CYCLONE POWER TECHNOLOGIES INC (Form: 10-K, Received: 07/31/2017 15:12:48)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)

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

	For the fiscal year ended December 31, 2016

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

	For the transition period from to

Commission file number 000-54449

Cyclone Power Technologies, Inc.

(Exact name of registrant as specified in its charter)

Florida		26-0519058
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

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

Registrant’s telephone number (954) 943-8721

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

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

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

Common Stock, $0.0001 par value

(Title of class)

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

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

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

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

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

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

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

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates as of the closing price of such shares on the last business day of the registrant’s most recently completed fiscal year was approximately $2,100,000.

The number of shares outstanding of the registrant’s common stock as of July 27, 2017 is 1,753,246,329

DOCUMENTS INCORPORATED BY REFERENCE—NONE

TABLE OF CONTENTS

FORM 10-K

		Page
	Part I
Item 1.	BUSINESS	3
Item 1A.	RISK FACTORS	7
Item 1B.	UNRESOLVED STAFF COMMENTS	7
Item 2.	PROPERTIES	7
Item 3.	LEGAL PROCEEDINGS	7
Item 4.	MINE SAFETY DISCLOSURES	7

	Part II
Item 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	8
Item 6.	SELECTED FINANCIAL DATA	9
Item 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	9
Item 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	13
Item 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	13
Item 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	13
Item 9A.	CONTROLS AND PROCEDURES	14
Item 9B.	OTHER INFORMATION	15

	Part III
Item 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	15
Item 11.	EXECUTIVE COMPENSATION	19
Item 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	22
Item 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	23
Item 14.	PRINCIPAL ACCOUNTING FEES AND SERVICES	23

	Part IV
Item 15.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES	24
	SIGNATURES	29

Part I

Item 1. Business

Summary

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

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

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

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

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

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

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

●	Our Mark 1 and Mark 3 model engines address the alternative energy markets to provide an external combustion engine able to burn various fuels providing power for usable mechanical and/or electric power. Our business model is to subcontract the manufacturing of these models and sell them to commercial customers and vertical partners starting in 2017.

●	*Transportation and Equipment:* Our Mark 5 model engine is a powerful, multi-fuel and clean burning demonstrator for the automotive, marine and off-road equipment markets. Our business model is to secure strong development partners in these sectors to provide program funding and support to allow us to complete a heavy equipment and vehicle integration in 2017.

●	*Portable / Mobile Power* : Our S-2 model engine was developed and accepted under a contract with the U.S. Army as a portable, multi-fuel power generator for vehicles and forward operating bases. We have licensed this technology to Falck Schmidt Defense Systems (“FSDS”) of Denmark, a worldwide military supplier. They will take the unit to a trial for military compliance.

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

Business Objectives

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

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

	●	Development and engineering fees from customers, partners and licensees;

	●	Direct sales revenue from engines we manufacture through sub contractors;

	●	Up-front license fees and on-going royalties based on sales by our licensees.

	●	Direct sales of Cyclone powered generators to distributors.

Development Status of Technology

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

Model	Size	Uses	Stage

Mark 1	5 HP	Power generation –all fuels and heat sources	Preproduction units (10) in field testing

Mark 3	25 HP	Auxiliary power for military, biomass to power, portable power	Preproduction units (15) at OEM’s

Mark 5	100 HP	Transportation, commercial power, military	Beta Prototype (2)

Combustion Chamber		Waste fuels, biomass to power, for :transportation, commercial power, military	Preproduction units (25)

	(1)	“Pre Production Unit” refers to an engine in the process of being engineered for manufacturing at OEM’s

	(2)	Beta Prototype” refers to a second generation prototype engine, which has undergone significant testing at Cyclone’s facility.

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

Research and Development Activities

As a technology research and development company, much of our annual expenses are dedicated towards R&D, including labor costs, material costs, tooling and equipment and other expenses required to run our business. Our R&D expenditures for 2016 and 2015 were $604,199 and $467,610, respectively.

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

Prototyping and Manufacturing

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

Competitive Business Conditions

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

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

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

Patents and IP Protection

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

Active U.S. Patents

U.S. No. 7,080,512 B2	Heat Regenerative Engine

U.S. No. 7,407,382 B2	Steam Generator in a Heat Regenerative Engine

U.S. No. 7,856,822 B2	Heat Regenerative Engine

U.S. No. 7,856,823 B2	Pre-Heater Coil in a Heat Regenerative Engine

Active Foreign Patents/Applications - Heat Regenerative Engine

European Patent No. 1809865

Australian Patent No. 2005284864

Brazilian Application No. P10515305-0

Canadian Patent No. 2577585

Chinese Patent No. ZL200580030436.4

Japanese Patent No. 4880605

Mexican Patent No. 285078

Russian Patent No. 2357091

South African Patent No. 2007/02947

Indonesian Patent No. IDP0024346*

Indian Patent Application No. 1949/DELNP/2007

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

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

Sources and availability of raw material

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

Dependence on a few major customers

We have contracts for development and licensing of our engine technology: Combi-Lift LTD. (a global materials handling and lift equipment manufacturer based in Ireland), Falck Schmidt Defense Systems of Denmark (“FSDS”) (a global military products manufacturing and supplier), IBES (a producer of biomass furnace electric systems) and G2E (a solar engineering company for Mexico and South America). We have formed working relationships with other major industrial groups, and teaming agreements with manufacturers. Our licensee for waste heat to power, Q2 Power Inc., is currently in breach of their licensing agreement and has been formally notified to cure contract breaches.

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

Governmental regulation

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

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

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

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

Employees. As of December 31, 2016, we had 6 full-time employees including management, and one part-time employee. We consider our relations with our employees to be good. None of our employees are covered under any labor union or collective bargaining agreement. As needed, we contract with specialized labor and consultants to control costs.

Item 1A. Risk Factors

Not required for smaller reporting companies.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

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

Item 3. Legal Proceedings

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

In August 2015, the Company is subject to a default judgment $166,000 plus interest for non- payment of a convertible warrant true up. The Company is seeking to arrange a reduced settlement. A judgment was entered in United States District Court of Utah, Central Division, case No: 215-cv-00536-PMW, on May 17, 2016, between the Company and Tonaquint Inc. for default of true up on a convertible warrant.

Item 4. Mine Safety Disclosures

None.

PART II

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

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

According to the records of our transfer agent and NOBO listing, as of March 31, 2017, there were approximately 4,700 shareholders of record of our common stock, and two shareholders of record of our Series B Preferred Stock.

Year Ended December 31, 2016

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

Year ended December 31, 2015

	High Bid Price		Low Bid Price
First Quarter	$	0.0021	$	0.0002
Second Quarter		0.0090		0.0002
Third Quarter		0.0023		0.0005
Fourth Quarter		0.0030		0.0007

Dividend Policy .

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

Item 6. Selected Financial Data

Not required for smaller reporting companies.

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

Forward Looking Statements

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

	●	the ability to successfully complete commercialization of our technology;

	●	changes in existing and potential relationships with customers and collaborative partners;

	●	the ability to retain certain members of management;

	●	our expectations regarding general and administrative expenses;

	●	our expectations regarding cash availability and balances, capital requirements, anticipated revenue and expenses, including infrastructure and patent expenditures;

	●	other factors detailed from time to time in filings with the SEC.

In addition, in this filing, we use words such as “anticipate,” “believe,” “plan,” “expect,” “future,” “intend,” and similar expressions to identify forward-looking statements. We undertake no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this filing. In light of these risks and uncertainties, the forward-looking events and circumstances discussed in this filing may not occur and actual results could differ materially from those anticipated or implied in the forward-looking statement.

Overview

We are engaged in the research and development of all-fuel, eco-friendly engine technologies. Several prototypes of these engines are current beta tested, pre-production tested or nearing completion with 2 models currently in limited production. While we started to generate revenue from its operations as early as 2008, it has not had material or consistent revenue in each of the last two fiscal years. For us to maintain and expand our operations through the next 12 months, we will seek the completion of our manufactured products by our two manufacturers of the engines and the integration of the engines into a generator package to be sold to distributors. We will also continue license agreements and development agreements that provide up-front or progress payment funds to us. We also will continue to pursue raising capital by means of equity or debt offerings.

In 2015, the TARDAC (S2) engine was delivered, on time, and accepted, by the U.S. Army. This contract was for approximately $1.4 million. We have licensed this S2 technology to FSDS, to take it to TRL9 for military compliance. We have received $150,000 with another $75,000 due on delivery for 2 S2 systems. We have completed 80% of the testing and anticipate delivery and final payments within the next 1-2 months. We have also signed a long term license agreement with FSDS which also brings Cyclone into their organization as an R&D arm.

In 2017, with additional resources, our R&D team will also move towards completion of the Mark 5 project. This engine is to be delivered to Combilift for its clean-burning material lift equipment.. With respect to the Combilift contract, we are forecasting an additional $300,000 in revenue from the delivery of two Mark 5 engines to this customer. We are also pursuing other R&D contracts that both support and build-off of these two engine programs, inclusive of marine power applications.

Financing Transactions

In 2016, we financed our operations through funds generated from $94,725 in notes payable and an increase in trade accounts payables, accrued liabilities and payables and debt to related parties of approximately $962,000.

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

Stock for Services and Contracts. During the year ended December 31, 2016, we issued 3 million shares of common stock for $6,000 of services. We also amortized (based on vesting) $2,526 of common stock options for employee services.

Stock for Liabilities. During the year ended December 31, 2016, we issued approximately 125.7 million shares of common stock in payment of approximately $241,000 of liabilities.

Research & Development. We invest considerably in the development of our technology. Over the years, these investments have led to over 30 patents and substantial progress towards the commercialization of our engine technology. For 2016 our R&D expenses were $604,199. and for 2015, our R&D expenses were $467,610.

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

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

Intangible assets, consisting primarily of patents, are deemed to be critical for the furtherance of our business objectives and our engine products. Impairment is not currently reflective, as we are developing our products and obtaining new contracts based on these engine and associated technology patents.

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

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

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

Off-Balance Sheet Arrangements

We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, that would have been established for facilitating off-balance sheet arrangements (as that term is defined in Item 303(a)(4)(ii) of Regulation S-K) or other contractually narrow or limited purposes. As such, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in those types of relationships.

New Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board, or FASB, or other standard setting bodies that are adopted by us as of the specified effective date. Unless otherwise discussed, we believe that the impact of recently issued standards that are not yet effective will not have a material impact on our financial position or results of operations upon adoption.

Results of Operations –

Year Ended December 31, 2016 Compared to Year Ended December 31, 2015

Revenues and Gross Profit

There were no revenues or gross profit for the years ended December 31, 2016 and December 31, 2015.

Operating Expenses

Our operating expenses increased $451,924, or 40%, to $1,580,071 for the year ended December 31, 2016 compared to $1,128,147 for the comparable period in 2015. The majority of the increase was due to higher research and development expenses of $202,689 (74%) that were attributable to the complete expensing of engine developmental labor and overhead, and an increase in general and administrative expenses of $273,351 or 44%, (primarily consulting and timing of patent maintenance fees) and a charge of $41,252 for patent retirements. This was partially offset by a net $66,100 reduction in the inventory reserve provision.

Operating Loss

Our operating losses increase $451,924, or 40%, to $1,580,071 for the year ended December 31, 2016 compared to $1,128,147 for the comparable period in 2015.

Other Income (Expense)

Net other expense for the year ended December 31, 2016 was ($520,852) primarily attributable to non cash derivative expense of $370,519 and $141,450 of interest expense. Net other expense for the year ended December 31 2015 of $(342,156) was inclusive of interest expense of $348,858, and to derivative liability income of $56,702.

Net Income and Earnings per Share

Our net loss increased $630,620 or 43% to $2,100,923 for the year ended December 31, 2016 compared to a net loss of $1,470,303 for the comparable period in 2015. The decrease is due to the factors set forth above. The resulting net loss per weighted average share for 2016 and 2015 was ($0.00) and ($0.00), respectively.

Year Ended December 31, 2015 Compared to Year Ended December 31, 2014

Revenues

Our revenues declined $329,027, or 100%, to $0 for the year ended December 31, 2015 compared to $329,027 for the comparable period in 2014. The lack of revenues was due to current contracts on a completed contract basis versus prior milestone basis. Our 2014 revenues included $140,527 from the successful fulfillment of the final milestone under the U.S. Army contract, and $175,000 from the income recognition of the license agreement with Q2 Power.

Gross Profit

Our gross profit declined $240,220, or 100%, to $0 for the year ended December 31, 2015 compared to $240,220 for the comparable period in 2014. The decrease is due to no sales in 2015. Our 2014 Cost of Goods Sold included approximately $88,000 related to the U.S. Army contract.

Operating Expenses

Our operating expenses decreased $1,890,075, or 63%, to $1,128,147 for the year ended December 31, 2015 compared to $3,018,222 for the comparable period in 2014. The majority of the decrease was due to lower research and development expenses of $550,942 (54%) that were attributable the spin off in 2014 of the WHE engine as well as a reduction in staff and the 2014 loss on retirement of R&D equipment. This was partially offset by a $112,000 2015 inventory reserve. General and administrative expenses were lower by $1,237,049 (65%) due to reduced staffing and related expenses, lower stock based payments for services and cost controls reflective of funding considerations. Advertising and promotion expenses were $102,084 or 93% lower reflective of the 2014 $85,583 loss on the retirement of demonstration equipment.

Operating Loss

Our operating losses decreased $1,649,855, or 59%, to $1,128,147 for the year ended December 31, 2015 compared to $2,778,002 for the comparable period in 2014.

Other Income (Expense)

Net other expense for the year ended December 31, 2015 was ($342,156) primarily attributable to interest expense. Net other expense for the year ended December 31 2014 of $(2,176,423) was inclusive of interest expense of $1,327,102, losses related to derivative liability of $147,680 and realization loss provisions on the valuation of WHE Gen investment and note receivable of $706,756.

Net Income and Earnings per Share

Our net loss decreased $3,484,122, or 70%, to $1,470,303 for the year ended December 31, 2015 compared to $4,954,425 for the comparable period in 2014. The decrease is due to the factors set forth above. The resulting net loss per weighted average share for 2015 and 2014 was ($0.00) and ($0.01), respectively.

Liquidity and Capital Resources

Our working capital deficiency increased by $1.7 million or 76%, to $4.0 million for the year ended December 31, 2016 compared $2.3 million for the comparable period in 2015. The variance is primarily due to the manufacturing material and WIP inventory reductions and higher: payables and accruals, notes and loans payable, derivative fair value liabilities and deferred revenue deposits.

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

For the year ended December 31, 2015, funds were primarily used by the net loss of ($1,470,303) and an increase of $46,465 in inventory. Funds were provided by debt proceeds of $50,000, an increase in accounts payable and accrued liabilities of $483,129, and an increase in related party payables and debt of $457,564. Non cash charges were $174,043 for amortization of derivative debt discounts, an $192,000 inventory reserve provision and $75,574 of depreciation and intangible amortization.

Cash Flow Management Plan

Through 2016, we collected contract progress payments and contract deposits of $175,000, and collected approximately $100,000 in traditional, non derivative related debt. In the second quarter of 2016, in recognition of the declining market value and low market volume, we sold all of our investment in Q 2 Power Technologies for $44,000.

In 2016, we have submitted approximately $3 million in grant (or grant-type) applications and proposals with various government offices, which could provide non-dilutive funding for our development.

Our auditors have issued a going concern opinion for the years ended December 31, 2015 and 2016. Management is optimistic, however, that revenue can be generated and funding can be secured to maintain operations and development at the current pace.

Recent Accounting Pronouncements

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

Off Balance Sheet Arrangements

We do not have any off-balance sheet arrangements at this time.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Not required for smaller reporting companies.

Item 8. Financial Statements and Supplementary Data

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

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

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

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

On July 25, 2016,we had appointed Anton & Chia,, LLP (A&C) as our new independent registered accounting firm with respect to the fiscal years ended December 31, 2015 and 2014. In addition, we had engaged A&C to review the quarterly financial statements of March 31, 2015, June 30, 2015, and September 30, 2015.

In March 2017, we terminated the engagement of Anton & Chia,, LLP (A&C) as our independent registered accounting firm. This action effectively dismissed A&C as our independent registered accounting firm. A&Cs reports on our consolidated financial statements for the fiscal years ended December 31, 2014 and 2015 did not contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles, except that the report included an explanatory paragraph relating to an uncertainty as to our ability to continue as a going concern. Furthermore, since March, 2017, there have been no disagreements with A&C on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to A&C’s satisfaction, would have caused MF to make reference to the subject matter of the disagreement in connection with its reports on our consolidated financial statements for such periods.

On July 26, 2016, we terminated the engagement of Mallah Furman & Company, P.A.(“MF”) as our independent registered accounting firm. This action effectively dismissed MF as our independent registered accounting firm for the fiscal year ending December 31, 2014 and 2015. MF’s reports on our consolidated financial statements for the fiscal year ended December 31, 2013 did not contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles, except that the report included an explanatory paragraph relating to an uncertainty as to our ability to continue as a going concern. Furthermore, since December 31, 2013, there have been no disagreements with MF on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to MF’s satisfaction, would have caused MF to make reference to the subject matter of the disagreement in connection with its reports on our consolidated financial statements for such periods.

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

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

Item 9A. Controls and Procedures

Disclosure Controls

None.

Item 9A. Controls and Procedures

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

We carried out an evaluation as required by paragraph (b) of Rule 13a-15 and 15d-15 of the Exchange Act, under the supervision and with the participation of our management, including our President (Chief Executive Officer) and Chief Financial Officer, of the effectiveness of our financial disclosures, controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of December 31, 2016.

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

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

	●	Weaknesses in Accounting and Finance Personnel: We have a small accounting staff and we do not have the robust employee resources and expertise needed to meet complex and intricate GAAP and SEC reporting requirements of a U.S. public company. Additionally, numerous adjustments and proposed adjustments have been noted by our auditors. This is deemed by management to be a material weakness in preparing financial statements.

	●	We have written accounting policies and control procedures, but we do not have sufficient staff to implement the related controls. Management had determined that this lack of the implantation of segregation of duties, as required by our written procedures, represents a material weakness in our internal controls.

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

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

Changes in Internal Control Over Financial Reporting and Procedures.

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

Item 9B. Other Information

None.

Part III

Item 10. Directors, Executive Officers and Corporate Governance

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

Name	Age	Position	Date of Appointment

Harry Schoell	74	Chairman and Chief Technology Officer	June 2004*

Frankie Fruge	72	Director and President	June 2004

Bruce Schames	70	Chief Financial Officer	April 2010

James Hasson	76	Director	June 2014

Dennis Dudzik	65	Director	June 2014

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

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

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

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

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

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

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

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

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

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

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

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

Board Leadership Structure and Role in Risk Oversight

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

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

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

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

Director Independence

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

Board of Advisors

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

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

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

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

Other Key, Non-Executive Personnel

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

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

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

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

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

Compensation to Advisors

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

Family Relationships

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

Code of Conduct and Ethics

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

Compliance with Section 16(a) of the Exchange Act

Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to us under Rule 16a-3(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) during twelve months ended December 31, 2016, we are not aware of any person that failed to file on a timely basis, as disclosed in the aforementioned Forms, reports required by Section 16(a) of the Exchange Act during the years ended December 31, 2016.

