10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(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, 2012

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 15, 2012, there were 237,628,080 shares of the registrant’s common stock issued and outstanding.

CYCLONE POWER TECHNOLOGIES, INC.

QUARTERLY REPORT ON FORM 10-Q

INDEX

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 2012 (unaudited) and December 31, 2011 (audited)	2
Consolidated Statements of Operations for the nine months and three months ended September 30, 2012 and 2011 (unaudited)	3
Consolidated Statements of Changes in Stockholders’ Deficit for nine months ended September 30, 2012 (unaudited) and the year ended December 31, 2011.	4
Consolidated Statements of Cash Flows for the nine months ended September 30, 2012 and 2011 (unaudited)	5
Notes to Consolidated Financial Statements(unaudited)	6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3. Quantitative and Qualitative Disclosures about Market Risk	30
Item 4. Controls and Procedures	30
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	30
Item 1A. Risk Factors	30
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 3. Defaults upon Senior Securities	31
Item 4. Removed and Reserved	31
Item 5. Other Information	31
Item 6. Exhibits	31

1

CYCLONE POWER TECHNOLOGIES, INC.

CONSOLIDATED BALANCE SHEETS

	September 30, 2012			December 31, 2011
	(Unaudited)			(Audited)
ASSETS
CURRENT ASSETS
Cash	$	98,408		$	66,486
Inventory		863,442			475,600
Other current assets		60,121			4,846
Total current assets		1,021,971			546,932
PROPERTY AND EQUIPMENT
Furniture, fixtures, and equipment		275,359			184,784
Less: Accumulated depreciation		(92,719	)		(76,541	)
Net property and equipment		182,640			108,243
OTHER ASSETS
Patents, trademarks and copyrights		563,638			557,847
Less: Accumulated amortization		(147,862	)		(117,846	)
Net patents, trademarks and copyrights		415,776			440,001
Other assets		2,156			2,422
Total other assets		417,932			442,423
Total Assets	$	1,622,543		$	1,097,598
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued expenses	$	467,710		$	263,131
Factored receivables		-			43,169
Accounts payable and accrued expenses-related parties		1,497,590			1,305,772
Notes and other loans payable		530,373			30,000
Notes and other loans payable-related parties		740,880			678,271
Capitalized lease obligations-current portion		772			898
Deferred revenue and license deposits		619,786			860,811
Total current liabilities		3,857,111			3,182,052
NON CURRENT LIABILITIES
Capitalized lease obligations-net of current portion		22,937			2,155
Derivative liabilities-warrant		-			494,626
Total non-current liabilities		22,937			496,781
Total liabilities		3,880,048			3,678,833
STOCKHOLDERS' DEFICIT
Series B preferred stock, $.0001 par value, 1,000 shares authorized, 1,000 shares issued and outstanding at September 30, 2012 and December 31, 2011, respectively.		-			-
Common stock, $.0001 par value, 300,000,000 shares authorized, 237,559,317 and 223,635,129 shares issued and outstanding at September 30, 2012 and December 31, 2011, respectively.		23,755			22,364
Additional paid-in capital		45,852,183			43,001,168
Prepaid expenses with common stock		(127,476	)		-
Stock subscription receivable		(12,000	)		(12,000	)
Accumulated deficit		(48,124,029	)		(45,722,829	)
Total stockholders' deficit-Cyclone Power Technologies Inc.		(2,387,567	)		(2,711,297	)
Non controlling interest in consolidated subsidiary-Cyclone WHE LLC		130,062			130,062
Total Stockholders' Deficit		(2,257,505	)		(2,581,235	)
Total Liabilities and Stockholders' Deficit	$	1,622,543		$	1,097,598

The accompanying notes are an integral part of these consolidated financial statements

2

CYCLONE POWER TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Nine Months Ended September 30,						Three Months Ended September 30,
	2012			2011			2012			2011
REVENUES	$	882,490		$	250,000		$	502,045		$	250,000
COST OF GOODS SOLD		555,346			399,801			333,438			148,934
Gross profit (loss)		327,144			(149,801	)		168,607			101,066
OPERATING EXPENSES
Advertising and promotion		71,585			49,565			32,783			17,271
General and administrative		1,782,334			2,002,814			475,810			814,070
Research and development		772,468			544,544			273,645			46,812
Total operating expenses		2,626,387			2,596,923			782,238			878,153
Operating loss		(2,299,243	)		(2,746,724	)		(613,631	)		(777,087	)
OTHER INCOME (EXPENSE)
Other (expense)		(25,600	)		(26,964	)		-			-
Derivative income (expense) - Warrants		114,626			(602,299	)		-			48,459
Derivative (expense) - Series A Preferred Stock		-			(19,771,086	)		-			-
Interest (expense)		(190,983	)		(31,174	)		(127,308	)		(10,273	)
Total other income (expense)		(101,957	)		(20,431,523	)		(127,308	)		38,186
Loss before income taxes		(2,401,200	)		(23,178,247	)		(740,939	)		(738,901	)
Income taxes		-			-			-			-
Net loss	$	(2,401,200	)	$	(23,178,247	)	$	(740,939	)	$	(738,901	)
Net loss per common share, basic	$	(0.01	)	$	(0.16	)	$	(0.00	)	$	(0.00	)
Weighted average number of common shares outstanding		228,635,399			143,237,904			235,532,775			218,968,632

The accompanying notes are an integral part of these consolidated financial statements

3

CYCLONE POWER TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 (UNAUDITED) AND YEAR ENDED DECEMBER 31, 2011

	Preferred Stock A						Preferred Stock B				Common Stock				Additional Paid In			Treasury			Prepaid Expenses From Equity			Prepaid Expenses via Common Stock and			Stock Subscription			Accumulated			Total Stockholders' (Deficit) Cyclone Power			Non Controlling Interest In Consol.			Total Stockholders'
	Shares			Value			Shares		Value		Shares		Value		Capital			Stock			Contribution			Warrants			Receivable			(Deficit)			Tech. Inc.			Subsidiary			(Deficit)
Balance, December 31, 2010		705,453		$	71			1,000	$	-		114,020,135	$	11,402	$	9,004,547		$	-		$	(27,500	)	$	-		$	(18,000	)	$	(22,022,915	)	$	(13,052,395	)	$	134,875		$	(12,917,520	)
Issuance of restricted shares and warrants for outside services		-			-			-		-		3,754,036		376		1,029,043			-			-			-			-			-			1,029,419			-			1,029,419
Issuance of restricted shares and options for employee services		-			-			-		-		687,024		69		562,997			-			-			-			-			-			563,066			-			563,066
Sale of common stock		-			-			-		-		8,511,764		851		1,096,439			-			-			-			-			-			1,097,290			-			1,097,290
Warrants issued pursuant to common stock sale		-			-			-		-		-		-		390,488			-			-			-			-			-			390,488			-			390,488
Sale of preferred stock		44,547			4			-		-		-		-		192,731			-			-			-			-			-			192,735			-			192,735
Issuance of restricted shares for contract penalty re-delayed shippment		-			-			-		-		1,309,306		131		299,869			-			-			-			-			-			300,000			-			300,000
Purchase of treasury stock		-			-			-		-		-		-		-			40,000			-			-			-			-			40,000			-			40,000
Sale of treasury stock		-			-			-		-		-		-		-			(40,000	)		-			-			-			-			(40,000	)		-			(40,000	)
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	)		-
Conversion of preferred stock to common stock		(750,000	)		(75	)		-		-		95,100,000		9,510		(9,435	)		-			-			-			-			-			-			-			-
Application of derivative liability from conversion of preferred stock		-			-			-		-		-		-		30,394,710			-			-			-			-			-			30,394,710			-			30,394,710
Conversion of debt and liability to common stock		-			-			-		-		213,975		21		39,783			-			-			-			-			-			39,804			-			39,804
Issuance of common stock per settlement agreement arising from reverse merger		-			-			-		-		25,000		3		(3	)		-			-			-			-			-			-			-			-
Collection of peferred stock subscription receivable		-			-			-		-		-		-		-			-			-			-			6,000			-			6,000			-			6,000
Conversion of stock options-cashless exercise		-			-			-		-		13,889		1		(1	)		-			-			-			-			-			-			-			-
Net loss year ended December 31, 2011		-			-			-		-		-		-		-			-			-			-			-			(23,704,727	)		(23,704,727	)		-			(23,704,727	)
Balance, December 31, 2011		-			-			1,000		-		223,635,129		22,364		43,001,168			-			-			-			(12,000	)		(45,722,829	)		(2,711,297	)		130,062			(2,581,235	)
Issuance of restricted shares and warrants for outside services		-			-			-		-		3,434,356		343		651,896			-			-			(40,000	)		-			-			612,239			-			612,239
Issuance of restricted shares and options for employee services		-			-			-		-		130,000		13		390,615			-			-			-			-			-			390,628			-			390,628
Sale of common stock		-			-			-		-		5,274,562		527		565,033			-			-			-			-			-			565,560			-			565,560
Warrants issued pursuant to common stock sale		-			-			-		-		-		-		173,369			-			-			-			-			-			173,369			-			173,369
Issuance of restricted shares for contract penalty		-			-			-		-		545,498		55		99,945			-			-			-			-			-			100,000			-			100,000
Commission fee for debt paid with common stock		-			-			-		-		258,609		26		40,441			-			-			-			-			-			40,467			-			40,467
Prepayment of debt interest in common stock and warrants		-			-			-		-		481,163		48		166,995			-			-			(87,476	)		-			-			79,567			-			79,567
Conversion of common stock warrants-cashless exercise		-			-			-		-		2,000,000		200		379,800			-			-			-			-			-			380,000			-			380,000
Conversion of common stock options-cashless exercise		-			-			-		-		15,000		1		(1	)		-			-			-			-			-			-			-			-
Purchase of net business assets of Advent Power		-			-			-		-		1,500,000		150		329,850			-			-			-			-			-			330,000			-			330,000
Common stock issued pursuant to consulting agreement		-			-			-		-		125,000		12		27,488			-			-			-			-			-			27,500			-			27,500
Common stock issued pursuant to debt refinancing		-			-			-		-		160,000		16		25,584			-			-			-			-			-			25,600			-			25,600
Net loss nine months ended September 30, 2012		-			-			-		-		-		-		-			-			-			-			-			(2,401,200	)		(2,401,200	)		-			(2,401,200	)
Balance, September 30, 2012		-		$	-			1,000	$	-		237,559,317	$	23,755	$	45,852,183		$	-		$	-		$	(127,476	)	$	(12,000	)	$	(48,124,029	)	$	(2,387,567	)	$	130,062		$	(2,257,505	)

The accompanying notes are an integral part of these consolidated financial statements

4

CYCLONE POWER TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Nine Months Ended September 30,
	2012			2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(2,401,200	)	$	(23,178,247	)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization		46,194			41,563
Loss allocated to non controlling intereest in subsidiary		-			(4,813	)
Issuance of restricted common stock, options and warrants for services		1,002,867			1,221,108
Issuance of restricted common stock issued for debt refinancing		25,600			-
Issuance of restricted common stock for contract penalty		50,000			225,000
(Income) loss from derivative liability-Warrants		(114,626	)		602,299
Loss from derivative liability-Series A Preferred Stock		-			19,771,086
Amortization of prepaid expenses purchased with equity		-			27,500
Amortization of prepaid expenses via common stock		120,034			-
Changes in operating assets and liabilities:
Decrease in accounts receivable		178,311			4,200
(Increase) decrease in inventory		48,836			(318,450	)
Increase in other assets		(55,009	)		(9,493	)
Decrease in deferred revenue and license deposits		(419,336	)		(182,500	)
Increase in accounts payable and accrued expenses		178,275			201,961
Decrease in factored receivables		(43,169	)		-
Increase in accounts payable and accrued expenses-related parties		191,818			212,595
Net cash used by operating activities		(1,191,405	)		(1,386,191	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures incurred for patents, trademarks and copyrights		(5,791	)		(79,343	)
Expenditures for fixed assets		(69,265	)		(36,686	)
Net cash used by investing activities		(75,056	)		(116,029	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of Series A Preferred treasury stock		-			40,000
Payment of capitalized leases		(654	)		(6,091	)
Proceeds from debt		925,000			-
Repayment of debt		(427,500	)		-
Proceeds from sale of common stock		738,929			1,367,785
Proceeds from sale of preferred stock		-			192,735
Increase in related party notes and loans payable		62,608			(27,218	)
Net cash provided by financing activities		1,298,383			1,567,211
Net increase in cash		31,922			64,991
Cash, beginning of period		66,486			6,557
Cash, end of period	$	98,408		$	71,548
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Payment of interest in cash	$	29,358		$	808
NON CASH INVESTING AND FINANCING ACTIVITIES:
Purchase of 8,000 shares of Series A Preferred treasury stock via note payable	$	-		$	40,000
Issuance of 739,772 shares of Common stock for prepaid interest and debt commission	$	120,034		$	-
Issuance of 2,000,000 shares of Common stock for cashless warrant exercise	$	380,000		$	-
Issuance of 160,000 shares of Common stock pursuant to debt renegotiation.	$	25,600
Issuance of 1,500,000 shares of Common stock pursuant to purchase of Advent Power Systems Inc.	$	330,000		$	-
Issuance of 125,000 shares of Common stock for consulting agreement	$	27,500		$	-
Conversion of debt and liabilities by issuing 213,975 shares of common stock	$	-		$	39,804

The accompanying notes are an integral part of these consolidated financial statements

5

CYCLONE POWER TECHNOLOGIES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1 – ORGANIZATIONAL AND SIGNIFICANT ACCOUNTING POLICIES

A.      ORGANIZATION AND OPERATIONS

Cyclone Power Technologies, Inc. (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 par 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 “WHE Subsidiary”) to market the waste heat recovery systems for all Cyclone engine models. As of September 30, 2012, the Company had an 82.5% controlling interest in the WHE Subsidiary. In March 2012, the company established Cyclone Performance LLC (“TeamSteam”) f/k/a Cyclone-TeamSteam USA, LLC, as a wholly owned subsidiary. The purpose of TeamSteam is to build, test and run a vehicle utilizing the Company’s engine.

The Company is primarily a research and development engineering company whose main purpose is to develop, commercialize, market and license its Cyclone engine technology.

B.      PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION

The unaudited consolidated financial statements include the accounts of the Company, its 82.5% owned WHE Subsidiary and its 100% owned subsidiary Cyclone Performance LLC.  All material inter-company transactions and balances have been eliminated in the consolidated financial statements. 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 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 (“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.

6

C.      SUBSEQUENT EVENTS

The Company follows Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 855, “Subsequent Events”.  ASC 855 offers assistance and establishes 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. Management evaluated events occurring between the Balance Sheet date of September 30, 2012, and when the financial statements were available to be issued. Subsequent events that require disclosure are provided in Note 20.

D.      CASH

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

E.      ACCOUNTS RECEIVABLE

Accounts receivable consist of amounts due pursuant to engine delivery and research and development prototype charges. At September 30, 2012 and December 31, 2011, there were no uncollected progress billings and no allowance for doubtful accounts was deemed necessary.

F.      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, 2012, total anti-dilutive shares amounted to approximately 18.7 million shares.

G.      INCOME TAXES

Income taxes are accounted for under the asset and liability method as stipulated by ASC 740, “Income Taxes” (“ASC 740”). 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.

In 2009, the Company adopted certain provisions under 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.

7

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, 2012, 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 2009 through 2011.

H.      REVENUE RECOGNITION

The Company’s revenue recognition policies are in compliance with ASC 605, “Revenue Recognition – Multiple Element Arrangements”, and Staff Accounting Bulletin (“SAB”) 104, Revenue Recognition. 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. The Company has determined that the milestone method of revenue recognition (ASC 605-28) is appropriate for one of the Company’s contracts as the contract enumerates specific approved work effort milestones required for remuneration. The Company achieved the first milestone in July 2012 and recognized revenue and related costs of goods sold of approximately $502,000 and $333,000, respectively, as included in the accompanying consolidated statements of operations.  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 periodically when earned, as reported in sales statements from customers. The Company does not have any royalty revenue to date.

I.       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.

J.      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.

K.      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.

8

The summary of fair values and changing values of financial instruments as of January 1, 2012 (beginning of period) and September 30, 2012 (end of period) is as follows:

Instrument	Beginning of Period		Change			End of Period		Level		Valuation Methodology
Derivative liabilities	$	494,626	$	(494,626	)	$	-		3	Black Scholes

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

L.      RESEARCH AND DEVELOPMENT

Research and development activities for product development are expensed as incurred.  Costs for the nine months ended September 30, 2012 and 2011 were $772,468 and $544,544, respectively.

M.     STOCK BASED COMPENSATION

The Company applies the fair value method of ASC 718, “Share Based Payment”, 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.

N.      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”.

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O.      ORIGINAL ISSUE DEBT DISCOUNT

The original issue discount (OID) related to notes payable is being amortized by the effective interest method over the repayment period of the notes.  The unamortized OID is represented as a reduction of the amount of the notes payable.

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:

Display equipment for trade shows (years)			3
Leasehold improvements and furniture and fixtures (years)	10	-	15
Shop equipment (years)			7
Computers (years)			3

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.      RECENT ACCOUNTING PRONOUNCEMENTS

In July 2012, the FASB issued an Accounting Standard Update (“ASU”) 2012-02 “Intangibles-Goodwill and Other” which allows for the initial use of qualitative factors, prior to any required quantitative test in determining impairment. This standard was effective as of September 15, 2012 and did not materially impact our financial statement disclosures.

In December 2011, the FASB issued an Accounting Standard Update (“ASU”) 2011-11 that requires disclosures about offsetting and related arrangements for recognized financial instruments and derivative instruments. The standard is effective for use as of January 1, 2013 and will impact our financial statement disclosures.

T.      CONCENTRATION OF RISK

The Company does not have any off-balance-sheet concentrations of credit risk.  The Company expects cash and accounts receivable to be the two assets most likely to subject the Company to concentrations of credit risk. The Company’s policy is to maintain its cash with high credit quality financial institutions to limit its risk of loss exposure. The Company plans to minimize its accounts receivable credit risk by transacting contractual arrangements with customers that have been subjected to credit evaluations and structuring the contracts in a manner that lessens inherent credit risks.

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As of September 30, 2012, the Company maintained its cash in two quality financial institutions.  The Company has not experienced any losses in its bank accounts through September 30, 2012.   

The Company purchases raw material and components from multiple sources, none of which may be considered a principal or material supplier.  If necessary, the Company could replace these suppliers with minimal effect on its business operations. 

NOTE 2 - GOING CONCERN

As shown in the accompanying financial statements, the Company incurred substantial operating losses of $2.3 million, for the nine months ended September 30, 2012 and $3.8 million for the year ended December 31, 2011. The cumulative deficit since inception is approximately $48.1 million, which is comprised of $17.3 million attributable to operating losses and other expenses, and includes $30.8 million in non-cash derivative liability accounting.  The Company has a working capital deficit at September 30, 2012 of approximately $2.8  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 and debt, advance contract payments (deferred revenue) and advances from and deferred payments to related parties.

NOTE 3 – INVENTORY

Inventory consists of:

	September 30, 2012		December 31, 2011
Engine material and parts	$	618,031	$	327,946
Labor		213,399		128,395
Applied overhead		32,012		19,259
Total Inventory	$	863,442	$	475,600

NOTE 4 – PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

	September 30, 2012			December 31, 2011
Display equipment for trade shows	$	9,648		$	9,648
Leasehold improvements and furniture and fixtures		86,422			74,083
Equipment and computers		179,289			101,053
Total		275,359			184,784
Less: Accumulated Depreciation		(92,719	)		(76,541	)
Net Property and Equipment	$	182,640		$	108,243

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Depreciation expense for the nine months ended September 30, 2012 and 2011 was $16,178 and $15,576, respectively.

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 20 other countries, and patents pending in two 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, 2012 and December 31, 2011 was $415,776 and $440,001, respectively. For the nine months ended September 30, 2012 and for the year ended December 31, 2011, the Company capitalized $5,791 and $78,902, 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, 2012 and 2011 were $30,016 and $25,987, respectively.

NOTE 6 – NOTES AND OTHER LOANS PAYABLE

A summary of non-related party notes and other loans payable is as follows:

	September 30, 2012		December 31, 2011
Convertible Notes payable, OID 9% interest ($436,000 payable at maturity) maturing in August- September 2013, net of warrants, collateralized by the Company’s receivables from the US Army contract (A)	$	331,706	$	-
Pursuant to 9% OID Notes, 1,162,667 warrants (valued at $79,577) issued net of $8,410 amortization		71,167		-
Demand note, uncollateralized, maturing April 2013 18% interest, (12% prepaid with stock and 6% payable in cash at maturity)		40,000		-
6-20% uncollateralized demand notes maturing Dec. 2012-May 2013		87,500		30,000
Total current non related party notes (accrued interest is included in accrued liabilities)	$	530,373	$	30,000

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(A) Convertible at $.15 per share, subject to price protection provisions. The Company is obligated to prepay these Notes with a portion of its receipts from the U.S. Army contract, not to exceed 50% of such receipts, if the Notes are not previously converted.

A summary of related party notes and other loans payable is as follows:

	September 30, 2012		December 31, 2011
6% demand loan from controlling shareholder, uncollateralized (A)	$	11,285	$	11,285
6% demand loans per Operations Agreement with Schoell Marine Inc., a company owned by Cyclone’s Chairman and controlling shareholder, collateralized by lien on Cyclone’s patent for heat regenerative engine (B)		459,608		427,332
6% non-collateralized loan from officer and shareholder, payable on demand. The original principle balance was $137,101.		66,364		66,364
Accrued Interest		203,623		173,290
Total current related party notes, inclusive of accrued interest	$	740,880	$	678,271

(A) This note (originally $40,000) was issued to finance the purchase of 8,000 shares of the Company’s Series A Preferred Stock. This treasury stock was subsequently sold for $40,000.

(B) This note arose from services and salaries 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. For the nine months ended September 30, 2012, $4,550 of principal was paid on the note balance.

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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, 2012 and 2011 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 day notice by Schoell Marine.

B. DEFERRED COMPENSATION

Included in related party payables as of September 30, 2012 and December 31, 2011 are $1,497,590 and $1,305,722, respectively, of accrued and deferred officers’ salaries compensation which will be paid if funds are available. These are non-interest bearing and due on demand.

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, of which there were 750,000 outstanding at the time, 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 Company did not receive any additional consideration from the conversion. During 2011, the Company recorded non-cash derivative expenses of $19,771,086 and eliminated the related derivative liability with respect to the conversion and the retirement of Series A Preferred.

The Series B Preferred Stock is majority voting stock and is held by the two co-founders of the Company. 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 Series B Preferred Stock shares are convertible on a one-for-one basis with the common stock in the instance the Company is merged, sold or otherwise dissolved.

NOTE 9 – STOCK TRANSACTIONS

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

During the nine months ended September 30, 2012, the Company issued 3,434,356 shares of restricted common stock valued at $576,045 for outside services, and 130,000 shares of restricted common stock valued at $20,000 for employee services.  Additionally, the Company amortized  (based on vesting) $370,627 of common stock options for employee services, and $76,194 of common stock warrants, previously issued for outside services.  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 third quarter of 2012, the Company closed a private placement with GEM Global Yield Fund Ltd. (“GGYF”) for the purchase of 2,135,812 shares of common stock for $243,929 (after related expenses). In connection with the offering, the Company also issued 68,682 common stock warrants valued at $ 2,236 as a commission.

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During the nine months ended September 30, 2012, the Company sold 3,138,750 shares of restricted common stock for $495,000  inclusive of 2,440,000 common stock warrants valued at $173,369 (valued by the Black Scholes model).

During the nine months ended September 30, 2012, the Company issued 545,498 shares of restricted common stock valued at $100,000 as satisfaction of a contract penalty agreement; 481,183 shares of common stock valued at $87,467 as partial prepayment of interest on debt; 258,609 shares of common stock valued at $40,467 in satisfaction for commission on funds raised through the private placement; and 160,000 shares of common stock pursuant to a loss on debt conversion of $25,600.

In March 2012, the Company issued 2,000,000 shares of common stock (valued at $380,000) pursuant to the cashless conversion of a common stock warrant. Pursuant to this transaction, the warrant which was potentially convertible into 4.7 million shares (based on 2% of the total issued and outstanding stock of the Company) was retired.  Common stock options were also converted into 15,000 shares of common stock via a cashless exchange.

In February 2012, the Company issued 1,500,000 shares of common stock, valued at $330,000, pursuant to the acquisition of the net business assets of Advent Power Systems Inc., plus an additional 125,000 shares valued at $27,500 to a consultant.

In 2011, the Company issued 687,024 shares of restricted common stock valued at $196,372 for employee services, of which $185,705 was charged to general and administrative services, and $10,667 was for research and development related services and activities. Additionally, the Company amortized (based on vesting) $366,694 of common stock options, previously issued.

In 2011, the Company issued 3,754,036 shares of restricted common stock, valued at $1,004,021 for outside services and amortized $25,398 of previously issued common stock warrants for outside services.

In 2011, the Company sold 8,511,764 shares of restricted common stock for $1,487,778 which included 2,861,251 common stock warrants valued at $390,488 (valued by the Black Scholes model), and 44,547 shares of Series A Preferred stock for $192,735.

In 2011, the Company issued 1,309,306 shares of restricted common stock, valued at $300,000, as satisfaction of a contract penalty agreement; 213,975 shares of common stock, valued at $39,804, in satisfaction for notes and accrued interest of $12,804; and 25,000 shares of common stock in settlement of a dispute. 20,000 common stock options were also converted via a cashless exercise into 13,889 shares of common stock.

NOTE 10 – STOCK OPTIONS AND WARRANTS

A.   COMMON STOCK OPTIONS

In recognition of and compensation for services rendered by employees for the nine months ended September 30, 2012, the Company issued 3,090,000 common stock options, valued at $254,577 (valued pursuant to the Black Scholes valuation model) that are exercisable into shares of common stock at exercise prices of $.13 to $.18 and a maturity life of 5-10 years. These options have a 1-year vesting requirement and the Company estimates that these options will be exercised within 3-5 years of issue. For the nine months ended September 30, 2012, the income statement charge for the amortization of stock options was $370,627 and the unamortized balance was $190,085.  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. In quarter ended June 30, 2012, the Company also extended the exercise terms of 450,000 vested options issued in 2010 from 2 years to 10 years, offset by an increase in the exercise price from $.15 to $.20.

15

For the year ended December 31, 2011, in recognition of and compensation for services rendered by employees, the Company issued common stock options, valued at $446,849, (valued pursuant to the Black Scholes valuation model) that are exercisable into 3,115,000 shares of common stock, with a per share range of exercise prices of $.19-$.30 (average exercise price per share of $.23) and a maturity life of 5-10 years (an average maturity life of 7.9 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 year ended December 31, 2011, the income statement charge for the amortization of stock options was $366,615, and the unamortized balance was $314,814.

The Company’s 2010 Stock Option Plan (the “2010 Plan”), effective July 1, 2010, provided 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 were authorized under the 2010 Plan, all of which have been issued. The 2010 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.

In April 2012, the Company adopted its 2012 Stock Option Plan (the “2012 Plan”) by a unanimous vote of the Board of Directors. The 2012 Plan has the same terms, conditions and governance as the 2010 Plan. Up to 5 million shares of common stock may be issued under the 2012 Plan.

A summary of the common stock options for the period from December 31, 2010 through September 30, 2012 follows:

	Number Outstanding			Weighted Avg. Exercise Price			Weighted Avg. Remaining Contractual Life (Years)
Balance, December 31, 2010		3,040,000		$	0.188			5.0
Options issued		3,115,000			.299			7.9
Options exercised		(20,000	)		(.100	)		-
Options cancelled		(100,000	)		(.246	)		-
Balance, December 31, 2011		6,035,000		$	0.208			6.0
Options issued		3,090,000			. 157			8.4
Options exercised		(30,000	)		(.120	)		-
Options cancelled		(105,000	)		(.212	)		-
Balance, September 30, 2012		8,990,000		$	0.193			7.5

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The vested and exercisable options at period end follows:

	Exercisable/Vested Options Outstanding		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Yrs)
Common Stock Options
Balance, December 31, 2011		3,020,000	$	0.189		5.0
Balance, September 30, 2012		5,020,000		0.169		6.8
Additional vesting by Dec. 31, 2012		895,000		0.190

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 September 30, 2012								Year Ended December 31, 2011
Risk free interest rate		.30	%	-			.72	%		.39	%	-			1.20	%
Expected volatility		66	%	-			68	%		132	%	-			231	%
Expected term in years		3		-			5			5		-			10
Expected dividend yield				0	%							0	%
Average value per options and warrants	$	.03		-		$	.11		$	.13		-		$	.31

Expected volatility is based on historical volatility of the Company’s common stock price. 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 “Accounting for Stock Based Compensation,” 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 issuances.

B.   COMMON STOCK WARRANTS

Outstanding-

In the first nine months of 2012, the Company issued 2,440,000 warrants at a $.20 exercise price (valued at $173,369) with a 3 year term, pursuant to the sale of common stock to unaffiliated third parties. Also, in recognition of these warrants issued in 2012 for common stock sales, the Company re-priced 2,843,750 warrants issued in 2011 (pursuant to the sale of common stock) to a $.20 exercise price from a $.27-$.32 price. The Black Scholes valuation of the re-priced warrants is $232,383 as compared to the initial valuation of $589,238.

