ENER-CORE, INC. FORM 10-Q. (Quarterly Report) Filed 08/19/13 for the Period Ending 06/30/13

Transcription

1 ENER-CORE, INC. FORM 10-Q (Quarterly Report) Filed 08/19/13 for the Period Ending 06/30/13 Address 8965 RESEARCH DRIVE IRVINE, CA, Telephone (949) CIK Symbol ENCR SIC Code Miscellaneous Chemical Products Industry Renewable Energy Equipment & Services Sector Energy Fiscal Year 12/31 Copyright 2018, EDGAR Online, a division of Donnelley Financial Solutions. All Rights Reserved. Distribution and use of this document restricted under EDGAR Online, a division of Donnelley Financial Solutions, Terms of Use.

2 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF For the quarterly period ended June 30, 2013 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF OR FOR THE TRANSITION PERIOD FROM TO. Commission File Number Ener-Core, Inc. (Exact name of registrant as specified in its charter) Nevada (State or Other Jurisdiction of (IRS Employer Incorporation or Organization) Identification No.) 9400 Toledo Way, Irvine, California (Address of Principal Executive Offices) Registrant s telephone number: Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past ninety days. Yes No Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company under Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting company Indicate whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No Indicate the number of shares outstanding of each of the Registrant s classes of Common Stock outstanding as of the latest practicable date: 70,918,761 shares of Common Stock, $.0001 par value, as of August 16, 2013.

3 INDEX Ener-Core, Inc. Part I. Financial Information 4 Item 1. Financial Statements (unaudited): 4 Condensed Consolidated Balance Sheets June 30, 2013(unaudited) and December 31, Unaudited Condensed Consolidated Statements of Operations Three and Six Months Ended June 30, 2013 and Unaudited Condensed Consolidated Statements of Cash Flows Six Months Ended June 30, 2013 and Notes to Unaudited Condensed Consolidated Financial Statements June 30, Item 2. Management s Discussion and Analysis of Financial Condition and Results of Operations 18 Item 4. Controls and Procedures 22 Part II. Other Information 23 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 23 Item 6. Exhibits 24 Signatures 25

4 A Note About Forward Looking Statements This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are based on management s current expectations. These statements may be identified by their use of words like plans, expect, aim, believe, projects, anticipate, intend, estimate, will, should, could and other expressions that indicate future events and trends. All statements that address expectations or projections about the future, including statements about our business strategy, expenditures, and financial results, are forward-looking statements. We believe that the expectations reflected in such forward-looking statements are accurate. However, we cannot assure the reader that such expectations will occur. Actual results could differ materially from those in the forward-looking statements due to a number of uncertainties including, but not limited to, those discussed in Management s Discussion and Analysis of Financial Condition and Results of Operations. Factors that could cause future results to differ from these expectations include general economic conditions; further changes in our business direction or strategy; competitive factors; market uncertainties; and an inability to attract, develop, or retain consulting or managerial agents or independent contractors. As a result, the identification and interpretation of data and other information and their use in developing and selecting assumptions from and among reasonable alternatives requires the exercise of judgment. To the extent that the assumed events do not occur, the outcome may vary substantially from anticipated or projected results, and accordingly, no opinion is expressed on the achievability of those forward-looking statements. No assurance can be given that any of the assumptions relating to the forward-looking statements specified in the following information are accurate, and we assume no obligation to update any such forward-looking statements. The reader should not unduly rely on these forward-looking statements, which speak only as of the date of this Quarterly Report. Except as required by law, we are not obligated to release publicly any revisions to these forward-looking statements to reflect events or circumstances occurring after the date of this report or to reflect the occurrence of unanticipated events. 3

5 PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ENER-CORE, INC. UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (In dollars, except share data) Assets June 30, 2013 December 31, 2012 (Unaudited) Current assets: Cash and cash equivalents $ 215,592 $ 93,285 Prepaid expenses and other current assets 77,178 8,970 Total current assets 292, ,255 Property and equipment, net 779, ,118 Intangibles, net 44,027 47,414 Total assets 1,116,270 1,027,787 Liabilities and Stockholders Equity (Deficit) Current liabilities: Accounts payable 496,644 33,234 Accrued expenses 885, ,855 Advance from related party 2,750 Note payable from related party 300,000 Total current liabilities 1,684, ,089 Total liabilities 1,684, ,089 Commitments and contingencies Stockholders equity (deficit) : Preferred stock, $ par value Authorized shares: - 50,000,000 at June 30, 2013 and December 31, 2012 Issued and outstanding shares - none at June 30, 2013 and December 31, 2012 Common stock, $ par value: Authorized shares: - 200,000,000 at June 30, 2013 and December 31, 2012 Issued and outstanding shares - 65,893,977 at June 30, 2013 and 60,883,184 at December 31, ,589 6,088 Additional paid in capital 2,422, ,100 Accumulated deficit (2,998,003) (375,490) Total stockholders equity (deficit) (568,683) 608,698 Total liabilities and stockholders equity (deficit) $ 1,116,270 $ 1,027,787 See accompanying notes to unaudited condensed consolidated financial statements. 4

6 ENER-CORE, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In dollars, except per share data) Successor Predecessor Successor Predecessor Three Months Ended June 30, Six Months Ended June 30, Sales Sales $ 3,216 $ $ 7,310 $ Sales to related party 8,530 8,530 Total sales 11,746 15,840 Cost of goods sold Cost of goods sold 1,912 6,006 Cost of goods sold to related party 5,978 5,978 Total cost of goods sold 7,890 11,984 Gross Profit 3,856 3,856 Operating expenses: Selling, general and administrative 1,439, ,487 1,946,497 2,050,109 Research and development 393, , ,734 1,713,285 Total operating expenses 1,833,077 1,777,761 2,616,231 3,763,394 Operating loss (1,829,221) (1,777,761) (2,612,375) (3,763,394) Other expense: Interest expense related party (316,417) (10,138) (451,933) Loss before income taxes (1,829,221) (2,094,178) (2,622,513) (4,215,327) Income taxes Net loss $ (1,829,221) $ (2,094,178) $ (2,622,513) $ (4,215,327) Loss per Share - Basic and Diluted $ (0.03 ) $ (0.04 ) Weighted Average Common Shares - Basic and Diluted 65,449,958 64,256,957 See accompanying notes to unaudited condensed consolidated financial statements. 5

7 ENER-CORE, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In dollars) Successor Predecessor For the Six Months Ended June 30, Cash flows from operating activities: Net loss $ (2,622,513) $ (4,215,327) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 105,371 43,658 Stock-based compensation 45, ,130 Changes in assets and liabilities: Costs in excess of billings on uncompleted contracts (480,887) Prepaid expenses and other current assets (68,208) (13,381) Accounts payable 690, ,076 Accrued expenses 499,704 14,290 Net cash used in operating activities (1,349,813) (3,981,441) Cash flows from investing activity: Purchase of property and equipment (3,339) (23,025) Net cash used by investing activities (3,339) (23,025) Cash flows from financing activities: Cash contributions from Parent 4,004,466 Proceeds from issuance of common stock 728,382 Proceeds from exercise of unvested stock options 2,827 Repurchase of nonvested stock (77) Proceeds from related party notes 560,200 Advance from related party 184,127 Net cash provided by financing activities 1,475,459 4,004,466 Net increase in cash and cash equivalents 122,307 Cash and cash equivalents at beginning of period 93,285 Cash and cash equivalents at end of period $ 215,592 $ Supplemental schedule of non-cash investing and financing activities: Conversion of notes payable into common stock $ 260,200 $ Conversion of advances from related party into common stock $ 184,127 $ Conversion of accounts payable into common stock $ 227,291 $ See accompanying notes to unaudited condensed consolidated financial statements. 6

8 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. Unaudited Condensed Consolidated Financial Statements The accompanying unaudited condensed consolidated balance sheet as of June 30, 2013, the audited condensed consolidated balance sheet as of December 31, 2012, the unaudited condensed consolidated statements of income for the three and six months ended June 30, 2013 and 2012, and the unaudited condensed statements of cash flows for the six months ended June 30, 2013 and 2012 represent our financial position, results of operations and cash flows as of and for the periods then ended. In the opinion of our management, the accompanying unaudited condensed financial statements reflect all adjustments, consisting only of normal recurring items, considered necessary to present fairly our financial position at June 30, 2013 and December 31, 2012, the results of our operations for the three and six months ended June 30, 2013 and 2012, and our cash flows for the six months ended June 30, 2013 and 2012, respectively. The accompanying unaudited condensed financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto included in our recent report on Form 8-K for the fiscal year ended December 31, Our accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ( GAAP ) for interim financial information. Accordingly, certain information and footnote disclosures normally included in our annual financial statements prepared in accordance with GAAP have been condensed or omitted. Recent Accounting Pronouncements In February 2013, FASB issued authoritative guidance on reporting of amounts reclassified out of accumulated other comprehensive income. In addition to the current requirements for reporting net income or other comprehensive income in financial statements, the amendments require an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. The guidance is effective for us for the fiscal year beginning on April 1, 2013 and did not have material impact on our unaudited financial statements. Reclassification Certain amounts in the prior period have been reclassified to conform to the current period financial statement and footnote presentation. These reclassifications did not affect our net income as previously reported. Description of Business Ener-Core, Inc. (the Company ), a Nevada corporation, was formed on April 29, 2010 as Inventtech, Inc. On July 1, 2013, the Company acquired Ener-Core Power, Inc., a Delaware corporation formerly known as Flex Power Generation, Inc. ( Ener-Core Power or Successor ). The stockholders of Ener-Core Power are now the majority stockholders of the Company and the management of Ener-Core Power is now the management of the Company. Therefore, the acquisition is treated as a reverse merger and the financial statements of the Company are those of Ener-Core Power. All equity amounts presented have been retroactively restated to reflect the reverse merger as if it had occurred on November 12,

9 As provided in the Contribution Agreement dated November 12, 2012 (the Contribution Agreement ), by and among Ener-Core Power, FlexEnergy, Inc. ( FlexEnergy or Parent ), and FlexEnergy Energy Systems, Inc. ( FEES ), Ener-Core Power was spun-off from FlexEnergy as a separate corporation. As a part of that transaction, Ener-Core Power received all assets (including intellectual property) and certain liabilities pertaining to the Gradual Oxidizer business (which was carved out of FlexEnergy). Ownership of Ener-Core Power was not distributed pro rata among the equity owners of FlexEnergy. The assets and liabilities were transferred to Ener-Core Power and recorded at their historical carrying amounts since the transaction was a transfer of net assets between entities under common control. The Company designs, develops and manufactures products and technologies that expand power generation into previously uneconomical markets. The Company s research and development of clean power generation from extremely low quality gases has resulted in the development of the Ener-Core Powerstation FP250 (the FP250 ). The FP250 is an integrated system consisting of the Company s designed and patented Gradual Oxidizer, integrated with a gas turbine and generator. The FP250 is able to generate electric power using low energy content gas or vapor while emitting low levels of atmospheric pollutants and has applications in landfills, oil and gas production and coal mining. Basis of Presentation The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Ener- Core Power. All significant intercompany transactions and accounts have been eliminated in consolidation. Prior to November 12, 2012, Ener-Core Power did not operate as a separate legal entity. As a result, the historical financial information for the three and six months ended June 30, 2012, has been carved out of the financial statements of FlexEnergy, Such financial information is limited to Ener-Core Power related activities, assets and liabilities only. The carved-out financial information includes both direct and indirect expenses. The historical direct expenses consist primarily of the various costs of direct operations. Indirect costs represent expenses that were allocable to the business. The indirect expense allocations are based upon: (1) estimates of the percentage of time spent by FlexEnergy employees working on or supporting Ener-Core Power business matters; and (2) allocations of various expenses associated with the employees, including salary, benefits, travel and entertainment, rent associated with the employees office space, accounting and other general and administrative expenses. Management believes the assumptions and allocations underlying the carve-out financial information are reasonable, although they are not necessarily indicative of the costs the Gradual Oxidizer Business would have incurred if it had operated on a standalone basis or as an entity independent of FlexEnergy. Accordingly, the financial position, operating results and cash flows may have been materially different if the Ener-Core Power business had operated as a stand-alone entity during the periods presented. 8

10 2. Going Concern The Company s financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. Since its inception, the Company has made a substantial investment in research and development to develop the Gradual Oxidizer and has successfully deployed a FP250 field test unit at the U.S. Army base at Fort Benning, Georgia. The total cost of the contract was $4,377,337 and the estimated loss on this contract was $3,386,680. (See Southern Research Contract). The Company has not achieved profitable operations or positive cash flows since inception and has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern. The Company has entered into a Master Purchase and Resale Agreement ( MPRSA ) with Efficient Energy Conversion Turbomachinery B.V. ( EECT ) of The Netherlands for European distribution rights for the FP250 and related equipment. The projected gross margin is estimated to be positive and the Company is projecting sale of the initial unit in November In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management s plan is to obtain such resources for the Company by obtaining capital sufficient to meet its operating expenses by seeking additional equity and/or debt financing. Although the Company has raised approximately $2.2 million (net of $1.0 million of reverse merger costs and $0.3 million of broker fees) through the sale of common stock subsequent to June 30, 2013 (See Note 10 - Subsequent Events), management cannot provide any assurances that the Company will be successful in accomplishing any of its financing plans. If the Company were unable to obtain additional capital, such inability would have an adverse effect on the financial position, results of operations, cash flows, and business prospects of the Company, and ultimately on its ability to continue as a going concern. If the Company is unable to obtain adequate capital, it could be forced to cease operations. The accompanying financial statements do not give effect to any adjustments that might be necessary if the Company were unable to meet its obligations or continue operations. 3. Significant Accounting Policies Segments The Company operates in one segment. All of the Company s operations are located domestically. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Significant items subject to such estimates and assumptions include the allocation of operations during the carve-out period, valuation of certain assets, useful lives, and carrying amounts of property and equipment, equity instruments, and stock-based compensation; provision for contract losses; valuation allowances for deferred income tax assets; and exposure to warranty and other contingent liabilities. Actual results may differ from these estimates. Cash and Cash Equivalents The Company considers all highly liquid investments available for current use with an initial maturity of three months or less to be cash equivalents. 9

