þ
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
|
For the quarterly period ended September 30, 2012
|
o
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
|
For the transition period from
to
|
Florida
|
26-0519058
|
|
(State or other jurisdiction of
|
(I.R.S. Employer
|
|
incorporation or organization)
|
Identification No.)
|
|
601 NE 26
th
Ct
|
||
Pompano Beach, Florida
|
33064
|
|
(Address of principal executive offices)
|
(Zip Code)
|
Large accelerated filer
o
|
Accelerated filer
o
|
Non-accelerated filer
o
|
Smaller reporting company
þ
|
|||
(Do not check if a smaller reporting company)
|
PART I. FINANCIAL INFORMATION
|
||||
Item 1. Financial Statements
|
||||
Consolidated Balance Sheets as of September 30, 2012 (unaudited) and December 31, 2011 (audited)
|
2
|
|||
Consolidated Statements of Operations for the nine months and three months ended September 30, 2012 and 2011 (unaudited)
|
3
|
|||
Consolidated Statements of Changes in Stockholders’ Deficit for nine months ended September 30, 2012 (unaudited) and the year ended December 31, 2011.
|
4
|
|||
Consolidated Statements of Cash Flows for the nine months ended September 30, 2012 and 2011 (unaudited)
|
5
|
|||
Notes to Consolidated Financial Statements
(unaudited)
|
6
|
|||
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
23
|
|||
Item 3. Quantitative and Qualitative Disclosures about Market Risk
|
30
|
|||
Item 4. Controls and Procedures
|
30
|
|||
PART II. OTHER INFORMATION
|
||||
Item 1. Legal Proceedings
|
30
|
|||
Item 1A. Risk Factors | 30 | |||
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
|
30
|
|||
Item 3. Defaults upon Senior Securities | 31 | |||
Item 4. Removed and Reserved | 31 | |||
Item 5. Other Information
|
31 | |||
Item 6. Exhibits
|
31
|
September 30,
2012
|
December 31,
2011
|
|||||||
(Unaudited)
|
(Audited)
|
|||||||
ASSETS
|
||||||||
CURRENT ASSETS
|
||||||||
Cash
|
$ | 98,408 | $ | 66,486 | ||||
Inventory
|
863,442 | 475,600 | ||||||
Other current assets
|
60,121 | 4,846 | ||||||
Total current assets
|
1,021,971 | 546,932 | ||||||
PROPERTY AND EQUIPMENT
|
||||||||
Furniture, fixtures, and equipment
|
275,359 | 184,784 | ||||||
Less: Accumulated depreciation
|
(92,719 | ) | (76,541 | ) | ||||
Net property and equipment
|
182,640 | 108,243 | ||||||
OTHER ASSETS
|
||||||||
Patents, trademarks and copyrights
|
563,638 | 557,847 | ||||||
Less: Accumulated amortization
|
(147,862 | ) | (117,846 | ) | ||||
Net patents, trademarks and copyrights
|
415,776 | 440,001 | ||||||
Other assets
|
2,156 | 2,422 | ||||||
Total other assets
|
417,932 | 442,423 | ||||||
Total Assets
|
$ | 1,622,543 | $ | 1,097,598 | ||||
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
||||||||
CURRENT LIABILITIES
|
||||||||
Accounts payable and accrued expenses
|
$ | 467,710 | $ | 263,131 | ||||
Factored receivables
|
- | 43,169 | ||||||
Accounts payable and accrued expenses-related parties
|
1,497,590 | 1,305,772 | ||||||
Notes and other loans payable
|
530,373 | 30,000 | ||||||
Notes and other loans payable-related parties
|
740,880 | 678,271 | ||||||
Capitalized lease obligations-current portion
|
772 | 898 | ||||||
Deferred revenue and license deposits
|
619,786 | 860,811 | ||||||
Total current liabilities
|
3,857,111 | 3,182,052 | ||||||
NON CURRENT LIABILITIES
|
||||||||
Capitalized lease obligations-net of current portion
|
22,937 | 2,155 | ||||||
Derivative liabilities-warrant
|
- | 494,626 | ||||||
Total non-current liabilities
|
22,937 | 496,781 | ||||||
Total liabilities
|
3,880,048 | 3,678,833 | ||||||
STOCKHOLDERS' DEFICIT
|
||||||||
Series B preferred stock, $.0001 par value, 1,000 shares authorized, 1,000 shares
issued and outstanding at September 30, 2012 and December 31, 2011, respectively.
|
- | - | ||||||
Common stock, $.0001 par value, 300,000,000 shares authorized,
237,559,317 and 223,635,129 shares issued and outstanding at September 30, 2012 and December 31, 2011, respectively.
