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CYCLONE POWER TECHNOLOGIES S-1 Filing

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CYCLONE POWER TECHNOLOGIES  S-1 Filing Powered By Docstoc
					                                 As filed with the Securities and Exchange Commission on October 12, 2012
                                                                                                                        Registration No. 333-____




                                               UNITED STATES
                                   SECURITIES AND EXCHANGE COMMISSION
                                          WASHINGTON, D.C. 20549

                                                                  Form S-1
                               REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933


                           CYCLONE POWER TECHNOLOGIES, INC.
                                               (Exact name of registrant as specified in its charter)

                   Florida                                               3621                                          26-0519058
        (State or other jurisdiction of                     (Primary Standard Industrial                            (I.R.S. Employer
       incorporation or organization)                       Classification Code Number)                          Identification Number)

                                                             601 NE 26 th Court
                                                       Pompano Beach, Florida 33064
                                                            Phone: (954) 943-8721
              (Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

                                                            Christopher Nelson
                                                       President & General Counsel
                                                     Cyclone Power Technologies, Inc.
                                                             601 NE 26 th Court
                                                      Pompano Beach, Florida 33064
                                                          Phone: (954) 943-8721
                     (Name, address, including zip code, and telephone number, including area code, of agent for service)

                                                   Please send copies of all communications to:
                                                             Joel D. Mayersohn, Esq.
                                                               Clint J. Gage, Esq.
                                                               Roetzel & Andress
                                                     350 East Las Olas Boulevard, Ste. 1150
                                                         Fort Lauderdale, Florida 33301
                                                              Phone: (954) 462-4150

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes
effective.
          If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933 check the following box: 
          If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: 
          If this Form is to be a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective registration statement for the same offering: 
          If this Form is a post-effective amendment pursuant to Rule 462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective registration statement for the same offering: 
          Indicate by check mark whether the registrant is a large accelerated filed, 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.

                      Large accelerated filer                                          Accelerated filer               
                      Non-accelerated filer                                            Smaller reporting company       
                      (Do not check if a smaller reporting company)
                                                               Calculation of Registration Fee


                                                                                                     Proposed            Proposed
                                                                                                     Maximum             Maximum
                                                                                                     Aggregate           Aggregate            Amount of
                                                                             Amount to               Price Per            Offering            Registration
   Title of Class of Securities to be Registered                          be Registered (1)          Share (2)             Price                 Fee

   Common Stock, $0.0001 par value per share, issuable
      pursuant to the Purchase Agreement                                    10,000,000           $     0.1125         $ 1,125,000       $        153.45
   Common Stock underlying Purchase Warrants                                 5,000,000           $     0.2700         $ 1,350,000       $        184.14


    (1)
          We are registering 10,000,000 shares of our common stock (the “Shares”) that we will sell to GEM Global Yield Fund Limited, a Cayman Islands
          limited liability company (“GGFY” or the “Selling Shareholder”), pursuant to a Common Stock Purchase Agreement (the “Purchase Agreement”)
          between the Selling Shareholder and the registrant entered into on October 1, 2012. In the event of stock splits, stock dividends, or similar
          transactions involving the registrant’s common stock, the number of shares of common stock registered shall, unless otherwise expressly provided,
          automatically be deemed to cover the additional securities to be offered or issued pursuant to Rule 416 promulgated under the Securities Act of 1933,
          as amended (the “Securities Act”). In the event that adjustment provisions of the Purchase Agreement require the registrant to issue more shares than
          are being registered in this registration statement, for reasons other than those stated in Rule 416 of the Securities Act, the registrant will file a new
          registration statement to register those additional shares.
    (2)
          Estimated solely for purposes of calculating the registration fee pursuant to Rule 457(c) under the Securities Act, using the closing price as reported
          on the OTCQB Electronic Marketplace (the “OTCQB”) on October 9, 2012, which was $0.12 per share.

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until
the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may determine.
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell securities, and it is not
soliciting an offer to buy these securities, in any state where the offer or sale is not permitted.

                                                      PRELIMINARY PROSPECTUS

                                               Subject to Completion, Dated October 12, 2012

                                                  Cyclone Power Technologies, Inc.

                                                        10,000,000 Common Shares
                                              5,000,000 Common Shares underlying Warrants

This prospectus relates to the offer and sale of up to 10,000,000 shares of common stock, par value $.0001 per share (the “Common Shares”) of
Cyclone Power Technologies, Inc. (the “Company”) by GEM Global Yield Fund Limited, a limited liability company organized under the laws
of the Cayman Islands (“GGYF” or the “Selling Shareholder”). This prospectus also relates to the offer and sale of up 5,000,000 common
shares that are issuable to the Selling Shareholder upon exercise of common stock purchase warrants (“Warrants”). The conversion price of the
Warrants is $0.27 per share subject to price adjustment, as set forth in the Warrant Agreement.

The Company will sell the Common Shares to the Selling Shareholder from time to time, if and when the Company deems appropriate,
pursuant to a Common Stock Purchase Agreement (the “Purchase Agreement”). The Selling Shareholder has committed to purchasing up to
$2,500,000 worth of the Company’s Common Stock before September 30, 2014, pursuant to the terms and conditions contained in the
Purchase Agreement. The purchase price for such Common Shares will be equal to 90% of the weighted average closing price for the
Company’s Common Shares, as listed on the OTCQB Electronic Marketplace or any other exchange or market that the Common Stock is then
listed, during a 10 trading day pricing period, subject to certain “knock-out” and volume limitation provisions set forth in the Purchase
Agreement. The 10,000,000 Common Shares included in this prospectus represent a portion of the Common Shares potentially issuable to the
Selling Shareholder under the Purchase Agreement.

The Selling Shareholder is an “underwriter” within the meaning of the Securities Act in connection with the resale of our Common Shares
under the Purchase Agreement. No other underwriter or person has been engaged to facilitate the sale of shares of our Common Shares in this
offering. We will not receive any proceeds from the sale of these Common Shares offered by the Selling Shareholder. However, we will
receive proceeds from the sale of our Common Shares under the Purchase Agreement and upon exercise of the Warrants for cash. The proceeds
will be used for working capital or general corporate purposes. We will bear all costs associated with this registration.

Our Common Shares are quoted on the OTCQB Electronic Marketplace under the symbol “CYPW.” The Common Shares registered hereunder
are being offered for sale by the Selling Shareholder at prices established on the OTCQB during the term of this offering. The last reported sale
price of our common shares on October 1, 2012 was $0.125 per share. These prices will fluctuate based on the demand for our common stock.

Investing in our securities involves a high degree of risk. See “Risk Factors” beginning on page 7 of this prospectus for more
information.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities
or determined if this prospectus or the prospectus to which it relates is truthful or complete. Any representation to the contrary is a
criminal offense.

                                                  The date of this prospectus is ______, 2012.
                                                               Table of Contents

          Prospectus Summary                                                                                                          1
          Summary of Shares Offered by the Selling Shareholder                                                                        4
          Summary Financial Data                                                                                                      5
          Risk Factors                                                                                                                7
          Use of Proceeds                                                                                                            14
          Selling Shareholder                                                                                                        14
          The Purchase Agreement                                                                                                     15
          Plan of Distribution                                                                                                       17
          Dilution                                                                                                                   19
          Dividend Policy                                                                                                            19
          Capitalization                                                                                                             20
          Description of Securities                                                                                                  21
          Market for Registrant’s Common Equity, Related Shareholder Matters                                                         25
          Management’s Discussion and Analysis of Financial Condition and Results of Operations                                      26
          Description of Business                                                                                                    30
          Management                                                                                                                 37
          Executive and Director Compensation                                                                                        40
          Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters                             44
          Material U.S. Federal Income Tax Considerations                                                                            45
          Legal Proceedings                                                                                                          48
          Legal Matters                                                                                                              48
          Experts                                                                                                                    48
          Index to Financial Statements                                                                                             F-1

You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different
from that contained in this prospectus. If anyone provides you with different or inconsistent information, you should not rely on it. You should
assume that the information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of
this prospectus or of any sale of units. Our business, financial condition, results of operations, and prospects may have changed since that date.

Some of the industry and market data contained in this prospectus are based on independent industry publications or other publicly available
information that we believe are reliable as of their respective dates, while other information is based on our internal sources.




                                                                        i
                                           Cautionary Note Regarding Forward-Looking Statements

This prospectus contains forward-looking statements that are based on current expectations, estimates, forecasts and projections regarding
management’s beliefs and assumptions about the industry in which we operate. Such statements include, in particular, statements about our
plans, strategies and prospects under the headings “Prospectus Summary,” “Risk Factors,” “Use of Proceeds,” “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” and “Business.” When used in this prospectus, the words “anticipate,” “believe,”
“could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would,” and similar expressions
identify forward-looking statements.

Forward-looking statements are not a guarantee of future performance or results, and will not necessarily be accurate indications of the times
at, or by, which such performance or results will be achieved. Forward-looking statements are based on information available at the time the
statements are made and involve known and unknown risks, uncertainties and other factors that may cause actual outcomes and results to differ
materially from what is expressed or forecasted in such forward-looking statements.

Except as required by applicable law, we assume no obligation to update any forward-looking statements publicly or to update the reasons why
actual results could differ materially from those anticipated in any forward-looking statements, even if new information becomes available in
the future.

                                                              Prospectus Summary

This summary highlights information about our Company and this offering contained elsewhere in this prospectus and is qualified in its
entirety by the more detailed information and financial statements included elsewhere in this prospectus. You should read this entire prospectus
carefully, including “Risk Factors”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our
financial statements and related notes included elsewhere in this prospectus, before making an investment decision. In this prospectus, unless
otherwise specified or the context otherwise requires, the terms “we”, “us”, “our”, “the Company”, or “ours” refer to Cyclone Power
Technologies, Inc. and its consolidated subsidiaries.

About Cyclone Power Technologies

We are an innovative technology engineering firm focused on developing environmentally-friendly power sources for the future. Specifically,
we have developed and patented the Cyclone Engine, an award-wining thermal engine that we believe is powerful and versatile enough for
applications ranging from electric power generation from solar collectors, industrial waste heat and biomass, to all forms of land and sea
transportation.

The Cyclone Engine is a heat-regenerative, reciprocating (i.e., piston) Rankine engine. Rankine refers to the thermodynamic steam cycle which
is used to generate approximately 80% of the world’s electrical output at coal and nuclear power plants. The Cyclone Engine works on the
same principles, but in a compact, self-contained package. The engine creates superheated steam in a combustion chamber or external heat
exchanger, which is then pumped to the cylinders under high pressures. The steam in the cylinders expands rapidly, pushing pistons and turning
a crank shaft. Steam escaping the cylinders enters a condenser, where it is cooled and returned to the combustion chamber in a closed-loop
process.

Based on testing completed by Cyclone to date, we believe that the benefits of the Cyclone Engine are many, including:

Fuel-Flexibility : As an external combustion engine (as opposed to an internal combustion (“I/C”) engine, such as found in all commercial
non-electric cars), the Cyclone Engine is capable of running on virtually any liquid, gaseous or solid fuel, including renewable bio-fuels,
propane or biomass. In testing, it has also run on heat generated from solar thermal collectors and waste heat from industrial processes,
including furnaces and other engines.

Low Emissions : By burning fuel at lower temperatures and lower pressures in a centrifugal chamber that fully incinerates particulate matters,
we believe based on preliminary in-house environmental testing that the Cyclone Engine emits far fewer toxic and greenhouse gases than
current I/C engines.

Highly Efficient : The Cyclone Engine recycles its own energy through multiple heat regenerative processes, and stops burning fuel when
power is not needed (such as idling at a stop light). We believe that this has potential to create greater “well to wheel” efficiencies than gas or
diesel powered I/C engines.

Powerful and Compact : Unlike batteries or fuel cells, we believe that the Cyclone Engine is powerful enough for heavy transportation, and
unlike steam engines of the past, the Cyclone Engine is compact with an extremely high power to weight ratio, all contained in a closed-loop so
it may never need its working fluid (water) replenished.
1
Inexpensive to Build and Maintain : By eliminating many subsystems like oil pumps (the engine uses de-ionized water, not motor oil, as its
lubricating agent), catalytic converters and complex fuel injectors and automotive transmissions, we anticipate Cyclone Engines to cost less to
manufacture, operate and maintain than current gas and diesel powered I/C engines.

Currently three Cyclone Engine models are in different stages of development, with the first engine slated for commencement of production in
early 2013. Cyclone has several important contracts and purchase orders with customers that include Raytheon Company, the U.S.
Army/TARDEC, Combilift, Phoenix Power Group, and one of our suppliers, leading U.S. auto parts manufacturer TopLine Automotive
Engineering.

We received our first patent in the U.S. for the Cyclone Engine in 2006, and since then have been issued or allowed nine other U.S. patents and
20 international patents – 30 issued patents in all. Cyclone has also received numerous awards, including two Tech Awards from the Society of
Automotive Engineers and Popular Science’s 2008 Invention of the Year Award.

About This Offering

This offering relates to the resale of up to 10,000,000 shares of our common stock by the Selling Shareholder, which are the Common Shares
that we will sell to GGYF pursuant to the Purchase Agreement from time to time at our discretion. The 10,000,000 shares included in this
prospectus represent a portion of the aggregate shares potentially issuable to the Selling Shareholder under the Purchase Agreement. Pursuant
to the Purchase Agreement:

         
             GGYF agreed to purchase from the Company, from time to time, in the Company’s discretion (subject to the conditions set forth
             therein), for a period of twenty-four (24) months commencing on the effective date of the Purchase Agreement, up to $2,500,000
             of the Company’s common stock.
         
             Pursuant to a registration rights agreement between the Company and GGYF entered into in connection with the Purchase
             Agreement, the Company agreed to file a registration statement with the U.S. Securities and Exchange Commission (the “SEC”)
             for the resale of the Common Shares and the Common Shares issuable upon exercise of the Warrants. All fees and expenses
             incurred in connection with the registration shall be paid by the Company. The Company cannot sell shares to GGYF under the
             Purchase Agreement until the registration statement is declared effective.
         
             The purchase price for the shares of common stock sold under the Purchase Agreement will be equal to ninety percent (90%) of
             the average daily volume weighted closing price of the Company’s common stock for the ten (10) consecutive trading days (the
             “Pricing Period”) after the Company delivers to GGYF a notice in writing requiring GGYF to purchase Common Shares from the
             Company, subject to the terms of the Purchase Agreement.
         
             In any draw down period, the Company may issue a draw down notice for up to four hundred percent (400%) of the average daily
             trading volume for the ten (10) trading days prior to the notice. GGYF will not be obligated to subscribe for more than fifty
             percent (50%) of any amount in a draw down notice and will have the option to subscribe for up to two hundred percent (200%)
             of any draw down notice.
         
             As further consideration for the commitment, the Company shall pay GGYF a commitment fee equal to $50,000 as draws are
             made, provided the full commitment fee shall be paid within one year of closing.
         
             The Company has covenanted that it will, among other things: (i) maintain the listing of its common stock on a principal market,
             including the OTC Markets; (ii) comply with the Registration Rights Agreement in all material respects; and (iii) provide an
             opinion from Company counsel prior to the delivery of the first draw down notice.
         
             Each of the parties shall pay its own fees and expenses in connection with the transactions, except that the Company shall pay to
             GGYF legal fees up to $30,000 in connection with the Purchase Agreement.

Our ability to draw down funds and sell shares under the Purchase Agreement requires that the registration statement, of which this prospectus
is a part, be declared effective by the SEC, and that this registration statement continues to be effective. In addition, the registration statement
of which this prospectus is a part registers 10,000,000 total shares of our common stock issuable under the Purchase Agreement, and our ability
to access the Purchase Agreement to sell any remaining shares issuable under it is subject to our ability to prepare and file one or more
additional registration statements registering the resale of these shares. These subsequent registration statements may be subject to review and
comment by the staff of the SEC, and will require the consent of our independent registered public accounting firm. Therefore, the timing of
effectiveness of these subsequent registration statements cannot be assured. The effectiveness of these subsequent registration statements is a
condition precedent to our ability to sell the shares of common stock subject to these subsequent registration statements to GGYF under the
Purchase Agreement. Even if we are successful in causing one or more registration statements registering the resale of some or all of the
shares issuable under the Purchase Agreement to be declared effective by the SEC in a timely manner, we will not be able to sell shares under
the Purchase Agreement unless certain other conditions are met. Accordingly, because our ability to draw down amounts under the Purchase
Agreement is subject to a number of conditions, it is possible that we will not be able to draw down the full $2,500,000 available to us under
the Purchase Agreement. The $2,500,000 amount was a negotiated amount agreed upon by the parties based on the circumstances at the time
the Purchase Agreement was executed.


                                                                       2
With respect to the Purchase Agreement, we are relying on an exemption from the registration requirements of the Securities Act, more
specifically, Regulation D of said Act. GGYF is an “accredited investor” and/or qualified institutional buyer and GGYF has access to
information about the Company and its investment.

At an assumed purchase price under the Purchase Agreement of $0.11 (equal to 90% of the closing price of our common stock of $0.125 on
October 1, 2012), we will be able to receive up to $1,100,000 in gross proceeds, assuming the sale of the entire 10,000,000 Shares being
registered hereunder pursuant to the Purchase Agreement. At an assumed purchase price of $0.11 under the Purchase Agreement, if we wanted
to draw down the entire commitment amount of $2,500,000, which is in our full discretion, we would be required to register approximately
12.7 million additional shares to obtain the balance of $2,500,000 under the Purchase Agreement. The Company is currently authorized to issue
300,000,000 shares of its common stock.

We will bear the expenses of this offering which we estimate to be approximately $55,000, including legal expenses of approximately $40,000,
accounting expenses of approximately $10,000, and miscellaneous expenses, including printer costs, of approximately $5,000.

There are substantial risks to investors as a result of the issuance of shares of our common stock under the Purchase Agreement. These risks
include dilution of stockholders, significant decline in our stock price and our inability to draw sufficient funds when needed. GGYF will
periodically purchase our common stock under the Purchase Agreement and will, in turn, sell such shares to investors in the market at the
market price. This may cause our stock price to decline, which will require us to issue increasing numbers of common shares to GGYF to raise
the same amount of funds, as our stock price declines.




                                                                      3
                               Summary of the Shares offered by the Selling Shareholder

Common Shares Offered by the Selling
Shareholder                                       10,000,000

Common Shares issuable upon
Exercise of the Warrants                          5,000,000

Common Stock Outstanding Before the               237,559,292 as of October 1, 2012
Offering

Common Stock Outstanding After the                247,559,292 shares, assuming the sale of all of the Common Shares being
Offering                                          registered in this Registration Statement (excluding Warrants).

Terms of the Offering                             The Selling Shareholder will determine when and how it will sell the
                                                  Common Shares offered in this prospectus.

Termination of the Offering                       Pursuant to the Purchase Agreement, this offering will terminate
                                                  twenty-four (24) months after the date of the Purchase Agreement, which
                                                  was October 1, 2012.

Use of Proceeds                                   We will not receive any proceeds from the sale of the shares of common
                                                  stock offered by the Selling Shareholder. However, we will receive proceeds
                                                  from the sale of our Common Shares under the Purchase Agreement and
                                                  issued upon exercise of the Warrants. The proceeds from the offering will
                                                  be used for working capital and general corporate purpose. See “Use of
                                                  Proceeds.”

Risk Factors                                      The common stock offered hereby involves a high degree of risk and should
                                                  not be purchased by investors who cannot afford the loss of their entire
                                                  investment. See “Risk Factors” beginning on page 7.

OTCQB Symbol                                      CYPW




                                                          4
                                                         Summary Financial Data

The following selected financial information is derived from the Company’s Financial Statements appearing elsewhere in this Prospectus and
should be read in conjunction with the Company’s Financial Statements, including the notes thereto, appearing elsewhere in this Prospectus.

                                                                                                  For the years ended
         STATEMENTS OF OPERATIONS:                                                                   December 31,
                                                                                              2011                   2010
         Revenues                                                                   $              250,000 $              261,525
         Gross (loss) profit                                                                     (149,801)                151,132
         Total operating expenses                                                                3,678,112              2,417,180
         Operating loss                                                                        (3,827,913)            (2,266,048)
         Net loss                                                                   $         (23,704,727) $          (2,024,464)

         Basic and diluted earnings (loss) per common share                         $                (.15) $                  (.02)
         Weighted average common shares outstanding basic and diluted                         156,324,933              107,100,629

                                                                                                  For the years ended
         BALANCE SHEETS:                                                                             December 31,
                                                                                              2011                   2010
         Cash and cash equivalents                                                  $               66,486 $                 6,557
         Current assets                                                                            546,932                 240,423
         Total assets                                                                            1,097,598                 730,714
         Current liabilities                                                                     3,182,052               2,562,622
         Total liabilities                                                                       3,678,883              13,648,234
         Total stockholders’ equity (deficit)                                       $          (2,581,235) $          (12,917,520)

                                                                                               For the six months ended
                                                                                                        June 30
         STATEMENTS OF OPERATIONS:                                                                    (unaudited)
                                                                                              2012                   2011
         Revenues                                                                   $              380,445 $                    0
         Gross profit (loss)                                                                       158,537              (250,867)
         Total operating expenses                                                                1,844,149              1,718,770
         Operating loss                                                                        (1,685,612)            (1,969,637)
         Net loss                                                                   $          (1,660,261) $         (22,439,346)

         Basic and diluted earnings (loss) per common share                         $               (0.01) $                 (0.18)
         Weighted average common shares outstanding basic and diluted                         226,841,453              125,964,667

                                                                                            June 30,
                                                                                             2012                 December 31,
         BALANCE SHEETS:                                                                  (unaudited)                 2011
         Cash and cash equivalents                                                  $               12,715 $                66,486
         Current assets                                                                          1,099,094                 546,932
         Total assets                                                                            1,680,106               1,097,598
         Current liabilities                                                                     3,794,322               3,182,052
         Total liabilities                                                                       3,796,307               3,678,833
         Total stockholders’ deficit                                                $          (2,116,201) $           (2,581,235)




                                                                      5
Where You Can Find More Information

Our common shares are quoted on the OTCQB electronic marketplace under the symbol “CYWP”.

Our executive offices are located at 601 NE 26 th Court, Pompano Beach, Florida 33064, and our telephone number is 954-943-8721. We
make available on our website, www.cyclonepower.com , our annual reports, quarterly reports, and proxy statements, as well as up-to-date
investor presentations. The information on our website is not incorporated by reference into this prospectus, and you should not consider it part
of this prospectus.

We have filed a registration statement on Form S-1 (Registration No. 333-_____) with the SEC under the Securities Act with respect to the
securities offered by this prospectus. This prospectus, which is a part of such registration statement, does not include all of the information
contained in the registration statement and its exhibits. For further information regarding us and our securities, you should consult the
registration statement and its exhibits. The registration statement and its exhibits, as well as our other reports filed with the SEC, can be
inspected and copied at the SEC’s public reference room at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information
about the operation of the public reference room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains a web site at http://
www.sec.gov which contains the Form S-1 and other reports, proxy and information statements and information regarding issuers that file
electronically with the SEC.

Statements contained in this prospectus concerning the provisions of any documents are summaries of those documents, and we refer you to the
documents filed with the SEC for more information. The registration statement and any of its amendments, including exhibits filed as a part of
the registration statement or an amendment to the registration statement, are available for inspection and copying as described above.


                                                                        6
                                                                  Risk Factors

You should carefully consider the risks described below before making an investment decision. You should also refer to the other information
in this prospectus, including our financial statements and the related notes thereto. The risks and uncertainties described below are not the
only risks and uncertainties we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also
may impair our business operations. If any of the following risks actually occur, our business, results of operations and financial condition
could suffer. In that event the trading price of our Common Shares could decline, and you may lose all or part of your investment in the units.
The risks discussed below also include forward-looking statements and our actual results may differ substantially from those discussed in these
forward-looking statements.

Risks Relating to the Early Stage of Our Company

We are at an early operational stage and our success is subject to the substantial risks inherent in the establishment of a new business
attempting to commercialize a new technology.

The implementation of our business strategy is in an early stage. Accordingly, our intended business and operations may not prove to be
successful in the near future, if at all. Any future success that we might enjoy will depend upon many factors, several of which may be beyond
our control, or which cannot be predicted at this time, and which could have a material adverse effect upon our financial condition, business
prospects and operations, and the value of an investment in our company. In addition, our prospects must be considered in light of the risks
encountered by companies in the early stages of development in new and rapidly evolving industries, especially the alternative engine and
power generation industries and markets.

We have a limited operating history and our business plan is unproven and may not be successful.

Our company was formed in 2004, but until 2008 we were a development stage company and we have only begun full scale operations over the
last three years. We have not licensed or sold any substantial amount of products commercially. We have not yet proven that our business
model will allow us to generate a profit.

We have suffered operating losses since inception and we may not be able to achieve profitability.

We had an accumulated deficit of approximately $47.4 million as of June 30, 2012, of which $16.6 million was attributable to operations and
$30.8 million to accounting for derivative liabilities. We expect to continue to incur significant research and development expenses in the
foreseeable future related to the completion of development and commercialization of our multiple engine models. As a result, we will be
sustaining substantial operating and net losses, and it is possible that we will never be able to develop the revenue levels necessary to attain
profitability.

We may have difficulty raising additional capital, which could deprive us of necessary resources.

We expect to continue to devote significant capital resources to fund research and development and patents. In order to support the initiatives
envisioned in our business plan, we may need to raise additional funds through public or private debt or equity financing, collaborative
relationships or other arrangements. Our current operational “burn rate” is approximately $200,000 per month, which may increase in the future
if we hire additional personnel and expand our operations. Based on our current burn rate, we will require approximately $2.4 million in cash
over the next 12 months to maintain operations at the present pace. We currently have contracts that will provide us with approximately $1.2
million in cash from development fees over the following 12 months. We will need to make up the balance by signing new license or
development agreements, which could in turn increase our burn-rate, or raising funds through the sale of our equity or issuance of debt, none of
which is certain at this time. Our ability to raise additional financing depends on many factors beyond our control, including the state of capital
markets, the market price of our common stock and the development or prospects for development of competitive technology by others.
Sufficient additional financing may not be available to us or may be available only on terms that would result in further dilution to the current
owners of our common stock.

There are substantial doubts about our ability to continue as a going concern and if we are unable to continue our business, our shares
may have little or no value.

Our ability to become a profitable operating company is dependent upon our ability to generate revenues and/or obtain financing adequate to
fulfill our research and market introduction activities, and achieving a level of revenues adequate to support our cost structure. This has raised
substantial doubts about our ability to continue as a going concern. We plan to attempt to raise additional equity capital by selling shares
through one or more private placement or public offerings, as well as debt financings which may use receivables from our paying contracts or
other assets as collateral. However, the doubts raised relating to our ability to continue as a going concern may make our shares an unattractive
investment for potential investors. These factors, among others, may make it difficult to raise any additional capital.
7
Our significant indebtedness could adversely affect our financial condition and thus from fulfilling our obligations.

We have substantial indebtedness. As of June 30, 2012, we had approximately $3.8 million of total current liabilities, which includes $736,427
of related-party notes payable on demand, some of which obligations are secured by a lien on the Company’s patents and patent
applications. The high level of our indebtedness could have adverse consequences including the following: it may be more difficult for us to
satisfy our obligations with respect to our outstanding indebtedness, our ability to obtain additional financing may be impaired; and our
obligations under the indebtedness would reduce the funds available for us to use for other purposes and our indebtedness may reduce our
flexibility in planning for, or responding to, changing conditions.

We expect to obtain the funds to pay our expenses and to pay principal and interest on our outstanding indebtedness from operations,
financings and potential conversions of our indebtedness. If we do not have enough funds to be able to meet our indebtedness, we may be
required to refinance all or part of our existing indebtedness, sell assets or borrow more money. We may not be able to do so on terms
acceptable to us, if at all. If we default under certain of our indebtedness, it may result in the debt holders’ seeking to foreclose on certain
assets which would cause significant difficulty for the Company.

We have substantial liabilities associated with deferred compensation arrangements with our officers.

Our deferred compensation salaries with our officers result in substantial liabilities. As of June 30, 2012, we had deferred officers’ salary
compensation of approximately $1.4 million. These deferred compensation amounts are due on demand. If our officers demand their deferred
compensation amounts, payment of such amounts, if available, may impair our liquidity, have an unfavorable impact on our ability to obtain
financing and may place us at a competitive disadvantage compared to some of our competitors, who do not have such liabilities and cash
requirements.

Failure to effectively manage our growth could place strains on our managerial, operational and financial resources and could adversely
affect our business and operating results.

Our growth has placed, and is expected to continue to place, a strain on our managerial, operational and financial resources. Any growth or
increase in the number of our strategic relationships will increase this strain on our managerial, operational and financial resources. This
pressure may inhibit our ability to achieve the rapid execution necessary to implement our business plan, and could have a material adverse
effect upon our financial condition, business prospects and operations and the value of an investment in our company.

Risks Relating to Our Business

We will need to achieve commercial acceptance of our engines to generate revenues and achieve profitability.

Even if our development yields technologically superior products, we may not successfully develop commercial products, and even if we do,
we may not do so on a timely basis. We cannot predict when significant commercial market acceptance for our products and the affiliated
products sold thereon will develop, if at all, and we cannot reliably estimate the projected size of any such potential market. If markets fail to
accept our engines and related products, we may not be able to generate revenues from the commercial application of our technologies. Our
revenue growth and achievement of profitability will depend substantially on our ability to introduce new products that are accepted by
customers. If we are unable to cost-effectively achieve acceptance of our products by customers, or if the associated products do not achieve
wide market acceptance, our business will be materially and adversely affected.

We will need to establish additional relationships with collaborative and development partners to fully develop and market our products.

We do not possess all of the resources necessary to develop and commercialize products on a mass scale. Unless we expand our development
capacity, which would require substantial capital to achieve, we will need to make appropriate arrangements with collaborative partners and
licensees to develop and commercialize current and future products.

Collaborations may allow us to:

         
             Generate positive cash flow and revenue;
         
             offset some of the costs associated with our internal research and development; and
         
             successfully commercialize our products.
8
If we need but do not find appropriate affiliate arrangements, our ability to develop and commercialize products could be adversely affected.
Even if we are able to find collaborative partners, the overall success of the development and commercialization of products will depend
largely on the efforts of other parties and is beyond our control. In addition, in the event we pursue our commercialization strategy through
collaboration, there are a variety of attendant technical, business and legal risks, including:

         
             a development partner would likely gain access to our proprietary information, potentially enabling the partner to develop
             products without us or design around our intellectual property;
         
             we may not be able to control the amount and timing of resources that our collaborators may be willing or able to devote to the
             development or commercialization of our products or to their marketing and distribution; and
         
             disputes may arise between us and our collaborators that could result in the delay or termination of the development or
             commercialization of our products or that may result in costly litigation or arbitration that diverts our management’s resources.

The occurrence of any of the above risks could impair our ability to generate revenues or funding and harm our business and financial
condition.

We may not be successful at marketing our products.

We may not be able to market our products, and any financial or research efforts we exert to develop, commercialize or promote such products
may not result in revenue or earnings.

We may lose out to larger and better-established competitors.

The alternative power industry is intensely competitive. Most of our competitors have significantly greater financial, technical, marketing and
distribution resources as well as greater experience in the industry than we have. Our products may not be competitive with other technologies,
both existing at the current time and in the future. If this happens, our sales and revenues will decline, or fail to develop at all. In addition, our
current and potential competitors may establish cooperative relationships with larger companies to gain access to greater development or
marketing resources. Competition may result in price reductions, reduced gross margins and loss of market share.

Our products may be displaced by newer technology.

The alternative power industry is undergoing rapid and significant technological change. Third parties may succeed in developing or marketing
technologies and products that are more effective than those developed or marketed by us, or that would make our technology obsolete or
non-competitive. Accordingly, our success will depend, in part, on our ability to respond quickly to technological changes. We may not have
the resources to do this.

We must hire qualified engineering, development and professional services personnel .

We cannot be certain that we can attract or retain a sufficient number of highly qualified mechanical engineers, industrial technology and
manufacturing process developers and professional services personnel. To deploy our products quickly and efficiently, and effectively maintain
and enhance them, we will require an increasing number of technology developers. We expect customers that license our technology will
typically engage our professional engineering staff to assist with support, training, consulting and implementation. We believe that growth in
sales depends on our ability to provide our customers with these services and to attract and educate third-party consultants to provide similar
services. As a result, we plan to hire professional services personnel to meet these needs. New technical and professional services personnel
will require training and education and it will take time for them to reach full productivity. To meet our needs for engineers and professional
services personnel, we also may use more costly third-party contractors and consultants to supplement our own staff. Competition for qualified
personnel is intense, particularly because our technology is specialized and only a limited number of individuals have acquired the needed
skills. Additionally, we will rely on third-party implementation providers for these services. Our business may be harmed if we are unable to
establish and maintain relationships with third-party implementation providers.

We are dependent upon our key personnel.

Our future success depends in large part on each member of our management team, most notably Harry Schoell, our CEO and the inventor of
our engine technology, as well as certain other engineering, design, sales and executive management personnel. The loss of the services of any
of our management or key personnel could have a material adverse effect on our business, financial condition and results of operations.
9
Our sales cycles are typically long.

The period between our initial contact with a potential customer and the purchase of our products and services, or signing of a license
agreement, is often long and subject to delays associated with the budgeting, approval, and competitive evaluation processes which frequently
accompany significant capital expenditures. We believe that a customer’s decision to purchase our engines and services is discretionary,
involves a significant commitment of resources, and is influenced by customer budgetary cycles. To sell our engines and services successfully,
we generally must educate our potential customers regarding their use and benefits, which can require significant time and resources.

If we are unable to protect our intellectual property, we may lose a valuable asset, experience reduced market share, or incur costly
litigation to protect our rights.

Our success depends, in large part, upon our proprietary technology and other intellectual property rights. To date, we hold ten patents in the
U.S. and 20 internationally, and have filed several other patent applications domestically and internationally as they apply to our engine and its
components. Although we hold the rights to certain patents and patent applications pending, there can be no assurance that pending patent
applications will be approved or that the issued patents or pending applications will not be challenged or circumvented by competitors. Certain
critical technology incorporated in our products is also protected by trade secret laws and confidentiality and licensing agreements. We intend
to rely upon a combination of copyright, trade secret, trademark and patent laws, and nondisclosure and other contractual restrictions on
copying and distribution to protect our proprietary technology. Litigation to enforce our intellectual property rights or protect our trade secrets
could result in substantial costs and may not be successful. There can be no assurance that such protection will prove adequate or that we will
have adequate remedies for disclosure of the trade secrets or violations of the intellectual property rights. Any inability to protect our
intellectual property rights could seriously harm our business, operating results and financial condition. In addition, the laws of certain foreign
countries may not protect our intellectual property rights to the same extent as the laws of the United States. Our means of protecting our
intellectual property rights in the United States or abroad may not be adequate to fully protect our intellectual property rights.

We may experience claims of infringement upon proprietary rights of others.

We may be exposed to future litigation based on claims that our products and/or the intellectual property related to the use of our products
infringe on the intellectual property rights of others, including, but not limited to, the patent, copyright, trademark, and publicity rights of
others. Claims of infringement could require us to re-engineer our products or seek to obtain licenses from third parties in order to continue
offering our products. In addition, an adverse legal decision affecting our intellectual property, or the use of significant resources to defend
against this type of claim, could place a significant strain on our financial resources and harm our reputation.

Regulation may adversely affect our business.

Statutory, regulatory and administrative actions that affect our business could have adverse effects on our ability to reach our objectives. Our
technology may be subject to approval and regulation by various Federal, state and local agencies, especially with respect to safety,
environmental, engineering standards and related matters. Governmental regulation may materially affect utilization of our technology and the
costs of its development.

Risks Relating to our Common Shares

The sale of the shares of common stock acquired in private placements could cause the price of our common stock to decline.

We have sold an aggregate of $2.7 million of our equity securities in private placements since 2010, inclusive of common and preferred stock
sales. Depending upon market liquidity at the time, a sale of a substantial number of shares of our common stock, or anticipation of such sales,
could make it more difficult for us to sell equity or equity related securities in the future at a time and price that we might otherwise wish to
effect sales.

An investor’s ability to trade our common stock may be limited by trading volume.

A consistently active trading market for our common stock may not occur on the OTCQB. A limited trading volume may prevent our
shareholders from selling shares at such times or in such amounts as they may otherwise desire.

Our company has a concentration of stock ownership and control, which may have the effect of delaying, preventing, or deterring a change
of control.




                                                                        10
Our common stock ownership is concentrated. Through ownership of shares of our common stock, our executive management collectively
beneficially own approximately 30% of our total outstanding shares of common stock. Furthermore, two of our executive officers and directors
own all Series B Preferred Stock, which allows them to effectively vote 51% of all common stock on matters brought before the shareholders
of the company. As a result of the concentrated ownership of this stock, these inside stockholders, acting together, will be able to control all
matters requiring stockholder approval, including the election of directors and approval of mergers and other significant corporate transactions.
This concentration of ownership may have the effect of delaying, preventing or deterring a change in control of our company. It could also
deprive our shareholders of an opportunity to receive a premium for their shares as part of a sale of our company and it may affect the market
price of our common stock.

