10-K 1 cypw20131231_10k.htm FORM 10-K cypw20131231_10k.htm

UNITED STATES 

SECURITIES AND EXCHANGE COMMISSION 

Washington, D.C. 20549 


Form 10-K


(Mark One)

X

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2013

Or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from to

 

Commission file number 000-54449


Cyclone Power Technologies, Inc.

(Exact name of registrant as specified in its charter)


Florida

26-0519058

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

  

  

601 NE 26th Ct, Pompano Beach, Florida

33064

(Address of principal executive offices)

(Zip Code)

 

Registrant’s telephone number (954) 943-8721


Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Name of each exchange on which registered

None

None

 

Securities registered pursuant to Section 12(g) of the Act:

 

Common Stock, $0.0001 par value

(Title of class)


Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.      Yes   X   No

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.      Yes   X  No

 

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 12 months (or for a shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    X  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).     X  Yes       No

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K  is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  X

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, “non-accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

X

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act.)      Yes    X  No

 

The aggregate market value of the voting and non-voting common equity held by non-affiliates as of the closing price of such shares on the last business day of the registrant’s most recently completed fiscal year was approximately $6,000,000.

 

The number of shares outstanding of the registrant’s common stock as of March 31, 2014 is 328,824,365

 

DOCUMENTS INCORPORATED BY REFERENCE—NONE

 



 

 

 

TABLE OF CONTENTS

FORM 10-K

 

 

Page

Part I

Item 1.

BUSINESS

1

Item 1A.

RISK FACTORS

8

Item 1B.

UNRESOLVED STAFF COMMENTS

8

Item 2.

PROPERTIES

8

Item 3.

LEGAL PROCEEDINGS

8

Item 4.

(REMOVED AND RESERVED)

8

Part II

Item 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

8

Item 6.

SELECTED FINANCIAL DATA

10

Item 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

10

Item 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

16

Item 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

16

Item 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

16

Item 9A.

CONTROLS AND PROCEDURES

16

Item 9B.

OTHER INFORMATION

17

Part III

Item 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

17

Item 11.

EXECUTIVE COMPENSATION

21

Item 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

25

Item 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

26

Item 14.

PRINCIPAL ACCOUNTING FEES AND SERVICES

26

Part IV

Item 15.

EXHIBITS, FINANCIAL STATEMENT SCHEDULES

27

 

SIGNATURES

31

 

 

 

 

Part I

Item 1.    Business

 

Summary

 

Cyclone Power Technologies (OTCQB: CYPW) is a clean-tech innovation company based in Pompano Beach, Florida. Our mission is to develop power technologies that lead to more efficient and diverse utilization of energy resources, less dependence on fossil fuels, and a cleaner environment. 

 

Since 2006 Cyclone has completed multiple prototype stages and received 33 patents on the Cyclone Engine, an external heat engine that generates mechanical power by expanding super-heated steam rapidly inside its cylinders. This steam expansion pushes pistons and turns a shaft. Hot water is then expelled into a condenser to cool and return to the external heat source to repeat the process in a closed loop. This is a Rankine cycle, which is how nuclear and coal-fired power plants produce electricity.

 

What makes the Cyclone Engine different from power plants is size. Cyclone Engines are compact systems that can be used for distributed power generation (i.e., a small electric home generator that also co-generates hot water and space heating) and transportation applications. Unlike power plants that use turbines which are difficult to build cost-effectively and run efficiently in small sizes, we are designing our engines to be easy to manufacture, high performance, compact piston engines.

 

What makes the Cyclone Engine different from piston steam engines of the past is efficiency. Based on current testing, we are able to convert up to approximately 33% of the energy content of fuel into usable power. This is approximately a 400% improvement over historical steam engines and on par with today’s small diesel engines. We are able to achieve such high thermal efficiencies because we have figured out how to run our engines without using lubricating oil which carbonizes at high temperatures. Without that limitation we are able to utilize steam heated to the same temperature and pressures as used by large power plants. High temperature = high efficiency; and high pressure = high power density.

 

What makes the Cyclone Engine more useful than diesel engines is fuel diversity. As an external heat engine that uses steam to create mechanical power, how that steam is created is of little consequence. We can use traditional fossil or bio-fuels in our patented, clean-burning combustion chamber. We can integrate our engine with gasifiers that dispose biomass and bio-waste. We can capture exhaust heat from furnaces or other engines. We can even use solar thermal collectors to harness the energy of the sun.

 

The market opportunities for Cyclone Engines are vast. We estimate that our technology addresses a market potential of roughly $100+ billion, and touches virtually all areas of power generation and transportation, as well as the production of U.S bio-fuels, natural gas and coal.

 

We currently have three engines in development addressing three markets that present what we believe to be the best and most immediate opportunities:

 

Waste-to-Power: Our WHE model engine addresses the alternative and renewable energy markets to convert biomass, bio-waste, waste fuels and waste heat to usable mechanical and/or electric power. Our business model is to manufacture and sell these engines to commercial customers and vertical partners starting in 2014 through our subsidiary, Cyclone-WHE LLC.

 

Portable / Mobile Power: Our S-2 model engine is being developed under contract with the U.S. Army as a portable, multi-fuel power generator for vehicles and forward operating bases. Our business model is to partner with large military OEMs to attract defense contracts and grants for further development and eventual product integration and distribution. The S-2 engine, and the less complex two-cylinder Mark 2 model, have great commercial potential as well, specifically for small-scale co-generation (combined heat and power) applications.

 

Transportation and Equipment: Our Mark 5 model engine is a powerful, multi-fuel and clean burning demonstrator for the automotive, marine and off-road equipment markets. Our business model is to secure strong development partners in these sectors to provide program funding and support to allow us to complete a heavy equipment and vehicle integration in 2014/2015.

 

 
1

 

 

The advantages of our technology have been widely recognized. We first caught the public eye as Popular Science Magazine’s Invention of the Year in 2008, and since then, we have secured engine development contracts with Raytheon, the U.S. Army, Phoenix Power Group (waste-to-energy) and Combilift (European equipment manufacturer). We have formed working relationships with other major defense and industrial groups, and teaming agreements with multiple “vertical” development partners that manufacture and distribute furnaces, gasifiers, electric generators and other synergistic technologies. We have been invited by the Department of Energy’s ARPA-e program to showcase our technology at their annual summit, and have been named by our local government as the Environmental Business of the Year.

  

Business Model

 

Our business objective is to design and develop engines that we can manufacture through contracted parties for direct sale to customers, which include Original Equipment Manufacturers (OEMs) of different clean combustion / heat technologies (such as biomass gasifiers and pyrolyzers, methane and natural gas flares, wood pellet furnaces, solar collectors and similar items), and OEM’s in the equipment / transportation sectors.  We also license our technology to manufacturers and other producers of specialized applications.

 

Based on this business model, our revenue has or will come from:

 

 

Development and engineering fees from customers, partners and licensees;

  

Direct sales revenue from engines we manufacture in-house or through contractors;

  

Up-front license fees and on-going royalties based on sales by our licensees.

 

With respect to certain waste-to-power applications, we may also realize revenue through the development, design and installation of power generation systems (inclusive of our engine and an electric generator), which could be sold to customers or provided to end-users through a Power Purchase Agreement (PPA). Waste-to-power is the process of using waste resources -- such as waste heat from a chimney, methane from a land fill, or animal / plant waste from farms – in a combustion process to power our steam engine which, in turn, drives an electric motor, water pump or other similar equipment.  We have established a specialized subsidiary company – Cyclone-WHE LLC, of which we own approximately 74% of its equity – to pursue these opportunities.

 

Since inception, much of our efforts have been focused on development of our technology and engine prototypes. As a result, we have recognized limited revenue of $715,382 and $1,133,531 in 2013 and 2012, respectively. We also had $416,186 in deferred revenue as of the end of 2013 from several license and development agreements.

 

We have secured several important customers and development partners for our technology, which include:

 

 

U.S. Army / TACOM: In February 2012, we completed an acquisition of all of the material assets of Advent Power Systems, Inc., which included a $1.4 million contract from the U.S. Army / TARDEC (the “U.S. Army Contract”) to develop a prototype auxiliary power unit for the Abrams M1 Main Battle Tank, Bradley Fighting Vehicle and Stryker Armored Vehicle. As of December 2013, we completed successfully four milestones under our contract, which included the commencement of engine testing at our facility. Based on these four completed milestones, we have received approximately $1.25 million in fees from the Army.  We anticipate completion of this program in April 2014, and are currently working to secure funding through the Department of Defense and other sources to continue development of the S-2 engine to commercialization.

 

  

Phoenix Power Group: We have a license with Phoenix Power that provides them with the exclusive, worldwide rights for 10 years with a 5-year renewal term to utilize Cyclone Engines for power generators combusting waste automotive motor oil. Under its license Phoenix has paid us $440,000 in license and development fees, and will pay us on-going royalties from their generator system sales. We amended and restated Phoenix’s license in September 2013, to provide that Phoenix would purchase WHE engines for a period of at least five years from our subsidiary, Cyclone-WHE, at prices to be determined at a future date. In order to maintain its exclusivity under this ten-year license, Phoenix must purchase at least 6,500 engines during the initial five-year period after delivery of the first running prototypes. The 10kW WHE model will be the first engine to be provided; however, all Cyclone engines are covered under the license. Upon completing certain engine development milestones, this agreement will be transferred to Cyclone-WHE to execute the production phase of this program.

 

 
2

 

 

     

Combilift: We have a license agreement with Combilift, a global materials handling and lift equipment manufacturer based in Ireland. Pursuant to the agreement, Combilift has the exclusive, worldwide rights to use the Cyclone Mark 5 engine to drive their lift equipment. For these rights, Combilift has paid $100,000 to date, and is expected to pay another $300,000 in fees as development and delivery of two prototype engines progresses over the next year. During of the term of the agreement, Combilift is expected to purchase engines from Cyclone, based on their requirements and on pricing terms to be determined by the parties upon the completion of the initial prototype engines. This is a 15 year license, with a 15 year renewal term, and is terminable after 30 days if either party fails to cure a material breach of the agreement, or immediately by Cyclone if Combilift is dissolved, liquidated or is bankruptcy.

 

  

Team Steam USA: Through our 95%-owned subsidiary, Cyclone Performance LLC, we have built a streamliner vehicle meant to break the land speed record for steam powered cars. The vehicle will be powered by our Mark 5 engine. We see this program, which is predominantly sponsor-funded, as an important “halo” project meant to shine a light on the power and performance of Cyclone engines. Our goals are two-fold: (1) use the project to learn more about our engines in an extreme working condition, and (2) use the publicity to attract partners and strategic long-term investors in the automotive world. These are important steps in our commercialization plan for the transportation side of our Mark Series of engines development.

 

Waste-to-Power Subsidiary

 

In 2013, we set a critical path to accomplish the goal of bringing our first engine (the Waste Heat Engine, WHE) into manufacturing in 2014 through our 74%-owned subsidiary, Cyclone-WHE LLC (“CWHE”). The WHE is designed to be used with other heat producing technologies and equipment, such as furnaces, gasifiers, methane flares, and industrial chimneys. In these cases, heat or dirty gases are produced in the disposal of waste products, or heat is expelled as a wasted by-product of another commercial process. Through use of specially designed heat exchangers, we can capture that wasted energy and use it to power the WHE, which can then run electric generators, pumps and similar devices. This process is called distributed waste-to-power.

 

Over the last 12 months, we have made considerable progress towards the goal of transitioning the WHE into a manufacturing mode. These achievements included:

 

 

Partnering with The Ohio State University’s Center for Automotive Research (CAR), which has brought the expertise of several senior engineers with vast backgrounds in multiple disciplines critical for the success of the WHE commercialization program. This working relationship commenced in July 2013, and in March 2014, CWHE signed a new Agreement for Testing/Special Services with CAR. The project to be conducted at CAR will be broken into several phases over a 20 month period. Phase I involves the current modeling, analysis and testing to help place into production a 22hp Generation 1 WHE for sale to early adapter customers in 2014. In Phases II and III which is anticipated to commence in Q3 2014, CAR will support the development of a Generation 2 engine for mass production in 2015 with significantly reduced manufacturing costs, increased durability validation and maintenance predictability. All modeling and data developed from this project will belong to CWHE, and we can terminate this agreement on 30 days’ notice at our discretion.