|
23,755 | 22,364 | ||||||
Additional paid-in capital
|
45,852,183 | 43,001,168 | ||||||
Prepaid expenses with common stock
|
(127,476 | ) | - | |||||
Stock subscription receivable
|
(12,000 | ) | (12,000 | ) | ||||
Accumulated deficit
|
(48,124,029 | ) | (45,722,829 | ) | ||||
Total stockholders' deficit-Cyclone Power Technologies Inc.
|
(2,387,567 | ) | (2,711,297 | ) | ||||
Non controlling interest in consolidated subsidiary-Cyclone WHE LLC
|
130,062 | 130,062 | ||||||
Total Stockholders' Deficit
|
(2,257,505 | ) | (2,581,235 | ) | ||||
Total Liabilities and Stockholders' Deficit
|
$ | 1,622,543 | $ | 1,097,598 |
Nine Months Ended September 30,
|
Three Months Ended September 30,
|
|||||||||||||||
2012
|
2011
|
2012
|
2011
|
|||||||||||||
REVENUES
|
$ | 882,490 | $ | 250,000 | $ | 502,045 | $ | 250,000 | ||||||||
COST OF GOODS SOLD
|
555,346 | 399,801 | 333,438 | 148,934 | ||||||||||||
Gross profit (loss)
|
327,144 | (149,801 | ) | 168,607 | 101,066 | |||||||||||
OPERATING EXPENSES
|
||||||||||||||||
Advertising and promotion
|
71,585 | 49,565 | 32,783 | 17,271 | ||||||||||||
General and administrative
|
1,782,334 | 2,002,814 | 475,810 | 814,070 | ||||||||||||
Research and development
|
772,468 | 544,544 | 273,645 | 46,812 | ||||||||||||
Total operating expenses
|
2,626,387 | 2,596,923 | 782,238 | 878,153 | ||||||||||||
Operating loss
|
(2,299,243 | ) | (2,746,724 | ) | (613,631 | ) | (777,087 | ) | ||||||||
OTHER INCOME (EXPENSE)
|
||||||||||||||||
Other (expense)
|
(25,600 | ) | (26,964 | ) | - | - | ||||||||||
Derivative income (expense) - Warrants
|
114,626 | (602,299 | ) | - | 48,459 | |||||||||||
Derivative (expense) - Series A Preferred Stock
|
- | (19,771,086 | ) | - | - | |||||||||||
Interest (expense)
|
(190,983 | ) | (31,174 | ) | (127,308 | ) | (10,273 | ) | ||||||||
Total other income (expense)
|
(101,957 | ) | (20,431,523 | ) | (127,308 | ) | 38,186 | |||||||||
Loss before income taxes
|
(2,401,200 | ) | (23,178,247 | ) | (740,939 | ) | (738,901 | ) | ||||||||
Income taxes
|
- | - | - | - | ||||||||||||
Net loss
|
$ | (2,401,200 | ) | $ | (23,178,247 | ) | $ | (740,939 | ) | $ | (738,901 | ) | ||||
Net loss per common share, basic
|
$ | (0.01 | ) | $ | (0.16 | ) | $ | (0.00 | ) | $ | (0.00 | ) | ||||
Weighted average number of common shares outstanding
|
228,635,399 | 143,237,904 | 235,532,775 | 218,968,632 |
Preferred Stock A
|
Preferred Stock B
|
Common Stock
|
Additional
Paid In
|
Treasury
|
Prepaid
Expenses
|
Prepaid
Expenses
|
Stock
Subscription
|
Accumulated
|
Total
Stockholders'
|
Non Controlling
Interest
|
Total
Stockholders'
|
|||||||||||||||||||||||||||||||||||||||||||||||||
Shares
|
Value
|
Shares
|
Value
|
Shares
|
Value
|
Capital
|
Stock
|
Contribution
|
Warrants
|
Receivable
|
(Deficit)
|
Tech. Inc.