Item 11. Executive Compensation

Summary Compensation Table

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

Current Officers Name & Principal Position	Year		Salary ($)			Bonus ($)		Stock Awards (S)		All Other Compensation ($)		Option Awards ($)		Total ($)
Harry Schoell		2016	$	150,000	(1)		0		0		0	$	1,230	$	150,525
Chairman & CTO		2015		150,000	(1)		0		0		0		525		150,525

Frankie Fruge		2016	$	125,000	(2)		0		0		0	$	1,230	$	125,525
Director & President		2015		125,000	(2)		0		0		0		525		125,525

Bruce Schames		2016	$	72,000	(3)		0		0		0	$	1,230	$	72,525
CFO		2015		72,000	(3)		0		0		0		525		72,525

	(1)	All of Mr. Schoell’s salary in 2016 and 2015 has been deferred until determined by the Board of Directors that we can afford to pay such salary. In 2015 Mr. Schoell forgave $325,000 of accrued salary.

	(2)	All of Ms. Fruge’s salary in 2016 and 2015 has been deferred until determined by the Board of Directors that we can afford to pay such salary. In 2015 Ms. Fruge forgave $287,500 of accrued salary.

	(3)	As of December 31, 2016, Mr. Schames had $132,725 of deferred salary, which will be paid when determined by the Board of Directors that we can afford to pay such salary. In 2015 Mr. Schames forgave $42,725 of accrued salary.

Employment Agreements

Harry Schoell. Mr. Schoell has an employment agreement with us providing for a base salary of $150,000 per year plus standard benefits. This compensation is currently being deferred until we have sufficient revenue to support its payment, and to date, he has not received any cash compensation under his agreement. Mr. Schoell converted $20,000 of deferred salary to common stock in 2010, and $24,000 to common stock in 2013 at current market prices. Mr. Schoell also converted 1.5 million shares of our common stock to a 2.5% equity interest in Cyclone Performance LLC in 2012. In 2014 Mr. Schoell converted $844,844 of unpaid deferred salary into 10,560,550 shares of common stock, and in 2015 Mr. Schoell forgave $325,000 of accrued salary. As of December 31, 2016, Mr. Schoell had $225,000 in unpaid, deferred salary due to him.

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

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

In 2014 Ms. Fruge converted $738,740 of unpaid deferred salary into 7,984,250 shares of common stock and in 2015 Ms. Fruge forgave $287,500 of accrued salary. As of December 31, 2016, Ms. Fruge had $185,500 in unpaid, deferred salary due to her.

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

Bruce Schames. Mr. Schames has an agreement with us providing for annual cash compensation of $60,000, $12,000 in restricted common stock and 600,000 common stock options. His year-to-year contract began June 1, 2010. Either Mr. Schames or us may terminate his employment on 60 days’ notice. If we terminate other than for “cause,” he shall receive his base compensation due through the date of termination plus a good faith repayment plan for any deferred and unpaid compensation. If Mr. Schames leaves or is terminated for “cause,” he shall not be paid any deferred compensation and any unvested options shall terminate immediately. “Cause” is defined as gross negligence or willful misconduct that injures or may reasonably injure us. Mr. Schames converted $55,292 of deferred salary to 691,152 shares of our common stock in 2014 and in 2015 Mr. Schames forgave $42,725 of accrued salary. As of December 31, 2016, Mr. Schames had $132,725 in unpaid deferred salary due to him.

CYCLONE OFFICER and DIRECTOR OPTIONS

As of Dec. 31 2016

Outstanding Equity Awards at December 31, 2016

The following table summarizes information concerning all stock option grants held by our named executive officers as of December 31, 2016.

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

								Exercise or		Grant Date Fair
		Total		Number				Base Price of		Value of Stock			Number	Number Un-
	Option	Number		Exercisable		Number		Option		in Option		Option	Exercisable	exercisable
	Grant	Granted		(Vested)		Un-		Awards		Awards		Expiration	Date	Date
Name and Position	Dates	Granted		(1)		exercisable		($/Share)		($) (2)		Date	Vested	Expires

Harry Schoell	2007-2016		3,400,000		2,950,000		450,000		$.45-.$0003		$.45-.$0003	2017-2026	2008-2017	2017-2026
Chairman & Chief
Technology Officer

Frankie Fruge	2007-2016		3,400,000		2,950,000		450,000		$.45-.$0003		$.45-.$0003	2017-2026	2008-2017	2017-2026
Director & President

Bruce Schames	2010-2016		4,115,000		3,665,000		450,000		$.33-.0003		$.33-.0003	2012-2026	2011-2017	2017-2026
CFO

James Hasson-Director	-		-		-		-		-		-	-	-	-

Dennis Dudzik - Director	-		-		-		-		-		-	-	-	-
Total			10,915,000		9,565,000		1,350,000

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

(2) We determined the grant date fair value of stock option awards using the methodology in footnote 10 to our Consolidated Financial Statements for the years ended December 31, 2016 and 2015.

Option Exercise and Stock Vesting

During 2016, none of the above named executive officers exercised any options, and 1.8 million executive officer and director options vested.

Compensation of the Board of Directors

The following table sets forth compensation to our non-employee directors during the year ended December 31, 2016 and 2015.

Name

Fees earned or paid in cash ($)

Option awards ($)

Stock

Awards
($)

Nonqualified

deferred

compensation earnings

($)

All other

compensation

($)

Total

($)

James Hasson

Dennis Dudzik

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

The following table sets forth information regarding the beneficial ownership of our Common Stock and Series B Preferred Stock by each of our named Executive Officers and Board of Directors, and each shareholder who is known by us to own beneficially five percent (5%) or more of the outstanding stock of such class as of March 31, 2016. On March 31, 2017, there were 1,661,876,344 shares of common and 1,000 shares of Series B Preferred stock issued and outstanding.

Name and Address	Common Shares Beneficially Owned			%			Series B Pref. Shares Beneficially Owned			%
Harry Schoell , Chairman & Chief Technology Officer 601 NE 26th Ct. Pompano Beach, FL 33064		50,915,970	(1)		3.05	%		797			80	%

Frankie Fruge , President & Director 601 NE 26th Ct. Pompano Beach, FL 33064		20,434,206	(2)		1.22	%		203			20	%

Bruce Schames , CFO 601 NE 26th Ct. Pompano Beach, FL 3306		4,778,175	(3)		.29	%		-			-

James Hasson Director 601 NE 26th Ct. Pompano Beach, FL 33064		-			-			-			-

Dennis Dudzik Director 601 NE 26th Ct. Pompano Beach, FL 33064		-			-			-			-

All Executive Officers as a Group (5 persons)		76,128,351			4.56	%		-			-

TOTALS:		76,128,351			4.56	%		1,000	*		100	%

*	The 1,000 shares of Series B Preferred stock provide their holders a majority vote on all matters brought before the common stock shareholders.

(1)	Mr. Schoell’s total includes 2,950,000 vested common stock options, but excludes 450,000 unvested options awarded in 2016.

(2)	Ms. Fruge’s total includes 2,950,000 vested common stock options, but excludes 450,000 unvested options awarded in 2016.

(3)	Mr. Schames’ total includes 3,665,000 vested common stock options, but excludes 450,000 unvested options awarded in 2016.

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

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

We have an Operations Agreement dated July 2, 2007, with Schoell Marine, a company owned by Harry Schoell, providing equipment leasing, based upon cost and going market rates and though December 2015 office facility rental. At December 31, 2016, we owed to Schoell Marine $223,567, which is recorded as related party debt. The debt is callable at the discretion of Mr. Schoell. Through December 2015 we rented office space from Schoell Marine under this agreement at approximately $12.00/sf, which we believe to be at market rates.

As of December 31, 2016, we also had recorded $412,500 of accrued and deferred officer’s salaries to Mr. Schoell and Ms. Fruge, The accrued deferred salary can be paid to the officers if and when funds are available. These funds are accounted for as non-interest bearing accruals due on demand.

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

Item 14. Principal Accountant Fees and Services

The following table shows what, Soles, Heyn & Company, LLP and Anton & Chia LLP, our independent auditing firms, billed for audit and other services for the years ended December 31, 2016, and 2015.

	Year Ended December 31, 2016		Year Ended December 31, 2015

Audit Fees – Soles, Heyn & Company, LLP	$	-	$	-
Audit Fees -Anton & Chia, LLP		20,000		35,000
Audit-Related Fees		-		-
Tax Fees		-		-
All Other Fees		-		-
		-		-
Total	$	20,000	$	35,000

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

Audit-Related Fees —N/A

Tax Fees —N/A

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

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

Part IV

Item 15. Exhibits and Financial Statement Schedules

(a) Financial Statements

Report of Independent Registered Public Accounting Firm	F-1

Consolidated Balance Sheets as of December 31, 2016, and 2015	F-3

Consolidated Statements of Operations for the years ended December 31, 2016, and 2015	F-4

Consolidated Statements of Changes in Stockholders’ Deficit for the years ended December 31, 2016 and 2015	F-5

Consolidated Statements of Cash Flows for the years ended December 31, 2016, and 2015	F-6

Notes to Consolidated Audited Financial Statements	F-7

Unaudited Condensed Consolidated Balance Sheets as of September 30, 2016, June 30, 2016 and March 31, 2016	F-21

Unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 2016	F-22

Unaudited Condensed Consolidated Statements of Operations for the three months and six months ended June 30, 2016	F-23

Unaudited Condensed Consolidated Statements of Operations for the three months and nine months ended September 30, 2016	F-24

Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2016,six months ended June 30, 2016, and nine months ended September 30 2016	F-25

Notes to Unaudited Condensed Consolidated Financial Statements	F-26

(b) Exhibits

Exhibit No.		Description

3.1 *		Articles of Incorporation, dated June 14, 2007

3.2 *		Certificate of Domestication, dated June 14, 2007

3.3 *		Articles of Amendment to Articles of Incorporation containing Certificates of Designation for Series A Convertible Preferred Stock and Series B Preferred Stock, dated July 17, 2011

3.4 *		Articles of Amendment to Articles of Incorporation, dated July 27, 2007

3.5 *		Articles of Amendment to Articles of Incorporation, dated July 24, 2009

3.6 *		Articles of Amendment to Articles of Incorporation, dated March 30, 2010

3.7 *		Articles of Amendment to Articles of Incorporation, dated April 28, 2010

3.8*		By-Laws of Cyclone Power Technologies, Inc.

3.09*		Written Consent of the Shareholders in lieu of a Meeting, dated December 19, 2013 Amendment to the

3.10*		Articles of Incorporation of the Company, dated January 31, 2014

10.1 *		Employment Agreement, dated June 30, 2007, between the Company and Frankie Fruge

10.2 *		Employment Agreement, dated June 30, 2007, between the Company and Harry Schoell

10.3 *		Common Stock Purchase Warrant, dated July 30, 2009, between the Company and Phoenix Power Group, LLC

10.4 *		Cyclone Power Technologies’ 2010 Stock Option Plan

10.5 *		Employment Agreement, dated August 1, 2011, between the Company and Christopher Nelson

10.6 *		Employment Agreement, dated June 10, 2010, between the Company and Bruce Schames

10.7 *		Operations Agreement, dated July 2, 2007, between the Company and Schoell Marine, Inc.

10.8 *		Systems Application License Agreement, dated July 30, 2009, between the Company and Phoenix Power Group LLC

10.9 *		Technology License Agreement, dated December 11, 2009, between the Company and Great Wall Alternative Power Systems, Ltd.

10.10*		Amended and Restated technology License Agreement, dated Jun 15, 2011, between the Company and Renovalia Energy, S.A.

10.11 *		Subcontractor Contract for Development of a Rankine Cycle Engine, dated December 20, 2010, between the Company and Advent Power Systems, Inc.

10.12 *		Technology License Agreement, dated March 24, 2006, between the Company and Advent Power Systems, Inc., including Amendments thereto.

10.13 *		Letter of Understanding, dated March 1, 2011, between the Company and TopLine Energy Systems, LLC

10.14 *		Security Agreement, dated August 1, 2007, between the Company and Schoell Marine, Inc.

10.15 *		Systems Application License Agreement, dated September 12, 2011, between the Company and Combilift.

10.16*†		Cyclone Power Technologies, Inc. 2012 Stock Option Plan

10.161*†		Asset Purchase Agreement, dated December 20, 2011, between Cyclone Power Technologies, Inc. and Advent Power Systems, Inc.

10.17*		Private Placement Purchase Agreement, by and between Cyclone Power Technologies, Inc. and GEM Global Yield Fund Limited, dated July 6, 2012

10.18*		Form of Securities Purchase Agreement, signed between the Company and Brio Capital LP and Gemini Master Fund Ltd.

10.19*		Form of Promissory Note signed between the Company and Brio Capital LP and Gemini Master Fund Ltd.

10.20*		Form Common Stock Purchase Warrant signed between the Company and Brio Capital LP and Gemini Master Fund Ltd.

10.21*		$500,000 Promissory by and between Cyclone Power Technologies, Inc and JMJ Financial, dated April 3, 2013

10.22*		Securities Purchase Agreement, dated May 31, 2013, by and between Cyclone Power Technologies, Inc. and Tonaquint, Inc.

10.23*		Convertible Promissory Note, dated May 31, 2013, by and between Cyclone Power Technologies, Inc. and Tonaquint, Inc.

10.24*		Warrant to Purchase Shares of Common Stock, dated May 31, 2013, by and between Cyclone Power Technologies, Inc. and Tonaquint, Inc.

10.25††		Securities Purchase Agreement by and between the Company and TCA, with an effective date of September 1, 2013.

10.25.1††		Amended and Restated Systems Application License Agreement between the Cyclone Power Technologies, Inc. and Phoenix Power Group LLC, dated September 30, 2013 and finalized on October 7, 2013.

10.26*		Senior Secured Redeemable Debenture by and between the Company and TCA, with an effective date of September 1, 2013.

10.27*		Security Agreement by and between the Company and TCA, effective f September 1, 2013.

10.28*		Security Agreement by and between the Subsidiaries and TCA, with an effective date of September 1, 2013.

10.29*		Guaranty Agreement by and between the Subsidiaries and TCA, with an effective date of September 1, 2013.

10.30*		Securities Purchase Agreement by and between the Company and LG, with a signing date of November 21, 2013.

10.31*		Convertible Promissory Note by and between the Company and LG, with a signing date of November 21, 2013.

10.32*		Securities Purchase Agreement by and between the Company and GEL, with a signing date of December 3, 2013.

10.33*		10% Convertible Redeemable Promissory Note by and between the Company and GEL, with a signing date of December 3, 2013.

10.34*		Securities Purchase Agreement by and between the Company and Peak One, dated December 17, 2013.

10.35*		Debenture by and between the Company and Peak One, issued December 17, 2013.

10.36*		Registration Rights Agreement by and between the Company and Peak One, issued December 17, 2013.

10.37*		Debt Purchase Agreement by and between the Union Capital LLC, TCA Global Credit Master Fund, LP and the Company, dated February 28, 2014.

10.38*		10% Convertible Redeemable Note by and between the Company and Union Capital LLC, issued February 28, 2014.3

10.39*		Draw on JMJ note 10.21* of $50,000 issued, June 23, 2014.

10.40*		Resignation of President, Christopher Nelson, July 17, 2014.

10.41*		Resignation of Board Member, Joel Myersohn, July 17, 2014.

10.42*		Note Payable 2 year simple interest $50,000 at 6% between the Company and A. Nikitina, issued January 6, 2015.

10.43*		Legal Judgment by JSJ $175,000 for inability to convert note, May 8, 2015.

10.44*		Resignation of Board Member, Lew Jaffee, July 31, 2015.

10.45*		Warehouse lease agreement for one year with EZCP for 601 building, December 11, 2015.

10.46*		License agreement with mergered 3R and IBES, February 14, 2016.

10.47*		License agreement with G2E, May 1, 2016.

10.48*		Development agreement with FSDS and appendix, June 15, 2016.

10.49*		Engagement of Anton & Chia LLP as new auditors June 17, 2016.

10.50*		Promissory note, 2 months term, simple interest $4,000 at 4% between the Company and Chad Tendrich, issued July 6, 2016.

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

10.52*		Convertible promissory note 6 months term, simple interest $46,000 at 10% between the Company and Chad Tendrich, issued July 26, 2016.

10.53*		Promissory note 6 week term interest payable in stock, $27,000, between the Company and S D White issued Sept. 1,2016.

10.54*		Increase in authorized common shares to 4 billion from 2 billion-September 6 2016.
10.55**		FSDS engineering development agreement June 1, 2016

10.56**		Larry Bornstein October 24 ^, 2016 consulting agreement for 3 months.

10.57**		“Bornstein Consulting Agreement dated January 3, 2017” consulting agreement.

10.58**		FSDS technology license agreement dated January 26, 2017

10.59**		Tendrich Consulting Addendum #2 dated March 30, 2017

10.60**		Tendrich Consulting Agreement dated April 1, 2017

21 *		Subsidiaries of the Company

31.1		Certification of the Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of the Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certification of the Chief Executive Officer or Principal Executive Officer as stated under Florida Law Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (This exhibit shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed incorporated by reference into any other filing under the Security Act of 1933, as amended, or by the Security Exchange Act of 1934, as amended.)

32.2		Certification of the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (This exhibit shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934 as amended or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed incorporated by reference into any other filing under the Security Act of 1933, as amended, or by the Security Exchange Act of 1934, as amended.)

101.INS		XBRL Instance Document.

101.SCH		XBRL Taxonomy Extension Schema Document.

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB		XBRL Taxonomy Extension Label Linkbase Document.

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.

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

* Previously filed.

** Attached herewith.

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

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

SIGNATURES

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

	Cyclone Power Technologies, Inc.

	By:	/S/ HARRY SCHOELL
		Harry Schoell
		Chairman and Chief Technical Officer

	Dated:	July 31, 2017

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

	By:	/S/ HARRY SCHOELL
		Harry Schoell
		Chairman and Chief Technical Officer

	Dated:	July 31, 2017

	By:	/S/ FRANKIE FRUGE
		Frankie Fruge
		President, (principal executive officer) and Director

	Dated:	July 31, 2017

	By:	/S/ BRUCE SCHAMES
		Bruce Schames
		Chief Financial Officer
		(principal accounting and financial officer)

	Dated:	July 31, 2017

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and

Board of Directors of Cyclone Power Technologies, Inc.

We have audited the accompanying balance sheet of Cyclone Power Technologies, Inc., as of December 31, 2016, and the related statements of operations, stockholders' equity and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Cyclone Power Technologies, Inc., as of December 31, 2016 and results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As described in Note 2 of the accompanying financial statements, the Company has had no revenues and has incurred losses since inception which raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to this matter are described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Soles, Heyn & Company, LLP
Soles, Heyn and Company, LLP
West Palm Beach, Florida
July 31, 2017

F- 1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

Cyclone Power Technologies, Inc.

We have audited the accompanying consolidated balance sheet of Cyclone Power Technologies, Inc. (the “Company”) as of December 31, 2015, and the related consolidated statements of operations, changes in stockholders’ deficit and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company was not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audit provided a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2015, and the results of its consolidated operations, changes in stockholders’ deficit and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, these conditions raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.

