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 onJuly 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, high performance, compact piston engines.
What
makes the Cyclone Engine different from piston steam engines of the past is efficiency
. Based on current testing, we are
able to convert up to approximately 33% of the energy content of fuel into usable power. This is approximately a 400% improvement
over historical steam engines and on par with today’s small diesel engines. We are able to achieve such high thermal efficiencies
because we have figured out how to run our engines without using lubricating oil which carbonizes at high temperatures. Without
that limitation we are able to utilize steam heated to the same temperature and pressures as used by large power plants.
High
temperature = high efficiency; and high pressure = high power density
.
What
makes the Cyclone Engine more useful than diesel engines is fuel diversity
. As an external heat engine that uses steam
to create mechanical power, how that steam is created is of little consequence. We can use traditional fossil or bio-fuels in
our patented, clean-burning combustion chamber. We can integrate our engine with gasifiers that dispose biomass and bio-waste.
We can capture exhaust heat from furnaces or other engines. We can even use solar thermal collectors to harness the energy of
the sun.
The
market opportunities for Cyclone Engines are vast
. We estimate that our technology addresses a market potential of roughly
$100+ billion, and touches virtually all areas of power generation and transportation, as well as the production of U.S bio-fuels,
natural gas and coal.
We
currently have three engines in development addressing markets that present what we believe to be the best and most immediate
opportunities:
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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 and sell them to commercial customers and vertical partners starting in 2017.
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Transportation
and Equipment:
Our Mark 5 model engine is a powerful, multi-fuel and clean burning demonstrator for the automotive,
marine and off-road equipment markets. Our business model is to secure strong development partners in these sectors to provide
program funding and support to allow us to complete a heavy equipment and vehicle integration in 2017.
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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. We have licensed this technology to Falck
Schmidt Defense Systems (“FSDS”) of Denmark , a worldwide military supplier. They will take the unit to a trial
for military compliance.
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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.
Based
on our business model, our revenue has or will come from:
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Development
and engineering fees from customers, partners and licensees;
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Direct
sales revenue from engines we manufacture through sub contractors;
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Up-front
license fees and on-going royalties based on sales by our licensees.
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Direct
sales of Cyclone powered generators to distributors..
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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
|
|
Preproduction
units (10) in field testing
|
Mark
3
|
|
25
HP
|
|
Auxiliary
power for military, biomass to power, portable power
|
|
Preproduction
units (15) at OEM’s
|
Mark
5
|
|
100
HP
|
|
Transportation,
commercial power, military
|
|
Beta
Prototype (2)
|
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
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(2)
|
Beta
Prototype” refers to a second generation prototype engine, which has undergone significant testing at Cyclone’s
facility.
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Our
engines are currently in customer field testing, and there is no guarantee that they will successfully meet customer expectations
when completed.
Research
and Development Activities
As a technology research and development
company, much of our annual expenses are dedicated towards R&D, including labor costs, material costs, tooling and equipment
and other expenses required to run our business. Our R&D expenditures for 2015 and 2014 were $467,610 and $1,018,552,
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 of prototypes 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.
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 patents issued or allowed on our engine technology:
Active
U.S. Patents
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U.S.
No. 7,080,512 B2
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Heat
Regenerative Engine
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U.S.
No. 7,407,382 B2
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Steam
Generator in a Heat Regenerative Engine
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U.S.
No. 7,856,822 B2
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Heat
Regenerative Engine
|
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U.S.
No. 7,856,823 B2
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Pre-Heater
Coil in a Heat Regenerative Engine
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Active
Foreign Patents/Applications -
Heat Regenerative Engine
European
Patent No. 1809865
Australian
Patent No. 2005284864
Brazilian
Application No. P10515305-0
Canadian
Patent No. 2577585
Chinese
Patent No. ZL200580030436.4
Japanese
Patent No. 4880605
Mexican
Patent No. 285078
Russian
Patent No. 2357091
South
African Patent No. 2007/02947
Indonesian
Patent No. IDP0024346*
Indian
Patent Application No. 1949/DELNP/2007
Pursuant
to new US Patent Office regulations, upon approval, 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 one or a few major customers
We
have contracts for development and licensing of our engine technology: Combi-Lift LTD. (a global materials handling and lift equipment
manufacturer based in Ireland), FSDS (global military products manufacturing and supplier) IBES (a producer of biomass furnace
electric systems) and G2E (a solar engineering company for Mexico and South America). We have formed working relationships with
other major industrial groups, and teaming agreements with manufacturers. Q2 Power Inc. has been formally notified to cure contract
breaches.
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
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.
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 develop, sell or export any covered munitions under these Regulations, but have registered
the company in an abundance of precaution.
Employees.
As of December 31, 2016, we had 6 full-time employees including management, and one part-time employee. We consider our relations
with our employees to be good. None of our employees are covered under any labor union or collective bargaining agreement. As
needed we contract with specialized labor 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 an annual rate of $ 63,600. Our address is 601 NE 26th Ct., Pompano
Beach, FL 33064. The lease expires Dec 2016, with a one (1) year option that contains a 2% rate increase in our rent. We believe
these facilities are in good condition, but we still may need to expand our operating space further as our research and development
efforts expand.
In
September 2014, as part of the spinoff of the Q2 Power Inc. subsidiary (
fka
Cyclone WHE-Gen), Q2 Power, Inc. retained our
Joint Operations and sublease agreement with Precision CNC. Q2 Power’s rent expense, prior to its spinoff, was $13,957 for
approximately 2,500 sf of office and warehouse space at its new facility in Lancaster, Ohio.
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. Judgement entered
in 160
th
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.
In
August 2015, the Company is subject to a default judgement $166,000 plus interest for non- payment of a convertable warrant true
up. The Company is seeking to arrange a reduced settlement. Judgement 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.
Item
4. Mine Safety Disclosures
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
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Age
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|
Position
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|
Date
of Appointment
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|
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Harry
Schoell
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74
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Chairman
and Chief Technology Officer
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June
2004*
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Frankie
Fruge
|
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72
|
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Director
and President
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June
2004
|
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|
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Bruce
Schames
|
|
70
|
|
Chief
Financial Officer
|
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April
2010
|
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|
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James
Hasson
|
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76
|
|
Director
|
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June
2014
|
|
|
|
|
|
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Dennis
Dudzik
|
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65
|
|
Director
|
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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.
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.
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 the filing of the Super 10K. 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 Messers, 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.
Other
Key, Non-Executive Personnel
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 received salaries for their services which are performed at our facility.
Family
Relationships
There
are no family relationships among our directors and executive officers.
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, 2015 and December 31, 2014, 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, 2015 and December 31, 2014.
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
|
|
|
2015
|
|
|
$
|
150,000
|
(1)
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
$
|
525
|
|
|
$
|
150,525
|
|
Chairman
& CTO
|
|
|
2014
|
|
|
|
150,000
|
(1)
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
1,113
|
|
|
|
151,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Frankie
Fruge
|
|
|
2015
|
|
|
$
|
125,000
|
(2)
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
$
|
525
|
|
|
$
|
125,525
|
|
Director
& President
|
|
|
2014
|
|
|
|
125,000
|
(2)
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
1,113
|
|
|
|
126,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bruce
Schames
|
|
|
2015
|
|
|
$
|
72,000
|
(3)
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
$
|
525
|
|
|
$
|
72,525
|
|
CFO
|
|
|
2014
|
|
|
|
72,000
|
(3)
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
1,113
|
|
|
|
73,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Christopher
Nelson
|
|
|
2015
|
|
|
$
|
0
|
(4)
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Former
President & General Counsel
|
|
|
2014
|
|
|
|
54,167
|
(4)
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
54,167
|
|
|
(1)
|
All
of Mr. Schoell’s salary in 2015 and 2014 has been deferred until determined by the Board of Directors that we can afford
to pay such salary. In March 2014, Mr. Schoell converted $844,844 of deferred salary to 10,560,550 shares of common stock
and in 2015 Mr. Schoell forgave $325,000 of accrued salary.
|
|
|
|
|
(2)
|
All
of Ms. Fruge’s salary in 2015 and 2014 has been deferred until determined by the
Board of Directors that we can afford to pay such salary. In March 2014, Ms. Fruge converted
$638,740 of deferred salary to 7,984,250 shares of common stock and in 2015 Ms. Fruge
forgave $287,500 of accrued salary.
|
|
|
|
|
(3)
|
As
of December 31, 2015, Mr. Schames had $72,725 of deferred salary, which will be paid when determined by the Board of Directors
that we can afford to pay such salary. In March 2014, Mr. Schames converted $55,292 of deferred salary to 691,152 shares of
common stock and in 2015 Mr. Schames forgave $42,725 of accrued salary.
|
|
|
|
|
(4)
|
Mr.
Nelson resigned as President as of July 17, 2014 and assumed the position of President of the WheGen deconsolidated subsidiary.
In March 2014, he converted $86,197 of deferred salary to 1,077,464 shares of common stock.
|
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,
2015, Mr. Schoell had $ 75,000 in unpaid, deferred salary due to him.
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, 2015, Ms. Fruge had $62,500 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, 2015, Mr. Schames had $72,725 in unpaid deferred salary due to him.
Christopher
Nelson.
In July 2014, Mr. Nelson terminated his employment as our President, as he assumed the position as President of
the Whe Gen, the deconsolidated subsidiary. He had an Employment Agreement with us providing for a base salary of $130,000 per
year plus standard benefits, and 600,000 common stock options per year. In 201 he converted $86,197 of deferred salary into 1,077,464
shares of our common stock.
Mr.
Nelson’s agreement was for three years from August 2011, and is automatically renewed for successive one-year periods unless
either party provides notice of a desire not to renew at least 90 days prior to the agreement’s anniversary date. If Mr.
Nelson is terminated for “cause,” he shall receive any unpaid base salary due to him as of the date of termination.
