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EX-31.1 - CYCLONE POWER TECHNOLOGIES INCex31-1.htm
EX-10.66 - CYCLONE POWER TECHNOLOGIES INCex10-66.htm
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EX-10.63 - CYCLONE POWER TECHNOLOGIES INCex10-63.htm
EX-10.62 - CYCLONE POWER TECHNOLOGIES INCex10-62.htm
EX-10.61 - CYCLONE POWER TECHNOLOGIES INCex10-61.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-K

 

(Mark One)

 

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
  For the fiscal year ended December 31, 2017

 

Or

 

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
  For the transition period from              to               

 

Commission file number 000-54449

 

Cyclone Power Technologies, Inc.

(Exact name of registrant as specified in its charter)

 

Florida   26-0519058

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

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

 

Registrant’s telephone number (954) 943-8721

 

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

 

Title of each class   Name of each exchange on which registered
None   None

 

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

 

Common Stock, $0.0001 par value

(Title of class)

 

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

 

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

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for a shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [  ] No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [X] Yes [  ] No

 

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

 

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

 

Large accelerated filer [  ] Accelerated filer [  ]
Non-accelerated filer [  ] Smaller reporting company [X]
    Emerging Growth Company [X]

 

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

 

The aggregate market value of the voting and non-voting common equity held by non-affiliates as of the closing price of such shares on the last business day of the registrant’s most recently completed fiscal year was approximately $850,000.

 

The number of shares outstanding of the registrant’s common stock as of May 15, 2018 is 5,292,794,570

 

DOCUMENTS INCORPORATED BY REFERENCE—NONE

 

 

 

 
 

 

TABLE OF CONTENTS

FORM 10-K

 

    Page
  Part I  
Item 1. BUSINESS 3
Item 1A. RISK FACTORS 7
Item 1B. UNRESOLVED STAFF COMMENTS 7
Item 2. PROPERTIES 7
Item 3. LEGAL PROCEEDINGS 7
Item 4. MINE SAFETY DISCLOSURES 8
     
  Part II  
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES 8
Item 6. SELECTED FINANCIAL DATA 9
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 13
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 13
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 13
Item 9A. CONTROLS AND PROCEDURES 14
Item 9B. OTHER INFORMATION 16
     
  Part III  
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 16
Item 11. EXECUTIVE COMPENSATION 20
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS 22
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE 23
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES 24
     
  Part IV  
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES 24
  SIGNATURES 29

 

2

 

 

Part I

 

Item 1. Business

 

Summary

 

Cyclone Power Technologies, a Florida corporation (OTCQB: CYPW) (the “Company,” “Cyclone,” or “we,” “our” is a clean-tech innovation company based in Pompano Beach, Florida. We were incorporated on July 5, 2007. Our mission is to develop power technologies that lead to more efficient and diverse utilization of energy resources, less dependence on fossil fuels, and a cleaner environment.

 

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

 

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

 

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

 

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

 

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

 

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

 

Our Mark 1 and Mark 3 model engines address the alternative energy markets to provide an external combustion engine able to burn various fuels providing power for usable mechanical and/or electric power. Our business model is to subcontract the manufacturing of these models. This was done in 2017. These are now being readied to sell to commercial customers, vertical partners and distributors in 2018.
   
Transportation and Equipment: Our Mark 5 model engine is a powerful, multi-fuel and clean burning demonstrator for the automotive, marine and off-road equipment markets. We have now secured a strong investment partner for funding and support that will allow us to complete heavy equipment and vehicle integration in 2018.
   

Portable / Mobile Power: Our S-2 model engine was developed and accepted under a contract with the U.S. Army as a portable, multi-fuel power generator for vehicles and forward operating bases. Falck Schmidt Defense Systems (“FSDS”) of Denmark, has filed bankruptcy due to non-renewal of bank loans. The owner Falck Schmidt has started a new Company and has asked to continue as a worldwide military supplier. They will take the unit to a trial for military compliance.

 

Solar Microgrid System: We have a Mark 10 drawn and is going into CAD. The first 1500 horsepower unit is projected to be tested by the end of 2018. The Cyclone solar trough is being manufactured by an American solar company and the Thermal Storage Unit will also be built and tested this year for the 1 Megawatt Microgrid Market. The new investment group is facilitating integration of our engine with their Solar products.

 

The advantages of our technology have been widely recognized. We first caught the public eye as Popular Science Magazine’s Invention of the Year in 2008, and since then, we have secured engine development contracts with Raytheon, the U.S. Army, Phoenix Power Group (waste-to-energy), Combilift (European equipment manufacturer). FSDS (military supplier) and Integrated Biomass Energy System, FZ-LLC (“IBES”), a United Arab Emirates corporation. We have formed working relationships with other major defense and industrial groups, and teaming agreements with multiple “vertical” development partners that manufacture and distribute furnaces, gasifiers, electric generators and other synergistic technologies.

 

Business Objectives

 

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

 

3

 

 

Based on our business model, our revenue and income will come from:

 

  Development and engineering fees from customers, partners and licensees;
     
  Direct sales revenue from engines we manufacture through sub contractors;
     
  Up-front license fees and on-going royalties based on sales by our licensees.
     
  Direct sales of Cyclone powered generators to distributors.

 

  Income recognition from equity investment in partnerships

 

Development Status of Technology

 

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

 

Model   Size   Uses   Stage
             

Mark 1

 

  5 HP   Power generation –all fuels and heat sources   Production units (10) in field testing
             
Mark 3   25 HP   Auxiliary power for military, biomass to power, portable power, and small vehicles   Production units (10) at OEM’s
             
Mark 5   100 HP   Transportation, commercial power, military   Beta Prototype (2)
             
Mark 10   1500 HP  

Transportation Train, Ship, large equipment, Power

Generation

  Into finish CAD drawing, quotes out & parts ordered
             
Combustion Chamber       Waste fuels, biomass to power, for :transportation, commercial power, military   Preproduction units (25)

 

 

  (1) “Pre Production Unit” refers to an engine in the process of being engineered for manufacturing at OEM’s
     
  (2) Beta Prototype” refers to a second generation prototype engine, which has undergone significant testing at Cyclone’s facility.

 

Our engines are currently in customer field testing, and there is no guarantee that they will successfully meet customer expectations when completed.

 

4

 

 

Research and Development Activities

 

As a technology research and development company, much of our annual expenses are dedicated towards R&D, including labor costs, material costs, tooling and equipment and other expenses required to run our business. Our R&D expenditures for 2017 and 2016 were $238,682 and $604,199, respectively.

 

We actively pursue development agreements with customers, whereby we will develop an engine, design plans or other products to spec at the customer’s full or partial expense. Sometimes these arrangements are part of a more expansive license agreement.

 

Prototyping and Manufacturing

 

We currently contract with multiple suppliers for the production of many of our prototype parts, which we design and then assemble and test at our facility. In 2014, we acquired the machinery to produce in-house a greater portion of this prototype manufacturing work, which we believe has saved us considerable time and money. For production we have contracted with one or more manufacturers that have the expertise, machinery, tooling and other capital assets required to commercialize and manufacture in mass production our engines.

 

Competitive Business Conditions

 

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

 

Currently, there are several companies which have developed and commercialized other types of external heat engines, such as Stirling engines. Stirling engines are similar to our technology and are used in overlapping applications (such as solar thermal power generation), however; the two engine technologies have several major differences, including size, power-density, and adaptability to fluctuations in heat and load. Based on preliminary testing and analysis, we believe that our engine technology may be superior to the Stirling engines in these aspects; and thus, has more applications in waste heat and mobile uses (i.e., cars, trucks and ships). We have not yet commercialized our engine technology, and these claims are still to be proven. Also, several Stirling engine companies such as Infinia Corp. have greater capital resources than we do, which could help establish their technology in the marketplace quicker than we can. We feel starting in 2018 with the new capital investment we will catch up to these other technologies.