/s/ Anton & Chia, LLP

Newport Beach, California

March 16 , 2017

F- 2

CYCLONE POWER TECHNOLOGIES, INC.

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2016 AND 2015

	2016			2015

ASSETS

CURRENT ASSETS
Cash	$	591		$	-
Inventory, net		26,667			323,508
Other current assets		193			587
Total current assets		27,451			324,095

PROPERTY AND EQUIPMENT
Furniture, fixtures, and equipment		302,770			304,569
Accumulated depreciation		(209,498	)		(178,049	)
Net property and equipment		93,272			126,520

OTHER ASSETS
Patents, trademarks and copyrights		394,980			539,446
Accumulated amortization		(216,502	)		(256,078	)
Net patents, trademarks and copyrights		178,478			283,368
Other assets		7,862			8,062
Total other assets		186,340			291,430

Total Assets	$	307,063		$	742,045

LIABILITIES AND STOCKHOLDERS’ DEFICIT

CURRENT LIABILITIES
Bank overdraft	$	-		$	3,221
Accounts payable and accrued expenses		1,472,851			1,159,133
Accounts payable and accrued expenses-related parties		545,225			210,225
Notes and other loans payable-current portion		512,642			357,737
Derivative liabilities		754,000			383,482
Notes and other loans payable-related parties		393,760			321,334
Capitalized lease obligations-current portion		14,312			12,950
Deferred revenue and license deposits		323,826			148,031
Total current liabilities		4,016,616			2,596,113

NON CURRENT LIABILITIES
Capitalized lease obligations-net of current portion		25,536			36,939
Notes and other loans payable-net of current portion		-			50,000
Total non-current liabilities		25,536			86,939

Total Liabilities		4,042,152			2,683,052

Commitments and contingencies

STOCKHOLDERS’ DEFICIT

Series B preferred stock, $.0001 par value, 1,000 shares authorized, 1,000 shares issued and outstanding at December 31, 2016 and December 31, 2016, respectively.		-			-
Common stock, $.0001 par value, 4,000,000,000 shares authorized, 1,517,400,273, and 1,388,669,532 shares issued and outstanding at December 31, 2016, and December 31, 2015 respectively.		151,737			138,864
Additional paid-in capital		56,915,794			56,621,826
Treasury Stock 317,000 shares, at December 31, 2016, and December 31, 2015 respectively, at cost.		(3,000	)		(3,000	)
Accumulated deficit		(60,828,659	)		(58,727,736	)
Total stockholders’ deficit - Cyclone Power Technologies Inc.		(3,764,128	)		(1,970,046	)
Non controlling interest in consolidated subsidiaries		29,039			29,039

Total Stockholders’ Deficit		(3,735,089	)		(1,941,007	)

Total Liabilities and Stockholders’ Deficit	$	307,063		$	742,045

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

F- 3

CYCLONE POWER TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR YEARS ENDED DECEMBER 31 2016, AND 2015

	2016			2015

REVENUES	$	-		$	-

COST OF GOODS SOLD		-			-

Gross profit		-			-

OPERATING EXPENSES
Advertising and promotion expenses		8,166			7,434
General and administrative
Retirement of patents		69,782			28,530
Other general and administrative		897,924			624,573
Total general and administrative		967,706			653,103
Research and development
Inventory reserve provision		125,900			192,000
Other research and development		478,299			275,610
Total research and development		604,199			467,610

Total operating expenses		1,580,071			1,128,147

Operating loss		(1,580,071	)		(1,128,147	)

OTHER (EXPENSE) INCOME
Other income (expense)
Other income and (expense)		(8,883	)		(50,000	)
Derivative income (expense) -notes payable		(370,519	)		56,702
Interest (expense)		(141,450	)		(348,858	)

Total other income (expense)		(520,852	)		(342,156	)

Loss before income taxes		(2,100,923	)		(1,470,303	)
Income taxes		-			-

Net loss	$	(2,100,923	)	$	(1,470,303	)

Net loss per common share, basic and diluted	$	(0.00	)	$	(0.00	)

Weighted average number of common shares outstanding		1,416,738,836			1,189,240,307

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

F- 4

CYCLONE POWER TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2016

																							Stockholders’
														Prepaid			Preferred						(Deficit)			Non Controlling
									Additional					Expenses			Stock						Cyclone			Interest			Total
	Preferred Stock B				Common Stock				Paid In		Treasury			via Common			Subscription			Accumulated			Power			In Consol.			Stockholders’
	Shares		Value		Shares		Value		Capital		Stock			Stock			Receivable			(Deficit)			Tech. Inc.			Subsidiaries			(Deficit)

Balance, December 31, 2014		1,000	$	-		861,315,576	$	86,129	$	55,026,213	$	-		$	(28,459	)	$	(6,000	)	$	(57,257,441	)	$	(2,179,558	)	$	29,047		$	(2,150,511	)

Issuance of options for employee services		-		-		-		-		2,526		-			-			-			-			2,526			-			2,526

Forgiveness of officers accrued salaries		-		-		-		-		655,225		-			-			-			-			655,225			-			655,225

Forgiveness of accrued rent, interest & other expenses due an officer’s company		-		-		-		-		710,272		-			-			-			-			710,272			-			710,272

Forgiveness of employees accrued salaries		-		-		-		-		18,970		-			-			-			-			18,970			-			18,970

Repayment of debt and interest with common stock		-		-		424,853,956		42,485		88,370		-			-			-			-			130,855			-			130,855
		-		-		-		-		-		-			-			-			-			-			-			-
Repayment of liabilities in common stock		-		-		92,500,000		9,250		57,250		-			-			-			-			66,500			-			66,500

Loss on debt paid with common stock		-		-		-		-		50,000		-			-			-			-			50,000			-			50,000

Cancellation of stock subscription receivable		-		-		-		-		-		(3,000	)		-			3,000			-			-			-			-

Write-off of stock subscription receivable		-		-		-		-		-		-			-			3,000			-			3,000			-			3,000

Repayment of shares loaned by stockholder		-		-		10,000,000		1,000		13,000		-			-			-			-			14,000			-			14,000
																								-			-			-
Allocation of loses of subsidiaries to non controlling interests		-		-		-		-		-		-			-			-			8			8			(8	)		-

Amortization of expenses prepaid with common stock		-		-		-		-		-		-			28,459			-			-			28,459			-			28,459

Net loss year ended December 31, 2015		-		-		-		-		-		-			-			-			(1,470,303	)		(1,470,303	)		-			(1,470,303	)

Balance, December 31, 2015		1,000		-		1,388,669,532		138,864		56,621,826		(3,000	)		-			-			(58,727,736	)		(1,970,046	)		29,039			(1,941,007	)

Issuance of options for employee services		-		-		-		-		2,526		-			-			-			-			2,526			-			2,526

Repayment of liabilities in common stock		-		-		125,730,741		12,573		228,359		-			-			-			-			240,932			-			240,932

Loss on debt paid with common stock		-		-		-		-		57,383		-			-			-			-			57,383			-			57,383

Issuance of common stock for services						3,000,000		300		5,700														6,000			-			6,000

Net loss year ended December 31, 2016		-		-		-		-		-		-			-			-			(2,100,923	)		(2,100,923	)		-			(2,100,923	)

Balance, December 31, 2016		1,000		-		1,517,400,273	$	151,737	$	56,915,794	$	(3,000	)	$	-		$	-		$	(60,828,659	)	$	(3,764,128	)	$	29,039		$	(3,735,089	)

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

F- 5

CYCLONE POWER TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR YEARS ENDED DECEMBER 31, 2016, AND 2015

	2016			2015

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(2,100,923	)	$	(1,470,303	)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization		68,357			75,574
Provision for inventory reserve		125,900			192,000
Issuance of restricted common stock, options and warrants for services		2,526			2,526
(Gain) loss from derivative liability-notes payable		370,518			(56,702	)
Amortization of derivative debt discount		11,680			174,043
Loss on debt conversion via common stock		57,383			50,000
Write-off of stock subscription receivables		-			3,000
Amortization of prepaid expenses and interest via common stock		-			28,459
Expenses paid with common stock		6,000			-
Write-off of expired patents		69,782			25,894
Loss on debt conversion via common stock-net
Changes in operating assets and liabilities:
(Increase) decrease in inventory		170,941			(46,465	)
Decrease in other current assets		594			15,576
(Increase) in other assets		-			(5,387	)
Cash overdraft		(3,221	)		3,221
Increase in accounts payable and accrued expenses		554,744			483,129
Increase in accounts payable and accrued expenses-related parties		335,000			306,275
Increase in deferred revenue and deposits		175,700			25,404
Net cash used by operating activities		(155,019	)		(193,756	)

CASH FLOWS FROM INVESTING ACTIVITIES:		-			-

CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of capitalized lease obligations		(10,041	)		(7,811	)
Proceeds from notes and loans payable		94,725			50,000
Repayment of notes and loans payable		(1,500	)		-
Increase in related party notes and loans payable-net		72,426			151,289
Net cash provided by financing activities		155,610			193,478

Net increase (decrease) in cash		591			(278	)
Cash, beginning of year		-			278

Cash, end of year	$	591		$	-

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Payment of interest in cash	$	-		$	14,491
Payment of income tax in cash	$	-		$	-
NON CASH INVESTING AND FINANCING ACTIVITIES:

Issuance of 20,313,416 shares of Common stock for repayment of related party payables	$	6,000		$	-
Issuance of 125,730,741 shares of Common stock for liabilities	$	240,932		$	-
Issuance of 92,500,000 shares of Common stock for accrued expenses	$	-		$	66,500
Issuance of 424,853,956 shares of Common stock for debt and interest repayment	$	-		$	130,856
Value of shares repaid to stockholder	$	-		$	14,000
Forgiveness of deferred officers’ salaries	$	-		$	655,225
Forgiveness of accrued rent, interest and other expenses due officer’s company	$	-		$	710,272

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

F- 6

CYCLONE POWER TECHNOLOGIES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016 AND 2015

NOTE 1 – ORGANIZATIONAL AND SIGNIFICANT ACCOUNTING POLICIES

A. ORGANIZATION AND OPERATIONS

Cyclone Power Technologies, Inc. (the “Company”, “our,” “Cyclone”) is the successor entity to the business of Cyclone Technologies LLLP (the “LLLP”), a limited liability limited partnership formed in Florida in September 2004. The LLLP was the original developer and intellectual property holder of the Cyclone engine technology. Initiated in 2016, the Company’s current business model, is to be primarily a research and development engineering company whose main purpose is to develop, commercialize, market and license its Cyclone engine technology. Engines and related systems will be outsourced for manufacturing but the company will invoice customers. Our prior business model also included engine manufacturing.

In 2012, the Company established Cyclone Performance LLC (“Cyclone Performance”) f/k/a Cyclone-TeamSteam USA, LLC. The purpose of Cyclone Performance is to build, test and run various vehicles and vessels utilizing the Company’s engine. As of December 31, 2016 and 2015, the company had a 95% controlling interest in Cyclone Performance.

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

B. PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION

The consolidated financial statements include the accounts of the Company and its 95% owned subsidiary Cyclone Performance. All material inter-company transactions and balances have been eliminated in the condensed consolidated financial statements.

Effective September 30, 2014, Cyclone sold most of its investment in the WHE Subsidiary and as of December 31, 2015 retained approximately a 2 million share non controlling (below 20%) interest in the WHE Subsidiary. This investment was deconsolidated on September 30, 2014 and the remaining investment was sold in the second quarter of 2016.

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

C. CASH

Cash includes cash on hand and cash in banks. At December 31, 2016 and 2015, the Company maintained cash balances at one financial institution.

F- 7

D. COMPUTATION OF LOSS PER SHARE

Net loss per share is computed by dividing the loss by the weighted average number of common shares outstanding during the period. Diluted loss per share is not presented as the conversion of the preferred stock and exercise of outstanding stock options and warrants would have an anti-dilutive effect. As of December 31, 2016 and 2015, total anti-dilutive shares amounted to approximately 14.5 million and 13.5 million shares, respectively.

E. INCOME TAXES

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

In the unlikely event that an uncertain tax position exists in which the Company could incur income taxes, the Company would evaluate whether there is a probability that the uncertain tax position taken would be sustained upon examination by the taxing authorities. Reserves for uncertain tax positions would be recorded if the Company determined it is probable that a position would not be sustained upon examination or if payment would have to be made to a taxing authority and the amount is reasonably estimated. As of December 31, 2016, the Company does not believe it has any uncertain tax positions that would result in the Company having a liability to the taxing authorities. Interest related to the unrecognized tax benefits is not recognized in the consolidated financial statements as a component of income taxes. The Company’s tax returns are subject to examination by the federal and state tax authorities for the years ended 2013 through 2016.

F. REVENUE RECOGNITION

The Company’s revenue recognition policies are in compliance with ASC 605, “ Revenue Recognition – Multiple Element Arrangements ”, and Staff Accounting Bulletin (“SAB”) 104, Revenue Recognition . Revenue will be recognized at the date of shipment of engines and systems, engine prototypes, engine designs or other deliverables to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist and collectability is reasonably assured. Revenue from contracts for multiple deliverables and milestone method recognition are evaluated and allocated as appropriate. The Company does not allow its customers to return prototype products. Current contracts do not require the Company to provide any warranty assistance after the “deliverable” has been accepted.

It is the Company’s intention when it has royalty revenue from its contracts to record royalty revenue periodically when earned, as reported in sales statements from customers. The Company does not have any royalty revenue to date.

G. WARRANTY PROVISIONS

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

H. INVENTORY

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

F- 8

I. FAIR VALUE OF FINANCIAL INSTRUMENTS

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

Level 1	—	Inputs are quoted prices in active markets for identical assets or liabilities as of the reporting date.

Level 2	—	Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, as of the reporting date.

Level 3	—	Unobservable inputs for the asset or liability that reflect management’s own assumptions about the assumptions that market participants would use in pricing the asset or liability as of the reporting date.

The summary of annual fair values and changing values of financial instruments as of January 1, 2015 through December 31 2015 and January 1, 2016 through December 31, 2016 is as follows:

Instrument	Beginning of Period		Change			End of Period		Level		Valuation Methodology

Derivative liabilities 2015	$	440,184	$	(56,706	)	$	383,482		3		Stochastic Process Forecasting Model

Derivative liabilities 2016	$	383,482	$	370,518		$	754,000		3		Stochastic Process Forecasting Model

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

J. RESEARCH AND DEVELOPMENT

Research and development activities for product development are expensed as incurred. Costs for the years ended December 31, 2016 and 2015 were $604,199 and $467,610, respectively.

K. STOCK BASED COMPENSATION

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

L. COMMON STOCK OPTIONS AND PURCHASE WARRANTS

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

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

F- 9

M. ORIGINAL ISSUE DEBT DISCOUNT

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

N. PROPERTY AND EQUIPMENT

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

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

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

O. IMPAIRMENT OF LONG LIVED ASSETS

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

P. RECENT ACCOUNTING PRONOUNCEMENTS

In March 2016, the FASB issued ASU 2016-09, Compensation-Stock Compensation: Improvements to Employee Share-Based Payment Accounting. This addresses the accounting for share-based payment transactions and includes the recognition of the income tax effects of awards that vest or settle as income tax expense and clarification of the presentation of certain components of share-based awards in the statement of cash flows. We are still in the process of evaluating the effect of adoption on our financial statements and the effective date of application is 2018.

In March 2016, the FASB issued ASU 2016-06, “ Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments (a consensus of the FASB Emerging Issues Task Force) ”. which applies to all entities that are issuers of or investors in debt instruments (or hybrid financial instruments that are determined to have a debt host) with embedded call (put) options, and requires that embedded derivatives be separated from the host contract and accounted for separately as derivatives if certain criteria are met. One criterion is that the economic characteristics and risks of the embedded derivatives are not clearly and closely related to the economic characteristics and risks of the host contract. This ASU is effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company is currently assessing the impact of the ASU on its financial position, results of operations or cash flows.

F- 10

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments. This standard amends and adjusts how cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years and will require adoption on a retrospective basis unless impractical. If impractical the Company would be required to apply the amendments prospectively as of the earliest date possible. The Company is currently evaluating the impact that ASU 2016-15 will have on its financial position, results of operations or cash flows.

Q. CONCENTRATION OF RISK

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

As of December 31, 2016, the Company maintained its cash in one quality financial institution. The Company has not experienced any losses in its bank accounts through December 31,2016. The Company purchases raw material and components from multiple sources, none of which may be considered a principal or material supplier. If necessary, the Company could replace these suppliers with minimal effect on its business operations.

R. DERIVATIVE FINANCIAL INSTRUMENTS

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

NOTE 2 - GOING CONCERN

As shown in the accompanying consolidated financial statements, the Company incurred substantial operating and other losses and expenses of approximately $2.10 million for the year ended December 31, 2016, and $1.5 million for the year ended December 31, 2015. The cumulative deficit since inception is approximately $60.8 million. The Company has a working capital deficit at December 31, 2016 of approximately $4.0 million. There is no guarantee whether the Company will be able to generate enough revenue and/or raise capital to support its operations. This raises substantial doubt about the Company’s ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on management’s plans which include implementation of its business model to generate revenue from development contracts, licenses and product sales, and continuing to raise funds through debt or equity raises. The Company will also likely continue to rely upon related-party debt or equity financing.

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

NOTE 3 – INVENTORY, NET

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

F- 11

Inventory, net consists of:

	December 31, 2016		December 31, 2015
Raw materials	$	26,667	$	323,508
Total	$	26,667	$	323,505

We provide estimated provisions for the realization, valuation and obsolescence of our inventories, including adjustments to market, based on various factors, including the age of such inventory and our management’s assessment of the need for such provisions. We look at historical inventory aging and usage reports and margin analyses in determining our provision estimate.

NOTE 4 – PROPERTY AND EQUIPMENT, NET

Property and equipment consists of the following:

	December 31, 2016			December 31, 2015
Display equipment for trade shows	$	6,270		$	6,270
Leasehold improvements and furniture and fixtures		93,922			93,922
Equipment and computers		202,578			204,377
Total		302,770			304,569
Accumulated depreciation		(209,498	)		(178,049	)
Net property and equipment	$	93,272		$	126,520

Depreciation expense for the years ended December 31, 2016, and 2015 was $33,269 and $36,645, respectively.

NOTE 5 – PATENTS, TRADEMARKS AND COPYRIGHTS

Patents, trademarks and copyrights consist of legal fees paid to file and perfect these claims. The net balances as of December 31, 2016, and 2015 were $178,478 and $283,368, respectively. For the years ended December 31, 2016, and 2015 the Company capitalized $0, and $0, respectively, of expenditures related to these assets. In 2016, and 2015 the Company recorded net charges of $69,782 and $28,530, respectively, included in general and administrative expenses, for various expired patents; the basic patents for the Cyclone technology are still protected.

As of December 31, 2016, the Company had 15 patents issued on its technology both in the U.S. and internationally. Pursuant to new US Patent Office regulations, upon approval, expired patents can be reestablished from inception.

Patents, trademarks and copyrights are amortized over the life of the intellectual property which is 15 years. Amortization expenses for the years ended December 31, 2016, and 2015 were $35,088 and $38,929, respectively.

