Florida
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26-0519058
|
|
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
601 NE 26
th
Court
|
||
Pompano Beach, Florida
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33064
|
|
(Address of principal executive offices) | (Zip Code) | |
Securities to be registered pursuant to Section 12(g) of the Act:
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Common Stock | ||
(Title of Class) | |||
Large filer
o
|
Accelerated filer
o
|
Non-accelerated filer
o
|
Smaller reporting company
þ
|
|||
(Do not check if a smaller reporting company)
|
PAGE
|
||
Item 1.
|
Business
|
1
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Item 1A.
|
Risk Factors
|
9
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Item 2.
|
Management’s Discussion and Analysis and Results of Operation
|
16
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Item 3.
|
Properties
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20
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Item 4.
|
Security Ownership of Certain Beneficial Owners and Management
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21
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Item 5.
|
Directors and Executive Officers
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22
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Item 6.
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Executive Compensation
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26
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Item 7.
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Certain Relationships and Related Transactions, and Director Independence
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28
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Item 8.
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Legal Proceedings
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29
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Item 9.
|
Market Price of and Dividends on Common Equity and Related Stockholder Matters
|
29
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Item 10.
|
Recent Sales of Unregistered Securities
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30
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Item 11.
|
Description of Registrant’s Securities to be Registered
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32
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Item 12.
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Indemnification of Directors and Officers
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33
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Item 13.
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Financial Statements and Supplementary Data
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34
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Item 14.
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Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
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34
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Item 15.
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Financial Statements and Exhibits
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34
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·
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the ability to successfully complete development and commercialization of our technology;
|
|
·
|
changes in existing and potential relationships with collaborative partners;
|
|
·
|
the ability to retain certain members of management;
|
|
·
|
our expectations regarding general and administrative expenses;
|
|
·
|
our expectations regarding cash availability and balances, capital requirements, anticipated revenue and expenses, including infrastructure and patent expenditures;
|
|
·
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other factors detailed from time to time in filings with the SEC.
|
|
·
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Development and engineering fees from customers and licensees;
|
|
·
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Direct sales revenue from engines we manufacture in-house or through contractors;
|
|
·
|
Up-front license fees and on-going royalties based on sales by our licensees.
|
Transportation
|
Power Generation
|
Equipment
|
Specialty
|
Automobiles
Trucks & Busses
|
10kW – 1MW
Distributed Power
|
Off-Road
Industrial
|
Military
& Defense
|
Ships
& Locomotives
|
Waste Energy
Recovery and CHP
|
Mining
& Lifting
|
Underwater
Oil Exploration
|
Motorized
Bikes & ATVs
|
Solar Thermal
Dishes & Towers
|
Lawn
& Garden
|
Oil Field &
Landfill Flares
|
Model
|
Size
|
Uses
|
Stage
|
Est. Completion
|
Mark II
|
18 HP
|
Portable & aux. power, light equipment
|
Alpha
Test Engine(1)
|
Completed
|
WHE
Waste Heat Engine
|
16 HP
|
Waste heat recovery, waste fuels, biomass-to-power
|
Production
Model (2)
|
Q4 2011
|
Solar I
|
5 HP
|
Solar thermal, small scale power, Combined heat and power, military
|
Pre-Production
Beta (3)
|
Q4 2011
|
Mark V
|
100 HP
|
Transportation, commercial power, military
|
Pre-production
Beta (3)
|
Q2 2012
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Mark VI
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330 HP
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Heavy transport, power plant, heavy equipment
|
Pre-production
Beta (3)
|
Q3 2012
|
|
(1)
|
“Alpha test” engine refers to a working bench model engine, which demonstrates proof of concept.
|
|
(2)
|
“Production model” refers to the final prototype prior to production that has been undergone full testing with the customer or a third-party, and is ready for commercial manufacturing.
|
|
(3)
|
“Pre-production Beta” refers to a second generation prototype engine, which has undergone significant durability and performance testing at Cyclone’s facility, and is ready for Production modeling.
|
Competition
|
Companies
|
Cyclone Anticipated Advantages*
|
|
Distributed Power Generation
|
-Mini-turbines
-Fuel cells
|
-Capstone Turbine
-Bloom Energy
|
-More efficient and cheaper than mini turbines
-Cheaper, smaller and lighter than fuel cells
|
Waste Heat Recovery
|
-Organic Rankine Cycle
-Thermal-electrics
|
-Calnetix (now GE)
- Caterpillar
- Voith Turbo
|
-Broader heat capabilities
-Cheaper and smaller
-Thermal-elec not proven outside laboratory
|
Solar Thermal
|
-Stirling engines
|
-Infinia Solar
-Stirling Energy Systems
|
-Smaller and lighter
-More efficient
-Self starting
|
Automotive
|
-Clean diesel
-Hybrid/plug-in electric
|
-Major auto manufacturers
-Tesla
|
-Multi-fuel capable
-Cleaner than diesel
-Not reliant on utility grid
- Can power cars we want
|
International Patents on Heat Regenerative Engine | |||
European Union
|
Australia
|
South Africa
|
Canada
|
Russia
|
China
|
Korea
|
Indonesia
|
Mexico
|
Japan (pending)
|
India (pending)
|
Brazil (pending)
|
|
·
|
Generate positive cash flow and revenue;
|
|
·
|
offset some of the costs associated with our internal research and development;
|
|
·
|
successfully commercialize our products.
|
|
·
|
a development partner would likely gain access to our proprietary information, potentially enabling the partner to develop products without us or design around our intellectual property;
|
|
·
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we may not be able to control the amount and timing of resources that our collaborators may be willing or able to devote to the development or commercialization of our products or to their marketing and distribution; and
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|
·
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disputes may arise between us and our collaborators that could result in the delay or termination of the development or commercialization of our products or that may result in costly litigation or arbitration that diverts our management’s resources.
|
•
|
that a broker or dealer approve a person’s account for transactions in penny stocks; and
|
||
•
|
the broker or dealer receives from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.
|
•
|
obtain financial information and investment experience objectives of the person; and
|
||
•
|
make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.
|
•
|
sets forth the basis on which the broker or dealer made the suitability determination; and
|
||
•
|
that the broker or dealer received a signed, written agreement from the investor prior to the transaction.
|
Name and Address
|
Common
Shares
Beneficially
Owned
|
%
|
Series B Pref.
Shares
Beneficially
Owned
|
%
|
Harry Schoell
, Chairman & CEO
601 NE 26
th
Ct.
Pompano Beach, FL 33064
|
46,294,755 (1)
|
21.17%
|
797
|
80%
|
Frankie Fruge
, COO & Director
601 NE 26
th
Ct.
Pompano Beach, FL 33064
|
12,092,511 (2)
|
5.53%
|
203
|
20%
|
James Landon
, Director
4401 N Federal Hwy
Boca Raton, FL 33431
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2,026,800 (3)
|
0.93%
|
-
|
-
|
Christopher Nelson
,
President, General Counsel
601 NE 26
th
Ct.
Pompano Beach, FL 33064
|
5,945,400 (4)
|
2.72%
|
-
|
-
|
Bruce Schames
, CFO
601 NE 26
th
Ct.
Pompano Beach, FL 33064
|
485,001 (5)
|
0.22%
|
-
|
-
|
All Executive Officers
as a Group (5 persons)
|
66,844,467
|
30.40%
|
-
|
-
|
TOTALS:
|
66,844,467
|
30.40%
|
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 500,000 vested common stock options, but excludes 200,000 unvested options, 100,000 of which were awarded in 2011.
|
(2)
|
Ms. Fruge’s total includes 500,000 vested common stock options, but excludes 200,000 unvested options, 100,000 of which were awarded in 2011.
|
(3)
|
Mr. Landon’s total includes 50,000 vested common stock options, but excludes 150,000 unvested options, 50,000 of which were awarded in 2011.
|
(4)
|
Mr. Nelson’s total includes 250,000 vested common stock options, and 635,000 shares of common stock owned by a company controlled by Mr. Nelson’s wife. The total excludes 200,000 unvested options, 100,000 of which were awarded in 2011.
|
(5)
|
Mr. Schames’ total includes 250,000 vested common stock options and 150,000 options that vest within three months, but excludes565,000 unvested options. Of the unvested option, 340,000 were awarded in 2011.
|
Name
|
Age
|
Position
|
Date of Appointment
|
Harry Schoell
Frankie Fruge
James C. Landon
Christopher Nelson
Bruce Schames
|
68
66
68
41
64
|
Chairman and Chief Executive Officer
Director and Chief Operating Officer
Director
President and General Counsel
Chief Financial Officer
|
June 2004
June 2004
December 2008
March 2011*
April 2010
|
Current
Officers
Name &
Principal
Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
(S)
|
All Other
Compensation
($)
|
Option Awards
($)(5)
|
Total
($)
|
|||||||||||||||||||
Harry Schoell
|
2009
|
$ | 150,000 | (1 | ) | 0 | $ | 52,800 | 0 | 0 | $ | 202,800 | ||||||||||||||
Chairman & CEO | 2010 | $ | 150,000 | (1 | ) | 0 | 0 | 0 | $ | 11,900 | $ | 161,900 | ||||||||||||||
Frankie Fruge
|
2009
|
$ | 120,000 | (2 | ) | 0 | $ | 52,800 | 0 | 0 | $ | 172,800 | ||||||||||||||
Director & COO | 2010 | $ | 120,000 | (2 | ) | 0 | 0 | 0 | $ | 11.900 | $ | 131,900 | ||||||||||||||
Bruce Schames
|
2009
|
$ | 0 | (3 | ) | 0 | $ | 880 | 0 | 0 | $ | 880 | ||||||||||||||
CFO | 2010 | $ | 42,156 | (3 | ) | 0 | $ | 26,700 | 0 | $ | 70,408 | $ | 139,264 | |||||||||||||
Christopher Nelson
|
2009
|
$ | 91,500 | (4 | ) | 0 | $ | 102,712 | 0 | 0 | $ | 194,212 | ||||||||||||||
President & General Counsel | 2010 | $ | 120,000 | (4 | ) | 0 | $ | 14,500 | 30,000(4) | $ | 35,957 | $ | 200,457 |
(1)
|
All of Mr. Schoell’s salary in 2010 and 2009, except for $20,000 converted to 4,000 shares of Series A Preferred stock in 2010, has been deferred until determined by the Board of Directors that the Company can afford to pay such salary.
|
||||||||||||
(2)
(3)
(4)
(5)
|
All of Ms. Fruge’s salary in 2010 and 2009, except for $6,000 converted to 1,200 shares of Series A Preferred stock in 2010, has been deferred until determined by the Board of Directors that the Company can afford to pay such salary.
Mr. Schames has deferred $33,656 of his salary in 2010.
Mr. Nelson has deferred $16,000 of his salary in 2009 and $53,000 in 2010. Other Compensation of $30,000 was comprised of a 5% equity interest in the company’s subsidiary, Cyclone-WHE, LLC.
See Notes 1.O and 10.A to the Financial Statements for the assumptions in the valuation.
|
Name and Position
|
Option
Grant Date
|
Number
Granted
(1) (2)
|
Number
Exercisable
|
Number
Unexercisable
|
Exercise or Base Price of Option Awards
($/Share)
|
Grant Date Fair Value of Stock in Option Awards
($) (3)
|
Option
Expiration Date
|
||||||||||||||||
Harry Schoell
|
6/30/2007
|
250,000 | 250,000 | 0 | 0.25 | 0.25 |
6/30/2017
|
||||||||||||||||
Chairman & CEO
|
6/30/2007
|
125,000 | 125,000 | 0 | 0.35 | 0.25 |
6/30/2017
|
||||||||||||||||
6/30/2007
|
125,000 | 125,000 | 0 | 0.45 | 0.25 |
6/30/2017
|
|||||||||||||||||
12/31/2010
|
100,000 | 0 | 100,000 | 0.12 | 0.12 |
12/31/2015
|
|||||||||||||||||
Frankie Fruge
|
6/30/2007
|
250,000 | 250,000 | 0 | 0.25 | 0.25 |
6/30/2017
|
||||||||||||||||
Director & COO
|
6/30/2007
|
125,000 | 125,000 | 0 | 0.35 | 0.25 |
6/30/2017
|
||||||||||||||||
6/30/2007
|
125,000 | 125,000 | 0 | 0.45 | 0.25 |
6/30/2017
|
|||||||||||||||||
12/31/2010
|
100,000 | 0 | 100,000 | 0.12 | 0.12 |
12/31/2015
|
|||||||||||||||||
Bruce Schames
|
4/5/2010
|
100,000 | 100,000 | 0 | 0.15 | 0.14 |
4/5/2015
|
||||||||||||||||
CFO
|
6/30/2010
|
150,000 | 150,000 | 0 | 0.10 | 0.10 |
6/30/2020
|
||||||||||||||||
9/30/2010
|
150,000 | 0 | 150,000 | 0.09 | 0.09 |
9/30/2020
|
|||||||||||||||||
12/31/2010
|
150,000 | 0 | 150,000 | 0.12 | 0.12 |
12/31/2020
|
|||||||||||||||||
12/31/2010
|
75,000 | 0 | 100,000 | 0.12 | 0.12 |
12/31/2015
|
|||||||||||||||||
Christopher Nelson
|
4/5/2010
|
250,000 | 250,000 | 0 | 0.15 | 0.14 |
4/5/2015
|
||||||||||||||||
President & General
Counsel
|
12/31/2010
|
100,000 | 0 | 100,000 | 0.12 | 0.12 |
12/31/2015
|
||||||||||||||||
James Landon
|
4/5/2010
|
50,000 | 50,000 | 0 | 0.15 | 0.14 |
4/5/2015
|
||||||||||||||||
Director
|
12/31/2010
|
100,000 | 0 | 100,000 | 0.12 | 0.12 |
12/31/2015
|
(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 1(M) and Footnote 10(A) to our Consolidated Financial Statements for the years ended December 31, 2010 and 2009.
