0001493152-18-012795.txt : 20180831 0001493152-18-012795.hdr.sgml : 20180831 20180831131131 ACCESSION NUMBER: 0001493152-18-012795 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 77 CONFORMED PERIOD OF REPORT: 20180630 FILED AS OF DATE: 20180831 DATE AS OF CHANGE: 20180831 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CYCLONE POWER TECHNOLOGIES INC CENTRAL INDEX KEY: 0001442711 STANDARD INDUSTRIAL CLASSIFICATION: MOTORS & GENERATORS [3621] IRS NUMBER: 000000000 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-54449 FILM NUMBER: 181049479 BUSINESS ADDRESS: STREET 1: 601 NE 26TH COURT CITY: POMPANO BEACH STATE: FL ZIP: 33064 BUSINESS PHONE: 954-943-8721 MAIL ADDRESS: STREET 1: 601 NE 26TH COURT CITY: POMPANO BEACH STATE: FL ZIP: 33064 10-Q 1 form10-q.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

(Mark One)

 

  [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2018

 

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   (I.R.S. Employer
incorporation or organization)   Identification No.)

 

601 NE 26th Ct    
Pompano Beach, Florida   33064
(Address of principal executive offices)   (Zip Code)

 

(954) 943-8721

(Registrant’s telephone number, including area code)

 

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 such 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. Yes [X] 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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “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]
    (Do not check if a smaller reporting company)    

 

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

 

As of August 20, 2018 there were 5,292,794,585 shares of the registrant’s common stock issued and outstanding.

 

 

 

 
 

 

CYCLONE POWER TECHNOLOGIES, INC.

QUARTERLY REPORT ON FORM 10-Q

INDEX

 

PART I. FINANCIAL INFORMATION  
   
Item 1. Financial Statements  
   
Condensed Consolidated Balance Sheets as of June 30, 2018 (unaudited) and December 31, 2017 2
   
Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2018 and 2017 (unaudited) 3
   
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2018 and 2017 (unaudited) 4
   
Notes to Condensed Consolidated Financial Statements (unaudited) 5
   
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 18
   
Item 3. Quantitative and Qualitative Disclosures about Market Risk 21
   
Item 4. Controls and Procedures 21
   
PART II. OTHER INFORMATION  
   
Item 1. Legal Proceedings 23
   
Item 1A. Risk Factors 23
 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 23
   
Item 3. Defaults upon Senior Securities 23
   
Item 4. Mine Safety Disclosures 23
   
Item 5. Other Information 23
   
Item 6. Exhibits 24

 

1
 

 

CYCLONE POWER TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

JUNE 30, 2018 AND DECEMBER 31, 2017

(UNAUDITED)

 

   June 30, 2018   December 31, 2017 
         
ASSETS          
           
CURRENT ASSETS          
Cash  $29,742   $- 
Other current assets   193    193 
Total current assets   29,935    193 
           
PROPERTY AND EQUIPMENT          
Furniture, fixtures, and equipment   302,770    302,770 
Accumulated depreciation   (243,439)   (236,938)
Net property and equipment   59,331    65,832 
           
OTHER ASSETS          
Patents, trademarks and copyrights   394,980    394,980 
Accumulated amortization   (312,735)   (304,807)
Net patents, trademarks and copyrights   82,245    90,173 
Other assets   7,660    7,660 
Total other assets   89,905    97,833 
           
Total Assets  $179,171   $163,858 
           
LIABILITIES AND STOCKHOLDERS’ DEFICIT          
           
CURRENT LIABILITIES          
Bank overdraft  $-   $52 
Accounts payable and accrued expenses   1,731,688    2,057,068 
Accounts payable and accrued expenses-related parties   1,046,720    880,225 
Notes and other loans payable-current portion   428,793    494,795 
Derivative liabilities   2,049,000    1,424,001 
Notes and other loans payable-related parties   363,665    399,873 
Capitalized lease obligations-current portion   5,522    5,522 

Contract Liability and license deposits

   178,826    173,826 
Total current liabilities   5,804,214    5,435,362 
           
NON-CURRENT LIABILITIES          
Notes and other loans payable-net of current portion   1,500    1,500 
Total non-current liabilities   1,500    1,500 
           
Total Liabilities   5,805,714    5,436,862 
           
Commitments and contingencies (See Note 13)          
           
STOCKHOLDERS’ DEFICIT          
Series A preferred stock, $.0001 par value, 750,000 shares authorized, 0 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively.   -    - 
Series B preferred stock, $.0001 par value, 1,000 shares authorized, 1,000 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively.   -    - 
Common stock, $.0001 par value, 6,000,000,000 shares authorized, 5,292,794,585 and 2,859,645,298 shares, issued and outstanding June 30, 2018 and December 31, 2017, respectively.   529,278    285,963 
Additional paid-in capital   57,968,309    57,377,491 
Treasury Stock, 317,000 shares, at June 30, 2018 and December 31, 2017, respectively, at cost.   (3,000)   (3,000)
Series A preferred stock subscription   249,500    - 
Accumulated deficit   (64,399,662)   (62,962,497)
Total stockholders’ deficit-Cyclone Power Technologies Inc.   (5,655,575)   (5,302,043)
Non-controlling interest in consolidated subsidiary   29,032    29,039 
           
Total Stockholders’ Deficit   (5,626,543)   (5,273,004)
           
Total Liabilities and Stockholders’ Deficit  $179,171   $163,858 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

2
 

 

CYCLONE POWER TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

   Six Months Ended June 30,   Three Months Ended June 30, 
   2018   2017   2018   2017 
                
REVENUES  $-   $-   $-   $- 
                     
COST OF GOODS SOLD   -    -    -    - 
                     
Gross profit   -    -    -    - 
                     
OPERATING EXPENSES                    
Advertising and promotion   11,270    6,652    7,460    6,472 
General and administrative   400,662    537,383    237,700    219,828 
Research and development   166,489    96,918    84,546    56,242 
                     
Total operating expenses   578,421    640,953    329,706    282,542 
                     
Operating loss   (578,421)   (640,953)   (329,706)   (282,542)
                     
OTHER (EXPENSE) INCOME                    
Other income (expense)   138,419    (70,934)   136,000    - 
Derivative (expense) -notes payable   (892,968)   (407,467)   (468,000)   (84,000)
Interest (expense)   (104,201)   (186,023)   (35,845)   (136,049)
                     
Total other (expense)   (858,750)   (664,424)   (367,845)   (220,049)
                     
Loss before income taxes   (1,437,171)   (1,305,377)   (697,551)   (502,591)
Income taxes   -    -    -    - 
                     
Net loss  $(1,437,171)  $(1,305,377)  $(697,551)  $(502,591)
                     
Net loss per common share, basic and diluted  $(0.00)*  $(0.00)*  $(0.00)*  $(0.00)
                     
Weighted average number of common shares outstanding   4,072,426,766    1,589,583,513    5,292,794,585    1,669,513,344 

 

* Net loss per share less than $0.00

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

 

3
 

 

CYCLONE POWER TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

   Six Months Ended June 30, 
   2018   2017 
         
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net loss  $(1,437,171)  $(1,305,377)
Adjustments to reconcile net loss to net cash used by  operating activities:          
Depreciation and amortization   14,429    26,784 
Issuance of restricted common stock, options and warrants for services   549    6,829 
Amortization of derivative debt discount   30,764    92,382 
Loss on debt paid with common stock   -    70,934 
Loss from derivative liability conversion-notes payable   892,968    400,701 
Changes in operating assets and liabilities:          
(Increase) in inventory   -    (488)
Increase in accounts payable and accrued expenses   143,468    414,086 
Increase in accounts payable and accrued expenses-related parties   166,495    167,500 
Increase in contract liability   5,000    - 

Net cash used in operating activities

   (183,498)   (126,649)
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Net cash used in investing activities   -    - 
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Proceeds from notes and loans payable   5,000    124,650 
Payment of notes and loans payable   (5,000)   - 

(Decrease) increase in cash overdraft

   

(52

)   

16,883

 
Payment of related party notes and loans payable   (52,200)   (32,693)
           
Increase in related party notes and loans payable   15,992    17,218 
Proceeds from series A preferred stock subscription   249,500    - 
Net cash provided by financing activities   213,240    126,058 
           
Net increase (decrease) in cash   29,742    (591)
Cash, beginning of period   -    591 
           
Cash, end of period  $29,742   $- 
           
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:          
           
Payment of interest in cash  $-   $- 
NON-CASH INVESTING AND FINANCING ACTIVITIES:          
           
Issuance of 571,047,619 shares of Common stock for accrued liability settlement  $134,754   $- 
Issuance of 1,862,101,668 shares of Common stock for debt and interest settlement  $222,143   $- 
Issuance of 100,000,000 shares of Common stock for liability settlement  $-   $49,066 
Issuance of 44,476,071 shares of Common stock for debt and interest settlement  $-   $34,246 
Issuance of 70,000,000 shares of Common stock for liability settlement  $-   $123,000 
Issuance of 6,637,000 shares of Common stock for services  $-   $5,096 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

 

4
 

 

CYCLONE POWER TECHNOLOGIES, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 1 – ORGANIZATIONAL AND SIGNIFICANT ACCOUNTING POLICIES

 

A. ORGANIZATION AND OPERATIONS

 

Cyclone Power Technologies, Inc. (the “Company”, “our,” “Cyclone”) is the successor entity to the business of Cyclone Technologies LLLP (the “LLLP”), a limited liability limited partnership formed in Florida in September 2004. The LLLP was the original developer and intellectual property holder of the Cyclone engine technology. Initiated in 2017, the Company’s current business model, is to be primarily a research and development engineering company whose main purpose is to develop, commercialize, market and license its Cyclone engine technology. Engines and related systems will be outsourced for manufacturing, but the company will invoice customers. Our prior business model also included engine manufacturing.

 

In 2012, the Company established Cyclone Performance LLC (“Cyclone Performance”) f/k/a Cyclone-TeamSteam USA, LLC. The purpose of Cyclone Performance is to build, test and run various vehicles and vessels utilizing the Company’s engine. As of June 30, 2018, the company had a 95% controlling interest in Cyclone Performance. Effective July 24, 2018, the company sold 76% of its equity for $15,000, and retains a 19% interest.

 

In May 2018, the Company established a wholly owned subsidiary, Emerging Power Solutions Inc., whose purpose is to provide alternative power solutions for various industries based on the application of the Cyclone Engine. As of June 30, 2018 there was no activity in this company.

 

In 2010, the Company established a subsidiary WHE Generation Corp. f/k/a, Cyclone-WHE LLC (the “WHE Subsidiary”, “WheGen”), to market the waste heat recovery systems for all Cyclone engine models. As of September 30, 2014 the Company had sold most of its ownership and the balance was sold in the second quarter of 2016.

 

B. PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION

 

The condensed consolidated financial statements include the accounts of the Company and the accounts of our 95% owned subsidiary Cyclone Performance LLC and 100% of Emerging Power Solutions Inc. All material inter-company transactions and balances have been eliminated in the condensed consolidated financial statements

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles applicable to interim financial information and the requirements of Form 10-Q and Article 8 of Regulation S-X of the SEC. Accordingly, they do not include all the information and disclosures required by accounting principles generally accepted in the United States for complete consolidated financial statements. Interim results are not necessarily indicative of results for a full year. In the opinion of management, all adjustments, consisting of normal journal entries considered necessary for a fair presentation of the financial position and the results of operations and cash flows for the interim periods have been included. Complete financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2017, as filed with the Securities and Exchange Commission as part of the Company’s Form 10-K.

 

The results of operations for the six months ended June 30, 2018 are not necessarily indicative of the results of operations to be expected for the full fiscal year ending December 31, 2018.

 

The Company prepares its consolidated financial statements in conformity with account principles generally accepted in the United States (“U.S. GAAP”). The accounting principles utilized by the Company require the Company to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, the reported amounts of revenues and expenses, cash flows and the related footnote disclosures during the periods. On an on-going basis, the Company reviews and evaluates its estimates and assumptions, including, but not limited to, those that relate to the realizable value of inventory, identifiable intangible assets and other long-lived assets, contracts, income taxes, derivative liabilities, and contingencies. Actual results could differ from these estimates.

 

The financial statements presented for the six months ended June 30, 2018 and 2017 are unaudited.

 

5
 

 

C. CASH

 

The Company considers all highly-liquid, temporary cash investments with an original maturity of three months or less to be cash equivalents. At June 30, 2018, and December 31, 2017 the Company had no cash equivalents.

 

D. COMPUTATION OF LOSS PER SHARE

 

Diluted loss per share is not presented as the conversion of the preferred stock and exercise of outstanding stock options and warrants would have an anti-dilutive effect. As of June 30, 2018 and 2017, total anti-dilutive shares related to the common stock options plan amounted to approximately 14.3 million and 14.9 million shares, respectively. On a pro-forma basis if the convertible debt and related interest and penalties were converted at respective conversion rates and applied discounts at the quarter end common stock price, for the six months ended June 30, 2018 and 2017, approximately an additional 14.5 billion and 2.5 billion shares would be issuable, respectively.

 

E. INCOME TAXES

 

Income taxes are accounted for under the asset and liability method as stipulated by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 740, “Income Taxes” (“ASC 740”). Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740, the effect on deferred tax assets and liabilities or a change in tax rate is recognized in income in the period that includes the enactment date. Deferred tax assets are reduced to estimated amounts to be realized using a valuation allowance. A valuation allowance is applied when in management’s view it is more likely than not (50%) that such deferred tax will not be utilized.

 

In the unlikely event that an uncertain tax position exists in which the Company could incur income taxes, the Company would evaluate whether there is a probability that the uncertain tax position taken would be sustained upon examination by the taxing authorities. Reserves for uncertain tax positions would be recorded if the Company determined it is probable that a position would not be sustained upon examination or if payment would have to be made to a taxing authority and the amount is reasonably estimated. As of December 31, 2017, the Company does not believe it has any uncertain tax positions that would result in the Company having a liability to the taxing authorities. Interest related to the unrecognized tax benefits is not recognized in the consolidated financial statements as a component of income taxes. The Company’s tax returns are subject to examination by the federal and state tax authorities for the years ended 2015 through 2017.

 

F. REVENUE RECOGNITION

 

In May 2014, ASC 606 was issued related to revenue from contracts with customers. Under this guidance, revenue is recognized when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. The standard became effective for the Company’s fiscal year beginning January 1, 2018. The adoption of ASC 606 did not have an impact on our financial position or results of operations, as the Company does not have any revenue.

 

G. WARRANTY PROVISIONS

 

Current contracts do not require warranty assistance subsequent to acceptance of the “deliverable R&D prototype” by the customer. For products that the Company will sell in the future, warranty costs are anticipated to be borne by the manufacturing vendor.

 

6
 

 

H. INVENTORY

 

Inventory is recorded at the lower of cost or market. Based on our revised R&D company business model, commencing in 2016, costs include only material to develop a completed engine for sale. In our former business model costs include material, labor and allocated overhead to manufacture a completed engine. These costs are periodically evaluated to determine if they have a net realizable value. If the net realizable value is lower than the carrying amount, a reserve is provided. All inventory was fully reserved at December 31, 2017.

 

I. FAIR VALUE OF FINANCIAL INSTRUMENTS

 

ASC 820, “Fair Value Measurements and Disclosures” requires disclosures of information about the fair value of certain financial instruments for which it is practicable to estimate the value. The carrying amounts reported in the balance sheet for cash, accounts payable and accrued expenses, and loans payable approximate their fair market value based on the short-term maturity of these instruments. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk. Inputs may be observable or unobservable. Observable inputs are based on market data obtained from sources independent of the Company. Unobservable inputs reflect the Company’s own assumptions based on the best information available in the circumstances. The fair value hierarchy prioritizes the inputs used to measure fair value into three broad levels. The three levels of the fair value hierarchy are defined as follows:

 

Level 1 Inputs are quoted prices in active markets for identical assets or liabilities as of the reporting date.
     
Level 2 Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, as of the reporting date.
     
Level 3 Unobservable inputs for the asset or liability that reflect management’s own assumptions about the assumptions that market participants would use in pricing the asset or liability as of the reporting date.

 

The summary of the quarterly fair values and changing values of financial instruments as of January 1, 2018 through June 30, 2018 is as follows:

 

   Derivative Liabilities 
Balance, January 1, 2018  $1,424,001 
Additions   - 
Conversions   (267,969)
Deletions   - 
Fair Value Adjustment –loss   892,968 
Balance, June 30, 2018  $2,049,000 

 

Please refer to Note 16 for disclosure and assumptions used to calculate the fair value of the derivative liabilities.

 

J. RESEARCH AND DEVELOPMENT

 

Research and development activities for product development are expensed as incurred. Costs for the six and three months ended June 30, 2018 and 2017 were $166,489, $96,918, $84,546 and $56,242, respectively

 

K. STOCK BASED COMPENSATION

 

The Company applies the fair value method of ASC 718, “Share Based Payment”, in accounting for its stock-based compensation. This standard states that compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. The Company values stock based compensation at the market price for the Company’s common stock as of the date in which the obligation for payment of services is incurred.

 

7
 

 

L. COMMON STOCK OPTIONS AND PURCHASE WARRANTS

 

The Company accounts for common stock options and purchase warrants at fair value in accordance with ASC 815-40, “Derivatives and Hedging”. The Black-Scholes option pricing valuation method (“BSM option pricing model”) is used to determine fair value of these warrants consistent with ASC 718, “Share Based Payment”. Use of this method requires that the Company make assumptions regarding stock volatility, dividend yields, expected term of the warrants and risk-free interest rates.

 

The Company accounts for transactions in which services are received from non-employees in exchange for equity instruments based on the fair value of the equity instruments exchanged, in accordance with ASC 505-50, “Equity Based payments to Non-employees”.

 

M. ORIGINAL ISSUE DEBT DISCOUNT

 

The original issue discount (OID) related to notes payable is amortized by the effective interest method over the repayment period of the notes. The unamortized OID is represented as a reduction of the amount of the notes payable.

 

N. PROPERTY AND EQUIPMENT

 

Property and equipment are recorded at cost. Depreciation is computed on the straight-line method, based on the estimated useful lives of the assets as follows:

 

   Years
Display equipment for trade shows  3
Leasehold improvements and furniture and fixtures  10 – 15
Shop equipment  7
Computers  3

 

Expenditures for maintenance and repairs are charged to operations as incurred.

 

O. IMPAIRMENT OF LONG LIVED ASSETS

 

Intangible assets, consisting primarily of patents, are deemed to be critical for the furtherance of our business objectives and our engine products. There have been no impairments of our intangible assets, as we are developing our products and obtaining new contracts based on the engine and associated technology patents.