If he is terminated without “cause” or upon a change in control, he shall receive (i) any unpaid base salary accrued
through the effective date of termination, (ii) his base salary at the rate prevailing at such termination through 12 months from
the date of termination or the end of his term then in effect, whichever is longer, and (iii) any performance bonus that would
otherwise be payable to him were he not terminated, during the 12 months following his termination. Upon termination without cause,
all of his stock options shall vest immediately.
Outstanding
Equity Awards at December 31, 2015
The
following table sets forth information concerning all stock option grants held by our named executive officers as of December
31, 2015. All outstanding equity awards are options to purchase shares of common stock.
All
Option Awards
|
|
|
|
|
|
|
|
Number
|
|
|
|
|
|
Exercise
or Base Price of
|
|
|
Grant
Date Fair
Value of Stock in
|
|
|
|
|
|
Number
|
|
|
|
|
Option
|
|
|
Number
|
|
|
Exercisable
|
|
|
Number
|
|
|
Option
|
|
|
Option
|
|
|
Option
|
|
|
Exercisable
|
|
Number
|
Name and
|
|
Grant
|
|
|
Granted
|
|
|
Date
|
|
|
Un-exercisable
|
|
|
Awards
|
|
|
Awards
|
|
|
Expiration
|
|
|
Date
|
|
Un-exercisable
|
Position
|
|
Date
|
|
|
(1)
(2)
|
|
|
Vested
|
|
|
Date
Expires
|
|
|
($/Share)
|
|
|
($)
(3)
|
|
|
Date
|
|
|
Vested
|
|
Date
Expires
|
Harry Schoell
|
|
|
6/30/2007
|
|
|
|
250,000
|
|
|
|
250,000
|
|
|
|
0
|
|
|
|
0.25
|
|
|
|
0.25
|
|
|
|
6/30/2017
|
|
|
6/30/2008
|
|
6/30/2017
|
Chairman & Chief
|
|
|
6/30/2007
|
|
|
|
125,000
|
|
|
|
125,000
|
|
|
|
0
|
|
|
|
0.35
|
|
|
|
0.25
|
|
|
|
6/30/2017
|
|
|
6/30/2008
|
|
6/30/2017
|
Technology Officer
|
|
|
6/30/2007
|
|
|
|
125,000
|
|
|
|
125,000
|
|
|
|
0
|
|
|
|
0.45
|
|
|
|
0.25
|
|
|
|
6/30/2017
|
|
|
6/30/2008
|
|
6/30/2017
|
And former CEO
|
|
|
12/30/2010
|
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
0
|
|
|
|
0.12
|
|
|
|
0.12
|
|
|
|
12/31/2015
|
|
|
12/31/2011
|
|
12/31/2015
|
|
|
|
4/15/2011
|
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
0
|
|
|
|
0.22
|
|
|
|
0.22
|
|
|
|
4/15/2016
|
|
|
4/15/2012
|
|
4/15/2016
|
|
|
|
6/30/2011
|
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
0
|
|
|
|
0.30
|
|
|
|
0.30
|
|
|
|
6/30/2016
|
|
|
6/30/2012
|
|
6/30/2016
|
|
|
|
12/22/2011
|
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
0
|
|
|
|
0.19
|
|
|
|
0.19
|
|
|
|
12/22/2021
|
|
|
9/30/2012
|
|
12/22/2021
|
|
|
|
12/22/2011
|
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
0
|
|
|
|
0.19
|
|
|
|
0.19
|
|
|
|
12/22/2021
|
|
|
12/22/2012
|
|
12/22/2021
|
|
|
|
3/31/2012
|
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
0
|
|
|
|
0.18
|
|
|
|
0.18
|
|
|
|
3/31/2022
|
|
|
3/31/2013
|
|
3/31/2022
|
|
|
|
6/30/2012
|
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
0
|
|
|
|
0.15
|
|
|
|
0.15
|
|
|
|
6/30/2022
|
|
|
6/30/2013
|
|
6/30/2022
|
|
|
|
9/28/2012
|
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
0
|
|
|
|
0.13
|
|
|
|
0.13
|
|
|
|
9/30/2022
|
|
|
9/30/2013
|
|
9/30/2022
|
|
|
|
12/31/2012
|
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
0
|
|
|
|
0.08
|
|
|
|
0.08
|
|
|
|
12/31/2022
|
|
|
12/31/2013
|
|
12/31/2022
|
|
|
|
3/31/2013
|
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
0
|
|
|
|
0.08
|
|
|
|
0.08
|
|
|
|
3/31/2023
|
|
|
3/31/2014
|
|
3/31/2023
|
|
|
|
6/30/2014
|
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
0
|
|
|
|
0.0045
|
|
|
|
0.0045
|
|
|
|
6/30/2024
|
|
|
6/30/2015
|
|
6/30/2024
|
|
|
|
9/30/2014
|
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
0
|
|
|
|
0.0012
|
|
|
|
0.0012
|
|
|
|
9/30/2024
|
|
|
9/30/2015
|
|
9/30/2024
|
|
|
|
12/31/2014
|
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
0
|
|
|
|
0.0017
|
|
|
|
0.0017
|
|
|
|
12/31/2024
|
|
|
12/31/2015
|
|
12/31/2024
|
|
|
|
03/31/15
|
|
|
|
150,000~
|
|
|
|
150,000
|
|
|
|
0
|
|
|
|
0.0003
|
|
|
|
0.0003
|
|
|
|
03/31/25
|
|
|
03/31/16
|
|
03/31/25
|
|
|
|
06/30/15
|
|
|
|
150,000
|
|
|
|
0
|
|
|
|
150,000
|
|
|
|
0.0007
|
|
|
|
0.0007
|
|
|
|
06/30/25
|
|
|
06/30/16
|
|
06/30/25
|
|
|
|
09/30/15
|
|
|
|
150,000
|
|
|
|
0
|
|
|
|
150,000
|
|
|
|
0.0009
|
|
|
|
0.0009
|
|
|
|
09/30/25
|
|
|
09/30/16
|
|
09/30/25
|
|
|
|
12/31/15
|
|
|
|
150,000
|
|
|
|
0
|
|
|
|
150,000
|
|
|
|
0.0016
|
|
|
|
0.0016
|
|
|
|
12/31/25
|
|
|
12/30/116
|
|
12/31/25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Frankie Fruge
|
|
|
6/30/2007
|
|
|
|
250,000
|
|
|
|
250,000
|
|
|
|
0
|
|
|
|
0.25
|
|
|
|
0.25
|
|
|
|
6/30/2017
|
|
|
6/30/2008
|
|
6/30/2017
|
Director & President
|
|
|
6/30/2007
|
|
|
|
125,000
|
|
|
|
125,000
|
|
|
|
0
|
|
|
|
0.35
|
|
|
|
0.25
|
|
|
|
6/30/2017
|
|
|
6/30/2008
|
|
6/30/2017
|
|
|
|
6/30/2007
|
|
|
|
125,000
|
|
|
|
125,000
|
|
|
|
0
|
|
|
|
0.45
|
|
|
|
0.25
|
|
|
|
6/30/2017
|
|
|
6/30/2008
|
|
6/30/2017
|
|
|
|
12/30/2010
|
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
0
|
|
|
|
0.12
|
|
|
|
0.12
|
|
|
|
12/31/2015
|
|
|
12/31/2011
|
|
12/31/2015
|
|
|
|
4/15/2011
|
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
0
|
|
|
|
0.22
|
|
|
|
0.22
|
|
|
|
4/15/2016
|
|
|
4/15/2012
|
|
4/15/2016
|
|
|
|
6/30/2011
|
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
0
|
|
|
|
0.30
|
|
|
|
0.30
|
|
|
|
6/30/2016
|
|
|
6/30/2012
|
|
6/30/2016
|
|
|
|
12/22/2011
|
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
0
|
|
|
|
0.19
|
|
|
|
0.19
|
|
|
|
12/22/2021
|
|
|
9/30/2012
|
|
12/22/2021
|
|
|
|
12/22/2011
|
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
0
|
|
|
|
0.19
|
|
|
|
0.19
|
|
|
|
12/22/2021
|
|
|
12/22/2012
|
|
12/22/2021
|
|
|
|
3/31/2012
|
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
0
|
|
|
|
0.18
|
|
|
|
0.18
|
|
|
|
3/31/2022
|
|
|
3/31/2013
|
|
3/31/2022
|
|
|
|
6/30/2012
|
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
0
|
|
|
|
0.15
|
|
|
|
0.15
|
|
|
|
6/30/2022
|
|
|
6/30/2013
|
|
6/30/2022
|
|
|
|
|
|
|
|
|
Number
|
|
|
|
|
|
Exercise
or Base Price of
|
|
|
Grant
Date Fair
Value of Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
Option
|
|
|
Number
|
|
|
Exercisable
|
|
|
Number
|
|
|
Option
|
|
|
in Option
|
|
|
Option
|
|
|
Number
|
|
|
Number
|
|
Name and
|
|
Grant
|
|
|
Granted
|
|
|
Date
|
|
|
Un-exercisable
|
|
|
Awards
|
|
|
Awards
|
|
|
Expiration
|
|
|
Exercisable
|
|
|
Un-exercisable
|
|
Position
|
|
Date
|
|
|
(1)
(2)
|
|
|
Vested
|
|
|
Date
Expires
|
|
|
($/Share)
|
|
|
($)
(3)
|
|
|
Date
|
|
|
Date
Vested
|
|
|
Date
Expires
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9/28/2012
|
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
0
|
|
|
|
0.13
|
|
|
|
0.13
|
|
|
|
9/30/2022
|
|
|
|
9/30/2013
|
|
|
|
9/30/2022
|
|
|
|
|
12/31/2012
|
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
0
|
|
|
|
0.08
|
|
|
|
0.08
|
|
|
|
12/31/2022
|
|
|
|
12/31/2013
|
|
|
|
12/31/2022
|
|
|
|
|
3/31/2013
|
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
0
|
|
|
|
0.08
|
|
|
|
0.08
|
|
|
|
3/31/2023
|
|
|
|
3/31/2014
|
|
|
|
3/31/2023
|
|
|
|
|
6/30/2014
|
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
0
|
|
|
|
0.0045
|
|
|
|
0.0045
|
|
|
|
6/30/2024
|
|
|
|
6/30/2015
|
|
|
|
6/30/2024
|
|
|
|
|
9/30/2014
|
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
0
|
|
|
|
0.0012
|
|
|
|
0.0012
|
|
|
|
9/30/2024
|
|
|
|
9/30/2015
|
|
|
|
9/30/2024
|
|
|
|
|
12/31/2014
|
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
0
|
|
|
|
0.0017
|
|
|
|
0.0017
|
|
|
|
12/31/2024
|
|
|
|
12/31/2015
|
|
|
|
12/31/2024
|
|
|
|
|
6/30/2014
|
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
0
|
|
|
|
0.0045
|
|
|
|
0.0045
|
|
|
|
6/30/2024
|
|
|
|
6/30/2015
|
|
|
|
6/30/2024
|
|
|
|
|
9/30/2014
|
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
0
|
|
|
|
0.0012
|
|
|
|
0.0012
|
|
|
|
9/30/2024
|
|
|
|
9/30/2015
|
|
|
|
9/30/2024
|
|
|
|
|
12/31/2014
|
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
0
|
|
|
|
0.0017
|
|
|
|
0.0017
|
|
|
|
12/31/2024
|
|
|
|
12/31/2015
|
|
|
|
12/31/2024
|
|
|
|
|
03/31/15
|
|
|
|
150,000~
|
|
|
|
150,000
|
|
|
|
0
|
|
|
|
0.0003
|
|
|
|
0.0003
|
|
|
|
03/31/25
|
|
|
|
03/31/16
|
|
|
|
03/31/25
|
|
|
|
|
06/30/15
|
|
|
|
150,000
|
|
|
|
0
|
|
|
|
150,000
|
|
|
|
0.0007
|
|
|
|
0.0007
|
|
|
|
06/30/25
|
|
|
|
06/30/16
|
|
|
|
06/30/25
|
|
|
|
|
09/30/15
|
|
|
|
150,000
|
|
|
|
0
|
|
|
|
150,000
|
|
|
|
0.0009
|
|
|
|
0.0009
|
|
|
|
09/30/25
|
|
|
|
09/30/16
|
|
|
|
09/30/25
|
|
|
|
|
12/31/15
|
|
|
|
150,000
|
|
|
|
0
|
|
|
|
150,000
|
|
|
|
0.0016
|
|
|
|
0.0016
|
|
|
|
12/31/25
|
|
|
|
12/30/116
|
|
|
|
12/31/25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bruce Schames
|
|
|
4/4/2010
|
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
0
|
|
|
|
0.15
|
|
|
|
0.15
|
|
|
|
4/5/2012
|
|
|
|
4/5/2011
|
|
|
|
4/5/2012
|
|
CFO
|
|
|
6/29/2010
|
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
0
|
|
|
|
0.10
|
|
|
|
0.10
|
|
|
|
6/30/2020
|
|
|
|
6/30/2011
|
|
|
|
6/30/2020
|
|
|
|
|
9/29/2010
|
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
0
|
|
|
|
0.09
|
|
|
|
0.09
|
|
|
|
9/30/2020
|
|
|
|
9/30/2011
|
|
|
|
9/30/2020
|
|
|
|
|
12/30/2010
|
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
0
|
|
|
|
0.12
|
|
|
|
0.12
|
|
|
|
12/31/2020
|
|
|
|
12/31/2011
|
|
|
|
12/31/2020
|
|
|
|
|
12/30/2010
|
|
|
|
75,000
|
|
|
|
75,000
|
|
|
|
0
|
|
|
|
0.12
|
|
|
|
0.12
|
|
|
|
12/31/2015
|
|
|
|
12/31/2011
|
|
|
|
12/31/2015
|
|
|
|
|
3/31/2011
|
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
0
|
|
|
|
0.33
|
|
|
|
0.33
|
|
|
|
3/31/2021
|
|
|
|
3/31/2012
|
|
|
|
3/31/2021
|
|
|
|
|
4/15/2011
|
|
|
|
20,000
|
|
|
|
20,000
|
|
|
|
0
|
|
|
|
0.22
|
|
|
|
0.22
|
|
|
|
4/15/2016
|
|
|
|
4/15/2012
|
|
|
|
4/15/2016
|
|
|
|
|
6/30/2011
|
|
|
|
20,000
|
|
|
|
20,000
|
|
|
|
0
|
|
|
|
0.30
|
|
|
|
0.30
|
|
|
|
6/30/2016
|
|
|
|
6/30/2012
|
|
|
|
6/30/2016
|
|
|
|
|
6/30/2011
|
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
0
|
|
|
|
0.29
|
|
|
|
0.29
|
|
|
|
6/30/2021
|
|
|
|
6/30/2012
|
|
|
|
6/30/2021
|
|
|
|
|
12/22/2011
|
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
0
|
|
|
|
0.19
|
|
|
|
0.19
|
|
|
|
12/22/2021
|
|
|
|
9/30/2012
|
|
|
|
12/22/2021
|
|
|
|
|
12/22/2011
|
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
0
|
|
|
|
0.19
|
|
|
|
0.19
|
|
|
|
12/22/2021
|
|
|
|
12/22/2012
|
|
|
|
12/22/2021
|
|
|
|
|
3/31/2012
|
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
0
|
|
|
|
0.18
|
|
|
|
0.18
|
|
|
|
3/31/2022
|
|
|
|
3/31/2013
|
|
|
|
3/31/2022
|
|
|
|
|
6/30/2012
|
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
0
|
|
|
|
0.15
|
|
|
|
0.15
|
|
|
|
6/30/2022
|
|
|
|
6/30/2013
|
|
|
|
6/30/2022
|
|
|
|
|
9/30/2012
|
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
0
|
|
|
|
0.13
|
|
|
|
0.13
|
|
|
|
9/30/2022
|
|
|
|
9/30/2013
|
|
|
|
9/30/2022
|
|
|
|
|
12/31/2012
|
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
0
|
|
|
|
0.08
|
|
|
|
0.08
|
|
|
|
12/31/2022
|
|
|
|
12/31/2013
|
|
|
|
12/31/2022
|
|
|
|
|
3/31/2013
|
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
0
|
|
|
|
0.08
|
|
|
|
0.08
|
|
|
|
3/31/2023
|
|
|
|
3/31/2014
|
|
|
|
3/31/2023
|
|
|
|
|
6/30/2014
|
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
0
|
|
|
|
0.0045
|
|
|
|
0.0045
|
|
|
|
6/30/2024
|
|
|
|
6/30/2015
|
|
|
|
6/30/2024
|
|
|
|
|
9/30/2014
|
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
0
|
|
|
|
0.0012
|
|
|
|
0.0012
|
|
|
|
9/30/2024
|
|
|
|
9/30/2015
|
|
|
|
9/30/2024
|
|
|
|
|
12/31/2014
|
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
0
|
|
|
|
0.0017
|
|
|
|
0.0017
|
|
|
|
12/31/2024
|
|
|
|
12/31/2015
|
|
|
|
12/31/2024
|
|
|
|
|
6/30/2014
|
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
0
|
|
|
|
0.0045
|
|
|
|
0.0045
|
|
|
|
6/30/2024
|
|
|
|
6/30/2015
|
|
|
|
6/30/2024
|
|
|
|
|
9/30/2014
|
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
0
|
|
|
|
0.0012
|
|
|
|
0.0012
|
|
|
|
9/30/2024
|
|
|
|
9/30/2015
|
|
|
|
9/30/2024
|
|
|
|
|
12/31/2014
|
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
0
|
|
|
|
0.0017
|
|
|
|
0.0017
|
|
|
|
12/31/2024
|
|
|
|
12/31/2015
|
|
|
|
12/31/2024
|
|
|
|
|
03/31/15
|
|
|
|
150,000~
|
|
|
|
150,000
|
|
|
|
0
|
|
|
|
0.0003
|
|
|
|
0.0003
|
|
|
|
03/31/25
|
|
|
|
03/31/16
|
|
|
|
03/31/25
|
|
|
|
|
06/30/15
|
|
|
|
150,000
|
|
|
|
0
|
|
|
|
150,000
|
|
|
|
0.0007
|
|
|
|
0.0007
|
|
|
|
06/30/25
|
|
|
|
06/30/16
|
|
|
|
06/30/25
|
|
|
|
|
09/30/15
|
|
|
|
150,000
|
|
|
|
0
|
|
|
|
150,000
|
|
|
|
0.0009
|
|
|
|
0.0009
|
|
|
|
09/30/25
|
|
|
|
09/30/16
|
|
|
|
09/30/25
|
|
|
|
|
12/31/15
|
|
|
|
150,000
|
|
|
|
0
|
|
|
|
150,000
|
|
|
|
0.0016
|
|
|
|
0.0016
|
|
|
|
12/31/25
|
|
|
|
12/30/116
|
|
|
|
12/31/25
|
|
James Hasson-Director
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dennis Dudzik - Director
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
*
Refers to options that were re-priced, as authorized by the Board of Directors on June 30, 2013.
(1)
|
Any
performance conditions with respect to the listed options have been satisfied, and therefore, each such option has been earned.
|
|
|
(2)
|
Each
of the listed options vest one year from the date of grant.
|
|
|
(3)
|
We
determined the grant date fair value of stock option awards using the methodology set forth in Footnote 10 to our Consolidated
Financial Statements for the years ended December 31, 2015 and 2014.
|
Option
Exercise and Stock Vesting
During
2015, none of the above named executive officers exercised any options, and 3 million executive officer and director options vested.
Compensation
of the Board of Directors
The
following table sets forth compensation to our non-employee directors during the year ended December 31, 2015 and 2014.
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, 2016. On March 31, 2016, there were 1,327,937,275
shares of common and 1,000 shares of Series B Preferred stock issued and outstanding.
Name
and Address
|
|
Common
Shares
Beneficially
Owned
|
|
|
%
|
|
|
Series
B Pref.
Shares
Beneficially
Owned
|
|
|
%
|
|
Harry
Schoell
, Chairman & Chief
Technology
Officer
601
NE 26th Ct.
Pompano
Beach, FL 33064
|
|
|
50,315,970
|
(1)
|
|
|
3.60
|
%
|
|
|
797
|
|
|
|
80
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Frankie
Fruge
, President & Director
601
NE 26th Ct.