In the third quarter of 2012, the Company issued 1,162,667 warrants at a $.20 exercise price with a 5 year term (valued at $97,454) in connection with $436,000 of debt financing. The Company issued an additional 68,692 warrants at an exercise price of $.27 with a 3 year term (valued at $2,236) pursuant to commission on common stock sale. Also, 1,520,500 warrants at an average exercise price of $.224 expired during the quarter.

In August 2011, the Company issued 926,251 warrants at a $.27 exercise price (valued at $214,028) with a 3 year term, pursuant to the sale of common stock to unaffiliated third parties. These warrants were included in the re-pricing to $.20 noted above.  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 nine 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, up to 5 million shares of common stock issued to service providers of the Company, and certain other issuances set forth in the warrant agreements.

17

In the third quarter of 2011, the Company issued 1,335,000 warrants, with a three year term, at a $.27-$.32 per share exercise price (valued at $293,184) pursuant to the sale of additional common shares.  These warrants were included in the re-pricing to $.20 noted above, and contain the “cashless” and re-pricing terms detailed above. Also, the Company issued 750,000 warrants with a 1 year term, at a $.30 per share exercise price (valued at $101,591) for services, which expired in the third quarter of 2012.

In the fourth quarter of 2011, the Company issued 600,000 warrants, with a three year term, at a $.27 per share exercise price (valued at $94,502) pursuant to the sale of additional common shares. These warrants were included in the re-pricing to $.20 noted above, and contain the “cashless” and re-pricing terms detailed above.

A summary of outstanding vested warrant activity for the nine months ended September 30, 2012 and for the year ended December 31, 2011 follows:

	Number Outstanding			Weighted Average Exercise Price			Weighted Average Remaining Contractual Life (Years)
Common Stock Warrants
Balance, December 31, 2010		770,500		$	.150			1.67
Warrants issued		3,611,251			.290			2.23
Warrants exercised		-			-			-
Warrants cancelled		-			-			-
Balance, December 31, 2011		4,381,751			.265			1.99
Warrants issued		3,671,359			.201			3.42
Warrants exercised		-			-			-
Warrants re-priced		-			(.087	)		-
Warrants cancelled/expired		(1,520,500	)		(.224	)		-
Balance, September 30, 2012		6,532,610		$	.237			2.81

All warrants were vested and exercisable as of the date issued.

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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, 2012 and 2011 are as follows:

	Nine Months ended September 30, 2012			Amount			Nine Months ended September 30, 2011			Amount
Tax benefit at U.S. statutory rate		34	%	$	785,256			34	%	$	883,529
State taxes, net of federal benefit		4			92,383			4			103,944
Change in valuation allowance		(38	)		(877,639	)		(38	)		(987,473	)
		-	%	$	-			-	%	$	-

The tax effect of temporary differences that give rise to significant portions of the deferred tax assets and liabilities as of September 30, 2012 and for the year ended December 31, 2011 consisted of the following:

Deferred Tax Assets	September 30, 2012			December 31, 2011
Net Operating Loss Carry-forward	$	6,376,506		$	5,420,492
Deferred Tax Liabilities – Accrued Officers’ Salaries		( 309,510	)		(231,135	)
Net Deferred Tax Assets		6,066,996			5,189,357
Valuation Allowance		(6,066,996	)		(5,189,357	)
Total Net Deferred Tax Assets	$	-		$	-

As of September 30, 2012, the Company had a net operating loss carry forward for income tax reporting purposes of approximately $13 million that may be offset against future taxable income through 2027. 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.

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%. In September 2012, the company acquired $21,310 of equipment via capitalized lease obligations at an interest rate of 12.5%. Total lease payments made in the nine months ended September 30, 2012 were $654. The balance of leases payable at September 30, 2012 was $23,709. Future lease payments are:

2012	$	772
2013		4,541
2014		4,898
2015		4,383
2016		9,115
	$	23,709

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B.  LEASE ON ADDITIONAL FACILITIES

In July 2011, the Company signed a one-year lease for an additional 2,000 square feet at a rate of $8.25/ s.f. The lease expense for the nine months ending September was $14,095. Effective July 2012, the Company renewed this lease for one year, at an annual rate of $16,800 or $8.40/s.f, terminating in September 2013. The lease has a remaining 1-year extension.

NOTE 13 – COMMITMENTS AND CONTINGENCIES

The Company has employment agreements with Harry Schoell, CEO, at $150,000 per year; Frankie Fruge, COO, at $120,000 per year; and Christopher Nelson, President and General Counsel, at $130,000 per year (collectively, the “Executives”). These agreements provide for a term of three (3) years from their Effective Date (July 2007 in the case of Schoell and Fruge, and August 2011 in the case of Nelson), with automatically renewing successive one year periods starting on the end of the second anniversary of the Effective Date. If the 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/she not terminated, during the 12 months following his or her termination.

NOTE 14 – CONSOLIDATED SUBSIDIARIES

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 were amortized over a 12 month period. This investor also received and exercised a 2.5% equity purchase warrant in the subsidiary for $50,000.

Effective July 1, 2010, a 5% equity contribution in Cyclone-WHE was provided to the new Managing Director of the Subsidiary in consideration of $30,000 of future professional services (which were 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 year ended December 31, 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 December 31, 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.

In the first quarter of 2012, the Company established a 100% owned consolidated subsidiary (renamed) Cyclone Performance LLC (“TeamSteam”).  The purpose of TeamSteam is to build, test and run a vehicle utilizing the Company’s engine.

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NOTE 15 – PENALTY PAYMENT

In 2009, the Company signed a contract for the delivery of two Cyclone prototype 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.  For the nine months ended September 30, 2012, and for the year ended December 31, 2011, the Company charged $50,000 and $350,000 for this penalty to cost of goods sold, respectively, for subsequent delayed engine delivery. As of April 2012, the maximum $400,000 contracted penalty has been provided and no additional penalties in stock or cash are to be recognized on the contract.

NOTE 16 - DERIVATIVE LIABILITIES

The Company had 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.  The resulting derivative liability has been presented at its fair value on the accompanying balance sheets 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 95.1 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. There is no derivative liability related to this issuance as of September 30, 2012 or December 31, 2011. The fair value of the conversion option options 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
Expected dividend yield			0	%

Phoenix Common Stock Warrant

As part of the Company’s license agreement with Phoenix Power Group (“Phoenix”), in 2009 the Company agreed to issue to Phoenix a common stock purchase warrant (the “Phoenix Warrant”) at a price of $.19 per share, equal to two (2%) percent of the total issued, outstanding, convertible debt and dilutive common stock of the Company at the time of exercise. The number of shares into which the Phoenix Warrant was convertible was contingent upon the number of shares outstanding at the date it was exercised. The Phoenix Warrant was to vest upon the delivery of the first two prototype Cyclone Mark V Engines to Phoenix and payment by Phoenix of the full $400,000 license fee, and terminate 24 months thereafter, and were non-transferable. As of December 31, 2011, the calculated number of shares into which the Phoenix Warrant was convertible was 4.68 million, and was valued at approximately $494,626 (by the Black Scholes valuation method).  It was 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.  Because the number of shares issuable upon exercise of the Phoenix Warrant was unknown until the time of exercise, and there was no limit to the number of shares that were to be issuable upon exercise, the Phoenix Warrant was required to be accounted for as a derivative liability. The resulting derivative liability of $494,626 from the Warrant was presented at its fair value on the accompanying December 31, 2011 balance sheet with changes in fair value reported in the statement of operations.  In March 2012, the Company entered into an agreement with Phoenix to effect a cashless exercise of the Phoenix Warrant into 2 million shares of restricted common stock (valued at $380,000) and to retire the Phoenix Warrant. In the first quarter of 2012, the Company recognized a $114,626 gain on retiring the derivative liability.

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The fair value of the warrants, at December 31, 2011, had been estimated using the Black Scholes model using the following assumptions:

Risk free rate	.39	%
Expected volatility	108	%
Expected term in years	2
Expected dividend yield	0	%

A summary of the fair value of the Company’s derivative liabilities is provided in Note 1.K.

NOTE 17 – RECEIVABLES, DEFERRED REVENUE AND BACKLOG

As of September 30, 2012, the Company has no billed accounts receivable. In September 2012 the Company had collected $502,045, which relates to work in progress billings due from the U.S. Army/TACOM contract (see Note 19), which has been recorded as revenue under  the milestone method of revenue recognition for the contract.

As of September 30, 2012, total backlog for prototype engines to be delivered in the following twelve months was $2.2 million, of which approximately $1.25 million has been paid under the Company’s Phoenix Power, U.S. Army and Combilift agreements. The Company expects the balance to be paid over the following six to nine months of the respective contracts’ development periods.

NOTE 18 – RECEIVABLES FACTORING

In the last quarter of  2011, the Company had entered into a factoring (purchase and sale agreement) to factor 85% the face value of receivables presented  at  interest rates on the outstanding balances of 1.85% for the first 30 days, and 1.10 % each 15 days thereafter. The factor repayment liability at September 30, 2012 and December 31, 2011 was $0 and $43,169, respectively. Interest expense for the nine months ended September 30, 2012 and the year ended December 31, 2011 was $1,588 and $1,415, respectively. The agreement was personally guaranteed by one of the Company’s officers.

NOTE 19 – ACQUISITION OF ADVENT

On February 16, 2012, the Company acquired select net assets, business and contracts of Advent Power Systems, Inc. (“Advent”) for 1.5 million shares of common stock, valued at approximately $330,000. An additional $27,500 was paid to a consultant in the form of common stock.  The value of the U.S. Army contract (to develop an auxiliary power unit for multiple lines of combat vehicles) transferred to the Company was $1.4 million.  Up to 1.1 million shares of the 1.5 million shares paid as consideration in the acquisition are subject to forfeiture if there are any negative changes in value to the acquired assets over the 12 months following the closing of the acquisition.  The common stock is further restricted for resale by a contractual two-year leak-out provision. Of the $330,000 purchase price paid in common stock, virtually all was allocated to the U.S. Army contract asset and retirement of Advent’s exclusive license for sale of Cyclone engines to military customers. In completing this acquisition, the Company expects to receive an additional $450,000 in revenue (in addition to the $700,000 originally payable to the Company as a sub-contractor) under the U.S. Army contract.

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As of September 2012, the Company has also assumed the position as prime contractor, which it believes will assist the Company in acquiring new defense contracts in the future. As of July 5, 2012, the U.S. Army contract was modified from a “cost plus” with a price cap payment arrangement to a “fixed fee” structure with milestone payments. In September the Company was paid $502,045 after successfully reaching its first milestone under the contract.

The Company recorded the assets and liabilities acquired from Advent as follows:

Inventory and contract rights:	$	587,489
Deferred revenue:		(178,311	)
Account payable and accrued expenses:		(79,178	)
Total:	$	330,000

NOTE 20 – SUBSEQUENT EVENTS

On October 1, 2012, the Company signed a Common Stock Purchase Agreement (the “Purchase Agreement”) with GEM Global Yield Fund Limited (“GGYF”) whereby GGYF had agreed to purchase up to $2.5 million of the Company’s common stock over the following 24-month period. Under a Registration Rights Agreement, the Company filed an S-1 Registration Statement covering the shares that may be issued. The purchase price of the shares related to the future funding would be based on a 10% discount to the prevailing market prices of the Company’s shares at the time of sales. GGYF has also received common stock purchase warrants to purchase for a period of five years up to 5,000,000 shares of Common Stock at an exercise price per share equal to $.27 per share, representing approximately a 125% premium over the then current market price of the Company’s common stock. The shares underlying the warrants are also being registered in the current S-1.

On November 14, 2012, the Company withdrew the S-1 Registration Statement covering the GGYF shares and warrants. The Company’s decision to withdraw the S-1 was prompted by comments from the SEC that certain provisions of the Purchase Agreement should be amended to assure that shares sold to GGYF are required to be purchased by GGYF. The Company has chosen not to immediately re-file the S-1, because it believes the potential stock dilution is not conducive to increasing shareholder value at this time.  The Company will reevaluate filing a new registration statement next year.

In October 2012, by resolution of the Board of Directors, the Company appointed James C. Landon as interim Chief Executive Officer of the Company.

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION

Forward Looking Statements

This report contains forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends affecting the financial condition of our business. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including, among other things:

· the ability to successfully complete development and commercialization of our technology;

· changes in existing and potential relationships with collaborative partners;

· the ability to retain certain members of management;

· our expectations regarding general and administrative expenses;

· our expectations regarding cash availability and balances, capital requirements, anticipated revenue and expenses, including infrastructure and patent expenditures;

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· other factors detailed from time to time in filings with the SEC.

In addition, in this registration, we use words such as “anticipate,” “believe,” “plan,” “expect,” “future,” “intend,” and similar expressions to identify forward-looking statements.

We undertake no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this registration. In light of these risks and uncertainties, the forward-looking events and circumstances discussed in this registration may not occur and actual results could differ materially from those anticipated or implied in the forward-looking statement.

Overview

The Company is engaged in the research and development of all-fuel, eco-friendly engine technologies. Several prototypes of these engines are nearing completion with one model currently expected to go into production in 2013. While the Company started to generate revenue from its operations as early as 2008, it has not had material or consistent revenue in each of the last two fiscal years. In order for the Company to maintain and expand its operations through the next 12 months, it will seek license and development agreements that provide up-front or progress payment revenue to the Company, and continue to raise capital by means of equity or debt offerings.

In June 2012, the Company was awarded status as prime contractor of a $1.4 million  development contract with the U.S. Army / TACOM (the “U.S. Army Contract”), which it assumed in connection with the asset acquisition of Advent Power Systems (“Advent”) completed in February 2012. The U.S. Army Contract involves the development of a highly compact, multi-fuel capable 10kW auxiliary power unit for military combat vehicles, both as an on-board power supply or a dismountable unit for forward operating bases.  In July, the Company achieved its first major milestone for the project, and received $500,000 in funding from the U.S. Army, which was recognized as revenue.  In October, the Company achieved the second milestone which triggered another $250,000 in funding payments from the government.  The Company expects to reach the next three milestones in January, April and June 2013, with the final milestone consisting of the delivery of a finished prototype product.  The payments due to the Company are expected to be $250,000 for both of the next two milestones, and $150,000 for the final delivery milestone.  The Company is confident at this time that it can fulfill its obligations to the U.S. Army in a timely manner.

In September 2012, the Company and Phoenix Power passed a major technological hurdle in the development of a 7kW waste oil power co-generator when the parties successfully integrated Phoenix’s waste oil combustion chamber / heat exchanger (CCHX) with Cyclone’s WHE-25 system. Over the following several months, the two partners will be optimizing the performance and durability of this system, with the goal of commencing pilot programs and limited run production in 2013. Phoenix’s distribution arm is the largest manufacturer and distributor of waste oil furnaces in the U.S., with over 150,000 such units in the field supported by a well established service network. The parties believe that it is possible to retrofit or replace at least 10% of these units over the following several years with this Cyclone-Phoenix system which could produce both power and heating for commercial facilities and provide an attractive return on investment.

In August 2012, the Company signed a Teaming Agreement with B&W Constructors & Equipment, Inc., a Pennsylvania-based company that develops and builds livestock methane digesters for small farms. Under this agreement, the parties have joined forces to pursue commercial applications for distributed micro-scale methane-to-power systems that will utilize Cyclone’s WHE-25 system, as well as larger engines in the future.

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In the first half of 2012, the Company signed two other important teaming agreements. The first was with Enginuity Energy LLC, an innovator and manufacturer of biomass gasifiers, to support the development and advance the commercialization of a modular 35kWe to 250kWe biomass-to-power generation system for agricultural waste. Secondly, the Company and Aura Systems formed a technology development alliance in May to combine the Cyclone engine with the AuraGen induction motor and control unit. The goal is to be able to provide a turn-key distributed power solution (engine and generator) for customers looking to produce grid-tied or stand-alone electricity from renewable and waste resources.

The Company believes that the waste-to-energy sector -- as demonstrated by the Phoenix waste oil power co-generator, B&W methane-to-power system, and the Enginuity farm-to-power projects, and as supported by the Aura generator technology -- presents a major opportunity for the Cyclone technology. Specifically in the smaller-scale distributed market (under 500kW output), the Company believes it can achieve considerable market penetration over the following years, as businesses, industrial sites, municipal waste authorities and agricultural concerns gain greater understanding of the necessity and economic benefits of utilizing waste resources more effectively.  Management believes that this represents potentially a multi-billion dollar business in the U.S. alone, with even greater possibilities overseas in rapidly-industrializing and developing nations.

In the second and third quarters of 2012, the Company established financing relationships with three strong investment funds that collectively provided over $650,000 in debt and equity financing to the Company.  Brio Capital LP and Gemini Master Fund Ltd. together provided $400,000 in 12-month Convertible Promissory Notes, bearing a 9% Original Issuance Discount (OID) and a floor conversion price of $.15 per share, subject to standard anti-dilution and price protection provisions. Brio and Gemini also received Warrants to purchase a number of shares of common stock of the Company equal to 40% of the Note amounts, at a an exercise price equal to $.20 per share for five (5) years from issuance.

The Company also closed a $262,000 common stock private placement with GEM Global Yield Fund (“GGYF”) in the third quarter, pursuant to which it issued 2,179,562 shares of common stock to GGYF.

In October 2012, the Company signed a second financing agreement with GGYF to provide up to an additional $2.5 million in equity funding over the following 24 months, subject to the completion and effectiveness of a registration statement that was filed in October 2012. GGYF will purchase common stock at a 10% discount to market prices in the quantities and timing determined by the Company, subject to certain volume limitations. GGYF also received 5 million warrants, exercisable at $.27 for a 5-year period. Effective November 14, 2012, this registration statement was withdrawn, and will not be immediately re-filed as we believe that this offering is not conducive to increasing our shareholder value at the current time.

The Company believes that the investments of Brio, Gemini and GGYF demonstrate confidence in the Company’s long-term outlook, while providing important resources to allow management to achieve its business and technological objectives.

Stock for Services and Contracts. Despite its limited cash resources, the Company is able to retain engineering, consulting, legal and accounting personnel partially through the issuance of Rule 144 restricted common stock and options. In the first three quarters of 2012, the Company issued 3,564,356 shares of common stock and 3,090,000 common stock options in order to conserve cash and provide long-term incentives for the Company’s employees and service providers. This resulted in a non-cash charge of $850,622.

In March 2012, the Company completed an agreement with Phoenix Power to convert the warrant held by Phoenix into 2 million shares of common stock of the Company on a cashless basis (meaning no additional consideration was paid by Phoenix at the time). This warrant was being recorded on the Company’s books as a derivative liability. At the time of the agreement to retire the warrant, it was exercisable into approximately 4.7 million shares. As a result, the Company recorded a gain of $114,626.

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Research & Development. The Company invests considerably in the development of its technology. Over the years, these investments have led to over 30 patents and substantial progress towards the commercialization of its engine technology.  For the first three quarters of 2012, the Company’s R&D expenses were $772,468.

Commitments for Capital and Operational Expenditures. Should additional funding be secured, the Company could consider a significant purchase of facilities or equipment.  The Company is increasing the number of skilled and unskilled employees on payroll, including the recruitment of high level executive management and additional engineers and mechanical staff. Such new hires are expected to increase the Company’s monthly operational expenses.

Critical Accounting Policies. The financial statements of the Company are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”), which requires management to make estimates, assumptions and related expectations. Management believes that these estimates, assumptions and related expectations upon which we depend at the time are reasonable based upon information then available. These estimates, assumptions and related expectations affect the reported amounts of the balance sheet and income statement for the timeframe of the financial statements presented. To the degree that there are significant variances between these estimates and assumptions and actual results, there would be an effect on the financial statements. GAAP mandates specific accounting handling in numerous situations and does not require management’s estimates and judgment in its application. Alternative accounting treatments, where available, based on management’s estimates and judgments would not produce a materially different result. The following should be read in conjunction with our consolidated financial statements and related notes.

Intangible assets, consisting primarily of patents, are deemed to be critical for the furtherance of the business objectives of the Company and its engine products. Impairment is not currently reflective, as the Company is developing its products and obtaining new contracts based on these engine patents.

Inventory for engine manufacturing is reviewed on an ongoing basis for obsolescence as engine designs are revised, with resultant charges to R&D.

For purposes of valuing stock based compensation, the Company uses market prices of its common stock as of the time of issuance. For purposes of valuing stock based compensation from common stock options, the Company uses the Black Scholes valuation method. This method requires the Company to make estimates and assumptions regarding stock prices, stock volatility, dividend yields, expected exercise term and risk-free interest rates.

The unaudited consolidated financial statements include the accounts of the Company and its 82.5% owned subsidiary Cyclone-WHE and its 100% owned subsidiary TeamSteam. 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.

In the opinion of management, all adjustments considered necessary for a fair presentation for interim financial statements have been included and such adjustments are of a normal recurring nature.  The results of operations for the nine months ended September 30, 2012 are not necessarily indicative of the results for the full fiscal year ending December 31, 2012. These financial statements should be read in conjunction with the financial statements and footnotes for the year ended December 31, 2011.

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Results of Operations

Three Months Ended September 30, 2012 Compared to Three Months Ended September 30, 2011

Revenues. The Company recognized $502,045 in revenue from the first milestone of the Army/TACOM contract.  For the same period in 2011, the Company recognized revenue of $250,000 from delivery to Renovalia Energy, a large renewable power company in Spain, of design plans, bill of materials and successful test data for the S-1 solar thermal engine. The net increase in revenue was $252,045 (101%).

Gross Profit. Gross profit for the quarter ended September 30, 2012 of $168,607 (yielding a margin of 34%) was attributable to the Army /TACOM contract. In the same period in 2011, gross profit attributable to the Renovalia contract was $201,066, partially offset by a $100,000 penalty paid in common stock under the Company’s license with Phoenix Power. The net increase in gross profit is $67,541 (67%).

Operating Expenses. Operating Expenses incurred for the three months ended September 30, 2012 were $782,238, as compared to $878,153 for the same period in 2011, a decrease of $95,915 or 11%. The decrease was due to reduced lower general and administrative expenses of $338,260 (42%) (related to reductions in accounting, professional and investor relation charges, and stock based compensation for services) net of higher R&D expenses of $226,833 or 485% as resources (increased labor and materials) were applied to completing current engines under contract.

Operating Loss. The operating loss for the quarters ended September 30, 2012 and 2011 was $613,631  and $777,087, respectively, a decreased   loss of $163,456 (21%) due to the factors outlined above.

Other Expense. Net other expense for the quarter ended September 30, 2012 was $127,308, reflective entirely of interest expense. This amount includes the $80,396 write-off of previously unamortized prepaid interest (paid with Company stock) pursuant to related debt repayments.  This compares to a net other income of $38,186 for the three months ended September 30, 2011, which was inclusive of  $48,459 of derivative related income attributable to the Phoenix Warrants, offset by $10,273 of interest expense.
 

Income and Earnings per Share.  The net loss for the quarter ended September 30, 2012 was $740,939, compared to a net loss of $738,901 for the same period in the previous year, an increased loss of $2,038  (0.3%). The limited loss variance  was primarily due to the 2012 profit on the Army/TACOM contract versus the 2011 Renovalia gross profit and the $48,459 derivative related income in 2011. Net loss per weighted average share was ($0.00) for the current quarter compared to ($0.00) in 2011.

Nine Months Ended September 30, 2012 Compared to Nine Months Ended September 30, 2011

Revenues.  The Company had $882,490  of revenue for the nine months ended September 30, 2012 of which $502,045 was from the Army /TACOM contract and $380,445 was from delivery of two engines pursuant to the Raytheon contract.  In the comparable period in 2011, the Company had revenue of $250,000 from the fulfillment of the Renovalia contract for the S-1 solar thermal engine.

Gross Profit. Gross profit for the nine months ended September 30, 2012 was $327,144, as compared to a loss of ($149,801) for the same period in the previous year, a $476,945 improvement.  Included in Cost of Goods Sold for the nine months ending September 30, 2012 was $333,438 related to the Army/TACOM contract, the $171,908 cost of the delivered Raytheon engines, and $50,000 pertaining to the Phoenix penalty payment.  For the comparable period in 2011, the contract penalty was $350,000. There was also $49,801 in charges under the Renovalia contract. Effective in the first quarter of 2012, the Phoenix contract charge had been terminated.

Operating Expenses. Operating Expenses incurred for the nine months ended September 30, 2012 were $2,626,387 as compared to $2,596,923 for the same period in the previous year, an increase of $29,464 or 1.1%. The majority of the increase was due to increased research and development of $227,924 as resources were applied to completing current engines under contract partially offset by lower general and administrative expenses of $220,480 or 11% (reduced expenditures and lower stock based payments for services).

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Operating Loss. The operating losses for the nine months ended September 30, 2012 and 2011 was $2,299,243 and $2,746,724, respectively, a decreased loss of $447,481 or 16%, due to the factors outlined above.

Other Income (Expense). Net other expense for the nine months ended September 30, 2012 was ($101,957), inclusive of interest expenses of ($190,983), net of $114,626 in derivative related income from a reduction in finalizing and retiring the derivative liability related to the Phoenix Warrant.  This compares to a net other expense of ($20,431,523) for the nine months ended September 30, 2011, which was inclusive of  derivative related losses attributable to an increase in the derivative liability conversion feature for the Series A Preferred Stock of approximately $19.8  million and from the Phoenix Warrant of approximately $0.6 million.  These derivative gains and losses were not operating nor cash gains or losses, and as of the first quarter of 2012, both the Series A Preferred Stock and the Phoenix Warrant had been converted and retired.

Income and Earnings per Share.  The net loss for the nine months ended September 30, 2012 was $2,401,200, compared to net loss of $23,178,247 for the same period in the previous year. The large discrepancy was primarily due to the 2011 derivative liability conversion feature for the Series A Preferred Stock and the Phoenix Warrant as discussed above, off-set in 2012 by the Army/TACOM and Raytheon gross profit and net of higher R&D expenses in the current period. The resulting net loss per weighted average share was ($0.01) for the current nine months and ($0.16) in 2011.

Liquidity and Capital Resources

At September 30, 2012, the net working capital deficiency was $2,835,140  as compared to a deficiency of $2,635,120 at December 31, 2011, an increase of $200,020 or 7.6%.  For the nine months ending September 30, 2012, funds were primarily used by the net loss of ($2,401,200), $427,500 for repayment of debt, a decrease in deferred revenue and license deposits of $419,336, and an increase in fixed assets of $69,265. Funds were provided by the net sale of shares of common stock of $738,929, proceeds of $925,000 from promissory notes, an increase in accounts payable and accrued expenses of $178,275 and an increase in related party notes, payables and accruals of $254,426. Additionally, to conserve cash the Company issued 2,687,603 shares of common stock and 3,090,000 common stock options for services -- a non-cash charge to the Income Statement of $1,002,867 in the nine months.  Also, the Company incurred a non-cash charge of $50,000 (paid with common stock) under its license with Phoenix Power.

For the nine months ended September 30, 2011, net cash increased by $64,991. This is reflective of the net loss of $23,178,247 inclusive of non-cash charges for losses attributable to the derivative liability related to the Series A Preferred Stock of $19,771,086 and the derivative losses from common stock warrants of $602,299. The net result is primarily an operating loss of $2,746,724 in the first nine months of 2011. Funds were provided by proceeds from the sale of common stock of $1,367,785 and preferred stock of $192,735, an increase in accounts payable and accruals of $201,961 and an increase in related party notes, payables and accruals of $185,377. Non-cash charges for the nine months of $1,221,108 were from the issuance of common stock and options for services. Funds were used by an increase in inventory of $318,450, a decrease in deferred revenue of $182,500, and expenditures for patents of $79,343 and fixed assets of $36,686

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The Company needs to obtain capital; however, no assurance can be given that it will be able to obtain this capital on acceptable terms, if at all. In such an event, this may have a materially adverse effect on the Company’s business, operating results and financial condition. If the need arises, the Company may attempt to obtain funding or pay expenses through the continued sale or issuance of common stock. The Company may also use various types of short term funding, related party advances and expenses payment deferrals and external loans. If additional funds cannot be raised or otherwise generated, the Company may be forced to reduce staff, minimize its research and development activities, or in a worst case scenario, shut-down operations. The Company’s auditors have issued a going concern opinion for the year ended December 31, 2011. Management is cautiously optimistic, however, that it will be able to generate the funding required to continue and expand its operations over the long term.

We believe that our cash requirements over the next 12 months will be approximately $200,000 per month, or about $2.4 million in total.  Management anticipates that cash proceeds of approximately $950,000 will be provided by (1) the U.S. Army contract of $650,000 ($750,000 has been paid as of the date of this filing) and (2) $300,000 from Combilift. Regarding the U.S. Army contract, payments are based on our meeting development milestones on a quarterly basis. We expect to get paid within 15 to 30 days of invoicing. Some of these proceeds from the Army may be used to repay the Brio and Gemini notes.  With respect to Combilift, the $300,000 is expected to be paid over the following 9 months as prototype engines are delivered, and final bill of materials and designs are rendered. Should we be unable to fulfill this order, the additional $300,000 in development fees would not be payable, despite the possibility that we could have considerable expenses in connection with our efforts.