11 Accounts Receivable The Company has a policy of reserving for uncollectible accounts based on its best estimate of the amount of probable credit losses in its existing accounts receivable. The Company periodically reviews its accounts receivable to determine whether an allowance is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt. Account balances deemed to be uncollectible are charged to the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company did not reserve any accounts receivable during the three and six month periods ended June 30, 2013 and Costs in Excess of Billings on Uncompleted Contracts Costs in excess of billings on uncompleted contracts in the accompanying consolidated balance sheets represents accumulation of costs for labor, materials and others costs that have been incurred in excess of a provision for contract loss that has previously been recognized as further discussed below under the section Southern Research Contract. These costs were subsequently recognized as costs of goods sold in the period from November 12 through December 31, 2012 when the contract was considered complete in accordance with the completed-contract method. Property and Equipment Property and equipment are stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets ranging from three to seven years. The estimated useful lives of the assets are as follows: Description Machinery and equipment Office furniture and equipment Computer equipment and software Estimated Useful Lives 5 to 10 years 7 years 3 years Revenue Recognition The Company generates revenue from the sale of its clean power energy systems and from consulting services. Revenue is recognized in accordance with Accounting Codification subtopic , Revenue ( ASC ) and Staff Accounting Bulletin Topic 13, Revenue Recognition, which requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the selling price is fixed or determinable; and (4) collectability is reasonably assured. With regards to the sale of products, delivery is not considered to have occurred, and therefore no revenues are recognized until the customer has taken title to the products and assumed the risks and rewards of ownership of the products specified in the purchase order or sales agreement. Determination of criteria (3) and (4) are based on management s judgments regarding the fixed nature of the selling prices of the services delivered and the collectability of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related revenue is recorded. The Company defers any revenue for which the services has not been performed or is subject to refund until such time that the Company and the customer jointly determine that the services have been performed or no refund will be required. 10

12 Revenues under long-term construction contracts are generally recognized using the completed-contract method of accounting (ASC ). Long-term construction-type contracts for which reasonably dependable estimates cannot be made or for which inherent hazards make estimates difficult are accounted for under the completed-contract method. Revenues under the completed-contract method are recognized upon substantial completion that is acceptance by the customer, compliance with performance specifications demonstrated in a factory acceptance test or similar event. Anticipated losses on contracts are recognized in full in the period in which losses become probable and estimable. Changes in estimate of profit or loss on contracts are included in earnings on a cumulative basis in the period the estimate is changed. The accompanying financial statements include revenues from the Southern Research Contract only, recognized on a completed-contract method. Therefore, there were no arrangements for which multiple deliverables were accounted for separately. Southern Research Contract In April 2009, the Company entered into an initial contract with Southern Research Institute ( SRI ) to perform all detailed design, fabrication, installation and site integration of a Turbine/Thermal Oxidizer demonstration unit. The scope of work also required the Company to commission and start up the demonstration unit including operator and maintenance training. In January 2010, the Company and SRI amended the contract to a fixed price contract value at $1,226,776, which required the Company to provide two 200kw Flex Powerstations (respectively, Turbine 1 and Turbine 2 ) to be installed at two Department of Defense locations in the US. In addition, the contract, as amended, required the Company to provide field integration, basic operator and maintenance training, including on-site support for the first year of operation and also to maintain, operate and train operators of the equipment. The Company delivered Turbine 1 and installed the equipment in November 2011 and completed the operations and training phase in November The third amendment to the contract provided for the Company to deliver a second Turbine/Thermal Oxidizer unit and upgrade the engine of Turbine 1. The contract required the customer to identify a site for the second unit by December 31, However, a suitable site was not selected and the customer cancelled its order for the second unit. The SRI contract has been accounted for in accordance with the completed-contract method. The Company deferred all amounts received on this contract for Turbine 1 and Turbine 2 until the contract was completed on December 31, 2012, at which time all revenue received on the contract ($990,652) was recorded as revenue and the remaining deferred costs of $990,652 were recorded as cost of goods sold. The Company recorded total contract costs of $4,377,337 over the duration of the contract. Research and Development Costs Research and development costs are expensed as incurred. Stock Based Compensation FASB ASC 718 Compensation Stock Compensation prescribes accounting and reporting standards for all stock-based payments award to employees, including employee stock options, restricted stock, employee stock purchase plans and stock appreciation rights, may be classified as either equity or liabilities. The Company determines if a present obligation to settle the share-based payment transaction in cash or other assets exists. A present obligation to settle in cash or other assets exists if: (a) the option to settle by issuing equity instruments lacks commercial substance or (b) the present obligation is implied because of an entity's past practices or stated policies. If a present obligation exists, the transaction should be recognized as a liability; otherwise, the transaction should be recognized as equity The Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of FASB ASC Equity - Based Payments to Non-Employees. Measurement of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based payment transaction is determined at the earlier of performance commitment date or performance completion date. 11

13 No stock options were granted during the period from January 1, 2013 through June 30, Stock based compensation expense for the three-month periods ended June 30, 2013 (Successor) and 2012 (Predecessor) was $31,127 and $148,373, respectively. Stock based compensation expense for the six-month periods ended June 30, 2013 (Successor) and 2012 (Predecessor) was $45,132 and $278,130, respectively. All 3,220,735 of the stock options outstanding at December 31, 2012 were exercised in the first quarter of 2013, resulting in proceeds to the Company of $2,827. Additionally, under the terms of the 2012 stock option plan, the Company repurchased 76,608 shares from a then-former employee for $77 during the six-month period ended June 30, 2013, which shares were immediately retired and became eligible for re-grant. We do not intend to grant any additional awards under the 2012 plan, as it relates to the Company s now wholly-owned subsidiary, Ener-Core Power, Inc. Income Taxes The Company accounts for income taxes under FASB ASC 740 Income Taxes. Under the asset and liability method of FASB ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under FASB ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment occurs. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations. Long-Lived Assets In accordance with ASC , Impairment or Disposal of Long-Lived Assets, the Company reviews for impairment of long-lived assets and certain identifiable intangibles whenever events or circumstances indicate that the carrying amount of assets may not be recoverable. The Company considers the carrying value of assets may not be recoverable based upon its review of the following events or changes in circumstances: the asset s ability to continue to generate income from operations and positive cash flow in future periods; loss of legal ownership or title to the assets; significant changes in our strategic business objectives and utilization of the asset; or significant negative industry or economic trends. An impairment loss would be recognized when estimated future cash flows expected to result from the use of the asset are less than its carrying amount. We have evaluated our intangible asset for impairment at each balance sheet date and, despite significant losses on the SRI contract, conclude that no impairment of the intangible asset is appropriate. 12

14 In 2010 the Company started the construction of the FP250 beta development test unit at the Portsmouth, New Hampshire manufacturing facility of FlexEnergy for the purpose of completing the second development phase for software, controls, systems, and components and to serve as a demonstration unit for potential customers. In July 2012 the construction of the FP250 beta development test unit was completed and the asset was placed in service at the Portsmouth location. The Company had accumulated costs significantly higher than the amount originally expected in constructing the FP250 beta development test unit. As a result the Company performed an evaluation of the FP250 beta development test unit for impairment as this was an indication that the book value of the asset may not be recoverable. The total accumulated cost of constructing the FP250 was $1,089,079 as of July 2012, the date the asset was placed in service at the Portsmouth location. As part of the Company s review, the fair market value of the FP250 beta development test unit was determined to be $760,000. This determined fair market value was assessed to be the realizable value the Company could expect to receive on the sale of such equipment in a current transaction between willing parties, which is based on the sales price negotiated in the agreement with EECT. As further discussed in Note 9, the Company has entered into an agreement with EECT, an unrelated party, for the sale of a unit with the same functionality as the FP250 beta development unit for a selling price of $760,000. The pricing is a one-time special price which considers this is the first unit of its kind being sold to be placed into the conventional commercial and industrial environment for long-term continuous commercial operation. An impairment charge of $329,079 was recorded in July 2012, which represented the difference between the fair value and the carrying value of the FP250 beta development unit. The FP250 beta development test unit was a contributed asset pursuant to the terms of the November 12, 2012 Contribution Agreement. The unit was dismantled in June 2013 and will be relocated to the University of California, Irvine where it will continue to be used as a development and demonstration unit. There were no other indicators of impairment related to long-lived assets that resulted in additional impairment analysis. Financial Instruments The Company determines the fair value of our financial instruments based on the hierarchy established by ASC 820, Fair Value Measurements and Disclosures. The three levels of inputs used to measure fair value are as follows: Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability. Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity). The carrying amounts of the financial instruments are reasonable estimates of their fair values due to their short-term nature or proximity to market rates for similar debt. Fair Value Measurements The Company s financial instruments consist primarily of cash and cash equivalents, accounts payable, accrued expenses and debt. 13

15 Cash and Cash equivalents, Accounts Payable, Accrued Expenses These items are recorded in the financial statements at historical cost. The historical cost basis for these amounts is estimated to approximate their respective fair values due to the short maturity of these instruments. Earnings (Loss) per Share Basic earnings (loss) per common share is computed by dividing earnings (loss) to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per common share includes potentially dilutive securities such as outstanding options using various methods such as the treasury stock or modified treasury stock method in determination of dilutive shares outstanding during each reporting period. Stock options were excluded for purposes of calculating weighted average common share equivalents in the computation of diluted (loss) from continuing operations per share as their effect would have been anti-dilutive for the three and six month periods ended June 30, Comprehensive Income (Loss) The Company has no items of other comprehensive income (loss) in any period presented. Therefore, net loss as presented in the Company s Consolidated Statements of Operations equals comprehensive loss. 4. Property and Equipment, Net Property and equipment, net consisted of the following: June 30, 2013 December 31, 2012 Machinery and equipment $ 814,936 $ 814,936 Office furniture and fixtures 174, ,351 Computer equipment and software 65,704 62,365 Less accumulated depreciation (275,518) (173,534) Net $ 779,473 $ 878,118 Per balance sheet 779, ,118 Difference Depreciation expense was $50,992 and $101,984 for the three and six months ended June, 2013 (Successor). Depreciation expense was $11,929 and $40,271 for the three and six months ended June, 2012 (Predecessor). 5. Intangibles, Net Intangibles, net consisted of the following: June 30, 2013 December 31, 2012 Patents $ 79,587 $ 79,587 Less accumulated amortization (35,560) (32,173) $ 44,027 $ 47,414 Amortization expense related to this intangible asset was $1,694 and $3,387 for the three and six months ended June 30, 2013 (Successor) _ 14

16 6. Accrued Expenses Accrued expenses consisted of the following: June 30, 2013 December 31, 2012 Accrued merger costs $ 296,686 $ Accrued professional fees 175,598 25,059 Accrued payroll and related expenses 193,117 64,222 Accrued severance 41,900 Accrued consulting 24,400 50,000 Accrued project expenses 94,554 Accrued other 28, Liabilities owed by Parent - reimbursable under Contribution Agreement 72, ,747 $ 885,559 $ 385, Stockholders' Equity (Deficit) In April 2013, the Company entered into an escrow agreement in connection with a private offering of the Company s common stock that was to close immediately prior to the reverse merger transaction (see below). A stockholder advanced $728,382 in funds into the escrow, of which $500,000 was released to the Company in April 2013 and $228,382 was released to the Company in June 2013, in each case for the purchase of shares of the Company s common stock at $.75 per share for an aggregate of approximately 971,176 shares. In April 2013, an aggregate of approximately $671,618 that was owed by the Company to one or more of a stockholder s entities was converted into an aggregate of approximately 895,491 shares of common stock of the Company. Such economic obligations consisted of (i) the March $260,200 note payable, (ii) $80,000 that had been advanced to the Company in March 2013, (iii) $220,710 that had been advanced on behalf of the Company under a letter of credit entered into in connection with the November 2012 spin-off transaction; and (iv) $11,708 for certain reimbursable legal expenses incurred in February, March, and April Related Party Transactions Notes Payable and Advances In January 2013, the Company borrowed $250,000 from a stockholder under a secured convertible note payable that was due at the earliest of February 28, 2013 or upon completion of a $1,000,000 financing event. The note accrued interest at the rate of 12% and is convertible at the lender s option into common stock at 85% of the price of a future financing or $ per share. The note and accrued interest was repaid using funds from the March 2013 $260,200 convertible note payable. The note was secured by the intangible assets of the Company. In March 2013, the Company borrowed $260,200 from a stockholder under a note payable that was due March 28, 2014, or earlier, upon completion of the merger. The note accrued interest at the rate of 12% and was convertible at the lender s option into common stock at $0.75 per share. The note was subsequently converted in April 2013 as described in Note 7. As the note was outstanding less than one month no interest was due to the lender. 15

17 In March 2013, a stockholder advanced the Company $184,127 for operating capital. The advance did not bear interest and was due on demand. In April 2013, the advance was converted into common stock of the Company at $0.75 per share at the stockholders election, as described in Note 7. In June 2013, the Company borrowed $100,000 from each of three individual stockholders under notes payable that were due December 31, 2013, or earlier, upon completion of the merger. The notes accrued interest at the rate of 8% and are convertible at the lender s option into common stock at $.75 per share. On July 1, 2013, $100,000 was converted into shares of common stock in the Merger-related private placement and $200,025, which included $25 of accrued interest, was repaid at the closing of the Merger. There were a number of Parent Company debt instruments issued in 2012 which were with significant stockholders of the Company, who are related parties. All assets of the Parent Company were held as collateral as part of the debt instruments. Under the terms of the Restructuring Agreement dated November 12, 2012 all debt was converted to equity and all collateral was released from encumbrance without recourse. The Predecessor recorded allocated related party interest expense related to the Parent Company s debt of $316,417 and $451,933 for the three and six month periods ended June 30, 2012 (Predecessor), respectively. The allocation of interest expense was based on the net loss of the predecessor compared to the aggregate net income loss of the parent Company of the predecessor. Successor interest expense was $10,138 for the three and six months ended June 30, Revenue During the second quarter of 2013, the Company recorded $8,530 in revenue associated with providing engineering services to Professional Energy Solutions which is owned by the Company s VP of Engineering. Costs associated with these revenues totaled $5, Commitments and Contingencies The Company may become a party to litigation in the normal course of business. The Company accrues for open claims based on its historical experience and available insurance coverage. In the opinion of management, there are no legal matters involving the Company that would have a material adverse effect upon the Company's financial condition, results of operations or cash flows. EECT Agreement On the December 31, 2012, Ener-Core entered into a Master Purchase and Resale Agreement (MPRSA) with EECT. As part of this agreement, EECT is committed to buy a certain number of the FP250 and related optional equipment in order to maintain exclusivity in the region. The pricing for the first unit was $760,000 and subsequent units will be sold at a higher price than the first unit. In accordance with the MPRA, EECT placed a Purchase Order ( PO ) with the Company on December 31, 2012 for the purchase on the first unit at $760,000. The order was conditional on the issuance of an irrevocable letter of credit to the Company according to the terms of the PO. Such irrevocable letter of credit was issued on March 1, 2013 in the amount of 533,000 Euros and the Company has acknowledged the acceptance of the PO on the same date. The letter of credit expires in November 2013 after the expected delivery and acceptance of the unit by EECT. 16