|
Subsidiary
|
(Deficit)
|
||||||||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2010
|
705,453 | $ | 71 | 1,000 | $ | - | 114,020,135 | $ | 11,402 | $ | 9,004,547 | $ | - | $ | (27,500 | ) | $ | - | $ | (18,000 | ) | $ | (22,022,915 | ) | $ | (13,052,395 | ) | $ | 134,875 | $ | (12,917,520 | ) | ||||||||||||||||||||||||||||
Issuance of restricted shares and warrants
for outside services
|
- | - | - | - | 3,754,036 | 376 | 1,029,043 | - | - | - | - | - | 1,029,419 | - | 1,029,419 | |||||||||||||||||||||||||||||||||||||||||||||
Issuance of restricted shares and options
for employee services
|
- | - | - | - | 687,024 | 69 | 562,997 | - | - | - | - | - | 563,066 | - | 563,066 | |||||||||||||||||||||||||||||||||||||||||||||
Sale of common stock
|
- | - | - | - | 8,511,764 | 851 | 1,096,439 | - | - | - | - | - | 1,097,290 | - | 1,097,290 | |||||||||||||||||||||||||||||||||||||||||||||
Warrants issued pursuant to common stock sale
|
- | - | - | - | - | - | 390,488 | - | - | - | - | - | 390,488 | - | 390,488 | |||||||||||||||||||||||||||||||||||||||||||||
Sale of preferred stock
|
44,547 | 4 | - | - | - | - | 192,731 | - | - | - | - | - | 192,735 | - | 192,735 | |||||||||||||||||||||||||||||||||||||||||||||
Issuance of restricted shares for contract penalty
re-delayed shippment
|
- | - | - | - | 1,309,306 | 131 | 299,869 | - | - | - | - | - | 300,000 | - | 300,000 | |||||||||||||||||||||||||||||||||||||||||||||
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 | ) | - | ||||||||||||||||||||||||||||||||||||||||||||
Conversion of preferred stock to common stock
|
(750,000 | ) | (75 | ) | - | - | 95,100,000 | 9,510 | (9,435 | ) | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
Application of derivative liability from conversion of
preferred stock
|
- | - | - | - | - | - | 30,394,710 | - | - | - | - | - | 30,394,710 | - | 30,394,710 | |||||||||||||||||||||||||||||||||||||||||||||
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 | ) | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
Collection of peferred stock subscription receivable
|
- | - | - | - | - | - | - | - | - | - | 6,000 | - | 6,000 | - | 6,000 | |||||||||||||||||||||||||||||||||||||||||||||
Conversion of stock options-cashless exercise
|
- | - | - | - | 13,889 | 1 | (1 | ) | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
Net loss year ended December 31, 2011
|
- | - | - | - | - | - | - | - | - | - | - | (23,704,727 | ) | (23,704,727 | ) | - | (23,704,727 | ) | ||||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2011
|
- | - | 1,000 | - | 223,635,129 | 22,364 | 43,001,168 | - | - | - | (12,000 | ) | (45,722,829 | ) | (2,711,297 | ) | 130,062 | (2,581,235 | ) | |||||||||||||||||||||||||||||||||||||||||
Issuance of restricted shares and warrants
for outside services
|
- | - | - | - | 3,434,356 | 343 | 651,896 | - | - | (40,000 | ) | - | - | 612,239 | - | 612,239 | ||||||||||||||||||||||||||||||||||||||||||||
Issuance of restricted shares and options
for employee services
|
- | - | - | - | 130,000 | 13 | 390,615 | - | - | - | - | - | 390,628 | - | 390,628 | |||||||||||||||||||||||||||||||||||||||||||||
Sale of common stock
|
- | - | - | - | 5,274,562 | 527 | 565,033 | - | - | - | - | - | 565,560 | - | 565,560 | |||||||||||||||||||||||||||||||||||||||||||||
Warrants issued pursuant to common stock sale
|
- | - | - | - | - | - | 173,369 | - | - | - | - | - | 173,369 | - | 173,369 | |||||||||||||||||||||||||||||||||||||||||||||
Issuance of restricted shares for contract penalty
|
- | - | - | - | 545,498 | 55 | 99,945 | - | - | - | - | - | 100,000 | - | 100,000 | |||||||||||||||||||||||||||||||||||||||||||||
Commission fee for debt paid with common stock
|
- | - | - | - | 258,609 | 26 | 40,441 | - | - | - | - | - | 40,467 | - | 40,467 | |||||||||||||||||||||||||||||||||||||||||||||
Prepayment of debt interest in common stock and warrants
|
- | - | - | - | 481,163 | 48 | 166,995 | - | - | (87,476 | ) | - | - | 79,567 | - | 79,567 | ||||||||||||||||||||||||||||||||||||||||||||
Conversion of common stock warrants-cashless exercise
|
- | - | - | - | 2,000,000 | 200 | 379,800 | - | - | - | - | - | 380,000 | - | 380,000 | |||||||||||||||||||||||||||||||||||||||||||||
Conversion of common stock options-cashless exercise
|