|
Name
|
Fees earned
or paid
in cash
($)
|
Option
awards
($)
|
Stock
Awards
|
Nonqualified deferred
compensation earnings
($)
|
All other
compensation
($)
|
Total
($)
|
||||||||||||||||||
James Landon
|
$12,000 | 0 | $44,300 | 0 | 0 | $56,300 |
Bid Prices
|
|||
High
|
Low
|
||
2009
|
|||
Q1
|
.53
|
.13
|
|
Q2
|
.27
|
.17
|
|
Q3
|
.20
|
.17
|
|
Q4
|
.18
|
.13
|
|
2010
|
|||
Q1
|
.17
|
.13
|
|
Q2
|
.15
|
.08
|
|
Q3 | .15 | .08 | |
Q4
|
.16
|
.09
|
|
2011
|
|||
Q1
|
.48
|
.10
|
|
Q2
|
.40
|
.20
|
|
Q3 – Aug. 15
|
.39
|
.27
|
Number of Securities
|
||||||||||||
Remaining Available
|
||||||||||||
for Future Issuance
|
||||||||||||
Number of Securities
|
under Equity
|
|||||||||||
to be Issued Upon
|
Weighted Average
|
Compensation Plans
|
||||||||||
Exercise of
|
Exercise Price of
|
(excluding securities
|
||||||||||
Outstanding Options,
|
Outstanding Options,
|
referenced in
|
||||||||||
Warrants and Rights
|
Warrants and Rights
|
column (a))
|
||||||||||
Plan Category
|
(a)
|
(b)
|
(c)
|
|||||||||
Equity compensation plans approved by our stockholders (1)
|
1,475,000
|
$.14
|
3,525,000 |
(1)
|
Equity compensation plans approved by our stockholders consist of our 2010 Stock Option Plan.
|
Exhibit No.
|
Description
|
|||
3.1
|
Articles of Incorporation, dated June 14, 2007
|
|||
3.2
|
Certificate of Domestication, dated June 14, 2007
|
|||
3.3
|
Articles of Amendment to Articles of Incorporation containing Certificates of Designation for Series A Convertible Preferred Stock and Series B Preferred Stock, dated July 17, 2011
|
|||
3.4
|
Articles of Amendment to Articles of Incorporation, dated July 27, 2007
|
|||
3.5
|
Articles of Amendment to Articles of Incorporation, dated July 24, 2009
|
|||
3.6
|
Articles of Amendment to Articles of Incorporation, dated March 30, 2010
|
|||
3.7
|
Articles of Amendment to Articles of Incorporation, dated April 28, 2010
|
|||
3.8
|
By-Laws of Cyclone Power Technologies, Inc.
|
|||
10.1
|
Employment Agreement, dated June 30, 2007, between the Company and Frankie Fruge
|
|||
10.2
|
Employment Agreement, dated June 30, 2007, between the Company and Harry Schoell
|
|||
10.3
|
Common Stock Purchase Warrant, dated July 30, 2009, between the Company and Phoenix Power Group, LLC
|
|||
10.4
|
Cyclone Power Technologies’ 2010 Stock Option Plan
|
|||
10.5
|
Employment Agreement, dated August 1, 2011, between the Company and Christopher Nelson
|
|||
10.6
|
Employment Agreement, dated June 10, 2010, between the Company and Bruce Schames
|
|||
10.7
|
Operations Agreement, dated July 2, 2007, between the Company and Schoell Marine, Inc.
|
|||
10.8
|
Systems Application License Agreement, dated July 30, 2009, between the Company and Phoenix Power Group LLC
|
|||
10.8.1 | Amendment #1 to Systems Application License Agreement dated March 20, 2010 between the Company and Phoenix Power Group LLC | |||
10.8.2 | Amendment #2 to Systems Application License Agreement dated October 18, 2010 between the Company and Phoenix Power Group LLC | |||
10.9
|
Technology License Agreement, dated December 11, 2009, between the Company and Great Wall Alternative Power Systems, Ltd.
|
|||
10.9.1 | Technology License Agreement - Amendment #1 dated March 1, 2011 between the Company and Great Wall Alternative Power Systems Ltd. | |||
10.10
|
Amended and Restated technology License Agreement, dated Jun 15, 2011, between the Company and Renovalia Energy, S.A.
|
|||
10.11
|
Subcontractor Contract for Development of a Rankine Cycle Engine, dated December 20, 2010, between the Company and Advent Power Systems, Inc.
|
|||
21
|
Subsidiaries of the Company
|
Dated: August 24, 2011
|
Cyclone Power Technologies, Inc.
|
|||||
By:
|
/s/ Harry Schoell
|
|||||
Harry Schoell, Chairman & CEO
|
Quarterly Report for Period Ended JUNE 30, 2011 | ||||
Page #
|
||||
1) |
Consolidated Balance Sheets as of June 30, 2011
(Unaudited) and December 31, 2010 (Audited)
|
F-2 | ||
2) |
Consolidated Statements of Operations, Six and Three Months
Ended June 30, 2011 and 2010 (Unaudited)
|
F-3 | ||
3) |
Consolidated Statements of Stockholders’ Deficit,
Year Ended December 31, 2010 and
Six Months Ended June 30, 2011 (Unaudited)
|
F-4 | ||
4) | Consolidated Statements of Cash Flows, Six Months Ended June 30, 2011 and 2010 (Unaudited) | F-5 | ||
|
||||
5) |
Notes to the Consolidated Financial Statements
|
F-6 – F-16
|
||
Annual Report for Periods Ended December 31, 2010 and 2009 | ||||
Page #
|
||||
1) |
Report of Independent Registered Public Accounting Firm
|
F-17
|
||
2) |
Consolidated Balance Sheets
|
F-18
|
||
3) |
Consolidated Statements of Operations
|
F-19
|
||
4) |
Consolidated Statements of Stockholders’ Deficit
|
F-20
|
||
5) |
Consolidated Statements of Cash Flows
|
F-21
|
||
6) |
Notes to the Consolidated Financial Statements
|
F-22 – F-32
|
June 30,
2011
|
December 31,
2010
|
|||||||
(Unaudited) | (Audited) | |||||||
ASSETS | ||||||||
CURRENT ASSETS
|
||||||||
Cash
|
$ | 313,964 | $ | 6,557 | ||||
Accounts receivable
|
- | 4,200 | ||||||
Inventory
|
274,519 | 228,838 | ||||||
Other current assets
|
6,328 | 828 | ||||||
Total current assets
|
594,811 | 240,423 | ||||||
PROPERTY AND EQUIPMENT
|
||||||||
Furniture, fixtures, and equipment
|
147,369 | 139,428 | ||||||
Less: Accumulated depreciation
|
(64,678 | ) | (55,644 | ) | ||||
Net property and equipment
|
82,691 | 83,784 | ||||||
OTHER ASSETS
|
||||||||
Patents, trademarks and copyrights
|
568,456 | 486,466 | ||||||
Less: Accumulated amortization
|
(97,574 | ) | (81,115 | ) | ||||
Net patents, trademarks and copyrights
|
470,882 | 405,351 | ||||||
Other assets
|
1,063 | 1,156 | ||||||
Total other assets
|
471,945 | 406,507 | ||||||
Total Assets
|
$ | 1,149,447 | $ | 730,714 | ||||
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
||||||||
CURRENT LIABILITIES
|
||||||||
Accounts payable and accrued expenses
|
$ | 346,718 | $ | 187,887 | ||||
Accounts payable and accrued expenses-related parties
|
1,134,614 | 991,269 | ||||||
Notes and other loans payable
|
- | 5,000 | ||||||
Notes and other loans payable-related parties
|
702,330 | 659,577 | ||||||
Capitalized lease obligations-current portion
|
821 | 6,565 | ||||||
Deferred revenue and license deposits
|
752,500 | 710,000 | ||||||
Warranty provision
|
2,114 | 2,324 | ||||||
Total current liabilities
|
2,939,097 | 2,562,622 | ||||||
NON CURRENT LIABILITIES
|
||||||||
Capitalized lease obligations-net of current portion
|
2,333 | 2,451 | ||||||
Total non-current liabilities
|
2,333 | 2,451 | ||||||
Total liabilities
|
2,941,430 | 2,565,073 | ||||||
STOCKHOLDERS' DEFICIT
|
||||||||
Series A convertible preferred stock, $.0001 par value, 750,000 shares
authorized, 0 and 705,453 shares issued and outstanding at June 30, 2011
and December 31, 2010, respectively.
|
- | 71 | ||||||
Series B preferred stock, $.0001 par value, 1,000 shares authorized,
1,000 shares issued and outstanding
|
- | - | ||||||
Common stock, $.0001 par value, 300,000,000 shares authorized,
218,152,425 and 114,020,135 shares issued and outstanding at
June 30, 2011 and December 31, 2010, respectively.
|
21,815 | 11,402 | ||||||
Additional paid-in capital
|
9,886,010 | 8,115,405 | ||||||
Prepaid expenses from equity contribution
|
(15,000 | ) | (27,500 | ) | ||||
Preferred stock subscription receivable
|
(18,000 | ) | (18,000 | ) | ||||
Accumulated deficit
|
(11,796,870 | ) | (10,050,612 | ) | ||||
Total stockholders' deficit-Cyclone Power Technologies Inc.
|
(1,922,045 | ) | (1,969,234 | ) | ||||
Non controlling interest in consolidated subsidiary-Cyclone WHE LLC
|
130,062 | 134,875 | ||||||
Total Stockholders Deficit
|
(1,791,983 | ) | (1,834,359 | ) | ||||
Total Liabilities and Stockholders' Deficit
|
$ | 1,149,447 | $ | 730,714 |
Six Months Ended June 30
|
Three Months Ended June 30
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
REVENUES
|
$ | - | $ | 104,900 | $ | - | $ | 104,900 | ||||||||
COST OF GOODS SOLD
|
250,867 | 51,797 | 250,867 | 51,797 | ||||||||||||
Gross Profit
|
(250,867 | ) | 53,103 | (250,867 | ) | 53,103 | ||||||||||
OPERATING EXPENSES
|
||||||||||||||||
Advertising and promotion
|
32,294 | 26,374 | 32,294 | 26,374 | ||||||||||||
General and administrative
|
926,580 | 706,986 | 926,580 | 706,986 | ||||||||||||
Research and development
|
493,465 | 423,576 | 493,465 | 423,576 | ||||||||||||
Total operating expenses
|
1,452,339 | 1,156,936 | 1,452,339 | 1,156,936 | ||||||||||||
Operating loss
|
(1,703,206 | ) | (1,103,833 | ) | (1,703,206 | ) | (1,103,833 | ) | ||||||||
OTHER EXPENSE
|
||||||||||||||||
Other expense
|
(26,964 | ) | (129,052 | ) | (26,964 | ) | (129,052 | ) | ||||||||
Interest expense
|
(20,901 | ) | (22,687 | ) | (20,901 | ) | (10,520 | ) | ||||||||
Total other expense
|
(47,865 | ) | (151,739 | ) | (47,865 | ) | (139,572 | ) | ||||||||
Loss before income taxes
|
(1,751,071 | ) | (1,255,572 | ) | (1,751,071 | ) | (1,243,405 | ) | ||||||||
Income taxes
|
- | - | - | - | ||||||||||||
Net loss
|
$ | (1,751,071 | ) | $ | (1,255,572 | ) | $ | (1,751,071 | ) | $ | (1,243,405 | ) | ||||
Net loss per common share, basic
|
$ | (0.01 | ) | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.01 | ) | ||||
Weighted average number of common shares outstanding
|
125,964,667 | 104,994,266 | 147,077,072 | 106,406,337 |
Total
Stockholders
|
Non | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Prepaid
|
Preferred
|
(Deficit)
|
Controlling
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||
Additional | Expenses | Stock | Cyclone | Intereest | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred Stock A
|
Preferred Stock B
|
Common Stock
|
Paid In
|
Treasury
|
From Equity
|
Subscription
|
Accumulated
|
Power
|
In Consol.
|
Stockholders
|
||||||||||||||||||||||||||||||||||||||||||||||
Shares
|
Value
|
Shares
|
Value
|
Shares
|
Value
|
Capital
|
Stock
|
Contribution
|
Receivable
|
( Deficit)
|
Tech. Inc.