18 Purchase Agreement On June 26, 2013, Ener-Core Power and FEES entered into an agreement whereby Ener-Core Power agreed to purchase one MT250 EX gas turbine for a total purchase price of $320,000. $64,000 was paid during June 2013, $96,000 was paid during July 2013 and the remaining $160,000 is due 30 days from the date of shipment, which is expected to occur sometime during the month of October Concentrations In 2012, our only customer was SRI, who accounted for 100% of revenue. In the three and six months ended June 30, 2013, two new customers accounted for 100% of sales. Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash deposits. Our bank account is with a major financial institution and is insured by the Federal Deposit Insurance Corporation (FDIC) up to certain limits. At June 30, 2013 and December 31, 2012, the Company did not have any cash on deposit that was in excess of FDIC insured limits. 10. Subsequent Events Reverse Merger As discussed in Note 1, Ener-Core Power entered into an Agreement and Plan of Merger (the Merger Agreement ) with the Company and Flex Merger Acquisition Sub, Inc., a Delaware corporation and wholly owned subsidiary of the Company ( Merger Sub ), pursuant to which the Merger Sub would merge with and into Ener-Core Power, with Ener-Core Power as the surviving entity (the Merger ). Prior to the merger, the Company was a public reporting shell company, as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended. The Merger Agreement has been approved by the boards of directors of each of the parties to the Merger Agreement. In April 2013, the premerger Company effected a 30-for-1 forward split of its common stock. All share amounts have been retroactively restated to reflect the effect of the stock split. On July 1, 2013, Ener-Core Power completed the Merger with the Company. Upon completion of the merger, the operating company immediately became a public company. The Merger was accounted for as a reverse merger and recapitalization since the stockholders of Ener-Core Power owned a majority of the outstanding shares of the common stock immediately following the completion of the transaction, the stockholders of Ener-Core Power have significant influence and the ability to elect or appoint or to remove a majority of the members of the governing body of the combined entity, and Ener-Core Power s senior management dominates the management of the combined entity immediately following the completion of the transaction in accordance with the provision of ASC 805, Business Combinations. In connection with the reverse merger, certain stockholders of the pre-merger Company returned on aggregate of 120,520,008 shares of the Company s common stock for cancellation. This cancellation has been retroactively accounted for as of the inception of Ener-Core Power on November 12, Accordingly, Ener-Core Power was deemed to be the accounting acquirer in the transaction and, consequently, the transaction was treated as a recapitalization of Ener-Core Power. Thus, the assets and liabilities and the historical operations that are reflected in the financial statements are those of Ener-Core Power and are recorded at the historical cost basis of Ener-Core Power. The Company s assets, liabilities and results of operations were de minimis at the time of merger. 17

19 University of California Agreement The Company entered into a two-year agreement with the Regents of the University of California, Irvine commencing April 1, 2013 through April 1, The contract agreement is for the installation and demonstration of the FP1 equipment. The university will provide certain goods and services, including preliminary site preparation, engineering support, fuel supply, electrical interconnection, control wiring, site access, environmental compliance and approvals with the appropriate local jurisdictions. The fees associated with this agreement included initial site preparation cost of $21,000, a monthly charge of $7,780 commencing August 1, 2013 for use of the facility. In addition, there will be a fee of $4,832 per emissions test. These fees are incurred only for the eight-month period that services are provided. Site activities started in the last week of July This agreement also required the Company to increase its liability insurance up to $1,000,000 per occurrence and $2,000,000 in aggregate. Pre-reverse Merger Equity Sales In the quarter ending June 2013, the Company sold and issued 1,866,667 shares of its common stock to its major stockholder at $0.75 per share in consideration of approximately $728,000 in cash proceeds and repayment of approximately $672,000 of company debt and working capital obligations that the Company had incurred between the spin-off transaction in November 2012 and March Certain cash proceeds were received, and all repayments occurred, in April 2013 and additional cash proceeds were received in June July Equity Sales In July 2013, the Company sold and issued 4,746,863 shares of its common stock at $0.75 per share in connection with the reverse mergerrelated private placement for which it received proceeds of approximately $3.2 million, net of approximately $300,000 in broker-dealer commissions. In connection with this financing, 474,687 warrants were issued to investment bankers in July The warrants have an exercise price of $0.75 and expire 5 years from issuance. August Equity Sales In August 2013, the Company sold and issued 246,666 shares of its common stock at $0.75 per share, for which it received proceeds of approximately $170,000, net of approximately $14,800 in broker-dealer commissions. In connection with this financing, 21,733 warrants were issued to investment bankers. The warrants have an exercise price of $0.75 and expire five years from issuance Equity Incentive Plan On July 1, 2013, the Company s Board of Directors adopted and approved the 2013 Equity Incentive Plan. The plan authorized the Company to grant options to purchase up to 14,000,000 shares of the Company s authorized common stock. On July 3, 2013, grants under the plan were approved for an aggregate of 1,500,000 shares of common stock to two individuals with an exercise price per share of $0.75 and expiration date of May 5, One-third of the grant vests on November 1, 2013 and the balance vest ratably during the succeeding 30 months. Facility Lease Our current headquarters is located at 9400 Toledo Way, Irvine, California The property consists of a mixed use commercial office, production, and warehouse facility of 32,649 square feet. As provided in the Contribution Agreement, we occupy a portion of the space, and have assumed one-third of all liabilities under the Standard Industrial/Commercial Single-Tenant Lease, dated May 26, 2011, between FlexEnergy and Meehan Holdings, LLC for the Property (with FlexEnergy remaining responsible for the remaining two-thirds). Notwithstanding this arrangement, the landlord does not view either us or our wholly-owned subsidiary, Ener-Core Power (which was a party to the Contribution Agreement), as formally obligated under the Lease. We are exploring various alternatives for our office and warehouse needs, including negotiating a direct lease with the landlord for a portion of our current facility or moving to a different location. The Company evaluated all events or transactions that occurred after June 30, ITEM 2. MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This discussion contains forward-looking statements, which are subject to certain risks and uncertainties, including, without limitation, those described elsewhere in this Form 10-Q. Actual results may differ materially from the results discussed in the forward-looking statements. All forward-looking statements included in this document are made as of the date hereof, based on the information available to us as of the date hereof, and we assume no obligation to update any forward-looking statement, except as may be required by law. 18

20 Overview We design, develop, and manufacture Gradual Oxidizer products and technologies that aim to expand power generation into previously uneconomical markets, while at the same time reducing the emissions of gases produced from industrial processes that contribute to air pollution and climate change. Our first product, the Ener-Core Powerstation FP250 ( FP250 ), is able to generate electric power using low energy content gas or vapor while emitting low levels of air pollutants. The FP250 integrates a modified conventional micro-turbine (Ingersoll Rand MT250, now manufactured by FEES) with a proprietary gradual thermal oxidizer in place of a conventional turbine s combustor. As disclosed elsewhere in this document, SRI performed an independent field valuation of FP250 at the Fort Benning location. An overview of the technology and benefits can be reviewed at the following link: Water/Energy/Distributed-Generation/EW Updates to Critical Accounting Policies There were no updates to our critical accounting policies during the six months ended June 30, For a full list of our accounting policies, please refer to Footnote 3 - Significant Accounting Policies. Results of Operations for the Three-Month Periods Ended June 30, 2013 vs Net Loss For the current quarter ending June 30, 2013 we incurred a net loss of $1.8 million, consisting of operating expenses of $1.8 million, which included approximately $1.0 million associated with professional fees for the carve-out and reverse merger. For the quarter ending June 30, 2012, the Predecessor incurred a net loss of $2.1 million, including approximately $316,000 for interest expense to a related party and $1.8 million of operating expenses. Revenue Our sales during the quarter ending June 30, 2013, amounted to $11,746, which included $8,530 of revenue on related party engineering services. The Predecessor recorded no revenue in the corresponding quarter ending June 30, Cost of Goods Sold The cost of goods for the quarter ending June 30, 2013, amounted to $7,891 of costs associated with the engineering services. There was no cost of goods sold recorded by the Predecessor in the corresponding quarter ending June 30, Gross Profit Gross profit for the quarter ending June 30, 2013 was $3,855 associated with the engineering revenue. 19

21 Operating Expenses Total operating expenses for the quarter ending June 30, 2013 amounted to $1.8 million and were comprised of: Predecessor operating expenses during the quarter ending June 30, 2012 were approximately $1.8 million and were comprised of: Results of Operations for the Six Month Periods Ended June 30, 2013 vs Net Loss Selling, general and administrative expenses of approximately $1.4 million, which were primarily associated with payroll costs, occupancy costs, intellectual property costs and $1.0 million of outlays associated with professional fees for the carve-out, the twoyear audit and reverse merger costs. Research and development expenses of approximately $0.4 million, which included payroll costs and approximately $0.14 million of expenditures associated with Oxidizer development and costs incurred relocating the FP250 beta test development unit from Portsmouth to the University of California Irvine. Selling, general and administrative expenses of approximately $905,000, which were predominantly payroll, legal fees associated with corporate matters, intellectual property costs, and employee travel. Research and development expenses of approximately $873,000, which were largely employee, consultant costs and operating costs associated with the Gradual Oxidizer development. For the period of January 1, 2013 through June 30, 2013, the Successor incurred a net loss of $2.6 million, primarily consisting of $2.6 million in operating expenses which included $1.0 million of costs associated with the carve-out and reverse merger. For the six months ended June 30, 2012 the Predecessor lost $4.2 million, consisting of interest expense of approximately $0.45 million and operating expenses of $3.8million. Successor operating expenses during the six months ending June 30, 2013 were comprised of: Selling, general and administrative expenses of approximately $1.9 million, primarily associated with payroll costs and $1.0 million associated with professional fees for the carve-out and reverse merger. Research and development expenses of approximately $0.7 million, comprised of employee related costs and $0.14 million of expenditures associated with the Gradual Oxidizer development and expenditures costs associated with the relocation of the FP250 Beta test development unit from Portsmouth to the University of California Irvine. Predecessor operating expenses during the six months ending June 30, 2012 were approximately $3.8 million and were comprised of: 20

22 Selling, general and administrative expenses of approximately $2.1 million, primarily associated with payroll costs, legal fees associated with corporate matters, intellectual property costs, and employee travel. Research and development expenses of approximately $1.7 million, which were primarily employee and consultant costs and operating costs associated with the Gradual Oxidizer development. Stock-based compensation expense of approximately $278,000, allocated based on headcount at the prior parent, is included in payroll costs associated with selling, general and administrative expenses and research and development expenses, above. Other Expenses; Interest Expense Other expenses, consisting solely of interest expense, varied during the reporting periods: During the second quarter of 2013, we had no interest expense and, during the six months ended June 30, 2013, we incurred approximately $10,000 on a Note payable to a related party investor. During the second quarter of 2012, we incurred approximately $316,000 in interest expense, which was the portion of the prior parent company s debt that was allocated to us. For the predecessor during the six months ended June 30, 2012, we incurred approximately $450,000 in interest expense, which was the portion of the prior parent company s debt that was allocated to us. Management believes these allocations are reasonable but not necessarily indicative of the cost that would have incurred if the business had been operated on a stand-alone basis. Financial Condition Cash Flows from Operating Activities Cash used in operating activities was $1.3 million for the six months ending June 30, Our net loss of $2.6 million was offset by $1.2 million in changes in the Company s operating liabilities and $0.1 million in depreciation expense. The increase in accounts payable and accrued expenses was primarily due to the reverse merger costs and activities associated with relocating the beta development unit from Portsmouth which were recorded at the end of the current quarter. Net cash provided by financing activities was $1.5 million for the six months ending June 30, 2013, which included note proceeds of $260,000 from a related party in February and $300,000 of proceeds from notes issued in June. During the six months ending June 30, 2013, the Company issued $1.4 million in common stock at $0.75 per share of which the Company received cash proceeds of $0.7 million and the remaining $0.7 million in equity was issued in exchange for repayment of the $260,000 note, the $184,000 related party advance and settlement of certain payables. From January 1, 2012 to June 30, 2012, the predecessor used approximately $4.0 million of net cash in operating activities, primarily to fund the net loss of approximately $4.2 million during such period, and expenses of approximately $480,000 associated with the SRI Contract. The prior parent company funded the cash needs of the business during such period. 21

23 Liquidity and Capital Resources During the six-month period ending June 30, 2013, our net cash increased by approximately $122,000, primarily due to the sale and issuance of shares of our common stock to a related party stockholder for $0.75 per share in connection with the then-pending reverse merger. Our cash used by operating activities was $1.35 million, which is $2.6 million lower than the $4.0 million cash used by the Predecessor for the equivalent six-month period ending June 30, The $1.35 million cash used by operating activities in the six-month period ending June 30, 2013 is comprised of the $2.6 million net loss, $1.2 million of accrued expenses and accounts payable, and $0.1 million of depreciation and amortization expenses. Net cash from financing activities in the six-month period through June 30th 2013 contributed approximately $1.5 million and our negative working capital grew to approximately $1.4 million from approximately $0.3 million at December 31, The primary reason for such increase in our negative working capital is due to $0.3 million of notes payable, an increase in accounts payable by $0.5 million and increased accrued expenses of $0.5 million associated with carve-out expenses, the reverse merger fees, and costs accrued for the relocation of the beta development unit from Portsmouth to University of California, Irvine. As of June 30, 2013, the total assets of the Company were approximately $1.1 million, which included cash balances of approximately $215,000, net property, plant and equipment of approximately $779,000, and net intangibles of approximately $44,000. In July 2013, the Company sold and issued 4,746,869 shares of our common stock for which we received proceeds of approximately $3.2 million net of broker-dealer commissions. We also granted 474,687 five-year warrants for the purchase of an equivalent number of shares at $0.75 per share to such broker-dealers. Further, prior to the closing of the reverse merger, we borrowed $300,000 from three otherwise thenunaffiliated persons, of which $100,000 was converted into shares of common stock in the reverse merger-related private placement and $200,025 was repaid at the closing of the reverse merger. In August 2013, the Company sold and issued 246,666 shares of our common stock for which we received proceeds of approximately $170,000 net of broker-dealer commissions. We also granted 21,733 five-year warrants for the purchase of an equivalent number of shares at $0.75 per share to such broker-dealers. Our auditors highlighted the company has not achieved profitable operations and has yet to establish an ongoing source of revenue to cover operating costs and meet its ongoing obligations. As of August 18, 2013 our cash balance was approximately $1.8 million and the Company projects its cash needs for the next 12 months to be in excess of $10.5 million which includes the following: Employee and related costs: $4.1 million Professional fees and business development costs: $1.6 million Research and development programs: $2.8 million Corporate filings: $0.5 million Working capital: $1.5 million Our sales cycle can exceed 24 months and we do not expect to generate sufficient revenue in the next twelve months to cover our operating costs. Our future is dependent upon our ability to obtain financing and upon future profitable operations. We anticipate that we will rely on debt or equity in order to continue to fund our business operations. Issuances of additional shares will result in dilution to our existing stockholders. There is no assurance we will be able to obtain sufficient operating capital through the sale of equity and issuance of debt or that the development and implementation of our business plan will generate sufficient funds to sustain ongoing operations. Off-Balance Sheet Arrangements We have no off-balance sheet arrangements. Item 4. Controls and Procedures Evaluation of Disclosure Controls and Procedures The Company, under the supervision and with the participation of its management, including the President and the Principal Accounting Officer conducted an evaluation of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended ( Exchange Act )). The term disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC s rules and forms. Disclosure controls and procedures also include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company s management, including its principal

