UNITED STATES SECURITIES AND EXCHANGE COMMISSION

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ~~For the quarterly period ended June 30, 2017~~

For the quarterly period ended March 31, 2018

[ ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ~~___________to ___________~~ 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)

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 [X] No [ ]

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 [X] No [ ]

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 [ ]		Accelerated filer [ ]		Non-accelerated filer [ ]		Smaller reporting company [X]
				(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 [ ] No [X]

As of ~~August~~June 1114, ~~2017~~2018, there were 15,~~847~~292,~~264~~794,~~078~~ 585 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	2
Condensed Consolidated Balance Sheets as of June 30, 2017 (unaudited) and December 31, 2016	2
Condensed Consolidated Balance Sheets as of March 31, 2018 (unaudited) and December 31, 2017	2
Condensed Consolidated Statements of Operations for the six and three months ended June 30, 2017 and 2016 (unaudited)	3
Condensed Consolidated Statements of Operations for the three months ended March 31, 2018 and 2017 (unaudited)	3
Condensed Consolidated Statements of Cash Flows for the six months ended June 31, 2017 and 2016 (unaudited)	4
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2018 and 2017 (unaudited)	4
Notes to Condensed Consolidated Financial Statements (unaudited)	5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	1618
Item 3. Quantitative and Qualitative Disclosures about Market Risk	1819
Item 4. Controls and Procedures	1820
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	1921
Item 1A. Risk Factors	1922
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	1922
Item 3. Defaults upon Senior Securities	1922
Item 4. Mine Safety Disclosures	2022
Item 5. Other Information	2022
Item 6. Exhibits	2023

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CYCLONE POWER TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

~~JUNE~~MARCH 3031, ~~2017~~2018 AND DECEMBER 31, ~~2016~~2017

(~~Unaudited~~UNAUDITED)

	June 30, 2017			December 31, 2016
	March 31, 2018			December 31, 2017
ASSETS
CURRENT ASSETS
Cash	$	-7,500		$	~~591~~-
Inventory, net		27,155			26,667
Other current assets		193			193
Total current assets		277,~~348~~693			~~27,451~~193
PROPERTY AND EQUIPMENT
Furniture, fixtures, and equipment		302,770			302,770
Accumulated depreciation		(~~223~~241,~~558~~157	)		(~~209~~236,~~498~~938	)
Net property and equipment		7961,~~212~~613			9365,~~272~~832
OTHER ASSETS
Patents, trademarks and copyrights		394,980			394,980
Accumulated amortization		(~~229~~308,~~226~~771	)		(~~216~~304,~~502~~807	)
Net patents, trademarks and copyrights		~~165~~86,~~754~~209			~~178~~90,~~478~~173
Other assets		7,~~862~~660			7,~~862~~660
Total other assets		~~173~~93,~~616~~869			~~186~~97,~~340~~833
Total Assets	$	~~280~~163,~~176~~175		$	~~307~~163,~~063~~858
LIABILITIES AND STOCKHOLDERS’ DEFICIT
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Bank Overdraft	$	16,883		$	-
Bank overdraft	$	-		$	52
Accounts payable and accrued expenses		1,~~749~~914,~~627~~424			12,~~472~~057,~~851~~068
Accounts payable and accrued expenses-related parties		~~712~~963,~~725~~975			~~545~~880,225
Notes and other loans payable-current portion		~~476~~428,~~407~~793			~~512~~494,~~642~~795
Derivative liabilities		1,~~307~~581,~~001~~000			~~754~~1,~~000~~424,001
Notes and other loans payable-related parties		~~378~~383,~~285~~699			~~393~~399,~~760~~873
Capitalized lease obligations-current portion		14,312			14,312
Capital lease obligations-current portion		5,522			5,522
Deferred revenue and license deposits		~~323~~173,826			~~323~~173,826
Total current liabilities		45,~~979~~451,~~066~~239			45,~~016~~435,~~616~~362
NON CURRENT LIABILITIES
Capitalized lease obligations-net of current portion		25,536			25,536
Notes and other loans payable-net of current portion		1,500			1,500
Total non-current liabilities		251,~~536~~500			251,~~536~~500
Total Liabilities		5,~~004~~452,~~602~~739			45,~~042~~436,~~152~~862
Commitments and contingencies
STOCKHOLDERS’ DEFICIT
STOCKHOLDERS' DEFICIT
Series B preferred stock, $.0001 par value, 1,000 shares authorized, 1,000 shares issued and outstanding at June 30, 2017 and December 31, 2016, respectively.		-			-
Series A preferred stock, $.0001 par value, 750,000 shares authorized, 0 shares issued and outstanding at March 31, 2018 and December 31, 2017		-			-
Common stock, $.0001 par value, 8,000,000,000 shares authorized, 1,738,246,344 and 1,517,400,273 shares, issued and outstanding June 30, 2017 and December 31, 2016 respectively.		173,823			151,737
Series B preferred stock, $.0001 par value, 1,000 shares authorized, 1,000 shares issued and outstanding at March 31, 2018 and December 31, 2017		-			-
Additional paid-in capital		57,210,252			56,915,794
Common stock, $.0001 par value, 6,000,000,000 shares authorized, 5,292,794,585 and 2,859,645,298 shares, issued and outstanding March 31, 2018 and December 31, 2017, respectively.		529,278			285,963
Treasury Stock, 317,000 shares at June 30, 2017 and December 31, 2016 respectively, at cost.		(3,000	)		(3,000	)
Additional paid-in capital		57,757,236			57,377,491
Accumulated deficit		(62,134,540	)		(60,828,659	)
Treasury Stock, 317,000 shares at March 31, 2018 and December 31, 2017, at cost.		(3,000	)		(3,000	)
Total stockholders’ deficit-Cyclone Power Technologies Inc.		(4,753,465	)		(3,764,128	)
Series A preferred stock to be issued		100,000			-
Accumulated deficit		(63,702,117	)		(62,962,497	)
Total stockholders' deficit-Cyclone Power Technologies Inc.		(5,318,603)			(5,302,043	)
Non controlling interest in consolidated subsidiary		29,039			29,039
Total Stockholders’ Deficit		(4,724,426	)		(3,735,089	)
Total Stockholders' Deficit		(5,289,564	)		(5,273,004	)
Total Liabilities and Stockholders’ Deficit	$	280,176		$	307,063
Total Liabilities and Stockholders' Deficit	$	163,175		$	163,858

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

CYCLONE POWER TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Six Months Ended June 30,						Three Months Ended June 30,
	Three Months Ended March 31,
	2017			2016			2017			2016
	2018			2017
REVENUES	$	-		$	-		$	-		$	-
COST OF GOODS SOLD		-			-			-			-
Gross profit		-			-			-			-
OPERATING EXPENSES
Advertising and promotion		63,~~652~~810			~~5,839~~180			~~6,472~~			~~548~~
General and administrative		~~537~~162,~~383~~962			~~385~~317,~~509~~555			~~219,828~~			~~194,890~~
Research and development		9681,~~918~~943			7340,~~850~~676			~~56,242~~			~~39,157~~
Total operating expenses		~~640~~248,~~953~~715			~~465~~358,~~198~~411			~~282,542~~			~~234,595~~
Operating loss		(~~640~~248,~~953~~715	)		(~~465~~358,~~198~~411	)		~~(282,542~~	)		~~(234,595~~	)
OTHER (EXPENSE) INCOME
OTHER EXPENSE
Other (expense)		(70,934	)		(12,969	)		-			(13,469	)
Other income (expense)		2,419			(70,934	)
Derivative (expense) income		(407,467	)		2,777			(84,000	)		456
Change in fair value of derivative liability		(424,968	)		(323,467	)
Interest (expense)		(~~186~~68,~~023~~356	)		(6249,~~442~~974	)		~~(136,049~~	)		~~(29,614~~	)
Total other (expense)		(664,424	)		(72,634	)		(220,049	)		(42,627	)
Total other expense		(490,905	)		(444,375	)
Loss before income taxes		(1739,~~305,377~~620	)		(~~537~~802,~~832~~786	)		~~(502,591~~	)		~~(277,222~~	)
Income taxes		-			-			-			-
Net loss	$	(1739,~~305,377~~620	)	$	(~~537~~802,~~832~~786	)	$	~~(502,591~~	)	$	~~(277,222~~	)
Net loss per common share, basic and diluted	$	(0.00	)*	$	(0.00	)*	$	~~(0.00~~	)	$	~~(0.00~~	)
Weighted average number of common shares outstanding		13,~~589~~511,~~583~~429,~~513~~124			1,~~393~~551,~~890~~847,~~683~~880			~~1,669,513,344~~			~~1,403,288,754~~