Pompano
Beach, FL 33064
|
|
|
19,834,206
|
(2)
|
|
|
1.42
|
%
|
|
|
203
|
|
|
|
20
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bruce
Schames
, CFO
601
NE 26th Ct.
Pompano
Beach, FL 3306
|
|
|
4,178,175
|
(3)
|
|
|
.30
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
|
74,328,351
|
|
|
|
5.32
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTALS:
|
|
|
72,328,351
|
|
|
|
5.32
|
%
|
|
|
1,000
|
*
|
|
|
100
|
%
|
*
|
The
1,000 shares of Series B Preferred stock provide their holders a majority vote on all matters brought before the common stock
shareholders.
|
|
|
(1)
|
Mr.
Schoell’s total includes 2,350,000 vested common stock options, but excludes 450,000 unvested options awarded in 2015.
|
|
|
(2)
|
Ms.
Fruge’s total includes 2,350,000 vested common stock options, but excludes 450,000 unvested options awarded in 2015.
|
|
|
(3)
|
Mr.
Schames’ total includes 3,065,000 vested common stock options, but excludes 450,000 unvested options awarded in 2015.
|
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 office facility
rental and equipment leasing, based upon cost and going market rates. At December 31, 2015, we owed to Schoell Marine $164,658,
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, 2015, we also had recorded $137,500 of accrued and deferred officer’s salaries to Mr. Schoell and Ms. Fruge,
In 2014 $1,483,584 of previous deferred salary was converted to 18,544,800 shares of our common stock in 2014 and in 2015 $612,500
of deferred salary was forgiven. 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 notes due on demand.
In
2013, Mr. Schoell acquired a 5% equity stake in the Whe Gen subsidiary in exchange for 5 million shares of our common stock. 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.
Item
14. Principal Accountant Fees and Services
The
following table shows what, Anton & Chia LLP, our independent auditing firm, billed for audit and other services for the years
ended December 31, 2015, 2014. For 2013 and for the first three quarters of 2014, our independent auditing firm was Mallah Furman
LLC.
|
|
Year
Ended
December 31,
2015
|
|
|
Year
Ended
December 31,
2014
|
|
Audit Fees –Anton
& Chia, LLP
|
|
$
|
4
7,500
|
|
|
$
|
4
7,500
|
|
Audit Fees –Mallah Furman
|
|
|
-
|
|
|
|
75,463
|
|
Audit-Related Fees
|
|
|
-
|
|
|
|
-
|
|
Tax Fees
|
|
|
-
|
|
|
|
-
|
|
All Other Fees
|
|
|
-
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
4
7,500
|
|
|
$
|
122,963
|
|
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.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2015 AND 2014
NOTE
1 – ORGANIZATIONAL AND SIGNIFICANT ACCOUNTING POLICIES
A.
ORGANIZATION AND OPERATIONS
Cyclone
Power Technologies, Inc. (the “Company”, “our,” “Cyclone”) is the successor entity to the
business of Cyclone Technologies LLLP (the “LLLP”), a limited liability limited partnership formed in Florida in September
2004. The LLLP was the original developer and intellectual property holder of the Cyclone engine technology. The Company is primarily
a research and development engineering company whose main purpose is to develop, commercialize, market and license its Cyclone
engine technology.
In
2010, the Company established a subsidiary WHE Generation Corp. f/k/a, Cyclone-WHE LLC (the “WHE Subsidiary”, “WheGen”),
to market the waste heat recovery systems for all Cyclone engine models. As of September 30, 2014 the Company has sold most of
its ownership. The former subsidiary is currently non consolidated since the investment is below the 20% equity (see Note 15)
. In 2012, the Company established Cyclone Performance LLC (“Cyclone Performance”) f/k/a Cyclone-TeamSteam USA, LLC.
The purpose of Cyclone Performance is to build, test and run various vehicles and vessels utilizing the Company’s engine.
As of December 31, 2015 and 2014, the Company had a 95% controlling interest in Cyclone Performance.
B.
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The consolidated financial statements
include the accounts of the Company and its 95% owned subsidiary Cyclone Performance. All material inter-company transactions
and balances have been eliminated in the consolidated financial statements. Effective September 30, 2014, Cyclone sold most of
its investment in the WHE Subsidiary and as of December 31, 2014 retains approximately a 2 million share non controlling (below
20%) interest in the WHE Subsidiary. This investment was deconsolidated on September 30, 2014 and is currently recorded on the
cost basis (see Note 15). The consolidated statements of operations and cash flows for the year ended December 31 2014 include
the accounts of the WHE Gen through September 30, 2014.
The
Company prepares its consolidated financial statements in conformity with account principles generally accepted in the United
States (“U.S. GAAP”). The accounting principles utilized by the Company require the Company to make judgments, estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the consolidated financial statements, the reported amounts of revenues and expenses, cash flows and
the related footnote disclosures during the periods. On an on-going basis, the Company reviews and evaluates its estimates and
assumptions, including, but not limited to, those that relate to the realizable value of inventory, identifiable intangible assets
and other long-lived assets, contracts, income taxes, derivative liabilities, and contingencies. Actual results could differ from
these estimates.
The
consolidated financial statements presented for the quarters ended March, June and September 31, 2015 are unaudited.
C.
CASH
Cash
includes cash on hand and cash in banks. At December 31, 2015 and 2014, the Company maintained cash balances at one financial
institution.
D.
COMPUTATION OF INCOME (LOSS) PER SHARE
Net
income (loss) per share is computed by dividing the net income (loss) by the weighted average number of common shares outstanding
during the period. Diluted net income (loss) per share is not presented as the conversion of the preferred stock and exercise
of outstanding stock options and warrants would have an anti-dilutive effect. As of December 31, 2015 and 2014, total anti-dilutive
shares amounted to approximately 13.5 million and 14.7 million shares, respectively.
E.
INCOME TAXES
Income
taxes are accounted for under the asset and liability method as stipulated by Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) 740, “
Income Taxes
” (“ASC 740”). Deferred
tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. Under ASC 740, the effect on deferred tax assets and liabilities
or a change in tax rate is recognized in income in the period that includes the enactment date. Deferred tax assets are reduced
to estimated amounts to be realized by the use of a valuation allowance. A valuation allowance is applied when in management’s
view it is more likely than not (50%) that such deferred tax will not be utilized.
In
the unlikely event that an uncertain tax position exists in which the Company could incur income taxes, the Company would evaluate
whether there is a probability that the uncertain tax position taken would be sustained upon examination by the taxing authorities.
Reserves for uncertain tax positions would be recorded if the Company determined it is probable that a position would not be sustained
upon examination or if payment would have to be made to a taxing authority and the amount is reasonably estimated. As of December
31, 2015, the Company does not believe it has any uncertain tax positions that would result in the Company having a liability
to the taxing authorities. Interest related to the unrecognized tax benefits is not recognized in the consolidated financial statements
as a component of income taxes. The Company’s tax returns are subject to examination by the federal and state tax authorities
for the years ended 2012 through 2015.
F.
REVENUE RECOGNITION
The
Company’s revenue recognition policies are in compliance with ASC 605, “
Revenue Recognition – Multiple Element
Arrangements
”, and Staff Accounting Bulletin (“SAB”) 104,
Revenue Recognition
. Revenue is recognized
at the date of shipment of engines and systems, engine prototypes, engine designs or other deliverables to customers when a formal
arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company
exist and collectability is reasonably assured. Revenue from contracts for multiple deliverables and milestone method recognition
are evaluated and allocated as appropriate. The Company has determined that the milestone method of revenue recognition (ASC 605-28)
was appropriate for two of the Company’s contracts which specifically enumerate approved work effort milestones required
for remuneration – the Company’s contract with the U.S. Army / TARDEC and the Amended and Restated Technology Application
License Agreement with Phoenix Power Group LLC. Payments received before all of the relevant criteria for revenue recognition
are satisfied are recorded as deferred revenue on the consolidated balance sheets. Final delivery of the U.S. Army contract was
completed in the second quarter of 2014 and the Phoenix Power Group contract was transferred to the WHE subsidiary as part of
the separation agreement (see Note 15). The Company does not allow its customers to return prototype products. Current contracts
do not require the Company to provide any warranty assistance after the “deliverable” has been accepted.
It
is the Company’s intention when it has royalty revenue from its contracts to record royalty revenue periodically when earned,
as reported in sales statements from customers. The Company does not have any royalty revenue to date.
G.
WARRANTY PROVISIONS
Current
contracts do not require warranty assistance subsequent to acceptance of the “deliverable R&D prototype” by the
customer. For products that the Company will sell in the future, warranty costs are anticipated to be borne by the manufacturing
vendor.
H.
INVENTORY
Inventory
is recorded at the lower of cost or market. Costs include material, labor and allocated overhead to manufacture a completed engine.
These costs are periodically evaluated to determine if they have a net realizable value. If the net realizable value is lower
than the carrying amount, a reserve is provided.
I.
FAIR VALUE OF FINANCIAL INSTRUMENTS
ASC
820, “
Fair Value Measurements and Disclosures
” requires disclosures of information about the fair value of
certain financial instruments for which it is practicable to estimate the value. The carrying amounts reported in the balance
sheet for cash, accounts payable and accrued expenses, and loans payable approximate their fair market value based on the short-term
maturity of these instruments. Fair value is defined as the price that would be received to sell an asset or paid to transfer
a liability in an orderly transaction between market participants at the measurement date. Inputs refer broadly to the assumptions
that market participants would use in pricing the asset or liability, including assumptions about risk. Inputs may be observable
or unobservable. Observable inputs are based on market data obtained from sources independent of the Company. Unobservable inputs
reflect the Company’s own assumptions based on the best information available in the circumstances. The fair value hierarchy
prioritizes the inputs used to measure fair value into three broad levels. The three levels of the fair value hierarchy are defined
as follows:
Level
1
|
—
|
Inputs
are quoted prices in active markets for identical assets or liabilities as of the reporting date.
|
|
|
|
Level
2
|
—
|
Inputs
other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly,
as of the reporting date.
|
|
|
|
Level
3
|
—
|
Unobservable
inputs for the asset or liability that reflect management’s own assumptions about the assumptions that market participants
would use in pricing the asset or liability as of the reporting date.
|
The
summary of annual fair values and changing values of financial instruments as of January 1, 2014 through December 31 2014 and
January 1, 2015 through December 31, 2015 is as follows:
Instrument
|
|
Beginning
of Period
|
|
|
Change
|
|
|
End
of
Period
|
|
|
Level
|
|
|
Valuation
Methodology
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
liabilities 2014
|
|
$
|
484,479
|
|
|
$
|
(44,295
|
)
|
|
$
|
440,184
|
|
|
|
3
|
|
|
Stochastic
Process Forecasting Model
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
liabilities 2015
|
|
$
|
440,184
|
|
|
$
|
(56,706
|
)
|
|
$
|
383,482
|
|
|
|
3
|
|
|
Stochastic
Process Forecasting Model
|
Please
refer to Note 17 for disclosure and assumptions used to calculate the fair value of the derivative liabilities.
J.
RESEARCH AND DEVELOPMENT
Research and development activities
for product development are expensed as incurred. Costs for the years ended December 31, 2015 and 2014 were $467,610 and
$1,018,552, respectively.
K.
STOCK BASED COMPENSATION
The
Company applies the fair value method of ASC 718, “
Share Based Payment
”, in accounting for its stock based
compensation. This standard states that compensation cost is measured at the grant date based on the value of the award and is
recognized over the service period, which is usually the vesting period. The Company values stock based compensation at the market
price for the Company’s common stock as of the date in which the obligation for payment of services is incurred.
L.
COMMON STOCK OPTIONS AND PURCHASE WARRANTS
The
Company accounts for common stock options and purchase warrants at fair value in accordance with ASC 815-40, “
Derivatives
and Hedging”.
The Black-Scholes option pricing valuation method (“BSM option pricing model”) is used to
determine fair value of these warrants consistent with ASC 718, “
Share Based Payment”.
Use of this method requires
that the Company make assumptions regarding stock volatility, dividend yields, expected term of the warrants and risk-free interest
rates.
The
Company accounts for transactions in which services are received from non-employees in exchange for equity instruments based on
the fair value of the equity instruments exchanged, in accordance with ASC 505-50, “
Equity Based payments to Non-employees”
.
M.
ORIGINAL ISSUE DEBT DISCOUNT
The
original issue discount (OID) related to notes payable is amortized by the effective interest method over the repayment period
of the notes. The unamortized OID is represented as a reduction of the amount of the notes payable.
N.
PROPERTY AND EQUIPMENT
Property
and equipment are recorded at cost. Depreciation is computed on the straight-line method, based on the estimated useful lives
of the assets as follows:
|
|
Years
|
|
Display
equipment for trade shows
|
|
|
3
|
|
Leasehold
improvements and furniture and fixtures
|
|
|
10
- 15
|
|
Shop
equipment
|
|
|
7
|
|
Computers
|
|
|
3
|
|
Expenditures
for maintenance and repairs are charged to operations as incurred.
O.
IMPAIRMENT OF LONG LIVED ASSETS
The
Company continually evaluates the carrying value of intangible assets and other long lived assets to determine whether there are
any impairment losses. If indicators of impairment are present and future cash flows are not expected to be sufficient to recover
the assets’ carrying amount, an impairment loss would be charged to expense in the period identified. To date, the Company
has not recognized any impairment charges.
P.
RECENT ACCOUNTING PRONOUNCEMENTS
In April 2015, the Financial Accounting
Standards Board (FASB) issued Accounting Standards Update (ASU) 2015-05, Customer's Accounting for Fees Paid in a Cloud Computing
Arrangement. This provides guidance for companies to evaluate the accounting for fees paid by a customer in a cloud computing
arrangement. This adoption has no impact on the financial reporting by the Company.
In
April 2015, the FASB issued ASU No. 2015-03, “Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation
of Debt Issuance Costs”, or ASU 2015-03. ASU 2015-03 amends current presentation guidance by requiring that debt issuance
costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount
of that debt liability, consistent with debt discounts. We adopted the provisions of ASU 2015-03 effective January 1, 2016. The
adoption of ASU 2015-03 did not have a material impact our consolidated financial position, results of operations or cash flows.
In February 2016, the FASB issued ASU
2016-02, Leases. This was provide guidance to increase transparency and comparability among companies by requiring most leases
be included on the balance sheet and by expanding disclosure requirements. We are still in the process of evaluating the effect
of adoption on our consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09,
Compensation-Stock Compensation: Improvements to Employee Share-Based Payment Accounting. This addresses the accounting for share-based
payment transactions and includes the recognition of the income tax effects of awards that vest or settle as income tax expense
and clarification of the presentation of certain components of share-based awards in the statement of cash flows. We are still
in the process of evaluating the effect of adoption on our consolidated financial statements and the effective date of
application is 2018.
ASU
No. 2015-17, “Balance Sheet Classification of Deferred Assets”, was issued by the FASB in November 2015, This required
management to provide a classification of all deferred taxes as noncurrent assets or noncurrent liabilities. This ASU is effective
for annual periods beginning after December 15, 2016. The Company does not anticipate this ASU will have a material impact to
the Company’s consolidated financial position, results of operations or cash flows.