24 executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Based on that evaluation as of June 30, 2013, our President concluded that the disclosure controls and procedures are effective. 22

25 Changes in Internal Control over Financial Reporting During the six months ended June 30, 2013, there were no changes in our internal controls over financial reporting (as defined in Rule 13a-15 (f) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting. Inherent Limitations on the Effectiveness of Controls Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. PART II - OTHER INFORMATION Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. Since the date of our last report, we sold and issued an aggregate of 246,666 shares of our common stock to four accredited investors in a private offering. The per-share price was $.75. The issuance was made pursuant to Section 4(2) of the Securities Act and Rule 506 under Regulation D promulgated thereunder by the Commission. We believe that exemption was available because (i) no advertising or general solicitation was employed in offering the securities, (ii) the offering and sales were made to four persons, all of whom were accredited investors (all of whom received applicable disclosure materials prior to the closing of the Merger), and (iii) transfer was restricted in accordance with the requirements of the Securities Act (including by legending of certificates representing the securities). 23

26 Item 6. Exhibits * Contribution Agreement by and among FlexEnergy Inc., FlexEnergy Energy Systems, Inc., and Flex Power Generation, Inc., dated November 12, a* Side letter of Flex Power Generation, Inc., to FlexEnergy, Inc., dated November 12, * Purchase Order of Ener-Core Power, Inc. to FlexEnergy Energy Systems, Inc., dated June 26, a* Order acknowledgement, dated June 28, * Non-exclusive Placement Agent Agreement between Ener-Core Power, Inc. and Colorado Financial Service Corporation dated, July 16, * Commercial Lease Agreement between Meehan Holdings, LLC, FlexEnergy, Inc., dated May 26, * Subsidiaries of the Registrant. 31.1* Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of * Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of * Certification of Chief Executive Officer pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of * Certification of Chief Financial Officer pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of * Filed herewith 24

27 SIGNATURES In accordance with the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: August 19, 2013 Ener-Core, Inc. By: / s / Alain Castro 25

28 CONTRIBUTION AGREEMENT THIS CONTRIBUTION AGREEMENT (this Agreement ) is entered into as of November 12, 2012 (the Effective Date ), by and among FlexEnergy, Inc., a Delaware corporation ( FlexEnergy ), FlexEnergy Energy Systems, Inc., a Delaware corporation ( FEES ; FEES and FlexEnergy individually and collectively referred to as Flex ), and Flex Power Generation, Inc. ( FPG ). WHEREAS, FlexEnergy currently owns all of the issued and outstanding equity securities in FEES and FPG; WHEREAS, in addition to the microturbine business acquired from Ingersoll-Rand and owned, operated and further developed primarily through FEES (the Microturbine Business ), FlexEnergy has owned and operated a business (initially acquired in 2008 by FlexEnergy from FlexEnergy, Inc., a California corporation ( FIC ), and continued after the acquisition of the Microturbine Business) to develop and commercialize the use of flameless combustion or oxidation reactions (the Oxidizer Business ); and WHEREAS, FlexEnergy desires to contribute to FPG certain specific assets related to the Oxidizer Business (as compared to the Microturbine Business) and other assets solely or primarily used as of the Effective Date in, or intended as of the Effective Date solely or primarily for use in, the Oxidizer Business (as compared to the Microturbine Business), and FPG desires to receive and assume such assets; and WHEREAS, FlexEnergy, FEES and FPG intend to separately enter into a transition agreement relating to the commercial terms of the provision (i) by FlexEnergy and/or FEES to FPG of certain products and services primarily relating to the Microturbine Business, and (ii) by FPG to FlexEnergy and/or FEES of certain services by FPG personnel (a Transition Agreement ); and NOW, THEREFORE, in consideration of the foregoing, the mutual covenants and agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows: 1. Contribution. 1.1 Contributed Assets. Effective as of the Effective Date, Flex hereby transfers, contributes, conveys, grants and assigns to FPG and FPG hereby accepts and assumes all of Flex s right, title and interest in and to the assets set forth on Schedule 1 (the Fixed Assets ), the agreements set forth on Schedule 2 to the extent that Flex has rights, liabilities or obligations with respect to such agreements (the Agreements ), and the Intellectual Property, including that Intellectual Property set forth on Schedule 3 (collectively, the Intellectual Property, the Fixed Assets, and Agreements are referred to herein as the Contributed Assets ).

29 1.1.1 Definition of Intellectual Property. (a) Intellectual Property shall mean all intellectual property rights that Flex owns or in which Flex has an interest solely or primarily used as of the Effective Date in, or intended as of the Effective Date solely or primarily for use in, the Oxidizer Business (as compared to the Microturbine Business), which the parties agree includes the following: (A) (i) Patents (but not Trademarks) set forth on Schedule 3, but not any other Patents, (ii) trade secrets, confidential business and technical information and any other confidential information and proprietary information (including research and development, prototypes, models, production and other designs, formulae, technology and other processes and techniques, schematics, technical data, business methods, customer lists and supplier lists, and any other information meeting the definition of a trade secret under the Uniform Trade Secrets Act or similar laws in any jurisdiction) ( Trade Secrets ) solely or primarily used as of the Effective Date in, or intended as of the Effective Date solely or primarily for use in, the Oxidizer Business (as compared to the Microturbine Business), (iii) other proprietary technology, intellectual property, industrial or similar proprietary rights, whether arising under common law, state law, federal law or laws of foreign countries or jurisdictions therein solely or primarily used as of the Effective Date in, or intended as of the Effective Date solely or primarily for use in, the Oxidizer Business (as compared to the Microturbine Business); (B) rights to apply for or register any of the rights described in subsections (A)(i-iii) above; (C) licenses and other arrangements to use the intellectual property that are owned by others but that Flex is using under a license or other arrangement with the owner(s) of such intellectual property as of the Effective Date and which intellectual property is solely or primarily used as of the Effective Date in, or intended as of the Effective Date solely or primarily for use in, the Oxidizer Business (as compared to the Microturbine Business); (D) know-how, software and other information, whether the same is owned by Flex, either alone or with others, or is owned by others but that Flex is using as of the Effective Date under a license or other arrangement with the owner(s) of the intellectual property rights solely or primarily used as of the Effective Date in, or intended as of the Effective Date solely or primarily for use in, the Oxidizer Business (as compared to the Microturbine Business); and (E) claims against third parties arising solely from such Intellectual Property, whether past, present, or future, choate or inchoate, known or unknown, or contingent or non-contingent. (b) Intellectual Property also includes, but is not limited to, the Patents and patent applications expressly identified on Schedule 3 to this Agreement, including any United States or foreign utility or design patent to issue therefrom, together with any extensions, reexaminations and reissues of such patents, patents of addition, divisions, continuations, continuations-in-part, and any subsequent filings in any country or jurisdiction claiming priority therefrom. (c) Intellectual Property also includes the intellectual property rights (of the nature described in Section 1.1.1(a)(A)-(E) above) that Flex may otherwise own or have an interest in any oxidizer systems, including associated interfaces, modules, processes and controls, and any enhancements, improvements and derivations thereof, hereafter developed, invented, or otherwise derived by FlexEnergy or FEES, or any of their directors, officers, employees or agents on behalf of FlexEnergy or FEES, to the extent developed, invented or otherwise derived in connection with performing engineering or other services for FPG (i) pursuant to a Transition Agreement, service agreement or other substitute or successor written agreement, and (ii) for which FlexEnergy or FEES, as applicable, is monetarily compensated for such services pursuant to such agreement (provided that FPG has paid in full all amounts owed to FlexEnergy and FEES under such agreements). 2

30 1.1.2 Patent or Patents shall mean any United States or foreign utility or design patents, together with any extensions, reexaminations and reissues of such patents, patents of addition, patent applications, divisions, continuations, continuations-in-part, and any subsequent filings in any country or jurisdiction claiming priority therefrom, owned by, or subject to assignment to, Flex. 1.2 Trademark License. FlexEnergy hereby grants to FPG a worldwide, royalty-free, fully-paid up right and license to use the trademarks and service marks identified on Schedule 3 (the Licensed Trademarks ), provided that (a) such license shall terminate upon the written request of FPG or a failure by FPG to promptly (in any event not to exceed five (5) business days following notice thereof) reimburse FlexEnergy for any registration maintenance costs and other out-of-pocket costs of ownership with respect to the Licensed Trademarks, (b) the permitted scope of use of the Licensed Trademark shall be for use in the Oxidizer Business but not for any use that causes confusion with the Microturbine Business (as reasonably determined by FlexEnergy), and (c) such license shall not be assigned or sublicensed by FPG without the prior written consent of FlexEnergy in its absolute discretion. 1.3 Liabilities Assumed Liabilities. Effective as of the Effective Date, FPG hereby assumes, and agrees to pay, perform and discharge all liabilities and obligations arising out of, relating to or otherwise in respect of the Contributed Assets and the Oxidizer Business (in its present form or as previously conducted), specifically including, without limitation, the liabilities and obligations identified on Schedule 4 (collectively, the Assumed Liabilities ); provided that, for clarity, specific liabilities and obligations for which FPG already has reimbursement obligations pursuant to Section below shall not be further included as Assumed Liabilities subject to this Section As between Flex and FPG, the Retained Liabilities shall remain the sole responsibility of, and shall be retained, paid, performed and discharged solely by, Flex. Retained Liabilities shall mean every liability and obligation of Flex other than the Assumed Liabilities but including without limitation those liabilities and obligations identified on Schedule 6. FlexEnergy or FEES may pay or discharge any Assumed Liability if it provides (i) evidence to FPG that such Assumed Liability is subject to a notice of default, demand or claim (or is otherwise due and owing and FlexEnergy or FEES is the obligor) and (ii) three business days advance written notice to FPG of its intention to pay or discharge such Assumed Liability prior to such payment or discharge, in which chase FPG shall reimburse FlexEnergy or FEES, as applicable, for the full cost of such payment or performance within five business days after receipt of evidence by FPG of Flex s payment of such Assumed Liability Reimbursement Obligations. Effective as of the Effective Date, FPG hereby agrees to reimburse Flex for the portion of those liabilities and obligations identified on Schedule 5 as being the responsibility of FPG, provided that the amount of FPG reimbursement obligations under this Section shall not exceed $635, (collectively, the Reimbursement Obligations ), pursuant to the following terms. Flex must provide three business days advance written notice to FPG of its intention to pay a liability that is subject to a Reimbursement Obligation prior to such payment. Upon receipt of evidence of Flex s payment of the corresponding liability or obligation, FPG shall promptly (in any event not to exceed five business days following notice thereof) pay to Flex the proportionate Reimbursement Obligation amount corresponding to such liability or obligation paid. 3

31 1.3.3 Termination. For purposes of clarity, upon the reimbursement to Flex of $653, for Reimbursement Obligations (either through direct payment by FPG or drawing upon the Letter of Credit (as defined in the Credit Support Agreement, which is described in Section below), FPG s obligation to pay Reimbursement Obligations under Section shall terminate Security. As support for FPG s obligations under this Section 1.3, FPG, Flex and SAIL Venture Partners II, L.P. are simultaneously entering into to a Credit Support Agreement. 1.4 Third Party Consents; Non-Assignment of Certain Assets. Notwithstanding the foregoing, in the event that the legal interest in any of the Contributed Assets to be transferred, assigned or conveyed pursuant to this Agreement, or any claim, right, benefit or obligation arising thereunder or resulting therefrom, cannot be transferred, assigned or conveyed hereunder as of the Effective Date because any waiting or notice period has not expired or any consents or approvals required for such transfer have not been obtained or waived, then FlexEnergy or FEES, as applicable, shall hold such legal interest in the Contributed Assets for the benefit and risk of FPG until such time as such waiting or notice period expires or the requisite consent or approval for transfer is obtained, at which time the parties will effect the legal transfer. Pending completion of such transfer, each of Flex and FPG shall cooperate with each other in any lawful and reasonable arrangements designed to provide the benefits and obligations of ownership thereof to FPG, and FPG shall make appropriate arrangements so that FPG promptly bears the full economic costs thereof to the same extent such costs would have been borne by FPG upon an actual transfer, contribution, conveyance, grant or assignment to FPG on the Effective Date (and further to the extent Flex bears any economic costs for such Contributed Asset after the Effective Date). Each party shall, at its own expense, use commercially reasonable efforts to cooperate in obtaining such consents and/or approvals as may be necessary to complete such transfers as soon as practicable. 1.5 License of Control-Related IP. FPG hereby grants to Flex a worldwide, perpetual, irrevocable, royaltyfree, fully-paid up right and license to non-exclusively use (a) controls-related Intellectual Property to the extent that such controls-related Intellectual Property was used in the Microturbine Business as of the Effective Date, and (b) controls-related Intellectual Property hereafter developed, invented, or otherwise derived by FlexEnergy, FEES, or any of their directors, officers, employees or agents, as dual-use technology for use in both the Microturbine Business and the Oxidizer Business and contributed, transferred, assigned or conveyed to FPG pursuant to Section 1.1.1(c) above, provided that the permitted scope of use of the Intellectual Property licenses pursuant to this Section 1.5 shall be for use in the Microturbine Business only. 2. Representations and Warranties of Flex. Each of FlexEnergy and FEES, jointly and severally, hereby represents and warrants to FPG that, as of the Effective Date: 2.1 Binding Obligation. Flex has full power and authority to enter into this Agreement. This Agreement has been duly authorized, executed and delivered by Flex (and assuming the due authorization and delivery hereof and thereof by the other parties hereto) constitutes the legal, valid and binding obligation of Flex enforceable against Flex in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect affecting the enforcement of creditors rights in general and except as such enforceability may be limited by general principles of equity (whether considered in a proceeding at law or in equity). 4