 

The Company continually evaluates the carrying value of intangible assets and other long-lived assets to determine whether there are any impairment losses. If indicators of impairment are present and future cash flows are not expected to be sufficient to recover the assets’ carrying amount, an impairment loss would be charged to expense in the period identified.

 

P. RECENT ACCOUNTING PRONOUNCEMENTS

 

In February 2016, the Financial Accounting Standards Board (“FASB”) issued amended accounting guidance that changes the accounting for leases and requires expanded disclosures about leasing activities. Under the new guidance, lessees will be required to recognize a right-of-use asset and a lease liability, measured on a discounted basis, at the commencement date for all leases with terms greater than twelve months. Lessor accounting will remain largely unchanged, other than certain targeted improvements intended to align lessor accounting with the lessee accounting model and with the updated revenue recognition guidance issued in 2014. Lessees and lessors must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The amended guidance is effective for annual reporting periods (including interim periods within those periods) beginning after December 15, 2018, and early application is permitted. The Company’s adoption of this guidance did not result in a material adjustment to the financial statements.

 

8
 

 

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 required dates of adoption.

 

Q. CONCENTRATION OF RISK

 

The Company does not have any off-balance sheet concentrations of credit risk. The Company expects cash and accounts receivable to be the two assets most likely to subject the Company to concentrations of credit risk. The Company’s policy is to maintain its cash with high credit quality financial institutions to limit its risk of loss exposure.

 

As of June 30, 2018, the Company maintained its cash in one quality financial institution. The Company has not experienced any losses in its bank accounts through June 30, 2018. The company had no accounts receivable at June 30, 2018 and December 31, 2017.

 

R. DERIVATIVE FINANCIAL INSTRUMENTS

 

Accounting and reporting standards for derivative instruments and for hedging activities were codified by ASC Topic 815, Derivatives and Hedging (“ASC Topic 815”). It requires that all derivatives be recognized in the balance sheet and measured at fair value. Gains or losses resulting from changes in the fair value of derivatives are recognized in earnings or recorded in other comprehensive income (loss) depending on the purpose of the derivatives and whether they qualify and have been designated for hedge accounting treatment. The Company has derivative liabilities pursuant to convertible debt and common stock warrants and has recognized net expenses on the condensed consolidated statements of operations. The Company does not have any derivative instruments for which it has applied hedge accounting treatment.

 

NOTE 2 - GOING CONCERN

 

As shown in the accompanying consolidated financial statements, the Company sustained substantial operating and other losses and expenses of approximately $1.4 million for the six months ended June 30, 2018 and $2.1 million for the year ended December 31, 2017. The cumulative deficit since inception is approximately $64.4 million. The Company has a working capital deficit at June 30, 2018 of approximately $5.8 million. There is no guarantee whether the Company will be able to generate enough revenue and/or raise capital to support its operations. This raises substantial doubt about the Company’s ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on management’s plans which include implementation of its business model to generate revenue from development contracts, licenses and product sales, and continuing to raise funds through debt or equity raises. The Company will also likely continue to rely upon related-party debt or equity financing.

 

The consolidated condensed financial statements do not include any adjustments that might result from the outcome of these uncertainties. The Company is currently raising working capital to fund its operations via stock subscriptions, debt, advance contract payments (contract liability) and advances from and deferred payments to related parties.

 

NOTE 3 – INVENTORY, NET

 

Initiated in 2016, based on our revised R&D company business model, inventory principally consists of raw material to develop an engine. Under our prior business model, inventory consisted of raw material engine parts, work in process engines, labor and overhead, net of realization, valuation and obsolescence reserves. In the aggregate inventory is stated at the lower of cost or market. All inventory was fully reserved at June 30, 2018.

 

9
 

 

NOTE 4 – PROPERTY AND EQUIPMENT, NET

 

Property and equipment consist of the following:

 

   June 30, 2018   December 31, 2017 
Display equipment for trade shows  $6,270   $6,270 
Leasehold improvements and furniture and fixtures   93,922    93,922 
Equipment and computers   202,578    202,578 
Total   302,770    302,770 
Accumulated depreciation   (243,439)   (236,938)
Net property and equipment  $59,331   $65,832 

 

Depreciation expense for the six months ended June 30, 2018 and 2017 was $6,501 and $14,060, respectively. Depreciation expense for the three months ended June 30, 2018 and 2017 was $2,282 and $6,715, respectively.

 

NOTE 5 – PATENTS, TRADEMARKS AND COPYRIGHTS

 

Patents, trademarks and copyrights consist of legal fees paid to file and perfect these claims. The net balances as of June 30, 2018 and December 31, 2017, were $82,245 and $90,173, respectively. There were no capitalized additions to patents, trademarks and copyrights during the six months ended June 30, 2018 and the year ended December 31, 2017. For the six months ended June 30, 2018 and the year ended December 31, 2017, the Company recorded net charges of $0 and $62,857, respectively, included in general and administrative expenses, for various expired patents; the basic patents for the Cyclone technology are still protected.

 

As of June 30, 2018, the Company had 3 active and 8 expired patents issued on its technology both in the U.S. and internationally. Pursuant to new US Patent Office regulations, upon approval, expired patents can be reinstated upon payment of unpaid maintenance fees.

 

Patents, trademarks and copyrights are amortized over the life of the intellectual property which is 15 years. Amortization expenses for the six months ended June 30, 2018 and 2017 were $7,928 and $12,724, respectively. Amortization expenses for the three months ended June 30, 2018 and 2017 were $3,964 and $6,362, respectively

 

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NOTE 6 – NOTES AND OTHER LOANS PAYABLE

 

A. THIRD PARTY

 

A summary of non-related notes and other loans payable is as follows:

 

   June 30, 2018   December 31, 2017 
         
12% convertible notes payable, maturing at various dates from November 2013 through October 2017 (A)  $72,948   $61,196 
           
10% convertible note payable, monthly payments commencing in December 2013 through July 2014 (B)   19,963    19,963 
           
10% convertible notes payable maturing at various dates from May 2016 through February 2017 (C)   76,000    76,000 
           
10% convertible notes payable, maturing at various dates from December 2016 through January 2017 (D)   -    26,192 
           
10% convertible notes payable maturing at various dates from February 2016 through August 2016 (E)   112,200    140,658 
           
12% convertible notes payable, maturing at various dates from April 2016 through May 2016 (F)   12,832    35,936 
           
10% note payable, maturing Feb 3, 2017   50,000    50,000 
           
Various notes payable, maturing 2017 and 2018 (G)   72,650    72,650 
           
6 % note payable, maturing Oct 12, 2019, (I)   1,500    1,500 
           
Various notes payable, maturing 2017 and 2018   12,200    12,200 
           
Total non-third-party notes –net of discount   430,293    496,295 
           
Less-Current Portion   428,793    494,795 
           
Total non-current third-party notes  $1,500   $1,500 

 

  (A)

Notes issued net of 10% original discount (fully amortized). This note is in default.

     
  (B)

Note issued net of original discount (fully amortized). Effective May 8, 2016, the Company is subject to a default judgment of approximately $175,000, plus subsequent penalty interest for non-payment of convertible debt and interest. Unpaid interest, default penalties and default interest are included in accounts payable and accrued liabilities In 2018 the company negotiated a reduced settlement for $150,000 via the issuance of company stock.

     
  (C) Notes issued net of discount from derivative liabilities (fully amortized). At June 30, 2018, the Company held approximately 97 million shares in reserve to cover the potential conversion of this note into common stock pursuant to debt covenants. This note is in default.
     
  (D) Notes issued net of discount (fully amortized). This note is in default.
     
  (E) Notes issued net of discount from derivative liabilities (fully amortized). At June 30, 2018, the Company held 202 million shares in reserve to cover the potential conversion of this note into common stock pursuant to debt covenants. These notes are in default.
     
  (F)

Notes issued net of discount from derivative liabilities (fully amortized). The Company is subject to litigation judgment of approximately $150,000, plus subsequent penalty interest for non–payment. Unpaid interest, default penalties and default interest are included in accounts payable and accrued liabilities. The company negotiated the settlement of the debt, interest and penalties via the conversion of company stock.

     
  (G)

Interest on $62,000 of notes to be paid in 6,000,000 shares of restricted company common stock. Other notes are various interest rates. These notes are in default.

 

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B. RELATED PARTIES

 

A summary of related party notes and other loans payable is as follows:

 

   June 30, 2018   December 31, 2017 
         
6% demand loans per Operations Agreement with Schoell Marine Inc., a company owned by Cyclone’s Chairman and controlling shareholder (A)  $143,210   $161,005 
6% non-collateralized loans from officer and shareholder, payable on demand. The original principal balances were $157,101.   82,046    101,546 
12% non-collateralized loans from officer and shareholder, payable on demand   12,138    21,044 
Accrued Interest   126,271    116,278 
Total current related party notes, inclusive of accrued interest  $363,665   $399,873 

 

  (A) This note arose from services and salaries incurred by Schoell Marine on behalf of the Company. The Schoell Marine note bears an interest rate of 6% and repayments occur as cash flow of the Company permits.

 

NOTE 7 – RELATED PARTY TRANSACTIONS-Deferred Compensation

 

Included in accounts payable and accrued expenses - related parties as of June 30, 2018 and December 31, 2017, are $823,995 and $687,500 respectively, of accrued and deferred officers’ salaries compensation for the President and the CTO which may be paid as funds are available. These are non-interest bearing and due on demand.

 

NOTE 8 – PREFERRED STOCK

 

At June 30, 2018 and December 31, 2017, the Series A Preferred Stock had 750,000 shares authorized and no shares issued and outstanding. In the first quarter of 2018, the company has a signed binding letter of intent (“LOI”) by an investor to provide $5 million to the company for additional development of the Cyclone Engines. The payment of the $5 million is scheduled through 2020. The consideration is to be the issuance of Preferred A shares, convertible into effectively an undiluted 20% of the Common shares of the company at the completion of funding.

 

The Series B Preferred Stock is majority voting stock and is held by the two co-founders of the Company. Ownership of the Series B Preferred Stock shares assures the holders thereof a 51% voting control over the common stock of the Company. The 1,000 Series B Preferred Stock shares are convertible on a one-for-one basis with the common stock in the instance the Company is merged, sold or otherwise dissolved.

 

NOTE 9 – STOCK TRANSACTIONS

 

The Company authorized an increase of Common Stock to 6 Billion shares in the last quarter of 2017. This increase in the amount of authorized share capital is a requirement by debt covenants to cover old convertible debt. This is required as the stock price has fallen, and shares have to be available at 4 times the conversion rate.

 

During the six months ended June 30, 2018, the Company:

 

  a- Amortized (based on vesting) $549 of common stock options for employee services.
     
  b- Issued approximately 1,862 million shares of common stock pursuant to conversions of approximately $222,000 of notes payable, accrued interest and related liabilities.
     
  c-

The Company issued 571 million shares of common stock valued at approximately $135,000 for accrued liabilities for consulting services.

 

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In the first quarter of 2018, the company has a signed binding LOI from an investor to provided $5 million to the company. The consideration is to be the issuance of Preferred A shares, convertible into effectively an undiluted 20% of the Common shares of the company at the complete funding estimated through 2020. To date $259,500 has been funded by the investor.

 

NOTE 10 – STOCK OPTIONS AND WARRANTS

 

A. COMMON STOCK OPTIONS

 

Per the employment contracts with certain officers, for the six months ended June 30, 2018, the company issued 900,000 common stock options, valued at $180 (pursuant to the Black Scholes valuation model) that are exercisable into shares of common stock at an average exercise price of $.0002 and with a maturity life of 10 years. For the six months ended June 30, 2018, the amortization of stock options was $350, and the unamortized balance was $272. As of June 30, 2018, the intrinsic value on all options was zero.

 

A summary of the common stock options for the period from December 31, 2017 through June 30, 2018 follows:

 

   Number
Outstanding
   Weighted Avg.
Exercise Price
   Weighted Avg.
Remaining
Contractual Life
(Years)
 
             
Balance, December 31, 2017   13,400,000   $0.064    5.8 
Options issued   900,000    .0002    9.9 
Options expired   -    -    - 
Balance, June 30, 2018   14,300,000   $0.060    5.6 

 

The vested and exercisable options at period end follows:

 

   Exercisable/
Vested Options
Outstanding
   Weighted Avg.
Exercise Price
   Weighted Avg.
Remaining
Contractual
Life (Years)
 
                
Balance June 30, 2018   12,950,000   $.055    5.3 

 

The fair value of new stock options, re-priced stock options, new purchase warrants and re-priced purchase warrants granted using the Black-Scholes option pricing model was calculated using the following assumptions:

 

    Six Months
Ended
June 30, 2018
    Six Months
Ended
June 30, 2017
 
Risk free interest rate     2.39-2.63 %     1.5-1.5 %
Expected volatility     130-132 %     122-134 %
Expected term     3       3  
Expected dividend yield     0 %     0 %
Average value per options and warrants   $ .0002     $ 0009-.0015  

 

Expected volatility is based on historical volatility of the Company’s common stock price. Short Term U.S. Treasury rates were utilized at the risk-free interest rate. The expected term of the options and warrants was calculated using the alternative simplified method newly codified as ASC 718 “Accounting for Stock Based Compensation,” which defined the expected life as the average of the contractual term of the options and warrants and the weighted average vesting period for all issuances.

 

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B. COMMON STOCK WARRANTS

 

As of June 30, 2018, and December 31, 2017, there were no common stock warrants outstanding.

 

NOTE 11 – INCOME TAXES

 

In December 2017, a new tax known as Tax Cut and Jobs Act of 2017 was enacted. The new tax law includes significant changes to the U.S. corporate tax systems including a rate reduction from 35% to 21% beginning in January of 2018, a change in the treatment of foreign earnings going forward, a deemed repatriation transition tax, and changes to allow net operating losses to be carried forward indefinitely. In addition, net operating losses arising after December 31, 2017 will be limited to the lesser of the available net operating loss or 80% of the pre-net operating loss taxable income. In accordance with ASC 740, the impact of a change in tax law is recorded in the period of enactment.

 

A reconciliation of the differences between the effective income tax rates and the statutory federal tax rates for the six months ended June 30, 2018 and 2017 are as follows:

 

    Six Months
ended
June 30, 2018
          Six Months
ended
June 30, 2017
       
Tax benefit at U.S. statutory rate   $ 77,848       21 %   $ 247,704       34 %
State taxes, net of federal benefit     14,828       4       29,142       4  
Change in valuation allowance     (92,676 )     (25 )     (276,846 )     (38 )
    $ -       -     $ -          

 

The tax effect of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at March 31 2018 and December 31, 2017 consisted of the following:

 

Deferred Tax Assets   June 30, 2018     December 31, 2017  
Net Operating Loss Carry-forward   $ 11,165,972     $ 10,951,258  
Deferred Tax Liabilities – Accrued Officers’ Salaries     (1,052,119 )     (987,056 )
Net Deferred Tax Assets     10,113,853       9,964,202  
Valuation Allowance     (10,113,853 )     (9,964,202 )
Total Net Deferred Tax Assets   $ -     $ -  

 

As of June 30, 2018, the Company had a net operating loss carry forward for income tax reporting purposes of approximately $17.5 million that may be offset against future taxable income through 2031. Current tax laws limit the amount of loss available to be offset against future taxable income when a substantial change in ownership occurs. Therefore, the amount available to offset future taxable income may be limited. No tax asset has been reported in the financial statements because the Company believes there is a 50% or greater chance the carry forwards will expire unused. Accordingly, the potential tax benefits of the loss carry forwards are offset by a valuation allowance of the same amount.

 

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NOTE 12- LEASE OBLIGATIONS

 

A. LEASE ON FACILITIES

 

The Company leases a 6,000 square foot warehouse and office facility located at 601 NE 26th Court in Pompano Beach, Florida. The original lease was at an annual rent of $60,000. The lease period ended December 2016 and the current lease is monthly with a 3% rate increase. Occupancy costs for each of the six months ended June 30, 2018 and 2017 were $33,966 and $32,522, respectively. Occupancy costs for each of the three months ended June 30, 2018 and 2017 were $16,983 and $16,622, respectively.

 

B ..CAPITAL LEASE OBLIGATIONS

 

The company is in default on its remaining capital lease obligation to Leaf Capital Funding, LLC.

 

Effective October 13, 2017 the Company was subject to a summary judgment of $ 37,278 plus attorney fees for non-payment of 3 capital leases from Marlin Business Bank. This amount is including $11,379 of past due lease payments, accelerated lease payments, late charges and other fees. The $37,278 has been reflected in accrued expenses with an appropriate reduction of the capital lease liability.

 

In the third quarter of 2017, the company recognized a summary judgment of $7,266 plus accrued interest for non-payment of a capital lease from Navitas Lease Corp. This amount is including $4,177 of past due lease payments, accelerated lease payments, interest expense, late charges and other fees. The $7,266 has been reflected in accrued liabilities with an appropriate reduction of the capital lease liability.

 

The balance of capitalized lease obligations payable at June 30, 2018 was $5,522, which is due during 2018.

 

NOTE 13 – COMMITMENTS AND CONTINGENCIES

 

The Company has employment agreements with Harry Schoell, Chairman and CTO (previously, CEO), at $150,000 per year and Frankie Fruge, President, at $120,000 per year; (collectively, the “Executives”). These agreements provide for a term of three (3) years from their Effective Date (July 2007 with automatically renewing successive one year periods starting on the end of the second anniversary of the Effective Date. If the Executive is terminated “without cause” or pursuant to a “change in control” of the Company, as both defined in the respective agreements, the Executive shall be entitled to (i) any unpaid Base Salary accrued through the effective date of termination, (ii) the Executive’s 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 the Executive were he/she not terminated, during the 12 months following his or her termination.

 

NOTE 14 –CONSOLIDATED SUBSIDIARIES

 

In 2012, the Company established a 100% owned subsidiary (renamed) Cyclone Performance LLC (CP). The purpose of Cyclone Performance is to build, test and run a vehicle utilizing the Company’s engine. In the last quarter of 2012, the Company sold a 5% equity investment to an unrelated investor for $30,000. Subsequent to December 31, 2012, this 5% equity investment was acquired by a corporate officer of the Company. Losses of the subsidiary are currently fully borne by the Company, as there is no guarantee of future profits or positive cash flow of the subsidiary. As of June 30, 2018, the cumulative unallocated losses to the non-controlling interests of this subsidiary are approximately $1,000 and are to be recovered by the parent from future subsidiary profits if they materialize.

 

Effective July 24 2018, the Company has a signed agreement to sell 76% of its investment in CP for $15,000 and retain 19%. The 5% of CP equity owned by corporate officers is also to be sold. This agreement was closed and fully funded August 2, 2018.