 

Other technologies that may be indirectly competitive with our engines are lithium-ion batteries and hydrogen fuel cells. Batteries are useful for some applications where limited sustained power (torque) and operating time is needed, however, they are just “fuel tanks” which allow for power that is generated elsewhere (i.e., a coal-fired power plant) to be saved and transported. The 100hp Cyclone engine we are currently developing, which would produce approximately 50kW of electric output, weighs just 125lbs, is 2 ft in diameter and height, and is expected to cost 10 times less to produce. Once again, these claims are based on our current beliefs and developmental testing, as we have not yet produced commercial products.

 

Patents and IP Protection

 

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

 

Active U.S. Patents  
   
U.S. No. 7,080,512 B2 Heat Regenerative Engine
   
U.S. No. 7,856,822 B2 Heat Regenerative Engine
   
U.S. No. 7,856,823 B2 Pre-Heater Coil in a Heat Regenerative Engine

 

5

 

 

Pursuant to new US Patent Office regulations, upon approval and payment of back fees , the Company’s 8 expired patents can be reestablished from inception. We have also taken advantage of reissues to include changes and broaden the patents. We pursue a rigorous patent strategy, pursuant to which (and subject to our available cash resources) we file patents in the U.S. for our engines, their individual components, and other innovations and inventions we develop. We also pursue patents internationally in countries where we believe we may have manufacturing or sales opportunities and/or competition. Despite these efforts, we cannot make assurances that our patents will not infringe on other patents throughout the world, that other groups will not try to infringe on our patents, and if either of these were to occur, that we would have the resources to defend our rights. If this were to occur, it could have a material adverse effect on our business.

 

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

 

Sources and availability of raw material

 

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

 

Dependence on customers

 

We have contracts for development and licensing of our engine technology, our Thermal Storage Battery, and our Solar Trough: Combi-Lift LTD. (a global materials handling and lift equipment manufacturer based in Ireland), Falck Schmidt Defense Systems of Denmark (“FSDS”) which is in reorganization after a forced bankruptcy (a global military products manufacturing and supplier), IBES (a producer of biomass furnace electric systems) which is in breach of contract currently, Genesis, (a major construction builder with concrete technology) to build our Thermal Storage Units, a current list of four Distributors for sales of the generators being supplied through TAW Power Systems, and four integrators for Solar, off road vehicle, and two biomass fuel manufacturers. We have formed working relationships with other major industrial groups, and teaming agreements with manufacturers.

 

Because of the diversification of applications, uses and business models, and the current stage of our development /product sales cycle, we do not believe that the loss of the licensee or development partner would have a material adverse impact on our current or future operations. Additionally, we are actively pursuing other licensees and development partners in other product categories.

 

Governmental regulation

 

Our Products. Power systems are subject to extensive statutory and regulatory requirements that directly or indirectly impose standards governing emissions and noise. Our engines, when they will ultimately be installed in power systems, will be subject to compliance with all current emissions standards imposed by the EPA, state regulatory agencies in the United States, including the California Air Resources Board (CARB), and other regulatory agencies around the world and established for power systems utilized in applications such as electric generators or off-highway industrial equipment. EPA and CARB regulations imposed on engines utilized in industrial off-highway equipment generally serve to restrict emissions, with a primary focus on oxides of nitrogen, particulate matter and hydrocarbons. Emission regulations for engines utilized in off-highway industrial equipment vary based upon the use of the equipment into which the engine is incorporated (such as stationary power generation or mobile off-highway industrial equipment), and the type of fuel used to drive the power system. Further, applicable emission thresholds differ based upon the gross power of an engine utilized in industrial off-highway equipment. Additionally, most emissions thresholds are designed for gasoline and diesel-powered “spark-ignited” internal combustion engines, and not external combustion engines like Cyclone’s engines. In 2015, Cyclone received EPA and CARB certifications for all fuels 25HP and below for power generation.

 

6

 

 

Our markets can be positively or negatively impacted by the effects of governmental and regulatory matters. We are affected not only by energy policy, laws, regulations and incentives of governments in the markets into which we sell, but also by rules, regulations and costs imposed by utilities. Utility companies or governmental entities could place barriers on the installation of our product or the interconnection of the product with the electric grid. Further, utility companies may charge additional fees to customers who install on-site power generation, thereby reducing the electricity they take from the utility, or for having the capacity to use power from the grid for back-up or standby purposes. These types of restrictions, fees or charges could hamper the ability to install or effectively use our products or increase the cost to our potential customers for using our systems in the future. This could make our systems less desirable, thereby adversely affecting our revenue and profitability potential. In addition, utility rate reductions can make our products less competitive which would have a material adverse effect on our future operations. These costs, incentives and rules are not always the same as those faced by technologies with which we compete. However, rules, regulations, laws and incentives could also provide an advantage to our distributed generation solutions as compared with competing technologies if we can achieve required compliance at a lower cost when our engines are commercialized. Additionally, reduced emissions and higher fuel efficiency could help our future customers combat the effects of global warming. Accordingly, we may benefit from increased government regulations that impose tighter emission and fuel efficiency standards. Cyclone has already received EPA and CARB emissions certification for generators any fuel 25 horsepower and under.

 

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

 

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

 

Employees. In 2017, we had 6 full-time employees including management, and two part-time employees. We consider our relations with our employees to be good. None of our employees are covered under any labor union or collective bargaining agreement. As needed, we contract with specialized labor, machine shops / fabricators and consultants to control costs.

 

Item 1A. Risk Factors

 

Not required for smaller reporting companies.

 

Item 1B. Unresolved Staff Comments

 

None.

 

Item 2. Properties

 

We currently operate in a 6,000 sf leased warehouse facility at a monthly rate of $5,661. Our address is 601 NE 26th Ct., Pompano Beach, FL 33064. The lease expired Dec 2016, and we are currently on a monthly basis. We believe these facilities are in good condition, but we still may need to expand our operating space further as our research and development efforts expand.

 

Item 3. Legal Proceedings

 

Effective May 8, 2015, the Company is subject to a default judgment in Dallas Texas of approximately $175,000 plus interest for non-payment of convertible debt and interest, attorney fees and court costs. The Company is negotiating a reduced settlement. A Judgment was entered in 160th District Court of Dallas county, Texas, Case No: DC-15-00829, on April 3, 2015, between the Company and JSJ Investments Inc. for default of convertible note. We entered into a settlement agreement for conversion of judgment based on value and conversions of original note on January 9, 2017.

 

7

 

 

In August 2015, the Company is subject to a default judgment $166,000 plus interest for non- payment of a convertible warrant true up. The Company is seeking to arrange a reduced settlement. A judgment was entered in United States District Court of Utah, Central Division, case No: 215-cv-00536-PMW, on May 17, 2016, between the Company and Tonaquint Inc. for default of true up on a convertible warrant. As of February 20, 2018 we entered into a settlement agreement for conversion of a set amount of $150,000 on a 1 to 1 bases to common stock sales.

 

Effective October 13, 2017 the Company was subject to a summary judgment of $37,278 plus attorney fees for non-payment of 3 capitalized 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 capitalized 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 capitalized 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 capitalized lease liability.

 

Item 4. Mine Safety Disclosures

 

None.

