Cyclone Power Technologies, Inc (CYPW)

Cyclone Power Technologies, Inc  

Website: http://www.cyclonepower.com       Facebook           Filings at the SEC       Filings at OTC Markets (including pre-SEC filings) 

Business:

Cyclone describes themselves as a research and development company who have developed a modern steam engine.  They have produced some prototype engines, but have no commercially available products and have never publicly demonstrated a running engine.

History:

Chairman and CTO Harry Schoell had spent many years in the powerboat industry.  His company, Schoell Marine, occupies a 6000 square foot building in Pompano Beach, Florida.  Schoell has no education beyond high school and describes himself as an inventor.  In the early 2000s he experimented with steam engines. In an article in Professional Boatbuilder magazine April/May 2016 page 29 Schoell explained the reason he created Cyclone Power Technologies:

After Cyclone Power started raising money from investors, Schoell had Cyclone lease the entire Schoell Marine building and enter a services contract with Schoell Marine, his privately held company.

Use of Funds:

Research & Development General & Adminstrative Property & Equipment Notes 2007 Annual Report 814,685 674,774 14,777   2008 Annual Report 1,090,911 1,139,878 19,695   2009 Annual Report 1,115,795 1,332,757 78,130 1 2010 Annual Report 830,611 1,241,379 83,784   2011 Annual Report 983,276   2,628,835 108,243 2 2012 Annual Report 1,091,501 2,203,713 376,177 3 2013 Annual Report 772,795 2,100,104 376,763   2014 Annual Report 845,499 1,890,152 163,166  4,5 2015 Annual Report 275,610 653,103  126,520 4 2016 Annual Report 478,299 967,706 93,272 6 Q3 2017 Report 162,462 856,934 72,517   Totals 8,461,444 15,689,335

Notes: 1: $39,953 of the increase in property and equipment was leasehold improvements      to Harry Schoell's building. 2: $27,751 of the increase in property and equipment was leasehold improvements      to Harry Schoell's building. 3: Equpment increased 270,396 with no explanation.  This was the year Cyclone      had a land speed record race car custom built. 4: The 2014 report was filed two years late.  The 2015 report was filed one year late.       Cyclone switched to new auditors for these reports.  There were large write-downs      of the value of inventory, which were added to the R&D expenses.  The numbers      given here are the actual R&D spending in each year. 5: By 2014 total leasehold improvements on Harry Schoell's building had reached $93,922. 6: Cyclone again switched auditors.  R&D is net of inventory provisions.

Even though Cyclone claims to be an R&D-only company, for every dollar spent on R&D, almost two dollars have been spent on General & Administrative. (In 2017 the ratio had increased to $5 on G&A per dollar of R&D.) That spending has never been broken down, but the only place most of it could have gone is into the services contract with Schoell Marine.  In addition, it is likely a large part of the R&D spending went to Schoell Marine.  No commercial products have resulted from this spending.

When questioned on these numbers, Cyclone President Frankie Fruge has stated (comment #18) "Again fuzzy numbers. You need subtract accrual (salaries we have never taken and derivatives which is another number that represents volatility and is not money) they choice [sic] to only tell part of the story."  Note that derivative losses are a separate item in the balance sheets, totalling more than $30 million in additional losses, and are not included in the above figures.  President Frankie Fruge and CTO Harry Schoell have accrued salaries, some of which has later been treated as loans to Cyclone and paid back to the two.  The remaining forgiven salaries by the two represent a small portion of the unexplained General & Administrative expenses.

Dilution:

Cyclone has continued to operate the last few years by diluting the stock. A/S is 6,000,000,000 shares. Chart from ycharts.com up to August 2017:

As of December 18, 2017, there were 2,726,067,954 shares of the registrant’s common stock issued and outstanding. (Source: Q3 2017 report)

The number of shares outstanding of the registrant’s common stock as of May 15, 2018 is 5,292,794,570 (Source: 2017 annual report)

Technology:

The Cyclone engine is a piston steam engine, with the majority of models in a 6-cylinder radial configuration.  All models attempt to use water, instead of oil, as the engine lubricatant.

Patents: Cyclone has touted numerous U.S. and international patents on their technology.  The have, however, never demonstrated a working product that used the patented technology.  Most of the Cyclone patents have expired for non-payment of maintenance fees.

