2020 introduced 2015 Key DISI TC, DISI TC, SMPI SMPI SMPI Multi fuel DI gasoline Technologies Stop‐start, Stop‐start TWC TWC TWC FIE Stop‐start DCT Engine CR DI CR DI CR DI 6AT downsizing 6ATs DCT DCTs Emissions EPA Tier II Euro V 2009 Euro III Euro II/ III Euro III/ IV Euro IV 2009 Japanese Standards Euro VI 2014 Euro IV 2010 Euro IV 2007/10 standard 2010‐Metro Average Power 240ps 128ps 94ps 66ps 106ps 90ps 136ps

Comments Major Shift to E. Significant High share of Massively High share of Most downturn for Europe for growth in domestic increased multi fuel stringent fuel SUVs vehicle and sales forecast manufacturer production vehicles economy engine s target Major upturn production Large share Domestic & JV Limited for HEVs and of imported Increasing JV manufacturer exports Significant smaller Suitability of vehicles share s growing outside penetration vehicles powertrains strongly region and of smaller for global Investment Low cost no domestic (kei) cars ‘Big 3’ markets? needed in market Investment manufacturer recovery modern for new s Next round plans Increasing engines and Increasing engine of emissions focussed on CO2 based transmissions diesel share models legislation EV taxation required for 2009 technology Increasing many automatic manufacturer share s * based on current production volumes

Table 3. Key Global Automotive Markets

Detailed analysis is contained in contained in the market opportunities section, but key aspects are:

• US political concerns driving massive reduction in foreign oil dependency • W. Europe fuel economy standards demanding solutions that current engines cannot deliver • China, India and Russia all combine significant growth with requirements to develop more efficient and lower emission engines; both for internal and export markets.

10 source: Knibb Gormezano and Partners, Engine Expo 2008 14 Pollution and CO2 Consequences

As mentioned in the rationale section, in the EU, the share of transport in CO2 emissions was 21% in 1990, but by 2006 this had grown to 28%. Although somewhat out of date the illustration below is a good proxy for global automotive pollution concentrations.

Fig 11. Estimated annual average concentrations of PM10 in cities with populations greater than 100,000, and in national capitals for 199911

The graph below shows shares of global CO2 from transport *1), *2)

*1) CO2 emissions from fuel combustion.

*2) Emissions from international aviation and maritime shipping are not allocated to each country.

12 Fig 12. Global CO2 shares from transport

With over 500m of the 800m cars on the road between them, the USA and Europe will remain the dominant car markets, however considering growth forecasts, pollution pressures and diversified global supply chains, China and India are the key markets for new developments in powertrain technologies.

11 Source: UN Geo 4 Report, 2007, Cohen and Others 2004 12 Source: International Energy Agency (IEA) (2008), CO2 Emissions from Fuel Combustion, 2008 Edition. 15 4) Product

THE LIBRALATO ENGINE ‐ Invented by Ruggero Libralato; a teacher of electrical engineering by trade, Mr. Libralato’s keen interest in combustion engines from a young age led him to design a new combustion engine at the age of 27. Over 20 years, through various design iterations, the profound study of thermodynamics and theory of machines, Ruggero Libralato has invented a completely new design and a new thermodynamic cycle which deserves to rank alongside the names of Otto, Diesel and Wankel. A proof of concept was built in 2005.

Libralato engine

Fig 13. Comparison of Libralato engine with piston engine and Wankel engine

The engine is predicted to achieve about 40% efficiency using gasoline and 50% using diesel (higher energy density, higher compression) because of its asymmetrical expansion and compression volumes and because it does not need to convert linear motion into rotary motion. It has a unique exhaust gas recirculation integral to the design, a power stage in every revolution, high and constant levels of torque, very low vibration, no need for valves, pistons, con‐rods, crankshafts, cam shafts etc. and very low exhaust gas noise and temperature.

Fig 14.

Libralato Engine Principal Parts and phases of Thermo‐ dynamic Cycle

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Fig 15. Libralato Engine Principal Parts

The main advantages of the engine can be summarized as:

1. Exceptionally simple design leading to lower production and maintenance costs 2. Double the power to weight ratio of a reciprocating engine; compact shape 3. Approximately 33% more efficient than conventional 4‐stroke engine (i.e. approx 40% efficient with gasoline compared to 30% efficient 4‐stroke engine; approx 50% efficient with diesel compared to 40% efficient 4‐stroke engine) 4. At least 5% greater mechanical efficiency / low vibration due to rotary design 5. At least 5% greater thermal efficiency due to asymmetrical expansion and compression volumes (~Atkinson cycle) 6. Lower emissions due to recirculation of exhaust gas, integral to engine cycle (NOx <50%) 7. Silent and low temperature exhaust gases due to low exhaust pressure 8. Good sealing and thermal dispersion characteristics, avoids problems of Wankel engines 9. Geometry easily adaptable for biofuels (ethanol and biodiesel) 10. Ideally suited for PHEVs and E‐REVs ‐ space and weight savings from engine allow all hybrid components to fit within existing engine cavities, with little/ no bodywork redesign.

The engine comprises a unique combination of two rotors, with different rotational diameters and separate centres, fixed by their own bearings and joined by a connecting vane that has a quasi‐ circular orbit. The motion of the rotors forms and reforms three distinct chambers within the engine with asymmetrical expansion and compression volumes, two stage compression, low pressure scavenge and recirculation of exhaust gas. Induction air enters at the centre of the engine and compression/expansion occurs at the periphery producing uniform heat flow characteristics as air circulates around the two sides of the engine.

New Thermodynamic Cycle - The engine does not have a traditional Otto or Diesel cycle. There are two compression phases. The inlet phase is compressed at a low ratio and then controls the later scavenge of the exhaust gases. In the second compression phase, the air is compressed at a higher compression ratio where the fuel is added. It is this fuel/air mixture that ignites to form the expansion phase. The scavenge phase has several functions. Firstly, it helps to oxidise the exhaust gases more fully. Secondly, it reduces the temperature of the exhaust gases. Thirdly, the scavenge air can be partially re‐circulated within the engine to act again in the second compression phase. Finally, it avoids an extra phase for the mechanical expiration of the exhaust gases. This all provides for an extremely efficient handling of the gases, with a significant reduction of exhaust emissions and excellent fuel economy.

17 The following illustrations show 3‐D CAD drawings of the principal engine components.

Fig 16a) Complete engine Fig 16b) leading rotor

Fig 16c) Connecting vane Fig 16d) following rotor

Fig 16e) Alternative views of leading rotor, connecting vane and following rotor

18 The following illustrations explain how the engine’s unique thermodynamic cycle operates:

Figure 4. Phases of Libralato engine Fig 17. Stages of the Libralato engine

19 Avoids Problems of Wankel Engine - Long flame paths and excessive heat conducting surfaces associated with the Wankel engine are avoided. Significant increases in torque are obtained with the Libralato engine whilst the rotor driving faces are within the confines of the combustion chamber, being held in place by ball bearings. The surface area of the leading and following rotors are equivalent to the surface area of a piston within a cylinder. Sealing of the rotors against the chamber walls is excellent because of their circular orbits and large sealing surfaces.

Power-to-weight ratio - 100 % gain is possible since there is one combustion cycle per revolution instead of one every 2 revolutions in a 4 stroke. Since many components are not present like the valves, pistons, con‐rods, crankshafts, cam shafts etc considerable weight is eliminated.

Fig 18. Size Comparison with Reciprocating Engine

Combustion Efficiency level - The expansion volume of the Libralato engine is larger than the compression volume, allowing complete expansion of the gases (similar to Atkinson Cycle). Thermodynamically this allows the maximum amount of chemical energy from Libralato the fuel to be converted into mechanical work. Thermodynamically, the Libralato engine is estimated to produce a 5.5% increase in efficiency over conventional 4 stroke piston engines. In conventional 4 Stroke engines the combustion expansion of the gasses is equal to the compression therefore the amount of chemical energy from the fuel that can be converted into mechanical work is restricted.

Fig 19. Unit Torque v Chamber Volume Comparison

The Libralato engine possesses a true combustion chamber. In a conventional engine the combustion chamber also houses the valves and its shape is governed to a large extent by their inclusion. The combustion chamber on the Libralato engine is free from valves and can be shaped to provide turbulent compression of the air and optimum mixing of the injected fuel.

High Torque / Constant Torque - The force created by the combustion is directly placed on the output shaft instead of a connecting rod – rod bearing – crankshaft setup, which result in energy losses. In piston engines the piston is at the end of the cylinder when the ignition occurs, therefore having a fully extended connecting rod does not permit the configuration to transfer torque immediately to the crankshaft. As the pressure of the combustion gas decreases, the working surface area of the leading rotor increases and therefore a fairly constant torque is placed on the output shaft over 150 degrees. Since the effective combustion cycle is 170 degrees per revolution, two banks (engines) could be used in series to result in 340 degrees of constant torque output.

Regulated Emissions - Although the Libralato engine offers major advantages used with any fuel, potentially the greatest advantages of the design are realised when used with diesel or biodiesel fuel blends. Traditionally exhaust gas recirculation (EGR) has been used as a means of reducing

20 peak temperature during combustion. Since the exhaust gas does not participate in the combustion process it absorbs some of the energy and hence lowers the peak temperature and reduces NOx formation. The scavenge phase provides a high‐velocity air stream and turbulent mixing of the combustion by‐products. The increased oxygen concentration further enhances particulate matter (PM) oxidation and helps burn up the PM as they form. Because NOx is formed early in the combustion cycle, adding air later in the cycle does not increase NOx. With the amount of excess air almost doubled, both NOx and PM should be reduced simultaneously by about 50%. Since Diesel engines operate at an overall lean fuel‐air ratio, they already tend to emit low levels of hydrocarbons (HC) and carbon monoxide (CO). Excess air will however show a further reduction in HC and CO emissions. Because the Libralato engine is based on high excess air capacity it is not sensitive to fuel sulphur content.