We have not voluntarily implemented various corporate governance measures, in the absence of which, shareholders may have more
limited protections against interested director transactions, conflicts of interest and similar matters.

Recent federal legislation, including the Sarbanes-Oxley Act of 2002, has resulted in the adoption of various corporate governance measures
designed to promote the integrity of the corporate management and the securities markets. Some of these measures have been adopted in
response to legal requirements. Others have been adopted by companies in response to the requirements of national securities exchanges, such
as the NYSE or The NASDAQ Stock Market, on which their securities are listed. Among the corporate governance measures that are required
under the rules of national securities exchanges are those that address board of directors’ independence, audit committee oversight and the
adoption of a code of ethics. While our Board of Directors has adopted a Code of Ethics and Business Conduct, and has established an audit
committee, we have not yet adopted many other of these corporate governance measures and, since our securities are not listed on a national
securities exchange, we are not required to do so. It is possible that if we were to adopt some or all of these corporate governance measures,
shareholders would benefit from somewhat greater assurances that internal corporate decisions were being made by disinterested directors and
that policies had been implemented to define responsible conduct. For example, in the absence of nominating and compensation committees
comprised of at least a majority of independent directors, decisions concerning matters such as compensation packages to our senior officers
and recommendations for director nominees may be made by a majority of directors who have an interest in the outcome of the matters being
decided. Prospective investors should bear in mind our current lack of some corporate governance measures in formulating their investment
decisions.

Our common stock is subject to the “penny stock” rules of the SEC, which may make it more difficult for shareholders to sell the common
stock.

The SEC has adopted Rule 15g-9 which establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that
has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any
transaction involving a penny stock, unless exempt, the rules require:

         
             that a broker or dealer approve a person’s account for transactions in penny stocks; and
         
             the broker or dealer receives from the investor a written agreement to the transaction, setting forth the identity and quantity of the
              penny stock to be purchased.

In order to approve a person’s account for transactions in penny stocks, the broker or dealer must:

         
             obtain financial information and investment experience objectives of the person; and
         
             make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient
             knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the Commission relating
to the penny stock market, which, in highlight form:

         
             sets forth the basis on which the broker or dealer made the suitability determination; and
         
             that the broker or dealer received a signed, written agreement from the investor prior to the transaction.

Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the
commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and
remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent
price information for the penny stock held in the account and information on the limited market in penny stocks.
The regulations applicable to penny stocks may severely affect the market liquidity for the common stock and could limit an investor’s ability
to sell the common stock in the secondary market.


                                                                      11
FINRA sales practice requirements may also limit a shareholder’s ability to buy and sell our stock.

In addition to the penny stock rules promulgated by the SEC, FINRA rules require that in recommending an investment to a customer, a
broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative
low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the
customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that
there is a high probability that speculative low priced securities will not be suitable for at least some customers. FINRA requirements make it
more difficult for broker dealers to recommend that their customers buy our common stock, which may limit the ability to buy and sell our
stock and have an adverse effect on the market value for our shares.

As an issuer of “penny stock,” the protection provided by the federal securities laws relating to forward looking statements does not apply to
us.

Although federal securities laws provide a safe harbor for forward-looking statements made by a public company that files reports under the
federal securities laws, this safe harbor is not available to issuers of penny stock. As a result, we do not have the benefit of this safe harbor
protection in the event of any legal action based upon a claim that the material provided by us contained a material misstatement of fact or was
misleading in any material respect because of our failure to include any statements necessary to make the statements not misleading. Such an
action could hurt our financial condition.

We are subject to Sarbanes-Oxley and the reporting requirements of federal securities laws, which can be expensive .

As a public reporting company, we will become subject to Sarbanes-Oxley and, accordingly, will be subject to the information and reporting
requirements of the Securities Exchange Act of 1934 and other federal securities laws. The costs of compliance with Sarbanes-Oxley, of
preparing and filing annual and quarterly reports, proxy statements and other information with the SEC, furnishing audited reports to our
Shareholders, and other legal, audit and internal resource costs attendant with being a public reporting company will cause our expenses to be
higher than if we were privately held.

Our internal control over financial reporting may have weaknesses or inadequacies that may be material.

Section 404 of the Sarbanes-Oxley Act of 2002 requires us to perform an evaluation of our internal control over financial reporting. Ongoing
compliance with this requirement is expected to be expensive and time-consuming and may negatively impact our results of operations. We
cannot make any assurances that material weaknesses in our internal control over financial reporting will not be identified in the future. If any
material weaknesses are identified in the future, we may be required to make material changes in our internal control over financial reporting,
which could negatively impact our results of operations. In addition, upon such occurrence, our management may not be able to conclude that
our internal control over financial reporting is effective. If we cannot conclude that our internal control over financial reporting is effective, we
may be subject to regulatory scrutiny, and a loss of public confidence in our internal control over financial reporting, which may cause the
value of our common stock to decrease.

Impact of corporate governance laws .

Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002
and new SEC regulations, are creating uncertainty for public companies. We are required to invest significant management time and financial
resources to comply with both existing and evolving standards for public companies, which will lead to increased general and administrative
expenses and a diversion of management time and attention from revenue generating activities to compliance activities.

Our share price could be volatile and our trading volume may fluctuate substantially.

The price of our Common Shares has been and may in the future continue to be extremely volatile, with the sale price fluctuating from a low of
$0.10 to a high of $0.48 since January 2011. Many factors could have a significant impact on the future price of our common shares, including:

         
             our inability to raise additional capital to fund our operations, whether through the issuance of equity securities or debt;
         
             our failure to successfully implement our business objectives;
         
             compliance with ongoing regulatory requirements;
         
             market acceptance of our products;
         
    technological innovations, new commercial products by us or our competitors;

    changes in government regulations;



                                                           12
         
             general economic conditions and other external factors;
         
             actual or anticipated fluctuations in our quarterly financial and operating results; and
         
             the degree of trading liquidity in our Common Shares.

We have never paid cash dividends and do not intend to do so.

We have never declared or paid cash dividends on our Common Shares. We currently plan to retain any earnings to finance the growth of our
business rather than to pay cash dividends. Payments of any cash dividends in the future will depend on our financial condition, results of
operations and capital requirements, as well as other factors deemed relevant by our board of directors.

Risks Related to this Offering

We are registering the resale of a maximum of 10,000,000 shares of common stock which may be issued to GGYF under the Purchase
Agreement. The resale of such shares by GGYF could depress the market price of our common stock.

We are registering the resale of a maximum of 10,000,000 shares of common stock under the registration statement of which this prospectus
forms a part. The sale of these shares into the public market by GGYF could depress the market price of our common stock. As of October 1,
2012, there were 237,559,292 shares of our common stock issued and outstanding. In total, we may issue up to approximately 22.7 million
shares to GGYF pursuant to the Purchase Agreement, based solely on the most recent trading prices, meaning that we would be obligated to
file one or more registration statements covering the remaining shares not covered by the registration statement of which this prospectus forms
a part. The sale of those additional shares into the public market by GGYF could further depress the market price of our common stock.

Existing shareholders could experience substantial dilution upon the issuance of common stock pursuant to the Purchase Agreement.

Our Purchase Agreement with GGYF contemplates our issuance of up to $2.5 million worth of our common stock to GGYF, subject to certain
restrictions and obligations. If the terms and conditions of the Purchase Agreement are satisfied, and we choose to exercise our sale rights to the
fullest extent permitted and sell 22.7 million shares of our common stock to GGYF pursuant to this registration statement, our existing
shareholders' ownership will be diluted by such sales.

In addition to this offering, subject to market conditions and other factors, it is likely that we will pursue additional capital to finance our
operations and the development, manufacture and marketing of other products under development and new product opportunities. Accordingly,
we may conduct future offerings of equity or debt securities. The exercise of outstanding options and warrants and future equity issuances,
including future public offerings or future private placements of equity securities and any additional shares issued in connection with
acquisitions, may result in dilution to investors. In addition, the market price of our common shares could fall as a result of resales of any of
these common shares due to an increased number of shares available for sale in the market.

GGYF will pay less than the then-prevailing market price for our common stock under the Purchase Agreement.

The common stock to be issued to GGYF pursuant to the Purchase Agreement will be purchased at a 10% discount to the weighted average
closing price of our common stock during the 10 consecutive trading day period beginning on the trading day immediately following the date
of delivery of a draw down notice by us to GGYF, subject to certain exceptions. Therefore, GGYF has a financial incentive to sell our common
stock upon receiving the shares to realize the profit equal to the difference between the discounted price and the market price. If GGYF sells
the shares, the price of our common stock could decrease.

We may not be able to access sufficient funds under the Purchase Agreement when needed.

Our ability to sell shares to GGYF and obtain funds under the Purchase Agreement is limited by the terms and conditions in the Purchase
Agreement, including restrictions on when we may exercise our draw down rights, restrictions on the amount we may draw down at any one
time, which is determined in part by the trading volume of our common stock, and a limitation on our ability to put shares to GGYF to the
extent that it would cause GGYF to beneficially own more than 4.99% of our outstanding shares. In addition, we do not expect the Purchase
Agreement to satisfy all of our funding needs, even if we are able and choose to take full advantage of it.
13
                                                                Use of Proceeds

The Selling Shareholder is selling all of the shares of our common stock covered by this prospectus for its own account. Accordingly, we will
not receive any proceeds from the resale of our common stock. However, we will receive proceeds from any sale of the common stock to the
Selling Shareholder under the Purchase Agreement and the exercise of the Warrants for cash. We intend to use the net proceeds received for
working capital or general corporate needs.

                                                             Selling Shareholder

The information provided in the table and discussions below has been obtained from GGYF, the Selling Shareholder. The table below identifies
the Selling Shareholder and shows the number of shares of common stock beneficially owned by it before and after this offering, and the
numbers of shares offered for resale by the Selling Shareholder. Our registration of these shares does not necessarily mean that the Selling
Shareholder will sell all or any of its shares of common stock. However, the "Shares Beneficially Owned After Offering" columns in the table
assume that all shares covered by this prospectus will be sold by the Selling Shareholder and that no additional shares of common stock will be
bought or sold by the Selling Shareholder. No estimate can be given as to the number of shares that will be held by the Selling Shareholder
after completion of this offering because the Selling Shareholder may offer some or all of the shares and, to our knowledge, there are currently
no agreements, arrangements or understanding with respect to the sale of any of the shares. In addition, the Selling Shareholder may have sold,
transferred or otherwise disposed of, or may sell, transfer or otherwise dispose of, at any time or from time to time since the date on which it
provided the information regarding the shares, all or a portion of the shares of common stock beneficially owned in transactions exempt from
the registration requirements of the Securities Act.

                                                     Shares Beneficially                                      Shares Beneficially Owned
                                                   Owned Prior to Offering         Total Shares Being                   After
                                                             (1)                   Offered Under this                Offering (4)
               Beneficial Owner                     Shares           %               Prospectus (3)             Shares             %

   GEM Global Yield Fund Limited (2)                2,135,812        0.9%               15,000,000            17,135,812          6.8%

(1) Beneficial ownership is determined in accordance with Rule 13d-3(d) promulgated by the SEC under the Exchange Act, and generally
    includes voting or investment power with respect to securities. The number and percentage of shares beneficially owned is determined in
    accordance with Rule 13d-3 of the Exchange Act and is not necessarily indicative of beneficial ownership for any other purpose.
    Applicable percentage ownership is based on 237,559,292 shares of common stock outstanding as of October 1, 2012. Except as
    otherwise noted, we believe that the Selling Shareholder named in the table has sole voting and investment power with respect to all
    shares of common stock shown as beneficially owned by it, subject to applicable community property laws.
(2) GEM Global Yield Fund Limited (GGYF) is a limited liability company organized under the laws of the Cayman Islands.
(3) Represents a portion of the shares of common stock potentially issuable by us and purchasable by the Selling Shareholder under the
    Purchase Agreement.
(4) Includes common shares underlying the Warrants. Pursuant to the Purchase Agreement, the Selling Shareholder may not own more than
    4.9% of the total issued and outstanding common shares o f the Company.

                                                                      14
                                                      The Purchase Agreement

The material terms of the Common Stock Purchase Agreement between the Company and the Selling Shareholder (also called “GGYF”), are as
follows:

   Total Commitment                                   GGYF will purchase up to US $2,500,000 of the Company’s Common
                                                      Shares. If the Company’s public float is less than US$75,000,000 then the total
                                                      commitment shall be no more than one-third (1/3) of the aggregate market value
                                                      of the common stock held by non-affiliates of the Company.

   Term                                               The total commitment period is 24 months from the date of the Common Stock
                                                      Purchase Agreement (the “Purchase Agreement”), which was October 1, 2012.

   Structure                                          The investment will be made in the form of a share subscription facility (the
                                                      “Share Facility”). This Share Facility, subject to certain restrictions, can be
                                                      drawn down at the Company’s option with the Company issuing shares to
                                                      GGYF in return for funds. The Company controls the timing and amount of
                                                      any drawdown.

   Draw Downs                                         At any time, the Company may, in its sole discretion, issue a draw down notice.
                                                      This notice will commence a pricing period, of ten (10) consecutive trading days
                                                      preceding a funding date. Only one draw down shall be allowed in each pricing
                                                      period. Settlement of each draw down shall occur on the first trading day
                                                      following the end of the pricing period. The Company may not request an
                                                      aggregate draw down amount in excess of 4.9% of the Company’s market
                                                      capitalization as calculated on the business day prior to the first day of the
                                                      pricing period.

                                                      In any draw down period, the Company may issue a draw down notice for up to
                                                      four hundred percent (400%) of the average daily trading volume for the ten
                                                      (10) trading days prior to the notice. GGYF will not be obligated to subscribe
                                                      for more than fifty percent (50%) of any amount in a draw down notice and will
                                                      have the option to subscribe for up to two hundred percent (200%) of any draw
                                                      down notice.

   Pricing Period                                     Each pricing period consists of ten (10) consecutive trading days on the stock
                                                      exchange on which the Company maintains its primary listing. The purchase of
                                                      the Common Shares shall be settled on the first trading day after the end of each
                                                      pricing period.

   Pricing                                            GGYF agrees to honor draw down requests from the Company based upon a per
                                                      share subscription price equal to ninety percent (90%) of the average closing bid
                                                      price during the pricing period (“Purchase Price”).

                                                      If the closing bid price on a given trading day multiplied by ninety percent
                                                      (90%) is less than the minimum price set by the Company in the draw down
                                                      notice (known as a “Knock Out Day”), then the corresponding closing bid price
                                                      will be removed from the calculation of the Purchase Price, unless otherwise
                                                      agreed by the Company and GGYF. For every Knock Out Day, GGYF’s
                                                      subscription obligation under the draw down will be reduced by 1/10 th , unless
                                                      the parties otherwise agree.

   Commitment Fee                                     The Company shall pay GGYF a commitment fee equal to $37,500, payable
                                                      25% upon both the first and second draw downs, and the balance payable in
                                                      amounts equal to 10% of future draw downs, provided that the full commitment
                                                      fee shall be paid within one year of closing.
15
Warrants          Warrants to purchase 5,000,000 Common Shares have been issued to the
                  Purchaser. The Warrants have a five (5) year term, and may be exercised at $.27
                  per share. 4,000,000 of these Warrants are immediately exercisable, and the
                  remaining 1,000,000 Warrants vest and become exercisable proportionally if
                  and when the first four (4) draw-downs are closed. The Warrants contain
                  standard anti-dilution rights, and certain re-pricing rights in the instance that the
                  Company issues Common Shares to another party at a price lower than the last
                  Purchase Price paid by GGYF for the Common Shares pursuant to a draw
                  down. See the section entitled "Description of Warrants" beginning on page 22
                  of this prospectus.

Use of Proceeds   The Company will not receive any proceeds from this offering. We will,
                  however, receive proceeds from the sale of Common Shares to the Selling
                  Shareholder under the Purchase Agreement. We intend to use the net proceeds
                  from the Purchase Agreement for working capital and general corporate
                  purposes. See "Use of Proceeds."

Risk Factors      You should carefully read and consider the information set forth under "Risk
                  Factors," together with all of the other information set forth in this prospectus,
                  before deciding to invest in the units offered by this prospectus.




                              16
                                                              Plan of Distribution

The purpose of this prospectus is to permit the Selling Shareholder to offer and resell up to 10,000,000 shares of our common stock, and up to
5,000,000 common shares underlying the Warrants, at such times and at such places as it chooses. To the extent required, we may amend and
supplement this prospectus from time to time to describe a specific plan of distribution. The decision to sell any shares offered pursuant to this
prospectus is within the sole discretion of the Selling Shareholder. If the Selling Shareholder were eligible to immediately acquire all of the
shares to which it would be entitled pursuant to the terms of the agreement, the selling shareholder would be able to receive approximately 22.7
million shares (estimated using a price of $0.125 per share), however, those shares which are not subject to this registration statement and could
not be sold publicly without the benefit of an exemption from registration such as Rule 144 or the filing and effectiveness of a new registration
statement.

The distribution of the common stock by the Selling Shareholder may be effected from time to time in one or more transactions. Any of the
common stock may be offered for sale, from time to time, by the Selling Shareholder at prices and on terms then obtainable, at fixed prices, at
prices then prevailing at the time of sale, at prices related to such prevailing prices, or in negotiated transactions at negotiated prices or
otherwise. The common stock may be sold by one or more of the following:

         
             On the OTCQB or any other national common stock exchange or automated quotation system on which our common stock is
             traded, which may involve transactions solely between a broker-dealer and its customers which are not traded across an open
             market and block trades.
         
             Through one or more dealers or agents (which may include one or more underwriters), including, but not limited to:

             
                 Block trades in which the broker or dealer as principal and resale by such broker or dealer for its account pursuant to this
                 prospectus.
             
                 Purchases by a broker or dealer as principal and resale by such broker or dealer for its account pursuant to this prospectus.
             
                 Ordinary brokerage transactions.
             
                 Transactions in which the broker solicits purchasers.
             
                 Directly to one or more purchasers.
             
                 A combination of these methods.

The Selling Shareholder and any broker-dealers who act in connection with the sale of its shares are "underwriters" within the meaning of the
Securities Act, and any discounts, concessions or commissions received by them and profit on any resale of the shares as principal may be
deemed to be underwriting discounts, concessions and commissions under the Securities Act. Because the Selling Shareholder is an
"underwriter" within the meaning of the Securities Act, it will be subject to the prospectus delivery requirements of the Securities Act,
including Rule 172 thereunder.

The Selling Shareholder or its underwriters, dealers or agents may sell the common stock to or through underwriters, dealers or agents, and
such underwriters, dealers or agents may receive compensation in the form of discounts or concessions allowed or reallowed. Underwriters,
dealers, brokers or other agents engaged by the Selling Shareholder may arrange for other such persons or entities to participate. Any fixed
public offering price and any discounts and concessions may be changed from time to time. Underwriters, dealers and agents who participate in
the distribution of the common stock may be deemed to be underwriters within the meaning of the Securities Act, and any discounts or
commissions received by them or any profit on the resale of shares by them may be deemed to be underwriting discounts and commissions
thereunder. The proposed amounts of the common stock, if any, to be purchased by underwriters and the compensation, if any, of underwriters,
dealers or agents will be set forth in a prospectus supplement.

Unless granted an exemption by the SEC from Regulation M under the Exchange Act, or unless otherwise permitted under Regulation M, the
Selling Shareholder will not engage in any stabilization activity in connection with our common stock, will furnish each broker or dealer
engaged by the Selling Shareholder and each other participating broker or dealer the number of copies of this prospectus required by such
broker or dealer, and will not bid for or purchase any common stock of our or attempt to induce any person to purchase any of the common
stock other than as permitted under the Exchange Act.
We will not receive any proceeds from the sale of these shares of common stock offered by the Selling Shareholder. We shall use our
reasonable efforts to prepare and file with the SEC such amendments and supplements to the registration statement and this prospectus as may
be necessary to keep such registration statement effective and to comply with the provisions of the Securities Act with respect to the disposition
of the common stock covered by the registration statement for the period required to effect the distribution of such common stock.




                                                                       17
We are paying certain expenses (other than commissions and discounts of underwriters, dealers or agents) incidental to the offering and sale of
the common stock to the public. If we are required to update this prospectus during such period, we may incur additional expenses in excess of
the amount estimated above. We have agreed to indemnify the Selling Shareholder against certain losses, claims, damages and liabilities,
including liabilities under the Securities Act and the Exchange Act, subject to certain exceptions.

In order to comply with certain state securities laws, if applicable, the common stock will be sold in such jurisdictions only through registered
or licensed brokers or dealers. In certain states the shares of common stock may not be sold unless they have been registered or qualified for
sale in such state or an exemption from registration or qualification is available and is complied with.


                                                                        18
                                                                    Dilution

Our net tangible book value as of June 30, 2012 was $(2,540,793) or $(0.01) per common share. Net tangible book value per share represents
total tangible assets less total liabilities, divided by the number of common shares outstanding. After giving effect to the sale of 10,000,000
Common Shares in this offering (and excluding common shares issuable upon exercise of the Warrants) at an estimated price of $0.15 per
share, our net tangible book value as of June 30, 2012 would have been $(1,295,793), or $(0.005) per share. This represents an immediate
increase in net tangible book value of $0.006 per share to existing shareholders and an immediate dilution in net tangible book value of $(0.13)
per share to investors in this offering. The following table illustrates this calculation.

                         Net tangible book value per share as of June 30, 2012                           $       (0.011)
                         Increase per share attributable to this offering                                          0.006
                         As adjusted tangible book value per share after this offering                           (0.005)
                         Dilution per share to new investors in this offering                            $       (0.130)


The number of common shares outstanding used for existing shareholders in the table and calculations above are based on 234,451,771 shares
outstanding as of June 30, 2012 and exclude:

         
             15,061,751 common shares issuable upon the exercise of options and warrants outstanding at June 30, 2012 with a weighted
             average exercise price of $0.22 per share; and
         
             2,675,000 common shares reserved for future grants and awards under our equity incentive plans as of June 30, 2012.



                                                               Dividend Policy

We have not declared or paid cash dividends on our common shares and do not anticipate paying any cash dividends on our common shares in
the foreseeable future. We expect to retain future earnings, if any, to fund the development and growth of our business. Our board of directors
will determine future dividends on our common shares, if any.




                                                                       19
                                                                  Capitalization

The following table sets forth our capitalization as of June 30, 2012:

         
             on an actual basis; and
         
             on a pro forma basis to reflect the sale of 10,000,000 Common Shares in this offering (and excluding common shares issuable
             upon exercise of the Warrants), after deducting the Commitment Fee and other estimated offering related expenses payable by us,
             estimated to be approximately $255,000.

The offering does not specify any minimum purchase or sale of any specific number of Common Shares. As a result, our actual total
capitalization following completion of the offering may be significantly less than the “Pro forma” total capitalization reflected in the below
table.

You should read the information in this table together with “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” and our financial statements and the accompanying notes included elsewhere in this prospectus.

                                                                                                    Actual             Pro forma
             Cash and cash equivalents                                                        $         12,715 $          1,257,715

             Total current liabilities                                                                3,794,322            3,796,307
             Total non-current liabilities                                                               1,985                 1,985

             Shareholders' equity:
             Preferred shares, 1,000,000 shares authorized, 1,000 designated Series B
                 preferred shares issued and outstanding at June 30, 2012                                       -                   -
             Common shares, no par value, 300,000,000 shares authorized, 234,451,771
                 issued and outstanding as of June 30, 2012                                              23,445               24,445
                 Additional paid-in capital                                                          45,252,282           46,496,282
                 Prepaid expenses with common stock                                                   (112,317)            (112,317)
                 Stock subscription receivable                                                         (26,583)             (26,583)
                 Accumulated deficit                                                               (47,383,090)         (47,383,090)
             Non-controlling interest in consolidated subsidiary – Cyclone WHE LLC                      130,062              130,062
             Total stockholders’ deficit                                                      $     (2,116,201) $          (871,201)


The number of common shares outstanding used for existing shareholders in the table and calculations above are based on 234,451,771 shares
outstanding as of June 30, 2012 and exclude:

         
             15,061,751 common shares issuable upon the exercise of options and warrants outstanding at June 30, 2012 with a weighted
             average exercise price of $0.22 per share; and
         
             2,660,000 common shares reserved for future grants and awards under our equity incentive plans as of June 30, 2012.




                                                                         20
                                                           Description of Securities

This prospectus relates to the sale of Common Shares and Warrants, the terms of which are described below.

Authorized Capital

We currently have authority to issue 300,000,000 common shares with a par value of $0.0001 per share and 1,000,000 preferred shares with a
par value of $0.0001 per share. As of June 30, 2012, we had 234,451,771 common shares issued and outstanding and 1,000 shares of Series B
preferred shares issued and outstanding.

Description of Common Shares

Dividends. Each share of common stock is entitled to receive an equal dividend, if one is declared, which is unlikely. We have never paid
dividends on our common stock and do not intend to do so in the foreseeable future. We intend to retain any future earnings to finance our
growth. See “Risk Factors”.

Liquidation. If our company is liquidated, any assets that remain after the creditors are paid, and the owners of preferred stock receive any
liquidation preferences, will be distributed to the owners of our common stock pro-rata.

Voting Rights. Each share of our common stock entitles the owner to one vote. There is no cumulative voting. A simple majority can elect all
of the directors at a given meeting and the minority would not be able to elect any directors at that meeting. The voting rights of the common
stock are affected by the Series B Preferred Stock voting rights, as described below.

Preemptive Rights. Owners of our common stock have no preemptive rights. We may sell shares of our common stock to third parties without
first offering it to current stockholders.

Redemption Rights. We do not have the right to buy back shares of our common stock except in extraordinary transactions such as mergers and
court approved bankruptcy reorganizations. Owners of our common stock do not ordinarily have the right to require us to buy their common
stock. We do not have a sinking fund to provide assets for any buy back.

Conversion Rights. Shares of our common stock cannot be converted into any other kind of stock except in extraordinary transactions, such as
mergers and court approved bankruptcy reorganizations.

Transfer Agent and Registrar

The transfer agent and registrar for our common shares is Transfer Online, located in Portland, OR.

Equity Compensation Plans

We have one active stock-based compensation plan, the 2012 Stock Option Plan, referred to herein as the “2012 Stock Plan.” We had a 2010
Stock Option Plan, which has now been closed as all 5,000,000 common stock purchase options allowable to be issued under it had been issued
by the Company. As of June 30, 2012, 2,325,000 options to purchase our common shares were issued and outstanding under the 2012 Stock
Plan with a weighted-average price of $0.165, and 2,660,000 of our common shares were reserved for future issuance under the 2012 Stock
Plan.

Description of Preferred Stock

Our Articles of Incorporation, as amended, authorize 1,000,000 preferred shares. Our board of directors is authorized, without further
shareholder action, to establish various series of preferred shares from time to time and to determine the rights, preferences and privileges of
any unissued series including, among other matters, any dividend rights, dividend rates, conversion rights, voting rights, terms of redemption,
liquidation preferences, sinking fund terms, the number of shares constituting any such series, and the description thereof and to issue any such
shares. Our preferred shares are currently designated into one series: Series B preferred shares (the “Series B Preferred Shares”). Although
there is no current intent to do so, our board of directors may, without shareholder approval, issue an additional class or series of preferred
shares with voting and conversion rights which could adversely affect the voting power of the holders of the common shares. As of the date of
this prospectus, there are 1,000 Series B Preferred Shares designated and outstanding.
21
Description of Series B Preferred Shares

The Series B Preferred Shares are held by our executive management and founders – Mr. Schoell and Ms. Fruge. The Series B Preferred Shares
are a majority voting stock, whereby its holders collectively are able to cast votes equal to 51% of all shares of common shares issued and
outstanding and able to vote in matters brought before our shareholders. The Series B Preferred Shares, in essence, provide our two executive
managers with control over the voting matters brought before our shareholders and could serve to delay, defer or prevent a change in control of
the company. In the instance of a liquidating event – winding-up, merger or acquisition of the company, the shares of Series B Preferred
Shares will convert to common shares on a one-for-one basis.

Description of Warrants

The material terms and provisions of the Warrants being offered pursuant to this prospectus are summarized below. However, this summary of
some provisions of the Warrants is not complete. For the complete terms of the Warrants, you should refer to the Warrant Agreement filed as
exhibits to the registration statement of which this prospectus is a part.

A total of 5,000,000 Warrants have been issued in connection with this offering. The Warrants will entitle the holder to purchase common
shares for an exercise price equal to $0.27 per share. Subject to certain limitations as described below, 4,000,000 of the Warrants are
exercisable at the option of the holder beginning immediately after the date of issuance, and the balance will vest and become exercisable in
four equal tranches as the Purchaser funds the four Draw Downs of $250,000 each. All Warrants will expire five years from issuance, and will
entitle the holder to exercise any time prior to that date.

Subject to limited exceptions, the holder of Warrants will not have the right to exercise any portion of its warrants if the holder, together with
its affiliates, would beneficially own in excess of 4.99% (or 9.99% as elected by the holder pursuant to the terms of the warrant) of the number
of our common shares outstanding immediately after giving effect to such exercise.

The exercise price and the number of shares issuable upon exercise of the Warrants is subject to appropriate adjustment in the event of
recapitalization events, share dividends, share splits, share combinations, reclassifications, reorganizations or similar events affecting our
common shares, and also upon any distributions of assets, including cash, shares or other property to our shareholders. In the event that the
Company issues common shares to a third party at a price below the last purchase price paid by the Purchaser under the Purchase Agreement,
then the exercise price will be reduced to that lower amount. Such re-pricing excludes shares issued pursuant to stock option plans, shares
issued to service providers and any convertible security existing prior to the date of this offering. The Warrant holders must pay the exercise
price in cash upon exercise of the Warrants unless such holders are utilizing the cashless exercise provisions of the Warrants. After the close of
business on the applicable expiration date, unexercised Warrants will become void.

In addition, in the event we consummate a merger or consolidation with or into another person or other reorganization event in which our
common shares are converted or exchanged for securities, cash or other property, or we sell, lease, license or otherwise dispose of all or
substantially all of our assets or we or another person acquire 50% or more of our outstanding common shares, then following such event, the
holders of the Warrants will be entitled to receive upon exercise of the warrants the same kind and amount of securities, cash or property which
the holders would have received had they exercised the Warrants immediately prior to such fundamental transaction. Any successor to us or
surviving entity shall assume the obligations under the Warrants.

Upon a holder’s exercise of a Warrant, we will issue the common shares issuable upon exercise of the Warrant within three business days
following our receipt of notice of exercise and payment of the exercise price, subject to surrender of the Warrant.

Prior to the exercise of any Warrants to purchase common shares, holders of the Warrants will not have any of the rights of holders of the
common shares purchasable upon exercise, including the right to vote or to receive any payments of dividends on the common shares
purchasable upon exercise.

Certain Provisions of the Florida Business Corporation Law

As a Florida corporation, we are governed by the Florida Business Corporation Law, or FBCL. Under specified circumstances, the following
provisions of the FBCL may delay, prevent or make more difficult unsolicited acquisitions or changes of control of us. These provisions also
may have the effect of preventing changes in our management. It is possible that these provisions could make it more difficult to accomplish
transactions which shareholders may otherwise deem to be in their best interest.




                                                                        22
Control Share Acquisitions

Under Section 607.0902 of the FBCL, an acquiring person or group who makes a “control share acquisition” in an “issuing public corporation”
may not exercise voting rights on any “control shares” unless these voting rights are conferred by a majority vote of the disinterested
shareholders of the issuing public corporation at a special meeting of those shareholders held upon the request and at the expense of the
acquiring person.

Under the FBCL, “control shares” are shares acquired by a person that, when added to all other shares of the issuing public corporation owned
by that person or in respect to which that person may exercise or direct the exercise of voting power, would otherwise entitle that person to
exercise voting power of the issuing public corporation in the election of directors within any of the following ranges:

         
             one-fifth or more but less than one-third;
         
             one-third or more but less than a majority; or
         
             a majority or more.

A “control share acquisition” means, subject to specified exceptions, the acquisition, directly or indirectly, by any person of ownership of, or
the power to direct the exercise of voting power with respect to, issued and outstanding control shares. For the purposes of determining whether
an acquisition constitutes a control share acquisition, shares acquired within 90 days or under a plan to make a control share acquisition are
considered to have been acquired in the same acquisition.

An “issuing public corporation” means a corporation which has (i) 100 or more shareholders, (ii) its principal place of business, its principal
office, or substantial assets in Florida, and (iii) (A) more than 10% of its shareholders resides in Florida, (B) more than 10% of its shares are
owned by Florida residents, or (C) 1,000 shareholders resident in Florida.

The acquisition of any shares of an issuing public corporation does not constitute a control-share acquisition if the acquisition has been
approved by the board of directors of the issuing public corporation before acquisition.

Certain Business Combinations

As a Florida Corporation, we are subject to a certain anti-takeover provisions that apply to public corporations under Florida law. Pursuant to
Section 607.0901 of the Florida Business Corporation Act or the Florida Act, a publicly traded Florida corporation may not engage in a broad
range of business combinations or other extraordinary corporate transactions with an interested shareholder without the approval of the holders
of two thirds (2/3) of the voting shares of the corporation, excluding shares held by the interested shareholder unless:

         
             The transaction is approved by a majority of disinterested directors before the shareholder becomes an interested shareholder;
         
             The interested shareholder has owned at least eighty percent (80%) of the corporation’s outstanding voting shares for at least five
             (5) years preceding the announcement date of any such business combination;
         
             The interested shareholder is the beneficial owner of at least ninety percent (90%) of the outstanding voting shares of the
             corporation, exclusive of shares acquired directly from the corporation and any transaction not approved by a majority of the
             disinterested directors; or
         
             The consideration paid to the holders of the corporation’s voting stock is at least equal to certain fair price criteria.

An interested shareholder is defined as a person who together with affiliates or associates beneficially owns more than ten percent (10%) of the
corporation’s outstanding voting shares. We have not made an election in our Articles of Corporation to opt out of Section 607.0901.



                                                                         23
Indemnification

Pursuant to Section 607.0850 of the FBCL, the Company has the power to indemnify any person made a party to any lawsuit by reason of
being a director or officer of the Company, or serving at the request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys’ fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.

Our Articles of Incorporation provide that our directors and officers shall be indemnified and the Company shall advance expenses on behalf of
its officers and directors to the fullest extent not prohibited by law either now or hereafter.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the SEC, such indemnification is
against public policy as expressed in the Securities Act and is, therefore, unenforceable.




                                                                         24
                               Market for Registrant’s Common Equity and Related Shareholder Matters

Market Information

         Our common stock is currently traded on the OTCQB Electronic Marketplace (the “OTCQB”). The following table represents the
high and low bid information for our common stock for each quarterly period within the two most recent fiscal years and the subsequent
interim period, as regularly quoted on the OTCQB (or prior to October 2011, on the OTC Pink Marketplace). Such over-the-counter market
quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions, and may not necessarily represent actual transactions.

                                                                                      Bid Prices
                                                                             High                    Low
                              2010
                              Q1                                              .17                    .13
                              Q2                                              .15                    .08
                              Q3                                              .15                    .08
                              Q4                                              .16                    .09

                              2011
                              Q1                                              .48                    .10
                              Q2                                              .40                    .20
                              Q3                                              .39                    .27
                              Q4 - Oct 15                                     .29                    .26

                              2012
                              Q1                                              .25                    .17
                              Q2                                              .20                    .13
                              Q3                                              .16                    .12

Shareholders

Our transfer agent is Transfer Online. On October 1, 2012, the last reported sale price of our common shares on the OTCQB was $0.12 per
share. On October 1, 2012, there were approximately 4,200 holders of record of our common shares and two holders of record of our Series B
preferred shares.




                                                                      25
                        Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with our Consolidated Financial Statements and related Notes included
elsewhere in this prospectus. Some of the information contained in this Management’s Discussion and Analysis of Financial Condition and
Results of Operations and elsewhere in this prospectus may contain forward-looking statements based on management’s current expectations
and projections about future events. There can be no assurance that actual results, outcomes or business conditions will not differ materially
from those expected or projected in such forward-looking statements as a result of various factors, including, among others, trends in the
demand for our products and services, trends in the industries that consume our products and services, global economic conditions, especially
as they impact our markets, our ability to develop new products and services and other potential risks and uncertainties discussed in the Risk
Factors section of this prospectus.

Overview

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

With respect to these endeavors, in the first half of 2012 the Company raised $488,000 from a private offering of common stock and warrants,
and $485,000 in promissory notes which bear interest ranging from 6% (payable in cash) to 18% (6% payable in cash and 12% in common
stock) and which are secured by future payments the Company expects to receive under its contract with the U.S. Army.

