Dec. 20, 2006 AET Annual Meeting Report

REPORT OF THE DECEMBER 20, 2006 ADVANCED ENGINE TECHNOLOGIES, INC. ANNUAL SHAREHOLDER MEETING

The Advanced Engineering Technologies, Inc. annual shareholder meeting was held on Wednesday, December 20, 2006 at 11:00 am in a conference room of Carroll Shelby Enterprises, Inc., 19021 S. Figueroa St., Gardena, California 90248 which houses the AET OX2 engine test and development facilities. Attending the meeting were John Luft, Chief Operating Officer, Neil Cummings, Secretary and Legal Counsel, Alexandria Phillips, Treasurer and Director, the engineering staff (Mike Edwards, Ian Mann, Steve Wells), several office staff members, and 7 shareholders. Carroll Shelby, President and Director, and Noel Holmes, Director, were absent. Only 34% of the shareholder vote was represented, attending or by proxy, failing to meet the required quorum to elect a of Board of Directors. Hence, by rules, the Board of Directors remains unchanged: Shelby, Phillips, and Holmes. Apparently, Steven Manthey chose not to vote his shares.

John Luft presided at the meeting and presented a brief summary describing the overall Design Level 3 direction, the current status of the OX2 engine, and the status of the 30 KW generator built by Danotec Motion Technologies, repeating much of the same information given at the November 5, 2004 shareholder meeting. Luft explained the delisting of AENG was a decision which saves the company some $1.5 million, yearly, in auditing costs which would have been required to comply with the Sarbanes-Oxley Act. The meeting was then turned over to engineer, Mike Edwards, who presented a chronological review of Level 3 OX2 engine development, testing, problems and solutions.

The first half of 2005 was devoted to developing machining methods and the machining of parts for the new engine. The Level 3 engine was first assembled in the second half of 2005. An initial series of 8 dyno tests beginning in August 2005 uncovered port seal leaking and other component defects. 114 ft-lbs torque was achieved in December, 2005. During the first half of 2006, the port seal was redesigned and the leakage problem completely eliminated. Torque went from 136 ft-lbs in the first quarter of 2006 to 202 ft-lbs by the second quarter. Among problems encountered, was excessive wear of the cylinder walls caused by "cocking" of the pistons mounted on fixed posts attached to the piston plates.

There is not supposed to be any side force from the pistons against the cylinder walls. 4 roller pins spoke outward from the outer piston plate, and 4 roller pins spoke inward from the inner piston plate. As the piston plates rotate riding up and down the cam track on roller wheels, the piston plate roller pins engage and travel up and down 4 outer and 4 inner slots fashioned into the piston block design. These roller pins transfer the torque from the piston plates to the cylinder block through contact with the walls of the cylinder block slots. The piston force is thus directed only to the piston plates, not the cylinder walls. (The cylinder block is fitted with large "collars" of roller bearings at each end, spinning freely within and supported by the 2 endplates of the outer case, eliminating the need for a center shaft.)

The cylinder wall wear problem was eliminated by doing away with the fixed post style pistons and replacing them with a connecting rod piston design. This allows the pistons to swivel and "float" within the cylinders, and the cylinder wall wear is now completely eliminated. The design also allows for a tighter piston ring clearance improving compression.

Testing continues, and fixes and enhancements continue to be made as test data is gathered. In addition to the measurements obtained from the dynamometer, data is also obtained from the OX2's ECU including water and air temperatures, RPM, throttle position, and "lambda" (a measure of air/fuel ratio and efficiency.) Pressure transducers monitored with an 8 channel storage oscilloscope also collect data from the cylinder firings . Multiple readings per second of this data are collected, stored and analyzed with every test.

The Level 3 engine is made up of a total of 57 parts (36 off-the-shelf and 21 manufactured on site, all made in the USA.) Parts are kept in supply and readily available. It takes less than one day to tear down and reassemble the Level 3 engine. Therefore, the engine can readily be tested to the point of a component failure and be quickly put back together to continue testing. The Level 2 engine required 3 to 5 days to reassemble and often required replacement parts to be shipped from Australia. Testing is currently being limited to 1/2 hour runs at 80-100% torque, typically at 900-1000 rpm. Maximum torque achieved so far, 214 ft-lbs.

AET has 2 Danotek 30 KW generators in possession. The 30 KW, 480v 3-phase generator is currently being driven by a 3.0L 4 cyl. GM industrial engine modified to run on propane. The generator is connected to a large commercial load bank to test power output. So far testing is being done without the generator's electronic controls in place, measuring raw, unconditioned power output. The generator is performing well.

The Level 3 OX2 engine is expected to be fully optimized in 2007, and the 30 KW genset should be fully checked out and ready to go. Promotion and marketing efforts will also be ramped up in 2007. Some 10-12 or more demo OX2 engines are also expected to be produced in 2007. There will be regular press releases as optimization nears.

Lincoln Electric remains very interested in the OX2, and this was discussed at the meeting. There was no welder present at the meeting. AET and Manthey differ on their approach to working with Lincoln. AET wants to fully validate Level 3 OX2 performance before making any marketing commitments, and Lincoln has requested that AET make no official statement regarding any dealings with Lincoln.

Shareholders attending the meeting were given a demonstration of the 30 KW generator driven by the GM engine and a demonstration of a test run of the Level 3 OX2 on one of AET's dynamometers. 178 ft-lbs of torque was produced at around 900 rpm during the demonstration.