Noise level - The noise level is caused from the gasses exiting the combustion chamber at high pressure. In the Libralato engine the gasses exit through a very large orifice and exit at only 3 atmospheres due to the full combustion that takes place. In 4 stroke engines the noise level is dampened by a catalytic converter, which also functions to reduce the levels of emissions. Therefore in applications such as cars the Libralato engine would not require noise damper ancillary systems. In smaller portable applications (e.g. chainsaws) the inherently reduced noise level produced by the Libralato engine would be more obvious.

Vibration level - About 50% reduced (requires further simulation). The engine has a total of 4 moving parts, and there is a uniform distribution of weight in the engine as it rotates (test done using 4 weight scales). The 4 moving parts never undergo drastic changes in acceleration, as is the case with the cylinder head when it reaches the two extremes of the stroke.

Cooling - There is relatively uniform thermal dispersion across the entire engine due to the constant recirculation of air, and the mechanical interaction between the two sides. This uniform thermal dispersion lowers the need for cooling the hotter side of the engine (which is an issue in the Wankel engine). Since engine cooling is a process that taps into the combustion energy source, uniform temperature dispersion will reduce this loss.

Lubrication - A design for a fuel pump integral to the internal mechanism of the engine has been patented. Lubrication is an obvious area of concern, however this challenge has been foreseen and addressed. For the diesel version of the engine, the fuel itself also provides lubrication. At an appropriate stage of development, the use of ceramic coatings for internal surfaces exposed to combustion heat will be investigated. As well as improved thermal management, this approach offers the potential to avoid the use of an oil pumped lubrication system altogether.

Production cost - Because the efficiency gains of the engine are due to its fundamentally new design and the revolutionary new thermodynamic cycle, other complex and expensive sub systems are not required (e.g. direct injection). After first full prototypes, pre‐commercial prototypes will be evaluated to fully analyse the cost of manufacturing the engine in high production volumes. The Libralato engine will inherently cost significantly less than a 4 stroke engine due to low number of components (about 30% less) and the increased tolerances allowed for critical components, due to the relatively low mean effective pressure.

Reliability & Maintenance costs - A figure for this can be given once extensive bench testing is performed on the engine, however based on only 4 moving parts and the avoidance of sealing problems such as in Wankel engines, the maintenance costs for the Libralato engine should be significantly reduced.

21 Problems of Wankel Engine Overcome

Fig 20. shows the combustion stage of the Wankel engine. Problems of the Wankel engine are overcome by the Libralato engine.

1) A high surface to volume ratio at top‐dead‐centre (TDC) and a shallow and elongated combustion chamber – This can be seen on the right. This ‘long flame path’ is principally responsible for the Wankel engine’s high fuel consumption and high level of unburned fuel (HC) emissions. Fig 20. Wankel Engine

By comparison the Libralato engine’s second stage compression forces the induction air into a tightly contained combustion chamber. The leading rotor tightly contains the gas in the expansion stage. The surface area of the rotor face expands as it rotates, due to the sliding action of the rotors. This helps maximise the work to be extracted as the combustion pressure starts to drop.

Fig 21. Libralato Engine Combustion Stage

2) Unstable geometry of the rotor housing due to localized high temperature‐ the Wankel engine was known for having a ‘hot side,’ (also shown in fig 20). This tended to deform the rotor housing and to reduce the effectiveness of the engine sealing. The Libralato engine’s unique thermodynamic cycle involves first, the expulsion of exhaust gases by the first stage compression (3 bar) and second, the partial recirculation of exhaust gases. In addition to the benefits of integral heat recovery and the reduction of NOx and PM formation, this cycle helps to disperse and balance temperature gradients across the two sides of the engine.

Fig 22. Libralato Engine Exhaust Gas Recirculation

3) Poor gas sealing at low speeds ‐ The seals at the three apex of the triangular Wankel rotor present a very small surface area and therefore the manufacturing tolerance must be extremely low to prevent ‘blow by’ gas escaping. The Libralato rotors have large sealing surfaces, equivalent to the area of a piston head. Therefore the manufacturing tolerances allowed are much higher.

22 Competition

Competitor Characteristics

Dominant design especially in most of the larger applications, like vehicles. 4‐stroke engines are increasingly appearing even in the portable segment. This trend is caused by future auto emissions regulations in EU and USA. An innovative example is the 4‐MIX‐ 4‐strokes engine from Stihl. Advantages: lasts longer than two stroke engines, more efficient fuel piston consumption, pollutes less than its counterparts, easy start, less noisy than 2‐stroke engines engine, Disadvantages: more complicated, many more moving parts, less powerful than two stroke engines (for equivalent engine size and weight), more expensive to manufacture. Heavily dominant technology in all fuel powered portable tools. Advantages: simple and 2‐strokes light design, high power‐to‐weight ratio (compared to 4‐stroke piston engines), low piston manufacturing costs, operates in any position. Disadvantages : Fuel‐inefficient, faster wear engines and shorter engine life than a 4‐stroke due to the lack of a dedicated lubricating system, heavy and unhealthy pollution due to gas/oil mixture, noisy, hot exhaust gases. Several car manufacturers such as Citroën, NSU, Mazda and Rolls Royce developed models based on the Wankel engine between 1950 and 1970. During this period, models of Rotary motorcycles, airplanes and even chainsaws were powered by this type of rotary engine. engines Advantages: simple design, few moving parts, high specific power, low vibration. (Wankel) Disadvantages: less efficient than four stroke piston engines, but more than 2‐stroke, hot exhaust gases with high monoxide and hydrocarbon prevalence, sensitive to dirt, ignition problems, sealing problems, poor reliability.

Table 4. Engine Type Comparison

The analysis below provides an overview of critical technical advantages Libralato’s engine, compared with competing technologies according to customer's criteria.

Selecting criteria Assessment of the 3 main competitors Favourable Fair Unfavourable

Power‐to‐weight ratio Noise level Vibration level Efficiency Pollution Production cost Maintenance costs Reliability Torque Number of components Simple design Housing volume

Libralato engine 2‐stroke piston engine Wankel rotary engine 4‐stroke piston engine

Table 5. Engine Criteria Comparison

23 Competition From Other Novel Engine Designs

Other experimental engine types have been developed such as: Sarich Orbital engine, Quasiturbine, Di Pietro engine, Trochilic engine, LiquidPiston engine and Rad Max engine etc. These are currently not widespread but still represent potential alternatives. However, none of them combines all the advantages of the Libralato engine.

Alternative experimental Fundamental weaknesses engines Sarich Orbital Engine • Incomplete combustion of fuel at low rpm • Susceptible to overheating • Expulsion of unburned fuel with the exhaust at high rpm • Oil injected into the engine to lubricate the crankshaft is burnt during combustion

Quasiturbine • Combustion chamber contains three joints allowing only compressed air to work • Force on the output shaft delivered in a non linear manner • Stroke duration too short for complete combustion

Di Prieto Engine • Excessive number of moving parts needed • Excessive number of sliding components • Sealing is impossible to achieve

Trochilic Engine • Would require a carburetor which has been abandoned by the industry 15 years ago due to suboptimal combustion • Combustion chamber geometry would result in partial combustion • Force on the output shaft delivered in a non linear manner

Liquidpiston Engine • Very high thermal loading on combustion chamber device which will make sealing a significant problem • Friction losses very high • Cooling of the expander may also be an issue

RAD Max • Novel rotary 12‐vane positive displacement device that produces 48 pump actions every revolution • Excessive number of moving parts needed • Excessive number of sliding components • Force translation performed by sliding components

24 Lontra Engine • Novel design based on two separate cylinders with a ceramic coated conduit joining them. • Two cylinder design is not very compact – lower power to weight ratio • Conduit is vulnerable to vibration and could fracture; so the design is not so appropriate for vehicle applications. • Company targeting different markets for compressors and gensets. Astremo Engine • Novel opposed 2 stroke technology • Exceptionally higher power to weight ratio • Uses piezo electric direct injection • Requires development of new lubrication system • Inherent low fuel efficiency and high emissions of two stroke design compensated for by use of piezo electric direct injection, but this is a high pressure, low manufacturing tolerance, high cost approach, with increased maintenance and reliability issues. REVETEC Engine • Novel 4‐stroke design uses two counter rotating tri lobular cams and rollers to produce the reciprocating motion normally generated by a crankshaft and connecting rod. • Independently verified to achieve 38.5% efficiency (BSFC 212g/kWh @ BMEP 4.5 bar, 2000 rpm, lean‐air ratio 15.2: 1) • Claimed to be the most efficient gasoline engine in the world. • Licensing with Chinese manufacturers being negotiated • Engine itself does not represent substantial size/ weight/ cost savings. Ox2 Engine • The Ox2 engine is a circular engine block containing 8 cylinders which exert their force on a bevel shaped cam. While a camshaft rotates on a 4‐stroke engine, the entire engine block rotates on the Ox2 engine. • Pistons are connected by rings (called "plates") that move via rollers along a fixed cam (track). • At higher rpm (1,000<) the centrifugal force lifting the pistons from the track increases, therefore the size and power of the engine is limited.