In February 2012, the Company completed its acquisition of all of the assets of Advent Power Systems (“Advent”), which included the $1.4
million contract with the Army. Under the terms of the acquisition agreement, Advent received 1.5 million shares of Cyclone common stock, of
which 1.2 million shares are subject to a two-year leak-out, and up to 1.1 million shares are subject to forfeiture if there are any negative
changes in value to the acquired assets over the next twelve months. In the second quarter of 2012, the Company was approved by the
governments as the prime contractor under this development contract. As a result of the acquisition, the entire amount of $1.4 million under the
contract will become payable to the Company, and we expect to receive an additional $450,000 in revenue and higher profits (in addition to the
$700,000 originally payable to the Company as a sub-contractor) under this project.

Between our contracts with the U.S. Army, and Combilift, the Company has approximately $1.8 million in current orders for development
engines. Additionally, the Company has an additional $0.5 million in backlog from previous contracts, of which proceeds have been paid and
classified as deferred revenue on Cyclone’s balance sheet. All these engines are deliverable within the next 12 months. As a result of these
current and new contracts, the Company is in the process of hiring more engineers and mechanics/technicians, and is looking at additional
facility space to expand its engineering and production capabilities.

As shown in the accompanying financial statements, the Company incurred substantial operating losses for the six months ended June 30, 2012
of approximately $1.7 million. Cumulative operating losses since inception are approximately $16.6 million. The Company has a working
capital deficit at June 30, 2012 of approximately $2.7 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.

Stock for Services and Contracts. Despite its limited cash resources, the Company is able to retain engineering, consulting, legal and
accounting personnel partially through the issuance of Rule 144 restricted common stock and options. In the first half of 2012, the Company
issued 2,687,603shares of common stock and 2,340,000 common stock options in order to conserve cash and provide long-term incentives for
the Company’s employees and service providers. This resulted in a non-cash charge of $747,920.

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

Research & Development. As a research and development company, a material portion of all funds raised or generated through operations are
placed back into the R&D activities of the Company. The Company’s R&D expenditures were $498,823 for the first half of 2012.


                                                                        26
Commitments for Capital and Operational Expenditures. Should additional funding be secured, the Company could consider a significant
purchase of facilities or equipment. The Company is increasing the number of skilled and unskilled employees on payroll, including the
recruitment of high level executive management and additional engineers and mechanical staff. Such new hires are expected to increase the
Company’s monthly operational expenses.

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

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

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

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

The unaudited consolidated financial statements include the accounts of the Company and its 82.5% owned subsidiary (Cyclone-WHE) and its
100% owned subsidiary (Cyclone Performance LLC). All material inter-company transactions and balances have been eliminated in the
consolidated financial statements. The accompanying unaudited consolidated financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information. As such, not all of the information and footnotes required by
generally accepted accounting principles for complete financial statements have been presented.

For the years ended 2011 and 2010, the Company had accounted for an imbedded convertible feature in its Series A Convertible Preferred
stock, which is subject to derivative liability presentation. These were shares initially issued to the founding partners of Cyclone in the
Company’s 2007 reverse merger. In 2010 and 2011, additional shares of Series A Preferred stock were sold to investors. Using a binomial
lattice model, the Company was required to record the estimated value of the Series A Preferred stock as a long term liability on its balance
sheet, with a matching charge to accumulated deficit. Dependent on the market price of the Company’s common stock at the end of each
reporting period, this valuation method either created a non-cash expense or non-cash income, recorded on the Company’s statement of
operations for such period. The total net effect of this accounting was to increase the Company’s additional paid-in capital and accumulated
deficit by approximately $30 million at the time of conversion in May 2011, but there were no effects on the Company’s cash flow or results of
operations.

As part of the Company’s license agreement with Phoenix Power, in 2009 the Company issued to Phoenix common stock purchase warrants at
a price of $.19 per share, equal to two (2%) percent of the fully-diluted issued and outstanding common stock and common stock equivalents of
the Company at the time of exercise. The number of warrants to be issued is contingent upon the number of shares outstanding at the date the
warrants are exercised. Because the number of shares issuable upon exercise of the warrants was unknown until the time of exercise, the
common stock warrants were required to be accounted for as a derivative liability. The Company accounted for this warrant in the same
manner as required for the Series A Preferred stock, noted above, however, in this case, the fair value of the warrants has been calculated using
the Black Scholes model. This Warrant has been retired as of March 31, 2012.

In the opinion of management, all adjustments considered necessary for a fair presentation for interim financial statements have been included
and such adjustments are of a normal recurring nature. The results of operations for the six months ended June 30, 2012 are not necessarily
indicative of the results for the full fiscal year ending December 31, 2012. These financial statements should be read in conjunction with the
financial statements and footnotes for the year ended December 31, 2011.
27
Results of Operations

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

Revenues. The Company had $380,445 of revenue for the three months ending June 30, 2012 from delivery of two engines pursuant to the
Raytheon contract. There was no revenue in the quarter ended June 30, 2011.

Gross Profit. Gross profit for the quarter ended June 30, 2012 was $158,537 reflective of completion and delivery of the Raytheon
contract. The $75,000 negative gross loss for the same period in the previous year reflects a contract penalty fee pertaining to late product
delivery. There was no such penalty payable in the current year period.

Operating Expenses. Operating Expenses incurred for the three months ended June 30, 2012 were $1,020,626 as compared to $1,045,711 for
the same period in the previous year, a decrease of $25,085 or 2.3%. The decrease was due to reduced lower engine R&D expenses of $26,063
or 9.6%, as resources were applied to completing the Raytheon contract, and in increasing WIP inventory for current engines under contract.

Operating Loss. The operating loss for the quarters ended June 30, 2012 and 2011 was $812,089 and $1,120,711, respectively, a decreased
loss of $308,622 or 28%, due to the factors outlined above.

Other Expense. Net other expense for the quarter ended June 30, 2012 was $71,580, inclusive of $45,980 in interest expense and $25,600
related to loss on common stock issued pursuant to debt conversion. This compares to a net other expense of $1,566,582 for the three months
ended June 30, 2011, which was inclusive of a derivative related losses attributable to an increase in the derivative liability conversion feature
for the Series A Preferred Stock of $1,680,240, net of $151,264 of derivative income attributable to the Phoenix Warrants. The 2011 gains and
losses were not operating or cash gains or losses, and as of the first quarter of 2012, both the Series A Preferred Stock and the Phoenix Warrant
had been converted and retired.

Income and Earnings per Share. The net loss for the quarter ended June 30, 2012 was ($883,669), compared to net loss of ($2,687,293) for
the same period in the previous year. The large discrepancy was primarily due to the $208,537 gross profit in the three months ended June 30,
2012 recognized on the Raytheon contract, versus a net $1,528,976 derivative expense as discussed above for the 2011 comparable
period. Net loss per weighted average share was ($0.00) for the current quarter compared to ($0.02) in 2011.

                             Six Months Ended June 30, 2012 Compared to Six Months Ended June 30, 2011

Revenues. The Company had $380,445 of revenue for the six months ending June 30, 2012 from delivery of two engines pursuant to the
Raytheon contract. There was no revenue in the six months ended June 30, 2011.

Gross Profit. Gross profit (loss) for the six months ended June 30, 2012 was $158,537, as compared to a loss of ($250,867) for the same
period in the previous year, a $409,404 improvement. Included in Cost of Goods Sold for the six months ending June 30, 2012 was the cost of
the delivered Raytheon engines of $171,808 and $50,000 of a contract fee pertaining to late product delivery. The contract fee charge for the
comparable period in 2011 was $250,867. Effective in the first quarter of 2012, the contract fee charge has been terminated.

Operating Expenses. Operating Expenses incurred for the six months ended June 30, 2012 were $1,844,149 as compared to $1,718,770 for the
same period in the previous year, an increase of $125,379 or 7.3%. The majority of the increase was due to increased general and
administrative expenses of $117,780 or 9.9%, reflective of the amortization of employee stock options previously issued, higher professional
fees for public company filings, increased use of stock issued for services (to conserve cash) and expanded staff and related costs.

Operating Loss. The operating loss for the six ended June 30, 2012 and 2011 was $1,685,612 and $1,969,637, respectively, a decreased loss of
$284,025 or 14%, due to the factors outlined above.

Other Income (Expense). Net other income for the six months ended June 30, 2012 was $25,351, inclusive of $114,626 in derivative related
income from a reduction in finalizing and retiring the derivative liability related to the Phoenix Warrant. This compares to a net other expense
of ($20,469,709) for the six months ended June 30, 2011, which was inclusive of a derivative related losses attributable to an increase in the
derivative liability conversion feature for the Series A Preferred Stock of approximately $19.8 million and from the Phoenix warrant of
approximately $0.6 million. These derivative gains and losses were not operating or cash gains or losses, and as of the first quarter of 2012,
both the Series A Preferred Stock and the Phoenix Warrant had been converted and retired.




                                                                       28
Income and Earnings per Share. The net loss for the six months ended June 30, 2012 was ($1,660,261), compared to net loss of
($22,439,346) for the same period in the previous year. The large discrepancy was primarily due to the 2011 derivative liability conversion
feature for the Series A Preferred Stock and the Phoenix Warrant as discussed above, off-set in 2012 by the Raytheon gross profit of $208,537
and higher operating expenses in the current period. The resulting net loss per weighted average share was ($0.01) for the current six months
and ($0.18) in 2011.

                               Year Ended December 31, 2011 Compared to Year Ended December 31, 2010

         Revenues. For the year ended December 31, 2011, revenues were $250,000, from delivery of design plans, bill of materials and
successful test data in fulfillment of the Company’s obligations under the Renovalia license agreement. For the same period in the prior year,
revenues were $261,525, a decrease of $ 11,525 or 4%. The 2010 revenues were attributable to delivery of the Company’s biomass-to-power
beta system to Robotic Technology Inc., a waste heat engine (WHE) system, and engineering blueprints and specifications for the WHE to
Great Wall Alternative Power.

         Gross (Loss) Profit. Gross (loss) profit for the year ending December 31, 2011 was ($149,801), as compared to $151,132 for the
same period in the previous year. The loss in 2011 was due to the Company recording a $350,000 charge against a license agreement for
current and subsequent penalty payments, payable in restricted common stock, net of profits recognized from the Renovalia
contract. Management does not place great weight on these gross profit (loss) results at this time as sales revenues and cost of goods sold
amounts are in the early stage of developing and refinement.

         Operating Expenses. Operating Expenses incurred for the year ending December 31, 2011 were $3,678,112 as compared to
$2,417,180 for the same period in the previous year, an increase of $1,260,932 (52%). Increased general and administrative expenses of
$1,105,918 (73%) are reflective of the amortization of employee stock options previously issued, increased payment of common stock for
services (to conserve cash), higher professional fees for public company filings, and the amortization of services provided to the WHE
subsidiary, paid with related equity. R&D expenses increased by $140,851 (17%) as increased engineering resources and additional material
purchases were allocated to product development, as well as to WIP inventory for contracted deliverables.

         Operating Loss. The operating losses for the years ending December 31, 2011 and 2010 were $3,827,913 and $2,266,048,
respectively, a higher loss of $1,561,865 (69%) in the current year period resulting from the factors outlined above.

          Other Income (Expenses). For the year ended December 31, 2011, the Company recognized a non-cash loss attributable to an
increase in derivative liabilities from warrants of ($35,089) and a non-cash loss from derivative liability convertibility feature of the Series A
Preferred stock of ($19,771,086). Conversely, for the year ended December 31, 2010, we recognized non-cash income attributable to a decrease
in derivative liabilities from warrants of $106,616 and non-cash income from Series A Preferred stock of $333,681. The Company converted
and retired the Series A Preferred stock in May 2011, and therefore, will not incur derivative expenses or income from this source in the future.
Derivative liabilities are calculated and are significantly affected by volatility of the Company’s stock price. In 2010 we also recognized a loss
of $159,050 pursuant to converting debt into common stock.

         Net Loss and Loss per Share. The net loss for the year ending December 31, 2011 was $23,704,727 compared to net loss of
$2,024,464 for the same period in the previous year. This increase of $21,680,263 is due to the factors outlined above, notably the non-cash
loss recorded from the Series A Preferred stock derivative liability. Net (loss) per weighted average share was ($0.15) for 2011 and ($0.02) in
2010.

Liquidity and Capital Resources

At June 30, 2012, the net working capital deficiency was $2,695,228 as compared to a deficiency of $2,635,120 at December 31, 2011, an
increase of $60,108 or 2.3%. In the first half of 2012, funds were primarily used by the net loss of ($1,660,261), an increase in inventory of
$109,127, an increase in fixed assets of $56,282, and a decrease in deferred revenue of $246,247 (completion of the Raytheon contract). Funds
were provided by the net sale of shares of common stock of $488,000, proceeds of $485,000 from promissory notes, an increase in accounts
payable and accrued expenses of $206,537 and an increase in related party notes, payables and accruals of $181,224. Additionally, to conserve
cash the Company issued 2,687,603 shares of common stock and 2,340,000 common stock options for services -- a non-cash charge to the
Income Statement of $747,920 in the six months. Also, the Company incurred a non-cash charge of $50,000 (paid with common stock) as a
penalty for late product delivery.

For the six months ended June 30, 2011, net cash flows increased by $307,407. This is reflective of the net loss of $22,439,346 inclusive of
non-cash charges for losses attributable to the derivative liability related to the Series A Preferred Stock of $19,771,086 and the derivative
losses from common stock warrants of $650,758. The net result is primarily an operating loss of $1,969,637 in the first six months of 2011.
Funds were provided by proceeds from the sale of common stock of $940,296 and preferred stock of $192,735, and an increase in accounts
payable and accruals of $166,465 and an increase in related party notes, payables and accruals of $146,099. Non-cash charges for the six
months were from the issuance of common stock and options for services of $733,674 to conserve cash.


                                                                      29
The Company needs to obtain capital; however, no assurance can be given that it will be able to obtain this capital on acceptable terms, if at all.
In such an event, this may have a materially adverse effect on the Company’s business, operating results and financial condition. If the need
arises, the Company may attempt to obtain funding or pay expenses through the continued sale or issuance of common stock. The Company
may also use various types of short term funding, related party advances and expenses payment deferrals and external loans. The Company’s
auditors have issued a going concern opinion for the year ended December 31, 2011. Management is cautiously optimistic, however, that it will
be able to generate the funding required to continue and expand its operations over the long term.

We believe that our cash requirements over the next 12 months will be approximately $250,000 per month, or about $3 million in
total. Management anticipates that cash proceeds of approximately $1.3 million will be provided by the U.S. Army contract of $1 million (net
of $0.4 million subcontractors’ payments) and $300,000 from Combilift. Regarding the U.S. Army contract, payments are based on our
meeting development milestones on a quarterly basis. We expect to get paid within 30 to 45 days of invoicing (We were paid $502,000 in
September 2012). With respect to Combilift, the $300,000 is expected to be paid over the following 9 months as prototype engines are
delivered, and final bill of materials and designs are rendered. Should we be unable to fulfill this order, the additional $300,000 in development
fees would not be payable, despite the possibility that we could have considerable expenses in connection with our efforts.

The net shortfall to continue operations is at least $1.7 million at our current pace. In the short term, management will seek to raise private
financing of equity and/or debt to accredited investors to make up that gap. The total amount of such funding options could be between $1.5
and $2 million. In the medium to long-term, we will seek $5 million to $10 million in additional private debt and/or equity. The terms of such
an offering have not been decided, and management makes no assurances that it can be successful in raising these funds.

Off-Balance Sheet Arrangements

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

New Accounting Pronouncements

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

                                                          Description of Our Business

We are an innovative technology engineering firm focused on developing environmentally-friendly power sources for the future. Specifically,
we have developed and patented the Cyclone Engine, an award-wining thermal engine that we believe is powerful and versatile enough for
applications ranging from electric power generation from solar collectors, industrial waste heat and biomass, to all forms of land and sea
transportation.

The Cyclone Engine is a heat-regenerative, reciprocating (i.e., piston) Rankine engine. Rankine refers to the thermodynamic steam cycle which
is used to generate approximately 80% of the world’s electrical output at coal and nuclear power plants. The Cyclone Engine works on the
same principles, but in a compact, self-contained package. The engine creates superheated steam in a combustion chamber or external heat
exchanger, which is then pumped to the cylinders under high pressures. The steam in the cylinders expands rapidly, pushing pistons and turning
a crank shaft. Steam escaping the cylinders enters a condenser, where it is cooled and returned to the combustion chamber in a closed-loop
process.

Based on testing completed by Cyclone to date, we believe that the benefits of the Cyclone Engine are many, including:

Fuel-Flexibility : As an external combustion engine (as opposed to an internal combustion (“I/C”) engine, such as found in all commercial
non-electric cars), the Cyclone Engine is capable of running on virtually any liquid, gaseous or solid fuel, including renewable bio-fuels,
propane or biomass. In testing, it has also run on heat generated from solar thermal collectors and waste heat from industrial processes,
including furnaces and other engines.




                                                                        30
Low Emissions : By burning fuel at lower temperatures and lower pressures in a centrifugal chamber that fully incinerates particulate matters,
we believe based on preliminary in-house environmental testing that the Cyclone Engine emits far fewer toxic and greenhouse gases than
current I/C engines.

Highly Efficient : The Cyclone Engine recycles its own energy through multiple heat regenerative processes, and stops burning fuel when
power is not needed (such as idling at a stop light). We believe that this has potential to create greater “well to wheel” efficiencies than gas or
diesel powered I/C engines.
Powerful and Compact : Unlike batteries or fuel cells, we believe that the Cyclone Engine is powerful enough for heavy transportation, and
unlike steam engines of the past, the Cyclone Engine is compact with an extremely high power to weight ratio, all contained in a closed-loop so
it may never need its working fluid (water) replenished.

Inexpensive to Build and Maintain : By eliminating many subsystems like oil pumps (the engine uses de-ionized water, not motor oil, as its
lubricating agent), catalytic converters and complex fuel injectors and automotive transmissions, we anticipate Cyclone Engines to cost less to
manufacture, operate and maintain than current gas and diesel powered I/C engines.

Currently three Cyclone Engine models are in different stages of development, with the first engine slated for commencement of production in
early 2012. These three engines and the major characteristics of each are as follows:

                                        Mark 5 Engine                 S Model Engines                    Waste Heat “WHE-25” Engine
      Power Output                          100 hp                       5 hp – 15hp                                 16 hp
      Size / Weight                    26” x 24”; 125 lbs             8” x 6” ; 18 lbs to                       14” x 8”; 34 lbs
                                                                       10” x 7” ; 24 lbs
      Applications        Automotive, marine power. distributed Solar thermal dishes; portable                 Waste heat recovery;
                                     power and CHP*                        power;                              biomass combustion
                                                                         micro-CHP*
      * CHP stands for combined heat and power, otherwise known as co-generation

Cyclone has several important contracts and purchase orders with customers that include Raytheon Company, the U.S. Army/Tank Command,
Renovalia Energy, Phoenix Power Group, and one of our suppliers, leading U.S. auto parts manufacturer TopLine Automotive Engineering.

We received our first patent in the U.S. for the Cyclone Engine in 2006, and since then have been issued or allowed nine other U.S. patents and
21 international patents – 30 issued patents in all. Cyclone has also received numerous awards, including two Tech Awards from the Society of
Automotive Engineers and Popular Science’s 2008 Invention of the Year Award.

Business Model

Our business objective is to design and develop engines that we can manufacture through contracted parties for direct sale to customers, or
license our technology to manufacturers and other producers of specialized applications. Our revenue has and will come from:

         
             Development and engineering fees from customers and licensees;
         
             Direct sales revenue from engines we manufacture in-house or through contractors;
         
             Up-front license fees and on-going royalties based on sales by our licensees.

With respect to certain waste heat recovery applications, we also expect to realize revenue through the development, design and installation of
power generation systems (inclusive of our engine and an electric generator), which could be sold to customers or provided to customers
through a Power Purchase Agreement (PPA). Waste heat recovery is the process of using heat generated from another source, such as an
industrial furnace, to power our steam engine which, in turn, drives an electric motor. We have established a specialized subsidiary company –
Cyclone-WHE LLC , of which we own 82.5% of its equity – to pursue these opportunities.

Over the last four years, much of our efforts have been focused on development of our technology and engine prototypes. As a result, we have
limited revenue – approximately $250,000 in recognized revenue in 2011, $380,445 in recognized revenue for the six months ended June 30,
2012, and $614,564 in deferred revenue as of the end of June 2012, from several license and development agreements.
31
         Agreements to which we are currently working on or have recently completed include:

         U.S. Army / TARDEC: As of July 2012, we officially assumed and re-commenced work on a $1.4 million contract from the U.S.
Army / TARDEC division, to develop a prototype auxiliary and portable/dismountable power unit for multiple combat vehicles. We became
the prime contractor on this project after our acquisition of Advent Power Systems in February 2012 and formal novation of the contact in June
2012. Pursuant to this contract, we expect to deliver a 10kW prototype power generator, utilizing our S-2 model engine, in June 2013. The
$1.4 million in contracts payments will be made to us over the following 12 months as we meet specific development milestones. As of July
10, 2012, we had met the first milestone and invoiced the Army for approximately $500,000 in work performed to date, which has been paid.

          Raytheon Company : In May 2012, we successfully delivered to Raytheon two Phase 1 prototype MR-36 engines, which are based
on our Mark 5 base engine model, and which will be tested as a propulsion system for unmanned underwater vehicles (UUVs) for the U.S.
military. This contract was worth approximately $400,000 in development fees, which has been paid.

          Phoenix Power Group : We have a license with Phoenix Power to provide them with the exclusive, worldwide rights for 10 years
with a 5-year renewal term to utilize Cyclone Engines for power generators combusting waste motor oil. Currently, we are developing two
WHE-25 model engines for use with their waste oil power systems, and preparing to integrate their EPA-compliant commercial furnaces with
our engines. Under the license Phoenix has paid us $440,000 in license and development fees, and then will pay us on-going royalties from
their generator system sales averaging $150 per engine sold, with minimum quotas over the first 10 years exceeding $4 million in royalties in
order to maintain their exclusive rights. Phoenix received 1,854,804 shares of Cyclone common stock as a penalty payment for late delivery of
first two the engines, which are expected to be delivered in the third quarter of 2012.

         Combilift : We signed a license agreement in 2011 with Combilift, a materials handling and lift equipment manufacturer based in
Ireland. Pursuant to the agreement, Combilift has the exclusive, worldwide rights to use the Cyclone Mark 5 engine to drive their lift
equipment. For these rights, Combilift has paid $100,000 to date, and will pay another $300,000 in fees as development and delivery of two
prototype engines progresses over the next six to nine months. During of the term of the agreement, Combilift is expected to purchase engines
from Cyclone, based on their requirements and on pricing terms to be determined by the parties upon the completion of the initial prototype
engines. This is a 15 year license, with a 15 year renewal term, and is terminable after 30 days if either party fails to cure a material breach of
the agreement, or immediately by Cyclone if Combilift is dissolved, liquidated or is bankruptcy.

         Great Wall Alternative Power Systems: GWAPS is licensed to develop in China and sell only in China a production model of
Cyclone’s biomass-to-power generator system, based on the WHE and Mark 5 engines. GWAPS has paid Cyclone $125,000 in development
fees, $62,500 of which has been previously recognized as revenue, and has agreed to pay an additional $400,000 in licensing fees and then
on-going royalties (price to be determined) from the sale of Cyclone engines for use in electric power production in China. Additionally,
GWAPS has invested capital to provide for legal and financial structuring, government outreach, and intellectual property protection, including
retaining professional organizations to monitor and, if necessary, prosecute patent infringement cases in China. Cyclone has also retained legal
counsel in China to audit the IP protocols that GWAPS establishes.

          Renovalia Energy : Renovalia is a leading renewable energy company based in Spain with over 500 MW of alternative power
currently in its portfolio. Our license with Renovalia provides them with non-exclusive, worldwide rights to manufacture Cyclone Engines for
their solar thermal solutions, for which Cyclone has received $250,000 in development fees, and then will receive on-going royalties averaging
approximately $100 per engine on each engine produced. The term is 10 years with two 5-year renewal periods. Cyclone is currently
completing the prototype “Solar 1” engine which may ultimately be manufactured by this customer.

Looking forward, the markets that we believe present the most viable business opportunities include:

                Transportation                 Power Generation                     Equipment                         Specialty
                  Automobiles                   10kW – 0.5MW                         Off-Road                          Military
                Trucks & Busses                Distributed Power                     Industrial                      & Defense
                     Ships                       Waste Energy                         Mining                        Underwater
                & Locomotives                  Recovery and CHP                      & Lifting                     Oil Exploration
                   Motorized                     Solar Thermal                         Lawn                         Oil Field &
                 Bikes & ATVs                   Dishes & Towers                      & Garden                      Landfill Flares




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Development Status of Technology

        The Cyclone Engines are in development, however, prototypes of several different models and sizes are near completion. The
following lists each of the Cyclone Engines that we have in development, and the currently estimated timing of completion:

        Model                    Size          Uses                              Stage                       Est. Stage Completion
        Mark 2                   18 HP         Portable & aux. power, light      Alpha Test Engine(1)        Completed, not in active
                                               equipment                                                     development
        WHE                      16 HP         Waste heat recovery, waste fuels, Production                  Q4 2012
        Waste Heat Engine                      biomass-to-power                  Model (2)
        Solar-1 (S-1)            5 HP          Solar thermal, small scale power, Pre-Production              Project re-focused on
                                               Combined heat and power, military Beta (3)                    larger S-2 version;
                                                                                                             development to resume
        S-2                      15 HP         Auxiliary power for military      Design Stage                Q2 2013
                                               vehicles, portable power
        Mark 5                   100 HP        Transportation, commercial power, Pre-production              Q4 2012
                                               military                          Beta (3)
        Mark 6                   330 HP        Heavy transport, power plant,     Design                      Not yet in active
                                               heavy equipment                                               development

(1) “Alpha test” engine refers to a working bench model engine, which demonstrates proof of concept.

(2) “Production model” refers to the final prototype prior to production that has undergone full testing with the customer or a
    third-party, and is ready for commercial manufacturing, which may include additional production engineering/testing.

(3) “Pre-production Beta” refers to a second generation prototype engine, which has undergone significant durability and
    performance testing at Cyclone’s facility, and is ready for Production modeling.

       Our engines have not yet undergone customer testing, and there is no guarantee that they will successfully meet customer expectations
when completed.

Research and Development Activities

As a technology research and development company, much of our annual expenses are dedicated towards R&D, including labor costs, material
costs, tooling and equipment and other expenses required to run our business. Our R&D expenditures for 2010 and 2011 were $842,425 and
$983,276, respectively. For the first six months of 2012, our R&D expenditures were $498,823.

We actively pursue development agreements with customers, whereby we will develop an engine, design plans or other products for this
customer at the customer’s full or partial expense. Sometimes these arrangements are part of a more expansive License Agreement or
Development Contract (such as with the U.S. Army). We currently have multiple R&D-type agreements in place, and believe that at this time
approximately 60% of our R&D operations are funded by our customers, a percentage which may increase in the future.

Prototyping and Manufacturing

We currently contract with multiple suppliers for the production of most of our prototype parts, which we design and then assemble and test at
our facility. As we move forward, we plan to acquire the machinery and produce in-house a greater portion of this prototype manufacturing
work.

For production manufacturing, we intend to contract with one or more manufacturers that have the expertise, machinery, tooling and other
capital assets required to commercialize and manufacture in mass production our engines. With respect to this plan, in 2011 we entered into a
Letter of Understanding with TopLine Energy Systems, LLC, an affiliated company of global manufacturing leader TopLine Automotive
Engineering, Inc., to build Cyclone engines. Under the terms of this preliminary agreement, TopLine Energy will provide assistance with
engineering and planning of Cyclone’s WHE-25 model engines, and manufacture production prototypes of these units. As of the date of this
filing this process has begun, with the first 2 engines produced, and testing has commenced at Cyclone’s facility. The prices for these first
engines are based upon TopLine’s actual costs (i.e., materials and labor hours), without mark-up. Given the successful completion and review
of this first stage, Cyclone may grant TopLine a three-year period of time to exclusively manufacture Cyclone’s WHE model engines, subject
to agreement on pricing and other contractual terms to be subsequently agreed by the parties.
33
Competitive Business Conditions

We believe that our technology, which is a small-scale heat-regenerative, Rankine cycle external combustion engine, has little direct
competition. However, depending on the industry in which these engines are applied, indirect competitors utilizing different technologies do
exist.

Currently, there are several companies which have developed and commercialized other types of external heat engines, such as Stirling engines.
Stirling engines are similar to our technology and are used in overlapping applications (such as solar thermal power generation), however, the
two engine technologies have several major differences, including size and power-density. Based on preliminary testing and analysis, we
believe that our engine technology may be superior to the Stirling engines in these aspects; and as a result, has more applications in mobile uses
(i.e., cars, trucks and ships). We have not yet commercialized our engine technology, and these claims are still to be proven. Also, several
Stirling engine companies such as Infinia Corp. have greater capital resources than we do, which could help establish their technology in the
marketplace quicker than we can.

Other technologies that may be indirectly competitive with our engines are lithium-ion batteries and hydrogen fuel cells. Both these
technologies, especially fuel cells, are in their early stages and it is difficult to determine how they would affect our competitive position. For
instance, batteries are useful for some applications where limited sustained power (torque) and operating time is needed, however, they are in
essence just “fuel tanks” which allow for power that is generated elsewhere (i.e., a coal-fired power plant) to be saved and transported. Fuel
cells, while showing great potential promise, are in their technological infancy and currently are too expensive for many practical applications.
For instants, the Bloom Box 100kW fuel cell costs over $700,000, weighs over 20,000 lbs and is over 24 ft. in length, according to their
marketing materials. The 100hp Cyclone engine we are currently developing, which would produce approximately 75kW of electric output,
weighs just 125lbs, is 2 ft in diameter and height, and is expected to cost 10 times less to produce. Once again, these claims are based on our
current beliefs and developmental testing, as we have not yet produced commercial products.

In the automotive world, the competition to develop an environmentally clean (zero emission) engine is being driven by increasingly stringent
regulatory mandates. To date, Honda, Toyota and GM have made the most advances in bringing to market hybrid and plug-in electric vehicles
that will meet current Environmental Protection Agency (“EPA”) requirements. However, the electric vehicles that these companies have
introduced and continue to develop are currently suitable only for light load carrying small passenger vehicles.

In our opinion, hybrids are an attempt to stretch the technological life span of the I/C engine that is reaching a point of diminishing returns in
terms of emissions and fuel efficiency improvement. Those electric vehicles that operate without the ‘auxiliary’ I/C engine and run solely on
batteries or fuel cells have short operating ranges, making them suitable only for localized, low-speed areas like core metro areas or gated
communities. In short, these vehicles, which are economically-viable due in part to government subsidies, may not ultimately be the types of
cars that most Americans want to drive.

The following table summarizes the primary industries in which we plan to compete, and the competitive technologies in those industries, as
well as some of the leading companies. We cannot provide any assurances that we will be able to compete successfully with these technologies
or companies.

                                                                     Competition                           Companies
                Distributed Power Generation             -Mini-turbines                      -Capstone Turbine
                                                         -Fuel cells                         -Bloom Energy
                Waste Heat Recovery                      -Organic Rankine Cycle              -Calnetix (now GE)
                                                         -Thermal-electrics                  - Caterpillar
                                                                                             - Voith Turbo
                Solar Thermal                            -Stirling engines                   -Infinia Solar
                                                                                             -Stirling Energy Systems
                Automotive                               -Clean diesel                       -Major auto manufacturers
                                                         -Hybrid/plug-in electric            -Tesla




                                                                         34
Patents and IP Protection

We currently have the following patents issued or allowed on our engine technology:

         Heat Regenerative Engine (US Patent No. 7,080,512 B2)
         Heat Regenerative Engine (Continuation) (US Patent No. 7,856,822 B2)
         Steam Generator in a Heat Regenerative Engine (US Patent No. 7,407,382)
         Engine Reversing and Timing Control Mechanism (US Patent No. 7,784,280 B2)
         Centrifugal Condenser (US Patent No. 7,798,204 B2)
         Valve Controlled Throttle Mechanism (US Patent No. 7,730,873 B2)
         Pre-Heater Coil in a Heat Regenerative Engine (US Patent No 7,856,823 B2)
         Spider Bearing (US Patent No. 7,900,454)
         Waste Heat Engine (US Patent No. 7,992,386)
         Engine Shrouding with Air to Air Exchanger (Ser. No. 11/879,586)

The Company also has received patents for the main Cyclone engine in 20 other countries, and patents pending in two more countries. The
Company plans to continue to pursue patent protection in the U.S. and internationally for its intellectual property.

We pursue a rigorous patent strategy, pursuant to which (and subject to our available cash resources) we file patents in the U.S. for our engines,
their individual components, and other innovations and inventions we develop. We also pursue patents internationally in countries where we
believe we may have manufacturing or sales opportunities and/or competition. Despite these efforts, we cannot make assurances that our
patents will not infringe on other patents throughout the world, that other groups will not try to infringe on our patents, and if either of these
were to occur, that we would have the resources to defend our rights. If this were to occur, it could have a material adverse effect on our
business.

We require all customers, suppliers and other partners to execute Non-Disclosure Agreements. We also require our employees and certain
contractors to sign agreements that assign to us any innovations or discoveries they develop while working for us, or working with our
technology. Our license agreements contain similar assignment provisions. We feel that these efforts are satisfactory in protecting our
technology with respect to people and companies with which we have direct business relationships.

Sources and availability of raw material

We purchase raw materials and components from multiple sources, none of which may be considered a principal or material supplier. If
necessary, we could replace these suppliers with minimal effect on our business operations.

Dependence on one or a few major customers

Each of our licensees and development partners pursue different and unique applications for the Cyclone Engines. For instance, with Combilift,
we are developing engines to power material lift equipment, and with Phoenix Power, we are building engines to power waste oil electric
generators. Because of the diversification of applications, uses and business models, we do not believe that the loss of one licensee or
development partner would have a material adverse impact on our current or future operations. Additionally, we are actively pursuing other
licensees and development partners in other product categories (e.g., home generators, industrial machinery and equipment, etc.).

As of the date of this filing, we have one contract that will provide us with a large portion of our expected revenue over the following 12
months: our development agreement with the U.S. Army. A loss of this relationship moving forward could be detrimental to us and our results
of operations.

Governmental regulation

Our Products

Power systems generally are subject to extensive statutory and regulatory requirements that directly or indirectly impose standards governing
emissions and noise. Our engines, when they will ultimately be installed in power systems, will be subject to compliance with all current
emissions standards imposed by the EPA, state regulatory agencies in the United States, including CARB, and other regulatory agencies around
the world and established for power systems utilized in applications such as electric generators or off-highway industrial equipment. EPA and
CARB regulations imposed on engines utilized in industrial off-highway equipment generally serve to restrict emissions, with a primary focus
on oxides of nitrogen, particulate matter and hydrocarbons. Emission regulations for engines utilized in off-highway industrial equipment vary
based upon the use of the equipment into which the engine is incorporated (such as stationary power generation or mobile off-highway
industrial equipment), and the type of fuel used to drive the power system. Further, applicable emission thresholds differ based upon the gross
power of an engine utilized in industrial off-highway equipment. Additionally, most emissions thresholds are designed for gasoline and
diesel-powered “spark-ignited” internal combustion engines, and not external combustion engines like Cyclone’s engines. Therefore, we are
not entirely certain as to how the EPA and other regulatory agencies will apply these rules to our technology.


                                                                     35
Pursuant to the regulations of the EPA and CARB, we may be required to obtain emission compliance certification from the EPA and CARB to
sell certain of our engines throughout the United States and in California. We may also be required to meet foreign emission regulations
standards to sell certain of our engines internationally. Currently, the emission certification process with the EPA and CARB includes, among
other requirements, durability testing of the engine emission system at zero and 5,000 hours, production line testing on a quarterly basis and
field compliance audit testing. Each of our power systems could require this emission-certification before it can be introduced into commerce.
We have not yet performed this testing on our engines to meet any existing emission standards of the EPA and CARB. Compliance with these
regulations, as we find them to be applicable to our engines, will require considerable funds which the company does not currently
have. Failure to comply with these standards could result in adverse effects on our future financial results.

Our markets can be positively or negatively impacted by the effects of governmental and regulatory matters. We are affected not only by
energy policy, laws, regulations and incentives of governments in the markets into which we sell, but also by rules, regulations and costs
imposed by utilities. Utility companies or governmental entities could place barriers on the installation of our product or the interconnection of
the product with the electric grid. Further, utility companies may charge additional fees to customers who install on-site power generation,
thereby reducing the electricity they take from the utility, or for having the capacity to use power from the grid for back-up or standby
purposes. These types of restrictions, fees or charges could hamper the ability to install or effectively use our products or increase the cost to
our potential customers for using our systems in the future. This could make our systems less desirable, thereby adversely affecting our revenue
and profitability potential. In addition, utility rate reductions can make our products less competitive which would have a material adverse
effect on our future operations. These costs, incentives and rules are not always the same as those faced by technologies with which we
compete. However, rules, regulations, laws and incentives could also provide an advantage to our distributed generation solutions as compared
with competing technologies if we are able to achieve required compliance at a lower cost when our engines are commercialized. Additionally,
reduced emissions and higher fuel efficiency could help our future customers combat the effects of global warming. Accordingly, we may
benefit from increased government regulations that impose tighter emission and fuel efficiency standards.

