10-Q/A

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q/A

(Mark One)

þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended September 30, 2011

or

o	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	(I.R.S. Employer
incorporation or organization)	Identification No.)
601 NE 26th Ct
Pompano Beach, Florida	33064
(Address of principal executive offices)	(Zip Code)

(954) 943-8721

(Registrant’s telephone number, including area code)

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 such 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. Yes þ No o

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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

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” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o	Accelerated filer o	Non-accelerated filer o	Smaller reporting company þ
		(Do not check if a smaller reporting company)

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

As of November 8, 2011, there were 221,643,435 shares of the registrant’s common stock issued and outstanding.

Explanatory Note

The purpose of this Amendment No. 1 to our Quarterly Report on Form 10-Q as of and for the period ended September 30, 2011, filed with the Securities and Exchange Commission on November 14, 2011 (the “Form 10-Q”), is to furnish Exhibit 101 to the Form 10-Q. Exhibit 101 hereto provides the financial statements and related notes from the Form 10-Q formatted in XBRL (Extensible Business Reporting Language). In addition, we have attached to this Amendment No. 1 currently-dated certifications from our chief executive officer and our chief financial officer as required by SEC Rule 13a-14(a)/15d-14(a) and by Section 906 of the Sarbanes-Oxley Act of 2002.

No other changes have been made to the Form 10-Q. This Amendment No. 1 to the Form 10-Q speaks as of the original filing date of the Form 10-Q, does not reflect events that may have occurred subsequent to the original filing date, and does not modify or update in any way disclosures made in the original Form 10-Q.

Item 6.  Exhibits

31.1 -	Certification of the Principal Executive Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002
31.2 -	Certification of the Principal Financial Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002
32.1 -	Section 906 Certification of Chief Executive Officer
32.2 -	Section 906 Certification of Chief Financial Officer
101 -	Interactive data files pursuant to Rule 405 of Regulation S-T, as follows:
	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

Note: The XBRL (Extensible Business Reporting Language) information in Exhibit 101 and its subparts, as listed above, is furnished and not filed, is not a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

The certification attached as Exhibits 32.1 and 32.2 that accompany this Quarterly Report on Form 10-Q/A 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.

1

SIGNATURES

Pursuant to the requirements 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.
December 8, 2011	/s/ Harry Schoell Harry Schoell
	Chief Executive Officer (Principal executive officer)
December 8, 2011	/s/ Bruce Schames Bruce Schames
	Chief Financial Officer (Principal financial and accounting officer)

2

EX-31.1

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, Harry Schoell, certify that:

1. I have reviewed this report on Form 10-Q 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: December 8, 2011	/s/ Harry Schoell
	Harry Schoell,
	Chief Executive Officer and Chairman
	(Principal Executive Officer)

EX-31.2

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-Q 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: December  8, 2011	/s/ Bruce Schames
	Bruce Schames,
	Chief Financial Officer
	(Principal Accounting Officer)

EX-32.1

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-Q for the period ending September 30, 2011, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Harry Schoell, 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: December 8, 2011	/s/Harry Schoell
	Harry Schoell
	Chief Executive Officer and Chairman (Principal Executive Officer)

EX-32.2

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-Q for the period ending September 30, 2011, 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: December 8, 2011	/s/ Bruce Schames
	Bruce Schames
	Chief Financial Officer and Secretary (Principal Accounting Officer)

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Note 3 - Inventory

9 Months Ended

Sep. 30, 2011

Inventory Disclosure [Text Block]

NOTE 3 - INVENTORY

Inventory at September 30, 2011 and December 31, 2010 consists of:

	September 30,  2011		December 31,  2010
Engine material and parts	$	338,917	$	183,893
Labor		181,192		38,556
Applied overhead		27,179		6,389
Total Inventory	$	547,288	$	228,838

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Note 2 - Going Concern

9 Months Ended

Sep. 30, 2011

Going Concern [Text Block]

NOTE 2 - GOING CONCERN

As shown in the accompanying financial statements, the Company incurred substantial operating losses for the nine months ended September 30, 2011 of $2.7 million. The cumulative deficit since inception is approximately $45.2 million, which is comprised of $13.8 million attributable to operating losses, and $31.4 million in non-cash derivative liability accounting.  The Company has a working capital deficit at September 30, 2011 of approximately $2.3 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 includes 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 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 private placements of common stock, advance contract payments (deferred revenue) and advances from and deferred payments to related parties.

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Consolidated Balance Sheets (USD $)	Sep. 30, 2011	Dec. 31, 2010
CURRENT ASSETS
Cash	$ 71,548	$ 6,557
Accounts receivable		4,200
Inventory	547,288	228,838
Other current assets	8,870	828
Total current assets	627,706	240,423
PROPERTY AND EQUIPMENT
Furniture, fixtures, and equipment	176,114	139,428
Less: Accumulated depreciation	(71,220)	(55,644)
Net property and equipment	104,894	83,784
OTHER ASSETS
Patents, trademarks and copyrights	565,809	486,466
Less: Accumulated amortization	(107,102)	(81,115)
Net patents, trademarks and copyrights	458,707	405,351
Other assets	2,607	1,156
Total other assets	461,314	406,507
Total Assets	1,193,914	730,714
CURRENT LIABILITIES
Accounts payable and accrued expenses	345,441	187,887
Accounts payable and accrued expenses-related parties	1,203,864	991,269
Notes and other loans payable	5,000	5,000
Notes and other loans payable-related parties	672,359	659,577
Capitalized lease obligations-current portion	2,925	6,565
Deferred revenue and license deposits	527,500	710,000
Warranty provision	2,114	2,324
Total current liabilities	2,759,203	2,562,622
NON CURRENT LIABILITIES
Capitalized lease obligations-net of current portion		2,451
Total non-current liabilities	1,061,836	11,085,612
Total liabilities	3,821,039	13,648,234
STOCKHOLDERS' DEFICIT
Common stock, $.0001 par value, 300,000,000 shares authorized, 221,643,435 and 114,020,135 shares issued and outstanding at September 30, 2011 and December 31, 2010, respectively.	22,164	11,402
Additional paid-in capital	42,449,998	9,004,547
Prepaid expenses from equity contribution	(15,000)	(27,500)
Preferred stock subscription receivable	(18,000)	(18,000)
Accumulated deficit	(45,196,349)	(22,022,915)
Total stockholders' deficit-Cyclone Power Technologies Inc.	(2,757,187)	(13,052,395)
Non controlling interest in consolidated subsidiary-Cyclone WHE LLC	130,062	134,875
Total Stockholders Deficit	(2,627,125)	(12,917,520)
Total Liabilities and Stockholders' Deficit	1,193,914	730,714
Warrant [Member]
NON CURRENT LIABILITIES
Derivative Liabilities	1,061,836	459,537
Series A Convertible Preferred Stock [Member]
NON CURRENT LIABILITIES
Derivative Liabilities		10,623,624
Series A Convertible Preferred Stock [Member]
STOCKHOLDERS' DEFICIT
Preferred stock		71
Series B Preferred Stock [Member]
STOCKHOLDERS' DEFICIT
Preferred stock

