Opinions about Scuderi Group's misuse of funds

[Lonny Doyle]

Reading through Ed O'Malley's blog and the comments that follow, I get mixed messages about the feelings of the investors and others but one comment in particular really got to me:

Paul to recumbentrider: "I wouldn’t call it enriching themselves, I have spoken to many investors who don’t seem to have any problems with the 4.3% spent inappropriately “only” in the eyes of the S.E.C. it’s minimal. By the way why does it bother you anyway, your not even an investor. Aren’t there more important causes in the world you can take up to better help humanity?"


For those who don't know me, I have been developing a split cycle engine of my own (Doyle Rotary Engine) since I was 18. For over 28 years I have been designing on paper, manually machining prototypes, modeling on Solidworks and CNC machining newer prototypes. It's basically been a long running hobby that I have made stabs at while also raising four sons and eventually starting a CNC machine shop. I haven't made nearly as much progress as many others because the Doyle Rotary has remained just a past-time of mine.

I've been following and rooting for the Scuderi Group for a long time offering my two sense from time to time when I felt I could add to the discussions online. A few people have asked why I root for Scuderi even though they are one of my competitors in the engine development race and the answer is that the Scuderi's have been paving a trail for other people, like me, to follow. Each step has made it a little more possible for the rest of us to move forward.

They started with an idea, just like the rest of us, and took it to the next level time and time again. They legitimized the possibility of a small team making a huge difference. To be honest, they gave me hope that I could someday gain some capital and move my engine design forward too.

But then came the SEC violations. I think the investors are right to feel cheated by Scuderi spending their money on people and things not related to the development of the engine and despite Paul's claims that this doesn't affect non-investors, it really does.

See, the problem is, and I am sure the Scuderi investors would agree, funding engine development is a monumental risk. Investors of all varieties (venture capitalists, angel investors and all others) are understandably hesitant to fund such a complicated and drawn out investment. Scuderi blazed ahead anyway, successfully amassing funds and completing many goals. This increased, if only slightly, the confidence investors had about funding other engines. However, I think their misuse of funds has ruined the growing confidence in funding risky technological development projects.

Now, when anyone in my situation tries to secure funding, the investors will surely do some research to get a feel for the competition and land on the articles about Scuderi wasting millions of other people's dollars. I feel like the up hill battle has become even more difficult because of the Scuderi's actions.

I am very disappointed in the Scuderi Group.

I hope I am wrong about the Scuderi Group tainting the investing waters, but I can't see how they have helped it any. So I have a few questions for anyone willing to answer them (investors of Scuderi or not):

1. Paul thinks the majority of investors are not bothered by the "minimal" amount of money that has been misused. How would you feel about an engine developer giving your money to family instead of putting it toward development?

2. How were you/would you be convinced to invest in an engine development endeavor?

3. What do you think of the future of the Scuderi Group?

4. What do you think of the future of backyard inventors?

-Lonny

[Paul]

I stand by my statement, of the many people I have talked to about the SG, there are very few who feel cheated and unfortunately most of them have nothing better to do other than vent those feelings on the few blogs which allow comments. Count them up, maybe there actually 25 people probably less who actually vent there feelings on these blogs in the first place and half of them are not even investors including you (Larry). Compare that to the 2000 or 3000 investors it is a very small percentage. Taking a poll on who is actually bothered by the S.E.C. findings is ridiculous and not a true indication of the actual investor pulse.

Regarding question #3 THE FUTURE OF THE SCUDERI GROUP IS BRIGHT, the Power Generation business has taken off, the SG has a recently signed a Power Purchasing Agreement with a developer to provide electricity to their 500 acre project with a Scuderi Power Generator. The SG states this is the first of many deals they expect to have in the future. It appears the Scuderi Power Generator will be the only Generator ever built that can produce and store energy. I think most investors right now are actually very excited about their investment. There seems to be a lot of envy from other engine developers and you can try and convince me that's not the case, but I call it the way I see, it's nothing more than envy.