|
Subsidiary
|
(Deficit)
|
|||||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2009
|
540,000 | $ | 54 | 1,000 | $ | - | 103,699,133 | $ | 10,369 | $ | 6,438,183 | $ | - | $ | - | $ | (18,000 | ) | $ | (7,884,328 | ) | $ | (1,453,722 | ) | - | $ | (1,453,722 | ) | ||||||||||||||||||||||||||||
Issuance of restricted shares for outside services
|
2,000 | - | - | - | 4,077,280 | 409 | 364,967 | - | - | - | - | 365,376 | - | 365,376 | ||||||||||||||||||||||||||||||||||||||||||
Issuance of restricted shares and options for
for employee services
|
2,500 | 1 | 1,681,500 | 168 | 157,234 | - | - | - | - | 157,403 | - | 157,403 | ||||||||||||||||||||||||||||||||||||||||||||
Sale of common stock
|
- | - | - | - | 2,062,222 | 206 | 163,372 | - | - | - | - | 163,578 | - | 163,578 | ||||||||||||||||||||||||||||||||||||||||||
Sale of preferred stock
|
141,000 | 14 | - | - | - | - | 635,997 | - | - | - | - | 636,011 | - | 636,011 | ||||||||||||||||||||||||||||||||||||||||||
Warrants issued pursuant to preferred stock sale
|
- | - | - | - | - | - | 84,589 | - | - | - | - | 84,589 | - | 84,589 | ||||||||||||||||||||||||||||||||||||||||||
Conversion of debt to common stock
|
- | - | - | - | 2,500,000 | 250 | 171,300 | - | - | - | - | 171,550 | - | 171,550 | ||||||||||||||||||||||||||||||||||||||||||
Conversion of debt to preferred stock
|
19,953 | 2 | - | - | - | - | 99,763 | - | - | - | - | 99,765 | - | 99,765 | ||||||||||||||||||||||||||||||||||||||||||
Conversion of debt to equity in subsidiary
|
- | - | - | - | - | - | - | - | - | - | - | - | 30,000 | 30,000 | ||||||||||||||||||||||||||||||||||||||||||
Sale of equity in subsidiary for cash
|
- | - | - | - | - | - | - | - | - | - | - | - | 50,000 | 50,000 | ||||||||||||||||||||||||||||||||||||||||||
Sale of equity in subsidiary for services
|
- | - | - | - | - | - | - | - | (60,000 | ) | - | - | (60,000 | ) | 60,000 | - | ||||||||||||||||||||||||||||||||||||||||
Amortization of prepaid services for subsidiary equity
|
- | - | - | - | - | - | - | - | 32,500 | - | - | 32,500 | - | 32,500 | ||||||||||||||||||||||||||||||||||||||||||
Allocation of loss of subsidiary to non controlling interest
|
- | - | - | - | - | - | - | - | - | - | 5,125 | 5,125 | (5,125 | ) | - | |||||||||||||||||||||||||||||||||||||||||
Net loss year ended December 31, 2010
|
- | - | - | - | - | - | - | - | - | - | (2,171,409 | ) | (2,171,409 | ) | - | (2,171,409 | ) | |||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2010
|
705,453 | 71 | 1,000 | - | 114,020,135 | 11,402 | 8,115,405 | - | (27,500 | ) | (18,000 | ) | (10,050,612 | ) | (1,969,234 | ) | 134,875 | (1,834,359 | ) | |||||||||||||||||||||||||||||||||||||
Issuance of restricted shares for outside services
|
- | - | - | - | 1,838,682 | 184 | 282,073 | - | - | - | - | 282,257 | - | 282,257 | ||||||||||||||||||||||||||||||||||||||||||
Issuance of restricted shares and options for employee services
|
- | - | - | - | 400,000 | 40 | 184,946 | - | - | - | - | 184,986 | - | 184,986 | ||||||||||||||||||||||||||||||||||||||||||
Sale of common stock
|
- | - | - | - | 5,674,605 | 567 | 739,418 | - | - | - | - | 739,985 | - | 739,985 | ||||||||||||||||||||||||||||||||||||||||||
Warrants issued pursuant to common stock sale
|
- | - | - | - | - | - | 200,312 | - | - | - | - | 200,312 | - | 200,312 | ||||||||||||||||||||||||||||||||||||||||||
Sale of preferred stock
|
44,547 | 4 | - | - | - | - | 192,731 | - | - | - | - | 192,735 | - | 192,735 | ||||||||||||||||||||||||||||||||||||||||||
Issuance of restricted shares for contract penalty re-delayed shippment
|
- | - | - | - | 680,028 | 68 | 125,800 | - | - | - | - | 125,868 | - | 125,868 | ||||||||||||||||||||||||||||||||||||||||||
Purchase of Treasury Stock
|
- | - | - | - | - | - | - | 40,000 | - | - | - | 40,000 | - | 40,000 | ||||||||||||||||||||||||||||||||||||||||||
Sale of Treasury Stock
|
- | - | - | - | - | - | - | (40,000 | ) | - | - | - | (40,000 | ) | - | (40,000 | ) | |||||||||||||||||||||||||||||||||||||||
Amortization of prepaid services for subsidiary equity
|
- | - | - | - | - | - | - | - | 27,500 | - | - | 27,500 | - | 27,500 | ||||||||||||||||||||||||||||||||||||||||||
Allocation of loss of subsidiary to non controlling interest
|
- | - | - | - | - | - | - | - | - | - | 4,813 | 4,813 | (4,813 | ) | - | |||||||||||||||||||||||||||||||||||||||||
Issuance of restricted common shares for future services
|
- | - | - | - | 200,000 | 20 | 14,980 | - | (15,000 | ) | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||
Conversion of Series A Preferred Stock to Common stock
|
(750,000 | ) | (75 | ) | - | - | 95,100,000 | 9,510 | (9,435 | ) | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||
Conversion of debt and liability to common stock
|
- | - | - | - | 213,975 | 21 | 39,783 | - | - | - | - | 39,804 | - | 39,804 | ||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock per settlement agreement
arising from reverse merger
|
- | - | - | - | 25,000 | 3 | (3 | ) | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||
Net loss six months ended June 30, 2011
|
- | - | - | - | - | - | - | - | - | - | (1,751,071 | ) | (1,751,071 | ) | - | (1,751,071 | ) | |||||||||||||||||||||||||||||||||||||||
Balance, June 30, 2011
|
- | $ | - | 1,000 | $ | - | 218,152,425 | $ | 21,815 | $ | 9,886,010 | $ | - | $ | (15,000 | ) | $ | (18,000 | ) | $ | (11,796,870 | ) | $ | (1,922,045 | ) | $ | 130,062 | $ | (1,791,983 | ) |
Six Months Ended June 30,
|
||||||||
2011
|
2010
|
|||||||
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net loss
|
$ | (1,751,071 | ) | $ | (1,255,572 | ) | ||
Adjustments to reconcile net loss to net cash used by
operating activities:
|
||||||||
Depreciation and amortization
|
25,725 | 26,966 | ||||||
Issuance of restricted common and preferred stock and options for services
|
467,243 | 351,517 | ||||||
Issuance of restricted common stock for contract penalty
|
125,867 | - | ||||||
Provision for loss on debt and liability conversion
|
26,961 | 159,050 | ||||||
Amortization of prepaid expenses purchased with equity
|
27,500 | - | ||||||
Changes in operating assets and liabilities:
|
||||||||
(Increase) in inventory
|
(45,681 | ) | (101,397 | ) | ||||
(Increase) Decrease in other assets
|
(5,407 | ) | 5,500 | |||||
Increase in deferred revenue and deposits
|
46,700 | 125,000 | ||||||
Increase in accounts payable and accrued expenses
|
166,675 | 50,389 | ||||||
(Decrease) in warranty provision
|
(210 | ) | - | |||||
Increase in accounts payable and accrued expenses-related parties
|
143,346 | 167,846 | ||||||
Net cash used by operating activities
|
(772,352 | ) | (470,701 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Expenditures incurred for patents, trademarks and copyrights
|
(82,222 | ) | (61,358 | ) | ||||
Expenditures for fixed assets
|
(7,941 | ) | (28,131 | ) | ||||
Net cash used by investing activities
|
(90,163 | ) | (89,489 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Increase in loans payable-net
|
- | 765 | ||||||
Sale of Series A Preferred treasury stock
|
40,000 | - | ||||||
Payment of capitalized leases
|
(5,862 | ) | (5,252 | ) | ||||
Proceeds from sale of common stock
|
940,296 | 145,377 | ||||||
Proceeds from sale of preferred stock
|
192,735 | 407,600 | ||||||
Increase in related party notes and loans payable
|
2,753 | 85,732 | ||||||
Net cash provided by financing activities
|
1,169,922 | 634,222 | ||||||
Net increase in cash and cash equivalents
|
307,407 | 74,032 | ||||||
Cash and cash equivalents, beginning of period
|
6,557 | 28,558 | ||||||
Cash and cash equivalents, end of period
|
$ | 313,964 | $ | 102,590 | ||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
|
||||||||
Payment of interest in cash
|
$ | 654 | $ | 1,686 | ||||
Payment of income taxes in cash
|
$ | - | $ | - | ||||
NON CASH INVESTING AND FINANCING ACTIVITIES:
|
||||||||
Purchase of 8,000 shares of Series A Preferred treasury stock via note payable
|
$ | 40,000 | $ | - | ||||
Conversion of debt and liabilities by issuing 19,953 shares of Series A Preferred stock
|
$ | - | $ | 99,765 | ||||
Conversion of debt by selling 5% of consolidated subsidiary equity
|
$ | - | $ | 30,000 | ||||
Conversion of debt and liabilities by issuing 213,975 shares of common stock
|
$ | 39,804 | $ | - |
Computers and trade show equipment
|
3 years
|
Shop equipment
|
7 years
|
Furniture, fixtures, and leasehold improvements
|
10-15 years
|
June 30,
2011
|
December 31,
2010
|
|||||||
Engine material and parts
|
$ | 210,928 | $ | 183,893 | ||||
Labor
|
55,297 | 38,556 | ||||||
Applied overhead
|
8,294 | 6,389 | ||||||
Total Inventory
|
$ | 274,519 | $ | 228,838 |
June 30,
2011
|
December 31,
2010
|
|||||||
Display Equipment for Trade Shows
|
$ | 9,648 | $ | 9,648 | ||||
Leasehold Improvements and Furniture and Fixtures
|
49,657 | 46,332 | ||||||
Equipment and Computers
|
88,064 | 83,448 | ||||||
Total
|
147,369 | 139,428 | ||||||
Less: Accumulated Depreciation
|
64,678 | 55,644 | ||||||
Net Property and Equipment
|
$ | 82,691 | $ | 83,784 |
June 30,
2011
|
December 31,
2010
|
|||||||
6% uncollateralized $5,000 demand note (*)
|
$ | - | $ | 5,000 | ||||
Total current non related party notes and loans payable (accrued interest is included in accrued liabilities)
|
$ | - | $ | 5,000 | ||||
(*) This note was retired pursuant to the issuance of preferred stock in 2011.
|
June 30,
2011
|
December 31,
2010
|
|||||||
6% demand loan owned by controlling shareholder, uncollateralized (A)
|
$ | 40,000 | $ | - | ||||
6% demand loans per Operations Agreement with Schoell Marine Inc., a company owned by Cyclone’s CEO and controlling shareholder, collateralized by lien on Cyclone’s patent for heat regenerative engine (B)
|
440,243 | 444,209 | ||||||
6% non-collateralized loan from officer and shareholder, payable on demand. The original principle balance was $137,101.
|
80,464 | 86,264 | ||||||
Accrued Interest
|
141,623 | 129,104 | ||||||
Total current related party notes, inclusive of accrued interest
|
$ | 702,330 | $ | 659,577 |
(A)
|
This note was issued to purchase 8,000 shares of the Company’s Series A Preferred Stock.
|
(B)
|
This note arose from services and salaries incurred by Schoell Marine on behalf of the Company. Schoell Marine also owns the building that is leased to the Company. The Schoell Marine note bears an interest rate of 6% and repayments occur as cash flow of the Company permits. The note is secured by a UCC-1 filing on the Company’s patents and patent applications. During the six months ended June 30, 2011, $3,967 was paid on the note balance.
|
Number
Outstanding
|
Weighted Average
Exercise Price
|
Weighted Average Remaining Contractual Life (Years)
|
||||||||||
Common Stock Options
|
||||||||||||
Balance, December 31, 2009
|
1,000,000 | $ | 0.325 | 6.5 | ||||||||
Options issued
|
2,040,000 | 0.122 | 5.4 | |||||||||
Options exercised
|
- | - | - | |||||||||
Options cancelled
|
- | - | - | |||||||||
|
|
|
||||||||||
Balance, December 31, 2010
|
3,040,000 | 0.188 | 5.0 | |||||||||
Options issued
|
1,205,000 | .284 | 6.2 | |||||||||
Options exercised
|
- | - | - | |||||||||
Options cancelled
|
- | - | - | |||||||||
|
|
|
||||||||||
Balance, June 30, 2011
|
4,245,000 | $ | .215 | 5.4 |
Six Months Ended Year Ended
|
|||||||
June 30, 2011
|
Dec. 31, 2010
|
||||||
Risk Free Interest Rate
|
.81%-1.20 % | .6% - 1.18 % | |||||
Expected Volatility
|
132%-231 % | 458% - 628 % | |||||
Expected term in years
|
5-10 | 2-3 | |||||
Expected dividend yield
|
0 % | 0 % | |||||
Average value per options and warrants
|
$ | .22.-$.31 | $ | .09 - $.14 |
Number
Outstanding
|
Weighted Average Exercise Price
|
Weighted Average Remaining Contractual Life (Years)
|
||||||||||
Common Stock Warrants
|
||||||||||||
Balance, December 31, 2010
|
770,500 | $ | .150 | 1.67 | ||||||||
Warrants issued
|
875,000 | .270 | 3.00 | |||||||||
Warrants exercised
|
- | - | - | |||||||||
Warrants cancelled
|
- | - | - | |||||||||
|
|
|
||||||||||
Balance, June 30, 2011
|
1,645,500 | $ | .214 | 2.14 |
6 months ended
|
|
6 months ended
|
|
|||||||||||||
June 30, 2011 | Amount | June 30, 2010 | Amount | |||||||||||||
Tax benefit at U.S. statutory rate
|
34 | % | 595,364 | 34 | % | $ | 426,854 | |||||||||
State taxes, net of federal benefit
|
4 | 70,043 | 4 | 50,218 | ||||||||||||
Change in valuation allowance
|
(38 | ) | (665,407 | ) | (38 | ) | (477,072 | ) | ||||||||
- | % | $ | - . | - | % | $ | - . |
Deferred Tax Assets |
June 30, 2011
|
December 31, 2010
|
||||||
Net Operating Loss Carryforward
|
$ | 3,525,563 | $ | 2,860,156 | ||||
Deferred Tax Liabilities – Accrued Salaries
|
( 62,320 | ) | (126,635 | ) | ||||
Net Deferred Tax Assets
|
3,463,243 | 2,733,521 | ||||||
Valuation Allowance
|
(3,463,243 | ) | (2,733,521 | ) | ||||
Total Net Deferred Tax Assets
|
$ | - | $ | - |
2011
|
$ | 821 | ||
2012
|
927 | |||
2013
|
975 | |||
2014
|
431 | |||
$ | 3,154 |
/s/ Mallah Furman
|
Fort Lauderdale, FL
|
April 19, 2011
|
2010
|
2009
|
|||||||
ASSETS
|
||||||||
CURRENT ASSETS
|
||||||||
Cash
|
$ | 6,557 | $ | 28,558 | ||||
Accounts receivable
|
4,200 | - | ||||||
Inventory
|
228,838 | 140,841 | ||||||
Other current assets
|
828 | 6,628 | ||||||
Total current assets
|
240,423 | 176,027 | ||||||
PROPERTY AND EQUIPMENT
|
||||||||
Furniture, fixtures, and equipment
|
139,428 | 108,244 | ||||||
Less: Accumulated depreciation
|
(55,644 | ) | (30,114 | ) | ||||
Net property and equipment
|
83,784 | 78,130 | ||||||
OTHER ASSETS
|
||||||||
Patents, trademarks and copyrights
|
486,466 | 405,220 | ||||||
Less: Accumulated amortization
|
(81,115 | ) | (51,092 | ) | ||||
Net patents, trademarks and copyrights
|
405,351 | 354,128 | ||||||
Other assets
|
1,156 | 8,146 | ||||||
Total other assets
|
406,507 | 362,274 | ||||||
Total Assets
|
$ | 730,714 | $ | 616,431 | ||||
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
||||||||
CURRENT LIABILITIES
|
||||||||
Accounts payable and accrued expenses
|
$ | 187,887 | $ | 133,271 | ||||
Accounts payable and accrued expenses-related parties
|
991,269 | 677,438 | ||||||
Notes and other loans payable
|
5,000 | 20,950 | ||||||
Notes and other loans payable-related parties
|
659,577 | 627,900 | ||||||
Capitalized lease obligations-current portion
|
6,565 | 10,798 | ||||||
Deferred revenue and license deposits
|
710,000 | 587,475 | ||||||
Accrued contract loss provision
|
- | 5,036 | ||||||
Warranty provision
|
2,324 | - | ||||||
Total current liabilities
|
2,562,622 | 2,062,868 | ||||||
NON CURRENT LIABILITIES
|
||||||||
Capitalized lease obligations-net of current portion
|
2,451 | 7,285 | ||||||
Total non-current liabilities
|
2,451 | 7,285 | ||||||
Total Liabilities
|
2,565,073 | 2,070,153 | ||||||
STOCKHOLDERS' DEFICIT
|
||||||||
Series A convertible preferred stock, $.0001 par value, 750,000 shares authorized,705,453 and 540,000 shares issued and outstanding at December 31, 2010 and 2009, respectively
|
71 | 54 | ||||||
Series B preferred stock, $.0001 par value, 1,000 shares authorized,1,000 shares issued and outstanding
|
- | - | ||||||
Common stock, $.0001 par value, 300,000,000 shares authorized,114,020,135 and 103,699,133 shares issued and outstanding at December 31, 2010 and 2009, respectively
|
11,402 | 10,369 | ||||||
Additional paid-in capital
|
8,115,405 | 6,438,183 | ||||||
Prepaid services for subsidiary equity
|
(27,500 | ) | - | |||||
Preferred stock subscription receivable
|
(18,000 | ) | (18,000 | ) | ||||
Accumulated deficit
|
(10,050,612 | ) | (7,884,328 | ) | ||||
Total stockholders' deficit
|
(1,969,234 | ) | (1,453,722 | ) | ||||
Non controlling interest in consolidated subsidiary
|
134,875 | - | ||||||
Total Stockholders' Deficit
|
(1,834,359 | ) | (1,453,722 | ) | ||||
Total Liabilities and Stockholders' Deficit
|
$ | 730,714 | $ | 616,431 |
2010
|
2009
|
|||||||
REVENUES
|
$ | 261,525 | $ | 63,938 | ||||
COST OF GOODS SOLD
|
110,393 | 35,935 | ||||||
Gross Profit
|
151,132 | 28,003 | ||||||
OPERATING EXPENSES
|
||||||||
Advertising and promotion
|
51,838 | 66,694 | ||||||
General and administrative
|
1,241,379 | 1,332,757 | ||||||
Research and development
|
830,611 | 1,115,795 | ||||||
Total operating expenses
|
2,123,828 | 2,515,246 | ||||||
Operating loss
|
(1,972,696 | ) | (2,487,243 | ) | ||||
OTHER INCOME (EXPENSE)
|
||||||||
Other income (expense)
|
(159,050 | ) | 10,387 | |||||
Interest (expense)
|
(39,663 | ) | (48,245 | ) | ||||
Total other expense
|
(198,713 | ) | (37,858 | ) | ||||
Loss before income taxes
|
(2,171,409 | ) | (2,525,101 | ) | ||||
Income taxes
|
- | - | ||||||
Net loss
|
$ | (2,171,409 | ) | $ | (2,525,101 | ) | ||
Net loss per common share, basic
|
$ | (0.02 | ) | $ | (0.03 | ) | ||
Weighted average number of common shares outstanding
|
107,100,629 | 95,553,636 |
Preferred Stock A
|
Preferred Stock B
|
Common Stock
|
Additional
Paid In
|
Prepaid
Services
for
Subsidiary
|
Preferred
Stock
Subscription
|
Non
Controlling
Interest
In Consol.