* Net loss per share less than $0.00

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

CYCLONE POWER TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Six Months Ended June 30,
	Three Months Ended March 31,
	2017			2016
	2018			2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(1739,~~305,377~~620	)	$	(~~537~~802,~~832~~786	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		268,~~784~~183			3413,~~872~~707
Issuance of restricted common stock, options and warrants for services		~~1,733~~350			~~987~~923
Loss on debt paid with common stock		~~70,934~~-			5770,~~383~~934
Loss (gain) from derivative liability-notes payable		400,701			(2,777	)
Amortization of derivative debt discount		30,764			-
Issuance of restricted common stock for services		5,096			-
Change in fair value of derivative liability		424,968			323,468
Amortization of derivative debt discount		92,382			11,680
Amortization of prepaid interest expenses via common stock and warrants		-			6,000
Changes in operating assets and liabilities:
(Increase) in inventory		(488	)		(26,005	)
Increase in accounts payable and accrued expenses		115,331			289,502
Decrease in other current assets		-			337
Decrease in cash overdraft		(52	)		-
Increase in accounts payable and accrued expenses		414,086			203,521
Increase in accounts payable and accrued expenses-related parties		83,750			83,750
Increase (decrease) in cash overdraft		16,883			(3,221	)
Net cash used in operating activities		(76,326	)		(20,502	)
Increase in accounts payable and accrued expenses-related parties		167,500			167,500
CASH FLOWS FROM INVESTING ACTIVITIES:		-			-
Increase in deferred revenue and deposits		-			40,700
Net cash used in operating activities		(109,766	)		(46,855	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash used by investing activities		-			-
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of capitalized leases		-			(7,754	)
Proceeds from notes and loans payable		5,000			25,000
Proceeds from notes and loans payable		124,650			7,000
Payment of notes and loans payable		(5,000	)		-
Repayment of notes and loans payable		-			(1,500	)
Payment of related party notes and loans payable		(24,750	)		(14,000	)
(Decrease) increase in related party notes and loans payable-net		(15,475	)		63,970
Increase in related party notes and loans payable		8,576			9,457
Net cash provided by financing activities		109,175			61,716
Proceeds from series A preferred stock		100,000			-
Net (decrease) increase in cash		(591	)		14,861
Net cash provided by financing activities		83,826			20,457
Cash, beginning of period		591			-
Net increase (decrease) in cash		7,500			(45	)
Cash, end of period	$	-		$	14,861
Cash, beginning of period		-			591
Cash, end of period	$	7,500		$	546
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Payment of interest in cash	$	-		$	3,379
NON CASH INVESTING AND FINANCING ACTIVITIES:
Issuance of 100,000,000 shares of Common stock for liability settlement	$	49,066		$	-
Issuance of 571,047,619 shares of Common stock for accrued liability settlement	$	134,754		$	-
Issuance of 44,476,071 shares of Common stock for debt and interest settlement	$	34,246		$	-
Issuance of 1,862,101,668 shares of Common stock for debt and interest settlement	$	222,143		$	-
Issuance of 70,000,000 shares of Common stock for liability settlement	$	123,000		$	-
Issuance of 100,000,000 shares of Common stock for liability settlement	$	-		$	49,066
Issuance of 6,370,000 shares of Common stock for services	$	5,096		$	-
Issuance of 44,476,071 shares of Common stock for debt and interest settlement	$	-		$	34,246
Issuance of 45,730,741 shares of Common stock for liability settlements	$	-		$	24,932
Issuance of 3,000,000 shares of Common stock for services	$	-		$	6,000

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

CYCLONE POWER TECHNOLOGIES, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1 – ORGANIZATIONAL AND SIGNIFICANT ACCOUNTING POLICIES

A. ORGANIZATION AND OPERATIONS

Cyclone Power Technologies, Inc. (the “Company”, “our,” “Cyclone”) is the successor entity to the business of Cyclone Technologies LLLP (the “LLLP”), a limited liability limited partnership formed in Florida in September 2004. The LLLP was the original developer and intellectual property holder of the Cyclone engine technology. ~~Initialed~~Initiated in ~~2016~~2017, the Company’s current business model, is to be primarily a research and development engineering company whose main purpose is to develop, commercialize, market and license its Cyclone engine technology. Engines and related systems will be outsourced for manufacturing but the company will invoice customers. Our prior business model also included engine manufacturing.

In 2012, the Company established Cyclone Performance LLC (“Cyclone Performance”) f/k/a Cyclone-TeamSteam USA, LLC. The purpose of Cyclone Performance is to build, test and run avarious ~~vehicle~~vehicles and vessels utilizing the Company’s engine. AtAs of ~~June~~March 3031, ~~2017~~2018, the company had a 95% controlling interest in Cyclone Performance.

In 2010, the Company established a subsidiary WHE Generation Corp. f/k/a, Cyclone-WHE LLC (the “WHE Subsidiary”, “WheGen”), to market the waste heat recovery systems for all Cyclone engine models. As of September 30, 2014 the Company had sold most of its ownership and the balance was sold in the second quarter of 2016.

B. PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION

The condensed consolidated financial statements include the accounts of the Company and ~~its~~the accounts of our 95% owned subsidiary Cyclone Performance LLC. All material inter-company transactions and balances have been eliminated in the condensed consolidated financial statements

The accompanying unaudited condensed consolidated 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 8 of Regulation S-X of the SEC. Accordingly, they do not include all of the information and disclosures required by accounting principles generally ~~accepted~~ accepted in the United States for complete consolidated financial statements. Interim results are not necessarily indicative of ~~results~~ results for a full year. In the opinion of management, all adjustments, consisting of normal journal entries, 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. Complete financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, ~~2016~~2017, as filed with the Securities and Exchange Commission as part of the Company’s ~~Form~~ Form 10-K.

The results of operations for the ~~six~~three months ended ~~June~~March 3031, ~~2017~~2018 are not necessarily indicative of the results of operations to be be expected for the full fiscal year ending December 31, ~~2017~~2018.

The Company prepares its consolidated financial statements in conformity with account principles generally accepted in the United States (“U.S. GAAP”). The accounting principles utilized by the Company 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 condensed consolidated financial statements, the reported amounts of revenues and expenses, cash flows and the related footnote disclosures during the periods. 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 inventory, identifiable intangible assets and other long-lived assets, contracts, income taxes, derivative liabilities, and contingencies. Actual results could differ from these estimates.

The financial statements presented for the three months ended March 31, 2018 and 2017 are unaudited.

C. CASH

Cash includes cash on hand and cash in banks. At ~~June~~March 3031, ~~2017~~2018 and December 31, ~~2016~~2017, the Company maintained cash balances at one ~~financial~~ financial institution.

D. COMPUTATION OF ~~INCOME (~~LOSS) PER SHARE

~~Net~~Diluted ~~income (~~loss) per share is ~~computed by dividing the net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income (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 ~~June~~March 3031, ~~2017~~2018 and ~~2016~~2017, total anti-dilutive shares related to the common stock options plan amounted to approximately 1513.49 million and 14.39 million shares, respectively. On a pro-forma basis if the convertible debt and related interest and penalties were converted at respective conversion rates and applied discounts at the quarter end common stock price, for the three months ended March 31, 2018 and 2017 an additional 6.82 billion and 1.13 billion shares would be issuable, respectively.

E. INCOME TAXES

Income taxes are accounted for under the asset and liability method as stipulated by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“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 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 December 31, ~~2016 and June 30,~~2017, the Company does not believe it has any uncertain tax positions that would result in the Company having a liability to the taxing authorities. Interest related to the unrecognized tax benefits is not recognized in the consolidated financial ~~statements~~ statements as a component of income taxes. The Company’s tax returns are subject to examination by the federal and state tax authorities for the years ended ~~2014~~2013 through ~~2016~~2017.

F. REVENUE RECOGNITION

~~The~~In ~~Company’s~~May ~~revenue~~2014, ~~recognition policies are in compliance with~~ ASC ~~605,~~606 ~~“Revenue~~was ~~Recognition~~issued –related ~~Multiple~~to ~~Element Arrangements”,~~revenue ~~and~~from ~~Staff~~contracts ~~Accounting~~with ~~Bulletin~~customers. ~~(“SAB”)~~Under ~~104~~this guidance, ~~Revenue~~revenue ~~Recognition. Revenue~~ is recognized when atpromised ~~the~~goods ~~date~~or ofservices ~~shipment~~are oftransferred ~~engines~~to ~~and~~customers ~~systems,~~in ~~engine~~an ~~prototypes,~~amount ~~engine~~that ~~designs~~reflects orthe ~~other~~consideration ~~deliverables~~that tois ~~customers~~expected ~~when~~to abe ~~formal~~received ~~arrangement~~for ~~exists,~~those ~~the~~goods ~~price is fixed~~ or ~~determinable,~~services. ~~the~~The ~~delivery~~standard isbecame ~~completed,~~effective nofor ~~other significant obligations of~~ the Company ~~exist~~’s ~~and~~fiscal ~~collectability~~year isbeginning ~~reasonably~~January ~~assured~~1, 2018. ~~Revenue~~The adoption ~~from~~of ~~contracts~~ASC ~~for~~606 ~~multiple~~did ~~deliverables~~not ~~and~~have ~~milestone~~an ~~method~~impact ~~recognition would~~on beour ~~evaluated~~financial ~~and~~position ~~allocated~~or asresults ~~appropriate. Payments received before all~~ of ~~the~~operations, ~~relevant criteria for revenue recognition will be satisfied are recorded~~ as ~~deferred revenue on~~ the ~~condensed consolidated balance sheets. The~~ Company does not ~~allow~~have ~~its customers to return prototype products. Current contracts do not require the Company to provide~~ any ~~warranty assistance after~~ ~~the “deliverable” has been accepted~~revenue.