The net shortfall to continue operations is at least $1.6 million at our current pace. In the short term, management will seek to raise private financing of equity and/or debt to accredited investors to make up that gap.   Our business plans is also to pursue development and sales contracts that provide up-front funding for products and services, and to seek grants from government agencies such as the Department of Energy, ARPA-e and other similar funding sources. The terms or available of such future offerings or contracts have not been determined, and management makes no assurances that it can be successful in raising these funds.

Off-Balance Sheet Arrangements

We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, that would have been established for the purpose of facilitating off-balance sheet arrangements (as that term is defined in Item 303(a)(4)(ii) of Regulation S-K) or other contractually narrow or limited purposes. As such, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in those types of relationships.

New Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board, or FASB, or other standard setting bodies that are adopted by us as of the specified effective date. Unless otherwise discussed, we believe that the impact of recently issued standards that are not yet effective will not have a material impact on our financial position or results of operations upon adoption.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not required for smaller reporting companies.

ITEM 4.  CONTROLS AND PROCEDURES.

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

We carried out an evaluation as required by paragraph (b) of Rule 13a-15 and 15d-15 of the Exchange Act, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of September 30, 2012. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting.

As a growing small business, the Company continuously devotes resources to the improvement of our internal control over financial reporting. For instance, with respect to the handling of complex derivative accounting issues, the Company will consult with third party professionals with expertise in these matters as necessary to insure appropriate accounting treatment for such transactions.

PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS.

The Company is not engaged in any legal proceeding or threatened proceeding at this time, and management has no knowledge of any actions or inactions taken by the Company or its management that could reasonably lead to a legal proceeding.

ITEM 1A.  RISK FACTORS.

Not required.

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

In the third quarter of 2012 the Company issued:

· 2,135,812 shares of common stock for an aggregate purchase price of $264,742 to one accredited institutional investor.  These securities were offered pursuant to an exemption under Section 4(2) of the Securities Act and Regulation D thereunder. The purchaser completed an Accredited Investor Questionnaire and Subscription Agreement, and received a copy of the Company’s Annual Report in connection with the issuance.

· Warrants to purchase 1,162,667 shares of common stock at an exercise price of $.20 per share for five (5) years from issuance. These warrants were issued in connection with $436,000 in Convertible Promissory Notes, bearing a 9% Original Issuance Discount (OID) and a floor conversion price of $.15 per share subject to standard anti-dilution and price protection provisions, to two accredited institutional investors. The Company also issued 121,734 shares of common stock as commissions at a value of $16,830. All these securities were offered to accredited investors pursuant to an exemption under Section 4(2) of the Securities Act and Regulation D thereunder. Each of the purchasers of the shares completed Accredited Investor Questionnaires and Subscription Agreements, and received a copy of the Company’s Annual Report in connection with the issuances.

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· An aggregate of 876,753 shares of common stock to employees and service providers of the Company, with an aggregate value of $127,095.  The securities were offered pursuant to an exemption under Section 4(2) of the Securities Act of 1933, amended. The shareholders were either accredited or sophisticated investors who received copies of the Company’s annual report, which contained audited financial statements as well as unaudited financials for the applicable quarterly period. Each party had an opportunity to ask questions of the Company and understood the risks of investment in the Company.

· An aggregate of 750,000 common stock options at an exercise price of $0.13 per share to five officers and directors of the Company. Options vest in September 2013, and terminate in September 2022.

ITEM 3.       DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4.       REMOVED AND RESERVED

None.

ITEM 5.       OTHER INFORMATION

None.

ITEM 6.       EXHIBITS

Exhibit Number	Description
10.18	Form of Securities Purchase Agreement, signed between the Company and Brio Capital LP and Gemini Master Fund Ltd.
10.19	Form of Promissory Note signed between the Company and Brio Capital LP and Gemini Master Fund Ltd.
10.20	Form Common Stock Purchase Warrant signed between the Company and Brio Capital LP and Gemini Master Fund Ltd.
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	Certification of the Chief Executive Officer, as required by Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of the Chief Financial Officer, as required by Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*	XBRL Instance
101.SCH*	XBRL Taxonomy Extension Schema
101.CAL*	XBRL Taxonomy Extension Calculation
101.DEF*	XBRL Taxonomy Extension Definition
101.LAB*	XBRL Taxonomy Extension Labels
101.PRE*	XBRL Taxonomy Extension Presentation

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

* Information is furnished and not filed or 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.

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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.
November 19, 2012	/s/ James C. Landon James C. Landon
	Chief Executive Officer (Principal executive officer)
November 19, 2012	/s/ Bruce Schames Bruce Schames
	Chief Financial Officer (Principal financial and accounting officer)

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EX-10.18

Exhibit 10.18

SECURITIES PURCHASE AGREEMENT

THIS SECURITIES PURCHASE AGREEMENT (this “Agreement”), is dated as of _________________, 2012 (the “Effective Date”),between CYCLONE POWER TECHNOLOGIES, INC., a Florida corporation having its principal offices at 601 N.E. 26th Court, Pompano Beach, Florida 33064 (the “Company” or “Borrower”) and the Purchaser (“Purchaser”) whose name and address are set forth on the Signature Page to this Agreement.

WHEREAS, the Borrower and the Purchasers are executing and delivering this Agreement in reliance upon an exemption from securities registration afforded by the provisions of Section 4(2), Section 4(6) and/or Regulation D (“Regulation D”) as promulgated by the United States Securities and Exchange Commission (the “Commission”) under the Securities Act of 1933, as amended (the “1933 Act”).

WHEREAS, on the terms and subject to the conditions hereinafter set forth, the Company is offering (the “Offering”) up to an aggregate of $545,000 principal amount Secured Promissory Notes of the Company in the form as annexed hereto as Exhibit A (the “Notes”), maturing one year from the date of closing (as may be adjusted from time to time as more fully provided in the Note, the “Maturity Date”) convertible in shares of the Company’s common stock (the “Conversion Shares”) and Warrants to purchase up to 1,453,334 shares of the Company’s common Stock in the form annexed hereto as Exhibit B (the “Warrants”), for an aggregate  purchase price of $500,000 (the “Purchase Price”) to a limited number of individuals or entities who qualify as “accredited investors” as defined in Rule 501 of Regulation D (“Regulation D”) promulgated under the Securities Act of 1933, as amended (the “Securities Act”) or non-US Persons as defined in Rule 902 of Regulation S promulgated under the Securities Act (collectively, the “Purchasers”). The Notes are general obligations of the Company, and shall have a senior secured interest in income from certain specific revenue sources as provided herein.  The Company has offered to prepay interest in advanced in the form of cash or, restricted common stock of the Company valued at a discount to market as agreed to by the parties, to reflect illiquidity. The Notes have a fixed price convertibility feature subject to adjustment as set forth herein and in the Note.  The Notes, Warrants and any securities issued so as to satisfy interest obligations are sometimes hereinafter referred to as the “Securities.”

WHEREAS, the Purchasers have reviewed this Agreement and the filings made by the Company with the Securities and Exchange Commission, through the date hereof and have also had an opportunity to ask questions of the Company and receive information and, understand that an investment in the Borrower entails a high degree of risk and illiquidity;

WHEREAS, there is no minimum offering amount, and no escrow and the Company may accept subscriptions from time to time;

NOW, THEREFORE, in consideration of the mutual covenants and other agreements contained in this Agreement the Borrower and the Purchasers hereby agree as follows:

1.           Closing.

(a) Date and Time.  The sale of the Securities will take place in one or more closings (each, a “Closing” and, each date a Closing occurs being referred to as a “Closing Date”), subject to the satisfaction of all the parties hereto of their obligations herein.  The Purchasers shall submit an executed copy of this Agreement to the Borrower, along with the Purchase Price in the form of a check or wire transfer, made payable to the Borrower.  Once funds and an Agreement have been received representing subscriptions for said Principal Amount of Notes acceptable to the Borrower along with cleared funds therefor the Borrower must satisfy all of its obligations herein, and, shall deliver a Warrant and Note and prepaid interest within 4 business days after the date of this Agreement.  In the event that the Borrower elects to reject any subscription it may do so, provided that it immediately returns all unaccepted funds.  Once an Agreement along with the Purchase Price have been tendered by a Purchaser, no further consent from, or notice to, such Purchaser need be made. Thereafter, and from time to time, additional Notes may be sold.  The Closing shall take place at the offices of the Borrower or at such other place as the Borrower deems appropriate in their sole discretion and without notice or consent to investors.

(b)           Escrow Agent.  There is no escrow agent and all funds will become immediately accessible to the Borrower and its creditors.

2.           Closing.  Subject to the satisfaction or waiver of the terms and conditions of this Agreement, on each Closing Date, each respective Purchaser shall purchase and the Borrower shall sell to such Purchaser a Note in the Principal Amount and Warrants designated on the signature page for such Purchaser hereto and warrants to purchase the Company’s common stock, for the Purchase Price indicated thereon.  All Notes and Warrants issued will be delivered to Purchaser’s place of residence as provided hereto by Purchaser unless Purchaser advises otherwise.

3.           Purchaser Representations and Warranties.  In order to induce the Borrower to enter into this Agreement and to consummate the transactions contemplated hereby, each Purchaser hereby represents and warrants to and agrees with the Borrower only as to such Purchaser, as of each Closing Date on which such Purchaser purchases Securities, that:

(a)           Organization and Standing of the Purchasers.  If such Purchaser is an entity, such Purchaser is a corporation, partnership or other entity duly incorporated or organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization.

(b)           Authorization and Power.  Such Purchaser has the requisite power and authority or capacity, as the case may be, to enter into and perform this Agreement, and to purchase the Securities being sold to it hereby.  The execution, delivery and performance of this Agreement by such Purchaser and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate, partnership or similar action, and no further consent or authorization of such Purchaser or its board of directors, stockholders, partners, members, as the case may be, is required.  

(c)           No Conflicts.  The execution, delivery and performance of this Agreement and the consummation by such Purchaser of the transactions contemplated hereby and thereby or relating hereto do not and will not: (i) result in a violation of such Purchaser’s charter documents or bylaws or other organizational documents, or (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of any agreement, indenture or instrument or obligation to which such Purchaser is a party or by which its properties or assets are bound, or result in a violation of any law, rule, or regulation, or any order, judgment or decree of any court or governmental agency applicable to such Purchaser or its properties (except for such conflicts, defaults and violations as would not, individually or in the aggregate, have a material adverse effect on such Purchaser).  Such Purchaser is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency  in order for it to execute, deliver or perform any of its obligations under this Agreement or to purchase the Securities in accordance with the terms hereof, provided that for purposes of the representation made in this sentence, such Purchaser is assuming and relying upon the accuracy of the relevant representations and agreements of the Borrower herein.

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(d)           Information on Borrower.  The Purchaser understands that the Borrower has limited revenues and that an investment in the Borrower of any kind entails a substantial degree of risk and illiquidity.  The Purchaser has been furnished with or has been provided with copies of the Borrower’s filings and reports filed with the Securities and Exchange Commission (hereinafter referred to collectively as the "Reports").  In addition, such Purchaser may have received in writing from the Borrower such other information concerning its operations, financial condition and other matters, as such Purchaser has requested in writing, identified thereon as OTHER WRITTEN INFORMATION (such other information is collectively, the "Other Written Information"), and considered all factors such Purchaser deems material in deciding on the advisability of investing in the Securities.  In particular, the Purchaser is aware of the Borrower’s lack of funds and liquidity and dependence on certain military contracts or other contracts in order to repay the loans evidenced by the Notes.

(e)           Information on Purchaser.  Such Purchaser is, an "accredited investor", as such term is defined in Regulation D promulgated by the Commission under the 1933 Act, is experienced in investments and business matters, has made investments of a speculative nature and has purchased securities of micro-cap companies with little liquidity and, with its representatives, has such knowledge and experience in financial, tax and other business matters as to enable such Purchaser to utilize the information made available by the Borrower to evaluate the merits and risks of and to make an informed investment decision with respect to the proposed purchase, which represents a speculative investment.  Such Purchaser is able to bear the risk of such investment for an indefinite period and to afford a complete loss thereof.  The information set forth on the signature page hereto regarding such Purchaser is accurate.

(f)            Purchase of Securities.  On such Closing Date, such Purchaser will purchase the Securities for its own account, not as a nominee or agent, for investment only and not with a view toward, or for resale in connection with, the public sale or any distribution thereof and such Purchaser has no present intention of selling, granting any participation in or otherwise distributing the same.  Such Purchaser does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations to any person with respect to the Securities.

(g)           Compliance with Securities Act.  Such Purchaser understands and agrees that the Securities have not been registered under the 1933 Act or any applicable state securities laws, by reason of their issuance in a transaction that does not require registration under the 1933 Act (based in part on the accuracy of the representations and warranties of such Purchaser contained herein), and that such Securities must be held indefinitely unless a subsequent disposition is registered under the 1933 Act or any applicable state securities laws or is exempt from such registration.

(h)           Shares Legend.  The Securities (including any securities that the Borrower elects to issue as interest) shall bear substantially the following or similar legend:

"THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE (OR CONVERSION OR EXERCISE HEREOF) HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR APPLICABLE STATE SECURITIES LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE ISSUER (AS TO FORM, SUBSTANCE AND CHOICE OF COUNSEL) THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT, OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT."

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(i)            Noteholder Representative.  Purchaser understands there will be no noteholder representative or other delegate representing the rights of the Purchaser or other Purchasers.

(j)            Communication of Offer.  The offer to sell the Securities was directly communicated to such Purchaser by the Borrower.  At no time was such Purchaser presented with or solicited by any leaflet, newspaper or magazine article, radio or television advertisement, or any other form of general advertising or solicited or invited to attend a promotional meeting otherwise than in connection and concurrently with such communicated offer. At no time did the Purchaser, or to its knowledge, the Borrower, pay any fees, commissions, finders’ fees or other fees for such solicitation.

(k)           Restricted Securities.  Such Purchaser understands that the Securities, have not been registered under the 1933 Act and such Purchaser will not sell, offer to sell, assign, pledge, hypothecate or otherwise transfer any of the Securities unless pursuant to an effective registration statement under the 1933 Act, or unless an exemption from registration is available.  Notwithstanding anything to the contrary contained in this Agreement, such Purchaser may transfer (without restriction, without the consent of the Borrower and without the need for an opinion of counsel) the Securities to its Affiliates (as defined below), provided that each such Affiliate is an “accredited investor” under Regulation D, such Affiliate agrees to be bound by the terms and conditions of this Agreement which are relevant at the time of transfer, and written notice of such transfer is provided the Borrower. For the purposes of this Agreement, an “Affiliate” of any person or entity means any other person or entity directly or indirectly controlling, controlled by or under direct or indirect common control with such person or entity.  With respect to the Borrower, Affiliate includes each Subsidiary (as defined below) of the Borrower.  For purposes of this definition, “control” means the power to direct the management and policies of such person or firm, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise.

(l)           No Governmental Review.  Such Purchaser understands that no United States, or federal or state agency or any other governmental or state agency has passed on or made recommendations or endorsement of the Securities or the suitability of the investment in the Securities nor have such authorities passed upon or endorsed the merits of the offering of the Securities.

(m)         Accredited Investor.  The Purchaser is an "accredited investor" as defined under Rule 501 of Regulation D promulgated under the 1933 Act.

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5.           Borrower Representations and Warranties.  The Borrower represents and warrants to the Purchaser and agrees with each Purchaser, as of each Closing Date (except to the extent a different date is specified in this Section 5), that:

(a)           Due Incorporation.  The Borrower is a Florida organized corporation, duly incorporated, validly existing and in good standing under the laws of the State of Florida and has the requisite corporate power to own its properties and to carry on its business as presently conducted.  The Borrower is duly qualified to do business and is in good standing in each jurisdiction where the nature of the business conducted or property owned by it makes such qualification necessary, other than those jurisdictions in which the failure to so qualify would not have a Material Adverse Effect.   For purposes of this Agreement, a “Material Adverse Effect” shall mean a material adverse effect on the financial condition, results of operations, properties or business of the Borrower.

(b)           Outstanding Stock.  All issued and outstanding shares of capital stock of the Borrower have been duly authorized and validly issued and are fully paid and non-assessable.  At each Closing, and other than the Securities issued herein the Company’s capitalization is as set forth on Schedule 5(b).

(c)           Authority; Enforceability.  This Agreement the Note, the Warrant, and any other agreements delivered together with this Agreement or in connection herewith (collectively “Transaction Documents”) have been duly authorized, executed and delivered by the Borrower and are valid and binding agreements of the Borrower enforceable in accordance with their terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights generally and to general principles of equity.  The Borrower has full corporate power and authority necessary to enter into and deliver the Transaction Documents and to perform its obligations thereunder.

(d)           Consents.  No consent, approval, authorization or order of any court, governmental agency or body or arbitrator having jurisdiction over the Borrower, or the Borrower's note holders, option holders, or shareholders is required for the execution by the Borrower of the Transaction Documents and compliance and performance by the Borrower of its obligations under the Transaction Documents, including, without limitation, the issuance and sale of the Securities. The Transaction Documents and the Borrower’s performance of its obligations thereunder have been unanimously approved by the Borrower’s Board of Directors. No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any governmental authority in the world (except pursuant to any applicable Blue Sky laws or the filing of a Form D), is required by the Borrower in connection with the consummation of the transactions contemplated by this Agreement and the Transaction Documents, or the consummation of any of the other agreements, covenants or commitments of the Borrower contemplated by the other Transaction Documents.

(e)           No Violation or Conflict.  Assuming the representations and warranties of the Purchaser in Section 4 are true and correct, neither the issuance and sale of the Securities nor the performance of the Borrower’s obligations under this Agreement, the Transaction Documents and all other agreements entered into by the Borrower relating thereto by the Borrower will:

(i)           violate, conflict with, result in a breach of, or constitute a default (or an event which with the giving of notice or the lapse of time or both would be reasonably likely to constitute a default) under: (A) the certificate of incorporation, as amended and/or By-Laws, as amended,  of the Borrower, (B) to the Borrower's Knowledge (as defined below), any decree, judgment, order, law, treaty, rule, regulation or determination applicable to the Borrower of any court, governmental agency or body, or arbitrator having jurisdiction over the Borrower or over the properties or assets of the Borrower, or (C) the terms of any bond, debenture, note or any other evidence of indebtedness, mortgage, deed of trust or other instrument to which the Borrower is a party. For purposes of this Agreement, “Knowledge” shall mean the actual knowledge of, the executive officers of the Borrower as of the Effective Date; or

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(ii)          result in the creation or imposition of any lien, charge or encumbrance upon the Securities or any of the assets of the Borrower (except as described in the Transaction Documents) or any of its Affiliates except as described herein; or

(iii)         result in the activation of any anti-dilution rights or a reset or re-pricing of any debt or security instrument of any other creditor or equity holder of the Borrower from whom a waiver could not be obtained by the Borrower if necessary, nor result in the acceleration of the due date of any obligation of the Borrower other than certain holders of Series A Warrants issued to Borrower and other investors in 2011; or

(iv)        result in the triggering of any piggy-back registration rights of any person or entity holding securities of the Borrower or having the right to receive securities of the Borrower.

(f)           The Securities.  The Securities upon issuance:

(i)           are free and clear of any security interests, liens, claims or other encumbrances, subject to restrictions upon transfer under the 1933 Act and any applicable state securities laws;

(ii)          are duly and validly authorized and on the date of issuance of the Securities will be duly and validly issued, fully paid and non-assessable;

(iii)         will not have been issued or sold in violation of any preemptive of the holders of any securities of the Borrower;

(iv)         will not subject the holders thereof to personal liability by reason of being such holders;

(v)         assuming the representations warranties of the Purchasers as set forth in Section 4 hereof are true and correct, will not result in a violation of Section 5 under the 1933 Act; and

(vi)        will be fully enforceable against the Borrower.

(g)           No Market Manipulation.  The Borrower and its Affiliates have not taken, and will not take, directly or indirectly, any action designed to, or that might reasonably be expected to, cause or result in stabilization or manipulation of the price of the Common Stock to facilitate the sale or resale of the Securities or affect the price at which the Securities may be issued or resold.

(h)           Information Concerning Borrower.  The Reports and Other Written Information contain all material information relating to the Borrower and its operations and financial condition as of their respective dates which information is required to be disclosed therein.  Since the date of the financial statements included in the Reports, and except as modified in the Other Written Information or in the Schedules hereto, there has been no Material Adverse Effect relating to the Borrower's business, financial condition or affairs not disclosed in the Reports. The Reports and Other Written Information do not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, taken as a whole, not misleading in light of the circumstances when made.

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(i)            Stop Transfer.  The Borrower will not issue any stop transfer order or other order impeding the sale, resale or delivery of any of the Securities, except as may be required by any applicable federal or state securities laws and unless contemporaneous notice of such instruction is given to the affected Purchaser.

(j)            Defaults.  The Borrower is not in violation of its articles of incorporation as in effect prior and as of the initial Closing Date.  The Borrower is (i) not in default under or in violation of any other material agreement or instrument to which it is a party or by which it or any of its properties are bound or affected, which default or violation would have a Material Adverse Effect, (ii) not in default with respect to any order of any court, arbitrator or governmental body or subject to or party to any order of any court or governmental authority arising out of any action, suit or proceeding under any statute or other law respecting antitrust, monopoly, restraint of trade, unfair competition or similar matters, or (iii) not in violation of any statute, rule or regulation of any governmental authority which violation would have a Material Adverse Effect.

(k)            No Integrated Offering.  Neither the Borrower, nor any of its Affiliates, nor any person acting on its or their behalf, has directly or indirectly made any offers or sales of any security or solicited any offers to buy any security under circumstances that would cause the offer of the Securities pursuant to this Agreement to be integrated with prior offerings by the Borrower for purposes of the 1933 Act or any applicable stockholder approval provisions, which would impair the exemptions relied upon in this Offering or the Borrower’s ability to timely comply with its obligations hereunder.  Neither the Borrower nor any of its Affiliates will take any action or steps that would cause the offer or issuance of the Securities to be integrated with other offerings which would impair the exemptions relied upon in this Offering or the Borrower’s ability to timely comply with its obligations hereunder.

(l)            No General Solicitation.  Neither the Borrower, nor any of its Affiliates, nor to Borrower’s Knowledge, any person acting on its or their behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D under the 1933 Act) in connection with the offer or sale of the Securities.

(m)           Dilution.  The Borrower's executive officers and directors understand the nature of the Securities being sold hereby and recognize that the issuance of the Securities will have a potential dilutive effect on the equity holdings of other holders of the Borrower’s equity or rights to receive equity of the Borrower.  The Board of Directors of the Borrower has concluded, in its good faith business judgment that the issuance of the Securities is in the best interests of the Borrower.

(n)           Foreign Corrupt Practices.  Neither the Borrower, nor to the Knowledge of the Borrower, any agent or other person acting on behalf of the Borrower, has (i) directly or indirectly, used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made any unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns from corporate funds, (iii) failed to disclose fully any contribution made by the Borrower (or made by any person acting on its behalf of which the Borrower is aware) which is in violation of law, or (iv) violated in any material respect any provision of the Foreign Corrupt Practices Act of 1977, as amended.

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6.             Regulation D Offering.  The offer and issuance of the Securities to the Purchasers is being made pursuant to the exemption from the registration provisions of the 1933 Act afforded by Section 4(2) or Section 4(6) of the 1933 Act and/or Rule 506 of Regulation D promulgated thereunder, the Borrower has or will at closing, prepare and cover all costs relating to any Form D or state blue sky filings. On the Closing Date, the Company will provide an opinion reasonably acceptable to the Purchaser s from the Company's legal counsel opining on the availability of an exemption from registration under the 1933 Act as it relates to the offer and issuance of the Securities and other matters reasonably requested by Purchaser s.  A form of the legal opinion is annexed hereto as Exhibit C.

7.             [Omitted].

7.1.          Conditions Precedent to the Obligation of the Purchasers to Close and to Purchase the Securities.  The obligation hereunder of the Purchasers to purchase the Securities and consummate the transactions contemplated by this Agreement is subject to the satisfaction or waiver, at or before such Closing, of each of the conditions set forth below.  These conditions are for the Purchasers’ sole benefit and may be waived by the Purchasers and Placement Agent at any time in their sole discretion.

(a)           Accuracy of the Borrower’s Representations and Warranties.  Each of the representations and warranties of the Borrower in this Agreement and the other Transaction Documents shall be true and correct in all material respects as of the initial Closing, except for representations and warranties that speak as of a particular date, which shall be true and correct in all material respects as of such date.

(b)           Performance by the Borrower.  The Borrower shall have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Borrower at or prior to such Closing.

(c)           No Injunction.  No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction which prohibits the consummation of any of the transactions contemplated by this Agreement.

(d)           No Proceedings or Litigation.  No action, suit or proceeding before any arbitrator or any governmental authority shall have been commenced, and no investigation by any governmental authority shall have been initiated, against the Borrower or any subsidiary, or any of the officers, directors or affiliates of the Borrower or any subsidiary seeking to restrain, prevent or change the transactions contemplated by this Agreement, or seeking damages in connection with such transactions.

(e)           Notes and Warrants.  At the Closing, the Borrower shall have delivered to the Purchasers the Notes, Warrants along with all appropriate board resolutions or other necessary documentation in order to issue the Shares in such denominations as each Purchaser may request.  The Borrower shall also deliver this Agreement, duly executed by the Borrower. The Borrower shall also deliver pre-paid interest in the form of cash or restricted common stock.

(f)           Material Adverse Effect.  No Material Adverse Effect shall have occurred at or before such Closing Date.

7.2.         Redemption.  The Notes shall not be redeemable or pre-payable except as described in the Notes.  

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8.             Covenants of the Borrower.  The Borrower covenants and agrees with the Purchasers as follows:

(a)           Enforceability.  If the Borrower is unable to pay, it will not attempt to assert that the Transaction Documents are unenforceable.

(b)           Use of Proceeds.  The net proceeds of this offering shall be used primarily for general corporate purposes.

(c)           Reservation.   Prior to the Closing, the Company undertakes to reserve on behalf of Purchasers from its authorized but unissued Common Stock, a number of shares of Common Stock equal to 150% of the amount of Common Stock necessary to allow Purchasers to be able to convert the entire Notes and 100% of the amount of Warrant Shares issuable upon exercise of the Warrants (“Required Reservation”).   Failure to have sufficient shares reserved pursuant to this Section  at any time shall be a material default of the Company’s obligations under this Agreement and an Event of Default under the Notes.  If at any time Notes and Warrants are outstanding the Company has insufficient Common Stock reserved on behalf of the Purchasers in an amount less than 125% of the amount necessary for full conversion of the outstanding Notes principal and interest at the conversion price that would be in effect on every such date and 100% of the Warrant Shares (“Minimum Required Reservation”), the Company will promptly reserve the Minimum Required Reservation, or if there are insufficient authorized and available shares of Common Stock to do so, the Company will take all action necessary to increase its authorized capital to be able to fully satisfy its reservation requirements hereunder, including the filing of a preliminary proxy with the Commission not later than fifteen business days after the first day the Company has less than the Minimum Required Reservation.  The Company agrees to provide notice to the Purchasers not later than three days after the date the Company has less than the Minimum Required Reservation reserved on behalf of the Purchaser.

(d)           Books and Records.  For so long as any Securities are outstanding, the Borrower will keep true records and books of account in which full, true and correct entries will be made of all dealings or transactions in relation to its business and affairs in accordance with generally accepted accounting principles applied on a consistent basis.

(e)           Governmental Authorities.  For so long as any Securities are outstanding and one year thereafter, the Borrower shall duly observe and conform in all material respects to all valid requirements of governmental authorities relating to the conduct of its business or to its properties or assets.

(f)           Intellectual Property.  For so long as any Securities are outstanding, the Borrower shall maintain in full force and effect its corporate existence, rights, patent rights and licenses and franchises and all licenses and other rights to use intellectual property owned or possessed by it and reasonably deemed to be necessary to the conduct of its business, unless it is sold for value.

(g)           The Company undertakes to file a Form 8-K describing the Offering not later than the fourth (4th) business day after the Closing Date.  Prior to the filing date of such Form 8-K, a draft in the final form will be provided to Purchasers for Purchasers’ review and approval.  In the Form 8-K, the Company will specifically disclose the amount of Common Stock outstanding immediately after the Closing.  Upon  delivery by the Company to the Purchasers after the Closing Date of any notice or information, in writing, electronically or otherwise, and while a Note or Warrants are held by Purchasers, unless the  Company has in good faith determined that the matters relating to such notice do not constitute material, nonpublic information relating to the Company or Subsidiaries, the Company  shall within four business days after any such delivery publicly disclose such  material,  nonpublic  information on a Report on Form 8-K.  In the event that the Company believes that a notice or communication to Purchasers contains material, nonpublic information relating to the Company or Subsidiaries, the Company shall so indicate to Purchasers prior to delivery of such notice or information.  Purchasers will be granted sufficient time to notify the Company that Purchasers elects not to receive such information.   In such case, the Company will not deliver such information to Purchasers.  In the absence of any such indication, Purchasers shall be allowed to presume that all matters relating to such notice and information do not constitute material, nonpublic information relating to the Company or Subsidiaries.