Q.
CONCENTRATION OF RISK
The
Company does not have any off-balance sheet concentrations of credit risk. The Company expects cash and accounts receivable to
be the two assets most likely to subject the Company to concentrations of credit risk. The Company’s policy is to maintain
its cash with high credit quality financial institutions to limit its risk of loss exposure.
As
of December 31, 2015, the Company maintained its cash in one quality financial institution. The Company has not experienced any
losses in its bank accounts through December 31,2015. The Company purchases raw material and components from multiple sources,
none of which may be considered a principal or material supplier. If necessary, the Company could replace these suppliers with
minimal effect on its business operations.
R.
DERIVATIVE FINANCIAL INSTRUMENTS
Accounting
and reporting standards for derivative instruments and for hedging activities were codified by ASC Topic 815,
Derivatives and
Hedging
(“ASC Topic 815”). It requires that all derivatives be recognized in the balance sheet and measured at
fair value. Gains or losses resulting from changes in the fair value of derivatives are recognized in earnings or recorded in
other comprehensive income (loss) depending on the purpose of the derivatives and whether they qualify and have been designated
for hedge accounting treatment. The Company has derivative liabilities pursuant to convertible debt and common stock warrants,
and has recognized net expenses on the consolidated statements of operations. The Company does not have any derivative
instruments for which it has applied hedge accounting treatment.
NOTE
2 - GOING CONCERN
As shown in the accompanying consolidated
financial statements, the Company incurred substantial operating and other losses and expenses of approximately $1.5 million
for the year ended December 31, 2015, and $5.0 million for the year ended December 31, 2014. The cumulative deficit since inception
is approximately $58.7 million, which is comprised of $26.4 million attributable to actual operating losses (which
were paid in cash, stock for services and other equity instruments) and net other expenses, and $32.3 million in non-cash derivative
liability accounting which was a result of the conversion of the Company’s Series A Convertible Preferred Stock in 2011,
the retirement of a common stock purchase warrant in 2012, and the change in fair value of derivatives associated with notes payable
for the years ended December 31, 2013, 2014 and 2015. The Company has a working capital deficit at December 31, 2015 of approximately
$2.3 million. There is no guarantee whether the Company will be able to generate enough revenue and/or raise capital to
support its operations. This raises substantial doubt about the Company’s ability to continue as a going concern. The ability
of the Company to continue as a going concern is dependent on management’s plans which include implementation of its business
model to generate revenue from development contracts, licenses and product sales, and continuing to raise funds through debt or
equity raises. The Company will also likely continue to rely upon related-party debt or equity financing.
The consolidated financial statements do not include any
adjustments that might result from the outcome of these uncertainties. The Company is currently raising working capital to fund
its operations via debt, advance contract payments (deferred revenue) and advances from and deferred payments to related parties.
NOTE
3 – INVENTORY, NET
Inventory principally consists of
raw material engine parts, work in process engines, labor and overhead, net of realization, valuation and obsolescence reserves.
In the aggregate it is stated at the lower of cost or market.
|
|
December 31,
2015
|
|
|
December 31,
2014
|
|
Raw materials
|
|
$
|
323,508
|
|
|
$
|
323,121
|
|
Work in process
|
|
|
0
|
|
|
|
145,922
|
|
Total
|
|
$
|
323,508
|
|
|
$
|
469,043
|
|
We provide estimated provisions for
the realization, valuation and obsolescence of our inventories, including adjustments to market, based on various factors, including
the age of such inventory and our management’s assessment of the need for such provisions. We look at historical inventory
aging and usage reports and margin analyses in determining our provision estimate.
NOTE
4 – PROPERTY AND EQUIPMENT, NET
Property
and equipment consists of the following:
|
|
December
31,
2015
|
|
|
December
31,
2014
|
|
Display
equipment for trade shows
|
|
$
|
6,270
|
|
|
$
|
9,648
|
|
Leasehold
improvements and furniture and fixtures
|
|
|
93,922
|
|
|
|
93,922
|
|
Equipment
and computers
|
|
|
204,377
|
|
|
|
209,276
|
|
Total
|
|
|
304,569
|
|
|
|
312,846
|
|
Accumulated
depreciation
|
|
|
(178,049
|
)
|
|
|
(149,680
|
)
|
Net
property and equipment
|
|
$
|
126,520
|
|
|
$
|
163,166
|
|
Depreciation expense for the years
ended December 31, 2015, and 2014 was $36,645, and $29,434, respectively.
NOTE
5 – PATENTS, TRADEMARKS AND COPYRIGHTS
Patents, trademarks and copyrights
consist of legal fees paid to file and perfect these claims. The net balances as of December 31, 2015, and 2014 were $283,368
and, $348,191, respectively. For the years ended December 31, 2015, and 2014 the Company capitalized $0, and $34,464, respectively,
of expenditures related to these assets. In 2015, the Company recorded a net charge of $ 25,894 included in general and
administrative expenses, for 6 expired international patents; the basic patents for the Cyclone technology is still protected.
In 2014 the Company wrote off various trademarks for a net charge of $5,091.
As
of December 31, 2015, the Company had 15 patents issued on its technology both in the U.S. and internationally. Pursuant to new
US Patent Office regulations, upon approval, expired patents can be reestablished from inception.
Patents, trademarks and copyrights are amortized over the
life of the intellectual property which is 15 years. Amortization expenses for the years ended December 31, 2015, and 2014 were
$38,929 and $39,435 respectively.
NOTE
6 – NOTES AND OTHER LOANS PAYABLE
A
summary of non-related party notes and other loans payable is as follows:
|
|
December
31,
2015
|
|
|
December
31,
2014
|
|
|
|
|
|
|
|
|
12%
convertible notes payable, net of discounts of $8,536 and $8,390 at December 31, 2015 and December 31, 2014, respectively,
maturing at various dates from November 2013 through September 2016 (A)
|
|
$
|
34,558
|
|
|
$
|
70,378
|
|
|
|
|
|
|
|
|
|
|
10%
convertible note payable, net of discount of $0 and December 31, 2015 and December 31, 2014, respectively, monthly payments
commencing in December 2013 through July 2014 (B)
|
|
|
19,963
|
|
|
|
19,963
|
|
|
|
|
|
|
|
|
|
|
10%
convertible notes payable, net of discount of $40,614 and $43,207 at December 31, 2015 and December 31, 2014, respectively,
maturing at various dates from May 2015 through February 2016 (C)
|
|
|
72,793
|
|
|
|
59,386
|
|
|
|
|
|
|
|
|
|
|
10%
convertible notes payable, net of discount of $20,343 and $80 at December 31, 2015 and December 31, 2014, respectively, maturing
at various dates from December 2015 through January 2016 (D)
|
|
|
29,223
|
|
|
|
40,657
|
|
|
|
|
|
|
|
|
|
|
10%
convertible note payable, net of discount of $0 and $89,995 at December 31, 2015 and December 31, 2014 respectively, maturing
at various dates from February 2015 through August 2015 ( E )
|
|
|
116,200
|
|
|
|
52,005
|
|
|
|
|
|
|
|
|
|
|
12%
convertible notes payable, net of discount of $0 and $25,232 at December 31, 2015 and December 31, 2014 , respectively, maturing
at various dates from April 2015 through May 2015 ( F )
|
|
|
85,000
|
|
|
|
59,768
|
|
|
|
|
|
|
|
|
|
|
10%
note payable, $0 discount, maturing Feb. 3 2017
|
|
|
50,000
|
|
|
|
-
|
|
Total
non related party notes –net of discounts
|
|
|
407,737
|
|
|
|
302,157
|
|
|
|
|
|
|
|
|
|
|
Less-Current
Portion
|
|
|
357,737
|
|
|
|
-
|
|
Total
non-current non related party notes –net of discount (accrued interest is included in accrued expenses)
|
|
$
|
50,000
|
|
|
$
|
302,157
|
|
|
(A)
|
Unamortized discount from derivative liabilities at December 31, 2015 is $46,762. The notes are in default.
|
|
|
|
|
(B)
|
Unamortized
discount from derivative liabilities at December 31, 2015 is $31,001. This note is in default Effective May 8, 2015, the Company
is subject to a default judgment of approximately $175,000, plus subsequent penalty interest for non-payment of convertible debt
and interest. Tonaquint Inc. filed and received judgment and Company is negotiating a reduced settlement.
|
|
|
|
|
(C)
|
Unamortized
discount from derivative liabilities at December 31, 2015 is $85,871. The notes are in default.
|
|
|
|
|
(D)
|
Unamortized
discount from derivative liabilities at December 31, 2015 is $54,838. This note is in default.
|
|
|
|
|
(E)
|
Unamortized
discount from derivative liabilities at December 31, 2015 is $144,124. The notes are in default
.
|
|
|
|
|
(F)
|
Unamortized
discount from derivative liabilities at December 31, 2015 is $78,244. The notes are in default August 2015, the Company is
subject to litigation of approximately $150,000, plus subsequent penalty interest for non -payment of a liability. JSJ filed
and received judgment and Company is seeking to arrange a settlement.
|
A
summary of related party notes and other loans payable is as follows:
|
|
December
31,
2015
|
|
|
December
31,
2014
|
|
|
|
|
|
|
|
|
6%
demand loans per Operations Agreement with Schoell Marine Inc., a company owned by Cyclone’s Chairman and controlling
shareholder (A)
|
|
$
|
117,734
|
|
|
$
|
498,454
|
|
6%
non-collateralized loans from officer and shareholder, payable on demand. The original principal balances were $157,101.
|
|
|
103,328
|
|
|
|
67,221
|
|
12%
non-collateralized loans from officer and shareholder, payable on demand
|
|
|
20,178
|
|
|
|
15,516
|
|
Accrued
Interest
|
|
|
80,094
|
|
|
|
299,126
|
|
Total
current related party notes, inclusive of accrued interest
|
|
$
|
321,334
|
|
|
$
|
880,317
|
|
|
(A)
|
This
note arose from services and salaries incurred by Schoell Marine on behalf of the Company. The Schoell Marine note bears an
interest rate of 6% and repayments occur as cash flow of the Company permits. The note was secured by a UCC-1 filing on the
Company’s patents and patent applications, which expired and has not been renewed. For the years December 31, 2015 and
2014, $0 and $8,100 of principal was paid on the note balance, respectively.
|
In
June 2015, Schoell Marine forgave $710,272 of principle and accrued interest on the note.
During
the last quarter of 2014, the Company’s Chairman and co-founder loaned 10 million shares of Company common stock, valued
at approximately $14,000, which were reissued pursuant to various debt covenants. These shares have been presented as value of
shares loaned by stockholder in the accompanying consolidated balance sheets. These shares were returned to the Chairman in March
2015.
During
2013, the Company’s Chairman and co-founder loaned approximately 37.4 million shares of Company common stock, valued at
approximately $1.5 million, as reserve treasury shares pursuant to various debt covenants. These shares have been presented as
the value of shares loaned by stockholder in the accompanying consolidated balance sheets. These shares were returned to the Chairman
in March 2014.
NOTE
7 – RELATED PARTY TRANSACTIONS
A.
LEASE ON FACILITIES
The Company leases a 6,000 square foot warehouse and office
facility located at 601 NE 26th Court in Pompano Beach, Florida. The lease, which is part of the Company’s Operations Agreement
with Schoell Marine, provides for the Company to pay an annual rent of $60,000. Schoell Marine sold the building in December of
2015 and the lease was transferred to the new owner. The lease period ends December 2016 with a 1 year renewal at the company’s
option, and a 2% rate increase. Occupancy costs for the years ended December 31, 2015, and 2014 were $ 60,000 and $62,964, respectively.
B.
DEFERRED COMPENSATION
Included in accounts payable and accrued expenses - related
parties as of December 31, 2015, and December 31, 2014 are $137,500, and $475,000, respectively, of accrued and deferred officers’
salaries compensation which may be paid as funds are available. These are non-interest bearing and due on demand.
In
June 2015, the principle officers of the Company forgave $612,500 of deferred compensation.
In
January 2014, four of the Company’s executive management converted $668,312 in deferred salary into 20,313,416 shares of
restricted common stock, and forgave $956,762 in deferred salary as contributed capital. This forgiveness of deferred salary was
recorded as additional paid in capital in the accompanying consolidated balance sheet at December 31, 2014.
NOTE
8 – PREFERRED STOCK
The
Series B Preferred Stock is majority voting stock and is held by the two co-founders of the Company. Ownership of the Series B
Preferred Stock shares assures the holders thereof a 51% voting control over the common stock of the Company. The 1,000 Series
B Preferred Stock shares are convertible on a one-for-one basis with the common stock in the instance the Company is merged, sold
or otherwise dissolved.
NOTE
9 – STOCK TRANSACTIONS
During
the year ended December 31, 2015, the Company:
|
a-
|
Issued
92,500,000 shares of restricted common stock valued at $116,500 for payment of $66,500 of liabilities and incurred a $50,000
loss on this debt payment.
|
|
|
|
|
b-
|
Amortized
(based on vesting) $2,526 of common stock options for employee services.
|
|
|
|
|
c-
|
Issued
424,853,956 shares of common stock valued at $130,855 as repayment of debt and related interest expense.
|
|
|
|
|
d-
|
Repaid
a loan of 10,000,000 shares of stock from the Company’s Chairman and co-founder. which had been reissued pursuant to
various debt covenants that had to be covered with stock.
|
During
the year ended December 31, 2014, the Company:
|
a-
|
Issued
4,722,365 shares of common stock in a cashless exercise of warrants.
|
|
|
|
|
b-
|
Amortized
(based on vesting) $10,400 of common stock options for employee services.
|
|
|
|
|
c-
|
Issued
496,323,413 shares of common stock valued at $1,142,647 as repayment of debt and related interest expense. .
|
|
|
|
|
d-
|
Issued
20,313,416 shares of restricted common stock, valued at $668,312 in conversion accrued officers salaries. Additionally, $956,762
of accrued officers salaries were forgiven.
|
|
|
|
|
e-
|
Sold
8,219,298 shares of common stock for $111,829
|
|
|
|
|
g-
|
Issued
6,250,000 shares of restricted common stock, valued at $116,175 for services
|
NOTE
10 – STOCK OPTIONS AND WARRANTS
A.
COMMON STOCK OPTIONS
Per
the employment contracts with certain officers, the company issued 1,800,000 common stock options, valued at $405 (pursuant to
the Black Scholes valuation model) ) that are exercisable into shares of common stock at an average exercise price of $.0009 and
with a maturity life of 10 years. For the years ended December 31, 2015, and December 31, 2014 the amortization of stock options
was $ 2,526 and $10,400, respectively. The unamortized balance at December 31 2015 was $1,232.
A
summary of the common stock options for the period from December 31, 2013 through December 31, 2015 follows:
|
|
Number
Outstanding
|
|
|
Weighted
Avg.
Exercise Price
|
|
|
Weighted
Avg.