 

In the May 2018, the Company established a wholly owned subsidiary, Emerging Power Solutions Inc., whose purpose is to provide alternative power solutions for various industries based on the application of the Cyclone Engine. As of June 30, 2018, there was no activity in this company.

 

15
 

 

NOTE 15 – RECEIVABLES, CONTRACT LIABILITY AND BACKLOG

 

As of June 30, 2018, total backlog for prototype engines to be delivered was $400,000 from the Combilift agreement, of which $100,000 has been paid and has been recorded as contract liability. As of June 30, 2018, 3 other customers have $56,950 of advances as deposits on contracts for engines to be delivered.

 

NOTE 16 – DERIVATIVE FINANCIAL INSTRUMENTS

 

The Company had entered into convertible note agreements (subject to derivative accounting treatment). The conversion prices into common stock ranged from a discount of 30% to 45% of the lowest closing prices in the 10 to 20 trading days prior to the conversion. Under provisions of ASC Topic 815-40, this conversion feature triggered derivative accounting treatment because the convertible note was convertible into an indeterminable number of shares of common stock. The fair value of the embedded conversion option was required to be presented as a derivative liability and adjusted to fair value at each reporting date, with changes in fair value reported in the condensed consolidated statements of operation. As of June 30, 2018, the Company has outstanding stock options and convertible debt that upon exercise could exceed the number of shares authorized.

 

In the six months ended June 30, 2018, the Company recorded a non-cash charge of approximately $0.9 million of derivative losses related to adjusting the derivative liability to fair value. At June 30, 2018, the derivative related fair value of debt and related convertible liabilities was approximately $2.0 million. The company also amortized to interest expense $30,764 of derivative debt discount.

 

The Company calculates the estimated fair values of the liabilities for derivative instruments at each quarter-end using the Stochastic Process Forecasting models (Monte Carlo simulations). The volatility was based on historical volatility, the expected term is equal to the remaining term of the debt and the risk-free rate is based upon rates for treasury securities with the same term.

 

Volatility expected term and risk-free interest rates that had been used to estimate the fair value of derivative liabilities are indicated in the table below.

 

   Six Months ended
June 30, 2018
    Six Months ended
June 30, 2017
 
Volatility   477-615%    121-277%
Risk Free Rate   1.73-1.93%    1.0-1.24%
Expected Term (years)   .25     .25-1.0 
Dividend Rate   0%    0%

 

NOTE 17 – LITIGATION

 

Effective May 8, 2016, the Company is subject to a default judgment of approximately $175,000, plus subsequent penalty interest for non-payment of convertible debt and interest Tonaquint Inc. filed and received a judgment and the Company is negotiating a reduced settlement. As at June 30, 2018, outstanding interest, default interest and default judgment penalties are included in accrued liabilities. In 2018, the Company negotiated a reduced settlement for $150,000 via the issuance Company stock.

 

In August 2016, the Company is subject to litigation of approximately $150,000, plus subsequent penalty interest for non -payment of a liability. JSJ filed and received a judgment and the Company entered into a settlement agreement for conversion of judgment based on value and conversions of original note on January 9, 2017. As at June 30, 2018, outstanding interest, default interest and default judgment penalties for debt are included in accrued liabilities.

 

Effective October 13, 2017 the Company was subject to a summary judgment of $37,278 plus attorney fees for non-payment of 3 capital leases from Marlin Business Bank. This amount includes $11,379 of unpaid lease payments, accelerated lease payments, late charges and other fees. The $37,278 has been reflected in accrued expenses with an appropriate reduction of the capital lease liability.

 

In the third quarter of 2017, the company recognized a summary judgment of $7,266 plus accrued interest for non-payment of a capital lease from Navitas Lease Corp. This amount is including $4,177 of past due lease payments, accelerated lease payments, interest expense, late charges and other fees. The $7,266 has been reflected in accrued liabilities with an appropriate reduction of the capital lease liability.

 

16
 

 

NOTE 18 – SUBSEQUENT EVENTS

 

In the third quarter of 2018, the Company engaged in the following transactions:

 

Pursuant to the binding letter of intent by an investor to provide $5 million to the company for additional development of the Cyclone Engines the Company has met all its milestones and has received $10,000 in the third quarter of 2018.

 

Effective July 24 2018, the Company had a signed agreement to sell 76% of its investment in CP for $15,000 and retain 19%. As of June 30, 2018, $5,000 had been received and the balance was received on August 2 2018. The 5% of CP equity owned by corporate officers was also sold.

 

17
 

 

ITEM 2. 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 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 statements.

 

Overview

 

The Company is engaged in the research and development of all-fuel, eco-friendly engine and parts technologies for integration and use within customers’ systems. The Company anticipates that it will concentrate on the following engine models (power ratings): Mark 1 (2.7 KW- 6 HP), Mark 3 (12 KW-22 HP) and the Mark 5 ( 60 KW- 100 HP). Additionally, revenue is anticipated via sales of component parts and licensing fees.

 

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Corporate Structural Actions. The Company’s focus is on revenue and funding derived from sales of engines and parts for integration into customers applications and systems. With delivery of our engines and material component parts, we are transitioning from the convertible notes used to finance the Company over the last 18 months.

 

Results of Operations

 

Three Months Ended June 30, 2018 Compared to Three Months Ended June 30, 2017

 

Revenue. The Company had no revenues in the quarters ended June 30 2018 and June 30, 2017.

 

Gross Profit. In the quarters ended June 30, 2018 and 2017, the company had no gross profit.

 

Operating Expenses.

 

Operating expenses incurred for the quarter ended June 30, 2018 were $329,706 as compared to $282,542 for the same period in the previous year, an increase of $47,164 or 17%. The majority of the variance was due to a higher research and development expenses of $28,304 (50%) attributable to increased engineering spending and General and Administrative expenses of $17,872 (8.1%) from consulting and professional fees.

 

Operating Loss. The operating losses for the quarters ended June 30, 2018 and 2017 were $329,706 and $282,542 respectively, a variance of $47,164 or 17%, due to the factors outlined above.

 

Other (Expense) Other expense for the quarter ended June 30, 2018 was $367,845 versus a net loss of $220,049 for the same period in the prior year, a variance of $147,796 (67%). In the second quarter of 2018 the company recognized a non-cash derivative fair value accounting related charge of $468,000 and $35,845 of interest expense partially offset by an expense accrual reduction of $136,000. The 2017 other expenses included $136,049 of interest expense, and $84,000 non-cash derivative fair value accounting related charges.

 

Net Loss and Loss per Share. The net loss for the quarter ended June 30, 2018 was $697,551, compared to a net loss of $502,591 for the same period in the previous year, a variance of $194,960 or 39% The net loss per weighted average share was $0.00 for both the current quarter and the prior quarter.

 

Six Months Ended June 30, 2018 Compared to Six Months Ended June 30, 2017

 

Revenue. The Company had no revenues in the six months ended June 30, 2018 and June 30, 2017.

 

Gross Profit. In the two quarters ended June 30, 2018 and 2017, the company had no gross profit.

 

Operating Expenses.

 

Operating expenses incurred for the six ended June 30, 2018 were $578,421 as compared to $640,953 for the same period in the previous year, an decrease of $62,532 or 9.8%. The majority of the variance was due to a lower General and Administrative expenses of $136,721 (25%) from consulting and professional fees, partially offset by higher research and development expenses of $69,571 (72%) attributable to increased engineering spending.

 

Operating Loss. The operating losses for the six months ended June 30, 2018 and 2017 were $578,421 and $640,953, respectively, a favorable variance of $62,532 or 9.8%, due to the factors outlined above.

 

Other Expense. Net other expense for the six months ended June 30, 2018 was $858,750 versus a net loss of $664,424 for the same period in the prior year, a variance of $194,326 or 29%. In the first half of 2018 the company recognized a non-cash fair value derivative debt related charge of $892,968, and $104,201 of interest expense partially offset by an expense accrual reduction of $136,000. The comparable period for 2017 other expenses includes $407,467 of non-cash fair value derivative debt related charges, $186,023 of interest expense and a $70,934 loss on settlement of debt and liability with company stock.

 

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Net Loss and Loss per Share. The net loss for the six months ended June 30, 2018 was $1,437,171, compared to a net loss of $1,305,377 for the same period in the previous year, a variance of $131,794 or 10% The net loss per weighted average share was $0.00 for both the current six months and the comparable period of the prior year.

 

Liquidity and Capital Resources

 

At June 30, 2018, the approximate net working capital deficiency was $5.77 million as compared to a deficiency of $5.44 million at December 31, 2017, a variance of $.33 million (6%).

 

For the six months ended June 30, 2018, cash increased by $29,742. Funds were provided by $249,500 in proceeds from the series A preferred stock subscription, a $143,468 increase in accounts payable and accrued expenses and a $130,287 net increase in related party accrued expenses and notes payable. Funds were used by the net loss of $1,437,171. Non-cash charges were $892,968 from fair value derivative accounting charges and $30,764 of amortized derivative debt discounts.

 

For the six months ended June 30, 2017, cash decreased by $591. This is reflective of funds used by the net loss of $1,305,377 partially offset by funds provided by debt proceeds of $124,650, higher accounts payable and accrued expenses of $414,086 and a net increase of $152,025 in related party notes payables and accrued expenses. Non-cash charges include a $70,934 loss recognized by settling debt with common stock and $493,083 of non-cash charges from fair value derivative accounting and discount amortization.

 

Cash Flow Management Plan

 

As shown in the accompanying financial statements, the Company sustained substantial operating losses and other expenses for the six months ended June 30, 2018 of approximately $1.4 million. Cumulative operating and other losses since inception are approximately $64.4 million. The Company has a working capital deficit at June 30, 2018 of approximately $5.8 million. There is no guarantee whether the Company will be able to support its operations on a long-term basis. This raises doubt about the Company’s ability to continue as a going concern. If additional funds cannot be raised or otherwise generated, the Company may be forced to reduce staff, minimize its research and development activities, or in a worst-case scenario, shut-down operations.

 

We are engaged in the research and development of all-fuel, eco-friendly engine technologies. Several prototypes of these engines are current beta tested, pre-production tested or nearing completion with 2 models currently in limited production. While we 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. For us to maintain and expand our operations through the next 12 months, we will seek the completion of our manufactured products by our two manufacturers of the engines and the integration of the engines into a generator package to be sold to distributors. We will also continue license agreements and development agreements that provide up-front or progress payment funds to us. We are receiving monthly payments from our investor and anticipate for that to continue as they proceed with their due diligence.

 

Our goals for the remainder of 2018 and 2019 are to sell the Mark 1 and Mark 3 engine (with the TAW generator) to commercial customers and distributors. We are developing the Mark 5 engine for incorporation into solar power systems that will be sold via our investment partner.

 

Funding in 2018 to complete various Company projects has been negotiated with an investor that wants to integrate Cyclone technology with its Solar products. Final testing of the Mark 10 1500 horse power unit is projected by year end. The new Thermal Storage unit for the 1-Megawatt Microgrid market and the Cyclone solar trough is expected to be manufactured early next year by our teaming partner. It is currently under Beta testing.

 

Through the first half of 2018, an investor provided $249,500 for additional development of the Cyclone Engines as part of a binding letter of intent for $5 million. The consideration is to be the issuance of Preferred A shares, convertible into effectively undiluted 20% of the Common shares of the Company at the completion of funding. The funds are to be paid over a 2-year period upon reaching various milestones.

 

20
 

 

Our auditors have issued a going concern opinion for the years ended December 31, 2017 and 2016. Management is optimistic, however, that revenue can be generated shortly, and that funding has been secured in 2018 through 2020 to maintain operations and development at the current and at an accelerated pace.

 

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 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.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

Not required for smaller reporting companies.

 

ITEM 4. 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 President (Chief Executive Officer) and Chief Financial Officer, of the effectiveness of our financial disclosures, controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of June 30, 2018 and December 31, 2017.

 

A material weakness can be defined as an insufficiency of internal controls that may result in a more than remote likelihood that a material misstatement will not be prevented, detected or corrected in a company’s financial statements.

 

Based upon that evaluation, our President (Chief Executive Officer) and Chief Financial Officer concluded that our disclosure controls and procedures were not effective, based on the following deficiencies:

 

  Weaknesses in Accounting and Finance Personnel: We have a small accounting staff and we do not have the robust employee resources and expertise needed to meet complex and intricate GAAP and SEC reporting requirements of a U.S. public company. Additionally, numerous adjustments and proposed adjustments have been noted by our auditors. This is deemed by management to be a material weakness in preparing financial statements.
     
  We have written accounting policies and control procedures, but we do not have sufficient staff to implement the related controls. Management had determined that this lack of the implantation of segregation of duties, as required by our written procedures, represents a material weakness in our internal controls.
     
 

Internal control has as its core a basic tenant of segregation of duties. Due to our limited size and economic constraints, we are not able to segregate for control purposes various asset control and recording duties and functions to different employees. This lack of segregation of duties had been evaluated by management and has been deemed to be a material control deficiency.

 

We have determined that the above internal control weaknesses and deficiencies could result in a reasonable possibility for financial statements that material misstatements will not be prevented or detected on a timely basis by our internal controls.

 

21
 

 

Changes in Internal Control Over Disclosure Controls and Procedures.

 

Management is currently evaluating what steps can be taken to address these material weaknesses. As a growing small business, we continuously devote resources to the improvement of our internal control over financial reporting. Due to budget constraints, the staffing size, proficiency and specific expertise in the accounting department is below requirements for the operation. We are anticipating correcting deficiencies as funds become available.

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting is being designed to include policies and procedures that are intended to:

 

(i) maintain records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

 

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that our receipts and expenditures are being made only in accordance with the authorization of our management and directors; and

 

(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.

 

Our management assessed the effectiveness of our internal control over financial reporting as of June 30, 2018 and December 31, 2017. In making these assessments, our management applied the integrated framework and criteria which has been developed and set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) (Revised 2013). This assessment included an evaluation of the design and procedures of our control over financial reporting. Based on this evaluation, our management concluded that as of June 30, 2018 and December 31, 2017 our internal control over financial reporting was not effective due to certain material weaknesses. These identified material weaknesses included (i) an insufficient accounting staff; (ii) limited checks and balances in processing cash and other transactions; and (iii) lack of sufficient active independent directors and an independent audit committee.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate

 

We are committed to improving our financial and oversight organization and procedures. During the remainder of 2018 and into 2019, we intend to adopt new accounting and disclosure controls and procedures, improve existing procedures to remedy material weaknesses in our internal control over financial reporting and to add experienced personnel to our accounting staff as our financial ability allows. We also hope to add independent directors to our Board of Directors, and to establish an Audit Committee comprised of independent directors with accounting and /or financial reporting expertise.

 

Changes in Internal Control Over Financial Reporting and Procedures.

 

There were no changes in internal control over financial reporting and procedures from the previous quarter.

 

22
 

 

PART II. OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

Effective May 8, 2016, the Company is subject to a default judgment of approximately $175,000, plus subsequent penalty interest for non-payment of convertible debt and interest Tonaquint Inc. filed and received a judgment and the Company is negotiating a reduced settlement. As at June 30, 2018, outstanding interest, default interest and default judgment penalties are included in accrued liabilities. In 2018, the Company negotiated a reduced settlement for $150,000 via the issuance Company stock.

 

In August 2016, the Company is subject to litigation of approximately $150,000, plus subsequent penalty interest for non -payment of a liability. JSJ filed and received a judgment and the Company entered into a settlement agreement for conversion of judgment based on value and conversions of original note on January 9, 2017. As at June 30, 2018, outstanding interest, default interest and default judgment penalties for debt are included in accrued liabilities.

 

Effective October 13, 2017 the Company was subject to a summary judgment of $ 37,278 plus attorney fees for non-payment of 3 capital leases from Marlin Business Bank. This amount is including $11,379 of unpaid lease payments, accelerated lease payments, late charges and other fees. The $37,278 has been reflected in accrued expenses with an appropriate reduction of the capital lease liability.

 

In the third quarter of 2017, the company recognized a summary judgment of $7,266 plus accrued interest for non-payment of a capital lease from Navitas Lease Corp. This amount is including $4,177 of past due lease payments, accelerated lease payments, interest expense, late charges and other fees. The $7,266 has been reflected in accrued liabilities with an appropriate reduction of the capital lease liability.

 

ITEM 1A. RISK FACTORS

 

Not required.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

In the first half of 2018 the Company issued 2.4 billion shares of restricted common stock in settlement of debt, accrued liabilities and related interest of approximately $355,000.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

A summary of non-related notes in default as of June 30, 2018, is as follows:    
     
12% convertible notes payable, maturing at various dates from November 2013 through October 2017  $72,948 
10% convertible note payable, monthly payments commencing in December 2013 through July 2014   19,963 
10% convertible notes payable maturing at various dates from May 2016 through February 2017   76,000 
10% convertible notes payable maturing at various dates from February 2016 through August 2016   112,200 
12% convertible notes payable, maturing at various dates from April 2016 through May 2016   12,832 
10% note payable, maturing Feb 3, 2017   50,000 
Various notes payable, maturing 2017 and 2018   72,650 
Total non-related third-party notes in default   416,593 

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

None.

 

23
 

 

ITEM 6. EXHIBITS:

 

The Company filed all required exhibits for this period in this 10Q.

 

Exhibit
Number
  Description
     
31.1   Certification of the President (Principal Executive Officer), as required by Section 302 of the Sarbanes-Oxley Act of 2002.
31.2   Certification of Principal Financial Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002.
32.1   Certification of the President (Chief Executive Officer), as required by Section 906 of the Sarbanes-Oxley Act of 2002.
32.2   Certification of the Chief Financial Officer, as required by Section 906 of the Sarbanes-Oxley Act of 2002.
     
101.INS*   XBRL Instance
101.SCH*   XBRL Taxonomy Extension Schema
101.CAL*   XBRL Taxonomy Extension Calculation
101.DEF*   XBRL Taxonomy Extension Definition
101.LAB*   XBRL Taxonomy Extension Labels
101.PRE*   XBRL Taxonomy Extension Presentation

 

The certification attached as Exhibits 32.1 and 32.2 that accompany this Quarterly Report on Form 10-Q 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.

 

* Information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

 

24
 

 

SIGNATURES

 

Pursuant to the requirements 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.
   