32 2.2 Authorization; No Contravention. The execution, delivery and performance by Flex of this Agreement and the consummation by Flex of the transactions contemplated thereby (i) have been duly authorized, if necessary, by all necessary action of Flex and no further action is required of Flex in connection therewith, and (ii) do not and will not conflict with, contravene or constitute a default or breach under (A) any provision of any law, regulation or governmental requirement applicable to Flex or (B) any of Flex s organizational documents. 2.3 Litigation. There is no Proceeding (defined below) pending or currently threatened against Flex that questions the validity of this Agreement or the right of Flex to enter into it, or to consummate the transactions contemplated by this Agreement. Proceeding shall mean an action, claim, suit, investigation or proceeding (including, without limitation, an investigation), whether commenced or overtly threatened. 2.4 Accounts Payable. To the Knowledge of FlexEnergy, there are no outstanding, and neither Flex nor FPG has received prior to the date hereof bills for valid, accounts payable which constitute Assumed Liabilities except those which are included on Schedules 4 or 5 hereto. Knowledge of FlexEnergy shall mean the knowledge of Jay Mitchell and Dan Whelan, assuming a reasonable inquiry. Date: 3. Representations and Warranties of FPG. FPG hereby represents and warrants to Flex that, as of the Effective 3.1 Binding Obligation. FPG has full power and authority to enter into this Agreement. This Agreement has been duly authorized, executed and delivered by FPG (and assuming the due authorization and delivery hereof and thereof by the other parties hereto) constitutes the legal, valid and binding obligation of FPG enforceable against FPG in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect affecting the enforcement of creditors rights in general and except as such enforceability may be limited by general principles of equity (whether considered in a proceeding at law or in equity). 3.2 Authorization; No Contravention. The execution, delivery and performance by FPG of this Agreement and the consummation by FPG of the transactions contemplated thereby (i) have been duly authorized, if necessary, by all necessary action of FPG and no further action is required of FPG in connection therewith, and (ii) do not and will not conflict with, contravene or constitute a default or breach under any (A) provision of any law, regulation or governmental requirement applicable to FPG, or (B) FPG s organizational documents. 3.3 Litigation. There is no Proceeding pending or currently threatened against FPG that questions the validity of this Agreement or the right of FPG to enter into it, or to consummate the transactions contemplated by this Agreement. 5

33 4. Disclaimer of Warranties. FPG ACKNOWLEDGES THAT, EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES SPECIFICALLY SET FORTH IN THIS AGREEMENT, THE CONTRIBUTED ASSETS ARE BEING CONVEYED AS IS, WHERE IS AND WITH ALL FAULTS, AND FLEX HAS NOT MADE, AND FPG HEREBY EXPRESSLY DISCLAIMS AND NEGATES, ANY OTHER REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, OF ANY KIND OR NATURE WHATSOEVER, RELATING TO THE CONTRIBUTED ASSETS (INCLUDING ANY IMPLIED OR EXPRESSED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE). 5. Indemnification. 5.1 Flex, jointly and severally, shall indemnify, defend and hold FPG and its directors, officers, shareholders, partners, employees and agents (each, a FPG Indemnified Party ) harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements (with the approval of Flex, which shall not be unreasonably withheld), court costs and reasonable attorneys fees and costs of investigation that any such FPG Indemnified Party suffers or incurs to the extent arising or resulting from (a) any misrepresentation, breach or inaccuracy of any of the representations, warranties, covenants or agreements made by Flex in this Agreement; or (b) any Retained Liability. 5.2 FPG shall indemnify, defend and hold FlexEnergy, FEES and their respective directors, officers, shareholders, partners, employees and agents (each, a Flex Indemnified Party ) harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements (with the approval of FPG, which shall not be unreasonably withheld), court costs and reasonable attorneys fees and costs of investigation that any such Flex Indemnified Party suffers or incurs to the extent arising or resulting from (a) any misrepresentation, breach or inaccuracy of any of the representations, warranties, covenants or agreements made by FPG in this Agreement; or (b) any Assumed Liability. 6. Covenants 6.1 FlexEnergy, FEES and FPG each agrees to use commercially reasonable efforts to work together in good faith to prepare and enter into a Transition Agreement within a reasonable time following the execution of this Agreement. 6.2 Flex agrees to supply to FPG and its affiliates for a period of three years from the Effective Date the following at the Best Price (defined below): (a) MT250 EX turbines, (b) MT333 EX turbines, and (c) other turbines as may reasonably be supplied by Flex. Such supply shall be on commercially reasonable terms generally available to other customers with similar credit ratings/risks ordering similar units in similar quantities. Best Price means, with respect to the applicable proposed sale of products to FPG, the lowest price at which such products (or similar products) were sold in the preceding six-month period in similar quantities to customers with similar credit ratings/risks, provided that FPG shall be charged generally applicable rates for any special engineering or product specialization required for such sales of products except to the extent Flex specifically otherwise agrees in writing. 6

34 7. Miscellaneous 7.1 Further Assurances. The parties shall each use commercially reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things reasonably necessary, proper or advisable under applicable laws and regulations, and to cooperate with each other as is reasonably required for such purpose, to make effective the transactions contemplated by this Agreement and the other documents contemplated hereby. To that end, each party agrees that it shall execute and deliver, or cause to be executed and delivered from time to time, such instruments, documents, agreements, consents and assurances (such as bills of sale, assumption agreements, patent assignments, trademark licenses and other intellectual property instruments), and that it shall take such other actions as may be reasonably required to more effectively (i) convey, transfer to and vest in FPG, and to put FPG in possession of, the Contributed Assets, and (ii) assign the Assumed Liabilities to FPG. In the event of any conflict of conflict or inconsistency between the terms of this Agreement and the terms of any such instruments, documents, agreements, consents and assurances (other than an agreement clearly titled as an Amendment to Contribution Agreement ), the terms of this Agreement shall prevail. 7.2 Successors and Assigns. The rights under this Agreement may not be assigned by any party hereto. The terms and conditions of this Agreement inure to the benefit of and are binding upon the respective successors and permitted assignees of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and permitted assignees any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided herein. 7.3 Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of law. 7.4 Counterparts; Facsimile. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Agreement may also be executed and delivered by facsimile or electronically delivered signature and in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 7.5 Titles and Subtitles. The titles and subtitles used in this Agreement are for convenience only and are not to be considered in construing or interpreting this Agreement. 7.6 Notices. All notices and other communications given or made pursuant to this Agreement shall be in writing and shall be deemed effectively given upon the earlier of actual receipt or: (i) personal delivery to the party to be notified; (ii) when sent, if sent by electronic mail or facsimile during the recipient s normal business hours, and if not sent during normal business hours, then on the recipient s next business day (only if written notification of receipt is received by sender); (iii) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid; or (iv) one (1) business day after the business day of deposit with a nationally recognized overnight courier, freight prepaid, specifying next-day delivery, with written verification of receipt. 7

35 7.7 Amendments and Waivers. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance, and either retroactively or prospectively) only with the written consent of all the parties hereto. 7.8 Severability. In case any one or more of the provisions contained in this Agreement is for any reason held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provision of this Agreement, and such invalid, illegal, or unenforceable provision shall be reformed and construed so that it will be valid, legal, and enforceable to the maximum extent permitted by law. 7.9 Entire Agreement. This Agreement (including any Schedule and Exhibits hereto), together with the other Transaction Agreement, constitutes the full and entire understanding and agreement among the parties with respect to the subject matter hereof, and any other written or oral agreement relating to the subject matter hereof existing between the parties is expressly canceled Dispute Resolution. The parties (a) hereby irrevocably and unconditionally submit to the jurisdiction of the federal and state courts located within the geographic boundaries of the United States District Court for the Central District of California for the purpose of any suit, action or other proceeding arising out of or based upon this Agreement, (b) agree not to commence any suit, action or other proceeding arising out of or based upon this Agreement except in the federal and state courts located within the geographic boundaries of the United States District Court for the Central District of California, and (c) hereby waive, and agree not to assert, by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, any claim that it is not subject personally to the jurisdiction of the above-named courts, that its property is exempt or immune from attachment or execution, that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that this Agreement or the subject matter hereof may not be enforced in or by such court. Each party will bear its own costs in respect of any disputes arising under this Agreement, except as set forth in Section 5 of this Agreement. [Signature Page Follows] 8

36 written. IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the day and year first above FLEXENERGY, INC., a Delaware corporation By: Name: Title: James M. Mitchell President/CEO FLEXENERGY ENERGY SYSTEMS, INC., a Delaware corporation By: Name: Title: James M. Mitchell CEO FLEX POWER GENERATION, INC., a Delaware corporation By: Name: Title: Boris Maslov President [Signature Page to Contribution Agreement]

37 SCHEDULE 1 Assets SCHEDULE 1 - ASSETS (PART 1) Portsmouth FP250 : The PowerStation FP250 located at FEES' Portsmouth location and all specifically related assets, including without limitation inventory, parts, components, drawings, engineering files and engineering work product Irvine Furniture, Fixtures and Equipment, Generally : All FlexEnergy interests in furniture, fixtures and equipment at 9400 Toledo Way, Irvine, California (excluding parts and inventory of FEES or solely or primarily relating to the Microturbine Business) Software Item Assets in Irvine 1 FP250 Thermal oxidizer - alturdyne unit 2 Sparger "B" 3 Blower skid from Alturdyne 4 Blower Skid from Lamb Cyn 5 Comp air - AIR compressor 100scfm 6 Comp air - NG compressor 100scfm 7 Recuperators - Solar -100kW sized (55? Total) Item Assets in Portsmouth 1 Thermal Imaging Gun (FLIR, but not Fluke) 2 Hydraulic Torque Tool and associated torquing heads 3 Torque multiplier 4 Pneumatic Torque Tool and associated nut drivers 5 Insulation repair gun 6 Combustor Rigs for Powerstation - combustor size (but not Blower or VFD) 7 Combustor Rig for Powerstation - warmer size (but not Blower or VFD) 8 FlexPower Station FP1 in Portsmouth Coriolis flow meter (only the very large Coriolis flow meter installed on FP1 aspirated gas line, and not any other 9 Coriolis flow meter) 10 Spare parts for Flex Power station (old pipe, pallet of gaskets, fill, etc). Item Computer software 1 Solidworks - 1 Seat 2 Pro E - 3 Seats (7 other seats retained) 3 Mechanica - 1 Seat (2 other seats retained ) 4 Matlab Software - 2 Seats MS Office and other standards software (excel, word, powerpoint, project, visio, etc) as currently allocated to 5 personnel (to be worked out by Greg Arbo) Item Misc Copies of all ASME Journals from previous years purchased/located in Irvine (but not Journals purchased/located 1 in Portsmouth) 2 Drill Press (if approved by FlexEnergy, not to be unreasonably withheld, upon specific identification by FPG) - LabVIEW License Version 11 (but not LabVIEW Version 7) - 2 AutoCAD EE Licenses (all others retained by FEES) - Visual Studio 10

38 Hardware - Direct Logic S/W (1/2 of software and keys only, the other 1/2 will be retained) - Allen Bradley PLC S/W (1/2 of software and keys only, the other 1/2 will be retained) - Beijer Programming S/W (1/3 of software and keys only, the other 2/3 will be retained) - GE S/W (1/3 of software and keys only, the other 2/3 will be retained) Ft Benning - Computer, Large Monitor, Routers, SIXNET Modems & other equipment in control room - Hardware located in storage bins - Tool box and associated tools - Thermal Camera - Torque Tools Portsmouth -Flex Control Panel, 300 kw load bank, FP GBR, FP system, auxiliary panels, etc. (components and gear specifically purchased for FP1 being included, but not the propane tank, vaporizer or pump) -Desktop computer, monitor and software used for FP1 control in FP1 control room -High temperature filters for gradual oxidizer -Other equipment stored in FP control room ( (if approved by FlexEnergy, not to be unreasonably withheld, upon specific identification as primarily relating to the Oxidizer Business) -Compaq Field Point PLC Irvine Control Room - includes - Large Monitors and computers Irvine Control Lab Equipment - includes - Simulator includes Compaq Rio and P3000 PLC - Hand Tools - Band Saw - Integrated FP250 Control Panel with GE PLC - 3 Cabinets of Elect. Components - Wire Rack - BCM Simulator - Trickle Flow Start Panel - Alturdyne FP Panel - Left Over Alturdyne Pallets Irvine Storage Room includes everything not on shelves, i.e. spare parts inventory - Oxidizers - Old Elliot systems - Alturdyne GBR - Lamb Canyon and Alturdyne blowers, compressors, etc. Electrical equipment in Dian s cubicles 11

39 SCHEDULE 1 - ASSETS (PART 2) Item Description Quantity ***14.25"ID x "ID x " OD Flange "OD Flange, RFWN? SCH? XXX# 1 ***20" CL150 WN FLANGE 20" Flange, "ID x 1 **24" CL "OD, No raised face, Weld Neck Flange 1 RFWN FLANGE Weldbend Flange, 3 **316SS L Sheet, 24"-150STD B "thk A105/SA105 1xx J11 19 **316SS L Sheet, 316SS L Sheet, 36"L x "thk "W x 0.090"thk; (30deg Internal Cone) 156 **Carbon Steel 316SS L Sheet, 96"L x 2 Plate, 3/8"thk 36"W x 0.090"thk; (Flanges) 24 1" Typak Media Carbon Steel Plate, 78 1" x 8-1/2"L Studs, SS 72"L x 36"W x 3/8"thk /4" Threaded 1" Typak (Bow Ties) Ceramic Fill/Media 32 Nut; 2" F2F 1" x 8-1/2"Length Stud Bolt, Stainless Steel, (used) /4" x 10-1/4"L Studs, CS 1-1/4" Threaded Nut, 2" Flat to flat (Galvanized) /4" x 7-1/2"L Studs, CS 1-1/4" x 10-1/4"Length Stud Bolt, Carbon Steel, (used w/ nuts) /4" x 8"L Studs, CS 1-1/4" x 7-1/2"Length Stud Bolt, Carbon Steel; (used w/ nuts) /4" x 8-1/2"L Studs, CS 1-1/4" x 8" Length Stud /4" x 9-1/2"L Studs, CS Bolt, Carbon Steel /4" x 9-3/4"L Studs, CS 1-1/4" x 8-1/2"Length Stud Bolt, Carbon Steel; (used w/ nuts) 0 1-1/4"-8 Nuts 1-1/4" x 9-1/2"Length Stud Bolt, Carbon Steel, (used) /8"-7 Nuts, CS 1-1/4" x 9-3/4"Length Stud Bolt, Carbon Steel (used w/ nuts) 4 1-1/8"-7 x 6-1/4"L Studs, SS 1-1/4"-8 Nuts; Galvanized 1 1-1/8"-7 x 7-3/4"L Studs, CS 1-1/8"-7 Nuts, Carbon Steel. 1-13/16" Flat to flat 0 1/2" Saddles 1-1/8"-7 x 6-1/4"Length Stud Bolt, Stainless Steel 1 1/2"-13 Nuts 1-1/8"-7 x 7-3/4"Length 0 1/2"-13 x 1"L Stud Bolt, Carbon Steel 2 10" CL150 RF BLIND FLANGE 1/2" Saddles Ceramic G26-W-Magnat rol Fill/Media 12" CL300 RFWN FLANGE, SCH STD 1/2"-13 Nuts, 316 SS; 14" CL150 WN SLIP-ON FLANGE 1/2"-13 x 1" Length 24" CL150, RFWN FLANGE, SCH STD Bolt, 316 SS 3" Woodward LFG Valve 10" CL150 Blind Flange 3/4" TyPak Media B16.5 A105 SA /2" NPT, 120vAC 60Hz, 25psi 12" CL300 WN Flange 14" Slip-On Flange, Open Center, no raised face Weld Neck; B " 150# RFWN SCH30 A105 SER B; P " Woodward LFG Valve (Used for F100 and F250 in Alturdyne) 3/4" Typak (Bow Ties) Ceramic Fill/Media 12