- | - | - | - | 15,000 | 1 | (1 | ) | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
Purchase of net business assets of Advent Power
|
- | - | - | - | 1,500,000 | 150 | 329,850 | - | - | - | - | - | 330,000 | - | 330,000 | |||||||||||||||||||||||||||||||||||||||||||||
Common stock issued pursuant to consulting agreement
|
- | - | - | - | 125,000 | 12 | 27,488 | - | - | - | - | - | 27,500 | - | 27,500 | |||||||||||||||||||||||||||||||||||||||||||||
Common stock issued pursuant to debt refinancing
|
- | - | - | - | 160,000 | 16 | 25,584 | - | - | - | - | - | 25,600 | - | 25,600 | |||||||||||||||||||||||||||||||||||||||||||||
Net loss nine months ended September 30, 2012
|
- | - | - | - | - | - | - | - | - | - | - | (2,401,200 | ) | (2,401,200 | ) | - | (2,401,200 | ) | ||||||||||||||||||||||||||||||||||||||||||
Balance, September 30, 2012
|
- | $ | - | 1,000 | $ | - | 237,559,317 | $ | 23,755 | $ | 45,852,183 | $ | - | $ | - | $ | (127,476 | ) | $ | (12,000 | ) | $ | (48,124,029 | ) | $ | (2,387,567 | ) | $ | 130,062 | $ | (2,257,505 | ) |
Nine Months Ended September 30,
|
||||||||
2012
|
2011
|
|||||||
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net loss
|
$ | (2,401,200 | ) | $ | (23,178,247 | ) | ||
Adjustments to reconcile net loss to net cash used by
operating activities:
|
||||||||
Depreciation and amortization
|
46,194 | 41,563 | ||||||
Loss allocated to non controlling intereest in subsidiary
|
- | (4,813 | ) | |||||
Issuance of restricted common stock, options and warrants for services
|
1,002,867 | 1,221,108 | ||||||
Issuance of restricted common stock issued for debt refinancing
|
25,600 | - | ||||||
Issuance of restricted common stock for contract penalty
|
50,000 | 225,000 | ||||||
(Income) loss from derivative liability-Warrants
|
(114,626 | ) | 602,299 | |||||
Loss from derivative liability-Series A Preferred Stock
|
- | 19,771,086 | ||||||
Amortization of prepaid expenses purchased with equity
|
- | 27,500 | ||||||
Amortization of prepaid expenses via common stock
|
120,034 | - | ||||||
Changes in operating assets and liabilities:
|
||||||||
Decrease in accounts receivable
|
178,311 | 4,200 | ||||||
(Increase) decrease in inventory
|
48,836 | (318,450 | ) | |||||
Increase in other assets
|
(55,009 | ) | (9,493 | ) | ||||
Decrease in deferred revenue and license deposits
|
(419,336 | ) | (182,500 | ) | ||||
Increase in accounts payable and accrued expenses
|
178,275 | 201,961 | ||||||
Decrease in factored receivables
|
(43,169 | ) | - | |||||
Increase in accounts payable and accrued expenses-related parties
|
191,818 | 212,595 | ||||||
Net cash used by operating activities
|
(1,191,405 | ) | (1,386,191 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Expenditures incurred for patents, trademarks and copyrights
|
(5,791 | ) | (79,343 | ) | ||||
Expenditures for fixed assets
|
(69,265 | ) | (36,686 | ) | ||||
Net cash used by investing activities
|
(75,056 | ) | (116,029 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Sale of Series A Preferred treasury stock
|
- | 40,000 | ||||||
Payment of capitalized leases
|
(654 | ) | (6,091 | ) | ||||
Proceeds from debt
|
925,000 | - | ||||||
Repayment of debt
|
(427,500 | ) | - | |||||
Proceeds from sale of common stock
|
738,929 | 1,367,785 | ||||||
Proceeds from sale of preferred stock
|
- | 192,735 | ||||||
Increase in related party notes and loans payable
|
62,608 | (27,218 | ) | |||||
Net cash provided by financing activities
|
1,298,383 | 1,567,211 | ||||||
Net increase in cash
|
31,922 | 64,991 | ||||||
Cash, beginning of period
|
66,486 | 6,557 | ||||||
Cash, end of period
|
$ | 98,408 | $ | 71,548 | ||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
Payment of interest in cash
|
$ | 29,358 | $ | 808 | ||||
NON CASH INVESTING AND FINANCING ACTIVITIES:
|
||||||||
Purchase of 8,000 shares of Series A Preferred treasury stock via note payable
|
$ | - | $ | 40,000 | ||||
Issuance of 739,772 shares of Common stock for prepaid interest and debt commission
|
$ | 120,034 | $ | - | ||||
Issuance of 2,000,000 shares of Common stock for cashless warrant exercise
|
$ | 380,000 | $ | - | ||||
Issuance of 160,000 shares of Common stock pursuant to debt renegotiation.
|
$ | 25,600 | ||||||
Issuance of 1,500,000 shares of Common stock pursuant to purchase of Advent Power Systems Inc.