F- 12

NOTE 6 – NOTES AND OTHER LOANS PAYABLE

A.	NON-RELATED PARTIES

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

	December 31, 2016		December 31, 2015

12% convertible notes payable, maturing at various dates from November 2013 through April 2016 (A)	$	42,951	$	34,558

10% convertible note payable, monthly payments commencing in December 2013 through July 2014 (B)		19,963		19,963

10% convertible notes payable maturing at various dates from May 2015 through February 2016 (C)		76,000		72,793

10% convertible notes payable, maturing at various dates from December 2015 through January 2016 (D)		29,303		29,223

10% convertible notes payable maturing at various dates from February 2015 through August 2015 (F)		116,200		116,200

12% convertible notes payable, maturing at various dates from April 2015 through May 2015 (G)		85,000		85,000

10% note payable, maturing Feb 3, 2017		50,000		-

Various notes payable, maturing 2016 and 2017		13,500		-

Note payable, maturing Oct 14 2016, (I)		27,000		-

10% Note payable, maturing January 26, 2017		46,000		-

Demand Note, (H)		6,725		-

Total non related party notes –net of discount		512,642		407,737

Less-Current Portion		512,642		357,737

Total non-current non related party	$	-	$	50,000

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

	(B)	Note issued net of original discount (fully amortized). Effective May 8, 2015, the Company is subject to a default judgment of approximately $175,000, plus subsequent penalty interest for non-payment of convertible debt and interest. The Company is negotiating a reduced settlement. Unpaid interest, default penalties and default interest is included in accounts payable and accrued liabilities.

	(C)	Notes issued net of discount from derivative liabilities (fully amortized). At December 31, 2016, the Company held approximately 97 million shares in reserve to cover the potential conversion of this note into common stock pursuant to debt covenants. This note is in default.

	(D)	Notes issued net of discount (fully amortized). This note is in default.

	(F)	Notes issued net of discount from derivative liabilities (fully amortized). At December 31, 2016, the Company held 233.3 million shares in reserve to cover the potential conversion of this note into common stock pursuant to debt covenants. This note is in default.

F- 13

	(G)	Notes issued net of discount from derivative liabilities (fully amortized). The Company is subject to litigation judgment of approximately $150,000, plus subsequent penalty interest for non–payment. Company is seeking to arrange a settlement. Unpaid interest, default penalties and default interest is included in accounts payable and accrued liabilities.

	(H)	Note convertible into common stock at a 40% discount to 20 day market average.

(I)

Interest of $3,000 to be paid in 1,500,000 shares of restricted company common stock This note is in default.

B.	RELATED PARTIES

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

	December 31, 2016		December 31, 2015

6% demand loans per Operations Agreement with Schoell Marine Inc., a company owned by Cyclone’s Chairman and controlling shareholder (A)	$	169,751	$	117,734
6% non-collateralized loans from officer and shareholder, payable on demand. The original principal balances were $157,101.		107,842		103,328
12% non-collateralized loans from officer and shareholder, payable on demand		21,044		20,178
Accrued Interest		95,123		80,094
Total current related party notes, inclusive of accrued interest	$	393,760	$	321,334

(A)

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

In June 2015 Schoell Marine forgave $710,272 of principle and accrued interest on the note.

NOTE 7 – RELATED PARTY TRANSACTIONS-Deferred Compensation

Included in accounts payable and accrued expenses - related parties as of December 31, 2016, and December 31, 2015 are $412,500 and $137,500, respectively, of accrued and deferred officers’ salaries compensation which may be paid as funds are available. These are non-interest bearing and due on demand.

In June 2015, the principle officers of the company forgave $612,500 of deferred compensation.

NOTE 8 – PREFERRED STOCK

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

F- 14

NOTE 9 – STOCK TRANSACTIONS

During the year ended December 31, 2016, the Company:

	a-	Issued 125,730,741 shares of restricted common stock valued at $298,315 for payment of $240,932 of liabilities and incurred a $57,383 loss on this debt payment.

	b-	Amortized (based on vesting) $2,526 of common stock options for employee services.

	c-	Issued 3,000,000 shares of common stock valued at $6,000 for services

During the year ended December 31, 2015, the Company:

	a-	Issued 92,500,000 shares of restricted common stock valued at $116,500 for payment of $66,500 of liabilities and incurred a $50,000 loss on this debt payment.

	b-	Amortized (based on vesting) $2,526 of common stock options for employee services.

	c-	Issued 424,853,956 shares of common stock valued at $130,855 as repayment of debt and related interest expense.

	d-	Repaid a loan of 10,000,000 shares of stock from the Company’s Chairman and co-founder. which had been reissued pursuant to various debt covenants that had to be covered with stock.

NOTE 10 – STOCK OPTIONS AND WARRANTS

A. COMMON STOCK OPTIONS

Per the employment contracts with certain officers, the company issued 1,800,000 common stock options, valued at $3,690 (pursuant to the Black Scholes valuation model) that are exercisable into shares of common stock at an average exercise price of $.0021 and with a maturity life of 10 years. For the years ended December 31, 2016, and December 31, 2015 the amortization of stock options was $2,526 and $2,526, respectively. The unamortized balance at December 31 2016 was $2,396.

F- 15

A summary of the common stock options for the period from December 31, 2014 through December 31, 2016 follows:

	Number Outstanding			Weighted Avg. Exercise Price			Weighted Avg. Remaining Contractual Life (Years)

Balance, December 31, 2014		11,090,000		$	0.123			6.0
Options issued		1,800,000			.0009			9.6
Options exercised		-			-			-
Options cancelled		(510,000	)		(.12	)		-
Cancelled-old		-
Balance, December 31, 2015		12,380,000		$	0.123			5.8
Options issued		1,800,000			.0021			9.6
Options expired		(150,000	)		(.098	)
Balance, December 31, 2016		14,030,000		$	.096			5.3

The vested and exercisable options at period end follows:

	Exercisable/ Vested Options Outstanding		Weighted Avg. Exercise Price		Weighted Avg. Remaining Contractual Life (Years)

Balance December 31, 2016		12,230,000	$	.11		4.6
Additional vesting by March 31, 2017		450,0000		.0002		9.0

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

	Year Ended December 31, 2016		Year Ended December 31, 2015
Risk free interest rate		.71%-1.4%		.89% -1.31%
Expected volatility		136% - 1.39%		102% - 131%
Expected term		3		3
Expected dividend yield		0%		0%
Average value per options and warrants	$	.0019 -$.0024	$	.0003 -$.0016

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

B. COMMON STOCK WARRANTS

During the year ended December 31, 2016, 625,000 warrants with an average exercise price of $.0144 expired.

F- 16

A summary of outstanding vested warrant activity for the period from December 31, 2014 to December 31, 2016 follows:

	Number Outstanding			Weighted Average Exercise Price			Weighted Average Remaining Contractual Life (Years)
Common Stock Warrants

Balance, December 31, 2014		3,633,692		$	0.074			0.89

Warrants expired		(2,508,692	)		(.148	)

Balance, December 31, 2015		1,125,000		$	.0042			2.05

Warrants expired		(625,000	)		(.011	)


Balance, December 31, 2016		500,000		$	.08			.67

All warrants were vested and exercisable as of the date issued.

NOTE 11 – INCOME TAXES

A reconciliation of the differences between the effective income tax rates and the statutory federal tax rates for the years ended December 31, 2016 and 2015 are as follows:

	Year ended December 31, 2016					Year ended December 31, 2015
Tax benefit at U.S. statutory rate	$	470,466		34	%	$	235,276		34	%
State taxes, net of federal benefit		55,349		4			27,679		4
Change in valuation allowance		(525,818	)	(38	)		(262,955	)	(38	)
		-		-			-

The tax effect of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at December 31, 2016 and December 31, 2015 consisted of the following:

Deferred Tax Assets	December 31, 2016			December 31, 2015
Net Operating Loss Carry-forward	$	10,577,607		$	9,924,492
Deferred Tax Liabilities – Accrued Officers’ Salaries		(900,306	)		(795,805	)
Net Deferred Tax Assets		9,677,301			9,128,687
Valuation Allowance		(9,677,301	)		(9,128,687	)
Total Net Deferred Tax Assets	$	-		$	-

As of December 31, 2016, the Company had a net operating loss carry forward for income tax reporting purposes of approximately $22.8 million that may be offset against future taxable income through 2031. Current tax laws limit the amount of loss available to be offset against future taxable income when a substantial change in ownership occurs. Therefore, the amount available to offset future taxable income may be limited. No tax asset has been reported in the financial statements because the Company believes there is a 50% or greater chance the carry forwards will expire unused. Accordingly, the potential tax benefits of the loss carry forwards are offset by a valuation allowance of the same amount.

F- 17

NOTE 12- LEASE OBLIGATIONS

A. LEASE ON FACILITIES

The Company leases a 6,000 square foot warehouse and office facility located at 601 NE 26th Court in Pompano Beach, Florida. The original lease, was at an annual rent of $60,000. The lease period ended December 2016 and the current lease is monthly with a 3% rate increase. Occupancy costs for the years ended December 31, 2016, and 2015 were $64,100 and $60,000, respectively.

B .CAPITALIZED LEASE OBLIGATIONS

In 2013 and 2014, the company acquired $45,566 of equipment via capitalized leases at interest rates ranging from 6.9% to 15.5%. Total lease payments made for the year ended December 31, 2016 were $10,042. The balance of capitalized lease obligations payable at December 31, 2016, and December 31, 2015 were $39,847 and $49,889, respectively. Future lease payments are:

2017	$	14,312
2018		9,754
2019		8,127
2020		7,654
2021		0
	$	39,847

NOTE 13 – COMMITMENTS AND CONTINGENCIES

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

NOTE 14 –CONSOLIDATED SUBSIDIARY

In 2012, the Company established a 100% owned subsidiary (renamed) Cyclone Performance LLC. The purpose of Cyclone Performance is to build, test and run a vehicle utilizing the Company’s engine. In the last quarter of 2012, the Company sold a 5% equity investment to an unrelated investor for $30,000. Subsequent to December 31, 2012, this 5% equity investment was acquired by a corporate officer of the Company. Losses of the subsidiary are currently fully borne by the Company, as there is no guarantee of future profits or positive cash flow of the subsidiary. As of December 31, 2016, the cumulative unallocated losses to the non-controlling interests of this subsidiary of $953 are to be recovered by the parent from future subsidiary profits if they materialize.

NOTE 15 – RECEIVABLES, DEFERRED REVENUE AND BACKLOG

As of December 31, 2016, total backlog for prototype engines to be delivered was $400,000 from the Combilift agreement, of which $100,000 has been paid and has been recorded as deferred revenue. In 2016, 3 other customers advanced $175,700 as deposits towards payments on $355,000 of contracts for engines currently estimated to be delivered in 2017 and license deposits.

F- 18

NOTE 16 – DERIVATIVE FINANCIAL INSTRUMENTS

Prior to 2015, the Company entered into convertible note agreements (subject to derivative accounting treatment). The conversion prices into common stock ranged from a discount of 30% to 45% of the lowest closing prices in the 10 to 20 trading days prior to the conversion. Under provisions of ASC Topic 815-40, this conversion feature triggered derivative accounting treatment because the convertible note was convertible into an indeterminable number of shares of common stock. The fair value of the embedded conversion option was required to be presented as a derivative liability and adjusted to fair value at each reporting date, with changes in fair value reported in the condensed consolidated statements of operation.

In the year ended December 31, 2016, the Company recorded a $11,680 non-cash charge to interest expense (reflective of debt discount amortization), and $370,519 of derivative loss related to adjusting the derivative liability to fair value. At December 31, 2016, the derivative related fair value of debt was $754,000. The significant increase in the derivative loss was the inclusion of default judgments, default and accrued interest in the fair market debt calculation.

In the year ended December 31, 2015, the Company recorded a $174,043 non-cash charge to interest expense (reflective of debt discount amortization), an increase of $0 in additional paid in capital pursuant to conversion of convertible notes to common stock, and a $56,702 of derivative gain related to adjusting the derivative liability to fair value. At December 31, 2015, the derivative related fair value of debt was $383,482.

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

	Year Ended December 31, 2016			Year Ended December 31, 2015
Volatility		71%- 91	%		103%- 343	%
Risk Free Rate		.02% - .28	%		.01% - .28	%
Expected Term (years)		0 – 1.05			0 – 1.05
Dividend Rate		0	%		0	%

NOTE 17 – LITIGATION

Effective May 8, 2015, the Company is subject to a default judgment of approximately $175,000, plus subsequent penalty interest for non-payment of convertible debt and interest Tonaquint Inc. filed and received a judgment and the Company is negotiating a reduced settlement. As at December 31 2016, outstanding interest, default interest and default judgment penalties are included in accrued liabilities.

In August 2015, the Company is subject to litigation of approximately $150,000, plus subsequent penalty interest for non -payment of a liability. JSJ filed and received a judgment and the Company entered into a settlement agreement for conversion of judgment based on value and conversions of original note on January 9, 2017.

As at December 31, 2016, outstanding interest, default interest and default judgment penalties are included in accrued liabilities.

F- 19

NOTE 18 – SUBSEQUENT EVENTS

In the first and second quarters of 2017, the Company engaged in the following transactions:

	a-	The Company issued approximately 6.4 million shares of common stock value at $5,096 for services.

	b-	The Company issued 70 million shares of common stock in payment of a $123,000 accrued liability for services.

	c-	The Company issued 100 million shares of common stock in settlement of a $49,000 note payable and related interest

	d-	The Company issued approximately 44.5 million shares of common stock pursuant of conversion of approximately $34,000 of note payable an related interest.

In January 2017 Falck Schmidt Defense Systems (“FSDS”) of Denmark signed an Exclusive Worldwide Technology License Agreement to use the Cyclone engine technology for both military and aerospace power applications. For each Cyclone engine that FSDS manufactures Cyclone will receive a royalty. Additionally these contracts call for Cyclone to be the R&D arm of FSDS.

Through the first half of 2017, the company received funds of approximately $153,000 from current derivative and non-derivative note holders.

The Company entered into a consulting contract on January 3, 2017 to oversee and complete the process of its 2016 audit and to provide other financial consulting. Compensation is to be in the amount of 10,000,000 shares per month for a period of twelve months.

The Company entered an addendum to a consulting agreement “Tendrich Consulting Addendum # 2 dated March 30,2017.” The Addendum calls for a one time payment of 50,0000,000 shares for additional responsibilities performed.

The Company entered into a consulting contract on April 1, 2017 “ Tendrich consulting Agreement dated April 1, 2017” to provide the directors and executives guidance on certain matters. Compensation is to be in the amount of $10,000 of Restricted Stock per month for a period of twelve months, with an optional twelve month extension.

F- 20

CYCLONE POWER TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

SEPTEMBER 30, 2016, JUNE 30, 2016 AND MARCH 31, 2016

(UNAUDITED)

	March 31 2016			June 30, 2016			September 30, 2016

ASSETS

CURRENT ASSETS
Cash	$	-		$	14,861		$	1,387
Inventory, net		337,959			349,513			407,515
Other current assets		587			250			1,400
Total current assets		338,546			364,624			410,302

PROPERTY AND EQUIPMENT
Furniture, fixtures, and equipment		302,770			302,770			302,770
Accumulated depreciation		(184,981	)		(193,577	)		(202,153	)
Net property and equipment		117,789			109,193			100,617

OTHER ASSETS
Patents, trademarks and copyrights		539,446			539,446			539,446
Accumulated amortization		(264,999	)		(273,622	)		(282,414	)
Net patents, trademarks and copyrights		274,447			265,824			257,032
Other assets		8,062			8,062			8,062
Total other assets		282,509			273,886			265,094

Total Assets	$	738,844		$	747,703		$	776,013

LIABILITIES AND STOCKHOLDERS’ DEFICIT

CURRENT LIABILITIES
Bank overdraft	$	3,068		$	-		$	-
Accounts payable and accrued expenses		1,253,933			1,337,627			1,264,939
Accounts payable and accrued expenses-related parties		293,975			377,725			461,475
Notes and other loans payable-current portion		422,930			424,917			508,642
Derivative liabilities		381,161			380,705			380,162
Notes and other loans payable-related parties		385,511			385,304			391,132
Capitalized lease obligations-current portion		13,426			13,916			14,052
Deferred revenue and license deposits		153,731			188,826			263,826
Total current liabilities		2,907,735			3,109,020			3,284,228

NON CURRENT LIABILITIES
Capitalized lease obligations-net of current portion		32,341			28,219			26,909

Total non-current liabilities		32,341			28,219			26,909

Total Liabilities		2,940,076			3,137,239			3,311,137

Commitments and contingencies

STOCKHOLDERS’ DEFICIT

Series B preferred stock, $.0001 par value, 1,000 shares authorized, 1,000 shares issued and outstanding at March 31, 2016 and December 31, 2015, respectively.		-			-			-
Common stock, $.0001 par value, 4,000,000,000 shares authorized, 1,388,669,532, 1,437,400,273 and 1,517,400,273 shares issued and outstanding at March 31, 2016, June 30, 2016 and September 30, 2016, respectively.		138,864			143,738			151,738
Additional paid-in capital		56,622,211			56,706,255			56,914,961
Treasury Stock, 317,000 shares, at cost.		(3,000	)		(3,000	)		(3,000	)
Accumulated deficit		(58,988,346	)		(59,265,568	)		(59,627,862	)
Total stockholders’ deficit-Cyclone Power Technologies Inc.		(2,230,271	)		(2,418,575	)		(2,564,163	)
Non controlling interest in consolidated subsidiaries		29,039			29,039			29,039

Total Stockholders’ Deficit		(2,201,232	)		(2,389,536	)		(2,535,124	)

Total Liabilities and Stockholders’ Deficit	$	738,844		$	747,703		$	776,013

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

F- 21

CYCLONE POWER TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three Months Ended March 31
	2016			2015

REVENUES	$	-		$	-

COST OF GOODS SOLD		-			-

Gross profit		-			-

OPERATING EXPENSES
Advertising and promotion		5,291			254
General and administrative		190,619			271,579
Research and development		34,693			106,927

Total operating expenses		230,603			378,760

Operating loss		(230,603	)		(378,760	)

OTHER (EXPENSE) INCOME
Other (expense)		500			(50,000	)
Derivative income (expense)		2,321			(17,654	)
Interest (expense)		(32,828	)		(141,223	)

Total other (expense)		(30,007	)		(208,877	)

Loss before income taxes		(260,610	)		(587,637	)
Income taxes		-			-

Net loss	$	(260,610	)	$	(587,637	)

Net loss per common share, basic and diluted	$	(0.00	)	$	(0.00	)

Weighted average number of common shares outstanding		1,388,669,532			972,124,660

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

F- 22

CYCLONE POWER TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Six Months Ended June 30,						Three Months Ended June 30,
	2016			2015			2016			2015

REVENUES	$	-		$	-		$	-		$	-

COST OF GOODS SOLD		-			-			-			-

Gross margin		-			-			-			-

OPERATING EXPENSES
Advertising and promotion		5,839			434			548			180
General and administrative		385,509			401,014			194,890			129,435
Research and development		73,850			188,164			39,157			81,237

Total operating expenses		465,198			589,612			234,595			210,852

Operating loss		(465,198	)		(589,612	)		(234,595	)		(210,852	)

OTHER (EXPENSE) INCOME
Other income (expense)		(12,969	)		(50,000	)		(13,469	)		-
Derivative income(expense)		2,777			(10,811	)		456			6,843
Interest (expense)		(62,442	)		(227,854	)		(29,614	)		(86,631	)