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Consolidated Statements of Cash Flows (Unaudited) (USD $)	9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income	$ (23,178,247)	$ 447,016
Adjustments to reconcile net (loss) income to net cash used by operating activities:
Depreciation and amortization	41,563	42,215
Loss allocated to non controlling interest in subsidiary	(4,813)	(2,500)
Issuance of restricted common and preferred stock and options for services	1,221,108	707,411
Issuance of restricted common stock for contract penalty	225,000
Provision for loss on debt and liability conversion		159,050
Amortization of prepaid expenses purchased with equity	27,500
Changes in operating assets and liabilities:
Decrease in accounts receivable	4,200
Increase in inventory	(318,450)	(79,729)
(Increase) decrease in other assets	(9,493)	5,702
(Increase) decrease in deferred revenue and deposits	(182,500)	162,476
Increase in accounts payable and accrued expenses	202,171	138,162
Decrease in warranty provision	(210)	(3,874)
Increase in accounts payable and accrued expenses-related parties	212,595	210,918
Net cash used by operating activities	(1,386,191)	(642,834)
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures incurred for patents, trademarks and copyrights	(79,343)	(80,580)
Expenditures for fixed assets	(36,686)	(24,131)
Net cash used by investing activities	(116,029)	(104,711)
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of Series A Preferred treasury stock	40,000
Payment of capitalized leases	(6,091)	(6,225)
Proceeds from sale of common stock	1,367,785	151,077
Proceeds from sale of preferred stock	192,735	510,600
(Decrease) increase in related party notes and loans payable	(27,218)	88,344
Net cash provided by financing activities	1,567,211	743,796
Net increase (decrease) in cash and cash equivalents	64,991	(3,749)
Cash and cash equivalents, beginning of period	6,557	28,558
Cash and cash equivalents, end of period	71,548	24,809
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Payment of interest in cash	808	2,346
NON CASH INVESTING AND FINANCING ACTIVITIES:
Purchase of 8,000 shares of Series A Preferred treasury stock via note payable	40,000
Conversion of debt and liabilities by issuing 19,953 shares of Series A Preferred stock		99,765
Conversion of debt by selling 5% of consolidated subsidiary equity		30,000
By Issuing 213,975 Shares of Common Stock [Member]
NON CASH INVESTING AND FINANCING ACTIVITIES:
Conversion of debt and liabilities by issuing common stock	39,804
By Issuing 2,500,000 Shares of Common Stock [Member]
NON CASH INVESTING AND FINANCING ACTIVITIES:
Conversion of debt and liabilities by issuing common stock		12,500
Warrant [Member]
Adjustments to reconcile net (loss) income to net cash used by operating activities:
Loss (income) from derivative liability	602,299	(191,475)
Series A Convertible Preferred Stock [Member]
Adjustments to reconcile net (loss) income to net cash used by operating activities:
Loss (income) from derivative liability	$ 19,771,086	$ (2,238,206)

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Note 16 - Derivative Liabilities

9 Months Ended

Sep. 30, 2011

Derivatives and Fair Value [Text Block]

NOTE 16 - DERIVATIVE LIABILITIES

The Company has issued certain freestanding and embedded financial instruments that are classified as derivative liabilities in accordance with ASC Topic 815 Derivatives and Hedging.

Series A Convertible Preferred Stock

The Company’s Series A Convertible Preferred Stock entitled the holders of the preferred stock to convert the preferred stock into a fixed percentage of the total outstanding common stock on a fully diluted basis, calculated on the date of conversion.  Because the number of shares into which the preferred stock was convertible was unknown until the time of conversion, which occurred in May 2011, and there was no limit to the number of shares that were issuable upon conversion, the conversion option embedded in the preferred stock was required to separated from the preferred stock instrument and accounted for as a derivative liability.  The resulting derivative liability is presented at its fair value on the accompanying balance sheets for the period ended December 31, 2010, with changes in fair value reported in the statement of operations.  In May 2011, the holders of all of the outstanding shares of Series A Preferred Stock converted the shares into 91.5 million shares of the Company’s common stock.  As a result of the conversion, the estimated fair value of the embedded conversion option of at the time of conversion of $30,394,710 was reclassified into equity. The fair value of the conversion option had been estimated using a binomial lattice model using the following assumptions:

Risk free rate	1.27% -2.69%
Expected volatility	150% - 400%
Expected term in years	5 Years
Expected dividend yield	0%

Phoenix Common Stock Warrants

As discussed in Note 10 – Stock Options and Warrants, the Company issued warrants to purchase a number of shares equal to 2% of the total issued and outstanding common stock of the Company, calculated at the time of conversion, for an exercise price of $0.19 per share. Because the number of shares issuable upon exercise of the warrants will be unknown until the time of exercise and there is no limit to the number of shares that are issuable upon exercise, the common stock warrants are required to be accounted for as a derivative liability.  The resulting derivative liability is presented at its fair value on the accompanying balance sheet with changes in fair value reported in the statement of operations.

The fair value of the warrants has been estimated using the Black Scholes model using the following assumptions:

Risk free rate	.42% - 1.76%
Expected volatility	142% - 370%
Expected term in years	3 years
Expected dividend yield	0%

A summary of the fair value of the Company’s derivative liabilities are as follows:

	Fair Value as of December 31, 2010		Conversion of Series A Preferred Stock			Fair Value as of Sept. 30, 2011		Period End Change in Fair Value
Series A Preferred Stock	$	10,623,624	$	(30,394,710	)	$	-	$	(10,623,624	)
Phoenix Warrants		459,537		-			1,061,836		602,299
Total	$	11,083,161	$	(30,394,710	)	$	1,061,836	$	(10,021,325	)

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Note 1 - Organizational and Significant Accounting Policies

9 Months Ended

Sep. 30, 2011

Organization, Consolidation, Basis of Presentation, Business Description and Accounting Policies [Text Block]

NOTE 1 – ORGANIZATIONAL AND SIGNIFICANT ACCOUNTING POLICIES

A. ORGANIZATION AND O AND OPERATIONS

Cyclone Power Technologies, Inc. (the “Company”) is a clean-tech engineering company, whose business is to develop, commercialize and license its patented Rankine cycle engine technology for applications ranging from renewable power generation to transportation. The Company is the successor entity to the business of Cyclone Technologies LLLP (the “LLLP”), a limited liability limited partnership formed in Florida in June 2004. The LLLP was the original developer and intellectual property holder of the Cyclone engine technology.