 

 

Forming a joint operating agreement with our engine manufacturing company, Precision CNC. Our agreement with Precision CNC is meant to establish a framework and base of operations for commencement of production of the 22hp WHE model engines this year. The agreement between CWHE and Precision CNC covers the co-location of engineering, production and assembly space in a new leased facility capable of turning-out at least 1,500 engines per month over the next few years. It also covers the purchase of dedicated CNC machinery to assure quick and accurate turn-around of engine parts; co-employment of certain staff members to decrease costs; and reduced and transparent pricing structures. Additionally, Precision CNC has received a strategic, performance-based equity stake in CWHE.

 

 
3

 

 

 

Establishing a base of over 100 potential customers inquiring about the first WHE engines, and obtaining letters of interest for the initial 300 engines from our current partners, and early commitments for over 6,000 engines during the first five years of production.

 

 

Forging strong ties with local leaders in Ohio, and pursuing grant and loan opportunities to help fund the next phases of engine development. We have also re-domiciled CWHE from Florida to Ohio in order to fully take advantage of the incentives available to technology and manufacturing companies in that state.

 

Development Status of Technology

 

The Cyclone Engines are in development, however, prototypes of several different models and sizes are near completion. The following lists each of the Cyclone Engines that we have in development:

 

Model

Size

Uses

 Stage

WHE

Waste Heat Engine

22 HP

Waste heat recovery, waste fuels, biomass-to-power

 Gen 1 Production Unit (1)

S-2

15 HP

Auxiliary power for military vehicles, portable power

 Alpha Prototype (2)

Mark 2

15 HP

Small-scale distributed power, micro-CHP

Beta Prototype (3)

Mark 5

100 HP

Transportation, commercial power, military

 Beta Prototype (3)

 

  

(1)

“Gen 1 Production Unit” refers to an engine in the process of being engineered for manufacturing.

  

(2)

“Alpha Prototype” refers to a working bench model engine, which demonstrates proof of concept.

  (3) “Beta Prototype” refers to a second generation prototype engine, which has undergone significant testing at Cyclone’s facility.

 

Our engines have not yet undergone customer field testing, and there is no guarantee that they will successfully meet customer expectations when completed.

 

Research and Development Activities

 

As a technology research and development company, much of our annual expenses are dedicated towards R&D, including labor costs, material costs, tooling and equipment and other expenses required to run our business. Our R&D expenditures for 2013 and 2012 were $772,795 and $1,091,501, respectively.

 

We actively pursue development agreements with customers, whereby we will develop an engine, design plans or other products to spec at the customer’s full or partial expense. Sometimes these arrangements are part of a more expansive license agreement. We currently have multiple R&D-type agreements in place, and believe that at this time approximately 40% of our R&D operations are funded by our customers.

 

Prototyping and Manufacturing

 

We currently contract with multiple suppliers for the production of many of our prototype parts, which we design and then assemble and test at our facility. In 2013 we acquired the machinery and recruited the talent to produce in-house a greater portion of this prototype manufacturing work, which we believe has saved us considerable time and money.  For production manufacturing, we intend to contract with one or more manufacturers that have the expertise, machinery, tooling and other capital assets required to commercialize and manufacture in mass production our engines. Precision-CNC, our partner in Ohio, is one such manufacturer.

 

 
4

 

 

Competitive Business Conditions

 

We believe that our technology, which is a small-scale heat-regenerative, Rankine cycle external combustion engine, has little direct competition. However, depending on the industry in which these engines are applied, indirect competitors utilizing different technologies do exist.

 

Currently, there are several companies which have developed and commercialized other types of external heat engines, such as Stirling engines. Stirling engines are similar to our technology and are used in overlapping applications (such as solar thermal power generation), however, the two engine technologies have several major differences, including size, power-density, and adaptability to fluctuations in heat and load. Based on preliminary testing and analysis, we believe that our engine technology may be superior to the Stirling engines in these aspects; and as a result, has more applications in waste heat and mobile uses (i.e., cars, trucks and ships). We have not yet commercialized our engine technology, and these claims are still to be proven. Also, several Stirling engine companies such as Infinia Corp. have greater capital resources than we do, which could help establish their technology in the marketplace quicker than we can.

 

Other technologies that may be indirectly competitive with our engines are lithium-ion batteries and hydrogen fuel cells. Batteries are useful for some applications where limited sustained power (torque) and operating time is needed, however, they are in essence just “fuel tanks” which allow for power that is generated elsewhere (i.e., a coal-fired power plant) to be saved and transported. Fuel cells, while showing great potential promise, are currently are very expensive for many practical applications. For instants, the Bloom Box 100kW fuel cell costs over $700,000, weighs over 20,000 lbs and is over 24 ft. in length, according to their marketing materials. The 100hp Cyclone engine we are currently developing, which would produce approximately 75kW of electric output, weighs just 125lbs, is 2 ft in diameter and height, and is expected to cost 10 times less to produce. Once again, these claims are based on our current beliefs and developmental testing, as we have not yet produced commercial products.

 

In the automotive world, the competition to develop an environmentally clean (zero emission) engine is being driven by increasingly stringent regulatory mandates. To date, Honda, Toyota and GM have made the most advances in bringing to market hybrid and plug-in electric vehicles that will meet current Environmental Protection Agency (“EPA”) requirements. However, the electric vehicles that these companies have introduced and continue to develop are currently suitable only for light load carrying small passenger vehicles.

 

In our opinion, hybrids are an attempt to stretch the technological life span of the I/C engine that is reaching a point of diminishing returns in terms of emissions and fuel efficiency improvement. Those electric vehicles that operate without the “auxiliary’ I/C engine and run solely on batteries or fuel cells have short operating ranges, making them suitable only for localized, low-speed areas like core metro areas or gated communities. In short, these vehicles, which are economically-viable due in part to government subsidies, may not ultimately be the types of cars that most Americans want to drive.

 

The following table summarizes the primary industries in which we plan to compete, and the competitive technologies in those industries, as well as some of the leading companies. We cannot provide any assurances that we will be able to compete successfully with these technologies or companies.

 

  

Competition

Companies

Waste Heat Recovery

-Organic Rankine Cycle

-Thermal-electrics

-Calnetix (now GE)

- Caterpillar

- Voith Turbo

Distributed Power Generation

-Mini-turbines

-Fuel cells

-Capstone Turbine

-Bloom Energy

Solar Thermal

-Stirling engines

-Infinia Solar

-Stirling Energy Systems

Automotive

-Clean diesel

-Hybrid/plug-in electric

-Major auto manufacturers

-Tesla

 

 
5

 

 

Patents and IP Protection

 

We currently have the following patents issued or allowed on our engine technology:

 

US Patents 

Heat Regenerative Engine (US Patent No. 7,080,512 B2)

Heat Regenerative Engine (Continuation) (US Patent No. 7,856,822 B2)

Steam Generator in a Heat Regenerative Engine (US Patent No. 7,407,382)

Engine Reversing and Timing Control Mechanism (US Patent No. 7,784,280 B2)

Centrifugal Condenser (US Patent No. 7,798,204 B2)

Valve Controlled Throttle Mechanism (US Patent No. 7,730,873 B2)

Pre-Heater Coil in a Heat Regenerative Engine (US Patent No 7,856,823 B2)

Spider Bearing (US Patent No. 7,900,454)

Waste Heat Engine (US Patent No. 7,992,386)

 

International Patents on Heat Regenerative Engine

European Union (10)

Australia

South Africa

Canada

Russia

China

Korea

Indonesia

Mexico

Japan

India

Brazil

 

We pursue a rigorous patent strategy, pursuant to which (and subject to our available cash resources) we file patents in the U.S. for our engines, their individual components, and other innovations and inventions we develop. We also pursue patents internationally in countries where we believe we may have manufacturing or sales opportunities and/or competition. Despite these efforts, we cannot make assurances that our patents will not infringe on other patents throughout the world, that other groups will not try to infringe on our patents, and if either of these were to occur, that we would have the resources to defend our rights. If this were to occur, it could have a material adverse effect on our business.

 

We require all customers, suppliers and other partners to execute Non-Disclosure Agreements. We also require our employees and certain contractors to sign agreements that assign to us any innovations or discoveries they develop while working for us or working with our technology. Our license agreements contain similar assignment provisions. We feel that these efforts are satisfactory in protecting our technology with respect to people and companies with which we have direct business relationships.

  

Sources and availability of raw material

 

We purchase raw materials and components from multiple sources, none of which may be considered a principal or material supplier. If necessary we could replace these suppliers with minimal effect on our business operations.

 

Dependence on one or a few major customers

 

We currently have three primary contracts for development and licensing of our engine technology: Phoenix Power Group, Combilift and the U.S. Army / TARDEC. Because of the diversification of applications, uses and business models, and the current stage of our development / product sales cycle, we do not believe that the loss of one licensee or development partner would have a material adverse impact on our current or future operations. Additionally, we are actively pursuing other licensees and development partners in other product categories.

 

Governmental regulation

 

Our Products. Power systems generally are subject to extensive statutory and regulatory requirements that directly or indirectly impose standards governing emissions and noise. Our engines, when they will ultimately be installed in power systems, will be subject to compliance with all current emissions standards imposed by the EPA, state regulatory agencies in the United States, including CARB, and other regulatory agencies around the world and established for power systems utilized in applications such as electric generators or off-highway industrial equipment. EPA and CARB regulations imposed on engines utilized in industrial off-highway equipment generally serve to restrict emissions, with a primary focus on oxides of nitrogen, particulate matter and hydrocarbons. Emission regulations for engines utilized in off-highway industrial equipment vary based upon the use of the equipment into which the engine is incorporated (such as stationary power generation or mobile off-highway industrial equipment), and the type of fuel used to drive the power system. Further, applicable emission thresholds differ based upon the gross power of an engine utilized in industrial off-highway equipment. Additionally, most emissions thresholds are designed for gasoline and diesel-powered “spark-ignited” internal combustion engines, and not external combustion engines like Cyclone’s engines. Therefore, we are not entirely certain as to how the EPA and other regulatory agencies will apply these rules to our technology.

 

 
6

 

 

Pursuant to the regulations of the EPA and CARB, we may be required to obtain emission compliance certification from the EPA and CARB to sell certain of our engines throughout the United States and in California. We may also be required to meet foreign emission regulations standards to sell certain of our engines internationally. Currently, the emission certification process for internal combustion engines with the EPA and CARB includes, among other requirements, durability testing of the engine emission system at zero and 5,000 hours, production line testing on a quarterly basis and field compliance audit testing. It is possible that each of our power systems could require this emission-certification before it can be introduced into commerce. We have not yet performed this testing on our engines to meet any existing emission standards of the EPA and CARB. Compliance with these regulations, as we find them to be applicable to our engines, will require considerable funds which the company does not currently have. Failure to comply with these standards could result in adverse effects on our future financial results.

 

Our markets can be positively or negatively impacted by the effects of governmental and regulatory matters. We are affected not only by energy policy, laws, regulations and incentives of governments in the markets into which we sell, but also by rules, regulations and costs imposed by utilities. Utility companies or governmental entities could place barriers on the installation of our product or the interconnection of the product with the electric grid. Further, utility companies may charge additional fees to customers who install on-site power generation, thereby reducing the electricity they take from the utility, or for having the capacity to use power from the grid for back-up or standby purposes. These types of restrictions, fees or charges could hamper the ability to install or effectively use our products or increase the cost to our potential customers for using our systems in the future. This could make our systems less desirable, thereby adversely affecting our revenue and profitability potential. In addition, utility rate reductions can make our products less competitive which would have a material adverse effect on our future operations. These costs, incentives and rules are not always the same as those faced by technologies with which we compete. However, rules, regulations, laws and incentives could also provide an advantage to our distributed generation solutions as compared with competing technologies if we are able to achieve required compliance at a lower cost when our engines are commercialized. Additionally, reduced emissions and higher fuel efficiency could help our future customers combat the effects of global warming. Accordingly, we may benefit from increased government regulations that impose tighter emission and fuel efficiency standards.
 

Our Operations. Our operations are also subject to numerous federal, state and local laws relating to such matters as safe working conditions, manufacturing practices, environmental protection, fire hazard control and disposal of hazardous or potentially hazardous substances. We may be required to incur significant costs to comply with such laws and regulations in the future, and any failure to comply with such laws or regulations could have a material adverse effect upon our ability to do business.