Remaining
Contractual Life
(Years)
|
|
Balance,
December 31, 2013
|
|
|
9,740,000
|
|
|
$
|
0.129
|
|
|
|
5.5
|
|
Options
issued
|
|
|
1,350,000
|
|
|
|
.002
|
|
|
|
9.8
|
|
Options
exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Options
cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Cancelled-old
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2014
|
|
|
11,090,000
|
|
|
$
|
0.123
|
|
|
|
6.0
|
|
Options
issued
|
|
|
1,800,000
|
|
|
|
0.0009
|
|
|
|
9.6
|
|
Options
exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Options
cancelled
|
|
|
(510,000
|
)
|
|
|
(.12
|
)
|
|
|
-
|
|
Cancelled-old
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2015
|
|
|
12,380,000
|
|
|
$
|
0.11
|
|
|
|
5.8
|
|
The
vested and exercisable options at period end follows:
|
|
Exercisable/
Vested
Options
Outstanding
|
|
|
Weighted
Avg.
Exercise
Price
|
|
|
Weighted
Avg.
Remaining
Contractual
Life (Years)
|
|
Balance
December 31, 2015
|
|
|
10,580,000
|
|
|
$
|
.128
|
|
|
|
5.1
|
|
Additional
vesting by March 31, 2016
|
|
|
450,000
|
|
|
|
.0003
|
|
|
|
9.0
|
|
The
fair value of new stock options, re-priced stock options, new purchase warrants and re-priced purchase warrants granted using
the Black-Scholes option pricing model was calculated using the following assumptions:
|
|
Year
Ended
December 31,
2015
|
|
|
Year
Ended
December 31,
2014
|
|
Risk
free interest rate
|
|
|
.89
% -1.31
|
%
|
|
|
.67
% -1.32
|
%
|
Expected
volatility
|
|
|
102%
- 131
|
%
|
|
|
63%
- 89
|
%
|
Expected
term
|
|
|
3
|
|
|
|
2-4
|
|
Expected
dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
Average
value per options and warrants
|
|
|
$
.0003 -$.0016
|
|
|
|
$
.001 - $ .017
|
|
expected
volatility is based on historical volatility of the Company’s common stock price. Short Term U.S. Treasury rates were utilized
at the risk free interest rate. The expected term of the options and warrants was calculated using the alternative simplified
method newly codified as ASC 718 “
Accounting for Stock Based Compensation,
” which defined the expected life
as the average of the contractual term of the options and warrants and the weighted average vesting period for all issuances.
B.
COMMON STOCK WARRANTS
During
the year ended December 31, 2015, 2,508,692 warrants with an average exercise price of $.148 expired.
A
summary of outstanding vested warrant activity for the period from December 31, 2013 to December 31, 2015 follows:
|
|
Number
Outstanding
|
|
|
Weighted
Average Exercise Price
|
|
|
Weighted
Average Remaining Contractual Life (Years)
|
|
Common
Stock Warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2013
|
|
|
16,097,798
|
|
|
$
|
0.057
|
|
|
|
2.85
|
|
Warrants
exercised-cashless
|
|
|
(9,037,230
|
)
|
|
|
(0.017
|
)
|
|
|
|
|
Warrants
issued
|
|
|
2,838,048
|
|
|
|
0.111
|
|
|
|
3.92
|
|
Warrants
expired
|
|
|
(2,861,251
|
)
|
|
|
(.166
|
)
|
|
|
|
|
Warrants
cancelled
|
|
|
(3,403,673
|
)
|
|
|
(.011
|
)
|
|
|
|
|
Warrants
re-priced:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled
– old
|
|
|
(1,190,625
|
)
|
|
|
(0.020
|
)
|
|
|
|
|
Re-Priced
|
|
|
1,190,625
|
|
|
|
0.011
|
|
|
|
|
|
Balance,
December 31, 2014
|
|
|
3,633,692
|
|
|
$
|
0.074
|
|
|
|
0.89
|
|
Warrants
exercised-cashless
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
issued
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
expired
|
|
|
(2,508,692
|
)
|
|
|
(.148
|
)
|
|
|
|
|
Warrants
cancelled
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
re-priced:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled
– old
|
|
|
|
|
|
|
|
|
|
|
|
|
Re-Priced
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2015
|
|
|
1,125,000
|
|
|
$
|
0042
|
|
|
|
2.05
|
|
All
warrants were vested and exercisable as of the date issued.
NOTE
11 – INCOME TAXES
A
reconciliation of the differences between the effective income tax rates and the statutory federal tax rates for the years ended
December 31, 2015 and 2014 are as follows:
|
|
Year
ended
December
31,
2015
|
|
|
|
|
|
Year
ended
December
31,
2014
|
|
|
|
|
Tax benefit at U.S. statutory
rate
|
|
$
|
235,276
|
|
|
|
34
|
%
|
|
$
|
1,361,148
|
|
|
|
34
|
%
|
State taxes, net of federal benefit
|
|
|
27,679
|
|
|
|
4
|
|
|
|
160,135
|
|
|
|
4
|
|
Change in valuation allowance
|
|
|
(262,955
|
)
|
|
|
(38
|
)
|
|
|
(1,521,283
|
)
|
|
|
(38
|
)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
The
tax effect of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at December
31, 2015 and December 31, 2014 consisted of the following:
Deferred
Tax Assets
|
|
December
31,
2015
|
|
|
December
31,
2014
|
|
Net
Operating Loss Carry-forward
|
|
$
|
9,924,492
|
|
|
$
|
9,410,367
|
|
Deferred
Tax Liabilities
|
|
|
(795,805
|
)
|
|
|
(382,260
|
)
|
Net
Deferred Tax Assets
|
|
|
9,128,687
|
|
|
|
9,028,107
|
|
Valuation
Allowance
|
|
|
(9,128,687
|
)
|
|
|
(9,028,107
|
)
|
Total
Net Deferred Tax Assets
|
|
$
|
-
|
|
|
$
|
-
|
|
As of December 31, 2015, the Company
had a net operating loss carry forward for income tax reporting purposes of approximately $21.4 million that may be offset
against future taxable income through 2035. Current tax laws limit the amount of loss available to be offset against future
taxable income when a substantial change in ownership occurs. Therefore, the amount available to offset future taxable income
may be limited. No tax asset has been reported in the financial statements because the Company believes there is a 50% or greater
chance the carry forwards will expire unused. The tax benefit for the periods presented is offset by a valuation allowance
established against deferred tax assets arising from the operating losses and other temporary differences, the realization of
which could not be considered more likely than not. In future periods, tax benefits and related deferred tax assets will be recognized
when management considers realization of such amounts to be more likely than not.
NOTE
12 –LEASE OBLIGATIONS
A.
CAPITALIZED LEASE OBLIGATIONS
At
December 31, 2014, the Company acquired $37,158 of equipment via capitalized leases at interest rates ranging from 6.9%
to 10.0%. In December 2013, the Company acquired $8,408 of equipment via capitalized lease obligations at an interest rate of
15.5%. Total lease payments made for the year ended December 31, 2015 were $7,811. The balance of capitalized lease obligations
payable at December 31, 2015, and December 31, 2014 were $49,889 ,and $57,700, respectively. Future lease payments are:
2016
|
|
$
|
12,950
|
|
2017
|
|
|
14,382
|
|
2018
|
|
|
11,984
|
|
2019
|
|
|
8,551
|
|
2020
|
|
|
2,022
|
|
|
|
$
|
49,889
|
|
B.
LEASE ON ADDITIONAL FACILITIES
In
August, 2015, the Company terminated the lease for 2,000 square feet of additional space. The related lease expense
for the years ended December 31, 2015 ,and 2014 was $10,424, and $18,129, respectively.
Commencing
January 2014, the WHE Generation Corp. accrued $1,000 in monthly rent (inclusive of utilities, taxes and shared office assistance)
to Precision CNC as part of the joint facility / manufacturing arrangement, and effective July 2014 rent increased to $2,500 per
month. The rent expense for the nine months ended September 30. 2014 (up until deconsolidation) recorded by WHE-Gen was $ 13,957.
NOTE
13 – COMMITMENTS AND CONTINGENCIES
The
Company has employment agreements with Harry Schoell, Chairman and CTO (previously, CEO), at $150,000 per year and Frankie Fruge,
President, at $120,000 per year; (collectively, the “Executives”). These agreements provide for a term of three (3)
years from their Effective Date (July 2007 with automatically renewing successive one year periods starting on the end of the
second anniversary of the Effective Date. If the Executive is terminated “without cause” or pursuant to a “change
in control” of the Company, as both defined in the respective agreements, the Executive shall be entitled to (i) any unpaid
Base Salary accrued through the effective date of termination, (ii) the Executive’s Base Salary at the rate prevailing at
such termination through 12 months from the date of termination or the end of his Term then in effect, whichever is longer, and
(iii) any performance bonus that would otherwise be payable to the Executive were he/she not terminated, during the 12 months
following his or her termination.
Christopher
Nelson, former President and General Counsel, resigned his positions effective July 17, 2014 as President and General Counsel
of the Company and elected to forgo any salary and benefits subsequent to May 31 2014 from Cyclone Power Technologies Inc. Effective
July 31, 2014, Mr. Nelson signed an employment agreement with WHE-Generation Corp. as the Chief Executive Officer. For the period
through December 31, 2014, $70,165 was recorded as officer compensation by WHE-Generation Corp.
NOTE
14 –CONSOLIDATED SUBSIDIARY
In
2012, the Company established a 100% owned subsidiary (renamed) Cyclone Performance LLC. The purpose of Cyclone Performance is
to build, test and run a vehicle utilizing the Company’s engine. In the last quarter of 2012, the Company sold a 5% equity
investment to an unrelated investor for $30,000. Subsequent to December 31, 2012, this 5% equity investment was acquired by a
corporate officer of the Company. Losses of the subsidiary are currently fully borne by the Company, as there is no guarantee
of future profits or positive cash flow of the subsidiary. As of December 31, 2015, the cumulative unallocated losses to the non-controlling
interests of this subsidiary of $953 are to be recovered by the parent from future subsidiary profits if they materialize.
NOTE
15 – DECONSOLIDATION OF WHE SUBSIDIARY
The
Company sold most of its 73.72% investment in the WHE subsidiary to a company formed by Cyclone’s former President and a
Board of Director member and effective September 30, 2014 under separation and stock repurchase agreements dated July 17, 2014
and September 30, 2014, respectively. Under the agreements, as of December 31, 2014, the Company retained approximately a 2.1
million share non-controlling investment (below 20%) The WHE subsidiary has been deconsolidated due to the loss of control. The
difference between the fair value of the retained investment in the subsidiary and its carrying amount at the date of the transaction
was of $2,443,506, is recorded in Additional Paid in Capital and its remaining investment in the WHE subsidiary was recorded at
the fair value of the WHE common stock held by the Company, which was $556,756 as of September 30, 2014. The Company provided
an allowance for the full $556,756 due to the uncertainty of investment being realized. This is included in Other income/( expense)
on the December 31, 2014 Income Statement.
As
part of the separation agreement Whe Gen paid to the company $350,000, and is to pay $150,000 for the remainder of the company’s
investment sold. Due to the continued cumulative losses of Whe Gen, the Company provided an allowance for uncollectable accounts
for the full $150,000 amount due. This provision is included in Other income/( expense) on the December 31, 2014 Income Statement.
Whe
Gen also paid to TCA Global Master Credit Fund LP, the Company’s senior secured creditor, approximately $78,000 to fully
retire that debenture and release all of the Company’s assets from its security interest. Whe Gen also paid to the Company
an additional $24,000 in reimbursements, and transferred back to Cyclone 3,000,000 shares of treasury stock in Cyclone (valued
at $210,000). Whe Gen also assumed a $50,000 liability, deferred revenue of approximately $10,000 and accepted the responsibility
to complete an engine delivery contract (previously recorded as $290,000 deferred revenue by the Company) . The Company forgave
an intercompany receivable of approximately $85,000. Additionally, the Company satisfied a liability of $17,550 via transferring
65,000 shares of its WheGen shares.
To
raise funds pursuant to the separation agreement, Whe Generation Corp. in the “Seed” Round of financing commencing
in July 2014, issued $ 350,000 of 6% convertible debt, maturing in 12 months, which were subsequently converted into common stock
at $.12 per share as of September 30, 2014. In the common stock “A” funding WHE Generation Corp. raised $1,314,360
of common stock sales at $.27 per share as of September 30, 2014.
In
connection with the Agreement, the Company and WheGen also amended its 2010 License Agreement (the “License”)
to provide the Company with an initial non refundable license fee of $175,000 and on-going 5% royalties from Whe Gens sale of
engines utilizing the licensed technology. This License is 20 years with two 10-year extensions. It is worldwide in territory
and exclusive for the specific applications of stationary waste heat recovery (WHR) and waste-to-power (WtP).
The
total losses of the WheGen subsidiary for the nine months ended September 30, 2014, for the year ended December 31, 2013
and cumulatively since inception were $696,831 and $157,266, and $ 854,097 respectively. These losses were fully borne by the
Company and are included in net loss in the consolidated statements of operations.
In
2015, Whe Gen gave the company 625,000 of Whe Gen common stock in settlement of the $150,000 receivable noted above. In the second
quarter of 2016, the company sold its total investment of approximately 2.7 million Whe Gen shares and at which time the Company
recorded a gain of $44,000, the amount paid for the shares by a third party.
NOTE
16 – RECEIVABLES, DEFERRED REVENUE AND BACKLOG
As
of December 31, 2015, total backlog for prototype engines to be delivered was $400,000 from the Combilift agreement, of which
$100,000 has been paid and has been recorded as deferred revenue. In 2015 another customer advanced $25,000 as a deposit towards
progress payments on a $80,000 contract for engines currently estimated to be delivered in 2017.
NOTE
17 – DERIVATIVE FINANCIAL INSTRUMENTS
Pursuant
to additional financing, in the years ended December 31, 2015 and 2014 the Company entered into convertible note agreements (subject
to derivative accounting treatment) in the aggregate amounts of $0, and $855,800, respectively The conversion prices into common
stock ranged from a discount of 30% to 45% of the lowest closing prices in the 10 to 20 trading days prior to the conversion.
Under provisions of ASC Topic 815-40, this conversion feature triggered derivative accounting treatment because the convertible
note was convertible into an indeterminable number of shares of common stock. The fair value of the embedded conversion option
was required to be presented as a derivative liability and adjusted to fair value at each reporting date, with changes in fair
value reported in the consolidated statements of operation.
The
Company recorded derivative liabilities of $0 and $810,527 with a discount offset against the underlying loan, during the years
ended December 31, 2015 and 2014, respectively.
In
the year ended December 31, 2015, the Company recorded a $174,043 non-cash charge to interest expense (reflective of debt discount
amortization), an increase of $0 in additional paid in capital pursuant to conversion of convertible notes to common stock, and
a $56,702 of derivative gain related to adjusting the derivative liability to fair value. At December 31, 2015, the derivative
related fair value of debt was $383,482.
In
the year ended December 31, 2014, the Company recorded a $935,128 non-cash charge to interest expense (reflective of debt discount
amortization), an increase of $1,0013,062 in additional paid in capital pursuant to conversion of convertible notes to common
stock, and $147,680 of derivative loss related to adjusting the derivative liability to fair value. At December 31, 2014, the
derivative related fair value of debt was $440,184.