Total other (expense)		(72,634	)		(288,665	)		(42,627	)		(79,788	)

Loss before income taxes		(537,832	)		(878,277	)		(277,222	)		(290,640	)
Income taxes		-			-			-			-

Net loss	$	(537,832	)	$	(878,277	)	$	(277,222	)	$	(290,640	)

Net loss per common share, basic and diluted	$	(0.00	)	$	(0.00	)	$	(0.00	)	$	(0.00	)

Weighted average number of common shares outstanding, basic and diluted		1,393,890,683			1,082,119,889			1,403,288,754			353,877,991

See accompanying notes to the condensed consolidated financial statements

F- 23

CYCLONE POWER TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Nine Months Ended Sept. 30,						Three Months Ended Sept. 30,
	2016			2015			2016			2015

REVENUES	$	-		$	-		$	-		$	-

COST OF GOODS SOLD		-			-			-			-

Gross margin		-			-			-			-

OPERATING EXPENSES
Advertising and promotion		7,986			2,934			2,147			2,500
General and administrative		655,309			526,241			269,801			125,227
Research and development		131,827			291,769			57,977			103,605

Total operating expenses		795,122			820,944			329,925			231,332

Operating loss		(795,122	)		(820,944	)		(329,925	)		(231,332	)

OTHER (EXPENSE) INCOME
Other income (expense)		(12,968	)		(50,000	)		-			-
Derivative income (expense)		3,320			(11,406	)		543			(595	)
Interest (expense)		(95,356	)		(293,123	)		(32,914	)		(65,269	)

Total other (expense)		(105,004	)		(354,529	)		(32,371	)		(65,864	)

Loss before income taxes		(900,126	)		(1,175,473	)		(362,296	)		(297,196	)
Income taxes		-			-			-			-

Net loss	$	(900,126	)	$	(1,175,473	)	$	(362,296	)	$	(297,196	)

Net loss per common share, basic and diluted	$	(0.00	)	$	(0.00	)	$	(0.00	)	$	(0.00	)

Weighted average number of common shares outstanding, basic and diluted		1,403,414,280			1,145,656,355			1,445,400,243			1,346,156,963

See accompanying notes to the condensed consolidated financial statements

F- 24

CYCLONE POWER TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Three months Ended						Six Months Ended						Nine Months Ended
	March 31,						June 30,						September 30,
	2016			2015			2016			2015			2016			2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(260,610	)	$	(587,637	)	$	(537,832	)	$	(878,277	)	$	(900,126	)	$	(1,175,473	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		17,653			19,078			34,872			38,031			52,240			56,810
Issuance of restricted common stock, options and warrants for services		-			62,084			987			62,953			1,693			63,377
Loss on debt paid with common stock		-			50,000			57,383			50,000			57,383			50,000
Amortization of prepaid interest expenses via common stock & warrants		-			28,459			6,000			-			6,000			-
(Gain) loss from derivative liability-notes payable		(2,321	)		17,654			(2,777	)		10,811			(3,320	)		11,406
Amortization of derivative debt discount		8,193			78,861			11,680			132,531			11,680			157,507
Interest paid with common stock		-			11,372			-			11,371			-			12,394
Amortization of prepaid expenses via common stock & warrants		385			-			-			28,459			-			28,459
Changes in operating assets and liabilities:								-			-
(Increase) decrease in inventory		(14,451	)		(45,759	)		(26,005	)		(46,417	)		(84,007	)		13,533
Increase in other current assets		-			15,116			337			15,240			(813	)		15,365
Decrease in cash overdraft		(153	)		0			(3,221	)		1,228			(3,221	)		3,027
Increase in accounts payable and accrued expenses		94,799			177,782			203,521			226,286			251,250			315,437
Increase in accounts payable and accrued expenses-related parties		83,750			83,750			167,500			186,470			346,833			361,522
Increase in deferred revenue and deposits		5,700			-			40,700			25,000			115,700			25,403
Net cash used in operating activities		(67,055	)		(89,240	)		(46,855	)		(136,314	)		(148,708	)		(61,233	)

CASH FLOWS FROM INVESTING ACTIVITIES:		-			-			-			-			-			-

CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of capitalized leases		(4,122	)		(1,370	)		(7,754	)		(5,254	)		(8,928	)		(6,731	)
Proceeds from notes and loans payable		7,000			50,000			7,000			50,000			90,725			50,000
Repayment of notes and loans payable		-			-			(1,500	)		-			(1,500	)		-
Increase in related party notes and loans payable-net		64,177			40,339			63,970			91,290			69,798			17,686
Net cash provided by financing activities		67,055			88,969			61,716			136,036			150,095			60,955

Net increase (decrease) in cash		-			(271	)		14,861			(278	)		1,387			(278	)
Cash, beginning of period		-			278			-			278						278

Cash, end of period	$	-		$	7		$	14,861		$	-		$	1387		$	-

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Payment of interest in cash	$	1,603		$	10,869		$	3,379		$	11,372		$	4,232		$	13,836
Payment of Taxes		-			-			-			-			-			-
NON CASH INVESTING AND FINANCING ACTIVITIES:
Issuance of 40,000,000 shares of Common stock for liability settlement	$	-		$	14,000		$	-		$	14,000		$	-		$	14,000
Issuance of 5,250,000 shares of Common stock pursuant to prior year common stock price guarantees	$	-		$	52,500		$	-		$	52,500		$	-		$	52,500
Issuance of 328,161,744 shares of Common stock for debt repayment	$	-		$	109,462		$	-		$	109,462		$	-		$	-
Issuance of 35,959,970 shares of Common stock for debt interest	$	-		$	11,372		$	-		$	11,372		$	-		$	-
Issuance of 45,730,741 shares of Common stock for liability settlements	$	-		$	-		$	24,932		$	-		$	-		$	-
Issuance of 3,000,000 shares of Common stock for services	$	-		$	-		$	6,000		$	-		$	6,000		$	-
Issuance of 125,730,741 shares of Common stock for liability settlements	$	-		$	-		$	-		$	-		$	240,932		$	-
Issuance of 328,707,198 shares of Common stock for debt repayment	$	-		$	-		$	-		$	-		$	-		$	118,462
Issuance of 42,146,758 shares of Common stock for debt interest	$	-		$	-		$	-		$	-		$	-		$	12,392
Foregivness of deferred officers salaries	$	-		$	-		$	-		$	-		$	-		$	655,225
Foregivness of accrued rent, interest and other expenses due officer’s company	$	-		$	-		$	-		$	-		$	-		$	710,272

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

F- 25

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES

A. PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION

The unaudited consolidated financial statements include the accounts of the Company and its 95% owned subsidiary Cyclone Performance. All material inter-company transactions and balances have been eliminated in the condensed consolidated financial statements. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) applicable to interim financial information and the requirements of Form 10-Q and Article 8 of Regulation S-X of the SEC. Accordingly, they do not include all of the information and disclosures required by accounting principles generally accepted in the United States for complete consolidated financial statements. We follow the same accounting policies in preparation of interim reports as we do in our annual reports.

Interim results are not necessarily indicative of results for a full year. In the opinion of management, all adjustments considered necessary for a fair presentation of the financial position and the results of operations and cash flows for the interim periods have been included. We suggest that these financial statements be read in conjunction with the financial statements and notes thereto included in the Company's annual report for the year ended December 31, 2016.

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

NOTE 2 - GOING CONCERN

As shown in the accompanying condensed consolidated financial statements, the Company incurred substantial operating and other losses and expenses of approximately $.9 million for the nine months ended September 30, 2016 and the cumulative deficit since inception to September 30, 2016 is approximately $59.6 million,. The Company has a working capital deficit at September 30, 2016 of approximately $2.9 million. There is no guarantee whether the Company will be able to generate enough revenue and/or raise capital to support its operations. This raises substantial doubt about the Company’s ability to continue as a going concern. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

The ability of the Company to continue as a going concern is dependent on management’s plans which include continuation of its business model to generate revenue from development contracts, licenses and product sales, and continuing to raise funds through debt and advances from strategic partners and deferred payments to related parties.

NOTE 3 – RELATED PARTY TRANSACTIONS

Cumulatively, for the nine months ended September 30, 2016, related party indebtness increased $416,631 from December 31, 2015.

NOTE 4 – COMMITMENTS AND CONTINGENCIES

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations (unaudited)

Three Months Ended March 31, 2016 Compared to Three Months Ended March 31, 2015

Revenue. The Company had no revenues in the quarters ended March 31 2016 and March 31, 2015.

Gross Margin. In the quarters ended March 31, 2016 and 2015, the company has no gross margins.

F- 26

Operating Expenses.

Operating expenses incurred for the quarter ended March 31, 2016 were $220,603 as compared to $378,760 for the same period in the previous year, a reduction of $148,157 or 39%. The majority of the decrease was due to a reduction in General and Administrative expenses of $80,960 (30%): staffing, insurance and professional fees. Research and Development expenses were lower by $72,234 or 68%, reflective of staff reduction.

Operating Loss. The operating losses for the quarters ended March 31, 2016 and 2015 were $230,603 and $378,760, respectively, a reduced loss of $148,157 or 39%, due to the factors outlined above.

Other Expense. Other expense for the quarter ended March 31, 2016 was $30,007 versus $208,877 for the same period in the prior year, a reduction of $178,870 or 86%.,

The 2016 net other expense included $32,828 of interest expense. The 2015 other expenses included $62,362 of interest expense, $78,861 of derivative accounting related interest charges and a loss of $50,000 from debt settled with common stock.

Net Loss and Loss per Share. The net loss for the quarter ended March 31, 2016 was $260,610, compared to a net loss of $587,637 for the same period in the previous year. The decreased loss of $327,027 or 56% is related to the factors outlined above. The net loss per weighted average share was $0.00 for both the current quarter and prior quarter.

Liquidity and Capital Resources

At March 31, 2016, the net working capital deficiency was $2,569,189 as compared to a deficiency of $2,272,018 at December 31, 2015, a variance of $297,171 or 13%.

For the three months ended March 31, 2016, cash decreased by $0. This is reflective of funds used by the net loss of $260,610 and the $14,451 increase in inventory. Funds were provided by debt proceeds of $7,000, higher accounts payable and accrued expenses of $94,799 and an increase of $147,927 in related party notes payables and accrued expenses.

For the three months ended March 31, 2015, cash decreased by $271. This is reflective of funds used by the net loss of $587,637 and the $45,759 increase in inventory. Funds were provided by debt proceeds of $50,000, higher accounts payable and accrued expenses of $177,782 and an increase of $83,750 in related party payables and accrued expenses. Non-cash charges for the three months were from the issuance of common stock, warrants and options for services of $62,084, amortization of prepaid expenses paid with common stock of $28,459, $78,861 of derivative debt discount amortization, and a $50,000 loss recognized by settling debt with common stock.

Results of Operations (unaudited)

Three Months Ended June 30, 2016 Compared to Three Months Ended June 30, 2015

Revenue. The Company had $0 revenue in the quarters ended June 30, 2016 and June 30, 2015

Gross Margin. The Company had $0 gross margin in the quarters ended June 30, 2016 and June 30, 2015.

Operating Expenses. Operating expenses incurred for the quarter ended June 30, 2016 were $234,595 as compared to $210,852 for the same period in the previous year, an increase of $23,743 (11%). R&D expenses for the three months ending June 30 2016 were $39,157 or $42,080 or 52% lower versus 2015 on reduced staff and expenses. General and administrative expenses increased by $65,453 (51%) primarily from higher consulting expenses and increased patent maintenance fees (renewal timing), offset by lower staff and related expenses.

F- 27

Operating Loss. The operating losses for the quarters ended June 30, 2016 and 2015 were $234,595 and $210,852, respectively, an increased loss of $23,743 or 11%, due to the factors outlined above.

Other Income (Expense) The net other loss for the quarter ended June 30, 2016 was ($42,627) versus a net loss of ($79,788) for the comparable period of last year, a favorable variance of $37,161 or 47%. The 2016 net other expense included a $44,000 gain on the sale of the Whe Gen stock, a $57,383 loss on debt paid with stock and interest expense of $29,614

Net other expense for the quarter ended June 30, 2015 was $79,788, primarily due to interest expense of $86,631.

Net Loss and Loss per Share. The net loss for the quarter ended June 30, 2016 was $277,222, compared to a net loss of $290,640 for the same period in the previous year, a favorable variance of $13,418 or 4.6%. The net income per weighted average share was $0.00 for the quarter ended June 30, 2016 and $0.00 for the prior year comparable quarter.

Six Months Ended June 30, 2016 Compared to Six Months Ended June 30, 2015

Revenue. The Company had $0 revenue in the six months ended June 30, 2016 and June 30, 2015.

Gross Margin. The Company had $0 gross margin in the six months ended June 30, 2016 and June 30, 2015.

Operating Expenses. Operating expenses incurred for the six months ended June 30, 2016 were $465,198 as compared to $589,612 for the same period in the previous year, a decrease of $124,414 or 21%. The decrease was due to a reduction in research and development staff and expenses of $114,314 or 61%, Also, general and administrative expenses decreased by $15,505 (4%) primarily from a reduction professional and consulting expenses partially offset by reduced stock issued for services.

Operating Loss. The operating losses for the six months ended June 30, 2016 and 2015 were $465,198 and $589,612, respectively, a decrease of $124,414 or 21%, due to the factors outlined above.

Other Income (Expense) Net other expense for the six months ended June 30, 2016 was ($72,634) versus ($288,665) for the comparable period of the prior year, a favorable variance of $216,031 or 75%. The 2016 net expense included interest expenses of $62,442, and a $57,383 loss on a debt conversion paid with restricted common stock, partially offset by a $44,000 gain on the sale of the Whe Gen investment.

Net other expense for the six months ended June 30, 2015 was $(288,665) included interest expenses of $227,854, and a $50,000 loss on a debt conversion paid with restricted common stock.

Net Loss and Loss per Share. The net loss for the six months ended June 30, 2016 was a loss of $537,832, compared to a net loss of $878,277 for the same period in the previous year a favorable variance of $340,445 or 39%. The net income per weighted average share was $0.00 for the six months ended June 30, 2016 and 2015, respectively.

Liquidity and Capital Resources

At June 30, 2016, the net working capital deficiency was $2,744,396 as compared to a deficiency of $2,272,018 at December 31, 2015, an increased deficiency of $472,378 or 21%.

For the six months ended June 30, 2016, cash increased by $14,861. Funds were provided by the $231,470 increase in notes, accounts payable and accruals to related parties, higher accounts payable and accrued expenses of $203,521. Funds were used by the $537,832 loss and a $26,005 increase in inventory. Non-cash charges for the six months were from: a $24,932 loss on liabilities and debt paid with common stock and $6,000 of expense paid with common stock.

F- 28

The six months ended June 30, 2015, cash increased by $0. Funds were used by the net loss of ($878,277), and $46,417 higher inventory. Funds were provided by $50,000 of new debt financing, a $277,760 increase in related party debt and accrued expenses, an a $226,286 increase in accounts payable and accrued expenses. Non-cash charges for the six months were from the issuance of common stock and options for services of $62,953, a $50,000 loss on liabilities and debt paid with common stock, and $132,531 of amortization of derivative debt discount.

Results of Operations (unaudited)

Three Months Ended September 30, 2016 Compared to Three Months Ended September 30, 2015

Revenue. The Company had $0 revenue in the quarters ended September 30, 2016 and September 30, 2015

Gross Margin. The Company had $0 gross margin in the quarters ended September 30, 2016 and September 30, 2015.

Operating Expenses. Operating expenses incurred for the quarter ended September 30, 2016 were $329,923 as compared to $231,332 for the same period in the previous year, an increase of $98,591 or 43%. R&D expenses were $45,628 or 44% lower largely due to a $60,000 inventory reserve provided for in 2015. General and administrative expenses increased by $144,572 (115%) primarily from higher audit and legal fees for the 2014 and 2015 audit, increased consulting expenses and increased patent maintenance fees (renewal timing).

Operating Loss. The operating losses for the quarters ended September 30, 2016 and 2015 were $329,923 and $231,332, respectively, an increased loss of $98,591 or 43%, due to the factors outlined above.

Other Income (Expense) The net other loss for the quarter ended September 30, 2016 was 32,371, versus a net loss of $65,864 for the comparable period or the prior year, a favorable variance of $33,493 (51%) primarily due to reduced interest expense.

Net Loss and Loss per Share. The net loss for the quarter ended September 30, 2016 was $362,294, compared to a net loss of $297,196 for the same period in the previous year. The unfavorable variance of $65,098 or 22% primarily relates to the higher General and Administrative expense. The net income per weighted average share was $0.00 for the quarter ended September 30, 2016 and the net loss per weighted average share was $0.00 for the prior year comparable quarter.

Nine months Ended September 30, 2016 Compared to Six Months Ended September 30, 2015

Revenue. The Company had $0 revenue in the nine months ended September 30, 2016 and September 30, 2015.

Gross Margin. The Company had $0 gross margin in the nine months ended September 30, 2016 and September 30, 2015.

Operating Expenses. Operating expenses incurred for the nine months ended September 30, 2016 were $795,122 as compared to $820,944 for the same period in the previous year, a decrease of $25,822 or 3.1%. The decrease was due to lower research and development expenses of $159,942 or 55%, largely due to a $60,000 inventory reserve provided for in 2015 and a higher 2016 allocation of engineering labor to new engine WIP inventory. General and administrative expenses increased by $129,067 (25) %) primarily from higher audit and legal fees for the 2014 and 2015 audit, increased consulting expenses and increased patent maintenance fees (renewal timing).

Operating Loss. The operating losses for the nine months ended September 30, 2016 and 2015 were $795,121 and $820,944, respectively, a decrease of $25,822 or 3.1%, due to the factors outlined above.

Other Income (Expense) Net other income (loss) for the nine months ended September 30, 2016 was ($105,005) versus a loss of ($354,529) for the same period in the prior year, for a variance of $249,524 (70%). The net other 2016 loss included interest expense of $95,356, and a $57,383 loss on a debt conversion paid with restricted common stock, partially offset by a $44,000 gain on the sale of the Whe Gen investment.

F- 29

Net other expense for the nine months ended September 30, 2015 was $(354,529) included interest expenses of $293,123 and a $50,000 loss on a debt conversion paid with restricted common stock.

Net Loss and Loss per Share. The net income for the nine months ended September 30, 2016 was a loss of $900,126, compared to a net loss of $1,175,473 for the same period in the previous year for a variance of $275,347 or 23% The net income per weighted average share was $0.00 for the nine months ended September 30, 2016 and the net loss per weighted average share was $0.00 for the prior comparable nine month period.

Liquidity and Capital Resources

At September 30, 2016, the net working capital deficiency was $2,873,926 as compared to a deficiency of $2,272,018 at December 31, 2015, an increase of $601,908 or 26%.

For the nine months ended September 30, 2016, cash increased by $1,387. Funds were provided by the $416,631 increase in notes, accounts payable and accruals to related parties, higher accounts payable and accrued expenses of $251,250, an increase in deferred revenue of $115,700, $90,725 in loan and note proceeds and $44,000 from the sale of the Whe Gen stock. Funds were used by the $900,126 loss and a $84,007 increase in inventory. Non-cash charges for the nine months were from: a $57,383 loss on liabilities and debt paid with common stock and $6,000 of expense paid with common stock.