 

In February 2009, the President of the United States signed into law the American Recovery and Reinvestment Act of 2009 ("ARRA"). ARRA has dedicated billions of dollars towards clean energy research and deployment. Members of Congress introduced legislation in calendar 2009 and 2010 that may benefit us in the future. In addition, certain proposed changes to the Internal Revenue Code of 1986 may result in positive tax benefits for our end users. This proposed legislation targets combined heat and power and waste heat (CHP, otherwise called co-generation) and solar power. Government funding can impact the rate of development of new technologies.

 

Because of our work with the military, we have registered with the U.S. Department of State under its International Trafficking in Arms Regulations (ITAR). We do not believe we develop, sell or export any covered munitions under these Regulations, but have registered the company in an abundance of precaution.

 

 
7

 

 

Employees

 

As of December 31, 2013, we had 15 full-time employees including management, and one part-time employee. We consider our relations with our employees to be good. None of our employees are covered under any labor union or collective bargaining agreement.

 

Item 1A. Risk Factors

 

Not required for smaller reporting companies.

 

Item 1B. Unresolved Staff Comments

 

None.

 

Item 2. Properties

 

We currently operate in a leased warehouse facility owned by Schoell Marine, Inc., a company wholly-owned by our Chairman and CTO, Harry Schoell. Schoell Marine leases 6,000 sf of space to the company at approximately $12/sf, ($64,800 per year) which we believe to be at or around market rates for industrial space in the area. Our address is 601 NE 26th Ct., Pompano Beach, FL 33064. In 2012, we also extended a year-to-year lease with an unaffiliated third party for an additional 2,000 sf adjacent to our facility, for which we pay $1,400 per month in rent. We believe these facilities are in good condition, but we still may need to expand our operating space further as our research and development efforts expand.

 

Under our Joint Operations Agreement with Precision CNC, CWHE has agreed to sub-lease approximately 2,500 s.f. of office and warehouse space at their new facility in Lancaster, Ohio, for a monthly rent of $2,500, once operations there commence. This fee also includes some shared employees and other resources. We expect to have several of our production engineers and assembly technicians located at this facility, as well as dedicated CNC machines, inventory, and testing equipment. At this time, the facility in Lancaster is being completed for full move-in.

 

Item 3. Legal Proceedings

 

None.

 

Item 4. Removed and Reserved

 

PART II

 

Item 5. Market for the registrant’s common equity, related stockholder matters and Issuer purchases of equity securities

 

Our common stock is currently traded on the OTCQB Marketplace. The following table represents the high and low bid information for our common stock for each quarterly period within the two most recent fiscal years, as regularly quoted on the OTCQB. Such over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions, and may not necessarily represent actual transactions.

 

According to the records of our transfer agent and NOBO listing, as of March 31, 2014, there were approximately 4,000 shareholders of record of our common stock, and two shareholders of record of our Series B Preferred Stock.

 

Year Ended December 31, 2013

 

   

High Bid Price

   

Low Bid Price

 

First Quarter

  0.10     0.07  

Second Quarter

  0.10     0.06  

Third Quarter

  0.08     0.06  

Fourth Quarter

  0.06     0.02  
  
 
8

 

 

Year ended December 31, 2012

 

   

High Bid Price

   

Low Bid Price

 

First Quarter

  0.25     0.16  

Second Quarter

  0.20     0.13  

Third Quarter

  0.16     0.10  

Fourth Quarter

  0.13     0.04  

 

 

Dividend Policy. We have not paid any dividends on our common stock and do not anticipate paying cash dividends in the foreseeable future. We intend to retain any earnings to finance the growth of our business. We cannot assure you that we will ever pay cash dividends. Whether we pay cash dividends in the future will be at the discretion of our Board of Directors and will depend upon our financial condition, results of operations, capital requirements and any other factors that the Board of Directors decides are relevant. See Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

Issuance of Unregistered Securities. In the fourth quarter of 2013, the Company issued:

 

  

 

1,666,666 shares of common stock to two accredited investors for $50,000 in investment proceeds. The securities were offered pursuant to an exemption under Section 4(2) of the Securities Act of 1933, amended. The shareholders were accredited investors who completed Accredited Investor Questionnaires, and received copies of the Company’s Annual Report, which contained audited financial statements as well as unaudited financials for the applicable quarterly period. Each party had an opportunity to ask questions of the Company and understood the risks of investment in the Company.

 

 

9,627,806 shares of common stock to nine different convertible note holders in connection with the conversion of $292,988 in Company debt. The securities were offered pursuant to an exemption under Section 4(2) of the Securities Act of 1933, amended. The shareholders were either accredited or sophisticated investors who received copies of the Company’s Annual Report, which contained audited financial statements as well as unaudited financials for the applicable quarterly period. Each party had an opportunity to ask questions of the Company and understood the risks of investment in the Company.

 

  3,952,830 shares of common stock to three service providers with an aggregate value of $153,190. The securities were offered pursuant to an exemption under Section 4(2) of the Securities Act of 1933, amended. The shareholders were either accredited or sophisticated investors who received copies of the Company’s Annual Report, which contained audited financial statements as well as unaudited financials for the applicable quarterly period. Each party had an opportunity to ask questions of the Company and understood the risks of investment in the Company.

 

  

479,065 shares of common stock to two contractors in connection with a conversion of $27,145 in payables due from the Company.  The shareholders were either accredited or sophisticated investors who received copies of the Company’s Annual Report, which contained audited financial statements as well as unaudited financials for the applicable quarterly period. Each party had an opportunity to ask questions of the Company and understood the risks of investment in the Company.

 

 
9

 

 

EQUITY COMPENSATION PLAN INFORMATION

 

   

Number of

securities

to be issued

upon

exercise of

outstanding

options,

warrants and

rights

   

Weighted –

average

exercise price

of

outstanding

options,

warrants and

rights

   

Number of

securities

remaining

available

for future

issuances

under equity

compensation

plans

(excluding

securities

reflected in

column (a))

 
   

(a)

   

(b)

   

(c)

 

Equity Compensation Plans Approved by Security Holders (1)

    5,000,000     $ 0.188       0  

Equity Compensation Plan Approved by Board of Directors (2)

    3,825,000     $ 0.141       1,175,000  

                                                                                                               

  

(1)

The Cyclone Power Technologies 2010 Stock Option Plan

  

(2)

The Cyclone Power Technologies 2012 Stock Option Plan

 

 

Item 6. Selected Financial Data

 

Not required for smaller reporting companies.

 

 

Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Forward Looking Statements

 

This report contains forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends affecting the financial condition of our business. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including, among other things:

 

  

the ability to successfully complete development and commercialization of our technology;

 

  

changes in existing and potential relationships with customers and collaborative partners;

 

  

the ability to retain certain members of management;

 

  

our expectations regarding general and administrative expenses;

 

  

our expectations regarding cash availability and balances, capital requirements, anticipated revenue and expenses, including infrastructure and patent expenditures;

 

  

other factors detailed from time to time in filings with the SEC.

 

In addition, in this registration, we use words such as “anticipate,” “believe,” “plan,” “expect,” “future,” “intend,” and similar expressions to identify forward-looking statements. We undertake no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this registration. In light of these risks and uncertainties, the forward-looking events and circumstances discussed in this registration may not occur and actual results could differ materially from those anticipated or implied in the forward-looking statement.

 

 
10

 

 

Overview 

 

The Company is engaged in the research and development of all-fuel, eco-friendly engine technologies. Several prototypes of these engines are nearing completion with one model currently expected to go into limited production in 2014. While the Company started to generate revenue from its operations as early as 2008, it has not had material or consistent revenue in each of the last two fiscal years. In order for the Company to maintain and expand its operations through the next 12 months, it will seek license and development agreements that provide up-front or progress payment revenue to the Company, and advance its plans to commence engines sales of the WHE by mid-year. We will also continue to raise capital by means of equity or debt offerings.

 

The Company experienced substantial growth from a business, corporate structural and technology standpoint in 2013. During this period, management set a solid foundation to accomplish the goal of bringing our first engine (the WHE) into manufacturing in 2014, thus positioning the Company to start generating consistent sales revenue this year. These achievements included:

 

Partnering with The Ohio State University’s Center for Automotive Research (CAR), which has brought the expertise of several senior engineers with vast backgrounds in multiple disciplines critical for the success of this commercialization program;

 

Forming a joint operating agreement with our manufacturer, Precision CNC, including moving our waste-to-power division into their facility – a new building with the equipment and growth capacity to ramp up to production of over 1,500 engines per month;

 

Completing our development and testing of the WHE-DR engine at our R&D center in Florida, and transitioning that program to our team in Ohio, including moving the engine, testing equipment and other resources to both CAR and Precision CNC in January 2014;

 

Establishing a base of over 100 potential customers inquiring about the first WHE engines, and obtaining letters of interest for the initial 300 engines from our current partners, and early commitments for over 6,000 engines during the first five years of production; and

 

Forging strong ties with local leaders in Ohio, and pursuing grant and loan opportunities to help fund the next phases of engine development.

 

As these accomplishments demonstrate, the transition into a manufacturing mode for the WHE has begun. Our budget for these operations in Ohio is approximately $60,000 per month; however, transferring these expenses to Ohio has also reduced our Florida expenses by about $30,000 per month. Based on the milestones set forth in our six and 18 month project plan, management is reasonably confident that sales for the limited first generation WHE will be approximately $2 million over the following 12 months – revenue through our subsidiary which will support the next mass manufacturing phase of product development.

 

The Company has also made headway in securing long-term funding to support the WHE commercialization project both in the private and public sectors. In February 2014, the Company received a commitment for the first $100,000 in project funding from a private investor. This party has indicated that he would fund up to another $500,000 if certain milestones are met, such as expanding our team in Ohio, establishing strong design engineering protocols, and meeting a development schedule that includes commencement of production of the first generation WHE engines in the next few months.

 

As the WHE project progresses in Ohio, the Company’s core R&D team in Florida has greater resources to complete several other important projects in 2014, including the U.S. Army / TARDEC engine, designed to be used as a 10kW auxiliary power unit (APU) for combat vehicles. This Phase 1 development program provided approximately $502,882 in revenue to the Company in 2013, based on accomplished milestones. We forecast an additional $150,000 in revenue from this contract when we deliver the S-2 engine, expected to be in April 2014. Management is now seeking follow-on funding from both military and commercial groups to advance the technology into Phase 2 for durability and performance enhancement.

 

 
11

 

 

With additional resources, our R&D team will also move towards completion of the Mark 5 project this year. This engine is to be delivered to Combilift for clean-burning material lift equipment, and used in Cyclone’s land speed record (LSR) streamliner to attempt a run for the fastest steam car on earth. With respect to the Combilifit contract, we are forecasting an additional $300,000 in revenue from the delivery of two Mark 5 engines to this customer this year. Management is also pursuing other major R&D contracts that both support and build-off of these two engine programs. This includes marine and renewable power applications.

 

Financing Transactions. The Company financed its operations in 2013 through revenue generated from the U.S. Army Contract, as well as multiple debt transactions. In August 2013, the Company closed a securities purchase agreement pursuant to which the funder agreed to purchase up to $2,000,000 of senior secured redeemable debentures (the “Debentures”) over the following 12 months. In September, this party advanced $400,000 under a Debenture which bears simple interest at 12% per annum plus a 6% redemption premium, and matures in 12 months. The Company commenced interest and principal payments in December 2013, and has a current balance as of March 31, 2014 of $234,801, plus interest and other fees. The Company’s obligations under the Debentures are secured by a security agreement granting the funder an unconditional and continuing first priority security interest in the Company’s and its subsidiaries’ assets.

 

On June 6, 2013, the Company closed and received funding on a $226,000 convertible promissory note (the “Note”) with another funder. This Note bears 10% interest with a 9.1% Original Issuance Discount (OID), and matures in 15 months with monthly repayments of approximately $28,000 which started in November. The principal amount of the Note can be converted by the Company to common stock at a 30% discount to the three lowest weighted average prices of the Company’s common stock during the previous 23 trading days; or by the funder at a hard conversion floor price of $0.10 per share, subject to price protection provisions should the Company issue shares at a lower price. The Lender also received 565,625 five-year warrants to purchase shares of the Company’s common stock at a price of $0.10 per share, subject to price protection and cashless exercise provisions. As of March 31, 2014, because of these price protection provisions, this warrant was exercisable into approximately 2,587,685 shares at a price of $.012/share.