 

PART II

 

Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

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

 

According to the records of our transfer agent and NOBO listing, as of March 31, 2018, there were approximately 4,700 shareholders of record of our common stock, and two shareholders of record of our Series B Preferred Stock.

 

Year ended December 31, 2017

 

   High Bid Price   Low Bid Price 
First Quarter  $0.0024   $0.0001 
Second Quarter   0.0021    0.0005 
Third Quarter   0.0015    0.0003 
Fourth Quarter   0.0006    0.0001 

 

Year Ended December 31, 2016

 

   High Bid Price   Low Bid Price 
First Quarter  $0.0030   $0.0010 
Second Quarter   0.0230    0.0010 
Third Quarter   0.0028    0.0011 
Fourth Quarter   0.0028    0.0016 

 

8

 

 

Dividend Policy.

 

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

 

Item 6. Selected Financial Data

 

Not required for smaller reporting companies.

 

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

 

Forward Looking Statements

 

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

 

  the ability to successfully complete commercialization of our technology;
     
  changes in existing and potential relationships with customers and collaborative partners;
     
  the ability to retain certain members of management;
     
  our expectations regarding general and administrative expenses;
     
  our expectations regarding cash availability and balances, capital requirements, anticipated revenue and expenses, including infrastructure and patent expenditures;
     
  other factors detailed from time to time in filings with the SEC.

 

In addition, in this filing, 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 filing. In light of these risks and uncertainties, the forward-looking events and circumstances discussed in this filing may not occur and actual results could differ materially from those anticipated or implied in the forward-looking statement.

 

Overview

 

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 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. The Company is looking to expand with other military associates for its S-2 engine.

 

9

 

 

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 by early next year.

 

Financing Transactions

 

In 2017, we financed our operations via funds generated from $165,813 in notes payable, an increase in trade accounts payables and, accrued liabilities of $646,741 and a net increase in payables and debt to related parties of approximately $341,000.

 

Corporate Structural Actions. We will continue to take decisive steps to mature our structure and operations to attract funding from investors with long range horizons and strategic partners who can add value from multiple directions. This type of funding is different from the convertible notes we used to finance us over the last few years.

 

Stock for Services and Contracts. During the year ended December 31, 2017, we issued approximately 6.4 million shares of common stock for $5,000 of services. We also amortized (based on vesting) $3,153 of common stock options for employee services.

 

Stock for Liabilities. During the year ended December 31, 2017, we issued approximately 1,335.9 million shares of common stock pursuant to conversions of approximately $585,000 of notes payable, accrued liabilities and related interest.

 

Research& Development. We invest considerably in the development of our technology. Over the years, these investments have led to over 30 patents and substantial progress towards the commercialization of our engine technology. For 2017 and 2016 our R&D expenses were $238,682 and $604,199, respectively.

 

Commitments for Capital and Operational Expenditures. Should additional funding be secured, we could increase the number of skilled and unskilled employees on payroll, including the recruitment of high level executive management and additional engineers and mechanical staff.

 

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

 

Intangible assets, consisting primarily of patents, are deemed to be critical for the furtherance of 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 these engine and associated technology patents.

 

We review inventory for engine development on an ongoing basis for obsolescence as engine designs are revised, with resultant charges to R&D.

 

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

 

10

 

 

Our audited consolidated financial statements include our accounts and the accounts of our 95% owned subsidiary, Cyclone Performance. We have eliminated all material inter-company transactions and balances in our consolidated financial statements. The accompanying audited consolidated financial statements have been prepared in accordance with GAAP in the United States for financial information. In our management’s opinion, all adjustments considered necessary for a fair presentation of financial statements have been included and such adjustments are of a normal recurring nature.

 

Going concern

 

As shown in the accompanying consolidated financial statements, the Company sustained substantial operating and other losses and expenses of approximately $2.1 million for the year ended December 31, 2017, and $2.1 million for the year ended December 31, 2016. The cumulative deficit since inception is approximately $63.0 million. The Company has a working capital deficit at December 31, 2017 of approximately $5.4 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.

 

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.

 

New Accounting Pronouncements

 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2014-09, “Revenue from Contracts with Customers,” which supersedes the revenue recognition requirements in Topic 605, “Revenue Recognition” and requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In August 2015, the FASB issued ASU 2015-14, which defers by one year the effective date of ASU 2014-09. Accordingly, this guidance is effective for interim and annual periods beginning after December 15, 2017. The Company adopted this guidance on January 1, 2018 and does not expect this guidance to have a material effect on its financial position, results of operations and cash flows.

 

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.

 

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

 

Results of Operations –

 

Year Ended December 31, 2017 Compared to Year Ended December 31, 2016

 

Revenues and Gross Profit

 

In 2017, the Company recognized $150,000 pursuant to the delivery of a S-2 engine and $25,000 in license fees for waste heat engine applications. The total gross profit for 2017 was $174,862.

 

There were no revenues or gross profit for the year ended December 31, 2016

 

Operating Expenses

 

Our operating expenses decreased $208,223 or 13%, to $1,371,848 for the year ended December 31, 2017 compared to $1,580,071 for the comparable period in 2016. The majority of the decrease was due to lower research and development expenses of $365,517 (60%) that were attributable to the 2016 complete expensing of engine developmental labor and overhead, inclusive of a 2016 inventory reserve provision of $125,900, partially offset by higher 2017 general and administrative expenses of $158,022 (16%) attributable to public company related accounting and consulting expenses. On October 1, 2017 the Company executed a consulting agreement known as “Romero Consulting Agreement date October 1, 2017” to render such advice, consultation, information, and services to the Directors and/or Officers of the Company regarding advise, consultation, information and services not limited to business development in Mexico, Central and South America; additional services in social media including but not limited to Facebook, Twitter and SnapChat.

 

11

 

 

Operating Loss

 

Our operating losses decreased $383,085 or 24%, to $1,196,986 for the year ended December 31, 2017 compared to $1,580,071 for the comparable period in 2016.

 

Other Income (Expense)

 

Net other expense for the year ended December 31 2017 of $(936,852) was inclusive of interest expense of $377,410 , and to the non-cash expense in the change in fair value of derivative liability of $728,144.

 

Net other expense for the year ended December 31, 2016 was ($520,852) primarily attributable to non cash derivative expense of $370,519 and $141,450 of interest expense

 

Net Income and Earnings per Share

 

Our net loss decreased $32,915 or 2% to $2,133,838 for the year ended December 31, 2017 compared to a net loss of $2,100,923 for the comparable period in 2016. The decrease is due to the factors set forth above. The resulting net loss per weighted average share for 2017 and 2016 was ($0.00) and ($0.00), respectively.

 

12

 

 

Liquidity and Capital Resources

 

Our working capital deficiency increased by $1.4 million or 35%, to $5.4 million for the year ended December 31, 2017 compared $4.0 million for the comparable period in 2016. The variance is primarily due to higher accounts payables and accruals, higher related party accounts and loans payable, an increase in derivative fair value liabilities partially offset by recognition of $150,000 in deferred revenue

 

For the year ended December 31, 2017, funds were provided by a $646,741 increase in accounts payable and accruals, a net $341,113 increase in related party accounts payable, accruals and notes payable, and $165,813 in traditional, non derivative related indebtedness. Funds were used by the net loss of $2,133,838 and $150,000 in realization of deferred revenue. Included in the net loss is a non-cash charge of $728,144 attributable to a loss on the change in fair value of derivative liability, and $ 70,934 on a loss on debt conversion paid with common stock.