9

(h)           Non-Public Information.  The Company covenants and agrees that except for the Reports, Other Written Information and schedules and exhibits to this Agreement and the Transaction Documents, which information the Company undertakes to publicly disclose on the Form 8-K described in Section 8(g) above, neither it nor any other person acting on its behalf will at any time provide Purchasers or its agents or counsel with any information that the Company believes constitutes material non-public information, unless prior thereto Purchasers shall have agreed in writing to accept such information.  The Company understands and confirms that Purchasers shall be relying on the foregoing representations in effecting transactions in securities of the Company.

(i)           Negative Covenants.   So long as a Note is outstanding, without the consent of the Purchasers, the Company will not and will not permit any of its Subsidiaries to directly or indirectly:

(i)           create, incur, assume or suffer to exist any pledge, hypothecation, assignment, deposit arrangement, lien, charge, claim, security interest, security title, mortgage, security deed or deed of trust, easement or encumbrance, or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including any lease or title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of, or agreement to give, any financing statement perfecting a security interest under the Uniform Commercial Code or comparable law of any jurisdiction) (each, a “Lien”) upon any of property, contracts, invoices or other that is considered collateral or security under the Notes;

(ii)           amend its certificate of incorporation, bylaws or its charter documents so as to materially and adversely affect any rights of the Purchasers (an increase in the amount of authorized shares and an increase in the number of directors will not be deemed adverse to the rights of the Purchasers);

(iii)           repay, repurchase or offer to repay, repurchase or otherwise acquire or make any dividend or distribution in respect of any of its Common Stock, preferred stock, or other equity securities other than to the extent permitted or required under the Transaction Documents;

(iv)           prepay or redeem any financing related debt or past due obligations or securities outstanding as of the Closing Date, or past due obligations (except with respect to vendor obligations, or any such obligations which in management’s good faith, reasonable judgment must be repaid to avoid disruption of the Company’s businesses) unless such payment are made proportionally to the amount due on the Notes and a proportionate amount is paid to the holders of the Notes.

10

(j)           Favored Nations Provision.  Other than in connection with (i) full or partial consideration in connection with a strategic merger, acquisition, consolidation or purchase of substantially all of the securities or assets of a corporation or other entity which holders of such securities or debt are not at any time granted registration rights other than piggy-back rights, (ii) the Company’s issuance of securities in connection with strategic license agreements and other partnering arrangements so long as such issuances are not for the purpose of raising capital and which holders of such securities or debt are not at any time granted registration rights other than piggy-back rights, (iii) the Company’s issuance of Common Stock or the issuances or grants of options to purchase Common Stock to employees, directors, and consultants, pursuant to plans described on Schedule 5(d) as such plans are constituted on the Closing Date, (iv) up to 5,000,000 shares per year issued to legitimate third party service providers and consultants; (v) securities upon the exercise or exchange of or conversion of any securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the date of this Agreement on the terms in effect on the Closing Date including the permissible amendment thereof after the Closing Date, and described on Schedule 5(b),(vi) securities issued pursuant to financing deals in place as of the date hereof, specifically the purchase of shares by GEM Global Yield Fund as announced in the Borrower’s Form 8-K filed with the SEC on July 11, 2012; and and (vii) as a result of the exercise of Warrants or conversion of Notes which are granted or issued pursuant to this Agreement (collectively, the foregoing (i) through (vii) are “Excepted Issuances”), if at any time the Notes or Warrants are outstanding, the Company shall agree to or issue (the “Lower Price Issuance”) any Common Stock or securities convertible into or exercisable for shares of Common Stock (or modify any of the foregoing which may be outstanding) to any person or entity at a price per share or conversion or exercise price per share which shall be less than the Conversion Price in effect at such time, or if less than the Warrant exercise price in effect at such time, without the consent of the Purchasers, then the Conversion Price and Warrant exercise price shall automatically be reduced to such other lower price provided however, if such Lower Priced Issuance is common stock, a convertible note or preferred stock the Warrant exercise price shall only be lowered to 125% of such lower price.  In no event shall a Lower Price Issuance increase the Warrant exercise price.  The average Purchase Price of the Conversion Shares and average exercise price in relation to the Warrant Shares shall be calculated separately for the Conversion Shares and Warrant Shares.  Common Stock issued or issuable by the Company for no consideration will be deemed issuable or to have been issued for $0.001 per share of Common Stock.  The rights of Purchasers set forth in this Section 8(j) are in addition to any other rights the Purchasers have pursuant to this Agreement, the Notes, any Transaction Document, and any other agreement referred to or entered into in connection herewith or to which Purchasers and Company are parties.

(k)           Maximum Exercise of Rights.   In the event the exercise of the rights described in Section 8(j) would or could result in the issuance of an amount of Common Stock of the Company to the Purchaser, which would result in beneficial ownership by Purchaser and its Affiliates of more than 4.99% of the outstanding shares of Common Stock of the Company, then the issuance of such additional shares of Common Stock of the Company to such Purchaser will be deferred in whole or in part until such time as a Purchaser notifies the Company that such Purchaser is able to beneficially own such Common Stock without exceeding 4.99% of the outstanding shares of Common Stock of the Company.  For the purposes of the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and Rule 13d-3 thereunder.  The Purchaser may increase the permitted beneficial ownership amount up to 9.99% upon and effective after 61 days prior written notice to the Company.  Purchaser may allocate which of the equity of the Company deemed beneficially owned by Purchaser shall be included in the 4.99% amount described above and which shall be allocated to the excess above 4.99%.

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9.             Miscellaneous.

(a)           Notices.  All notices and other communications required or permitted hereunder shall be in writing and shall be effective when delivered personally, or sent by telex or telecopier (with receipt confirmed), provided that a copy is mailed by registered mail, return receipt requested, or when received by the addressee, if sent by Express Mail, Federal Express or other express delivery service (receipt requested) in each case to the appropriate address set forth below:

If to the Company:              Cyclone Power Technologies, Inc.

602 NE 26th Court

Pompano Beach, Florida 33064

Attention:  Christopher M. Nelson

Phone:  (954) 943-8721

With a copy to:                    Roetzel & Andress, LPA

350 East Las Olas Boulevard, Suite 1150

Fort Lauderdale, Florida 33301

Attention:  Joel D. Mayersohn

Phone:  (954) 462-4250

If to the Purchaser:             At the address set forth on the Purchaser’s Signature Page

(b)           Faxes, Electronic Mail and Counterparts.  This Agreement may be executed in one or more counterparts.  Delivery of an executed counterpart of the Agreement or any exhibit attached hereto by facsimile transmission or electronic mail (any such delivery, an “Electronic Delivery”), shall be treated in all manner and respects as an original agreement or instrument and shall be considered to have the same binding legal effect as if it were the original signed version thereof delivered in person.  At the request of any party hereto, each other party hereto shall re-execute original forms hereof and deliver them in person to all other parties.  No party hereto shall raise the use of Electronic Delivery to deliver a signature or the fact that any signature or agreement or instrument was transmitted or communicated through the use of Electronic Delivery as a defense to the formation of a contract, and each such party forever waives any such defense, except to the extent such defense related to lack of authenticity.

 (c)           Entire Agreement; Assignment.  This Agreement and other documents delivered in connection herewith represent the entire agreement between the parties hereto with respect to the subject matter hereof and may be amended only by a writing executed by all parties hereto.  Neither the Borrower nor the Purchasers have relied on any representations not contained or referred to in this Agreement and the documents delivered herewith.   No right or obligation of the Borrower shall be assigned without prior notice to and the written consent of the Purchasers. No right or obligation of any Purchaser shall be assigned without prior notice to and the written consent of the Borrower.

12

(d)           Law Governing this Agreement.  This Agreement shall be governed by and construed in accordance with the laws of the State of New York without regard to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated by this Agreement shall be brought only in the state or federal courts located in the State and County of New York.  The parties to this Agreement hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens.  The parties executing this Agreement and other agreements referred to herein or delivered in connection herewith on behalf of the Borrower agree to submit to the in personam jurisdiction of such courts and hereby irrevocably waive trial by jury.  The prevailing party shall be entitled to recover from the other party its reasonable attorney's fees and costs.  In the event that any provision of this Agreement or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law.  Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Agreement or any other Transaction Document by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.

(e)           Specific Enforcement, Consent to Jurisdiction.  The Borrower and Purchaser acknowledge and agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached.  It is accordingly agreed that the parties shall be entitled to seek an injunction or injunctions to prevent or cure breaches of the provisions of this Agreement and to enforce specifically the terms and provisions hereof, this being in addition to any other remedy to which any of them may be entitled by law or equity.  Subject to Section 9(e) hereof, the Borrower hereby irrevocably waives, and agrees not to assert in any such suit, action or proceeding, any claim that it is not personally subject to the jurisdiction in New York of such court, that the suit, action or proceeding is brought in an inconvenient forum or that the venue of the suit, action or proceeding is improper.  Nothing in this Section shall affect or limit any right to serve process in any other manner permitted by law.

(f)           Independent Nature of Purchasers.     The Borrower acknowledges that the obligations of each Purchaser under the Transaction Documents are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance of the obligations of any other Purchaser under the Transaction Documents. The Borrower acknowledges that each Purchaser has represented that the decision of each Purchaser to purchase Securities has been made by such Purchaser independently of any other Purchaser and independently of any information, materials, statements or opinions as to the business, affairs, operations, assets, properties, liabilities, results of operations, condition (financial or otherwise) or prospects of the Borrower which may have been made or given by any other Purchaser or by any agent or employee of any other Purchaser, and no Purchaser or any of its agents or employees shall have any liability to any Purchaser (or any other person) relating to or arising from any such information, materials, statements or opinions.  The Borrower acknowledges that nothing contained in any Transaction Document, and no action taken by any Purchaser pursuant hereto or thereto (including, but not limited to, the (i) inclusion of a Purchaser in a registration statement and (ii) review by, and consent to, any such registration statement by a Purchaser) shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Documents.  The Borrower acknowledges that each Purchaser shall be entitled to independently protect and enforce its rights, including without limitation, the rights arising out of the Transaction Documents, and it shall not be necessary for any other Purchaser to be joined as an additional party in any proceeding for such purpose.  The Borrower acknowledges that it has elected to provide all Purchasers with the same terms and Transaction Documents for the convenience of the Borrower and not because Borrower was required or requested to do so by the Purchasers.  The Borrower acknowledges that such procedure with respect to the Transaction Documents in no way creates a presumption that the Purchasers are in any way acting in concert or as a group with respect to the Transaction Documents or the transactions contemplated thereby.

13

(g)           Consent.   As used in the Agreement, “consent of the Purchasers” or similar language means the consent of holders of greater than 50% of the total principal amount of outstanding Notes owned by Note holders on the date consent is requested.

(h)           Equal Treatment.   No consideration shall be offered or paid to any person to amend or consent to a waiver or modification of any provision of the Transaction Documents unless the same consideration is also offered and paid to all the Purchasers and their permitted successors and assigns.

(i)            Maximum Payments.   Nothing contained herein or in any document referred to herein or delivered in connection herewith shall be deemed to establish or require the payment of a rate of interest or other charges in excess of the maximum permitted by applicable law.  In the event that the rate of interest or dividends required to be paid or other charges hereunder exceed the maximum permitted by such law, any payments in excess of such maximum shall be credited against amounts owed by the Borrower to the Purchaser and thus refunded to the Borrower.

(j)            Calendar Days.   All references to “days” in the Transaction Documents shall mean calendar days unless otherwise stated.  The terms “business days” and “trading days” shall mean days that the New York Stock Exchange is open for trading for three or more hours.  Time periods shall be determined as if the relevant action, calculation or time period were occurring in New York City.  Any deadline that falls on a non-business day in any of the Transaction Documents shall be automatically extended to the next business day and interest, if any, shall be calculated and payable through such extended period.

(k)           Captions: Certain Definitions.  The captions of the various sections and paragraphs of this Agreement have been inserted only for the purposes of convenience; such captions are not a part of this Agreement and shall not be deemed in any manner to modify, explain, enlarge or restrict any of the provisions of this Agreement.  As used in this Agreement the term “person” shall mean and include an individual, a partnership, a joint venture, a corporation, a limited liability company, a trust, an unincorporated organization and a government or any department or agency thereof.

(l)            Severability.  In the event that any term or provision of this Agreement shall be finally determined to be superseded, invalid, illegal or otherwise unenforceable pursuant to applicable law by an authority having jurisdiction and venue, that determination shall not impair or otherwise affect the validity, legality or enforceability: (i) by or before that authority of the remaining terms and provisions of this Agreement, which shall be enforced as if the unenforceable term or provision were deleted, or (ii) by or before any other authority of any of the terms and provisions of this Agreement.

14

(m)           Successor Laws.  References in the Transaction Documents to laws, rules, regulations and forms shall also include successors to and functionally equivalent replacements of such laws, rules, regulations and forms.

APPLICABLE ONLY IN THE EVENT ANY NOTES ARE SOLD TO FLORIDA RESIDENTS - FLORIDA LAW PROVIDES THAT WHEN SALES ARE MADE TO FIVE OR MORE PERSONS IN FLORIDA, ANY SALE MADE IN FLORIDA IS VOIDABLE BY THE PURCHASER WITHIN THREE DAYS AFTER THE FIRST TENDER OF CONSIDERATION IS MADE BY SUCH PURCHASER TO THE COMPANY, AN AGENT OF THE COMPANY OR AN ESCROW AGENT OR WITHIN THREE DAYS AFTER THE AVAILABILITY OF THAT PRIVILEGE IS COMMUNICATED TO SUCH PURCHASER, WHICHEVER OCCURS LATER. THIS SALE IS BEING MADE IN FLORIDA. PAYMENTS FOR TERMINATED SUBSCRIPTIONS VOIDED BY PURCHASERS AS PROVIDED FOR IN THIS PARAGRAPH WILL BE PROMPTLY REFUNDED WITHOUT INTEREST.

[REST OF THIS PAGE LEFT INTENTIONALLY BLANK]

15

[Counterpart Signature Page To Securities Purchase Agreement of

Cyclone Power Technologies, Inc.  ]

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date set forth on the Purchase Signature Page hereto.

PURCHASER

(By Counterpart Form - See Purchaser Signature Pages following)

COMPANY

Cyclone Power Technologies, Inc.

(By Execution of Acceptance Page following Certificate of Signatory)

16

ACCREDITED INVESTOR QUESTIONNAIRE

CYCLONE POWER TECHNOLOGIES, INC.

I acknowledge that the offering of the Securities is subject to the Federal securities laws of the United States and state securities laws of those states in which the Securities are offered, and that, pursuant to the U.S. Federal securities laws and state securities laws, the Securities may be purchased by persons who come within the definition of an “Accredited Investor” as that term is defined in Rule 501(a) of Regulation D promulgated under the Securities Act (“Regulation D”).

By initialing one of the categories below, I represent and warrant that I come within the category so initialed and have truthfully set forth the factual basis or reason I come within that category.  All information in response to this paragraph will be kept strictly confidential.  I agree to furnish any additional information that the Borrower deems necessary in order to verify the answers set forth below.

NOTE:  You must either initial that at least ONE category.

Individual Purchaser:

(A Purchaser who is an individual may initial either Category I, II, or III)

Category I I am a director or executive officer of the Company.

Category II I am an individual (not a partnership, corporation, etc.) whose individual net worth, or joint net worth with my spouse, presently exceeds $1,000,000.   Explanation.  In calculation of net worth, you may include equity in personal property and real estate other than your principal residence, including cash, short term investments, stocks and securities.  Equity in personal property and real estate should be based on the fair market value of such property less debt secured by such property.

Category III            I am an individual (not a partnership, corporation, etc.) who had an individual income in excess of $200,000 in 2010 and 2011, or joint income with my spouse in excess of $300,000 in 2010 and 2011, and I have a reasonable expectation of reaching the same income level in 2012.

Schedules-1

Entity Purchasers:

(A Purchaser which is a corporation, limited liability company, partnership, trust, or other entity may initial either Category IV, V, VI, VII or VIII)

Category IV            The Purchaser is an entity in which all of the equity owners are “Accredited Investors” as defined in Rule 501(a) of Regulation D.  If relying upon this category alone, each equity owner must complete a separate copy of this Agreement.

__________________________________________________________________________________________________________

__________________________________________________________________________________________________________

__________________________________________________________________________________________________________

(describe entity)

Category V              The Purchaser is a trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the Securities offered, whose purchase is directed by a “Sophisticated Person” as described in Rule 506(b)(2)(ii) of Regulation D.

Category VI            The Purchaser is an organization described in Section 501(c)(3) of the Internal Revenue Code, corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the Securities, with total assets in excess of $5,000,000.

__________________________________________________________________________________________________________

__________________________________________________________________________________________________________

__________________________________________________________________________________________________________

(describe entity)

Category VII           The Purchaser is a private business development company as defined in Section 202(a)(22) of the Investment Advisers Act of 1940.

__________________________________________________________________________________________________________

__________________________________________________________________________________________________________

__________________________________________________________________________________________________________

(describe entity)

Executed this _____ day of ______, 2012 at ____________________, ________________.

Schedules-2

 PURCHASER SIGNATURE PAGE

(for Corporation, Partnership, Trust or Other Entities)

This Securities Purchase Agreement of Cyclone Power Technologies, Inc. (including the Questionnaire) is hereby executed and entered into by the below Purchaser:

  Principal Amount of Notes: $____   Warrants: ____   Purchase Price $____ ____________________________________ Name of Entity   ____________________________________ Type of Entity (i.e., corporation, partnership, etc.)   ____________________________________ Tax Identification or Social Security Number   ____________________________________ State of Formation of Entity   ____________________________________ Name of Signatory Typed or Printed     Its: _________________________________                               Title  

Address to Which Correspondence Should Be Directed (if different from above)

____________________________________

c/o Name

____________________________________

Street Address

____________________________________

City, State and Zip Code

(______)____________________________

Telephone Number

(______)____________________________

Facsimile Number

Schedules-3

CERTIFICATE OF SIGNATORY

(To be completed if Notes are being subscribed for by an entity)

I,__________________________________, am the ___________________________ of GEMINI STRATEGIES LLC                                                                                                  (the “Entity”).

I certify that I am empowered and duly authorized by the Entity to execute and carry out the terms of the Notes Purchase Agreement and to purchase and hold the Conversion Shares that comprise the Notes.  The Notes Purchase Agreement has been duly and validly executed on behalf of the Entity and constitutes a legal and binding obligation of the Entity.

IN WITNESS WHEREOF, I have hereto set my hand this ______ day of _____, 2012.

___________________________________________

Signature

Schedules-4

ACCEPTANCE PAGE TO SECURITIES PURCHASE AGREEMENT OF

Cyclone Power Technologies, Inc.

The foregoing subscriptions for an aggregate Purchase Price of $_____ of Notes, ____ Warrants for an aggregate Principal Amount of $_____ in accordance with the foregoing Securities Purchase Agreement, AGREED AND ACCEPTED; provided, however, that the Borrower may accept additional subscriptions from time to time without consent of Purchasers until the maximum offering amount (plus the over-allotment option, if any) are accepted and Closed upon, in accordance with this Agreement:

Cyclone Power Technologies, Inc.

By:  

Name:

Title:

Date: ____________ 2012

Schedules-5

EXHIBIT A

Form of

Note

EXHIBIT B

Form of

Warrant

EX-10.19

Exhibit 10.19

SECURED CONVERTIBLE PROMISSORY NOTE

Principal Amount: $_____ (9% OID) _______, 2012                 

Purchase Price: $_____

FOR VALUE RECEIVED, Cyclone Power Technologies, Inc. (the "Borrower"), hereby promises to pay to ________________ (the “Payee"), the principal sum of __________________________________ ($_____) Dollars on the Maturity Date.

1.           The principal amount of this Note and all accrued and unpaid interest shall be due and payable on the one year anniversary date of the issuance date above, unless earlier accelerated (the “Maturity Date”). Upon an Event of Default and after the Maturity Date, this Note shall accrue interest at the rate of 24% per annum or the maximum rate permissible by law, whichever is less.

2.           This Note has been issued in connection with a Securities Purchase Agreement (the “Agreement”), pursuant to which the Borrower and Payee have made certain representations and warranties and, is subject to the provisions of such Agreement, including that the maximum aggregate principal amount outstanding under all Notes issued by the Borrower secured by the Army Contract (defined below) pursuant to the several Agreements shall not exceed $545,000.

3.           The Borrower hereby grants to the Payee a security interest in the outstanding accounts receivables due to the Borrower under its contract with the U.S. Army (#W56HZV-11-C-0352) as described in Exhibit A hereto (the “Army Contract”). The Borrower shall repay within ten (10) business days principal and interest amount of the Note with proceeds from the paid invoices under the Army Contract; provided however, all Notes subscribed to under the Agreements shall be paid pro-rata and no more than 50% of such paid invoices shall be used for early repayment of the Notes.

4.           Upon the closing by the Borrower of an equity or debt financing during the time the Note is outstanding in which the Borrower receives gross cash proceeds of at least $500,000 (a “Qualified Financing”), the outstanding principal and interest of the Note will be repaid within three (3) business days after the Qualified Financing closes; provided however, no more that 10% of the gross proceeds from such Qualified Financing shall be applied to repayment of the Notes, pro-rata.In the event of a sale of the Borrower or sale, lease, transfer or assignment of all or substantially all of its assets, all outstanding principal and interest on the Note issued to such Payee will be repaid immediately prior to the completion of such sale of the Borrower and as a condition to closing of such transaction.  This Note is an unconditional payment obligation of the Company and is not conditional on receipt of revenues or funds from any contract or revenue source.

5.           The Payee shall have the right to convert the principal and any interest due under this Note into Shares of the Borrower's Common Stock, $.0001 par value per share (“Common Stock”) as set forth below.

5.1.           Conversion into the Borrower's Common Stock.

(a)             The Payee shall have the right from and after the date of the issuance of this Note and then at any time until this Note is fully paid, to convert any outstanding and unpaid principal portion of this Note, and/or accrued interest, at the election of the Payee (the date of giving of such notice of conversion being a “Conversion Date”) into fully paid and non-assessable shares of Common Stock as such stock exists on the date of issuance of this Note, or any shares of capital stock of Borrower into which such Common Stock shall hereafter be changed or reclassified, at the conversion price as defined in Section 5.1(b) hereof (the “Conversion Price”), determined as provided herein.  Upon delivery to the Borrower of a completed Notice of Conversion, a form of which is annexed hereto as Exhibit A, Borrower shall issue and deliver to the Payee within three (3) business days after the Conversion Date (such third day being the “Delivery Date”) that number of shares of Common Stock for the portion of the Note converted in accordance with the foregoing.  The number of shares of Common Stock to be issued upon each conversion of this Note shall be determined by dividing that portion of the principal of the Note and interest, if any, to be converted, by the Conversion Price.

(b)             Subject to adjustment as provided in Section 5.1(c) hereof, the conversion price (“Conversion Price”) per share shall be $0.15, subject to adjustment as described herein.

(c)             The Conversion Price and number and kind of shares or other securities to be issued upon conversion determined pursuant to Section 5.1(a), shall be subject to adjustment from time to time upon the happening of certain events while this conversion right remains outstanding, as follows:

A.             Merger, Sale of Assets, etc.  If (A) the Borrower effects any merger or  consolidation of the Borrower with or into another entity, (B) the Borrower effects any sale of all or substantially all of its assets in one or a series of related transactions,  (C) any tender offer or exchange offer (whether by the Borrower or another entity) is completed pursuant to which Payees of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, (D) the Borrower consummates a stock purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with one or more persons or entities whereby such other persons or entities acquire more than the 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by such other persons or entities making or party to, or associated or affiliated with the other persons or entities making or party to, such stock purchase agreement or other business combination), (E) any “person” or “group” (as these terms are used for purposes of Sections 13(d) and 14(d) of the 1934 Act) is or shall become the “beneficial owner” (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of 50% of the aggregate Common Stock of the Borrower, or (F) the Borrower effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (in any such case, a “Fundamental  Transaction”), this Note, as to the unpaid principal portion thereof and accrued interest thereon, shall thereafter be deemed to evidence the right to convert into such number and kind of shares or other securities and property as would have been issuable or distributable on account of such Fundamental Transaction, upon or with respect to the securities subject to the conversion right immediately prior to such Fundamental Transaction.  The foregoing provision shall similarly apply to successive Fundamental Transactions of a similar nature by any such successor or purchaser.  Without limiting the generality of the foregoing, the anti-dilution provisions of this Section shall apply to such securities of such successor or purchaser after any such Fundamental Transaction.

B.             Reclassification, etc.  If the Borrower at any time shall, by reclassification or otherwise, change the Common Stock into the same or a different number of securities of any class or classes that may be issued or outstanding, this Note, as to the unpaid principal portion thereof and accrued interest thereon, shall thereafter be deemed to evidence the right to purchase an adjusted number of such securities and kind of securities as would have been issuable as the result of such change with respect to the Common Stock immediately prior to such reclassification or other change.

C.             Stock Splits, Combinations and Dividends.  If the shares of Common Stock are subdivided or combined into a greater or smaller number of shares of Common Stock, or if a dividend is paid on the Common Stock in shares of Common Stock, the Conversion Price shall be proportionately reduced in case of subdivision of shares or stock dividend or proportionately increased in the case of combination of shares, in each such case by the ratio which the total number of shares of Common Stock outstanding immediately after such event bears to the total number of shares of Common Stock outstanding immediately prior to such event.

D.             Share Issuance.   So long as this Note is outstanding, if the Borrower shall issue any Common Stock other than in connection with (i) full or partial consideration in connection with a strategic merger, acquisition, consolidation or purchase of substantially all of the securities or assets of a corporation or other entity which Payees of such securities or debt are not at any time granted registration rights other than piggy back rights, (ii) the Company’s issuance of securities in connection with strategic license agreements and other partnering arrangements so long as such issuances are not for the purpose of raising capital which Payees of such securities or debt are not at any time granted registration rights other than piggy back rights, (iii) the Company’s issuance of Common Stock or the issuances or grants of options to purchase Common Stock to employees, directors, and consultants, pursuant to plans as such plans are constituted on the date hereof (iv) up to 5,000,000 shares per year issued to legitimate third party service providers and contractors, (v) securities issued pursuant to financing deals in place as of the date hereof, specifically the purchase of shares by GEM Global Yield Fund as announced in the Borrower’s Form 8-K filed with the SEC on July 11, 2012; and (vi) securities upon the exercise or exchange of or conversion of any securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the date of the date hereof on the terms in effect on the date hereof (collectively, the foregoing (i) through (vi) are “Excepted Issuances”), prior to the complete conversion or payment of this Note, for a consideration per share that is less than the Conversion Price that would be in effect at the time of such issue, then, and thereafter successively upon each such issuance, the Conversion Price shall be reduced to such other lower issue price.  For purposes of this adjustment, the issuance of any security or debt instrument of the Borrower carrying the right to convert such security or debt instrument into Common Stock or of any warrant, right or option to purchase Common Stock shall result in an adjustment to the Conversion Price upon the issuance of the above-described security, debt instrument, warrant, right, or option  and again upon the issuance of shares of Common Stock upon exercise of such conversion or purchase rights if such issuance is at a price lower than the then applicable Conversion Price. Common Stock issued or issuable by the Borrower for no consideration will be deemed issuable or to have been issued for $0.001 per share of Common Stock.

(d)             Whenever the Conversion Price is adjusted pursuant to Section 2.1(c) above, the Borrower shall promptly mail to the Payee a notice setting forth the Conversion Price after such adjustment and setting forth a statement of the facts requiring such adjustment.

(e)             During the period the conversion right exists, Borrower will reserve from its authorized and unissued Common Stock not less than an amount of Common Stock equal to 150% of the amount of shares of Common Stock issuable upon the full conversion of this Note.  Borrower represents that upon issuance, such shares will be duly and validly issued, fully paid and non-assessable.  Borrower agrees that its issuance of this Note shall constitute full authority to its officers, agents, and transfer agents who are charged with the duty of executing and issuing stock certificates to execute and issue the necessary certificates for shares of Common Stock upon the conversion of this Note.

5.2             Method of Conversion.  This Note may be converted by the Payee in whole or in part as described in Section 2.1(a) hereof.  Upon partial conversion of this Note, a new Note containing the same date and provisions of this Note shall, at the request of the Payee, be issued by the Borrower to the Payee for the principal balance of this Note and interest which shall not have been converted or paid.

5.3.             Maximum Conversion.  The Payee shall not be entitled to convert on a Conversion Date that amount of the Note in connection with that number of shares of Common Stock which would be in excess of the sum of (i) the number of shares of Common Stock beneficially owned by the Payee and its affiliates on a Conversion Date, (ii) any Common Stock issuable in connection with the unconverted portion of the Note, and (iii) the number of shares of Common Stock issuable upon the conversion of the Note with respect to which the determination of this provision is being made on a Conversion Date, which would result in beneficial ownership by the Payee and its affiliates of more than 4.99% of the outstanding shares of Common Stock of the Borrower on such Conversion Date.  For the purposes of the provision to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13d-3 thereunder.  Subject to the foregoing, the Payee shall not be limited to aggregate conversions of 4.99%.  The Payee shall have the authority and obligation to determine whether the restriction contained in this Section 2.3 will limit any conversion hereunder and to the extent that the Payee determines that the limitation contained in this Section applies, the determination of which portion of the Notes are convertible shall be the responsibility and obligation of the Payee.  The Payee may waive the conversion limitation described in this Section 2.3, in whole or in part, upon and effective after 61 days prior written notice to the Borrower to increase such percentage to up to 9.99%.