August 31, 2018 /s/ Frankie Fruge
  Frankie Fruge
  President (Principal executive officer)
  and Secretary
   
August 31, 2018 /s/ Bruce Schames.
  Bruce Schames
  Chief Financial Officer
  (Principal financial and accounting officer)

 

25
 

 

EX-31.1 2 ex31-1.htm

 

EXH 31.1

 

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO

SECURITIES EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a)

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Frankie Fruge, certify that:

 

1. I have reviewed this report on Form 10-Q of Cyclone Power Technologies, Inc.;
   
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
   
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
   
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
   
  a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiary, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
     
  b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
     
  c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
     
  d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
     
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
   
  a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
     
  b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: August 31, 2018 /s/ Frankie Fruge
  Frankie Fruge
  President (Principal Executive Officer)
  And Secretary

 

 
 

 

EX-31.2 3 ex31-2.htm

 

EXH 31.2

 

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO
SECURITIES EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a)
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Bruce Schames, certify that:

 

1. I have reviewed this report on Form 10-Q of Cyclone Power Technologies Inc.;
   
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
   
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
   
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
   
  a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiary, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
     
  b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
     
  c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
     
  d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
     
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
   
  a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
     
  b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: August 31, 2018 /s/ Bruce Schames
  Bruce Schames,
  Chief Financial Officer
  (Principal Accounting Officer)

 

 
 

 

EX-32.1 4 ex32-1.htm

 

EXH 32.1

 

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report of Cyclone Power Technologies Inc. (the “Company”) on Form 10-Q for the period ending June 30, 2018, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Frankie Fruge, president, and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

 

  (a) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
     
  (b) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: August 31, 2018 /s/ Frankie Fruge
  Frankie Fruge
  President (Principal Executive Officer)

 

 
 

 

EX-32.2 5 ex32-2.htm

 

EXH 32.2

 

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report of Cyclone Power Technologies, Inc. (the “Company”) on Form 10-Q for the period ending June 30, 2018, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Bruce Schames, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

 

  (a) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
     
  (b) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: August 31, 2018 /s/ Bruce Schames
  Bruce Schames
 

Chief Financial Officer

(Principal Accounting Officer)

 

 
 

 

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srt:MaximumMember 2017-01-01 2017-06-30 0001442711 CYPW:JulyTwentyFourTwothousandEighteenMember CYPW:CorporateOfficersMember 2018-06-30 0001442711 CYPW:ThirdQuaterOfTwoThousandEighteenMember 2018-01-01 2018-06-30 0001442711 us-gaap:SubsequentEventMember 2018-07-23 2018-07-24 0001442711 us-gaap:SubsequentEventMember 2018-07-24 0001442711 us-gaap:SubsequentEventMember CYPW:CorporateOfficersMember 2018-07-24 iso4217:USD xbrli:shares iso4217:USD xbrli:shares xbrli:pure CYPW:Patents CYPW:Integer utr:sqft 302770 6270 93922 202578 302770 6270 93922 202578 399873 161005 101546 21044 116278 363665 143210 82046 12138 126271 1424001 2049000 750000 1000 750000 1000 0.0001 0.0001 6000000000 6000000000 2859645298 5292794585 2859645298 5292794585 317000 317000 1862101668 571047619 100000000 44476071 70000000 6637000 <p style="margin: 0pt"></p> <p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>NOTE 1 &#8211; ORGANIZATIONAL AND SIGNIFICANT ACCOUNTING 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Document and Entity Information - shares
6 Months Ended
Jun. 30, 2018
Aug. 20, 2018
Document And Entity Information    
Entity Registrant Name CYCLONE POWER TECHNOLOGIES INC  
Entity Central Index Key 0001442711  
Document Type 10-Q  
Document Period End Date Jun. 30, 2018  
Amendment Flag false  
Current Fiscal Year End Date --12-31  
Entity Filer Category Smaller Reporting Company  
Entity Common Stock, Shares Outstanding   5,292,794,585
Trading Symbol CYPW  
Document Fiscal Period Focus Q2  
Document Fiscal Year Focus 2018  
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Condensed Consolidated Balance Sheets (Unaudited) - USD ($)
Jun. 30, 2018
Dec. 31, 2017
CURRENT ASSETS    
Cash $ 29,742
Other current assets 193 193
Total current assets 29,935 193
PROPERTY AND EQUIPMENT    
Furniture, fixtures, and equipment 302,770 302,770
Accumulated depreciation (243,439) (236,938)
Net property and equipment 59,331 65,832
OTHER ASSETS    
Patents, trademarks and copyrights 394,980 394,980
Accumulated amortization (312,735) (304,807)
Net patents, trademarks and copyrights 82,245 90,173
Other assets 7,660 7,660
Total other assets 89,905 97,833
Total Assets 179,171 163,858
CURRENT LIABILITIES    
Bank overdraft 52
Accounts payable and accrued expenses 1,731,688 2,057,068
Accounts payable and accrued expenses-related parties 1,046,720 880,225
Notes and other loans payable-current portion 428,793 494,795
Derivative liabilities 2,049,000 1,424,001
Notes and other loans payable-related parties 363,665 399,873
Capitalized lease obligations-current portion 5,522 5,522
Contract Liability and license deposits 178,826 173,826
Total current liabilities 5,804,214 5,435,362
NON-CURRENT LIABILITIES    
Notes and other loans payable-net of current portion 1,500 1,500
Total non-current liabilities 1,500 1,500
Total Liabilities 5,805,714 5,436,862
Commitments and contingencies (See Note 13)
STOCKHOLDERS' DEFICIT    
Common stock, $.0001 par value, 6,000,000,000 shares authorized, 5,292,794,585 and 2,859,645,298 shares, issued and outstanding June 30, 2018 and December 31, 2017, respectively. 529,278 285,963
Additional paid-in capital 57,968,309 57,377,491
Treasury Stock, 317,000 shares, at June 30, 2018 and December 31, 2017, respectively, at cost. (3,000) (3,000)
Series A preferred stock subscription 249,500
Accumulated deficit (64,399,662) (62,962,497)
Total stockholders' deficit-Cyclone Power Technologies Inc. (5,655,575) (5,302,043)
Non-controlling interest in consolidated subsidiary 29,032 29,039
Total Stockholders' Deficit (5,626,543) (5,273,004)
Total Liabilities and Stockholders' Deficit 179,171 163,858
Series A Preferred Stock [Member]    
STOCKHOLDERS' DEFICIT    
Preferred stock, value
Series B Preferred Stock [Member]    
STOCKHOLDERS' DEFICIT    
Preferred stock, value
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Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - $ / shares
Jun. 30, 2018
Dec. 31, 2017
Common stock, par value $ 0.0001 $ 0.0001
Common stock, shares authorized 6,000,000,000 6,000,000,000
Common stock, shares issued 5,292,794,585 2,859,645,298
Common stock, shares outstanding 5,292,794,585 2,859,645,298
Treasury stock, shares 317,000 317,000
Series A Preferred Stock [Member]    
Preferred stock, par value $ 0.0001 $ 0.0001
Preferred stock, shares authorized 750,000 750,000
Preferred stock, shares issued 0 0
Preferred stock, shares outstanding 0 0
Series B Preferred Stock [Member]    
Preferred stock, par value $ 0.0001 $ 0.0001
Preferred stock, shares authorized 1,000 1,000
Preferred stock, shares issued 1,000 1,000
Preferred stock, shares outstanding 1,000 1,000
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Condensed Consolidated Statements of Operations (Unaudited) - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2018
Jun. 30, 2017
Jun. 30, 2018
Jun. 30, 2017
Income Statement [Abstract]        
REVENUES
COST OF GOODS SOLD
Gross profit
OPERATING EXPENSES        
Advertising and promotion 7,460 6,472 11,270 6,652
General and administrative 237,700 219,828 400,662 537,383
Research and development 84,546 56,242 166,489 96,918
Total operating expenses 329,706 282,542 578,421 640,953
Operating loss (329,706) (282,542) (578,421) (640,953)
OTHER (EXPENSE) INCOME        
Other income (expense) 136,000 138,419 (70,934)
Derivative (expense) -notes payable (468,000) (84,000) (892,968) (407,467)
Interest (expense) (35,845) (136,049) (104,201) (186,023)
Total other (expense) (367,845) (220,049) (858,750) (664,424)
Loss before income taxes (697,551) (502,591) (1,437,171) (1,305,377)
Income taxes
Net loss $ (697,551) $ (502,591) $ (1,437,171) $ (1,305,377)
Net loss per common share, basic and diluted $ (0.00) [1] $ (0.00) $ (0.00) [1] $ (0.00) [1]
Weighted average number of common shares outstanding 5,292,794,585 1,669,513,344 4,072,426,766 1,589,583,513
[1] Net loss per share less than $0.00
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Jun. 30, 2018
Jun. 30, 2017
Income Statement [Abstract]    
Net loss per share $ 0.00 $ 0.00
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Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)
6 Months Ended
Jun. 30, 2018
Jun. 30, 2017
CASH FLOWS FROM OPERATING ACTIVITIES:    
Net loss $ (1,437,171) $ (1,305,377)
Adjustments to reconcile net loss to net cash used by operating activities:    
Depreciation and amortization 14,429 26,784
Issuance of restricted common stock, options and warrants for services 549 6,829
Amortization of derivative debt discount 30,764 92,382
Loss on debt paid with common stock 70,934
Loss from derivative liability conversion-notes payable 892,968 400,701
Changes in operating assets and liabilities:    
(Increase) in inventory (488)
Increase in accounts payable and accrued expenses 143,468 414,086
Increase in accounts payable and accrued expenses-related parties 166,495 167,500
Increase in contract liability 5,000
Net cash used in operating activities (183,498) (126,649)
CASH FLOWS FROM INVESTING ACTIVITIES:    
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:    
Proceeds from notes and loans payable 5,000 124,650
Payment of notes and loans payable (5,000)
(Decrease) increase in cash overdraft (52) 16,883
Payment of related party notes and loans payable (52,200) (32,693)
Increase in related party notes and loans payable 15,992 17,218
Proceeds from series A preferred stock subscription 249,500
Net cash provided by financing activities 213,240 126,058
Net increase (decrease) in cash 29,742 (591)
Cash, beginning of period 591
Cash, end of period 29,742
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:    
Payment of interest in cash
NON-CASH INVESTING AND FINANCING ACTIVITIES:    
Issuance of 571,047,619 shares of Common stock for accrued liability settlement 134,754
Issuance of 1,862,101,668 shares of Common stock for debt and interest settlement 222,143
Issuance of 100,000,000 shares of Common stock for liability settlement 49,066
Issuance of 44,476,071 shares of Common stock for debt and interest settlement 34,246
Issuance of 70,000,000 shares of Common stock for liability settlement 123,000
Issuance of 6,637,000 shares of Common stock for services $ 5,096
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6 Months Ended
Jun. 30, 2018
Jun. 30, 2017
Accrued Liability Settlement [Member]    
Common stock issued, shares 571,047,619  
Debt and Interest Settlement [Member]    
Common stock issued, shares 1,862,101,668  
Liability Settlement [Member]    
Common stock issued, shares   100,000,000
Debt and Interest Settlement One [Member]    
Common stock issued, shares   44,476,071
Liability Settlement One [Member]    
Common stock issued, shares   70,000,000
Common Stock For Services [Member]    
Common stock issued, shares   6,637,000
XML 19 R8.htm IDEA: XBRL DOCUMENT v3.10.0.1
Organizational and Significant Accounting Policies
6 Months Ended
Jun. 30, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Organizational and Significant Accounting Policies

NOTE 1 – ORGANIZATIONAL AND SIGNIFICANT ACCOUNTING POLICIES

 

A. ORGANIZATION AND OPERATIONS

 

Cyclone Power Technologies, Inc. (the “Company”, “our,” “Cyclone”) is the successor entity to the business of Cyclone Technologies LLLP (the “LLLP”), a limited liability limited partnership formed in Florida in September 2004. The LLLP was the original developer and intellectual property holder of the Cyclone engine technology. Initiated in 2017, the Company’s current business model, is to be primarily a research and development engineering company whose main purpose is to develop, commercialize, market and license its Cyclone engine technology. Engines and related systems will be outsourced for manufacturing, but the company will invoice customers. Our prior business model also included engine manufacturing.

 

In 2012, the Company established Cyclone Performance LLC (“Cyclone Performance”) f/k/a Cyclone-TeamSteam USA, LLC. The purpose of Cyclone Performance is to build, test and run various vehicles and vessels utilizing the Company’s engine. As of June 30, 2018, the company had a 95% controlling interest in Cyclone Performance. Effective July 24, 2018, the company sold 76% of its equity for $15,000, and retains a 19% interest.

 

In May 2018, the Company established a wholly owned subsidiary, Emerging Power Solutions Inc., whose purpose is to provide alternative power solutions for various industries based on the application of the Cyclone Engine. As of June 30, 2018 there was no activity in this company.

 

In 2010, the Company established a subsidiary WHE Generation Corp. f/k/a, Cyclone-WHE LLC (the “WHE Subsidiary”, “WheGen”), to market the waste heat recovery systems for all Cyclone engine models. As of September 30, 2014 the Company had sold most of its ownership and the balance was sold in the second quarter of 2016.

 

B. PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION

 

The condensed consolidated financial statements include the accounts of the Company and the accounts of our 95% owned subsidiary Cyclone Performance LLC and 100% of Emerging Power Solutions Inc. All material inter-company transactions and balances have been eliminated in the condensed consolidated financial statements

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles applicable to interim financial information and the requirements of Form 10-Q and Article 8 of Regulation S-X of the SEC. Accordingly, they do not include all the information and disclosures required by accounting principles generally accepted in the United States for complete consolidated financial statements. Interim results are not necessarily indicative of results for a full year. In the opinion of management, all adjustments, consisting of normal journal entries considered necessary for a fair presentation of the financial position and the results of operations and cash flows for the interim periods have been included. Complete financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2017, as filed with the Securities and Exchange Commission as part of the Company’s Form 10-K.

 

The results of operations for the six months ended June 30, 2018 are not necessarily indicative of the results of operations to be expected for the full fiscal year ending December 31, 2018.

 

The Company prepares its consolidated financial statements in conformity with account principles generally accepted in the United States (“U.S. GAAP”). The accounting principles utilized by the Company require the Company to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, the reported amounts of revenues and expenses, cash flows and the related footnote disclosures during the periods. On an on-going basis, the Company reviews and evaluates its estimates and assumptions, including, but not limited to, those that relate to the realizable value of inventory, identifiable intangible assets and other long-lived assets, contracts, income taxes, derivative liabilities, and contingencies. Actual results could differ from these estimates.

 

The financial statements presented for the six months ended June 30, 2018 and 2017 are unaudited.

 

C. CASH

 

The Company considers all highly-liquid, temporary cash investments with an original maturity of three months or less to be cash equivalents. At June 30, 2018, and December 31, 2017 the Company had no cash equivalents.

 

D. COMPUTATION OF LOSS PER SHARE

 

Diluted loss per share is not presented as the conversion of the preferred stock and exercise of outstanding stock options and warrants would have an anti-dilutive effect. As of June 30, 2018 and 2017, total anti-dilutive shares related to the common stock options plan amounted to approximately 14.3 million and 14.9 million shares, respectively. On a pro-forma basis if the convertible debt and related interest and penalties were converted at respective conversion rates and applied discounts at the quarter end common stock price, for the six months ended June 30, 2018 and 2017, approximately an additional 14.5 billion and 2.5 billion shares would be issuable, respectively.

 

E. INCOME TAXES

 

Income taxes are accounted for under the asset and liability method as stipulated by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 740, “Income Taxes” (“ASC 740”). Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740, the effect on deferred tax assets and liabilities or a change in tax rate is recognized in income in the period that includes the enactment date. Deferred tax assets are reduced to estimated amounts to be realized using a valuation allowance. A valuation allowance is applied when in management’s view it is more likely than not (50%) that such deferred tax will not be utilized.

 

In the unlikely event that an uncertain tax position exists in which the Company could incur income taxes, the Company would evaluate whether there is a probability that the uncertain tax position taken would be sustained upon examination by the taxing authorities. Reserves for uncertain tax positions would be recorded if the Company determined it is probable that a position would not be sustained upon examination or if payment would have to be made to a taxing authority and the amount is reasonably estimated. As of December 31, 2017, the Company does not believe it has any uncertain tax positions that would result in the Company having a liability to the taxing authorities. Interest related to the unrecognized tax benefits is not recognized in the consolidated financial statements as a component of income taxes. The Company’s tax returns are subject to examination by the federal and state tax authorities for the years ended 2015 through 2017.

 

F. REVENUE RECOGNITION

 

In May 2014, ASC 606 was issued related to revenue from contracts with customers. Under this guidance, revenue is recognized when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. The standard became effective for the Company’s fiscal year beginning January 1, 2018. The adoption of ASC 606 did not have an impact on our financial position or results of operations, as the Company does not have any revenue.

 

G. WARRANTY PROVISIONS

 

Current contracts do not require warranty assistance subsequent to acceptance of the “deliverable R&D prototype” by the customer. For products that the Company will sell in the future, warranty costs are anticipated to be borne by the manufacturing vendor.

 

H. INVENTORY

 

Inventory is recorded at the lower of cost or market. Based on our revised R&D company business model, commencing in 2016, costs include only material to develop a completed engine for sale. In our former business model costs include material, labor and allocated overhead to manufacture a completed engine. These costs are periodically evaluated to determine if they have a net realizable value. If the net realizable value is lower than the carrying amount, a reserve is provided. All inventory was fully reserved at December 31, 2017.

 

I. FAIR VALUE OF FINANCIAL INSTRUMENTS

 

ASC 820, “Fair Value Measurements and Disclosures” requires disclosures of information about the fair value of certain financial instruments for which it is practicable to estimate the value. The carrying amounts reported in the balance sheet for cash, accounts payable and accrued expenses, and loans payable approximate their fair market value based on the short-term maturity of these instruments. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk. Inputs may be observable or unobservable. Observable inputs are based on market data obtained from sources independent of the Company. Unobservable inputs reflect the Company’s own assumptions based on the best information available in the circumstances. The fair value hierarchy prioritizes the inputs used to measure fair value into three broad levels. The three levels of the fair value hierarchy are defined as follows:

 

Level 1 Inputs are quoted prices in active markets for identical assets or liabilities as of the reporting date.
     
Level 2 Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, as of the reporting date.
     
Level 3 Unobservable inputs for the asset or liability that reflect management’s own assumptions about the assumptions that market participants would use in pricing the asset or liability as of the reporting date.

 

The summary of the quarterly fair values and changing values of financial instruments as of January 1, 2018 through June 30, 2018 is as follows:

 

    Derivative Liabilities  
Balance, January 1, 2018   $ 1,424,001  
Additions     -  
Conversions     (267,969 )
Deletions     -  
Fair Value Adjustment –loss     892,968  
Balance, June 30, 2018   $ 2,049,000  

 

Please refer to Note 16 for disclosure and assumptions used to calculate the fair value of the derivative liabilities.