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.

G. 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 sell in the future, warranty costs are anticipated to be borne by the manufacturing vendor.

H. INVENTORY

Inventory is recorded at the lower of cost or market. Based on our revised R&D company business model, commencing in 2016, costs include only material to develop a completed engine for sale. In our former business model, costs ~~included~~include material, labor and allocated ~~overhead~~ overhead to manufacture a completed engine. These costs are periodically evaluated to determine if they have a net realizable value. If the net realizable value is lower than the carrying amount, a reserve is provided. All inventory was fully reserved at December 31, 2017.

Costs are periodically evaluated to determine if they have a net realizable value. If the net realizable value is lower than the carrying amount, a reserve is provided.

I. 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 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 the quarterly fair values and changing values of financial instruments as of January 1, ~~2017~~2018 ~~(beginning~~through ofMarch ~~period) and June 30~~31, ~~2017~~ ~~(end~~2018 ~~of period)~~ is as follows:

Instrument	Beginning of Period			Change		End of Period		Level		Valuation Methodology
	Derivative Liabilities
Derivative liabilities	$	754,000		$	553,001	$	1,307,001		3	Stochastic Process Forecasting Model
Balance, January 1, 2018		1,424,001
Additions		-
Conversions		(267,969	)
Deletions		-
Fair Value Adjustment –loss		424,968
Balance, March 31, 2018	$	1,581,000

The table above is based on Level 3 hierarchy using the Stochastic Process Forecasting Model valuation methodology

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

J. RESEARCH AND DEVELOPMENT

Research and development activities for product development are expensed as incurred. Costs for the three ~~and~~month ~~six~~periods ~~months~~ ended ~~June 30~~March 31, ~~2017~~2018 and ~~2016~~2017 were $5681,~~242,~~943 ~~$96,918, $39,157~~ and $7340,~~850~~676, respectively.

K. 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 in which the obligation for payment of services is incurred.

L. 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 (“BSM option pricing model”) 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”.

M. ORIGINAL ISSUE DEBT DISCOUNT

The original issue discount (OID) related to notes payable is 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.

N. 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:

	Years
Display equipment for trade shows		3
Leasehold improvements and furniture and fixtures		10 -– 15
Shop equipment		7
Computers		3

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

O. IMPAIRMENT OF LONG LIVED ASSETS

Intangible assets, consisting primarily of patents, are deemed to be critical for the furtherance of our business objectives and our engine products. There have been no impairments of our intangible assets, as we are developing our products and obtaining new contracts based on the engine and associated technology patents.

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.

P. RECENT ACCOUNTING PRONOUNCEMENTS

In March 2016, the FASB issued ASU 2016-09, Compensation-Stock Compensation: Improvements to Employee Share-Based Payment Accounting. This addresses the accounting for share-based payment transactions and includes the recognition of the income tax effects of awards that vest or settle as income tax expense and clarification of the presentation of certain components of share-based awards in the statement of cash flows. The Company is still in the process of evaluating the effect of adoption on its financial position, results of operations and cash flows. The effective date of application is 2018.

In February 2016, the Financial Accounting Standards Board (“FASB”) issued amended accounting guidance that changes the accounting for leases and requires expanded disclosures about leasing activities. Under the new guidance, lessees will be required to recognize a right-of-use asset and a lease liability, measured on a discounted basis, at the commencement date for all leases with terms greater than twelve months. Lessor accounting will remain largely unchanged, other than certain targeted improvements intended to align lessor accounting with the lessee accounting model and with the updated revenue recognition guidance issued in 2014. Lessees and lessors must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The amended guidance is effective for annual reporting periods (including interim periods within those periods) beginning after December 15, 2018, and early application is permitted. The Company’s adoption of this guidance did not result in a material adjustment to the financial statements.

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 required dates of adoption.

Q. 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.

As of ~~June~~March 3031, ~~2017~~2018, the Company maintained its cash in one quality financial institution. The Company has not experienced any losses in its bank accounts through ~~June~~March 3031, ~~2017~~2018. The ~~Company~~company ~~purchases~~had ~~raw~~no ~~material~~accounts ~~and~~receivable ~~components~~at ~~from~~March ~~multiple sources~~31, ~~none~~2018 ofand ~~which may~~December ~~be considered a principal or material supplier. If necessary~~31, ~~the Company could replace these suppliers with minimal effect on its business operations~~2017.

R. DERIVATIVE FINANCIAL INSTRUMENTS

Accounting and reporting standards for derivative instruments and for hedging activities were codified by ASC Topic 815, Derivatives and Hedging (“ASC Topic 815”). It requires that all derivatives be recognized in the balance sheet and measured at fair value. Gains or losses resulting from changes in the fair value of derivatives are recognized in earnings or recorded in other comprehensive income (loss) depending on the purpose of the derivatives and whether they qualify and have been designated for hedge accounting treatment. The Company has derivative liabilities pursuant to convertible debt and common stock warrants, and has recognized net expenses on the condensed consolidated statements of operations. The Company does not have any derivative instruments for which it has applied hedge accounting treatment.

NOTE 2 - GOING CONCERN

As shown in the accompanying ~~condensed~~ consolidated financial statements, the Company ~~incurred~~sustained substantial operating and other losses ~~and~~ and expenses of approximately $0.67 million ~~and $0.4~~ for the ~~six~~three months ended ~~June~~March 3031, ~~2017~~2018 and ~~2016~~$2.1 ~~respectively~~million for the year ended December 31, 2017. The cumulative deficit since inception is approximately $6263.17 million. The Company has a working capital deficit at ~~June 30~~March 31, ~~2017~~2018 of approximately $5.04 million. ~~These factors raise substantial doubt about the Company’s ability to continue as a going concern.~~ 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 include 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 ~~condensed~~ consolidated condensed 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~~ debt, advance contract payments (deferred revenue), and advances from and deferred payments to related parties ~~and the timing of payment of accrued liabilities~~.

NOTE 3 – INVENTORY, NET

~~Inventory~~Initiated in 2016, based on our revised R&D company business model, inventory principally consists of raw material to develop an engine. Under our prior business model, inventory consisted of raw material engine parts, work in process engines, labor and overhead, net of realization, valuation and obsolescence reserves. In the aggregate inventory is stated at the lower of cost or market. All inventory was fully reserved at March 31, 2018.

Inventory, net consists of:

	June 30, 2017		December 31, 2016
Raw materials	$	27,155	$	26,667
Total	$	27,155	$	26,667

We provide estimated provisions for the realization, valuation and obsolescence of our inventories, including adjustments to market, based on various factors, including the age of such inventory and our management’s assessment of the need for such provisions. We look at historical inventory aging and usage reports and margin analyses in determining our provision estimate.

NOTE 4 – PROPERTY AND EQUIPMENT, NET

Property and equipment consists of the following:

	June 30, 2017			December 31, 2016
	March 31, 2018			December 31, 2017
Display equipment for trade shows	$	6,270		$	6,270
Leasehold improvements and furniture and fixtures		93,922			93,922
Equipment and computers		202,578			202,578
Total		302,770			302,770
Accumulated depreciation		(~~223~~241,~~558~~157	)		(~~209~~236,~~498~~938	)
Net property and equipment	$	7961,~~212~~613		$	9365,~~272~~832

Depreciation expense for the ~~six~~three months ended ~~June~~March 3031, ~~2017~~2018 and ~~2016~~2017 was $144,~~060~~219 and $177,~~328,~~345 respectively.

NOTE 5 – PATENTS, TRADEMARKS AND COPYRIGHTS

Patents, trademarks and copyrights consist of legal fees paid to file and perfect these claims. The net balances as of ~~June~~March 3031, ~~2017~~2018 and December 31, ~~2016~~2017, were $~~165~~ 86,~~754~~209 and $~~178~~90,~~478~~173, respectively. ~~For~~There were no capitalized additions to patents, trademarks and copyrights during the ~~six~~three months ended ~~June 30~~March 31, ~~2017~~2018 and ~~for~~ the year ended December 31, ~~2016,~~2017. For the ~~Company~~three ~~capitalized~~months $0ended ~~and~~March $031, ~~respectively,~~2018 ~~of expenditures related to~~and ~~these~~the ~~assets.~~year Asended ofDecember ~~June 30~~31, 2017, the Company ~~had~~recorded 15net ~~patents~~charges ~~issued~~of on$0 ~~its~~and ~~technology~~$62,857, ~~both~~respectively, included in ~~the~~general ~~U.S.~~ and ~~internationally~~administrative expenses, ~~and six~~for ~~trademarks~~various inexpired patents; the Ubasic patents for the Cyclone technology are still protected.S.