|
Accumulated
|
Total
Stockholders
|
||||||||||||||||||||||||||||||||||||||||
Shares
|
Value
|
Shares
|
Value
|
Shares
|
Value
|
Capital
|
Equity
|
Receivable
|
Subsidiary
|
(Deficit)
|
(Deficit)
|
|||||||||||||||||||||||||||||||||||||
Balance, December 31, 2008
|
500,000 | $ | 50 | 1,000 | $ | - | 83,016,048 | $ | 8,302 | $ | 4,468,122 | $ | - | $ | - | $ | (5,359,227 | ) | $ | (882,753 | ) | |||||||||||||||||||||||||||
Issuance of restricted shares for services
|
- | - | - | - | 7,422,900 | 742 | 892,943 | - | - | - | - | 893,685 | ||||||||||||||||||||||||||||||||||||
Sale of common stock
|
- | - | - | - | 8,247,597 | 824 | 1,006,427 | - | - | - | - | 1,007,251 | ||||||||||||||||||||||||||||||||||||
Conversion of debt to common stock
|
- | - | - | - | 4,000,000 | 400 | 19,600 | - | - | - | - | 20,000 | ||||||||||||||||||||||||||||||||||||
Conversion of debt to preferred stock
|
25,000 | 3 | - | - | - | 0 | 29,997 | - | - | - | - | 30,000 | ||||||||||||||||||||||||||||||||||||
Issuance of preferred stock A for notes receivables
|
15,000 | 1 | - | - | - | 0 | 21,195 | - | (18,000 | ) | - | - | 3,196 | |||||||||||||||||||||||||||||||||||
Issuance of common stock pursuant to reverse merger
|
- | - | - | - | 1,012,588 | 101 | (101 | ) | - | - | - | - | 0 | |||||||||||||||||||||||||||||||||||
Net loss year ended December 31, 2009
|
- | - | - | - | - | - | - | - | - | - | (2,525,101 | ) | (2,525,101 | ) | ||||||||||||||||||||||||||||||||||
Balance, December 31, 2009
|
540,000 | 54 | 1,000 | - | 103,699,133 | 10,369 | 6,438,183 | - | (18,000 | ) | - | (7,884,328 | ) | (1,453,722 | ) | |||||||||||||||||||||||||||||||||
Issuance of restricted shares for outside services
|
2,000 | - | - | - | 4,077,280 | 409 | 364,967 | - | - | - | - | 365,376 | ||||||||||||||||||||||||||||||||||||
Issuance of restricted shares and options for employee services
|
2,500 | 1 | - | - | 1,681,500 | 168 | 157,234 | - | - | - | - | 157,403 | ||||||||||||||||||||||||||||||||||||
Sale of common stock
|
- | - | - | - | 2,062,222 | 206 | 163,372 | - | - | - | - | 163,578 | ||||||||||||||||||||||||||||||||||||
Sale of preferred stock
|
141,000 | 14 | - | - | - | - | 635,997 | - | - | - | - | 636,011 | ||||||||||||||||||||||||||||||||||||
Warrants issued pursuant to preferred stock sale
|
84,589 | - | - | - | - | 84,589 | ||||||||||||||||||||||||||||||||||||||||||
Conversion of debt to common stock
|
- | - | - | - | 2,500,000 | 250 | 171,300 | - | - | - | - | 171,550 | ||||||||||||||||||||||||||||||||||||
Conversion of debt to preferred stock
|
19,953 | 2 | - | - | - | - | 99,763 | - | - | - | - | 99,765 | ||||||||||||||||||||||||||||||||||||
Conversion of debt to equity in subsidiary
|
- | - | - | - | - | - | - | - | - | 30,000 | - | 30,000 | ||||||||||||||||||||||||||||||||||||
Sale of equity in subsidiary for cash
|
- | - | - | - | - | - | - | - | - | 50,000 | - | 50,000 | ||||||||||||||||||||||||||||||||||||
Issuance of equity in subsidiary for services
|
- | - | - | - | - | - | - | (60,000 | ) | - | 60,000 | - | 0 | |||||||||||||||||||||||||||||||||||
Amortization of prepaid services for subsidiary equity
|
- | - | - | - | - | - | - | 32,500 | - | - | - | 32,500 | ||||||||||||||||||||||||||||||||||||
Allocation of loss of subsidiary to non controlling interest
|
- | - | - | - | - | - | - | - | - | (5,125 | ) | 5,125 | 0 | |||||||||||||||||||||||||||||||||||
Net loss year ended December 31, 2010
|
- | - | - | - | - | - | - | - | - | - | (2,171,409 | ) | (2,171,409 | ) | ||||||||||||||||||||||||||||||||||
Balance, December 31, 2010
|
705,453 | $ | 71 | 1,000 | $ | - | 114,020,135 | $ | 11,402 | $ | 8,115,405 | $ | (27,500 | ) | $ | (18,000 | ) | $ | 134,875 | $ | (10,050,612 | ) | $ | (1,834,359 | ) |
2010
|
2009
|
|||||||
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net loss
|
$ | (2,171,409 | ) | $ | (2,525,101 | ) | ||
Adjustments to reconcile net loss to net cash used by operating activities:
|
||||||||
Depreciation and amortization
|
55,587 | 49,649 | ||||||
Issuance of restricted common and preferred stock and options for services
|
522,779 | 893,685 | ||||||
Write-off of abandoned patent
|
9,855 | 24,715 | ||||||
Amortization of prepaid expenses purchased with equity
|
32,500 | - | ||||||
Forgiveness of debt income
|
(2,685 | ) | 10,387 | |||||
Loss on conversion of debt to stock
|
159,050 | - | ||||||
Changes in operating assets and liabilities:
|
||||||||
Decrease (increase) in accounts receivable
|
(4,200 | ) | 37,245 | |||||
(Increase) in inventory
|
(87,997 | ) | (122,712 | ) | ||||
(Increase) Decrease in other assets
|
12,790 | (13,004 | ) | |||||
Increase in deferred revenue and deposits
|
122,525 | 575,964 | ||||||
(Decrease) in provision for contract loss
|
(5,036 | ) | - | |||||
Increase in accounts payable and accrued expenses
|
57,449 | 5,687 | ||||||
Increase in accounts payable and accrued expenses-related parties
|
339,831 | 304,008 | ||||||
Increase in warranty provision
|
2,324 | - | ||||||
Net cash used by operating activities
|
(956,637 | ) | (759,477 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Expenditures incurred for patents, trademarks and copyrights
|
(85,968 | ) | (125,035 | ) | ||||
Expenditures for furniture and equipment
|
(31,184 | ) | (35,318 | ) | ||||
Net cash used by investing activities
|
(117,152 | ) | (160,353 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Increase (decrease) in loans-net
|
5,000 | (75,060 | ) | |||||
Sale of equity in subsidiary for cash
|
50,000 | - | ||||||
Payment of capitalized leases
|
(9,067 | ) | (6,962 | ) | ||||
Proceeds from sale of common stock
|
163,578 | 1,007,251 | ||||||
Proceeds from sale of preferred stock
|
720,600 | 3,196 | ||||||
Increase in related party notes and loans payable
|
121,677 | 18,597 | ||||||
Net cash provided by financing activities
|
1,051,788 | 947,022 | ||||||
Net (decrease) increase in cash
|
(22,001 | ) | 27,192 | |||||
Cash at beginning of year
|
28,558 | 1,366 | ||||||
Cash at end of year
|
$ | 6,557 | $ | 28,558 | ||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
|
||||||||
Payment of interest in cash
|
$ | 2,955 | $ | 1,193 | ||||
Payment of income taxes in cash
|
$ | - | $ | - | ||||
NON CASH INVESTING AND FINANCING ACTIVITIES:
|
||||||||
Conversion of debt to common and preferred stock
|
$ | 289,610 | $ | 50,000 | ||||
Issuance of preferred stock for notes receivable
|
$ | - | $ | 18,000 | ||||
Equipment acquired via capital lease
|
$ | - | $ | 27,401 | ||||
Conversion of debt to equity in subsidiary
|
$ | 30,000 | $ | - | ||||
Issuance of common stock pursuant to reverse merger adjustment
|
$ | - | $ | 101 |
Computers and trade show equipment
|
3 years
|
Shop equipment
|
7 years
|
Furniture, fixtures, and leasehold improvements
|
10-15 years
|
a.
|
Multiple deliverable arrangements: the Company has contracts that provide for a working prototype or plans/schematics of the prototype engine (initial deliverable) and will record royalty fees after the customer constructs and puts the engine into operation or manufacturing, depending on the terms of the agreement.
|
b.
|
The initial deliverables are usually within a year of signing of the contract and upon the complete customer payment of the initial license/development fees.
|
c.
|
Revenue is based on the initial license/development fees charged for the deliverable, and then royalty income is recognized thereafter, through the life of the contract.
|
2010
|
2009
|
|||||||
Engine material and parts
|
$ | 183,893 | $ | 109,268 | ||||
Labor
|
38,556 | 18,673 | ||||||
Applied overhead
|
6,389 | 12,900 | ||||||
Total Inventory
|
$ | 228,838 | $ | 140,841 |
2010
|
2009
|
|||||||
Display Equipment for Trade Shows
|
$ | 9,648 | $ | 9,648 | ||||
Leasehold Improvements and Furniture and Fixtures
|
46,332 | 39,953 | ||||||
Equipment and Computers
|
83,448 | 58,643 | ||||||
Total
|
139,428 | 108,244 | ||||||
Less: Accumulated Depreciation
|
55,644 | 30,114 | ||||||
Net Property and Equipment
|
$ | 83,784 | $ | 78,130 |
2010
|
2009
|
|||||||
6% uncollateralized convertible note payable on demand for original principle amount of $62,275
(converted into 2,500,000 shares of common stock)
|
$ | - | $ | 15,950 | ||||
6% uncollateralized $5,000 demand note
|
5,000 | - | ||||||
6% uncollateralized demand note
(converted into 1,153 shares of Series A Preferred Stock)
|
- | 5,000 | ||||||
Total current non related party notes and loans payable
(accrued interest is included in accrued liabilities)
|
$ | 5,000 | $ | 20,950 |
2010
|
2009
|
|||||||
6% demand loans from Company owned by shareholder, collateralized by lien on Company’s patent application for its waste heat engine.
|
$ | - | $ | 90,000 | ||||
6% demand loans per Operations Agreement with Schoell Marine Inc., a company owned by Cyclone’s CEO and controlling shareholder, collateralized by lien on Cyclone’s patent for heat regenerative engine (A)
|
444,209 | 448,628 | ||||||
6% non-collateralized loan from officer and shareholder, payable on demand. The original principle balance was $137,101.
|
86,264 | - | ||||||
Accrued Interest
|
129,104 | 89,272 | ||||||
Total current related party notes, inclusive of accrued interest
|
$ | 659,577 | $ | 627,900 |
(A)
|
This note arose from services and salaries incurred by Schoell Marine on behalf of the Company. Schoell Marine also owns the building that is leased to the Company. The Schoell Marine note bears an interest rate of 6% and repayments occur as cash flow of the Company permits. The note is secured by a UCC-1 filing on the Company’s patents and patent applications. During the year ending December 31, 2010, $9,916 was paid on the note balance.