STAR ROTOR Engine • The Star Rotor engine is based on a recuperated Brayton cycle gerotor, which has separate compressor and expander units. This is predicted to have exceptionally high efficiency (up to 50% at full load) because: o The recuperator captures thermal energy from the expander exhaust and recycles it into the engine. o The rotors do not touch thereby reducing friction. o Speed control is accomplished without throttling losses. o Fuel combustion is complete thus reducing the amount of fuel required to operate. o Spraying atomized liquid water into the compressor allows nearly isothermal compression, reducing compression work significantly. • This engine shares many of the advantages of the Libralato engine and even possibly exceeds them through the use of a Brayton cycle approach. • However at full load, the engine consumes 2 gallons of water for every gallon of gasoline. This extra requirement limits the application of the engine in an automotive context.

25 Anyoon Rotary Engine • The Anyoon rotary engine is a novel concept with some of the advantages of the Libralato engine and the Star Rotor engine. o Like the Libralato engine it uses a greater expansion volume than the compression volume. o Like the Star Rotor engine it uses injected water to cool the combustion chamber. • Use of injected water limits the application of the engine in an automotive context. • Stoppers held by rollers in a track of parabolic spirals, are subject to fatigue, seal wear and maintenance issues. Axial Vector Engine • The Axial Vector engine is another type of barrel engine like the OX2 engine except that the force of combustion from 8 pistons is translated into rotary motion via a sinusoidal main drive cam rigidly attached to the main drive shaft. • Requiring 8 pistons, the engine is not suited to small vehicle applications. • Complex and expensive to manufacture sinusoidal cam Hefley Engine • The Hefley engine is a variable displacement engine with opposed pistons acting on a central cam, similar to the REVETEC engine. • The design is not space efficient • Potential fatigue issues on the central connecting shaft • The usefulness of variable displacement for different fuels is questionable. Scuderi Engine • The Scuderi engine is a split cycle engine which divides the four strokes of a conventional combustion cycle over two paired cylinders, with one intake/compression cylinder and one power/exhaust cylinder. • The design is not space efficient • The design involves extremely high pressures which require extremely low tolerances and high manufacturing costs.

GO Engine • The Go engine is a conventional engine which incorporates eccentric bearings with a planetary gear. This allows variable compression ratios and use of the Atkinson cycle ‘s greater expansion volume compared to compression volume. • The engine does not offer significant advantages in terms of size, weight, vibration, noise, cost etc. Moller Engine • The Moller engine is a Wankel engine with improved combustion surface coating and pre‐heated incoming fuel‐air charging. • The Moller engine achieves a similar power to weight ratio as the Libralato engine, but is less efficient at about 255g/kWh BSFC.

Table. 6. Engine Competition Analysis

26 Competition From Other Vehicle Technologies

The Table below provides a cost / benefit analysis of various competing technologies.

Average Average Technology Efficiency Additional Increase Cost Engine Technologies

Diesel higher engine efficiency due to higher compression ratios and 25% $2,000 greater energy density of fuel Variable Valve Timing & Lift improve engine efficiency by optimizing the 5% $425 flow of fuel & air into the engine for various engine speeds. Cylinder Deactivation saves fuel by deactivating cylinders when they are not 7.5% $500 needed. Turbochargers & Superchargers increase engine power, allowing manufacturers to downsize engines without sacrificing performance or to 7.5% $450 increase performance without lowering fuel economy. Integrated Starter/Generator (ISG) Systems automatically turn the engine 8% $300 on/off when the vehicle is stopped to reduce fuel consumed during idling. Direct Fuel Injection (w/ turbocharging or supercharging) delivers higher 11‐13% $600 performance with lower fuel consumption. Transmission Technologies

Continuously Variable Transmissions (CVTs) have an infinite number of 6% $2,000 "gears", providing seamless acceleration and improved fuel economy. Automated Manual Transmissions (AMTs) combine the efficiency of manual transmissions with the convenience of automatics (gears shift 7% $2,000 automatically). Ancillary Technologies

Reduced Mechanical Friction Advanced lubricants reduce friction losses 4% $50 and decrease wear on components Electric Steering reduces engine losses through electric power steering 5% $120 Low Rolling Resistance Tyres reduce rolling resistance losses 3% $150

13 Table 7. Cost Benefit anlysis of CO2 Reduction Technologies

In comparison the Libralato engine offers a 33% increase in efficiency for a cost reduction of approximately $450 based on the following.

• Simpler design = eliminates need for valves, pistons, con‐rods, crankshafts, cam shafts etc • 50% size and weight reductions = requires less metal to build engine • Operates at higher rpm and low mean effective pressure = higher manufacturing tolerances allowed • Only requires basic fuel injection and engine control units • Easy to maintain

13 sources: King Review of Low Carbon Cars, Deutsche Bank, NHTSA, www.fueleconomy.gov 27 Automotive Powertrain Revolution

Is it enough to offer the Libralato engine as a better, smaller, cheaper alternative to conventional reciprocating engines? Possibly. However, the end is in sight for the internal combustion engine as the prime mover for road transport, period.

Speaking at the Detroit Auto Show, Jan 2009, even Ford's vice‐president of product development, Derrick Kuzak, was quoted as saying, "Next‐generation hybrids, plug‐in hybrids and pure battery‐ powered vehicles are the logical next steps in our pursuit of greater fuel economy and sustainability,"

Given diminshing oil reserves (fig 4.), the prospect of oil prices rising to $150/ bbl by 2015 (Deutsche Bank forecast), concerns about global warming and fears about energy security, it is no suprise that Yvo de Boer, head of the U.N. Climate Change Secretariat, told a global transport ministerial gathering in Tokyo in Jan 2009,

"There can be no doubt that the transport sector will come under intense pressure and needs to dramatically change direction. Transport industries should no longer find themselves in the position of beggars for billions of taxpayer's dollars. Instead, they need to come back into pole position of drivers of economic growth, through the production of smart and efficient cars, trains, ships and planes."

North America The regulatory push for greener vehicles is intensifying in the US, where Congress recently mandated a 40 per cent improvement in fuel economy by 2020. The recently inaugurated US President Barrack Obama has launched a new Energy Plan, a key pillar of which is the goal of putting one million plug‐in hybrids on US roads by 2015. The American Recovery and Reinvestment Act passed in Feb 09, provides over $6 billion of incentives for PHEVs including up to $7,500 in tax credits to consumers for up to 200,000 vehicles by each manufacturer, before the subsidies are phased out. The energy plan also includes increased fuel economy standards of 4% per year, up to $4 billion in retooling tax credits and loan guarantees for domestic auto plants and parts manufacturers to support their manufacture of the new fuel‐efficient cars, advanced battery programs, a mandate for all new vehicles to be flex‐fuel vehicles, and a call for America to develop next‐generation biofuels and the required infrastructure.

Europe The European Union's proposals to cut cars' CO2 levels by on average 19 per cent 2012‐2015 is accompanied by new rules promoting lower emission cars through rebates, higher taxes and other schemes. In Dec 08, the EU agreed to legislate to reduce the average CO2 emissions of European cars to 130g/km by 2015 and 95g/km by 2020. Additional savings (10g/km) are to be achieved through measures such weight reduction and low rolling resistance tyres. Fig 23. EU Cars Carbon Tyreprint, source: VCA Oct 07

28 In July 08, the Spanish government announced an energy plan which includes an aim to have 1 million electric cars on the roads by 2014. Industry Minister Miguel Sebastian said in testimony to a congressional panel.

"Electric vehicles are the future and the driver of the industrial revolution"

In Oct 08, the French President called for changes to the State Aid rules to allow European Union support for retooling by carmakers, while announcing 400 million euros for R&D into non‐carbon vehicles. The French power authority (EdF) also singed agreements with both PSA Peugeot Citroen and Renault Nissan Alliance to cooperate in the development of the necessary infrastructure and associated business models to enable the deployment of electric vehicles.

The Israeli, Danish and Portugese Governments have all agreed to join “Project Better Place” which aims to establish nation‐wide electricity charging and battery replacement infrastructure for electric vehicles. Portugal’s 2009 budget includes tax breaks of up to €796 for electric cars.

The UK Government has set a target that by 2012, 10% of all new vehicle sales will be vehicles emitting 100g/km CO2 or less at the tailpipe. The UK Prime Minister has proposed that by 2020 all new cars sold in Britain should be electric or hybrid vehicles producing less than 100 g/km of CO2, with £100 million earmarked in funding over the next five years to support electric and hybrid car projects. Speaking at the G8 summit in Japan in July 08, he said: "This is not the odd vehicle that would be a hybrid but vehicles that are family cars. These things are happening quickly and we want to incentivise them happening in Britain”. In April 2009, the UK Government announced a £250m scheme to offer consumer incentives of £2,000 ‐ £5,000 to buy electric and plug in hybrid electric vehicles. Speaking at the launch event, Transport Minister Geoff Hoon said, “The scale of incentives we're announcing today will mean that an electric car is a real option for motorists as well as helping to make the UK a world leader in low‐carbon transport."

The June 08 Deutsche Bank report, “Electric Cars: Plugged In” noted,

“We nonetheless anticipate a significant increase in the electrification of the automobile. We and other observers (e.g. JD Power and Roland Berger) expect hybrid electric/internal combustion vehicles (HEVs), plug‐in hybrid electric vehicles (PHEVs), and electric vehicles (EVs and REVs) all to show dramatic growth over the next 10 years. In the U.S. alone, 13 hybrid electric vehicle models were available in 2007, 17 are expected by the end of 2008, and at least 75 will be available within three years (by 2011). As we noted earlier, NHTSA projects a 20% hybridization rate for the U.S. market by 2015, and Global Insight projects 47% for the U.S. by 2020. (Note that U.S. market share for hybrids was just 3% in 2007.) In Europe, hybridization is projected to reach 50% by 2015.”