Engine Models: The announced models have been the Mark 4 (2004), Mark 2 (2004), Mark 5 (2007), Mark 6 (2007), Lawnmower (2007), Waste Heat Engine (WHE) (2008), Genie (2009), Solar-1 (2009), S-2 (2011), Mark 3 (2014), Mark 1 (2014), Mark 7 (2016), Mark 10 (2018).  The pattern is announcements of a new model, often with claims of customers, and predictions of production starting soon.  As time passes and no engines are produced, new engine models are announced and the cycle repeated. 
Delivered Engines:

• In 2008 Cyclone sold a WHE engine to Bent Glass Designs of Pennsylvania.  It was finally installed and started in 2010.  Years later, Cyclone admitted that it had been removed within a week and never replaced.
• In 2009 Robotic Technology Inc of Maryland was awarded a DARPA (Defense Advanced Research Projects Agency) contract to develop an autonomous robot that could fuel itself from wood, grass, etc., that it foraged in the field.  Cyclone won a sub-contract from RTI to provide a steam engine.  (Cyclone has portrayed this as having been awarded a DARPA contract, which was not the case.)  By the time Cyclone delivered the engine, the project funding had run out and there is no evidence RTI ever ran the Cyclone engine.
• In 2011 Raytheon ordered two Mark 5 engine variants called the Manta Ray.  These were delivered in 2012 and there has been no further word about them, and no follow-up business from Raytheon. There is no evidence Raytheon has run these engines.
• In 2011 the U.S. Army awarded a $1.4million contract for Cyclone to build a prototype generator set based on the S-2 engine.  The prototype was delivered, years late, in 2014.  Cyclone claimed it met the Army's acceptance criteria, but never revealed what those criteria actually were.  There is no evidence the Army ever ran this engine.
• In 2016 Cyclone delivered a Mark 3 engine to 3R of Denmark.  3R soon folded, with assets going to IBES of Dubai.  IBES has not been able to make the system work, and at the end of 2017 stopped work on it.
• In 2016 Falck Schmidt Defense Systems (FSDS) of Denmark ordered two S-2 generators, with the requirement they must operate for 10 hours before being accepted.  Cyclone delivered one engine in 2017 without it having met the run-time requirement.  FSDS then went bankrupt.  There is no evidence they ever ran the Cyclone engine.

Of these few engines ever delivered by Cyclone over the years, only IBES has reported operating an engine, and then at much lower speed and power than Cyclone rates the engine for.

Failure of Water Lubrication:  A fundamental design feature of the Cyclone is that oil cannot be used to lubricate it, as is done in every other engine on the market.  It must use bearings that are lubricated with water.  In 2013 Cyclone hired the Ohio State University Center for Automotive Research (OSU-CAR) to fix the problems preventing the low-power WHE engine from working properly.  OSU-CAR immediately redesigned the engine, eliminating three cylinders and creating the WHE-DR model that had 60% fewer parts and significantly reduced vibration and noise.  Although they anticipated the engine would soon meet the 200 hour run time requirement of customer Phoenix Power, bearing failures became the next critical failure.  OSU-CAR concluded no available water-lubricated bearings would survive in the Cyclone engine and proposed building a bearing test machine and starting a series of experiments on bearings.  Cyclone then stopped funding the work.

Later models of Cyclone engines returned to the 6-cylinder configuration that OSU-CAR had abandoned as a bad design.

Failure to Run 10 Hours:  Contracts for engines have specified that engines must run 200 hours before acceptance (2010), 50 hours before acceptance (2013), and finally just 10 hours before acceptance (2017).  Financial disclosures show that final payments on these contracts have not been made, showing no Cyclone engine is known to have run for 10 hours under load without failing.

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Recent (2016) photo of the inside of Cyclone's facility.

CTO Harry Schoell and former President Christopher Nelson, photo from 2011 Cyclone Shareholder Open House (The event where Schoell told investors that all the technological problems with the Cycone engine had been "overcome".)

President of Cyclone, " 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. "

Fraudulant statement by Cyclone Dec 14, 2010 ."This first WHE-GEN-10 is currently converting exhaust heat from Bent Glass Design’s furnace into grid-tied electric power."
As of March 25, 2015 there has been no indication they have made a water lubricated engine pass this 200-hour endurance test.