6.           If a minimum of six (6) months have passed (and Rule 144 is available for the shares) or the shares are otherwise registered for resale, and the Company’s common stock closes at a price of $.30 or higher for 10 consecutive trading days, then the Company may call a conversion of the Principal amount of the Notes. The unpaid, accrued interest (6%) shall be payable in cash at such time.

7.           Borrower represents and warrants that (a) this Note has been duly authorized, executed and delivered by Borrower and constitutes a legal, valid and binding obligation of the Borrower enforceable against it in accordance with its terms; (b) no consent of any other party and no consent, license, permit, approval or authorization of, exemption by, notice or report to, or registration, filing or declaration with, any governmental authority, domestic or foreign, is required to be obtained by Borrower in connection with the execution, delivery or performance of this Note (other than any applicable Blue Sky or Form D filing); and (c) the execution, delivery and performance of this Note will not violate any provision of any applicable law or regulation or of any order, judgment, writ, award or decree of any court, arbitrator or governmental authority, domestic or foreign, or of any mortgage, indenture, lease, contract or other instrument or to which the Borrower is a party or which purports to be binding upon the Borrower or upon any of its assets.

8.           Borrower further represents and warrants to Payee, as an inducement to incentivize Payee to purchase the Note, that Borrower has assessed the total consideration payable under this Note and the Agreement and related finders’ fee agreement, and Borrower has determined that the percentage rate being paid by it does not exceed the maximum amount permitted to be paid by law, or otherwise render the Note or Agreement unenforceable.

9.           The Borrower of this Note and all endorsers, sureties and guarantors hereby waives presentment for payment, demand, protest and notice of dishonor hereof.  Upon the occurrence of an Event of Default (as defined herein), the entire unpaid principal amount of this Note together with accrued interest shall immediately become due and payable, in addition to any penalty payments set forth above.  In the event of the occurrence of an Event of Default, the Borrower agrees to pay all costs of collection together with the legal expenses and reasonable attorneys' fees paid or incurred by the holder of this Note in its collection or enforcement.

10.           Each of the following events shall constitute an "Event of Default" as used herein:

(a) The failure to make any payment of principal or interest of this Note, when due, by acceleration or for any other reason; or

(b) The Borrower breaches any material covenant or other term or condition of this Note in any material respect and such breach, if subject to cure, continues for a period of ten (10) business days after written notice to the Borrower from the Payee; or

(c) Any material representation or warranty of the Borrower made herein, or in the Agreement, statement or certificate given in writing pursuant hereto or in connection therewith shall be false or misleading in any material respect as of the date hereof; or

(d) Reservation Default.   Failure by the Borrower to have reserved for issuance upon conversion of the Note the number of shares of Common Stock as required in the Agreement; or

(e) Receiver or Trustee.  The Borrower or any Subsidiary of Borrower shall make an assignment for the benefit of creditors, or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business; or such a receiver or trustee shall otherwise be appointed; or

(f) Judgments.  Any money judgment, writ or similar final process shall be entered or filed against Borrower or any of its property or other assets for more than $100,000, unless stayed vacated or satisfied within forty-five (45) days; or

(g) Bankruptcy.  Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings or relief under any bankruptcy law or any law, or the issuance of any notice in relation to such event, for the relief of debtors shall be instituted by or against the Borrower or any Subsidiary of Borrower; or

(h) Delisting.   Delisting of the Common Stock from any Principal Market; failure to comply with the requirements for continued listing on a Principal Market for a period of ten (10) consecutive trading days; or

(i) Non-Payment.   A default by the Borrower under any one or more obligations in an aggregate monetary amount in excess of $100,000 for more than twenty (20) days after the due date, unless the Borrower is contesting the validity of such obligation in good faith.

11.           Upon an Event of Default not cured within 30 days the conversion price of the Note shall be reset to 75 % of the 10 day VWAP for the 10 trading days preceding such event of default.

12.           This Note, and the rights associated herewith, may be transferred or assigned by the Payee by delivery of written notice thereof to Borrower. The Borrower shall reissue this Note as and when requested by the Payee at any time prior to its maturity in accordance with those instructions.  The Borrower hereby extends all covenants and warranties it has made herein and in the Agreement to any third party assignees of this Note.

13.           The Borrower may prepay all or any part of this Note without penalty. This Note may not be changed orally, but only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification or discharge is sought.

14.           No failure or delay on the part of the holder of this Note in exercising any right, power or privilege hereunder shall operate as a waiver thereof; nor shall a single or partial exercise of any other right, power or privilege operate as a waiver.

15.            This Note is an unconditional obligation of the Borrower for the payment of money only and is, accordingly, fully enforceable, among other remedies in enforcement and collection, through action pursuant to CPLR 3213 or similar summary proceeding or summary judgment motion entered at any time during a action for enforcement of this Note. The Borrower hereby waives a jury trial.

16.           This Note is subject to the laws of the State of New York and Borrower hereby consents jurisdiction in the State and County of New York for any and all collection or enforcement matters, as more fully provided in the Agreement.

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This Note is hereby executed and delivered by Borrower as of the date first set forth above.

CYCLONE POWER TECHNOLOGIES, INC

By:_________________________________

     Christopher Nelson, President and GC

EXHIBIT “A”

COLLATERAL

All current and future accounts payable under Borrower’s contract with the US Army/TACOM (#W56HZV-11-C-0352), in the total remaining contract amount of $880,000, which is expected to be paid as follows:

Payment Scheduled to be Paid from Army	Estimated Approximate Date	Maximum Amount Available  for Early Repayment
$251,441	1 November 2012	$125,720
$251,441	1 February 2013	$125,720
$251,441	1 May 2013	$125,720
$130,527	15 July 2013	$65,263

NOTICE OF CONVERSION

(To be executed by the Registered Payee in order to convert the Note)

The undersigned hereby elects to convert $_________ of the principal and $_________ of the interest due on the Note reissued by Cyclone Power Technologies, Inc. on August __, 2012 into Shares of Common Stock of Cyclone Power Technologies, Inc. (the “Borrower”) according to the conditions set forth in such Note, as of the date written below.

Date of Conversion:_____________________________________________________________________________________________________________

Conversion Price:_______________________________________________________________________________________________________________

Number of Shares of Common Stock Beneficially Owned on the Conversion Date: Less than 5% of the outstanding Common Stock of Cyclone Power Technologies, Inc

____________________________________________________________________________________________________________________________

Shares To Be Delivered:__________________________________________________________________________________________________________

Signature:_____________________________________________________________________________________________________________________

Print Name:___________________________________________________________________________________________________________________

Address:______________________________________________________________________________________________________________________

   _____________________________________________________________________________________________________________________

EX-10.20

Exhibit 10.20

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.  NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

Right to Purchase _____ shares of Common Stock of Cyclone Power Technologies, Inc. (subject to adjustment as provided herein)

FORM OF CLASS C COMMON STOCK PURCHASE WARRANT

No. 2012-C-00__ Issue Date: _________, 2012

CYCLONE POWER TECHNOLOGIES, INC., a corporation organized under the laws of the State of Florida, hereby certifies that, for value received, ________________ (the “Holder”), address at _____________________________, or its assigns, is entitled, subject to the terms set forth below, to purchase from the Company at any time after the Issue Date until 5:00 p.m., Eastern Time on ___________, 2017 (the “Expiration Date”), up to ______________________ (_____) fully paid and non-assessable shares of Common Stock at a per share purchase price of $0.20.  The aforedescribed purchase price per share, as adjusted from time to time as herein provided, is referred to herein as the “Purchase Price”.  The number and character of such shares of Common Stock and the Purchase Price are subject to adjustment as provided herein.  The Company may reduce the Purchase Price for some or all of the Warrants, temporarily or permanently, provided such reduction is made as to all outstanding Warrants for all Holders of such Warrants.  Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Securities Purchase Agreement (the “Securities Purchase Agreement”), dated as of __________, 2012, entered into by the Company, the Holder and the other signatories thereto.

As used herein the following terms, unless the context otherwise requires, have the following respective meanings:

(a)           The term “Company” shall mean Cyclone Power Technologies, Inc., a Florida corporation, and any corporation which shall succeed or assume the obligations of Cyclone Power Technologies, Inc. hereunder.

(b)           The term “Common Stock” includes (i) the Company's Common Stock, $0.0001 par value per share, as authorized on the date of the Securities Purchase Agreement, and (ii) any other securities into which or for which any of the securities described in (i) may be converted or exchanged pursuant to a plan of recapitalization, reorganization, merger, sale of assets or otherwise.

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(c)           The term “Other Securities” refers to any stock (other than Common Stock) and other securities of the Company or any other person (corporate or otherwise) which the holder of the Warrant at any time shall be entitled to receive, or shall have received, on the exercise of the Warrant, in lieu of or in addition to Common Stock, or which at any time shall be issuable or shall have been issued in exchange for or in replacement of Common Stock or Other Securities pursuant to Section 4 or otherwise.

(d)           The term “Warrant Shares” shall mean the Common Stock issuable upon exercise of this Warrant.

1.             Exercise of Warrant.

1.1.           Number of Shares Issuable upon Exercise.  From and after the Issue Date through and including the Expiration Date, the Holder hereof shall be entitled to receive, upon exercise of this Warrant in whole in accordance with the terms of Section 1.2 or upon exercise of this Warrant in part in accordance with Section 1.3, shares of Common Stock of the Company, subject to adjustment pursuant to Section 4 below.

1.2.           Full Exercise.  This Warrant may be exercised in full by the Holder hereof by delivery to the Company of an original or facsimile copy of the form of subscription attached as Exhibit A hereto (the “Subscription Form”) duly executed by such Holder, and delivery within two days thereafter of payment, in cash, wire transfer or by certified or official bank check payable to the order of the Company, in the amount obtained by multiplying the number of shares of Common Stock for which this Warrant is then exercisable by the Purchase Price then in effect.  The original Warrant is not required to be surrendered to the Company until it has been fully exercised.

1.3.           Partial Exercise.  This Warrant may be exercised in part (but not for a fractional share) by delivery of a Subscription Form in the manner and at the place provided in Section 1.2, except that the amount payable by the Holder on such partial exercise shall be the amount obtained by multiplying (a) the number of whole shares of Common Stock designated by the Holder in the Subscription Form by (b) the Purchase Price then in effect.  On any such partial exercise, provided the Holder has surrendered the original Warrant, the Company, at its expense, will issue and deliver to or upon the order of the Holder hereof a new Warrant of like tenor, in the name of the Holder hereof or as such Holder (upon payment by such Holder of any applicable transfer taxes) may request, the whole number of shares of Common Stock for which such Warrant may still be exercised.

1.4.           Fair Market Value.  For purposes of this Warrant, the Fair Market Value of a share of Common Stock as of a particular date (the "Determination Date") shall mean:

(a)           If the Company's Common Stock is traded on an exchange or is quoted on the NASDAQ Global Market, NASDAQ Global Select Market, the NASDAQ Capital Market, the New York Stock Exchange or the NYSE AMEX Equities, then the closing sale price of the Common Stock for the Trading Day immediately prior to (but not including) the Determination Date;

(b)           If the Company's Common Stock is not traded on an exchange or on the NASDAQ Global Market, NASDAQ Global Select Market, the NASDAQ Capital Market, the New York Stock Exchange or the NYSE AMEX Equities, but is traded on the OTC Bulletin Board or in the over-the-counter market, OTCQB or Pink Sheets, then the average of the closing bid and ask prices reported for the Trading Day immediately prior to (but not including) the Determination Date;

(c)           Except as provided in clause (d) below and Section 3.1, if the Company's Common Stock is not publicly traded, then as the Holder and the Company agree, or in the absence of such an agreement, by arbitration in accordance with the rules then standing of the American Arbitration Association, before a single arbitrator to be chosen from a panel of persons qualified by education and training to pass on the matter to be decided; or

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(d)           If the Determination Date is the date of a liquidation, dissolution or winding up, or any event deemed to be a liquidation, dissolution or winding up pursuant to the Company's charter, then all amounts to be payable per share to holders of the Common Stock pursuant to the charter in the event of such liquidation, dissolution or winding up, plus all other amounts to be payable per share in respect of the Common Stock in liquidation under the charter, assuming for the purposes of this clause (d) that all of the shares of Common Stock then issuable upon exercise of all of the Warrants are outstanding at the Determination Date.

1.5.           Company Acknowledgment.  The Company will, at the time of the exercise of the Warrant, upon the request of the Holder hereof, acknowledge in writing its continuing obligation to afford to such Holder any rights to which such Holder shall continue to be entitled after such exercise in accordance with the provisions of this Warrant. If the Holder shall fail to make any such request, such failure shall not affect the continuing obligation of the Company to afford to such Holder any such rights.

1.6.           Delivery of Stock Certificates, etc. on Exercise.  Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time before the Expiration Date by delivery to the Company (or such other office or agency of the Company as it may designate by notice in writing to the registered Holder at the address of the Holder appearing on the books of the Company) of a duly executed copy of the Subscription Form annexed hereto.  The Company agrees that the shares of Common Stock purchased upon exercise of this Warrant shall be deemed to be issued to the Holder hereof as the record owner of such shares as of the close of business on the date on which delivery of a Subscription Form shall have occurred.  Within three (3) business days following the date of exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the shares specified in the applicable Subscription Form by wire transfer or cashier’s check drawn on a United States bank unless the cashless exercise procedure specified in Section 2(b) below is specified in the applicable Subscription Form. As soon as practicable after the exercise of this Warrant in full or in part, and in any event within five (5) business days thereafter (“Warrant Share Delivery Date”), the Company at its expense (including the payment by it of any applicable issue taxes) will cause to be issued in the name of and delivered to the Holder hereof, or as such Holder (upon payment by such Holder of any applicable transfer taxes) may direct in compliance with applicable securities laws, a certificate or certificates for the number of duly and validly issued, fully paid and non-assessable shares of Common Stock (or Other Securities) to which such Holder shall be entitled on such exercise, plus, in lieu of any fractional share to which such Holder would otherwise be entitled, cash equal to such fraction multiplied by the then Fair Market Value of one full share of Common Stock, together with any other stock or other securities and property (including cash, where applicable) to which such Holder is entitled upon such exercise pursuant to Section 1 or otherwise.  The Company understands that a delay in the delivery of the Warrant Shares after the Warrant Share Delivery Date could result in economic loss to the Holder.  As compensation to the Holder for such loss, the Company agrees to pay (as liquidated damages and not as a penalty) to the Holder for late issuance of Warrant Shares upon exercise of this Warrant the proportionate amount of $100 per business day after the Warrant Share Delivery Date for each $10,000 of Purchase Price of Warrant Shares for which this Warrant is exercised which are not timely delivered.  The Company shall pay any payments incurred under this Section in immediately available funds upon demand.  Furthermore, in addition to any other remedies which may be available to the Holder, in the event that the Company fails for any reason to effect delivery of the Warrant Shares by the Warrant Share Delivery Date, the Holder may revoke all or part of the relevant Warrant exercise by delivery of a notice to such effect to the Company, whereupon the Company and the Holder shall each be restored to their respective positions immediately prior to the exercise of the relevant portion of this Warrant, except that the liquidated damages described above shall be payable through the date notice of revocation or rescission is given to the Company.

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1.7.           Buy-In.   In addition to any other rights available to the Holder, if the Company fails to deliver to a Holder the Warrant Shares as required pursuant to this Warrant, and the Holder or a broker on the Holder’s behalf, purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by such Holder of the Warrant Shares which the Holder was entitled to receive from the Company (a "Buy-In"), then the Company shall pay in cash to the Holder (in addition to any remedies available to or elected by the Holder) the amount by which (A) the Holder's total purchase price (including brokerage commissions, if any) for the shares of common stock so purchased exceeds (B) the aggregate Purchase Price of the Warrant Shares required to have been delivered together with interest thereon at a rate of 15% per annum, accruing until such amount and any accrued interest thereon is paid in full (which amount shall be paid as liquidated damages and not as a penalty).  For example, if a Holder purchases shares of Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to $10,000 of Purchase Price of Warrant Shares to have been received upon exercise of this Warrant, the Company shall be required to pay the Holder $1,000, plus interest. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In, along with the appropriate supporting documentation for such purchase.

2.           Cashless Exercise.

(a)           Payment upon exercise may be made at the option of the Holder either in (i) cash, wire transfer or by certified or official bank check payable to the order of the Company equal to the applicable aggregate Purchase Price, (ii) by delivery of Common Stock issuable upon exercise of the Warrants in accordance with Section (b) below or (iii) by a combination of any of the foregoing methods, for the number of Common Stock specified in such form (as such exercise number shall be adjusted to reflect any adjustment in the total number of shares of Common Stock issuable to the holder per the terms of this Warrant) and the holder shall thereupon be entitled to receive the number of duly authorized, validly issued, fully-paid and non-assessable shares of Common Stock (or Other Securities) determined as provided herein.  Notwithstanding the immediately preceding sentence, payment upon exercise may be made in the manner described in Section 2(b) below only with respect to Warrant Shares not included for unrestricted public resale in an effective registration statement on the date notice of exercise is given by the Holder.

(b)           If the Fair Market Value of one share of Common Stock is greater than the Purchase Price (at the date of calculation as set forth below), in lieu of exercising this Warrant for cash, the holder may elect to receive shares equal to the value (as determined below) of this Warrant (or the portion thereof being cancelled) by delivery of a properly endorsed Subscription Form delivered to the Company by any means described in Section 13, in which event the Company shall issue to the holder a number of shares of Common Stock computed using the following formula:

X=Y (A-B)

          A

Where    X=         the number of shares of Common Stock to be issued to the Holder

Y= the number of shares of Common Stock purchasable under the Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being exercised (at the date of such calculation)

A= Fair Market Value

B= Purchase Price (as adjusted to the date of such calculation)

4

For purposes of Rule 144 promulgated under the 1933 Act, it is intended, understood and acknowledged that the Warrant Shares issued in a cashless exercise transaction in the manner described above shall be deemed to have been acquired by the Holder, and the holding period for the Warrant Shares shall be deemed to have commenced, on the date this Warrant was originally issued pursuant to the Securities Purchase Agreement.

3.           Adjustment for Reorganization, Consolidation, Merger, etc.

3.1.           Fundamental Transaction.  If, at any time while this Warrant is outstanding, (A) the Company  effects any merger or  consolidation  of the Company with or into another entity, other than a merger or consolidation that does not result in a Change of Control of the Company, (B) the Company effects any sale of all or substantially all of its assets in one or a series of related transactions,  (C) any tender offer or exchange offer (whether by the Company or another entity) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, (D) the Company consummates a stock purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, or spin-off) with one or more persons or entities whereby such other persons or entities acquire more than the 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by such other persons or entities making or party to, or associated or affiliated with the other persons or entities making or party to, such stock purchase agreement or other business combination), (E) any "person" or "group" (as these terms are used for purposes of Sections 13(d) and 14(d) of the 1934 Act), is or shall become the "beneficial owner" (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of 50% of the aggregate Common Stock of the Company, or (F) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (in any such case, a "Fundamental  Transaction"), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder, (a) upon exercise of this Warrant, the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the "Alternate Consideration") receivable upon or as a result of such reorganization, reclassification, merger, consolidation or disposition of assets by a Holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such event or (b) if the Company is acquired in (1) a transaction where the consideration paid to the holders of the Common Stock consists solely of cash, (2) a “Rule 13e-3 transaction” as defined in Rule 13e-3 under the 1934 Act, or (3) a transaction involving a person or entity not traded on a national securities exchange, the Nasdaq Global Select Market, the Nasdaq Global Market or the Nasdaq Capital Market, cash equal to the Black-Scholes Value.  For purposes of any such exercise, the determination of the Purchase Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Purchase Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration.  If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction.  To the extent necessary to effectuate the foregoing provisions, any successor to the Company or surviving entity in such Fundamental Transaction shall issue to the Holder a new warrant consistent with the foregoing provisions and evidencing the Holder's right to exercise such warrant into Alternate Consideration.  The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this Section 3.1 and insuring that this Warrant (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction.  “Black-Scholes Value” shall be determined in accordance with the Black-Scholes Option Pricing Model obtained from the “OV” function on Bloomberg L.P. using (i) a price per share of Common Stock equal to the VWAP of the Common Stock for the Trading Day immediately preceding the date of consummation of the applicable Fundamental Transaction, (ii) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the remaining term of this Warrant as of the date of such request and (iii) an expected volatility equal to the 100 day volatility obtained from the HVT function on Bloomberg L.P. determined as of the Trading Day immediately following the public announcement of the applicable Fundamental Transaction.  For the purpose of this Section 3.1, a “Change of Control” is defined as business transaction or reorganization as a result of which the shareholders of the Company immediately prior to the transaction or reorganization hold less than a majority of the voting interests of the surviving corporation or other entity after the transaction or reorganization, or any similar corporate or other reorganization on or after the Issue Date.

5

3.2.           Continuation of Terms.  Upon any reorganization, consolidation, merger or transfer (and any dissolution following any transfer) referred to in this Section 3, this Warrant shall continue in full force and effect and the terms hereof shall be applicable to the Other Securities and property receivable on the exercise of this Warrant after the consummation of such reorganization, consolidation or merger or the effective date of dissolution following any such transfer, as the case may be, and shall be binding upon the issuer of any Other Securities, including, in the case of any such transfer, the person acquiring all or substantially all of the properties or assets of the Company, whether or not such person shall have expressly assumed the terms of this Warrant as provided in Section 4.

3.3.           Share Issuance.  From the date hereof until the Expiration Date, if the Company shall issue any Common Stock except for the Excepted Issuances (as defined in the Securities Purchase Agreement), prior to the complete exercise of this Warrant for a consideration less than the Purchase Price that would be in effect at the time of such issuance, then, and thereafter successively upon each such issuance, the Purchase Price shall be reduced to such other lower price for then outstanding Warrants.  For purposes of this adjustment, the issuance of any security or debt instrument of the Company carrying the right to convert such security or debt instrument into Common Stock or of any warrant, right or option to purchase Common Stock shall result in an adjustment to the Purchase Price upon the issuance of the above-described security, debt instrument, warrant, right, or option if such issuance is at a price lower than the Purchase Price in effect upon such issuance and again at any time upon any actual, permitted, optional, or allowed issuances of shares of Common Stock upon any actual, permitted, optional, or allowed exercise of such conversion or purchase rights if such issuance is at a price lower than the Purchase Price in effect upon any actual, permitted, optional, or allowed such issuance.  Provided however, if such lower priced issuance is common stock, a convertible note or preferred stock the Purchase Price shall only be lowered to 125% of such lower price.  In no event shall a lower price issuance increase the Purchase Price.  Common Stock issued or issuable by the Company for no consideration will be deemed issuable or to have been issued for $0.001 per share of Common Stock.  The reduction of the Purchase Price described in this Section 3.3 is in addition to the other rights of the Holder described in the Securities Purchase Agreement.  For purposes of determining the total consideration for a convertible instrument (including a right to purchase equity of the Company) issued, subject to an original issue or similar discount or which principal amount is directly or indirectly increased after issuance, the consideration will be deemed to be the actual cash amount received by the Company in consideration of the original issuance of such convertible instrument. Upon any reduction of the Purchase Price, the number of shares of Common Stock that the Holder of this Warrant shall thereafter, on the exercise hereof, be entitled to receive shall be adjusted to a number determined by multiplying the number of shares of Common Stock that would otherwise (but for the provisions of this Section 3.3) be issuable on such exercise by a fraction of which (a) the numerator is the Purchase Price that would otherwise (but for the provisions of this Section 3.3) be in effect, and (b) the denominator is the Purchase Price in effect on the date of such exercise.  

6

4.           Extraordinary Events Regarding Common Stock.  In the event that the Company shall (a) issue additional shares of Common Stock as a dividend or other distribution on outstanding Common Stock, (b) subdivide its outstanding shares of Common Stock, or (c) combine its outstanding shares of the Common Stock into a smaller number of shares of Common Stock, then, in each such event, the Purchase Price shall, simultaneously with the happening of such event, be adjusted by multiplying the then Purchase Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such event and the denominator of which shall be the number of shares of Common Stock outstanding immediately after such event, and the product so obtained shall thereafter be the Purchase Price then in effect. The Purchase Price, as so adjusted, shall be readjusted in the same manner upon the happening of any successive event or events described herein in this Section 4. The number of shares of Common Stock that the Holder of this Warrant shall thereafter, on the exercise hereof, be entitled to receive shall be adjusted to a number determined by multiplying the number of shares of Common Stock that would otherwise (but for the provisions of this Section 4) be issuable on such exercise by a fraction of which (a) the numerator is the Purchase Price that would otherwise (but for the provisions of this Section 4) be in effect, and (b) the denominator is the Purchase Price in effect on the date of such exercise.

5.           Certificate as to Adjustments.  In each case of any adjustment or readjustment in the shares of Common Stock (or Other Securities) issuable on the exercise of the Warrants or the Purchase Price, the Company at its expense will promptly cause its Chief Financial Officer or other appropriate designee to compute such adjustment or readjustment in accordance with the terms of the Warrant and prepare a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based, including a statement of (a) the consideration received or receivable by the Company for any additional shares of Common Stock (or Other Securities) issued or sold or deemed to have been issued or sold, (b) the number of shares of Common Stock (or Other Securities) outstanding or deemed to be outstanding, and (c) the Purchase Price and the number of shares of Common Stock to be received upon exercise of this Warrant, in effect immediately prior to such adjustment or readjustment and as adjusted or readjusted as provided in this Warrant. The Company will mail a copy of each such certificate to the Holder of the Warrant and any Warrant Agent of the Company (appointed pursuant to Section 10 hereof).  Holder will be entitled to the benefit of the adjustment regardless of the giving of such notice.  The timely giving of such notice to Holder is a material obligation of the Company.

6.           Reservation of Stock, etc. Issuable on Exercise of Warrant; Financial Statements.   The Company will at all times reserve and keep available, solely for issuance and delivery on the exercise of the Warrants, all shares of Common Stock (or Other Securities) from time to time issuable on the exercise of the Warrant.  This Warrant entitles the Holder hereof, upon written request, to receive copies of all financial and other information distributed or required to be distributed to all holders of the Company's Common Stock.

7.           Assignment; Exchange of Warrant.  Subject to compliance with applicable securities laws, this Warrant, and the rights evidenced hereby, may be transferred by any registered holder hereof (a "Transferor"). On the surrender for exchange of this Warrant, with the Transferor's endorsement in the form of Exhibit B attached hereto (the “Transferor Endorsement Form") and together with an opinion of counsel reasonably satisfactory to the Company that the transfer of this Warrant will be in compliance with applicable securities laws, the Company will issue and deliver to or on the order of the Transferor thereof a new Warrant or Warrants of like tenor, in the name of the Transferor and/or the transferee(s) specified in such Transferor Endorsement Form (each a "Transferee"), calling in the aggregate on the face or faces thereof for the number of shares of Common Stock called for on the face or faces of the Warrant so surrendered by the Transferor.

7

8.           Replacement of Warrant.  On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction of this Warrant, on delivery of an indemnity agreement or security reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, on surrender and cancellation of this Warrant, the Company at its expense, twice only, will execute and deliver, in lieu thereof, a new Warrant of like tenor.

9.           Maximum Exercise.  The Holder shall not be entitled to exercise this Warrant on an exercise date, in connection with that number of shares of Common Stock which would be in excess of the sum of (i) the number of shares of Common Stock beneficially owned by the Holder and its affiliates on an exercise date, and (ii) the number of shares of Common Stock issuable upon the exercise of this Warrant with respect to which the determination of this limitation is being made on an exercise date, which would result in beneficial ownership by the Holder and its affiliates of more than 4.99%.  For the purposes of the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the 1934 Act and Rule 13d-3 thereunder.  Subject to the foregoing, the Holder shall not be limited to aggregate exercises which would result in the issuance of more than 4.99%.  The restriction described in this paragraph may be increased or waived, in whole or in part, by designating a higher amount (but not more than 9.99%) on such Holder’s signature page to the Securities Purchase Agreement and also following the Issue Date upon and effective after sixty-one (61) days prior notice from the Holder to the Company.  The Holder may decide whether to convert a Convertible Note or exercise this Warrant to achieve an actual ownership position greater than the permitted beneficial ownership percentage as described above.  For the avoidance of doubt, any failure by Company to issue shares of Common Stock to a Holder due to the operation of this Section 9 shall not constitute an Event of Default under the Transaction Documents, a delay in issuing or a failure to deliver such shares of Common Stock.

10.           Warrant Agent.  The Company may, by written notice to the Holder of the Warrant, appoint an agent (a “Warrant Agent”) for the purpose of issuing Common Stock (or Other Securities) on the exercise of this Warrant pursuant to Section 1, exchanging this Warrant pursuant to Section 7, and replacing this Warrant pursuant to Section 8, or any of the foregoing, and thereafter any such issuance, exchange or replacement, as the case may be, shall be made at such office by such Warrant Agent.

11.           Transfer on the Company's Books.  Until this Warrant is transferred on the books of the Company, the Company may treat the registered holder hereof as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary.

12.           Registration Rights.  The Holder of this Warrant has been granted certain registration rights by the Company.  These registration rights are set forth in the Securities Purchase Agreement.  The terms of the Securities Purchase Agreement and such registration rights are incorporated herein by this reference.