 

In 2013 and Q1 2014, the Company also engaged in several other convertible note transactions, which provided approximately $750,000 in new financing for our operations. These notes typically are convertible into common stock at anywhere between a 30% and 44% discount to closing prices of our common stock over a 10 to 20 day look back period. None of these notes were secured or contained any warrants.

 

Corporate Structural Actions.   From a corporate and structural stand-point, management has and will continue to take decisive steps to mature the Company to attract funding from investors with long range horizons and strategic partners who can add value from multiple directions. This type of funding is different from the convertible notes used to finance the Company over the last 18 months.

 

To strengthening the Company’s balance and capital structure, in Q1 2014 management converted a total of $1.6 million of deferred salaries and debt owed to affiliates of the Company since inception at an equivalent of $.08 per share. This action was meant to reduce liabilities and demonstrate management’s strong faith in the future of Cyclone.

 

The Company recently increased its authorized common stock to 900 million shares. Management will seek to use these shares to build long term value for Cyclone, including getting products to market, generating strong and consistent revenue, reducing debt on our books, and possibly acquiring companies that provide a diversified income stream and technology base. Along these lines, management is seeking strategic acquisitions in the areas of manufacturing and clean energy technologies with vertical synergies.

 

Stock for Services and Contracts. During the year ended December 31, 2013, the Company issued 13,881,401 shares of restricted common stock and amortized related warrants valued at a total of $975,987 for outside services, and 200,205 shares of restricted common stock valued at $14,000 for employee services. Additionally, the Company amortized (based on vesting) $146,616 of common stock options for employee services and issued 675,000 shares of restricted common stock in satisfaction of contracted and accrued officers salaries.

 

 
12

 

 

Research & Development. The Company invests considerably in the development of its technology. Over the years, these investments have led to over 30 patents and substantial progress towards the commercialization of its engine technology. For 2013, the Company’s R&D expenses were $772,795.

 

Commitments for Capital and Operational Expenditures. Should additional funding be secured, the Company could consider a significant purchase of facilities or equipment, and could increase the number of skilled and unskilled employees on payroll, including the recruitment of high level executive management and additional engineers and mechanical staff.

  

Critical Accounting Policies. The financial statements of the Company are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”), which requires management to make estimates, assumptions and related expectations. Management believes that these estimates, assumptions and related expectations upon which we depend at the time are reasonable based upon information then available. These estimates, assumptions and related expectations affect the reported amounts of the balance sheet and income statement for the timeframe of the financial statements presented. To the degree that there are significant variances between these estimates and assumptions and actual results, there would be an effect on the financial statements. GAAP mandates specific accounting treatment in numerous situations and does not require management’s estimates and judgment in its application. Alternative accounting treatments, where available, based on management’s estimates and judgments would not produce a materially different result. The following should be read in conjunction with our consolidated financial statements and related notes.

 

Intangible assets, consisting primarily of patents, are deemed to be critical for the furtherance of the business objectives of the Company and its engine products. Impairment is not currently reflective, as the Company is developing its products and obtaining new contracts based on these engine patents.

 

Inventory for engine manufacturing is reviewed on an ongoing basis for obsolescence as engine designs are revised, with resultant charges to R&D.

 

For purposes of valuing stock based compensation, the Company uses market prices of its common stock as of the time of issuance. For purposes of valuing stock based compensation from common stock options, the Company uses the Black Scholes valuation method. This method requires the Company to make estimates and assumptions regarding stock prices, stock volatility, dividend yields, expected exercise term and risk-free interest rates.

 

The audited consolidated financial statements include the accounts of the Company and its 74% owned subsidiary Cyclone-WHE and its 95% owned subsidiary Cyclone Performance. All material inter-company transactions and balances have been eliminated in the consolidated financial statements. The accompanying audited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States for financial information. In the opinion of management, all adjustments considered necessary for a fair presentation of financial statements have been included and such adjustments are of a normal recurring nature.

 

 
13

 

 

Off-Balance Sheet Arrangements

 

We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, that would have been established for the purpose of facilitating off-balance sheet arrangements (as that term is defined in Item 303(a)(4)(ii) of Regulation S-K) or other contractually narrow or limited purposes. As such, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in those types of relationships.

 

New Accounting Pronouncements

 

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board, or FASB, or other standard setting bodies that are adopted by us as of the specified effective date. Unless otherwise discussed, we believe that the impact of recently issued standards that are not yet effective will not have a material impact on our financial position or results of operations upon adoption.

 

Results of Operations

 

Year Ended December 31, 2013 Compared to Year Ended December 31, 2012

 

Revenues. The Company had total revenue of $715,382 for the year ended December 31, 2013.  Revenue included $502,882 from the successful fulfillment of two milestones under the US Army Contract, $150,000 from the successful fulfillment of a key milestone of the Company’s amended license agreement with Phoenix Power Group, and recognition of $62,500 from the Company’s termination of its license agreement with Great Wall Power Systems in China. Revenue for 2012 was $1,133,531 from the fulfillment of the first two milestones on the U.S. Army Contract, and delivery of two engines pursuant to a development contract with Raytheon Integrated Defense Systems.  The decrease in annual revenue was $418,149 or 37%.

 

Gross Profit. Gross profit for the year ended December 31, 2013 was $150,496, as compared to gross profit of $483,041 in 2012, a $332,545 (69%) decrease.  Included in 2013 Cost of Goods Sold was $380,422 related to the Army contract and $184,464 related to the Phoenix Power Group license revenue. Included in 2012 Cost of Goods Sold was $428,582 related to the US Army Contract, $171,908 cost of the delivered Raytheon engines, and $50,000 pertaining to the Phoenix penalty payment.

 

Operating Expenses. Operating Expenses for the year ended December 31, 2013 were $2,884,300 as compared to $3,383,689 for the same period in the previous year, a decrease of $499,389 (15%). The majority of the decrease was due to lower research and development expenses of $318,706 (29%) that were attributable to the testing phase of our engines in 2013 versus the development stage in 2012. General and administrative expenses were lower by $103,609 (5%) due to reduced expenditures and lower stock based payments for services.

 

Operating Loss. The operating losses for the years ended December 31, 2013 and 2012 were $2,733,804 and $2,900,648, respectively, a decreased loss of $166,844 or 6%, due to the factors outlined above.

 

Other Income (Expense). Net other expense for the year ended December 31, 2013 was ($1,057,739) attributable to interest expense of $923,939, and $122,532 of losses related to derivative liability application to debt. This compares to a net other expense of ($100,369)  for the year ended December 31, 2012, inclusive of interest expenses of ($242,795), and  net of $114,626 in derivative related income from the retirement of the Phoenix Warrant.

 

Income and Earnings per Share. The net loss for the year ended December 31, 2013 was $3,791,543, as compared to $3,001,017 for the same period in the previous year, an increased loss of $ 790,526 (26%). The increase was primarily a result of the added Other Expense in 2013 resulting from interest expenses, debt conversions and derivative liabilities. The resulting net loss per weighted average share for 2013 and 2012 was ($.02) and ($0.01), respectively.

 

 
14

 

 

Liquidity and Capital Resources

 

At December 31, 2013, the net working capital deficiency was $5,994,870, as compared to a deficiency of $3,363,256 at December 31, 2012, a deficiency increase of $2,631,614 or 79%.  For the year ended December 31, 2013, funds were primarily used by the net loss of ($3,791,543), repayment of $200,154 of debt and a reduction in deferred revenues of $ 210,400. Funds were provided by debt proceeds of $1,124,000, sale of common stock of $150,000, use of common stock and warrants to pay for services of $999,014, warrants issued pursuant to repayment of debt of $356,176, use of common stock contributed by officers of the Company for employee services of $145,600, a reduction in inventory of $151,886, an increase in accounts payable and accrued expenses of $407,655, and an increase in related party payables and debt of $373,327.

 

For the year ended December 31, 2012, funds were primarily used by the net loss of ($3,001,017), $541,906 for repayment of debt, a decrease in deferred revenue and license deposits of $412,536, and an increase in fixed assets of $269,575.  Funds were provided by the net sale of shares of common stock of $738,928, proceeds of $1,178,000 from promissory notes, and an increase in related party notes, payables and accruals of $437,346. Additionally, to conserve cash the Company issued 4,538,937 shares of common stock and 3,840,000 common stock options for services of $716,067, and amortized $505,967 of prepaid expenses paid with common stock, options and warrants – (non-cash charges to the Income Statement of $1.22 million in the year).  Also, the Company incurred a non-cash charge of $50,000 (paid with common stock) under its license with Phoenix Power.

 

Cash Flow Management Plan. During the year ended December 31, 2013, the Company raised $1,124,000 through the issuance of a Senior Secured Debenture, and several convertible notes with multiple parties. The Company also reduced cash expenses in 2013 by issuing shares of restricted common stock and warrants valued at $975,987 for outside services, and 200,205 shares of restricted common stock and options valued at $212,543 for employee services.

 

Should plans to commence manufacturing of the WHE continue on schedule, we expect to generate approximately $2 million in engine sales over the following 12 months. We also forecast another $450,000 in revenue from the development contracts currently in place. If we are successful in these endeavors, the resulting gross revenue could support approximately 70% of our operations this year. Additionally, we have potential contracts in various stages of negotiation that could generate another $2 million in revenue over the following 12 to 24 months. We cannot guarantee that we will be successful in closing these new contracts, but we are cautiously optimistic that these or other opportunities will materialize in the coming quarters.

 

We have submitted approximately $1 million in grant (or grant-type) applications and proposals with the State of Ohio and other government offices, which could provide non-dilutive funding for our development.  With respect to our Ohio operations, our CWHE subsidiary was initially established to provide a corporate entity for our waste-to-power business, as well as another funding option for investors who prefer to invest in non-public companies.  We are actively seeking strategic partners and investors for this company, and believe that this strategy could be successful over the coming year in raising additional capital for both Cyclone and the subsidiary entity.

 

With respect to our Land Speed Record vehicle, we believe that this asset can also generate funding for Cyclone, especially when we start testing and running of the car. We have had interest from corporations and private investors in sponsoring or outright purchasing the vehicle, either of which could provide substantial funding to the Company.  The possibility of breaking the land speed record for steam power vehicles this year could also attract new strategic partners to provide development support and private investors to provide capital funding.

 

We expect cash flow needs to be approximately $140,000 per month during the next few months of 2014, including operations in Florida and Ohio.  We believe that monthly expenses will increase to approximately $200,000 by the end of 2014, as we put the WHE into limited scale production. At such time, however, we expect to have deposits and initial sales revenue from early adaptor customers for this engine. We are preparing for the likelihood that cash expenses of approximately $2.4 million in 2014 may exceed revenue for the year. This would require additional sale of securities or debt, which we are currently pursing.   No assurance can be given that we will be able to obtain this capital on acceptable terms, if at all. In such an event, this may have a materially adverse effect on the Company’s business, operating results and financial condition. The Company’s auditors have issued a going concern opinion for the year ended December 31, 2013.  Management is optimistic, however, that revenue can be generated and funding can be secured to maintain operations and development at the current pace.

 

 
15

 

 

 Recent Accounting Pronouncements

 

Our significant accounting policies are described in Note 1 to the accompanying financial statements, and above in “Critical Accounting Policies”.

 

Off Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements at this time.

 

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

 

Not required for smaller reporting companies.

 

Item 8. Financial Statements and Supplementary Data

 

Financial statements required by this Item 8 are included at the end of this Report beginning on page F-1 as follows:

 

  

 

Page

 

Report of Independent Registered Public Accounting Firm

 

F-2

 

Consolidated Balance Sheets as of December 31, 2013 and 2012

 

F-3

 

Consolidated Statements of Operations for the years ended December 31, 2013 and 2012

 

F-4

 

Consolidated Statement of Changes in Stockholders’ Deficit for the years ended December 31, 2013 and 2012

 

F-5

 

Consolidated Statement of Cash Flows for the years ended December 31, 2013 and 2012

 

F-6

 

Notes to Consolidated Audited Financial Statements

 

F-7

 

 

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

None.

 

Item 9A. Controls and Procedures

 

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

 

We carried out an evaluation as required by paragraph (b) of Rule 13a-15 and 15d-15 of the Exchange Act, under the supervision and with the participation of our management, including our Audit Committee Chairman and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of December 31, 2013.  Based upon that evaluation, our Chief Financial Officer concluded that our disclosure controls and procedures were effective.