 

J. RESEARCH AND DEVELOPMENT

 

Research and development activities for product development are expensed as incurred. Costs for the six and three months ended June 30, 2018 and 2017 were $166,489, $96,918, $84,546 and $56,242, respectively

 

K. STOCK BASED COMPENSATION

 

The Company applies the fair value method of ASC 718, “Share Based Payment”, in accounting for its stock-based compensation. This standard states that compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. The Company values stock based compensation at the market price for the Company’s common stock as of the date in which the obligation for payment of services is incurred.

 

L. COMMON STOCK OPTIONS AND PURCHASE WARRANTS

 

The Company accounts for common stock options and purchase warrants at fair value in accordance with ASC 815-40, “Derivatives and Hedging”. The Black-Scholes option pricing valuation method (“BSM option pricing model”) is used to determine fair value of these warrants consistent with ASC 718, “Share Based Payment”. Use of this method requires that the Company make assumptions regarding stock volatility, dividend yields, expected term of the warrants and risk-free interest rates.

 

The Company accounts for transactions in which services are received from non-employees in exchange for equity instruments based on the fair value of the equity instruments exchanged, in accordance with ASC 505-50, “Equity Based payments to Non-employees”.

 

M. ORIGINAL ISSUE DEBT DISCOUNT

 

The original issue discount (OID) related to notes payable is amortized by the effective interest method over the repayment period of the notes. The unamortized OID is represented as a reduction of the amount of the notes payable.

 

N. PROPERTY AND EQUIPMENT

 

Property and equipment are recorded at cost. Depreciation is computed on the straight-line method, based on the estimated useful lives of the assets as follows:

 

    Years
Display equipment for trade shows   3
Leasehold improvements and furniture and fixtures   10 – 15
Shop equipment   7
Computers   3

 

Expenditures for maintenance and repairs are charged to operations as incurred.

 

O. IMPAIRMENT OF LONG LIVED ASSETS

 

Intangible assets, consisting primarily of patents, are deemed to be critical for the furtherance of our business objectives and our engine products. There have been no impairments of our intangible assets, as we are developing our products and obtaining new contracts based on the engine and associated technology patents.

 

The Company continually evaluates the carrying value of intangible assets and other long-lived assets to determine whether there are any impairment losses. If indicators of impairment are present and future cash flows are not expected to be sufficient to recover the assets’ carrying amount, an impairment loss would be charged to expense in the period identified.

 

P. RECENT ACCOUNTING PRONOUNCEMENTS

 

In February 2016, the Financial Accounting Standards Board (“FASB”) issued amended accounting guidance that changes the accounting for leases and requires expanded disclosures about leasing activities. Under the new guidance, lessees will be required to recognize a right-of-use asset and a lease liability, measured on a discounted basis, at the commencement date for all leases with terms greater than twelve months. Lessor accounting will remain largely unchanged, other than certain targeted improvements intended to align lessor accounting with the lessee accounting model and with the updated revenue recognition guidance issued in 2014. Lessees and lessors must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The amended guidance is effective for annual reporting periods (including interim periods within those periods) beginning after December 15, 2018, and early application is permitted. The Company’s adoption of this guidance did not result in a material adjustment to the financial statements.

 

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 required dates of adoption.

 

Q. CONCENTRATION OF RISK

 

The Company does not have any off-balance sheet concentrations of credit risk. The Company expects cash and accounts receivable to be the two assets most likely to subject the Company to concentrations of credit risk. The Company’s policy is to maintain its cash with high credit quality financial institutions to limit its risk of loss exposure.

 

As of June 30, 2018, the Company maintained its cash in one quality financial institution. The Company has not experienced any losses in its bank accounts through June 30, 2018. The company had no accounts receivable at June 30, 2018 and December 31, 2017.

 

R. DERIVATIVE FINANCIAL INSTRUMENTS

 

Accounting and reporting standards for derivative instruments and for hedging activities were codified by ASC Topic 815, Derivatives and Hedging (“ASC Topic 815”). It requires that all derivatives be recognized in the balance sheet and measured at fair value. Gains or losses resulting from changes in the fair value of derivatives are recognized in earnings or recorded in other comprehensive income (loss) depending on the purpose of the derivatives and whether they qualify and have been designated for hedge accounting treatment. The Company has derivative liabilities pursuant to convertible debt and common stock warrants and has recognized net expenses on the condensed consolidated statements of operations. The Company does not have any derivative instruments for which it has applied hedge accounting treatment.

XML 20 R9.htm IDEA: XBRL DOCUMENT v3.10.0.1
Going Concern
6 Months Ended
Jun. 30, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Going Concern

NOTE 2 - GOING CONCERN

 

As shown in the accompanying consolidated financial statements, the Company sustained substantial operating and other losses and expenses of approximately $1.4 million for the six months ended June 30, 2018 and $2.1 million for the year ended December 31, 2017. The cumulative deficit since inception is approximately $64.4 million. The Company has a working capital deficit at June 30, 2018 of approximately $5.8 million. There is no guarantee whether the Company will be able to generate enough revenue and/or raise capital to support its operations. This raises substantial doubt about the Company’s ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on management’s plans which include implementation of its business model to generate revenue from development contracts, licenses and product sales, and continuing to raise funds through debt or equity raises. The Company will also likely continue to rely upon related-party debt or equity financing.

 

The consolidated condensed financial statements do not include any adjustments that might result from the outcome of these uncertainties. The Company is currently raising working capital to fund its operations via stock subscriptions, debt, advance contract payments (contract liability) and advances from and deferred payments to related parties.

XML 21 R10.htm IDEA: XBRL DOCUMENT v3.10.0.1
Inventory, Net
6 Months Ended
Jun. 30, 2018
Inventory Disclosure [Abstract]  
Inventory, Net

NOTE 3 – INVENTORY, NET

 

Initiated in 2016, based on our revised R&D company business model, inventory principally consists of raw material to develop an engine. Under our prior business model, inventory consisted of raw material engine parts, work in process engines, labor and overhead, net of realization, valuation and obsolescence reserves. In the aggregate inventory is stated at the lower of cost or market. All inventory was fully reserved at June 30, 2018.

XML 22 R11.htm IDEA: XBRL DOCUMENT v3.10.0.1
Property and Equipment, Net
6 Months Ended
Jun. 30, 2018
PROPERTY AND EQUIPMENT  
Property and Equipment, Net

NOTE 4 – PROPERTY AND EQUIPMENT, NET

 

Property and equipment consist of the following:

 

    June 30, 2018     December 31, 2017  
Display equipment for trade shows   $ 6,270     $ 6,270  
Leasehold improvements and furniture and fixtures     93,922       93,922  
Equipment and computers     202,578       202,578  
Total     302,770       302,770  
Accumulated depreciation     (243,439 )     (236,938 )
Net property and equipment   $ 59,331     $ 65,832  

 

Depreciation expense for the six months ended June 30, 2018 and 2017 was $6,501 and $14,060, respectively. Depreciation expense for the three months ended June 30, 2018 and 2017 was $2,282 and $6,715, respectively.

XML 23 R12.htm IDEA: XBRL DOCUMENT v3.10.0.1
Patents, Trademarks and Copyrights
6 Months Ended
Jun. 30, 2018
Goodwill and Intangible Assets Disclosure [Abstract]  
Patents, Trademarks and Copyrights

NOTE 5 – PATENTS, TRADEMARKS AND COPYRIGHTS

 

Patents, trademarks and copyrights consist of legal fees paid to file and perfect these claims. The net balances as of June 30, 2018 and December 31, 2017, were $82,245 and $90,173, respectively. There were no capitalized additions to patents, trademarks and copyrights during the six months ended June 30, 2018 and the year ended December 31, 2017. For the six months ended June 30, 2018 and the year ended December 31, 2017, the Company recorded net charges of $0 and $62,857, respectively, included in general and administrative expenses, for various expired patents; the basic patents for the Cyclone technology are still protected.

 

As of June 30, 2018, the Company had 3 active and 8 expired patents issued on its technology both in the U.S. and internationally. Pursuant to new US Patent Office regulations, upon approval, expired patents can be reinstated upon payment of unpaid maintenance fees.

 

Patents, trademarks and copyrights are amortized over the life of the intellectual property which is 15 years. Amortization expenses for the six months ended June 30, 2018 and 2017 were $7,928 and $12,724, respectively. Amortization expenses for the three months ended June 30, 2018 and 2017 were $3,964 and $6,362, respectively

XML 24 R13.htm IDEA: XBRL DOCUMENT v3.10.0.1
Notes and Other Loans Payable
6 Months Ended
Jun. 30, 2018
Debt Disclosure [Abstract]  
Notes and Other Loans Payable

NOTE 6 – NOTES AND OTHER LOANS PAYABLE

 

A. THIRD PARTY

 

A summary of non-related notes and other loans payable is as follows:

 

    June 30, 2018     December 31, 2017  
             
12% convertible notes payable, maturing at various dates from November 2013 through October 2017 (A)   $ 72,948     $ 61,196  
                 
10% convertible note payable, monthly payments commencing in December 2013 through July 2014 (B)     19,963       19,963  
                 
10% convertible notes payable maturing at various dates from May 2016 through February 2017 (C)     76,000       76,000  
                 
10% convertible notes payable, maturing at various dates from December 2016 through January 2017 (D)     -       26,192  
                 
10% convertible notes payable maturing at various dates from February 2016 through August 2016 (E)     112,200       140,658  
                 
12% convertible notes payable, maturing at various dates from April 2016 through May 2016 (F)     12,832       35,936  
                 
10% note payable, maturing Feb 3, 2017     50,000       50,000  
                 
Various notes payable, maturing 2017 and 2018 (G)     72,650       72,650  
                 
6 % note payable, maturing Oct 12, 2019, (I)     1,500       1,500  
                 
Various notes payable, maturing 2017 and 2018     12,200       12,200  
                 
Total non-third-party notes –net of discount     430,293       496,295  
                 
Less-Current Portion     428,793       494,795  
                 
Total non-current third-party notes   $ 1,500     $ 1,500  

 

  (A) Notes issued net of 10% original discount (fully amortized). This note is in default.
     
  (B) Note issued net of original discount (fully amortized). Effective May 8, 2016, the Company is subject to a default judgment of approximately $175,000, plus subsequent penalty interest for non-payment of convertible debt and interest. Unpaid interest, default penalties and default interest are included in accounts payable and accrued liabilities In 2018 the company negotiated a reduced settlement for $150,000 via the issuance of company stock.
     
  (C) Notes issued net of discount from derivative liabilities (fully amortized). At June 30, 2018, the Company held approximately 97 million shares in reserve to cover the potential conversion of this note into common stock pursuant to debt covenants. This note is in default.
     
  (D) Notes issued net of discount (fully amortized). This note is in default.
     
  (E) Notes issued net of discount from derivative liabilities (fully amortized). At June 30, 2018, the Company held 202 million shares in reserve to cover the potential conversion of this note into common stock pursuant to debt covenants. These notes are in default.
     
  (F) Notes issued net of discount from derivative liabilities (fully amortized). The Company is subject to litigation judgment of approximately $150,000, plus subsequent penalty interest for non–payment. Unpaid interest, default penalties and default interest are included in accounts payable and accrued liabilities. The company negotiated the settlement of the debt, interest and penalties via the conversion of company stock.
     
  (G) Interest on $62,000 of notes to be paid in 6,000,000 shares of restricted company common stock. Other notes are various interest rates. These notes are in default.

 

B. RELATED PARTIES

 

A summary of related party notes and other loans payable is as follows:

 

    June 30, 2018     December 31, 2017  
             
6% demand loans per Operations Agreement with Schoell Marine Inc., a company owned by Cyclone’s Chairman and controlling shareholder (A)   $ 143,210     $ 161,005  
6% non-collateralized loans from officer and shareholder, payable on demand. The original principal balances were $157,101.     82,046       101,546  
12% non-collateralized loans from officer and shareholder, payable on demand     12,138       21,044  
Accrued Interest     126,271       116,278  
Total current related party notes, inclusive of accrued interest   $ 363,665     $ 399,873  

 

  (A) This note arose from services and salaries incurred by Schoell Marine on behalf of the Company. The Schoell Marine note bears an interest rate of 6% and repayments occur as cash flow of the Company permits.

XML 25 R14.htm IDEA: XBRL DOCUMENT v3.10.0.1
Related Party Transactions - Deferred Compensation
6 Months Ended
Jun. 30, 2018
Related Party Transactions [Abstract]  
Related Party Transactions - Deferred Compensation

NOTE 7 – RELATED PARTY TRANSACTIONS-Deferred Compensation

 

Included in accounts payable and accrued expenses - related parties as of June 30, 2018 and December 31, 2017, are $823,995 and $687,500 respectively, of accrued and deferred officers’ salaries compensation for the President and the CTO which may be paid as funds are available. These are non-interest bearing and due on demand.

XML 26 R15.htm IDEA: XBRL DOCUMENT v3.10.0.1
Preferred Stock
6 Months Ended
Jun. 30, 2018
Equity [Abstract]  
Preferred Stock

NOTE 8 – PREFERRED STOCK

 

At June 30, 2018 and December 31, 2017, the Series A Preferred Stock had 750,000 shares authorized and no shares issued and outstanding. In the first quarter of 2018, the company has a signed binding letter of intent (“LOI”) by an investor to provide $5 million to the company for additional development of the Cyclone Engines. The payment of the $5 million is scheduled through 2020. The consideration is to be the issuance of Preferred A shares, convertible into effectively an undiluted 20% of the Common shares of the company at the completion of funding.

 

The Series B Preferred Stock is majority voting stock and is held by the two co-founders of the Company. Ownership of the Series B Preferred Stock shares assures the holders thereof a 51% voting control over the common stock of the Company. The 1,000 Series B Preferred Stock shares are convertible on a one-for-one basis with the common stock in the instance the Company is merged, sold or otherwise dissolved.

XML 27 R16.htm IDEA: XBRL DOCUMENT v3.10.0.1
Stock Transactions
6 Months Ended
Jun. 30, 2018
Equity [Abstract]  
Stock Transactions

NOTE 9 – STOCK TRANSACTIONS

 

The Company authorized an increase of Common Stock to 6 Billion shares in the last quarter of 2017. This increase in the amount of authorized share capital is a requirement by debt covenants to cover old convertible debt. This is required as the stock price has fallen, and shares have to be available at 4 times the conversion rate.

 

During the six months ended June 30, 2018, the Company:

 

  a- Amortized (based on vesting) $549 of common stock options for employee services.
     
  b- Issued approximately 1,862 million shares of common stock pursuant to conversions of approximately $222,000 of notes payable, accrued interest and related liabilities.
     
  c- The Company issued 571 million shares of common stock valued at approximately $135,000 for accrued liabilities for consulting services.

  

In the first quarter of 2018, the company has a signed binding LOI from an investor to provided $5 million to the company. The consideration is to be the issuance of Preferred A shares, convertible into effectively an undiluted 20% of the Common shares of the company at the complete funding estimated through 2020. To date $259,500 has been funded by the investor.

XML 28 R17.htm IDEA: XBRL DOCUMENT v3.10.0.1
Stock Options and Warrants
6 Months Ended
Jun. 30, 2018
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Stock Options and Warrants

NOTE 10 – STOCK OPTIONS AND WARRANTS

 

A. COMMON STOCK OPTIONS

 

Per the employment contracts with certain officers, for the six months ended June 30, 2018, the company issued 900,000 common stock options, valued at $180 (pursuant to the Black Scholes valuation model) that are exercisable into shares of common stock at an average exercise price of $.0002 and with a maturity life of 10 years. For the six months ended June 30, 2018, the amortization of stock options was $350, and the unamortized balance was $272. As of June 30, 2018, the intrinsic value on all options was zero.

 

A summary of the common stock options for the period from December 31, 2017 through June 30, 2018 follows:

 

    Number
Outstanding
    Weighted Avg.
Exercise Price
    Weighted Avg.
Remaining
Contractual Life
(Years)
 
                   
Balance, December 31, 2017     13,400,000     $ 0.064       5.8  
Options issued     900,000       .0002       9.9  
Options expired     -       -       -  
Balance, June 30, 2018     14,300,000     $ 0.060       5.6  

 

The vested and exercisable options at period end follows:

 

    Exercisable/
Vested Options
Outstanding
    Weighted Avg.
Exercise Price
    Weighted Avg.
Remaining
Contractual
Life (Years)
 
                         
Balance June 30, 2018     12,950,000     $ .055       5.3  

 

The fair value of new stock options, re-priced stock options, new purchase warrants and re-priced purchase warrants granted using the Black-Scholes option pricing model was calculated using the following assumptions:

 

    Six Months
Ended
June 30, 2018
    Six Months
Ended
June 30, 2017
 
Risk free interest rate     2.39-2.63 %     1.5-1.5 %
Expected volatility     130-132 %     122-134 %
Expected term     3       3  
Expected dividend yield     0 %     0 %
Average value per options and warrants   $ .0002     $ 0009-.0015  

 

Expected volatility is based on historical volatility of the Company’s common stock price. Short Term U.S. Treasury rates were utilized at the risk-free interest rate. The expected term of the options and warrants was calculated using the alternative simplified method newly codified as ASC 718 “Accounting for Stock Based Compensation,” which defined the expected life as the average of the contractual term of the options and warrants and the weighted average vesting period for all issuances.

 

B. COMMON STOCK WARRANTS

 

As of June 30, 2018, and December 31, 2017, there were no common stock warrants outstanding.

XML 29 R18.htm IDEA: XBRL DOCUMENT v3.10.0.1
Income Taxes
6 Months Ended
Jun. 30, 2018
Income Tax Disclosure [Abstract]  
Income Taxes

NOTE 11 – INCOME TAXES

 

In December 2017, a new tax known as Tax Cut and Jobs Act of 2017 was enacted. The new tax law includes significant changes to the U.S. corporate tax systems including a rate reduction from 35% to 21% beginning in January of 2018, a change in the treatment of foreign earnings going forward, a deemed repatriation transition tax, and changes to allow net operating losses to be carried forward indefinitely. In addition, net operating losses arising after December 31, 2017 will be limited to the lesser of the available net operating loss or 80% of the pre-net operating loss taxable income. In accordance with ASC 740, the impact of a change in tax law is recorded in the period of enactment.