40 Item Description Quantity 3/4"-10 Nuts 3/4"-10 Nuts; CS and 24 3/4"-10 x 6.5L Galvanized 23 3/8"-16 Nuts 3/4"-10 x 6.5" Length 92 3/8"-16 x 1-3/4"L Studs, CS /8"-16 Nuts, 310SS 3 36" CL150 RFWN FLANGE, SCH STD 3/8"-16 x 1-3/4"Length 3 36" STD BW CAP Bolt Exciter; Champion Aerospace, (New) Weldbend Flange, 36" A27G-Magnatrol 150STD B LR27-Magnatrol A105/SA105 1xx J LR27-Replacem ent-magnatrol Weldbend Cap/Dome, "-150STD B A105/SA105 1xx J Cone Concent, 3/8"thk x 29-1/4"ID x 23-1/4"ID x 5-1/4"L; SA-106-B, 26 ICS Filter Pipe " SCH. STD. Seamless Pipe 30" x "L x 3/8"thk, Carbon Steel; SA-106-B B31.1, ICS Filter Pipe " CL150 RFWN FLG, SCH.30 Bore, CS, SA105, ANSI B " NPT. Magnatrol Valve: 50PSI 24VDC W Serial# LR27, 2" NPT, Normally Open Valve " Valve- Replacement Piston Assembly with (green) gaskets PB M Mod R 12x12x # BL FE IFP PB M Mod R 12x12x # PB (Ox.Loc.A3) 34 PB M Mod R 12x6x5 10# SF [Ox.Loc.A4] PB M Mod R 12x14x5 (2-4-8) 10# BL [Ox.Loc.A1] PB M Mod R 8x10x5 10# BL [Ox.Loc.A5] PB M Mod R D A 10# BL [Ox.Loc.A6] PB M Mod R D B 10# BL [Ox.Loc.A7] PB M Mod R D C 10# BL [Ox.Loc.A8] PB M Mod R D D 10# BL (Ox.Loc.A9) PB M Mod R 12x22x5 (3-12-7) 10# BL[Ox.Loc.A2] PB M R D A 10# Pyro-Bloc; FE (FE...296Partials) PB M Mod R D B 10# BL FE PB M R D C 10# Pyro-Bloc; FE [FE Spares] PB M R D D 10# Pyro-Bloc; FE [FE Spares] PB M R D E 10# Pyro-Bloc; FE [FE Spares] PB M R D G 10# Pyro-Bloc; FE [FE

41 Item Description Quantity Spares] PB M R D H # Pyro-Bloc; FE [FE " CL150 RFWN FLANGE, SCH STD Spares] 2 42" STD BW CAP PB M R D J 2 44LR29 - Replacement-Magn atrol 10# Pyro-Bloc; FE [FE LR29-Magnatrol Spares] 1 (Used) PB M R D K 1 50 Micron FIF 10# Pyro-Block FE [FE UEC Spares] Weldbend Flange, "-150STD B A105/SA105 1xx J kW Heater Weldbend Cap/Dome, 4 Element 42"-150STD B A105/SA105 1xx J /8" x 5-1/8"L, Studs, SS 3" Valve- Replacement Piston Assembly with (green) gaskets 20 7/8"-9 Nuts 3" NPT Normally Open 74 7/8"-9 Studs w/ Nuts Valve 28 7/8"-9 x 6.5"L Studs Filter in Filter; 50 Micron (316SS) Kaowool Flex-Wrap (Aluminum) 1/16x24x250 LF FE C Lead, Exciter/ Igniter B Kaowool 3000 Paper /4x24x50 100LF FE /SS T/C /16-18 Nut 2 8" CL150 RF BLIND FLANGE FE " CL150 RFWN FLANGE, SCH 80 6" Flange Heater, 1 1 8" CL150 RFWN FLANGE, SCH STD Phase, 480v, 5kW Test Rig Heater " Flange Heater, Phase-480v, 3kW 7/8" x 5-1/8"Length, Stud Bolt, Stainless Steel, (used w/ nuts) 7/8"-9 Nuts 7/8"-9 Stud w/ Nuts 7/8"-9 x 6.5"Length Stud Bolt, Carbon Steel Shim, Combustor Can Support Mount (Stainless Steel) Shim, Combustor Can Support Mount (Aluminum) TFS Piping, 10" (Refractory Castable Installed) TFS Heater Shell Assy. (Heaters not installed) Shim, Support, Upper Upstream Pipe Shim, Support, Lower Upstream Pipe GO Inlet Extension (Painted) - Not a completed assembly 8" SA105 Blind Flange CL150 8" RFWN Flange CL150, SA105, Raised Face; Weld Neck; Sch80 8" Flange CL150 - Raised Face; Weld Neck; Standard Flange Ring Shim, 24" CL150 Flg, 0.250"thk Ring Shim, 24" CL150 Flg, 0.375"thk Ring Shim, 24" CL150 Flg, 0.500"thk 14

42 Item Description Quantity Ring Shim, 24" CL Flg, 0.625"thk Ring Shim, 24" CL Flg, 0.750"thk Ring Shims, 24" CL Flg, 0.875"thk Ring Shim, 24" CL Flg, 1.00"thk Ring Shim, 24" CL Flg, 1.125"thk Ring Shim, 24" CL Flg, 1.250"thk Ring Shim, 24" CL Flg, 1.375"thk Ring Shim, 20" CL Flg, 0.250"thk Ring Shim, 20" CL Flg, 0.375"thk Ring Shim, 20" CL Flg, 0.500"thk Ring Shim, 20" CL Flg, 0.625"thk Ring Shim, 20" CL Flg, 0.750"thk 1 CH38921 UEC F Ring Shim, 12" CL300 3 Fully Threaded Flg, 0.250"thk 6 Stud, 3/4"-10 x Ring Shim, 12" CL /2"L Flg, 0.375"thk 110 Fully Threaded Ring Shim, 12" CL Stud, 7/8"-9 x Flg, 0.500"thk /2"L Ring Shim, 12" CL300 8 Fully Threaded Flg, 0.625"thk 6 Stud,1-1/4"-8 x 8"L Ring Shim, 12" CL Gasket, 2" Flg, 0.750"thk A Ring Shim, 10" CL Gasket, 3" Flg, 0.250"thk X1A Ring Shim, 10" CL300 Gasket, 4" Flg, 0.375"thk 8500XXA Ring Shim, 10" CL300 Gasket, 6" Flg, 0.500"thk A Ring Shim, 10" CL300 Gasket, 8" Flg, 0.625"thk A Ring Shim, 10" CL300 Gasket, 10" Flg, 0.750"thk A Ring Shim, 10" CL300 Gasket, 10" A Flg, 0.875"thk Ring Shim, 10" CL300 Flg, 1.00"thk Igniters, Champion Aerospace Sylvania Sureheat; Max Height Heater Alloy Steel Fully Thread Stud, Plain Finish, 3/4"-10 x 6-1/2"L Alloy Steel Fully Thread Stud, Plain Finish, 7/8"-9 x 6-1/2"L Alloy Steel, Fully Threaded Stud, Plain Finish, 1-1/4"-8 x 8"L Spiral Wound Gasket - 2" CL150 ASME/ANSI B16.5 FLG Spiral Wound Gasket-3" CL150

43 ASME/ANSI B16.5 FLG Spiral Wound Gasket - 4" CL150 ASME/ANSI B16.5 FLG Spiral Wound Gasket - 6" CL150 ASME/ANSI B16.5 FLG Spiral Wound Gasket - 8" CL150 ASME/ANSI B16.5 FLG Spiral Wound Gasket - 10" CL150 ASME/ANSI B16.5 FLG Spiral Wound Gasket - 10" CL300 ASME/ANSI 15

44 Item Description Quantity Gasket, 12" B16.5 FLG A Spiral Wound Gasket - 28 Gasket, 12" 12" CL A ASME/ANSI B16.5 FLG 30 Gasket, 20" Spiral Wound Gasket A 12" CL Gasket, 24" ASME/ANSI B16.5 FLG A Spiral Wound Gasket - 2 Gasket, 30" 20" CL XXA ASME/ANSI B16.5 FLG 2 Gasket, 36" Spiral Wound Gasket A 24" CL150 1 Gasket, 60" ASME/ANSI B16.5 FLG A Spiral Wound Gasket Hast-X 0.060" - 30" CL150 ASME/ ANSI B16.5 FLG "thk Spiral Wound Gasket Hastex 0.090" " CL Hastex 0.090" - 2 ASME/ANSI B16.5 FLG 180 Hastex 0.090" - 3 Spiral Wound Gasket - 1 Hastex, 0.125", (1/8) 60" CL150 1 Hastex, 0.25" thk ASME/ANSI B16.5 FLG 3 (1/4") Hastelloy Sheet,58"L x 2 Hex Head Cap 9"W x 0.060"-0.066"thk 1 Screw, 1/2"-13 x 3.75" x 36" x 0.090"thk 1 1"L Hastex Sheet 1 Hex Nut, 1-1/4"-8 10" x 50" x 0.090"thk 1 Hex Nut, 3/4"-10 Hastex Sheet 2 Hex Nut, 7/8"-9 36" x " x 1 Hex Nut. 1/2"-13 x 0.090"thk Hastex 1 3/4"W Sheet, 1 HR-120 Plate, Hast-X Sheet, 0.125" thk, X 36"W x 54"L 1 1"thk Hast-X Sheet, 1/4" thk x 48"L x 28"W HX063 x 10" x 23" HX063 x 10' x 3' 316SS Hex Head Cap HX063 x 10.5" x Screw 1/2"-13x1" 39" Grade 2H Heavy Hex Nut, Hot Dipped Galvanized Steel, HX063 x 10.75" x 1-1/4"-8 Thread Size 24" Grade 2H Heavy Hex Nut, Hot Dipped Galvanized Steel, HX063 x 10.75" x 3/4"-10 Thread Size 31" Grade 2H Heavy Hex Nut, Hot Dipped Galvanized Steel, HX063 x 12" x 120" 7/8"-9 Thread Size HX063 x 12" x 36" HX063 x 12" x 81" HX SS Hex Nut, x 13" x 38.75" 1/2"-13x3/4"W, 7/16"H HX063 x 13.25" x HR-120 Plate 34.5" x 36" 34.5" x 1"thk HX063 x 15" x Hastex Sheet, 53.5" 0.063"thk, x 10" x 23" HX063 x 20.5" x Hastex Sheet, 53.25" 0.063"thk, x 10' x 3' Hastex Sheet, 0.063"thk, x 10.5" x 39" Hastex Sheet, 0.063"thk, x 10.75" x 24" Hastex Sheet, 0.063"thk, x 10.75" x 31" Hastex Sheet, 0.063"thk, x 12" x 120" (10') Hastex Sheet, 0.063"thk, x 12" x 36" Hastex Sheet, 0.063"thk, x 12" x 81"

45 Hastex Sheet, 0.063"thk, x 13" x 38.75" Hastex Sheet, 0.063"thk, x 13.25" x 36" Hastex Sheet, 0.063"thk, x 15" x 53.5" Hastex Sheet, 0.063"thk, x 20.5" x 53.25" 16

46 Item Description Quantity HX063 x 23.25" x Hastex Sheet, 1 36" 0.063"thk, x 23.25" x 1 HX063 x 24" x 32" HX063 x 24" x 39" HX063 36" 1 x 3' x 3' HX063 x 3' x 32.5" HX063 x 4" x 15.5" HX063 x 4" x 19" HX063 x 5'-7" x 3' HX063 x 5.75" x 12.5" Hastex Sheet, 5 HX063 x 7.5" x 0.063"thk, x 24" x 32" " Hastex Sheet, 1 HX063 x 8.5" x 0.063"thk, x 24" x 39" " Hastex Sheet, 1 HX063 x 9.75" x 0.063"thk, x 3' x 3' 1 36" Hastex Sheet, 1 HX066 x 11.5" x 0.063"thk, x 3' x 32.5" 1 83" Hastex Sheet, 1 HX066 x 3' x 3' HX066 x 3'-1" x 3' 0.063"thk, x 4" x 15.5" 1 HX066 x 34.5" x Hastex Sheet, 1 37" 0.063"thk, x 4" x 19" 1 HX066 x 7" x Hastex Sheet, " 0.063"thk, x 5'-7" x 3' 1 HX066 x 8.5" x Hastex Sheet, " 0.063"thk, x 5.75" x 1 HX066 x 9" x 20.5" HX066 x 9" x 55" HX066 x 12.5" 1 9.5" x 69.25" Hastex Sheet, 1 KMQXL-125U "thk, x 7.5" x 2 KMQXL-125U " 2 KMQXL-125U-12 Hastex Sheet, 13 KMQXL-125U "thk, x 8.5" x 2 KMQXL-125U " 2 KMQXL-125U-138 Hastex Sheet, 2 KMQXL-125U "thk, x 9.75" x 36" 1 KMQXL-125U-148 Hastex Sheet, 1 KMQXL-125U "thk, x 11.5" x 83" 1 KMQXL-125U-157 Hastex Sheet, 3 KMQXL-125U "thk, x 3' x 3' 1 KMQXL-125U-180 Hastex Sheet, "thk, x 3'-1" x 3' Hastex Sheet, 0.066"thk, x 34.5" x 37" Hastex Sheet, 0.066"thk, x 7" x 12.75" Hastex Sheet, 0.066"thk, x 8.5" x 29.25" Hastex Sheet, 0.066"thk, x 9" x 20.5" Hastex Sheet, 0.066"thk, x 9" x 55" Hastex Sheet, 0.066"thk, x 9.5" x 69.25" Thermocouple, 104" Length x 0.125" thk, (K-type TC) Thermocouple, 113" Length x 0.125" thk, (K-type TC) Thermocouple, 12" Length x 0.125" thk, (K-type TC) Thermocouple, 122" Length x 0.125" thk, (K-type TC) Thermocouple, 129" Length x 0.125" thk, (K-Type TC) Thermocouple, 138" Length x 0.125" thk, (K-type TC) Thermocouple, 144" Length x 0.125" thk, (K-type TC) Thermocouple, 148" Length x 0.125" thk, (K-type TC) Thermocouple, 156" Length x 0.125" thk, (K-type TC) Thermocouple, 157" Length x 0.125" thk, (K-type TC) Thermocouple, 168" Length x 0.125" thk, (K-type TC)