On July 2, 2007, the LLLP merged into Cyclone Power Technologies, Inc., a publicly-traded Florida corporation that had recently re-domiciled from California and changed its name from Coastal Technologies, Inc. (the “Pink Sheet Company”). Prior to the merger, the Pink Sheet Company was engaged in the business of medical software development. At such time, the Pink Sheet Company had outstanding 22,249,841 shares of common stock.  Pursuant to the merger agreement, the Company issued 500,000 shares of Series A Convertible Preferred Stock ($.0001 par value), 1,000 shares of Series B Preferred Stock ($.0001 par value) and 33,000,000  shares of common stock ($.0001 per value) for all the equity interests of the LLLP. Pursuant to the merger and the share exchange, the LLLP was dissolved. The stock issued represented 60 percent of the common stock and all of the Series A Preferred and Series B Preferred stock of the Company at the time of merger. This reverse merger was accounted for as a recapitalization of Cyclone, with all assets and liabilities recorded at historical cost.  Concurrent with the merger,  the Company sold its medical software development business for $100,000 in cash. Prior to the merger, the Pink Sheet Company had operations, assets and liabilities, and was not considered a “Shell Company” under SEC guidelines.

In the third quarter of 2010, the Company established a subsidiary, Cyclone-WHE LLC (the “Subsidiary”) to market the waste heat recovery systems for all Cyclone engine models. As of September 30, 2011, the Company had an 82.5% controlling interest in the Subsidiary.

B. ACCOUNTING STANDARDS CODIFICATION

The Financial Accounting Standards Board (FASB) issued Accounting Standards Codification (ASC) 105-10 in June 2009, to be effective September 15, 2009. This establishes the ASC codification as the single source of authoritative nongovernmental Generally Accepted Accounting Principles (GAAP).  All existing accounting standards are superseded as described in FASB Accounting Standards Codification (SFAS) No. 168, aside from those issued by the SEC. All other accounting literature not included in the Codification is non-authoritative. Adoption of this Codification as of September 30, 2009, which is reflected in our disclosures and references to accounting standards, had no change to our financial position or results of operations.

C.  PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION

The unaudited consolidated financial statements include the accounts of the Company and its 82.5% owned Subsidiary. All material inter-company transactions and balances have been eliminated in the consolidated financial statements. The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. As such, not all of the information and footnotes required by generally accepted accounting principles for complete financial statements have been presented.

The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles applicable to interim financial information and the requirements of Form 10-Q and Article 10 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 of America for complete financial statements. 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.

The Company prepares its unaudited consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The principles 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 financial statements, the reported amounts of revenues and expenses, cash flows and the related footnote disclosures during the period. 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 accounts receivable, inventories, identifiable intangible assets and other long-lived assets, income taxes and contingencies. Actual results could differ from these estimates.

D.  SUBSEQUENT EVENTS

In May 2009, the FASB issued SFAS No. 165, (ASC 855) Subsequent Events (ACS 855) which offers assistance to establish general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. ACS 855 does not result in material changes in the subsequent events that an entity reports. This guidance requires disclosure of the date through which events subsequent to the Balance Sheet date have been evaluated and whether such date represents the date the financial statements were issued or were available to be issued. ASC 855 is effective for interim and annual periods ending after June 15, 2009. Management evaluated events occurring between the Balance Sheet date of September 30, 2011, and when the financial statements were available to be issued, and determined that there are no reportable events.

E.  CASH

Cash includes cash on hand and cash in banks. The Company maintains cash balances at several financial institutions.

F.  ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

Accounts receivable consist of amounts due pursuant to research and development prototype charges. At September 30, 2011 uncollected progress billings of $212,956 were off-set against deferred revenue.  At December 31, 2010, no allowance for doubtful accounts was deemed necessary.

G.  COMPUTATION OF LOSS PER SHARE

Net loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period.  Diluted net 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  September 30, 2011 total anti-dilutive shares amounted to approximately 8.4 million shares, exclusive of 4.6 million shares subject to an unvested common stock purchase warrant.

H.  INCOME TAXES

Income taxes are accounted for under the asset and liability method as stipulated by Accounting Standards Codification (“ASC”) 740 formerly Statement of Financial Accounting Standards (”SFAS”) No. 109, “Accounting for Income Taxes”. 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.

Effective January 1, 2009, the Company adopted certain provisions under ASC Topic 740, Income Taxes, (“ASC 740”), which provide interpretative guidance for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Effective with the Company’s adoption of these provisions, interest related to the unrecognized tax benefits is recognized in the financial statements as a component of income taxes. The Adoption of ASC 740 did not have an impact on the Company’s financial position and results of operations.

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 September 30, 2011, the Company does not believe it has any uncertain tax positions that would result in the Company having a liability to the taxing authorities. The Company’s tax returns are subject to examination by the federal and state tax authorities for the years ended 2008 through 2010.

I.  REVENUE RECOGNITION

The Company’s revenue recognition policies are in compliance with accounting Codification as ASC 605, and Staff Accounting Bulletin (“SAB”) 104, Revenue Recognition. Sales revenue is 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 methods recognition are evaluated and allocated as appropriate. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as deferred revenue.  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 in the quarter earned as advised by customers. The Company does not have any royalty revenue to date.

J.  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 resell in the future, warranty costs are anticipated to be fully borne by the manufacturing vendor.

K.  INVENTORY

Inventory is recorded at the lower of standard cost or market. Standard costs for material, labor and allocated overhead, are reflective of the estimated costs to manufacture a completed engine after related developmental research and development expenses have been provided for.

