SOURCE: Cyclone Power Technologies, Inc.

Cyclone Power Technologies, Inc.

May 16, 2013 09:00 ET

Cyclone Power Technologies Files Quarterly Report on Form 10-Q and Releases Progress Letter to Shareholders

POMPANO BEACH, FL--(Marketwired - May 16, 2013) - Cyclone Power Technologies (www.cyclonepower.com) (OTCQB: CYPW) has filed with the Securities and Exchange Commission its Quarterly Report on Form 10-Q for the period ended March 31, 2013, and has released the following progress report to its shareholders:

Dear Shareholders:

Cyclone continued its growth in the first quarter of 2013, generating increased revenue, advancing technological development, and building a strong foundation for product commercialization. Our Quarterly Report on Form 10-Q was filed with the Securities & Exchange Commission today, and we urge our shareholders to review it. Notable achievements during the quarter and additional forward looking information are highlighted below:

Continued Increased Revenue & Decreased Expenses 

We generated $251,441 in revenue in the quarter, and achieved a gross profit of approximately $86,000. This is compared to zero revenue in the same period in 2012. As discussed at year end, we believe these results clearly demonstrate that we are on the right path to profitable expansion.

Our operating expenses in the quarter were $678,475, as opposed to $823,523 in the same period in 2012. This represents an 18% decrease in expenses, and reflects a sincere effort on the part of management to cut costs and focus our resources on revenue-producing projects. Consequently, our operating loss also decreased dramatically -- down 32% over the previous year.

It is important to note that only approximately $134,000 of our operating loss represented actual cash used in operations. This means that our gross revenue was almost double our cash expenditures for the quarter. While we are by no means satisfied having a net loss for the period, we are extremely encouraged by this positive trend leading to future growth. 

Commercialization & Sales

In connection with our Annual Report last month, we provided an update on each of Cyclone's current projects and contracts. While we continue to make excellent progress on these endeavors, we would like to use this shareholder communication to provide greater visibility about our plans to commercialize our engine technology and expand sales in the next 12 months. 

Three Cyclone engines are currently in development: the WHE-25, the S-2 (under contract with the U.S. Army) and the 100hp Mark 5. Of these models, the plan to commercialize the WHE-25 for micro-grid waste-to-power applications is the closest to realization.

Development Partners: We believe that the WHE-25 has satisfied its "proof-of-concept" stage -- we have achieved several hundred hours of aggregate run-time, generating power under the load of a dynamometer or electric generator. The next step in development is to achieve continuous operation of the engine in a rigorous thermal cycling environment with third party validation. For this stage, we have recruited the prestigious Ohio State University's Center for Automotive Research (CAR), which will commence work with Cyclone this month. Our plans with CAR are twofold: (i) conduct a thorough analysis of the mechanical design of the WHE-25 to predict stresses and potential weak points during durability testing, and then (ii) conduct that durability testing. We anticipate this process will occur over the next six months. 

Manufacturing: We continue to push ahead to establish a base of manufacturing operations near CAR at the Ohio facility of our partner Precision CNC. We expect over the following few months to complete our joint venture agreement with Precision CNC, which will allow us to co-locate engineers and equipment, and leverage the machining expertise and production oversight that their management provides. We anticipate that the State of Ohio may provide certain incentives to assist us in this process, including low interests loans, tax abatement and possible development grants. Regardless of State assistance, however, we are currently budgeting for this critical stage of growth and engine development. 

Early Adaptor Sales: Already, Cyclone has a long list of early-adaptor "beta" customers for the first release (Gen-1) WHE-25, which we expect to be ready by the end of this year. This Gen-1 engine will be sufficiently validated for pilot programs and integration projects with manufacturers of vertical technologies -- i.e., biomass gasifiers, wood pellet stoves, used oil and waste furnaces, and other similar products. Deposits for these initial sales could be accepted by the third quarter, with delivery of the engines commencing by the end of 2013. These Gen-1 engines will command a premium over the eventual commercial price due to the requirements of early customers to complete and validate their own technologies. Consequently, our revenue projections for Gen-1 engines are between $2.5 million and $3 million which will help fund the final phase of development: engineering for manufacturability. This we believe can be completed in 2014. 