Our Operations

Our operations are also subject to numerous federal, state and local laws relating to such matters as safe working conditions, manufacturing
practices, environmental protection, fire hazard control and disposal of hazardous or potentially hazardous substances. We may be required to
incur significant costs to comply with such laws and regulations in the future, and any failure to comply with such laws or regulations could
have a material adverse effect upon our ability to do business.

In February 2009, the President of the United States signed into law the American Recovery and Reinvestment Act of 2009 ("ARRA"). ARRA
has dedicated billions of dollars towards clean energy research and deployment. Members of Congress introduced legislation in calendar 2009
and 2010 that may benefit us in the future. In addition, certain proposed changes to the Internal Revenue Code of 1986 may result in positive
tax benefits for our end users. This proposed legislation targets combined heat and power and waste heat (CHP, otherwise called co-generation)
and solar power. Government funding can impact the rate of development of new technologies. While we continue to seek government
development funding, we have not received any to date and have no assurances that we will receive any in the future. Competing new
technologies generally receive larger incentives and development funding than do Rankine cycle steam engines.

Because of our work with the military, we have registered with the U.S. Department of State under its International Trafficking in Arms
Regulations (ITAR). We do not believe we develop, sell or export any covered munitions under these Regulations, but have registered the
company in an abundance of precaution.

Employees

As of September 30, 2012, we had 25 full-time employees, including management, and no part-time employees. We consider our relations with
our employees to be good. None of our employees are covered under any labor union or collective bargaining agreement.

Properties

We currently operate in a leased warehouse facility owned by Schoell Marine, Inc., a company wholly-owned by our Chairman and CEO,
Harry Schoell. Schoell Marine leases 6,000 sf of space to the company at approximately $12/sf, ($63,000 per year) which we believe to at
market rates for industrial space in the area. Our address is 601 NE 26th Ct., Pompano Beach, FL 33064. The Company also leases an
additional 2,000 sf of adjacent space at an annual cost of $16,800 ($8.40/sf). We believe that our facilities are adequate for our operations and
that suitable additional space will be available if and when needed.




                                                                        36
                                                                  Management

Executive Officers and Directors

The names, ages, positions and dates appointed of our current directors and executive officers are set forth in the table below:

                  Name                  Age                         Position                              Date of Appointment
         Harry Schoell                  69       Chairman and Chief Executive Officer                          June 2004
         Frankie Fruge                  67       Director and Chief Operating Officer                          June 2004
         James C. Landon                69       Director                                                   December 2008
         Christopher Nelson             42       President and General Counsel                                March 2011*
         Bruce Schames                  65       Chief Financial Officer                                       April 2010

* Mr. Nelson served as General Counsel from January 2009, and as Executive Vice President and General Counsel since June 2010, prior to
  being appointed as President and General Counsel in March 2011.



Harry Schoell , Chairman and Chief Executive Officer, is a life-long entrepreneur and inventor. He is a native Floridian, born in Miami, and a
third generation inventor and engineer. Mr. Schoell has worked for years to realize his dream to create an environmentally-friendly engine, and
has 30 patents issued and allowed to date on the Schoell Cycle heat regenerative external combustion engine, now called the Cyclone Engine.

Mr. Schoell is well versed in all facets of manufacturing procedures, including, appropriate foundry protocol, castings, machining, production
design and manufacturing, and plastic and fiberglass laminates. He also has experience in designing, inventing and building unique boat hull
designs and patented marine propulsion systems, through Schoell Marine, a company he founded in 1966 and still exists today.

Mr. Schoell built Schoell Marine and its reputation based on his original ideas, trained engineers, and prototype and production specialists – the
same as he is doing now for Cyclone. Over these 40+ years, his efforts resulted in over 40 specialized patents and patent applications, including
a Jet Drive System, a trimmable surface drive, a “Ground Effect Craft”, and a lightweight internal engine that he designed and built in
1990. Mr. Schoell belongs to SAE (Society of Automotive Engineers), the ASME (American Society of Marine Engineers), and The Society
of Naval Architects and Marine Engineers.

Mr. Schoell’s qualifications to be a director of the Company, in addition to his business background (as described above), include his intimate
involvement in the development of the Cyclone Engine as well as the business plan for its commercialization. Mr. Schoell has no other Board
of Directors affiliations with public companies other than with the Company. He is a director of Schoell Marine, Inc.

Frankie Fruge serves as Chief Operating Officer and Director of Cyclone. She has been with the Company since its inception in 2004 in the
role of General Partner and Director of Administration. Ms. Fruge is in charge of the daily operations and financial concerns of the Company.

Ms. Fruge has been working with Mr. Schoell since 1995, serving in multiple administrative, operational and financial positions with Schoell
Marine. Between 1999 and 2003, Ms. Fruge was President of Propulsion Systems, Inc., a company that developed and sold marine surface
drives, and then CFO of Pulse Drive Inc., between 2003 and 2005, a company also in the marine propulsion field.

Prior to her career in marine-based engine technology, Ms. Fruge spent over 10 years as an operating engineer for several oil refinery
companies in Louisiana, including Conoco, and eight years as an auditor for Ernst & Ernst (the predecessor company to Ernst & Young). Ms.
Fruge is also a certified industrial firefighter, and is on the Board of the Steam Automobile Club of America.

Ms. Fruge’s qualifications to be a director of the Company, in addition to her general business background (as described above), include her
engineering and technology development experience. Ms. Fruge has no other Board of Directors affiliations.

James Landon , a CPA , serves as Director of Cyclone. As President of Landon & Associates P.A., Mr. Landon was previously the company’s
accountant of record for over four years. He is a member of the American Institute of Certified Public Accountants, the Florida Institute of
Certified Public Accountants, the Association of Certified Fraud Examiners, and the South Florida Chapter of the Association of Certified
Fraud Examiners.

Mr. Landon is also a director of US Lacrosse, Inc., and chairs their Strategic Planning Committee, a director of the South Florida Chapter of
US Lacrosse, a director of the Florida Youth Lacrosse Foundation, a director of Children Hope and Horses Corporation, and was a past
president of the South Florida Chapter of the Association of Certified Fraud Examiners.
37
Mr. Landon also has considerable experience in the manufacturing world, holding positions for several companies over the years as vice
president of operations, vice president of finance and administration, chief financial officer and president. Mr. Landon received his Bachelor
of Engineering Science from The Johns Hopkins University, and his Master of Science in Administration with a concentration in Business
Financial Management from The George Washington University.

Mr Landon’s qualifications to be a director of the Company include his extensive accounting and business experience.

Christopher Nelson serves as President and General Counsel of the Company, positions he has held since March 2011. Prior to that, he was
Executive Vice President and General Counsel of the Company, and since July 2007, outside corporate counsel for Cyclone. Over the past
three years, he has assisted and overseen all aspects of the Company’s business and legal affairs, including: public securities filings and
financing, licensing and development agreements, investors and public relations, and general corporate matters.

Mr. Nelson has practiced law in Florida for over 17 years, and since 2001, has represented many start-up, early stage and established businesses
seeking financing, acquisitions and general growth management counseling. Between 1997 and 2000, Mr. Nelson was an associate with
Greenberg Traurig PA, and between 1995 and 1997 an associate with Akerman Senterfitt PA, both in Miami, Florida. At both firms he served
in their corporate and securities practice, representing NYSE and NASDAQ companies such as AutoNation, Republic Industries and
Wackenhut. Mr. Nelson received a BA from Princeton University, and JD from University of Miami School of Law. He has been a member of
the Florida Bar since 1995.

Bruce Schames serves as CFO for Cyclone. He has been a CPA since 1971, representing both public and private clients in his own practice
since 2001. Prior to that, Mr. Schames served as CFO of East Coast Beverage Corp. (OTCBB: ECBV), Medcom USA (NASDAQ: EMED),
Financial Reporting Manager for Dole Fresh Fruit Co., and in various accounting and reporting capacities of NYSE companies. Mr. Schames
received his BBA from Baruch College of the City University of N.Y., and an MBA from the University of Southern California.

Board Leadership Structure and Role in Risk Oversight

We have not adopted a formal policy on whether the Chairman and Chief Executive Officer positions should be separate or combined. Mr.
Schoell has served as Chief Executive Officer and Chairman of the Company since inception in 2004.

Our Board of Directors is primarily responsible for overseeing our risk management processes. The Board of Directors receives and reviews
periodic reports from management, auditors, legal counsel, and others, as considered appropriate regarding our assessment of risks. The Board
of Directors focuses on the most significant risks facing our Company and our Company’s general risk management strategy, and also ensures
that risks undertaken by our Company are consistent with the Board’s tolerance for risk. While the Board oversees our Company’s risk
management, management is responsible for day-to-day risk management processes. We believe this division of responsibilities is the most
effective approach for addressing the risks facing our Company and that our board leadership structure supports this approach.

James Landon, as a non-employee Board of Directors member, may be compensated for his time in cash or restricted shares of common stock,
as may be provided under the independence requirements of current securities laws.

The Company has an Audit Committee currently only comprised of Mr. Landon (Chairman). We expect to add additional members to this
committee in the near future. We do not have a Compensation Committee, Nominating Committee or other committees at this time. We expect
to create such committees in the future.

Director Independence

Our Board of Directors has adopted the definition of “independence” as described under the Sarbanes Oxley Act of 2002 (Sarbanes-Oxley)
Section 301, Rule 10A-3 under the Securities Exchange Act of 1934 (the Exchange Act) and NASDAQ Rules 4200 and 4350. Our Board of
Directors has determined that only Mr. Landon meets the independence requirements.

Board of Advisors

From time to time, we add members to our Board of Advisors. These individuals are comprised of distinguished scientists, engineers and
businessmen whose experience, knowledge and counsel help in the development of the company and our technology. These Board of Advisor
members may be compensated for their time in restricted shares of common stock. Advisors do not have voting or observatory powers over the
Board of Directors or management. The Company’s CEO interacts with these advisors from time to time on matters related to the Company’s
technological development. There are no formalized Board of Advisor meetings, and members have no other special powers or functions. Each
individual on the Board works part-time with the Company as requested. Currently, the Board of Advisors is comprised of:
38
James D. Crank , a retired engineer with Lockheed and one of the foremost experts on automotive steam engine systems. During his long
year career with Lockheed, Mr. Crank worked in senior research positions on many important projects, including: engine development for the
Ground Vehicles Department, primary battery systems for the Triton II missile, battery systems for the Hubbell Space Telescope, heat shields
for the Mercury and Apollo space systems, and dynamic solar and nuclear space power systems for SDI. Mr. Crank was also a Research
Engineer for the Stanford Research Institute where he worked on explosive cladding of materials for cylinder construction in Porsche and
Mercedes-Benz, among other projects.

Mr. Crank also has over 50 years experience in restoration, repair and driving of various steam cars, including the total redesign of the
complete Doble crankcase assembly and cylinders for the Series E Doble steam cars (with 10 sets constructed), and the design and construction
of the current speed world record holding steam car. He served as a consultant on steam car restoration to Harrah Automobile Collection,
Nethercutt Collection, Jay Leno Collection, Stephen Finn Collection, and the Besler General Motors Chevelle steam car, among others, and a
consultant to the State of California on the steam bus development program. He is the owner and president of Doble Steam Motors
Corporation, and is currently working on a book about the history of the Doble steam car and its founding family.

Robert Edwards is a retired senior engineer from Lockheed Martin. Mr. Edwards served at Lockheed Martin for over 30 years, working on
different projects including the Apollo Moon Project and other space programs. His area of expertise is in energy conversion systems, including
thermoelectric, steam, internal combustion and external combustion engines.

Mr. Edwards has also spent over 20 years working with experimental steam cars and other steam systems, and is an officer of the Mobile Steam
Society in Tennessee. He has published over 40 scientific papers and now gives talks on the subjects of alternative fuels and heat transfer
systems. He holds a B.S. from the University of Tennessee.

George Nutz is technology consultant with almost 50 years experience working with external combustion and steam engines. He is the founder
of Millennium Engineering Systems and Millennium Energy Systems, through which he has provided engineering guidance and expertise to
multiple external combustion engine projects over the last twenty years.

Prior to consulting, Mr. Nutz was a staff research engineer at MIT Instrumentation Laboratory, part of the Department of Aeronautics and
Astronautics. While in residence, he designed hardware and control systems, as well as steam cycles and applications. He represented MIT-IL
at the Department of Transportation Clean Air / External Combustion hearings, and wrote several proposal papers outlining a working steam
system. During this time he also became involved with steam automobile and steamboat groups and worked on boiler and engine
designs/modifications, including being part of the MIT team designing and building a steam powered automobile for Saab for the MIT-Caltech
"Clean Air Car Race".

Prior to his time at MIT, Mr. Nutz spent nine years at Bendix Aerospace designing gyro and guidance equipment and test platforms, and
working with optics and sensors. He served in the U.S. Air Force and received his mechanical engineering degree from the New Jersey Institute
of Technology in 1959.

Allen Brown, Cyclone’s Senior Engineering Fellow , is an engineer whose experience spans over 56 years in the marine industry where he has
developed propulsion, hydraulic, electrical and exhaust systems for some of the best known names in the business. Over the years, Mr. Brown
has served as: Director of Product Development for Cigarette Racing Team, President and CEO of Cougar Marine, which built powerboats that
won 33 consecutive offshore races including 12 World and National Championships, Director of Product Development for Stainless Marine,
Project Engineer for Gentry Transatlantic on the “Gentry Eagle,” a 113’ mega-yacht that held the transatlantic speed crossing record, Product
Development Consultant for Teleflex Marine, and General Manager of Donzi Marine.

Compensation to Advisors

We have compensated our Board of Advisors members’ with shares of restricted common stock and stock options for their past services
rendered on behalf of Cyclone, and reserve the right to issue additional shares, stock options or cash in the future.

Family Relationships

There are no family relationships among the directors and executive officers of the company.

Code of Conduct and Ethics

We have adopted a code of business conduct and ethics that applies to our directors, officers and all employees. The code of business conduct
and ethics may be obtained free of charge on our web site, or by writing to the company, Attn: Chief Financial Officer, 601 NE 26 th Ct.,
Pompano Beach, FL 33064.
39
                                                     Executive and Director Compensation

Executive Officer Compensation

Summary Compensation Table

The following table sets forth certain information concerning the annual and long-term compensation of our Chief Executive Officer and our
other executive officers during the last two fiscal years. Information for 2012 is as of June 30, 2012.

Current Officers                                                                   Stock             All Other            Option
Name & Principal                                  Salary            Bonus         Awards           Compensation           Awards    Total
Position                              Year          ($)              ($)            (S)                  ($)               ($)(5)    ($)
Harry Schoell                         2011     $ 150,000                0               0                    0           $ 60,386 $ 210,386
Chairman & CEO                        2012     $ 75,000 (1)             0               0                    0           $ 28,383 $ 103,583

Frankie Fruge                          2011    $ 120,000                 0              0                      0         $    60,386 $     180,386
Director & COO                         2012    $ 60,000 (2)              0              0                      0         $    28,583 $      88,583

Bruce Schames                          2011    $    72,000               0              0                      0         $ 127,201 $       199,201
CFO                                    2012    $    36,000 (3)           0              0                      0         $ 28,583 $         64,583

Christopher Nelson                     2011    $ 120,000                 0              0                      0         $    60,386 $     180,386
President & General Counsel            2012    $ 60,000 (4)              0              0                      0         $    28,583 $      88,583

(1)   All of Mr. Schoell’s salary in 2011 and 2012 has been deferred until determined by the Board of Directors that the Company
      can afford to pay such salary.
(2)   All of Ms. Fruge’s salary in 2011 and 2012 has been deferred until determined by the Board of Directors that the Company can
      afford to pay such salary.
(3)   Mr. Schames has had $59,057 of his salary deferred as of June 2012.
(4)   Mr. Nelson has had $119,697 of his salary deferred as of June 2012.

Employment Agreements:

Harry Schoell. Mr. Schoell has an employment agreement with the Company providing for a base salary of $150,000 per year plus standard
benefits. This compensation is currently being deferred until we have sufficient revenue to support its payment, and to date, he has not received
any cash compensation under his agreement. Mr. Schoell’s agreement commenced June 30, 2007, and is for a term of three years with
automatic one-year renewals. Mr. Schoell received 500,000 common stock options pursuant to this agreement, and is qualified to participate in
any executive performance bonus awards adopted by the company. In 2012, Mr. Schoell’s agreement was amended to provide annual stock
option awards of 600,000, issued quarterly, with 10 year terms at prevailing market rates at the time of issuance.

If Mr. Schoell is terminated for “cause,” he shall receive any unpaid base salary due to him as of the date of termination. If he is terminated
without “cause” or upon a change in control, he shall receive (i) any unpaid base salary accrued through the effective date of termination,
(ii) his 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 him were he not terminated, during the 12
months following his termination. Upon termination without cause, all of his stock options shall vest immediately. As of June 30, 2012, Mr.
Schoell had $743,844 in unpaid, deferred salary due to him.

Frankie Fruge. Ms. Fruge has an Employment Agreement with the Company providing for a base salary of $120,000 per year plus standard
benefits. This compensation is currently being deferred, and to date, she has not received any cash compensation under her agreement. Ms.
Fruge’s agreement commenced June 30, 2007, and is for a term of three years with automatic one-year renewals. Ms. Fruge received 500,000
common stock options pursuant to this agreement, and is qualified to participate in any executive performance bonus awards adopted by the
company. In 2012, Ms. Fruge’s agreement was amended to provide annual stock option awards of 600,000, issued quarterly, with 10 year terms
at prevailing market rates at the time of issuance.

If Ms. Fruge is terminated for “cause,” she shall receive any unpaid base salary due to her as of the date of termination. If she is terminated
without “cause” or upon a change in control, she shall receive (i) any unpaid base salary accrued through the effective date of termination,
(ii) her base salary at the rate prevailing at such termination through 12 months from the date of termination or the end of her term then in
effect, whichever is longer, and (iii) any performance bonus that would otherwise be payable to her were she not terminated, during the 12
months following her termination. Upon termination without cause, all of her stock options shall vest immediately. As of June 30, 2012, Ms.
Fruge had $575,240 in unpaid, deferred salary due to her.


                                                                     40
Christopher Nelson. Mr. Nelson has an Employment Agreement with the Company providing for a base salary of $130,000 per year plus
standard benefits, and 600,000 common stock options per year. Mr. Nelson’s agreement is for three years from August 2011, and is
automatically renewed for successive one-year periods unless either party provides notice of a desire not to renew at least 90 days prior to the
agreement’s anniversary date.

If Mr. Nelson is terminated for “cause,” he shall receive any unpaid base salary due to him as of the date of termination. If he is terminated
without “cause” or upon a change in control, he shall receive (i) any unpaid base salary accrued through the effective date of termination,
(ii) his 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 him were he not terminated, during the 12
months following his termination. Upon termination without cause, all of his stock options shall vest immediately. As of June 30, 2012, Mr.
Nelson had $119,697 in unpaid, deferred salary due to him.

Bruce Schames. Mr. Schames has an agreement with the Company providing for $60,000 per year, of which $23,500 per year is deferred
until the Company is in a position to pay such funds. Additionally, he is to receive $12,000 in restricted common stock annually, and 150,000
common stock options quarterly. His year-to-year contract began June 1, 2010. Either Mr. Schames or the Company may terminate his
employment on 60 days notice. If the Company terminates other than for “cause”, he shall receive his base compensation due through the date
of termination plus a good faith repayment plan for any deferred and unpaid compensation. If Mr. Schames leaves or is terminated for “cause,
he shall not be paid any deferred compensation and any unvested options shall terminate immediately. “Cause” is defined as gross negligence
or willful misconduct that injures or may reasonably injure the Company. As of June 30, 2012, Mr. Schames had $59,057 in unpaid, deferred
salary due to him.




                                                                        41
Outstanding Equity Awards at June 30, 2012

The following table sets forth information concerning all stock option grants held by our named executive officers as of June 30, 2012. All
outstanding equity awards are options to purchase shares of common stock.

                                                                            All Option Awards

                                                                                                                                            Grant Date
                                                                                                                            Exercise or     Fair Value
                                                                                                                           Base Price of    of Stock in
                                                             Number                                                           Option          Option       Option
                                       Option                Granted             Number                 Number                Awards         Awards       Expiration
      Name and Position               Grant Date              (1) (2)           Exercisable           Unexercisable          ($/Share)         ($) (3)      Date
  Harry Schoell                          6/30/2007           250,000             250,000                                        0.25            0.25        6/30/2017
  Chairman & CEO                         6/30/2007           125,000             125,000                                        0.35            0.35        6/30/2017
                                         6/30/2007           125,000             125,000                                        0.45            0.45        6/30/2017
                                        12/31/2010           100,000             100,000                                        0.12            0.12       12/31/2015
                                         4/15/2011            50,000              50,000                                        0.22            0.22        4/15/2021
                                         6/30/2011            50,000              50,000                                        0.30            0.30        6/30/2016
                                         9/30/2011           150,000                                     150,000                0.19            0.19        9/30/2021
                                        12/31/2011           150,000                                     150,000                0.19            0.19       12/31/2021
                                         3/31/2012           150,000                                     150,000                0.18            0.18        3/31/2022
                                         6/30/2012           150,000                                     150,000                0.15            0.15        6/30/2022

  Frankie Fruge                           6/30/2007          250,000              250,000                                        0.25          0.25         6/30/2017
  Director & COO                          6/30/2007          125,000              125,000                                        0.35          0.35         6/30/2017
                                          6/30/2007          125,000              125,000                                        0.45          0.45         6/30/2017
                                         12/31/2010          100,000              100,000                                        0.12          0.12        12/31/2015
                                          4/15/2011           50,000               50,000                                        0.22          0.22         4/15/2021
                                          6/30/2011           50,000               50,000                                        0.30          0.30         6/30/2016
                                          9/30/2011          150,000                                     150,000                 0.19          0.19         9/30/2021
                                         12/31/2011          150,000                                     150,000                 0.19          0.19        12/31/2021
                                          3/31/2012          150,000                                     150,000                 0.18          0.18         3/31/2022
                                          6/30/2012          150,000                                     150,000                 0.15          0.15         6/30/2022

  Bruce Schames                            4/5/2010          100,000              100,000                                        0.20          0.14          4/5/2020
  CFO                                     6/30/2010          150,000              150,000                                        0.10          0.10         6/30/2020
                                          9/30/2010          150,000              150000                                         0.09          0.09         9/30/2020
                                         12/31/2010          150,000              150000                                         0.12          0.12        12/31/2020
                                         12/31/2010           75,000               75000                                         0.12          0.12        12/31/2015
                                          3/31/2011          150,000              150000                                         0.33          0.33         3/31/2021
                                          4/15/2011           20,000               20000                                         0.22          0.22         4/15/2016
                                          6/30/2011           20,000               20000                                         0.30          0.30         6/30/2016
                                          6/30/2011          150,000              150000                                         0.32          0.32         6/30/2021
                                          9/30/2011          150,000                                     150,000                 0.19          0.19         9/30/2021
                                         12/31/2011          150,000                                     150,000                 0.19          0.19        12/31/2021
                                          3/31/2012          150,000                                     150,000                 0.18          0.18         3/31/2022
                                          6/30/2012          150,000                                     150,000                 0.15          0.15         6/30/2022

  Christopher Nelson                       4/5/2010          250,000              250,000                                        0.15          0.14          4/5/2020
  President & General                    12/31/2010          100,000              100,000                                        0.12          0.12        12/31/2015
  Counsel                                 4/15/2011           50,000               50,000                                        0.22          0.22         4/15/2021
                                          6/30/2011           50,000               50,000                                        0.30          0.30         6/30/2016
                                          9/30/2011          150,000                                     150,000                 0.19          0.19         9/30/2021
                                         12/31/2011          150,000                                     150,000                 0.19          0.19        12/31/2021
                                          3/31/2012          150,000                                     150,000                 0.18          0.18         3/31/2022
                                          6/30/2012          150,000                                     150,000                 0.15          0.15         6/30/2022

  James Landon                             4/5/2010           50,000               50,000                                        0.20          0.14          4/5/2020
  Director                               12/31/2010          100,000              100,000                                        0.12          0.12        12/31/2015
                                          4/15/2011           25,000               25,000                                        0.22          0.12         4/15/2021
                                          6/30/2011           25,000               25,000                                        0.30          0.12         6/30/2016
                                          6/30/2011          200,000              200,000                                        0.30          0.12         6/30/2016
                                          9/30/2011          150,000                                     150,000                 0.19          0.12         9/30/2021
                                         12/31/2011          150,000                                     150,000                 0.19          0.12        12/31/2021
                                          3/31/2012          150,000                                     150,000                 0.18          0.12         3/31/2022
                                          6/30/2012          150,000                                     150,000                 0.15          0.12         6/30/2022

(1)   Any performance conditions with respect to the listed options have been satisfied, and therefore, each such option has been earned.
(2)   Each of the listed options vest one year from the date of grant.
(3)   We determined the grant date fair value of stock option awards using the methodology set forth in Footnote 1(M) and Footnote 10(A) to our Consolidated Financial
      Statements for the years ended December 31, 2011 and 2010.




                                                                                      42
Option Exercise and Stock Vesting

During 2012, none of the named executive officers exercised any options. 640,000 options were vested in 2012.

Compensation of the Board of Directors

        The following table sets forth the compensation received by our non-employee director, for his service as a director, during the year
ended December 31, 2011.

                                                                                Nonqualified
                      Fees earned                                                 deferred
                        or paid           Option                                compensation                All other
                        in cash           awards             Stock                earnings                compensation               Total
Name                      ($)              ($) (1)          Awards                   ($)                       ($)                    ($)
James Landon             12,000            $94,508               0                       0                          0               $106,508

(1) Based on the Black Schoels value of 550,000 common stock options.




                                                                      43
                   Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters

Principal Shareholders Table

ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information regarding the beneficial ownership of our Common Stock and Series B Preferred Stock by each of
our named Executive Officers and Board of Directors, and each shareholder who is known by us to own beneficially five percent (5%) or more
of the outstanding stock of such class as of June 30, 2012. As of June 30, 2012, 234,451,771 shares of common and 1,000 shares of Series B
Preferred stock were issued and outstanding.

                                                                           Common                            Series B Pref.
                                                                            Shares                              Shares
                                                                          Beneficially                        Beneficially
                            Name and Address                                Owned                %              Owned                %
           Harry Schoell , Chairman & CEO
           601 NE 26 th Ct.                                              45,843,552 (1)       19.55 %             797               80%
           Pompano Beach, FL 33064
           Frankie Fruge , COO & Director
           601 NE 26 th Ct.                                              12,442,714 (2)        5.31 %             203               20%
           Pompano Beach, FL 33064
           James Landon , Director
           4401 N Federal Hwy                                            2,526,800 (3)         1.08 %               -                 -
           Boca Raton, FL 33431
           Christopher Nelson ,
           President, General Counsel
                                                                         5,895,400 (4)         2.51 %               -                 -
           601 NE 26 th Ct.
           Pompano Beach, FL 33064
           Bruce Schames , CFO
           601 NE 26 th Ct.                                              1,277,025 (5)         0.54 %               -                 -
           Pompano Beach, FL 33064
           All Executive Officers
                                                                          67,985,491          29.00 %               -                 -
           as a Group (5 persons)
           TOTALS:                                                        67,985,491          29.00 %           1,000 *            100%

*     The 1,000 shares of Series B Preferred stock provide their holders a majority vote on all matters brought before the common stock
      shareholders.
(1)   Mr. Schoell’s total includes 850,000 vested common stock options, but excludes 450,000 unvested options, 300,000 of which were
      awarded in 2012.
(2)   Ms. Fruge’s total includes 850,000 vested common stock options, but excludes 450,000 unvested options, 300,000 of which were
      awarded in 2012.
(3)   Mr. Landon’s total includes 550,000 vested common stock options, but excludes 450,000 unvested options, 300,000 of which were
      awarded in 2012.
(4)   Mr. Nelson’s total includes 600,000 vested common stock options, and 634,000 shares of common stock owned by a company
      controlled by Mr. Nelson’s wife. The total excludes 450,000 unvested options, 300,000 of which were awarded in 2012.
(5)   Mr. Schames’ total includes 1,115,000 vested common stock options, but excludes 450,000 unvested options. Of the unvested option,
      300,000 were awarded in 2012.




                                                                           44
Equity Compensation Plan

The following table describes our equity compensation plans as of June 30, 2012:

                                                                                                                              Number of
                                                                                                                               Securities
                                                                                                                              Remaining
                                                                                                                                Available
                                                                                    Number of                                  for Future
                                                                                    Securities                                  Issuance
                                                                                   to be Issued           Weighted           under Equity
                                                                                 Upon Exercise            Average            Compensation
                                                                                 of Outstanding           Exercise            Plans (excl.
                                                                                     Options,             Price of              securities
                                                                                    Warrants             Outstanding         referenced in
                                                                                    and Rights            Options             column (a))
      Plan Category                                                                     (a)                  (b)                   (c)
      Equity compensation plans approved by our stockholders (1)                     5,000,000              $0.19                   0
      Equity compensation plans approved by our Board of Directors (2)              2,340,000                $0.165             2,675,000

(1)    Equity compensation plans approved by our stockholders consist of our 2010 Stock Option Plan.
(2)    Equity compensation plans approved by our Board of Directors consist of our 2012 Stock Option Plan.



                                                Material U.S. Federal Income Tax Considerations

This is a general summary of the material U.S. federal income tax consequences of the acquisition, ownership and disposition of our securities
purchased pursuant to this offering. This discussion assumes that public shareholders will hold our securities as capital assets within the
meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the “Code”). This discussion does not address all aspects of U.S.
federal taxation that may be relevant to a public shareholder in light of such public shareholder’s particular circumstances. In addition, this
discussion does not address: (1) U.S. gift or estate tax laws except to the limited extent set forth below, (2) state, local or foreign tax
consequences, (3) the special tax rules that may apply to certain public shareholders, including without limitation banks, insurance companies,
financial institutions, broker-dealers, taxpayers that have elected mark-to-market accounting, taxpayers subject to the alternative minimum tax
provisions of the Code, tax-exempt entities, regulated investment companies, real estate investment trusts, taxpayers whose functional currency
is not the U.S. dollar, or U.S. expatriates or former long-term residents of the United States, or (4) the special tax rules that may apply to a
public shareholder that acquires, holds, or disposes of our securities as part of a straddle, hedge, wash sale, constructive sale or conversion
transaction or other integrated investment. Additionally, this discussion does not consider the tax treatment of partnerships (including entities
treated as partnerships for U.S. federal tax purposes) or other pass-through entities or persons who hold our securities through such entities. The
tax treatment of a partnership and each partner thereof generally will depend upon the status and activities of the partnership and such partner.
Thus, partnerships, other pass-through entities and persons holding our securities through such entities should consult their own tax advisors.

This discussion is based on current provisions of the Code, U.S. Treasury regulations promulgated under the Code, judicial opinions, and
published rulings and procedures of the U.S. Internal Revenue Service (the “IRS”), all as in effect on the date of this prospectus and all of
which are subject to change, possibly with retroactive effect. We have not sought, and will not seek, any ruling from the IRS or any opinion of
counsel with respect to the tax consequences discussed below, and there can be no assurance that the IRS will not take a position contrary to the
tax consequences discussed below or that any position taken by the IRS would not be sustained.

As used in this “Material U.S. Federal Income Tax Considerations” section only, the term “U.S. Person” means a person that is, for U.S.
federal income tax purposes: (1) an individual citizen or resident of the United States, (2) a corporation (or other entity treated as a corporation
for U.S. federal income tax purposes) created or organized in or under the laws of the United States or of any state thereof or the District of
Columbia, (3) an estate the income of which is subject to U.S. federal income taxation regardless of its source, or (4) a trust if (A) a court
within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. Persons have the
authority to control all substantial decisions of the trust, or (B) it has in effect a valid election to be treated as a U.S. Person. As used in this
discussion, the term “U.S. holder” means a beneficial owner of our securities that is a U.S. Person and the term “non-U.S. holder” means a
beneficial owner of our securities (other than an entity that is treated as a partnership or other pass-through entity for U.S. federal income tax
purposes) that is not a U.S. Person. Each prospective investor is urged to consult its own tax advisors with respect to the U.S. federal, state,
local and foreign tax consequences to such investor of the acquisition, ownership and disposition of our securities.
45
General

Shareholders must allocate the purchase price paid by such holder for such unit among the Common Shares and the Warrant based on their
respective relative fair market values. A holder’s initial tax basis in the Common Shares and the Warrant should equal the portion of the
purchase price of the unit allocated thereto.

The foregoing treatment of the Common Shares and Warrants and a holder’s purchase price allocation are not binding on the IRS or the courts.
No assurance can be given that the IRS or the courts will agree with the characterization described above or the discussion below. Accordingly,
each prospective investor is urged to consult its own tax advisors regarding the U.S. federal, state, local and any foreign tax consequences of an
investment in a unit (including alternative characterizations of a unit). Unless otherwise stated, the following discussions are based on the
assumption that the characterization of the Common Shares and Warrants described above is accepted for U.S. federal tax purposes.

U.S. Holders

Taxation of Distributions

If we pay distributions to U.S. holders of our Common Shares, such distributions generally will constitute dividends for U.S. federal income
tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles.
Distributions in excess of our current and accumulated earnings and profits will constitute a return of capital that will be applied against and
reduce (but not below zero) the U.S. holder’s adjusted tax basis in our Common Shares. Any remaining excess will be treated as gain realized
on the sale or other disposition of the Common Shares and will be treated as described under “U.S. Holders—Gain or Loss on Sale, Exchange
or Other Taxable Disposition of Common Shares or Convertible Preferred Shares” below.

Dividends paid to a U.S. holder that is a taxable corporation generally will qualify for the dividends received deduction if the requisite holding
period is satisfied. With certain exceptions (including, but not limited to, dividends treated as investment income for purposes of investment
interest deduction limitations), and provided certain holding period requirements are met and the U.S. holder refrains from making certain
elections, dividends paid to a non-corporate U.S. holder generally will constitute “qualified dividends” that will be subject to tax at the
maximum tax rate accorded to net capital gains (currently 15 percent) for tax years beginning before January 1, 2013, after which the rate
applicable to dividends is currently scheduled to return to the tax rate generally applicable to ordinary income. Also starting in 2013, the
distinction between ordinary and qualified dividends will disappear, and all dividends will be subject to the ordinary income tax rates.

Exercise of a Warrant

A U.S. holder will not be required to recognize taxable gain or loss upon exercise of a warrant. The U.S. holder’s tax basis in the Common
Shares received upon exercise of the warrant generally will be an amount equal to the sum of the U.S. holder’s initial investment in the warrant
(i.e., the portion of the U.S. holder’s purchase price, as described above) and the exercise price. The U.S. holder’s holding period in our
common shares received upon exercise of the warrant will begin on the date following the date of exercise and will not include the period
during which the U.S. holder held the warrant.

Sale, Exchange, Redemption or Expiration of a Warrant

Upon a sale, exchange (other than by exercise), redemption, or expiration of a warrant, a U.S. holder will be required to recognize gain or loss
in an amount equal to the difference between (1) the amount realized upon such disposition or expiration and (2) the U.S. holder’s tax basis
in the warrant. Such gain or loss generally would be treated as long-term capital gain or loss if the warrant was held by the U.S. holder for more
than one year at the time of such disposition or expiration. The deductibility of capital losses is subject to various limitations.

 Non-U.S. Holders

Taxation of Distributions

In general, any distributions we make to a non-U.S. holder of our Common Shares, to the extent paid out of our current or accumulated
earnings and profits (as determined under U.S. federal income tax principles), generally will constitute dividends for U.S. federal income tax
purposes and, provided such dividends are not effectively connected with the non-U.S. holder’s conduct of a trade or business within the
United States, we generally will be required to withhold tax from the gross amount of the dividend at a rate of 30 percent, unless such non-U.S.
holder is eligible for a reduced rate of withholding tax under an applicable income tax treaty and provides proper certification of its eligibility
for such reduced rate (usually on an IRS Form W-8BEN). Any distribution not constituting a dividend will be treated first as reducing (but not
below zero) the non-U.S. holder’s adjusted tax basis in Common
46
Shares and, to the extent such distribution exceeds the non-U.S. holder’s adjusted tax basis, as gain realized from the sale or other disposition
of the Common Shares. In addition, if we determine that we are likely to be classified as a “U.S. real property holding corporation”, we will
withhold 10 percent of any distribution that exceeds our current and accumulated earnings and profits, which withheld amount may be claimed
by the non-U.S. holder as a credit against the non-U.S. holder’s U.S. federal income tax liability.