13.           Notices.   All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice.  Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or facsimile at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur.  The addresses for such communications shall be:  if to the Company, to: Cyclone Power Technologies, Inc., 601 NE 26th Ct, Pompano Beach, FL 33064, Attn: Christopher Nelson, President, and (ii) if to the Holder, to the address and facsimile number listed on the first paragraph of this Warrant.

8

14.           Law Governing This Warrant.  This Warrant shall be governed by and construed in accordance with the laws of the State of New York without regard to principles of conflicts of laws.  Any action brought by either party against the other concerning the transactions contemplated by this Warrant shall be brought only in the state courts of New York or in the federal courts located in the state and county of New York.  The parties to this Warrant hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens.  The Company and Holder waive trial by jury.  The prevailing party shall be entitled to recover from the other party its reasonable attorney's fees and costs.  In the event that any provision of this Warrant or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law.  Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement.   Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Agreement or any other Transaction Document by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.

[-Signature Page Follows-]

9

IN WITNESS WHEREOF, the Company has executed this Warrant as of the date first written above.

CYCLONE POWER TECHNOLOGIES, INC.

By:    

           Name:

           Title:

10

Exhibit A

FORM OF SUBSCRIPTION

(to be signed only on exercise of Warrant)

TO:  CYCLONE POWER TECHNOLOGIES, INC.

The undersigned, pursuant to the provisions set forth in Warrant (No.____), hereby irrevocably elects to purchase (check applicable box):

___         _________ shares of the Common Stock covered by such Warrant; or

___ _________ shares of Common Stock covered by such Warrant pursuant to the cashless exercise procedure set forth in Section 2 of the Warrant.

The undersigned herewith makes payment of the full purchase price for such shares at the price per share provided for in such Warrant, which is $___________.  Such payment takes the form of (check applicable box or boxes):

___         $__________ in lawful money of the United States; and/or

___ the cancellation of such portion of the attached Warrant as is exercisable for a total of _______ shares of Common Stock (using a Fair Market Value of $_______ per share for purposes of this calculation); and/or

___ the cancellation of such number of shares of Common Stock as is necessary, in accordance with the formula set forth in Section 2(b) of the Warrant, to exercise this Warrant with respect to the maximum number of shares of Common Stock purchasable pursuant to the cashless exercise procedure set forth in Section 2.

After application of the cashless exercise feature as described above, _____________ shares of Common Stock are required to be delivered pursuant to the instructions below.

The undersigned requests that the certificates for such shares be issued in the name of, and delivered to __________________________________________ whose address is ______________________________________________________________.

The undersigned represents and warrants that all offers and sales by the undersigned of the securities issuable upon exercise of the within Warrant shall be made pursuant to registration of the Common Stock under the Securities Act of 1933, as amended (the "Securities Act"), or pursuant to an exemption from registration under the Securities Act.

Dated:___________________ _________________________________________________ (Signature must conform to name of holder as specified on the face of the Warrant)   _________________________________________________ _________________________________________________ (Address)

11

Exhibit B

FORM OF TRANSFEROR ENDORSEMENT

(To be signed only on transfer of Warrant)

For value received, the undersigned hereby sells, assigns, and transfers unto the person(s) named below under the heading “Transferees” the right represented by the within Warrant to purchase the percentage and number of shares of Common Stock of CYCLONE POWER TECHNOLOGIES, INC. to which the within Warrant relates specified under the headings “Percentage Transferred” and “Number Transferred,” respectively, opposite the name(s) of such person(s) and appoints each such person Attorney to transfer its respective right on the books of CYCLONE POWER TECHNOLOGIES, INC. with full power of substitution in the premises.

Transferees Percentage Transferred Number Transferred

Dated:  __________________, _______ Signed in the presence of: ________________________________ (Name) ACCEPTED AND AGREED: [TRANSFEREE] ________________________________ (Name) __________________________________________________ (Signature must conform to name of holder as specified on the face of the warrant)                 __________________________________________________ __________________________________________________ (address) __________________________________________________ __________________________________________________ (address)

12

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, James Landon, 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: November 19, 2012	/s/ James Landon
	James Landon
	Chief Executive Officer
	(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: November 19, 2012	/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, 2012, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James Landon, 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: November 19, 2012	/s/James Landon
	James Landon
	Chief Executive Officer (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, 2012, 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: November 19, 2012	/s/ Bruce Schames
	Bruce Schames
	Chief Financial Officer and Secretary (Principal Accounting Officer)

XML

Note 1 - Organizational and Significant Accounting Policies (Detail) - Estimated Useful Lives of Property and Equipment	9 Months Ended
	Sep. 30, 2012
Display Equipment for Trade Shows [Member] | Maximum [Member]
Estimated useful lives	3 years
Leasehold Improvements and Furniture and Fixtures [Member] | Minimum [Member]
Estimated useful lives	10 years
Leasehold Improvements and Furniture and Fixtures [Member] | Maximum [Member]
Estimated useful lives	15 years
Shop Equipment [Member] | Maximum [Member]
Estimated useful lives	7 years
Computer Equipment [Member] | Maximum [Member]
Estimated useful lives	3 years

XML

Note 10 - Stock Options and Warrants (Detail) - Fair Value of Stock Options and Purchase Warrants Assumptions (Stock Options and Purchase Warrants [Member], USD $)	9 Months Ended	12 Months Ended
	Sep. 30, 2012	Dec. 31, 2011
Expected dividend yield	0.00%	0.00%
Minimum [Member]
Risk free interest rate	0.30%	0.39%
Expected volatility	66.00%	132.00%
Expected term in years	3 years	5 years
Average value per options and warrants (in Dollars per share)	$ 0.03	$ 0.13
Maximum [Member]
Risk free interest rate	0.72%	1.20%
Expected volatility	68.00%	231.00%
Expected term in years	5 years	10 years
Average value per options and warrants (in Dollars per share)	$ 0.11	$ 0.31

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Note 7 - Related Party Transactions (Detail) (USD $)	9 Months Ended
	Sep. 30, 2012 sqft	Sep. 30, 2011	Dec. 31, 2011	Jul. 31, 2011 sqft
Area of Real Estate Property (in Square feet)	6,000			2,000
Occupancy, Net	$ 47,223	$ 47,223
Due to Related Parties	$ 1,497,590		$ 1,305,722

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Note 19 - Acquisition of Advent (Detail) - Acquisition Assets and Liabilities (USD $)	Feb. 16, 2012
Inventory and contract rights:	$ 587,489
Deferred revenue:	(178,311)
Account payable and accrued expenses:	(79,178)
Total:	$ 330,000

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Note 10 - Stock Options and Warrants (Detail) - Outstanding Vested Warrant Activity (Stock Warrants [Member], USD $)	9 Months Ended	12 Months Ended
	Sep. 30, 2012	Dec. 31, 2011	Dec. 31, 2010
Stock Warrants [Member]
Number Outstanding (in Shares)	4,381,751	770,500
Weighted Average Exercise Price	$ 0.265	$ 0.150
Weighted Average Remaining Contractual Life	2 years 295 days	1 year 361 days	1 year 244 days
Number Outstanding (in Shares)	3,671,359	3,611,251
Weighted Average Exercise Price	$ 0.201	$ 0.290
Weighted Average Remaining Contractual Life	3 years 153 days	2 years 83 days
Warrants re-priced	$ (0.087)
Number Outstanding (in Shares)	(1,520,500)
Weighted Average Exercise Price	$ (0.224)
Number Outstanding (in Shares)	6,532,610	4,381,751	770,500
Weighted Average Exercise Price	$ 0.237	$ 0.265	$ 0.150
Weighted Average Remaining Contractual Life	2 years 295 days	1 year 361 days	1 year 244 days

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Note 6 - Notes and Other Loans Payable (Detail) - Non-Related Party Notes and Other Loans Payable (USD $)	Sep. 30, 2012	Dec. 31, 2011
Current non-related party notes	$ 530,373	$ 30,000
Convertible Notes Payable, Maturing August-September 2013 [Member]
Current non-related party notes	331,706
Pursuant to 9% OID Notes [Member]
Current non-related party notes	71,167
Demand Note, Maturing April 2013 [Member]
Current non-related party notes	40,000
Demand Notes, Maturing December 2012-May 2013 [Member]
Current non-related party notes	$ 87,500	$ 30,000

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Note 11 - Income Taxes (Tables)

9 Months Ended

Sep. 30, 2012

Schedule of Effective Income Tax Rate Reconciliation [Table Text Block]

	Nine Months ended September 30, 2012			Amount			Nine Months ended September 30, 2011			Amount
Tax benefit at U.S. statutory rate		34	%	$	785,256			34	%	$	883,529
State taxes, net of federal benefit		4			92,383			4			103,944
Change in valuation allowance		(38	)		(877,639	)		(38	)		(987,473	)
		-	%	$	-			-	%	$	-

Tax Effect of Temporary Differences [Table Text Block]

Deferred Tax Assets	September 30, 2012			December 31, 2011
Net Operating Loss Carry-forward	$	6,376,506		$	5,420,492
Deferred Tax Liabilities – Accrued Officers’ Salaries		( 309,510	)		(231,135	)
Net Deferred Tax Assets		6,066,996			5,189,357
Valuation Allowance		(6,066,996	)		(5,189,357	)
Total Net Deferred Tax Assets	$	-		$	-

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Note 11 - Income Taxes (Detail) - Reconciliation of Effective Income Tax Rates and Statutory Federal Tax Rates (USD $)	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Tax benefit at U.S. statutory rate	34.00%	34.00%
Tax benefit at U.S. statutory rate (in Dollars)	$ 785,256	$ 883,529
State taxes, net of federal benefit	4.00%	4.00%
State taxes, net of federal benefit (in Dollars)	92,383	103,944
Change in valuation allowance	(38.00%)	(38.00%)
Change in valuation allowance (in Dollars)	(877,639)	(987,473)
	0.00%	0.00%
(in Dollars)	$ 0	$ 0

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Note 20 - Subsequent Events (Detail) (USD $)	1 Months Ended		3 Months Ended			9 Months Ended	12 Months Ended		1083 Months Ended
	Oct. 31, 2012	Aug. 31, 2011	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2011	Sep. 30, 2012	Dec. 31, 2011	Dec. 31, 2009	Sep. 30, 2102	Oct. 01, 2012
Value of Common Stock to be Purchased by an Investor (in Dollars)										$ 2.5
Discount to Market Price of Common Shares										10.00%
Warrants Issued During Period, Term	5 years	3 years	5 years	3 years	3 years	3 years		24 months
Warrants Issued During Period, Number (in Shares)	5,000,000	926,251		600,000	1,335,000	2,440,000	2,861,251		1,162,667
Warrants Issued During Period, Exercise Price (in Dollars per share)	$ 0.27	$ 0.27		$ 0.27		$ 0.20		$ 0.19	$ 0.20
Warrants Issued During Period, Premium Over Current Market Price	125.00%

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Note 19 - Acquisition of Advent

9 Months Ended

Sep. 30, 2012

Mergers, Acquisitions and Dispositions Disclosures [Text Block]

NOTE 19 – ACQUISITION OF ADVENT

On February 16, 2012, the Company acquired select net assets, business and contracts of Advent Power Systems, Inc. (“Advent”) for 1.5 million shares of common stock, valued at approximately $330,000. An additional $27,500 was paid to a consultant in the form of common stock.  The value of the U.S. Army contract (to develop an auxiliary power unit for multiple lines of combat vehicles) transferred to the Company was $1.4 million.  Up to 1.1 million shares of the 1.5 million shares paid as consideration in the acquisition are subject to forfeiture if there are any negative changes in value to the acquired assets over the 12 months following the closing of the acquisition.  The common stock is further restricted for resale by a contractual two-year leak-out provision. Of the $330,000 purchase price paid in common stock, virtually all was allocated to the U.S. Army contract asset and retirement of Advent’s exclusive license for sale of Cyclone engines to military customers. In completing this acquisition, the Company expects to receive an additional $450,000 in revenue (in addition to the $700,000 originally payable to the Company as a sub-contractor) under the U.S. Army contract.

As of September 2012, the Company has also assumed the position as prime contractor, which it believes will assist the Company in acquiring new defense contracts in the future. As of July 5, 2012, the U.S. Army contract was modified from a “cost plus” with a price cap payment arrangement to a “fixed fee” structure with milestone payments. In September the Company was paid $502,045 after successfully reaching its first milestone under the contract.

The Company recorded the assets and liabilities acquired from Advent as follows:

Inventory and contract rights:	$	587,489
Deferred revenue:		(178,311	)
Account payable and accrued expenses:		(79,178	)
Total:	$	330,000

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Note 9 - Stock Transactions (Detail) (USD $)	1 Months Ended				3 Months Ended			6 Months Ended	9 Months Ended	12 Months Ended	1083 Months Ended
	Oct. 31, 2012	Mar. 31, 2012	Feb. 29, 2012	Aug. 31, 2011	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2011	Jun. 30, 2012	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2102	Dec. 31, 2009
Stock Issued During Period, Shares, Restricted Stock Award, Gross (in Shares)									3,138,750	8,511,764
Stock Issued During Period, Value, Restricted Stock Award, Gross									$ 495,000	$ 1,487,778
Stock Issued During Period, Shares, New Issues (in Shares)		2,000,000			2,135,812
Stock Issued During Period, Value, New Issues		380,000			243,929				565,560	1,097,290
Warrants Issued During Period, Number (in Shares)	5,000,000			926,251		600,000	1,335,000		2,440,000	2,861,251	1,162,667
Warrants Issued During Period, Value (in Dollars)				214,028	97,454	94,502	293,184		173,369	390,488
Class of Warrant or Right, Number of Securities Called by Warrants or Rights (in Shares)		4,700,000				4,680,000				4,680,000
Percentage of Total Issued and Outstanding Common Stock Could Be Purchased by Outstanding Warrants		2.00%										2.00%
Stock Issued During Period, Shares, Acquisitions (in Shares)			1,500,000
Stock Issued During Period, Value, Acquisitions			330,000						330,000
Stock Issued During Period, Shares, Other (in Shares)			125,000
Stock Issued During Period, Value, Other			27,500					27,500	27,500
Preferred Stock Issued During Period, Shares (in Shares)										44,547
										192,735
Interest Payable						12,804				12,804
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period (in Shares)									30,000	20,000
Outside Services [Member]
Stock Issued During Period, Shares, Restricted Stock Award, Gross (in Shares)									3,434,356	3,754,036
Stock Issued During Period, Value, Restricted Stock Award, Gross									576,045	1,004,021
Share-based Compensation (in Dollars)										25,398
Employee Services [Member]
Stock Issued During Period, Shares, Restricted Stock Award, Gross (in Shares)									130,000	687,024
Stock Issued During Period, Value, Restricted Stock Award, Gross									20,000	196,372
Share-based Compensation (in Dollars)										366,694
Satisfaction of Contract Penalty Agreement [Member]
Stock Issued During Period, Shares, Restricted Stock Award, Gross (in Shares)									545,498	1,309,306
Stock Issued During Period, Value, Restricted Stock Award, Gross									100,000	300,000
Partial Prepayment of Interest on Debt [Member]
Stock Issued During Period, Shares, New Issues (in Shares)									481,183
Stock Issued During Period, Value, New Issues									87,467
Satisfaction of Debt Commission [Member]
Stock Issued During Period, Shares, New Issues (in Shares)									258,609
Stock Issued During Period, Value, New Issues									40,467
Pursuant to a Loss on Debt Conversion [Member]
Stock Issued During Period, Shares, New Issues (in Shares)									160,000
Stock Issued During Period, Value, New Issues									25,600
Cashless Options Exercise [Member]
Stock Issued During Period, Shares, New Issues (in Shares)		15,000								13,889
Satisfaction of Notes and Accrued Interest [Member]
Stock Issued During Period, Shares, New Issues (in Shares)										213,975
Stock Issued During Period, Value, New Issues										39,804
Settlement of a Claim Pursuant to Reverse Merger [Member]
Stock Issued During Period, Shares, New Issues (in Shares)										25,000
Stock Options [Member]
Allocated Share-based Compensation Expense									370,627
Share-based Compensation (in Dollars)									370,627	366,615
Stock Warrants [Member]
Allocated Share-based Compensation Expense									76,194
General and Administrative Expense [Member]
Allocated Share-based Compensation Expense										185,705
Research and Development Expense [Member]
Allocated Share-based Compensation Expense										10,667
Commission Fee [Member]
Warrants Issued During Period, Number (in Shares)					68,682
Warrants Issued During Period, Value (in Dollars)					$ 2,236

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Note 4 - Property and Equipment (Detail) (USD $)	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Depreciation	$ 16,178	$ 15,576

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Note 1 - Organizational and Significant Accounting Policies (Detail) (USD $)	1 Months Ended		3 Months Ended		9 Months Ended
	Jul. 31, 2012	Jul. 31, 2007	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011	May 12, 2011	Jul. 02, 2007
Shares, Outstanding (in Shares)									22,249,841
Preferred Stock, Shares Outstanding (in Shares)								750,000
Common Stock, Shares, Outstanding (in Shares)			237,559,317		237,559,317		223,635,129		33,000,000
Common Stock, Par or Stated Value Per Share (in Dollars per share)			$ 0.0001		$ 0.0001		$ 0.0001
Proceeds from Divestiture of Businesses (in Dollars)		$ 100,000
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount (in Shares)					18,700,000
Revenues (in Dollars)	502,000		502,045	250,000	882,490	250,000
Cost of Goods Sold (in Dollars)	333,000		333,438	148,934	555,346	399,801
Research and Development Expense (in Dollars)			$ 273,645	$ 46,812	$ 772,468	$ 544,544
Series A Convertible Preferred Stock [Member]
Preferred Stock, Shares Outstanding (in Shares)									500,000
Preferred Stock, Par or Stated Value Per Share (in Dollars per share)									0.0001
Series B Preferred Stock [Member]
Preferred Stock, Shares Outstanding (in Shares)			1,000		1,000		1,000		1,000
Preferred Stock, Par or Stated Value Per Share (in Dollars per share)			$ 0.0001		$ 0.0001		$ 0.0001		0.0001
Common Stock, Par or Stated Value Per Share (in Dollars per share)									0.0001
WHE Subsidiary [Member]
Noncontrolling Interest, Ownership Percentage by Parent			82.50%		82.50%
TeamSteam [Member]
Noncontrolling Interest, Ownership Percentage by Parent			100.00%		100.00%

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Note 10 - Stock Options and Warrants (Detail) - Common Stock Options (USD $)	9 Months Ended	12 Months Ended
	Sep. 30, 2012	Dec. 31, 2011	Dec. 31, 2010
Number Outstanding	6,035,000	3,040,000
Weighted Average Exercise Price (in Dollars per share)	$ 0.208	$ 0.188
Weighted Avg. Remaining Contract Life (Years)	7 years 6 months	6 years	5 years
Number Outstanding	3,090,000	3,115,000
Weighted Average Exercise Price (in Dollars per share)	$ 0.157	$ 0.299
Weighted Avg. Remaining Contract Life (Years)	8 years 146 days	7 years 328 days
Number Outstanding	(30,000)	(20,000)
Weighted Average Exercise Price (in Dollars per share)	$ (0.120)	$ (0.100)
Number Outstanding	(105,000)	(100,000)
Weighted Average Exercise Price (in Dollars per share)	$ (0.212)	$ (0.246)
Number Outstanding	8,990,000	6,035,000	3,040,000
Weighted Average Exercise Price (in Dollars per share)	$ 0.193	$ 0.208	$ 0.188
Weighted Avg. Remaining Contract Life (Years)	7 years 6 months	6 years	5 years

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Note 17 - Receivables, Deferred Revenue and Backlog (Detail) (USD $)	9 Months Ended
	Sep. 30, 2012
Billed Contracts Receivable	$ 502,045
Total Backlog for Prototype Engines	2,200,000
Proceeds from Customers	$ 1,250,000
Minimum [Member]
Backlog Orders, Payment Period	6 months
Maximum [Member]
Backlog Orders, Payment Period	9 months

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Note 13 - Commitments and Contingencies (Detail) (USD $)	9 Months Ended
	Sep. 30, 2012
Employment Agreements, Officer Salary	$ 130,000
Employment Agreements, Initial Term of Employment	3 years
Automatic Renewing Period of Employment Agreements	1 year
Harry Schoell, CEO [Member]
Employment Agreements, Officer Salary	150,000
Frankie Fruge, COO [Member]
Employment Agreements, Officer Salary	$ 120,000

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Note 6 - Notes and Other Loans Payable (Detail) - Related Party Notes and Other Loans Payable (USD $)	Sep. 30, 2012	Dec. 31, 2011
Current due to related parties	$ 740,880	$ 678,271
6% Demand Loan from Controlling Shareholder [Member]
Current due to related parties	11,285	11,285
6% Demand Loans per Operations Agreement with Schoell Marine Inc. [Member]
Current due to related parties	459,608	427,332
6% Demand Non-Collateralized Loan from Officer and Shareholder [Member]
Current due to related parties	66,364	66,364
Accrued Interest [Member]
Current due to related parties	$ 203,623	$ 173,290

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Note 3 - Inventory

9 Months Ended

Sep. 30, 2012

Inventory Disclosure [Text Block]

NOTE 3 – INVENTORY

Inventory consists of:

	September 30, 2012		December 31, 2011
Engine material and parts	$	618,031	$	327,946
Labor		213,399		128,395
Applied overhead		32,012		19,259
Total Inventory	$	863,442	$	475,600

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Note 14 - Consolidated Subsidiaries (Detail) (USD $)	1 Months Ended	9 Months Ended	12 Months Ended
	Jul. 31, 2010	Sep. 30, 2012	Dec. 31, 2011	Dec. 31, 2010
Noncontrolling Interest, Ownership Percentage by Noncontrolling Owners	5.00%
Proceeds from Issuance or Sale of Equity	$ 100,000
Amortization Period for Services Performed by a Minority Investor				12 months
Equity Purchase Warrant Percentage				2.50%
Proceeds from Warrant Exercises				50,000
Stock Issued During Period, Value, Issued for Services	30,000	390,628	563,066
Amortization Period of Future Professional Services	12 months
Additional Equity in Subsidiary Could be Purchased by Options Issued	5.00%
Term of Options	5 years
Equity Method Investment, Summarized Financial Information, Net Income (Loss)			27,500
Cumulative Unallocated Losses to Non-Controlling Interest of Subsidiary			9,938
First Minority Investor [Member]
Noncontrolling Interest, Ownership Percentage by Noncontrolling Owners				5.00%
Proceeds from Issuance or Sale of Equity				30,000
Second Minority Investor [Member]
Noncontrolling Interest, Ownership Percentage by Noncontrolling Owners				5.00%
Proceeds from Issuance or Sale of Equity				$ 30,000
Minimum [Member]
Vesting Period of Options Issued	12 months
Maximum [Member]
Vesting Period of Options Issued	24 months

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Note 4 - Property and Equipment (Detail) - Property and Equipment (USD $)	Sep. 30, 2012	Dec. 31, 2011
Property and Equipment	$ 275,359	$ 184,784
Less: Accumulated Depreciation	(92,719)	(76,541)
Net Property and Equipment	182,640	108,243
Display Equipment for Trade Shows [Member]
Property and Equipment	9,648	9,648
Leasehold Improvements and Furniture and Fixtures [Member]
Property and Equipment	86,422	74,083
Equipment and Computers [Member]
Property and Equipment	$ 179,289	$ 101,053

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Note 3 - Inventory (Tables)

9 Months Ended

Sep. 30, 2012

Schedule of Inventory, Current [Table Text Block]

	September 30, 2012		December 31, 2011
Engine material and parts	$	618,031	$	327,946
Labor		213,399		128,395
Applied overhead		32,012		19,259
Total Inventory	$	863,442	$	475,600

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Note 1 - Organizational and Significant Accounting Policies (Tables)

9 Months Ended

Sep. 30, 2012

Fair Value, by Balance Sheet Grouping [Table Text Block]

Instrument	Beginning of Period		Change			End of Period		Level		Valuation Methodology
Derivative liabilities	$	494,626	$	(494,626	)	$	-		3	Black Scholes

Property, Plant and Equipment, Estimated Useful Lives

Display equipment for trade shows (years)			3
Leasehold improvements and furniture and fixtures (years)	10	-	15
Shop equipment (years)			7
Computers (years)			3

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Note 11 - Income Taxes (Detail) (USD $) In Millions, unless otherwise specified	Jun. 30, 2012
Operating Loss Carryforwards (in Dollars)	$ 13
Percentage that Carry Forwards Will Expire Unused	50.00%

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Note 5 - Patents and Trademarks and Copyrights (Detail) (USD $)	9 Months Ended		12 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011
Finite-Lived Intangible Assets, Net	$ 415,776		$ 440,001
Patents, Trademarks and Copyrights Capitalized	5,791		78,902
Finite-Lived Intangible Asset, Useful Life	15 years
Amortization of Intangible Assets	$ 30,016	$ 25,987

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Note 4 - Property and Equipment (Tables)

9 Months Ended

Sep. 30, 2012

Property, Plant and Equipment [Table Text Block]

	September 30, 2012			December 31, 2011
Display equipment for trade shows	$	9,648		$	9,648
Leasehold improvements and furniture and fixtures		86,422			74,083
Equipment and computers		179,289			101,053
Total		275,359			184,784
Less: Accumulated Depreciation		(92,719	)		(76,541	)
Net Property and Equipment	$	182,640		$	108,243

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Note 6 - Notes and Other Loans Payable (Tables)

9 Months Ended

Sep. 30, 2012

Schedule of Debt [Table Text Block]

	September 30, 2012		December 31, 2011
Convertible Notes payable, OID 9% interest ($436,000 payable at maturity) maturing in August- September 2013, net of warrants, collateralized by the Company’s receivables from the US Army contract (A)	$	331,706	$	-
Pursuant to 9% OID Notes, 1,162,667 warrants (valued at $79,577) issued net of $8,410 amortization		71,167		-
Demand note, uncollateralized, maturing April 2013 18% interest, (12% prepaid with stock and 6% payable in cash at maturity)		40,000		-
6-20% uncollateralized demand notes maturing Dec. 2012-May 2013		87,500		30,000
Total current non related party notes (accrued interest is included in accrued liabilities)	$	530,373	$	30,000

Related Party Notes and Other Loans Payable [Table Text Block]

	September 30, 2012		December 31, 2011
6% demand loan from controlling shareholder, uncollateralized (A)	$	11,285	$	11,285
6% demand loans per Operations Agreement with Schoell Marine Inc., a company owned by Cyclone’s Chairman and controlling shareholder, collateralized by lien on Cyclone’s patent for heat regenerative engine (B)		459,608		427,332
6% non-collateralized loan from officer and shareholder, payable on demand. The original principle balance was $137,101.		66,364		66,364
Accrued Interest		203,623		173,290
Total current related party notes, inclusive of accrued interest	$	740,880	$	678,271

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Note 2 - Going Concern

9 Months Ended

Sep. 30, 2012

Going Concern [Text Block]

NOTE 2 - GOING CONCERN

As shown in the accompanying financial statements, the Company incurred substantial operating losses of $2.3 million, for the nine months ended September 30, 2012 and $3.8 million for the year ended December 31, 2011. The cumulative deficit since inception is approximately $48.1 million, which is comprised of $17.3 million attributable to operating losses and other expenses, and includes $30.8 million in non-cash derivative liability accounting.  The Company has a working capital deficit at September 30, 2012 of approximately $2.8  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 and debt, advance contract payments (deferred revenue) and advances from and deferred payments to related parties.