 

Report of Management on Internal Controls over Financial Reporting

 

Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2013, utilizing the framework established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management has determined that the Company’s internal control over financial reporting as of December 31, 2013 is effective.

 

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Management necessarily applied its judgment in assessing the benefits of controls relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. Because of the inherent limitations in a control system, misstatements due to error or fraud may occur and may not be detected.

 

 
16

 

 

Changes in Internal Control over Financial Reporting

 

There have been no changes in our internal controls over financial reporting that occurred during the fourth fiscal quarter of 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Item 9B. Other Information

 

None.

 

 

Part III

 

Item 10.  Directors, Executive Officers and Corporate Governance

 

The names, ages, positions and dates appointed of our current directors and executive officers are set forth in the table below:

 

Name

Age

Position

Date of Appointment

Harry Schoell

71

Chairman and

Chief Technology Officer

  

June 2004*

Frankie Fruge

69

Director and

Chief Operating Officer

 

June 2004

Joel Mayersohn

 

 

56

 

Director 

 

September 30, 2013

 

Christopher Nelson

44

President and General Counsel

 

March 2011**

Bruce Schames

 

67

Chief Financial Officer

April 2010

 

* Mr. Schoell originally served as Chairman and Chief Executive Officer of the Company.  In October 2012, he transitioned from CEO to Chief Technology Officer (CTO) of the Company.

** Mr. Nelson served as General Counsel from January 2009, and as Executive Vice President and General Counsel since June 2010, prior to being appointed as President and General Counsel in March 2011.

 

Harry Schoell, Chairman and Chief Technology Officer, is a life-long entrepreneur and inventor. He is a native Floridian, born in Miami, and a third generation inventor and engineer. Mr. Schoell has worked for years to realize his dream to create an environmentally-friendly engine, and has 30 patents issued and allowed to date on the Schoell Cycle heat regenerative external combustion engine, now called the Cyclone Engine.

 

Mr. Schoell is well versed in all facets of manufacturing procedures, including, appropriate foundry protocol, castings, machining, production design and manufacturing, and plastic and fiberglass laminates. He also has experience in designing, inventing and building unique boat hull designs and patented marine propulsion systems, through Schoell Marine, a company he founded in 1966 and still exists today.

 

Mr. Schoell built Schoell Marine and its reputation based on his original ideas, trained engineers, and prototype and production specialists – the same as he is doing now for Cyclone. Over these 40+ years, his efforts resulted in over 40 specialized patents and patent applications, including a Jet Drive System, a trimmable surface drive, a “Ground Effect Craft”, and a lightweight internal engine that he designed and built in 1990. Mr. Schoell belongs to SAE (Society of Automotive Engineers), the ASME (American Society of Marine Engineers), and The Society of Naval Architects and Marine Engineers.

 

 
17

 

 

Mr. Schoell’s qualifications to be a director of the Company, in addition to his business background (as described above), include his intimate involvement in the development of the Cyclone Engine as well as the business plan for its commercialization. Mr. Schoell has no other Board of Directors affiliations with public companies other than with the Company. He is a director of Schoell Marine, Inc.

 

Frankie Fruge serves as Chief Operating Officer and Director of Cyclone. She has been with the Company since its inception in 2004 in the role of General Partner and Director of Administration. Ms. Fruge is in charge of the daily operations and financial concerns of the Company.

 

Ms. Fruge has been working with Mr. Schoell since 1995, serving in multiple administrative, operational and financial positions with Schoell Marine. Between 1999 and 2003, Ms. Fruge was President of Propulsion Systems, Inc., a company that developed and sold marine surface drives, and then CFO of Pulse Drive Inc., between 2003 and 2005, a company also in the marine propulsion field.

 

Prior to her career in marine-based engine technology, Ms. Fruge spent over 10 years as an operating engineer for several oil refinery companies in Louisiana, including Conoco, and eight years as an auditor for Ernst & Ernst (the predecessor company to Ernst & Young). Ms. Fruge is also a certified industrial firefighter, and is on the Board of the Steam Automobile Club of America.

 

Ms. Fruge’s qualification to be a director of the Company, in addition to her general business background (as described above), include her extensive hands-on engineering experience. Ms. Fruge has no other Board of Directors affiliations.

 

Joel Mayersohn serves as Director of the Company. Mr. Mayersohn is a Partner in the Ft. Lauderdale, FL, office of Roetzell & Andress, where he specializes in corporate, securities and business law. He advises a diversified client base in private placements, public offerings, mergers and acquisitions, financing transactions and general securities, as well as corporate law matters. He also has experience in venture capital, bridge loans and pipe financings. Mr. Mayersohn is a member of the Florida and New York Bars, and received his J.D. and B.A from The State University of New York at Buffalo. Mr. Mayersohn’s qualifications to be a director of the Company include his extensive legal and consulting work with public companies over a 25 year period.

 

Christopher Nelson serves as President and General Counsel of the Company, positions he has held since March 2011. Prior to that, he was Executive Vice President and General Counsel of the Company, and since July 2007, outside corporate counsel for Cyclone. Over the past four years, he has assisted and overseen all aspects of the Company’s business and legal affairs, including: public securities filings and financing, licensing and development agreements, investor and public relations, and general corporate matters.

 

Mr. Nelson has practiced law in Florida for over 18 years, and since 2001, has represented many start-up, early stage and established businesses seeking financing, acquisitions and general growth management counseling. Between 1997 and 2000, Mr. Nelson was an associate with Greenberg Traurig PA, and between 1995 and 1997 an associate with Akerman Senterfitt PA, both in Miami, Florida. At both firms he served in their corporate and securities practice, representing NYSE and NASDAQ companies such as AutoNation, Republic Industries and Wackenhut. Mr. Nelson received a BA from Princeton University, and JD from University of Miami School of Law.

 

Bruce Schames serves as CFO for Cyclone. He has been a CPA since 1971, representing both public and private clients in his own practice since 2001. Prior to that, Mr. Schames served as CFO of East Coast Beverage Corp. (OTCBB: ECBV), Medcom USA (NASDAQ: EMED), Financial Reporting Manager for Dole Fresh Fruit Co., and in various accounting and reporting capacities of NYSE companies. Mr. Schames received his BBA from Baruch College of the City University of N.Y., and an MBA from the University of Southern California.

 

Mr. James Landon, a Director of the Company who was appointed to the position of Interim CEO in October 2012, resigned from that position and as a member of the Board of Directors for personal reasons effective March 6, 2013.

 

 
18

 

 

Board Leadership Structure and Role in Risk Oversight

 

We have not adopted a formal policy on whether the Chairman and Chief Executive Officer positions should be separate or combined. Mr. Schoell served as Chief Executive Officer and Chairman of the Company since inception in 2004 until 2012 when he was appointed as Chief Technology Officer. The Company currently has no one serving as CEO. Christopher Nelson, as President, is the highest ranking non-Director executive officer.

 

Our Board of Directors is primarily responsible for overseeing our risk management processes. The Board of Directors receives and reviews periodic reports from management, auditors, legal counsel, and others, as considered appropriate regarding our assessment of risks. The Board of Directors focuses on the most significant risks facing our Company and our Company’s general risk management strategy, and also ensures that risks undertaken by our Company are consistent with the Board’s appetite for risk. While the Board oversees our Company’s risk management, management is responsible for day-to-day risk management processes. We believe this division of responsibilities is the most effective approach for addressing the risks facing our Company and that our board leadership structure supports this approach.

 

The Company has an Audit Committee, however, the sole member of that committee, Mr. Landon, resigned for personal reasons in March 2013.  We expect to add members to this committee in the near future. The Audit Committee is responsible for monitoring and reviewing our financial statements and internal controls over financial reporting. In addition, they recommend the selection of the independent auditors and consult with management and our independent auditors prior to the presentation of financial statements to shareholders and the filing of our forms 10-Q and 10-K. Our Board will choose new committee members who qualify as “audit committee financial experts” as defined under the federal securities laws. The Audit Committee’s responsibilities are set forth in the Company’s Charter of Corporate Governance, a copy of which is currently available from the Company and is posted on our web site.

 

The Company does not have a Compensation Committee, Nominating Committee or other committees at this time. We expect to create such committees in the future.

 

Director Independence

 

Our Board of Directors has adopted the definition of “independence” as described under the Sarbanes Oxley Act of 2002 (Sarbanes-Oxley) Section 301, Rule 10A-3 under the Securities Exchange Act of 1934 (the Exchange Act) and NASDAQ Rules 4200 and 4350. Our Board of Directors has determined that only Mr. Mayersohn currently meets the independence requirements.

 

Board of Advisors

 

From time to time, we add members to our Board of Advisors. These individuals are comprised of distinguished scientists, engineers and businessmen whose experience, knowledge and counsel help in the development of the company and our technology. These Board of Advisor members may be compensated for their time in restricted shares of common stock. Advisors do not have voting or observatory powers over the Board of Directors or management. The Company’s CTO interacts with these advisors from time to time on matters related to the Company’s technological development. There are no formalized Board of Advisor meetings, and members have no other special powers or functions. Each individual on the Board works part-time with the Company as requested. Currently, the Board of Advisors is comprised of:

 

George Nutz is technology consultant with almost 50 years of experience working with external combustion and steam engines. He is the founder of Millennium Engineering Systems and Millennium Energy Systems, through which he has provided engineering guidance and expertise to multiple external combustion engine projects over the last twenty years.

 

Prior to consulting, Mr. Nutz was a staff research engineer at MIT Instrumentation Laboratory, part of the Department of Aeronautics and Astronautics. While in residence, he designed hardware and control systems, as well as steam cycles and applications. He represented MIT-IL at the Department of Transportation Clean Air / External Combustion hearings, and wrote several proposal papers outlining a working steam system. During this time he also became involved with steam automobile and steamboat groups and worked on boiler and engine designs/modifications, including being part of the MIT team designing and building a steam powered automobile for Saab for the MIT-Caltech "Clean Air Car Race".

 

 
19

 

 

Prior to his time at MIT, Mr. Nutz spent nine years at Bendix Aerospace designing gyro and guidance equipment and test platforms, and working with optics and sensors. He served in the U.S. Air Force and received his mechanical engineering degree from the New Jersey Institute of Technology in 1959.

 

Dr. Yeong E. Kim, professor and Group Leader of the Nuclear and Many-Body Theory Group at Purdue University. Dr. Kim is a nuclear physicist who has authored or co-authored over 200 scientific journal publications during his career. He received his Ph.D. in 1963 from the University of California, Berkeley, followed by a postdoctoral position at Oak Ridge National Laboratory. Dr. Kim is currently Director of Purdue Center for Sensing Science and Technology (CSST), Group Leader of Purdue Nuclear and Many-Body Theory Group, and Professor of Physics at Purdue University. His main area of research has been theoretical nuclear physics, including the practical achievability of low energy nuclear reactions. Dr. Kim has published widely on this subject, as well as condensed matter physics, atomic, molecular and optical physics, nuclear astrophysics, and quantum statistical mechanics. Since 1978, he served on advisory committees for numerous government agencies and international conferences covering diverse topics of nuclear physics. He has been a Fellow of the American Physical Society since 1977.

 

Other Key, Non-Executive Personnel

 

Karl Petersen, Cyclone’s Vice President of Engineering, has over 45 years of experience in product development, engineering, manufacturing, and quality systems. He currently works directly with Cyclone’s engineering team to assist in the commercialization of its external combustion engine technology. Previously, Mr. Petersen ran Petersen Product Development in Boise, ID, which provided mechanical, chemical and manufacturing process development for clients that include Caterpillar and John Deere. Prior to that Mr. Petersen spent over 25 years in various engineering and management positions at Preco (purchased by Vansco Electronics in 2005), which provided critical product development for Caterpillar and AGCO. He also served several Lockheed divisions as a Senior Mechanical Engineer. Having worked on steam systems since the 1960’s, Mr. Petersen has built numerous engines throughout his career and has vast knowledge of their mechanical and thermodynamic operations.