 

For the year ended December 31, 2016, funds were provided by a $554,744 increase in accounts payable and accruals, a $407,426 increase in related party accounts payable, accruals and notes payable, a $170,941 reduction in inventory and a $175,700 increase in deferred revenue deposits. Funds were used by the net loss of $2,100,923. Included in the net loss is a net non-cash charge of $370,518 attributable to inclusion, (besides the underlying debt) in the fair value of derivative liabilities of note default judgments, default interest and related debt interest.

 

Cash Flows and Management Plans

 

As of May 24, 2018, an investor provided $199,500 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, which represents 20% ownership of the Company at the completion of funding. The funds are to be paid over a 2-year period upon reaching various milestones.

 

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 off-balance sheet arrangements at this time.

 

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

 

Not required for smaller reporting companies.

 

Item 8. Financial Statements and Supplementary Data

 

Financial statements required by this Item 8 are included at the end of this report as listed on Item 15.

 

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

 

(a) Engagement of New Independent Registered Accounting Firm and Dismissal of Independent Accounting Firms

 

On March 22, 2017, we appointed Soles, Heyn & Company LLP (SH) as our new independent registered accounting firm with respect to the fiscal year ended December 31, 2016. In addition, we engaged SH to review the quarterly financial statements of March 31, 2016, June 30, 2016, and September 30, 2016, and to review the quarterly financial statements of March 31, 2017, June 30, 2017, and September 30, 2017.

 

13

 

 

Except as noted in this paragraph, since January 1, 2014, there were no “reportable events” as that term is described in Item 304(a)(1)(v) of Regulation SK.

 

Since July 2016, neither us nor anyone acting on our behalf consulted SH or A&C, with respect to any of the matters or reportable events set forth in Item 304(a)(2)(i) and (ii) of Regulation SK.

 

Item 9A. Controls and Procedures

 

Disclosure Controls

 

None.

 

Item 9A. Controls and Procedures

 

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

 

We carried out an evaluation as required by paragraph (b) of Rule 13a-15 and 15d-15 of the Exchange Act, under the supervision and with the participation of our management, including our 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 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.

 

14

 

 

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.

 

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 December 31, 2016. In making this assessment, 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 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.

 

15

 

 

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.

 

Item 9B. Other Information

 

None.

 

Part III

 

Item 10. Directors, Executive Officers and Corporate Governance

 

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

 

Name   Age   Position   Date of Appointment
             
Harry Schoell   75   Chairman and Chief Technology Officer   June 2004*
             
Frankie Fruge   73   Director and President   June 2004
             
Bruce Schames   71   Chief Financial Officer   April 2010
             
James Hasson   77   Director   June 2014
             
Dennis Dudzik   66   Director   June 2014

 

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

 

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

 

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

 

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

 

16

 

 

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

 

Frankie Fruge serves as our President and Director. She has been with us since our inception in 2004 in the role of General Partner and Director of Administration. Ms. Fruge oversees our daily operations and financial matters.

 

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

 

Prior to her career in marine-based engine technology, Ms. Fruge spent over 10 years as an operating engineer for several oil refinery companies in Louisiana, including Conoco, and eight years as an auditor for Ernst & Ernst (the predecessor company to Ernst& Young). Ms. Fruge is also a certified industrial firefighter, is Chairman of the Board of the International Association for Advancement of Steam Power, Corp. (a 501c3) and is a former board member of the Steam Automobile Club of America. on the Board of the Steam Automobile Club of America.

 

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

 

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

 

James Hasson Since 1994 he has been President and owner of Hypex, Inc., a company that designs and builds machinery for the pharmaceutical, medical device, aerospace, food and other specialized industries. and has additionally presided over three acquisitions and three start-ups. Previously, Mr. Hasson was President and CEO of Citisteel USA, Inc., where he managed over 300 people and led the company to over $100 million in annual revenue; President and CEO of Magnetic Metals Corp., a$50 million manufacturing business; and Vice President and General Manager of the manufacturing division of LaSalle Steel Company, with over $200 million in sales. Mr. Hasson holds a BS in Mechanical Engineering from Drexel University, an AS in Mechanical Engineering from Pennsylvania State University.

 

Dennis Dudzik is the founder and President of the International Association for the Advancement of Steam Power (IAASP), a leading global non-profit organization dedicated to the advancement and commercialization of modern steam power. In his professional capacity for URS Corporation, Mr. Dudzik is the Program and Contract Manager for Integrated Resource Plan services to Los Angeles Department of Water and Power (LADWP), and Program and Contract Manager for major power project environmental and engineering services contracts for the Sacramento Municipal Utility District (SMUD). He has held key management roles in over a dozen major electric generation, transmission, and substation projects over the last 12 years. Mr. Dudzik served as the Contract Manager for the construction contracts for the 30 MW Ormesa Geothermal Power Project, the 125 MW NCPA Combustion Turbine Project, and provided permitting services for the 47 MW COLMAC Power Project, as well as numerous other California power projects. He also is a Professional Engineer.

 

Board Leadership Structure and Role in Risk Oversight

 

We have not adopted a formal policy on whether the Chairman and Chief Executive Officer positions should be separate or combined. Mr. Schoell served as our Chief Executive Officer and Chairman since inception in 2004 until 2012 when he was appointed as our Chief Technology Officer. No one currently serves as our CEO.

 

17

 

 

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

 

We do not have an Audit Committee, however, we have hired a CPA consultant to assist with our SEC filings. We expect to add members to this committee in the near future. The Audit Committee is responsible for monitoring and reviewing our financial statements and internal controls over financial reporting. In addition, they recommend the selection of the independent auditors and consult with management and our independent auditors prior to the presentation of financial statements to shareholders and the filing of our forms 10-Q and 10-K. Our Board will choose new committee members who qualify as “audit committee financial experts” as defined under the federal securities laws. The Audit Committee’s responsibilities are set forth in our Charter of Corporate Governance, a copy of which is currently available from us and is posted on our website.

 

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

 

Director Independence

 

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

 

Board of Advisors

 

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

 

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

 

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

 

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

 

18

 

 

Other Key, Non-Executive Personnel

 

Lawrence A. Bornstein, CPA, currently consults for us and advises on accounting matters and filings with the SEC. Mr. Bornstein has been a senior executive with over 29 years of experience in auditing, accounting, finance, operations, acquisitions/mergers and international licensing. Mr. Bornstein started his career at Arthur Anderson, where he rose to the position of Senior Manager, in their West Palm Beach office. He managed a diverse client base ranging from closely held small businesses to large international public corporations and non-profit entities. During his tenure at Arthur Andersen Mr. Bornstein was responsible for uncovering several major corporate frauds and leading subsequent investigations. He has testified at numerous depositions and has assisted counsel with interpretations of accounting principles, review and analysis of business records, assistance with discovery and preparation of analyses and reports.

 

He then transitioned to American Media, Inc. as V.P. Finance and Chief Accounting Officer, where he managed day to day oversight of accounting and various corporate acquisitions. Over the last decade Mr. Bornstein’s has held various positions at American Media, including Senior V.P General Manager & Administration/M&A, as well as General Manager of International Licensing and Syndication. Mr. Bornstein supervised an annual budget of over $400M in revenues, implemented various forecasting systems, procedures and controls, participated in acquisitions, managed several departments, prepared business plans and oversaw 43 licensed magazine editions in 58 Countries.

 

In addition, Mr. Bornstein has acted as an Independent Business Consultant, with engagements focusing on financial, accounting, operational and funding strategies for several organizations in the U.S.A. and Canada. Customers included companies in the environmental, emerging technology and food industries. Mr. Bornstein also has worked with several major private equity firms and investment banks on Wall Street.Mr. Bornstein graduated Cum Laude from UMass Amherst, where he earned a Bachelor of Business Administration degree in Accounting and a minor in Economics.

