Cyclone Letter to Shareholders
Nov. 18, 2010
Dear Friends of Cyclone,
Greetings from South Florida! I would like to share with you some of the financial, technical and operational highlights as of September 30, 2010, as detailed in our Quarterly Report filed with the OTC Markets.
Financial Development
In the first nine months of 2010, we generated $202,375 of revenue as compared to $101,938 for the previous year period. This represents an increase of $100,437 (98%), materially due to the delivery in 2010 of our biomass-to-power engine system to Robotic Technology under a U.S. Department of Defense sponsored project, delivery of our Waste Heat Recovery system to Bent Glass Design, recognition of revenue from our agreement with Great Wall Alternative Power Systems in China, and additional research and development funding from Raytheon Company. In the recent three month period, we generated an additional $99,951 in cash proceeds that, under GAAP rules, are accounted for as deferred revenue (a balance sheet item) until we deliver prototypes to our customers. At September 30, we had $694,951 in cumulative deferred revenue and an additional $55,000 in license deposits.
We incurred operating expenses for the nine months ended September 30, 2010 of $1,782,561 as compared to $1,833,777 for the same period in 2009. We have employed more engineers, mechanics and support staff as our operations expand, and are also paying higher professional services in connection with the filing of audited financial statements with our 2009 Annual Report. Our overall R&D costs in the first nine months of 2010, however, were lower than in 2009. This change reflects the assignment of resources from research to the production of deliverable inventory as some of our engine prototypes near completion. Overall, the net loss for the first nine months of 2010 was $1,814,594 as compared to a slightly lower net loss of $1,810,379 for the same period in 2009.
We ended the third quarter of 2010 with total current assets of $246,207. Other than debt owed to our officers and directors for deferred salary and loans provided to the Company, we have virtually no long-term debt. We believe that this fact reduces the financial stress on the Company and allows us to operate leaner and without fear of defaulting on any unaffiliated third-party debt.
In the past quarter, we raised $108,700 through the sale of 100,000 shares of common stock and 17,300 shares of Series A Preferred Stock. We also issued for services 1,008,334 shares of restricted common stock and 420,000 common stock options, valued at $120,815 in total. As we have said before, we believe that the continued interest among our key employees and contractors to receive stock and stock options in lieu of some or all of their cash compensation demonstrates an unwavering commitment to the success of our company.
With respect to our initial registration statement with the Securities and Exchange Commission, we have decided to make this filing in the first quarter of 2011 as opposed to this year. We made this decision to wait until after the completion of our 2010 financial audit to save the company considerable money in legal and accounting services. These avoided costs allow us to expand R&D efforts more quickly, thus helping us achieve more solid revenues in 2011.
You can find our full financial statements with footnotes in our Quarterly Report for the period ended September 30, 2010, filed with www.otcmarkets.com.
Engine Projects and Technological Development
We made substantial progress in the recent quarter towards the completion of our waste heat engine (WHE-25 model) prototypes, which we expect will lead to the commercialization of this product in the first half of 2011. Among the material events was the delivery in July of the WHE-25 system to Bent Glass Design in Hatboro, PA, for installation on its glass manufacturing furnace. This system will recover over 500,000 BTU of exhaust heat to run the WHE-25 combined with a grid-tied electric generator. This will offer our customer a predicted pay-back in less than 24 months. In November, the electric utility PECO approved our application to connect the system to the grid, allowing this installation to go live sometime in the fourth quarter of 2010.
We anticipate considerable commercial opportunities for power production using the WHE-25, both in waste heat recovery applications, for which there is an estimated $20 billion in potential installations in the U.S., as well as other applications such as waste oil recycling and biomass combustion. In connection with this, we received a new Purchase Order in the third quarter from our licensee Phoenix Power Group for two WHE-25 engine systems to power their prototype waste motor oil power generators, called the Phoenix 10. Phoenix Power is partnered with Clean Burn, the world leader in waste oil heaters and furnaces, to market and distribute these systems to oil change shops, lube centers, auto parts retailers and other locations throughout North America. The first two prototype systems are schedule to be debuted at the December 14-16 2010 Power-Gen International show in Orlando, FL. If you are in the area, please stop by to see us.
Further advancing the pace of commercialization of our WHE-25 system in the third quarter 2010 were developments in China with our licensee Great Wall Alternative Power Systems. In August, we approved the intellectual property and patent protection systems implemented by Great Wall to maintain and secure our valuable assets in China. This critical process was a condition precedent to our delivery of design plans for the WHE-25, which Great Wall has contracted with us to build in China for a biomass combustion/electric generator system. Such a product would be for sale in rural China, where the need for electricity production from biomass and other materials easily found in the area is substantial and has received the strong support of the Chinese government.
During the third quarter we also received three additional U.S. patents for our engines - one for the condenser system, one for the pre-heater system, and a second patent on the entire engine system. We were awarded a fourth (to make nine in total in the U.S.) in the current quarter on the engine's unique spider bearing. We also received our second engine patent in Korea, from where we have recently received strong indications of interest from manufacturing and business entities.
In the third quarter, we continued to perform testing and design services for Raytheon Integrated Defense Systems, a business of Raytheon Company. We completed one of two purchase orders from them for design and development services, and we continue our discussions regarding the next phases of a larger collaborative project slated for sometime in the next few months.
Our solar thermal engine (S-1) being developed for Renovalia Energy is progressing well and performance testing has been accelerated in the third quarter. We also continue to advance the development of our flagship Mark V engine; although due to the considerable amount of time we have been spending testing the WHE-25 and the S-1, we have not been able to log any substantial run hours for this engine in the third quarter.
During three quarters of 2010, we have advanced our technology, business position and operational structure substantially. As we head into the last months of 2010, we continue to stay focused on building the foundations required to launch products and start generating consistent revenue in 2011. We remain very thankful for your support in helping make this happen, and are confident that we are very close to achieving our collective goals.
Sincerely,
Harry Schoell, CEO & Director