The
Company calculates the estimated fair values of the liabilities for derivative instruments at each quarter-end using the BSM option
pricing model and Stochastic Process Forecasting models (Monte Carlo simulations). Volatility, expected term and risk free interest
rates used to estimate the fair value of derivative liabilities are indicated in the table below. The volatility was based on
historical volatility, the expected term is equal to the remaining term of the debt and the risk free rate is based upon rates
for treasury securities with the same term.
|
|
Year
Ended
December 31,
2015
|
|
|
Year
Ended
December 31,
2014
|
|
Volatility
|
|
|
103%-
343%
|
|
|
|
96%
- 276%
|
|
Risk
Free Rate
|
|
|
.01%
- .28%
|
|
|
|
.02%
- 1.07%
|
|
Expected
Term (years)
|
|
|
0
– 1.05
|
|
|
|
0
–4.2
|
|
Dividend
Rate
|
|
|
0%
|
|
|
|
0%
|
|
NOTE
18 – LITIGATION
Effective May 8, 2015, the Company
is subject to a default judgment of approximately $175,000, plus subsequent penalty interest for non-payment of convertible debt
and interest. Tonaquint Inc. filed and received a judgment and the Company is negotiating a reduced settlement.
As at December 31 2015, outstanding interest, default interest and default judgment penalties are included in accrued liabilities.
In August 2015, the Company is subject
to litigation of approximately $150,000, plus subsequent penalty interest for non -payment of a liability. JSJ filed and received
a judgment and the Company is seeking to arrange a settlement. As at December 31, 2015, outstanding interest,
default interest and default judgment penalties are included in accrued liabilities.
In 2014 Penton Learning Center filed
a small claim for cancellation of exhibitor space against Cyclone. Penton and Cyclone reached a $4,500 settlement
in 2015 and it was paid in full in 2015.
In 2015 Silest filed a small claim
for rent due on storage facility against Cyclone (included in accounts payable). Silest and Cyclone reached a settlement
and paid in full in 2016.
NOTE
19 – SUBSEQUENT EVENTS
In
the second and third quarters of 2016, the Company engaged in the following transactions:
|
a-
|
The
Company issued 3 million shares of common stock value at $5,700 for services.
|
|
|
|
|
b-
|
The
company issued approximately 45.7 million shares of common stock valued at approximately $82,000 pursuant to the final settlement
of a liability.
|
|
|
|
|
c-
|
The
Company has placed purchase orders for the pre production manufacturing of 5 Mark 3
engines
to test application and integration with customers’ systems.
|
|
|
|
|
d-
|
In
recognition of the declining market value and low market volume, the company sold all of its investment in Q 2 Power Technologies
for $44,000.
|
|
|
|
|
e-
|
The
Company issued 80,000 million shares of common stock valued at $216,000 pursuant to the conversion of a liability.
|
Effective
September 1, 2016, the company raised the authorized common stock to 4,000,000,000 shares pursuant to debt conversion requirements.
This authorized share increase was retroactively reflected on the December 31, 2015 and 2014 Balance Sheets.
G2E,
S.A.P.I. de C.V.
( of Mexico) has signed a Systems Application Agreement and an Engineering Development Agreement with Cyclone
Power Technologies. These agreements will formulate over the next 6 months a beta Solar site
that
will be developed using Cyclone’s solar panels, Cyclone’s Thermal Storage Unit and the Cyclone engine to produce
24/7 electrical power from the energy of Solar. The Systems Application License Agreement allows G2E the rights to build and sell
the solar systems, excluding military, in Latin America, New Zealand, and Australia.
3R
Denmark (“3R”) has accepted and approved their Mark 3, 25HP Cyclone Engine and is ready for integration with their
Boiler Systems for combined heat and power (CHP). 3R DENMARK has a distribution agreement to use the Cyclone Power Engines for
the specific uses of fuel to power in their unique boiler system being manufactured in China. In September 2016, 3R merged into
Integrated Biomass Energy System, FZ-LLC (“IBES”) a United Arab Emirates corporation .
Through
2016, the company collected contract progress payments and contract deposits of $170,000.
Through
2016, the company received funds of approximately $100,000 from traditional, non derivative related debt.
In
June 2016 Falck Schmidt Defense Systems (“FSDS”) of Denmark has signed an exclusive Engineering Development Agreement
which provides for the development of a militarized 10 Kw auxiliary power unit (APU) for worldwide military applications. FSDS
will be the exclusive worldwide distributor for both military and aerospace power applications, FSDS is to purchase engines from
the company or will pay a license or royalty fee for manufacture. Additionally the contract employs the company as a R&D arm
of FSDS.
CYCLONE
POWER TECHNOLOGIES, INC.
CONDENSED
CONSOLIDATED BALANCE SHEET
SEPTEMBER
30, 2015, JUNE 30, 2015 AND MARCH 31, 2015
(UNAUDITED)
|
|
September
30, 2015
|
|
|
June 30,
2015
|
|
|
March
31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
7
|
|
Inventory,
net
|
|
|
455,510
|
|
|
|
515,460
|
|
|
|
514,801
|
|
Other
current assets
|
|
|
712
|
|
|
|
837
|
|
|
|
962
|
|
Total
current assets
|
|
|
456,222
|
|
|
|
516,297
|
|
|
|
515,770
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROPERTY
AND EQUIPMENT
|
|
|
|
|
|
|
|
|
|
|
|
|
Furniture,
fixtures, and equipment
|
|
|
312,846
|
|
|
|
312,846
|
|
|
|
312,846
|
|
Accumulated
depreciation
|
|
|
(177,247
|
)
|
|
|
(168,174
|
)
|
|
|
(158,927
|
)
|
Net
property and equipment
|
|
|
135,599
|
|
|
|
144,672
|
|
|
|
153,919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents,
trademarks and copyrights
|
|
|
579,067
|
|
|
|
579,067
|
|
|
|
579,067
|
|
Accumulated
amortization
|
|
|
(260,119
|
)
|
|
|
(250,413
|
)
|
|
|
(240,707
|
)
|
Net
patents, trademarks and copyrights
|
|
|
318,948
|
|
|
|
328,654
|
|
|
|
338,360
|
|
Other
assets
|
|
|
2,761
|
|
|
|
2,761
|
|
|
|
2,761
|
|
Total
other assets
|
|
|
321,709
|
|
|
|
331,415
|
|
|
|
341,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
913,530
|
|
|
$
|
992,384
|
|
|
$
|
1,010,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
overdraft
|
|
$
|
3,026
|
|
|
$
|
1,228
|
|
|
$
|
-
|
|
Accounts
payable and accrued expenses
|
|
|
1,107,811
|
|
|
$
|
1,037,541
|
|
|
|
989,124
|
|
Accounts
payable and accrued expenses-related parties
|
|
|
126,475
|
|
|
|
42,725
|
|
|
|
614,200
|
|
Notes
and other loans payable-current portion
|
|
|
341,201
|
|
|
|
325,225
|
|
|
|
271,555
|
|
Derivative
liabilities
|
|
|
451,590
|
|
|
|
450,995
|
|
|
|
457,838
|
|
Notes
and other loans payable-related parties
|
|
|
284,003
|
|
|
|
247,335
|
|
|
|
906,656
|
|
Capitalized
lease obligations-current portion
|
|
|
12,826
|
|
|
|
12,646
|
|
|
|
12,205
|
|
Deferred
revenue and license deposits
|
|
|
148,030
|
|
|
|
147,627
|
|
|
|
122,627
|
|
Total
current liabilities
|
|
|
2,474,962
|
|
|
|
2,265,322
|
|
|
|
3,374,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized
lease obligations-net of current portion
|
|
|
38,143
|
|
|
|
39,800
|
|
|
|
44,125
|
|
Notes
and other loans payable-net of current portion
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
50,000
|
|
Total
non-current liabilities
|
|
|
88,143
|
|
|
|
89,800
|
|
|
|
94,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities
|
|
|
2,563,105
|
|
|
|
2,355,122
|
|
|
|
3,468,330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series
B preferred stock, $.0001 par value, 1,000 shares authorized, 1,000 shares issued and outstanding at March 31, 2015 June 30,
2015 and September 30, 2015, respectively.
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock, $.0001 par value, 4,000,000,000 shares authorized, 1,327,937, 1,327,937 and 1,388,669,532 shares issued and outstanding
at March 31, 2015, June 30, 2015 and Seot. 30,2015, respectively.
|
|
|
138,865
|
|
|
|
132,792
|
|
|
|
231,792
|
|
Additional
paid-in capital
|
|
|
56,621,427
|
|
|
|
56,617,055
|
|
|
|
55,231,719
|
|
Stock
subscription receivable
|
|
|
(6,000
|
)
|
|
|
(6,000
|
)
|
|
|
(6,000
|
)
|
Accumulated
deficit
|
|
|
(58,432,914
|
)
|
|
|
(58,135,632
|
)
|
|
|
(57,845,078
|
)
|
Total
stockholders' deficit-Cyclone Power Technologies Inc.
|
|
|
(1,678,622
|
)
|
|
|
(1,391,785
|
)
|
|
|
(2,387,567
|
)
|
Non
controlling interest in consolidated subsidiaries
|
|
|
29,047
|
|
|
|
29,047
|
|
|
|
29,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Stockholders' Deficit
|
|
|
(1,649,575
|
)
|
|
|
(1,362,738
|
)
|
|
|
(2,358,520
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders' Deficit
|
|
$
|
913,530
|
|
|
$
|
992,384
|
|
|
$
|
1,109,810
|
|
The
accompanying notes are an integral part of these condensed consolidated financial statements
CYCLONE
POWER TECHNOLOGIES, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
|
|
Three
Months Ended March 31
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
REVENUES
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
COST
OF GOODS SOLD
|
|
|
-
|
|
|
|
27,000
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
-
|
|
|
|
(27,000
|
)
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES
|
|
|
|
|
|
|
|
|
Advertising
and promotion
|
|
|
254
|
|
|
|
7,605
|
|
General
and administrative
|
|
|
271,579
|
|
|
|
437,739
|
|
Research
and development
|
|
|
106,927
|
|
|
|
124,180
|
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
378,760
|
|
|
|
569,524
|
|
|
|
|
|
|
|
|
|
|
Operating
loss
|
|
|
(378,760
|
)
|
|
|
(596,524
|
)
|
|
|
|
|
|
|
|
|
|
OTHER
(EXPENSE) INCOME
|
|
|
|
|
|
|
|
|
Other
(expense)
|
|
|
(50,000
|
)
|
|
|
|
|
Derivative
(expense) -notes payable
|
|
|
(17,654
|
)
|
|
|
(55,158
|
)
|
Interest
(expense)
|
|
|
(141,223
|
)
|
|
|
(445,351
|
)
|
|
|
|
|
|
|
|
|
|
Total
other (expense)
|
|
|
(208,877
|
)
|
|
|
(500,509
|
)
|
|
|
|
|
|
|
|
|
|
Loss
before income taxes
|
|
|
(587,637
|
)
|
|
|
(1,097,033
|
)
|
Income
taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(587,637
|
)
|
|
$
|
(1,097,033
|
)
|
|
|
|
|
|
|
|
|
|
Net
loss per common share, basic and diluted
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding
|
|
|
972,124,660
|
|
|
|
261,282,936
|
|
See
accompanying notes to the condensed consolidated financial statements
CYCLONE
POWER TECHNOLOGIES, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
|
|
Six
Months Ended June 30,
|
|
|
Three
Months Ended June 30,
|
|
|
|
2015
|
|
|
2014
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES
|
|
$
|
-
|
|
|
$
|
140,527
|
|
|
$
|
-
|
|
|
$
|
140,527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST
OF GOODS SOLD
|
|
|
-
|
|
|
|
85,877
|
|
|
|
-
|
|
|
|
58,877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
margin
|
|
|
-
|
|
|
|
54,650
|
|
|
|
-
|
|
|
|
81,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising
and promotion
|
|
|
434
|
|
|
|
13,170
|
|
|
|
180
|
|
|
|
5,565
|
|
General
and administrative
|
|
|
401,014
|
|
|
|
980,516
|
|
|
|
129,435
|
|
|
|
542,777
|
|
Research
and development
|
|
|
188,164
|
|
|
|
316,817
|
|
|
|
81,237
|
|
|
|
192,637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
589,612
|
|
|
|
1,310,503
|
|
|
|
210,852
|
|
|
|
740,979
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
loss
|
|
|
(589,612
|
)
|
|
|
(1,255,853
|
)
|
|
|
(210,852
|
)
|
|
|
(659,329
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
(EXPENSE) INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense)
|
|
|
(50,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Derivative (expense) -notes
payable
|
|
|
(10,811
|
)
|
|
|
(179,509
|
)
|
|
|
6,843
|
|
|
|
(124,351
|
)
|
Interest
(expense)
|
|
|
(227,854
|
)
|
|
|
(851,975
|
)
|
|
|
(86,631
|
)
|
|
|
(406,624
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other (expense)
|
|
|
(288,665
|
)
|
|
|
(1,031,484
|
)
|
|
|
(79,788
|
)
|
|
|
(530,975
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before income taxes
|
|
|
(878,277
|
)
|
|
|
(2,287,337
|
)
|
|
|
(290,640
|
)
|
|
|
(1,190,304
|
)
|
Income
taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(878,277
|
)
|
|
$
|
(2,287,337
|
)
|
|
$
|
(290,640
|
)
|
|
$
|
(1,190,304
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per common share, basic and diluted
|
|
$
|
(0.00
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding, basic and diluted
|
|
|
1,082,119,889
|
|
|
|
291,288,247
|
|
|
|
1,327,937,290
|
|
|
|
353,877,991
|
|
See
accompanying notes to the condensed consolidated financial statements
CYCLONE
POWER TECHNOLOGIES, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
|
|
Nine
Months Ended Sept. 30,
|
|
|
Three
Months Ended Sept. 30,
|
|
|
|
2015
|
|
|
2014
|
|
|
2014
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Engine
sales and design revenue
|
|
$
|
-
|
|
|
$
|
140,527
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Whe
Gen license revenue
|
|
|
|
|
|
|
175,000
|
|
|
|
|
|
|
|
175,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenue
|
|
|
-
|
|
|
|
315,527
|
|
|
|
-
|
|
|
|
175,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST
OF GOODS SOLD
|
|
|
-
|
|
|
|
85,877
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
margin
|
|
|
-
|
|
|
|
229,650
|
|
|
|
-
|
|
|
|
175,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising
and promotion
|
|
|
2,934
|
|
|
|
19,390
|
|
|
|
2,500
|
|
|
|
6,220
|
|
General
and administrative
|
|
|
526,241
|
|
|
|
1,606,575
|
|
|
|
125,227
|
|
|
|
626,059
|
|
Research
and development
|
|
|
291,769
|
|
|
|
713,237
|
|
|
|
103,605
|
|
|
|
396,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
820,944
|
|
|
|
2,339,202
|
|
|
|
231,332
|
|
|
|
1,028,699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
loss
|
|
|
(820,944
|
)
|
|
|
(2,109,552
|
)
|
|
|
(231,332
|
)
|
|
|
(853,699
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER (EXPENSE) INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense)