|
A. COMMON STOCK OPTIONS
|
Common Stock Options
|
Number
Outstanding
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Contractual
Life
(Years)
|
|||||||||
Balance, December 31, 2008
|
1,000,000 | $ | 0.325 | 8.5 | ||||||||
Options issued
|
- | - | - | |||||||||
Options exercised
|
- | - | - | |||||||||
Options cancelled
|
- | - | - | |||||||||
Balance, December 31, 2009
|
1,000,000 | 0.325 | 7.5 | |||||||||
Options issued
|
2,040,000 | 0.122 | 5.8 | |||||||||
Options exercised
|
- | - | - | |||||||||
Options cancelled
|
- | - | - | |||||||||
Balance, December 31, 2010
|
3,040,000 | $ | 0.220 | 6.4 |
Year Ended December 31,
|
||||||
2010
|
2009
|
|||||
Risk Free Interest Rate
|
.6% - 1.18% | 2.0% | ||||
Expected Volatility
|
458% - 628% | 72% | ||||
Expected term in years
|
2-3 | 1-2 | ||||
Expected dividend yield
|
0 % | 0% | ||||
Average value per options & warrant
|
$.09 - $.14 | $.02-.05 |
Common Stock Warrants
|
Number
Outstanding
|
Weighted
Average
Exercise Price
|
Weighted
Average
Remaining
Contractual Life
(Years)
|
|||||||||
Balance, December 31, 2008
|
250,000 | $ | .08 | 0.9 | ||||||||
Warrants issued
|
10,073,983 | .238 | - | |||||||||
Warrants exercised
|
- | - | - | |||||||||
Warrants cancelled
|
(250,000 | ) | .08 | - | ||||||||
Balance, December 31, 2009
|
10,073,983 | .238 | * | |||||||||
Warrants issued
|
770,500 | .150 | 2 | |||||||||
Warrants exercised
|
- | - | - | |||||||||
Warrants cancelled
|
(8,000,000 | ) | - | - | ||||||||
Balance, December 31, 2010
|
2,844,483 | $ | .238 | * |
2010
|
Amount
|
2009
|
Amount
|
|||||||||||||
Tax benefit at U.S. statutory rate
|
34 | % | $ | 738,279 | 34 | % | $ | 858,534 | ||||||||
State taxes, net of federal benefit
|
4 | 86,856 | 4 | 101,004 | ||||||||||||
Change in valuation allowance
|
(38 | ) | (825,135 | ) | (38 | ) | (959,538 | ) | ||||||||
- | % | $ | -. | - | % | $ | - |
Deferred Tax Assets
|
2010
|
2009
|
||||||
Net Operating Loss Carryforward
|
$ | 5,355,318 | $ | 6,247,795 | ||||
Deferred Tax Liabilities – Accrued Salaries
|
(244,411 | ) | (296,666 | ) | ||||
Net Deferred Tax Assets
|
5,110,907 | 5,951,129 | ||||||
Valuation Allowance
|
(5,110,907 | ) | (5,591,129 | ) | ||||
Total Net Deferred Tax Assets
|
$ | - | $ | - |
2011
|
$ | 6,565 | ||
2012
|
904 | |||
2013
|
1,095 | |||
2014
|
452 | |||
$ | 9,016 |
|
1.
|
Duties
|
|
-
|
Train executive assistant to perform necessary bookkeeping/accounting functions;
|
|
-
|
Develop and implement cost accounting system including part numbering system, and provide guidance, methods and procedures, as required, in data gathering process to ensure proper cost accounting;
|
|
-
|
Develop, document and implement system of internal controls;
|
|
-
|
Oversee and prepare financials for quarterly review and year-end audit, and sign such filings, including Management Representation letters, as the company’s CFO;
|
|
-
|
Provide financial/accounting guidance and direction when requested by management or the Board, including review of contracts, stock offerings, compensation/ incentive plans and similar materials;
|
|
-
|
Present financial statements to, and attend meetings or conference calls as reasonably requested with, potential investors, bankers and other groups;
|
|
-
|
Prepare and file federal and any applicable state income tax returns; and
|
|
-
|
Such other duties commonly undertaken by a CFO.
|
|
2.
|
Compensation
|
|
-
|
$2,500/month in January, February, June, July, September, October and December;
|
|
-
|
$1,500/month in March, May, August and November (when we file Quarterly Reports and file tax returns)
|
|
-
|
None in April (when we file the Annual Report)
|
|
3.
|
Term and Termination
|
|
4.
|
Other
|
Sincerely, | |||
|
/s/ Frankie Fruge | ||
Frankie Fruge, COO |
Agreed and Accepted:
|
||||
/s/Bruce Schames
|
|
|||
Bruce Schames
|
|
|||
Date: 6/1/10
|
|
|
1.
|
Cyclone will pay Schoell a set fee every month for the following services, inclusive of the actual costs of purchased services, parts and materials through its vendors and contractors (the “Base Services”):
|
|
2.
|
The payment for the Base Services shall be set monthly or at some other regular intervals based upon Cyclone’s requirements for the stated services, materials, vendor work, utilities, rent and other items. As Cyclone is able to establish its own credit, accounts, personnel and other expense items, Cyclone shall pay for these directly and not through Schoell, and as a result, such items will be removed from the list of Base Services provided by Schoell.
|
|
3.
|
If Cyclone is unable to pay for any Base Services rendered by Schoell each month, the balance of such accrued fees shall, at the end of each calendar year, be converted to debt of Cyclone payable on demand of Schoell.
|
|
4.
|
The term of this Agreement shall commence on the date hereof and shall continue for a period of one year, with automatic one-year renewal periods, unless sooner terminated by either party on 30 days written notice; provided, Schoell cannot evict Cyclone from the Facility without providing 180 days notice.
|
|
5.
|
This Agreement shall be governed by the laws of the State of Florida. This Agreement is not transferable by either party without the written consent of the other party. If any section or any portion of any section of this Agreement is determined to be unenforceable or invalid for any reason whatsoever that unenforceability or invalidity shall not affect the enforceability or validity of the remaining portions of this Agreement and such unenforceable or invalid section or portion thereof shall be severed from the remainder of this Agreement.
|
Cyclone Power Technologies, Inc. | Schoell Marine, Inc. | ||||
By: |
/s/ Frankie Fruge
|
By: |
/s/
Harry Schoell
|
||
Frankie Fruge, COO
|
Harry Schoell, President |
Phoenix Power Group LLC
, a Tennessee limited liability company having its offices located at 8784 Becca Pt, Cordova, Tennessee 38016 (“Phoenix” or the “Licensee”)
|
|
I. Specific License Terms
|
Technology
:
|
Cyclone’s heat regenerative, Rankine-cycle external combustion engine system (the “Cyclone Engine”). “Licensed Technology” is further defined in Section 1 of the Standard Terms and Conditions.
|
Licensed Products
:
|
All Cyclone engines, and design and specifications thereof, starting with the Mark V Engine
|
Application
:
|
The Licensee may use the Licensed Products specifically for electrical power generation using waste oil (which includes used motor oil and other waste oil products that have become unsuitable for their original purpose due to the presence of impurities or loss of original properties – defined by the EPA as “used oil”), as the system is described in the Licensee patents (the “Waste Oil Power System”).
|
Exclusivity
:
|
Cyclone grants exclusive rights to the Licensee for all Cyclone engines, and their designs and specifications, for the specific Application of Waste Oil Power System (as set forth above) for a period of 2 years, automatically renewable for additional years upon reaching certain annual minimum royalty sales quotas (set forth below). This renewal provision will remain in effect for the term of the License Agreement. The start of the first year will commence on Agreement execution, and the 2 year exclusive period will extend by any period up to the date of delivery of the first 2 working prototypes Mark V engines to Licensee, provided that Licensee has commenced sales of its Waste Oil Power Systems within one year of delivery of the prototypes, unless delayed by the design of the Mark V engine.
|
Quotas
:
|
The royalty sales quotas to extend exclusivity rights period will be as follows (measured from date of delivery of prototypes): Yr 1 and Yr 2 combined: 475 units; Yr 3: 1000 units; Yr 4: 2000 units; Yr 5: 3000 units; Yr 6+: 10% increase over previous year quota. License may meet a shortfall in sales quotas in a given year by paying to Cyclone the comparable royalties.
|
IP Representation
:
|
Cyclone and the Licensee will honor each other’s patents and confidentiality. Each agrees not to engage in any activity or business that will be in competition with the other if such activity would violate any confidentiality, exclusivity or patent rights of the other party. Additional IP representations are included in the Standard Terms of this License.
|
|
a.
|
Licensee may not commence sales in Australia until it has provided Cyclone with reasonable assurances that it can protect and defend Cyclone’s IP and has established an adequate sales and service infrastructure in that territory. Additionally starting in Year 3, at least 10% of the royalty Sales Quota set forth above must be achieved in Australia to maintain exclusivity in that territory.
|
|
b.
|
Licensee will have the right to add territories similar to the ones indicated above within the term of the Agreement. The license fee will be negotiated in good faith. Any additional license fee would be based on comparable market sizes to the current Territory and include additional royalty sales quotas.
|
Development Fees
:
|
Licensee will pay $400,000 for the License rights (“Development Fee”), to be held in escrow by Wyatt, Tarrant & Combs, LLP, of Memphis TN, until paid in full or returned to Licensee as per this Agreement. All Development Fees once paid to Licensor are non-refundable. The following is the payout schedule:
|
|
1.
|
$150,000: at the execution of this Agreement, which amount is deemed earned by Licensor when paid by Licensee in consideration of license rights granted herein;
|
|
2.
|
$150,000: at completion of successful initial engine performance tests of the Mark V engine under steam, which is defined as achieving output of at least 60% of the engine’s rated horsepower as measured by dynamometer tests. This is anticipated to occur 3 to 5 months after the Agreement execution; and such amount is deemed earned by Licensor when paid by Licensee in consideration for progress made on the engines to such date and delivery of successful test results to Licensee.
|
|
3.
|
$100,000: upon delivery of 2 working prototype Mark V engines to Licensee; which amount is deemed earned by Licensor when paid by Licensee in consideration of delivery of the engines.
|
|
-
|
$250 per Mark V Engine up to 5000 engines, then
|
|
-
|
$200 per Mark V Engine for next 5000 engines, then
|
|
-
|
$150 per Mark V Engine or 10% of the actual manufacturing cost of the engine whichever is less.
|
Manufacturing
:
|
Licensee shall select vendors to manufacture the Mark V with approval from Cyclone. Such approval shall not be unreasonably withheld. Licensee shall have the right to manufacture the Mark V Engine if it so chooses provided its facility and production capabilities are reasonably approved by Cyclone.
|
Timeframe
:
|
Cyclone will attempt in good faith to provide 2 working prototype Mark V Engines to the Licensee within 6 months of the executed License Agreement and in no event later than 9 months after the execution of the Agreement. Delay in delivery of the 2 working Mark V prototype engines shall not constitute a breach of the Agreement; however, the exclusivity period (see above) shall be extended by such period of delay; and further provided that after 9 months, Licensee shall be entitled to terminate the License Agreement and recoup all moneys remaining in escrow.
|
CAD Drawings
:
|
Cyclone will provide all necessary CAD/Solidworks drawings of the Mark V Engine to the Licensee as soon as practical so the Licensee can develop the design of its device during the prototype development time frame. The Licensee and the approved engine manufacturer will be provided full CAD documents of the Mark V Engine for manufacturing purposes. All Cyclone rights and confidentiality will be preserved.
|
Cyclone Contacts
:
|
Technology:
|
Harry Schoell, CEO, Tel: 954-943-8721, Harry@cyclonepower.com
|
Operational:
|
Frankie Fruge, COO,
|
Tel: 954-943-8721, Frankie@cyclonepower.com
|
Legal:
|
Christopher Nelson, Esq., Tel: 305-439-5559, Chris@cyclonepower.com
|
Operational:
|
Thomas V Thillen, President, Tel: 901-288-9488, tthillen@atlanticsystemsgroup.com
|
Accounting:
|
Thomas V Thillen, President, Tel: 901-288-9488, tthillen@atlanticsystemsgroup.com
|
Legal:
|
Wyatt, Tarrant & Combs, LLP, Marija Sokolov, Tel: 901-537-1072, msokolov@wyattfirm.com
|
Cyclone Power Technologies, Inc. | Phoenix Power Group, LLC | |||
By:/s/ Frankie Fruge
|
By: /s/ Thomas Thillen
|
|||
Frankie Fruge, COO
|
Name: Thomas V Thillen, President
|
|||
Date: 7/30/2009
|
Date: 7/30/2009
|
|
II.Standard Terms and Conditions
|
CYCLONE POWER TECHNOLOGIES, INC. | PHOENIX POWER GROUP, LLC | |||
By: /s/ Frankie Fruge |
By: /s/ Thomas Thillen
|
|||
Frankie Fruge, COO and Director
|
Thomas V. Thillen, President
|
|||
Date: July 30, 2009
|
Date: July 30, 2009
|
This
Amendment #1
, dated March 20, 2010 (the “Amendment”), to the
Systems Application License Agreement
(“Agreement”) entered into as of July 30, 2009 by and between
Cyclone Power Technologies, Inc.
(“Cyclone” or “Licensor”) and
Phoenix Power Group LLC
(“Phoenix” or the “Licensee”), states as follows:
|
For good and valuable consideration paid by both parties hereto, the parties agree that this Amendment shall modify the specific terms and provisions set forth herein, and all other terms, conditions, representations and warranties contained in the Agreement shall remain unchanged and unaffected.
|
1.
|
Development Fees.
The Development Fees for the Mark V Engine Project totaling $400,000 set forth in the Specific Terms and Conditions section of the Agreement shall be modified with respect to the payout schedule as follows:
As of the date hereof, Phoenix has paid a total of $225,000 in Development Fees to Cyclone. Commencing on the date of this Amendment, the remainder of Development Fees totaling $175,000 shall be paid in seven (7) installments of $25,000 each on March 22, April 15, May 1, June 1, July 1, August 1 and September 1, 2010. If Cyclone’s two (2) working prototypes (as defined in the Agreement) are completed prior to any of the installment dates, all remaining payments shall become immediately payable in full.
|
2.
|
Next Engine Development.