 

A reconciliation of the differences between the effective income tax rates and the statutory federal tax rates for the six months ended June 30, 2018 and 2017 are as follows:

 

    Six Months
ended
June 30, 2018
          Six Months
ended
June 30, 2017
       
Tax benefit at U.S. statutory rate   $ 77,848       21 %   $ 247,704       34 %
State taxes, net of federal benefit     14,828       4       29,142       4  
Change in valuation allowance     (92,676 )     (25 )     (276,846 )     (38 )
    $ -       -     $ -          

 

The tax effect of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at March 31 2018 and December 31, 2017 consisted of the following:

 

Deferred Tax Assets   June 30, 2018     December 31, 2017  
Net Operating Loss Carry-forward   $ 11,165,972     $ 10,951,258  
Deferred Tax Liabilities – Accrued Officers’ Salaries     (1,052,119 )     (987,056 )
Net Deferred Tax Assets     10,113,853       9,964,202  
Valuation Allowance     (10,113,853 )     (9,964,202 )
Total Net Deferred Tax Assets   $ -     $ -  

 

As of June 30, 2018, the Company had a net operating loss carry forward for income tax reporting purposes of approximately $17.5 million that may be offset against future taxable income through 2031. Current tax laws limit the amount of loss available to be offset against future taxable income when a substantial change in ownership occurs. Therefore, the amount available to offset future taxable income may be limited. No tax asset has been reported in the financial statements because the Company believes there is a 50% or greater chance the carry forwards will expire unused. Accordingly, the potential tax benefits of the loss carry forwards are offset by a valuation allowance of the same amount.

XML 30 R19.htm IDEA: XBRL DOCUMENT v3.10.0.1
Lease Obligations
6 Months Ended
Jun. 30, 2018
Leases [Abstract]  
Lease Obligations

NOTE 12- LEASE OBLIGATIONS

 

A. LEASE ON FACILITIES

 

The Company leases a 6,000 square foot warehouse and office facility located at 601 NE 26th Court in Pompano Beach, Florida. The original lease was at an annual rent of $60,000. The lease period ended December 2016 and the current lease is monthly with a 3% rate increase. Occupancy costs for each of the six months ended June 30, 2018 and 2017 were $33,966 and $32,522, respectively. Occupancy costs for each of the three months ended June 30, 2018 and 2017 were $16,983 and $16,622, respectively.

 

B .CAPITAL LEASE OBLIGATIONS

 

The company is in default on its remaining capital lease obligation to Leaf Capital Funding, LLC.

 

Effective October 13, 2017 the Company was subject to a summary judgment of $ 37,278 plus attorney fees for non-payment of 3 capital leases from Marlin Business Bank. This amount is including $11,379 of past due lease payments, accelerated lease payments, late charges and other fees. The $37,278 has been reflected in accrued expenses with an appropriate reduction of the capital lease liability.

 

In the third quarter of 2017, the company recognized a summary judgment of $7,266 plus accrued interest for non-payment of a capital lease from Navitas Lease Corp. This amount is including $4,177 of past due lease payments, accelerated lease payments, interest expense, late charges and other fees. The $7,266 has been reflected in accrued liabilities with an appropriate reduction of the capital lease liability.

 

The balance of capitalized lease obligations payable at June 30, 2018 was $5,522, which is due during 2018.

XML 31 R20.htm IDEA: XBRL DOCUMENT v3.10.0.1
Commitments and Contingencies
6 Months Ended
Jun. 30, 2018
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies

NOTE 13 – COMMITMENTS AND CONTINGENCIES

 

The Company has employment agreements with Harry Schoell, Chairman and CTO (previously, CEO), at $150,000 per year and Frankie Fruge, President, at $120,000 per year; (collectively, the “Executives”). These agreements provide for a term of three (3) years from their Effective Date (July 2007 with automatically renewing successive one year periods starting on the end of the second anniversary of the Effective Date. If the Executive is terminated “without cause” or pursuant to a “change in control” of the Company, as both defined in the respective agreements, the Executive shall be entitled to (i) any unpaid Base Salary accrued through the effective date of termination, (ii) the Executive’s 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 the Executive were he/she not terminated, during the 12 months following his or her termination.

XML 32 R21.htm IDEA: XBRL DOCUMENT v3.10.0.1
Consolidated Subsidiaries
6 Months Ended
Jun. 30, 2018
Equity Method Investments and Joint Ventures [Abstract]  
Consolidated Subsidiaries

NOTE 14 –CONSOLIDATED SUBSIDIARIES

 

In 2012, the Company established a 100% owned subsidiary (renamed) Cyclone Performance LLC (CP). The purpose of Cyclone Performance is to build, test and run a vehicle utilizing the Company’s engine. In the last quarter of 2012, the Company sold a 5% equity investment to an unrelated investor for $30,000. Subsequent to December 31, 2012, this 5% equity investment was acquired by a corporate officer of the Company. Losses of the subsidiary are currently fully borne by the Company, as there is no guarantee of future profits or positive cash flow of the subsidiary. As of June 30, 2018, the cumulative unallocated losses to the non-controlling interests of this subsidiary are approximately $1,000 and are to be recovered by the parent from future subsidiary profits if they materialize.

 

Effective July 24 2018, the Company has a signed agreement to sell 76% of its investment in CP for $15,000 and retain 19%. The 5% of CP equity owned by corporate officers is also to be sold. This agreement was closed and fully funded August 2, 2018.

 

In the May 2018, the Company established a wholly owned subsidiary, Emerging Power Solutions Inc., whose purpose is to provide alternative power solutions for various industries based on the application of the Cyclone Engine. As of June 30, 2018, there was no activity in this company.

XML 33 R22.htm IDEA: XBRL DOCUMENT v3.10.0.1
Receivables, Contract Liability and Backlog
6 Months Ended
Jun. 30, 2018
Receivables Contract Liability And Backlog  
Receivables, Contract Liability and Backlog

NOTE 15 – RECEIVABLES, CONTRACT LIABILITY AND BACKLOG

 

As of June 30, 2018, total backlog for prototype engines to be delivered was $400,000 from the Combilift agreement, of which $100,000 has been paid and has been recorded as contract liability. As of June 30, 2018, 3 other customers have $56,950 of advances as deposits on contracts for engines to be delivered.

XML 34 R23.htm IDEA: XBRL DOCUMENT v3.10.0.1
Derivative Financial Instruments
6 Months Ended
Jun. 30, 2018
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Financial Instruments

NOTE 16 – DERIVATIVE FINANCIAL INSTRUMENTS

 

The Company had entered into convertible note agreements (subject to derivative accounting treatment). The conversion prices into common stock ranged from a discount of 30% to 45% of the lowest closing prices in the 10 to 20 trading days prior to the conversion. Under provisions of ASC Topic 815-40, this conversion feature triggered derivative accounting treatment because the convertible note was convertible into an indeterminable number of shares of common stock. The fair value of the embedded conversion option was required to be presented as a derivative liability and adjusted to fair value at each reporting date, with changes in fair value reported in the condensed consolidated statements of operation. As of June 30, 2018, the Company has outstanding stock options and convertible debt that upon exercise could exceed the number of shares authorized.

 

In the six months ended June 30, 2018, the Company recorded a non-cash charge of approximately $0.9 million of derivative losses related to adjusting the derivative liability to fair value. At June 30, 2018, the derivative related fair value of debt and related convertible liabilities was approximately $2.0 million. The company also amortized to interest expense $30,764 of derivative debt discount.

 

The Company calculates the estimated fair values of the liabilities for derivative instruments at each quarter-end using the Stochastic Process Forecasting models (Monte Carlo simulations). The volatility was based on historical volatility, the expected term is equal to the remaining term of the debt and the risk-free rate is based upon rates for treasury securities with the same term.

 

Volatility expected term and risk-free interest rates that had been used to estimate the fair value of derivative liabilities are indicated in the table below.

 

    Six Months ended
June 30, 2018
    Six Months ended
June 30, 2017
 
Volatility     477-615 %     121-277 %
Risk Free Rate     1.73-1.93 %     1.0-1.24 %
Expected Term (years)     .25       .25-1.0  
Dividend Rate     0 %     0 %

XML 35 R24.htm IDEA: XBRL DOCUMENT v3.10.0.1
Litigation
6 Months Ended
Jun. 30, 2018
Commitments and Contingencies Disclosure [Abstract]  
Litigation

NOTE 17 – LITIGATION

 

Effective May 8, 2016, the Company is subject to a default judgment of approximately $175,000, plus subsequent penalty interest for non-payment of convertible debt and interest Tonaquint Inc. filed and received a judgment and the Company is negotiating a reduced settlement. As at June 30, 2018, outstanding interest, default interest and default judgment penalties are included in accrued liabilities. In 2018, the Company negotiated a reduced settlement for $150,000 via the issuance Company stock.

 

In August 2016, the Company is subject to litigation of approximately $150,000, plus subsequent penalty interest for non -payment of a liability. JSJ filed and received a judgment and the Company entered into a settlement agreement for conversion of judgment based on value and conversions of original note on January 9, 2017. As at June 30, 2018, outstanding interest, default interest and default judgment penalties for debt are included in accrued liabilities.

 

Effective October 13, 2017 the Company was subject to a summary judgment of $37,278 plus attorney fees for non-payment of 3 capital leases from Marlin Business Bank. This amount includes $11,379 of unpaid lease payments, accelerated lease payments, late charges and other fees. The $37,278 has been reflected in accrued expenses with an appropriate reduction of the capital lease liability.

 

In the third quarter of 2017, the company recognized a summary judgment of $7,266 plus accrued interest for non-payment of a capital lease from Navitas Lease Corp. This amount is including $4,177 of past due lease payments, accelerated lease payments, interest expense, late charges and other fees. The $7,266 has been reflected in accrued liabilities with an appropriate reduction of the capital lease liability.

XML 36 R25.htm IDEA: XBRL DOCUMENT v3.10.0.1
Subsequent Events
6 Months Ended
Jun. 30, 2018
Subsequent Events [Abstract]  
Subsequent Events

NOTE 18 – SUBSEQUENT EVENTS

 

In the third quarter of 2018, the Company engaged in the following transactions:

 

Pursuant to the binding letter of intent by an investor to provide $5 million to the company for additional development of the Cyclone Engines the Company has met all its milestones and has received $10,000 in the third quarter of 2018.

 

Effective July 24 2018, the Company had a signed agreement to sell 76% of its investment in CP for $15,000 and retain 19%. As of June 30, 2018, $5,000 had been received and the balance was received on August 2 2018. The 5% of CP equity owned by corporate officers was also sold.

XML 37 R26.htm IDEA: XBRL DOCUMENT v3.10.0.1
Organizational and Significant Accounting Policies (Policies)
6 Months Ended
Jun. 30, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Organization and Operations

A. ORGANIZATION AND OPERATIONS

 

Cyclone Power Technologies, Inc. (the “Company”, “our,” “Cyclone”) is the successor entity to the business of Cyclone Technologies LLLP (the “LLLP”), a limited liability limited partnership formed in Florida in September 2004. The LLLP was the original developer and intellectual property holder of the Cyclone engine technology. Initiated in 2017, the Company’s current business model, is to be primarily a research and development engineering company whose main purpose is to develop, commercialize, market and license its Cyclone engine technology. Engines and related systems will be outsourced for manufacturing, but the company will invoice customers. Our prior business model also included engine manufacturing.

 

In 2012, the Company established Cyclone Performance LLC (“Cyclone Performance”) f/k/a Cyclone-TeamSteam USA, LLC. The purpose of Cyclone Performance is to build, test and run various vehicles and vessels utilizing the Company’s engine. As of June 30, 2018, the company had a 95% controlling interest in Cyclone Performance. Effective July 24, 2018, the company sold 76% of its equity for $15,000, and retains a 19% interest.

 

In May 2018, the Company established a wholly owned subsidiary, Emerging Power Solutions Inc., whose purpose is to provide alternative power solutions for various industries based on the application of the Cyclone Engine. As of June 30, 2018 there was no activity in this company.

 

In 2010, the Company established a subsidiary WHE Generation Corp. f/k/a, Cyclone-WHE LLC (the “WHE Subsidiary”, “WheGen”), to market the waste heat recovery systems for all Cyclone engine models. As of September 30, 2014 the Company had sold most of its ownership and the balance was sold in the second quarter of 2016.

Principles of Consolidation and Basis of Presentation

B. PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION

 

The condensed consolidated financial statements include the accounts of the Company and the accounts of our 95% owned subsidiary Cyclone Performance LLC and 100% of Emerging Power Solutions Inc. All material inter-company transactions and balances have been eliminated in the condensed consolidated financial statements

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles applicable to interim financial information and the requirements of Form 10-Q and Article 8 of Regulation S-X of the SEC. Accordingly, they do not include all the information and disclosures required by accounting principles generally accepted in the United States for complete consolidated financial statements. Interim results are not necessarily indicative of results for a full year. In the opinion of management, all adjustments, consisting of normal journal entries considered necessary for a fair presentation of the financial position and the results of operations and cash flows for the interim periods have been included. Complete financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2017, as filed with the Securities and Exchange Commission as part of the Company’s Form 10-K.

 

The results of operations for the six months ended June 30, 2018 are not necessarily indicative of the results of operations to be expected for the full fiscal year ending December 31, 2018.

 

The Company prepares its consolidated financial statements in conformity with account principles generally accepted in the United States (“U.S. GAAP”). The accounting principles utilized by the Company require the Company to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, the reported amounts of revenues and expenses, cash flows and the related footnote disclosures during the periods. On an on-going basis, the Company reviews and evaluates its estimates and assumptions, including, but not limited to, those that relate to the realizable value of inventory, identifiable intangible assets and other long-lived assets, contracts, income taxes, derivative liabilities, and contingencies. Actual results could differ from these estimates.

 

The financial statements presented for the six months ended June 30, 2018 and 2017 are unaudited.

Cash

C. CASH

 

The Company considers all highly-liquid, temporary cash investments with an original maturity of three months or less to be cash equivalents. At June 30, 2018, and December 31, 2017 the Company had no cash equivalents.

Computation of Loss Per Share

D. COMPUTATION OF LOSS PER SHARE

 

Diluted loss per share is not presented as the conversion of the preferred stock and exercise of outstanding stock options and warrants would have an anti-dilutive effect. As of June 30, 2018 and 2017, total anti-dilutive shares related to the common stock options plan amounted to approximately 14.3 million and 14.9 million shares, respectively. On a pro-forma basis if the convertible debt and related interest and penalties were converted at respective conversion rates and applied discounts at the quarter end common stock price, for the six months ended June 30, 2018 and 2017, approximately an additional 14.5 billion and 2.5 billion shares would be issuable, respectively.

Income Taxes

E. INCOME TAXES

 

Income taxes are accounted for under the asset and liability method as stipulated by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 740, “Income Taxes” (“ASC 740”). Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740, the effect on deferred tax assets and liabilities or a change in tax rate is recognized in income in the period that includes the enactment date. Deferred tax assets are reduced to estimated amounts to be realized using a valuation allowance. A valuation allowance is applied when in management’s view it is more likely than not (50%) that such deferred tax will not be utilized.

 

In the unlikely event that an uncertain tax position exists in which the Company could incur income taxes, the Company would evaluate whether there is a probability that the uncertain tax position taken would be sustained upon examination by the taxing authorities. Reserves for uncertain tax positions would be recorded if the Company determined it is probable that a position would not be sustained upon examination or if payment would have to be made to a taxing authority and the amount is reasonably estimated. As of December 31, 2017, the Company does not believe it has any uncertain tax positions that would result in the Company having a liability to the taxing authorities. Interest related to the unrecognized tax benefits is not recognized in the consolidated financial statements as a component of income taxes. The Company’s tax returns are subject to examination by the federal and state tax authorities for the years ended 2015 through 2017.

Revenue Recognition

F. REVENUE RECOGNITION

 

In May 2014, ASC 606 was issued related to revenue from contracts with customers. Under this guidance, revenue is recognized when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. The standard became effective for the Company’s fiscal year beginning January 1, 2018. The adoption of ASC 606 did not have an impact on our financial position or results of operations, as the Company does not have any revenue.

Warranty Provisions

G. WARRANTY PROVISIONS

 

Current contracts do not require warranty assistance subsequent to acceptance of the “deliverable R&D prototype” by the customer. For products that the Company will sell in the future, warranty costs are anticipated to be borne by the manufacturing vendor.

Inventory

H. INVENTORY

 

Inventory is recorded at the lower of cost or market. Based on our revised R&D company business model, commencing in 2016, costs include only material to develop a completed engine for sale. In our former business model costs include material, labor and allocated overhead to manufacture a completed engine. These costs are periodically evaluated to determine if they have a net realizable value. If the net realizable value is lower than the carrying amount, a reserve is provided. All inventory was fully reserved at December 31, 2017.

Fair Value of Financial Instruments

I. FAIR VALUE OF FINANCIAL INSTRUMENTS

 

ASC 820, “Fair Value Measurements and Disclosures” requires disclosures of information about the fair value of certain financial instruments for which it is practicable to estimate the value. The carrying amounts reported in the balance sheet for cash, accounts payable and accrued expenses, and loans payable approximate their fair market value based on the short-term maturity of these instruments. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk. Inputs may be observable or unobservable. Observable inputs are based on market data obtained from sources independent of the Company. Unobservable inputs reflect the Company’s own assumptions based on the best information available in the circumstances. The fair value hierarchy prioritizes the inputs used to measure fair value into three broad levels. The three levels of the fair value hierarchy are defined as follows:

 

Level 1 Inputs are quoted prices in active markets for identical assets or liabilities as of the reporting date.
     
Level 2 Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, as of the reporting date.
     
Level 3 Unobservable inputs for the asset or liability that reflect management’s own assumptions about the assumptions that market participants would use in pricing the asset or liability as of the reporting date.

 

The summary of the quarterly fair values and changing values of financial instruments as of January 1, 2018 through June 30, 2018 is as follows:

 

    Derivative Liabilities  
Balance, January 1, 2018   $ 1,424,001  
Additions     -  
Conversions     (267,969 )
Deletions     -  
Fair Value Adjustment –loss     892,968  
Balance, June 30, 2018   $ 2,049,000  

 

Please refer to Note 16 for disclosure and assumptions used to calculate the fair value of the derivative liabilities.

Research and Development

J. RESEARCH AND DEVELOPMENT

 

Research and development activities for product development are expensed as incurred. Costs for the six and three months ended June 30, 2018 and 2017 were $166,489, $96,918, $84,546 and $56,242, respectively

Stock Based Compensation

K. STOCK BASED COMPENSATION

 

The Company applies the fair value method of ASC 718, “Share Based Payment”, in accounting for its stock-based compensation. This standard states that compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. The Company values stock based compensation at the market price for the Company’s common stock as of the date in which the obligation for payment of services is incurred.

Common Stock Options and Purchase Warrants

L. COMMON STOCK OPTIONS AND PURCHASE WARRANTS

 

The Company accounts for common stock options and purchase warrants at fair value in accordance with ASC 815-40, “Derivatives and Hedging”. The Black-Scholes option pricing valuation method (“BSM option pricing model”) is used to determine fair value of these warrants consistent with ASC 718, “Share Based Payment”. Use of this method requires that the Company make assumptions regarding stock volatility, dividend yields, expected term of the warrants and risk-free interest rates.

 

The Company accounts for transactions in which services are received from non-employees in exchange for equity instruments based on the fair value of the equity instruments exchanged, in accordance with ASC 505-50, “Equity Based payments to Non-employees”.