For the nine months ended September 30, 2015 cash decreased by $278. This is reflective of funds provided by $50,000 of new debt funding, $315,437 increase in accounts payable and accruals, and a $379,208 increase in related party notes and accounts payables. Non-cash charges for the nine months were from the issuance of common stock for liability and debt settlement of $50,000 and the issuance of common stock, options and warrants for services of $63,377.

F- 30

Cyclone Power Technologies, Inc.

601 NE 26 ^th Court

Pompano Beach, FL 33064

Phone: 954-943-8721 Fax: 954-788-6565

www.cyclonepower.com

EXCLUSIVE ENGINEERING DEVELOPMENT AGREEMENT.

THIS AGREEMENT, is made this June 1, 2016, by and between CYCLONE POWER TECHNOLOGIES, INC., a Florida corporation, with its principal office located at 601 N.E. 26th Court, Pompano Beach, Florida 33064, U.S.A. (“CYCLONE”), and Falck Schmidt Defence Systems A/SCVR.nr. 28490259 with its principal office located at Oslogade 15000 Odense C, Denmark (“FSDS”).

Background

CYCLONE, is engaged in the business of research and development of heat regenerative, external combustion engines, generally characterized as a high efficiency, compact and powerful steam engine that runs on almost any fuel. CYCLONE holds numerous patents and is engaged in the prototype of the engine, as well as licensing for sales, joint ventures and manufacturing.

CYCLONE wishes to expand the sale of its engines for all Military applications and introduce them into the worldwide marketplace. The Denmark based company engaged in All Military Power Application Technology development for commercial and industrial applications in the World & Aerospace .

CYCLONE possesses the fundamental engine technology. FSDS wishes to buy a CYCLONE S-2 ENGINE (“Mark S-2 Engine”), to perform engineering and development work for Military Auxilary Power Unit (APU)

The Cyclone Engine includes trademark and patent rights, manufacturing trade secrets, engineering blue prints and design drawings, specifications and other proprietary information (Cyclone’s Technology”).

CYCLONE and FSDS believe a mutually beneficial relationship for the engineering integration of the Cyclone Engine, and its eventual marketing and sale in the Military Worldwide & Aerospace market can be developed through corresponding working arrangements between them.

NOW, THEREFORE, the parties, in consideration of mutual promises, covenants and understandings below, do agree as follows:

1) Term of agreement

Subject to the further terms of this Exclusive Engineering Development Agreement, FSDS has the exclusive rights for all the Cyclone Engines, for Any and all Military & Aerospace power applications worldwide for 12 month temporary license with the signing of this agreement.

2) Payment

FSDS will purchase two Beta Total S-2 APU Powered by Cyclone Engine as described in Attachment #1.

All Development Fees once paid to CYCLONE are non-refundable. The Development Fees shall be payable as follows:

The fees payable by FSDS to CYCLONE is Two Hundred and Twenty Five Thousand and no/100 USD ($225,000.00) Dollars, payable to CYCLONE as follows:

US 25,000 USD upon signing this Agreement (non-refundable);

US 25.000 Start of work meeting (SOW)

US 25.000 Long lead items ordered

US 25.000 Critical design review (CDR),(control, electric and mechanical interfaces review)

US 50.000 Engine design Documentation package delivered a full documentation package containing all information and drawings for production of S-2 system

US 75.000 Final engine test completed

US 225.000 total.

The parties are obligated to enter into a new agreement establishing the conditions regarding the parties future cooperation. The new agreement must be entered into before the end of June 2016.

3) Confidential Information .

FSDS acknowledges CYCLONE’S rights to its patented products and to its Know-How. All trade secrets, technical Know-How, other knowledge, information, instructions and engineering disclosed or furnished to FSDS by CYCLONE shall be maintained in strict confidence by FSDS and agrees that throughout the term of this Agreement, and for five (5) years thereafter, such information will not be disclosed or be permitted to be disclosed by FSDS other than to authorized individuals (including, without limitation, sales representatives, distributors and technical personnel) engaged in carrying-out the terms hereof. The parties agree this confidentiality extends to the employees and officers of FSDS. FSDS agrees to provide the requisite internal security of the subject proprietary information within its organization and further agrees to require its agents, servants and employees having access to the Know-How to acknowledge this obligation of confidentiality.

Page 2 of 5

4) Technical Assistance .

CYCLONE, upon request, will furnish technical personnel Harry Schoell & his engineers to assist it regarding the technical information and Know-How necessary to carry-out the purposes of this Agreement, at no additional fees. Provided, however, if travel is involved then FSDS shall bear all travel, lodging, expenses, and an hourly rate for Cyclone personnel.

5) Relationship .

FSDS is an independent contractor. Nothing in this agreement shall be construed to create a principal/agent, joint venture, partnership or any other business relationship between the parties other than as set forth in this Agreement. Neither party is authorized to act on behalf of the other.

6) Non-Circumvention .

During the term of this Agreement, FSDS agrees not to contact, initiate contact, or attempt to do business with, at any time for any purpose, either directly or indirectly, any officers, directors, shareholders, consultants, attorneys, employees, agents, customers or other affiliates of CYCLONE concerning this business opportunity, as referred by CYCLONE to FSDS for the purpose of circumventing, the result of which shall be to prevent CYCLONE from realizing a profit, license and royalty fees or otherwise, without express written approval of CYCLONE, which approval may be withheld by CYCLONE in its sole discretion.

FSDS may terminate this Agreement for its convenience at any time upon providing five (5) days written notice to Cyclone. In such case, Cyclone shall be entitled to receive as full compensation for all services performed hereunder payment for all Work performed prior to the date of termination, together with all retainage withheld in accordance with Article 2. Payment of such compensation is the sole and exclusive remedy of Cyclone for termination of this Agreement by FSDS hereunder and Cyclone shall not be entitled to, and hereby waives, claims for lost profits and all other damages and expenses.

Page 3 of 5

7) Notices .

All notices shall be in writing and deemed to have been given when sent by e-mail and Federal Express prepaid to the parties at the addresses set forth below, or such other addresses from time to time given.

To: Cyclone Power Technologies	To: Jan Falck-Schmidt, President/CEO
Frankie Fruge, President	Falck Schmidt Defense Systems
601 N.E. 26th Court	Oslogade 15000 Odense C
Pompano Beach, FL 33064	Denmark
Frankie@cyclonepower.com	jafs@f-sds.com

8) Remedies .

all damages incurred by a party for a violation of the terms hereof by the other, the prevailing party shall also be entitled to recover all costs and reasonable attorney fees incurred by reason such breach or obtaining compliance with the agreement and appeals. But, this shall not restrict a party’s right to terminate as stated.

9) No Waiver .

The failure of either party to insist on strict performance of any provisions herein shall not affect the right of such party to enforce same, nor shall the waiver of any breach constitute a waiver of a subsequent default of same or similar nature, nor construed as a waiver of strict performance of any other provisions.

10) Severability .

If any part of this agreement shall be declared void or invalid by law or otherwise, the remaining provisions shall remain valid and enforceable.

11) Indemnification.

FSDS agrees to indemnify and hold harmless CYCLONE from any and all loss, damage, cost or expense (including, without limitation, legal fees, court costs, etc.) arising out of, or in connection with, any claim due to any actions, negligence, product liability, or willful misconduct by FSDS or any of its agents or employees. Upon entering into formal agreements (after 3 months development period), FSDS shall provide proof of products liability insurance, with CYCLONE noted as an Additional Insured.

12) Governing Law.

This agreement shall be governed by and construed under the laws of the State of Florida, USA. If any dispute arises between the parties, it shall be submitted to the Circuit Court of Broward County, Florida, or binding arbitration under the auspices of the American Arbitration Association, such proceedings to be conducted in Broward County, Florida.

13) Entire Agreement.

This Agreement constitutes the entire understanding between the parties and supersedes any previous oral or written undertakings. It may not be modified, except in writing signed by both parties. This agreement shall be binding upon the parties, their successors and assigns.

Page 4 of 5

IN WITNESS WHEREOF, the parties, by their representatives, have set their hands and seals the day and year first above written.

	Cyclone Power Technologies, Inc.
Witness
	By:
		Frankie Fruge, President


Witness	By:

Page 5 of 5

Consulting Services Agreement

This Consulting Services Agreement (the “ A GREEMENT ”) is entered this 24th of October 2016 (“ Effective Date ”) between Larry Bornstein, located at 8005 Valhalla Drive, Florida 33446 (“ C ONSULTANT ”), and Cyclone Power Technologies, Inc., located at 601 NE 26th Ct., Pompano Beach, FL 33064 (“ C OMPANY ”).

WHEREAS , the Company requires the services of an expert to advise in financial, business and real estate matters, and the Consultant has such experience and expertise;

NOW THEREFORE , in consideration of the premises and the mutual covenants and agreements of the parties hereinafter set forth, the parties hereto hereby agree as follows:

Engagement

Company hereby engages Consultant and Consultant hereby accepts the engagement to become a business consultant to the Company and to render such advice, consultation, information, and services to the Directors and/or Officers of the Company regarding public company financials and audit for the Company. Specifically, the Consultant shall be the lead for the company in dealing with the auditors and the company to completely manage the audit process, manage its timing, conference calls, all document flow and any other items required to complete the audit and public reporting. It shall be expressly understood that Consultant shall have no power to bind Company to any contract or obligation or to transact any business in Company’s name or on behalf of Company in any manner.

Term

2.	The term (“ T *ERM* ”) of this Agreement shall commence on the date hereof and continue for three months (3) months.

Compensation and Fees

3.	Company agrees to pay and deliver to Consultant 10,000,000 shares of restricted common stock of the Company (the “Stock Consideration”) for its services during the Term hereof.

4.	The Stock shall be restricted bearing all appropriate legends. Shares shall be considered earned as of the Effective Date of this agreement.

Representations, Warrants and Covenants

5.	The Company represents, warrants and covenants to the Consultant that Company has the full authority, right, power and legal capacity to enter into this Agreement and to consummate the transactions provided for herein.

6.	In the performance of its duties hereunder, the Consultant represents, warrants and covenants to the Company that it shall comply with all laws, rules and regulation of the Securities Exchange Commission, FINRA, any securities exchange that the Company’s securities are then listed, the Federal Trade Commission and any and all other regulatory bodies. Consultant hereby indemnifies and holds the undersigned and the Company harmless for any breach of this paragraph including a reasonable sum for attorney fees.

7.	The Consultant further represents that it and all individuals associated with it shall at all times conduct its business in a legal manner subject to all state and federal securities laws. This Agreement may be terminated immediately if this provision is breached or if any facts become known to the Company, in the Company’s sole and absolute discretion, that would lead it to believe otherwise, or that may do harm to the image and reputation of the Company.

Exclusivity; Performance; Confidentiality

8.	The services of Consultant hereunder shall not be exclusive, and Company may hire other consultants to perform similar or the same services. The Consultant agrees that it will, at all times, faithfully and in a professional manner perform all of the duties that may be reasonably required of the Consultant pursuant to the terms of this Agreement.

9.	Consultant acknowledges and agrees that confidential and valuable information proprietary to Company and obtained during its engagement by the Company, shall not be, directly or indirectly, disclosed without the prior express written consent of the Company, unless and until such information is otherwise known to the public generally or is not otherwise secret and confidential.

Litigation and Fees

10.

Any controversy or claim arising out of or relating to this Agreement, or breach thereof, may be resolved by mutual agreement; or if not, shall be settled in accordance with Florida, in the courts of Palm Beach County. The prevailing party shall be entitled, in addition to such other relief as many be granted, to a reasonable sum for attorney’s fees.

Notices

11.

Any notice or other communication required or permitted hereunder must be in writing and sent by either (i) certified mail, postage prepaid, return receipt requested and first class mail, (ii) overnight delivery with confirmation of delivery, or (iii) facsimile transmission with an original mailed by first class mail, postage prepaid.

Additional Provisions

12.	No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision and no waiver shall constitute a continuing waiver. No waiver shall be binding unless executed in writing by the party making the waiver. No supplement, modification, or amendment of this Agreement shall be binding unless executed in writing by all parties.

13.	This Agreement constitutes the entire agreement between the parties and supersedes any prior agreements or negotiations. There are no third-party beneficiaries of this Agreement. This Agreement shall be governed by and construed in accordance with the internal laws of the State of Florida, regardless of laws of conflicts.

Counterparts

14.

This Agreement may be executed simultaneously in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument

I N W ITNESS W HEREOF , the parties hereto have entered into this Agreement on the date first written above.

	Cyclone Power Technologies, Inc.

	By:
		Frankie Fruge, President
	Date:

	By:
		Larry Bornstein
	Date:

Consulting Services Agreement

This Consulting Services Agreement (the “ Agreement ”) is entered this 3 ^rd of January 2017 (“ Effective Date ”) between Larry Bornstein, located at 8005 Valhalla Drive, Florida 33446 (“ Consultant ”), and Cyclone Power Technologies, Inc., located at 601 NE 26 ^th Ct., Pompano Beach, FL 33064 (“ Company ”).

WHEREAS , the Company requires the services of an expert to advise in financial, business and real estate matters, and the Consultant has such experience and expertise;

NOW THEREFORE , in consideration of the premises and the mutual covenants and agreements of the parties hereinafter set forth, the parties hereto hereby agree as follows:

Engagement

Term

The term (“ Term ”) of this Agreement shall commence on the date hereof and continue for twelve months (12) months.

Compensation and Fees

	3.	Company agrees to pay and deliver to Consultant 10,000,000 shares of restricted common stock of the Company (the “Stock Consideration”) for each month of its services during the Term hereof.

	4.	The Stock shall be restricted bearing all appropriate legends. Shares shall be considered earned as of the Effective Date of this agreement.

Representations, Warrants and Covenants

	5.	The Company represents, warrants and covenants to the Consultant that Company has the full authority, right, power and legal capacity to enter into this Agreement and to consummate the transactions provided for herein.

	6.	In the performance of its duties hereunder, the Consultant represents, warrants and covenants to the Company that it shall comply with all laws, rules and regulation of the Securities Exchange Commission, FINRA, any securities exchange that the Company’s securities are then listed, the Federal Trade Commission and any and all other regulatory bodies. Consultant hereby indemnifies and holds the undersigned and the Company harmless for any breach of this paragraph including a reasonable sum for attorney fees.

	7.	The Consultant further represents that it and all individuals associated with it shall at all times conduct its business in a legal manner subject to all state and federal securities laws. This Agreement may be terminated immediately if this provision is breached or if any facts become known to the Company, in the Company’s sole and absolute discretion, that would lead it to believe otherwise, or that may do harm to the image and reputation of the Company.

Exclusivity; Performance; Confidentiality

	8.	The services of Consultant hereunder shall not be exclusive, and Company may hire other consultants to perform similar or the same services. The Consultant agrees that it will, at all times, faithfully and in a professional manner perform all of the duties that may be reasonably required of the Consultant pursuant to the terms of this Agreement.

	9.	Consultant acknowledges and agrees that confidential and valuable information proprietary to Company and obtained during its engagement by the Company, shall not be, directly or indirectly, disclosed without the prior express written consent of the Company, unless and until such information is otherwise known to the public generally or is not otherwise secret and confidential.

Litigation and Fees

10.

Notices

11.

Additional Provisions

	12.	No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision and no waiver shall constitute a continuing waiver. No waiver shall be binding unless executed in writing by the party making the waiver. No supplement, modification, or amendment of this Agreement shall be binding unless executed in writing by all parties.

	13.	This Agreement constitutes the entire agreement between the parties and supersedes any prior agreements or negotiations. There are no third-party beneficiaries of this Agreement. This Agreement shall be governed by and construed in accordance with the internal laws of the State of Florida, regardless of laws of conflicts.

	14.	For reporting purposes in public flings, this agreement shall be reported as “Bornstein Consulting Agreement dated January 3, 2017”

Counterparts

15.

This Agreement may be executed simultaneously in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument

In Witness Whereof , the parties hereto have entered into this Agreement on the date first written above.

	Cyclone Power Technologies, Inc.

	By:
		Frankie Fruge, President
		Date:

	By:
		Larry Bornstein
		Date:

January 26, 2017

Final

Technology License Agreement

THIS TECHNOLOGY LICENSE AGREEMENT (“Agreement”) is entered into as of January 30, 2017 (the “Effective Date”) by and between:

Cyclone Power Technologies, Inc., a Florida Corporation, having its offices located at 601 NE 26th Court, Pompano Beach, Florida 33064 (“Cyclone”).

and

Falck Schmidt Defence Systems A/S, a corporation formed in Denmark, having its offices located, Oslogade 1, DK - 5000 Odense C, Denmark (“FSDS”).

RECITALS

WHEREAS, Cyclone has developed and patented a heat-regenerative external combustion engine system called the Schoell Cycle Engine (“Cyclone Engine”), in which Cyclone has full rights and authority to grant a technology licenses for the technology and applications concerning the engine; and

WHEREAS, FSDS is a developer, supplier and manufacturer of certain defense and aerospace products, and FSDS wishes to obtain a license technology to use the Cyclone Engine technology in the manufacture and/or supply of defense and/or aerospace items according to the terms and conditions set forth in this Agreement; and

WHEREAS, Cyclone and FSDS entered into the Exclusive Engineering Development Agreement dated June 1, 2016, and a related Appendix thereto (together the “Prior Agreement”), which together provided, among other things, that FSDS obtained the exclusive license to the Technology for the Applications for a period of 12 months and that FSDS make certain payments to Cyclone upon Cyclone’s performance of certain obligations (the “Fees Payable”); and

WHEREAS, Cyclone and FSDS have been working together under the Prior Agreement, neither party is in breach of any obligation under the Prior Agreement, and FSDS has paid to Cyclone all but $75,000.00 of the Fees Payable; and

WHEREAS, this Agreement contains: I Specific Agreement Terms, and II Standard Terms and Conditions, which together comprise the full agreement of the parties hereto.

NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which each party acknowledges the parties agree as follows:

Initials:______

I. SPECIFIC A GREEM ENT TERMS

Technology:	“Technology” 1s defined m Section 1 of the Standard Terms and Conditions.

Applications :	Any and all defense and/or aerospace applications, including but not limited to any power source for any defense and/or aerospace applications.

Exclusive License :	Cyclone grants the exclusive right to FSDS to the Technology in the Applications in the Territory; including, without limitation, the right to make, have-made, use, sell, offer-for sale, distribute, and import the Technology in the Applications in the Te1Titory. Cyclone shall grant no other person or entity, nor reserve for itself, during the tenn of this Agreement, any rights to the Technology in the Applications in the Territory.

Territory :	The territory of the Exclusive License granted by Cyclone to FSDS shall be the whole world including but not limited to any defense or aerospace applications used or meant for use above or below ground, in Earth’s atmosphere, or in outer space.

Term :	The initial term of this Agreement shall commence on the Effective Date and continue for so long as any valid patent of Cyclone covers the Technology, or so long as necessary aspects of the Technology constitute trade secrets of Cyclone, unless this Agreement is terminated earlier according to the terms of this Agreement.