|
|
|
(50,000
|
)
|
|
|
(706,756
|
)
|
|
|
-
|
|
|
|
(706,756
|
)
|
Derivative
(expense) -notes payable
|
|
|
(11,406
|
)
|
|
|
(148,289
|
)
|
|
|
(595
|
)
|
|
|
31,220
|
|
Interest
(expense)
|
|
|
(293,123
|
)
|
|
|
(1,133,133
|
)
|
|
|
(65,269
|
)
|
|
|
(281,158
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other (expense)
|
|
|
(354,529
|
)
|
|
|
(1,988,178
|
)
|
|
|
(65,864
|
)
|
|
|
(956,694
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income
taxes
|
|
|
(1,175,473
|
)
|
|
|
(4,097,730
|
)
|
|
|
(297,196
|
)
|
|
|
(1,810,393
|
)
|
Income
taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(1,175,473
|
)
|
|
$
|
(4,097,730
|
)
|
|
$
|
(297,196
|
)
|
|
$
|
(1,810,393
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per common share, basic and diluted
|
|
$
|
(0.00
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
number of common shares outstanding, basic and diluted
|
|
|
1,145,656,355
|
|
|
|
335,841,941
|
|
|
|
1,346,156,963
|
|
|
|
525,746,233
|
|
See
accompanying notes to the condensed consolidated financial statements
CYCLONE
POWER TECHNOLOGIES, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
Three
Months Ended
|
|
Six Months
Ended
|
|
Nine
Months Ended
|
|
|
March
31,
|
|
June
30,
|
|
September
30,
|
|
|
2015
|
|
2014
|
|
2015
|
|
2014
|
|
2015
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(587,637
|
)
|
|
$
|
(1,097,033
|
)
|
|
$
|
(878,277
|
)
|
|
$
|
(2,287,337
|
)
|
|
$
|
(1,175,473
|
)
|
|
$
|
(4,097,730
|
)
|
Adjustments to reconcile
net loss to net cash used by
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
19,078
|
|
|
|
17,284
|
|
|
|
38,031
|
|
|
|
34,569
|
|
|
|
56,810
|
|
|
|
54,864
|
|
Loss
provisions on deconsolidation of Whe Gen subsidiary
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
706,756
|
|
Provision
for Inventory reserve
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
80,000
|
|
Issuance
of restricted common stock, options and warrants for services
|
|
|
62,084
|
|
|
|
54,572
|
|
|
|
62,953
|
|
|
|
109,759
|
|
|
|
63,377
|
|
|
|
109,579
|
|
Issuance
of restricted common stock in settlement of common stock warrants
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
49,500
|
|
Loss
on debt paid with common stock
|
|
|
50,000
|
|
|
|
—
|
|
|
|
50,000
|
|
|
|
—
|
|
|
|
50,000
|
|
|
|
—
|
|
Amortization
of prepaid interest expenses via common stock & warrants
|
|
|
28,459
|
|
|
|
—
|
|
|
|
28,459
|
|
|
|
—
|
|
|
|
28,459
|
|
|
|
—
|
|
Loss
from derivative liability-notes payable
|
|
|
17,654
|
|
|
|
55,158
|
|
|
|
10,811
|
|
|
|
179,509
|
|
|
|
11,406
|
|
|
|
148,289
|
|
Interest
paid with common stock
|
|
|
11,372
|
|
|
|
—
|
|
|
|
11,371
|
|
|
|
—
|
|
|
|
12,394
|
|
|
|
—
|
|
Amortization
of derivative debt discount
|
|
|
78,861
|
|
|
|
297,929
|
|
|
|
132,531
|
|
|
|
602,805
|
|
|
|
157,507
|
|
|
|
816,308
|
|
Original
issue discount paid with stock
|
|
|
—
|
|
|
|
10,714
|
|
|
|
—
|
|
|
|
10,714
|
|
|
|
—
|
|
|
|
10,714
|
|
Amortization
of prepaid expenses via common stock & warrants
|
|
|
—
|
|
|
|
177,435
|
|
|
|
—
|
|
|
|
324,854
|
|
|
|
—
|
|
|
|
434,724
|
|
Amortization
of original issue discount
|
|
|
—
|
|
|
|
14,095
|
|
|
|
—
|
|
|
|
37,385
|
|
|
|
—
|
|
|
|
47,652
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase)
decrease in inventory
|
|
|
(45,759
|
)
|
|
|
(99,764
|
)
|
|
|
(46,417
|
)
|
|
|
(15,608
|
)
|
|
|
13,533
|
|
|
|
(30,521
|
)
|
Increase
in other current assets
|
|
|
15,116
|
|
|
|
12,358
|
|
|
|
15,240
|
|
|
|
22,169
|
|
|
|
15,365
|
|
|
|
(36,731
|
)
|
Increase
in bank overdraft
|
|
|
—
|
|
|
|
—
|
|
|
|
1,228
|
|
|
|
—
|
|
|
|
3,027
|
|
|
|
—
|
|
Increase
in accounts payable and accrued expenses
|
|
|
177,782
|
|
|
|
126,577
|
|
|
|
226,286
|
|
|
|
300,091
|
|
|
|
315,437
|
|
|
|
567,266
|
|
Increase
in accounts payable and accrued expenses-related parties
|
|
|
83,750
|
|
|
|
102,674
|
|
|
|
186,470
|
|
|
|
199,232
|
|
|
|
361,522
|
|
|
|
183,539
|
|
Increase
in deferred revenue and deposits
|
|
|
—
|
|
|
|
255
|
|
|
|
25,000
|
|
|
|
255
|
|
|
|
25,403
|
|
|
|
6,505
|
|
Net
cash used by operating activities
|
|
|
(89,240
|
)
|
|
|
(327,746
|
)
|
|
|
(136,314
|
)
|
|
|
(481,603
|
)
|
|
|
(61,233
|
)
|
|
|
(949,286
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures incurred
for patents, trademarks and copyrights
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(10,610
|
)
|
|
|
—
|
|
|
|
(19,465
|
)
|
Expenditures for property
and equipment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(34,913
|
)
|
Deconsolidation
of Whe Gen subsidiary
, Net assets
|
|
|
—
|
|
|
|
110,000
|
|
|
|
—
|
|
|
|
110,000
|
|
|
|
—
|
|
|
|
436,816
|
|
Net
cash used by investing activities
|
|
|
—
|
|
|
|
110,000
|
|
|
|
—
|
|
|
|
99,390
|
|
|
|
—
|
|
|
$
|
(382,438
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment of capitalized
leases
|
|
|
(1,370
|
)
|
|
|
(1,569
|
)
|
|
|
(5,254
|
)
|
|
|
(3,482
|
)
|
|
|
(6,731
|
)
|
|
|
(4,779
|
)
|
Proceeds from notes
and loans payable
|
|
|
50,000
|
|
|
|
240,000
|
|
|
|
50,000
|
|
|
|
440,000
|
|
|
|
50,000
|
|
|
|
515,000
|
|
Repayment of notes
and loans payable
|
|
|
—
|
|
|
|
(38,615
|
)
|
|
|
—
|
|
|
|
(38,615
|
)
|
|
|
—
|
|
|
|
(38,615
|
)
|
Proceeds from Whe Gen
debt financing
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
350,000
|
|
Increase
in related party notes and loans payable-net
|
|
|
40,339
|
|
|
|
7,626
|
|
|
|
91,290
|
|
|
|
9,884
|
|
|
|
17,686
|
|
|
|
24,199
|
|
Net
cash provided by financing activities
|
|
|
88,969
|
|
|
|
207,442
|
|
|
|
136,036
|
|
|
|
407,787
|
|
|
|
60,955
|
|
|
$
|
845,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase
in cash
|
|
|
(271
|
)
|
|
|
(10,304
|
)
|
|
|
(278
|
)
|
|
|
25,574
|
|
|
|
(278
|
)
|
|
|
288,957
|
|
Cash, beginning
of period
|
|
|
278
|
|
|
|
17,363
|
|
|
|
278
|
|
|
|
17,363
|
|
|
|
278
|
|
|
|
17,363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, end of period
|
|
$
|
7
|
|
|
$
|
7,059
|
|
|
$
|
—
|
|
|
$
|
42,937
|
|
|
$
|
—
|
|
|
$
|
306,320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment
of interest in cash
|
|
$
|
10,869
|
|
|
$
|
25,121
|
|
|
$
|
11,372
|
|
|
$
|
38,084
|
|
|
$
|
13,836
|
|
|
$
|
46,055
|
|
NON CASH INVESTING
AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of 40,000,000 shares of Common stock for liability settlement
|
|
$
|
14,000
|
|
|
$
|
—
|
|
|
$
|
14,000
|
|
|
$
|
—
|
|
|
$
|
14,000
|
|
|
$
|
—
|
|
Issuance
of 5,250,000 shares of Common stock pursuant to prior year common stock price guarantees
|
|
$
|
52,500
|
|
|
$
|
—
|
|
|
$
|
52,500
|
|
|
$
|
—
|
|
|
$
|
52,500
|
|
|
$
|
—
|
|
Issuance
of 328,161,744 shares of Common stock for debt repayment
|
|
$
|
109,462
|
|
|
$
|
—
|
|
|
$
|
109,462
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Issuance
of 35,959,970 shares of Common stock for debt interest
|
|
$
|
11,372
|
|
|
$
|
—
|
|
|
$
|
11,372
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Issuance
of 328,707,198 shares of Common stock for debt repayment
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
118,462
|
|
|
$
|
—
|
|
Issuance
of 42,146,758 shares of Common stock for debt interest
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
12,392
|
|
|
$
|
—
|
|
Issuance
of 20,313,416 shares of Common stock for repayment of related party payables
|
|
$
|
—
|
|
|
$
|
668,312
|
|
|
$
|
—
|
|
|
$
|
668,312
|
|
|
$
|
—
|
|
|
$
|
668,312
|
|
Issuance
of 2,050,000 shares of Common stock for accrued expenses
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
93,000
|
|
|
$
|
—
|
|
|
$
|
93,000
|
|
Issuance
of 1,750,000 shares of Common stock for accrued expenses
|
|
$
|
—
|
|
|
$
|
75,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Issuance
of 399,038,505 shares of Common stock for debt repayment
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,048,232
|
|
Issuance
of 9,989,872 shares of Common stock for debt interest
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
32,322
|
|
Issuance
of 117,424,952 shares of Common stock for debt repayment
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
740,872
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Issuance
of 3,190,859 shares of Common stock for debt interest
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
25,507
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Issuance
of 21,567,656 shares of Common stock for debt repayment
|
|
$
|
—
|
|
|
$
|
285,317
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Issuance
of 983,859 shares of Common stock for debt interest
|
|
$
|
—
|
|
|
$
|
12,616
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Value of shares
repaid to stockholder
|
|
$
|
—
|
|
|
$
|
1,496,217
|
|
|
$
|
—
|
|
|
$
|
1,496,217
|
|
|
$
|
—
|
|
|
$
|
1,496,217
|
|
Foregiveness
of deferred officer's salaries
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
655,225
|
|
|
$
|
956,762
|
|
|
$
|
655,225
|
|
|
$
|
956,762
|
|
Foregiveness
of accrued rent, interest & other expenses due officer's company
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
710,272
|
|
|
$
|
—
|
|
|
$
|
710,272
|
|
|
$
|
—
|
|
conversion
of convertible debt
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
954,641
|
|
Cancellation
of treasury stock
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
210,000
|
|
The
accompanying notes are an integral part of these consolidated financial statements
NOTE
1 – SIGNIFICANT ACCOUNTING POLICIES
A.
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The
unaudited consolidated financial statements include the accounts of the Company and its 95% owned subsidiary Cyclone Performance.
All material inter-company transactions and balances have been eliminated in the condensed consolidated financial statements.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted
accounting principles (GAAP) applicable to interim financial information and the requirements of Form 10-Q and Article 10 of Regulation
S-X of the SEC. Accordingly, they do not include all of the information and disclosures required by accounting principles generally
accepted in the United States for complete consolidated financial statements. We follow the same accounting policies in preparation
of interim reports as we do in our annual reports.
Interim
results are not necessarily indicative of results for a full year. In the opinion of management, all adjustments considered necessary
for a fair presentation of the financial position and the results of operations and cash flows for the interim periods have been
included. We suggest that these financial statements be read in conjunction with the financial statements and notes thereto included
in the above annual reports for the years ended December 31, 2015 and December 31, 2014
The
accounting principles utilized by the Company require the Company to make judgments, estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated
financial statements, the reported amounts of revenues and expenses, cash flows and the related footnote disclosures during the
periods. On an on-going basis, the Company reviews and evaluates its estimates and assumptions, including, but not limited to,
those that relate to the realizable value of inventory, identifiable intangible assets and other long-lived assets, contracts,
income taxes, derivative liabilities, and contingencies. Actual results could differ from these estimates.
NOTE
2 - GOING CONCERN
As
shown in the accompanying condensed consolidated financial statements, the Company incurred substantial operating and other losses
and expenses of approximately $4.1 million for the nine months ended September 30, and the cumulative deficit since inception
to September 30, 2015 is approximately $ 58.4 million,. The Company has a working capital deficit at September 30, 2015 of approximately
$2 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 condensed
consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.
The
ability of the Company to continue as a going concern is dependent on management’s plans which include continuation of its
business model to generate revenue from development contracts, licenses and product sales, and continuing to raise funds through
debt and advances from strategic partners and deferred payments to related parties.
NOTE
2 – RELATED PARTY TRANSACTIONS
In
June 2015, Company’s officers forgave $655,225 in accrued salaries and the Chairman of the Board forgave an additional $710,272
in accrued rent, interest and other expenses. These expenses are recorded as salary, rent, interest, etc. and the forgiveness
is record as additional paid in capital. In addition, cumulatively, for the nine months ended September 30, 2015, related party
debt, accounts payable, and accruals increased $379,208.
Results
of Operations (unaudited)
Three
Months Ended March 31, 2015 Compared to Three Months Ended March 31, 2014
Revenue.
The Company had no revenues in the quarters ended March 31 2015 and March 31, 2014.
Gross
Margin.
In the quarter ended March 31, 2015, the company has no gross margin and in the quarter ended March 31, 2014, the
Company had a $27,000 charge to cost of goods sold, for a variance of $27,000 or 100%. The 2014 charge was reflective of estimated
additional costs on the US Army contract.
Operating
Expenses.
Operating expenses incurred for the quarter ended March 31, 2015 were $378,760 as compared to $569,524 for the same
period in the previous year, a reduction of $190,764 or 33%. The majority of the decrease was due to a reduction in General and
Administrative expenses of $166,160 (38%): lower stock issuance for services, timing of patent maintenance fees and the 2014 resignation
of former company president. Research and Development expenses were lower by $17,253 or 14%, reflective of the sale and spin-off
of the Whe Gen subsidiary.