Phoenix has expressed its desire to obtain in the future a Cyclone engine in the size range of 10hp to 20hp (the “Small Engine”) for its specific license Applications. Therefore, in consideration for the payment to Cyclone of $20,000 as of today’s date, Phoenix will have the right under the Agreement to utilize such Small Engine when it is available without any further Development or License Fees payable to Cyclone for that Small Engine; provided however, Phoenix shall still pay for physical prototypes of the Small Engines from either Cyclone or a duly licensed third party manufacturer.
|
3.
|
Delay of License Penalties.
The parties agree that commencement of “penalty” payments for late completion of the Mark V, as set forth in the “Timeframe” section of the Agreement, shall be changed from nine (9) months to twelve (12) months from execution of the Agreement. If the development project is not completed by August 1, 2010, then the penalty payments shall commence as per the terms of the Agreement.
In Witness Whereof
, the parties have caused this Amendment #1 to their Systems Application License Agreement to be executed on the dates hereinafter set forth.
|
Cyclone Power Technologies, Inc.
By: /s/ Frankie Fruge
Frankie Fruge, COO & Director
Date: 3/20/2010
|
Phoenix Power Group, Inc.
By: /s/ Thomas Thillen
Thomas V. Thillen, President
Date: 3/20/2010
|
This
Amendment #2
, dated October 18, 2010 (the “Amendment”), to the
Systems Application License Agreement
(“Agreement”) entered into as of July 30, 2009 by and between
Cyclone Power Technologies, Inc.
(“Cyclone” or “Licensor”) and
Phoenix Power Group LLC
(“Phoenix” or the “Licensee”), and amended for the first time on March 20, 2010, states as follows:
For good and valuable consideration paid by both parties hereto, the parties agree that this Amendment shall modify the specific terms and provisions set forth in the Agreement, and all other terms, conditions, representations and warranties contained in the Agreement or the first amendment thereto shall remain unchanged and unaffected:
|
Territory:
|
The Territorial rights under the Agreement shall be extended from North America and Australia to Worldwide for waste oil power generators (as specifically described in the Agreement under the definition of “Application”).
|
Contractor
|
Approval:
|
Per the current Agreement, Cyclone maintains the following rights over Phoenix’s sub-licensees, manufacturers and vendors:
“Licensee may not commence sales in [a country outside of North America] until it has provided Cyclone with reasonable assurances that it can protect and defend Cyclone’s IP and has established an adequate sales and service infrastructure in that country.”
“Licensee shall select vendors to manufacture the [Cyclone Engines] with approval from Cyclone. Such approval shall not be unreasonably withheld.”
In addition to these requirements, Phoenix may not provide any manufacturing rights to any entity that manufactures or has plans to manufacture Cyclone Engines in a country where Cyclone does not have issued and valid patent protection for its Technology.
|
Additional
|
|
Development
|
Fees:
|
With respect to any sub-licensees, manufacturers, distributors or other vendors in any other country outside of the U.S., unless otherwise agreed by Cyclone, Phoenix shall endeavor to receive up-front fees from such third parties for the granting of any sub-rights under the Cyclone License Agreement (the “Sub-Fees”). The amount and timing of such Sub-Fees shall be reasonably approved by Cyclone, and Cyclone shall receive 35% of such Sub-Fees, which shall be payable to Cyclone as received by Phoenix in the form of additional Development Fees under the License Agreement.
|
|
Phoenix understands and agrees that these Additional Development Fees are integral to Cyclone’s agreement to extend on a worldwide basis Phoenix’s territorial rights.
|
Quotas:
|
Prior to commencing sales in any continent or country outside of North America, Phoenix and Cyclone will establish reasonable annual sales quotas for each specific continent and for specific countries in which Cyclone holds a patent for their Technology which are (as of the date of this Amendment): China, Mexico, Japan, Korea, Russia, Brazil, Indonesia, South Africa, Australia (per the original License) and the European Union. Phoenix must meet these quotas in order to maintain exclusivity in that continent or specific patented country, as the case may be.
|
|
If Phoenix does not establish reasonable, on-going sales in a particular continent or patented country within four (4) years of commencing sales in the U.S., Phoenix shall lose its exclusive rights to that continent/patented country, but may still sell products in that continent/patented country on a non-exclusive basis, subject to the other terms and conditions herein. Cyclone shall not license or sell its technology in violation of patents held or licensed to Phoenix.
|
Prototypes:
|
The License Agreement shall be amended as to the
initial
two “working prototype engines”, as defined in the Specific License Terms, which shall
now
be based on the WHE-25 design. The Mark V prototype engines shall still be due per the original agreement and as modified in this Amendment. The definition of “working prototype engines” with respect to the WHE-25 engines shall mean:
“A complete working WHE-25 engine in a final pre-production configuration: The final working prototype engines will be replicated from a test engine that shall have been thoroughly tested, as determined by Cyclone. The working prototypes engines shall then be tested for such number of hours to reasonably assure that they meet the same operating and durability standards as the test engine and provided for in this Agreement. The working prototype WHE-25 engines will be ready for delivery to a manufacturer for small-scale production. The parties understand that the working prototype engines that Cyclone delivers will be “pre-production”. They will be usable for beta installations, small-scale production and replication, and will be designed with theoretical but untested engineering parameters to ultimately run in the production phase for 5,000 hours; however, Licensee understands that it is the job of the Licensee’s manufacturer to produce production models and meet running hour standards based on Cyclone’s design and specifications. In this process, the engine manufacturer will determine their specific methods of manufacturing, and provide the engine for certifications and life-hour testing and warranties for mass production relative to workmanship (i.e., not Cyclone’s design).
|
Penalties:
|
Phoenix will forgo the project delay penalties set forth in the “Timeframe” section of the License Agreement, commencing as of August 1, 2010 until January 1, 2011. The delivery of the two WHE-25 working prototypes engines shall satisfy the time delay from August 1, 2010 until January 1, 2011 penalty provisions under the License; provided however, Cyclone continues to use its best efforts to deliver two Mark V working prototype engines to Phoenix as soon as possible.
The definition of “working prototype engines” with respect to the Mark V models shall be hereinafter defined as:
“A complete working Mark V engine in its final pre-production configuration: The final working prototype engines will be replicated from a test engine that shall have been thoroughly tested by running the test engine at an average of 60 hp for a total of approximately 200 hours on waste motor oil and under the load of the specified electrical motor. Included in the total hours of run time shall be at least two periods in which the successful run time equaled or exceeded eight continuous hours without interruptions. The working prototypes engines shall then be tested for such number of hours to reasonably assure that they meet the same operating and durability standards as the test engine and as provided for in this Agreement. The working prototype Mark V engines will be ready for delivery to a manufacturer for small-scale production. The parties understand that the working prototype engines that Cyclone delivers will be “pre-production”. They will be usable for beta installations, small-scale production and replication, and will be designed with theoretical but untested engineering parameters to ultimately run in the production phase for 5,000 hours, with future model durability goals of up to 20,000 hours; however, Licensee understands that it is the job of the Licensee’s manufacturer to produce production models and meet running hour standards based on Cyclone’s design and specifications. In this process, the engine manufacturer will determine their specific methods of manufacturing, and provide the engine for certifications and life-hour testing and warranties for mass production relative to workmanship.
|
Royalty:
|
One time royalty fee per WHE-25 engine will be provided as follows:
$100 per WHE-25 Engine sold by Phoenix
|
Option:
|
Phoenix will, within 15 days of this Amendment, exercise its option to acquire 2.5% of Cyclone-WHE LLC for $50,000.
|
Work Order:
|
Prior to this Amendment, Cyclone and Phoenix has amended their Work Order dated January 12, 2010, to provide for the new roll-out plan of the WHE-25 engine models.
|
Cyclone Power Technologies, Inc. | Phoenix Power Group, Inc. | |||
By: /s/ Frankie Fruge
|
By: /s/ Thomas Thillen
|
|||
Frankie Fruge, COO & Director
|
Thomas V. Thillen, President
|
|||
Date: 10/18/10
|
Date: 10/18/10
|
I.
Specific License Terms
|
Licensed Technology
:
|
CPT’s heat regenerative, Rankine-cycle external combustion engine system (the “Cyclone Engine”). “Licensed Technology” is further defined in Section 1 of the Standard Terms and Conditions.
|
Licensed Products
:
|
(1) Waste Heat Engine (“WHE”); (2) Mark V Engine; and (3) a 1 Megawatt Engine System, the specifications for which shall be determined at a later date. With respect to the WHE, CPT also licenses to Licensee its designs for its biomass-to-power system (“B-2-P”), solar thermal collectors, steam generators, condensers and other components required for proper operation of the multiple allowed Applications. No other Cyclone Engines or engine systems are currently contemplated and licensed under this Agreement.
|
Applications
:
|
The Licensee may use the License Products specifically as follows:
|
License Phases
:
|
The License shall be divided into Two Phases for each engine to be developed by Licensee as follows:
|
|
-
|
Phase I: Development and Proof of Concept
|
|
-
|
Phase II: Production and Sales
|
|
The scope, key steps, objectives and goals of each of the two Phases are set forth in
Exhibit A
attached hereto.
|
|
With respect to Phase I Licenses, the development timeline shall be further subdivided as follows: Licensee shall commence its ramp-up operations with development of a prototype WHE, for the applications of B-2-P, waste heat recovery or solar thermal electrical generation (as the Licensee subsequently determines based on marketability of such products). Upon the completion by CPT of its initial pre-production prototype Mark V engine in the United States, anticipated to be in mid to late 2010 (such date being a good faith estimate and not a definitive deadline), then at such time and provided Licensee is in good standing under this Agreement and all IP Protocols are in place to the full satisfaction of CPT, Licensor shall deliver to Licensee the design drawings and bill-of-materials for the Mark V to commence development of said engine in China. At such time that the Mark V drawings are delivered to Licensee, Phase I shall commence for that engine project. In the instance that designs for the Mark V are not able to be exported to China by the end of 2010, the parties shall work together in good faith to develop an alternative engine design to achieve the goals of Licensee to build high efficiency fuel-burning external combustion engines.
|
Exclusivity
:
|
CPT grants exclusive rights to the Licensee to manufacture and sell the License Products for the specific Applications solely within the Territory for a period of two (2) years from the date of commencement of Phase II for such Licensed Products (as described above), automatically renewable for additional years upon reaching certain annual minimum royalty sales quotas (set forth below). This renewal provision will remain in effect for the Term of the Agreement.
|
Quotas
:
|
Reasonable and mutually agreeable sales minimums (“Sales Quotas”) to extend exclusivity rights will be determined prior to commencement of Phase II of License, and included as an Addendum to this Agreement. Phase II shall not commence until such Sales Quotas are agreed.
|
Territory
:
|
People’s Republic of China (which shall include Hong Kong and Macao, but exclude Taiwan). Except as otherwise agreed, all production, distribution and sales (especially in Phase II) shall be made within the Territory and not made for export.
|
|
To the extent that Licensee successfully builds a pre-production B-2-P system using the WHE in its Phase I for this Licensed Product, the parties may in good faith expand the territory for such Licensed Product on a non-exclusive basis to other countries and territories.
|
Term
:
|
Phase I (for each engine): 12 months with one (1) six (6) month renewal period (no additional Development Fees required for this extension)
Phase II: 10 years with two (2) five (5) year renewal periods
|
License Fees
:
|
Licensee will pay US$125,000 for the Phase I License rights (“Development License Fee”), US$25,000 of which has been paid prior to the date hereof and shall constitute a deposit on the Mark V engine design delivery, US$62,500 to be paid upon the signing of this License for delivery of the WHE designs, and US$37,500 to be paid prior to delivery to Licensee of the Mark V engine designs. All Development License Fees once paid to Licensor are non-refundable; provided however, if the Mark V engine designs cannot be delivered to Licensee by the end of 2010, or an alternative engine design cannot be agreed upon, then the initial $25,000 deposit shall be returned to Licensee or credited toward Royalties or Licensee Fees then due to Licensor.
|
Royalty
:
|
No Royalty will be owed on Phase I prototype Engines; however, for all prototypes that Licensee creates it shall also provide to CPT duplicate, made-in-China parts to allow CPT to build at least one such prototype engine in the United States using Licensee’s parts.
|
Manufacturing
:
|
CPT shall have the right to review and reasonably approve prior to consummation all sublicenses, OEM, outsourced manufacturing, private labeling or other agreements which could expose any CPT IP to third parties. Licensee shall have the right to undertake sales and marketing partnerships as necessary to achieve market penetration, provided Licensee assures CPT that sales and distribution through such third parties shall be contained to the Territory. As part of its IP Protocols, CPT shall have the right to inspect and audit any of Licensee’s or its contractors’ manufacturing or distribution facilities at any reasonable time.
|
Specific IP
|
Provisions
:
|
In addition to the intellectual property protections set forth in the Standard Terms and Conditions of this Agreement, License will structure an Intellectual Property program to protect the integrity of CPT’s Licensed Technology (the “IP Protocols”), which shall be guaranteed by the Guarantors. The IP Protocols will be patterned on a controlled access aerospace program, and will be monitored and audited by a Chinese law firm (or other professional 3
rd
party) retained by CPT, for which Licensee shall reimburse CPT its reasonable expenses for quarterly IP auditing retainers. Such quarterly fees shall be invoiced to Licensee and paid on presentment. Key components of the IP Protocols are provided as
Exhibit B
attached hereto.
|
|
Licensee and Licensor shall cooperate to have this License translated into Chinese and recorded before the Chinese Patent Office. Licensee shall pay the costs for the language translation.
|
CPT Contacts
:
|
Technology:
|
Harry Schoell, CEO, Tel: 954-943-8721, Harry@cyclonepower.com
|
Operational:
|
Frankie Fruge, COO,
Tel: 954-943-8721, Frankie@cyclonepower.com
|
Legal:
|
Christopher Nelson, Esq., Tel: 305-439-5559, Chris@cyclonepower.com
|
|
II.Standard Terms and Conditions
|
|
4.4.1
|
It has full power and authority to enter into this Agreement;
|
|
4.4.2
|
Neither the execution nor delivery of this Agreement, nor the consummation of the transactions contemplated herein, will constitute a violation or breach of the warranting party’s constituent documents or violate, conflict with, result in any breach of any material provisions of or constitute a default under any other contract or commitment made by it, any law, rule or regulation, or any order, judgment or decree, applicable to or involving it.
