Cyclone Power Technologies, Inc. (fka CYPW)

[terry hallinan]

Thank you, Pennypicker.

It's not that I am not interested in the various shenanigans - er, transactions but they can get a bit difficult to unravel.

The particular items of interest on page 16:
http://www.sec.gov/Archives/edgar/data/1442711/000139843213000757/cypw20130930_10q.htm

In 2010 the Company established Cyclone-WHE LLC (CWHE) to license and market waste heat recovery systems for all engine models. In 2010, the Company sold an equity participation of 5% to a minority investor for $30,000, via the conversion of a Cyclone note payable. Another 5% was purchased directly from the subsidiary by a minority investor for services valued at $30,000 consisting of assistance in marketing, management and financing for projects to be carried out by the subsidiary. These services were amortized over a 12 month period. This investor also received and exercised in 2011 a 2.5% equity purchase warrant in the subsidiary for $50,000.

Effective July 1, 2010, the Company provided a 5% equity contribution in CWHE to the Managing Director of the subsidiary in consideration of $30,000 of future professional services (which were amortized over a 12 month period). Additionally, the executive was granted an option for the acquisition of an additional 5% equity in the subsidiary at a total price of $100,000, vesting half in 12 months and half in 24 months, exercisable for 5 years. No value was attributed to this option, since the subsidiary had no significant operations or assets.

In July 2013, the Company’s Chairman purchased a 5% equity stake in our subsidiary CWHE in exchange for 5 million shares of his common stock in the Company. In connection with this purchase, the executive also agreed to release the security interest held by his company, Schoell Marine, on certain of the Company’s engine patents, which was collateral on approximately $425,000 in debt owed by the Company to Schoell Marine. The executive also agreed to provide 12 months of consulting services without additional compensation to CWHE.

In July 2013, as part of a Joint Manufacturing Operations Agreement, Precision CNC LLC (of Ohio) received a 5% interest in CWHE to provide expertise and management for its production operations (vesting over the following two years). Precision CNC was also given the right, during this period, to purchase up to an additional 5% in Cyclone-WHE at the then current valuation of that company. Concurrent with this agreement, CWHE was re-domiciled to Ohio.

The total losses of the CWHE subsidiary for the nine months ended September 30, 2013 and for the year ended December 31, 2012 were $39,601 and $0 respectively.

IMHO there is room for all manner of larceny with these subsidiaries and much of the purchase price comes in the form of compensation as well as purchase of IP with dubious value considering recent developments. In addition the parent company is paying all, nearly all, expenses

CWHE has no independent market beyond private transactions. It appears to be a handy way to hide debt and relieve expenses.

In the end, what will matter, when and if there are profits, is how the profits will be shared by the subsidiary.

From the stockholers [non]equity section of the balance sheet there is this line item:

Non controlling interest in consolidated subsidiaries - 848,995

It is used to reduce stocholder's deficit.

Aside from worry about any future mischief, I see no particular reason for concern. It seems to me we all go up or down together at the moment.

My amateur opinion is most certainly open to challenge, especially since I refrained from looking at the fine print because my eyes and fingers and mouth get tired so easily these days.

Best, Terry