The Report “Automotive 2020: Clarity Beyond the Chaos” by IBM Global Business Services (Aug 08), gives a good indication of the upheaval that is taking place within the Automotive Powertrain industry.

“In the next 10 years, we will experience more change than in the 50 years before.” – European automotive OEM executive

Troy Clarke, president of General Motors North America, shared his insight on the feasibility of the electrification of the automobile with a Washington forum in June 08,

"That debate has shifted from if this would happen, to when." he said. 29 Consumer Attitudes

Frost & Sullivan reports that the world hybrid/ electric vehicle market in 2007 was worth over $710.9 million with a growth rate of 31 percent.

Fig 24. EU Attitudes & Perceptions Towards Sustainability, Environment and Alternate Power‐trains14

In June 08 the automotive supplier Continental published the results of a study of 8,000 motorist; 1,000 each from: China, Germany, France, UK, Japan, Austria, Switzerland and the USA.

Fig 25. Consumer Acceptance of Electric Cars 14 Source: Frost & Sullivan May 2008

30 Figure 26. compares the main features and fuel economy improvements of hybrid architectures6.

Fig 26. Hybrid Architecture Comparison

The following table, uses Deutsche Bank / American Council for an Energy Efficient Economy (ACEEE) figures, and adds a PHEV 15, use of a Libralato engine generator and use of bi‐polar lead acid batteries. Further detail is contained in the Appendix ‘Powertrain Architecture Analysis’.

Micro Mild Full PHEV 40 PHEV 15 Libralato Libralato Hybrid Hybrid Hybrid PHEV 15 PHEV 15 (start‐stop) b‐p pBA Battery $ / kWh 600 600 600 500 500 500 90 Battery kWh 0.16 1.0 2.0 12.0 5 5 5 Ultracapacitors 0.2kWh $965 Battery total cost $ 100 600 1200 6000 2500 2500 1415 Other incremental costs $ 500 1000 1200 2000 2000 1800 1400 Total incremental costs $ 600 1600 2400 8000 4500 4300 2815 Annual fuel savings $ 472 944 1526 2070 1892 2082 2082 Pay back period yrs 1.3 1.7 1.6 3.9 2.4 2.1 1.4

Table 8. Hybrid Payback Period Comparison 31 Libralato Engine for Plug in Hybrid Electric Vehicles (PHEV)s

Based on our in depth knowledge of hybrid and electric vehicle technologies, our assessment is that the optimum use for the Libralato engine in an automotive context, is as an engine‐generator for Plug In Hybrid Electric Vehicles (PHEV)s – also known as a “plug‐in series/multi‐mode hybrids” (e.g. GM Chevrolet Volt, due 2010). Supporting detail is contained within the Appendix “Powertrain Architecture Analysis”. This assessment is based on the following reasons:

1) Electrical technologies have won the race to demonstrate practical, efficient, cost effective, non oil dependant, low CO2 solutions to road transport propulsion needs. Given the average OEM product development time‐scale of 5‐7 years, a radically new generation of vehicles is currently being prepared to launch 2010 – 2015. 2) The remaining barriers to the deployment of electric vehicles (EVs) are: a. Limited range of batteries b. Higher cost, particularly due to large advanced batteries e.g. $10,000 for 16kWh 3) The Libralato engine as a range extender removes the barrier of limited range, since when an EV’s batteries run down to a low state of charge, the engine switches on and sustains the batteries (or drives the vehicle in 5th gear) for as long as there is fuel in the tank. 4) The Libralato engine radically reduces the high cost of batteries, since with a range extender on board, the batteries only need to be sized to meet daily average driving distances – in Europe this is 27 km (17 miles), in the US it is 25 miles. On average the vehicle would operate as an EV in urban areas. But when longer trips are required, the range extender provides extra‐urban power. 5) Since the range extender does not need to provide extreme torque and power for rapid acceleration (this is provided by the electric motors), it can be downsized to meet upper average power requirements and optimized to operate at constant optimum efficiency. 6) Development costs for a new engine to run at a constant speed and load are an order of magnitude less than for an engine designed to deliver wide ranges of torque and power. 7) The size and weight savings from the Libralato engine mean that all the hybrid components (including batteries sized for average daily driving distances) could be fitted within existing engine cavities, enabling any model to be converted to a PHEV.

Fig 27. Lotus Engineering’s view of future of Hybrids 32 HEV Engine Efficiency Comparison

Typically efficiencies of internal combustion engines for vehicles are about 30% for gasoline and 40% for diesel, although state of the art engines can achieve approximately 5% higher levels. A modern vehicle engine is designed to balance a complex set of conflicting parameters: torque and power, gear ratios and engine speeds, low emissions and fuel economy. Optimising any one of these will compromise others. A wry commentator described the situation as,

“For the moderate power levels required for cars and trucks, the reciprocating piston engine remains the worst possible powerplant ‐ except for all the others.”

The figure below illustrates values for a typical gasoline engine.

150 4)

125

3)

50 2)

1)

Fig 28. Engine Efficiency at Key Operating Points

Using the Brake Specific Fuel Consumption figures, the engine efficiency can be calculated at key operating points:

1) ~ Urban traffic 24 km/h / 15mph (bsfc: 500), engine efficiency = 16%

2) ~ UK urban speed limit 50 km/h / 31mph (bsfc: 400), engine efficiency = 20%

3) ~ Optimum speed 107 km/h / 66mph (bsfc: 310), engine efficiency = 26%

4) ~ Highway speed 128 km/h / 80 mph (bsfc: 350), engine efficiency = 23%

Every engine is different so this chart is an approximation, but it is important to note that the engine very rarely operates at its optimum efficiency point (moderate revs x high torque). For the values given, this engine’s peak efficiency would be 31%.

Full Hybrid vehicles tend to use electric motors to avoid use of the least efficient engine performance zones. The example overleaf shows test data from Giant Lion Know How on a converted Ford Escape SUV (2.3L). The blue lines show the conventional vehicles performance over the NEDC driving cycle and the red lines show the hybrid performance.

33 4)

2)

1)

Fig 29. Hybrid Engine Efficiency at Key Operating Points

For this engine, in a conventional vehicle, key operating points have the following values:

1) ~ urban traffic 24 km/h / 15mph (bsfc: 500), engine efficiency = 16%

2) ~ UK urban speed limit 50 km/h / 31mph (bsfc: 350), engine efficiency = 23%

4) ~ highway speed 120 km/h / 75 mph (bsfc: 260), engine efficiency = 31%

It can be seen from the red lines that in a hybrid topology, the engine mainly operates in its peak efficiency zone irrespective of gear changes and vehicle speed (bsfc 250 – 238) = 33% ‐ 34%.

The Toyota Prius uses this approach. The 1.5L, engine delivers 43kW at 4,000 rpm; 102Nm; 8.62 Bar; bsfc 230g/kWh (35.6%). It uses the Atkinson cycle with an effective compression ratio of 9.5:1 and an expansion ratio of 13.5:1 due to delayed valve intake closing. The crankshaft is off‐center in relation to the cylinder so that it is in a downward position when the piston is at top‐dead‐centre (TDC). The loss of low‐speed torque is compensated for by the electric motor. Fig 30. Toyota Prius Engine 34 The Libralato engine has a completely different geometry and thermodynamic cycle compared to a reciprocating engine, but it shares two of the key features of the Toyota Prius engine.

The Libralato engine has a true Atkinson‐like cycle since the physical volume of the 2‐bank expansion chambers (850cc) is greater than the physical volume of the compression chambers (600cc). Fig 31. shows the extra work which can be extracted from the cycle, to the right of the dotted line. Fig. 31 Atkinson Cycle

Fig 32. shows the engine’s second stage compression phase (ratio about 10:1) compared to the expansion phase (ratio about 14.2:1).

The Prius engine transfers more torque to the output shaft from top‐ dead‐centre through its offset crankshaft, however the Libralato engine achieves this fully by completely eliminating the piston, connecting rod and crankshaft. Fig 32. Compression and Expansion Volumes

Power is not compromised at high speed as in the Prius engine, since there is no ‘blow back’ reduction in the volume of fuel used in each power phase, due to the delayed valve intake closing.

Compared to a diesel engine, which achieves efficiencies of ~ 42%, the rotary design leads to higher Libralato engine speeds with relatively low Engine ~ mean effective pressure (MEP) and 165g/kWh torque (Nm) values. Provided that friction losses are well controlled, the Libralato engine design places less stress on the components and increases manufacturing tolerances which makes it cheaper to produce.

The engine is estimated to deliver 54kW from 850cc swept volume @ 5000 rpm (103 Nm; 7.62 bar). Because the engine has a power phase in every rotation, it has twice the power density of a 4‐stroke engine (it is about half the size and weight). The estimated maximum efficiency zone for a diesel version of the engine is shown in Fig 33 (bsfc 165 g/kWh).