L.  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 receivable, 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 fair values and changing values of financial instruments as of September 30, 2011 and December 31, 2010 is as follows:

Instrument	Fair Value		Level		Valuation Methodology
Derivative liabilities as of Sept. 30, 2011	$	1,061,836		3	Binomial Lattice Model and Black Scholes
Derivative liabilities as of Dec. 31, 2010	$	11,083,161		3	Binomial Lattice Model and Black Scholes

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

M.  RESEARCH AND DEVELOPMENT

Research and development activities for product development are expensed as incurred.  Costs for the nine months ended September 30, 2011 and 2010 were $544,544 and $661,706, respectively.

N.  STOCK BASED COMPENSATION

The Company applies the fair value method of ASC 718, Share Based Payment, formerly Statement of Financial Accounting Standards (“SFAS”) No. 123R “Accounting for Stock Based Compensation”, 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 of issuance.

O.  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 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.

P.  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:

Computers and trade show equipment	3 years
Shop equipment	7 years
Furniture, fixtures, and leasehold improvements	10-15 years

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

Q.  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.

R.  RECLASSIFICATIONS

Certain balances that have been presented previously have been reclassified to conform to the financial statement presentation adopted for this year.

S.  DERIVATIVE INSTRUMENTS

The Company does not enter into derivative contracts for purposes of risk management or speculation. However, from time to time, the Company enters into contracts, namely convertible equities and warrants that are not considered derivative financial instruments in their entirety, but that include embedded derivative features. In accordance with Financial Accounting Standards Board (“FASB”) ASC Topic 815-15, Embedded Derivatives, and guidance provided by the SEC Staff, the Company accounts for these embedded features as a derivative liability or equity at fair value. The recognition of the fair value of the derivative instrument at the date of issuance is applied first to the equity’s paid in capital. The excess fair value, if any, over the paid in capital from the equity, is recognized immediately in the statement of operations as derivative income (expense).

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Consolidated Balance Sheets (Parentheticals) (USD $)	Sep. 30, 2011	Dec. 31, 2010
Common stock, par value (in Dollars per share)	$ 0.0001	$ 0.0001
Common stock, shares authorized	300,000,000	300,000,000
Common stock, shares issued	221,643,435	114,020,135
Common stock, shares oustanding	221,643,435	114,020,135
Series A Convertible Preferred Stock [Member]
Preferred stock, par value (in Dollars per share)	$ 0.0001	$ 0.0001
Preferred stock, shares authorized	750,000	750,000
Preferred stock, shares issued	0	705,453
Preferred stock, shares oustanding	0	705,453
Series B Preferred Stock [Member]
Preferred stock, par value (in Dollars per share)	$ 0.0001	$ 0.0001
Preferred stock, shares authorized	1,000	1,000
Preferred stock, shares issued	1,000	1,000
Preferred stock, shares oustanding	1,000	1,000

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Note 11 - Income Taxes

9 Months Ended

Sep. 30, 2011

Income Tax Disclosure [Text Block]

NOTE 11 – INCOME TAXES

A reconciliation of the differences between the effective income tax rates and the statutory federal tax rates for the nine months ended September 30, 2011 and 2010 are as follows:

	9 Months Ended  September 30, 2011			Amount			9 Months Ended September 30, 2010			Amount
Tax benefit at U.S. statutory rate		34	%		883,529			34	%	$	603,981
State taxes, net of federal benefit		4			103,944			4			71,057
Change in valuation allowance		(38	)		(987,473	)		(38	)		(675,038	)
		-	%	$	- .			-	%	$	- .

The tax effect of temporary differences that give rise to significant portions of the deferred tax assets and liabilities for nine months ended September 30, 2011 and for the year ended December 31, 2010 consisted of the following:

Net Operating Loss Carry-forward	$	5,223,518		$	2,860,156
Deferred Tax Liabilities – Accrued Officers Salaries		( 423,638	)		(126,635	)
Net Deferred Tax Assets		4,799,880			2,733,521
Valuation Allowance		(4,799,880	)		(2,733,521	)
Total Net Deferred Tax Assets	$	-		$	-

As of September 30, 2011, the Company had a net operating loss carry forward for income tax reporting purposes of approximately $9.7 million that may be offset against future taxable income through 2026. 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.

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Document And Entity Information	9 Months Ended
	Sep. 30, 2011	Nov. 08, 2011
Document and Entity Information [Abstract]
Entity Registrant Name	CYCLONE POWER TECHNOLOGIES INC
Document Type	10-Q
Current Fiscal Year End Date	--12-31
Entity Common Stock, Shares Outstanding		221,643,435
Amendment Flag	false
Entity Central Index Key	0001442711
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Filer Category	Smaller Reporting Company
Entity Well-known Seasoned Issuer	No
Document Period End Date	Sep. 30, 2011
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q3

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Note 12 - Lease Obligations

9 Months Ended

Sep. 30, 2011

Capital Leases in Financial Statements of Lessee Disclosure [Text Block]

NOTE 12 –LEASE OBLIGATIONS

A.  CAPITALIZED LEASE OBLIGATIONS

In 2009, the Company acquired $27,401 of property and equipment via capitalized lease obligations at an average interest rate of 18.4%. Lease principle payments made in the nine months ended September 30, 2011 was $6,091. The balance of leases payable at September 30, 2011 was $2,925. Future lease payments are:

2011	$	592
2012		927
2013		975
2014		431
	$	2,925

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Consolidated Statements of Operations (Unaudited) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010
REVENUES	$ 250,000	$ 97,475	$ 250,000	$ 202,375
COST OF GOODS SOLD	148,934	20,663	399,801	72,460
Gross profit (loss)	101,066	76,812	(149,801)	129,915
OPERATING EXPENSES
Advertising and promotion	17,271	12,851	49,565	39,225
General and administrative	814,070	324,776	2,002,814	1,249,701
Research and development	46,812	230,556	544,544	661,706
Total operating expenses	878,153	568,183	2,596,923	1,950,632
Operating loss	(777,087)	(491,371)	(2,746,724)	(1,820,717)
OTHER INCOME (EXPENSE)
Other (expense)			(26,964)	(129,052)
Interest (expense)	(10,273)	(10,209)	(31,174)	(32,896)
Total other (expense) income	38,186	(541,183)	(20,431,523)	2,267,733
(Loss) income before income taxes	(738,901)	(1,032,554)	(23,178,247)	447,016
Income taxes
Net (loss) income	(738,901)	(1,032,554)	(23,178,247)	447,016
Net (loss) income per common share, basic (in Dollars per share)	$ 0.00	$ (0.01)	$ (0.16)	$ 0.00
Weighted average number of common shares outstanding (in Shares)	218,968,632	110,943,992	143,237,904	106,057,139
Warrants [Member]
OTHER INCOME (EXPENSE)
Derivative Income (Expense)	48,459	10,281	(602,299)	191,475
Series A Preferred Stock - Founders Stock [Member]
OTHER INCOME (EXPENSE)
Derivative Income (Expense)		(409,141)	(13,238,033)	1,681,719
Series A Preferred Stock - New Investors' Stock [Member]
OTHER INCOME (EXPENSE)
Derivative Income (Expense)		$ (132,114)	$ (6,533,053)	$ 556,487