 

Karl Petersen, currently consults for us and was our Vice President of Engineering through March 2014. He has over 45 years of experience in product development, engineering, manufacturing, and quality systems. He currently works directly with our engineering team to assist in the commercialization of its external combustion engine technology. Previously, Mr. Petersen ran Petersen Product Development in Boise, ID, which provided mechanical, chemical and manufacturing process development for clients that include Caterpillar and John Deere. Prior to that Mr. Petersen spent over 25 years in various engineering and management positions at Preco (purchased by Vansco Electronics in 2005), which provided critical product development for Caterpillar and AGCO. He also served several Lockheed divisions as a Senior Mechanical Engineer. Having worked on steam systems since the 1960’s, Mr. Petersen has built numerous engines throughout his career and has vast knowledge of their mechanical and thermodynamic operations.

 

Allen Brown, currently consults for us and was our Senior Engineering Fellow through March 2014. He is an engineer whose experience spans over 56 years in the marine industry where he has developed propulsion, hydraulic, electrical and exhaust systems for some of the best known names in the business. Over the years, Mr. Brown has served as: Director of Product Development for Cigarette Racing Team, President and CEO of Cougar Marine, which built powerboats that won 33 consecutive offshore races including 12 World and National Championships, Director of Product Development for Stainless Marine, Project Engineer for Gentry Transatlantic on the “Gentry Eagle,” a 113’ mega-yacht that held the transatlantic speed crossing record, Product Development Consultant for Teleflex Marine, and General Manager of Donzi Marine.

 

Compensation to Advisors

 

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

 

Family Relationships

 

There are no family relationships among our directors and executive officers.

 

19

 

 

Code of Conduct and Ethics

 

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

 

Compliance with Section 16(a) of the Exchange Act

 

Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to us under Rule 16a-3(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) during twelve months ended December 31, 2017, we are not aware of any person that failed to file on a timely basis, as disclosed in the aforementioned Forms, reports required by Section 16(a) of the Exchange Act during the years ended December 31, 2017.

 

Item 11. Executive Compensation

 

Summary Compensation Table

 

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

 

Current

Officers

Name &

Principal

Position

  Year   Salary ($)   Bonus ($)   Stock Awards (S)   All Other Compensation ($)   Option Awards ($)   Total ($) 
Harry Schoell   2017   $150,000(1)   0    0    0   $465   $150,465 
Chairman & CTO   2016    150,000(1)   0    0    0    1,230    151,230 
                                    
Frankie Fruge   2017   $125,000(2)   0    0    0   $465   $125,465 
Director & President   2016    125,000(2)   0    0    0    1,230    126,230 
                                    
Bruce Schames   2017   $72,000(3)   0    0    0   $465   $72,465 
CFO   2016    72,000(3)   0    0    0    1,230    73,230 

 

  (1) All of Mr. Schoell’s salary in 2017 and 2016 has been deferred until determined by the Board of Directors that we can afford to pay such salary. The total accrued deferred salary is $375,000. In 2015 Mr. Schoell forgave $325,000 of accrued salary.
     
  (2) All of Ms. Fruge’s salary in 2017 and 2016 has been deferred until determined by the Board of Directors that we can afford to pay such salary. The total accrued deferred salary is $312,500 In 2015 Ms. Fruge forgave $287,500 of accrued salary.
     
  (3) As of December 31, 2017, Mr. Schames had $241,861 of total deferred total compensation, which will be paid when determined by the Board of Directors that we can afford to pay such salary. In 2015 Mr. Schames forgave $42,725 of accrued salary.

 

Employment Agreements

 

Harry Schoell. Mr. Schoell has an employment agreement with us providing for a base salary of $150,000 per year plus standard benefits. This compensation is currently being deferred until we have sufficient revenue to support its payment, and to date, he has not received any cash compensation under his agreement. Mr. Schoell converted $20,000 of deferred salary to common stock in 2010, and $24,000 to common stock in 2013 at current market prices. Mr. Schoell also converted 1.5 million shares of our common stock to a 2.5% equity interest in Cyclone Performance LLC in 2012. In 2014 Mr. Schoell converted $844,844 of unpaid deferred salary into 10,560,550 shares of common stock, and in 2015 Mr. Schoell forgave $325,000 of accrued salary. As of December 31, 2017, Mr. Schoell had $375,000 in unpaid, deferred salary due to him.

 

20

 

 

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

 

Frankie Fruge. Ms. Fruge has an Employment Agreement with us providing for a base salary of $125,000 per year plus standard benefits. This compensation is currently being deferred, and to date, she has not received any cash compensation under her agreement. Ms. Fruge converted $6,000 of deferred salary to common stock in 2010, and $24,000 salary to common stock in 2013. She also converted 1.5 million shares of our stock into 2.5% equity interest in Cyclone Performance LLC in 2012.

 

In 2014 Ms. Fruge converted $738,740 of unpaid deferred salary into 7,984,250 shares of common stock and in 2015 Ms. Fruge forgave $287,500 of accrued salary. As of December 31, 2017, Ms. Fruge had $312,500 in unpaid, deferred salary due to her.

 

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

 

Bruce Schames. Mr. Schames has an agreement with us providing for annual cash compensation of $60,000, $12,000 in restricted common stock and 600,000 common stock options. His year-to-year contract began June 1, 2010. Either Mr. Schames or us may terminate his employment on 60 days’ notice. If we terminate other than for “cause,” he shall receive his base compensation due through the date of termination plus a good faith repayment plan for any deferred and unpaid compensation. If Mr. Schames leaves or is terminated for “cause,” he shall not be paid any deferred compensation and any unvested options shall terminate immediately. “Cause” is defined as gross negligence or willful misconduct that injures or may reasonably injure us. Mr. Schames converted $55,292 of deferred salary to 691,152 shares of our common stock in 2014 and in 2015 Mr. Schames forgave $42,725 of accrued salary. As of December 31, 2017, Mr. Schames had $241,861 in unpaid deferred salary due to him.

 

CYCLONE OFFICER and DIRECTOR OPTIONS

 

Outstanding Equity Awards at December 31, 2017

 

The following table summarizes information concerning all stock option grants held by our named executive officers as of December 31, 2017.

 

All outstanding equity awards are options to purchase shares of common stock.

 

21

 

 

                   Exercise or   Grant Date Fair             
       Total   Number       Base Price of   Value of Stock       Number   Number Un- 
   Option   Number   Exercisable   Number   Option   in Option   Option   Exercisable   exercisable 
   Grant   Granted   (Vested)   Un-   Awards   Awards   Expiration   Date   Date 
Name and Position  Dates   Granted   (1)   exercisable   ($/Share)   ($)(2)   Date   Vested   Expires 
                                     
Harry Schoell    2011-2017    3,300,000    2,850,000    450,000    $.19-.$0003    $.19-.$0003    2021-2027    2012-2018    2027 
Chairman & Chief                                             
Technology Officer                                             
                                              
Frankie Fruge    2007-2017    3,300,000    2,850,000    450,000    $.19-.$0003    $.19-.$0003    2021-2027    2012-2018    2027 
Director & President                                             
                                              
Bruce Schames   2010-2017    4,500,000    4,050,000    450,000    $.33-.0003    $.33-.0003    2020-2027    2011-2018    2027 
 CFO                                             
                                              
James Hasson-Director   -    -    -    -    -    -    -    -    - 
                                              
Dennis Dudzik - Director   -    -    -    -    -    -    -    -    - 
Total        11,100,000    9,750,000    1,350,000                          

 

(1) Options vest one year from the date of grant.