[Paul]

In answering question #1 I have no problem with the money allocated to the few SG family members instead of towards the engine development.
WHY?
1) Carmelo Scuderi's wife was paid a survivors benefit for an average of $82,500 per year for 4 years. Carmelo was the technical genius and
inventor of the split cycle engine. Carmelo's wife now 89 years old was deprived of income from her husband due to his unexpected death and these payments were only for her elder care needs.
Without Carmelo Scuderi there is no Split Cycle Engine, he worked countless hours developing the technology and never received a dime. In my eyes Mrs. Carmelo Scuderi deserved much more than what she received.

2) The company paid $60,000 per year to a brother because it was in the best interest of the company and it's investors to place the brother on paid leave rather than terminate him. In June 2012 the brother formally terminated the brother's employment. I had heard the brother was a very disruptive force in the office and to pay him not to show up was lesser of two evils, I have no problem with that either.
So there you have it, can we now put this to rest and talk about something more constructive.

[Sally]

I'll go with you on this one Paul. It's been beaten to hell and back.

Lonny, want to thank you one more time for setting this up again.

[Lonny Doyle]

Pendants

I have been out of the loop for a while so I was just trying to get a grasp of how this will affect us with securing funding. We are getting close to being able to pursue funding so the news that pops up on the internet worries me.

I still support the Scuderis and it sounds like the PPA is huge step in the right direction.


Paul

You are correct that most new engine developers are envious of the Scuderis and this includes me. They have done an outstanding job where most of us fail.

I am not sure where you get the detailed information about the Scuderis and how they have dispersed money but that is a little more detail than I think should be discussed on this forum. It seems you are better informed than most so try not to release sensitive information.

Again I was just wanting to get a feel for how this might have affected the DRE and funding opportunities so lets keep posts more generalized.



So to re target my questions:

When a potential investor googles for preliminary information about the current trends, would these recent SEC developments increase the risk associated with investing in an engine development project? If so, would they require a bit more evidence than simulation data to be compelled to invest?

I ask this because I am currently in talks with a university to research my engine computationally and with limited funds I want to put the time and money where it matters most. If simulation data no longer outweighs the risk, I might decide to put effort back into physical models.

[Paul]

Lonny,
I'm nothing more than an investor, I do follow the SG progress closely, whether it be backwards one step and forward two steps or visa versa. I also have made many investor friends throughout the nation who keep me updated. I also analyize all information available and call the SG office a few times per month to ask whatever questions are on my mind at the time. I only mention about how money was disbursed because I feel the SG has been portrayed as monsters when they are all very nice, hard working, decent people.

As far as your question, the SG has been able to raise a good amount of capital by building a working proto-type that proves the technology of firing after top dead center, then advancing the technology through simulations. The real key was that they hired a very reputable, world know engine experts to build and develop the technology by the name of Southwest Research.

[Paul]

www.caribbeanbusinesspr.com/prnt_ed/scuderi-ushers-in-a-new-era-of-lower-energy-costs-in-puerto-rico-8966.html

[Rick]

It has been very quiet the last couple of weeks. I wonder why?

Where is the air hybrid generator to produce energy this year? Oh, I forgot, they now use conventional engines which can be easily retrofitted. Nick and Sal said that? Very reliable source. They should do more field trips to Lesotho, Swasiland, Colombia and Peru. Maybe they find another taxi driver or bar tender to sign a PPA. The order book must be filled up for the billion dollar IPO.

I wonder why the Hino consortium is not mentioned anymore in the most recent newsletter? Already dead?

The only answer given to us was that the shares are still offered with warrants. Every intelligent person should make up his/her mind, why this is the case.