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Note 10 - Stock Options and Warrants (Tables)

9 Months Ended

Sep. 30, 2012

Schedule of Share-based Compensation, Stock Options, Activity [Table Text Block]

	Number Outstanding			Weighted Avg. Exercise Price			Weighted Avg. Remaining Contractual Life (Years)
Balance, December 31, 2010		3,040,000		$	0.188			5.0
Options issued		3,115,000			.299			7.9
Options exercised		(20,000	)		(.100	)		-
Options cancelled		(100,000	)		(.246	)		-
Balance, December 31, 2011		6,035,000		$	0.208			6.0
Options issued		3,090,000			. 157			8.4
Options exercised		(30,000	)		(.120	)		-
Options cancelled		(105,000	)		(.212	)		-
Balance, September 30, 2012		8,990,000		$	0.193			7.5

Vested and Exercisable Options [Table Text Block]

	Exercisable/Vested Options Outstanding		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Yrs)
Common Stock Options
Balance, December 31, 2011		3,020,000	$	0.189		5.0
Balance, September 30, 2012		5,020,000		0.169		6.8
Additional vesting by Dec. 31, 2012		895,000		0.190

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions [Table Text Block]

	Nine Months Ended September 30, 2012								Year Ended December 31, 2011
Risk free interest rate		.30	%	-			.72	%		.39	%	-			1.20	%
Expected volatility		66	%	-			68	%		132	%	-			231	%
Expected term in years		3		-			5			5		-			10
Expected dividend yield				0	%							0	%
Average value per options and warrants	$	.03		-		$	.11		$	.13		-		$	.31

Schedule of Stockholders' Equity Note, Warrants or Rights [Table Text Block]

	Number Outstanding			Weighted Average Exercise Price			Weighted Average Remaining Contractual Life (Years)
Common Stock Warrants
Balance, December 31, 2010		770,500		$	.150			1.67
Warrants issued		3,611,251			.290			2.23
Warrants exercised		-			-			-
Warrants cancelled		-			-			-
Balance, December 31, 2011		4,381,751			.265			1.99
Warrants issued		3,671,359			.201			3.42
Warrants exercised		-			-			-
Warrants re-priced		-			(.087	)		-
Warrants cancelled/expired		(1,520,500	)		(.224	)		-
Balance, September 30, 2012		6,532,610		$	.237			2.81

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Note 2 - Going Concern (Detail) (USD $)	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011
Operating Income (Loss)	$ (613,631)	$ (777,087)	$ (2,299,243)	$ (2,746,724)	$ (3,800,000)
Retained Earnings (Accumulated Deficit)	(48,124,029)		(48,124,029)		(45,722,829)
Working Capital Deficit	(2,800,000)		(2,800,000)
Attributable to Operating Losses [Member]
Retained Earnings (Accumulated Deficit)	(17,300,000)		(17,300,000)
Attributable to Non-Cash Derivative Liability Accounting [Member]
Retained Earnings (Accumulated Deficit)	$ (30,800,000)		$ (30,800,000)

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Note 10 - Stock Options and Warrants (Detail) - Vested and Exercisable Options (USD $)	9 Months Ended	12 Months Ended
	Sep. 30, 2012	Dec. 31, 2011	Dec. 31, 2012
Exercisable/Vested Options Outstanding	5,020,000	3,020,000	895,000
Weighted Average Exercise Price (in Dollars per share)	$ 0.169	$ 0.189	$ 0.190
Weighted Average Remaining Contractual Life	6 years 292 days	5 years

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Consolidated Balance Sheets (USD $)	Sep. 30, 2012	Dec. 31, 2011
CURRENT ASSETS
Cash	$ 98,408	$ 66,486
Inventory	863,442	475,600
Other current assets	60,121	4,846
Total current assets	1,021,971	546,932
PROPERTY AND EQUIPMENT
Furniture, fixtures, and equipment	275,359	184,784
Less: Accumulated depreciation	(92,719)	(76,541)
Net property and equipment	182,640	108,243
OTHER ASSETS
Patents, trademarks and copyrights	563,638	557,847
Less: Accumulated amortization	(147,862)	(117,846)
Net patents, trademarks and copyrights	415,776	440,001
Other assets	2,156	2,422
Total other assets	417,932	442,423
Total Assets	1,622,543	1,097,598
CURRENT LIABILITIES
Accounts payable and accrued expenses	467,710	263,131
Factored receivables	0	43,169
Accounts payable and accrued expenses-related parties	1,497,590	1,305,772
Notes and other loans payable	530,373	30,000
Notes and other loans payable-related parties	740,880	678,271
Capitalized lease obligations-current portion	772	898
Deferred revenue and license deposits	619,786	860,811
Total current liabilities	3,857,111	3,182,052
NON CURRENT LIABILITIES
Capitalized lease obligations-net of current portion	22,937	2,155
Derivative liabilities-warrant		494,626
Total non-current liabilities	22,937	496,781
Total liabilities	3,880,048	3,678,833
STOCKHOLDERS' DEFICIT
Common stock, $.0001 par value, 300,000,000 shares authorized, 237,559,317 and 223,635,129 shares issued and outstanding at September 30, 2012 and December 31, 2011, respectively.	23,755	22,364
Additional paid-in capital	45,852,183	43,001,168
Prepaid expenses with common stock	(127,476)
Stock subscription receivable	(12,000)	(12,000)
Accumulated deficit	(48,124,029)	(45,722,829)
Total stockholders' deficit-Cyclone Power Technologies Inc.	(2,387,567)	(2,711,297)
Non controlling interest in consolidated subsidiary-Cyclone WHE LLC	130,062	130,062
Total Stockholders' Deficit	(2,257,505)	(2,581,235)
Total Liabilities and Stockholders' Deficit	1,622,543	1,097,598
Series B Preferred Stock [Member]
STOCKHOLDERS' DEFICIT
Series B preferred stock, $.0001 par value, 1,000 shares authorized, 1,000 shares issued and outstanding at September 30, 2012 and December 31, 2011, respectively.

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Note 6 - Notes and Other Loans Payable (Detail) (USD $)	9 Months Ended
	Sep. 30, 2012
Limit on Receipts from U.S. Army Used to Prepay Debt	50.00%
Debt Instrument, Face Amount	$ 40,000
Number of Shares of Convertible Preferred Stock Issued for Note Payable (in Shares)	8,000
Proceeds from Sale of Treasury Stock	40,000
Debt Instrument, Interest Rate, Stated Percentage	6.00%
Repayments of Notes Payable	$ 4,550
6% Demand Loan from Controlling Shareholder [Member]
Debt Instrument, Convertible, Conversion Price (in Dollars per share)	$ 0.15

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Consolidated Statements of Cash Flows (Unaudited) (USD $)	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$ (2,401,200)	$ (23,178,247)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization	46,194	41,563
Loss allocated to non controlling intereest in subsidiary		(4,813)
Issuance of restricted common stock, options and warrants for services	1,002,867	1,221,108
Issuance of common stock for debt refinancing	25,600
Issuance of restricted common stock for contract penalty	50,000	225,000
Amortization of prepaid expenses purchased with equity		27,500
Amortization of prepaid expenses via common stock	120,034
Changes in operating assets and liabilities:
Decrease in accounts receivable	178,311	4,200
(Increase) decrease in inventory	48,836	(318,450)
Increase in other assets	(55,009)	(9,493)
Decrease in deferred revenue and license deposits	(419,336)	(182,500)
Increase in accounts payable and accrued expenses	178,275	201,961
Decrease in factored receivables	(43,169)
Increase in accounts payable and accrued expenses-related parties	191,818	212,595
Net cash used by operating activities	(1,191,405)	(1,386,191)
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures incurred for patents, trademarks and copyrights	(5,791)	(79,343)
Expenditures for fixed assets	(69,265)	(36,686)
Net cash used by investing activities	(75,056)	(116,029)
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of Series A Preferred treasury stock		40,000
Payment of capitalized leases	(654)	(6,091)
Proceeds from debt	925,000
Repayment of debt	(427,500)
Proceeds from sale of common stock	738,929	1,367,785
Proceeds from sale of preferred stock		192,735
Increase in related party notes and loans payable	62,608	(27,218)
Net cash provided by financing activities	1,298,383	1,567,211
Net increase in cash	31,922	64,991
Cash, beginning of period	66,486	6,557
Cash, end of period	98,408	71,548
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Payment of interest in cash	29,358	808
NON CASH INVESTING AND FINANCING ACTIVITIES:
Purchase of 8,000 shares of Series A Preferred treasury stock via note payable		40,000
Issuance of 739,772 shares of Common stock for prepaid interest and debt commission	120,034
Issuance of 2,000,000 shares of Common stock for cashless warrant exercise	380,000
Issuance of 1,500,000 shares of Common stock pursuant to purchase of Advent Power Systems Inc.	330,000
Issuance of 125,000 shares of Common stock for consulting agreement	27,500
Conversion of debt and liabilities by issuing 213,975 shares of common stock		39,804
Warrant [Member]
Adjustments to reconcile net loss to net cash used by operating activities:
Loss (income) from derivative liability	(114,626)	602,299
Series A Convertible Preferred Stock [Member]
Adjustments to reconcile net loss to net cash used by operating activities:
Loss (income) from derivative liability		$ 19,771,086

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Note 12 - Lease Obligations (Detail) (USD $)	1 Months Ended			9 Months Ended	12 Months Ended
	Sep. 30, 2012 sqft	Jul. 31, 2012	Jul. 31, 2011 sqft	Sep. 30, 2012 sqft	Dec. 31, 2009
Property and Equipment, Amount Acquired Via Capitalized Lease Obligations	$ 21,310				$ 27,401
Capitalized Lease Obligations, Average Interest Rate	12.50%			12.50%	18.40%
Repayments of Debt and Capital Lease Obligations				654
Capital Lease Obligations	23,709			23,709
Lease Term		1 year	1 year
Area of Real Estate Property (in Square feet)	6,000		2,000	6,000
Rental Rate (in Dollars per Square feet)			8.25
Operating Leases, Rent Expense				14,095
Contracted Annual Lease Rate		$ 16,800
Lease Rate (in Dollars per Square feet)		8.40
Lease Extension Period		1 year

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Note 16 - Derivative Liabilities (Tables)

9 Months Ended

Sep. 30, 2012

Phoenix Stock Warrants [Member]

Fair Value Assumptions [Table Text Block]

Risk free rate	.39	%
Expected volatility	108	%
Expected term in years	2
Expected dividend yield	0	%

Series A Convertible Preferred Stock [Member]

Fair Value Assumptions [Table Text Block]

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

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Note 16 - Derivative Liabilities (Detail) - Fair Value Assumptions (Conversion Option [Member])	6 Months Ended
	Jun. 30, 2012
Expected term in years	5 years
Expected dividend yield	0.00%
Minimum [Member]
Risk free rate	1.27%
Expected volatility	150.00%
Maximum [Member]
Risk free rate	2.69%
Expected volatility	400.00%

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Note 16 - Derivative Liabilities

9 Months Ended

Sep. 30, 2012

Derivatives and Fair Value [Text Block]

NOTE 16 - DERIVATIVE LIABILITIES

The Company had 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.  The resulting derivative liability has been presented at its fair value on the accompanying balance sheets 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 95.1 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. There is no derivative liability related to this issuance as of September 30, 2012 or December 31, 2011. The fair value of the conversion option options 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
Expected dividend yield			0	%

Phoenix Common Stock Warrant

As part of the Company’s license agreement with Phoenix Power Group (“Phoenix”), in 2009 the Company agreed to issue to Phoenix a common stock purchase warrant (the “Phoenix Warrant”) at a price of $.19 per share, equal to two (2%) percent of the total issued, outstanding, convertible debt and dilutive common stock of the Company at the time of exercise. The number of shares into which the Phoenix Warrant was convertible was contingent upon the number of shares outstanding at the date it was exercised. The Phoenix Warrant was to vest upon the delivery of the first two prototype Cyclone Mark V Engines to Phoenix and payment by Phoenix of the full $400,000 license fee, and terminate 24 months thereafter, and were non-transferable. As of December 31, 2011, the calculated number of shares into which the Phoenix Warrant was convertible was 4.68 million, and was valued at approximately $494,626 (by the Black Scholes valuation method).  It was 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.  Because the number of shares issuable upon exercise of the Phoenix Warrant was unknown until the time of exercise, and there was no limit to the number of shares that were to be issuable upon exercise, the Phoenix Warrant was required to be accounted for as a derivative liability. The resulting derivative liability of $494,626 from the Warrant was presented at its fair value on the accompanying December 31, 2011 balance sheet with changes in fair value reported in the statement of operations.  In March 2012, the Company entered into an agreement with Phoenix to effect a cashless exercise of the Phoenix Warrant into 2 million shares of restricted common stock (valued at $380,000) and to retire the Phoenix Warrant. In the first quarter of 2012, the Company recognized a $114,626 gain on retiring the derivative liability.

The fair value of the warrants, at December 31, 2011, had been estimated using the Black Scholes model using the following assumptions:

Risk free rate	.39	%
Expected volatility	108	%
Expected term in years	2
Expected dividend yield	0	%

A summary of the fair value of the Company’s derivative liabilities is provided in Note 1.K.

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Note 19 - Acquisition of Advent (Tables)

9 Months Ended

Sep. 30, 2012

Schedule of Purchase Price Allocation [Table Text Block]

Inventory and contract rights:	$	587,489
Deferred revenue:		(178,311	)
Account payable and accrued expenses:		(79,178	)
Total:	$	330,000

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Note 18 - Receivables Factoring

9 Months Ended

Sep. 30, 2012

Other Liabilities Disclosure [Text Block]

NOTE 18 – RECEIVABLES FACTORING

In the last quarter of  2011, the Company had entered into a factoring (purchase and sale agreement) to factor 85% the face value of receivables presented  at  interest rates on the outstanding balances of 1.85% for the first 30 days, and 1.10 % each 15 days thereafter. The factor repayment liability at September 30, 2012 and December 31, 2011 was $0 and $43,169, respectively. Interest expense for the nine months ended September 30, 2012 and the year ended December 31, 2011 was $1,588 and $1,415, respectively. The agreement was personally guaranteed by one of the Company’s officers.

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Note 18 - Receivables Factoring (Detail) (USD $)	9 Months Ended	12 Months Ended
	Sep. 30, 2012	Dec. 31, 2011
Percentage of Face Value of Receivables to be Factored		85.00%
Other Liabilities, Current	$ 0	$ 43,169
Interest Expense, Other	$ 1,588	$ 1,415
First 30 Days [Member]
Interest Rate on Outstanding Balance of Factored Receivables		1.85%
Each 15 Days after First 30 Days [Member]
Interest Rate on Outstanding Balance of Factored Receivables		1.10%

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Note 1 - Organizational and Significant Accounting Policies

9 Months Ended

Sep. 30, 2012

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

NOTE 1 – ORGANIZATIONAL AND SIGNIFICANT ACCOUNTING POLICIES

A.      ORGANIZATION AND OPERATIONS

Cyclone Power Technologies, Inc. (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 par 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 “WHE Subsidiary”) to market the waste heat recovery systems for all Cyclone engine models. As of September 30, 2012, the Company had an 82.5% controlling interest in the WHE Subsidiary. In March 2012, the company established Cyclone Performance LLC (“TeamSteam”) f/k/a Cyclone-TeamSteam USA, LLC, as a wholly owned subsidiary. The purpose of TeamSteam is to build, test and run a vehicle utilizing the Company’s engine.

The Company is primarily a research and development engineering company whose main purpose is to develop, commercialize, market and license its Cyclone engine technology.

B.      PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION

The unaudited consolidated financial statements include the accounts of the Company, its 82.5% owned WHE Subsidiary and its 100% owned subsidiary Cyclone Performance LLC.  All material inter-company transactions and balances have been eliminated in the consolidated financial statements. 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 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 (“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.

C.      SUBSEQUENT EVENTS

The Company follows Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 855, “Subsequent Events”.  ASC 855 offers assistance and establishes 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. Management evaluated events occurring between the Balance Sheet date of September 30, 2012, and when the financial statements were available to be issued. Subsequent events that require disclosure are provided in Note 20.

D.      CASH

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

E.      ACCOUNTS RECEIVABLE

Accounts receivable consist of amounts due pursuant to engine delivery and research and development prototype charges. At September 30, 2012 and December 31, 2011, there were no uncollected progress billings and no allowance for doubtful accounts was deemed necessary.

F.      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, 2012, total anti-dilutive shares amounted to approximately 18.7 million shares.

G.      INCOME TAXES

Income taxes are accounted for under the asset and liability method as stipulated by ASC 740, “Income Taxes” (“ASC 740”). 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.

In 2009, the Company adopted certain provisions under 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.

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, 2012, 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 2009 through 2011.

H.      REVENUE RECOGNITION

The Company’s revenue recognition policies are in compliance with ASC 605, “Revenue Recognition – Multiple Element Arrangements”, and Staff Accounting Bulletin (“SAB”) 104, Revenue Recognition. 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. The Company has determined that the milestone method of revenue recognition (ASC 605-28) is appropriate for one of the Company’s contracts as the contract enumerates specific approved work effort milestones required for remuneration. The Company achieved the first milestone in July 2012 and recognized revenue and related costs of goods sold of approximately $502,000 and $333,000, respectively, as included in the accompanying consolidated statements of operations.  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 periodically when earned, as reported in sales statements from customers. The Company does not have any royalty revenue to date.

I.       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.

J.      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.

K.      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 January 1, 2012 (beginning of period) and September 30, 2012 (end of period) is as follows:

Instrument	Beginning of Period		Change			End of Period		Level		Valuation Methodology
Derivative liabilities	$	494,626	$	(494,626	)	$	-		3	Black Scholes

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

L.      RESEARCH AND DEVELOPMENT

Research and development activities for product development are expensed as incurred.  Costs for the nine months ended September 30, 2012 and 2011 were $772,468 and $544,544, respectively.

M.     STOCK BASED COMPENSATION

The Company applies the fair value method of ASC 718, “Share Based Payment”, 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.

N.      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”.

O.      ORIGINAL ISSUE DEBT DISCOUNT

The original issue discount (OID) related to notes payable is being amortized by the effective interest method over the repayment period of the notes.  The unamortized OID is represented as a reduction of the amount of the notes payable.

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:

Display equipment for trade shows (years)			3
Leasehold improvements and furniture and fixtures (years)	10	-	15
Shop equipment (years)			7
Computers (years)			3

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.      RECENT ACCOUNTING PRONOUNCEMENTS

In July 2012, the FASB issued an Accounting Standard Update (“ASU”) 2012-02 “Intangibles-Goodwill and Other” which allows for the initial use of qualitative factors, prior to any required quantitative test in determining impairment. This standard was effective as of September 15, 2012 and did not materially impact our financial statement disclosures.

In December 2011, the FASB issued an Accounting Standard Update (“ASU”) 2011-11 that requires disclosures about offsetting and related arrangements for recognized financial instruments and derivative instruments. The standard is effective for use as of January 1, 2013 and will impact our financial statement disclosures.

T.      CONCENTRATION OF RISK

The Company does not have any off-balance-sheet concentrations of credit risk.  The Company expects cash and accounts receivable to be the two assets most likely to subject the Company to concentrations of credit risk. The Company’s policy is to maintain its cash with high credit quality financial institutions to limit its risk of loss exposure. The Company plans to minimize its accounts receivable credit risk by transacting contractual arrangements with customers that have been subjected to credit evaluations and structuring the contracts in a manner that lessens inherent credit risks.

As of September 30, 2012, the Company maintained its cash in two quality financial institutions.  The Company has not experienced any losses in its bank accounts through September 30, 2012.   

The Company purchases raw material and components from multiple sources, none of which may be considered a principal or material supplier.  If necessary, the Company could replace these suppliers with minimal effect on its business operations. 

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Consolidated Balance Sheets (Parentheticals) (USD $)	Sep. 30, 2012	Dec. 31, 2011
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	237,559,317	223,635,129
Common stock, shares oustanding	237,559,317	223,635,129
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 outstanding	1,000	1,000

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Note 11 - Income Taxes

9 Months Ended

Sep. 30, 2012

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, 2012 and 2011 are as follows:

	Nine Months ended September 30, 2012			Amount			Nine Months ended September 30, 2011			Amount
Tax benefit at U.S. statutory rate		34	%	$	785,256			34	%	$	883,529
State taxes, net of federal benefit		4			92,383			4			103,944
Change in valuation allowance		(38	)		(877,639	)		(38	)		(987,473	)
		-	%	$	-			-	%	$	-

The tax effect of temporary differences that give rise to significant portions of the deferred tax assets and liabilities as of September 30, 2012 and for the year ended December 31, 2011 consisted of the following:

Deferred Tax Assets	September 30, 2012			December 31, 2011
Net Operating Loss Carry-forward	$	6,376,506		$	5,420,492
Deferred Tax Liabilities – Accrued Officers’ Salaries		( 309,510	)		(231,135	)
Net Deferred Tax Assets		6,066,996			5,189,357
Valuation Allowance		(6,066,996	)		(5,189,357	)
Total Net Deferred Tax Assets	$	-		$	-

As of September 30, 2012, the Company had a net operating loss carry forward for income tax reporting purposes of approximately $13 million that may be offset against future taxable income through 2027. 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, 2012	Nov. 15, 2012
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		237,628,080
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, 2012
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q3

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Note 12 - Lease Obligations

9 Months Ended

Sep. 30, 2012

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%. In September 2012, the company acquired $21,310 of equipment via capitalized lease obligations at an interest rate of 12.5%. Total lease payments made in the nine months ended September 30, 2012 were $654. The balance of leases payable at September 30, 2012 was $23,709. Future lease payments are:

2012	$	772
2013		4,541
2014		4,898
2015		4,383
2016		9,115
	$	23,709

B.  LEASE ON ADDITIONAL FACILITIES

In July 2011, the Company signed a one-year lease for an additional 2,000 square feet at a rate of $8.25/ s.f. The lease expense for the nine months ending September was $14,095. Effective July 2012, the Company renewed this lease for one year, at an annual rate of $16,800 or $8.40/s.f, terminating in September 2013. The lease has a remaining 1-year extension.

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Consolidated Statements of Operations (Unaudited) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
REVENUES	$ 502,045	$ 250,000	$ 882,490	$ 250,000
COST OF GOODS SOLD	333,438	148,934	555,346	399,801
Gross profit (loss)	168,607	101,066	327,144	(149,801)
OPERATING EXPENSES
Advertising and promotion	32,783	17,271	71,585	49,565
General and administrative	475,810	814,070	1,782,334	2,002,814
Research and development	273,645	46,812	772,468	544,544
Total operating expenses	782,238	878,153	2,626,387	2,596,923
Operating loss	(613,631)	(777,087)	(2,299,243)	(2,746,724)
OTHER INCOME (EXPENSE)
Other (expense)			(25,600)	(26,964)
Interest (expense)	(127,308)	(10,273)	(190,983)	(31,174)
Total other income (expense)	(127,308)	38,186	(101,957)	(20,431,523)
Loss before income taxes	(740,939)	(738,901)	(2,401,200)	(23,178,247)
Income taxes
Net loss	(740,939)	(738,901)	(2,401,200)	(23,178,247)
Net loss per common share, basic (in Dollars per share)	$ 0.00	$ 0.00	$ (0.01)	$ (0.16)
Weighted average number of common shares outstanding (in Shares)	235,532,775	218,968,632	228,635,399	143,237,904
Warrant [Member]
OTHER INCOME (EXPENSE)
Derivative income (expense)		48,459	114,626	(602,299)
Preferred Stock [Member]
OTHER INCOME (EXPENSE)
Derivative income (expense)				$ (19,771,086)

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Note 6 - Notes and Other Loans Payable

9 Months Ended

Sep. 30, 2012

Debt Disclosure [Text Block]

NOTE 6 – NOTES AND OTHER LOANS PAYABLE

A summary of non-related party notes and other loans payable is as follows:

	September 30, 2012		December 31, 2011
Convertible Notes payable, OID 9% interest ($436,000 payable at maturity) maturing in August- September 2013, net of warrants, collateralized by the Company’s receivables from the US Army contract (A)	$	331,706	$	-
Pursuant to 9% OID Notes, 1,162,667 warrants (valued at $79,577) issued net of $8,410 amortization		71,167		-
Demand note, uncollateralized, maturing April 2013 18% interest, (12% prepaid with stock and 6% payable in cash at maturity)		40,000		-
6-20% uncollateralized demand notes maturing Dec. 2012-May 2013		87,500		30,000
Total current non related party notes (accrued interest is included in accrued liabilities)	$	530,373	$	30,000

(A) Convertible at $.15 per share, subject to price protection provisions. The Company is obligated to prepay these Notes with a portion of its receipts from the U.S. Army contract, not to exceed 50% of such receipts, if the Notes are not previously converted.

A summary of related party notes and other loans payable is as follows:

	September 30, 2012		December 31, 2011
6% demand loan from controlling shareholder, uncollateralized (A)	$	11,285	$	11,285
6% demand loans per Operations Agreement with Schoell Marine Inc., a company owned by Cyclone’s Chairman and controlling shareholder, collateralized by lien on Cyclone’s patent for heat regenerative engine (B)		459,608		427,332
6% non-collateralized loan from officer and shareholder, payable on demand. The original principle balance was $137,101.		66,364		66,364
Accrued Interest		203,623		173,290
Total current related party notes, inclusive of accrued interest	$	740,880	$	678,271

(A) This note (originally $40,000) was issued to finance the purchase of 8,000 shares of the Company’s Series A Preferred Stock. This treasury stock was subsequently sold for $40,000.

(B) This note arose from services and salaries 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. For the nine months ended September 30, 2012, $4,550 of principal was paid on the note balance.

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Note 5 - Patents and Trademarks and Copyrights

9 Months Ended

Sep. 30, 2012

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 20 other countries, and patents pending in two 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, 2012 and December 31, 2011 was $415,776 and $440,001, respectively. For the nine months ended September 30, 2012 and for the year ended December 31, 2011, the Company capitalized $5,791 and $78,902, 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, 2012 and 2011 were $30,016 and $25,987, respectively.

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Note 17 - Receivables, Deferred Revenue and Backlog

9 Months Ended

Sep. 30, 2012

Deferred Revenue Disclosure [Text Block]

NOTE 17 – RECEIVABLES, DEFERRED REVENUE AND BACKLOG

As of September 30, 2012, the Company has no billed accounts receivable. In September 2012 the Company had collected $502,045, which relates to work in progress billings due from the U.S. Army/TACOM contract (see Note 19), which has been recorded as revenue under  the milestone method of revenue recognition for the contract.

As of September 30, 2012, total backlog for prototype engines to be delivered in the following twelve months was $2.2 million, of which approximately $1.25 million has been paid under the Company’s Phoenix Power, U.S. Army and Combilift agreements. The Company expects the balance 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, 2012

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; Frankie Fruge, COO, at $120,000 per year; and Christopher Nelson, President and General Counsel, at $130,000 per year (collectively, the “Executives”). These agreements provide for a term of three (3) years from their Effective Date (July 2007 in the case of Schoell and Fruge, and August 2011 in the case of Nelson), with automatically renewing successive one year periods starting on the end of the second anniversary of the Effective Date. If the 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/she not terminated, during the 12 months following his or her termination.

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Note 9 - Stock Transactions

9 Months Ended

Sep. 30, 2012

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 from related and third parties to assist in the funding of operations. 

During the nine months ended September 30, 2012, the Company issued 3,434,356 shares of restricted common stock valued at $576,045 for outside services, and 130,000 shares of restricted common stock valued at $20,000 for employee services.  Additionally, the Company amortized  (based on vesting) $370,627 of common stock options for employee services, and $76,194 of common stock warrants, previously issued for outside services.  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 third quarter of 2012, the Company closed a private placement with GEM Global Yield Fund Ltd. (“GGYF”) for the purchase of 2,135,812 shares of common stock for $243,929 (after related expenses). In connection with the offering, the Company also issued 68,682 common stock warrants valued at $ 2,236 as a commission.

During the nine months ended September 30, 2012, the Company sold 3,138,750 shares of restricted common stock for $495,000  inclusive of 2,440,000 common stock warrants valued at $173,369 (valued by the Black Scholes model).

During the nine months ended September 30, 2012, the Company issued 545,498 shares of restricted common stock valued at $100,000 as satisfaction of a contract penalty agreement; 481,183 shares of common stock valued at $87,467 as partial prepayment of interest on debt; 258,609 shares of common stock valued at $40,467 in satisfaction for commission on funds raised through the private placement; and 160,000 shares of common stock pursuant to a loss on debt conversion of $25,600.

In March 2012, the Company issued 2,000,000 shares of common stock (valued at $380,000) pursuant to the cashless conversion of a common stock warrant. Pursuant to this transaction, the warrant which was potentially convertible into 4.7 million shares (based on 2% of the total issued and outstanding stock of the Company) was retired.  Common stock options were also converted into 15,000 shares of common stock via a cashless exchange.

In February 2012, the Company issued 1,500,000 shares of common stock, valued at $330,000, pursuant to the acquisition of the net business assets of Advent Power Systems Inc., plus an additional 125,000 shares valued at $27,500 to a consultant.

In 2011, the Company issued 687,024 shares of restricted common stock valued at $196,372 for employee services, of which $185,705 was charged to general and administrative services, and $10,667 was for research and development related services and activities. Additionally, the Company amortized (based on vesting) $366,694 of common stock options, previously issued.

In 2011, the Company issued 3,754,036 shares of restricted common stock, valued at $1,004,021 for outside services and amortized $25,398 of previously issued common stock warrants for outside services.

In 2011, the Company sold 8,511,764 shares of restricted common stock for $1,487,778 which included 2,861,251 common stock warrants valued at $390,488 (valued by the Black Scholes model), and 44,547 shares of Series A Preferred stock for $192,735.

In 2011, the Company issued 1,309,306 shares of restricted common stock, valued at $300,000, as satisfaction of a contract penalty agreement; 213,975 shares of common stock, valued at $39,804, in satisfaction for notes and accrued interest of $12,804; and 25,000 shares of common stock in settlement of a dispute. 20,000 common stock options were also converted via a cashless exercise into 13,889 shares of common stock.

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Note 12 - Lease Obligations (Detail) - Future Lease Payments (USD $)	Sep. 30, 2012
2012	$ 772
2013	4,541
2014	4,898
2015	4,383
2016	9,115
	$ 23,709

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Note 7 - Related Party Transactions

9 Months Ended

Sep. 30, 2012

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, 2012 and 2011 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 day notice by Schoell Marine.

B. DEFERRED COMPENSATION

Included in related party payables as of September 30, 2012 and December 31, 2011 are $1,497,590 and $1,305,722, respectively, of accrued and deferred officers’ salaries compensation which will 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, 2012

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, of which there were 750,000 outstanding at the time, 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 Company did not receive any additional consideration from the conversion. During 2011, the Company recorded non-cash derivative expenses of $19,771,086 and eliminated the related derivative liability with respect to the conversion and the retirement of Series A Preferred.

The Series B Preferred Stock is majority voting stock and is held by the two co-founders of the Company. 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 Series B Preferred Stock shares are convertible on a one-for-one basis with the common stock in the instance the Company is merged, sold or otherwise dissolved.