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Note 6 - Notes and Other Loans Payable

9 Months Ended

Sep. 30, 2011

Debt Disclosure [Text Block]

NOTE 6 – NOTES AND OTHER LOANS PAYABLE

A summary of non-related party notes and other loans payable as of September 30, 2011 and December 31, 2010 is as follows:

	September 30,		December 31,
	2011		2010
6% uncollateralized $5,000 demand note (*)	$	-	$	5,000
6% uncollateralized $5,000 demand note		5,000		-
Total current non related party note	$	5,000	$	5,000
(Accrued interest is included in accrued liabilities)

            * This note was retired pursuant to the issuance of preferred stock in 2011.

A summary of related party notes and other loans payable as of September 30, 2011 and December 31, 2010 is as follows:

	September 30,  2011		December 31, 2010
6% demand loan owned by controlling shareholder, uncollateralized (A)	$	14,410	$	-
6% demand loans per Operations Agreement with Schoell Marine Inc., a company owned by Cyclone’s CEO and controlling shareholder, collateralized by lien on Cyclone’s engine patents (B)		427,332		444,209
6% non-collateralized loan from officer and shareholder, payable on demand. Original principle balance was $137,101.		67,364		86,264
Accrued Interest		163,253		129,104
Total current related party notes, inclusive of accrued interest	$	672,359	$	659,577

(A) This note was issued to purchase 8,000 shares of the Company’s Series A Preferred Stock.

(B) This note arose from services, rent and equipment leases incurred by Schoell Marine on behalf of the Company.  Schoell Marine also owns the building that is leased to the Company. The Schoell Marine note bears an interest rate of 6% and repayments occur as cash flow of the Company permits. The note is secured by a UCC-1 filing on the Company’s patents and patent applications. During the nine months ended September 30, 2011, $5,367 was paid on the note balance.

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Note 5 - Patents and Trademarks and Copyrights

9 Months Ended

Sep. 30, 2011

Intangible Assets Disclosure [Text Block]

NOTE 5 – PATENTS AND TRADEMARKS AND COPYRIGHTS

The Cyclone Engine is currently protected under the following U.S. Patents and allowed patent applications:

Heat Regenerative Engine (US Patent No. 7,080,512 B2)

Heat Regenerative Engine (Continuation)(US Patent No. 7,856,822 B2)

Steam Generator in a Heat Regenerative Engine (US Patent No. 7,407,382)

Engine Reversing and Timing Control Mechanism (US Patent No. 7,784,280 B2)

Centrifugal Condenser (US Patent No. 7,798,204 B2)

Valve Controlled Throttle Mechanism (US Patent No. 7,730,873 B2)

Pre-Heater Coil in a Heat Regenerative Engine (US Patent No 7,856,823 B2)

Spider Bearing (US Patent No. 7,900,454)

Waste Heat Engine (US Patent No. 7,992,386)

Engine Shrouding with Air to Air Exchanger (Ser. No. 11/879,586)

The Company also has received patents for the main Cyclone engine in 19 other countries, and patents pending in three more countries. The Company plans to continue to pursue patent protection in the U.S. and internationally for its intellectual property.

The Company has filed trademark applications in the U.S. for Cyclone Power Technologies, Cyclone Power, WHE, WHE Generation, and Generation WHE.

Patents, trademarks and copyrights consist of legal fees paid to file and perfect these claims. The net balances as of September 30, 2011 and December 31, 2010 was $458,707 and $405,351 respectively. For the nine months ended September 30, 2011 and for the year ended December 31, 2010, $78,902 and $85,968 was capitalized, respectively. Patents, trademarks and copyrights are amortized over the life of the intellectual property which is 15 years. Amortization for the nine months ended September 30, 2011 and 2010 was $25,987 and $22,431, respectively. The Company wrote off abandoned patents $0 for the nine months ended September 30, 2011 and $9,855 for the year ended December 31, 2010, respectively.

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Note 17 - Backlog and Deferred Revenue

9 Months Ended

Sep. 30, 2011

Deferred Revenue Disclosure [Text Block]

NOTE 17 – BACKLOG AND DEFERRED REVENUE

As of September 30, 2011, the Company has accounts receivable of $212,956, which is related to uncollected work in progress billings, and comprised of $117,546 due from Raytheon and $95,410 due form Advent under the Company’s U.S. Army/TACOM contract.  These amounts are offset against deferred revenue until contract deliverables and related revenue recognition have been satisfied.

As of September 30, 2011, total backlog for prototype engines to be delivered in the following six to nine months was $1.5 million, of which $100,000 has been paid and $212,956 has been invoiced, as noted above.  This amount of backlog orders is inclusive of contracts with Raytheon, the U.S. Army (through Advent) and Combilift, which the Company expects to be paid over the following six to nine months of the respective contracts’ development periods.

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Note 13 - Commitments and Contingencies

9 Months Ended

Sep. 30, 2011

Commitments and Contingencies Disclosure [Text Block]

NOTE 13 – COMMITMENTS AND CONTINGENCIES

The Company has employment agreements with Harry Schoell, CEO, at $150,000 per year, and Frankie Fruge, COO, at $120,000 per year (the “Executives”), that provide for a term of three (3) years from their Effective Date (July 2, 2007), with automatically renewing successive one year periods starting on the end of the second anniversary of the Effective Date. If either 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 not terminated, during the 12 months following his or her termination.

In July 2011, the Company signed a one-year lease for an additional 2,000 square feet at rate of $8.25/s.f., terminating in August 2012. The lease also has two 1-year extensions.  The balance of the lease is $12,239, payable as follows:

2011	$	4,080
2012		8,159
	$	12,239

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Note 9 - Stock Transactions

9 Months Ended

Sep. 30, 2011

Stockholders' Equity Note Disclosure [Text Block]

NOTE 9 – STOCK TRANSACTIONS

The Company relies on capital raised through private placements of common and preferred stock, and loans primarily from related parties, to assist in the funding of operations. 