 

(2) We determined the grant date fair value of stock option awards using the methodology in footnote 10 to our Consolidated Financial Statements for the years ended December 31, 2017 and 2016.

 

Option Exercise, Vesting and Expiration

 

During 2017, none of the above named executive officers exercised any options, 1.8 million executive officer and director options vested and 1.6 million options expired.

 

Compensation of the Board of Directors

 

The following table sets forth compensation to our non-employee directors during the year ended December 31, 2017 and 2016.

 

Name   Fees earned or paid in cash ($)    Option awards ($)    

Stock

Awards
($)

    

Nonqualified

deferred

compensation earnings

($)

    

All other

compensation

($)

    

Total

($)

 
James Hasson   -    -    -    -    -    - 
Dennis Dudzik   -    -    -    -    -    - 

 

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

 

The following table sets forth information regarding the beneficial ownership of our Common Stock and Series B Preferred Stock by each of our named Executive Officers and Board of Directors, and each shareholder who is known by us to own beneficially five percent (5%) or more of the outstanding stock of such class as of March 31, 2018. On March 31, 2018, there were 5,292,794,570 shares of common and 1,000 shares of Series B Preferred stock issued and outstanding.

 

22

 

 

Name and Address  Common Shares Beneficially Owned   %   Series B Pref. Shares Beneficially Owned   % 

Harry Schoell, Chairman & Chief

Technology Officer

601 NE 26th Ct.

Pompano Beach, FL 33064

   50,815,970(1)   0.96%   797    80%
                     

Frankie Fruge, President & Director

601 NE 26th Ct.

Pompano Beach, FL 33064

   20,334,206(2)   0.38%   203    20%
                     

Bruce Schames, CFO

601 NE 26th Ct.

Pompano Beach, FL 3306

   5,163,175(3)   .0.10%   -    - 
                     

James Hasson Director

601 NE 26th Ct.

Pompano Beach, FL 33064

   -    -    -    - 
                     

Dennis Dudzik Director

601 NE 26th Ct.

Pompano Beach, FL 33064

   -    -    -    - 
                     

All Executive Officers

as a Group (5 persons)

   76,313,351    1.44%   -    - 
                     
TOTALS:   76,313,351    1.44%   1,000*   100%

 

* The 1,000 shares of Series B Preferred stock provide their holders a majority vote on all matters brought before the common stock shareholders.
   
(1) Mr. Schoell’s total includes 3,300,000 vested common stock options, but excludes 450,000 unvested options awarded in 2017.
   
(2) Ms. Fruge’s total includes 3,300,000 vested common stock options, but excludes 450,000 unvested options awarded in 2017.
   
(3) Mr. Schames’ total includes 4,500,000 vested common stock options, but excludes 450,000 unvested options awarded in 2017.

 

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

 

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

 

We have an Operations Agreement dated July 2, 2007, with Schoell Marine, a company owned by Harry Schoell, providing equipment leasing, based upon cost and going market rates and though December 2015 office facility rental. At December 31, 2017, we owed to Schoell Marine $224,810, for loans, unpaid related interest and leases, which is recorded as related party debt. The debt is callable at the discretion of Mr. Schoell. Through December 2015 we rented office space from Schoell Marine under this agreement at approximately $12.00/sf, which we believe to be at market rates.

 

As of December 31, 2017, we also had recorded $687,500 of accrued and deferred officer’s salaries to Mr. Schoell and Ms. Fruge, The accrued deferred salary can be paid to the officers if and when funds are available. These funds are accounted for as non-interest bearing accruals due on demand.

 

In 2012, Mr. Schoell and Ms. Fruge each acquired a 2.5% equity interest in Cyclone Performance LLC for 1.5 million shares of our stock each.

 

23

 

 

Item 14. Principal Accountant Fees and Services

 

The following table shows what, Soles, Heyn & Company, LLP and Anton & Chia LLP, our independent auditing firms, billed for audit and other services for the years ended December 31, 2017, and 2016.

 

   Year Ended
December 31, 2017
   Year Ended
December 31, 2016
 
         
Audit Fees – Soles, Heyn & Company, LLP  $32,500   $- 
Audit Fees -Anton & Chia, LLP   -    20,000 
Audit-Related Fees   -    - 
Tax Fees   -    - 
All Other Fees   -    - 
    -    - 
Total  $32,500   $20,000 

 

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

 

Audit-Related Fees —N/A

 

Tax Fees—N/A

 

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

 

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

 

Part IV

 

Item 15. Exhibits and Financial Statement Schedules

 

(a) Financial Statements

 

Report of Independent Registered Public Accounting Firm F-1
   
Consolidated Balance Sheets as of December 31, 2017, and 2016 F-2
   
Consolidated Statements of Operations for the years ended December 31, 2017, and 2016 F-3
   
Consolidated Statements of Changes in Stockholders’ Deficit for the years ended December 31, 2017 and 2016 F-4
   
Consolidated Statements of Cash Flows for the years ended December 31, 2017, and 2016 F-5
 
Notes to Consolidated Audited Financial Statements F-6

 

24

 

 

(b) Exhibits

 

Exhibit

No.

  Description
     
3.1 *   Articles of Incorporation, dated June 14, 2007
     
3.2 *   Certificate of Domestication, dated June 14, 2007
     
3.3 *   Articles of Amendment to Articles of Incorporation containing Certificates of Designation for Series A Convertible Preferred Stock and Series B Preferred Stock, dated July 17, 2011
     
3.4 *   Articles of Amendment to Articles of Incorporation, dated July 27, 2007
     
3.5 *   Articles of Amendment to Articles of Incorporation, dated July 24, 2009
     
3.6 *   Articles of Amendment to Articles of Incorporation, dated March 30, 2010
     
3.7 *   Articles of Amendment to Articles of Incorporation, dated April 28, 2010
     
3.8*   By-Laws of Cyclone Power Technologies, Inc.
     
3.09*   Written Consent of the Shareholders in lieu of a Meeting, dated December 19, 2013 Amendment to the
     
3.10*   Articles of Incorporation of the Company, dated January 31, 2014
     
10.1 *   Employment Agreement, dated June 30, 2007, between the Company and Frankie Fruge
     
10.2 *   Employment Agreement, dated June 30, 2007, between the Company and Harry Schoell
     
10.3 *   Common Stock Purchase Warrant, dated July 30, 2009, between the Company and Phoenix Power Group, LLC
     
10.4 *   Cyclone Power Technologies’ 2010 Stock Option Plan
     
10.5 *   Employment Agreement, dated August 1, 2011, between the Company and Christopher Nelson
     
10.6 *   Employment Agreement, dated June 10, 2010, between the Company and Bruce Schames
     
10.7 *   Operations Agreement, dated July 2, 2007, between the Company and Schoell Marine, Inc.
     
10.8 *   Systems Application License Agreement, dated July 30, 2009, between the Company and Phoenix Power Group LLC
     
10.9 *   Technology License Agreement, dated December 11, 2009, between the Company and Great Wall Alternative Power Systems, Ltd.
     
10.10*   Amended and Restated technology License Agreement, dated Jun 15, 2011, between the Company and Renovalia Energy, S.A.
     
10.11 *   Subcontractor Contract for Development of a Rankine Cycle Engine, dated December 20, 2010, between the Company and Advent Power Systems, Inc.
     
10.12 *   Technology License Agreement, dated March 24, 2006, between the Company and Advent Power Systems, Inc., including Amendments thereto.