|
|
4.4.3
|
It will comply with all applicable international, federal, state and local laws, regulations or other requirements, and agrees to indemnify the other party against any liability arising from its violation of or noncompliance with laws or regulations while using the Licensed Technology.
|
|
4.4.4
|
No order, consent, filings or other authorization or approval of or with any court, public board or governmental body is required for the execution, delivery and performance of this Agreement by it; except this Agreement shall be translated and filed with the Chinese Patent Office or other appropriate governmental authorities in PRC upon execution hereof.
|
Cyclone Power Technologies, Inc. | Great Wall Alternative Power Systems, Ltd | |||
By:/s/ Harry Schoell
|
By: /s/ Shan Zhao
|
|||
Harry Schoell, CEO & Director
|
Shan Zhao
|
|||
|
Chairman and as Guarantor
|
|||
/s/ Robert Devine | ||||
Robert Devine | ||||
Managing Director and as Guarantor | ||||
/s/ Keith McDade | ||||
Keith McDade | ||||
VP Technology and Production and as Guarantor |
KEY TASKS
|
PHASE I
Development License
|
PHASE II
Production License
|
Production Configuration Development
|
X
|
|
Materials Sourcing Analysis
|
X
|
|
Feedstock Analysis & Development
|
X
|
|
Product Costing Analysis
|
X
|
|
Market Research & Analysis
|
X
|
|
Complete prototype engine systems
|
X
|
|
Development and regular audit of
IP protection procedures
|
X
|
X
|
GWT represents CPT in China to other potential
licensees and partners, as the parties determine
|
X
|
X
|
Production
|
X
|
|
Sales & Marketing
|
X
|
|
·
|
To set up an appropriate legal structure for the program, including incorporating a dedicated company, registering patents, engaging appropriate legal counsel, and establishing the IP Protocols. These structures must be in place to CPT’s full satisfaction before CPT provides GWAPS with engine drawings.
|
|
·
|
The prototype development of the following engine systems in order to engineer a robust design for quality production configured engines that meet or exceed the performance characteristics of the US prototypes:
|
|
o
|
First, WHE, including the CPT Biomass-to-Power (CB2P) system, waste heat recovery, and/or solar thermal system; and then
|
|
o
|
the Mark V for the specific purpose of distributed electric power generation, as well as to identify and develop a cost-effective and reliable fuel source for the Mark V; this will initially focus on bio-fuel alternatives but it is assumed that any Mark V product will have multi-fuel capability (“Mk5P”, and together with the WHE, the “Engines”);
|
|
·
|
To determine the processes, procedures and standards that will be necessary for the production of consistently high quality products.
|
|
·
|
To determine the necessary materials and parts required for optimal production of the Engines, and whether these materials & parts can be reliably sourced either in China or via import.
|
|
·
|
To research fuel systems for the Engines and to determine the most feasible, reliable and economic fuel for the China market including selecting an appropriate fuel processing system and/or technology to employ. With respect to the Mk5P, this is specifically focused on bio-fuels (with the assumption that the final product will have potential for multi-fuel use).
|
|
·
|
To determine the most cost-effective production configuration for the Engines and to determine – through in-depth market research – whether that production configuration will be cost-effective for product launch onto the China market.
|
|
·
|
To determine a manufacturing strategy for the final product, i.e., fully in-house, partially outsourced, licensed etc. Such strategy will be fully discussed with CPT and subject to CPT’s reasonable satisfaction before entering into a Phase II License.
|
|
·
|
To determine a marketing, distribution and sales plan for the product.
|
|
·
|
To serve as CPT’s representative in China to perform diligence, attend meetings or conference call (when reasonable), and other reasonable tasks requested by CPT pertaining to business development in China.
|
|
·
|
Compile status reports and data to present to GWT and CPT for evaluation
|
|
·
|
Chinese government agencies that can potentially assist in marketing & distribution as well as financial sponsorship
|
|
·
|
Potential partners, distributors and clients
|
|
·
|
The Mandarin Oriental Hotel Group
|
|
·
|
Testing and certifying agents, etc., for technical review, evaluation as necessary
|
|
·
|
CPT will be involved and consulted with respect to all these presentations.
|
|
·
|
Produce reliable Engine systems powered by CPT engine technology that can be integrated into, and showcased by, the Mandarin Oriental Great Wall Resort.
|
|
·
|
Have a manufacturable and marketable product ready for volume production.
|
|
·
|
Have a reliable and localized supply base for the Engine components.
|
|
·
|
Have solid market-based ideas on additional prototype systems that can be spun off to generate more revenue streams for both GWAPS and CPT, however, as discussed above, these additional systems are not currently made part of the initial License.
|
|
·
|
Have established the foundation for the further development of:
|
|
o
|
Other applications based on the same engine profile, should such applications subsequently be added to the initial License ;
|
|
o
|
An engine powering a system greater than 1MW (the “C1M”) to integrate into the Great Wall Resort Project which is a primary objective of GWAPS’s overall business plan. This application will be included into the initial Phase II License; however, additional Development Fees will be paid to CPT in the instance that GWAPS chooses to develop a prototype C1M (see Standard Terms and Conditions of this Agreement).
|
|
·
|
Education: Licensee will train its workforce in IP protection, which will focus on concrete examples, such as the danger of discussing the business with friends outside the company. Licensee will reinforce this message regularly through training programs and written materials.
|
|
·
|
Each and every employee must sign nondisclosure and non-compete agreements, which shall be translated for CPT and delivered to CPT.
|
|
·
|
Employees will have access only to the information they need to perform their work. This includes implementing a comprehensive access control system:
|
|
o
|
Controlling access to company IT Network, databases and printed documents
|
|
o
|
Permitting only authorized persons to enter controlled areas and production facilities
|
|
o
|
Controlling access to all the critical recording and display devices and setting up a system to prevent any unauthorized changes
|
|
o
|
Protecting all the critical operating parameters such as temperatures and pressures
|
|
o
|
Detecting and preventing the unauthorized removal of valuable assets
|
|
o
|
Providing information to security officers to facilitate assessment and response
|
|
·
|
GWAPS will undertake an internal review to determine which components can and cannot be securely outsourced. GWAPS shall not outsource any components without the written consent of CPT.
|
|
·
|
GWAPS will strategically disburse outsourced components such that no vendor can assemble any part of the engine(s) on their own (unless required to properly facilitate parts manufacture and meet design intent i.e. pressed in bushings or piston rings)
|
|
·
|
CPT will provide GWAPS with a limited number of code-stamped parts/components, such parts not to be produced in China without CPT’s consent. The actual component list to be provided as part of the final licensing agreement.
|
|
·
|
Each party to whom GWAPS provides Confidential Information regarding the Licensed Technology shall sign an agreement providing for all the IP protections set forth in this License Agreement, including ownership of Improvements and legal jurisdiction. Such agreements shall be reviewed by CPT’s legal counsel in China, and final copies of such agreements shall be provided to CPT.
|
|
·
|
A quick and thorough patent search and registration process.
|
|
·
|
GWAPS will report to CPT of any deficiencies in its Chinese patents and will work with CPT to remedy and expand its patent rights in China.
|
|
·
|
GWAPS will retain legal counsel reasonably approved by CPT throughout the License process, and such counsel will, among other duties, police for any potential patent infringement and report back to both parties
|
|
·
|
GWAPS will establish an Advisory relationship with the Ministry of Science & Technology’s IPR Center, and shall include CPT in discussions, correspondence and other arrangements with the Ministry.
|
Exclusivity
:
|
CPT grants exclusive rights to the Licensee to manufacture and sell the License Products for the specific Applications solely within the Territory for a period of ten (10) years from the date of commencement of Phase II for such Licensed Products (as described above), subject to the Quotas set forth below, and automatically renewable annually past the initial 10 years on a non-exclusive basis as long as the Licensee remains in good standing with the terms of this Agreement. This renewal provision will remain in effect for the Term of the Agreement.
|
Quotas:
|
In order to maintain exclusive rights to manufacture and sell the License Products, the Licensee will commit to achieving minimum royalty payments according to the following schedule.
|
|
1)
|
US$200,000 aggregate during first two years (i.e., by the end of Year 2) commencing from the start of Phase II or December 31, 2012, whichever is sooner;
|
|
2)
|
US$200,000 in Year 3;
|
|
3)
|
US$250,000 in Year 4; and
|
|
4)
|
Increasing by 10% each year afterward until the end of Year 10 of this Phase II.
|
|
1)
|
US$50,000 aggregate during first two years commencing from the start of Phase II or December 31, 2011, whichever is sooner;
|
|
2)
|
US$50,000 in Year 3;
|
|
3)
|
US$75,000 in Year 4; and
|
|
4)
|
Increasing by 10% each year afterward until the end of Year 10 of this Phase II.
|
Term
:
|
Phase I (for each engine): 12 months with one (1) twelve (12) month renewal period (no additional Development Fees required for this extension)
|
License Fees:
|
Upon successful completion of the Phase I development process - as agreed in the reasonable determination of both parties that the Licensee is in good standing under this Agreement and all pre-conditions specifically set forth herein (if applicable) are met for each specific Licensed Product - the License will automatically convert into a Phase II Production License for the specified Application for production, sales and distribution in the Territory upon the payment of an additional License Fee of US$400,000 (“Production License Fee”), which shall be broken down as follows: (1) US$100,000 when the WHE Licensed Products are ready to enter into Phase II, and (2) US$300,000 when the Mark V is ready to enter into Phase II of this License. No Licensed Products may be distributed or sold in Phase I of this License. The entry into Phase II with respect to one Licensed Product will not guaranty entry into Phase II for other Licensed Products.
|
Royalty
:
|
No Royalty will be owed on Phase I prototype Engines; however, for all prototypes that Licensee creates it shall also provide to CPT duplicate, made-in-China parts to allow CPT to build at least one such prototype engine in the United States using Licensee’s parts.
|
|
1)
|
US$300 per unit for the first 5,000 units;
|
|
2)
|
US$250 per unit for units 5,001 to 10,000;
|
|
3)
|
US$200 per unit thereafter.
|
|
1)
|
US$75 per unit for the first 5,000 units;
|
|
2)
|
US$65 per unit for units 5,001 to 10,000;
|
|
3)
|
US$60 per unit thereafter.
|
I.
|
WHEREAS, Cyclone has developed and patented a heat-regenerative external combustion Rankine cycle engine system which characteristics are detailed in clause 1 of this Agreement (hereinafter referred to as the “Licensed Technology” as detailed in clause 1.1 below);
|
II.
|
WHEREAS, Cyclone wishes to license Renovalia the Licensed Technology for the particular purposes and subject to the terms and conditions set forth in this Agreement;
|
III.
|
WHEREAS, Renovalia is the developer of solar power plants throughout the world, and wishes to license the Licensed Technology subject to the terms and conditions set forth in this Agreement;
|
IV.
|
WHEREAS, the parties entered into the original Technology License Agreement on May 4, 2009, but because of changing conditions, wish to hereby amended and restate that license agreement fully hereby.
|
1
|
Interpretation
|
1.1
|
In this Agreement, except where a different interpretation is necessary in the context, the words and expressions set out below shall have the following meanings:
|
Application
|
Solar Thermal Power Plants
|
Commencement Date
|
The date of this Agreement.
|
Confidential Information
|
All information which is imparted or obtained under or in connection with this Agreement on, before or after the Commencement Date in confidence (whether in writing, verbally or by other means and whether directly or indirectly) or is of a confidential nature, relating to the business or prospective business, current or projected plans or internal affairs of the Parties, including in particular, but not limited to, the terms of this Agreement, all know-how, trade secrets, products, operations, processes, product information and unpublished information relating to the Parties’ intellectual property rights or other rights, and any other commercial, financial or technical information relating to the business or prospective business of either of the Parties.
|
Licensed Technology
|
Licensor’s proprietary technology related to its heat regenerative, external combustion engine and shall include any information, inventions, innovations, discoveries, improvements, ideas, know-how, show-how, developments, methods, designs, reports, charts, drawings, diagrams, analyses, concepts, technology, records, brochures, instructions, manuals, programs, manufacturing techniques, expertise, inventions whether or not reduced to practice or the subject of a patent application, test-protocols, test results, descriptions, parts lists, bills of materials, documentation whether in written or electronic format, prototypes, molds, models, assemblies, and any similar intellectual property and information, whether or not protected or protectable by patent or copyright, any related research and development information, inventions, trade secrets, and technical data in the possession of Licensor that is useful or is needed in the design or manufacture of the Licensed Products and that the Licensor has the right to provide to Licensee and has so provided to Licensee by signing this Agreement.