 

Allen Brown, Cyclone’s Senior Engineering Fellow, is an engineer whose experience spans over 56 years in the marine industry where he has developed propulsion, hydraulic, electrical and exhaust systems for some of the best known names in the business. Over the years, Mr. Brown has served as: Director of Product Development for Cigarette Racing Team, President and CEO of Cougar Marine, which built powerboats that won 33 consecutive offshore races including 12 World and National Championships, Director of Product Development for Stainless Marine, Project Engineer for Gentry Transatlantic on the “Gentry Eagle,” a 113’ mega-yacht that held the transatlantic speed crossing record, Product Development Consultant for Teleflex Marine, and General Manager of Donzi Marine.

 

Compensation to Advisors

 

We have compensated our Board of Advisors members’ with shares of restricted common stock and stock options for their past services rendered on behalf of Cyclone, and reserve the right to issue additional shares, stock options or cash in the future. Both Allen Brown and Karl Petersen receive salaries for their services which are performed at the Company's facility.

 

Family Relationships

 

There are no family relationships among the directors and executive officers of the company.

 

Code of Conduct and Ethics

 

We have adopted a code of business conduct and ethics that applies to our directors, officers and all employees. The code of business conduct and ethics may be obtained free of charge on our web site, or by writing to the company, Attn: Chief Financial Officer, 601 NE 26th Ct., Pompano Beach, FL 33064.

 

 
20

 

 

Compliance with Section 16(a) of the Exchange Act

 

Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to the Company under Rule 16a-3(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) during twelve months ended December 31, 2013, the Company is not aware of any person that failed to file on a timely basis, as disclosed in the aforementioned Forms, reports required by Section 16(a) of the Exchange Act during the year ended December 31, 2013.

 

Item 11. Executive Compensation

 

Summary Compensation Table

 

The following table sets forth certain information concerning the annual and long-term compensation of our Chief Executive Officer and our other executive officers during the last two fiscal years.

 

Current

Officers

Name &

Principal

Position

 

Year

 

Salary

($)

Bonus

($)

 

Stock

Awards

(S)

 

 

All Other

Compensation

($)

 

 

Option Awards

($)

 

 

Total

($)

 

Harry Schoell

 

2013

 

$

150,000

(1)

0

 

 

0

 

 

 

0

 

 

$

57,099

 

 

$

207,099

 

Chairman & CTO

 

2012

 

$

150,000

(1)

0

 

 

0

 

 

 

0

 

 

$

60,385

 

 

$

210,385

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Frankie Fruge

 

2013

 

$

125,000

(2)

0

 

 

0

 

 

 

0

 

 

$

57,099

 

 

$

182,099

 

Director & COO

 

2012

 

$

125,000

(2)

0

 

 

0

 

 

 

0

 

 

$

60,385

 

 

$

185,385

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bruce Schames

 

2013

 

$

72,000

(3)

0

 

 

0

 

 

 

0

 

 

$

57,099

 

  

$

129,099

 

CFO

 

2012

 

$

72,000

(3)

0

 

 

0

 

 

 

0

 

 

$

127,202

 

 

$

199,202

 

Christopher Nelson

 

 

2013

 

$

130,000

(4)

0

 

 

0

 

 

 

0

 

 

$

57,099

 

 

$

187,099

 

President & General Counsel

 

2012

 

$

130,000

(4)

0

 

 

0

 

 

 

0

 

 

$

60,385

 

 

$

190,385

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

James Landon

 

2013

 

$

0

 

0

 

 

0

     

0

 

 

$

0

 

 

$

0

 

Interim CEO (5)

 

2012

 

$

6,428

  

0

 

 

0

     

0

 

 

$

6,516

 

 

$

12,944

 

 

 

(1)

All of Mr. Schoell’s salary in 2013 and 2012 has been deferred until determined by the Board of Directors that the Company can afford to pay such salary. Mr. Schoell converted $24,000 to common stock in 2013 at current market prices. In March 2014, Mr. Schoell converted $844,844 of deferred salary to 10,560,550 shares of common stock.

 

(2)

All of Ms. Fruge’s salary in 2013 and 2012 has been deferred until determined by the Board of Directors that the Company can afford to pay such salary. Ms. Fruge converted $24,000 salary to common stock in 2013 at current market prices. In March 2014, Ms. Fruge converted $638,740 of deferred salary to 7,984,250 shares of common stock.

 

(3)

As of December 31, 2013, Mr. Schames had $80,292 of deferred salary, which will be paid when determined by the Board of Directors that the Company can afford to pay such salary. In March 2014, Mr. Schames converted $55,292 of deferred salary to 691,152 shares of common stock.

 

(4)

As of December 31, 2013, Mr. Nelson had $146,197 of deferred salary, which will be paid when determined by the Board of Directors that the Company can afford to pay such salary. In 2013, Mr. Nelson converted $6,000 to 75,000 shares of commons stock , and in March 2014, he converted $86,197 of deferred salary to 1,077,464 shares of common stock.

 

(5)

Mr. Landon resigned from his position as CEO on March 6, 2013, for personal reasons.

 

 
21

 

 

Employment Agreements

 

Harry Schoell.  Mr. Schoell has an employment agreement with the Company providing for a base salary of $150,000 per year plus standard benefits. This compensation is currently being deferred until we have sufficient revenue to support its payment, and to date, he has not received any cash compensation under his agreement. Mr. Schoell converted $20,000 of deferred salary to common stock in 2010, and $24,000 to common stock in 2013 at current market prices. Mr. Schoell also converted 1.5 million shares of Cyclone common stock to a 2.5% equity interest in Cyclone Performance LLC in 2012. As of December 31, 2013, Mr. Schoell had $944,844 in unpaid, deferred salary due to him; of which $844,844 was converted to10,560,550 shares of common stock in 2014.

 

Mr. Schoell’s employment agreement commenced June 30, 2007, and was amended on January 1, 2011. Mr. Schoell received 500,000 common stock options in 2007 pursuant to the original agreement, and is to receive 600,000 options per year pursuant to the amendment. If Mr. Schoell is terminated for “cause,” he shall receive any unpaid base salary due to him as of the date of termination. If he is terminated without “cause” or upon a change in control, he shall receive (i) any unpaid base salary accrued through the effective date of termination, (ii) his base salary at the rate prevailing at such termination through 12 months from the date of termination or the end of his term then in effect, whichever is longer, and (iii) any performance bonus that would otherwise be payable to him were he not terminated, during the 12 months following his, termination. Upon termination without cause, all of his stock options shall vest immediately.

 

Frankie Fruge. Ms. Fruge has an Employment Agreement with the Company providing for a base salary of $125,000 per year plus standard benefits. This compensation is currently being deferred, and to date, she has not received any cash compensation under her agreement. Ms. Fruge converted $6,000 of deferred salary to common stock in 2010, and $24,000 salary to common stock in 2013.  She also converted 1.5 million shares of stock of the Company into 2.5% equity interest in Cyclone Performance LLC in 2012.  As of December 31, 2013, Ms. Fruge had $738,740 in unpaid, deferred salary due to her; of which $638,740 was converted to 7,984,250 shares of common stock in 2014.

 

Ms. Fruge’s employment agreement commenced June 30, 2007, and was amended on January 1, 2011. Ms. Fruge received 500,000 common stock options in 2007 pursuant to the original agreement, and is to receive 600,000 options per year pursuant to the amendment. If Ms. Fruge is terminated for “cause,” she shall receive any unpaid base salary due to her as of the date of termination. If she is terminated without “cause” or upon a change in control, she shall receive (i) any unpaid base salary accrued through the effective date of termination, (ii) her base salary at the rate prevailing at such termination through 12 months from the date of termination or the end of her term then in effect, whichever is longer, and (iii) any performance bonus that would otherwise be payable to her were she not terminated, during the 12 months following her termination. Upon termination without cause, all of her stock options shall vest immediately.

 

Christopher Nelson.  Mr. Nelson has an Employment Agreement with the Company providing for a base salary of $130,000 per year plus standard benefits, and 600,000 common stock options per year. He has deferred salary of $146,197 as of December 31, 2013; of which $6,000 was converted to 75,000 shares of common stock in 2013 and $86,197 was converted to 1,077,464 shares of common stock in 2014.

 

Mr. Nelson’s agreement is for three years from August 2011, and is automatically renewed for successive one-year periods unless either party provides notice of a desire not to renew at least 90 days prior to the agreement’s anniversary date. If Mr. Nelson is terminated for “cause,” he shall receive any unpaid base salary due to him as of the date of termination. If he is terminated without “cause” or upon a change in control, he shall receive (i) any unpaid base salary accrued through the effective date of termination, (ii) his base salary at the rate prevailing at such termination through 12 months from the date of termination or the end of his term then in effect, whichever is longer, and (iii) any performance bonus that would otherwise be payable to him were he not terminated, during the 12 months following his termination. Upon termination without cause, all of his stock options shall vest immediately.

 

Bruce Schames.  Mr. Schames has an agreement with the Company providing for cash compensation of $60,000 per year, of which $23,500 per year is deferred until the Company is in a position to pay such funds. Additionally, he is to receive annually $12,000 in restricted common stock and 600,000 common stock options. His year-to-year contract began June 1, 2010. Either Mr. Schames or the Company may terminate his employment on 60 days’ notice. If the Company terminates other than for “cause”, he shall receive his base compensation due through the date of termination plus a good faith repayment plan for any deferred and unpaid compensation. If Mr. Schames leaves or is terminated for “cause, he shall not be paid any deferred compensation and any unvested options shall terminate immediately. “Cause” is defined as gross negligence or willful misconduct that injures or may reasonably injure the Company. As of December 31, 2012, Mr. Schames had $80,292 in unpaid, deferred salary due to him; of which $55,292 was converted to 691,152 shares of common stock in 2014.

 

 
22

 

 

James Landon.  Mr. Landon did not have a formal employment agreement with the Company at the time of his resignation.

 

Outstanding Equity Awards at December 31, 2013

 

The following table sets forth information concerning all stock option grants held by our named executive officers as of December 31, 2013. All outstanding equity awards are options to purchase shares of common stock.

 

All Option Awards

                                             

Grant

                         
                                   

Exercise

     

Date

                         
                                   

or Base

     

Fair

                         
                                   

Price

     

Value

                         
                   

Number

   

Number

             

of Stock

           

Number

   

Number

 
   

Option

   

Number

   

Exercisable

   

Exercisable

   

Option

     

in Option

   

Option

   

Exercisable

   

Unexercisable

 

Name and

 

Grant

   

Granted

   

Date

   

Date

   

Awards

     

Awards

   

Expiration

   

Date

   

Date

 

Position

 

Date

   

(1) (2)

   

Vested

   

Expires

   

($/Share)

     

($) (3)

   

Date

   

Vested

   

Expires

 
                                                                           

Harry

 

6/30/2007

      250,000       250,000             $ 0.25       $ 0.25    

6/30/2017

   

6/30/2008

   

6/30/2017

 

Schoell

 

6/30/2007

      125,000       125,000             $ 0.35       $ 0.25    

6/30/2017

   

6/30/2008

   

6/30/2017

 

Chairman

 

6/30/2007

      125,000       125,000             $ 0.45       $ 0.45    

6/30/2017

   

6/30/2008

   

6/30/2017

 

& Chief

 

2/30/2010

      100,000       100,000             $ 0.12       $ 0.12    

12/31/2015

   

12/31/2011

   

12/31/2015

 

Technology

 

4/15/2011

      50,000       50,000             $ 0.10  

*

  $ 0.22    

4/15/2016

   

4/15/2016

   

4/15/2016

 

Officer

 

6/30/2011

      50,000       50,000             $ 0.10  

*

  $ 0.30    

6/30/2016

   

6/30/2012

   

6/30/2016

 
   

12/22/2011

      150,000       150,000             $ 0.10  

*

  $ 0.10    

12/22/2011

   

9/30/2021

   

12/22/2021

 
   

12/22/2011

      150,000       150,000             $ 0.10  

*

  $ 0.10    

12/22/2011

   

12/22/2012

   

12/22/2021

 
   

3/31/2012

      150,000       150,000             $ 0.10  

*

  $ 0.10    

3/31/2022

   

3/31/2013

   

3/31/2022

 
   

6/30/2012

      150,000       150,000             $ 0.10  

*

  $ 0.10    

6/30/2022

   

6/30/2013

   

6/30/2022

 
   

9/28/2012

      150,000       150,000             $ 0.13       $ 0.13    

9/30/2022

   

9/30/2013

   

9/30/2022

 
   