Dividends we pay to a non-U.S. holder that are effectively connected with such non-U.S. holder’s conduct of a trade or business within the
United States (and, if certain income tax treaties apply, are attributable to a United States permanent establishment or fixed base maintained by
the non-U.S. holder) generally will not be subject to U.S. withholding tax, provided such non-U.S. holder complies with certain certification
and disclosure requirements (usually by providing an IRS Form W-8ECI). Instead, such dividends generally will be subject to U.S. federal
income tax, net of certain deductions, at the same graduated individual or corporate rates applicable to U.S. Persons. If the ultimate holder
(ignoring intervening pass through entities) is a non-U.S. corporation or transparent entity or vehicle ultimately owned by a corporation,
dividends that are effectively connected income may also be subject to a “branch profits tax” at a rate of 30 percent (or such lower rate as may
be specified by an applicable income tax treaty) when ultimately remitted from the permanent establishment or fixed base to the non-U.S.
holder. A corporation for this purpose means any entity treated as or electing to be treated as a corporation under U.S. tax law.

Exercise of a Warrant

The U.S. federal income tax treatment of a non-U.S. holder’s exercise of a warrant generally will correspond to the U.S. federal income tax
treatment of the exercise of a warrant by a U.S. holder, as described under “U.S. Holders—Exercise of a Warrant” above.

Legislation Relating to Foreign Accounts

Legislation has been recently enacted that imposes significant certification, information reporting and other requirements, and in certain cases,
withholding taxes, on certain types of payments made to “foreign financial institutions” and certain other non-U.S. entities. The legislation is
generally effective for payments made after December 31, 2012. The failure to comply with the certification, information reporting and other
specified requirements in the legislation would result in withholding tax being imposed on payments of dividends and sales proceeds to foreign
intermediaries and certain non-U.S. holders. Non-U.S. holders should consult their own tax advisers regarding the application of this legislation
to them.

Federal Estate Tax

Common Shares or warrants owned or treated as owned by an individual who is not a U.S. citizen or resident (as specifically defined for U.S.
federal estate tax purposes) at the time of his or her death will be included in the individual’s gross estate for U.S. federal estate tax purposes,
unless there is no federal estate tax in existence at such time or an applicable estate tax treaty provides otherwise, and therefore may be subject
to U.S. federal estate tax.

Information Reporting and Backup Withholding

We must report annually to the U.S. Internal Revenue Service and to each U.S. holder and to each non-U.S. holder the amount of dividends
paid to that holder and the amount of tax withheld with respect to those dividends. Copies of the information returns reporting those dividends
and the amount of tax withheld may also be made available to the tax authorities in the country in which a non-U.S. Holder is a resident under
the provisions of an applicable income tax treaty.

Backup withholding, currently imposed at a rate of 28 %, may apply to dividends paid by us. If you are a U.S. holder, backup withholding will
apply if you fail to provide an accurate taxpayer identification number or certification of exempt status or fail to report all interest and
dividends required to be shown on your federal income tax returns. Certain U.S. Holders (including, among others, corporations) are not
subject to backup withholding. If you are a non-U.S. Holder, backup withholding will apply to dividend payments if you fail to provide us with
the required certification that you are not a United States person.

Payments of the proceeds from a disposition (including a redemption) effected outside the United States by or through a non-US. broker
generally will not be subject to information reporting or backup withholding. However, information reporting, but generally not backup
withholding, will apply to such a payment if the broker has certain connections with the United States unless the broker has documentary
evidence in its records that the beneficial owner of the disposed shares is a non-U.S. Holder and either specified conditions are met or an
exemption is otherwise established. Backup withholding and information reporting will apply to dispositions made by or through a U.S. office
of any broker (U.S. or foreign).
47
Backup withholding is not an additional tax. Any amounts withheld from a payment to you that result in an overpayment of taxes generally will
be refunded, or credited against your U.S. federal income tax liability, if any, provided that the required information is timely furnished to the
U.S. Internal Revenue Service.

U.S. Holders and non-U.S. Holders should consult their own tax advisors regarding application of backup withholding in their particular
circumstance and the availability of, and procedure for obtaining, an exemption from backup withholding under current U.S. Treasury
regulations.

                                                               Legal Proceedings

As of the date hereof, we do not have any material pending legal proceedings.

                                                                 Legal Matters

The validity of the common shares offered hereby and certain other legal matters will be passed upon for us by Roetzel & Andress LPA, Fort
Lauderdale, Florida.

                                                                    Experts

The consolidated financial statements of Cyclone Power Technologies, Inc. at December 31, 2011 and 2010, and for each of the years ended
December 31, 2011 and 2010, appearing in this Prospectus have been so included in reliance on the report of Mallah Furman, independent
registered public accounting firm, given on the authority of said firm as experts in accounting and auditing.


                                                                       48
                                                     Index to Financial Statements

                                                    Cyclone Power Technologies Inc.

Annual Financial Statements

                                                                                                         Page

       Report of Independent Registered Public Accounting Firm                                           F-2

       Consolidated Balance Sheets as of December 31, 2011 and 2010                                      F-3

       Consolidated Statements of Operations for the Years Ended December 31, 2011 and 2010              F-4

       Consolidated Statements of Stockholders’ Deficit for the Years Ended December 31, 2011 and 2010   F-5

       Consolidated Statements of Cash Flows for the Years Ended December 31, 2011 and 2010              F-6

       Notes to Consolidated Financial Statements                                                        F-7

Unaudited Interim Financial Statements

       Consolidated Balance Sheets as of June 30, 2012 and December 31, 2011                             F-20

       Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2012 and 2011   F-21

       Consolidated Statements of Stockholders’ Deficit for the Year Ended December 31, 2011 and         F-22
        Six Months Ended June 30, 2012

       Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2012 and 2011             F-23

       Notes to Condensed Consolidated Financial Statements                                              F-24




                                                                 F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Cyclone Power Technologies, Inc.

We have audited the accompanying consolidated balance sheets of Cyclone Power Technologies, Inc. as of December 31, 2011 and 2010, and
the related consolidated statements of operations, changes in stockholders’ deficit, and cash flows for the years then ended. Cyclone Power
Technologies, Inc.’s management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material
misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.
Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Cyclone
Power Technologies, Inc. as of December 31, 2011 and 2010, and the results of its operations and its cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As
discussed in Note 2 to the consolidated financial statements, the Company’s dependence on outside financing, lack of sufficient working
capital, and recurring losses raises substantial doubt about its ability to continue as a going concern. The consolidated financial statements do
not include any adjustments that might result from the outcome of this uncertainty.

/s/ Mallah Furman
Fort Lauderdale, FL
April 13, 2012




                                                                        F-2
                                                   CYCLONE POWER TECHNOLOGIES, INC.
                                                     CONSOLIDATED BALANCE SHEETS
                                                      DECEMBER 31, 2011 AND 2010

                                                                                                     December 31,           December 31,
                                                                                                        2011                   2010

                                             ASSETS

CURRENT ASSETS
 Cash                                                                                            $           66,486     $            6,557
 Accounts receivable                                                                                              -                  4,200
 Inventory                                                                                                  475,600                228,838
 Other current assets                                                                                         4,846                    828
   Total current assets                                                                                     546,932                240,423

PROPERTY AND EQUIPMENT
  Furniture, fixtures, and equipment                                                                        184,784                139,428
  Less: Accumulated depreciation                                                                            (76,541 )              (55,644 )
    Net property and equipment                                                                              108,243                 83,784

OTHER ASSETS
 Patents, trademarks and copyrights                                                                         557,847                486,466
 Less: Accumulated amortization                                                                            (117,846 )              (81,115 )
   Net patents, trademarks and copyrights                                                                   440,001                405,351
 Other assets                                                                                                 2,422                  1,156
   Total other assets                                                                                       442,423                406,507

Total Assets                                                                                     $        1,097,598     $          730,714


                          LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES
 Accounts payable and accrued expenses                                                           $          262,947     $          187,887
 Factored receivables                                                                                        43,169                      -
 Accounts payable and accrued expenses-related parties                                                    1,305,772                991,269
 Notes and other loans payable                                                                               30,000                  5,000
 Notes and other loans payable-related parties                                                              678,271                659,577
 Capitalized lease obligations-current portion                                                                  898                  6,565
 Deferred revenue and license deposits                                                                      860,811                710,000
 Warranty provision                                                                                             184                  2,324

     Total current liabilities                                                                            3,182,052              2,562,622

NON CURRENT LIABILITIES
 Capitalized lease obligations-net of current portion                                                         2,155                  2,451
 Derivative Liabilities-Warrant                                                                             494,626                459,537
 Derivative Liabilities-Series A Convertible Preferred Stock                                                      -             10,623,624
   Total non-current liabilities                                                                            496,781             11,085,612

Total liabilities                                                                                         3,678,833             13,648,234

Commitments and contingencies                                                                                       -                      -

STOCKHOLDERS' DEFICIT
  Series A convertible preferred stock, $.0001 par value, 750,000 shares authorized, 705,453
  shares issued and outstanding at December 30, 2010                                                                -                   71

  Series B preferred stock, $.0001 par value, 1,000 shares authorized, 1,000 shares issued and                      -                      -
  outstanding at December 31, 2011 and 2010

  Common stock, $.0001 par value, 300,000,000 shares authorized, 223,635,129 and 114,020,135
  shares issued and outstanding at December 31, 2011 and December 31, 2010, respectively.                      22,361              11,402
  Additional paid-in capital                                                                               43,001,171           9,004,547
  Prepaid expenses from equity contribution                                                                         -             (27,500 )
  Preferred stock subscription receivable                                                                     (12,000 )           (18,000 )
  Accumulated deficit                                                                                     (45,722,829 )       (22,022,915 )
    Total stockholders' deficit-Cyclone Power Technologies Inc.                                            (2,711,297 )       (13,052,395 )
  Non controlling interest in consolidated subsidiary-Cyclone WHE LLC                                         130,062             134,875
    Total Stockholders Deficit                                                                             (2,581,235 )       (12,917,520 )

Total Liabilities and Stockholders' Deficit                                                         $       1,097,598     $      730,714

                                        See the accompanying notes to consolidated financial statements


                                                                      F-3
                                               CYCLONE POWER TECHNOLOGIES, INC.
                                            CONSOLIDATED STATEMENTS OF OPERATIONS
                                           FOR YEARS ENDED DECEMBER 31, 2011 AND 2010

                                                                                                      2011                 2010

REVENUES                                                                                        $        250,000       $      261,525

COST OF GOODS SOLD                                                                                       399,801              110,393

  Gross profit (loss)                                                                                    (149,801 )           151,132

OPERATING EXPENSES
 Advertising and promotion                                                                                 66,001               51,838
 General and administrative                                                                             2,628,835            1,522,917
 Research and development                                                                                 983,276              842,425

  Total operating expenses                                                                              3,678,112            2,417,180

Operating loss                                                                                         (3,827,913 )         (2,266,048 )

OTHER INCOME (EXPENSE)
 Other (expense)                                                                                          (26,964 )           (159,050 )
 Derivative Income (Expense) -Warrants                                                                    (35,089 )            106,616
 Derivative Income (Expense) -Series A Preferred Stock:
   Founders Stock                                                                                     (13,238,033 )           331,859
   New Investors' stock                                                                                (6,533,053 )             1,822
 Interest (expense)                                                                                       (43,675 )           (39,663 )

  Total other income (expense)                                                                        (19,876,814 )           241,584

Loss before income taxes                                                                              (23,704,727 )         (2,024,464 )
Income taxes                                                                                                    -                    -

Net loss                                                                                        $     (23,704,727 )    $    (2,024,464 )


Net loss per common share, basic                                                                $            (0.15 )   $          (0.02 )


Weighted average number of common shares outstanding                                                  156,324,933          107,100,629


                                    See the accompanying notes to consolidated financial statements


                                                                  F-4
                                                                           CYCLONE POWER TECHNOLOGIES, INC.
                                                              CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
                                                                       FOR YEARS ENDED DECEMBER 31, 2011 AND 2010

                                                                                                                                                                                                             Total
                                                                                                                                                                                                         Stockholders'
                                                                                                                                                  Prepaid           Preferred                               (Deficit)        Non Controlling
                                                                                                               Additional                        Expenses             Stock                                 Cyclone             Intereest           Total
                                                                                                                Paid In         Treasury        From Equity        Subscription       Accumulated            Power             In Consol.       Stockholders'
                                                                                                                Capital          Stock          Contribution        Receivable          ( Deficit)         Tech. Inc.          Subsidiary          (Deficit)

                               Preferred Stock A            Preferred Stock B        Common Stock

                              Shares       Value          Shares     Value          Shares        Value
Balance, December 31,
    2009                       540,000       $      54     1,000         $      -   103,699,133   $ 10,369       $ 7,033,973        $       -         $        -      $ (18,000)       $ (20,003,576)      $(12,977,180)                    -     $(12,977,180)
Issuance of restricted
    shares for outside
    services                     2,000                -        -                -     4,077,280       409           608,278                 -                  -                  -                  -          608,687                     -         608,687
Issuance of restricted
    shares and options for
    employee services            2,500               1         -                -     1,681,500       168           207,275                 -                  -                  -                  -          207,444                     -         207,444
Sale of common stock                 -               -         -                -     2,062,222       206           163,372                 -                  -                  -                  -          163,578                     -         163,578
Sale of preferred stock        141,000              14         -                -             -         -           635,997                 -                  -                  -                  -          636,011                     -         636,011
Warrants issued pursuant
    to preferred stock sale            -              -        -                -             -            -         84,589                 -                  -                  -                  -           84,589                     -          84,589
Conversion of debt to
    common stock                       -              -        -                -     2,500,000       250           171,300                 -                  -                  -                  -          171,550                     -         171,550
Conversion of debt to
    preferred stock             19,953               2         -                -             -            -         99,763                 -                  -                  -                  -           99,765                     -          99,765
Conversion of debt to
    equity in subsidiary               -              -        -                -             -            -                -               -                  -                  -                  -                   -            30,000           30,000
Sale of equity in
    subsidiary for cash                -              -        -                -             -            -                -               -                  -                  -                  -                   -            50,000           50,000
Sale of equity in
    subsidiary for services            -              -        -                -             -            -                -               -          (60,000)                   -                  -          (60,000)              60,000                    -
Amortization of prepaid
    services for subsidiary
    equity                             -              -        -                -             -            -                -               -             32,500                  -                  -           32,500                     -          32,500
Allocation of loss of
    subsidiary to non
    controlling interest               -              -        -                -             -            -                -               -                  -                  -            5,125              5,125               (5,125)                   -
Net loss year ended
    December 31, 2010                  -              -        -                -             -            -                -               -                  -                  -       (2,024,464)        (2,024,464)                    -       (2,024,464)
Balance, December 31,
    2010                       705,453              71     1,000                -   114,020,135    11,402         9,004,547                 -          (27,500)         (18,000)         (22,022,915)       (13,052,395)             134,875       (12,917,520)
Issuance of restricted
    shares and warrants                -              -        -                -     3,754,036       374         1,029,045                 -                  -                  -                  -        1,029,419                     -        1,029,419
Issuance of restricted
    shares and options for
    employee services                  -              -        -                -       687,024        69           562,997                 -                  -                  -                  -          563,066                     -          563,066
Sale of common stock                   -              -        -                -     8,511,764       850         1,096,440                 -                  -                  -                  -        1,097,290                     -        1,097,290
Warrants issued pursuant
    to common stock sale             -               -         -                -             -            -        390,488                 -                  -                  -                  -          390,488                     -          390,488
Sale of preferred stock         44,547               4         -                -             -            -        192,731                 -                  -                  -                  -          192,735                     -          192,735
Issuance of restricted
    shares for contract
    penalty re-delayed
    shipment                           -              -        -                -     1,309,306       131           299,869                 -                  -                  -                  -          300,000                     -          300,000
Purchase of Treasury
    Stock                              -              -        -                -             -            -                -          40,000                  -                  -                  -            40,000                    -            40,000
Sale of Treasury Stock                 -              -        -                -             -            -                -        (40,000)                  -                  -                  -          (40,000)                    -          (40,000)
Amortization of prepaid
    services for subsidiary
    equity                             -              -        -                -             -            -                -               -             27,500                  -                  -           27,500                     -           27,500
Allocation of loss of
    subsidiary to non
    controlling interest               -              -        -                -             -            -                -               -                  -                  -            4,813              4,813               (4,813)                   -
Conversion of Series A
    Preferred Stock to
    Common stock              (750,000)            (75)        -                -    95,100,000     9,510            (9,435)                -                  -                  -                  -                   -                  -                   -
Application of derivative
    liability from
    conversion of                      -              -        -                -             -            -     30,394,710                 -                  -                  -                  -       30,394,710                     -       30,394,710
 Series A Preferred Stock
Conversion of debt and
    liability to common
    stock                              -              -        -                -      213,975            21         39,783                 -                  -                  -                  -           39,804                     -           39,804
Issuance of common
    stock per settlement
    agreement arising
    from reverse merger                -              -        -                -       25,000             3             (3)                -                  -                  -                  -                   -                  -                   -
Collection of Preferred
    Stock Subscription
    Receivable                                                                                -            -                -               -                  -           6,000                     -            6,000                     -            6,000
Conversion of stock
    options-cashless
    exercise                                                                            13,889             1             (1)                -                  -                  -                  -                   -                  -                   -
Net loss year ended
    December 31, 2011                  -              -        -                -             -            -                -               -                  -                  -      (23,704,727)       (23,704,727)                    -      (23,704,727)
Balance, December 31,
    2011                               -     $        -    1,000        $       -   223,635,129   $ 22,361     $ 43,001,171         $       -         $        -      $ (12,000)       $ (45,722,829)       $(2,711,297)         $   130,062       $(2,581,235)



                                                                      See the accompanying notes to consolidated financial statements
F-5
                                                 CYCLONE POWER TECHNOLOGIES, INC.
                                              CONSOLIDATED STATEMENTS OF CASH FLOWS
                                             FOR YEARS ENDED DECEMBER 31, 2011 AND 2010

                                                                                                  2011                2010

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss                                                                                      $   (23,704,727 )   $   (2,024,464 )
Adjustments to reconcile net loss to net cash used by operating activities:
 Depreciation and amortization                                                                        57,628              55,587
 Issuance of restricted common stock, options and warrants and preferred stock for services        1,592,485             816,131
 Issuance of restricted common stock for contract penalty                                            300,000                   -
 Expense (income) from derivative liability-Warrants                                                  35,089            (106,616 )
 Expense (income) from derivative liability-Series A Preferred Stock                              19,771,086            (333,681 )
 Amortization of prepaid expenses purchased with equity                                               27,500              32,500
 Write-off of abandoned patent                                                                             -               9,855
 Forgiveness of debt income                                                                                -              (2,685 )
 Loss on conversion of debt to stock                                                                       -             159,050
Changes in operating assets and liabilities:
 Decrease (Increase) in accounts receivable                                                             4,200             (4,200 )
 (Increase) in inventory                                                                             (246,762 )          (87,997 )
 (Increase) decrease in other assets                                                                   (5,284 )           12,790
 Increase in deferred revenue and deposits                                                            150,811            122,525
 (Decrease) in provision for contract loss                                                                  -             (5,036 )
 Increase in accounts payable and accrued expenses                                                    142,808             57,449
 (Decrease) Increase in warranty provision                                                             (2,140 )            2,324
 Increase in accounts payable and accrued expenses-related parties                                    314,503            339,831
Net cash used by operating activities                                                              (1,562,803 )         (956,637 )

CASH FLOWS FROM INVESTING ACTIVITIES:
 Expenditures incurred for patents, trademarks and copyrights                                         (71,381 )          (85,968 )
 Expenditures incurred for property and equipment                                                     (45,356 )          (31,184 )
Net cash used by investing activities                                                                (116,737 )         (117,152 )

CASH FLOWS FROM FINANCING ACTIVITIES:
 Sale of Series A Preferred treasury stock                                                             40,000                  -
 Increase in loans-net                                                                                 40,225              5,000
 Sale of equity in subsidiary for cash                                                                      -             50,000
 Payment of capitalized leases                                                                         (5,963 )           (9,067 )
 Proceeds from collection of preferred stock subscription receivables                                   6,000                  -
 Proceeds from sale of common stock                                                                 1,487,778            163,578
 Proceeds from sale of preferred stock                                                                192,735            720,600
 (Decrease) Increase in related party notes and loans payable                                         (21,306 )          121,677
Net cash provided by financing activities                                                           1,739,469          1,051,788

Net increase (decrease) in cash                                                                          59,929          (22,001 )
Cash, beginning of year                                                                                   6,557           28,558

Cash, end of year                                                                             $          66,486   $           6,557


SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Payment of interest in cash                                                                   $           2,735   $           2,955

NON CASH INVESTING AND FINANCING ACTIVITIES:
Purchase of 8,000 shares of Series A Preferred treasury stock via note payable                $          40,000   $               -

Conversion of debt to common and preferred stock                                              $               -   $      289,610

Conversion of debt by selling 5% of consolidated subsidiary equity                            $               -   $          30,000
Conversion of debt and liabilities by issuing 213,975 shares of common stock                      $     39,804   $   -


                                      See the accompanying notes to consolidated financial statements


                                                                    F-6
                                                   CYCLONE POWER TECHNOLOGIES, INC.
                                            NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                                       DECEMBER 31, 2011 AND 2010

NOTE 1 - ORGANIZATIONAL AND SIGNIFICANT ACCOUNTING POLICIES

A.      ORGANIZATION AND OPERATIONS
Cyclone Power Technologies, Inc. (the “Company”) is the successor entity to the business of Cyclone Technologies LLLP (the “LLLP”), a
limited liability limited partnership formed in Florida in June 2004. The LLLP was the original developer and intellectual property holder of
the Cyclone engine technology.

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

In the third quarter of 2010, the Company established a subsidiary, Cyclone-WHE LLC (the “Subsidiary”) to market the waste heat recovery
systems for all Cyclone engine models. As of December 31, 2011, the Company had an 82.5% controlling interest in the Subsidiary.

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

B.     PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION

The audited consolidated financial statements include the accounts of Cyclone Power Technologies Inc. and its 82.5% owned Subsidiary. All
material inter-company transactions and balances have been eliminated in the consolidated financial statements. The accompanying audited
consolidated financial statements have been prepared in accordance with generally accepted accounting principles. The preparation of
financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates.

C.    SUBSEQUENT EVENTS

In 2009, the FASB issued ASC 855 Subsequent Events . ACS 855 offers assistance and establishes general standards of accounting for
and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued.
ACS 855 does not result in material changes in the subsequent events that an entity reports. This guidance requires disclosure of the date
through which events subsequent to the Balance Sheet date have been evaluated and whether such date represents the date the financial
statements were issued or were available to be issued. ASC 855 is effective for interim and annual periods ending after June 15, 2009.
Management evaluated events occurring between the Balance Sheet date of December 31, 2011, and when the financial statements were
available to be issued, and determined that the Company’s acquisition of the assets of Advent Power Systems Inc., and the retirement of
the Phoenix Power Group warrant both constituted reportable events, which are described in Note 19 hereof.

D.    CASH

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


                                                                         F-7
E.   ACCOUNTS RECEIVABLE

Accounts receivable consist of amounts due pursuant to research and development prototype charges. At December 31, 2011, uncollected
progress billings of $297,451 were off-set against deferred revenue for financial statement presentation purposes. At December 31, 2011
and 2010, no allowance for doubtful accounts was deemed necessary.

F.   COMPUTATION OF LOSS PER SHARE

Net loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the
period. Diluted net loss per share is not presented as the conversion of the preferred stock and exercise of outstanding stock options and
warrants would have an anti-dilutive effect. As of December 31, 2011, total anti-dilutive shares amounted to approximately 10.4 million shares,
exclusive of 4.7 million shares subject to an unvested common stock purchase warrant.

G.   INCOME TAXES

Income taxes are accounted for under the asset and liability method as stipulated by Accounting Standards Codification (“ASC”) 740 “
Income Taxes ”. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry
forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. Under ASC 740, the effect on deferred tax assets and liabilities
or a change in tax rate is recognized in income in the period that includes the enactment date. Deferred tax assets are reduced to estimated
amounts to be realized by the use of a valuation allowance. A valuation allowance is applied when in management’s view it is more likely
than not (50%) that such deferred tax will not be utilized.

In 2009, the Company adopted certain provisions under ASC Topic 740, which provide interpretative guidance for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a tax return. Effective with the Company’s adoption of
these provisions, interest related to the unrecognized tax benefits is recognized in the financial statements as a component of income
taxes.

In the unlikely event that an uncertain tax position exists in which the Company could incur income taxes, the Company would evaluate
whether there is a probability that the uncertain tax position taken would be sustained upon examination by the taxing authorities.
Reserves for uncertain tax positions would be recorded if the Company determined it is probable that a position would not be sustained
upon examination or if payment would have to be made to a taxing authority and the amount is reasonably estimated. As of December 31,
2011, the Company does not believe it has any uncertain tax positions that would result in the Company having a liability to the taxing
authorities. The Company’s tax returns are subject to examination by the federal and state tax authorities for the years ended 2008
through 2011.

H.    REVENUE RECOGNITION

The Company’s revenue recognition policies are in compliance with accounting Codification as ASC 605, and Staff Accounting Bulletin
(“SAB”) 104, Revenue Recognition . Revenue is recognized at the date of shipment of engines and systems, engine prototypes, engine
designs or other deliverables to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed,
no other significant obligations of the Company exist and collectability is reasonably assured. Revenue from contracts for multiple
deliverables and milestone methods recognition are evaluated and allocated as appropriate. Payments received before all of the relevant
criteria for revenue recognition are satisfied are recorded as deferred revenue. The Company does not allow its customers to return
prototype products. Current contracts do not require the company to provide any warranty assistance, after the “deliverable” has been
accepted.

It is the Company’s intention, when it has royalty revenue from its contracts, to record royalty revenue periodically when earned, as
reported in sales statements from customers. The Company does not have any royalty revenue to date.

I.   WARRANTY PROVISIONS

Current contracts do not require warranty assistance subsequent to acceptance of the “deliverable R&D prototype” by the customer. For
products that the company will resell in the future, warranty costs are anticipated to be fully borne by the manufacturing vendor.


                                                                        F-8
J.   INVENTORY

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

K.   FAIR VALUE OF FINANCIAL INSTRUMENTS

ASC 820 Fair Value “ Measurements and Disclosures ” requires disclosures of information about the fair value of certain financial instruments
for which it is practicable to estimate the value. The carrying amounts reported in the balance sheet for cash, accounts receivable, accounts
payable and accrued expenses, and loans payable approximate their fair market value based on the short-term maturity of these
instruments. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. Inputs refer broadly to the assumptions that market participants would use in pricing the
asset or liability, including assumptions about risk. Inputs may be observable or unobservable. Observable inputs are based on market data
obtained from sources independent of the Company. Unobservable inputs reflect the Company’s own assumptions based on the best
information available in the circumstances. The fair value hierarchy prioritizes the inputs used to measure fair value into three broad levels. The
three levels of the fair value hierarchy are defined as follows:

Level 1     — Inputs are quoted prices in active markets for identical assets or liabilities as of the reporting date.
Level 2     — Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or
              indirectly, as of the reporting date.
Level 3     — Unobservable inputs for the asset or liability that reflect management’s own assumptions about the assumptions that market
              participants would use in pricing the asset or liability as of the reporting date.

The summary of fair values and changing values of financial instruments as of December 31, 2011 and 2010 is as follows:

Instrument                                                          Fair Value                 Level          Valuation Methodology
Derivative liabilities as of December 31, 2011                  $         494,626                 3           Black Scholes
                                                                                                              Binomial Lattice Model and Black
Derivative liabilities as of December 31, 2010                  $       11,083,161                 3          Scholes

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

L.   RESEARCH AND DEVELOPMENT

Research and development activities for product development are expensed as incurred. Costs for the years ended December 31, 2011 and
2010 were $983,276 and $842,425, respectively.

M.    STOCK BASED COMPENSATION

The Company applies the fair value method of ASC 718, “ Share Based Payment ”, in accounting for its stock based compensation. This
standard states that compensation cost is measured at the grant date based on the value of the award and is recognized over the service
period, which is usually the vesting period. The Company values stock based compensation at the market price for the Company’s
common stock as of the date of issuance.

N.   COMMON STOCK OPTIONS AND PURCHASE WARRANTS

The Company accounts for common stock options and purchase warrants at fair value in accordance with ASC 815-40 Derivatives and
Hedging . The Black-Scholes option pricing valuation method is used to determine fair value of these warrants consistent with ASC 718,
Share Based Payment . Use of this method requires that the Company make assumptions regarding stock volatility, dividend yields,
expected term of the warrants and risk-free interest rates.

The Company accounts for transactions in which services are received from non-employees in exchange for equity instruments based on
the fair value of the equity instruments exchanged, in accordance with ASC 505-50 Equity Based payments to Non-employees .


                                                                         F-9
O.   PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost. Depreciation is computed on the straight-line method, based on the estimated useful lives of the
assets as follows:

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

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

P.   IMPAIRMENT OF LONG LIVED ASSETS

The Company continually evaluates the carrying value of intangible assets and other long lived assets to determine whether there are any
impairment losses. If indicators of impairment are present and future cash flows are not expected to be sufficient to recover the assets’ carrying
amount, an impairment loss would be charged to expense in the period identified. To date, the Company has not recognized any impairment
charges.

Q.   RECLASSIFICATIONS

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

R.   RECENT ACCOUNTING PRONOUNCEMENTS

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

In September 2011, the FASB issued an accounting standard update (ASU 2011-08) that provides the option to assess qualitative factors in
determining whether a goodwill impairment test is necessary. The standard is effective January 1, 2012, and will not materially impact our
financial condition, results of operations, or financial statement disclosures.

In December 2010, the FASB issued an accounting standard update (ASU 2010-29) that provides for a public entity to disclose
pro-forma information for business combinations that occurred in the current reporting period. The requirement is to disclose pro-forma, and
comparable revenue and earnings as though the acquisition date for all business combinations that occurred had been as of the beginning of the
annual reporting period. This standard is effective December 15, 2010, and will impact our financial statement disclosures.

S.   CONCENTRATION OF RISK

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

As of December 31, 2011, the Company maintained its cash in two quality financial institutions. The Company has not experienced any losses
in its bank accounts through December 31, 2011.

We purchase raw material and components from multiple sources, none of which may be considered a principal or material suppliers. If
necessary, we could replace these suppliers with minimal effect on our business operations.


                                                                       F-10
NOTE 2 - GOING CONCERN

As shown in the accompanying financial statements, the Company incurred substantial operating losses of $3.8 million and $2.3 million
for the years ended December 31, 2011 and 2010, respectively. The cumulative deficit since inception is approximately $45.7 million,
which is comprised of $14.8 million attributable to operating losses and other expenses, and includes $30.9 million in non-cash derivative
liability accounting. The Company has a working capital deficit at December 31, 2011 of approximately $2.6 million. There is no
guarantee whether the Company will be able to generate enough revenue and/or raise capital to support its operations. This raises
substantial doubt about the Company’s ability to continue as a going concern. The ability of the Company to continue as a going concern
is dependent on management’s plans, which includes implementation of its business model to generate revenue from development
contracts, licenses and product sales, and continuing to raise funds through debt or equity raises. The Company will also likely continue
to rely upon related-party debt or equity financing.

The financial statements do not include any adjustments that might result from the outcome of these uncertainties. The Company is currently
raising working capital to fund its operations via private placements of common stock, advance contract payments (deferred revenue) and
advances from and deferred payments to related parties.

NOTE 3 - INVENTORY

Inventory at December 31, 2011 and 2010 consists of:

                                                                                                2011                2010
         Engine material and parts                                                        $       327,946      $       183,893
         Labor                                                                                    128,395               38,556
         Applied overhead                                                                          19,259                6,389
         Total Inventory                                                                  $       475,600      $       228,838


NOTE 4 - PROPERTY AND EQUIPMENT

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

                                                                                                2011                2010
         Display Equipment for Trade Shows                                                $          9,648     $          9,648
         Leasehold Improvements and Furniture and Fixtures                                          74,083               46,332
         Equipment and Computers                                                                   101,053               83,448
             Total                                                                                 184,784              139,428
         Less: Accumulated Depreciation                                                             76,541               55,644
             Net Property and Equipment                                                   $        108,243     $         83,784


Depreciation expense for the years ended December 31, 2011 and 2010 was $20,897 and $25,530, respectively.

NOTE 5 - PATENTS AND TRADEMARKS AND COPYRIGHTS,

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

         Heat Regenerative Engine (US Patent No. 7,080,512 B2)
         Heat Regenerative Engine (Continuation) (US Patent No. 7,856,822 B2)
         Steam Generator in a Heat Regenerative Engine (US Patent No. 7,407,382)
         Engine Reversing and Timing Control Mechanism (US Patent No. 7,784,280 B2)
         Centrifugal Condenser (US Patent No. 7,798,204 B2)
         Valve Controlled Throttle Mechanism (US Patent No. 7,730,873 B2)
         Pre-Heater Coil in a Heat Regenerative Engine (US Patent No 7,856,823 B2)
         Spider Bearing (US Patent No. 7,900,454)
         Waste Heat Engine (US Patent No. 7,992,386)
         Engine Shrouding with Air to Air Exchanger (Ser. No. 11/879,586)


                                                                     F-11
The Company also has received patents for the main Cyclone engine in 20 other countries, and patents pending in two more countries. The
Company plans to continue to pursue patent protection in the U.S. and internationally for its intellectual property.

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

Patents, trademarks and copyrights consist of legal fees paid to file and perfect these claims. The net balances as of December 31, 2011
and 2010 was $440,001 and $405,351 respectively. For the years ended December 31, 2011 and 2010, $71,381 and $85,968 was
capitalized, respectively.

Patents, trademarks and copyrights are amortized over the life of the intellectual property which is 15 years. Amortization for the years
ended December 31, 2011 and 2010 were $36,731 and $30,057, respectively. The Company wrote off abandoned patents of $9,855 for
the year ended December 31, 2010.

NOTE 6 - NOTES AND OTHER LOANS PAYABLE

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

                                                                                         2011                 2010

6% uncollateralized $5,000 demand note (*)                                       $                -    $             5,000
6% uncollateralized $25,000 demand note                                                      25,000                      -
6% uncollateralized $5,000 demand note                                                        5,000                      -
Total current non related party note                                             $           30,000    $             5,000

(accrued interest is included in accrued liabilities)

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

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

                                                                                         2011              2010
                   6% demand loan from controlling shareholder,
                   uncollateralized (A)                                              $      11,285     $              -

                   6% demand loans per Operations Agreement with
                   Schoell Marine Inc., a company owned by Cyclone’s
                   CEO and controlling shareholder, collateralized by lien
                   on Cyclone’s patent for heat regenerative engine (B)                    427,332            444,209

                   6% non-collateralized loan from officer and shareholder,
                   payable on demand. The original principle balance was
                   $137,101.                                                                66,364             86,264

                   Accrued Interest                                                        173,290            129,104

                   Total current related party notes, inclusive of accrued
                   interest                                                          $     678,271     $      659,577


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

    (B) This note arose from services and salaries incurred by Schoell Marine on behalf of the Company. Schoell Marine also owns the
        building that is leased to the Company. The Schoell Marine note bears an interest rate of 6% and repayments occur as cash flow of the
        Company permits. The note is secured by a UCC-1 filing on the Company’s patents and patent applications. During the year ended
        December 31, 2011, $5,367 was paid on the note balance.


                                                                        F-12
NOTE 7 - RELATED PARTY TRANSACTIONS

A. LEASE ON FACILITIES

The Company leases a 6,000 square foot warehouse and office facility located at 601 NE 26 th Court in Pompano Beach, Florida. The lease,
which is part of the Company’s Operations Agreement with Schoell Marine, provides for the Company to pay rent equal to the monthly
mortgage payment on the building plus property taxes, rent, utilities and sales tax due on rent. Occupancy costs for the years ended December
31, 2011 and 2010 were $62,964 and $62,964, respectively. The Operations Agreement runs year-to-year, however, the lease portion of this
agreement is month-to-month, but can only be cancelled on 180 days notice by Schoell Marine.

B. DEFERRED COMPENSATION

Included in related party payables as of December 31, 2011 and 2010 is $1,304,645 and $970,614, respectively, of accrued and deferred
officers’ salaries compensation which will be paid if funds are available. These are non-interest bearing and due on demand.

NOTE 8 - PREFERRED STOCK

On May 12, 2011, the holders of a majority of the shares of Series A Convertible Preferred (the “Series A Preferred”) stock, of which
there were 750,000 outstanding at the time, executed a resolution to convert all of the Series A Preferred shares into approximately 95.1
million shares of common stock, and to retire all Series A Preferred shares, effective as of May 15, 2011. The Company did not receive
any additional consideration from the conversion. The Company recorded non-cash derivative expenses of $19,771,086 and eliminated
the related derivative liability with respect to the conversion and the retirement of Series A Preferred.