Fig 33. Libralato Engine estimated peak bsfc zone compared to a modern VW 1.9L TDI 35 PHEV Powertrain Architecture Comparison

The following schematic diagrams compare vehicle energy losses between a conventional internal combustion engine (ICE) vehicle and a multi‐mode PHEV. The principal PHEV operating modes are: 1) EV Mode (Urban) ‐ EV batteries power front wheel electric motors 2) ICE Series Hybrid Mode (Urban) – ICE‐generator sustains charge in batteries 3) ICE 5th gear Mode (Highway) – ICE drives rear wheel in ‘5th gear’ only (no gearbox)

Conventional ICE (Urban) 15 Multi mode PHEV – EV (Urban)

Multi mode PHEV – ICE Series Hybrid (Urban) The key advantages of the multi‐mode HEV are: • Electric motors x3 more efficient than ICE • 10% efficiency gain from Libralato engine • Elimination of engine idling • Engine only operates at peak efficiency • Significant gain from regenerative braking • Accessories not taking power from engine • Reduced driveline losses (no gearbox) • Series hybrid electrical losses compensated for by efficiency gains of Libralato engine

Conventional ICE (Highway)15 Multi mode PHEV – ICE 5th gear (Highway)

Fig 34. Comparison of Vehicle Energy Losses

Hybrid powertrain architecture is still under intensive research and development, but the main features discussed here are being implemented by OEMs: e.g. GM Chevrolet Volt (Series PHEV ‐ 2010)/ Vauxhall Ampera (Series PHEV ‐ 2011), Toyota Prius Gen 3 (Series/ Parallel PHEV ‐ 2010) VW Golf Twin Drive / Seat Leon Twin Drive (Series/ Parallel PHEV ‐ 2013), Ford Parallel PHEV TBA.

15 source: US DOE, 2005 36 5) Market Opportunities

The primary market for the Libralato engine, the automotive market, is notoriously competitive and difficult to penetrate for the following reasons:

Entry Barriers

Massive scale, massive capital requirement

The industry is very mature and it has successfully reached economies of scale. In order to compete in this industry a manufacture must be able to achieve economies of scale. For this to occur, manufacturers must mass‐produce the automobiles so that they are affordable to the consumer. It takes an extreme amount of capital not only to be able to manufacture the products but also to keep up with the research and development that is necessary for the innovation requirements.

Low Bargaining Power of Suppliers

The bargaining power of suppliers is very low in the automobile industry. There are so many parts that are used to produce an automobile, that it takes many suppliers to accomplish this. When there are many suppliers in an industry, they do not have much power. Manufactures can easily switch to another supplier if it is necessary.

Intensity of Rivalry among Competitors

Rivalry among the competitors is very strong is this industry. The major competitors are so closely balanced that it increases the rivalry. An OEM must gain market share by taking it from their competitors. One of the other reasons there is such high rivalry is that there is a lack of differentiation opportunities. All the OEMs make cars, trucks or SUV's. The competitors are compared to one another constantly. The price, quality, durability, and many other aspects of different manufacturers are greatly taken into consideration when deciding what type of vehicle to purchase. When the different manufacturers advertise, they even compare their products to their competitors. For example, the commercials will focus on areas where the company outperforms its competitors.

Paradigm Shift Levels the Playing Field and Creates New Opportunities

However, the paradigm shift taking place in the automotive industry, the transition to ‘the electrification of road transport’ is radically altering the status quo. Wang Chuanfu, the founder and chairman of BYD Co., manufacturer of the F3 DM and F6 DM, the first production PHEVs in the world, recently commented,

"It's almost hopeless for a latecomer like us to compete with GM and other established auto makers with a century of experience in gasoline engines. With electric vehicles, we're all at the same starting line."

Other non traditional players jumping into the fray include Reva in India, Think Global in Norway, Tesla Motors, Fisker Automotive, AFS Trinity, Aptera, ZAP, Phoenix Motorcars and Miles Motors, all in California; Zenn in Canada and Smith Electric Vehicles, Modec, Nice and Lightning Car Co. in the U.K. They all are planning or are already taking orders (albeit in small numbers) for plug‐in hybrids and electric vehicles. The growing field of upstart competitors is visibly shaking Detroit, where ‘the Big Three’ (GM, Chrysler and Ford) are promising Congress that hybrids and EVs will pay off the multi‐billion dollar survival loans they are currently receiving.

37 Although the automotive market is experiencing unprecedented contractions 2008‐2009, it can be seen that the hybrid segment has suffered the least and the SUV segment has suffered the most.

Matt Davis, writing in ‘Electric & Hybrid Vehicle Technology International (2009)’ recently said, “On the one hand, the world’s economy is going to hell at present, and so everyone is craving a rapid solution to tap into what will carry these companies through the immediate darkness. On the other hand, maybe turning electric propulsion into a ubiquitous commodity is exactly what the industry needs to get the best technologies ready all the faster. The tough times are what always make us decide what’s best moving forward.”

Speaking at the conclusion of the First European Sessions on Innovation Fig 35.Light Vehicle Sales by under its EU Presidency , French President Nicolas Sarkozy stated that Segment (Aug 07– Oct 08)16 ‐ especially in these times of major financial uncertainty ‐ Europe should be giving research and innovation a place 'at the heart of its economy',

Fig 36. Illustrates how European legislation to reduce CO2 from cars, impacts on different OEMs.

(2015)

2015

2015

16 Source: PwC Automotive Institute, Nov 08 Fig 36. CO2 Legislation Impact on OEMs

38 The targets vary according to weight and will be phased in between 2012 and 2015, with 65 per cent of cars needing to meet the target by 2012, followed by 75 per cent in 2013, 80 per cent in 2014 and 100 per cent in 2015. Although the average reduction compared to 2007/8 levels is 19%, premium manufacturers such as Porsche, Subaru, Daimler, Suzuki, Mazda and BMW have further to go. This gives rise to an analysis of which OEMs are in the greatest need of technology advancement. Another perspective is to look at which OEMs are currently making the most progress in reducing CO2, below.

* Approx 50% of Daimler reduction due to de‐merger with Chrysler

Table 9. European Federation for Transport & Environment ranking of OEM CO2 reduction in 2007

Actually, table 8 does not adequately capture the massive hybrid and EV R&D efforts currently taking place within most automotive OEMs. A force field analysis gives an indication of re‐active pushes and pro‐active pulls to reduce CO2 emissions across major automotive OEMs.

GM* BMW

Toyota Hyundai Mitsubishi***

Honda Volkswagen

Emissions

2 Renault** Nissan** CO Mazda

PSA Peugeot Daimler reduce

to Citroen Suzuki

pull Subaru

Fiat

active ‐

Pro Ford Porsche

Re‐active push to reduce CO2 Emissions * GM Advanced Voltec range in R&D; ** Renault‐Nissan Alliance developing EVs; *** Mitsubishi first OEM EV

Fig 37. Force Field Analysis for CO2 Emissions Reduction 39 This mapping exercise gives rise to several possible rationales for which OEMs are more likely to invest in advanced low CO2 technologies:

1) Greatest push + greatest pull = BMW, Mitsubishi, Nissan, Mazda, GM 2) Greatest push = Porsche, Subaru 3) Greatest pull = BMW, GM, Mitsubishi, Hyundai, Toyota 4) Greatest push + ‘furthest behind’ = Ford

On the basis of greatest push + greatest pull, BMW were approached in early 2008, to enquire whether they were interested in the Libralato engine. The following is an excerpt from their response, signed by Helmut Riedl, Director of Engineering and Gunter Eckhardt General Manager Powertrain at Rolls Royce Motor Cars (BMW),

“As you cited and have experienced at the Geneva Autoshow the reduction of fuel consumption by simultaneously boosting dynamics has been BMW’s upmost development target of BMW’ EfficientDynamics for the past years. All driveline innovations and development efforts are focused towards this strategy. With due respect and interest we therefore looked into your invention of the Libralato engine, which by your account promises to reduce fuel consumption by more than 50%. However, after due consideration and taking into account our current development activities, we decided not to pursue a mechanical solution as offered by your engine’s asymmetrical rotary design and will therefore decline your offer to join a cooperative relationship and production. We hope you understand our corporate decision at this time. We would like to thank you for your interest and appreciation for the BMW group and wish you all the best in making a successful go with the promising project of ‘the Libralato engine’.

Understandably OEMs are unwilling to risk significant investment in unproven technology. OEMs have billion of dollars invested in existing engine lines, plant and equipment. If there wasn’t such a radical paradigm shift taking place in the automotive industry, it would be virtually impossible to break into this market. Even with this revolution, the development of hybrid technologies is largely focussed on new electrical systems and components coupled to downsized (existing) engines. Ulrich Eichhorn, Bentley Motors ltd probably represents the majority view, “The best way to optimize costs during engine development is to keep working on making your current engines as efficient as possible. It’s very expensive to produce a new engine from scratch, so it’s better to keep driving innovation, and improving efficiency on the engines you currently have.”

Taking a long term view to 2020 and beyond, there are a number of drivers which will make developments such as the Libralato engine and its application as a range extender in PHEVs absolutely necessary: • Petroleum oil is a finite resource; the point of ‘peak oil’ production and reserves has passed. • PHEVs and EVs are the only technologies capable of reducing road transport’s oil dependency. • Virtually all of the major automotive markets are setting standards, with trend lines to reduce average CO2 emissions from cars below 100g/km (fig 2.) • PHEVs and EVs are the only technologies capable of CO2 reductions below 100g/km (fig 27.)