12/31/2012

      150,000       150,000             $ 0.08       $ 0.08    

12/31/2022

   

12/31/2013

   

12/31/2022

 
   

3/31/2013

      150,000               150,000     $ 0.08       $ 0.08    

3/31/2023

   

3/31/2014

   

3/31/2023

 
                                                                           

Frankie

 

6/30/2007

      250,000       250,000             $ 0.25       $ 0.25    

6/30/2017

   

6/30/2008

   

6/30/2017

 

Fruge

 

6/30/2007

      125,000       125,000             $ 0.35       $ 0.25    

6/30/2017

   

6/30/2008

   

6/30/2017

 

Director &

 

6/30/2007

      125,000       125,000             $ 0.45       $ 0.45    

6/30/2017

   

6/30/2008

   

6/30/2017

 

COO

 

12/30/2010

      100,000       100,000             $ 0.12       $ 0.12    

12/31/2015

   

12/31/2011

   

12/31/2015

 
   

4/15/2011

      50,000       50,000             $ 0.10  

*

  $ 0.22    

4/15/2016

   

4/15/2016

   

4/15/2016

 
   

6/30/2011

      50,000       50,000             $ 0.10  

*

  $ 0.30    

6/30/2016

   

6/30/2012

   

6/30/2016

 
   

12/22/2011

      150,000       150,000             $ 0.10  

*

  $ 0.10    

12/22/2011

   

9/30/2021

   

12/22/2021

 
   

12/22/2011

      150,000       150,000             $ 0.10  

*

  $ 0.10    

12/22/2011

   

12/22/2012

   

12/22/2021

 
   

3/31/2012

      150,000       150,000             $ 0.10  

*

  $ 0.10    

3/31/2022

   

3/31/2013

   

3/31/2022

 
   

6/30/2012

      150,000       150,000             $ 0.10  

*

  $ 0.10    

6/30/2022

   

6/30/2013

   

6/30/2022

 
   

9/28/2012

      150,000       150,000             $ 0.13       $ 0.13    

9/30/2022

   

9/30/2013

   

9/30/2022

 
   

12/31/2012

      150,000       150,000             $ 0.08       $ 0.08    

12/31/2022

   

12/31/2013

   

12/31/2022

 
   

3/31/2013

      150,000               150,000     $ 0.08       $ 0.08    

3/31/2023

   

3/31/2014

   

3/31/2023

 

 

 
23

 

 

Christopher

 

4/4/2010

      250,000       250,000             $ 0.15       $ 0.15    

4/5/2012

   

4/5/2011

   

4/5/2012

 

Nelson

 

12/30/2010

      100,000       100,000             $ 0.12       $ 0.12    

12/31/2015

   

12/31/2011

   

12/31/2015

 

President &

 

4/15/2011

      50,000       50,000             $ 0.10  

*

  $ 0.10    

4/15/2016

   

4/15/2012

   

4/15/2016

 

GC

 

6/30/2011

      50,000       50,000             $ 0.10  

*

  $ 0.30    

6/30/2016

   

6/30/2016

   

6/30/2016

 
   

12/22/2011

      150,000       150,000             $ 0.10  

*

  $ 0.10    

12/22/2011

   

9/30/2012

   

12/22/2021

 
   

12/22/2011

      150,000       150,000             $ 0.10  

*

  $ 0.10    

12/31/2021

   

12/31/2021

   

12/31/2021

 
   

3/31/2012

      150,000       150,000             $ 0.10  

*

  $ 0.10    

3/31/2022

   

3/31/2013

   

3/31/2022

 
   

6/30/2012

      150,000       150,000             $ 0.10  

*

  $ 0.10    

6/30/2022

   

6/30/2013

   

6/30/2022

 
   

9/28/2012

      150,000       150,000             $ 0.13       $ 0.13    

9/30/2022

   

9/30/2013

   

9/30/2022

 
   

12/31/2012

      150,000       150,000             $ 0.08       $ 0.08    

12/31/2022

   

12/31/2013

   

12/31/2022

 
   

3/31/2013

      150,000               150,000     $ 0.08       $ 0.08    

3/31/2023

   

3/31/2014

   

3/31/2023

 
                                                                           

Bruce

 

4/4/2010

      100,000       100,000             $ 0.15       $ 0.15    

4/5/2012

   

4/5/2011

   

4/5/2012

 

Schames

 

6/29/2010

      150,000       150,000             $ 0.10       $ 0.10    

6/30/2020

   

6/30/2011

   

6/30/2020

 

CFO

 

9/29/2010

      150,000       150,000             $ 0.09       $ 0.09    

9/30/2020

   

9/30/2011

   

6/30/2020

 
   

12/30/2010

      150,000       150,000             $ 0.12       $ 0.12    

12/31/2020

   

12/31/2011

   

12/31/2020

 
   

12/30/2010

      75,000       75,000             $ 0.12       $ 0.12    

12/31/2015

   

12/31/2011

   

12/31/2015

 
   

3/31/2011

      150,000       150,000             $ 0.10  

*

  $ 0.31    

3/31/2021

   

3/31/2012

   

3/31/2021

 
   

4/15/2011

      20,000       20,000             $ 0.22       $ 0.22    

4/15/2016

   

4/15/2012

   

4/15/2016

 
   

6/30/2011

      20,000       20,000             $ 0.30       $ 0.30    

6/30/2016

   

9/30/2012

   

12/22/2016

 
   

6/30/2011

      150,000       150,000             $ 0.10  

*

  $ 0.30    

6/30/2021

   

6/30/2012

   

6/30/2021

 
   

12/22/2011

      150,000       150,000             $ 0.10  

*

  $ 0.19    

12/22/2021

   

9/30/2012

   

12/22/2021

 
   

12/22/2011

      150,000       150,000             $ 0.10  

*

  $ 0.19    

12/22/2021

   

12/22/2012

   

12/22/2021

 
   

3/31/2012

      150,000       150,000             $ 0.10  

*

  $ 0.18    

3/31/2022

   

3/31/2013

   

3/31/2022

 
   

6/30/2012

      150,000       150,000             $ 0.10  

*

  $ 0.15    

6/30/2022

   

6/30/2013

   

6/30/2022

 
   

9/28/2012

      150,000       150,000             $ 0.13       $ 0.13    

9/28/2022

   

9/28/2013

   

9/28/2022

 
   

12/31/2012

      150,000       150,000             $ 0.08       $ 0.08    

12/31/2022

   

12/31/2013

   

12/31/2022

 
   

3/31/2013

      150,000               150,000     $ 0.08       $ 0.08    

3/31/2023

   

3/31/2014

   

3/31/2023

 
                                                                           

Joel

  -       -       -       -       -         -     -     -     -  

Mayersohn

                                                                         

Director

                                                                         

 

* Refers to options that were re-priced, as authorized by the Board of Directors on June 30, 2013.

(1)

Any performance conditions with respect to the listed options have been satisfied, and therefore, each such option has been earned.

(2)

Each of the listed options vest one year from the date of grant.

(3)

We determined the grant date fair value of stock option awards using the methodology set forth in Footnote 10 to our Consolidated Financial Statements for the years ended December 31, 2013 and 2012.

(4)

Mr. Landon resigned from his positions as Director and Interim CEO on March 6, 2013 for personal reasons. At such time 600,000 unvested stock options were terminated.

 

Option Exercise and Stock Vesting

 

During 2013 none of the named executive officers exercised any options, and 2.4 million executive officer and director options vested.

 

 
24

 

 

Compensation of the Board of Directors

 

The following table sets forth compensation to the Company’s two non-employee directors during the year ended December 31, 2013.

 

Name

 

Fees

earned

or paid

in cash

($)

   

Option

awards

($)

   

Stock

Awards ($)

   

Nonqualified

deferred

compensation earnings

($)

   

All other

compensation

($)

   

Total

($)

 

James Landon

  9,500     50,583     -     -     -     60,083  
Joel Mayersohn   -     -     15,000     -     -     15,000  

  

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

The following table sets forth information regarding the beneficial ownership of our Common Stock and Series B Preferred Stock by each of our named Executive Officers and Board of Directors, and each shareholder who is known by us to own beneficially five percent (5%) or more of the outstanding stock of such class as of March 31, 2014. On March 31, 2014, there were 328,824,365 shares of common and 1,000 shares of Series B Preferred stock issued and outstanding.

 

Name and Address

 

Common

Shares

Beneficially

Owned

   

%

   

Series B Pref.

Shares

Beneficially

Owned

   

%

 

Harry Schoell, Chairman & Chief

Technology Officer

601 NE 26th Ct.

Pompano Beach, FL 33064

  49,565,970 (1)   14.79%     797     80%  

Frankie Fruge, COO & Director

601 NE 26th Ct.

Pompano Beach, FL 33064

  19,084,206 (2)   5.69%     203     20%  

Joel Mayersohn

601 NE 26th Ct.

Pompano Beach, FL 33064

  250,000 (3)   0.07%     -     -  

Christopher Nelson,

President, General Counsel

601 NE 26th Ct.

Pompano Beach, FL 33064

  7,005,864 (4)   2.09%     -     -  

Bruce Schames, CFO

601 NE 26th Ct.

Pompano Beach, FL 33064

  2,287,023 (5)   0.68%     -     -  

All Executive Officers as a Group (5 persons)

  78,193,063     23.32%     -     -  

TOTALS:

  78,193,063     23.32%     1,000*     100%  

 

*

The 1,000 shares of Series B Preferred stock provide their holders a majority vote on all matters brought before the common stock shareholders.

(1)

Mr. Schoell’s total includes 1,600,000 vested common stock options, but excludes 150,000 unvested options awarded in 2013.

(2)

Ms. Fruge’s total includes 1,600,000 vested common stock options, but excludes 150,000 unvested options awarded in 2013.

(3) Mr. Mayersohn does not have any common stock options.

(4)

Mr. Nelson’s total includes 1,350,000 vested common stock options, and 634,000 shares of common stock owned by a company controlled by Mr. Nelson’s wife. The total excludes 150,000 unvested options awarded in 2012.

(5)

Mr. Schames’ total includes 1,865,000 vested common stock options, but excludes 150,000 unvested options awarded in 2012.

 

 
25

 

 

Item 13. Certain Relationships and Related Transactions, and Director Independence

 

Our Board of Directors (excluding any interested director) is charged with reviewing and approving all related-person transactions, and a special committee of our Board of Directors is established to negotiate the terms of such transactions. In considering related-person transactions, our Board of Directors takes into account all relevant available facts and circumstances.

 

We have an Operations Agreement dated July 2, 2007, with Schoell Marine, a company owned by Harry Schoell, to provide some turnkey operations, including office facility rental and equipment leasing, based upon cost and going market rates. This arrangement began being phased-out in 2008, however, at December 31, 2013, we owed to Schoell Marine $55,523, which is recorded as debt. The debt is callable at the discretion of Mr. Schoell. We currently rent office space from Schoell Marine under this agreement at approximately $12.00/sf, which we believe to be at market rates.

 

As of December 31, 2013, the Company also had recorded $1,683,584 of accrued and deferred officer’s salaries to Mr. Schoell and Ms. Fruge, of which $1,483,584 was converted to 18,544,800 shares of common stock in 2014. The remaining deferred salary can be paid to the officers if and when funds are available. These funds are accounted for as non-interest bearing notes due on demand. At the end of 2013, an additional $ 226,489 was deferred for other officers, of which $141,489 was converted to 1,768,616 shares of common stock in 2014.

 

Mr. Nelson owns a 5% equity stake in Cyclone-WHE LLC, our majority owned subsidiary, which was obtained by him in 2010 in exchange for services rendered with a fair market value of $30,000. He also holds a warrant to purchase another 5% of CWHE to $100,000 at any time prior to August 2015. In 2013, Mr. Schoell acquired a 5% equity stake in CWHE is exchange for 5 million shares of Cyclone common stock. In 2012, Mr. Schoell and Ms. Fruge each acquired a 2.5% equity interest in Cyclone Performance LLC.

 

In August 2013, the Board of Directors approved an Employee Appreciation Stock Pool for all non-executive employees of the Company, as follows: employees must be employed by the Company for at least one year, at which time they shall receive 100,000 shares of stock for the first year of employment and 20,000 shares for each additional year up to a maximum of 200,000 shares. The stock for this pool was contributed by the following executives from their personal accounts in proportion to their relative stock holdings: Harry Schoell, Frankie Fruge, Christopher Nelson and Michael Hodgson. Approximately 1.9 million shares were be contributed to this pool and distributed accordingly. No new shares were issued from the Company.