 

25

 

 

10.13 *   Letter of Understanding, dated March 1, 2011, between the Company and TopLine Energy Systems, LLC
     
10.14 *   Security Agreement, dated August 1, 2007, between the Company and Schoell Marine, Inc.
     
10.15 *   Systems Application License Agreement, dated September 12, 2011, between the Company and Combilift.

 

10.16*†   Cyclone Power Technologies, Inc. 2012 Stock Option Plan
     
10.161*†   Asset Purchase Agreement, dated December 20, 2011, between Cyclone Power Technologies, Inc. and Advent Power Systems, Inc.
     
10.17*   Private Placement Purchase Agreement, by and between Cyclone Power Technologies, Inc. and GEM Global Yield Fund Limited, dated July 6, 2012
     
10.18*   Form of Securities Purchase Agreement, signed between the Company and Brio Capital LP and Gemini Master Fund Ltd.
     
10.19*   Form of Promissory Note signed between the Company and Brio Capital LP and Gemini Master Fund Ltd.
     
10.20*   Form Common Stock Purchase Warrant signed between the Company and Brio Capital LP and Gemini Master Fund Ltd.
     
10.21*   $500,000 Promissory by and between Cyclone Power Technologies, Inc and JMJ Financial, dated April 3, 2013
     
10.22*   Securities Purchase Agreement, dated May 31, 2013, by and between Cyclone Power Technologies, Inc. and Tonaquint, Inc.
     
10.23*   Convertible Promissory Note, dated May 31, 2013, by and between Cyclone Power Technologies, Inc. and Tonaquint, Inc.
     
10.24*   Warrant to Purchase Shares of Common Stock, dated May 31, 2013, by and between Cyclone Power Technologies, Inc. and Tonaquint, Inc.
     
10.25††   Securities Purchase Agreement by and between the Company and TCA, with an effective date of September 1, 2013.
     
10.25.1††   Amended and Restated Systems Application License Agreement between the Cyclone Power Technologies, Inc. and Phoenix Power Group LLC, dated September 30, 2013 and finalized on October 7, 2013.
     
10.26*   Senior Secured Redeemable Debenture by and between the Company and TCA, with an effective date of September 1, 2013.
     
10.27*   Security Agreement by and between the Company and TCA, effective f September 1, 2013.
     
10.28*   Security Agreement by and between the Subsidiaries and TCA, with an effective date of September 1, 2013.
     
10.29*   Guaranty Agreement by and between the Subsidiaries and TCA, with an effective date of September 1, 2013.

 

26

 

 

10.30*   Securities Purchase Agreement by and between the Company and LG, with a signing date of November 21, 2013.
     
10.31*   Convertible Promissory Note by and between the Company and LG, with a signing date of November 21, 2013.
     
10.32*   Securities Purchase Agreement by and between the Company and GEL, with a signing date of December 3, 2013.

 

10.33*   10% Convertible Redeemable Promissory Note by and between the Company and GEL, with a signing date of December 3, 2013.
     
10.34*   Securities Purchase Agreement by and between the Company and Peak One, dated December 17, 2013.
     
10.35*   Debenture by and between the Company and Peak One, issued December 17, 2013.
     
10.36*   Registration Rights Agreement by and between the Company and Peak One, issued December 17, 2013.
     
10.37*   Debt Purchase Agreement by and between the Union Capital LLC, TCA Global Credit Master Fund, LP and the Company, dated February 28, 2014.
     
10.38*   10% Convertible Redeemable Note by and between the Company and Union Capital LLC, issued February 28, 2014.3
     
10.39*   Draw on JMJ note 10.21* of $50,000 issued, June 23, 2014.
     
10.40*   Resignation of President, Christopher Nelson, July 17, 2014.
     
10.41*   Resignation of Board Member, Joel Myersohn, July 17, 2014.
     
10.42*   Note Payable 2 year simple interest $50,000 at 6% between the Company and A. Nikitina, issued January 6, 2015.
     
10.43*   Legal Judgment by JSJ $175,000 for inability to convert note, May 8, 2015.
     
10.44*   Resignation of Board Member, Lew Jaffee, July 31, 2015.
     
10.45*   Warehouse lease agreement for one year with EZCP for 601 building, December 11, 2015.
     
10.46*   License agreement with mergered 3R and IBES, February 14, 2016.
     
10.47*   License agreement with G2E, May 1, 2016.
     
10.48*   Development agreement with FSDS and appendix, June 15, 2016.
     
10.49*   Engagement of Anton & Chia LLP as new auditors June 17, 2016.
     
10.50*   Promissory note, 2 months term, simple interest $4,000 at 4% between the Company and Chad Tendrich, issued July 6, 2016.

 

10.51*   Legal Judgment by Tonaquint for $166,000 plus interest for non- payment of a convertible warrant true up, July 13, 2016.

 

27

 

 

10.52*   Convertible promissory note 6 months term, simple interest $46,000 at 10% between the Company and Chad Tendrich, issued July 26, 2016.
     
10.53*   Promissory note 6 week term interest payable in stock, $27,000, between the Company and S D White issued Sept. 1, 2016.
     
10.54*  

Increase in authorized common shares to 4 billion from 2 billion-September 6 2016.

 

10.55*   FSDS engineering development agreement June 1, 2016

 

10.56*   Larry Bornstein October 24, 2016 consulting agreement for 3 months.
     
10.57*   “Bornstein Consulting Agreement dated January 3, 2017” consulting agreement.
     
10.58*   FSDS technology license agreement dated January 26, 2017
     
10.59*   Tendrich Consulting Addendum #2 dated March 30, 2017
     
10.60*   Tendrich Consulting Agreement dated April 1, 2017
     
10.61   Consulting agreement dated October 1, 2016 with Cayden Capital.
     
10.62   Consulting Agreement dated August 1, 2017 with Lawrence Bornstein known as “Bornstein Agreement dated August 1, 2017”
     
10.63   Consulting Agreement dated August 1, 2017with Chad Tendrich  known as “Tendrich Agreement dated August 1, 2017”
     
10.64   Consulting agreement dated October 1, 2017 with Xavier Romero known as “Romero Consulting Agreement dated October 1, 2017”
     
10.65   Consulting Agreement with Jacob Smitter dated January 1, 2018.
     
10.66   Consulting agreement dated February 1, 2018 with Larry Bornstein known as “Bornstein Consulting Agreement dated February 1, 2018”
     
21*   Subsidiaries of the Company
     
31.1   Certification of the Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
31.2   Certification of the Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
32.1   Certification of the Chief Executive Officer or Principal Executive Officer as stated under Florida Law Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (This exhibit shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed incorporated by reference into any other filing under the Security Act of 1933, as amended, or by the Security Exchange Act of 1934, as amended.)
     
32.2   Certification of the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (This exhibit shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934 as amended or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed incorporated by reference into any other filing under the Security Act of 1933, as amended, or by the Security Exchange Act of 1934, as amended.)
     
101.INS*   XBRL Instance Document.
     
101.SCH*   XBRL Taxonomy Extension Schema Document.
     
101.CAL*   XBRL Taxonomy Extension Calculation Linkbase Document.
     
101.DEF*   XBRL Taxonomy Extension Definition Linkbase Document.
     
101.LAB*   XBRL Taxonomy Extension Label Linkbase Document.
     
101.PRE*   XBRL Taxonomy Extension Presentation Linkbase Document.

 

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

 

* Previously filed.

** Attached herewith.

 

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

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

 

28

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  Cyclone Power Technologies, Inc.
   