|
$ | 330,000 | $ | - | ||||
Issuance of 125,000 shares of Common stock for consulting agreement
|
$ | 27,500 | $ | - | ||||
Conversion of debt and liabilities by issuing 213,975 shares of common stock
|
$ | - | $ | 39,804 |
Level 1
|
—
|
Inputs are quoted prices in active markets for identical assets or liabilities as of the reporting date.
|
||
Level 2
|
—
|
Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, as of the reporting date.
|
||
Level 3
|
—
|
Unobservable inputs for the asset or liability that reflect management’s own assumptions about the assumptions that market participants would use in pricing the asset or liability as of the reporting date.
|
Instrument
|
Beginning
of Period
|
Change
|
End of Period |
Level
|
Valuation
Methodology
|
||||||||||
Derivative liabilities
|
$ | 494,626 | $ | (494,626 | ) | $ |
-
|
3 |
Black Scholes
|
Display equipment for trade shows (years) | 3 | |||
Leasehold improvements and furniture and fixtures (years) | 10 | - | 15 | |
Shop equipment (years) | 7 | |||
Computers (years) | 3 |
September 30,
2012
|
December 31,
2011
|
|||||||
Engine material and parts
|
$ | 618,031 | $ | 327,946 | ||||
Labor
|
213,399 | 128,395 | ||||||
Applied overhead
|
32,012 | 19,259 | ||||||
Total Inventory
|
$ | 863,442 | $ | 475,600 |
September 30,
2012
|
December 31,
2011
|
|||||||
Display equipment for trade shows
|
$ | 9,648 | $ | 9,648 | ||||
Leasehold improvements and furniture and fixtures
|
86,422 | 74,083 | ||||||
Equipment and computers
|
179,289 | 101,053 | ||||||
Total
|
275,359 | 184,784 | ||||||
Less: Accumulated Depreciation
|
(92,719 | ) | (76,541 | ) | ||||
Net Property and Equipment
|
$ | 182,640 | $ | 108,243 |
September 30,
2012
|
December 31,
2011
|
|||||||
Convertible Notes payable, OID 9% interest ($436,000
payable at maturity) maturing in August-
September 2013, net of warrants, collateralized by t
he Company’s receivables from the US Army contract (A)
|
$ | 331,706 | $ | - | ||||
Pursuant to 9% OID Notes, 1,162,667 warrants (valued at
$79,577) issued net of $8,410 amortization
|
71,167 | - | ||||||
Demand note, uncollateralized, maturing April 2013
18% interest, (12% prepaid with stock and
6% payable in cash at maturity)
|
40,000 | - | ||||||
6-20% uncollateralized demand notes maturing Dec. 2012-
May 2013
|
87,500 | 30,000 | ||||||
Total current non related party notes (
accrued interest is included in accrued liabilities)
|
$ | 530,373 | $ | 30,000 |
(A)
|
Convertible at $.15 per share, subject to price protection provisions. The Company is obligated to prepay these Notes with a portion of its receipts from the U.S. Army contract, not to exceed 50% of such receipts, if the Notes are not previously converted.
|
September 30,
2012
|
December 31,
2011
|
|||||||
6% demand loan from controlling shareholder, uncollateralized (A)
|
$ | 11,285 | $ | 11,285 | ||||
6% demand loans per Operations Agreement with Schoell Marine Inc., a company owned by Cyclone’s Chairman and controlling shareholder, collateralized by lien on Cyclone’s patent for heat regenerative engine (B)
|
459,608 | 427,332 | ||||||
6% non-collateralized loan from officer and shareholder, payable on demand. The original principle balance was $137,101.
|
66,364 | 66,364 | ||||||
Accrued Interest
|
203,623 | 173,290 | ||||||
Total current related party notes, inclusive of accrued interest
|
$ | 740,880 | $ | 678,271 |
(A)
|
This note (originally $40,000) was issued to finance the purchase of 8,000 shares of the Company’s Series A Preferred Stock. This treasury stock was subsequently sold for $40,000.
|
|
(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. For the nine months ended September 30, 2012, $4,550 of principal was paid on the note balance.
|
Number
Outstanding
|
Weighted Avg.
Exercise Price
|
Weighted Avg.