The Series B Preferred Stock is majority voting stock and is held by senior management. Ownership of the Series B Preferred Stock shares
assures the holders thereof a 51% voting control over the common stock of the Company. The Series B Preferred Stock shares are convertible
on a one-for-one basis with the common stock in the instance the Company is merged or sold.

NOTE 9 - STOCK TRANSACTIONS

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

During the year ended December 31, 2011, the Company issued 687,024 shares of restricted common stock valued at $196,372 for employee
services, of which $185,705 was charged to general and administrative services, and $10,667 was for research and development related
services and activities. Additionally, the Company amortized (based on vesting) $366,694 of common stock options, previously issued. Unless
otherwise described in these footnotes, reference to “restricted” common stock means that the shares are restricted from resale pursuant to Rule
144 of the Securities Act of 1933, as amended.

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

During the year ended December 31, 2011, the Company sold 8,511,764 shares of restricted common stock for $1,487,778 which
included 2,861,251 common stock warrants valued at $390,488 (valued by the Black Scholes model), and 44,547 shares of Series A
Preferred stock for $192,735.

During the year ended December 31, 2011, the Company issued 1,309,306 shares of restricted common stock, valued at $300,000, as
satisfaction of a contract penalty agreement; 213,975 shares of common stock, valued at $39,804, in satisfaction for notes and accrued
interest of $12,804; and 25,000 shares of common stock in settlement of a claim pursuant to the reverse merger disclosed in Note 1. In the
third quarter of 2011, 20,000 common stock options were converted via a cashless exercise into 13,889 shares of common stock.


                                                                      F-13
During the year ended December 31, 2010, the Company issued 2,500 shares of Series A Preferred shares, 1,681,500 shares of restricted
common stock, and options convertible into 2,040,000 shares of common stock, cumulatively valued at $207,444 for employee services, of
which $177,911 was charged to general and administrative services, and $29,533 was for research and development related services and
activities. Additionally, the Company issued 2,000 shares of Series A Preferred shares and 4,077,280 shares of restricted common stock valued
at $608,687 for outside services.

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

During the year ended December 31, 2010, the Company sold 2,062,222 shares of restricted common stock for $163,578, which included
warrants valued at $84,589; and 141,000 shares of Series A Preferred stock for $720,586.

NOTE 10 - STOCK OPTIONS AND WARRANTS

A. COMMON STOCK OPTIONS

For the year ended December 31, 2011, in recognition of and compensation for services rendered by employees, the Company issued common
stock options, valued at $446,849, (valued pursuant to the Black Scholes valuation model) that are exercisable into 3,115,000 shares of
common stock to employees, with a per share range of exercise prices of $.19-$.30 (average per share of $.23 ) and a maturity life of 5-10 years
(an average maturity life of 7.9 years). These options have a 1-year vesting requirement and the Company estimates that these options will be
exercised within 3 years of issue. For the year ended December 31, 2011, the income statement charge for the amortization of stock options
was $366,615 and the unamortized balance was $314,814. The options may also be exercised by the optionee by having the Company
withhold shares that would otherwise be delivered pursuant to the option, based upon the market value of those shares, and equal to the total
exercise price of the remaining exercised options.

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

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

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

                                                                             Number                    Weighted          Weighted Average
                                                                            Outstanding                Average              Remaining
                                                                                                     Exercise Price      Contractual Life
                                                                                                                             (Years)
Common Stock Options
Balance, December 31, 2009                                                         1,000,000     $             0.325                       6.5
  Options issued                                                                   2,040,000                   0.122                       5.4
  Options exercised                                                                        -                       -                         -
  Options cancelled                                                                        -                       -                         -

Balance, December 31, 2010                                                         3,040,000                   0.188                       5.0
  Options issued                                                                   3,115,000                    .229                       7.9
  Options exercised                                                                  (20,000 )                 (.100 )                       -
  Options cancelled                                                                 (100,000 )                 (.246 )                       -

Balance, December 31, 2011                                                         6,035,000     $              .208                       6.0



                                                                     F-14
The vested and exercisable options at period end follows:

                                                                       Exercisable/Vested             Weighted            Weighted Average
                                                                            Options                   Average                Remaining
                                                                          Outstanding               Exercise Price        Contractual Life
                                                                                                                              (Years)
Common Stock Options
Balance, December 31, 2009                                                   1,000,000            $ 0.325                             7.5
Balance, December 31, 2010                                                   1,000,000              0.325                             6.5
Balance, December 31, 2011                                                   3,020,000              0.189                             5.0

Additional vesting by March 31, 2012                                           485,000               0.254

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

                                                                                                    Year Ended               Year Ended
                                                                                                    Dec. 31, 2011            Dec. 31, 2010
Risk Free Interest Rate                                                                                  .39%-1.20%               .6% - 1.18%
Expected Volatility                                                                                      132%-231%              458% - 628%
Expected term in years                                                                                           5-10                       2-3
Expected dividend yield                                                                                           0%                        0%
Average value per options and warrants                                                                     $.13.-$.31               $.09 - $.14

Expected volatility is based on historical volatility of the Company’s common stock price and other comparable pink sheet traded companies
(used when the traded stock price of the company was not representative). Short Term U.S. Treasury rates were utilized. The expected term of
the options and warrants was calculated using the alternative simplified method newly codified as ASC 718 "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 trenches.

B. COMMON STOCK WARRANTS

Outstanding-

In August 2011, the Company issued 926,251 warrants at a $.27 exercise price (valued at $214,028) with a 3 years term, pursuant to the sale of
Common stock to unaffiliated third parties. The Company can force conversion of these warrants if its common stock trades at a price greater
than $.54 per share for 10 consecutive trading days, and the average trading volume is greater than 200,000 shares per day. The warrant holders
may exercise the warrants without paying the cash price, and instead having the Company withhold shares that would otherwise be delivered
pursuant to the warrant, based upon the market value of those shares, and equal to the total conversion price of the remaining converted
warrants. This “cashless” option is only available after six months from the date of warrant issuance, and only if the Company has not
registered for resale under the Securities Act of 1933, the underlying shares of common stock. The warrants are also subject to certain
anti-dilution protections, whereby if the Company issues common stock at a price less than $.20 a share (in a non “exempted” issuance), then
the exercise price of the warrants shall reset to that lower value. “Exempted” issuances include shares issued subject to Board-approved option
plans, any convertible securities outstanding as of the date of the warrant issuance, and up to 5 million shares of common stock issued to
service providers of the Company.

In the third quarter of 2011, the Company issued 1,335,000 warrants, with a three year term, at a $.27-$.32 per share exercise price (valued at
$293,184) pursuant to the sale of additional common shares. Also, the Company issued 750,000 warrants with a 1 year term, at a $.30 per share
exercise price (valued at $101,591) for services. The value of these warrants is being amortized over the service period.

In the fourth quarter of 2011, the Company issued 600,000 warrants, with a three year term, at a $.27 per share exercise price (valued at
$94,502) pursuant to the sale of additional common shares.

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


                                                                      F-15
A summary of outstanding vested warrant activity for the year ended December 31, 2011 follows:

                                                                          Number                 Weighted Average              Weighted Average
                                                                         Outstanding              Exercise Price                  Remaining
                                                                                                                               Contractual Life
                                                                                                                                   (Years)
Common Stock Warrants
Balance, December 31, 2010                                                         770,500     $                   .150                       1.67
  Warrants issued                                                                3,611,251                           .29                      2.23
  Warrants exercised                                                                     -                             -                         -
  Warrants cancelled                                                                     -                             -                         -

Balance, December 31, 2011                                                       4,381,751     $                   .265                       1.99


NOTE 11 - INCOME TAXES

A reconciliation of the differences between the effective income tax rates and the statutory federal tax rates for the years ended December 31,
2011 and 2010 are as follows:

                                                    Year ended                                          Year ended
                                                    Dec 31, 2011                Amount                  Dec. 31, 2010                Amount
Tax benefit at U.S. statutory rate                                  34 % $         1,232,008                                34 % $        744,519
State taxes, net of federal benefit                                  4               144,942                                 4             87,590
Change in valuation allowance                                      (38 )          (1,376,950 )                             (38 )         (832,109 )
                                                                     -% $                  -                                 -% $               -


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

         Deferred Tax Assets                                                                   Dec. 31, 2011         Dec. 31, 2010
         Net Operating Loss Carry-forward                                                    $       5,420,492     $       2,860,156
         Deferred Tax Liabilities – Accrued Officers Salaries                                        ( 231,135 )            (126,635 )
         Net Deferred Tax Assets                                                                     5,189,357             2,733,521
         Valuation Allowance                                                                        (5,189,357 )          (2,733,521 )
         Total Net Deferred Tax Assets                                                       $               -     $               -


As of December 31, 2011, the Company had a net operating loss carry forward for income tax reporting purposes of approximately $10.7
million that may be offset against future taxable income through 2026. Current tax laws limit the amount of loss available to be offset against
future taxable income when a substantial change in ownership occurs. Therefore, the amount available to offset future taxable income may be
limited. No tax asset has been reported in the financial statements, because the Company believes there is a 50% or greater chance the carry
forwards will expire unused. Accordingly, the potential tax benefits of the loss carry forwards are offset by a valuation allowance of the same
amount.

NOTE 12 - LEASE OBLIGATIONS

A. CAPITALIZED LEASE OBLIGATIONS

In 2009, the Company acquired $27,401 of property and equipment via capitalized lease obligations at an average interest rate of 18.4%. Lease
principle payments made in the year ended December 31, 2011 was $5,964. The balance of leases payable at December 31, 2011 was $3,053.
Future lease payments are:

                            2012                           $           898
                            2013                                     1,127
                            2014                                     1,028
$   3,053



      F-16
NOTE 13 - COMMITMENTS AND CONTINGENCIES

The Company has employment agreements with Harry Schoell, CEO, at $150,000 per year, and Frankie Fruge, COO, at $120,000 per year (the
“Executives”), that provide for a term of three (3) years from their Effective Date (July 2, 2007), with automatically renewing successive one
year periods starting on the end of the second anniversary of the Effective Date. If either Executive is terminated “without cause” or pursuant to
a “change in control” of the Company, as both defined in the respective agreements, the Executive shall be entitled to (i) any unpaid Base
Salary accrued through the effective date of termination, (ii) the Executive’s Base Salary at the rate prevailing at such termination through 12
months from the date of termination or the end of his Term then in effect, whichever is longer, and (iii) any Performance Bonus that would
otherwise be payable to the Executive were he not terminated, during the 12 months following his or her termination.

In July 2011, the Company signed a one-year lease for an additional 2,000 square feet at rate of $8.25/ s.f, terminating in August 2012. The
lease also has two 1-year extensions. The balance of the lease is $8,159.

NOTE 14 - CONSOLIDATED SUBSIDIARY

Commencing in the second quarter of 2010, the Company established a subsidiary (Cyclone-WHE LLC) to license and market waste heat
recovery systems for all engine models. A 5% equity participation was sold to a minority investor for $30,000, via the conversion of a Cyclone
note payable. Another 5% was purchased directly from the Subsidiary by a minority investor for services valued at $30,000 consisting of
assistance in marketing, management and financing for projects to be carried out by the Subsidiary. These services were amortized over a 12
month period. This investor also received and exercised a 2.5% equity purchase warrant in the Subsidiary for $50,000.

Effective July 1, 2010, a 5% equity contribution was provided to the new Managing Director of the Subsidiary in consideration of $30,000 of
future professional services (which are being amortized over a 12 month period). Additionally, options were given for the acquisition of an
additional 5% equity in the subsidiary at a total price of $100,000, vesting half in 12 months and half in 24 months, exercisable for 5 years. No
value was attributed to these options, since the subsidiary had no significant operations or assets.

The total losses of the subsidiary for the year ended December 31, 2011 was $27,500. Losses of the subsidiary are currently fully borne by the
parent Company, and no allocations were made to the non controlling interest in the consolidated subsidiary. There is no guarantee of future
profits or positive cash flow of the subsidiary for loss recovery and the related imputed receivable would be impaired. As of December 31,
2011, the cumulative unallocated losses to the non-controlling interests of the subsidiary of $9,938 are to be recovered, by the parent from
future subsidiary profits, when they materialize.

NOTE 15 - PENALTY FOR DELAYED DELIVERY OF PRODUCT

In 2009, the Company signed a contract for the delivery of two Mark V prototype engines that had a performance penalty of $25,000 per month
for late delivery, paid with restricted Company common stock (pursuant to Rule 144) based on the closing price for the Company’s stock on the
OTC Markets on the last day of the applicable month. Other terms of the contract reflected development fees paid by the customer, and
royalties to be paid to the Company based on units subsequently manufactured and sold by the customer. The original delivery date was
revised to January 1, 2011. Effective January 1, 2012 the Company’s agreed that two WHE engines would be substituted for the deliverable in
satisfaction of the contract, but that Cyclone is still obligated to deliver two Mark V engines at a later time. For the year ended December 31,
2011, the Company charged $350,000 to cost of goods sold for this penalty. This is reflective of 1,309,306 shares of restricted common stock
issued in the first year, valued at $300,000, and $50,000 of accrued expenses for subsequent delayed engine delivery.

NOTE 16 - DERIVATIVE LIABILITIES

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


                                                                      F-17
Series A Convertible Preferred Stock

The Company’s Series A Convertible Preferred Stock entitled the holders of the preferred stock to convert the preferred stock into a fixed
percentage of the total outstanding common stock on a fully diluted basis, calculated on the date of conversion. The resulting derivative
liability is presented at its fair value on the accompanying balance sheets with changes in fair value reported in the statement of operations. In
May 2011, the holders of all of the outstanding shares of Series A Preferred Stock converted the shares into 95,100,000 shares of the
Company’s common stock. As a result of the conversion, the estimated fair value of the embedded conversion option of at the time of
conversion of $30,394,710 was reclassified into equity. There is no derivative liability related to this issuance as of December 31, 2011. The
fair value of the conversion option options had been estimated using a binomial lattice model using the following assumptions:

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

Phoenix Common Stock Warrant

As part of the Company’s license agreement with Phoenix Power Group (“Phoenix”), in 2009 the Company agreed to issue to Phoenix a
common stock purchase warrant at a price of $.19 per share, equal to two (2%) percent of the total issued, outstanding, convertible debt
and dilutive common stock of the Company at the time of exercise. The number of shares into which the warrant was convertible was
contingent upon the number of shares outstanding at the date the warrant was issued. As of December 31, 2011, 2% of the outstanding,
convertible and dilutive common stock of the Company was approximately 4.68 million shares. The warrant was to vest upon the delivery
of the first two prototype Cyclone Mark V Engines to Phoenix and payment by Phoenix of the full $400,000 license fee, and terminate 24
months thereafter and are non-transferable. As of December 31, 2011, the warrant was valued at approximately $494,626 (by the Black
Scholes valuation method) and is to be amortized proportionally over the life of the contract, as an expense of the contact in conjunction
with revenue and royalty recognition from this contract. Because the number of shares issuable upon exercise of the warrant was
unknown until the time of exercise, and there is no limit to the number of shares that are issuable upon exercise, the common stock
warrant was required to be accounted for as a derivative liability. The resulting derivative liability of $494,626 from the warrant is
presented at its fair value on the accompanying balance sheet with changes in fair value reported in the statement of operations. In March
2012, the Company entered into an agreement with Phoenix to convert and retire the warrant for 2,000,000 shares of common stock.
Phoenix did not pay any additional consideration for the shares.

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

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

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

                                                              Period End            Conversion of
                                       Fair Value as of     Change in Fair            Series A          Fair Value as of
                                         Dec. 31 2010           Value                Pref. Stock          Dec. 31, 2011
Series A Preferred Stock               $     10,623,624     $    19,771,086       $    (30,394,710 )    $               -
Phoenix Warrant                        $        459,537              35,089                       -              494,626
  Total                                $     11,083,161     $    19,771,086       $    (30,394,710 )    $        494,626


NOTE 17 - RECEIVABLES, DEFERRED REVENUE AND BACKLOG

As of December 31, 2011, the Company has accounts receivable of $297,451, which relates to uncollected work in progress billings, and are
comprised of $62,618 due from Raytheon and $234,833 due form Advent under the Company’s U.S. Army/TACOM contract. These amounts
are offset against deferred revenue until contract deliverables and related revenue recognition have been satisfied.

As of December 31, 2011, total backlog for prototype engines to be delivered in the following six to nine months was $1.5 million, of which
$100,000 has been paid and $297,451 has been invoiced, as noted above. This amount of backlog orders is inclusive of contracts with
Raytheon, the U.S. Army (through Advent) and Combilift, which the Company expects to be paid over the following six to nine months of the
respective contracts’ development periods. This total figure does not, however, account for the acquisition of Advent, which closed in the first
quarter of 2012, and pursuant to which, the Company assume the full $1.4 million contract with the U.S. Army, which would increase current
backlog to approximately $2.2 million.


                                                                   F-18
NOTE 18 - RECEIVABLES FACTORING

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

NOTE 19 - SUBSEQUENT ACQUISITION OF ADVENT POWER SYSTEMS INC. BUSINESS

On February 16, 2012, the Company acquired select net assets, business and contracts of Advent Power Systems Inc. for 1.5 million shares of
common stock, valued at approximately $315,000. The value of the Army contract (to develop an auxiliary power unit for multiple lines of
combat vehicles) being transferred to Cyclone is $1.4 million. The common stock consideration is being held in escrow pending the official
novation of the Army contract, and is further restricted for resale by a contractual two-year leak-out provision. Of the $315,000 purchase price
paid in common stock, virtually all was allocated to the Army contract asset and retirement of Advent’s exclusive license for sale of Cyclone
engines to military customers. In completing this acquisition, the Company expects to receive an additional $450,000 in revenue and higher
profits (in addition to the $700,000 originally payable to the Company as a sub-contractor) under the Army contract. The Company will also
assume the position as prime contractor, which it believes will assist the Company in acquiring new defense contracts in the future.

On March 30, 2012, the Company completed an agreement with Phoenix Power Group to convert the warrant held by Phoenix into 2 million
shares of common stock of the Company on a cashless basis (meaning no additional consideration was paid by Phoenix at the time). The
warrant was subsequently retired.


                                                                      F-19
                                                   CYCLONE POWER TECHNOLOGIES, INC.
                                                     CONSOLIDATED BALANCE SHEETS

                                                                                                        June 30,             December 31,
                                                                                                          2012                  2011
                                                                                                      (Unaudited)             (Audited)
                                             ASSETS

CURRENT ASSETS
 Cash                                                                                             $           12,715     $           66,486
 Accounts receivable                                                                                          31,146                      -
 Inventory                                                                                                 1,021,405                475,600
 Other current assets                                                                                         33,828                  4,846
     Total current assets                                                                                  1,099,094                546,932

PROPERTY AND EQUIPMENT
  Furniture, fixtures, and equipment                                                                        241,066                 184,784
  Less: Accumulated depreciation                                                                            (87,068 )               (76,541 )
      Net property and equipment                                                                            153,998                 108,243

OTHER ASSETS
 Patents, trademarks and copyrights                                                                          562,393                557,847
 Less: Accumulated amortization                                                                             (137,801 )             (117,846 )
     Net patents, trademarks and copyrights                                                                  424,592                440,001
 Other assets                                                                                                  2,422                  2,422
     Total other assets                                                                                      427,014                442,423

Total Assets                                                                                      $        1,680,106     $        1,097,598


                       LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES
 Accounts payable and accrued expenses                                                            $          498,846     $          263,131
 Factored receivables                                                                                              -                 43,169
 Accounts payable and accrued expenses-related parties                                                     1,428,840              1,305,772
 Notes and other loans payable                                                                               515,000                 30,000
 Notes and other loans payable-related parties                                                               736,427                678,271
 Capitalized lease obligations-current portion                                                                   645                    898
 Deferred revenue and license deposits                                                                       614,564                860,811
     Total current liabilities                                                                             3,794,322              3,182,052

NON CURRENT LIABILITIES
 Capitalized lease obligations-net of current portion                                                          1,985                  2,155
 Derivative Liabilities-Warrant                                                                                    -                494,626
     Total non-current liabilities                                                                             1,985                496,781

Total liabilities                                                                                          3,796,307              3,678,833

STOCKHOLDERS' DEFICIT

  Series B preferred stock, $.0001 par value, 1,000 shares authorized, 1,000 share is ssued and
  outstanding at June 30, 2012 and December 31, 2011, respectively.                                                 -                       -

  Common stock, $.0001 par value, 300,000,000 shares authorized, 234,451,771 and 223,635,129
  shares issued and outstanding at June 30, 2012 and December 31, 2011, respectively.                         23,445                 22,364
  Additional paid-in capital                                                                              45,252,282             43,001,168
  Prepaid expenses with common stock                                                                        (112,317 )                    -
  Stock subscription receivable                                                                              (26,583 )              (12,000 )
  Accumulated deficit                                                                                    (47,383,090 )          (45,722,829 )
      Total stockholders' deficit-Cyclone Power Technologies Inc.                                         (2,246,263 )           (2,711,297 )
  Non controlling interest in consolidated subsidiary-Cyclone WHE LLC                                          130,062           130,062

      Total Stockholders Deficit                                                                            (2,116,201 )       (2,581,235 )

Total Liabilities and Stockholders' Deficit                                                          $       1,680,106     $   1,097,598

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


                                                                     F-20
                                               CYCLONE POWER TECHNOLOGIES, INC.
                                             CONSOLIDATED STATEMENTS OF OPERATIONS
                                                          (UNAUDITED)

                                                                 Six Months Ended June 30,                  Three Months Ended June 30,
                                                                  2012               2011                     2012               2011

REVENUES                                                    $        380,445        $              -    $        380,445      $              -

COST OF GOODS SOLD                                                   221,908               250,867               171,908               75,000

    Gross margin (loss)                                              158,537               (250,867 )            208,537              (75,000 )

OPERATING EXPENSES
   Advertising and promotion                                          38,802                 32,294               18,021              21,219
   General and administrative                                      1,306,524              1,188,744              759,606             755,430
   Research and development                                          498,823                497,732              242,999             269,062

    Total operating expenses                                       1,844,149              1,718,770            1,020,626            1,045,711

Operating loss                                                     (1,685,612 )          (1,969,637 )           (812,089 )         (1,120,711 )

OTHER INCOME (EXPENSE)
   Other (expense)                                                   (25,600 )              (26,964 )            (25,600 )            (26,964 )
   Derivative income (expense) -Warrants                             114,626               (650,758 )                  -              151,264
   Derivative income (expense) -Series A Preferred Stock                   -            (19,771,086 )                  -           (1,680,240 )
   Interest (expense)                                                (63,675 )              (20,901 )            (45,980 )            (10,642 )

    Total other income (expense)                                       25,351           (20,469,709 )            (71,580 )         (1,566,582 )

Loss before income taxes                                           (1,660,261 )         (22,439,346 )           (883,669 )         (2,687,293 )
Income taxes                                                                -                     -                    -                    -

Net loss                                                    $      (1,660,261 )     $   (22,439,346 )   $       (883,669 )    $    (2,687,293 )


Net loss per common share, basic                            $             (0.01 )   $         (0.18 )   $           (0.00 )   $         (0.02 )


Weighted average number of common shares outstanding             226,841,453            125,964,667          230,953,100          147,077,072


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


                                                                   F-21
                                                                                     CYCLONE POWER TECHNOLOGIES, INC.
                                                                             CONSOLIDATED STATEMENTS OF STOCKHOLDERS ’ DEFICIT
                                                                              FOR THE SIX MONTHS ENDED JUNE 30, 2012 (UNAUDITED)
                                                                                      AND YEAR ENDED DECEMBER 31, 2011

                                                                                                                                                                                                                               Total
                                                                                                                                                                                                                           Stockholders'
                                                                                                                                                    Prepaid             Prepaid                                               (Deficit)        Non Controlling
                                                                                                                  Additional                       Expenses            Expenses          Stock                                Cyclone             Interest            Total
                                                                                                                   Paid In         Treasury       From Equity        via Common       Subscription       Accumulated           Power             In Consol.       Stockholders'
                                                                                                                   Capital          Stock         Contribution           Stock         Receivable          (Deficit)         Tech. Inc.          Subsidiary          (Deficit)

                                      Preferred Stock A           Preferred Stock B        Common Stock

                                      Shares      Value          Shares      Value         Shares       Value
Balance, December 31, 2010              705,453      $ 71           1,000      $      -   114,020,135   $11,402     $9,004,547         $      -        $(27,500)          $       -        $(18,000)      $(22,022,915)      $(13,052,395)            $134,875      $(12,917,520)
Issuance of restricted shares and
    warrants for outside services             -              -          -             -     3,754,036      376       1,029,043                -                  -                -                  -                 -         1,029,419                    -         1,029,419
Issuance of restricted shares and
    options for employee services             -              -          -             -       687,024       69         562,997                -                  -                -                  -                 -           563,066                    -           563,066
Sale of common stock                          -              -          -             -     8,511,764      851       1,096,439                -                  -                -                  -                 -         1,097,290                    -         1,097,290
Warrants issued pursuant to
    common stock sale                        -              -           -             -             -         -       390,488                 -                  -                -                  -                 -           390,488                    -          390,488
Sale of preferred stock                 44,547              4           -             -             -         -       192,731                 -                  -                -                  -                 -           192,735                    -          192,735
Issuance of restricted shares for
    contract penalty re-delayed
    shipment                                  -              -          -             -     1,309,306      131        299,869                -                   -                -                  -                 -           300,000                    -           300,000
Purchase of treasury stock                    -              -          -             -             -        -              -           40,000                   -                -                  -                 -            40,000                    -            40,000
Sale of treasury stock                        -              -          -             -             -        -              -         (40,000)                   -                -                  -                 -          (40,000)                    -          (40,000)
Amortization of prepaid services
    for subsidiary equity                     -              -          -             -             -         -                -              -             27,500                -                  -                 -            27,500                    -           27,500
Allocation of loss of subsidiary to
    non controlling interest                  -              -          -             -             -         -                -              -                  -                -                  -           4,813               4,813              (4,813)                   -
Conversion of preferred stock to
    common stock                      (750,000)           (75)          -             -    95,100,000     9,510        (9,435)                -                  -                -                  -                 -                   -                  -                   -
Application of derivative liability
    from conversion of preferred
    stock                                     -              -          -             -             -         -     30,394,710                -                  -                -                  -                 -        30,394,710                    -        30,394,710
Conversion of debt and liability to
    common stock                              -              -          -             -      213,975        21         39,783                 -                  -                -                  -                 -            39,804                    -           39,804
Issuance of common stock per
    settlement agreement arising
    from reverse merger                       -              -          -             -       25,000         3             (3)                -                  -                -                  -                 -                   -                  -                   -
Collection of peferred stock
    subscription receivable                   -              -          -             -             -         -                -              -                  -                -            6,000                   -             6,000                    -             6,000
Conversion of stock
    options-cashless exercise                 -              -          -             -       13,889         1             (1)                -                  -                -                  -                 -                   -                  -                   -
Net loss year ended December 31,
    2011                                      -              -          -             -             -         -              -                -                  -                -                -       (23,704,727)       (23,704,727)                   -       (23,704,727)
Balance, December 31, 2011                    -              -      1,000             -   223,635,129    22,364     43,001,168                -                  -                          (12,000)       (45,722,829)        (2,711,297)             130,062        (2,581,235)
Issuance of restricted shares and
    warrants for outside services             -              -          -             -     2,657,603      266        513,400                 -                  -        (30,000)                   -                 -           483,666                    -          483,666
Issuance of restricted shares and
    options for employee
    services                                  -              -          -             -        30,000        3        264,251                 -                  -                -                -                   -           264,254                    -          264,254
Sale of common stock                          -              -          -             -     3,181,128      318        328,896                 -                  -                -         (14,583)                   -           314,631                    -          314,631
Warrants issued pursuant to
    common stock sale                         -              -          -             -             -         -       173,369                 -                  -                -                  -                 -           173,369                    -          173,369
Issuance of restricted shares for
    contract penalty re-delayed
    shipment                                  -              -          -             -      545,498        55         99,945                 -                  -                -                  -                 -           100,000                    -          100,000
Debt commission fee paid with
    common stock                              -              -          -             -      136,875        14         23,611                 -                  -        (18,415)                   -                 -             5,210                    -             5,210
Prepayment of debt interest with
    common stock                              -              -          -             -      465,538        46         84,921                 -                  -        (63,902)                   -                 -            21,065                    -           21,065
Conversion of common stock
    warrants-cashless exercise                -              -          -             -     2,000,000      200        379,800                 -                  -                -                  -                 -           380,000                    -          380,000
Conversion of common stock
    options-cashless exercise                 -              -          -             -       15,000         1             (1)                -                  -                -                  -                 -                   -                  -                   -
Purchase of net business assets of
    Advent Power                              -              -          -             -     1,500,000      150        329,850                 -                  -                -                  -                 -           330,000                    -          330,000
Common stock issued pursuant to
    Advent agreement                          -              -          -             -      125,000        12         27,488                 -                  -                -                  -                 -            27,500                    -           27,500
Common stock issued pursuant to
    debt refinancing                          -              -          -             -      160,000        16         25,584                 -                  -                -                  -                 -            25,600                    -           25,600
Net loss six months ended June
    30, 2012                                  -              -          -             -             -         -             -                 -                  -               -                 -        (1,660,261)        (1,660,261)                   -        (1,660,261)
Balance, June 30, 2012                        -     $        -      1,000       $     -   234,451,771   $23,445   $45,252,282          $      -         $        -      $(112,317)         $(26,583)      $(47,383,090)       $(2,246,263)            $130,062       $(2,116,201)




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


                                                                                                                                   F-22
                                                  CYCLONE POWER TECHNOLOGIES, INC.
                                                CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                             (UNAUDITED )

                                                                                            Six Months Ended June 30,
                                                                                            2012                2011

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss                                                                                $    (1,660,261 )   $   (22,439,346 )
Adjustments to reconcile net loss to net cash used by operating activities:
 Depreciation and amortization                                                                   30,482              25,725
 Issuance of restricted common stock, options and warrants for services                         747,920             733,674
 Issuance of restricted common stock issued for debt refinancing                                 25,600                   -
 Issuance of restricted common stock for contract penalty                                        50,000             125,867
 (Income) loss from derivative liability-Warrants                                              (114,626 )           650,758
 Loss from derivative liability-Series A Preferred Stock                                              -          19,771,086
 Provision for loss on debt and liability conversion                                                  -              26,961
 Amortization of prepaid expenses purchased with equity                                               -              27,500
 Amortization of prepaid expenses via common stock                                               26,275                   -
Changes in operating assets and liabilities:
 Increase in accounts receivable                                                                (31,146 )                 -
 Increase in inventory                                                                         (109,127 )           (45,681 )
 Increase in other assets                                                                       (28,982 )            (5,407 )
 (Decrease) increase in deferred revenue and deposits                                          (246,247 )            46,700
 Increase in accounts payable and accrued expenses                                              206,537             166,465
 Decrease in factored receivables                                                               (43,169 )                 -
 Increase in accounts payable and accrued expenses-related parties                              123,068             143,346
Net cash used by operating activities                                                        (1,023,676 )          (772,352 )

CASH FLOWS FROM INVESTING ACTIVITIES:
 Expenditures incurred for patents, trademarks and copyrights                                    (4,546 )           (82,222 )
 Expenditures for fixed assets                                                                  (56,282 )            (7,941 )
Net cash used by investing activities                                                           (60,828 )           (90,163 )

CASH FLOWS FROM FINANCING ACTIVITIES:
 Sale of Series A Preferred treasury stock                                                            -              40,000
 Payment of capitalized leases                                                                     (423 )            (5,862 )
 Proceeds from debt                                                                             485,000                   -
 Proceeds from sale of common stock                                                             488,000             940,296
 Proceeds from sale of preferred stock                                                                -             192,735
 Increase in related party notes and loans payable                                               58,156               2,753
Net cash provided by financing activities                                                     1,030,733           1,169,922

Net (decrease) increase in cash                                                                 (53,771 )          307,407
Cash, beginning of period                                                                        66,486              6,557

Cash, end of period                                                                     $        12,715     $      313,964


SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Payment of interest in cash                                                             $         5,398     $             654

NON CASH INVESTING AND FINANCING ACTIVITIES:
Purchase of 8,000 shares of Series A Preferred treasury stock via note payable          $              -    $           40,000

Issuance of 602,413 shares of Common stock for prepaid interest and debt commission     $       108,592     $                -

Issuance of 2,000,000 shares of Common stock for cashless warrant exercise              $       380,000     $                -
Issuance of 160,000 shares of Common stock pursuant to debt refinancing                            $          25,600

Issuance of 1,500,000 shares of Common stock pursuant to purchase of Advent Power Systems
Inc.                                                                                               $         330,000   $   -

Issuance of 125,000 shares of Common stock for liability acquired from Advent Power Systems
Inc.                                                                                               $          27,500   $   -


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


                                                                   F-23
                                           CYCLONE POWER TECHNOLOGIES, INC.
                                    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                                      (UNAUDITED)

NOTE 1 – ORGANIZATIONAL AND SIGNIFICANT ACCOUNTING POLICIES

A.   ORGANIZATION AND OPERATIONS

Cyclone Power Technologies, Inc. (the “Company”) is the successor entity to the business of Cyclone Technologies LLLP (the “LLLP”), a
limited liability limited partnership formed in Florida in June 2004. The LLLP was the original developer and intellectual property holder of
the Cyclone engine technology.

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

In the third quarter of 2010, the Company established a subsidiary, Cyclone-WHE LLC (the “WHE Subsidiary”) to market the waste heat
recovery systems for all Cyclone engine models. As June 30, 2012, the Company had an 82.5% controlling interest in the WHE Subsidiary. In
March 2012, the company established Cyclone-TeamSteam USA, LLC (“TeamSteam”) as a wholly owned subsidiary. The purpose of
TeamSteam is to build, test and run a vehicle utilizing the Company’s engine.

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

B.     PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION

The unaudited consolidated financial statements include the accounts of the Company, its 82.5% owned WHE Subsidiary and its 100% owned
subsidiary TeamSteam. All material inter-company transactions and balances have been eliminated in the consolidated financial statements.
The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles applicable
to interim financial information and the requirements of Form 10-Q and Article 10 of Regulation S-X of the SEC. Accordingly, they do not
include all of the information and disclosures required by accounting principles generally accepted in the United States for complete financial
statements. Interim results are not necessarily indicative of results for a full year. In the opinion of management, all adjustments considered
necessary for a fair presentation of the financial position and the results of operations and cash flows for the interim periods have been
included.

The Company prepares its unaudited consolidated financial statements in conformity with accounting principles generally accepted in the
United States (“U.S. GAAP”). The principles require the Company to make judgments, estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, the reported amounts
of revenues and expenses, cash flows and the related footnote disclosures during the period. On an on-going basis, the Company reviews and
evaluates its estimates and assumptions, including, but not limited to, those that relate to the realizable value of accounts receivable,
inventories, identifiable intangible assets and other long-lived assets, income taxes and contingencies. Actual results could differ from these
estimates.


                                                                       F-24
C.     SUBSEQUENT EVENTS

The Company follows Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 855, “ Subsequent
Events”. ASC 855 offers assistance and establishes general standards of accounting for and disclosures of events that occur after the balance
sheet date but before financial statements are issued or are available to be issued. ACS 855 does not result in material changes in the
subsequent events that an entity reports. This guidance requires disclosure of the date through which events subsequent to the Balance Sheet
date have been evaluated and whether such date represents the date the financial statements were issued or were available to be issued.
Management evaluated events occurring between the Balance Sheet date of June 30, 2012, and when the financial statements were available to
be issued. Subsequent events that require disclosure are provided in Note 20.

D.     CASH

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

E.     ACCOUNTS RECEIVABLE

Accounts receivable consist of amounts due pursuant to engine delivery and research and development prototype charges. At June 30, 2012, for
financial statement presentation purposes, uncollected progress billings of $502,045 due to the Company from the U.S. Army development
contract were off-set against deferred revenue. At June 30, 2012 and December 31, 2011, no allowance for doubtful accounts was deemed
necessary.


F.    COMPUTATION OF LOSS PER SHARE

Net loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the
period. Diluted net loss per share is not presented as the conversion of the preferred stock and exercise of outstanding stock options and
warrants would have an anti-dilutive effect. As of June 30, 2012, total anti-dilutive shares amounted to approximately 15.1 million shares.

G.     INCOME TAXES

Income taxes are accounted for under the asset and liability method as stipulated by ASC 740, “ Income Taxes ”. Deferred tax assets and
liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be
recovered or settled. Under ASC 740, the effect on deferred tax assets and liabilities or a change in tax rate is recognized in income in the
period that includes the enactment date. Deferred tax assets are reduced to estimated amounts to be realized by the use of a valuation
allowance. A valuation allowance is applied when in management’s view it is more likely than not (50%) that such deferred tax will not be
utilized.