  By: /S/ HARRY SCHOELL
    Harry Schoell
    Chairman and Chief Technical Officer
     
  Dated: May 29, 2018

 

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

 

  By: /S/ HARRY SCHOELL
    Harry Schoell
    Chairman and Chief Technical Officer
     
  Dated: May 29, 2018
     
  By: /S/ FRANKIE FRUGE
    Frankie Fruge
    President, (principal executive officer) and Director
     
  Dated: May 29, 2018

 

  By: /S/ BRUCE SCHAMES
    Bruce Schames
    Chief Financial Officer
    (principal accounting and financial officer)
     
  Dated: May 29, 2018

 

29

 

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

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

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Cyclone Power Technologies, Inc. (the Company) as of December 31, 2017 and 2016, and the related consolidated statements of operations, stockholders’ deficit, and cash flows for each of the years in the two-year period ended December 31, 2017 and 2016, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2017 and 2016, in conformity with accounting principles generally accepted in the United States of America.

 

Going Concern

 

The accompanying financials have been prepared assuming the Company will continue as a going concern. As of December 31, 2017, the Company had accumulated losses of approximately $62,962,000, and has negative working capital of approximately $5,370,000, and may experiences losses in the near term. These factors and the need for additional financing in order for the Company to meet its business plan, raise substantial doubt about its ability to continue as a going concern. Management's plan to continue as a going concern is also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

 

We believe that our audits provide a reasonable basis for our opinion.

 

/s/ Soles, Heyn & Company, LLP  
   

We have served as the Company’s auditor since 2017.

 
   

West Palm Beach, Florida

May 29, 2018

 

 

 

F -1 
 

 

 

CYCLONE POWER TECHNOLOGIES, INC.

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2017 AND 2016

 

   2017   2016 
         
ASSETS          
           
CURRENT ASSETS          
Cash  $-   $591 
Inventory, net   -    26,667 
Other current assets   193    193 
Total current assets   193    27,451 
           
PROPERTY AND EQUIPMENT          
Furniture, fixtures, and equipment   302,770    302,770 
Accumulated depreciation   (236,938)   (209,498)
Net property and equipment   65,832    93,272 
           
OTHER ASSETS          
Patents, trademarks and copyrights   394,980    394,980 
Accumulated amortization   (304,807)   (216,502)
Net patents, trademarks and copyrights   90,173    178,478 
Other assets   7,660    7,862 
Total other assets   97,833    186,340 
           
Total Assets  $163,858   $307,063 
           
LIABILITIES AND STOCKHOLDERS’ DEFICIT          
           
CURRENT LIABILITIES          
Bank overdraft  $52   $- 
Accounts payable and accrued expenses   2,057,068    1,472,851 
Accounts payable and accrued expenses-related parties   880,225    545,225 
Notes and other loans payable-current portion net of discount of $30,764   494,795    512,642 
Derivative liabilities   1,424,001    754,000 
Notes and other loans payable-related parties   399,873    393,760 
Capitalized lease obligations-current portion   5,522    14,312 
Deferred revenue and license deposits   173,826    323,826 
Total current liabilities   5,435,362    4,016,616 
           
NON CURRENT LIABILITIES          
Capitalized lease obligations-net of current portion   -    25,536 
Notes and other loans payable-net of current portion   1,500    - 
Total non-current liabilities   1,500    25,536 
           
Total Liabilities   5,436,862    4,042,152 
           
Commitments and contingencies          
           
STOCKHOLDERS’ DEFICIT          
Series A preferred stock, $.0001 par value, 750,000 shares authorized, 0 shares issued and outstanding at December 31, 2017 and December 31, 2016, respectively.   -    - 
Series B preferred stock, $.0001 par value, 1,000 shares authorized, 1,000 shares issued and outstanding at December 31, 2017 and December 31, 2016, respectively.   -    - 
Common stock, $.0001 par value, 6,000,000,000 shares authorized, 2,859,645,298 and 1,517,400,273, shares issued and outstanding at December 31, 2017, and December 31, 2016, respectively.   285,963    151,737 
Additional paid-in capital   57,377,491    56,915,794 
Treasury Stock 317,000 shares, at December 31, 2017, and December 31, 2016 respectively, at cost.   (3,000)   (3,000)
Accumulated deficit   (62,962,497)   (60,828,659)
Total stockholders’ deficit - Cyclone Power Technologies Inc.   (5,302,043)   (3,764,128)
Non controlling interest in consolidated subsidiaries   29,039    29,039 
           
Total Stockholders’ Deficit   (5,273,004)   (3,735,089)
           
Total Liabilities and Stockholders’ Deficit  $163,858   $307,063 

 

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

 

F -2 
 

 

CYCLONE POWER TECHNOLOGIES, INC .

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR YEARS ENDED DECEMBER 31 2017, AND 2016

 

 

   2017       2016 
         
REVENUES          
Engine sales and design revenue  $150,000   $- 
License revenue   25,000    - 
           
Total revenue   175,000    - 
           
COST OF GOODS SOLD   138    - 
           
Gross profit   174,862    - 
           
OPERATING EXPENSES          
Advertising and promotion expenses   7,438    8,166 
General and administrative          
Retirement of patents   62,857    69,782 
Other general and administrative   1,062,871    897,924 
Total general and administrative   1,125,728    967,706 
Research and development          
Inventory reserve provision   -    125,900 
Other research and development   238,682    478,299 
Total research and development   238,682    604,199 
           
Total operating expenses   1,371,848    1,580,071 
           
Operating loss   (1,196,986)   (1,580,071)
           
OTHER (EXPENSE) INCOME          
Other income (expense)          
Other income and (expense)   168,702    (8,883)
Change in fair value of derivative liability   (728,144)   (370,519)
Interest (expense)   (377,410)   (141,450)
           
Total other income (expense)   (936,852)   (520,852)
           
Loss before income taxes   (2,133,838)   (2,100,923)
Income taxes   -    - 
           
Net loss  $(2,133,838)  $(2,100,923)
           
Net loss per common share, basic and diluted  $(0.00)*  $(0.00)
           
Weighted average number of common shares outstanding   1,720,378,311    1,416,738,836 

 

* Net loss per share less than $0.00  

 

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

 

F -3 
 

 

CYCLONE POWER TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2017

 

                                   Prepaid           Stockholders’   Non     
                                   Expenses   Preferred       (Deficit)   Controlling     
   Preferred   Preferred           Additional       via   Stock       Cyclone   Interest   Total 
   Stock A   Stock B   Common Stock   Paid In   Treasury   Common   Subscription   Accumulated   Power   In Consol.   Stockholders’ 
   Shares   Value   Shares   Value   Shares   Value   Capital   Stock   Stock   Receivable   (Deficit)   Tech. Inc.   Subsidiaries   (Deficit) 
Balance, December 31, 2015   -    -    1,000    -    1,388,669,532   $138,864   $56,621,826   $(3,000)  $-   $-   $(58,727,736)  $(1,970,046)  $29,039   $(1,941,007)
                                                                       
Issuance of options for employee services   -    -    -    -    -    -    2,526    -    -    -    -    2,526    -    2,526 
                                                                       
Repayment of liabilities in common stock   -    -    -    -    125,730,741    12,573    228,359    -    -    -    -    240,932    -    240,932 
                                                                       
Loss on debt paid with common stock   -    -    -    -    -    -    57,383    -    -    -    -    57,383    -    57,383 
                                                                       
Issuance of common stock for services   -    -    -    -    3,000,000    300    5,700    -    -    -    -    6,000    -    6,000 
                                                                       
Net loss year ended December 31, 2016   -    -    -    -    -    -    -    -    -    -    (2,100,923)   (2,100,923)   -    (2,100,923)