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Note 10 - Stock Options and Warrants

9 Months Ended

Sep. 30, 2012

Stock Options And Warrants [Text Block]

NOTE 10 – STOCK OPTIONS AND WARRANTS

A.   COMMON STOCK OPTIONS

In recognition of and compensation for services rendered by employees for the nine months ended September 30, 2012, the Company issued 3,090,000 common stock options, valued at $254,577 (valued pursuant to the Black Scholes valuation model) that are exercisable into shares of common stock at exercise prices of $.13 to $.18 and a maturity life of 5-10 years. These options have a 1-year vesting requirement and the Company estimates that these options will be exercised within 3-5 years of issue. For the nine months ended September 30, 2012, the income statement charge for the amortization of stock options was $370,627 and the unamortized balance was $190,085.  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. In quarter ended June 30, 2012, the Company also extended the exercise terms of 450,000 vested options issued in 2010 from 2 years to 10 years, offset by an increase in the exercise price from $.15 to $.20.

For the year ended December 31, 2011, in recognition of and compensation for services rendered by employees, the Company issued common stock options, valued at $446,849, (valued pursuant to the Black Scholes valuation model) that are exercisable into 3,115,000 shares of common stock, with a per share range of exercise prices of $.19-$.30 (average exercise price per share of $.23) and a maturity life of 5-10 years (an average maturity life of 7.9 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 year ended December 31, 2011, the income statement charge for the amortization of stock options was $366,615, and the unamortized balance was $314,814.

The Company’s 2010 Stock Option Plan (the “2010 Plan”), effective July 1, 2010, provided 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 were authorized under the 2010 Plan, all of which have been issued. The 2010 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.

In April 2012, the Company adopted its 2012 Stock Option Plan (the “2012 Plan”) by a unanimous vote of the Board of Directors. The 2012 Plan has the same terms, conditions and governance as the 2010 Plan. Up to 5 million shares of common stock may be issued under the 2012 Plan.

A summary of the common stock options for the period from December 31, 2010 through September 30, 2012 follows:

	Number Outstanding			Weighted Avg. Exercise Price			Weighted Avg. Remaining Contractual Life (Years)
Balance, December 31, 2010		3,040,000		$	0.188			5.0
Options issued		3,115,000			.299			7.9
Options exercised		(20,000	)		(.100	)		-
Options cancelled		(100,000	)		(.246	)		-
Balance, December 31, 2011		6,035,000		$	0.208			6.0
Options issued		3,090,000			. 157			8.4
Options exercised		(30,000	)		(.120	)		-
Options cancelled		(105,000	)		(.212	)		-
Balance, September 30, 2012		8,990,000		$	0.193			7.5

The vested and exercisable options at period end follows:

	Exercisable/Vested Options Outstanding		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Yrs)
Common Stock Options
Balance, December 31, 2011		3,020,000	$	0.189		5.0
Balance, September 30, 2012		5,020,000		0.169		6.8
Additional vesting by Dec. 31, 2012		895,000		0.190

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 September 30, 2012								Year Ended December 31, 2011
Risk free interest rate		.30	%	-			.72	%		.39	%	-			1.20	%
Expected volatility		66	%	-			68	%		132	%	-			231	%
Expected term in years		3		-			5			5		-			10
Expected dividend yield				0	%							0	%
Average value per options and warrants	$	.03		-		$	.11		$	.13		-		$	.31

Expected volatility is based on historical volatility of the Company’s common stock price. 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 “Accounting for Stock Based Compensation,” 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 issuances.

B.   COMMON STOCK WARRANTS

Outstanding-

In the first nine months of 2012, the Company issued 2,440,000 warrants at a $.20 exercise price (valued at $173,369) with a 3 year term, pursuant to the sale of common stock to unaffiliated third parties. Also, in recognition of these warrants issued in 2012 for common stock sales, the Company re-priced 2,843,750 warrants issued in 2011 (pursuant to the sale of common stock) to a $.20 exercise price from a $.27-$.32 price. The Black Scholes valuation of the re-priced warrants is $232,383 as compared to the initial valuation of $589,238.

In the third quarter of 2012, the Company issued 1,162,667 warrants at a $.20 exercise price with a 5 year term (valued at $97,454) in connection with $436,000 of debt financing. The Company issued an additional 68,692 warrants at an exercise price of $.27 with a 3 year term (valued at $2,236) pursuant to commission on common stock sale. Also, 1,520,500 warrants at an average exercise price of $.224 expired during the quarter.

In August 2011, the Company issued 926,251 warrants at a $.27 exercise price (valued at $214,028) with a 3 year term, pursuant to the sale of common stock to unaffiliated third parties. These warrants were included in the re-pricing to $.20 noted above.  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 nine 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, up to 5 million shares of common stock issued to service providers of the Company, and certain other issuances set forth in the warrant agreements.

In the third quarter of 2011, the Company issued 1,335,000 warrants, with a three year term, at a $.27-$.32 per share exercise price (valued at $293,184) pursuant to the sale of additional common shares.  These warrants were included in the re-pricing to $.20 noted above, and contain the “cashless” and re-pricing terms detailed above. Also, the Company issued 750,000 warrants with a 1 year term, at a $.30 per share exercise price (valued at $101,591) for services, which expired in the third quarter of 2012.

In the fourth quarter of 2011, the Company issued 600,000 warrants, with a three year term, at a $.27 per share exercise price (valued at $94,502) pursuant to the sale of additional common shares. These warrants were included in the re-pricing to $.20 noted above, and contain the “cashless” and re-pricing terms detailed above.

A summary of outstanding vested warrant activity for the nine months ended September 30, 2012 and for the year ended December 31, 2011 follows:

	Number Outstanding			Weighted Average Exercise Price			Weighted Average Remaining Contractual Life (Years)
Common Stock Warrants
Balance, December 31, 2010		770,500		$	.150			1.67
Warrants issued		3,611,251			.290			2.23
Warrants exercised		-			-			-
Warrants cancelled		-			-			-
Balance, December 31, 2011		4,381,751			.265			1.99
Warrants issued		3,671,359			.201			3.42
Warrants exercised		-			-			-
Warrants re-priced		-			(.087	)		-
Warrants cancelled/expired		(1,520,500	)		(.224	)		-
Balance, September 30, 2012		6,532,610		$	.237			2.81

All warrants were vested and exercisable as of the date issued.

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Note 16 - Derivative Liabilities (Detail) (USD $)	1 Months Ended			3 Months Ended				9 Months Ended	12 Months Ended		1083 Months Ended		1 Months Ended
	Oct. 31, 2012	Mar. 31, 2012	Aug. 31, 2011	Sep. 30, 2012	Mar. 31, 2012	Dec. 31, 2011	Sep. 30, 2011	Sep. 30, 2012	Dec. 31, 2011	Dec. 31, 2009	Sep. 30, 2102	May 31, 2011	May 31, 2011 Series A Convertible Preferred Stock [Member]
Stock Issued During Period, Shares, Conversion of Convertible Securities (in Shares)		2,000,000											95,100,000
Estimated Fair Value of Embedded Conversion Option												$ 30,394,710
Warrants Issued During Period, Exercise Price (in Dollars per share)	$ 0.27		$ 0.27			$ 0.27		$ 0.20		$ 0.19	$ 0.20
Percentage of Total Issued and Outstanding Common Stock Could Be Purchased by Outstanding Warrants		2.00%			2.00%					2.00%
Warrants Vesting Conditions, License Fee Benchmark Amount										400,000
Warrants Issued During Period, Term	5 years		3 years	5 years		3 years	3 years	3 years		24 months
Class of Warrant or Right, Number of Securities Called by Warrants or Rights (in Shares)		4,700,000			4,700,000	4,680,000			4,680,000
Warrants and Rights Outstanding						494,626			494,626
Derivative Liabilities						494,626			494,626
Stock Issued During Period, Value, Conversion of Convertible Securities		380,000							39,804
Gain (Loss) on Derivative Instruments, Net, Pretax					$ 114,626

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Note 16 - Derivative Liabilities (Detail) - Fair Value of Warrants Assumptions (Warrant [Member])	6 Months Ended
	Jun. 30, 2012
Warrant [Member]
Risk free rate	0.39%
Expected volatility	108.00%
Expected term in years	2 years
Expected dividend yield	0.00%

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Note 15 - Penalty Payment (Detail) (USD $)	9 Months Ended	12 Months Ended		12 Months Ended
	Sep. 30, 2012	Dec. 31, 2009	Apr. 30, 2012	Dec. 31, 2011 Penalty for Delayed Delivery of Product [Member]
Monthly Late Delivery Penalty		$ 25,000
Cost of Goods Sold, Penalty for Delayed Delivery of Product	50,000			350,000
Maximum Contracted Penalty for Delayed Delivery of Product			$ 400,000

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Note 12 - Lease Obligations (Tables)

9 Months Ended

Sep. 30, 2012

Schedule of Future Minimum Lease Payments for Capital Leases [Table Text Block]

2012	$	772
2013		4,541
2014		4,898
2015		4,383
2016		9,115
	$	23,709

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Note 10 - Stock Options and Warrants (Detail) (USD $)	1 Months Ended			3 Months Ended			9 Months Ended	12 Months Ended		1083 Months Ended	3 Months Ended	9 Months Ended				9 Months Ended	12 Months Ended	3 Months Ended	12 Months Ended		3 Months Ended	9 Months Ended	12 Months Ended	3 Months Ended	9 Months Ended	12 Months Ended
	Oct. 31, 2012	Aug. 31, 2011	Jul. 31, 2010	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2011	Sep. 30, 2012	Dec. 31, 2011	Dec. 31, 2009	Sep. 30, 2102	Sep. 30, 2012 Sales Commissions and Fees [Member]	Sep. 30, 2012 Previous Term [Member]	Sep. 30, 2012 Current Term [Member]	Sep. 30, 2012 Previous Exercise Price [Member]	Sep. 30, 2012 Current Exercise Price [Member]	Sep. 30, 2012 Stock Options [Member]	Dec. 31, 2011 Stock Options [Member]	Sep. 30, 2011 Issued for Services [Member]	Dec. 31, 2010 The 2010 Plan [Member]	Sep. 30, 2012 The 2012 Plan [Member]	Sep. 30, 2011 Minimum [Member]	Sep. 30, 2012 Minimum [Member]	Dec. 31, 2011 Minimum [Member]	Sep. 30, 2011 Maximum [Member]	Sep. 30, 2012 Maximum [Member]	Dec. 31, 2011 Maximum [Member]	Dec. 31, 2011 Weighted Average [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross (in Shares)							3,090,000	3,115,000
Stock Options Issued During Period, Value (in Dollars)							$ 254,577	$ 446,849
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price							$ 0.157	$ 0.299														$ 0.13	$ 0.19		$ 0.18	$ 0.30	$ 0.23
Stock Options Issued During Period, Maturity Life																						5 years	5 years		10 years	10 years	7 years 328 days
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period							1 year										1 year
Stock Options Issued During Period, Estimated Exercise Period								3 years														3 years			5 years
Share-based Compensation (in Dollars)																370,627	366,615
Employee Service Share-based Compensation, Nonvested Awards, Total Compensation Cost Not yet Recognized (in Dollars)																190,085	314,814
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Exercisable, Number (in Shares)				450,000			450,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Exercisable, Weighted Average Remaining Contractual Term												2 years	10 years
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Exercisable, Weighted Average Exercise Price														$ 0.15	$ 0.20
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized (in Shares)																			5,000,000	5,000,000
Term of Options			5 years																10 years
Warrants Issued During Period, Number (in Shares)	5,000,000	926,251			600,000	1,335,000	2,440,000	2,861,251		1,162,667	68,692							750,000
Warrants Issued During Period, Exercise Price (in Dollars per share)	$ 0.27	$ 0.27			$ 0.27		$ 0.20		$ 0.19	$ 0.20	$ 0.27							$ 0.30			$ 0.27			$ 0.32
Warrants Issued During Period, Value (in Dollars)		214,028		97,454	94,502	293,184	173,369	390,488			2,236							101,591
Warrants Issued During Period, Term	5 years	3 years		5 years	3 years	3 years	3 years		24 months		3 years							1 year
Warrants Repriced During Period, Number (in Shares)							2,843,750
Warrants Repriced During Period, Exercise Price							$ 0.20
Warrants Repriced During Period, Previous Exercise Price																						$ 0.27			$ 0.32
Warrants Repriced During Period, Value Assigned (in Dollars)							232,383
Warrants Repriced During Period, Previously Assigned Value (in Dollars)							589,238
Proceeds from Issuance of Debt (in Dollars)				$ 436,000
Warrants Expired During Period, Number (in Shares)				1,520,500
Warrants Expired During Period, Average Exercise Price				$ 0.224
Common Stock Price Threshold for Warrants Conversion		$ 0.54
Number of Consecutive Days Stock Price Traded Above Threshold Level Before Forced Conversion of Warrants		10 days
Average Trading Volume Threshold for Forced Conversions of Warrants (in Shares)		200,000
Common Stock Issuance Price Threshold for Anti-Dilution Protections		$ 0.20
Exempted Issuance, Shares of Common Stock Issued to Service Providers (in Shares)		5,000,000

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Note 15 - Penalty Payment

9 Months Ended

Sep. 30, 2012

Penalty For Delayed Delivery Of Product [Text Block]

NOTE 15 – PENALTY PAYMENT

In 2009, the Company signed a contract for the delivery of two Cyclone prototype 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.  For the nine months ended September 30, 2012, and for the year ended December 31, 2011, the Company charged $50,000 and $350,000 for this penalty to cost of goods sold, respectively, for subsequent delayed engine delivery. As of April 2012, the maximum $400,000 contracted penalty has been provided and no additional penalties in stock or cash are to be recognized on the contract.

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Note 20 - Subsequent Events

9 Months Ended

Sep. 30, 2012

Subsequent Events [Text Block]

NOTE 20 – SUBSEQUENT EVENTS

On October 1, 2012, the Company signed a Common Stock Purchase Agreement (the “Purchase Agreement”) with GEM Global Yield Fund Limited (“GGYF”) whereby GGYF had agreed to purchase up to $2.5 million of the Company’s common stock over the following 24-month period. Under a Registration Rights Agreement, the Company filed an S-1 Registration Statement covering the shares that may be issued. The purchase price of the shares related to the future funding would be based on a 10% discount to the prevailing market prices of the Company’s shares at the time of sales. GGYF has also received common stock purchase warrants to purchase for a period of five years up to 5,000,000 shares of Common Stock at an exercise price per share equal to $.27 per share, representing approximately a 125% premium over the then current market price of the Company’s common stock. The shares underlying the warrants are also being registered in the current S-1.

On November 14, 2012, the Company withdrew the S-1 Registration Statement covering the GGYF shares and warrants. The Company’s decision to withdraw the S-1 was prompted by comments from the SEC that certain provisions of the Purchase Agreement should be amended to assure that shares sold to GGYF are required to be purchased by GGYF. The Company has chosen not to immediately re-file the S-1, because it believes the potential stock dilution is not conducive to increasing shareholder value at this time.  The Company will reevaluate filing a new registration statement next year.

In October 2012, by resolution of the Board of Directors, the Company appointed James C. Landon as interim Chief Executive Officer of the Company.

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Note 8 - Preferred Stock (Detail) (USD $)	1 Months Ended	12 Months Ended			1 Months Ended
	Mar. 31, 2012	Dec. 31, 2011	Sep. 30, 2012	May 12, 2011	May 31, 2011 Series A Convertible Preferred Stock [Member]	Jul. 02, 2007 Series A Convertible Preferred Stock [Member]	Sep. 30, 2012 Series B Preferred Stock [Member]	Dec. 31, 2011 Series B Preferred Stock [Member]	Jul. 02, 2007 Series B Preferred Stock [Member]
Preferred Stock, Shares Outstanding				750,000		500,000	1,000	1,000	1,000
Stock Issued During Period, Shares, Conversion of Convertible Securities (in Shares)	2,000,000				95,100,000
Other Noncash Expense (in Dollars)		$ 19,771,086
Voting Control Percentage			51.00%

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Note 3 - Inventory (Detail) - Inventory (USD $)	Sep. 30, 2012	Dec. 31, 2011
Inventory	$ 863,442	$ 475,600
Engine Material and Parts [Member]
Inventory	618,031	327,946
Labor [Member]
Inventory	213,399	128,395
Applied Overhead [Member]
Inventory	$ 32,012	$ 19,259

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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 ($)	Prepaid Expenses From Equity Contribution [Member] USD ($)	Prepaid Expenses via Common Stock [Member] USD ($)	Stock Subscription Receivable [Member] USD ($)	Retained Earnings [Member] USD ($)	Parent [Member] USD ($)	Noncontrolling Interest [Member] USD ($)	Total USD ($)
Balance, December 31, 2010 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, December 31, 2010 (in Shares) at Dec. 31, 2010	705,453	1,000	114,020,135
Issuance of restricted shares and warrants for outside services			376	1,029,043						1,029,419		1,029,419
Issuance of restricted shares and warrants for outside services (in Shares)			3,754,036
Issuance of restricted shares and options for employee services			69	562,997						563,066		563,066
Issuance of restricted shares and options for employee services (in Shares)			687,024
Sale of common stock			851	1,096,439						1,097,290		1,097,290
Sale of common stock (in Shares)			8,511,764
Warrants issued pursuant to common stock sale				390,488						390,488		390,488
Sale of preferred stock	4			192,731						192,735		192,735
Sale of preferred stock (in Shares)	44,547											44,547
Issuance of restricted shares for contract penalty re-delayed shipment			131	299,869						300,000		300,000
Issuance of restricted shares for contract penalty re-delayed shipment (in Shares)			1,309,306
Purchase of treasury stock					40,000					40,000		40,000
Sale of treasury stock					(40,000)					(40,000)		(40,000)
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)
Conversion of preferred stock to common stock	(75)		9,510	(9,435)
Conversion of preferred stock to common stock (in Shares)	(750,000)		95,100,000
Application of derivative liability from conversion of preferred stock				30,394,710						30,394,710		30,394,710
Conversion of debt and liability to common stock			21	39,783						39,804		39,804
Conversion of debt and liability 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
Collection of peferred stock subscription receivable								6,000		6,000		6,000
Conversion of stock options-cashless exercise			1	(1)
Conversion of stock options-cashless exercise (in Shares)			13,889									20,000
Net loss									(23,704,727)	(23,704,727)		(23,704,727)
Balance at Dec. 31, 2011			22,364	43,001,168				(12,000)	(45,722,829)	(2,711,297)	130,062	(2,581,235)
Balance (in Shares) at Dec. 31, 2011		1,000	223,635,129
Issuance of restricted shares and warrants for outside services			343	651,896			(40,000)			612,239		612,239
Issuance of restricted shares and warrants for outside services (in Shares)			3,434,356
Issuance of restricted shares and options for employee services			13	390,615						390,628		390,628
Issuance of restricted shares and options for employee services (in Shares)			130,000
Sale of common stock			527	565,033						565,560		565,560
Sale of common stock (in Shares)			5,274,562
Warrants issued pursuant to common stock sale				173,369						173,369		173,369
Issuance of restricted shares for contract penalty re-delayed shipment			55	99,945						100,000		100,000
Issuance of restricted shares for contract penalty re-delayed shipment (in Shares)			545,498
Commission fee for debt paid with common stock			26	40,441						40,467		40,467
Commission fee for debt paid with common stock (in Shares)			258,609
Prepayment of debt interest in common stock and warrants			48	166,995			(87,476)			79,567		79,567
Prepayment of debt interest in common stock and warrants (in Shares)			481,163
Conversion of common stock warrants-cashless exercise			200	379,800						380,000		380,000
Conversion of common stock warrants-cashless exercise (in Shares)			2,000,000
Conversion of stock options-cashless exercise			1	(1)
Conversion of stock options-cashless exercise (in Shares)			15,000									30,000
Purchase of net business assets of Advent Power			150	329,850						330,000		330,000
Purchase of net business assets of Advent Power (in Shares)			1,500,000
Common stock issued pursuant to consulting agreement			12	27,488						27,500		27,500
Common stock issued pursuant to consulting agreement (in Shares)			125,000
Common stock issued pursuant to debt refinancing			16	25,584						25,600		25,600
Common stock issued pursuant to debt refinancing (in Shares)			160,000
Net loss									(2,401,200)	(2,401,200)		(2,401,200)
Balance at Sep. 30, 2012			$ 23,755	$ 45,852,183			$ (127,476)	$ (12,000)	$ (48,124,029)	$ (2,387,567)	$ 130,062	$ (2,257,505)
Balance (in Shares) at Sep. 30, 2012		1,000	237,559,317

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Note 4 - Property and Equipment

9 Months Ended

Sep. 30, 2012

Property, Plant and Equipment Disclosure [Text Block]

NOTE 4 – PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

	September 30, 2012			December 31, 2011
Display equipment for trade shows	$	9,648		$	9,648
Leasehold improvements and furniture and fixtures		86,422			74,083
Equipment and computers		179,289			101,053
Total		275,359			184,784
Less: Accumulated Depreciation		(92,719	)		(76,541	)
Net Property and Equipment	$	182,640		$	108,243

Depreciation expense for the nine months ended September 30, 2012 and 2011 was $16,178 and $15,576, respectively.

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Note 11 - Income Taxes (Detail) - Tax Effect of Temporary Differences (USD $)	Sep. 30, 2012	Dec. 31, 2011
Net Operating Loss Carry-forward	$ 6,376,506	$ 5,420,492
Deferred Tax Liabilities – Accrued Officers’ Salaries	(309,510)	(231,135)
Net Deferred Tax Assets	6,066,996	5,189,357
Valuation Allowance	(6,066,996)	(5,189,357)
Total Net Deferred Tax Assets	$ 0	$ 0

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Note 19 - Acquisition of Advent (Detail) (USD $) Share data in Millions, unless otherwise specified	1 Months Ended	6 Months Ended	9 Months Ended
	Feb. 29, 2012	Jun. 30, 2012	Sep. 30, 2012	Feb. 16, 2012
Business Acquisition, Equity Interest Issued or Issuable, Number of Shares (in Shares)	1.5
Business Acquisition, Equity Interest Issued or Issuable, Value Assigned				$ 330,000
Stock Issued During Period, Value, Other	27,500	27,500	27,500
Value of Contract Transferred in Acquisition				1,400,000
Restricted Period for Stock Issued in Acquisition	2 years
Additional Revenue Expected from Acquisition				450,000
Original Amount Payable to the Company as a Sub-contractor				700,000
Billed Contracts Receivable			$ 502,045
Subject to Forfeiture [Member]
Business Acquisition, Equity Interest Issued or Issuable, Number of Shares (in Shares)	1.1

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Accounting Policies, by Policy (Policies)

9 Months Ended

Sep. 30, 2012

Consolidation, Policy [Policy Text Block]

B.      PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION

The unaudited consolidated financial statements include the accounts of the Company, its 82.5% owned WHE Subsidiary and its 100% owned subsidiary Cyclone Performance LLC.  All material inter-company transactions and balances have been eliminated in the consolidated financial statements. 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 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 (“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.

Subsequent Events, Policy [Policy Text Block]

C.      SUBSEQUENT EVENTS

The Company follows Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 855, “Subsequent Events”.  ASC 855 offers assistance and establishes 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. Management evaluated events occurring between the Balance Sheet date of September 30, 2012, and when the financial statements were available to be issued. Subsequent events that require disclosure are provided in Note 20.

Cash and Cash Equivalents, Policy [Policy Text Block]

D.      CASH

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

Trade and Other Accounts Receivable, Policy [Policy Text Block]

E.      ACCOUNTS RECEIVABLE

Accounts receivable consist of amounts due pursuant to engine delivery and research and development prototype charges. At September 30, 2012 and December 31, 2011, there were no uncollected progress billings and no allowance for doubtful accounts was deemed necessary.

Earnings Per Share, Policy [Policy Text Block]

F.      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, 2012, total anti-dilutive shares amounted to approximately 18.7 million shares.

Income Tax, Policy [Policy Text Block]

G.      INCOME TAXES

Income taxes are accounted for under the asset and liability method as stipulated by ASC 740, “Income Taxes” (“ASC 740”). 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.

In 2009, the Company adopted certain provisions under 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.

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, 2012, 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 2009 through 2011.

Revenue Recognition, Policy [Policy Text Block]

H.      REVENUE RECOGNITION

The Company’s revenue recognition policies are in compliance with ASC 605, “Revenue Recognition – Multiple Element Arrangements”, and Staff Accounting Bulletin (“SAB”) 104, Revenue Recognition. 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. The Company has determined that the milestone method of revenue recognition (ASC 605-28) is appropriate for one of the Company’s contracts as the contract enumerates specific approved work effort milestones required for remuneration. The Company achieved the first milestone in July 2012 and recognized revenue and related costs of goods sold of approximately $502,000 and $333,000, respectively, as included in the accompanying consolidated statements of operations.  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 periodically when earned, as reported in sales statements from customers. The Company does not have any royalty revenue to date.

Standard Product Warranty, Policy [Policy Text Block]

I.       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.

Inventory, Policy [Policy Text Block]

J.      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.

Fair Value of Financial Instruments, Policy [Policy Text Block]

K.      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 January 1, 2012 (beginning of period) and September 30, 2012 (end of period) is as follows:

Instrument	Beginning of Period		Change			End of Period		Level		Valuation Methodology
Derivative liabilities	$	494,626	$	(494,626	)	$	-		3	Black Scholes

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

Research and Development Expense, Policy [Policy Text Block]

L.      RESEARCH AND DEVELOPMENT

Research and development activities for product development are expensed as incurred.  Costs for the nine months ended September 30, 2012 and 2011 were $772,468 and $544,544, respectively.

Share-based Compensation, Option and Incentive Plans Policy [Policy Text Block]

M.     STOCK BASED COMPENSATION

The Company applies the fair value method of ASC 718, “Share Based Payment”, 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.

Stockholders' Equity, Policy [Policy Text Block]

N.      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”.

Debt, Policy [Policy Text Block]

O.      ORIGINAL ISSUE DEBT DISCOUNT

The original issue discount (OID) related to notes payable is being amortized by the effective interest method over the repayment period of the notes.  The unamortized OID is represented as a reduction of the amount of the notes payable.

Property, Plant and Equipment, Policy [Policy Text Block]

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:

Display equipment for trade shows (years)			3
Leasehold improvements and furniture and fixtures (years)	10	-	15
Shop equipment (years)			7
Computers (years)			3

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

Impairment or Disposal of Long-Lived Assets, Policy [Policy Text Block]

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.

Reclassification, Policy [Policy Text Block]

R.      RECLASSIFICATIONS

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

New Accounting Pronouncements, Policy [Policy Text Block]

S.      RECENT ACCOUNTING PRONOUNCEMENTS

In July 2012, the FASB issued an Accounting Standard Update (“ASU”) 2012-02 “Intangibles-Goodwill and Other” which allows for the initial use of qualitative factors, prior to any required quantitative test in determining impairment. This standard was effective as of September 15, 2012 and did not materially impact our financial statement disclosures.

In December 2011, the FASB issued an Accounting Standard Update (“ASU”) 2011-11 that requires disclosures about offsetting and related arrangements for recognized financial instruments and derivative instruments. The standard is effective for use as of January 1, 2013 and will impact our financial statement disclosures.

Concentration Risk, Credit Risk, Policy [Policy Text Block]

T.      CONCENTRATION OF RISK

The Company does not have any off-balance-sheet concentrations of credit risk.  The Company expects cash and accounts receivable to be the two assets most likely to subject the Company to concentrations of credit risk. The Company’s policy is to maintain its cash with high credit quality financial institutions to limit its risk of loss exposure. The Company plans to minimize its accounts receivable credit risk by transacting contractual arrangements with customers that have been subjected to credit evaluations and structuring the contracts in a manner that lessens inherent credit risks.

As of September 30, 2012, the Company maintained its cash in two quality financial institutions.  The Company has not experienced any losses in its bank accounts through September 30, 2012.   

The Company purchases raw material and components from multiple sources, none of which may be considered a principal or material supplier.  If necessary, the Company could replace these suppliers with minimal effect on its business operations.

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Note 1 - Organizational and Significant Accounting Policies (Detail) - Summary of Fair Values and Changing Values of Financial Instruments (Black Scholes [Member], Fair Value, Inputs, Level 3 [Member], USD $)	9 Months Ended
	Sep. 30, 2012
Black Scholes [Member] | Fair Value, Inputs, Level 3 [Member]
Derivative liabilities	$ 494,626
Derivative liabilities	$ (494,626)

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Note 14 - Consolidated Subsidiaries

9 Months Ended

Sep. 30, 2012

Equity Method Investments and Joint Ventures Disclosure [Text Block]

NOTE 14 – CONSOLIDATED SUBSIDIARIES

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 were amortized over a 12 month period. This investor also received and exercised a 2.5% equity purchase warrant in the subsidiary for $50,000.

Effective July 1, 2010, a 5% equity contribution in Cyclone-WHE was provided to the new Managing Director of the Subsidiary in consideration of $30,000 of future professional services (which were 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 year ended December 31, 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 December 31, 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.

In the first quarter of 2012, the Company established a 100% owned consolidated subsidiary (renamed) Cyclone Performance LLC (“TeamSteam”).  The purpose of TeamSteam is to build, test and run a vehicle utilizing the Company’s engine.