Royalty Fees :	FSDS shall pay to Cyclone a royalty fee on each Cyclone Engine that FSDS manufactures utilizing the Technology, sells and receives payment therefore from FSDS’s customer. The Royalty Fee shall be in the amount of $125.00 USD for the Mark 3 version of the Cyclone Engine, $125.00 USD for the S-2 version of the Cyclone Engine, $350.00 USD for the Mark 6 version of the Cyclone Engine, and $500.00 USD for the Mark 7 version of the Cyclone Engine. These Royalty Fees will increase or decrease annually by the percentage increase or decrease in the U.S. Bureau of Labor Statistics’ Producer Price Index by Commodity for Machinery and Equipment: PPI code 114, General purpose machinery and equipment, database code WPU114, from the Effective Date to the first anniversary thereof and on each anniversary date thereafter during the Term. The Parties agree to negotiate in good faith to determine the royalty payment for any future version of the Cyclone Engine to be reasonably consistent with the royalty rates of the Cyclone Engines provided above.

Cyclone Contacts :

Technology:	Harry Schoell, CEO, Tel: 954-943-8721, Harry@cyclonepower.com

Operational/ Legal:	Frankie Fruge, Tel: 954-943-872,1Frankie@cyclonepower.com

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FSDS Contacts :

Technology: Per Michael Jen sen, _ _ _ _ _ _ _ _ _ _

Operational/Legal: Henrik Bornebusch, Chairman of the Board, hb@facorylaw.dk , 45027026011011

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STANDARD TERMS AND CONDITIONS

1. Grant of License

1.1 Cyclone grants to FSDS the Exclusive License stated above. FSDS may not manufacture or have manufactured the Cyclone Engine for uses other than the Application, and may not sell or otherwise distribute the Cyclone Engine separately from the Application, except as specifically set forth in this Agreement.

1.2 This Agreement may not be transferred to a third party by FSDS without the prior written consent of Cyclone, which consent may not be unreasonably delayed or withheld. If FSDS transfers its interests within this Agreement to a third party, then such third party will be bound to the requirements and provisions of this Agreement to the same degree as FSDS. This Agreement to use the Technology will automatically expire upon termination of this Agreement.

1.3 The definition of “Technology” as used herein shall mean: Cyclone’s proprietary technology related to its heat regenerative, external combustion, Schoell cycle engine (referred to as the “Cyclone Engine”) and shall include any of Cyclone’s 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, 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 in formation, inventions, trade secrets, and technical data in the possession of Cyclone that is useful or is needed in the assembly or manufacture of the Cyclone Engine and that Cyclone has provided to FSDS. This includes without limitation, U.S. Patent #7,080,512, entitled Heat Regenerative Engine, other patents issued, and not expired or abandoned, and/or pending US and foreign patent applications, all patents that may be issued under U.S. Patent #7,080,512 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 U.S. Patent #7,080,512 (the “Patents”). For the avoidance of doubt, any FSDS Defense/Aerospace Improvements (defined herein) shall be owned by FSDS and shall not be included in the Technology.

1.4 The Term of this Agreement is set forth in the Specific Terms, and will take effect on the Effective Date and will continue in force and effect unless a party (“Termination Party”) gives written notice to the other party (“Nonperforming Party”) that the Nonperforming Party is in material breach or material default of a material provision of this Agreement. If such notice is given and if such default or breach is not cured within 180 days of receipt of such notice, then the Terminating Party has the sole option to terminate this Agreement in writing at the end of the twelve-month period starting on the date of such notice, and at any time thereafter so long as the breach has not been cured. All rights to the Technology granted to FSDS under this Agreement will revert to Cyclone upon termination provided that Cyclone is not the Nonperforming Party.

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1.5 In full satisfaction of FSDS’s obligation to pay the Fees Payable to Cyclone, FSDS shall:

(i) pay the amount of $37,500.00 to Cyclone upon the acceptance by FSDS of an auxiliary power unit utilizing the Cyclone Engine that successfully passes, as determined by FSDS, the acceptance testing criteria as set forth on Exhibit A attached hereto and made a part hereof (“First Acceptance”); and (ii) only after successful completion of the First Acceptance, pay the amount of $37,500.00 to Cyclone upon the acceptance by FSDS of a second auxiliary power unit utilizing the Cyclone Engine that successfully passes, as determined by FSDS, the acceptance testing criteria set forth on Exhibit A. Commencing on the first anniversary of the date that FSDS made such payment after successful completion of the First Delivery, FSDS shall, to maintain being the exclusive licensee of the Technology for the Applications under this Agreement, either (x) engage, under a service contract or contracts with specific statement(s) of work, the research and development services of Cyclone in furtherance of further development of the Cyclone Engine for use in the Applications or (y) commence the payment of a fee of $5,000.00 every three months thereafter until the total of such payments reaches $60,000.00.

2. Fees, Assistance. Development, and Cyclone Engine Sales .

2.1 FSDS will pay to Cyclone the Royalty Fees as set forth in the Specific Terms. FSDS shall only be obligated to pay the Royalty Fees with respect to a Cyclone Engine when FSDS has been paid by its customer for that Cyclone Engine. Royalty Fees owing to Cyclone under this Agreement are payable by FSDS to Cyclone within thirty (30) days following the end of each calendar quarter from the revenues received during the preceding calendar quarter by FSDS from the sales of Cyclone Engines. All payments by FSDS to Cyclone shall be made in United States Dollars.

2.2 FSDS will pursue the development of uses of the Cyclone Engine within the Applications and, in support of these efforts, Cyclone will provide, on a timely and competent basis, technical and other support as FSDS may request.

2.3 Cyclone may seek research and development opportunities relating to the Applications provided that Cyclone first notify FSDS of Cyclone’s interest in each and any such opportunity and first requesting that FSDS join in such opportunity together with Cyclone. Upon receiving notice from Cyclone of such opportunity, which notice will describe the opportunity in sufficient detail for FSDS to reasonably understand the terms and conditions thereof, FSDS shall have 30 days from such notice date to advise whether or not FSDS will participate. In the event that FSDS fails to respond within such 30-day period or issues notice that FSDS declines to participate, then Cyclone shall be free to pursue that opportunity on its own. In the event that Cyclone pursues such opportunity on its own and any new technology, developments or products result therefrom concerning the Applications, then any further work, development, research, manufacture, or provision of any products related thereto shall be covered under this Agreement and be presented to FSDS for further pursuit or exploitation.

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2.4 Subject to capacity and availability, FSDS agrees to sell Cyclone Engines to Cyclone and/or customers of Cyclone, that have been manufactured by or for FSDS, according to FSDS’s terms and conditions of sale and upon such other terms as FSDS deems appropriate. With respect to such sales, FSDS agrees that the prices for such Cyclone Engines will be as favorable for Cyclone as for any large customer (based upon the number of Cyclone Engines purchased by such customer from FSDS) of FSDS. Further, FSDS shall not be obligated to pay any Royalty Fees with respect to Cyclone Engines sold by FSDS to Cylcone or any Cyclone customer.

3. Reports and Audit .

3.1 FSDS will provide Cyclone with a written report on a quarterly basis detailing the finished units of Cyclone Engines FSDS has sold in the previous three-month period, including quantity, model type and country where sold. These Cyclone Engines will be identified by a pre established unique series of engine numbers in addition to the patent numbers. These reports are necessary for Cyclone to monitor FSDS’s sales perfolmance in addition to international patent and IP protection purposes.

4. Representations and Warranties.

4.1 Cyclone represents and warrants to FSDS that Cyclone is the owner of the Technology, that Cyclone has clear and unrestricted and unencumbered title to the Patents, and that Cyclone has the right to grant the exclusive License to FSDS hereunder free and clear of any lien, encumbrance or right of any third party that would prevent or limit in any way FSDS’s ability to use the Technology or exploit the rights granted under this Agreement.

4.2 Cyclone represents and warrants that Cyclone is not involved in any suits, litigation or other claims contesting the validity or ownership of any of the Technology, the Patents or Patent applications, and knows of no such claims at this time pending or anticipated. Cyclone further represents and warrants that it has no knowledge of, and has not received any notice, that the Technology infringes or is alleged to infringe any intellectual property right, including any patents or trade-secret rights, of any third party.

4.3 EXCEPT AS SET FORTH IN THIS SECTION 4 AND IN SECTION 8 BELOW, THIS SECTION IS CYCLONE’S ONLY WARRANTIES CONCERNING THE TECHNOLOGY, AND IS MADE IN LIEU OF ALL OTHER REPRESENTATIONS AND WARRANTIES, EXPRESS OR IMPLIED.

4.4 FSDS and Cyclone each represent and warrant to the other that it has full power and authority to enter into this Agreement.

4.5 FSDS and Cyclone each represent and warrant to the other that 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.

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4.6 FSDS and Cyclone each represent, covenant and agree to the other that 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 Technology.

4.7 FSDS and Cyclone each represent and warrant to the other that 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.

4.8 FSDS represents to Cyclone that neither it nor its affiliated companies are currently or previously involved in any litigation or threatened litigation concerning patent infringement, unauthorized use of intellectual property, or other similar claims.

4.9 FSDS represents to Cyclone that no events specific to FSDS have occurred, or to its knowledge are pending, that have impaired or may impair materially the financial condition or viability of the FSDS, or otherwise make the performance of its financial and operational duties hereunder impossible or impractical.

5. Identification oflnfringers and Indemnity

5.1 Each Party will, without delay, inform the other Party of any known infringement, unauthorized use, misappropriation, or other such claim (collectively, an “Infringement”) by a third party with respect to the Technology, and will provide such other Party with any evidence available to the informing Party of such Infringement. Cyclone shall, for a period of sixty days from becoming aware of such Infringement, have the sole and exclusive right and obligation to take appropriate legal or other steps (enforcement activities) with respect to any Infringement in the Territory in the Application considering any reasonable input from FSDS. Cyclone shall inform FSDS in writing within such sixty day period what, if any, steps it will take. Failure to provide such notice shall constitute Cyclone’s decision to not take any such steps. If Cyclone subsequently files a lawsuit for infringement with respect to the Technology in the Territory in the Application, FSDS shall be responsible to contribute to the reasonable costs of such enforcement activities to protect the Technology to the extent that the claimed infringement involves infringing products in the Application in the Territory, including all reasonable attorney, paralegal, accountant or other professional fees from the notice of such action through all trial and appellate levels. Contribution by FSDS shall not exceed twenty five percent (25%) of avergage annual Royalty Fees paid or due under this Agreement for the preceding three calendar years (or twenty five percent (25%) of twelve times the monthly average in the event that this Agreement has been in existence for a period of less than three years). The parties shall cooperate with each other and provide all advice and assistance reasonably requested by each other in pursuit of such Infringement matters. Any proceeds from such Infringement enforcement activities shall be split between the parties based upon the pro-rata expenses incurred in such enforcement activities. Prior to any settlement, consent judgment or other voluntary final disposition of such enforcement activity Cyclone shall first seek FSDS’s written consent to such final disposition, which shall not be unreasonably withheld. If, after the sixty day period, Cyclone has elected not to take reasonable steps against the Infringement (or anytime thereafter is unsuccessful in, or abandons pursuing such Infringement), FSDS may, at its own expense and discretion, take whatever steps it deems necessary to stop the Infringement in the Territory in the Application. Cyclone shall reasonably assist FSDS with such FSDS’s enforcement activities, including being named as a party to litigation, at FSDS’s request and expense. FSDS shall have the sole right to all proceeds from such Infringement enforcement activities conducted by FSDS, and any reasonable legal expenses or costs for such Infringement enforcement activities conducted by FSDS shall be offset against any Royalty Fees due to Cyclone during and after FSDS’s Infringement enforcement activities. If the parties ultimately fail to stop, or choose not to stop, any material Infringement so that FSDS’s exclusivity to the Technology in the Application in the Territory is materially adversely affected, then FSDS shall have the option to (i) terminate this Agreement in writing; or (ii) convert this Agreement in writing to a non-exclusive license in which the royalty payments shall thereafter be 50% of the Royalty Fees.

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5.2 Each party will execute all necessary and proper documents, take such actions as is reasonably necessary to allow the other party to institute and prosecute such infringement actions and will otherwise use its commercially reasonable efforts to cooperate in the institution and prosecution of such actions. Each party prosecuting any such infringement actions will keep the other party reasonably informed as to the status of such actions. Any award paid by third parties as a result of such an Infringement action (whether by way of settlement or otherwise) will be applied first to reimburse the parties for all costs and expenses incurred by the parties with respect to such action on a pro rata basis in relation to the amount of costs and expenses so incurred by such party and, if after such reimbursement any funds will remain from such award, the parties will allocate such remaining funds between themselves in the same proportion as they have agreed in writing to bear the expenses of instituting and maintaining such action.

5.3 CYCLONE SHALL PROTECT, DEFEND, INDEMNIFY, AND HOLD HARMLESS FSDS AGAINST ANY LOSS, LIABILITY OR DAMAGE SUFFERED BY A THIRD PARTY ARISING OUT OF OR RESULTING FROM (1) THE NEGLIGENCE (WHETHER SUCH NEGLIGENCE BE ACTIVE, PASSIVE, SOLE, JOINT, CONCURRENT, COMP ARATIVE, CONTRIBUTING OR GROSS), STRICT LIABILITY OR WILLFUL OR WANTON MISCONDUCT OF CYCLONE; (2) CYCLONE’S MANUFACTURE, DESIGN OR REPAIR OF THE CYCLONE ENGINE, (3) ANY ASSERTION OF THE INFRINGEMENT OF PATENT, TRADE SECRET, TRADEMARK, COPYRIGHT OR OTHER INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES RELATED TO THE TECHNOLOGY, OR (4) ANY BREACH OR NON-FULFILLMENT OF ANY COVENANT, AGREEMENT OR OBLIGATION TO BE PERFORMED BY CYCLONE PURSUANT TO THIS AGREEMENT (“FSDS INDEMNIFIED CLAIMS”).

5.4 FSDS SHALL PROTECT, DEFEND, INDEMN IFY, AND HOLD HARMLESS CYCLONE AGAINST ANY LOSS, LIABILITY OR DAMAGE SUFFERED BY A THIRD PARTY ARISING OUT OF OR RESULTING FROM (1) THE NEGLIGENCE (WHETHER SUCH NEGLIGENCE BE ACTIVE, PASSIVE, SOLE, JOINT, CONCURRENT, COMPARATIVE, CONTRIBUTING OR GROSS), STRICT LIABILITY OR WILLFUL OR WANTON MISCONDUCT OF FSDS; (2) FSDS’s MANUFACTURE, DESIGN OR REPAIR OF THE CYCLONE ENGINE, (3) ANY ASSERTION OF THE INFRINGEMENT OF PATENT, TRADE SECRET, TRADEMARK, COPYRIGHT OR OTHER INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES RELATED TO THE FSDS DEFENSE/AEROSPACE IMPROVEMENTS, OR (4) ANY BREACH OR NON FULFILLMENT OF ANY COVENANT, AGREEMENT OR OBLIGATION TO BE PERFORMED BY FSDS PURSUANT TO THIS AGREEMENT (“CYCLONE INDEMNIFIED CLAIMS”).

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5.5 The obligations to provide indemnity under Sections 5.3 and 5.4 are subject to the conditions that the party seeking indemnity (“Indemnified Party”):

(i) Provides prompt notice by fax, overnight courier or email with separate confirmation, of the initiation or existence of any suit or claim to the party obligated to provided indemnity (“Indemnifying Party”); and

(ii) Grants full opportunity to de fend, compromise or settle the same as Indemnifying Party may see fit; and

(iii) Provides every reasonable assistance from Indemnified Party which Indemnifying Party may, in its discretion, require in responding to any such claim or defending any such suit.

5.6 FSDS shall maintain product liability insurance covering the Cyclone Engines manufactured and/or sold by FSDS, in such amounts and with such coverage provisions as FSDS shall determine in its discretion, and shall have Cylcone included in the coverage of such policy or policies as an additional insured.

6. Improvements

6.1 FSDS may from time to time make improvements, changes, advances and/or modifications to the Technology that concern or relate to the Applications (hereinafter “FSDS Defense/Aerospace Improvements”). Any and all FSDS Defense/Aerospace Improvements shall be the property of FSDS, and FSDS shall not be obligated to disclose the FSDS Defense/Aerospace Improvements to Cyclone nor grant a license to Cyclone in the FSDS Defense/Aerospace Improvements. Further, FSDS will own the entire right, title and interest in any and all patent applications resulting from or relating to any and all FSDS Defense/Aerospace Improvements, whether filed in the United States or countries other than the United States, related to the FSDS Defense/Aerospace Improvements; and in and to any and all patents which may be issued/granted on any and all said applications and any and all reissues thereof. By way of example and without limitation to the foregoing, FSDS may make modifications that allow the Cyclone Engine to function within an auxiliary power unit that is designed and developed by FSDS for use in a defense vehicle or defense apparatus, which will include modifications required to meet the defense or military specifications required for such use. All such modifications will be FSDS Defense/Aerospace Improvements. FSDS will disclose to Cyclone any other improvements, changes, advances and/or modifications to the Technology developed by FSDS which are not FSDS Defense/Aerospace Improvements and FSDS hereby grants to Cyclone a world-wide, royalty free license to use such FSDS improvements, which are not FSDS Defense/Aerospace Improvements, for all purposes other than those concerning or relating to the Applications. The determination of whether or not an improvement change, advance and/or modification to the Technology by FSDS is an FSDS Defense /Aerospace Improvements will be decided by FSDS in its sole discretion.

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6.2 Cyclone has and will continue to have sole and absolute discretion to make decisions with respect to the procurement, prosecution and defense to third -party patent office validity challenges (such as, for example, reexaminations or Inter parties Review) of the patents and patent applications for the Technology, at Cyclone’s sole expense, including the right to abandon any such patent application. Cyclone’s abandonment of or any failure to obtain or maintain an issued patent originating from any of the patents or patent applications will not relieve or release FSDS from its obligation to pay the Royalty Fees provided in this Agreement, provided Cyclone can show that material rights to exclude competitors from practicing the Technology in the Application in the Territory are still in place to provide FSDS a valuable exclusive right under this Agreement in the Territory. Similarly, a holding or decision by a court of law or any patent office that any such issued patent is invalid or unenforceable will not relieve or release FSDS from its obligation to pay the Royalty Fees provided in this Agreement, provided Cyclone can show that material rights to exclude competitors from practicing the Technology in the Application in the Territory are still in place to provide FSDS a valuable exclusive right under this Agreement in the Territory. If any of such events occur, FSDS must continue to pay any Royalty Fees due during the Term. If Cyclone cannot show that material rights to exclude competitors from practicing the Technology are still in place in the Territory after abandonment, invalidation, or unenforceability has occurred or been held by a court or patent office, then FSDS shall have the option to (i) terminate this Agreement in writing; or (ii) convert this Agreement in writing to a non -exclusive license in which the royalty payments shall thereafter be 50% of the Royalty Fees.

6.5 If Cyclone undergoes (i) any bankruptcy or insolvency proceeding under any federal or state bankruptcy or insolvency code or similar law, whether voluntary or involuntary, is properly commenced by or against Cyclone: or (ii) a trustee or receiver is appointed for any or all of Cyclone’s assets, then: (a) this License Agreement will continue in full force and effect understanding FSDS has paid good and valuable consideration for the rights hereunder as provided herein; and (b) should under any bankruptcy or receivership proceedings the Technology be transferred or sold to a third party, the prior to such event occurring, FSDS shall have a 30-day right of first refusal to purchase outright such Technology.