Remaining Contractual
Life (Years
)
|
||||||||||
Balance, December 31, 2010
|
3,040,000 | $ | 0.188 | 5.0 | ||||||||
Options issued
|
3,115,000 | .299 | 7.9 | |||||||||
Options exercised
|
(20,000 | ) | (.100 | ) | - | |||||||
Options cancelled
|
(100,000 | ) | (.246 | ) | - | |||||||
Balance, December 31, 2011
|
6,035,000 | $ | 0.208 | 6.0 | ||||||||
Options issued
|
3,090,000 | . 157 | 8.4 | |||||||||
Options exercised
|
(30,000 | ) | (.120 | ) | - | |||||||
Options cancelled
|
(105,000 | ) | (.212 | ) | - | |||||||
Balance, September 30, 2012
|
8,990,000 | $ | 0.193 | 7.5 |
Exercisable/Vested
Options
Outstanding
|
Weighted Average Exercise Price
|
Weighted Average Remaining Contractual Life (Yrs)
|
||||||||||
Common Stock Options
|
||||||||||||
Balance, December 31, 2011 | 3,020,000 | $ | 0.189 | 5.0 | ||||||||
Balance, September 30, 2012 | 5,020,000 | 0.169 | 6.8 | |||||||||
Additional vesting by Dec. 31, 2012 | 895,000 | 0.190 |
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
|
3,611,251 | .290 | 2.23 | |||||||||
Warrants exercised
|
- | - | - | |||||||||
Warrants cancelled
|
- | - | - | |||||||||
Balance, December 31, 2011
|
4,381,751 | .265 | 1.99 | |||||||||
Warrants issued
|
3,671,359 | .201 | 3.42 | |||||||||
Warrants exercised
|
- | - | - | |||||||||
Warrants re-priced
|
- | (.087 | ) | - | ||||||||
Warrants cancelled/expired
|
(1,520,500 | ) | (.224 | ) | - | |||||||
Balance, September 30, 2012
|
6,532,610 | $ | .237 | 2.81 |
Nine Months
ended
September 30, 2012
|
Amount
|
Nine Months ended
September 30, 2011
|
Amount
|
|||||||||||||
Tax benefit at U.S. statutory rate
|
34 | % | $ | 785,256 | 34 | % | $ | 883,529 | ||||||||
State taxes, net of federal benefit
|
4 | 92,383 | 4 | 103,944 | ||||||||||||
Change in valuation allowance
|
(38 | ) | (877,639 | ) | (38 | ) | (987,473 | ) | ||||||||
- | % | $ | - | - | % | $ | - |
Deferred Tax Assets |
September 30, 2012
|
December 31, 2011
|
||||||
Net Operating Loss Carry-forward
|
$ | 6,376,506 | $ | 5,420,492 | ||||
Deferred Tax Liabilities – Accrued Officers’ Salaries
|
( 309,510 | ) | (231,135 | ) | ||||
Net Deferred Tax Assets
|
6,066,996 | 5,189,357 | ||||||
Valuation Allowance
|
(6,066,996 | ) | (5,189,357 | ) | ||||
Total Net Deferred Tax Assets
|
$ | - | $ | - |
2012
|
$ | 772 | ||
2013
|
4,541 | |||
2014
|
4,898 | |||
2015
|
4,383 | |||
2016
|
9,115 | |||
$ | 23,709 |
Risk free rate
|
1.27 | % | - | 2.69 | % | |||
Expected volatility
|
150 | % | - | 400 | % | |||
Expected term in years
|
5 | |||||||
Expected dividend yield
|
0 | % |
Risk free rate
|
.39 | % | ||
Expected volatility
|
108 | % | ||
Expected term in years
|
2 | |||
Expected dividend yield
|
0 | % |
Inventory and contract rights:
|
$ | 587,489 | ||
Deferred revenue:
|
(178,311 | ) | ||
Account payable and accrued expenses:
|
(79,178 | ) | ||
Total:
|
$ | 330,000 |
|
·
|
the ability to successfully complete development and commercialization of our technology;
|
|
·
|
changes in existing and potential relationships with collaborative partners;
|
|
·
|
the ability to retain certain members of management;
|
|
·
|
our expectations regarding general and administrative expenses;
|
|
·
|
our expectations regarding cash availability and balances, capital requirements, anticipated revenue and expenses, including infrastructure and patent expenditures;
|
|
·
|
other factors detailed from time to time in filings with the SEC.
|
·
|
2,135,812 shares of common stock for an aggregate purchase price of $264,742 to one accredited institutional investor. These securities were offered pursuant to an exemption under Section 4(2) of the Securities Act and Regulation D thereunder. The purchaser completed an Accredited Investor Questionnaire and Subscription Agreement, and received a copy of the Company’s Annual Report in connection with the issuance.
|
·
|
Warrants to purchase 1,162,667 shares of common stock at an exercise price of $.20 per share for five (5) years from issuance. These warrants were issued in connection with $436,000 in Convertible Promissory Notes, bearing a 9% Original Issuance Discount (OID) and a floor conversion price of $.15 per share subject to standard anti-dilution and price protection provisions, to two accredited institutional investors. The Company also issued 121,734 shares of common stock as commissions at a value of $16,830. All these securities were offered to accredited investors pursuant to an exemption under Section 4(2) of the Securities Act and Regulation D thereunder. Each of the purchasers of the shares completed Accredited Investor Questionnaires and Subscription Agreements, and received a copy of the Company’s Annual Report in connection with the issuances.