“The potential for grid‐connected vehicles to decimate our demand for liquid hydrocarbon fuels should be clear. Freed from the psychological barriers which hinder widespread market acceptance of pure battery electric vehicles, plug‐in hybrids with an all‑electric capability of just fifty kilometers would slash liquid fuel consumption, since such a high proportion of journeys undertaken are well within this range. Beyond 50 km, a significant share of the ‘residual’ liquid demand may be met with next generation biofuels.”17

17 Source: Plugged‐in: the End of the Oil Age, WWF, 2008 40 BRIC Market Opportunities

Brazil, Russia, India and China represent the largest growth markets over the medium‐long term. The combination of: very significant increases in vehicle numbers, the need to reduce purchase and fuel costs for less affluent consumers, the need to minimise vehicle emissions and the increasing trend of diversified global supply chains, all add up to create market opportunities for the Libralato engine.

Fig 38. Indian Market Opportunities

Fig 39. Chinese Market Opportunities 41

Fig 40. Russian Market Opportunities

Fig 41. Brazilian Market Opportunities

42 Other Market Sectors

Secondary target customers are a very wide range of engine manufacturers for a very wide range of applications: • mobile generator sets • auxiliary power units: military, marine, domestic • hybrid military vehicles – ‘stealth’ drive / power supply • engines for recreational vehicles, scooters, motorbikes etc. • marine outboard engines • engines for industrial, construction and agricultural equipment; pumps, compressors etc. • engines for portable and handheld equipment; chainsaws, blowers etc. • engines for UAVs, ultra light and light aircraft • engines for lawnmowers and garden equipment

Nearly all of these applications require the same core features of: high power to weight, high fuel economy, low emissions, low noise, low vibration etc. The following sections give a short description of just two further market opportunities for the Libralato engine. The advantages described can also be applied to many other application contexts.

Military APU units

Military Auxiliary Power Units (APU)s are used as secondary generators in military vehicles or trailer units and provide power to onboard equipment or field equipment.

State‐of‐the‐art military vehicle electric drive systems use APUs to maintain the state of charge in the vehicle’s batteries and allow the vehicle to operate over extended ranges in electric only “stealth mode”(e.g. BAE HybriDrive fig 42. right). When the vehicle is stationary, it acts as a mobile generator for power take‐off units such as weapons systems, C4ISR systems, temporary shelter, accommodation, hospital installations and disaster relief. These APU units are constructed under contract by specialized military providers such as Mechron Power Systems, Taradec / Patrick Power, Caterpillar Defense, and Rolls Royce. Fig 42. BAE Hybridrive

Military APUs are subject to stringent specifications and need to be highly fuel efficient in order to minimize the amount of fuel carried. “Fuel typically represents the majority of the bulk tonnage shipped in support of military deployments”18. APU units such as the Mechron Power Systems model APU3850M have critical specification requirements including excellent cold start performance, increased stealth performance, long operating mission range with lower APU fuel consumption, lower audible sound emission, and specific power to space limitations. Military APU units present an ideal niche target market since Libralato Engine strongly meets these rigid design parameters.

18 HybriDrive® Propulsion System for Army Medium Tactical Truck, Electronics & Integrated Solutions, 2005

43 The continuous need for improved military APU units indicates how the military state of market has not reached a saturation level. Currently the number of military APU manufacturers is in the double digits due to the increasing demand for more electric power on the battlefield. “Power on the battlefield can be a scarce resource, particularly with the increasing demands of new battlefield systems”18. The military has become progressively more dependant on electricity in order to run equipment. As a consequence specifications for APU units have become more demanding in recent years, and APU suppliers are investing in cutting edge engine design in order to meet these needs.

Portable Applications

Portable applications like chain‐saws represent a very large market. The worldwide market for chainsaws is estimated to 5 million units, equivalent to $3.4 Billion. More ergonomic chainsaws are a huge industrial concern due to the high level of manual activity involved in the use of chainsaws powered by conventional combustion engines. Conventional combustion engines are Fig 43. Chainsaw Issues characterized by weight, noise, vibration, pollution, low efficiency, and delayed start up time. Compared with the beginning of the 1980’s conditions have not yet changed significantly as regards exposure to exhaust gas from chain‐saws. In 1989 exhaust gas ranked worst among various unfavorable influences of the working environment. Chainsaw users are exposed to, unburned vapors & toxic substances in the exhaust.19

Even though Lithium powered chainsaws are on the market they are unable to store enough energy for extended use. These factors are magnified in the context of a small engine used in chainsaws and result in very unhealthy working conditions for the timber industry. These problems have been recognized by the manufacturing industry for years, and more than 5000 chain‐saw specific patents have tried to reduce the negative effects on the uses.

There are inherent limitations in improving chainsaws powered by a conventional piston engine. As a result the ergonomic gains based on existing technologies are marginal at best. A shift in the industry could come from addressing the main source of the problem in the chainsaw, which is the type of engine being used. To the extent that a new engine can offer substantial ergonomic improvements over a conventional engine, the chainsaw industry could rapidly adopt such a engine in the production of new chainsaws. The Libralato engine meets most of the sought for characteristics in the chainsaw industry.

19 source: “Analysis of Occupational Diseases”, Occupational Safety and Health in Forestry, International Labor Organization Sector Activities Program, 1991

44 Marketing Strategy

Once the engine performance is independently validated, we will make direct approaches to OEMs and tier 1 contract manufacturers for commercial joint development and licensing. The table below shows a selection of global automotive, powertrain and engine manufacturers ranked by research and development investment in 2008. This is a good indication of potential customers.

R&D Growth Operati Sales investm over as % of ng outside Market ent last 4 operati as % profit Sales home capital (2007/8) years ng of (2007/ (2007/8) Employee region (08/08/ £m (%) profit sales 8) £m £m s (2007/8) (%) 08) General Motors, USA 4,069 27 n/m 4 2,029 91,604 266,000 n/a 2,773 Toyota Motor, Japan 4,006 22 39 4 10,194 103,768 299,394 54 76,453 Ford Motor, USA 3,768 125 4 3,025 86,641 246,000 n/a 5,474 Volkswagen, Germany 3,616 18 72 5 5,015 79,983 307,589 29 52,195 Daimler, Germany 3,590 11 55 4 6,507 95,069 357,000 n/a 33,602 Robert Bosch, Germany 2,615 23 111 8 2,361 34,021 267,562 35 n/l Honda Motor, Japan 2,482 18 72 5 3,433 49,857 167,231 65 29,228 BMW, Germany 2,309 7 80 6 2,903 41,144 97,922 39 14,284 Nissan Motor, Japan 2,090 24 68 4 3,082 47,075 186,336 61 17,495 Renault, France 1,808 18 85 6 2,123 29,057 133,854 n/a 12,586 Peugeot (PSA), France 1,523 4 193 3 788 44,519 207,850 n/a 5,998 Fiat, Italy 1,279 n/a 58 3 2,217 42,989 179,601 33 10,558 Denso, Japan 1,259 25 92 8 1,369 16,232 112,262 35 11,526 Hyundai Motor, South Korea 1,177 64 76 3 1,555 37,354 n/a n/a 8,600 Delphi, USA 1,005 5 n/m 8 1,414 13,142 169,500 n/a n/l Caterpillar, USA 705 39 28 3 2,537 22,585 101,333 n/a 21,079 Continental, Germany 619 47 51 5 1,206 12,207 93,895 33 8,867 Valeo, France 580 12 242 8 240 7,423 61,200 n/a 1,380 Porsche (now Porsche Automobile), Germany 539 96 12 10 4,379 5,412 11,444 42 6,318 ZF, Germany 489 22 78 5 624 9,290 57,372 28 n/l Mazda Motor, Japan 484 19 69 3 698 14,603 38,004 56 3,836 Aisin Seiki, Japan 467 15 75 4 625 10,696 66,383 26 3,828 Rolls‐Royce, UK 454 34 88 6 514 7,435 38,600 64 7,300 Suzuki Motor, Japan 414 18 71 3 586 14,226 45,518 40 5,630 Deere, USA 410 26 46 4 890 10,795 52,000 n/a 14,499 Yamaha Motor, Japan 385 22 74 5 519 7,900 46,850 49 2,295 Fuji Heavy Industries, Japan 228 6 90 3 255 6,722 25,598 52 2,092 MAHLE, Germany 204 n/a 80 6 256 3,717 44,350 46 n/l Mitsubishi Motors, Japan 186 40 122 2 153 9,906 33,739 49 4,220 BAE Systems, UK 176 n/a 16 1 1,093 14,309 83,000 66 16,743 Cummins, USA 165 27 28 3 598 6,555 37,800 51 6,980 Tata Motors, India 152 160 37 3 417 4,544 23,230 n/a 2,046 Rheinmetall, Germany 131 8 74 5 178 2,942 19,068 24 1,604 Calsonic Kansei, Japan 129 12 >999 4 1 3,151 14,748 37 454 Toyoda Gosei, Japan 109 1 76 4 144 2,669 23,925 23 1,492 BorgWarner, USA 106 43 46 4 231 2,677 17,700 n/a 2,347 Kubota, Japan 103 3 18 2 566 5,071 23,727 n/a 4,540 Harley‐Davidson, USA 101 6 14 3 716 3,086 9,000 21 4,732 Dana, USA 95 26 n/m 2 241 4,630 35,000 n/a 327

