Cyclone Power Technologies, Inc. (fka CYPW)

[BuddyWhazhizname]

Here are a few other things the auditors may be interested in.

Cyclone claims patents as a major asset, but,

1) 2/3rds of their US patents have lapsed for lack of maintenance payments. http://investorshub.advfn.com/boards/read_msg.aspx?message_id=125054722

2) The main Cyclone engine patent (which represents most of their foreign patents), https://www.google.com/patents/US7080512 claims (here shortened for brevity):

An engine comprising:
a condenser including an arrangement of spaced plates...
a steam generator...
a main engine drive assembly comprising:
at least one cylinder;
a piston...
a crankshaft;
a crank cam fixed to said crankshaft and rotatable therewith;
a connecting rod...
an injector valve...
a steam line...
a pump...
said steam line including a section within said combustion chamber...
an exhaust transfer passage... and
a heat exchanger for pre-heating intake air...

The parts in bold type were removed from the last Mark 5 engine prototype and don't exist on the new Mark 1 and Mark 3 engines. The latter two also don't have a steam generator or pump integrated onto the engine, either. So none of the patents protect what they are trying to build now.

3) The waste heat engine was licensed to Q2Power who have given up on trying to make it work (see http://investorshub.advfn.com/Q2Power-Technologies-Inc-QPWR-11703/ ) Even if the waste heat engine patent had not lapsed, Cyclone would get no royalties from it.

The Cyclone patents have no commercial value. The expired ones are in the public domain now and the others only protect engine designs far different than what Cyclone is developing now.

Next there is the inventory. It was the biggest current asset, but it too is worth almost nothing.

Cyclone has been trying to develop engines for the last 12 years by pure trial-and-error. Put an engine together, run it until it breaks (probably only minutes), guess at the cause, have new parts made and try it again.

All of these parts for all the engine models that didn't work cost a lot of money. Harry once said he had tried twenty different piston designs on one engine, meaning that at least 19, and probably 20, designs weren't any good. Each set of six prototype pistons would easily cost $1000, or $3000 or even more. Twenty sets at $3000 each would be $60,000 of inventory at cost, but what are they really worth? Maybe $20 as scrap metal.

Cyclone has built many prototypes of many different designs. The Mark 5 may not be completely dead, but it went through a radical design change in the latest version. Cyclone is now working on the new-design Marks 1 and 3. None of the parts for previous designs are of any use in the current designs. Their only value is as decorations, or scrap metal. That will reduce the asset value of the inventory by at least 99%.

Third, there is "Furniture, fixtures, and equipment". Leasehold improvements were given as $93,922, but they went with the sale of the Schoell Marine building.

The "equipment" has never been described in financial reports, but it's clear from photos of the place that machinery and tools all belonged to Schoell Marine. Look at the latest videos of the engines. They sit on a test stand made of 2x4s nailed together with a bunch of random bits cobbled together. The dynamometer is worth about $5,000 new.

So where is the $427,478 in equipment mentioned in the last report? Well, when the GG Mom speedboat showed up (custom built by Schoell Marine for Cyclone), equipment went up by $70 or $80,000. The boat is just a small powerboat on a trailer that was designed to do only one thing: set a speed record for steam boats. It was designed and built to fit the non-existant Mark 5 100 hp engine. This engine has a unique size and vertical crankshaft so there are no gasoline engines that can be dropped in place. For someone to use the boat major construction changes are needed. What's an oddball small powerboat with no engine and needing structural modifications worth? Probably less than the trailer.

The land speed record car was built in 2012. At December 31st 2011, equipment was $101,053 (2012 annual report page F12) while a year later it was $371,449. That's a jump of about 270% in one year with no explanation given, while at the same time this shiny new race car shows up. Frankie has been claiming that sponsors have paid for the car, not Cyclone shareholders, but if that $270,000 jump in equipment wasn't due to this car being built, what equipment did they buy with all that money? And if sponsors paid for the car, why are there only a few very small sponsor stickers and very big Cyclone stickers on it?

Harry had explained on the steam car club board once that he made production quality fiberglass molds for the car's body. You can see the process on the car's website: http://www.steamteamusa.com/gallery.html Harry's reasoning was to build car bodies to give to his future engine dealers as a promotional item. It would not be surprising if $100,000 of that equipment asset are the molds for this particular car body.

What's the car worth? Again, it's designed to be powered by a Cyclone Mark 5 engine with a vertical crankshaft so no conventional engine will fit. Let's assume the car could be structurally modified to fit a gasoline engine and made to run. The only place in the world this car can be used is the Bonneville Salt Flats in Utah to try for land speed records. This car was designed to run at 200 mph and set a record for steam engine cars. The record for gasoline engine cars is over 400 mph. The engine bay is too small for a powerful enough gasoline engine to make the car competitive. Someone could go through the expense and trouble to modify this car but ultimately not be able to set any records. So there is very little resale value here. Maybe a sports bar would buy it as a decoration.

The last Cyclone report listed cash, accounts receivable and Q2Power stock as major assets. The cash would have been spent long ago, a $150,000 receivable was cancelled earlier this year and the Q2Power stock they still hold is worth very little now. The remaining significant assets are the three categories described above. Cyclone's true position is a lot less rosy than they've led people to believe.

Creston, if you are communicating with the auditors let them know there are these issues with Cyclone's claimed assets.