|
·
|
An aggregate of 876,753 shares of common stock to employees and service providers of the Company, with an aggregate value of $127,095. The securities were offered pursuant to an exemption under Section 4(2) of the Securities Act of 1933, amended. The shareholders were either accredited or sophisticated investors who received copies of the Company’s annual report, which contained audited financial statements as well as unaudited financials for the applicable quarterly period. Each party had an opportunity to ask questions of the Company and understood the risks of investment in the Company.
|
·
|
An aggregate of 750,000 common stock options at an exercise price of $0.13 per share to five officers and directors of the Company. Options vest in September 2013, and terminate in September 2022.
|
Exhibit
Number
|
Description
|
||
10.18
|
Form of Securities Purchase Agreement, signed between the Company and
Brio Capital LP and Gemini Master Fund Ltd.
|
||
10.19 | Form of Promissory Note signed between the Company and Brio Capital LP and Gemini Master Fund Ltd. | ||
10.20
|
Form Common Stock Purchase Warrant signed between the Company and
Brio Capital LP and Gemini Master Fund Ltd.
|
||
31.1
|
Certification of the Principal Executive Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002.
|
||
31.2
|
Certification of the Principal Financial Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002.
|
||
32.1
|
Certification of the Chief Executive Officer, as required by Section 906 of the Sarbanes-Oxley Act of 2002.
|
||
32.2
|
Certification of the Chief Financial Officer, as required by Section 906 of the Sarbanes-Oxley Act of 2002.
|
||
101.INS* |
XBRL Instance
|
||
101.SCH* |
XBRL Taxonomy Extension Schema
|
||
101.CAL* |
XBRL Taxonomy Extension Calculation
|
||
101.DEF* |
XBRL Taxonomy Extension Definition
|
||
101.LAB* |
XBRL Taxonomy Extension Labels
|
||
101.PRE* |
XBRL Taxonomy Extension Presentation
|
Cyclone Power Technologies, Inc.
|
||||
November 19, 2012
|
/s/ James C. Landon
James C. Landon
|
|||
Chief Executive Officer
(Principal executive officer)
|
||||
November 19, 2012
|
/s/ Bruce Schames
Bruce Schames
|
|||
Chief Financial Officer
(Principal financial and accounting officer)
|
PURCHASER | |
(By Counterpart Form - See Purchaser Signature Pages following) | |
COMPANY | |
Cyclone Power Technologies, Inc. | |
(By Execution of Acceptance Page following Certificate of Signatory) |
Category I
|
I am a director or executive officer of the Company.
|
Category II
|
I am an individual (not a partnership, corporation, etc.) whose individual net worth, or joint net worth with my spouse, presently exceeds $1,000,000.
Explanation.
In calculation of net worth, you may include equity in personal property and real estate
other than your principal residence
, including cash, short term investments, stocks and securities. Equity in personal property and real estate should be based on the fair market value of such property less debt secured by such property.
|
Category III |
I am an individual (not a partnership, corporation, etc.) who had an individual income in excess of $200,000 in 2010 and 2011, or joint income with my spouse in excess of $300,000 in 2010 and 2011, and I have a reasonable expectation of reaching the same income level in 2012.
|
Category IV |
The Purchaser is an entity in which all of the equity owners are “
Accredited Investors
” as defined in Rule 501(a) of Regulation D.
If relying upon this category alone, each equity owner must complete a separate copy of this Agreement.
|
Category V |
The Purchaser is a trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the Securities offered, whose purchase is directed by a “
Sophisticated Person
” as described in Rule 506(b)(2)(ii) of Regulation D.
|
Category VI |
The Purchaser is an organization described in Section 501(c)(3) of the Internal Revenue Code, corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the Securities, with total assets in excess of $5,000,000.
|
Category VII |
The Purchaser is a private business development company as defined in Section 202(a)(22) of the Investment Advisers Act of 1940.
|
Principal Amount of Notes: $____
Warrants: ____
Purchase Price $____
|
____________________________________
Name of Entity
____________________________________
Type of Entity (i.e., corporation, partnership, etc.)