Original Issue Debt Discount

M. ORIGINAL ISSUE DEBT DISCOUNT

 

The original issue discount (OID) related to notes payable is amortized by the effective interest method over the repayment period of the notes. The unamortized OID is represented as a reduction of the amount of the notes payable.

Property and Equipment

N. PROPERTY AND EQUIPMENT

 

Property and equipment are recorded at cost. Depreciation is computed on the straight-line method, based on the estimated useful lives of the assets as follows:

 

    Years
Display equipment for trade shows   3
Leasehold improvements and furniture and fixtures   10 – 15
Shop equipment   7
Computers   3

 

Expenditures for maintenance and repairs are charged to operations as incurred.

Impairment of Long Lived Assets

O. IMPAIRMENT OF LONG LIVED ASSETS

 

Intangible assets, consisting primarily of patents, are deemed to be critical for the furtherance of our business objectives and our engine products. There have been no impairments of our intangible assets, as we are developing our products and obtaining new contracts based on the engine and associated technology patents.

 

The Company continually evaluates the carrying value of intangible assets and other long-lived assets to determine whether there are any impairment losses. If indicators of impairment are present and future cash flows are not expected to be sufficient to recover the assets’ carrying amount, an impairment loss would be charged to expense in the period identified.

Recent Accounting Pronouncements

P. RECENT ACCOUNTING PRONOUNCEMENTS

 

In February 2016, the Financial Accounting Standards Board (“FASB”) issued amended accounting guidance that changes the accounting for leases and requires expanded disclosures about leasing activities. Under the new guidance, lessees will be required to recognize a right-of-use asset and a lease liability, measured on a discounted basis, at the commencement date for all leases with terms greater than twelve months. Lessor accounting will remain largely unchanged, other than certain targeted improvements intended to align lessor accounting with the lessee accounting model and with the updated revenue recognition guidance issued in 2014. Lessees and lessors must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The amended guidance is effective for annual reporting periods (including interim periods within those periods) beginning after December 15, 2018, and early application is permitted. The Company’s adoption of this guidance did not result in a material adjustment to the financial statements.

  

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 required dates of adoption.

Concentration of Risk

Q. CONCENTRATION OF RISK

 

The Company does not have any off-balance sheet concentrations of credit risk. The Company expects cash and accounts receivable to be the two assets most likely to subject the Company to concentrations of credit risk. The Company’s policy is to maintain its cash with high credit quality financial institutions to limit its risk of loss exposure.

 

As of June 30, 2018, the Company maintained its cash in one quality financial institution. The Company has not experienced any losses in its bank accounts through June 30, 2018. The company had no accounts receivable at June 30, 2018 and December 31, 2017.

Derivative Financial Instruments

R. DERIVATIVE FINANCIAL INSTRUMENTS

 

Accounting and reporting standards for derivative instruments and for hedging activities were codified by ASC Topic 815, Derivatives and Hedging (“ASC Topic 815”). It requires that all derivatives be recognized in the balance sheet and measured at fair value. Gains or losses resulting from changes in the fair value of derivatives are recognized in earnings or recorded in other comprehensive income (loss) depending on the purpose of the derivatives and whether they qualify and have been designated for hedge accounting treatment. The Company has derivative liabilities pursuant to convertible debt and common stock warrants and has recognized net expenses on the condensed consolidated statements of operations. The Company does not have any derivative instruments for which it has applied hedge accounting treatment.

XML 38 R27.htm IDEA: XBRL DOCUMENT v3.10.0.1
Organizational and Significant Accounting Policies (Tables)
6 Months Ended
Jun. 30, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Schedule of Fair Value of Financial Instrument

The summary of the quarterly fair values and changing values of financial instruments as of January 1, 2018 through June 30, 2018 is as follows:

 

    Derivative Liabilities  
Balance, January 1, 2018   $ 1,424,001  
Additions     -  
Conversions     (267,969 )
Deletions     -  
Fair Value Adjustment –loss     892,968  
Balance, June 30, 2018   $ 2,049,000  

Schedule of Estimated Useful Lives of Property and Equipment

Depreciation is computed on the straight-line method, based on the estimated useful lives of the assets as follows:

 

    Years
Display equipment for trade shows   3
Leasehold improvements and furniture and fixtures   10 – 15
Shop equipment   7
Computers   3

XML 39 R28.htm IDEA: XBRL DOCUMENT v3.10.0.1
Property and Equipment, Net (Tables)
6 Months Ended
Jun. 30, 2018
PROPERTY AND EQUIPMENT  
Schedule of Property and Equipment, Net

Property and equipment consist of the following:

 

    June 30, 2018     December 31, 2017  
Display equipment for trade shows   $ 6,270     $ 6,270  
Leasehold improvements and furniture and fixtures     93,922       93,922  
Equipment and computers     202,578       202,578  
Total     302,770       302,770  
Accumulated depreciation     (243,439 )     (236,938 )
Net property and equipment   $ 59,331     $ 65,832  

XML 40 R29.htm IDEA: XBRL DOCUMENT v3.10.0.1
Notes and Other Loans Payable (Tables)
6 Months Ended
Jun. 30, 2018
Debt Disclosure [Abstract]  
Schedule of Non-related Party Notes and Other Loans Payable

A summary of non-related notes and other loans payable is as follows:

 

    June 30, 2018     December 31, 2017  
             
12% convertible notes payable, maturing at various dates from November 2013 through October 2017 (A)   $ 72,948     $ 61,196  
                 
10% convertible note payable, monthly payments commencing in December 2013 through July 2014 (B)     19,963       19,963  
                 
10% convertible notes payable maturing at various dates from May 2016 through February 2017 (C)     76,000       76,000  
                 
10% convertible notes payable, maturing at various dates from December 2016 through January 2017 (D)     -       26,192  
                 
10% convertible notes payable maturing at various dates from February 2016 through August 2016 (E)     112,200       140,658  
                 
12% convertible notes payable, maturing at various dates from April 2016 through May 2016 (F)     12,832       35,936  
                 
10% note payable, maturing Feb 3, 2017     50,000       50,000  
                 
Various notes payable, maturing 2017 and 2018 (G)     72,650       72,650  
                 
6 % note payable, maturing Oct 12, 2019, (I)     1,500       1,500  
                 
Various notes payable, maturing 2017 and 2018     12,200       12,200  
                 
Total non-third-party notes –net of discount     430,293       496,295  
                 
Less-Current Portion     428,793       494,795  
                 
Total non-current third-party notes   $ 1,500     $ 1,500  

 

  (A) Notes issued net of 10% original discount (fully amortized). This note is in default.
     
  (B) Note issued net of original discount (fully amortized). Effective May 8, 2016, the Company is subject to a default judgment of approximately $175,000, plus subsequent penalty interest for non-payment of convertible debt and interest. Unpaid interest, default penalties and default interest are included in accounts payable and accrued liabilities In 2018 the company negotiated a reduced settlement for $150,000 via the issuance of company stock.
     
  (C) Notes issued net of discount from derivative liabilities (fully amortized). At June 30, 2018, the Company held approximately 97 million shares in reserve to cover the potential conversion of this note into common stock pursuant to debt covenants. This note is in default.
     
  (D) Notes issued net of discount (fully amortized). This note is in default.
     
  (E) Notes issued net of discount from derivative liabilities (fully amortized). At June 30, 2018, the Company held 202 million shares in reserve to cover the potential conversion of this note into common stock pursuant to debt covenants. These notes are in default.
     
  (F) Notes issued net of discount from derivative liabilities (fully amortized). The Company is subject to litigation judgment of approximately $150,000, plus subsequent penalty interest for non–payment. Unpaid interest, default penalties and default interest are included in accounts payable and accrued liabilities. The company negotiated the settlement of the debt, interest and penalties via the conversion of company stock.
     
  (G) Interest on $62,000 of notes to be paid in 6,000,000 shares of restricted company common stock. Other notes are various interest rates. These notes are in default.

Schedule of Related Party Notes and Other Loans Payable

A summary of related party notes and other loans payable is as follows:

 

    June 30, 2018     December 31, 2017  
             
6% demand loans per Operations Agreement with Schoell Marine Inc., a company owned by Cyclone’s Chairman and controlling shareholder (A)   $ 143,210     $ 161,005  
6% non-collateralized loans from officer and shareholder, payable on demand. The original principal balances were $157,101.     82,046       101,546  
12% non-collateralized loans from officer and shareholder, payable on demand     12,138       21,044  
Accrued Interest     126,271       116,278  
Total current related party notes, inclusive of accrued interest   $ 363,665     $ 399,873  

 

  (A) This note arose from services and salaries incurred by Schoell Marine on behalf of the Company. The Schoell Marine note bears an interest rate of 6% and repayments occur as cash flow of the Company permits.

XML 41 R30.htm IDEA: XBRL DOCUMENT v3.10.0.1
Stock Options and Warrants (Tables)
6 Months Ended
Jun. 30, 2018
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Schedule of Common Stock Options

A summary of the common stock options for the period from December 31, 2017 through June 30, 2018 follows:

 

    Number
Outstanding
    Weighted Avg.
Exercise Price
    Weighted Avg.
Remaining
Contractual Life
(Years)
 
                   
Balance, December 31, 2017     13,400,000     $ 0.064       5.8  
Options issued     900,000       .0002       9.9  
Options expired     -       -       -  
Balance, June 30, 2018     14,300,000     $ 0.060       5.6  

Schedule of Vested and Exercisable Options

The vested and exercisable options at period end follows:

 

    Exercisable/
Vested Options
Outstanding
    Weighted Avg.
Exercise Price
    Weighted Avg.
Remaining
Contractual
Life (Years)
 
                         
Balance June 30, 2018     12,950,000     $ .055       5.3  

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions

The fair value of new stock options, re-priced stock options, new purchase warrants and re-priced purchase warrants granted using the Black-Scholes option pricing model was calculated using the following assumptions:

 

    Six Months
Ended
June 30, 2018
    Six Months
Ended
June 30, 2017
 
Risk free interest rate     2.39-2.63 %     1.5-1.5 %
Expected volatility     130-132 %     122-134 %
Expected term     3       3  
Expected dividend yield     0 %     0 %
Average value per options and warrants   $ .0002     $ 0009-.0015  

XML 42 R31.htm IDEA: XBRL DOCUMENT v3.10.0.1
Income Taxes (Tables)
6 Months Ended
Jun. 30, 2018
Income Tax Disclosure [Abstract]  
Schedule of Effective Income Tax Rate Reconciliation

A reconciliation of the differences between the effective income tax rates and the statutory federal tax rates for the six months ended June 30, 2018 and 2017 are as follows:

 

    Six Months
ended
June 30, 2018
          Six Months
ended
June 30, 2017
       
Tax benefit at U.S. statutory rate   $ 77,848       21 %   $ 247,704       34 %
State taxes, net of federal benefit     14,828       4       29,142       4  
Change in valuation allowance     (92,676 )     (25 )     (276,846 )     (38 )
    $ -       -     $ -          

Schedule of Deferred Tax Assets and Liabilities

The tax effect of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at March 31 2018 and December 31, 2017 consisted of the following:

 

Deferred Tax Assets   June 30, 2018     December 31, 2017  
Net Operating Loss Carry-forward   $ 11,165,972     $ 10,951,258  
Deferred Tax Liabilities – Accrued Officers’ Salaries     (1,052,119 )     (987,056 )
Net Deferred Tax Assets     10,113,853       9,964,202  
Valuation Allowance     (10,113,853 )     (9,964,202 )
Total Net Deferred Tax Assets   $ -     $ -  

XML 43 R32.htm IDEA: XBRL DOCUMENT v3.10.0.1
Derivative Financial Instruments (Tables)
6 Months Ended
Jun. 30, 2018
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Schedule of Derivative Liabilities at Fair Value

Volatility expected term and risk-free interest rates that had been used to estimate the fair value of derivative liabilities are indicated in the table below.

 

    Six Months ended
June 30, 2018
    Six Months ended
June 30, 2017
 
Volatility     477-615 %     121-277 %
Risk Free Rate     1.73-1.93 %     1.0-1.24 %
Expected Term (years)     .25       .25-1.0  
Dividend Rate     0 %     0 %