~~Patents~~As of March 31, ~~trademarks~~ ~~and~~2018, ~~copyrights~~the ~~are~~Company ~~amortized~~had ~~over~~3 ~~the~~active and ~~life~~8 ofexpired ~~the~~patents ~~intellectual~~issued ~~property~~on ~~which~~its istechnology 15both ~~years~~in the U.S. ~~Amortization~~and ~~expenses~~internationally. ~~for the~~Pursuant ~~six~~to ~~months~~new ~~ended~~US ~~June~~Patent 30Office regulations, upon ~~2017~~approval, ~~and~~expired ~~2016~~patents ~~were~~can ~~$12,724~~be ~~and~~reinstated ~~$17,544,~~upon ~~respectively~~payment of unpaid maintenance fees.

Patents, trademarks and copyrights are amortized over the life of the intellectual property which is 15 years. Amortization expenses for the three months ended March 31, 2018 and 2017 were $3,964 and $6,362, respectively.

NOTE 6 – NOTES AND OTHER LOANS PAYABLE

A. ~~NON-RELATED~~THIRD ~~PARTIES~~PARTY

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

	June 30, 2017		December 31, 2016
	March 31, 2018		December 31, 2017
12% convertible notes payable, maturing at various dates from November 2013 through April 2016 (A)	$	42,951	$	42,951
12% convertible notes payable, maturing at various dates from November 2013 through October 2017 (A)	$	72,948	$	61,196
10% convertible note payable, monthly payments commencing in December 2013 through July 2014 (B)		19,963		19,963
10% convertible notes payable maturing at various dates from May 2015 through February 2016 (C)		76,000		76,000
10% convertible notes payable maturing at various dates from May 2016 through February 2017 (C)		76,000		76,000
10% convertible notes payable, maturing at various dates from December 2015 through January 2016 (D)		29,303		29,303
10% convertible notes payable, maturing at various dates from December 2016 through January 2017 (D)		-		26,192
10% convertible notes payable maturing at various dates from February 2015 through August 2015 ( F )		116,200		116,200
10% convertible notes payable maturing at various dates from February 2016 through August 2016 (E)		112,200		140,658
12% convertible notes payable, maturing at various dates from April 2015 through May 2015 ( G )		60,000		85,000
12% convertible notes payable, maturing at various dates from April 2016 through May 2016 (F)		12,832		35,936
10% note payable, maturing Feb 3, 2018		50,000		50,000
10% note payable, maturing Feb 3, 2017		50,000		50,000
Various notes payable, maturing 2016 and 2017		43,150		13,500
Various notes payable, maturing 2017 and 2018 (G)		72,650		72,650
Note payable, maturing Oct 14 2016, (I)		27,000		27,000
6 % note payable, maturing Oct 12, 2019, (I)		1,500		1,500
Demand Note, (H)		6,725		6,725
Various notes payable, maturing 2017 and 2018		12,200		12,200
12% convertible notes payable maturing October 2017 ( J )		708		-
Total non third party notes –net of discount		430,293		496,295
12% convertible notes payable maturing May 2018 ( K )		360		-
Less-Current Portion		428,793		494,795
8% convertible note payable maturing May 2018 ( L )		4,047		-
Total non-current third party notes	$	1,500	$	1,500
Total non related party notes-current portion	$	476,407	$	512,642

(A) Notes issued net of 10% original discount (fully amortized). This note is in default. (does this exist still) starts with B (B) Note issued net of original discount (fully amortized). Effective May 8, ~~2015~~2016, the Company is subject to a default judgment of approximately $175,000, plus subsequent penalty interest for non-payment of convertible debt and interest. The Company is negotiating a reduced settlement. Unpaid interest, default penalties and default interest is included in accounts payable and accrued liabilities In 2018 the company negotiated a reduced settlement for $150,000 via the issuance of company stock. (C) Notes issued net of discount from derivative liabilities (fully amortized). At ~~June~~March 3031, ~~2017~~2018, the Company held approximately 97 million shares in reserve to cover the potential conversion of this note into common stock pursuant to debt covenants. This note is in default. (D) Notes issued net of discount (fully amortized). This note is in default. (FE) Notes issued net of discount from derivative liabilities (fully amortized). At ~~June~~March 3031, ~~2017~~2018, the Company held 1202 ~~billion~~million shares in reserve to cover the potential conversion of this note into common stock pursuant to debt covenants. ~~This~~These ~~note~~notes isare in default. (GF) Notes issued net of discount from derivative liabilities (fully amortized). The Company is subject to litigation judgment of approximately $150,000, plus subsequent penalty interest for non–payment. Company ~~has~~is ~~arranged~~seeking to arrange a settlement. Unpaid interest, default penalties and default interest is included in accounts payable and accrued liabilities. ~~(H)~~The ~~Note~~company ~~convertible~~negotiated ~~into~~the ~~common~~settlement ~~stock~~of atthe adebt, ~~40%~~interest ~~discount~~and topenalties 20via ~~day~~the ~~market~~conversion ~~average~~of company stock. (IG) Interest ofon $362,000 of notes to be paid in 16,~~500~~000,000 shares of restricted company common stock ~~This~~Other ~~note~~notes isare invarious default (J) Note convertible into common stock at a 55% discount to average of three lowest closing prices of previous 20 day market prices. Derivative discount $ 26,792. Note originally issued less $5,000 OID interest. (K) Note convertible at the lower of a 50% discount to the lowest trading price during the previous 20 trading days prior to conversion, or a 50% discount to the lowest trading price during the previous 20 trading days before the date this note was executedrates. AtThese ~~June~~notes ~~30,~~are ~~2017, the Company held 900 million shares~~ in ~~reserve to cover the potential conversion of this note into common stock pursuant to debt covenants~~default. ~~Derivative discount $30,640. (L) Note convertible at a 50% discount to the lowest trading price during the previous 20 trading days prior to conversion. Derivative discount $ 25,950.~~

B.	RELATED PARTIES

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

	June 30, 2017		December 31, 2016
	March 31, 2018		December 31, 2017
6% demand loans per Operations Agreement with Schoell Marine Inc., a company owned by Cyclone’s Chairman and controlling shareholder (A)	$	~~155~~156,~~058~~738	$	~~169~~161,~~751~~005
6% non-collateralized loans from officer and shareholder, payable on demand.		96,484		107,842
6% non-collateralized loans from officer and shareholder, payable on demand. The original principal balances were $157,101.		89,246		101,546
12% non-collateralized loans from officer and shareholder, payable on demand		2115,~~044~~860		21,044
Accrued Interest		~~105~~121,~~699~~853		95116,~~123~~278
Total current related party notes, inclusive of accrued interest	$	~~378~~383,~~285~~697	$	~~393~~399,~~760~~873

(A) This note arose from ~~rent, equipment leases,~~ services and salaries incurred by Schoell Marine on behalf of the Company. The Schoell Marine note bears an interest rate of 6% and repayments occur as cash flow of the Company permits.

NOTE 7 – RELATED PARTY TRANSACTIONS-Deferred ~~DEFERRED COMPENSATION~~Compensation

Included in accounts payable and accrued expenses - related parties as of ~~June~~March 3031, ~~2017~~2018 and December 31, ~~2016~~2017, are $~~712~~756,~~725~~250 and $~~545~~687,~~225~~500 respectively, of accrued and deferred officers’ salaries compensation for the President and the CTO which may be paid as funds are available. These are non-interest bearing and due on demand.

NOTE 8 – PREFERRED STOCK

At March 31, 2018 and December 31, 2017 the Series A Preferred Stock had 750,000 shares authorized and no shares issued and outstanding. In the first quarter of 2018, the company has a signed binding letter of intent (“LOI”) by an investor to provide $5 million to the company for additional development of the Cyclone Engines. The payment of the $5 million is scheduled through 2020. The consideration is to be the issuance of Preferred A shares, convertible into effectively 20% of the Common shares of the company at the completion of funding.

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

~~During~~The Company authorized an increase of Common ~~the~~Stock ~~six~~to ~~months~~6 ~~ended~~Billion ~~June~~shares ~~30,~~in the last quarter of 2017,. This increase in the ~~Company:~~amount of authorized share capital is a requirement by debt covenants to cover old convertible debt. This is required as the stock price has fallen and shares have to be available at 4 times the conversion rate.

	a-	Amortized (based on vesting) $1,733 of common stock options for employee services.
	b-	Issued approximately 214.5 million shares of common stock pursuant to conversions of approximately $206,000 of notes payable, accrued liabilities and related interest
	c-	The Company issued 6.4 million shares of common stock valued at approximately $5,000 for services

During the three months ended March 31, 2018, the Company:

	a-	Amortized (based on vesting) $350 of common stock options for employee services.

	b-	Issued approximately 1,862 million shares of common stock pursuant to conversions of approximately $222,000 of notes payable, accrued interest and related liabilities.

	c-	The Company issued 571 million shares of common stock valued at approximately $135,00 for accrued liabilities for consulting services.