This includes without limitation, U.S. Patent #7,080,512, entitled Heat Regenerative Engine, other patents pending US and foreign patents (all listed in Schedule B), all patents that may issue under this patent application and their divisions, continuations, continuation-in-parts, reissues, reexaminations, inventor’s certificates, utility models, patents of addition, extensions, as well as certain research and development information, inventions, know-how, and technical data that relate to and/or are disclosed in said patent application, and any other patent applications, patents divisions, continuations, continuation-in-parts, reissues, reexaminations, inventor’s certificates, utility models, patents of addition, extensions that may issue or be filed that relate to said Licensed Product and/or said patent application. A list of the patents and patent applications regarding the Licensed Technology is provided as Schedule B hereof.
|
Licensed Products
|
All engine sizes and models of the Licensed Technology for the specific Application.
|
Patents
|
Those detailed in Schedule B.
|
Quarter
|
Each consecutive period of three months during the Term ending March 31, June 30, September 30 and December 31, commencing on the Commencement Date.
|
Rights
|
Non-exclusive for the rights granted herein.
|
Royalty
|
The royalties detailed in clause 5 below and Schedule A.
|
Term
|
The term of this Agreement as set out in clause 2.
|
Territory
|
Worldwide, provided Licensee may not manufacture License Products in countries where Licensor at the time of the manufacture does not have patent protection or has not filed patent applications.
|
1.2
|
The clause and paragraph headings and the table of contents used in this Agreement are inserted for ease of reference only and shall not affect construction.
|
1.3
|
The Schedules to this Agreement are incorporated into this Agreement. In the event of any inconsistency between the main body of this Agreement and the Schedules, the main body shall prevail. References in this Agreement and the Schedules to the parties, the Introduction, Schedules and clauses are references respectively to the parties, the Introduction and Schedules to and clauses of this Agreement.
|
1.4
|
Specific references to any Spanish legal term or legal concept shall in respect of any jurisdiction other than Spain be deemed to include that which most approximates in that jurisdiction to such Spanish legal term or legal concept.
|
1.5
|
References to persons shall include bodies corporate, unincorporated associations and partnerships, in each case whether or not having a separate legal personality.
|
1.6
|
References to the word “include” or “including” (or any similar term) are not to be construed as implying any limitation and general words introduced by the word “other” (or any similar term) shall not be given a restrictive meaning by reason of the fact that they are preceded or followed by words indicating a particular class of acts, matters or things.
|
1.7
|
Except where the context specifically requires otherwise, words importing one gender shall be treated as importing any gender, words importing individuals shall be treated as importing corporations and vice versa, words importing the singular shall be treated as importing the plural and vice versa, and words importing the whole shall be treated as including a reference to any part thereof.
|
1.8
|
If any condition or covenant contained in this Agreement requires a party to it not to do an act or thing it shall be a breach of any such condition or covenant to permit such act or thing to be done, provided restricting or avoiding such actions is reasonably within such party’s control.
|
1.9
|
References to statutory provisions, enactments or Laws shall include references to any amendment, modification, extension, consolidation, replacement or re-enactment of any such provision, enactment or Law (whether before or after the date of this Agreement), to any previous enactment which has been replaced or amended and to any regulation, instrument or order or other subordinate legislation made under such provision, enactment or Law, unless any such change imposes upon any party any liabilities or obligations which are more onerous than as at the date of this Agreement.
|
2
|
Term
|
2.1
|
This Agreement comes into force on the Commencement Date and, subject to the provisions of clause 5 shall continue for an initial period of Ten (10) years from the Delivery Date, as defined in Section 4 below (“Initial Period”).
|
2.2
|
After the Initial Period, the Agreement shall be renewed for two terms of five (5) year renewal periods unless terminated by either party serving not less than six (6) months written notice on the other, after the Initial Period or any of the renewal periods (“Term”).
|
2.3
|
The Parties agree that should the Delivery Date not occur within twenty-four (24) months of the date of this Amendment, either Party may terminate this Agreement without any further liability to the other Party.
|
3
|
Indemnification
|
3.1
|
Each party shall at all times (notwithstanding the termination of this Agreement) be liable for, indemnify and hold harmless the other party (together with its officers, servants and agents) from and against any and all claims, liability, loss, damages, fines, costs, legal costs, professional and other expenses of any nature whatsoever incurred or suffered by the second party arising out or in connection with the first party’s activities under this Agreement (including breach of this Agreement) or out of defects (whether obvious or hidden) of the Licensed Technology.
|
3.2
|
The Licensor shall indemnify the Licensee against all legal expenses arising out of any claim that the Licensee's use of the Patents or the Licensed Products or the Licensed Technology in accordance with the provisions of this Agreement infringes the rights of any third party in the Territory.
|
4
|
Initial Project
|
4.1
|
Delivery Date:
|
|
(a)
|
The Licensor will design a prototype 5HP/3kW Cyclone Engine (“Cyclone Solar I”), the exact specifications of which has previously been agreed to by the Parties in writing..
|
|
(b)
|
The Licensor will deliver to the Licensee the design plans and bill of matierals for the Cyclone Solar I (the “Deliverables”) once development of the engine has been completed and tested for performance and durability based upon the commercially reasonable criteria established by Licensor (the “Delivery Date”).
|
4.2
|
Subject to the fulfilment of the conditions set out in section 4.1:
|
|
(a)
|
Production by Licensee of the Cyclone Solar I engines, or alternatively, purchase from Licensor of production versions of the final Cyclone Solar I engines will commence as soon as possible, but in no event later than two (2) years from Delivery Date. Should such production or purchase of these engines not commence within said timeframe, this Agreement may be terminated by any party. The Parties agree that any of them shall in no event be liable to the other for any amount in case of termination of this Agreement based on the circumstances set out in this clause.
|
4.3
|
Rights over the Cyclone Solar I:
|
|
(a)
|
The Parties agree that the Licensee will have non-exclusive rights to manufacture, use and commercialize the Cyclone Solar I in thermo solar units, and therefore hereby grants to the Licensee a non-exclusive worldwide license to manufacture, modify, use and commercialize the Cyclone Solar I for these specific Applications during the Term.
|
4.4
|
As established in section 4.1 above, in case the final design (as agreed by both parties) of the Cyclone Solar I is not functional, under the exclusive decision of the Licensee, the Licensee will have the right to immediately terminate this Agreement by sending a written notice of termination to the Licensor. The Parties agree that in no event shall either party be liable to the other party for any amount in case of termination of this Agreement based on the circumstances set out in this clause. Additionally, in the case this Agreement is terminated based upon the circumstances set forth in this clause, Licensee shall immediately return to Licensor all Confidential Information relating to the Licensed Technology and Licensed Products, and shall immediately cease from using any such Confidential Information or Licensed Technology in the development of its solar thermal units.
|
5
|
Payment and Royalty
|
5.1
|
In consideration of the rights granted to the Licensee under this Agreement, the Licensee must pay to the Licensor:
|
|
(a)
|
a Royalty fee per unit built/sold as per Schedule A,
|
|
(b)
|
payments shall take place on a quarterly basis in US Dollars taking into account the number of units built/sold in the previous Quarter.
|
5.2
|
Minimum Royalties:
|
|
(a)
|
Minimum Royalties shall be negotiated between the parties in good faith in the second year after the Delivery Date.
|
5.3
|
Development Fees:
|
|
(a)
|
As of the date of this Amendment, Licensee has paid to Licensor $250,000 in non-refundable Development Fees. No additional Development Fees shall be due hereunder.
|
6
|
Publicity
|
6.1
|
Both parties shall participate in the elaboration, approval and issuance of a press release announcing any events and achievements occurring pursuant to this Agreement, to be reasonably agreed by both parties in good faith and without delay.
|
7
|
Notice
|
7.1
|
Any communication to be given in connection with this Agreement shall be in writing in English and shall be delivered in accordance of clause 12.3 of the Standard Terms and Conditions and to the address of the relevant party referred to in this clause.
|
Cyclone Contacts
:
|
|
|
Technology:
|
Harry Schoell, CEO, 954-943-8721, harry@cyclonepower.com
|
|
Operational:
|
Frankie Fruge, COO, 954-943-8721, frankie@cyclonepower.com
|
|
Legal:
|
Christopher Nelson, 305-439-5559, chris@cyclonepower.com
|
|
Renovalia Contacts : |
|
|
Technology:
|
Jaime Galobart, CEO, 34-915-90-4070,
jaime.galobart@renovaliaenergy.es
|
|
Operational:
|
Same
|
1.
|
Grant of License
|
1.1
|
Licensor grants to Licensee a worldwide non-transferable (except for transfer to Renovalia Group Companies) and non-exclusive license to use the Licensed Technology and to use, commercialize, manufacture or modify the Licensed Products in the Territory as set forth in the Specific License Terms (the “License”). Licensee may utilize the Licensed Technology and the License Products for its own Applications, or may sell them to other parties, provided they are ultimately used only for the specified Applications.
|
1.2
|
Except for transfer to Renovalia Group Companies, this License may not be transferred or sublicensed to a third party without the prior written consent of the Licensor.
|
1.3
|
The Term of this License is set forth in the Specific License Terms.
|
2.
|
License Fees and Royalty
|
2.1
|
Licensee will pay to Licensor the Development Fees and License Fees set forth in the Specific License Terms.
|
2.2
|
Licensee will pay to Licensor the Royalties as the rate specified in the Specific License Terms, or any addendums or amendments, within 20 days after the first day of each calendar Quarter hereafter during the Term of this Agreement. All Royalties shall be paid in U.S. funds. Minimum Annual Royalties, as set forth in the Specific License Terms, shall also be calculated on a quarterly basis, and any difference between actual Royalties earned and the Minimum Annual Royalties due (pro-rated quarterly) shall be paid within 20 days of the end of the calendar Quarter.
|
2.3
|
If Licensor does not receive from Licensee the full amounts due on or before the day upon which such amounts are due and payable, such outstanding amounts will thereafter bear interest until payment at the maximum rate permissible by applicable law, but in no event to exceed 16% per annum. Amounts received by Licensor will first be credited against any unpaid interest and accrual of such interest will be in addition to and without limitation of any and all additional rights or remedies that Licensor may have under this Agreement or at law or in equity. Licensee agrees to pay all reasonable expenses in connection with the collection of any late payment.
|
3.
|
Reports and Audit
|
4.
|
Representations and Warranties.
|
5.
|
Indemnification of Infringers
|
6.
|
Improvements
|
6.7
|
In case of:
|
7.
|
Default and
Termination
|
8.
|
Effects of Termination
|
9.
|
Survival of Termination
|
10.
|
Risk of Loss
|
11.
|
Confidentiality
|
12.
|
Miscellaneous
|
Royalty (US$) per Collective Number of Units Built/Sold
|
|||||||||||||||||
Size
|
Type
|
1 to 5,000
|
5,001 to 10,000
|
10,001 to 50,000
|
Over 100,000
|
||||||||||||
5HP
|
SC
|
45 | 36 | 27 | 18 | ||||||||||||
SS
|
41 | 32 | 23 | 14 | |||||||||||||
10HP
|
SC
|
50 | 41 | 32 | 23 | ||||||||||||
SS
|
45 | 36 | 27 | 18 | |||||||||||||
100HP
|
SC
|
108 | 95 | 81 | 68 | ||||||||||||
300HP
|
SC
|
180 | 162 | 144 | 126 | ||||||||||||
300HP +
|
SC
|
TBD
|
TBD
|
TBD
|
TBD
|
||||||||||||
SC = Supercritical
|
|||||||||||||||||
SS = Sub-Supercritical
|
ADVENT POWER SYSTEMS, INC. |
2904 Victoria Place, Suite C2 | 20 December 2010 | Phone: 954-979-6510 |
Coconut Creek, Florida 33066 | Fax: 954-977-4460 | |
E-Mail: philmyers@adventflorida.com | ||
Website: www.adventflorida.com |
|
1.
|
For a
fixed price, to be all inclusive
for the SUBCONTRACTOR in the amount of $699,998, SUBCONTRACTOR shall perform the following tasks, as generally defined as:
|
|
d.
|
SUBCONTRACTOR shall assemble and test the Cyclone Engine parts of the overall system, using SUBCONTRACTOR’s reasonably accepted engine performance equipment and parameters.
|
|
e.
|
In conjunction with APS, Belaire and Associates, and contractors for the generators, SUBCONTRACTOR shall conduct performance and reliability testing on three of the four engines to be built. Specifics of the performance and reliability testing shall be set forth in the specifications attached to this Agreement.
|
|
f.
|
The project to develop the three (3) Cyclone Engines (with an additional set for parts) shall be completed no later than 12 months from the commencement of APS’ prime contract with the U.S. Army. Upon the delivery of two (2) working prototype Cyclone Engines to APS (one of which APS will deliver to the U.S. Army), this contract shall be deemed completed. Any modifications required after delivery of the 2 engines, or based on new specifications from either APS or the U.S. Government shall be billed separately and in addition to the budget set forth herein.
|
|
2.
|
Out of its fixed payment in total, SUBCONTRACTOR shall be directly responsible for payment of :
|
|
4
|
All equipment, hardware, and software purchased by SUBCONTRACTOR for this subcontract shall remain the property of SUBCONTRACTOR on the completion of this subcontract, except to the extent the U.S. Army specifically requests in writing such equipment, hardware, or software.
|
|
5.
|
At the latest of the 5
th
business day of each new month of this subcontract, APS shall submit to the U.S. Army or designated paying agent the aggregated amount from each subcontractor along with additional APS expenses. If SUBCONTRACTOR misses the submission date then they will be submitted the following month. Within five business days of APS receiving payment from the U.S. Government, it will wire transfer the SUBCONTRACTOR’s portion of such payment, as per the SUBCONTRACTOR’s wire transfer instructions, which shall be supplied within two weeks of the signing of this agreement.
|
|
6.
|
APS shall be ultimately responsible for payment of invoices from SUBCONTRACTOR and submitting invoices to the U.S. Government in a timely manner. SUBCONTRACTOR shall have the right to stop work in the instance that invoices are not timely paid by APS. SUBCONTRATOR shall not be liable for delays in the project due to failure of APS to make timely payments to SUBCONTRACTOR.
|
|
7.
|
While this overall contract is not militarily classified, it does involve trade secrets. Both APS and SUBCONTRACTOR shall take care so as not to disclose trade secrets of each other or other SUBCONTRACTORS to parties not subject to this Agreement, except for other SUBCONTRACTORS and staff or active duty members of the U.S. Army. APS shall be responsible for providing NDAs from each of its other subcontractors (such as Belaire) for the benefit of and in a form agreeable to SUBCONTRACTOR.
|
|
8.
|
SUBCONTRACTOR shall maintain its book and records relative to this subcontract for three years from the completion of this contract (or longer if required by the Army) in such form that they may be reviewed and audited by the Army, should the Army or designated auditing agency desire.
|
|
9.
|
This Agreement shall take full force and effect immediately after APS has signed the development contract with the U.S. Army. It shall terminate six months after completion of the main contract between APS and the U.S. Army, except as to the retention of records.
|
|
10.
|
This Agreement shall be governed by Florida law.
|
|
11.
|
In the event of a disagreement between the parties to this Agreement, they shall attempt to resolve such disagreement in a calm business like fashion. If that issue cannot be resolved, then the parties hereto agree to submit it to binding arbitration to the office of the American Arbitration Association, closest to APS.
|
|
12.
|
At the completion the twelve (12) months of work on the overall contract, SUBCONTRACTOR shall retain one fully assembled 10 kW APU, in demonstratable running condition, plus spare parts for an additional APU. Two copies in operating form shall be shipped to APS, one of which APS will forward to the Army.
|
|
13.
|
This is a subcontract for the development and delivery of prototype engines. No additional license rights, intellectual property rights or otherwise shall be established under this subcontract, and all other terms and conditions of the parties’ Technology License Agreement dated March 24, 2006, as amended, shall apply including but not limited to ownership if IP rights. In any conflict between this subcontract and the License, the License shall govern.
|
/s/Harry Schoell | /s/ Phillip F. Myers | ||||
By: |
Harry Schoell, CEO
|
By: |
Phillip F. Myers, President
|
||
Cyclone Power Technologies, Inc. | Advent Power Systems, Inc. |