____________________________________
Tax Identification or Social Security Number
____________________________________
State of Formation of Entity
____________________________________
Name of Signatory Typed or Printed
Its: _________________________________
Title
|
Address to Which Correspondence Should Be Directed (if different from above)
____________________________________
c/o Name
____________________________________
Street Address
|
|
____________________________________
City, State and Zip Code
(______)____________________________
Telephone Number
(______)____________________________
Facsimile Number
|
___________________________________________
Signature
|
Principal Amount: $_____ (9% OID) | _______ , 2012 |
|
(a)
|
The failure to make any payment of principal or interest of this Note, when due, by acceleration or for any other reason; or
|
|
(b)
|
The Borrower breaches any material covenant or other term or condition of this Note in any material respect and such breach, if subject to cure, continues for a period of ten (10) business days after written notice to the Borrower from the Payee; or
|
|
(c)
|
Any material representation or warranty of the Borrower made herein, or in the Agreement, statement or certificate given in writing pursuant hereto or in connection therewith shall be false or misleading in any material respect as of the date hereof; or
|
|
(d)
|
Reservation Default
. Failure by the Borrower to have reserved for issuance upon conversion of the Note the number of shares of Common Stock as required in the Agreement; or
|
|
(e)
|
Receiver or Trustee
. The Borrower or any Subsidiary of Borrower shall make an assignment for the benefit of creditors, or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business; or such a receiver or trustee shall otherwise be appointed; or
|
|
(f)
|
Judgments
. Any money judgment, writ or similar final process shall be entered or filed against Borrower or any of its property or other assets for more than $100,000, unless stayed vacated or satisfied within forty-five (45) days; or
|
|
(g)
|
Bankruptcy
. Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings or relief under any bankruptcy law or any law, or the issuance of any notice in relation to such event, for the relief of debtors shall be instituted by or against the Borrower or any Subsidiary of Borrower; or
|
|
(h)
|
Delisting
. Delisting of the Common Stock from any Principal Market; failure to comply with the requirements for continued listing on a Principal Market for a period of ten (10) consecutive trading days; or
|
|
(i)
|
Non-Payment
. A default by the Borrower under any one or more obligations in an aggregate monetary amount in excess of $100,000 for more than twenty (20) days after the due date, unless the Borrower is contesting the validity of such obligation in good faith.
|
Payment Scheduled
to be Paid from Army
|
Estimated
Approximate Date
|
Maximum Amount Available
for Early Repayment
|
$251,441
|
1 November 2012
|
$125,720
|
$251,441
|
1 February 2013
|
$125,720
|
$251,441
|
1 May 2013
|
$125,720
|
$130,527
|
15 July 2013
|
$65,263
|
Right to Purchase _____ shares of Common Stock of
Cyclone Power Technologies
, Inc. (subject to adjustment as provided herein)
|
No. 2012-C-00__ | Issue Date: _________, 2012 |
|
Y=
|
the number of shares of Common Stock purchasable under the Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being exercised (at the date of such calculation)
|
|
A=
|
Fair Market Value
|
|
B=
|
Purchase Price (as adjusted to the date of such calculation)
|
CYCLONE POWER TECHNOLOGIES
, INC.
By:
Name:
Title:
|
___
|
_________ shares of Common Stock covered by such Warrant pursuant to the cashless exercise procedure set forth in Section 2 of the Warrant.
|
___
|
the cancellation of such portion of the attached Warrant as is exercisable for a total of _______ shares of Common Stock (using a Fair Market Value of $_______ per share for purposes of this calculation); and/or
|
___
|
the cancellation of such number of shares of Common Stock as is necessary, in accordance with the formula set forth in Section 2(b) of the Warrant, to exercise this Warrant with respect to the maximum number of shares of Common Stock purchasable pursuant to the cashless exercise procedure set forth in Section 2.
|
Dated:___________________
|
_________________________________________________
(Signature must conform to name of holder as specified on the face of the Warrant)
_________________________________________________
_________________________________________________
(Address)
|
Transferees
|
Percentage Transferred
|
Number Transferred
|
Dated: __________________, _______
Signed in the presence of:
________________________________
(Name)
ACCEPTED AND AGREED:
[TRANSFEREE]
________________________________
(Name)
|
__________________________________________________
(Signature must conform to name of holder as
specified on the face of the warrant)
__________________________________________________
__________________________________________________
(address)
__________________________________________________
__________________________________________________
(address)
|
1.
|
I have reviewed this report on Form 10-Q of Cyclone Power Technologies, Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a.
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiary, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b.
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c.
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d.
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
a.
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
b.
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
1.
|
I have reviewed this report on Form 10-Q of Cyclone Power Technologies Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a.
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiary, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b.
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c.
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d.
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
a.
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
b.
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Date: November 19, 2012
|
/s/ Bruce Schames
|
|
Bruce Schames,
|
||
Chief Financial Officer
|
||
(Principal Accounting Officer)
|
(a)
|
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
(b)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
Date: November 19, 2012
|
/s/James Landon
|
James Landon
|
|
Chief Executive Officer
(Principal Executive Officer)
|
(a)
|
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
(b)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
Date: November 19, 2012
|
/s/ Bruce Schames
|
Bruce Schames
|
|
Chief Financial Officer and Secretary
(Principal Accounting Officer)
|