In the first quarter of 2018, the company has a signed binding LOI from an investor to provided $5 million to the company. The consideration is to be the issuance of Preferred A shares, convertible into effectively 20% of the Common shares of the company at the complete funding estimated through 2020. To Date $195,000 has been funded by the investor.

NOTE 10 – STOCK OPTIONS AND WARRANTS

A. COMMON STOCK OPTIONS

Per the employment contracts with certain officers, for the ~~six~~three months ended ~~June~~March 3031, ~~2017~~2018, the company issued ~~900~~450,000 common stock options, valued at $~~1,080~~90 ( pursuant to the Black Scholes valuation model) ) that are exercisable into shares of common stock at an average exercise price of $.~~0012~~0002 and with a maturity life of 10 years. For the ~~six~~three months ~~year~~ ended ~~June~~March 3031, ~~2017~~2018, the ~~amortization~~ amortization of stock options was $~~1,733~~350 and the unamortized balance was $1381. As of March 31,~~744~~ 2018, the intrinsic value on all options was zero.

A summary of the common stock options for the period from December 31, ~~2016~~2017 through ~~June~~March 3031, ~~2017~~2018 follows:

	Number Outstanding		Weighted Avg. Exercise Price		Weighted Avg. Remaining Contractual Life (Years)
Balance, December 31, 2016		14,030,000	$	.0960		5.3
Balance, December 31, 2017		13,400,000	$	0.064		5.8
Options issued		~~900~~450,000		.~~0012~~0002		910.90
Options exercised		-		-		-
Options expired		-		-		-
Expired		-		-		-
Balance, March 31, 2018		13,850,000	$	0.062		5.7
Balance, June 30 , 2017		14,930,000	$	.0910		5.1

The vested and exercisable options at period end follows:

	Exercisable/ Vested Options Outstanding		Weighted Avg. Exercise Price		Weighted Avg. Remaining Contractual Life (Years)
Balance June 30 , 2017		13,130,000	$	.096		4.7
Balance March 31, 2018		12,500,000	$	.057		5.3
Additional vesting by Sept. 30, 2017		450,000		.002		9.0

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

	Six Months Ended June 30, 2017			Six Months Ended June 30, 2016
	Three Months Ended March 31, 2018			Three Months Ended March 31, 2017
Risk free interest rate		12.~~5-1.50%~~39	%		1.~~71-.86%~~5	%
Expected volatility		~~122-134%~~132	%		~~136-137%~~134	%
Expected term		3			3
Expected dividend yield		0	%		0	%
Average value per options and warrants	$	$ .~~0009-.0015~~0002		$	$ .~~0019-.0019~~0015

Expected volatility is based on historical volatility of the Company’s common stock price. Short Term U.S. Treasury rates were utilized at the risk free interest rate. 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

AAs ~~summary~~ of ~~outstanding~~March ~~vested~~31, ~~warrant~~2018 ~~activity~~and ~~for the period from~~ December 31, ~~2016~~2017, tothere ~~June~~were ~~30,~~no ~~2017~~common ~~follows:~~stock warrants outstanding.

	Number Outstanding		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)
Common Stock Warrants
Balance, December 31, 2016		500,000	$	.08		.67
Warrants issued		-		-		-
Warrants expired		-		-		-
Warrants cancelled		-		-		-
Balance, June 30, 2017		500,000	$	.08		.17

NOTE 11 – INCOME TAXES

AIn ~~reconciliation~~December 2017, a new tax known as Tax Cut and Jobs Act of ~~the~~2017 ~~differences~~was ~~between~~enacted. ~~the~~The ~~effective~~new ~~income~~tax law includes significant changes to the U.S. corporate tax ~~rates~~systems ~~and~~including a rate reduction from 35% to 21% beginning in January of 2018, a change in the ~~statutory~~treatment of ~~federal~~foreign earnings going forward, a deemed repatriation transition tax, ~~rates~~and ~~for~~changes ~~the~~to ~~six~~allow ~~months~~net operating losses to be carried ~~ended~~forward ~~June~~indefinitely. 30In addition, net operating losses arising after December 31, 2017 ~~and~~will ~~2016~~be ~~are~~limited asto ~~follows:~~the lesser of the available net operating loss or 80% of the pre-net operating loss taxable income. In accordance with ASC 740, the impact of a change in tax law is recorded in the period of enactment.

	Six Months ended June 30 , 2017			Amount			Six Months ended June 30, 2016			Amount
Tax benefit at U.S. statutory rate		34	%	$	247,704			34	%	$	133,086
State taxes, net of federal benefit		4	%		29,142			4	%		15,657
Change in valuation allowance		(38	)%	$	(276,846	)		(38	)%	$	(148,743	)
					-						-

A reconciliation of the differences between the effective income tax rates and the statutory federal tax rates for the three months ended March 31, 2018 and 2018 are as follows:

The tax effect of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at June 30 , 2017 and December 31, 2016 consisted of the following:

	Three Months ended March 31, 2018					Three Months ended March 31, 2017
Tax benefit at U.S. statutory rate	$	47,860		21	%	$	134,493		34	%
State taxes, net of federal benefit		9,116		4			15,823		4
Change in valuation allowance		(56,976	)	(25	)		(150,316	)	(38	)
		-		-			-

Deferred Tax Assets	June 30, 2017			December 31, 2016
Net Operating Loss Carry-forward	$	10,886,278		$	10,577,607
Deferred Tax Liabilities – Accrued Officers’ Salaries		(926,431	)		(900,306	)
Net Deferred Tax Assets		9,959,847			9,677,301
Valuation Allowance		(9,959,847	)		(9,677,301	)
Total Net Deferred Tax Assets	$	-		$	-

The tax effect of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at March 31 2018 and December 31, 2017 consisted of the following:

As of June 30, 2017, the Company had a net operating loss carry forward for income tax reporting purposes of approximately $23.5 million that may be offset against future taxable income through 2031. 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.

Deferred Tax Assets	March 31, 2018			December 31, 2017
Net Operating Loss Carry-forward	$	11,029,921		$	10,951,258
Deferred Tax Liabilities – Accrued Officers’ Salaries		(1,008,743	)		(987,056	)
Net Deferred Tax Assets		10,021,178			9,964,202
Valuation Allowance		(10,021,178	)		(9,964,202	)
Total Net Deferred Tax Assets	$	-		$	-

As of March 31, 2018, the Company had a net operating loss carry forward for income tax reporting purposes of approximately $17.2 million that may be offset against future taxable income through 2031. 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. 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~~original lease, was at an annual rent of $60,000. The lease period ended December 2016 and the current lease is monthly with a 3% rate increase. Occupancy costs for each of the ~~six~~three months ended ~~June~~ 30March 31, ~~2017~~2018 and ~~2016~~2017 were $3216,~~522~~983 and $3215,~~300~~900, respectively.

B . ~~CAPITALIZED~~CAPITAL LEASE OBLIGATIONS

~~Total lease payments made for the six months ended June 30, 2017 were $0.~~ The ~~balance~~company ofis ~~capitalized~~in ~~lease~~default ~~obligations~~on ~~payable~~its ~~at June~~remaining ~~30,~~capital ~~2017~~lease ~~and~~obligation ~~December~~to ~~31,~~Leaf ~~2016~~Capital ~~was $39~~Funding,~~848~~ ~~, respectively~~LLC. ~~Future lease payments are:~~

2017	$	14,312
2018		9,754
2019		8,127
2020		7,655
2021		0
	$	39,848

Effective October 13, 2017 the Company was subject to a summary judgment of $ 37,278 plus attorney fees for non-payment of 3 capital leases from Marlin Business Bank. This amount is including $11,379 of past due lease payments, accelerated lease payments, late charges and other fees. The $37,278 has been reflected in accrued expenses with an appropriate reduction of the capital lease liability.

13In the third quarter of 2017, the company recognized a summary judgment of $7,266 plus accrued interest for non-payment of a capital lease from Navitas Lease Corp. This amount is including $4,177 of past due lease payments, accelerated lease payments, interest expense, late charges and other fees. The $7,266 has been reflected in accrued liabilities with an appropriate reduction of the capital lease liability.

The balance of capitalized lease obligations payable at March 31, 2018 was $5,522, which is due during 2018.

NOTE 13 – COMMITMENTS AND CONTINGENCIES

The Company has employment agreements with Harry Schoell, Chairman and CTO (previously, CEO), at $150,000 per year and Frankie Fruge, President, at $120,000 per year; (collectively, the “Executives”). These agreements provide for a term of three (3) years from their Effective Date (July 2007 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 SUBSIDIARY

In 2012, the Company established a 100% owned subsidiary (renamed) Cyclone Performance LLC. The purpose of Cyclone Performance is to build, test and run a vehicle utilizing the Company’s engine. In the last quarter of 2012, the Company sold a 5% equity investment to an unrelated investor for $30,000. Subsequent to December 31, 2012, this 5% equity investment was acquired by a corporate officer of the Company. Losses of the subsidiary are currently fully borne by the Company, as there is no guarantee of future profits or positive cash flow of the subsidiary. As of ~~June~~March 3031, ~~2017~~2018, the cumulative unallocated losses to the non-controlling interests of this subsidiary ofare approximately $~~953~~1,000 and are to be recovered by the parent from future subsidiary profits if they materialize.