During the nine months ended September 30, 2011, the Company issued 480,000 shares of restricted common stock valued at $151,407 for employee services, of which $145,007 was charged to general and administrative services, and $6,400 was for research and development related services and activities. Additionally, the Company amortized (based on vesting) $245,828 of common stock options, previously issued. Unless otherwise described in these footnotes, reference to “restricted” common stock means that the shares are restricted from resale pursuant to Rule 144 of the Securities Act of 1933, as amended.

During the nine months ended September 30, 2011, the Company sold 7,721,536 shares of restricted common stock for $977,297, and 44,547 shares of Series A Preferred stock for $192,735. Also, the Company issued 1,683,750 common stock warrants valued at $390,488 pursuant to the common stock sales.

The Company issued 999,122 shares of restricted common stock, valued at $225,000, in the nine months ended September 30, 2011, as satisfaction of a contract penalty agreement. Also, 213,975 shares of common stock, valued at $39,804, were issued in satisfaction for notes and accrued interest of $12,840.

The Company also issued 25,000 shares of common stock in settlement of a claim pursuant to the reverse merger disclosed in Note 1. In the third quarter of 2011, 20,000 common stock options were converted via a cashless exercise (specifically, by forfeiting 6,111 shares) into 13,889 shares of common stock.

As noted above, on May 12, 2011, the holders of a majority of the shares of Series A Preferred convert all of their shares into approximately 95.1 million shares of common stock.

During the year ended December 31, 2010, the Company issued 2,500 shares of Series A Preferred shares, 1,681,500 shares of restricted common stock, and options convertible into 2,040,000 shares of common stock, cumulatively valued at $207,444 for employee services, of which $177,911 was charged to general and administrative services, and $29,533 was for research and development related services and activities. Additionally, the Company issued 2,000 shares of Series A Preferred shares and 4,077,280 shares of restricted common stock valued at $608,687 for outside services.

During the year ended December 31, 2010, the Company converted $171,550 of debt into 2,500,000 shares of common stock and $99,765 of debt into 19,953 shares of Series A Preferred stock.

During the year ended December 31, 2010, the Company sold 2,062,222 shares of restricted common stock for $163,578, and 141,000 shares of Series A Preferred stock for $720,586.

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Note 7 - Related Party Transactions

9 Months Ended

Sep. 30, 2011

Related Party Transactions Disclosure [Text Block]

NOTE 7 – RELATED PARTY TRANSACTIONS

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 lease, which is part of the Company’s Operations Agreement with Schoell Marine, provides for the Company to pay rent equal to the monthly mortgage payment on the building plus property taxes, rent, utilities and sales tax due on rent. Occupancy costs for the nine months ended September 30, 2011 and 2010 were $47,223 and $47,223, respectively. The Operations Agreement runs year-to-year, however, the lease portion of this agreement is month-to-month, but can only be cancelled on 180 days notice by Schoell Marine.

B. DEFERRED COMPENSATION

Included in related party payables as of September 30, 2011 and December 31, 2010 is $1,203,864 and $991,269, respectively, of accrued and deferred officers’ salaries compensation which can be paid if funds are available. These are non-interest bearing and due on demand.

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Note 8 - Preferred Stock

9 Months Ended

Sep. 30, 2011

Preferred Stock [Text Block]

NOTE 8 – PREFERRED STOCK

On May 12, 2011, the holders of a majority of the shares of Series A Convertible Preferred (the “Series A Preferred”) stock executed a resolution to convert all of the Series A Preferred shares into approximately 95.1 million shares of common stock, and to retire all Series A Preferred shares, effective as of May 15, 2011.

The Series B Preferred Stock is majority voting stock and is held by senior management. 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 outstanding shares of Series B Preferred stock are convertible on a one-for-one basis with the common stock in the instance the Company is merged or sold.

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Note 10 - Stock Options and Warrants

9 Months Ended

Sep. 30, 2011

Stock Options And Warrants [Text Block]

NOTE 10 – STOCK OPTIONS AND WARRANTS

A. COMMON STOCK OPTIONS

For the nine months ended September 30, 2011, in recognition of and compensation for services rendered by employees, the Company issued options, valued at $485,579, (valued pursuant to the Black Scholes valuation model) that are exercisable into 2,180,000 shares of common stock to employees, with a per share range of exercise prices of $.22-$.33 (average per share of $.29) and a maturity life of 5-10 years (an average maturity life of 5.5 years). These options have a 1-year vesting requirement and the Company estimates that these options will be exercised within 3 years of issue. For the nine months ended September 30, 2011, the income statement charge for the amortization of stock options was $245,828 and the unamortized balance was $418,165. The options may also be exercised by the optionee by having the Company withhold shares that would otherwise be delivered pursuant to the option, based upon the market value of those shares, and equal to the total exercise price of the remaining exercised options.

For the year ended December 31, 2010, in recognition of and compensation for services rendered by employees, the Company issued 2,040,000 options exercisable into 2,040,000 shares of common stock to employees and staff, with an average exercise price per share of $.122, an average maturity life of 5.8 years and a one year vesting requirement. The Company estimated that the options would be exercised within 3 years. The income statement charge for the year ended December 31, 2010 was $64,988 and the unamortized balance was $178,414.

The Company’s 2010 Stock Option Plan (the "Plan"), effective July 1, 2010, provides officers, directors and employees of the Company with the right to receive incentive stock options (“ISOs”), within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, and options not constituting ISOs. Options to acquire a total of 5 million shares of common stock are authorized under the Plan. The Plan is administered by a committee consisting of the entire Board of Directors, which has authority to issue any number of options to grantees under an Option Agreement, with a termination date no greater than 10 years from the grant date. The committee also has the authority to allow a form of payment other than cash, such as stock payment by optionee or the withholding of shares otherwise deliverable pursuant to an option.