Operating
Loss.
The operating losses for the quarters ended March 31, 2015 and 2014 were $378,760 and $596,524, respectively, a reduced
loss of $217,764 or 36%, due to the factors outlined above.
Other
Expense.
Other expense for the quarter ended March 31, 2015 was $208,877 versus $ 500,509 for the same period in the prior
year, a reduction of $291,632 or 58%. , The 2015 other expenses included $62,362 of interest expense, $78,861 of derivative accounting
related interest charges and a loss of $50,000 from debt settled with common stock.
Net
other expenses for the quarter ended March 31, 2014 was $500,509, due to $147,422 of interest expense attributable to increase
debt levels, derivative accounting related interest charges of $ 297,929 and derivative related expenses of $55,158 adjusting
debt to fair value.
Net
Loss and Loss per Share.
The net loss for the quarter ended March 31, 2015 was $587,637, compared to a net loss of $1,097,033
for the same period in the previous year. The decreased loss of $509,396 or 46% is related to the other factors outlined above.
The net loss per weighted average share was $0.00 for both the current quarter and prior quarter.
Liquidity
and Capital Resources
At
March 31, 2015, the net working capital deficiency was $2,858,435 as compared to a deficiency of $2,618,988 at December 31, 2014,
an increase of $239,447 or 9.1%.
For
the three months ended March 31, 2015, cash decreased by $271. This is reflective of funds used by the net loss of $587,637 and
the $45,759 increase in inventory. Funds were provided by debt proceeds of $50,000, higher accounts payable and accrued expenses
of $177,782 and an increase of $83,750 in related party payables and accrued expenses. Non-cash charges for the three months were
from the issuance of common stock, warrants and options for services of $62,084, amortization of prepaid expenses paid with common
stock of $28,459, $78,861 of derivative debt discount amortization, and a $50,000 loss recognized by settling debt with common
stock.
For
the three months ended March 31, 2014, cash decreased by $10,304. This is reflective of funds used by the net loss of $1,097,033
and the $99,764 increase in inventory. Funds were provided by the sale of common stock of $110,000, debt proceeds of $240,000,
higher accounts payable and accrued expenses of $126,577 and an increase of $102,674 in related party payables and accrued expenses.
Non-cash charges for the three months were from the issuance of common stock, warrants and options for services of $54,572, amortization
of prepaid expenses paid with common stock of $177,435, derivative expenses related to debt valuation of $55,158 and $297,929
of derivative debt discount amortization (charged as interest expense).
Results
of Operations (unaudited)
Three
Months Ended June 30, 2015 Compared to Three Months Ended June 30, 2014
Revenue
.
The company had no revenue for the three months ended June 30, 2015 versus $140,527 in the same period of the previous year, a
variance of $ 140,520 or 100%. The revenue in the quarter ended June 30, 2014 was from the successful completion of the US Army
Contract.
Gross
Margin
. The company had no gross margin in the three months ended June 30 215 versus a gross profit for the quarter ended
June 30, 2014 of $81,650, a variance of $ 81,650 or 100%. The 2014 gross margin is primarily attributable to the completion of
the US Army contract.
Operating
Expenses.
Operating expenses incurred for the quarter ended June 30, 2015 were $ 210,882 as compared to $740,979 for the same
period in the previous year, an decrease of $569,524 or 72%. The decrease was due to a decrease in Research and Development expenses
of $111,400 or 58%, reflective of the sale and spin off of the Whe GEN subsidiary and reduction in engine development associated
costs. Also, General and Administrative expenses decreased by $ 413,342 (76%) primarily from lower professional and consulting
expenses, stock issued for services and timing of patent maintenance fees.
Operating
Loss.
The operating losses for the quarters ended June 30, 2015 and 2014 were $ 210,852 and $659,329 respectively, a decreased
loss of $448,477 or 68%, due to the factors outlined above.
Other
Income (Expense)
Net other expense for the quarter ended June 30, 2015 was $79,788 versus $ 530,975 for the same period in
the previous year, a reduction of $451,187 or 85% , The 2015 expenses are primarily due to interest expense of $32,961 and derivative
accounting related interest charges of $53,670.
Net
other expense for the quarter ended June 30, 2014 was $530,975, which included $101,748 of debt related interest derivative accounting
related interest charges of $304,876 and derivative related expenses of $124,351 adjusting debt to fair value.
Net
Loss and Loss per Share.
The net loss for the quarter ended June 30, 2015 was $ 290,640 compared to a net loss of $1,190,304
for the same period in the previous year, a decreased loss of $899,664 or 76% related to the factors outlined above. The net loss
per weighted average share was $0.00 for both the current quarter and the prior quarter.
Six
Months Ended June 30, 2015 Compared to Six Months Ended June 30, 2014
Revenue.
The company had no revenue for the six months ended June 30, 2015 compared to $140,527 in the comparable period of the previous
year, a variance of $140,527 or 100% . The 2014 revenue was from the successful completion of the US Army Contract.
Gross
Margin.
The company had no gross margin in the six months ended June 30 2015 versus a gross margin for the six months ended
June 30, 2014 of $54,650, a variance of $54,650 or 100% The 2014 gross margin was attributable to the completion of the US Army
contract.
Operating
Expenses.
Operating expenses incurred for the six months ended June 30, 2015 were $ 589,612 as compared to $1,310,503 for
the same period in the previous year, a decrease of $720,891 or 55%. General and Administrative expenses decreased by $579,502
(59%) from lower professional, consulting and outside services and the resignation of the former President attributable to the
Whe Gen spinoff. The reduction in Research and development expenses of $128,653 or 41%, is reflective of the Whe Gen spinoff and
the 2014 delivery S-2 engine (Army contract in 2014).
Operating
Loss.
The operating losses for the six months ended June 30, 2015 and 2014 were $ 589,612 and $1,255,853, respectively, a
lower loss of $666,241 or 53%, due to the factors outlined above.
Other
Income (Expense)
Net other expense for the six months ended June 30, 2015 was $288,665 versus $1,031,484 for the comparable
period of the previous year, a reduction of $742,819 or 72%. The 2015 expenses included $227,854 of interest expense( inclusive
of $ 132,531 derivative accounting related interest adjusting debt) and a loss of $50,000 from debt settled with common stock.
Net
other expense for the six months ended June 30, 2014 was $1,031,484, due to $249,170 of interest expense related to debt levels,
derivative accounting related interest charges of $602,805 and derivative related expenses of $179,509 adjusting debt to fair
value.
Net
Loss and Loss per Share.
The net loss for the six months ended June 30, 2015 was $ 878,277 as compared to a net loss of $2,287,337,
for the same period in the previous year, a decreased loss of $1,409,060 or 62%. The net loss per weighted average share was $0.00
and $0.01 for both the current six months and prior six months, respectively.
Liquidity
and Capital Resources
At
June 30, 2015, the net working capital deficiency was $1,749,025 as compared to a deficiency of as compared to a deficiency of
$2,618,988 at December 31, 2014, a favorable variance of $869,963 or 33%.
For
the six months ended June 30, 2015, cash decreased by $278. This is reflective of funds used by the net loss of $878,277 and the
$46,417 increase in inventory. Funds were provided by debt proceeds of $50,000, higher accounts payable and accrued expenses of
$226,286 and an increase of $277,760 in related party debt payables and accrued expenses. Non-cash charges for the six months
were from the issuance of common stock, warrants and options for services of $62,953, amortization of prepaid expenses paid with
common stock of $28,459, $132,531 of derivative debt discount amortization, and a $50,000 loss recognized by settling debt with
common stock.
At
the end of the second quarter, Company’s officers forgave $655,225 in accrued salaries and the Chairman of the Board forgave
an additional $710,272 in accrued rent, interest and other expenses, which was record as additional paid in capital.
For
the six months ended June 30, 2014, cash increased by $25,574. Funds were provided by the sale of common stock of $110,000, debt
proceeds of $440,000, higher accounts payable and accrued expenses of $300,091 and an increase of $199,232 in related party payables
and accrued expenses. Funds were used by the net loss of $2,287,337 and debt repayment of $38,615. Non-cash charges for the six
months were from the issuance of common stock, warrants and options for services of $109,759, amortization of prepaid expenses
paid with common stock of $324,854, derivative expenses related to debt valuation of $179,509 and $602,805 of derivative debt
discount amortization (charged as interest expense).
Results
of Operations (unaudited)
Three
Months Ended September 30, 2015 Compared to Three Months Ended September 30, 2014
Revenue.
The company had no revenue for the three months ended Sept. 30, 2015 compared to $175,000 in the comparable period of the
previous year, an unfavorable variance of $175,000 or 100% . The revenue in the quarter ended September 30, 2014 was from the
licensing agreement with its former subsidiary Whe Gen.
Gross
Margin.
The company had no gross margin in the three months ended Sept. 30 2015 as compared to $175,000 for the quarter ended
September 30, 2014, an unfavorable variance of $175,000 or 100%. The 2014 gross margin was attributable to the Whe Gen license.
Operating
Expenses.
Operating expenses incurred for the quarter ended Sept. 30, 2015 were $231,332 as compared to $1,028,699 for the
same period in the previous year, an decrease of $622,367 or 73%. The decrease was due to a decrease in Research and Development
expenses of $292,815 or 74 %, reflective of the sale of the Whe GEN subsidiary and a reduction in spending for WHE engine development.
Also, General and Administrative expenses decreased by $500,832 (80%) primarily from lower professional and consulting expenses,
stock issued for services, timing of patent maintenance fees and funds related spending reductions.
Operating
Loss.
The operating losses for the quarters ended September 30, 2015 and 2014 were $ 231,332 and $853,699, respectively, an
decreased loss of $ 622,367 or 73%, due to the factors outlined above.
Other
Income (Expense)
Net other expense for the quarter ended Sept. 30, 2015 was $65,864 versus $956,694 of net other expense for
the comparable period of the previous year, a favorable variance of $890,830 or 93% . For the three months ended September 31,2015,
the other expense included $40,293 of interest expense, and $24,976 of derivative accounting related interest charges.
Net
other expense for the quarter ended September 30, 2014, included a loss provision of $706,756 on the realization of securities
and notes received pursuant to the sale and separation of the Whe Gen subsidiary, $47,100 of interest expense and $ 234,048 of
derivative related interest expense adjusting debt to fair value.
Net
Loss and Loss per Share.
The
net loss for the quarter ended September 30, 2015 was $297,196, compared to a net loss of $2,287,337 for the same period in the
previous year. The favorable variance of $1,513,197 or 84 % primarily relates to the 2014 realization loss provision on the sale
of the Whe Gen subsidiary. The net income per weighted average share was $0.00 for the quarter ended September 30, 2015 and the
net loss per weighted average share was $0.01 for the prior comparable quarter.
Nine
Months Ended September 30, 2015 Compared to Nine Months Ended September 30, 2014
Revenue.
The company had no revenue for the nine months ended Sept. 30, 2015 versus $315,527 for the nine months ended September 30,
2014, an unfavorable variance of $315,527 or 100%. The revenue for the nine months ended September 30, 2014 was from the successful
completion of the US Army Contract of $140,527 and $175,000 from the Whe Gen license.
Gross
Margin.
The company had no gross margin in the nine months ended Sept. 30, 2015 versus a gross margin for the nine months
ended September 30, 2014 of $229,650, a reduction of $229,650 or 100%. The 2014 gross margin was inclusive of profit on the Army
contract of $54,650 and the Whe Gen license of $175,000.
Operating
Expenses.
Operating expenses incurred for the nine months ended September 30, 2015 were $820,944 as compared to $2,339,202
for the same period in the previous year, a decrease of $1,518,258 or 65%. General and Administrative expenses decreased by $1,080,334
(67%) from lower professional and consulting expenses, stock issued for services, timing of patent maintenance fees and spending
reductions due to lack of funds. Research and Development expenses decreased of $421,468 or 59 %, reflective of the sale of the
Whe GEN subsidiary and reduction in WHE engine development spending.
Operating
Loss.
The operating losses for the nine months ended September 30, 2015 and 2014 were $820,944 and $2,109,552, respectively,
a lower loss of $1,288,608 or 61%, due to the factors outlined above.
Other
Income (Expense) )
Net other expense for the nine months ended Sept. 30, 2015 was $354,529 versus a net loss of $1,988,178
for the nine months ended September 30, 2014, a favorable variance of $1,633,649 or 82 %.
The
2015 expense included to $293,123 of interest expense (inclusive of $157,507 derivative accounting related interest adjusting
debt) and a loss of $50,000 from debt settled with common stock.
Net
other expense for the nine months ended September 30, 2014 included, included a loss provision of $706,756 on the realization
of securities and notes received pursuant to the sale and separation of the Whe Gen subsidiary, interest expense of $1,133,133
(inclusive of $836,852 derivative accounting related interest adjusting debt levels) and $148,289 of debt related derivative expenses.
Net
Loss and Loss per Share.
The net loss for the nine months ended September 30, 2015 was $1,175,473, compared to a net loss
of $4,097,730 for the same period in the previous year. The lower loss of $2,922,257 or 71% primarily relates to 2014 realization
loss provision on the sale and separation of the Whe Gen subsidiary, decreased interest expense of $840,101 and lower General
and Administrative and Research and Development costs. The net loss per weighted average share was $0.00 for the nine months ended
September 31 2015 and $0.01 for the prior years comparable nine months.
Liquidity
and Capital Resources
At
Sept. 30, 2015, the net working capital deficiency was $2,018,740 as compared to a deficiency of as compared to a deficiency of
$2,618,988 at December 31, 2014, a variance of $600,248 or 23%.
For
the nine months ended September 30, 2015, cash decreased by $278. Funds were used by the net loss of $1,175,473. Funds were provided
by debt proceeds of $50,000, higher accounts payable and accrued expenses of $315,437 and an increase of $379,208 in related party
debt payables and accrued expenses. Non-cash charges for the nine months were from the issuance of common stock, warrants and
options for services of $63,377, amortization of prepaid expenses paid with common stock of $28,459,.$157,507 of derivative debt
discount amortization, and a $50,000 loss recognized by settling debt with common stock.
At
the end of the second quarter, the Company’s officers forgave $655,225 in accrued salaries and the Board Chairman forgave
an additional $710,272 in accrued rent, interest and other expenses, due his company. This was record as additional paid in capital.
For
the nine months ended September 30, 2014, cash increased by $288,957. Funds were provided by debt proceeds of $515,000, higher
accounts payable and accrued expenses of $567,266, an increase of $183,539 in related party payables and accrued expenses . The
sale and deconsolidation of the Whe Gen subsidiary also provided $686,816 in net funds. Funds were used by the net loss of $4,097,730
and debt repayment of $38,615. Non-cash charges for the nine months were from: the issuance of common stock, warrants and options
for services of $109,579, amortization of prepaid expenses paid with common stock of $434,724, derivative expenses related to
debt valuation of $148,289, $836,853 of derivative debt discount amortization (charged as interest expense), an $80,000 inventory
valuation reserve and a $706,756 realization provision on the securities and note received pursuant to the Whe Gen sale.