NOTE 15 – RECEIVABLES, DEFERRED REVENUE AND BACKLOG

As of ~~June~~March 3031, ~~2017~~2018, total backlog for prototype engines to be delivered was $400,000 from the Combilift agreement, of which $100,000 has been paid and has been recorded as deferred revenue. InAs ~~2016~~of March 31, ~~three~~2018, (3) other customers ~~advanced~~have $~~$206~~56,950 of advances as deposits ~~towards payments~~ on ~~$355,000 of~~ contracts for engines ~~currently estimated~~ to be delivered ~~in 2017 and license deposits~~.

NOTE 16 – DERIVATIVE FINANCIAL INSTRUMENTS

~~Pursuant~~Prior to ~~additional financing~~2016, in the ~~year ended December 31, 2016 the~~ Company entered into no convertible note agreements. In(subject ~~the~~to ~~second quarter~~derivative ofaccounting ~~2017 we again entered into additional convertible debt agreements~~treatment). The ~~current convertible notes have~~ conversion prices into common stock ~~that~~ ranged from a discount of 30% to 45% of the lowest closing prices in the 10 to 20 trading days prior to ~~the~~ the conversion. Under provisions of ASC Topic 815-40, this conversion feature triggered derivative accounting treatment because ~~the~~ the convertible note was convertible into an indeterminable number of shares of common stock. The fair value of the embedded conversion option was required to be presented as a derivative liability and adjusted to fair value at each reporting date, with changes in fair value reported in the condensed consolidated statements of operation. As of March 31, 2018, the Company has outstanding stock options and convertible debt that upon exercise could exceed the number of shares authorized.

In the ~~six~~three months ended ~~June~~March 3031, ~~2017~~2018, the Company recorded a ~~$85,618~~ non-cash charge ~~to interest expense (reflective~~ of ~~debt discount amortization), and a non cash charge of~~ $~~407~~424,~~467~~968 of derivative losses related to adjusting the derivative liability to fair value. At ~~June~~March 3031, ~~2017~~2018, the derivative related fair value of debt and related convertible liabilities was $1,~~307~~581,~~001~~000. The company also amortized to interest expense $30,764 of derivative debt discount.

14The Company calculates the estimated fair values of the liabilities for derivative instruments at each quarter-end using the Stochastic Process Forecasting models (Monte Carlo simulations). Volatility, expected term and risk free interest rates used to estimate the fair value of derivative liabilities are indicated in the table below. The volatility was based on historical volatility, the expected term is equal to the remaining term of the debt and the risk free rate is based upon rates for treasury securities with the same term.

The Company calculates the estimated fair values of the liabilities for derivative instruments at each quarter-end using the BSM option pricing model and Stochastic Process Forecasting models (Monte Carlo simulations). Volatility, expected term and risk free interest rates used to estimate the fair value of derivative liabilities are indicated in the table below. The volatility was based on historical volatility, the expected term is equal to the remaining term of the debt and the risk free rate is based upon rates for treasury securities with the same term. Update

	Three Months ended March 31, 2018			Three Months ended March 31, 2017
Volatility		477	%		121	%
Risk Free Rate		1.73	%		1.0	%
Expected Term (years)		.25			.25
Dividend Rate		0	%		0	%

	3 Months Ended June 30 , 2017			Year Ended December. 31, 2016
Volatility		121% - 277	%		71% - 91	%
Risk Free Rate		1.0% - 1.24	%		.02% -.28	%
Expected Term (years)		.25-1.0	-		0 -1.05
Dividend Rate		0	%		0	%

NOTE 17 – LITIGATION

~~NOTE~~Effective 17May –8, ~~LlTIGATION~~2016, the Company is subject to a default judgment of approximately $175,000, plus subsequent penalty interest for non-payment of convertible debt and interest Tonaquint Inc. filed and received a judgment and the Company is negotiating a reduced settlement. As at March 31 2018, outstanding interest, default interest and default judgment penalties are included in accrued liabilities. In 2018, the Company negotiated a reduced settlement for $150,000 via the issuance Company stock.

~~Effective~~In ~~May~~August 82016, ~~2015,~~ the Company is subject to alitigation ~~default judgment~~ of approximately $~~175~~150,000, plus subsequent penalty interest for non -payment of ~~convertible~~a ~~debt and interest~~liability. ~~Tonaquint~~JSJ ~~Inc.~~ filed and received a judgment and the Company isentered ~~negotiating~~into a ~~reduced~~ settlement. agreement for conversion of judgment Asbased on value and conversions of ~~June~~original 30note on January 9, 2017. As at March 31, 2018, outstanding interest, default interest and default judgment penalties for debt are included in accrued liabilities.

~~In August~~Effective ~~2015~~October 13, 2017 the Company is was subject to ~~litigation~~a ofsummary ~~approximately~~judgment of $~~150~~37,~~000,~~278 plus ~~subsequent~~attorney ~~penalty~~fees ~~interest~~ for non -payment of a3 ~~liability~~capital leases from Marlin Business Bank. ~~JSJ~~This amount ~~filed~~includes ~~and~~$11,379 ~~received~~of aunpaid ~~judgment~~lease ~~and~~payments, ~~the~~accelerated ~~Company~~lease ~~has~~payments, ~~arranged~~late acharges ~~settlement.~~and Asother offees. ~~June~~The 30$37,278 has ~~2017,~~been ~~outstanding interest,~~reflected ~~default~~in ~~interest~~accrued ~~and~~expenses ~~default~~with ~~judgment~~an ~~penalties~~appropriate ~~are~~reduction ~~included~~of inthe ~~accrued~~capital ~~liabilities~~lease liability.

~~NOTE~~In the third quarter of 2017, the company recognized a summary judgment of $7,266 plus accrued interest for 19non-payment –of ~~SUBSEQUENT~~a ~~EVENTS~~capital lease from Navitas Lease Corp. This amount is including $4,177 of past due lease payments, accelerated lease payments, interest expense, late charges and other fees. The $7,266 has been reflected in accrued liabilities with an appropriate reduction of the capital lease liability.

~~Subsequent to the second quarter of 2017, the Company engaged in the following activities:~~16

	a-	Q2 Power transferred it’s exclusive license agreement with Cyclone Power to the Phoenix Power Group. On the transfer, the license transforms from an exclusive to a non-exclusive basis and Phoenix will be authorized to produce the Waste Heat Engine.
	b-	The company delivered an engine to FSDS pursuant to the contract, resulting in the recognition of deferred income of $75,000.
	c-	The Company issued 109,017,734 shares of common stock pursuant to conversions of debts and related interest.

NOTE 18 – SUBSEQUENT EVENTS

15In the second quarter of 2018, the Company engaged in the following transactions:

In the first quarter of 2018, the company has a binding letter of intent by an investor to provide $5 million to the company for additional development of the Cyclone Engines. The consideration is to be the issuance of Preferred A shares, convertible into effectively 20% of the Common shares of the company at the completion of funding. The funds are to be paid over a 2 year period upon reaching various milestones. Currently the Company has met all its milestones and has received $100,000 in the first quarter of 2018 and $99,500 in the second quarter of 2018.

In the May 2018, the Company established a wholly owned subsidiary, Emerging Power Solutions Inc., whose purpose is to provide alternative power solutions for various industries based on the application of the Cyclone Engine.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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;
	●	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 statements.

Overview

The Company is engaged in the research and development of all-fuel, eco-friendly engine and parts technologies for integration and use within customers’ systems. The ~~company~~Company anticipates that it will concentrate on the following engine models (power ratings) : Mark 1 (2.7 KW- 6 HP), Mark 3 (12 KW-22 HP) and the Mark 5 ( 60 KW- 100 HP). Additionally, revenue is anticipated via sales of component parts and licensing fees.

Corporate Structural Actions. The Company’s focus is on revenue and funding derived from sales of engines and parts for integration into customers applications and systems. With delivery of our engines and material component parts, we are transitioning from the convertible notes used to finance the Company over the last 18 months.

Results of Operations

Three Months Ended ~~June~~March 3031, ~~2017~~2018 Compared to Three Months Ended ~~June~~March 3031, ~~2016~~2017

Revenue. The Company had no revenues in the quarters ended ~~June~~March ~~30,~~31 ~~2017~~2018 and ~~June~~March 3031, ~~2016~~2017.

Gross Profit. In the quarters ended ~~June~~March 3031, ~~2017~~2018 and ~~2016~~2017, the company ~~has~~had no gross profit.

Operating Expenses.

Operating expenses incurred for the quarter ended ~~June~~March 3031, ~~2017~~2018 were $~~282~~248,~~542~~715 as compared to $~~234~~358,~~595~~411 for the same period in the ~~previous~~ previous year, ana ~~increase~~decrease of $47109,~~947~~696 or 2031%. The majority of the variance was due to ~~higher~~a lower General and Administrative expenses of $24154,~~938~~ 593 (1349%) from consulting and professional fees~~, and higher R&D expenses of $ 17,085 (44%) from increased staffing~~.