7. Default

7.1 This Agreement will terminate immediately if FSDS is dissolved or liquidated. This Agreement will also terminate immediately absent an adequate written assurance of future performance if: (i) any bankruptcy or insolvency proceedings under any federal, national, or state bankruptcy or insolvency code or similar law, whether voluntary or involuntary, is properly commenced by or against FSDS; or (ii) FSDS becomes insolvent, is unable to pay debts as they come due or ceases to so pay, or makes an assignment for the benefit of creditors ; or (iii) a trustee or receiver is appointed for any or all of FSDS’s assets.

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7.2 Immediately after the expiration or tennination of this Agreement for any reason:

(a) All rights of FSDS granted hereunder to the Technology will terminate and automatically revert to Cyclone, and FSDS will discontinue all use of the Technology that is not in the public domain;

(b) All sums owed by FSDS to Cyclone will become due and payable immediately;

(c) Neither party will not, following expiration or termination of the this Agreement, use Confidential Information of the other party; and

(d) FSDS retains no rights whatsoever to any of the Technology.

7.3 Notwithstanding the foregoing, or any other provisions of this Agreement to the contrary, Sections 4, 5, 6, 7, 8 and 9 will survive the expiration or termination of this Agreement.

8. Risk of Loss

8.1 Both parties will acquire and maintain at their sole cost and expense throughout the term of this Agreement, and for a period of five (5) years following the termination or expiration of this Agreement, any and all Insurance as required to sell or manufacture under this Agreement including but not limited to: Comprehensive General Liability Insurance, including product liability, advertiser’s liability (1986 ISO form of advertising injury rider), contractual liability and property coverage, including property of others, (hereinafter collectively, “Comprehensive Insurance”) underwritten by an insurance company qualified to cover liability associated with activities in the Territory of this Agreement (with respect to Cyclone, in the U.S., or such other territory where it manufactures the engines). This insurance coverage will provide liability protection of not less than $2,000,000 combined single limit for personal injury and property damage including products/completed operations coverage (on a per occurrence basis) with the other party named as an additional insured party on the general liability coverage and as loss payee on the property coverage, and the policy will purport to provide adequate protection for FSDS and Cyclone against any and all claims, demands, causes of action or damages, including attorney’s fees, arising out of this Agreement including, but not limited to, any alleged defects in, or any use of, the Cyclone Engine or the Technology. Copies to be supplied as required.

8.2 In the event of cancellation of any insurance required to be carried by a party under this Agreement, the other party will be notified thirty (30) days prior to cancellation of same. Should the cancellation be due to dissolution or like problems with the insurance company, then the insured party shall have a suitable amount of time to secure suitable insurance coverage, not to exceed sixty (60) days after notice of cancellation occurs. Should the cancellation be due to failure to pay premiums or like financial problems of FSDS then Cyclone will have the right to terminate this Agreement if FSDS does not secure proper insurance coverage at the end of the above-noted thirty (30) day notification period.

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8.3 BOTH PARTIES ACKNOWLEDGE THAT IN NO EVENT WILL ONE PARTY BE LIABLE TO THE OTHER FOR ANY INDIRECT, SPECIAL, CONSEQUENTIAL, INCIDENTAL OR PUNITIVE DAMAGE, LOSS OR EXPENSE, EVEN IF BOTH PARTIES HAVE BEEN ADVISED OF THEIR POSSIBLE EXISTENCE.

9. Confidentiality

9.1 Confidential Information means information in oral, electronic, and/or written form that (a) relates to the Technology, including, without limitation past, present and future research, development, business activities, products, and services, and (b) has been identified, either orally, electronic, or in writing, as confidential by either party. Confidential Information shall also mean information provided by either of the parties to the other regarding its technology, systems engineering, business and marketing plans, and any other materials identified, either orally, electronic, or in writing, as confidential.

9.2 The receiving party may use the Confidential Information only for the purpose of producing the Application or as otherwise indicated or contemplated by this Agreement. The receiving party will not, at any time, use the Confidential Information in any other fashion, fom1, or manner for any other purpose.

9.3 The receiving party agrees not to disclose the Confidential Information in any manner to anyone other than persons within its organization who have a need to know for the purpose set forth above and who have acknowledged in writing the obligations hereunder and have agreed to abide by the terms hereof. Under no circumstances will the receiving party disclose the Confidential Information to any third party, unless authorized by the disclosing party.

9.4 Any Confidential Information in whatever form is the property of the disclosing party and will remain so at all times. The receiving party may not copy any Confidential Information for any purpose without the express prior written consent of the disclosing party, and if consent is granted, any such copies will retain such proprietary rights notices as appear on the original thereof. Any copies of the Confidential Information that the disclosing party may have pennitted the other party to make, or other written materials incorporating Confidential Information, will be the sole property of the disclosing party and must be returned to it or destroyed upon the first to occur of (a) termination or expiration of this Agreement or (b) request by the disclosing party.

9.5 Nothing in this Section will prohibit or limit the receiving party’s use of information it can demonstrate is (i) previously known to the receiving party, (ii) independently developed by the receiving party, (iii) acquired by the receiving party from a third party not under similar nondisclosure obligations to the disclosing party, or (iv) which is or becomes part of the public domain through no breach by the receiving party of this Agreement.

9.6 The receiving party acknowledges that the Confidential Information disclosed and/or made available to it hereunder is owned solely by the disclosing party and that the threatened or actual breach of this Agreement would cause irreparable injury to the disclosing party, for which monetary damages would be inadequate. Accordingly, the receiving party agrees that the disclosing party is entitled to an immediate injunction enjoining any such breach or threatened breach of this Agreement, subsequent to the posting of a suitable bond with the court of pertinent jurisdiction. The receiving party agrees to be responsible for all costs, including reasonable attorneys’ fees, incurred by the disclosing party in any action enforcing the terms of this Section.

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9.7 The receiving party will promptly advise the disclosing party in writing of any unauthorized use or disclosure of Confidential Information of which the receiving party becomes aware and will provide reasonable assistance to the disclosing party to terminate such unauthorized use or disclosure.

9.8 This confidentiality section shall supersede all prior agreements pertaining to confidential information between Cyclone and FSDS or a preceding person or entity working to initiate and/or negotiate the terms of this Agreement.

10. Miscellaneous

10.1 Nothing contained in this Agreement will be construed as conferring by implication, estoppel, or otherwise, upon any party hereunder, any agreement or other right under any patent except the Technology and rights expressly granted herein.

10.2 FSDS will conspicuously mark directly on each Cyclone Engine it manufactures or sells that it is covered by Cyclone’s Patents, including the numbers and other identifying information for which will be provided to FSDS.

10.3 All notices required by this Agreement will be in writing and sent by certified mail, return receipt requested, by hand or overnight courier, to the addresses set forth on the initial page, with copies to the Legal Contacts set forth in the Specific Systems Application Distributor Agreement Terms, unless either party will at any time by notice in writing designate a different address. Notice will be effective three days after the date officially recorded as having been deposited in the mail or upon receipt by hand delivery or the next day by overnight courier.

10.4 FSDS shall not assign, convey, encumber, or otherwise dispose of any of its rights or obligations under this Agreement without the prior written consent of Cyclone, which consent shall not be unreasonably delayed or withheld, and any such purported assignment will be invalid.

10.5 No term of this Agreement will be deemed waived, and no breach of this Agreement excused, unless the waiver or consent is in writing signed by the party granting such waiver or consent.

10.6 If any term or provision of this Agreement is determined to be illegal or unenforceable, such term or provision will be deemed stricken or reduced to a legally enforceable construction, and all other terms and provisions will remain in full force and effect.

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10.7 This Agreement represents the entire agreement of the parties replacing any earlier agreements concerning the same matters, including but not limited to the Prior Agreement. It may only be modified by a subsequent writing signed by the parties hereto.

10.8 Each party is acting as an independent contractor and not as an agent of the other party. Nothing contained in this Agreement will be construed to confer any authority upon either party to enter into any commitment or agreement binding upon the other party.

10.9 This Agreement, including its formation, all of the parties’ respective rights and duties in connection herewith and all disputes that might arise from or in connection with this Agreement or its subject matter, will be governed by and construed in accordance with the laws of the State of Florida, the United States of America, without giving effect to that State’s conflict of laws rules. If any controversy, dispute or disagreement arises from this Agreement, the parties agree to first attempt to settle such by arbitration in accordance with the rules of the American Arbitration Association. In such case, the decision of the arbitrator or arbitrators shall be binding and final, and may be entered as a judgment and enforced by any court having jurisdiction. The prevailing party in any action shall be entitled to receive reimbursement for reasonable attorneys’ fees, court/arbitration costs, and disbursements incurred in connection with such controversy, dispute or disagreement. Should the need arise to determine any reimbursement issues, the parties will be subject to the exclusive jurisdiction of courts located in Broward County, Florida, and their applicable courts of appeal, each party agreeing to such jurisdiction exclusively.

10.10 The parties agree that FSDS may conduct a review (“Due Diligence”) of the representations and warranties of Cyclone stated herein and Cyclone agrees to cooperate fully in such process and timely respond to any such Due Diligence requests. FSDS’s engagement in any Due Diligence or FSDS’s not undertaking Due Diligence will not relieve nor reduce any of Cyclone’s obligations or duties under this Agreement.

[Signature Page Follows]

Initials:______

IN WITNESS WHEREOF, the parties have caused this Systems Application Distributor Agreement, comprised of these Specific Systems Application Distributor Agreement Tenns and the Standard Terms and Conditions to be executed by their duly authorized officers on the respective dates hereinafter set forth.

Initials:______

Exhibit A

Acceptance Testing Criteria

	Acceptance test	Test no.:
		Revision no.:00
Filled in by: PMJ	IDocument approved by:

Order no.: 16-0023	Item no.:			id .no.:
Faultreport no.:	Item name:	Cyclone APU		‘Test date:

No.:	Test point:	Demand:	Accept:	Reject:	Remark:

1	Multi-fuel capability	JP8 or kerosine/diesel			Resp.: Cyclone
2	Engine Power	15 HP			Resp.: Cyclone
3	Speed	100 - 3600 RPM			Resp.: Cyclone
4	Time of operation	>10hours			Resp.: Cyclone
5	Sustained power (Gross - parasitic)	>8kW			Resp.: Cyclone
6	Parasitic load	<2kW			Resp.: FSDS - Assistance : Cyclone
7	Response time O to 2 kW	10 sec			Resp.: FSDS - Assistance : Cyclone
8	Response time 2 to 4 kW	10 sec			Resp.: FSDS - Assistance : Cyclone
9	Response time 4 to 8 kW	10 sec			Resp. : FSDS - Assistance: Cyclone
10	Response time 2 to 8 kW	20 sec			Resp. : FSDS - Assistance: Cyclone
11	Efficiency	>25%			Resp. : FSDS - Assistance: Cyclone
12	Acoustic signature	1m, <80dBA			Resp.: FSDS - Assistance: Cyclone
13	Start up time (0 to 8kW)	< 1 minute			Resp. : FSDS - Assistance: Cyclone
14	Weight	60kg			Resp. : FSDS - Assistance : Cyclone
15	Volume	60L			Resp.: FSDS - Assistance : Cyclone
16	Tilt angel (2 directions)	+-30 degrees			Resp.: FSDS - Assistance : Cyclone
17	Operation low temperature	-32C			Resp.: FSDS - Assistance: Cyclone
18	Operation high temperature	soc			Resp.: FSDS - Assistance : Cyclone
19	Storage low temperature	-32C			Resp.: FSDS - Assistance: Cyclone
20	Storage high temperature	soc			Resp.: FSDS - Assistance : Cyclone
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Signature		Signature of OAR:

This document is the property of Falck Schmidt Defence Systems A/S, and is not to be copied, evaluated or handed over to any third party without our expressed written permission !

Addendum #2 to

Consulting Services Agreement

This is an ADDENDUM #2 dated March 30, 2017, to the Consulting Agreement (the “ AGREEMENT ”) dated November 1, 2015, and Addendum dated January 1, 2016 between Chad Tendrich, located at 1601 Belvedere Road, Suite 206E, West Palm Beach, Florida 33406 (“ CONSULTANT ”), and Cyclone Power Technologies, Inc., located at 601 NE 26th Ct., Pompano Beach, FL 33064 (“ COMPANY ”).

WHEREAS , the Company engaged the Consultant as a business consultant to the company and to render such advice, consultation, infotainment and services to the Directors and/or Officers of the Company regarding public company financial and business matters, real estate expansion plans, and other corporate strategic growth matters for the Company; and

WHEREAS , the Company had not been able to complete its audit with its auditors Anton and Chia LLC out of California.

WHEREAS , the Company realized that it shifted the responsibilities to completely manage the process of completing the audit with the current auditor, deal with legal issues, the OTC Markets, edgarizing process as well as the Consultants existing responsibilities required considerably more time, effort and resources of the Consultant;

NOW THEREFORE , the Company is issuing to the Consultant a onetime payment of 50,000,000 shares of Company stock for going above and beyond the his responsibilities to get the job done. The date of the debt being earned shall be per the terms of the Agreement.

For reporting purposes in public flings, this agreement shall be reported as “Tendrich Consulting Addendum #2 dated March 30, 2017”

All other terms and conditions of the Agreement shall remain in full force and effect.

IN WITNESS WHEREOF , the parties here to entered into this Agreement on the date first written above.

Cyclone Power Technologies, Inc., “Company”

By:
	Frankie Fruge
Date:

Chad Tendrich, “Consultant”

By:
	Chad Tendrich
Date:

Consulting Services Agreement

This Consulting Services Agreement (the “ Agreement ”) is entered this 1st of April 2017 between Chad Tendrich, located at 1375 Gateway Blvd, Boynton Beach, Florida 33426 (“ Consultant ”), and Cyclone Power Technologies, Inc., located at 601 NE 26 ^th Ct., Pompano Beach, FL 33064 (“ Company ”).

WHEREAS , the Company requires the services of an expert to advise in financial, business and banking/investor matters, and the Consultant has such experience and expertise;

NOW THEREFORE , in consideration of the premises and the mutual covenants and agreements of the parties hereinafter set forth, the parties hereto hereby agree as follows:

Engagement

Company hereby engages Consultant and Consultant hereby accepts the engagement to become a business consultant to the Company and to render such advice, consultation, information, and services to the Directors and/or Officers of the Company regarding public company financial and business matters, audit and compliance matters, budgeting and forecast modeling, and other corporate strategic growth matters for the Company. It shall be expressly understood that Consultant shall have no power to bind Company to any contract or obligation or to transact any business in Company’s name or on behalf of Company in any manner.

Term

The term (“ Term ”) of this Agreement shall commence on the date hereof and continue for twelve months (12) months. This Agreement may be terminated on a 30 day notice by the Company prior to, or immediate by the Company in the case of a breach by the Consultant of this Agreement. In the case of an early termination, the Company shall have no further obligations to the Consultant as of the date of termination. This Agreement shall be extended for twelve (12) months terms at the end of the initial Term, unless either party gives notice within ten (10) days prior to the new term of its desire to terminate this Agreement.

Compensation and Fees

Company agrees starting April 1, 2017 to pay and deliver to Consultant $10,000 worth of restricted common stock of the Company (the “Stock Consideration”) per month ( convertible at a reasonable agreed discount) for its services during the Term hereof and shall be considered earned on the first of each month (even if the actual certificate is issued at a later date).

The Stock shall be restricted bearing all appropriate legends. Shares shall be considered earned by Consultant at 1 ^st of each month.

Representations, Warrants and Covenants

	5.	The Company represents, warrants and covenants to the Consultant that Company has the full authority, right, power and legal capacity to enter into this Agreement and to consummate the transactions provided for herein.

	6.	In the performance of its duties hereunder, the Consultant represents, warrants and covenants to the Company that it shall comply with all laws, rules and regulation of the Securities Exchange Commission, FINRA, any securities exchange that the Company’s securities are then listed, the Federal Trade Commission and any and all other regulatory bodies. Consultant hereby indemnifies and holds the undersigned and the Company harmless for any breach of this paragraph including a reasonable sum for attorney fees.

	7.	The Consultant further represents that it and all individuals associated with it shall at all times conduct its business in a legal manner subject to all state and federal securities laws. This Agreement may be terminated immediately if this provision is breached or if any facts become known to the Company, in the Company’s sole and absolute discretion, that would lead it to believe otherwise, or that may do harm to the image and reputation of the Company.

Exclusivity; Performance; Confidentiality

	8.	The services of Consultant hereunder shall not be exclusive, and Company may hire other consultants to perform similar or the same services. The Consultant agrees that it will, at all times, faithfully and in a professional manner perform all of the duties that may be reasonably required of the Consultant pursuant to the terms of this Agreement.

	9.	Consultant acknowledges and agrees that confidential and valuable information proprietary to Company and obtained during its engagement by the Company, shall not be, directly or indirectly, disclosed without the prior express written consent of the Company, unless and until such information is otherwise known to the public generally or is not otherwise secret and confidential.

Litigation and Fees

10.

Notices

11.

Additional Provisions

	12.	No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision and no waiver shall constitute a continuing waiver. No waiver shall be binding unless executed in writing by the party making the waiver. No supplement, modification, or amendment of this Agreement shall be binding unless executed in writing by all parties.

	13.	This Agreement constitutes the entire agreement between the parties and supersedes any prior agreements or negotiations. There are no third party beneficiaries of this Agreement. This Agreement shall be governed by and construed in accordance with the internal laws of the State of Florida, regardless of laws of conflicts.

Counterparts

	14.	This Agreement may be executed simultaneously in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

	15.	For reporting purposes in public flings, this agreement shall be reported as “Tendrich Consulting Agreement dated April 1, 2017”

In Witness Whereof , the parties hereto have entered into this Agreement on the date first written above.

	Cyclone Power Technologies, Inc.

	By:
		Frankie Fruge, President/Director
	Date:

	By:
		Chad Tendrich
	Date:

EXH 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO

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

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Frankie Fruge, certify that:

1.	I have reviewed this report on Form 10-K 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: July 31, 2017	/s/ Frankie Fruge
	Frankie Fruge
	President
	(Principal Executive Officer)

EXH 31.2

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

I, Bruce Schames, certify that:

1.	I have reviewed this report on Form 10-K 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: July 31, 2017	/s/ Bruce Schames
	Bruce Schames,
	Chief Financial Officer
	(Principal Accounting Officer)

EXH 32.1

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

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

In connection with the Quarterly Report of Cyclone Power Technologies Inc. (the “Company”) on Form 10-K for the period ending December 31, 2016, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Frankie Fruge, president, and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

	(a)	the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

	(b)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: July 31, 2017	/s/ Frankie Fruge
	Frankie Fruge
	President (Principal Executive Officer)

EXH 32.2

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

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

In connection with the Quarterly Report of Cyclone Power Technologies, Inc. (the “Company”) on Form 10-K for the period ending December 31, 2016, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Bruce Schames, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

	(a)	the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

	(b)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: July 31, 2017

/s/ Bruce Schames

Bruce Schames

Chief Financial Officer and Secretary

(Principal Accounting Officer)