45 R&D Growth Operati Sales investm over as % of ng outside Market ent last 4 operati as % profit Sales home capital (2007/8) years ng of (2007/ (2007/8) Employee region (08/08/ £m (%) profit sales 8) £m £m s (2007/8) (%) 08) TRW Automotive, USA 94 5 29 1 324 7,386 66,300 n/a 955 Koito Manufacturing, Japan 93 n/a 82 5 114 2,035 14,242 n/a 953 Federal‐Mogul, USA 90 29 9 3 960 3,473 50,000 n/a 743 Tognum, Germany 87 n/a 34 4 254 2,082 7,867 53 1,522 GKN, UK 83 1 35 2 239 3,869 37,735 54 1,679 ArvinMeritor, USA 62 27 n/m 1 66 4,410 18,000 n/a 537 IMMSI, Italy 53 25 59 4 89 1,356 7,793 n/a 220 Tomkins, UK 52 1 21 2 247 3,022 35,894 84 1,187 Deutz, Germany 48 2 63 4 76 1,272 5,437 n/a 420 Mahindra & Mahindra, India 37 n/a 10 2 363 2,246 n/a n/a 1,688 Ballard Power Systems, Canada 29 28 n/m 89 37 33 500 52 175 Proton Holdings Berhad, Malaysia 29 51 n/m 4 105 746 9,525 n/a 252 China Motor, Taiwan 29 24 246 6 12 459 n/a n/a 436 AvtoVAZ, Russia 28 12 14 1 202 3,769 150,092 n/a 706 Ktm Power Sports, Austria 28 174 106 7 26 416 1,778 37 275 Weichai Power, China 22 235 9 1 240 1,886 n/a n/a 1,519 Haldex, Sweden 22 16 95 4 23 617 5,518 46 160 AviChina Industry & Technology, China 19 n/a n/m 2 25 1,177 27,469 n/a 431

Table 10. Potential Customers

Information about the engine and our approach is on our web site and technical papers are being submitted to relevant conferences such as the SAE International Powertrains, Fuels and Lubricants Meeting June 2009.

As noted in Fig 6. The only UK volume Auto OEM without a corresponding engine plant is GM Vauxhall at Ellesmere Port. In March 2009, top level talks between GM European executives, the UK Prime Minister and UK Business Secretary are reported to have secured reassurances about the future of the Vauxhall plant at Ellesmere Port and the likelihood of GM basing it’s European production of ‘Voltec’ technology at Ellesmere Port.

Fig 44.PM Gordon Brown inspects Vauxhall Ampera – due 2011

The marketing strategy will include retrofitting one of these vehicles, replacing the GM engine with the Libralato engine, to demonstrate the size and weight savings, improved fuel economy and reduced emissions of the Libralato engine.

46 6) Operations

The business model for Libralato Holdings Ltd. is to develop the intellectual property rights (IPR) of the Libralato engine to the point where commercial joint development and license agreements can be negotiated.

The company business objectives are:

1) Produce a first full prototype of the Libralato engine (2009/10)

2) Negotiate a joint development license agreement with an OEM engine manufacturer (2010/11)

3) Conduct demonstration fleet trials of engine applications (2011)

4) Establish Libralato Engines Ltd. assembly plant in Manchester UK for UK market (2012). (All engines branded, sold, distributed and serviced through OEM networks).

5) OEM partner establish engine assembly plants in USA and elsewhere for non European markets (2012)

6) Enter niche markets such as auxiliary power units (military, marine); mobile generator sets; and public sector hybrid utility fleets (2012)

7) Penetrate markets for: hybrid powertrains for cars (PHEVs); generator sets; APUs, recreational vehicles etc. (2012 ‐ 2015)

The key products and services Libralato Holdings intends to gain income from are:

Auxiliary Power Offering off‐the‐shelf 5kW ‐ 40kW engines for the needs of portable engine Units (B2B) power generators,

Portable, stationary Offering off‐the‐shelf 2kW‐ 5kW engines for the needs of portable engine and mobile engines power generators, leaf blowers, brush cutters, chainsaws, snow throwers, (B2B) cultivators, lawn mowers, etc. Offering off‐the‐shelf 40‐70kW units for automotive industry, focusing on Road vehicles (B2B) plug‐in hybrid car applications.

Licensees will need a tailored engine for their application. Libralato Holdings Engineering Ltd will provide technical design support and will retain partial rights on cross Consultancy (B2B) developments.

47 Of course there is a long way to go, to achieve these objectives. Fig shows our current position (red dot) in the context of development stages recognised by the UK Technology Strategy Board.

TRL 1 TRL 2 TRL 3 TRL 4 TRL 5 TRL 6 Libralato Engine TRL 7 Project TRL 8

Fig 45. Libralato Engine Project Development Stages

48 7) Management

The management team of Libralato Holdings Ltd. consists of the following people:

Ruggero Libralato (IT)– Inventor of the Libralato engine. Studied engines from a young age, encouraged by his father. Initial ideas for the engine formed at age 27. Although formally trained in, and went on to teach electrical engineering; personal studies and the development of the engine design and thermodynamic cycle continued for 20 years. Had received interest from Fiat‐ GM, but project dropped during the dissolution of their Alliance in 2005. Lacking entrepreneurial skills to commercialise engine.

Dan Aris (UK)– Since 1992, overseen over £500m investment in Hulme, Manchester – in one of the most successful regeneration programmes in Europe in recent years. See: http://www.manchester.gov.uk/downloads/Hulme_10_years_on.pdf See: http://info.worldbank.org/etools/docs/library/235918/s5_p4.pdf Expert knowledge of various EC funding programmes. Also formed Libralato Engines Ltd. (UK Low Carbon Vehicle Partnership member) to create jobs and training opportunities in inner city Manchester.

Fred Chapman (USA)– Former Vice President and Treasurer of LucasVarity plc, the parent of Perkins Engines, Kelsey‐Hayes and Lucas Industries (three major players in automotive, aerospace and engine manufacture). Directly involved in mergers and acquisitions and financing activities of a global industrial company. Key customers of LucasVarity included Ford, GM, Chrysler and European OEMs. Former Under Secretary in UK Civil Service, responsible for major UK export finance programs.

Francois Badoux (CH)– Former CEO of Mistral Engines (Swiss manufacturers of Wankel rotary engines for light aviation). Raised €10.5m in venture capital for Mistral Engines. Previously has been a venture capitalist himself. Also worked for McKinsey & Co as Consultant and then Engagement Manager. Director of a large privately‐owned industrial and financial group for 12 years. Head of the group’s engineering‐consulting division, comprising eight companies and over 150 persons.

John Travis (UK) – Extensive experience as a senior design engineer and development race engineer for a string of racing greats such as: Penske Racing, Kenny Bernstein’s Indy car team, Lola Cars, Panoz, Nissan World Endurance Project and the Superfund Euro 3000 Series. Director of A1GP Technology; recently built and supplied 40 A1 Grand Prix cars for Ferrari (Ferrari V8 engines, 600 HP, 4.5 litres). Extensive Motor Sport industry R&D contacts.

Karl Niklass (AT) - Motor racing industry expert consultant including suspension design, vehicle dynamics and tyre data analysis for Formula 1 and Champ cars. Lecturer for Mondragon University / Epsilon Euskadi Masters in Motor Sport Engineering. Undertaken engine simulations to date, in association with Epsilon Euskadi. Extensive Motor Sport industry R&D contacts.

Anthony Brown (UK) – Former CEO of Moss Side and Hulme Business Federation. Extensive experience of inner city regeneration and business development (Bank of England award 1998).

Ingrid Scholtheis (AT) – Extensive experience of business administration; Languages: English, German, Dutch, Spanish.

49 8) Implementation Plan

Objectives

The objectives of the work in the proposed Phases are as follows:

Proof of Concept Engine Mechanism • Engine mechanism demonstrated. See: www.libralato.co.uk

Phase 1 – Validation Study • To determine whether it is possible to simulate the engine design with sufficient confidence to proceed with the following Phases

Phase 2 – Thermodynamic and Kinematic Simulation • To produce an optimised design using simulation • To give an indication of the predicted performance of the engine design, in terms of bmep, efficiency etc. • To identify, using kinematic models, any issues with the geometry of the design • To identify potential mechanical issues with the Libralato design, not covered by the simulation

Phase 3 – Design • To construct a CAD model of the engine suitable for the construction of a working prototype • To validate, using CFD and FEA, that the prototype design is suitable for testing

Phase 4 – Prototype Build and Test • To build and perform testing necessary to evaluate the engine design

Approach

Initial Demonstration of Test Bed Engine

To date, a 172 cm^2 proof of concept of the Libralato Engine has been constructed (see video www.libralato.co.uk ). As of October 2008 Mondragon University in collaboration with Epsilon Euskadi have produced a CAD model of the engine and undertaken kinematic simulations of the engine. This simulation has confirmed that the engine is dynamically balanced and will operate with negligible vibration.

Phase 1 – Validation Study

A model of the fundamental engine thermodynamic behaviour will be developed. The model will include classical models and assumptions, based on partners experience and published literature of both conventional and novel combustion engines. The model will initially be sized on the existing proof of concept engine mechanism produced by Libralato Holdings Ltd. The model will be used to provide an initial assessment of the Libralato engine design with sufficient confidence to proceed to the following Phases.

Since the Libralato engine has a completely new geometry and thermodynamic cycle, a 1D analytical calculus, (the model) will simulate the air/fuel mixture formation and burning process, aspiration and expiration, based on the geometry and gas exchange cycle of the engine. In collaboration with Libralato Holdings Ltd., Ricardo UK ltd. will write a new application using general simulation software such as C/ C+/ C++/ Simulink. The1D flow (partial differential)

50 equations will reasonably accurately model the flow velocity, pressure, density and gas composition in the engine’s three chamber interfaces, including the combustion chamber.