Operating Loss. The operating losses for the quarters ended ~~June~~March 3031, ~~2017~~2018 and ~~2016~~2017 were $~~282~~248,~~542~~715 and $~~234~~358,~~595,~~411 respectively, a variance of $47109,~~947~~696 or 2031%, due to the ~~factors~~factor outlined above.

Other Expense. Other expense for the quarter ended ~~June~~March 3031, ~~2017~~2018 was $~~220~~490,~~049~~905 versus $42444,~~627~~375 for the same period in the prior year, an increase of $~~177~~46,~~422~~530 or ~~416~~10%.

The 2018 ~~2017~~ other expenses include: $5068,~~431 of~~356 ~~interest expense, $85,618~~ of ~~non cash derivative~~ interest expense and $84424,~~000~~968 of non cash derivative fair value accounting ~~related~~ related charges. The ~~2016~~2017 other expenses included $2949,~~614~~974 of interest expense, a $57323,~~383~~467 ~~loss~~non oncash ~~the~~derivative ~~settlement~~fair ofvalue aaccounting ~~liability~~related ~~pursuant~~charges toand ~~payment in common stock, net of~~ a $4470,~~000~~934 ~~gain~~loss on ~~the~~debt ~~sale~~conversion ofvia ~~the~~common ~~Q2 Power investment~~stock.

Net Loss and Loss per Share. The net loss for the quarter ended ~~June~~March 3031, ~~2017~~2018 was $~~502~~739,~~591~~620, compared to a net loss of $~~277~~802,~~222~~ 786 for the same period in the previous year. The ~~increased~~decreased loss of $~~225~~63,~~369~~166 or 817.9% is related to the other factors outlined above. The net loss per weighted average share was $0.00 for both the current quarter and the ~~comparable quarter of the~~ prior ~~year~~quarter.

Six Months Ended June 30, 2017 Compared to Six Months Ended June 30 , 2016

Revenue. The Company had no revenues in the six months ended June 30, 2017 and June 30, 2016.

Gross Profit. In the six months ended June 30, 2017 and 2016, the company has no gross profit.

Operating Expenses.

Operating expenses incurred for the six months ended June 30, 2017 were $640,953 as compared to $465,198 for the same period in the previous year, an increase of $175,755 or 38%. The majority of the variance was due to a higher General and Administrative expenses of $151,874 (39%) from consulting and professional fees and higher R&D expenses of $23,068 (31%) attributable to re staffing.

Operating Loss. The operating losses for the six months ended June 30, 2017 and 2016 were $640,953 and $465,198, respectively, a variance of $175,755 or 38%, due to the factors outlined above.

Other Expense. Other expense for the six months ended June 30, 2017 was $664,424 versus $72,634 for the same period in the prior year, an increase of $591,790 or 815%.

The 2017 other expenses include a $70,934 loss on debt conversion via common stock, $100,405 of interest expense and $493,085 of non cash derivative fair value accounting and derivative interest expense. The 2016 other expenses included $62,442 of interest expense a $57,383 loss on the settlement of a liability pursuant to payment in common stock, net of a $44,000 gain on the sale of the Q2 Power investment

Net Loss and Loss per Share. The net loss for the six months ended June 30, 2017 was $1,305,377, compared to a net loss of $537,832 for the same period in the previous year. The increased loss of $767,545 or 143% is related to the other factors outlined above. The net loss per weighted average share was $0.00 for both the current six months and the comparable period of the prior year.

Liquidity and Capital Resources

At ~~June~~ 30March 31, ~~2017~~2018, the net working capital deficiency was $45,~~951~~443,~~718~~546 as compared to a deficiency of $35,~~989~~435,~~165~~169 at December 31, ~~2016~~2017, an ~~unfavorable~~increase ~~variance~~ of $~~962~~8,~~553 or 24~~377 (0.2%).

For the ~~six~~three months ended ~~June~~March 3031, ~~2017~~2018, cash ~~decreased~~increased by $~~591~~7,500. This is ~~reflective~~inclusive of funds used by the net loss of $1739,~~305,377~~620 ~~which~~and net repayment of related party ~~was~~debt ~~offset~~of by$24,750. ~~funds~~Funds were provided by ~~debt~~$100,000 in proceeds from series A preferred stock subscription, debt proceeds of $~~124~~5,~~650~~000, higher accounts payable and accrued expenses of $~~414~~115,~~086~~331 and a ~~net increase of~~ $~~152~~83,~~025~~750 net increase in related party notes payables and accrued expenses. Non cash charges were a $70424,~~934~~968 ~~loss recognized by settling debt with common stock and $493,085~~ of non cash charges from fair value derivative accounting and $30,764 of amortized derivative ~~expense~~debt discount.

For the ~~six~~three months ended ~~June~~March 3031, ~~2016~~2017, cash ~~increased~~decreased by $~~14,861~~45. This is reflective of funds used by the net loss of $~~537~~802,~~832~~786 ~~and an~~partially ~~increase of $26,005 in inventory. This was~~ offset by funds provided by debt proceeds of $25,000, higher accounts payable and accrued expenses of $~~203~~289,~~521, an~~502 and a net increase of $~~231~~83,~~470~~ 750 in related party notes payables, and accrued expenses. ~~and~~Non ~~notes~~cash ~~payable~~charges ~~and~~were a $4070,~~700~~934 ~~increase~~loss inrecognized ~~customer~~by ~~contract~~settling debt with ~~deposits~~common ~~recorded~~stock inand ~~deferred~~$323,468 ~~revenue.~~of non cash charges from fair value derivative accounting

1718

Cash Flow Management Plan

As shown in the accompanying ~~condensed~~ financial statements, the Company ~~incurred~~sustained substantial operating losses and other expenses for the ~~six~~three months ended ~~June~~March 3031, ~~2017~~2018 of approximately $1.37 million. Cumulative operating and other losses since inception are approximately $2963.07 million ~~and non cash derivative losses are $33~~.1 ~~million.~~ The Company has a working capital deficit at ~~June~~March 3031, ~~2017~~2018 of approximately $5.04 million. There is no guarantee whether the Company will be able to support its operations on a long term basis. This raises doubt about the Company’s ability to continue as a going concern. 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.

InWe ~~the~~are ~~latter~~engaged ~~half~~in ofthe ~~2017,~~research ~~the~~and ~~company~~development ~~projects~~of ~~$300~~all-fuel,~~000~~ ineco-friendly ~~revenue~~engine ~~from~~technologies. ~~the~~Several ~~completion~~prototypes of ~~the~~these ~~Combilift~~engines are ~~Mark~~current 5beta ~~contract.~~tested, Anpre-production ~~engine for~~tested ~~the~~or ~~FSDS~~nearing ~~contract~~completion ~~has~~with ~~been~~2 ~~delivered~~models currently in ~~the~~limited ~~third~~production. ~~quarter~~While ~~and~~we ~~the~~started to ~~final~~generate ~~engine~~revenue isfrom ~~anticipated~~its tooperations beas ~~delivered~~early ~~and~~as ~~accepted prior~~2008, toit ~~year~~has ~~end.~~not ~~The~~had ~~remaining~~material ~~$75,000~~or ~~balance~~consistent ofrevenue ~~the~~in ~~contract~~each isof ~~contractually~~the ~~required~~last ~~upon~~two fiscal ~~delivery~~years. ~~IBES~~For isus ~~negotiating~~ to ~~purchase~~maintain 5and ~~more~~expand ~~beta~~our ~~site~~operations ~~projects~~through ~~with~~the ~~anticipated~~next ~~additional~~12 ~~revenue~~months, ~~from~~we ~~sales~~will ofseek ~~$80,000.~~the Wecompletion ~~anticipate~~of ~~delivering~~our manufactured products ~~thru~~by our ~~integrators~~two ~~and~~ manufacturers byof the ~~fourth~~engines ~~quarter~~and the integration of ~~2017.~~the ~~The~~engines ~~Company~~into ~~has~~a ~~signed~~generator ~~three~~package ~~contracts~~to ~~for~~be ~~deliverables~~sold to distributors. We will also continue license agreements and ~~anticipates~~development ~~purchase~~agreements ~~orders~~that provide up-front or progress payment funds to us. We are receiving monthly payments from our investor and anticipate for ~~manufactured~~that ~~engines~~to bycontinue ~~end~~as ofthey ~~third~~proceed ~~quarter~~with oftheir ~~2017~~due diligence.