Rick

[Moody]

Check out the salary for Nick, Stephen and Sal Scuderi! Wow, $1.2 million per year, and that's just base comp for three people! (see SEC EDGAR database). Seems like the company is a goldmine for its management! Can I come on board and join you guys?

pdf.secdatabase.com/291/0001178003-13-000003.pdf

16. Use of Proceeds
Provide the amount of the gross proceeds of the offering that has been or is proposed to be used for payments to any of
the persons required to be named as executive officers, directors or promoters in response to Item 3 above. If the amount
is unknown, provide an estimate and check the box next to the amount.
$ 1,150,000 USD☐ Estimate
Clarification of Response (if Necessary)
Amount represents the aggregate proposed annual base salaries of the individuals listed in Item 3 (assuming that the total
offering amount in Item 13 is raised) but does not include any bonus awards or the value of benefits provided to such
individuals

[Paul]

Your 100% wrong in thinking the Sal, Nick and Steve are currently making a combined salary of $1,150,000, it's closer to an annual salary of maybe $140,000 each.
This is an estimated salary "assuming" the total amount of the raising is completed. Please note, that the Scuderi Group has indicated they intent on entering public access and have also said this would be the final raise prior to going public.
Prior to becoming a public company the SG needs to hire a Chief Financial Officer who will oommand a salary in the $400,000 range. So in order to cover themselves they had to answer the question as they did, you can't have the CFO making more than Sal, Nick and Steve. Furthermore when you consider the countless hours Sal, Steve and Nick work on trying to make this company successful, they probably making closer to minimum wage than what you tried to imply. So basicaly unless the SG is definitely going public they will never see the salary you maintain they are making.

[TruthorDare]

@paul - Check your facts, the salaries of their ladies in the firm ( I think they do some admin/backoffice stuff) are already much higher than the figure you mentioned.

It gets even better - "the Scuderi Group has indicated they intent on entering public access and have also said this would be the final raise prior to going public." LOL!! Have heard that one already since 2009. And it was always the "ultimate opportunity" to invest prior to the IPO :-) SEC fine, no working technology, no audited financials but three class action suits, sounds like the perfect recipe for a blockbuster IPO. Will be larger than Google, Facebook and Twitter combined! Scuderi will take over the world! Perhaps they will get into the Dow Jones Industrials right away! Mutual funds will loooooove that one! Sarcasm off.

[paul]

The fact is we were talking about Sal, Nick and Steve salaries, not anyone else.
I guess when you add in all the other employees into the mix the SG payroll could be even higher than mentioned. If you are an investor, I understand your frustration as I am an investor for seven years, however being sarcastic and complaining really isn't going to get us anywhere. Lets hope the SG can be successful with their power generation business plan and start to bring in revenue otherwise it's safe to say our investments will be a bust. On the first page of the private placement memorandum it states in bold print this is a very risky investment for several reasons all of them outlined in the ppm. If this investment does turn out to be successful the returns will be excellent and this is why we bought into this in the first place.

[Mancini]

+++ BREAKING NEWS +++ SCUDERI SHAREHOLDER REVOLT IN GERMANY +++ BREAKING NEWS +++

Can anyone confirm this? More details?

[German Guy]

Good Morning,

I am a German investor and received that email. It was about the incompetence of the management team around Sal, Stephen and Lutz. Also it addressed the lack of compliance with the SEC order. No financial information. Excessive salaries. The lack of operational execution (they also argued that Scuderi's PPA strategy is not viable). The list was 10 pages or so. The email also provided evidence that Scuderi in December 2013 offered a short-term bond being secured by the engine patents. This means that if or should I say as Scuderi is filing for bankruptcy the equity shareholder have been expropriated. I was in shock!

They also wrote that Scuderi Group threatened them legally.

Lutz then replied that he is not responsible for anything financial within the Scuderi Group.

The letter is in German.

[Paul]

I would'nt give much credence to any e-mail that attempt's to discredit the Scuderi Group in anyway. In the past there have been several non-investors and investors who have made attempt's to create havoc among the ranks for their own personal vendettas. In my opinion power generation using the Scuderi technology is a winner.
Instead of having a few disgruntle investors trying to disrupt the apple cart, we need to stick together and support the SG one hundred percent. Let's give AVL the opportunity to fabricate and test the engine to see if SWRI results hold true, SWRI believes it will and so do I. Somebody, someday is going to use the technology to build the engine, as an investor for seven years I would perfer that I have a stake in this rather than somebody else.