47 Thermocouple, 180" Length x 0.125" thk, 17

48 Item Description Quantity KMQXL-125U-24 Thermocouple, 24" Length x 0.125" thk, (K-type TC) 6 KMQXL-125U-84 Thermocouple, 84" Length x 0.125" thk, (K-type TC) 3 KMQXL-125U-94 Thermocouple, 94" Length x 0.125" thk, (K-type TC) 1 KMQXL-125U-96 Thermocouple, 96" Length x 0.125" thk, (K-type TC) 4 KQXL-14U-12 Thermocouple, 12" Length x 0.250" thk, (K-type TC) 5 KQXL-14U-24 Thermocouple, 24" Length x 0.250" thk, (K-type TC) 2 NB11-CAXL-18U-1 Weatherhead, 0.125" thk x 12" Length (TC w/ min aluminum head) 5 2 Weatherhead, 0.125" thk x 14" Length (TC w/ min aluminum head) 1 NB11-CAXL-18U-1 Solar Recuperator 57 4 Cores 30 Solar - Recuperators Thermocouple ferules, 1 T-FER-1/ "ID, Teflon 1 VF(SparePcs) Material 7 VF "dia.x18"Height; Cut from Combustor VF. Remnant of Stub Pup 3 Assy VF I-2600 Shape DWG# 3 VF JR3 7 VF I-2600 Sleeve per 2 VF D AR5 1 VF Si I-2600 Sleeve per 0 VF Si D BR5 1 VF Si VF Si I-2600 Sleeve per 0 VF Si VFpcs-Spare1 D CR5 1 Total I-2600 Sleeve per D DR I-2600 Sleeve per D AR5; Silica Treated I-2600 Sleeve per D103...; Silica Treated I-2600 Sleeve per D DR5; Silica Treated I-2600 Sleeve per D CR5; Silica Treated I-2600 Sleeve per D JR3; Silica Treated 24"dia. VF Piece x 18" Height (Spare/Remant) 18

49 SCHEDULE 2 Agreements SCHEDULE 2 - AGREEMENTS 1. All agreements to which right, title or interest was contributed, assigned, transferred or conveyed to FlexEnergy, LLC, a Delaware limited liability company now known as FlexEnergy, Inc., a Delaware corporation, from FlexEnergy, Inc., a California corporation now known as Edan Prabhu, Inc. 2. Contribution Agreement, between FlexEnergy, Inc., a California corporation now known as Edan Prabhu, Inc., and FlexEnergy, LLC, a Delaware limited liability company now known as FlexEnergy, Inc., dated April 9, Master Purchase and Re-Sale Agreement between FlexEnergy, Inc. and EECT (R.A. van Eden Holding B.V.) (11/7/2011) 4. Subcontract Number S between Southern Research Institute and FlexEnergy, LLC, as amended 5. Consulting Agreement with Stephen L. Johnson dated July 6, Consulting Agreement with Dr. Ephraim Gutmark dated April 1, Consulting Agreement with Bill Treece dated June 10, Consulting Agreement with Dr. Richard Martin dated June 16, Consulting Agreement with Banks Engineering dated May 22, Consulting Agreement with Sheldon Schultz dated May 30, Executive Employment Agreement with Boris Maslov dated January 16,

50 SCHEDULE 3 Intellectual Property SCHEDULE 3 - INTELLECTUAL PROPERTY Patents Application Number Country Name File Date Patent Number Issue Date Application Title 61/007,917 USA 10/23/2007 Gradual Oxidizer for a Gas Turbine 61/007,924 USA 10/26/2007 Management of Fuel Leaks in a Flex-Turbine 61/174,857 USA 5/1/2009 Oxidizer 12/050,734 USA 3/18/2008 Oxidizing Fuel 12/288,238 USA 10/17/2008 Managing Leaks in a Gas Turbine System 12/330,151 USA 12/8/2008 Oxidizing Fuel in Multiple Operating Modes WO PCT 5/30/2000 Oxidizing Fuel in Multiple Operating Modes 12/772,622 USA 5/3/2010 Distributing Fuel Flow in a Reaction Chamber Method for Collection and Use of Low-Level Methane Emissions 09/713,574 USA 11/14/2000 6,393,821 5/28/ /870,021 USA 8/27/2010 Heating a Reaction Chamber 61/313,995 USA Oxidizing Fuel Mixed with Water PCT/US12/46112 PCT 7/10/2012 Speed Controls for Turbine 13/289,989 USA 11/4/2011 Controls for Multi-Combustor Turbine with Gradual Oxidizer 13/289,996 USA 11/4/2011 Multi-Combustor Turbine with Gradual Oxidizer 13/115,910 USA 5/25/2011 Integrated Gasifier Power Plant USA Boosting Power in a Turbine with Water 13/048,796 USA 3/15/2011 Processing Fuel and Water PCT/US11/28547 PCT 3/15/2011 Processing Fuel and Water 13/115,902 USA 5/25/2011 Gasifier Power Plant with Management of Wastes PCT/US2011/037,974 PCT 5/25/2011 Gasifier Power Plant with Management of Wastes China 7/27/ EPO 6/27/2011 Method of Operating a Fuel Oxidizer in Multiple Operating Modes and Fuel Oxidizer System Method of Operating a Fuel Oxidizer in Multiple Operating Modes and Fuel Oxidizer System 20

51 India Japan South Korea Method of Operating a Fuel Oxidizer in Multiple Operating Modes and Fuel Oxidizer System Oxidizing Fuel in Multiple Operating Modes Method of Operating a Fuel Oxidizer in Multiple Operating Modes and Fuel Oxidizer System Method of Operating a Fuel Oxidizer in Multiple Operating Modes and Fuel Oxidizer System Russia 13/417,129 USA 3/9/2012 Gradual Oxidation with Heat Transfer 13/417,140 USA 3/9/2012 Gradual Oxidation with Heat Transfer 13/417,142 USA 3/9/2012 Gradual Oxidation with Heat Transfer 13/417,149 USA 3/9/2012 Gradual Oxidation with Heat Control 13/417,027 USA 3/9/2012 Gradual Oxidation with Heat Control 13/417,050 USA 3/9/2012 Gradual Oxidation with Heat Control 13/417,095 USA 3/9/2012 Gradual Oxidation with Heat Control 13/417,105 USA 3/9/2012 Gradual Oxidation with Heat Control 13/417,134 USA 3/9/2012 Gradual Oxidation with Heat Control 13/417,060 USA 3/9/2012 Gradual Oxidation with Heat Exchange Media 13/417,074 USA 3/9/2012 Gradual Oxidation with Reciprocating Engine 13/417,083 USA 3/9/2012 Gradual Oxidation with Reciprocating Engine 13/417,090 USA 3/9/2012 Gradual Oxidation with Flue Gas 13/417,162 USA 3/9/2012 Staged Gradual Oxidation 13/417,164 USA 3/9/2012 Staged Gradual Oxidation 13/417,165 USA 3/9/2012 Hybrid Gradual Oxidation 13/417,167 USA 3/9/2012 Gradual Oxidation Below Flameout Temperature 13/417,094 USA 3/9/2012 Gradual Oxidation with Adiabatic Temperature Above Flameout Temperature 13/417,100 USA 3/9/2012 Gradual Oxidation Below Flameout Temperature 13/417,110 USA 3/9/2012 Gradual Oxidation with Adiabatic Temperature Above Flameout Temperature 13/417,048 USA 3/9/2012 Gradual Oxidation with Gradual Oxidizer Warmer 21

52 13/417,122 USA 3/9/2012 Gradual Oxidation and Autoignition Temperature Controls 13/417,125 USA 3/9/2012 Gradual Oxidation and Autoignition Temperature Controls 13/417,132 USA 3/9/2012 Gradual Oxidation and Multiple Flow Paths 13/417,130 USA 3/9/2012 Gradual Oxidation and Multiple Flow Paths PCT/US12/46115 PCT 7/10/2012 Multi-Combustor Turbine PCT/US2011/ EPO 9/14/2012 Processing Fuel and Water Licensed Trademarks FLEX POWERSTATION FLEX OXIDIZER FLEX BOILER 22

53 SCHEDULE 4 Certain Assumed Liabilities SCHEDULE 4 - ASSUMED LIABILITIES 100% of the Accounts Payable for the Following Oxidizer Business Vendor Accounts: Total Known Current Payable Vendor Account Amount A T & T Mobility $ Adam Robinson $ 2, Allied Electronics Inc. $ Aramark $ Automation Direct $ 1, Bank of America Corp. CC $ 9, BOLE $ Chris Nishi $ CMI of Southern California $ 15, Commercial Air & Refrigeration $ 1, DME Inc. $ 2, Douglas Hamrin $ 4, Dynamic Fabrication Inc $ 21, Environmental Alliance Group $ GKD-USA,Inc. SolidWEAVE $ 9, Grainger $ Haynes International $ Industrial Ceramics Solutions, LLC $ 3, L. A. Valves & Automation Inc. $ 4, McMaster Carr $ 4, Merrimac Industrial Sales $ 1, Milco Wire EDM Inc. $ Pacific Mechanical Supply $ 1, Paul Fukumoto $ Penn Stainless Products Inc. $ Robinson Huang $ 1, Royal Wholesale Electric $ 2, Specialized Welding & Fabrication, Inc. $ 2, Swagelok $ TelePacific Communications $ Thermal Ceramics Inc $ 6, Watlow Los Angeles $ 2, $ 100,

54 100% of the PTO Liability Related to the Following Personnel, all of which will be terminated by FlexEnergy and hired by FPG: $ 83, Boris Maslov (as of October 31, 2012) Constance Rogers Paul Fukumoto Mike Levin Su Huang Chris Nishi Steve Lampe Joe Zembles Robinson Huang Dian Mladenov Peter Vaupel Doug Hamrin Dave Berman Rich Gilleland Shawn Maghzi Adam Robinson Randeep Sandhu Celia Genovese 100% of the Accrued Payroll-Related Liability for the Following Personnel, all of which will be terminated by FlexEnergy and hired by FPG: Boris Maslov Constance Rogers Paul Fukumoto Mike Levin Su Huang Chris Nishi Steve Lampe Joe Zembles Robinson Huang Dian Mladenov Peter Vaupel Doug Hamrin Dave Berman Rich Gilleland Shawn Maghzi Adam Robinson Randeep Sandhu Celia Genovese 100% of the Following Other Accrued and Ongoing Fee Liabilities for Oxidizer Business: Ephraim Gutmark Stephen Johnson Fluor $ 5, per month $ 5, per month $ 20, Oxidizer Study 24

55 SCHEDULE 45 - REIMBURSEMENT OBLIGATIONS 1/3 of the Severance Payment Obligations for the Following Former Employees (with FlexEnergy remaining responsible for the remaining 2/3): % of the Current Payable Amounts for the Following Shared Vendor Accounts (with the remaining % remaining with FlexEnergy or FEES, as applicable): SCHEDULE 5 Reimbursement Obligations Estimated Obligations Remaining Bruce Rosen $ 20, Joseph Perry $ 109, Estimated Total Payment Obligations $ 130, Estimated Total 1/3 FPG Reimbursement Obligation $ 43, Total Known Current Payable Vendor Account Amount Bank of America Corp. CC $ 8, Beacon Resources $ 16, Charles Packard $ 45, Citrix Online (GO TO MEETING) $ City of Irvine $ Copley Consulting Group $ 4, CPA Global $ -2, Dell Lease $ 14, EBA Inc. $ 4, Edan Prabhu Inc. $ 10, FedEx $ Fennemore Craig, P.C. $ 31, Grant Thornton $ 3, John Ryan $ 47, Kenneth Foley $ Louisiana Sustainability Fund, A Louisiana Limited Part. $ 97, Martin's Janitorial $ McDermott, Will & Emery LLP $ 132, OakLeaf Landscape $ RNS Flex, LLC $ 2, Sail Venture Partners $ 2, Southern California Edison $ 2, Squar, Milner, Peterson, LLP $ -1, Stephen Johnson $ 47, Steve Lampe $ 4, Steven Krablin $ 47, Verizon Wireless $ 5, Welsh Flaxman & Gitler LLC $ 3, Estimated Total Payment Obligations $ 529, Estimated Total % FPG Reimbursement Obligation $ 141,

56 1/3 of all Liabilities under the Standard Industrial/Commercial Single-Tenant Lease Gross, dated May 26, 2011, between FlexEnergy and Meehan Holdings, LLC for 9400 Toledo Way, Irvine, California (with FlexEnergy remaining responsible for the remaining 2/ Estimated Lease Payment Obligations Remaining Estimated Total Payment Obligations $ 1,352, Estimated Total 1/3 FPG Reimbursement Obligation $ 450,

57 FLEX POWER GENERATION, INC. November 12, 2012 FlexEnergy, Inc Toledo Way Irvine, California Attention: Jay Mitchell, CEO Dear Jay: FlexEnergy, Inc., a Delaware corporation ( FlexEnergy ), FlexEnergy Energy Systems, Inc., a Delaware corporation ( FEES ; FEES and FlexEnergy collectively referred to as Flex ), and Flex Power Generation, Inc. ( FPG ) are entering into that certain Contribution Agreement dated the same date hereof (the Contribution Agreement ). FPG agrees that, to the extent that any of the following result in any liabilities or obligations with respect to Flex ( Contingent Flex Liabilities ), those liabilities and obligations shall be deemed to be Assumed Liabilities (as defined in the Contribution Agreement) effective as of the date hereof and shall be subject to indemnification as provided in Section 5 of the Contribution Agreement, and contracts referenced below shall be deemed to have been assigned to and assumed by FPG effective as of the date hereof: (i) the Flex-Microturbine System Development and License Agreement dated September 17, 1999, as supplemented by that certain Supplemental Agreement, dated September 22, 2000, executed by Edan Prabhu, Inc., a California corporation formerly known as FlexEnergy, Inc. ( EPI ) and Capstone Turbine Corporation; (ii) Agreement, dated May 19, 2000, between FlexEnergy, Inc. and the California State Energy Resources Conservation and Development Commission; and (iii) any other liabilities or obligations of EPI, not already included as Assumed Liabilities. Section 7 of the Contribution Agreement is incorporated into this side-letter. Flex Power Generation, Inc. ACKNOWLEDGED AND AGREED TO BY: By: Name: Title: FlexEnergy, Inc. By: James M. Mitchell, President/CEO