A summary of the common stock options for the period from December 31, 2009 through September 30, 2011 follows:

	Number Outstanding			Weighted Average Exercise Price			Weighted Avg. Remaining Contract Life (Years)
Common Stock Options
Balance, December 31, 2009		1,000,000		$	0.325			6.5
Options issued		2,040,000			0.122			5.4
Options exercised		-			-			-
Options cancelled		-			-			-
Balance, December 31, 2010		3,040,000			0.188			5.0
Options issued		2,180,000			0.297			5.7
Options exercised		(20,000	)		(0.100	)		-
Options cancelled		-			-			-
Balance, September 30, 2011		5,200,000		$	0.230			4.9

The vested and exercisable options at period end follows:

	Exercisable/Vested Options Outstanding		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)
Common Stock Options
Balance, December 31, 2009		1,000,000	$	0.325		7.5
Balance, December 31, 2010		1,000,000		0.325		6.5
Balance, September 30, 2011		1,900,000		0.229		4.9
September  30, 2011 Estimated
Additional Vesting		1,120,000		0.120

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

	Nine Months Ended			Year Ended
	September 30, 2011			December 31, 2010
Risk Free Interest Rate		.81%-1.20	%		.6% - 1.18	%
Expected Volatility		132%-231	%		458% - 628	%
Expected term in years		5-10			2-3
Expected dividend yield		0	%		0	%
Average value per options and warrants	$	.22.-$.31		$	.09 - $.14

Expected volatility is based on historical volatility of the Company and other comparable pink sheet traded companies (used when the traded stock price of the company was not representative). Short Term U.S. Treasury rates were utilized. The expected term of the options and warrants was calculated using the alternative simplified method newly codified as ASC 718, formerly Staff Accounting Bulletin (“SAB”) 107, 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 trenches.

B. COMMON STOCK WARRANTS

Outstanding-

In 2011, the Company issued 1,283,750 warrants at a $.27 exercise price (valued at $303,554), with a three-year term, pursuant to the sale of Common stock to unaffiliated third parties.  The Company can force conversion of these warrants if its common stock trades at a price greater than $.54 per share for 10 consecutive trading days, and the average trading volume is greater than 200,000 shares per day. The warrant holders may exercise the warrants without paying the cash price, and instead having the Company withhold shares that would otherwise be delivered pursuant to the warrant, based upon the market value of those shares, and equal to the total conversion price of the remaining converted warrants. This “cashless” option is only available after six months from the date of warrant issuance, and only if the Company has not registered for resale under the Securities Act of 1933, the underlying shares of common stock. The warrants are also subject to certain anti-dilution protections, whereby if the Company issues common stock at a price less than $.20 a share (in a non “exempted” issuance), then the exercise price of the warrants shall reset to that lower value. “Exempted” issuances include shares issued subject to Board-approved option plans, any convertible securities outstanding as of the date of the warrant issuance, and up to 5 million shares of common stock issued to service providers of the Company.

In the third quarter of 2011, the Company issued 400,000 warrants, with a three-year term, at a $.32 per share exercise price (valued at $83,129) pursuant to the sale of additional common shares. The Company can force conversion of these warrants if its common stock trades at a price greater than $.64 per share for 10 consecutive trading days, and the average trading volume is greater than 200,000 shares per day. The warrant holders may exercise the warrants without paying the cash price, and instead having the Company withhold shares that would otherwise be delivered pursuant to the warrant, based upon the market value of those shares, and equal to the total conversion price of the remaining converted warrants. This “cashless” option is only available after six months from the date of warrant issuance, and only if the Company has not registered for resale under the Securities Act of 1933, the underlying shares of common stock. The warrants are also subject to certain anti-dilution protections, whereby if the Company issues common stock at a price less than $.24 a share (in a non “exempted” issuance), then the exercise price of the warrants shall reset to that lower value. “Exempted” issuances include shares issued subject to Board-approved option plans, any convertible securities outstanding as of the date of the warrant issuance, and shares of common stock issued to service providers of the Company.

In September 2011, the Company issued a warrant for 750,000 common shares at a $.30 exercise price (valued at $101,591), with a 12 month term, for services to be rendered over the following 12 months.

In August 2010, the Company issued a warrant for 770,500 common share at a $.15 exercise price (valued at $84,589), with a 2 year term, pursuant to the sale of Series A Preferred stock to an unaffiliated third party.

A summary of outstanding vested warrant activity for the nine months ended September 30, 2011 follows:

	Number Outstanding		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)
Common Stock Warrants
Balance, December 31, 2010		770,500	$	0 .150		1.67
Warrants issued		2,433,750		0.295		2.40
Warrants exercised		-		-		-
Warrants cancelled		-		-		-
Balance, September 30, 2011		3,204,250	$	0 .254		1.77

Commitments-

As part of the Company’s license agreement with Phoenix Power Group (“Phoenix”), in 2009 the Company agreed to issue to Phoenix common stock purchase warrants at a price of $.19 per share, equal to two (2%) percent of the total fully-diluted outstanding common stock of the Company at the time of exercise. The number of warrants to be issued is contingent upon the number of shares outstanding at the date the warrants are issued. As of September 30, 2011, 2% of the outstanding, convertible and dilutive common stock of the Company was approximately 4.6 million shares. The warrants vest upon the delivery of the first two prototype Cyclone Engines to Phoenix and payment by Phoenix of the full $400,000 license fee. These warrants terminate 24 months thereafter and are non-transferable. As of September 30, 2011, the warrants are valued at approximately $1,061,836 (by the Black Scholes valuation method) and are to be amortized proportionally over the life of the contract as an expense of the contact in conjunction with revenue and royalty recognition from this contract. Delivery of the engines needed to trigger vesting is anticipated to commence in the first quarter of 2012.

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Note 15 - Penalty for Delayed Delivery of Product

9 Months Ended

Sep. 30, 2011

Penalty For Delayed Delivery OfProduct [Text Block]

NOTE 15 – PENALTY FOR DELAYED DELIVERY OF PRODUCT

In 2009, the Company signed a contract for the delivery of two Cyclone engines that had a performance penalty of $25,000 per month for late delivery, paid with restricted Company common stock (pursuant to Rule 144) based on the closing price for the Company’s stock on the OTC Markets on the last day of the applicable month. Other terms of the contract reflected development fees paid by the customer, and royalties to be paid to the Company based on units subsequently manufactured and sold by the customer.  The original delivery date was revised to January 1, 2011, and now the updated and enhanced Cyclone engines are anticipated to be shipped in the first quarter of 2012. For the nine months ended September 30, 2011, the Company charged $350,000 to cost of goods sold for this penalty. This is reflective of 991,122 shares of restricted common stock issued in the first nine months, valued at $225,000, and $125,000 of accrued expenses for subsequent delayed engine delivery.