 

Item 14. Principal Accountant Fees and Services

 

The following table shows what Mallah Furman & Company P.A., our independent auditing firm, billed for audit and other services for the years ended December 31, 2013 and 2012.

 

 

   

Year Ended

December 31, 2013

   

Year Ended

December 31, 2012

 

Audit Fees

  $ 82,491     $ 76,990  

Audit-Related Fees

    --       --  

Tax Fees

    --       --  

All Other Fees

    2,780       1,620  
                 

Total

  $ 85,271     $ 78,610  

 

 
26

 

 

Audit Fees—This category includes the audit of the Company’s annual financial statements, review of financial statements included in the Company’s Form 10-Q Quarterly Reports and services that are normally provided by the independent auditors in connection with engagements for those years.

 

Audit-Related Fees —N/A

 

Tax Fees—N/A

 

Other Fees- This category reflects analysis of the accounting for the Advent business and contract acquisition.

 

Overview —The Company’s Audit Committee reviews and, in its sole discretion pre-approves, our independent auditors’ annual engagement letter including proposed fees and all audit and non-audit services provided by the independent auditors. Accordingly, all services described under “Audit Fees,” “Audit-Related Fees,” “Tax Fees” and “Other Fees” were pre-approved by our Company’s Audit Committee. The Audit Committee may not engage the independent auditors to perform the non-audit services proscribed by law or regulation. The Company’s Audit Committee may delegate pre-approval authority to a member of the Board of Directors, and authority delegated in such manner must be reported at the next scheduled meeting of the Board of Directors.

 

Part IV

 

Item 15. Exhibits and Financial Statement Schedules

 

(a) Financial Statements

 

Report of Independent Registered Public Accounting Firm

 

 

F-2

 

Consolidated Balance Sheets as of December 31, 2013 and 2012

 

 

F-3

 

Consolidated Statements of Operations for the years ended December 31, 2013 and 2012

 

 

F-4

 

Consolidated Statements of Changes in Stockholders' Deficit for the years ended December 31, 2013 and 2013

 

 

F-5

 

Consolidated Statements of Cash Flows for the years ended December 31, 2013 and 2012

 

 

F-6

 

Notes to Consolidated Audited Financial Statements

 

 

F-7

 

 

(b) Exhibits

 

Exhibit

No.

  

Description

3.1 *

  

Articles of Incorporation, dated June 14, 2007

3.2 *

  

Certificate of Domestication, dated June 14, 2007

3.3 *

  

Articles of Amendment to Articles of Incorporation containing Certificates of Designation for Series A Convertible Preferred Stock and Series B Preferred Stock, dated July 17, 2011

3.4 *

  

Articles of Amendment to Articles of Incorporation, dated July 27, 2007

3.5 *

  

Articles of Amendment to Articles of Incorporation, dated July 24, 2009

3.6 *

  

Articles of Amendment to Articles of Incorporation, dated March 30, 2010

3.7 *

  

Articles of Amendment to Articles of Incorporation, dated April 28, 2010

3.8*

  

By-Laws of Cyclone Power Technologies, Inc.

3.09*    Written Consent of the Shareholders in lieu of a Meeting, dated December 19, 2013
3.10*   Amendment to the Articles of Incorporation of the Company, dated January 31, 2014
     

10.1 *

  

Employment Agreement, dated June 30, 2007, between the Company and Frankie Fruge

10.2 *

  

Employment Agreement, dated June 30, 2007, between the Company and Harry Schoell

10.3 *

  

Common Stock Purchase Warrant, dated July 30, 2009, between the Company and Phoenix Power Group, LLC

10.4 *

  

Cyclone Power Technologies’ 2010 Stock Option Plan

10.5 *

  

Employment Agreement, dated August 1, 2011, between the Company and Christopher Nelson

10.6 *

  

Employment Agreement, dated June 10, 2010, between the Company and Bruce Schames

10.7 *

  

Operations Agreement, dated July 2, 2007, between the Company and Schoell Marine, Inc.

 

 
27

 

 

10.8 *

  

Systems Application License Agreement, dated July 30, 2009, between the Company and Phoenix Power Group LLC

10.9 *

  

Technology License Agreement, dated December 11, 2009, between the Company and Great Wall Alternative Power Systems, Ltd.

10.10*

  

Amended and Restated technology License Agreement, dated Jun 15, 2011, between the Company and Renovalia Energy, S.A.

10.11 *

  

Subcontractor Contract for Development of a Rankine Cycle Engine, dated December 20, 2010, between the Company and Advent Power Systems, Inc.

10.12 *

  

Technology License Agreement, dated March 24, 2006, between the Company and Advent Power Systems, Inc., including Amendments thereto.

10.13 *

  

Letter of Understanding, dated March 1, 2011, between the Company and TopLine Energy Systems, LLC

10.14 *

  

Security Agreement, dated August 1, 2007, between the Company and Schoell Marine, Inc.

10.15 *

  

Systems Application License Agreement, dated September 12, 2011, between the Company and Combilift.

10.16*†

  

Cyclone Power Technologies, Inc. 2012 Stock Option Plan

     

10.161*†

  

Asset Purchase Agreement, dated December 20, 2011, between Cyclone Power Technologies, Inc. and Advent Power Systems, Inc.

 

 

 

10.17*

 

Private Placement Purchase Agreement, by and between Cyclone Power Technologies, Inc. and GEM Global Yield Fund Limited, dated July 6, 2012

 

 

 

10.18*

  

Form of Securities Purchase Agreement, signed between the Company and Brio Capital LP and Gemini Master Fund Ltd.

 

 

 

10.19*

 

Form of Promissory Note signed between the Company and Brio Capital LP and Gemini Master Fund Ltd.

 

 

 

10.20*

 

Form Common Stock Purchase Warrant signed between the Company and Brio Capital LP and Gemini Master Fund Ltd.

 

 

 

10.21*

 

$500,000 Promissory by and between Cyclone Power Technologies, Inc and JMJ Financial, dated April 3, 2013

     

10.22*

 

Securities Purchase Agreement, dated May 31, 2013, by and between Cyclone Power Technologies, Inc. and Tonaquint, Inc.

     

10.23*

 

Convertible Promissory Note, dated May 31, 2013, by and between Cyclone Power Technologies, Inc. and Tonaquint, Inc.

     

 10.24*

  

Warrant to Purchase Shares of Common Stock, dated May 31, 2013, by and between Cyclone Power Technologies, Inc. and Tonaquint, Inc.

     

 10.25††

 

 Securities Purchase Agreement by and between the Company and TCA, with an effective date of September 1, 2013.

     

10.25.1††

 

Amended and Restated Systems Application License Agreement between the Cyclone Power Technologies, Inc. and Phoenix Power Group LLC, dated September 30, 2013 and finalized on October 7, 2013.

     

10.26*

 

Senior Secured Redeemable Debenture by and between the Company and TCA, with an effective date of September 1, 2013.

 

 
28

 

 

10.27*

 

Security Agreement by and between the Company and TCA, effective f September 1, 2013.

     

10.28*

 

Security Agreement by and between the Subsidiaries and TCA, with an effective date of September 1, 2013.

     

10.29*

 

Guaranty Agreement by and between the Subsidiaries and TCA, with an effective date of September 1, 2013.

     

10.30*

 

Securities Purchase Agreement by and between the Company and LG, with a signing date of November 21, 2013.

     

10.31*

 

Convertible Promissory Note by and between the Company and LG, with a signing date of November 21, 2013.

     

10.32*

 

Securities Purchase Agreement by and between the Company and GEL, with a signing date of December 3, 2013.

     

10.33*

 

10% Convertible Redeemable Promissory Note by and between the Company and GEL, with a signing date of December 3, 2013.

     

10.34*

 

Securities Purchase Agreement by and between the Company and Peak One, dated December 17, 2013.

     

10.35*

 

Debenture by and between the Company and Peak One, issued December 17, 2013.

     

10.36*

 

Registration Rights Agreement by and between the Company and Peak One, issued December 17, 2013.

     

10.37*

 

Debt Purchase Agreement by and between the Union Capital LLC, TCA Global Credit Master Fund, LP and the Company, dated February 28, 2014.

     

10.38*

  

10% Convertible Redeemable Note by and between the Company and Union Capital LLC, issued February 28, 2014.

     

21 *

  

Subsidiaries of the Company

31.1

  

Certification of the Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

  

Certification of the Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1

  

Certification of the Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (This exhibit shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed incorporated by reference into any other filing under the Security Act of 1933, as amended, or by the Security Exchange Act of 1934, as amended.)

32.2

  

Certification of the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (This exhibit shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934 as amended or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed incorporated by reference into any other filing under the Security Act of 1933, as amended, or by the Security Exchange Act of 1934, as amended.)

101.INS

  

XBRL Instance Document.

101.SCH

  

XBRL Taxonomy Extension Schema Document.

 

 
29

 

 

101.CAL

  

XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF

  

XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB

  

XBRL Taxonomy Extension Label Linkbase Document.

101.PRE

  

XBRL Taxonomy Extension Presentation Linkbase Document.

 

The certification attached as Exhibits 32.1 and 32.2 that accompany this Annual Report on Form 10-K are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Cyclone Power Technologies, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.

 

* Previously filed.

 

† These two exhibits were previous filed using the same Exhibit 10.16 number in error.

 †† These two exhibits were previous filed using the same Exhibit 10.25 number in error.

 

 
30

 

 

SIGNATURES

 

Pursuant to 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.

 

 

 

Cyclone Power Technologies, Inc.

 

 

By:

/S/ HARRY SCHOELL

 

 

 

Harry Schoell

 

 

 

Chairman and Chief Technical Officer

 

 

Dated: April 15, 2014


 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.


 

 

 

By:

/S/ HARRY SCHOELL

 

 

 

Harry Schoell

 

 

 

Chairman and Chief Technical Officer

 

 

 

(principal executive officer)

 

 

Dated: April 15, 2014

 

 

 

 

 

 

 

 

By:

/S/ FRANKIE FRUGE

 

 

 

Frankie Fruge

 

 

 

Chief Operating Officer and Director

 

 

Dated: April 15, 2014


 

 

 

By:

/S/ CHRISTOPHER NELSON

 

 

 

Christopher Nelson

 

 

 

President and General Counsel

 

 

Dated: April 15, 2014

 

 

 

 

 

 

 

 

By:

/S/ BRUCE SCHAMES

 

 

 

Bruce Schames

 

 

 

Chief Financial Officer

 

 

 

(principal accounting and financial officer)

 

 

Dated: April 15, 2014

 

 
31

 

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

Report of Independent Registered Public Accounting Firm

 

 

F-2

 

Consolidated Balance Sheets as of December 31, 2013 and 2012

 

 

F-3

 

Consolidated Statements of Operations for the years ended December 31, 2013 and 2012

 

 

F-4

 

Consolidated Statements of Changes in Stockholders' Deficit for the years ended December 31, 2013 and 2013

 

 

F-5

 

Consolidated Statements of Cash Flows for the years ended December 31, 2013 and 2012

 

 

F-6

 

Notes to Consolidated Audited Financial Statements

 

 

F-7

 

 

 
F-1

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

 

To the Board of Directors and
Stockholders of Cyclone Power Technologies, Inc.

 

We have audited the accompanying consolidated balance sheets of Cyclone Power Technologies, Inc. as of December 31, 2013 and 2012, and the related consolidated statements of operations, changes in stockholders’ deficit, and cash flows for the years then ended. Cyclone Power Technologies, Inc.’s management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Cyclone Power Technologies, Inc. as of December 31, 2013 and 2012, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company’s dependence on outside financing, lack of sufficient working capital, and recurring losses raises substantial doubt about its ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

 

 

/s/ Mallah Furman

Fort Lauderdale, Florida

April 15, 2014

 

 
F-2

 

CYCLONE POWER TECHNOLOGIES, INC.

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2013 AND 2012 

  

   

2013

   

2012

 
                 

ASSETS

               
                 

CURRENT ASSETS

               

Cash

  $ 17,363     $ 14,888  

Inventory, net

    489,420       641,306  

Other current assets

    55,020       59,790  

Total current assets

    561,803       715,984