XML 44 R33.htm IDEA: XBRL DOCUMENT v3.10.0.1
Organizational and Significant Accounting Policies (Details Narrative) - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2018
Jun. 30, 2017
Jun. 30, 2018
Jun. 30, 2017
Dec. 31, 2017
Cash equivalents    
Antidilutive securities excluded from computation of earnings per share     14,300,000 14,900,000  
Conversion of debt shares converted     14,500,000,000 2,500,000,000  
Research and development expense $ 84,546 $ 56,242 $ 166,489 $ 96,918  
July 24, 2018 [Member]          
Equity method investment, ownership percentage 76.00%   76.00%    
Equity method investment sold carrying amount     $ 15,000    
Percentage of ratain interest 19.00%   19.00%    
Cyclone Performance LLC [Member]          
Equity method investment, ownership percentage 95.00%   95.00%    
XML 45 R34.htm IDEA: XBRL DOCUMENT v3.10.0.1
Organizational and Significant Accounting Policies - Schedule of Fair Value of Financial Instrument (Details) - Fair Value, Inputs, Level 3 [Member]
6 Months Ended
Jun. 30, 2018
USD ($)
Derivative liabilities, Beginning of Period $ 1,424,001
Derivative liabilities, Additions
Derivative liabilities, Conversions (267,969)
Derivative liabilities, Deletions
Fair Value Adjustment - loss 892,968
Derivative liabilities, End of Period $ 2,049,000
XML 46 R35.htm IDEA: XBRL DOCUMENT v3.10.0.1
Organizational and Significant Accounting Policies - Schedule of Estimated Useful Lives of Property and Equipment (Details)
6 Months Ended
Jun. 30, 2018
Display Equipment For Trade Shows [Member]  
Property and equipment estimated useful lives 3 years
Leasehold Improvements and Furniture and Fixtures [Member] | Minimum [Member]  
Property and equipment estimated useful lives 10 years
Leasehold Improvements and Furniture and Fixtures [Member] | Maximum [Member]  
Property and equipment estimated useful lives 15 years
Shop Equipment [Member]  
Property and equipment estimated useful lives 7 years
Computers [Member]  
Property and equipment estimated useful lives 3 years
XML 47 R36.htm IDEA: XBRL DOCUMENT v3.10.0.1
Going Concern (Details Narrative) - USD ($)
3 Months Ended 6 Months Ended 12 Months Ended
Jun. 30, 2018
Jun. 30, 2017
Jun. 30, 2018
Jun. 30, 2017
Dec. 31, 2017
Organization, Consolidation and Presentation of Financial Statements [Abstract]          
Income (loss) from operating and other losses and expenses $ 697,551 $ 502,591 $ 1,437,171 $ 1,305,377 $ 2,100,000
Accumulated deficit 64,399,662   64,399,662   $ 62,962,497
Working capital deficit $ 5,800,000   $ 5,800,000    
XML 48 R37.htm IDEA: XBRL DOCUMENT v3.10.0.1
Property and Equipment, Net (Details Narrative) - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2018
Jun. 30, 2017
Jun. 30, 2018
Jun. 30, 2017
PROPERTY AND EQUIPMENT        
Depreciation expense $ 2,282 $ 6,715 $ 6,501 $ 14,060
XML 49 R38.htm IDEA: XBRL DOCUMENT v3.10.0.1
Property and Equipment, Net - Schedule of Property and Equipment, Net (Details) - USD ($)
Jun. 30, 2018
Dec. 31, 2017
Property and equipment gross $ 302,770 $ 302,770
Accumulated depreciation (243,439) (236,938)
Net property and equipment 59,331 65,832
Display Equipment For Trade Shows [Member]    
Property and equipment gross 6,270 6,270
Leasehold Improvements and Furniture and Fixtures [Member]    
Property and equipment gross 93,922 93,922
Equipment and Computers [Member]    
Property and equipment gross $ 202,578 $ 202,578
XML 50 R39.htm IDEA: XBRL DOCUMENT v3.10.0.1
Patents, Trademarks and Copyrights (Details Narrative)
3 Months Ended 6 Months Ended 12 Months Ended
Jun. 30, 2018
USD ($)
Jun. 30, 2017
USD ($)
Jun. 30, 2018
USD ($)
Jun. 30, 2017
USD ($)
Dec. 31, 2017
USD ($)
Patents
Integer
Goodwill and Intangible Assets Disclosure [Abstract]          
Net patents, trademarks and copyrights $ 82,245   $ 82,245   $ 90,173
Patents, trademarks and copyrights capitalized     0   0
Retirement of patents     $ 0   $ 62,857
Number of patents | Patents         3
Number of expired patents | Integer         8
Finite-lived intangible asset, useful life     15 years    
Amortization expenses $ 3,964 $ 6,362 $ 7,928 $ 12,724  
XML 51 R40.htm IDEA: XBRL DOCUMENT v3.10.0.1
Notes and Other Loans Payable - Schedule of Non-related Party Notes and Other Loans Payable (Details) - USD ($)
Jun. 30, 2018
Dec. 31, 2017
Total non third party notes - net of discount $ 430,293 $ 496,295
Less-Current Portion 428,793 494,795
Total non-current third party notes 1,500 1,500
12% Convertible Notes Payable [Member]    
Total non third party notes - net of discount [1] 72,948 61,196
10% Convertible Note Payable One [Member]    
Total non third party notes - net of discount [2] 19,963 19,963
10% Convertible Notes Payable Two [Member]    
Total non third party notes - net of discount [3] 76,000 76,000
10% Convertible Notes Payable Three [Member]    
Total non third party notes - net of discount [4] 26,192
10% Convertible Notes Payable Four [Member]    
Total non third party notes - net of discount [5] 112,200 140,658
12% Convertible Notes Payable One [Member]    
Total non third party notes - net of discount [6] 12,832 35,936
10% Note Payable [Member]    
Total non third party notes - net of discount 50,000 50,000
Various Notes Payable [Member]    
Total non third party notes - net of discount [7] 72,650 72,650
6% Note Payable [Member]    
Total non third party notes - net of discount 1,500 1,500
Various Notes Payable One [Member]    
Total non third party notes - net of discount $ 12,200 $ 12,200
[1] Notes issued net of 10% original discount (fully amortized). This note is in default.
[2] Note issued net of original discount (fully amortized). Effective May 8, 2016, the Company is subject to a default judgment of approximately $175,000, plus subsequent penalty interest for non-payment of convertible debt and interest. Unpaid interest, default penalties and default interest are included in accounts payable and accrued liabilities In 2018 the company negotiated a reduced settlement for $150,000 via the issuance of company stock.
[3] Notes issued net of discount from derivative liabilities (fully amortized). At June 30, 2018, the Company held approximately 97 million shares in reserve to cover the potential conversion of this note into common stock pursuant to debt covenants. This note is in default.
[4] Notes issued net of discount (fully amortized). This note is in default.
[5] Notes issued net of discount from derivative liabilities (fully amortized). At June 30, 2018, the Company held 202 million shares in reserve to cover the potential conversion of this note into common stock pursuant to debt covenants. These notes are in default.
[6] Notes issued net of discount from derivative liabilities (fully amortized). The Company is subject to litigation judgment of approximately $150,000, plus subsequent penalty interest for non-payment. Unpaid interest, default penalties and default interest are included in accounts payable and accrued liabilities. The company negotiated the settlement of the debt, interest and penalties via the conversion of company stock.
[7] Interest on $62,000 of notes to be paid in 6,000,000 shares of restricted company common stock Other notes are various interest rates. These notes are in default.
XML 52 R41.htm IDEA: XBRL DOCUMENT v3.10.0.1
Notes and Other Loans Payable - Schedule of Non-related Party Notes and Other Loans Payable (Details) (Parenthetical) - USD ($)
6 Months Ended 12 Months Ended
Jun. 30, 2018
Dec. 31, 2017
Reduction in litigation settlement $ 150,000  
Conversion of debt shares converted 1,862,000,000  
12% Convertible Notes Payable [Member]    
Convertible notes payable, maturity date description November 2013 through October 2017 November 2013 through October 2017
Original discount rate 12.00% 12.00%
10% Convertible Note Payable One [Member]    
Convertible notes payable, maturity date description December 2013 through July 2014 December 2013 through July 2014
Original discount rate 10.00% 10.00%
Payments for legal settlements $ 175,000 $ 175,000
Reduction in litigation settlement $ 150,000 $ 150,000
10% Convertible Notes Payable Two [Member]    
Convertible notes payable, maturity date description May 2016 through February 2017 May 2016 through February 2017
Original discount rate 10.00% 10.00%
10% Convertible Notes Payable Two [Member] | Derivative Liabilities [Member]    
Conversion of debt shares converted 97,000,000  
10% Convertible Notes Payable Three [Member]    
Convertible notes payable, maturity date description December 2016 through January 2017 December 2016 through January 2017
Original discount rate 10.00% 10.00%
10% Convertible Notes Payable Four [Member]    
Convertible notes payable, maturity date description February 2016 through August 2016 February 2016 through August 2016
Original discount rate 10.00% 10.00%
10% Convertible Notes Payable Four [Member] | Derivative Liabilities [Member]    
Conversion of debt shares converted 202,000,000  
12% Convertible Notes Payable One [Member]    
Convertible notes payable, maturity date description April 2016 through May 2016 April 2016 through May 2016
Original discount rate 12.00% 12.00%
Payments for legal settlements $ 150,000 $ 150,000
10% Note Payable [Member]    
Note payable maturity date Feb. 03, 2017 Feb. 03, 2017
Original discount rate 10.00% 10.00%
Various Notes Payable [Member]    
Convertible notes payable, maturity date description maturing 2017 and 2018 maturing 2017 and 2018
Interest paid $ 62,000 $ 62,000
Restricted common stock, shares 6,000,000 6,000,000
6% Note Payable [Member]    
Note payable maturity date Oct. 12, 2019 Oct. 12, 2019
Original discount rate 6.00% 6.00%
Various Notes Payable One [Member]    
Convertible notes payable, maturity date description maturing 2017 and 2018 maturing 2017 and 2018
XML 53 R42.htm IDEA: XBRL DOCUMENT v3.10.0.1
Notes and Other Loans Payable - Schedule of Related Party Notes and Other Loans Payable (Details) - USD ($)
Jun. 30, 2018
Dec. 31, 2017
Total current related party notes, inclusive of accrued interest $ 363,665 $ 399,873
6% Demand Loans Per Operations Agreement With Schoell Marine Inc [Member]    
Total current related party notes, inclusive of accrued interest [1] 143,210 161,005
6% Non-collateralized Loans from Officer and Shareholder [Member]    
Total current related party notes, inclusive of accrued interest 82,046 101,546
12% Non-collateralized Loans from Officer and Shareholder [Member]    
Total current related party notes, inclusive of accrued interest 12,138 21,044
Accrued Interest [Member]    
Total current related party notes, inclusive of accrued interest $ 126,271 $ 116,278
[1] This note arose from services and salaries incurred by Schoell Marine on behalf of the Company. The Schoell Marine note bears an interest rate of 6% and repayments occur as cash flow of the Company permits.
XML 54 R43.htm IDEA: XBRL DOCUMENT v3.10.0.1
Notes and Other Loans Payable - Schedule of Related Party Notes and Other Loans Payable (Details) (Parenthetical) - USD ($)
Jun. 30, 2018
Dec. 31, 2017
6% Demand Loans Per Operations Agreement With Schoell Marine Inc [Member]    
Debt instrument note bears an interest rate 6.00% 6.00%
6% Non-collateralized Loans from Officer and Shareholder [Member]    
Debt instrument note bears an interest rate 6.00% 6.00%
Original principal balance $ 157,101 $ 157,101
12% Non-collateralized Loans from Officer and Shareholder [Member]    
Debt instrument note bears an interest rate 12.00% 12.00%
XML 55 R44.htm IDEA: XBRL DOCUMENT v3.10.0.1
Related Party Transactions - Deferred Compensation (Details Narrative) - USD ($)
Jun. 30, 2018
Dec. 31, 2017
Related Party Transactions [Abstract]    
Accounts payable and accrued expenses - related parties $ 823,955 $ 687,500
XML 56 R45.htm IDEA: XBRL DOCUMENT v3.10.0.1
Preferred Stock (Details Narrative) - USD ($)
6 Months Ended
Jun. 30, 2018
Dec. 31, 2017
Series A Preferred Stock [Member]    
Preferred stock, shares authorized 750,000 750,000
Preferred stock, shares issued 0 0
Preferred stock, shares outstanding 0 0
Additional development cost $ 5,000,000  
Development cost description The payment of the $5 million is scheduled through 2020.  
Percentage of convertible common shares 20.00%  
Series B Preferred Stock [Member]    
Preferred stock, shares authorized 1,000 1,000
Preferred stock, shares issued 1,000 1,000
Preferred stock, shares outstanding 1,000 1,000
Voting control percentage 51.00%  
Preferred stock shares convertible with common stock 1,000  
XML 57 R46.htm IDEA: XBRL DOCUMENT v3.10.0.1
Stock Transactions (Details Narrative) - USD ($)
6 Months Ended
Jun. 30, 2018
Jun. 30, 2017
Dec. 31, 2017
Common stock, shares authorized 6,000,000,000   6,000,000,000
Conversion of stock, description This is required as the stock price has fallen and shares have to be available at 4 times the conversion rate.    
Amortized common stock options based on vesting $ 549    
Conversion of debt shares converted 1,862,000,000    
Number of common stock pursuant to conversion of notes payable, accrued liabilities and related interest $ 222,000    
Stock issued during period, shares, issued for services 571,000,000    
Stock issued during period, value, issued for services $ 135,000    
Proceeds from issuance of preferred stock 249,500  
Series A Preferred Stock [Member]      
Proceeds from issuance of preferred stock $ 5,000,000    
Preferred stock conversion percentage into common shares 20.00%    
Amount funded by the investor $ 259,500    
XML 58 R47.htm IDEA: XBRL DOCUMENT v3.10.0.1
Stock Options and Warrants (Details Narrative) - USD ($)
6 Months Ended
Jun. 30, 2018
Dec. 31, 2017
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]    
Share-based compensation arrangement by share-based payment award, options, grants in period, gross 900,000  
Share-based compensation arrangement by share-based payment award, options, grants in period value $ 180  
Share-based compensation arrangements by share-based payment award, options, grants in period, weighted average exercise price $ 0.0002  
Stock options issued during period, maturity life 10 years  
Amortization of stock options $ 350  
Unamortized balance 272  
Intrinsic value on options $ 0  
Common stock warrants outstanding
XML 59 R48.htm IDEA: XBRL DOCUMENT v3.10.0.1
Stock Options and Warrants - Schedule of Common Stock Options (Details)
6 Months Ended
Jun. 30, 2018
$ / shares
shares
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Number Outstanding, Balance beginning | shares 13,400,000
Number Outstanding, Options issued | shares 900,000
Number Outstanding, Options Expired | shares
Number Outstanding, Balance ending | shares 14,300,000
Weighted Avg Exercise Price, Balance beginning | $ / shares $ 0.064
Weighted Avg Exercise Price, Options issued | $ / shares 0.0002
Weighted Avg Exercise Price, Options Expired | $ / shares
Weighted Avg Exercise Price, Balance ending | $ / shares $ 0.060
Weighted Avg Remaining Contractual Life (Years), Beginning Balance 5 years 9 months 18 days
Weighted Avg Remaining Contractual Life (Years), Options issued 9 years 10 months 25 days
Weighted Avg Remaining Contractual Life (years), Ending Balance 5 years 7 months 6 days
XML 60 R49.htm IDEA: XBRL DOCUMENT v3.10.0.1
Stock Options and Warrants - Schedule of Vested and Exercisable Options (Details)
6 Months Ended
Jun. 30, 2018
$ / shares
shares
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Exercisable/Vested Options Outstanding | shares 12,950,000
Weighted Avg Exercise Price | $ / shares $ .055
Weighted Avg Remaining Contractual Life (Years) 5 years 3 months 19 days
XML 61 R50.htm IDEA: XBRL DOCUMENT v3.10.0.1
Stock Options and Warrants - Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions (Details) - $ / shares
6 Months Ended
Jun. 30, 2018
Jun. 30, 2017
Expected term, minimum 3 years 3 years
Expected dividend yield 0.00% 0.00%
Average value per options and warrants $ 0.0002  
Minimum [Member]    
Risk free interest rate 2.39% 1.50%
Expected volatility 130.00% 122.00%
Average value per options and warrants   $ .0009
Maximum [Member]    
Risk free interest rate 2.63% 1.50%
Expected volatility 132.00% 134.00%
Average value per options and warrants   $ 0.0015
XML 62 R51.htm IDEA: XBRL DOCUMENT v3.10.0.1
Income Taxes (Details Narrative) - USD ($)
1 Months Ended 6 Months Ended
Dec. 31, 2017
Jun. 30, 2018
Jun. 30, 2017
Income tax examination, description The new tax law includes significant changes to the U.S. corporate tax systems including a rate reduction from 35% to 21% beginning in January of 2018, a change in the treatment of foreign earnings going forward, a deemed repatriation transition tax, and changes to allow net operating losses to be carried forward indefinitely.    
Income tax federal statutory rate 35.00% 21.00% 34.00%
Available net operating loss, percentage   80.00%  
Operating loss carryforwards   $ 17,500,000  
Operating loss carryforwards expiration date   2031  
Minimum [Member]      
Percentage that carry forwards will expire unused   50.00%  
XML 63 R52.htm IDEA: XBRL DOCUMENT v3.10.0.1
Income Taxes - Schedule of Effective Income Tax Rate Reconciliation (Details) - USD ($)
1 Months Ended 3 Months Ended 6 Months Ended
Dec. 31, 2017
Jun. 30, 2018
Jun. 30, 2017
Jun. 30, 2018
Jun. 30, 2017
Income Tax Disclosure [Abstract]          
Tax benefit at U.S. statutory rate       $ 77,848 $ 247,704
Tax benefit at U.S. statutory rate, Percent 35.00%     21.00% 34.00%
State taxes, net of federal benefit       $ 14,828 $ 29,142
State taxes, net of federal benefit, Percent       4.00% 4.00%
Change in valuation allowance       $ (92,676) $ (276,846)
Change in valuation allowance, Percent       (25.00%) (38.00%)
Income Tax Expense (Benefit)  
Income Tax Expense (Benefit), Percent       0.00% 0.00%
XML 64 R53.htm IDEA: XBRL DOCUMENT v3.10.0.1
Income Taxes - Schedule of Deferred Tax Assets and Liabilities (Details) - USD ($)
Jun. 30, 2018
Dec. 31, 2017
Income Tax Disclosure [Abstract]    
Net Operating Loss Carry-forward $ 11,165,972 $ 10,951,258
Deferred Tax Liabilities - Accrued Officers' Salaries (1,052,119) (987,056)
Net Deferred Tax Assets 10,113,853 9,964,202
Valuation Allowance (10,113,853) (9,964,202)
Total Net Deferred Tax Assets
XML 65 R54.htm IDEA: XBRL DOCUMENT v3.10.0.1
Lease Obligations (Details Narrative)
1 Months Ended 3 Months Ended 6 Months Ended
Oct. 13, 2017
USD ($)
May 08, 2016
USD ($)
Aug. 31, 2016
USD ($)
Jun. 30, 2018
USD ($)
ft²
Sep. 30, 2017
USD ($)
Jun. 30, 2017
USD ($)
Jun. 30, 2018
USD ($)
ft²
Jun. 30, 2017
USD ($)
Area of warehouse and office | ft²       6,000     6,000  
Original lease annual rent             $ 60,000  
Monthly current lease increasing rate, percentage       3.00%     3.00%  
Occupancy costs       $ 16,983   $ 16,622 $ 33,966 $ 32,522
Judgement plus accrued interest for non payment of a capital leases amount   $ 175,000 $ 150,000          
Capital lease obligations       $ 5,522     $ 5,522  
Marlin Business Bank [Member]                
Judgement plus accrued interest for non payment of a capital leases amount $ 37,278              
Past due lease payments, accelerated lease payments, late charges and other fees 11,379              
Accrued expenses $ 37,278              
Navitas Lease Corp [Member]                
Judgement plus accrued interest for non payment of a capital leases amount         $ 7,266      
Past due lease payments, accelerated lease payments, late charges and other fees         4,177      
Accrued expenses         $ 7,266      
XML 66 R55.htm IDEA: XBRL DOCUMENT v3.10.0.1
Commitments and Contingencies (Details Narrative)
6 Months Ended
Jun. 30, 2018
USD ($)
Employment agreements, initial term of employment 3 years
Automatic renewing period of employment agreements 1 year
Harry Schoell Chairman and CTO [Member]  
Employment agreements, officer salary $ 150,000
Frankie Fruge COO [Member]  
Employment agreements, officer salary $ 120,000
XML 67 R56.htm IDEA: XBRL DOCUMENT v3.10.0.1
Consolidated Subsidiaries (Details Narrative) - USD ($)
3 Months Ended 6 Months Ended
Dec. 31, 2012
Jun. 30, 2018
Cumulative unallocated losses to non-controlling interest of subsidiary   $ 1,000
July 24, 2018 [Member]    
Noncontrolling interest, ownership percentage by noncontrolling owners   19.00%
Equity method investment, ownership percentage   76.00%
Equity method investment sold carrying amount   $ 15,000
Unrelated Investor [Member]    
Noncontrolling interest, ownership percentage by noncontrolling owners 5.00%  
Proceeds from issuance or sale of equity $ 30,000  
Corporate Officer[Member]    
Noncontrolling interest, ownership percentage by noncontrolling owners 5.00%  
Corporate Officers [Member] | July 24, 2018 [Member]    
Noncontrolling interest, ownership percentage by noncontrolling owners   5.00%
Cyclone Performance LLC [Member]    
Percentage of ownership in consolidated subsidiary 100.00%  
Equity method investment, ownership percentage   95.00%
XML 68 R57.htm IDEA: XBRL DOCUMENT v3.10.0.1
Receivables, Contract Liability and Backlog (Details Narrative)
6 Months Ended
Jun. 30, 2018
USD ($)
Customer advance and deposits $ 56,950
Combilift Agreement [Member]  
Backlog for prototype engines purchased 400,000
Deferred revenue $ 100,000
XML 69 R58.htm IDEA: XBRL DOCUMENT v3.10.0.1
Derivative Financial Instruments (Details Narrative)
3 Months Ended 6 Months Ended
Jun. 30, 2018
USD ($)
Jun. 30, 2017
USD ($)
Jun. 30, 2018
USD ($)
Integer
Jun. 30, 2017
USD ($)
Dec. 31, 2017
USD ($)
Derivative losses related to adjusting the derivative liability $ 468,000 $ 84,000 $ 892,968 $ 407,467  
Derivative Liability $ 2,049,000   2,049,000   $ 1,424,001
Amortization of derivative debt discount     $ 30,764 $ 92,382  
Minimum [Member]          
Debt instrument convertible price     30.00%    
Debt instrument trading days | Integer     10    
Maximum [Member]          
Debt instrument convertible price     45.00%    
Debt instrument trading days | Integer     20    
XML 70 R59.htm IDEA: XBRL DOCUMENT v3.10.0.1
Derivative Financial Instruments - Schedule of Derivative Liabilities at Fair Value (Details)
6 Months Ended
Jun. 30, 2018
Jun. 30, 2017
Expected Term (years) 2 months 30 days  
Dividend Rate 0.00 0.00
Minimum [Member]    
Volatility 477.00% 121.00%
Risk Free Rate 1.73% 1.00%
Expected Term (years)   2 months 30 days
Maximum [Member]    
Volatility 615.00% 277.00%
Risk Free Rate 1.93% 124.00%
Expected Term (years)   1 year
XML 71 R60.htm IDEA: XBRL DOCUMENT v3.10.0.1
Litigation (Details Narrative) - USD ($)
1 Months Ended 3 Months Ended 6 Months Ended
Oct. 13, 2017
May 08, 2016
Aug. 31, 2016
Sep. 30, 2017
Jun. 30, 2018
Litigation settlement amount   $ 175,000 $ 150,000    
Reduction in litigation settlement         $ 150,000
Marlin Business Bank [Member]          
Litigation settlement amount $ 37,278        
Unpaid lease payments, accelerated lease payments, late charges and other fees 11,379        
Accrued expenses $ 37,278        
Navitas Lease Corp [Member]          
Litigation settlement amount       $ 7,266  
Unpaid lease payments, accelerated lease payments, late charges and other fees       4,177  
Accrued expenses       $ 7,266  
XML 72 R61.htm IDEA: XBRL DOCUMENT v3.10.0.1
Subsequent Events (Details Narrative) - USD ($)
6 Months Ended
Jul. 24, 2018
Jun. 30, 2018
Received from investment   $ 5,000
Subsequent Event [Member]    
Equity method investment, ownership percentage 76.00%  
Equity method investment sold carrying amount $ 15,000  
Percentage of retain interest 19.00%  
Subsequent Event [Member] | Corporate Officers [Member]    
Equity method investment, ownership percentage 5.00%  
custom:ThirdQuaterOfTwoThousandEighteenMember    
Additional development cost   5,000,000
Recognised milestones amount   $ 10,000
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