The simulation will combine classical engineering models and assumptions, including heat release, heat transfer, leakage, combustion efficiency and mechanical efficiency, in order to derive a preliminary estimate of the power output and efficiency of the Libralato engine.

The analysis will include an engineering estimate of the friction characteristics for input to the performance simulation and an overview of the critical loads and the main features in the design not covered by the simulation.

Phase 2 – Thermodynamic and Kinematic Simulation

A sensitivity study will be carried out by Ricardo, using the model developed in Phase 2, to understand the performance characteristics of the engine, and in particular the sensitivity to critical parameters, for example compression and expansion ratios, heat transfer and leakage flows. The full load and part load performance of the concept will be assessed at key points.

A kinematic design model will be constructed by Ricardo, to investigate potential issues with the mechanical design. In conjunction with this analysis, 2‐D sketches of the engine arrangement will be generated. The design will consider the system of internal rotors and configuration of the inlet and outlet ports to enable boundary constraints for the simulation to be established. Cooling, lubrication, fuelling will also be considered at this Phase. Key dimensions required for construction of the CAD models for the subsequent phases will be determined from the analyses.

Phase 3 – Design

Phase 4 will be undertaken by Bucharest University with support from Libralato Holdings Ltd., Dolomiti CAD and a partner engine manufacturer (tbc). Once the initial concept has been optimised, 3‐D CAD models of the prototype engine will be generated. CFD, thermal, structural and dynamic analyses will be carried out to validate the ability of the design to meet the performance specification. System level Failure Modes and Effects Analysis (FMEA) will be developed to support the design and development process.

Phase 4 – Prototype Build and Test

Phase 4 will be undertaken by Dolomiti CAD with support from Libralato Holdings Ltd. and a partner engine manufacturer (tbc). Work carried out in Phases 1 to 4 will enable a running full prototype to be manufactured and tested.

51 Deliverables

The deliverables of Phases 1, 2, 3 and 4 of the project, are:

Phase 1 A report, including: • An initial performance assessment of the Libralato engine design with sufficient confidence to proceed with the following Phases • An evaluation of the quality of the performance model and its ability to be used for further work • An initial assessment of the mechanical design, identifying and recommending areas of possible additional work for Phases 2 and 3

Phase 2 A report detailing: • Optimised dimensions of key parameters of the engine, based on sensitivity analysis of the performance simulation • An estimate of the predicted performance of the engine in terms of bmep and efficiency and comparison to conventional diesel engines • Identification of any significant issues with the geometry of the design • Recommendations for the future development path for the Libralato engine

Phase 3 • CAD models of the engine suitable for construction of a working prototype • CFD and FEA results to validate that the design is suitable for testing

Phase 4 • Prototype engine build and testing to evaluate the engine performance

52 Deliverables

The table below identifies project progress milestone target dates for Phases 1 and 2, including related deliverables, assuming a start date of July 09.

MS Target Date Deliverable Assessment Method # 1 04/08/09 Completion of Phase 1 Report issued – Validation of approach detailed 2 23/10/09 Completion of Phase 2 Report issued – assessment of performance and mechanical design 4 30 / 05 / 10 Completion of Phase 3 Full CAD model produced

5 19/ 09/ 10 Completion of Stage 4 Full prototype produced

Table 11. Key Deliverables

Timing

Please refer to the overview timing for Phases 1and 2 below identifying the durations of the work proposed.

Phase 1 and 2

ID Task Name Duration Jul '09 Aug ‘09 Sep '09 Oct '09 Nov '09

1 2 2 3 4 1 2 3 4 1 2 3 4 5 1 2 3 4 1 2 3 4 1 Libralato Engine - Modeling and Simulation 15 wks 2 Project start 0 days

3 MS1: Completion of phase 1 0 days 4 MS2: Completion of phase 2 0 days 5 Stage 2 4 wks 6 GT-Power model build 3 wks 7 Assessment and reporting of GT-Power model suitability 1 wk The8 timingAssessment of Phases and reporting 3 and of mechanical 4 is to design be confirmed factors later1 wk with the investors. This will be dependant on the9 outcomeStage 3 of the preceding work in Phases 111 andwks 2, the agreed scope of work in Phases 3 and 4, 10 Motion simulation of mechanical design 4 wks and11 otherGT-Power related model requirements. update with motion data 1 wk 12 GT-Power full load optimisation 4 wks 13 GT-Power part load and idle assessment 1 wk 14 Reporting - Performance and mechanical design 1 wk

Fig 46. Phase 1&2 Schedule

53 9) Financial Plan

Costs and timescale below are based on quotation by Ricardo UK Ltd. Minimal additional costs are required for development engineering by Ruggero Libralato and financial and project administration by Dan Aris.

Cost (£) Duration (weeks)

Phase 1 – Validation Study 42,600 4

Phase 2 – Thermodynamic & 77,800 6 Kinematic Simulation

Phase 3 – CAD Design 550,000 – 650,000 22

Phase 4 – Prototype Build & Test 200,000 – 300,000 12

It is anticipated that the first major licensing deal will be negotiated in early 2011.

Libralato Holdings Ltd. and Libralato Engines Ltd. have access to EU and UK Government financial support:

NWDA Business Start Up funding ‐ includes £26.6m from the Northwest Regional Development Agency (NWDA) and £8.4m from the European Regional Development Fund (ERDF) ‐ a total of £35m over 5 years from April 2009.

JESSICA ‐ is a joint European Commission and EIB initiative, supported by the Council of Europe Development Bank, which promotes urban regeneration projects. By establishing a JESSICA €50m holding fund, the Northwest will work with the EIB to invest European Structural Funds in integrated and sustainable urban regeneration projects.

NESTA ‐ Young Innovative Enterprise Scheme ‐ NESTA has successfully applied to the EU under new legislation that allows it to co‐invest its public funds with other State Aid funding, becoming the first UK organisation to benefit from the Young Innovative Enterprise legislation. The ruling allows NESTA to invest up to €50 million in total and up to €1 million per company whilst co‐ investing with other public funds such as Enterprise Capital Funds.

EU Funds ‐ During 2006 – 2009, a European partnership has been developed including: Manchester University (UK), Newcastle University (UK), Bucharest University (RO), Mondragon University (ES), Epsilon Euskadi (ES), Dolomiti CAD (IT), Ricardo UK Ltd. (UK), Delta Motorsport (UK), EVO Electric (UK), EVISOL (NE). A consortium may apply to the EU Framework 7 or Eurostars programmes to demonstrate an application of the engine in a plug in hybrid electric vehicle.

In addition to the costs quoted by Ricardo UK Ltd. expenses are required for Ruggero Libralato to come to the UK to work on the project with Ricardo UK; approximately £20,000 is required to extend the existing European patents world wide. For phase 1 costs of £70,000 we are willing to offer 8% equity; for phase 2 costs of £80,000 we are willing to offer a further 5% equity; for phase 3 and 4 costs of £850,000 we are willing to offer a further 23% equity.

The following figures present profits and balance sheet projections for Libralato Holdings ltd. At this stage, these can only be indicative, however they are based on industry averages for the size and cost of reciprocating engines. Further details can be seen on the accompanying spreadsheets.

54

Fig 47. Profit & Loss Statement

Fig 48. Profit & Loss Chart

55

Fig 49. Balance Sheet summary

Fig 50. Balance Sheet Chart

56 Exit

The product portfolio and business model for Libralato Holdings Ltd. has the potential to grow very substantially since it addresses one of the greatest and most acute needs of the global economy. Our conservative estimates for generating license fees and production royalties, value the company at approximately £25m by 2015.

A share buy‐back is planned as exit for the VC‐shareholders in 2010 rather than an IPO, due to previous experiences of Libralato directors. Equity investment in early Phases would yield in the order of x 15 return. Libralato Holdings Ltd. could at some point become a strategic acquisition for a major engine OEM. For comparison the Wankel engine earned over $200m in license fees alone and the Libralato engine solves the problems of the Wankel engine.

10) Risks

Financial Probability Impact Measures Foreseen

Government grants such Increased requirement Alignment of the project as the Carbon for equity finance with North West Trust, NESTA, and Medium in order to complete the Automotive Alliance Eurostars do not four work packages Innovation Strategy and materialize UK Low Carbon Industrial Strategy

OEM partnership not Will not be able to Concentrate on markets secured upon Medium continue the project due other than the completion of Work to elevated R&D costs automotive market Phase 4 Technical Probability Impact Measures Foreseen Thermal expansion/ Could cause sealing/ Optimize component contraction of engine Medium friction / fatigue specifications and components problems cooling system

Increased friction Increased demands on Optimize lubrication and compared to Medium lubrication system; sealing systems conventional engine reduced service periods

Sealing against rotor Small amount of gas Loss minimised due to housing incomplete Medium/ low escapes into induction large surface area of chamber rotors plus seals Market Probability Impact Measures Foreseen The engine advantages Dependent on specific Develop OEM are not as significant as low weaknesses – emissions applications to meet claimed / fuel consumption / needs where strengths power to weight ratio are greatest

Cost of the production of May not be able to bring Launch the product in the engine is low the product to the service sector and initially too high automotive market military APU market which may afford it Table 12. Key Risks

57 11) Appendices

Appendices can be downloaded from our web site: www.libralato.co.uk

Libralato Holdings Ltd. Financials May 2009

Powertrain Architecture Analysis Oct 08

Low Emission Powertrain Market Analysis Nov 08

Libralato Engine Technical Summary

Libralato Engine patent WO2004020791 A1

© Libralato Holdings Ltd. 2009

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