58 PURCHASE ORDER PO No: RFQ No: Date Customer No: Description: FPG /26/2013 June 26, 2013 N/A EX250 Gas Turbine Customer Vendor Ship-To Address Company: Ener-Core Power Inc FlexEnergy Energy Systems ENER-CORE POWER Contact: Douglas Hamrin Joe Skuza Douglas Hamrin Phone No: Fax No: Address: 9400 Toledo Way 30 New Hampshire Ave 9400 Toledo Way Irvine, CA Portsmouth, NH, Irvine, CA, Item Qty Description Part Number FX Number Unit Cost Total Cost 1 1 EX250 Gas Turbine - 250SX (Proposal ) 250SX N/A $307, $307, Engineering Service (108hrs) (Proposal ) n/a N/A $12, $12, Total: $320, Project: EECT - Production order Comments: Gas Turbine Requested by: Douglas Hamrin Date: 6/26/2013 Approved by: Boris Maslov Date: 6/24/2013

59 FlexEnergy Energy Systems 30 New Hampshire Avenue Portsmouth, NH Boris Maslov Ener-Core Power, Inc Toledo Way Irvine, CA June 28, 2013 Subject: Order Acknowledgement: Ener-Core Power, Inc., Purchase Order No FPG00038, Project reference: EECT Mr. Maslov: Thank you for the subject purchase order in the amount of $320, USD for one MT250EX Turbine and special engineering support as described in the referenced Purchase Order and FlexEnergy Energy Systems Inc. Proposal dated 26 June Proposal Clarifications: Scope of Supply. 1. In the event of any conflict or inconsistency between the Terms and Conditions of Sale (including International Warranty) of FlexEnergy Energy Systems, Inc. ( Company ) and any Purchase Order or other document proposed by Customer, Company s Terms and Conditions will control. 2. Scope of supply is as stated on PO and as further clarified in FlexEnergy proposal. Additional scope beyond these 2 guiding documents requested will be quoted and agreed to by both parties prior to start of work on added scope. Payment Terms: 1. FlexEnergy agrees to payment terms as described in the Proposal. a. 20% payment due upon acceptance of Order Acknowledgment. i. Payment of $64, received by wire transfer on 6/28/2013 b. 30% payment due 60 days prior to shipment or at time of order acknowledgement, whichever is later. c. Balance due net 30 days after date of shipment, FOB plant.

60 FlexEnergy Energy Systems 30 New Hampshire Avenue Portsmouth, NH Shipping Terms: 1. Shipping is FOB shipping point, Portsmouth, NH as stated in Proposal. The FlexEnergy contact person who will manage your order is: Michael Sheffey Phone: (603) Once again thank you for your business and we look forward to a successful project with Ener-Core. If any of the above is not your understanding, please notify us immediately. Sincerely, a. Shipment date is 12 weeks after the date of this letter, assuming the electrical cabinet is received in-house early enough in advance. The exact requirement for cabinet delivery will be determined at a later date. b. Early shipment to be coordinated with customer and FlexEnergy Energy Systems Inc. to include 50% of payment of the total balance prior to shipment of equipment, the rest due net 30 days after shipment. Chris Dirk Controller FlexEnergy Energy Systems Inc. Cc: Dan Whelan, Chris Dirk, Bob Campbell, Andy Freeman, Mike Sheffey 2

61 304 INVERNESS WAY SOUTH, SUITE 355 CENTENNIAL, COLORADO July 16, 2013 Mr. Boris Maslov President Ener-Core Power Inc Toledo Way Irvine, CA Dear Mr. Maslov, This letter confirms our agreement that Colorado Financial Service Corp. ("CFSC") will act as a nonexclusive placement agent to Ener-Core Power, Inc. a Nevada corporation ("you' or the "Company") in connection with the proposed private placement (an "Offering") of unregistered equity or equity linked securities of the Company ("Securities"). Services. During the term of our engagement, we will advise and assist you in connection with the planning, execution and closing of the Offering. In connection with the planning, execution and closing of an Offering, CFSC's services may include, to the extent that you and CFSC agree necessary or advisable, assisting and advising you with respect to (1) performing valuation analyses, (2) identifying potential investors acceptable to you and establishing meetings with such persons or entities, (3) coordinating the process by which you will select the ultimate investor(s) in the Company, (4) supporting the Company in its negotiation of the terms and agreements effecting the purchase of Securities, and (5) rendering such assistance as the Company may reasonably request. The Company is responsible for compliance with all applicable securities laws, including the Securities Act of 1933 as well as the preparation of appropriate offering materials. Any written or oral advice provided by us pursuant to this engagement will be treated by the Company as confidential, will be solely for the information and assistance of the Company and its advisors in connection with their consideration of a sale of securities and purchase of assets and will not be reproduced, summarized, described or referred to, or furnished to any other party or used for any other purpose, except in each case with our prior written consent or as required by law. In addition, and regardless of whether the Offering is consummated, the Company shall promptly, upon request there for, reimburse CFSC for all reasonable legal expenses related to due diligence and the preparation, assistance, drafting and review of various corporate documentation in respect of the Offering, including those amounts incurred prior to the date hereof. The reimbursement of legal expenses under this section shall not exceed $2,000 without prior authorization of the Company. Confidentiality. In connection with the Offering, the Company and CFSC will provide each other with information that is non-public, confidential or proprietary in nature. All information about the disclosing party furnished by the disclosing party to the receiving party or its directors, officers, employees, agents or representatives, including without limitation attorneys, accountants, consultants and financial advisors (collectively, "representatives"), and all analyses, compilations, data, studies or other documents prepared by the receiving party or its representatives containing, or based in whole or in part on, any such furnished information is hereinafter referred to as the "Confidential Information:" provided; that, Confidential Information shall not include information, which is (i) available to the public other than as a result of a disclosure in breach of this letter; (it becomes available to the receiving party on a non-confidential basis from a source other than the Company. (iii) known to you the receiving party on a non-confidential basis prior to such disclosure or (iv) required to be disclosed as a matter of law.

62 The Company and CFSC agree that the Confidential Information will be kept confidential by them and their respective representatives and will not be disclosed for a period of two years from the date hereof, without the prior written consent of the disclosing party. Compensation. In connection with this engagement, you will pay CFSC as follows according to the following transactions. Equity Financing: For transactions involving investment of equity or equity-linked transactions: a cash fee of 8% paid to CFSC, the originating broker. As additional compensation for our services hereunder, you will upon consummation of the Offering issue to CFSC a warrant to purchase a number of shares of common stock of the Company equal to 8% of all shares of Securities placed by CFSC in the Offering at an exercise price per share of $0.75, the price per share. CFSC may assign any portion of the warrants to its representatives. The warrant will be immediately exercisable and will contain the same registration rights with respect to the common stock of the Company underlying the warrant (or any securities into which the common stock of the Company may be converted or for which it may be exchanged) as are granted to investors in the Offering. The warrant will have a cashless exercise provision, have a term of 5 years from the date of issuance and have such other terms and conditions as shall be mutually agreed upon. Our fees will be reduced by any fees payable to other brokers or finders if approved in advance by CFSC in writing. Subordinated Debt Financing: For transactions involving investment of Subordinated Debt, the cash fee shall be 2% for acting as placement agent, paid to CFSC, plus 3% and a warrant equal to 5%, shall he issued to CFSC under the same terms as pursuant to an equity transaction above. CFSC may assign any portion of the warrants to any of its representatives. Debt Project Financing : For transactions involving project financing, the cash fee shall be.5% for acting as placement agent paid to CFSC, plus a cash fee of 1% of the amount of the financing or commitment paid to CFSC with no warrants for debt project financing. The Cash compensation and the warrant compensation, if any, are together the "Success Fee." Term. The term of our engagement will begin on the date hereof and continue for 24 months (the "Term"). However, either of us may terminate our engagement earlier upon 5 days prior written notice. Any earlier termination of our engagement will not affect your obligation to pay our fees or reimburse our expenses. If within 12 months following the expiration or earlier termination of our engagement, you sell equity, equity-linked securities, subordinated debt or project financing to any investor or lender who purchase or was offered securities or debt of the Company during the Term, you will pay us the Success Fee described under "Compensation" above. Indemnification. Because we will be acting on your behalf, you will indemnify us and related persons according to the indemnification and contribution provisions in Annex A. Your obligations in Ax A will remain operative regardless of any termination or completion of our services hereunder.

63 Miscellaneous. We are a full service securities firm and, therefore, we may from time to time effect transactions for our own account or for the account of our customers and hold positions in securities or options on securities of the Company and other companies that may be the subject of our services. This letter agreement will not limit or restrict our ability to engage in such transactions with respect to either the Company's securities or any other entity's securities. We will provide our financial advice, written or oral, exclusively for the information of your Board of Directors and senior management, who will make all decisions regarding whether and how pursue any opportunity or transaction. Your Board of Directors and senior management will base their decisions on our advice as well as on the advice of their legal, tax and other business advisors and other factors that they consider appropriate. Accordingly, as an independent contractor we will not assume the responsibilities of a fiduciary to you or your stockholders in connection with the performance of our services. This letter agreement, together with the attached agreement on indemnification and contribution, contains our entire agreement concerning the proposed transaction and supersedes any prior understandings and agreements. This letter agreement will be binding upon and inure to the benefit of you, us, each Indemnified Person (as defined in Annex A) and our respective successors and assigns and nothing herein is intended to confer upon any person, other than you, us, each Indemnified Person and our respective successors and assigns, any rights, remedies, obligations or liabilities. This letter agreement shall be governed by and construed in accordance with the laws of the state of Colorado. Any dispute arising out of or relating to this letter agreement (including any annex) will exclusively be submitted to an arbitrator for binding and conclusive resolution. The arbitration shall be in Arapahoe County, Colorado and wilt be administered by JAMS. The arbitrator will be a former or retired judge selected from a list of those affiliated with JAMS. The arbitrator will have the authority to permit discovery and to follow the procedures that he or she determines to be appropriate. The arbitrator will have no power to award consequential (including lost profits), punitive or exemplary damages. The parties will advance the forum fees and other costs of the arbitration equally, but the arbitrator will have the discretion as part of his or her final award to apportion some or all of the costs of the arbitration among the parties. The arbitrator will also have the discretion to direct, as part of his or her final award, that a party recover some or all of its attorney's fees. You and we consent to personal jurisdiction and venue in the federal or state courts located in Colorado for purposes of enforcement of any arbitration award. Any waiver of any right or obligation hereunder must be in writing signed by the party against whom such waiver is sought to be enforced. Any amendment hereto must be in writing signed by you and us. SIGNATURE PAGE FOLLOWS

64 After reviewing this letter agreement, please confirm that it is in accordance with your understanding by signing and returning to us the enclosed copy. Very truly yours, COLORADO FINANCIAL SERVICE CORPORATION By: Chester Hebert Chief Executive Officer Accepted and Agreed as of the date set forth above: ENER-CORE POWER, INC. By: Boris Maslov President

65 Annex A The Company will indemnify and hold harmless Colorado Financial Service Corp. (CFSC), its affiliates, the partners, directors, officers, agents and employees of CFSC and its affiliates, and each other person or entity, if any, controlling CFSC or any of its affiliates (each, an Indemnified Person"), from and against any third party losses, claims, damages, liabilities or expenses (including actions, claims or proceedings in respect thereof (collectively, Proceedings") brought by or against any person, including stockholders of the Company, and the cost of any investigation and preparation thereof and defense thereof) (collectively, 'Losses') arising out of or in connection with (i) advice or services rendered or to be rendered by any indemnified Person pursuant to the letter agreement, (ii) the transactions contemplated by the letter agreement or (iii) any Indemnified Person's actions or inactions in connection with any such advice, services or transactions,-provided, however, that the Company will not be obligated to indemnify for any Losses of any Indemnified Person that are determined by a court of competent jurisdiction in a final judgment not subject to appeal to have resulted solely from the bad faith or gross negligence of such Indemnified Person. The Company also agrees that no Indemnified Person shall have any liability (whether direct or indirect, in contract or tort or otherwise) to the Company in connection with (i) advice or services rendered or to be rendered by any Indemnified Person pursuant to the letter agreement, the transactions contemplated by the letter agreement or (ill) any Indemnified Person's actions or inactions in connection with any such advice, services or transactions, except to the extent such liabilities are determined by a court of competent jurisdiction in a final judgment not subject to appeal to have resulted from the bad faith or gross negligence of such Indemnified Person. The Company agrees that in no event will CFSC be liable or obligated in any manner for any consequential, exemplary or punitive damages or lost profits arising out of the letter agreement or the services provided thereunder, and the Company agrees not to seek, or claim any such damages or profits in any circumstance. The Company also agrees to reimburse each Indemnified Person for all expenses (including fees and expenses of counsel) as they are incurred by such Indemnified Person in connection with investigating, preparing for or defending any Proceeding (or enforcing the letter agreement or any related engagement or commitment agreement), whether or not in connection with pending or threatened litigation in which any Indemnified Person is a party. If for any reason the foregoing indemnification is unavailable to any Indemnified Person or insufficient to bold it harmless, then the Company shall contribute to the amount paid or payable by such Indemnified Person as a result of such Losses in such proportion as is appropriate to reflect the relative economic interests of the Company, its affiliates and its stockholders on the one hand and the Indemnified Person on the other in the matters contemplated by the letter agreement as well as the relative fault of the Company, its affiliates or its stockholders, on the one hand, and such Indemnified Person, on the other; provided, however, that in no event shall the Indemnified Persons as a whole be required to contribute an amount greater than the amount of all fees actually received by CFSC from the Company under the letter agreement. The Company's reimbursement, indemnity and contribution obligations hereunder shall be in addition to any liability that it may otherwise have and shall inure to the benefit of any successors, assigns, heirs and representatives of any Indemnified Person. Solely for the purpose of enforcing the letter agreement, the Company hereby consents to personal jurisdiction and venue in any court in which any Proceeding is brought. The provisions of this Annex A shall survive any termination or other expiration of the letter agreement, the consummation of any transaction contemplated thereby or the other completion of CFSC's services with respect thereto.

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