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Consolidated Statements of Stockholders' Equity (Deficit) (Unaudited) (USD $)	Preferred Class A [Member] USD ($)	Preferred Class B [Member]	Common Stock [Member] USD ($)	Additional Paid-in Capital [Member] USD ($)	Treasury Stock [Member] USD ($)	Prepaid Expenses From Equity Contribution [Member] USD ($)	Preferred Stock Subscription Receivable [Member] USD ($)	Retained Earnings [Member] USD ($)	Parent [Member] USD ($)	Noncontrolling Interest [Member] USD ($)	Total USD ($)
Balance, December 31, 2009 at Dec. 31, 2009	$ 54		$ 10,369	$ 7,033,973			$ (18,000)	$ (20,003,576)	$ (12,977,180)		$ (12,977,180)
Balance, December 31, 2009 (in Shares) at Dec. 31, 2009	540,000	1,000	103,699,133
Issuance of restricted shares for outside services			409	608,278					608,687		608,687
Issuance of restricted shares for outside services (in Shares)	2,000		4,077,280
Issuance of restricted shares and options for employee services	1		168	207,275					207,444		207,444
Issuance of restricted shares and options for employee services (in Shares)	2,500		1,681,500
Sale of common stock			206	163,372					163,578		163,578
Sale of common stock (in Shares)			2,062,222
Sale of preferred stock	14			635,997					636,011		636,011
Sale of preferred stock (in Shares)	141,000
Warrants issued pursuant to				84,589					84,589		84,589
Conversion of debt to common stock			250	171,300					171,550		171,550
Conversion of debt to common stock (in Shares)			2,500,000
Conversion of debt to preferred stock	2			99,763					99,765		99,765
Conversion of debt to preferred stock (in Shares)	19,953
Conversion of debt to equity in subsidiary										30,000	30,000
Sale of equity in subsidiary for cash										50,000	50,000
Sale of equity in subsidiary for services						(60,000)			(60,000)	60,000
Amortization of prepaid services for subsidiary equity						32,500			32,500		32,500
Allocation of loss of subsidiary to non controlling interest								5,125	5,125	(5,125)
Net loss								(2,024,464)	(2,024,464)		(2,024,464)
Balance at Dec. 31, 2010	71		11,402	9,004,547		(27,500)	(18,000)	(22,022,915)	(13,052,395)	134,875	(12,917,520)
Balance (in Shares) at Dec. 31, 2010	705,453	1,000	114,020,135
Issuance of restricted shares for outside services			287	823,586					823,873		823,873
Issuance of restricted shares for outside services (in Shares)			2,869,778
Issuance of restricted shares and options for employee services			48	397,187					397,235		397,235
Issuance of restricted shares and options for employee services (in Shares)			480,000
Sale of common stock			772	976,525					977,297		977,297
Sale of common stock (in Shares)			7,721,536
Sale of preferred stock	4			192,731					192,735		192,735
Sale of preferred stock (in Shares)	44,547
Issuance of restricted shares for contract penalty re-delayed shippment			100	224,900					225,000		225,000
Issuance of restricted shares for contract penalty re-delayed shippment (in Shares)			999,122
Purchase of Series A Preferred Treasury Stock					40,000				40,000		40,000
Sale of Series A Preferred Treasury Stock					(40,000)				(40,000)		(40,000)
Warrants issued pursuant to				390,488					390,488		390,488
Conversion of debt to common stock			21	39,783					39,804		39,804
Conversion of debt to common stock (in Shares)			213,975
Issuance of common stock per settlement agreement arising from reverse merger			3	(3)
Issuance of common stock per settlement agreement arising from reverse merger (in Shares)			25,000
Conversion of stock options-cashless exercise			1	(1)
Conversion of stock options-cashless exercise (in Shares)			13,889
Amortization of prepaid services for subsidiary equity						27,500			27,500		27,500
Allocation of loss of subsidiary to non controlling interest								4,813	4,813	(4,813)	(4,813)
Issuance of restricted common shares for future services			20	14,980		(15,000)
Issuance of restricted common shares for future services (in Shares)			200,000
Conversion of Series A Preferred Stock to Common stock	(75)		9,510	(9,435)
Conversion of Series A Preferred Stock to Common stock (in Shares)	(750,000)		95,100,000
Application of derivative liability from conversion of Series A Preferred Stock				30,394,710					30,394,710		30,394,710
Net loss								(23,178,247)	(23,178,247)		(23,178,247)
Balance at Sep. 30, 2011			$ 22,164	$ 42,449,998		$ (15,000)	$ (18,000)	$ (45,196,349)	$ (2,757,187)	$ 130,062	$ (2,627,125)
Balance (in Shares) at Sep. 30, 2011		1,000	221,643,435

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Note 4 - Property and Equipment

9 Months Ended

Sep. 30, 2011

Property, Plant and Equipment Disclosure [Text Block]

NOTE 4 – PROPERTY AND EQUIPMENT

Property and equipment at September 30, 2011 and December 31, 2010 consists of the following:

	September 30, 2011		December 31, 2010
Display Equipment for Trade Shows	$	9,648	$	9,648
Leasehold Improvements and Furniture and Fixtures		71,273		46,332
Equipment and Computers		95,193		83,448
Total		176,114		139,428
Less: Accumulated Depreciation		71,220		55,644
Net Property and Equipment	$	104,894	$	83,784

Depreciation expense for the nine months ended September 30, 2011 and 2010 was $15,576 and $19,784, respectively.

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Note 14 - Consolidated Subsidiary

9 Months Ended

Sep. 30, 2011

Equity Method Investments Disclosure [Text Block]

NOTE 14 – CONSOLIDATED SUBSIDIARY

Commencing in the second quarter of 2010, the Company established a  subsidiary (Cyclone-WHE LLC) to license and market waste heat recovery systems for all engine models. A 5% equity participation was sold 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 are being amortized over a 12 month period. This investor also received and exercised a 2.5% equity purchase warrant in the Subsidiary for $50,000, which was exercised in 2010.

Effective July 1, 2010, a 5% equity contribution was provided to the new Managing Director of the Subsidiary in consideration of $30,000 of future professional services (which are being amortized over a 12 month period). Additionally, options were given 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 these options, since the subsidiary had no significant operations or assets.

The total losses of the subsidiary for the nine months ended September 30, 2011 was $27,500. Losses of the subsidiary are currently fully borne by the parent Company, and no allocations were made to the non controlling interest in the consolidated subsidiary.  There is no guarantee of future profits or positive cash flow of the subsidiary for loss recovery and the related imputed receivable would be impaired.  As of September 30, 2011, the cumulative unallocated losses to the non-controlling interests of the subsidiary of $9,938 are to be recovered by the parent from future subsidiary profits when they materialize.