~~Additionally,~~Our wegoals ~~have~~for ~~potential~~2018 ~~contracts~~and in2019 ~~various~~are ~~stages~~to ofsell ~~negotiation~~the ~~that~~Mark ~~could~~1 ~~generate~~and ~~another~~Mark $23 ~~million~~engine in(with ~~revenue over~~ the ~~following 12~~TAW generator) to 24commercial ~~months.~~customers and distributors. We ~~cannot~~are ~~guarantee~~developing ~~that~~the weMark ~~will~~5 beengine ~~successful~~for inincorporation ~~closing~~into ~~these~~solar ~~new~~power ~~contracts,~~systems ~~but~~that wewill ~~are~~be ~~cautiously~~sold ~~optimistic~~via our investment partner. The ~~that~~Company ~~these~~is orlooking ~~other~~to ~~opportunities~~expand ~~will~~with ~~materialize~~other inmilitary ~~the~~associates ~~coming~~for ~~quarters~~its S-2 engine.

Funding in 2018 to complete various Company projects has been negotiated with an investor that wants to integrate Cyclone technology with its Solar products. Final testing of the Mark 10 1500 horse power unit is projected by year end. The new Thermal Storage unit for the 1 Megawatt Microgrid market and the Cyclone solar trough is expected to be manufactured by early next year.

In the first quarter of 2018, an investor provided $100,000, and $99,500 in the second quarter, for additional development of the Cyclone Engines as part of a binding letter of intent for $5 million. The consideration is to be the issuance of Preferred A shares, convertible into effectively 20% of the Common shares of the Company at the completion of funding. The funds are to be paid over a 2-year period upon reaching various milestones.

Our auditors have issued a going concern opinion for the years ended December 31, 2017 and 2016. Management is optimistic, however, that revenue can be generated shortly and that funding has been secured in 2018 through 2020 to maintain operations and development at the current and at an accelerated pace.

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.

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 President (Chief Executive Officer) and Chief Financial Officer, of the effectiveness of our financial disclosures, controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of ~~June~~March 3031, ~~2017~~2018.

A material weakness can be defined as an insufficiency of internal controls that may result in a more than remote likelihood that a material misstatement will not be prevented, detected or corrected in a company’s financial statements.

Based upon that evaluation, our President (Chief Executive Officer) and Chief Financial Officer concluded that our disclosure controls and procedures were not effective, based on the following deficiencies:

18● Weaknesses in Accounting and Finance Personnel: We have a small accounting staff and we do not have the robust employee resources and expertise needed to meet complex and intricate GAAP and SEC reporting requirements of a U.S. public company. Additionally, numerous adjustments and proposed adjustments have been noted by our auditors. This is deemed by management to be a material weakness in preparing financial statements. ● We have written accounting policies and control procedures, but we do not have sufficient staff to implement the related controls. Management had determined that this lack of the implantation of segregation of duties, as required by our written procedures, represents a material weakness in our internal controls. ● Internal control has as its core a basic tenant of segregation of duties. Due to our limited size and economic constraints, we are not able to segregate for control purposes various asset control and recording duties and functions to different employees. This lack of segregation of duties had been evaluated by management, and has been deemed to be a material control deficiency.

~~- Weaknesses in Accounting and Finance Personnel:~~ We have adetermined ~~small~~that ~~accounting staff and we do not have~~ the ~~robust~~above ~~employee~~internal ~~resources~~control ~~and~~weaknesses ~~expertise needed to meet complex~~ and ~~intricate~~deficiencies ~~GAAP~~could ~~and~~result ~~SEC~~in ~~reporting requirements of~~ a ~~U.S.~~reasonable ~~public~~possibility ~~company.~~for ~~Additionally, numerous adjustments and proposed adjustments have been noted by our auditors. This is deemed by management to be a material weakness in preparing~~ financial statements. -that Wematerial ~~have~~misstatements ~~written~~will ~~accounting policies and control procedures, but we do~~ not ~~have~~be ~~sufficient~~prevented ~~staff~~or todetected ~~implement~~on ~~the~~a ~~related~~timely ~~controls.~~basis ~~Management had determined that this lack of the implantation of segregation of duties, as required~~ by our ~~written procedures, represents a material weakness in our~~ internal controls. - Internal control has as its core a basic tenant of segregation of duties. Due to our limited size and economic constraints, the Company is not able to segregate for control purposes various asset control and recording duties and functions to different employees. This lack of segregation of duties had been evaluated by management, and has been deemed to be a material control deficiency.

~~The~~Changes ~~Company~~in ~~has~~Internal ~~determined~~Control ~~that~~Over ~~the~~Disclosure ~~above~~Controls ~~internal control weaknesses~~ and deficiencies could result in a reasonable possibility for interim financial statements that a material misstatements will not be prevented or detected on a timely basis by the Company’s internal controlsProcedures.

Management is currently evaluating what steps can be taken ~~in order~~ to address these material weaknesses. As a growing small business, ~~the Company~~we continuously devote ~~devotes~~ resources to the improvement of our internal control over financial reporting. Due to budget constraints, the staffing size, proficiency and specific expertise in the accounting department is below requirements for the operation. ~~The Company~~We isare anticipating correcting deficiencies as funds become available.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting is being designed to include policies and procedures that are intended to:

(i) maintain records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that our receipts and expenditures are being made only in accordance with the authorization of our management and directors; and

(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.

Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2016. In making this assessment, our management applied the integrated framework and criteria which has been developed and set forth by the Committee of Sponsoring Organizations of the Treadway Commission (Coso) (Revised 2013). This assessment included an evaluation of the design and procedures of our control over financial reporting. Based on this evaluation, our management concluded that as of December 31, 2017 our internal control over financial reporting was not effective due to certain material weaknesses. These identified material weaknesses included (i) an insufficient accounting staff; (ii) limited checks and balances in processing cash and other transactions; and (iii) lack of sufficient active independent directors and an independent audit committee.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate

We are committed to improving our financial and oversight organization and procedures. During the remainder of 2018 and into 2019, we intend to adopt new accounting and disclosure controls and procedures, improve existing procedures to remedy material weaknesses in our internal control over financial reporting and to add experienced personnel to our accounting staff as our financial ability allows. We also hope to add independent directors to our Board of Directors, and to establish an Audit Committee comprised of independent directors with accounting and /or financial reporting expertise.

Changes in Internal Control Over Financial Reporting and Procedures.

There were no changes in internal control over financial reporting and procedures from the previous quarter.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Effective May 8, ~~2015~~2016, the Company is subject to a default judgment of approximately $175,000, plus ~~default~~subsequent penalty interest for non-payment of convertible debt and interest Tonaquint Inc. ~~The~~filed and received a judgment and the Company is ~~seeking~~negotiating toa ~~negotiate~~reduced settlement. As at March 31 2018, outstanding interest, default interest and default judgment penalties are included in accrued liabilities. In 2018, the Company negotiated a reduced settlement for $150,000 via the issuance Company stock.

In August ~~2015~~2016, the Company is subject to litigation of approximately $150,000, plus ~~default~~subsequent penalty interest for non- -payment of a liability. ~~The~~ JSJ filed and received a judgment and the Company ~~has~~entered ~~arranged~~into a settlement agreement for conversion of judgment based on value and conversions of original note on January 9, 2017. As at March 31, 2018, outstanding interest, default interest and default judgment penalties for debt are included in accrued liabilities.

~~ITEM~~Effective October 13, 2017 the Company was 1Asubject to a summary judgment of $ 37,278 plus attorney fees for non-payment of 3 capital leases from Marlin Business Bank. ~~RISK~~This amount ~~FACTORS~~is including $11,379 of unpaid lease payments, accelerated lease payments, late charges and other fees. The $37,278 has been reflected in accrued expenses with an appropriate reduction of the capital lease liability.

In the third quarter of 2017, the company recognized a summary judgment of $7,266 plus accrued interest for non-payment of a capital lease from Navitas Lease Corp. This amount is including $4,177 of past due lease payments, accelerated lease payments, interest expense, late charges and other fees. The $7,266 has been reflected in accrued liabilities with an appropriate reduction of the capital lease liability.

TEM 1A. RISK FACTORS

Not required.

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

In the first ~~half~~quarter of ~~2017~~2018 the Company issued ~~approximately 214~~2.54 ~~million~~billion shares of restricted common stock in settlement of debt, ~~related~~ accrued ~~interest~~ liabilities and ~~accrued~~related ~~liabilities~~interest ~~and~~ of approximately $~~206~~355,000.

In the first half of 2017, the Company issued 6,370,000 shares of restricted common value at $5,096 for services.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS:

The Company filed all required exhibits for this period in the Super 10K.

Exhibit Number		Description
10.60		Settlement Agreement with Anton and Chia
10.61		License Modification. Agreement and Transfer Consent with Q2 Power
10.62		$31,000 Note from JSJ Investments Inc
10.63		$30,000 Note Union Capital LLC
10.64		$30,000 Back end Note Union Capital LLC
31.1		Certification of the President (Principal Executive Officer), as required by Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Principal Financial Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of the President (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.

2023

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.
August 21, 2017	/s/ Frankie Fruge
June 15, 2018	/s/ Frankie Fruge
	Frankie Fruge
	President
	(Principal executive officer)
August 21, 2017	/s/ Bruce Schames.
June 15, 2018	/s/ Bruce Schames.
	Bruce Schames
	Chief Financial Officer
	(Principal financial and accounting officer)

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