                                                                       F-25
The Company follows certain provisions under ASC Topic 740, “ Income Taxes ”, which provide interpretative guidance for the financial
statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Effective with the Company’s adoption
of these provisions, interest related to the unrecognized tax benefits is recognized in the financial statements as a component of income taxes.

In the unlikely event that an uncertain tax position exists in which the Company could incur income taxes, the Company would evaluate
whether there is a probability that the uncertain tax position taken would be sustained upon examination by the taxing authorities. Reserves for
uncertain tax positions would be recorded if the Company determined it is probable that a position would not be sustained upon examination or
if payment would have to be made to a taxing authority and the amount is reasonably estimated. As of June 30, 2012, the Company does not
believe it has any uncertain tax positions that would result in the Company having a liability to the taxing authorities. The Company’s tax
returns are subject to examination by the federal and state tax authorities for the years ended 2008 through 2011.

H.     REVENUE RECOGNITION

The Company’s revenue recognition policies are in compliance with ASC 605, “ Revenue Recognition – Multiple Element Arrangements ”, and
Staff Accounting Bulletin (“SAB”) 104, Revenue Recognition . Revenue is recognized at the date of shipment of engines and systems, engine
prototypes, engine designs or other deliverables to customers when a formal arrangement exists, the price is fixed or determinable, the delivery
is completed, no other significant obligations of the Company exist and collectability is reasonably assured. Revenue from contracts for
multiple deliverables and milestone methods recognition are evaluated and allocated as appropriate. Payments received before all of the
relevant criteria for revenue recognition are satisfied are recorded as deferred revenue. The Company does not allow its customers to return
prototype products. Current contracts do not require the Company to provide any warranty assistance after the “deliverable” has been accepted.

It is the Company’s intention when it has royalty revenue from its contracts to record royalty revenue periodically when earned, as reported in
sales statements from customers. The Company does not have any royalty revenue to date.

I.    WARRANTY PROVISIONS

Current contracts do not require warranty assistance subsequent to acceptance of the “deliverable R&D prototype” by the customer. For
products that the Company will resell in the future, warranty costs are anticipated to be fully borne by the manufacturing vendor.

J.    INVENTORY

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


                                                                     F-26
K.     FAIR VALUE OF FINANCIAL INSTRUMENTS

ASC 820, “ Fair Value Measurements and Disclosures ” requires disclosures of information about the fair value of certain financial
instruments for which it is practicable to estimate the value. The carrying amounts reported in the balance sheet for cash, accounts receivable,
accounts payable and accrued expenses, and loans payable approximate their fair market value based on the short-term maturity of these
instruments. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. Inputs refer broadly to the assumptions that market participants would use in pricing the
asset or liability, including assumptions about risk. Inputs may be observable or unobservable. Observable inputs are based on market data
obtained from sources independent of the Company. Unobservable inputs reflect the Company’s own assumptions based on the best
information available in the circumstances. The fair value hierarchy prioritizes the inputs used to measure fair value into three broad levels. The
three levels of the fair value hierarchy are defined as follows:

Level 1 — Inputs are quoted prices in active markets for identical assets or liabilities as of the reporting date.

Level 2 — Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, as
of the reporting date.

Level 3 — Unobservable inputs for the asset or liability that reflect management’s own assumptions about the assumptions that market
participants would use in pricing the asset or liability as of the reporting date.

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

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

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

L.     RESEARCH AND DEVELOPMENT

Research and development activities for product development are expensed as incurred. Costs for the six months ended June 30, 2012 and
2011 were $498,823 and $497,732, respectively.

M.      STOCK BASED COMPENSATION,

The Company applies the fair value method of ASC 718, “ Stock Based Compensation ”, in accounting for its stock based compensation. This
standard states that compensation cost is measured at the grant date based on the value of the award and is recognized over the service period,
which is usually the vesting period. The Company values stock based compensation at the market price for the Company’s common stock as of
the date of issuance.

N.     COMMON STOCK OPTIONS AND PURCHASE WARRANTS

The Company accounts for common stock options and purchase warrants at fair value in accordance with ASC 815-40, “ Derivatives and
Hedging”. The Black-Scholes option pricing valuation method is used to determine fair value of these warrants consistent with ASC 718, “
Stock Based Compensation”. 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” .


                                                                        F-27
O.     PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost. Depreciation is computed on the straight-line method, based on the estimated useful lives of the
assets as follows:

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

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

P.     IMPAIRMENT OF LONG LIVED ASSETS

The Company continually evaluates the carrying value of intangible assets and other long lived assets to determine whether there are any
impairment losses. If indicators of impairment are present and future cash flows are not expected to be sufficient to recover the assets’ carrying
amount, an impairment loss would be charged to expense in the period identified. To date, the Company has not recognized any impairment
charges.

Q.     RECLASSIFICATIONS

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

R.     RECENT ACCOUNTING PRONOUNCEMENTS

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

In December 2011, the FASB issued ASU 2011-11 that requires disclosures about offsetting and related arrangements for recognized financial
instruments and derivative instruments. The standard is effective for use as of January 1, 2013 and will not materially impact our financial
statement disclosures.

In September 2011, the FASB issued ASU 2011-08 that provides the option to assess qualitative factors in determining whether a goodwill
impairment test is necessary. The standard is effective January 1, 2012, and will not materially impact our financial condition, results of
operations, or financial statement disclosures.

S.    CONCENTRATION OF RISK

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


                                                                        F-28
As of June 30, 2012, the Company maintained its cash in two quality financial institutions. The Company has not experienced any losses in its
bank accounts through June 30, 2012.

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

NOTE 2 - GOING CONCERN

As shown in the accompanying financial statements, the Company incurred substantial operating losses of approximately $1.66 million, for the
six months ended June 30, 2012 and approximately $3.8 million for the year ended December 31, 2011. The cumulative deficit since inception
is approximately $47.4 million, which is comprised of $16.6 million attributable to operating losses and other expenses, and includes $30.8
million in non-cash derivative liability accounting. The Company has a working capital deficit at June 30, 2012 of approximately $2.7 million.
There is no guarantee whether the Company will be able to generate enough revenue and/or raise capital to support its operations. This raises
substantial doubt about the Company’s ability to continue as a going concern. The ability of the Company to continue as a going concern is
dependent on management’s plans, which includes implementation of its business model to generate revenue from development contracts,
licenses and product sales, and continuing to raise funds through debt or equity raises. The Company will also likely continue to rely upon
related-party debt financing.

The financial statements do not include any adjustments that might result from the outcome of these uncertainties. The Company is currently
raising working capital to fund its operations via private placements of common stock and debt, advance contract payments (deferred revenue)
and advances from and deferred payments to related parties.

NOTE 3 – INVENTORY

Inventory consists of:

                                                                                                                December 31,
                                                                                          June 30, 2012            2011
              Engine material and parts                                                 $         777,575     $       327,946
              Labor                                                                               212,025             128,395
              Applied overhead                                                                     31,805              19,259
              Total Inventory                                                           $       1,021,405     $       475,600


NOTE 4 – PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

                                                                                                                December 31,
                                                                                          June 30, 2012            2011
              Display equipment for trade shows                                         $           9,648     $         9,648
              Leasehold improvements and furniture and fixtures                                    74,083              74,083
              Equipment and computers                                                            157,335              101,053
                    Total                                                                        241,066              184,784
              Less: Accumulated Depreciation                                                      (87,068 )           (76,541 )
                    Net Property and Equipment                                          $        153,998      $       108,243



                                                                    F-29
Depreciation expense for the six months ended June 30, 2012 and 2011 was $10,527 and $9,034, respectively.

 NOTE 5 – PATENTS AND TRADEMARKS AND COPYRIGHTS

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

        Heat Regenerative Engine (US Patent No. 7,080,512 B2)
        Heat Regenerative Engine (Continuation) (US Patent No. 7,856,822 B2)
        Steam Generator in a Heat Regenerative Engine (US Patent No. 7,407,382)
        Engine Reversing and Timing Control Mechanism (US Patent No. 7,784,280 B2)
        Centrifugal Condenser (US Patent No. 7,798,204 B2)
        Valve Controlled Throttle Mechanism (US Patent No. 7,730,873 B2)
        Pre-Heater Coil in a Heat Regenerative Engine (US Patent No 7,856,823 B2)
        Spider Bearing (US Patent No. 7,900,454)
        Waste Heat Engine (US Patent No. 7,992,386)
        Engine Shrouding with Air to Air Exchanger (Ser. No. 11/879,586)

The Company also has received patents for the main Cyclone engine in 20 other countries, and patents pending in two more countries.
The Company plans to continue to pursue patent protection in the U.S. and internationally for its intellectual property.

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

Patents, trademarks and copyrights consist of legal fees paid to file and perfect these claims. The net balances as of June 30, 2012 and
December 31, 2011 was $424,592 and $440,001, respectively. For the six months ended June 30, 2012 and for the year ended December
31, 2011, the Company capitalized $4,546 and $71,381, respectively.

Patents, trademarks and copyrights are amortized over the life of the intellectual property which is 15 years. Amortization for the six
months ended June 30, 2012 and 2011 were $19,955 and $16,691, respectively.

NOTE 6 – NOTES AND OTHER LOANS PAYABLE

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

                                                                                                   June 30,            December 31
                                                                                                     2012                 2011

Notes payable, 18% interest, (12% prepaid with stock and 6% payable in cash at maturity)
maturing in February - May 2013, collateralized by the Company’s receivables from the US
Army contract                                                                                  $        405,000    $                -
8-12 % uncollateralized demand notes maturing May 2013                                                   50,000                     -
6 % uncollateralized demand notes maturing December 2012 - April 2013                                    60,000                30,000
Total current non related party notes (accrued interest is included in accrued liabilities)    $        515,000    $           30,000


                                                                    F-30
A summary of related party notes and other loans payable is as follows:

                                                                                                        June 30,           December 31,
                                                                                                          2012                2011
6% demand loan from controlling shareholder, uncollateralized (A)                                  $           11,285    $         11,285
6% demand loans per Operations Agreement with Schoell Marine Inc., a company owned by
Cyclone’s CEO and controlling shareholder, collateralized by lien on Cyclone’s patent for
heat regenerative engine (B)                                                                                  465,266               427,332
6% non-collateralized loan from officer and shareholder, payable on demand. The original
principal balance was $137,101.                                                                                66,364                66,364
Accrued Interest                                                                                              193,512               173,290
Total current related party notes, inclusive of accrued interest                                   $          736,427    $          678,271


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

(B) This note arose from services and salaries incurred by Schoell Marine on behalf of the Company. Schoell Marine also owns the building
    that is leased to the Company. The Schoell Marine note bears an interest rate of 6% and repayments occur as cash flow of the Company
    permits. The note is secured by a UCC-1 filing on the Company’s patents and patent applications. For the six months ended June 30, 2012,
    $2,550 of principal was paid on the note balance.

NOTE 7 – RELATED PARTY TRANSACTIONS

A. LEASE ON FACILITIES

The Company leases a 6,000 square foot warehouse and office facility located at 601 NE 26 th Court in Pompano Beach, Florida. The lease,
which is part of the Company’s Operations Agreement with Schoell Marine, provides for the Company to pay rent equal to the monthly
mortgage payment on the building plus property taxes, rent, utilities and sales tax due on rent. Occupancy costs for the six months ended June
30, 2012 and 2011 were $31,482 and $31,482, respectively. The Operations Agreement runs year-to-year, however, the lease portion of this
agreement is month-to-month, but can only be cancelled on 180 day notice by Schoell Marine.


                                                                     F-31
B. DEFERRED COMPENSATION

Included in accounts payable and accrued expenses - related parties payables as of June 30, 2012 and December 31, 2011 are $1,428,840 and
$1,305,722, respectively, of accrued and deferred officers’ salaries compensation which will be paid if funds are available. These are
non-interest bearing and due on demand.

NOTE 8 – PREFERRED STOCK

On May 12, 2011, the holders of a majority of the shares of Series A Convertible Preferred (the “Series A Preferred”) stock, of which there
were 750,000 outstanding at the time, executed a resolution to convert all of the Series A Preferred shares into approximately 95.1 million
shares of common stock, and to retire all Series A Preferred shares, effective as of May 15, 2011. The Company did not receive any additional
consideration from the conversion. During 2011, the Company recorded non-cash derivative expenses of $19,771,086 and eliminated the
related derivative liability with respect to the conversion and the retirement of Series A Preferred.

The Series B Preferred Stock is majority voting stock and is held by senior management. Ownership of the Series B Preferred Stock shares
assures the holders thereof a 51% voting control over the common stock of the Company. The Series B Preferred Stock shares are convertible
on a one-for-one basis with the common stock in the instance the Company is merged or sold.

NOTE 9 – STOCK TRANSACTIONS

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

During the six months ended June 30, 2012, the Company issued 2,657,603 shares of restricted common stock, valued at $432,870 for outside
services and 30,000 shares of restricted, common stock, valued at $6,000 for employee services. Additionally, the Company amortized (based
on vesting) $258,254 of common stock options for employee services, and $50,796 of common stock warrants, previously issued for outside
services. Unless otherwise described in these footnotes, reference to “restricted” common stock means that the shares are restricted from resale
pursuant to Rule 144 of the Securities Act of 1933, as amended.

During the six months ended June 30, 2012, the Company sold 3,181,128 shares of restricted common stock for $314,631 inclusive of
2,440,000 common stock warrants valued at $173,369 (valued by the Black Scholes model).

During the six months ended June 30, 2012, the Company issued 545,498 shares of restricted common stock valued at $100,000 as satisfaction
of a contract penalty agreement; 465,538 shares of common stock valued at $21,065 as partial prepayment of interest on debt; 136,875 shares
of common stock valued at $5,210 in satisfaction for debt commission; and 160,000 shares of common stock pursuant to a loss on debt
conversion of $25,600.

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


                                                                     F-32
In February 2012, the Company issued 1,500,000 shares of common stock, valued at $330,000, pursuant to the acquisition of the net business
assets of Advent Power Systems Inc.; plus an additional 125,000 shares, valued at $27,500, to a consultant.

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

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

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

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

NOTE 10 – STOCK OPTIONS AND WARRANTS

A. COMMON STOCK OPTIONS

In recognition of and compensation for services rendered by employees for the six months ended June 30, 2012, the Company issued 2,340,000
common stock options, valued at $201,677 (valued pursuant to the Black Scholes valuation model) that are exercisable into shares of common
stock, at an of exercise price of $.15-.18 and a maturity life of 5-10 years These options have a 1-year vesting requirement and the Company
estimates that these options will be exercised within 3-5 years of issue. For the six months ended June 30, 2012, the income statement charge
for the amortization of stock options was $258,254 and the unamortized balance was $249,557. The options may also be exercised by the
optionee by having the Company withhold shares that would otherwise be delivered pursuant to the option, based upon the market value of
those shares, and equal to the total exercise price of the remaining exercised options. The company also extended the exercised terms of
450,000 vested options issued in 2010 from 2 years to 10 years, offset by an increase in the exercise price from $.15 to $.20.

For the year ended December 31, 2011, in recognition of and compensation for services rendered by employees, the Company issued common
stock options, valued at $446,849, (valued pursuant to the Black Scholes valuation model) that are exercisable into 3,115,000 shares of
common stock, with a per share range of exercise prices of $.19-$.30 (average exercise price per share of $.23) and a maturity life of 5-10 years
(an average maturity life of 7.9 years). These options have a 1-year vesting requirement and the Company estimates that these options will be
exercised within 3 years of issue. For the year ended December 31, 2011, the income statement charge for the amortization of stock options
was $366,615, and the unamortized balance was $314,814.

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


                                                                      F-33
In April 2012, the Company adopted its 2012 Stock Option Plan (the “2012 Plan”) by a unanimous vote of the Board of Directors. The 2012
Plan has the same terms, conditions and governance as the 2010 Plan. Up to 5 million shares of common stock may be issued under the 2012
Plan.

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

                                                                                                              Weighted Avg.
                                                                                                               Remaining
                                                                  Number            Weighted Avg.            Contractual Life
                                                                 Outstanding        Exercise Price               (Years)

              Balance, December 31, 2010                              3,040,000     $              0.188                   4.8
              Options issued                                          3,115,000                    0.299                   7.8
              Options exercised                                         (20,000 )                 (0.100 )                   -
              Options cancelled                                        (100,000 )                 (0.246 )                   -
              Balance, December 31, 2011                              6,035,000     $              0.208                   5.8
              Options issued                                          2,340,000                    0.165                   8.1
              Options exercised                                         (30,000 )                 (0.120 )                   -
              Options cancelled                                        (105,000 )                 (0.212 )                   -
              Balance, June 30, 2012                                  8,240,000     $              0.199                   7.5


The vested and exercisable options at period end follows:

                                                                                                             Weighted Average
                                                            Exercisable/Vested            Weighted              Remaining
                                                                 Options                  Average            Contractual Life
                                                               Outstanding              Exercise Price            (Yrs)
              Common Stock Options

              Balance, December 31, 2011                               3,020,000        $          0.189                   5.0
              Balance, June 30, 2012                                   4,135,000                   0.164                   6.7
              Additional vesting by September 30,
              2012                                                        885,000                  0.190

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

                                                                                          Six Months             Year Ended
                                                                                            Ended               December 31,
                                                                                         June 30, 2012              2011
              Risk free interest rate                                                   .30% - .51%           .39% - 1.20%
                                                                                                                132
              Expected volatility                                                           66%   - 75%           % - 231%
              Expected term in years                                                          3   - 5             3 - 5
              Expected dividend yield                                                            0%                 0%
              Average value per options and warrants                                        $.05 - $.11        $.13 - $.31


                                                                   F-34
Expected volatility is based on historical volatility of the Company’s common stock price. Short Term U.S. Treasury rates were utilized. The
expected term of the options and warrants was calculated using the alternative simplified method newly codified as ASC 718 “ Stock Based
Compensation, ” which defined the expected life as the average of the contractual term of the options and warrants and the weighted average
vesting period for all issuances.

B. COMMON STOCK WARRANTS

Outstanding-

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

In August 2011, the Company issued 926,251 warrants at a $.27 exercise price (valued at $214,028) with a 3 year term, pursuant to the sale of
common stock to unaffiliated third parties. These warrants were included in the re-pricing to $.20. The Company can force conversion of these
warrants if its common stock trades at a price greater than $.54 per share for 10 consecutive trading days, and the average trading volume is
greater than 200,000 shares per day. The warrant holders may exercise the warrants without paying the cash price, and instead having the
Company withhold shares that would otherwise be delivered pursuant to the warrant, based upon the market value of those shares, and equal to
the total conversion price of the remaining converted warrants. This “cashless” option is only available after six months from the date of
warrant issuance, and only if the Company has not registered for resale under the Securities Act of 1933, the underlying shares of common
stock. The warrants are also subject to certain anti-dilution protections, whereby if the Company issues common stock at a price less than $.20
a share (in a “non-exempted” issuance), then the exercise price of the warrants shall reset to that lower value. “Exempted” issuances include
shares issued subject to Board-approved option plans, any convertible securities outstanding as of the date of the warrant issuance, up to 5
million shares of common stock issued to service providers of the Company, and certain other issuances set forth in the warrant agreements.

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

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


                                                                     F-35
A summary of outstanding vested warrant activity for the six months ended June 30, 2012 and for the year ended December 31, 2011 follows:

                                                                                                               Weighted Average
                                                                                            Weighted              Remaining
                                                                      Number                Average            Contractual Life
                                                                     Outstanding          Exercise Price           (Years)
              Common Stock Warrants
              Balance, December 31, 2010                                     770,500    $             .150                      1.24
                Warrants issued                                            3,611,251                  .290                      1.98
                Warrants exercised                                                 -                     -                         -
                Warrants cancelled                                                 -                     -                         -

              Balance, December 31, 2011                                   4,381,751                  .265                      1.74
                Warrants issued                                            2,440,000                  .200                      2.82
                Warrants exercised                                                 -                     -                         -
                Warrants re-priced                                                 -                 (.087 )                       -
                Warrants cancelled                                                 -                     -                         -

              Balance, June 30, 2012                                       6,821,751    $             .242                      1.96


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

NOTE 11 – INCOME TAXES

A reconciliation of the differences between the effective income tax rates and the statutory federal tax rates for the six months ended June 30,
2012 and 2011 are as follows:

                                                              Six Months                          Six Months
                                                                 ended                               ended
                                                               June 30,                            June 30,
                                                                  2012         Amount                 2011         Amount
              Tax benefit at U.S. statutory rate                        34 % $   556,712                    34 % $   7,629,397
              State taxes, net of federal benefit                        4        65,495                     4         897,534
              Change in valuation allowance                            (38 )    (622,207 )                 (38 )    (8,526,951 )
                                                                         -% $          -                     -% $            -


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

                                                                                                June 30,              December 31,
                                                                                                  2012                    2011
              Deferred Tax Assets
              Net Operating Loss Carry-forward                                              $       6,094,949     $        5,420,492
              Deferred Tax Liabilities – Accrued      Officers’ Salaries                            ( 283,385 )             (231,135 )
              Net Deferred Tax Assets                                                               5,811,564              5,189,357
              Valuation Allowance                                                                  (5,811,564 )           (5,189,357 )
              Total Net Deferred Tax Assets                                                 $               -     $                -



                                                                        F-36
As of June 30, 2012, the Company had a net operating loss carry forward for income tax reporting purposes of approximately $12.3 million that
may be offset against future taxable income through 2027. Current tax laws limit the amount of loss available to be offset against future taxable
income when a substantial change in ownership occurs. Therefore, the amount available to offset future taxable income may be limited. No tax
asset has been reported in the financial statements, because the Company believes there is a 50% or greater chance the carry forwards will
expire unused. Accordingly, the potential tax benefits of the loss carry forwards are offset by a valuation allowance of the same amount.

NOTE 12 –LEASE OBLIGATIONS

A. CAPITALIZED LEASE OBLIGATIONS

In 2009, the Company acquired $27,401 of property and equipment via capitalized lease obligations at an average interest rate of 18.4%.
Total lease payments made in for the six months ended June 30, 2012 were $423. The balance of leases payable at June 30, 2012 was $2,630.
Future lease payments are:

              2012                                                                                            $             645
              2013                                                                                                        1,127
              2014                                                                                                          858
                                                                                                              $           2,630


B. LEASE ON ADDITIONAL FACILITIES

In July 2011, the Company signed a one-year lease for an additional 2,000 square feet at a rate of $8.25/ s.f, that terminated in June 2012. The
lease expense for the six months ended June 30, 2012 was $8,159.

Effective July 2012, the Company renewed this lease for one year, at an annual rate of $16,800 or $8.40/ s.f, terminating in June 2013. The
lease also has a remaining 1-year extension.

NOTE 13 – COMMITMENTS AND CONTINGENCIES

The Company has employment agreements with Harry Schoell, CEO, at $150,000 per year; Frankie Fruge, COO, at $120,000 per year; and
Christopher Nelson, President and General Counsel, at $130,000 per year (collectively, the “Executives”). These agreements provide for a term
of three (3) years from their Effective Date (July 2007 in the case of Schoell and Fruge, and August 2011 in the case of Nelson), with
automatically renewing successive one year periods starting on the end of the second anniversary of the Effective Date. If the Executive is
terminated “without cause” or pursuant to a “change in control” of the Company, as both defined in the respective agreements, the Executive
shall be entitled to (i) any unpaid Base Salary accrued through the effective date of termination, (ii) the Executive’s Base Salary at the rate
prevailing at such termination through 12 months from the date of termination or the end of his Term then in effect, whichever is longer, and
(iii) any Performance Bonus that would otherwise be payable to the Executive were he/she not terminated, during the 12 months following his
or her termination.

NOTE 14 – CONSOLIDATED SUBSIDIARIES

In 2010, the Company established a subsidiary (Cyclone-WHE LLC) to license and market waste heat recovery systems for all engine models.
A 5% equity participation was sold to a minority investor for $30,000, via the conversion of a Cyclone note payable. Another 5% was
purchased directly from the Subsidiary by a minority investor for services valued at $30,000 consisting of assistance in marketing, management
and financing for projects to be carried out by the subsidiary. These services were amortized over a 12 month period. This investor also
received and exercised a 2.5% equity purchase warrant in the subsidiary for $50,000.


                                                                      F-37
Effective July 1, 2010, a 5% equity contribution in Cyclone-WHE was provided to the new Managing Director of the Subsidiary in
consideration of $30,000 of future professional services (which were amortized over a 12 month period). Additionally, options were given for
the acquisition of an additional 5% equity in the subsidiary at a total price of $100,000, vesting half in 12 months and half in 24 months,
exercisable for 5 years. No value was attributed to these options, since the subsidiary had no significant operations or assets.

The total losses of the subsidiary for the year ended December 31, 2011 was $27,500. Losses of the subsidiary are currently fully borne by the
parent Company, and no allocations were made to the non-controlling interest in the consolidated subsidiary. There is no guarantee of future
profits or positive cash flow of the subsidiary for loss recovery and the related imputed receivable would be impaired. As of December 31,
2011, the cumulative unallocated losses to the non-controlling interests of the subsidiary of $9,938 are to be recovered, by the parent from
future subsidiary profits, when they materialize.

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

NOTE 15 – PENALTY FOR DELAYED DELIVERY OF PRODUCT

In 2009, the Company signed a contract for the delivery of two Cyclone prototype engines that had a performance penalty of $25,000 per
month for late delivery, paid with restricted Company common stock (pursuant to Rule 144) based on the closing price for the Company’s
stock on the OTC Markets on the last day of the applicable month. Other terms of the contract reflected development fees paid by the customer,
and royalties to be paid to the Company based on units subsequently manufactured and sold by the customer. The original delivery date was
revised to January 1, 2011. Effective January 1, 2012 the Company’s agreed that two WHE engines would be substituted for the deliverable in
satisfaction of the contract, but that the Company is still obligated to deliver two Mark 5 engines at a later time. For the six months ended June
30, 2012, and for the year ended December 31, 2011, the Company charged $50,000 and $ 350,000 for this penalty to cost of goods sold,
respectively, for subsequent delayed engine delivery. As of April 2012, the maximum $400,000 contracted penalty has been provided and no
additional penalties in stock or cash are to be recognized on the contract.

NOTE 16 - DERIVATIVE LIABILITIES

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

Series A Convertible Preferred Stock

The Company’s Series A Convertible Preferred Stock entitled the holders of the preferred stock to convert the preferred stock into a fixed
percentage of the total outstanding common stock on a fully diluted basis, calculated on the date of conversion. The resulting derivative
liability is presented at its fair value on the accompanying balance sheets with changes in fair value reported in the statement of operations. In
May 2011, the holders of all of the outstanding shares of Series A Preferred Stock converted the shares into 95,100,000 shares of the
Company’s common stock. As a result of the conversion, the estimated fair value of the embedded conversion option of at the time of
conversion of $30,394,710 was reclassified into equity. There is no derivative liability related to this issuance as of June 30, 2012 or December
31, 2011. The fair value of the conversion option options had been estimated using a binomial lattice model using the following assumptions:

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


                                                                      F-38
Phoenix Common Stock Warrant

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

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

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

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

NOTE 17 – RECEIVABLES, DEFERRED REVENUE AND BACKLOG

As of June 30, 2012, the Company has accounts receivable of $502,045, which relates to uncollected work in progress billings due from the
U.S. Army/TACOM contract (see Note 19). For financial statement purposes, this receivable was offset against deferred revenue, and as a
result, does not appear in the consolidated Balance Sheets.

As of June 30, 2012, total backlog for prototype engines to be delivered in the following twelve months was $1.8 million, of which $100,000
had been paid and $502,045 had been invoiced, as noted above. This amount of backlog orders is inclusive of contracts with the U.S. Army
and Combilift, which the Company expects to be paid over the following nine to twelve months of the respective contracts’ development
periods.


                                                                     F-39
NOTE 18 – RECEIVABLES FACTORING

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

NOTE 19 – ACQUISITION OF ADVENT

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

As of June 2012, the Company has also assumed the position as prime contractor, which it believes will assist the Company in acquiring new
defense contracts in the future. As of July 5, 2012, the U.S. Army contract was modified from a “cost plus” with a price cap payment
arrangement to a “fixed fee” structure with milestone payments. On July 10, the Company successfully reached its first milestone under the
contract and submitted an invoice for $502,045, which has been approved for payment.

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

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


NOTE 20 – SUBSEQUENT EVENTS

Effective in the third quarter of 2012, the company entered into a capital equity financing arrangement with GEM Global Yield Fund Ltd.
("GGYF") Under the agreement, GGYF will purchase $250,000 in Cyclone's common stock at a 10% discount to the market price of the
shares. The common stock is being offered in a private placement transaction in reliance upon an exemption from registration pursuant to
Section 4(2) of the Securities Act of 1933 and Rule 506 of Regulation D. The shares will be restricted under Rule 144, and there are no
registration rights or warrants attached to the deal.

In June 2012, the Company officially assumed the role of prime contractor under the U.S. Army contract, and in July, reached our first
development milestone and submitted our initial billing of $502,045 for payment.


                                                                      F-40
CYCLONE POWER TECHNOLOGIES, INC.

          10,000,000 Common Shares
5,000,000 Common Shares underlying Warrants




                 Prospectus
                                                                     PART II

                                           INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution

The following table sets forth the expenses (estimated except for the registration fee) expected to be incurred in connection with this offering.

                        SEC Registration Fee                                                               $           338
                        Legal Fees and Expenses                                                            $        30,000
                        Accounting Fees and Expenses                                                       $        10,000
                        Printing Expenses                                                                  $         1,000
                         Miscellaneous                                                                     $         4,000
                         Total                                                                             $        45,338


Item 14. Indemnification of Directors and Officers

Florida Business Corporation Law

Pursuant to Section 607.0850 of the FBCL, the Company has the power to indemnify any person made a party to any lawsuit by reason of
being a director or officer of the Company, or serving at the request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys’ fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.

Our Articles of Incorporation provide that our directors and officers shall be indemnified and the Company shall advance expenses on behalf of
its officers and directors to the fullest extent not prohibited by law either now or hereafter.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the SEC, such indemnification is
against public policy as expressed in the Securities Act and is, therefore, unenforceable.

Directors’ and Officers’ Liability Insurance

We maintain directors’ and officers’ liability insurance policies, which insure against liabilities that directors or officers may incur in such
capacities. These insurance policies may be sufficiently broad to permit indemnification of our directors and officers for liabilities, including
reimbursement of expenses incurred, arising under the Securities Act or otherwise.

Item 15. Recent Sales of Unregistered Securities

In the past three years, we have issued the following securities in transactions not registered under the Securities Act of 1933, as amended (the
“Securities Act”):

         Sale of Common Stock

         
             In 2010 and 2011, the Company issued 2,062,222 and 8,511,764 shares of its Common Stock, respectively, to accredited and/or
             sophisticated investors in the U.S. at prices between $.06 and $.24 per shares. This total included shares of common stock sold to
             foreign investors at prices between $.06 and $.26. The Company paid a 10% to 20% finder’s fee on the foreign shares sold. The
             aggregate amount of funds received for the sales of these shares in 2010 and 2011 was $163,578 and $1,097,290,
             respectively. All Shares were issued pursuant to an exemption under Section 4(2) of the Securities Act of 1933, and Regulation D
             and/or regulations thereunder. Each of the U.S. purchasers of the shares completed Accredited Investor Questionnaires and
             Subscription Agreements. Those U.S investors who did not meet the qualifications of “accredited” as defined in the Securities Act
             of 1933, as amended, were required to provide additional information to demonstrate that they were sophisticated investors with
             knowledge of the investments similar to this one. All U.S. investors received a copy of the Company’s Annual Report in
connection with the issuance. Each of the foreign purchasers of the shares completed Subscription Agreements, with
representations that they were foreign investors.


                                                       II-1
Sale of Common Stock and Warrant Units


    In 2011, in connection with the sale of common stock, the Company issued warrants to purchase an aggregate of 3,611,251 shares
    of common stock exercisable at $.20 per share (with an aggregate Black Scholes value of $39,488). In 2012, in connection with
    the sale of 3,181,128 shares of common stock sold for consideration of $314,631, the Company issued warrant to purchase an
    aggregate of 2,440,000 shares of common stock at an exercise price of $.20 per share (with an aggregate Black Scholes value of
    $173,369). All these warrants are currently vested and terminate in between in 2014 and 2015. Both warrants and common shares
    have a price protection feature, whereby if the Company issues within 12 months (18 months with respect to the warrants) shares
    below $.20/share (excluding shares subject to an option plan, a limited number of shares issued to service providers not subject to
    a plan, a merger or acquisition, or pursuant to previously outstanding securities), the Company will issue more shares of common
    stock to the purchasers to reflect the lower price, and the warrants’ exercise price will be adjusted to the lower amount. All these
    securities were offered to accredited investors pursuant to an exemption under Section 4(2) of the Securities Act and Regulation D
    thereunder. An additional 86,128 shares of common stock were purchased in the second quarter of 2012 and in connection with
    these issuances for a subscription due of $8,613. Each of the purchasers of the shares completed Accredited Investor
    Questionnaires and Subscription Agreements, and received a copy of the Company’s Annual Report in connection with the
    issuances.

Issuance of Preferred Stock


    Between the dates of January 1, 2010 and May 12, 2011, the Company sold an aggregate of 185,547 shares of its Series A
    Convertible Preferred Stock to approximately 56 accredited investors at a price of $5.00 per share, for an aggregate of
    $913,335. The Company issued an aggregate of 19,953 shares of its Series A Convertible Preferred Stock to eight investors
    pursuant to the terms of eight separate accounts payable obligations of the Company in the aggregate amount of $99,765. An
    additional 25,000 shares of Series A Preferred were issued for the retirement of a note owed by the Company to one individual in
    the amount of $30,000. An additional 2,000 shares of Series A Preferred Stock was issued for services valued at $10,000. On May
    12, 2011, a total of 750,000 shares of Series A Preferred Stock, held by 63 shareholders, were converted into 95,100,000 shares of
    Company Common Stock in accordance with the terms and conditions of the Series Preferred Stock. No consideration was paid
    on the conversion, and the Company offered no incentives to effect the conversion. The securities were offered to the accredited
    investors pursuant to an exemption under Section 4(2) of the Securities Act and Regulation D thereunder. Each of the purchasers
    of the shares completed Accredited Investor Questionnaires and Subscription Agreements, and received a copy of the Company’s
    Annual Report in connection with the issuances.

Stock for Outside Services


    In 2010, the Company issued an aggregate of 4,077,280 shares of its Common Stock in connection with services rendered,
    including legal, accounting and marketing. The aggregate value of these services was $598,687, and they were priced between
    $.06 and $.26 per share. The Shares were issued to the accredited and/or sophisticated investors pursuant to an exemption from
    registration under Section 4(2) of the Securities Act of 1933 and the transfer was restricted. All investors received a copy of the
    Company’s Annual Report in connection with the issuance.

    In 2011, the Company issued an aggregate of 3,754,036 shares of its Common Stock in connection with services rendered,
    including legal, accounting and marketing. The aggregate value of these services was $1,004,021, and they were priced between
    $.07 and $.36 per share. The Shares were issued to the accredited and/or sophisticated investors pursuant to an exemption from
    registration under Section 4(2) of the Securities Act of 1933 and the transfer was restricted. All investors received a copy of the
    Company’s Annual Report in connection with the issuance.

    In 2012 through June 30, the Company issued an aggregate of 2,687,603 shares of its Common Stock in connection with services
    rendered, including legal, accounting and marketing. The aggregate value of these services was $462,870, and they were priced
    between $.16 and $.21 per share. The Shares were issued to the accredited and/or sophisticated investors pursuant to an
    exemption from registration under Section 4(2) of the Securities Act of 1933 and the transfer was restricted. All investors
    received a copy of the Company’s Annual Report in connection with the issuance.




                                                              II-2
Promissory Note Interest Payments


    In 2012, the Company issued 465,538 shares of common stock as pre-paid interest on promissory notes in the total principal
    amount of $465,000. The notes mature in 12 months, bear total interest of 18%, and are secured by accounts receivable of the
    Company in connection with its contract with the U.S. Army. In connection with this offering of promissory notes, the Company
    also issued 136,875 shares of common stock as commissions. An additional 160,000 shares were issued to one note holder in
    connection with the conversion of his previous debt to the current promissory note structure. All these securities were offered to
    accredited investors pursuant to an exemption under Section 4(2) of the Securities Act and Regulation D thereunder. Each of the
    purchasers of the shares completed Accredited Investor Questionnaires and Subscription Agreements, and received a copy of the
    Company’s Annual Report in connection with the issuances.

Convertible Notes


    In 2010, the Company issued an aggregate of 2,500,000 shares of its Common Stock to an accredited investor pursuant to the
    terms of an outstanding convertible note, in an aggregate amount of $171,550. The securities were offered pursuant to an
    exemption under Section 4(2) of the Securities Act of 1933, amended. The investor represented it was accredited, and received a
    copy of the Company’s Annual Report in connection with the issuance.