S-2 - Portable Power: Our S-2 project with the U.S. Army / TARDEC to develop a compact, multi-fuel 10-kWe auxiliary power unit continues to move forward. We expect to complete the proof-of-concept stage on this engine by this summer, with the balance of our $1.4 million fees being paid during this time. We are currently martialing support and interest for Phase 2 of this project, which will consist of engine "hardening" over the following 24 month period, and could provide Cyclone with several million dollars more in revenue.

Mark 5 Engine: Our Mark 5 project will generate revenue from several sources. We expect to receive an additional $300,000 from Combilift this year as we provide prototype engines for their material lift equipment. We are currently in discussions with additional customers for the Mark 5 engine for a variety of uses -- from micro-CHP (combined heat and power) to automotive. 

With respect to our use of the Mark 5 engine with the Land Speed Record vehicle, we believe that this asset can also generate revenue for Cyclone, especially as we start testing and running the car in the coming months. We have had interest from corporations and private investors in sponsoring or outright purchasing the vehicle, either of which could provide us with substantial non-dilutive funding. The possibility of breaking the land speed record for steam power vehicles this year could also attract new strategic partners to provide development support, as well as private investors to provide project-based capital. 

Funding & Future Growth

The successful implementation of our operational goals and revenue-generating initiatives will require us to seek additional financing. In the first quarter of 2013, we sold $100,000 in common stock to an investor at a premium above market prices, and signed a $500,000 convertible note with a hard conversion floor price of $0.08 / share, also representing a premium to current market prices. We closed the first $100,000 tranche of that note in April.

We believe that our track record demonstrates our commitment to raising funds in the least dilutive manner for our shareholders. We will continue to pursue financing opportunities with this approach, which may include funding at the subsidiary level (i.e., through Cyclone-WHE and Cyclone Performance), and seeking government grants (we currently have $1.5 million in applications in review and others to be submitted). However, our focus remains generating revenue from product sales and technology licensing. 

The first quarter of 2013 was positive for Cyclone, and we are determined to get stronger moving forward. We believe that we have a solid plan to transition our products into production and commence consistent revenue this year, and we intend to meet those milestones. It has been a long road and we are beginning to see the proverbial light at the end of the tunnel. That makes it a very exciting time to be a Cyclone shareholder.

On behalf of the entire Cyclone team, we thank you for your support.

Sincerely,
Harry Schoell
Chairman & CTO

Safe Harbor Statement
Certain statements in this news release may contain forward-looking information within the meaning of Rule 175 under the Securities Act of 1933 and Rule 3b-6 under the Securities Exchange Act of 1934, and are subject to the safe harbor created by those rules. All statements, other than statements of fact, included in this release, including, without limitation, statements regarding potential future plans and objectives of the company, are forward-looking statements that involve risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements. The company cautions that these forward-looking statements are further qualified by other factors. The company undertakes no obligation to publicly update or revise any statements in this release, whether as a result of new information, future events or otherwise.

About Cyclone Power Technologies
Cyclone Power Technologies is the developer of the award-winning Cyclone Engine -- an all-fuel, clean-tech engine with the power and versatility to run everything from waste energy electric generators and solar thermal systems to cars, trucks and locomotives. Invented by company founder and Chairman Harry Schoell, the patented Cyclone Engine is a eco-friendly external combustion engine, ingeniously designed to achieve high thermal efficiencies through a compact heat-regenerative process, and to run on virtually any fuel -- including bio-diesels, syngas or solar -- while emitting fewer greenhouse gases and irritating pollutants into the air. The Cyclone Engine was recognized by Popular Science Magazine as the Invention of the Year for 2008, was included in a 2011 report by Popular Mechanics as an important waste energy technology for the future, and was twice presented with the Society of Automotive Engineers' AEI Tech Award. Additionally, Cyclone was named Environmental Business of the Year by the Broward County Environmental Protection Department. For more information, visit www.cyclonepower.com.

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