    In 2011, the Company issued an aggregate of 213,975 shares of its Common Stock to an accredited investor pursuant to the terms
    of an outstanding convertible note, in an aggregate amount of $39,804. The securities were offered pursuant to an exemption
    under Section 4(2) of the Securities Act of 1933, amended. The investor represented it was accredited, and received a copy of the
    Company’s Annual Report in connection with the issuance.

Stock Options to Employees


    In 2010, the Company issued an aggregate of 2,040,000 common stock options at an exercise prices between $.09 and $.12 per
    share to approximately 20 officers, directors and employees of the Company. The options have termination dates between 2015
    and 2020.

    In 2011, the Company issued an aggregate of 3,115,000 common stock options at an exercise prices between $.19 and $.33 per
    share to approximately 24 officers, directors and employees of the Company. The options have termination dates between 2016
    and 2021. 1,175,000 of these options are vested as of June 30, 2012.

    In 2012 through June 30, the Company issued an aggregate of 2,340,000 common stock options at an exercise prices between $.15
    and $.18 per share to approximately 24 officers, directors and employees of the Company. None of these options have
    vested. The options have termination dates between 2017 and 2022.

Stock Issued to Employees


    In 2010, the Company issued an aggregate of 1,681,500 shares of common stock to officers, directors and employees of the
    Company, at an aggregate value of $194,944. The securities were offered pursuant to an exemption under Section 4(2) of the
    Securities Act of 1933, amended, as transactions by an issuer not involving any public offering. The officers, directors and
    employees delivered appropriate investment representations to the Company, and based upon such investment representations,
    were either accredited or sophisticated investors. The officers, directors and employees received a copy of the Company’s annual
    report in connection with the issuances which contained audited financial statements as well as unaudited financials for the
    applicable quarterly period. Each party had an opportunity to ask questions of the Company and understood the risks of
    investment in the Company.

    In 2011, the Company issued an aggregate of 687,024 shares of common stock to officers, directors and employees of the
    Company, at an aggregate value of $196,372. The securities were offered pursuant to an exemption under Section 4(2) of the
    Securities Act of 1933, amended, as transactions by an issuer not involving any public offering. The officers, directors and
    employees delivered appropriate investment representations to the Company, and based upon such investment representations,
    were either accredited or sophisticated investors. The officers, directors and employees received a copy of the Company’s annual
    report in connection with the issuances which contained audited financial statements as well as unaudited financials for the
applicable quarterly period. Each party had an opportunity to ask questions of the Company and understood the risks of
investment in the Company.




                                                       II-3
         Warrants

         
             In 2010, the Company issued to one entity a warrant to purchase 770,500 common shares exercisable at $.15 a share, which is
             currently vested and terminated on August 23, 2012. The warrants were issued pursuant to an exemption of Section 4(2) of the
             Securities Act of 1933. The purchaser completed Accredited Investor Questionnaire and Subscription Agreement, and received a
             copy of the Company’s Annual Report in connection with the issuance.
         
             In 2011, the Company issued to one entity a warrant to purchase 750,000 common shares exercisable at $.30 a share, which is
             currently vested and terminates in September 2012. The warrants were issued pursuant to an exemption of Section 4(2) of the
             Securities Act of 1933. The purchaser completed Accredited Investor Questionnaire and Subscription Agreement, and received a
             copy of the Company’s Annual Report in connection with the issuance.
         
             In 2012, the Company issued 2,000,000 shares of common stock in connection with the full conversion and retirement of a
             warrant to purchase 2% of the Company fully diluted common stock (at the time of the conversion, the warrant could have been
             exercisable into approximately 4.5 million shares). The warrant holder converted the warrant without payment of cash. The
             securities were offered pursuant to an exemption under Section 4(2) of the Securities Act of 1933, amended.

         Acquisition of Advent

         
             In 2012, the Company issued 1,650,000 shares of common stock valued at $357,500 in connection with the Company’s
             acquisition of Advent Power Systems. The securities were offered pursuant to an exemption under Section 4(2) of the Securities
             Act of 1933, amended. The shareholders of Advent were either accredited or sophisticated investors who received copies of the
             Company’s annual report, which contained audited financial statements as well as unaudited financials for the applicable
             quarterly period.

         Other Issuances

         
             Between January 1, 2011 and June 30, 2012, the Company issued 1,854,804 shares of Common stock to a corporate customer as a
             penalty payment on a contract. The value of these shares was $400,000. The securities were offered pursuant to an exemption
             under Section 4(2) of the Securities Act of 1933, amended as transactions by an issuer not involving any public offering. The
             customer delivered appropriate investment representations to the Company. The customer received a copy of the Company’s
             annual report in connection with the issuance, which contained audited financial statements as well as unaudited financials for the
             applicable quarterly period. The customer had an opportunity to ask questions of the Company and understood the risks of
             investment in the Company.
         
             In April 2011, the Company issued 25,000 shares of its Common Stock to one entity under the terms of a settlement agreement.
             The securities were issued pursuant to an exemption from registration under Section 4(2) of the Securities Act of 1933, and the
             investor received a copy of the Company’s Annual Report in connection with the issuance.

Item 16. Exhibits and Financial Statement Schedules.

(a) See Exhibit Index

(b) Schedules not listed above have been omitted because the information required to be set forth therein is not applicable or is shown in the
    financial statements or notes thereto.




                                                                      II-4
Item 17. Undertakings

The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

              i. To include any prospectus required by section 10(a)(3) of the Securities Act of 1933;
              ii. To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent
    post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in
    the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value
    of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum
    offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
    changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the “Calculation of
    Registration Fee” table in the effective registration statement.
            iii. To include any material information with respect to the plan of distribution not previously disclosed in the registration
    statement or any material change to such information in the registration statement;

(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to
    be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to
    be the initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the
    termination of the offering.

(4) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling
    persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the
    Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore,
    unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses
    incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is
    asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the
    opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question
    whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such
    issue.

(5) Each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements
    relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the
    registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration
    statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference
    into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale
    prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the
    registration statement or made in any such document immediately prior to such date of first use.

(6) That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of
    the securities: The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this
    registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold
    to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be
    considered to offer or sell such securities to such purchaser:

            i. Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to
    Rule 424;
             ii. Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to
    by the undersigned registrant;
             iii. The portion of any other free writing prospectus relating to the offering containing material information about the undersigned
    registrant or its securities provided by or on behalf of the undersigned registrant; and
              iv. Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
II-5
(7) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as
    part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule
    424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared
    effective.

(8) For the purposes of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of
    prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities
    at that time shall be deemed to be the initial bona fide offering thereof.

(9) That, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to
    Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 that is incorporated by reference in this registration statement shall
    be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall
    be deemed to be the initial bona fide offering thereof.


                                                                        II-6
                                                                 SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of Pompano, State of Florida, on October 12, 2012.



                                                                        CYCLONE POWER TECHNOLOGIES, INC.

                                                                        By:   /s/ Harry Schoell
                                                                              Harry Schoell, Chairman & CEO



KNOWN ALL BY THESE PRESENT, that each person whose signature appears below constitutes and appoints Harry Schoell as his or her
true and lawful attorneys-in-fact and agent, with the full power of substitution, for him or her and in his or her name, place or stead, in any and
all capacities, to sign any and all amendments to this Registration Statement (including post-effective amendments), and to sign any registration
statement for the same offering covered by this Registration Statement that is to be effective upon filing pursuant to Rule 462(b) promulgated
under the Securities Act, and all post-effective amendments thereto, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to
do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed by the following persons in
the capacities and on the dates indicated.

                     Signature                                                     Title                                           Date

/s/ Harry Schoell                                                          Chairman and CEO
Harry Schoell                                                          (Principal executive officer)                        October 12, 2012

/s/ Bruce Schames*                                                       Chief Financial Officer                            October 12, 2012
Bruce Schames                                                  (principal financial and accounting officer)

/s/ Frankie Fruge*                                                Chief Operating Officer and Director                      October 12, 2012
Frankie Fruge

/s/ Christopher Nelson*                                               President and General Counsel                         October 12, 2012
Christopher Nelson

/s/ James C. Landon*                                                             Director                                   October 12, 2012
James C. Landon

*By: /s/ Harry Schoell
     Harry Schoell, Attorney-in-fact

                                                                       II-7
                                                           EXHIBIT INDEX
(a) Financial Statements – See Page F-1
(b) Exhibits

Exhibit No.   Description
3.1 *         Articles of Incorporation, dated June 14, 2007
3.2 *         Certificate of Domestication, dated June 14, 2007
3.3 *         Articles of Amendment to Articles of Incorporation containing Certificates of Designation for Series A Convertible Preferred
              Stock and Series B Preferred Stock, dated July 17, 2011
3.4 *         Articles of Amendment to Articles of Incorporation, dated July 27, 2007
3.5 *         Articles of Amendment to Articles of Incorporation, dated July 24, 2009
3.6 *         Articles of Amendment to Articles of Incorporation, dated March 30, 2010
3.7 *         Articles of Amendment to Articles of Incorporation, dated April 28, 2010
3.8 *         By-Laws of Cyclone Power Technologies, Inc.
4.1 †         Specimen Certificate for Common Shares
4.2 †         Form of Warrant
4.3 †         Form of Certificate of Designation of Preferences, Rights, and Limitations of Series C Preferred Shares
5.1 †††       Opinion of Roetzel & Andress
10.1 *        Employment Agreement, dated June 30, 2007, between the Company and Frankie Fruge
10.2 *        Employment Agreement, dated June 30, 2007, between the Company and Harry Schoell
10.3 *        Common Stock Purchase Warrant, dated July 30, 2009, between the Company and Phoenix Power Group, LLC
10.4 *        Cyclone Power Technologies’ 2010 Stock Option Plan
10.5 **       Employment Agreement, dated August 1, 2011, between the Company and Christopher Nelson
10.6 **       Employment Agreement, dated June 10, 2010, between the Company and Bruce Schames
10.7 **       Operations Agreement, dated July 2, 2007, between the Company and Schoell Marine, Inc.
10.8 **       Systems Application License Agreement, dated July 30, 2009, between the Company and Phoenix Power Group LLC, as
              amended
10.9 **       Technology License Agreement, dated December 11, 2009, between the Company and Great Wall Alternative Power Systems,
              Ltd., as amended
10.10 ****    Amended and Restated technology License Agreement, dated Jun 15, 2011, between the Company and Renovalia Energy, S.A.
10.11 **      Subcontractor Contract for Development of a Rankine Cycle Engine, dated December 20, 2010, between the Company and
              Advent Power Systems, Inc.
10.12 ***     Technology License Agreement, dated March 24, 2006, between the Company and Advent Power Systems, Inc., including
              Amendments thereto.
10.13 ***     Letter of Understanding, dated March 1, 2011, between the Company and TopLine Energy Systems, LLC
10.14 ***     Security Agreement, dated August 1, 2007, between the Company and Schoell Marine, Inc.
10.15 ***     Systems Application License Agreement, dated September 12, 2011, between the Company and Combilift.
10.16†        Asset Purchase Agreement, dated December 20, 2011, between Cyclone Power Technologies, Inc. and Advent Power Systems,
              Inc.
10.17††       Private Placement Purchase Agreement, by and between Cyclone Power Technologies, Inc. and GEM Global Yield Fund
              Limited, dated July 6, 2012
10.18†††      Common Stock Purchase Agreement, dated October 1, 2012, by and between Cyclone and GEM Global Yield Fund Limited
10.19†††      Registration Rights Agreement, dated October 1, 2012, by and between Cyclone and GEM Global Yield Fund Limited
10.20†††      Warrant to Purchase Shares of Common Stock, dated October 1, 2012, by and between Cyclone and GEM Global Yield Fund
              Limited
21 †††        Subsidiaries of the Company
23.1 †††      Consent of Mallah Furman
23.2 †††      Consent of Roetzel & Andress (included in Exhibit 5.1)
24.1 †††      Powers of Attorney (see signature page)

*             Incorporated by reference to exhibits filed with Form 10 on July 1, 2011.
**            Incorporated by reference to exhibits filed with Amendment No. 1 to Form 10 on August 24, 2011.
***           Incorporated by reference to exhibits filed with Amendment No. 2 to Form 10 on October 31, 2011.
****          Incorporated by reference to exhibits filed with Amendment No. 3 to Form 10 on November 21, 2011.
†             Incorporated by reference to exhibits filed with Current Report on Form 8-K on December 20, 2011.
††            Incorporated by reference to exhibits filed with Current Report on Form 8-K on July 11, 2011.
†††           Filed herewith.

                                                                  II-8
                                                                                                                                     Exhibit 5.1




                                                                                               ONE FINANCIAL CENTER
                                                                                               100 S.E. THIRD AVENUE, 8TH FLOOR
                                                                                               P.O. BOX 9748
                                                                                               FORT LAUDERDALE, FL 33310-9748
                                                                                               954.462.4150 MAIN
                                                                                               954.462.4260 FAX




                                                           October 11, 2012
The Board of Directors
Cyclone Power Technologies, Inc.
601 NE 26 th Court
Pompano Beach, FL 33065
      Re:
REGISTRATION STATEMENT ON FORM S-1;
            CYCLONE POWER TECHNOLOGIES, INC. (THE “COMPANY”)
Gentlemen:
          This opinion is submitted pursuant to the applicable rules of the Securities and Exchange Commission with respect to the
registration by the Company of a total of 15,000,000 shares of common stock, $0001 par value (“Common Stock”) to be issued to and
sold by a selling shareholder identified in the prospectus, including 5,000,000 shares of Common Stock (“Warrant Shares”) to be
issued upon exercise of common stock warrants (“Warrants”).

          In connection therewith, we have examined and relied upon original, certified, conformed, photostat or other copies of (i) the
Articles of Incorporation and Bylaws of the Company; (ii) resolutions of the Board of Directors of the Company authorizing the
offering and the issuance of the Warrant Shares and related matters; (iii) resolutions of the Board of Directors of the Company
authorizing the issuance of the Common Stock to the Selling Shareholders and related matters; (iv) the Registration Statement and the
exhibits thereto; and (v) such other matters of law as we have deemed necessary for the expression of the opinion herein contained. In
all such examinations, we have assumed the genuineness of all signatures on original documents, and the conformity to originals or
certified documents of all copies submitted to us as conformed, photostat or other copies. As to the various questions of fact material
to this opinion, we have relied, to the extent we deemed reasonably appropriate, upon representations or certificates of officers or
directors of the Company and upon documents, records and instruments furnished to us by the Company, without independently
checking or verifying the accuracy of such documents, records and instruments.

         We are members of the Bar of the State of Florida and express no opinion on any law other than the laws of the State of
Florida and applicable Federal Securities laws.

        Based upon the foregoing, we are of the opinion that (1) the shares of Common Stock shall be legally issued, fully paid and
non-assessable when issued pursuant to the terms of the Registration Statement and the Purchase Agreement; (2) the Warrant Shares,
when issued pursuant to the Registration Statement and Warrants, shall be legally issued, fully paid and non-assessable.

         We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and the use of our name under the
caption “Legal Matters” in the prospectus comprising part of the Registration Statement. In giving such consent, we do not thereby
admit that we are included in with the category of persons whose consent is required under the Act or the rules and regulations
promulgated thereunder.


                                                               Sincerely,
                                                               /s/ Roetzel & Andress LPA
                                                               ROETZEL & ANDRESS, LPA
CLEVELAND TOLEDO AKRON COLUMBUS CINCINNATI WASHINGTON, D.C. TALLAHASSEE ORLANDO FORT MYERS NAPLES FORT LAUDERDALE


                                                 www.ralaw.com
                                   EXHIBIT 10.18


COMMON STOCK PURCHASE AGREEMENT

    DATED AS OF OCTOBER 1, 2012

         BY AND BETWEEN

CYCLONE POWER TECHNOLOGIES, INC.

               AND

  GEM GLOBAL YIELD FUND LIMITED
                                                  TABLE OF CONTENTS

                                                                                                                    Page

ARTICLE I DEFINITIONS                                                                                                 1
Section 1.1 Definitions                                                                                               1

ARTICLE II PURCHASE AND SALE OF COMMON STOCK                                                                          4
Section 2.1 Purchase and Sale of Stock                                                                                4
Section 2.2 The Shares                                                                                                4
Section 2.3 Registration Statement                                                                                    4
Section 2.4 Purchase Price and Effective Date                                                                         4
Section 2.5 Current Report                                                                                            4

ARTICLE III REPRESENTATIONS AND WARRANTIES                                                                            4
Section 3.1 Representations and Warranties of the Company                                                             4
Section 3.2 Representatives and Warranties of the Purchaser                                                          10

ARTICLE IV COVENANTS                                                                                                 11
Section 4.1  Securities Compliance                                                                                   11
Section 4.2  Registration and Listing                                                                                11
Section 4.3  Warrant                                                                                                 12
Section 4.4  Registration Rights Agreement                                                                           12
Section 4.5  Compliance with Laws                                                                                    12
Section 4.6  Keeping of Records and Books of Account                                                                 12
Section 4.7  Limitations on Holdings and Issuances                                                                   12
Section 4.8  Registration Statement                                                                                  13
Section 4.9  Other Agreements and Other Financings                                                                   13
Section 4.10 Stop Orders                                                                                             13
Section 4.11 Selling Restrictions; Volume Limitations                                                                13
Section 4.12 Structuring Fee                                                                                         14
Section 4.13 Non-Public Information                                                                                  14
Section 4.14 DWAC Eligibility                                                                                        14

ARTICLE V OPINION OF COUNSEL AND CERTIFICATE; CONDITIONS TO THE SALE AND PURCHASE OF THE                             14
SHARES
Section 5.1 Opinion of Counsel and Certificate                                                                       14
Section 5.2 Conditions Precedent to the Obligation of the Company to Sell the Shares                                 14
Section 5.3 Conditions Precedent to the Obligation of the Purchaser To Accept a Draw Down and Purchase the Shares    15

ARTICLE VI DRAW DOWN TERMS                                                                                           17
Section 6.1 Draw Down Terms                                                                                          17
Section 6.2 Aggregate Limit                                                                                          18

ARTICLE VII Termination                                                                                              19
Section 7.1 Term, Termination by Mutual Consent                                                                      19
Section 7.2   Other Termination                              19
Section 7.3   Effect of Termination                          19

ARTICLE VIII INDEMNIFICATION                                 19
Section 8.1 General Indemnity                                19
Section 8.2 Indemnification Procedures                       20

ARTICLE IX MISCELLANEOUS                                     22
Section 9.1  Fees and Expenses                               22
Section 9.2  Specific Enforcement, Consent to Jurisdiction   22
Section 9.3  Entire Agreement; Amendment                     22
Section 9.4  Notices                                         22
Section 9.5  Waivers                                         23
Section 9.6  Headings                                        24
Section 9.7  Successors and Assigns                          24
Section 9.8  Governing Law                                   24
Section 9.9  Survival                                        24
Section 9.10 Counterparts                                    24
Section 9.11 Publicity                                       24
Section 9.12 Severability                                    24
Section 9.13 Further Assurances                              24
                                        COMMON STOCK PURCHASE AGREEMENT

        This COMMON STOCK PURCHASE AGREEMENT (this “ Agreement ”), dated as of October 1, 2012, is made by and
between Cyclone Power Technologies, Inc., a Florida corporation (the “ Company ”) and GEM Global Yield Fund Limited, a
company incorporated under the laws of the Cayman Islands (the “ Purchaser ”).

                                                            RECITALS

         WHEREAS , the parties desire that, upon the terms and subject to the conditions contained herein, the Company shall issue
and sell to the Purchaser and the Purchaser shall purchase up to a maximum of Two Million Five Hundred Thousand Dollars
($2,500,000) of the Company’s common stock, $0.0001 par value per share (the “ Common Stock ”).

        NOW, THEREFORE , the parties hereto agree as follows:

                                                          AGREEMENT

                                                           ARTICLE I
                                                          DEFINITIONS

        Section 1.1    Definitions .

                 (a)        “ Aggregate Limit ” shall have the meaning assigned to such term in Section 2.1 hereof.

                 (b)       “ Articles ” shall have the meaning assigned to such term in Section 3.1(c) hereof.

                 (c)       “ Bylaws ” shall have the meaning assigned to such term in Section 3.1(c) hereof.

                 (d)       “ Commission ” shall mean the Securities and Exchange Commission or any successor entity.

                     (e)      “ Commission Documents ” shall mean, as of a particular date, all reports, schedules, forms, statements
and other documents filed by the Company with the Commission pursuant to the reporting requirements of the Exchange Act,
including material filed pursuant to Section 13(a) or 15(d) of the Exchange Act, and shall include all information contained in such
filings and all filings incorporated by reference therein.

                 (f)      “ Common Stock ” shall have the meaning assigned to such term in the Recitals.

                  (g)       “ Daily Closing Price ” shall mean the closing bid price of the Common Stock, as recorded by the
Principal Market, on a particular day.

                 (h)       “ Draw Down ” means the transactions contemplated under Section 6.1 of this Agreement.


                                                                  1
                (i)      “ Draw Down Amount ” means the actual amount of proceeds to be paid by the Purchaser and received by
the Company on the Settlement Date in connection with a Draw Down.

               (j)       “ Draw Down Amount Requested ” shall mean the amount of a Draw Down requested by the Company in
its Draw Down Notice as provided in Section 6.1(h) hereof.

                  (k)       “ Draw Down Exercise Date ” shall have the meaning assigned to such term in Section 6.1(h) hereof.

                  (l)      “ Draw Down Limit ” shall have the meaning assigned to such term in Section 6.1(a) hereof.

                  (m)       “ Draw Down Notice ” shall mean a notice sent by the Company to exercise a Draw Down as provided in
Section 6.1(h) hereof.

                   (n)      “ Draw Down Pricing Period ” shall mean a period of ten (10) consecutive Trading Days commencing
with the first Trading Day designated in the Draw Down Notice, or such other period mutually agreed upon by the Purchaser and the
Company.

                  (o)       “ Effective Date ” shall mean the date of the execution and delivery this Agreement.

                  (p)       “ Environmental Laws ” shall have the meaning assigned to such term in Section 3.1(r) hereof.

                  (q)       “ Event Period ” shall have the meaning assigned to such term in Section 7.2 hereof.

                   (r)    “ Exchange Act ” shall mean the Securities Exchange Act of 1934, as amended, and the rules and
regulations of the Commission thereunder.

                  (s)      “ GAAP ” shall mean generally accepted accounting principles in the United States of America as applied
by the Company.

                  (t)      “ Indebtedness ” shall have the meaning assigned to such term in Section 3.1(k) hereof.

                  (u)       “ Investment Period ” shall have the meaning assigned to such term in Section 7.1 hereof.

                 (v)      “ Market Capitalization ” shall be calculated on the Trading Day preceding each Draw Down Pricing
Period and shall be the product of (x) the number of shares of Common Stock outstanding and (y) the closing bid price of the
Common Stock, both as determined by Bloomberg Financial LP using the DES and HP functions.

                  (w)        “ Material Adverse Effect ” shall mean any effect on the business, operations, properties or financial
condition of the Company that is material and adverse to the Company and its subsidiaries and affiliates, taken as a whole, and/or any
condition, circumstance, or situation that would prohibit or otherwise materially interfere with the ability of the Company to enter into
and perform any of its obligations under this Agreement in any material respect.


                                                                   2
                  (x)      “ Material Agreements ” shall have the meaning assigned to such term in Section 3.1(s) hereof.

              (y)         “ Material Change in Ownership ” shall mean that (i) the owners of 5% or more of the outstanding
Common Stock and (ii) the Company’s officers and directors, shall beneficially own in the aggregate less than 15% of the outstanding
Common Stock.

                  (z)      “ Other Financing ” shall have the meaning assigned to such term in Section 4.10(b) hereof.

                  (aa)     “ Plan ” shall have the meaning assigned to such term in Section 3.1(y) hereof.

               (bb)       “ Principal Market ” shall mean the OTC Bulletin Board or any U.S. national securities exchange on which
the Common Stock is traded.

                  (cc)      “ Purchase Price ” shall have the meaning assigned to such term in Section 6.1(a) hereof.

                  (dd)       “ Registration Statement ” shall mean the registration statement on Form S-1 under the Securities Act, to
be filed by the Company with the Commission with respect to the registration of the Shares to be issued under the Draw Downs,
pursuant to the Registration Rights Agreement attached hereto as Exhibit A hereto (the “ Registration Rights Agreement ”).

                (ee)        “ Securities Act ” shall mean the Securities Act of 1933, as amended, and the rules and regulations of the
Commission thereunder.

                  (ff)       “ Settlement Date ” shall have the meaning assigned to such term in Section 6.1(d) hereof.

                 (gg)      “ Shares ” shall mean, collectively, the registered shares of Common Stock of the Company issuable to
the Purchaser upon exercise of any Draw Down and those shares of Common Stock issuable to the Purchaser upon exercise of the
Warrants.

                  (hh)      “ Significant Subsidiary ” shall have the meaning assigned to such term in Section 3.1(g) hereof.

                 (ii)       “ Subsidiary ” shall mean any corporation or other entity of which at least a majority of the securities or
other ownership interest having ordinary voting power (absolutely or contingently) for the election of directors or other persons
performing similar functions are at the time owned directly or indirectly by the Company and/or any of its other subsidiaries.

                   (jj)        Threshold Price ” is the lowest price at which the Company may sell Shares during a Draw Down Pricing
Period, as set forth in the Draw Down Notice.


                                                                   3
                  (kk)      “ Trading Day ” shall mean a trading day on the Principal Market.

                  (ll)       “ Warrants ” shall have the meaning assigned to such term in Section 4.3 hereof.

                                                     ARTICLE II
                                         PURCHASE AND SALE OF COMMON STOCK

          Section 2.1   Purchase and Sale of Stock . Subject to the terms and conditions of this Agreement, the Company shall issue
and sell to the Purchaser and the Purchaser shall purchase from the Company during the Investment Period (as defined in Section 7.1)
up to a maximum of $2,500,000 of Common Stock (the “ Aggregate Limit ”) on a firm commitment basis. The aggregate dollar
amount of all Draw Down Amounts pursuant to the terms and conditions of this Agreement shall not exceed the Aggregate Limit.

         Section 2.2     T he Shares . The Company has or will have authorized and has or will have reserved, and covenants to
continue to so reserve once reserved, free of preemptive rights and other similar contractual rights of stockholders, a sufficient number
of its authorized but unissued shares of its Common Stock to cover the Shares to be issued in connection with all Draw Downs
requested under this Agreement and to be issued in connection with the exercise of the Warrants, in any case prior to the issuance to
the Purchaser of such Shares under this Agreement.

       Section 2.3    Registration Statement . The Company shall prepare and file an S-1 Registration Statement with the
Commission in accordance with the provisions of the Securities Act and the Registration Rights Agreement.

         Section 2.4    Purchase Price and Effective Date . In consideration of and in express reliance upon the representations,
warranties, covenants, terms and conditions of this Agreement, the Company agrees to issue and sell to the Purchaser, and the
Purchaser agrees to purchase, that number of the Shares to be issued in connection with each Draw Down in accordance with the terms
and conditions of this Agreement.

          Section 2.5     Current Report . As soon as practicable, but in any event not later than 5:30 p.m. (New York time) on the
fourth Trading Day immediately following the Effective Date, the Company shall file with the Commission a report on Form 8-K
relating to the transactions contemplated by, and describing the material terms and conditions of, this Agreement (the “ Current Report
”). The Current Report shall include a copy of this Agreement as an exhibit. The Company heretofore has provided the Purchaser a
reasonable opportunity to comment on a draft of such Current Report and has given due consideration to such comments.

                                                     ARTICLE III
                                           REPRESENTATIONS AND WARRANTIES

         Section 3.1      Representations and Warranties of the Company . The Company hereby makes the following
representations and warranties to the Purchaser as of the date hereof and as of the Effective Date:


                                                                   4
                  (a)         Organization, Good Standing and Power . The Company is a corporation duly incorporated, validly
existing and in good standing under the laws of Florida and has the requisite corporate power to own, lease and operate its properties
and assets and to conduct its business as it is now being conducted. Except as set forth in Schedule 3.1(a), as of the Effective Date, the
Company does not have any Subsidiaries. The Company is duly qualified as a foreign corporation to do business and is in good
standing in every jurisdiction in which the nature of the business conducted or property owned by it makes such qualification
necessary except for any jurisdiction in which the failure to be so qualified will not have a Material Adverse Effect.

                  (b)         Authorization, Enforcement . The Company has the requisite corporate power and authority to enter
into and perform this Agreement and to issue and sell the Shares in accordance with the terms hereof. Except for approvals of the
Company’s Board of Directors or a committee thereof as may be required in connection with any issuance and sale of Shares to the
Purchaser hereunder, the execution, delivery and performance of this Agreement by the Company and the consummation by it of the
transactions contemplated hereby have been duly and validly authorized by all necessary corporate action, and, except as contemplated
by Section 2.2, no further consent or authorization of the Company or its Board of Directors or stockholders is required. This
Agreement has been duly executed and delivered by the Company. This Agreement constitutes, or shall constitute when executed and
delivered, a valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation, conservatorship,
receivership or similar laws relating to, or affecting generally the enforcement of, creditor’s rights and remedies or by other equitable
principles of general application.

                   (c)        Capitalization . The authorized capital stock of the Company and the shares thereof issued and
outstanding as of the Effective Date are set forth in the Commission Documents or on Schedule 3.1(c) attached hereto. All of the
outstanding shares of Common Stock have been duly and validly authorized, and are fully paid and nonassessable. Except as set forth
in Schedule 3.1(c), as of the Effective Date, no shares of Common Stock are entitled to preemptive rights or registration rights and
there are no outstanding options, warrants, scrip, rights to subscribe to, call or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the Company. Furthermore, except as set forth in Schedule 3.1(c),
there are no contracts, commitments, understandings, or arrangements by which the Company is or may become bound to issue
additional shares of the capital stock of the Company or options, securities or rights convertible into shares of capital stock of the
Company. Except for customary transfer restrictions contained in agreements entered into by the Company in order to sell restricted,
as of the Effective Date, the Company is not a party to, and it has no knowledge of, any agreement restricting the voting or transfer of
any shares of the capital stock of the Company. The offer and sale of all capital stock, convertible securities, rights, warrants, or
options of the Company issued prior to the Effective Date complied in all material respects with all applicable federal and state
securities laws, and no stockholder has a right of rescission or damages with respect thereto which would have a Material Adverse
Effect. The Company has furnished or made available to the Purchaser true and correct copies of the Company’s Certificate of
Incorporation as in effect on the Effective Date (the “ Articles ”), and the Company’s Bylaws as in effect on the Effective Date (the “
Bylaws ”).


                                                                    5
                   (d)        Issuance of Shares . The Shares to be issued under this Agreement have been or will be (prior to
issuance to the Purchaser hereunder) duly authorized by all necessary corporate action and, when paid for or issued in accordance with
the terms hereof, the Shares shall be validly issued and outstanding, fully paid and nonassessable, and the Purchaser shall be entitled to
all rights accorded to a holder of Common Stock.

                   (e)        No Conflicts . The execution, delivery and performance of this Agreement by the Company and the
consummation by the Company of the transactions contemplated herein do not (i) violate any provision of the Company’s Articles or
Bylaws, (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or cancellation of, any material agreement, mortgage, deed
of trust, indenture, note, bond, license, lease agreement, instrument or obligation to which the Company is a party, (iii) create or
impose a lien, charge or encumbrance on any property of the Company under any agreement or any commitment to which the
Company is a party or by which the Company is bound or by which any of its respective properties or assets are bound, or (iv) result
in a violation of any federal, state, local or foreign statute, rule, regulation, order, judgment or decree (including federal and state
securities laws and regulations) applicable to the Company or any of its subsidiaries or by which any property or asset of the Company
or any of its subsidiaries are bound or affected, except, in all cases, for such conflicts, defaults, terminations, amendments,
acceleration, cancellations and violations as would not, individually or in the aggregate, have a Material Adverse Effect. The
Company is not required under federal, state or local law, rule or regulation to obtain any consent, authorization or order of, or make
any filing or registration with, any court or governmental agency in order for it to execute, deliver or perform any of its obligations
under this Agreement, or issue and sell the Shares to the Purchaser in accordance with the terms hereof (other than any filings which
may be required to be made by the Company with the Commission or the Principal Market subsequent to the Effective Date, including
the Registration Statement and any registration statement, amendment, prospectus or prospectus supplement which may be filed
pursuant hereto); provided, however, that, for purposes of the representation made in this sentence, the Company is assuming and
relying upon the accuracy of the representations, warranties and agreements of the Purchaser herein.

                   (f)        Commission Documents, Financial Statements . The Common Stock is registered pursuant to Section
12(b) or 12(g) of the Exchange Act and, as of the Effective Date the Company has timely filed all Commission Documents. The
Company has delivered or made available to the Purchaser true and complete copies of the Commission Documents filed with the
Commission since March 31, 2012 and prior to the Effective Date. The Company has not provided to the Purchaser any information
which, according to applicable law, rule or regulation, should have been disclosed publicly by the Company but which has not been so
disclosed, other than with respect to the transactions contemplated by this Agreement. As of their respective filing dates, the
Commission Documents complied in all material respects with the requirements of the Exchange Act and other federal, state and local
laws, rules and regulations applicable to it, and, as of its date, the Commission Documents did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading. The financial statements of the Company included in the
Commission Documents comply as to form in all material respects with applicable accounting requirements and the published rules
and regulations of the Commission or other applicable rules and regulations with respect thereto. Such financial statements have been
prepared in accordance with GAAP applied on a consistent basis during the periods involved (except (i) as may be otherwise indicated
in such financial statements or the notes thereto or (ii) in the case of unaudited interim statements, to the extent they may not include
footnotes or may be condensed or summary statements), and fairly present in all material respects the financial position of the
Company and its subsidiaries as of the dates thereof and the results of operations and cash flows for the periods then ended (subject, in
the case of unaudited statements, to normal year-end audit adjustments).


                                                                    6
              (g)       No Material Adverse Effect or Material Change in Ownership . Since the filing of the March 31,
2012 Form 10-Q, no Material Adverse Effect or any Material Change in Ownership has occurred or exists with respect to the
Company.

                  (h)        No Undisclosed Liabilities. N either the Company nor any of its subsidiaries has any liabilities,
obligations, claims or losses (whether liquidated or unliquidated, secured or unsecured, absolute, accrued, contingent or otherwise)
that would be required to be disclosed on a balance sheet of the Company or any Subsidiary (including the notes thereto) in
conformity with GAAP and are not disclosed in the Commission Documents.

                 (i)        No Undisclosed Events or Circumstances . No event or circumstance has occurred or exists with
respect to the Company or its subsidiaries or their respective businesses, properties, prospects, operations or financial condition,
which, under applicable law, rule or regulation, requires public disclosure or announcement by the Company but which has not been
so publicly announced or disclosed.

                  (j)        Indebtedness . The Commission Documents as of the date hereof and the Effective Date set forth all
outstanding secured and unsecured Indebtedness of the Company, or for which the Company or any Subsidiary has commitments
through such date. For the purposes of this Agreement, “ Indebtedness ” shall mean (a) any liabilities for borrowed money or amounts
owed in excess of $1,000,000 (other than trade accounts payable incurred in the ordinary course of business), (b) all guaranties,
endorsements and other contingent obligations in respect of Indebtedness of others in excess of $1,000,000, whether or not the same
are or should be reflected in the Company’s balance sheet (or the notes thereto), except guaranties by endorsement of negotiable
instruments for deposit or collection or similar transactions in the ordinary course of business; and (c) the present value of any lease
payments in excess of $1,000,000 due under leases required to be capitalized in accordance with GAAP. Neither the Company nor
any Subsidiary is in default with respect to any Indebtedness.

                 (k)        Title To Assets . Except as set forth in Schedule 3.1(k), each of the Company and its Subsidiaries has
good and marketable title to all of their respective real and personal property reflected in the Commission Documents, free of any
mortgages, pledges, charges, liens, security interests or other encumbrances, except for those that do not or would not have a Material
Adverse Effect. All said real property leases of the Company are valid and subsisting and in full force and effect in all material
respects.

                  (l)        Actions Pending . There is no action, suit, claim, investigation or proceeding pending or, to the
knowledge of the Company, threatened against the Company or any Subsidiary which questions the validity of this Agreement or the
transactions contemplated hereby or any action taken or to be taken pursuant hereto or thereto. There is no action, suit, claim,
investigation or proceeding pending or, to the knowledge of the Company, threatened, against or involving the Company, any
Subsidiary or any of their respective properties or assets and which, if determined adversely to the Company or its Subsidiary, would
have a Material Adverse Effect.


                                                                   7
                   (m)        Compliance With Law . The business of the Company and the subsidiaries has been and is presently
being conducted in all material respects in accordance with all applicable federal, state and local governmental laws, rules, regulations
and ordinances, except as, individually or in the aggregate, do not or would not have a Material Adverse Effect. The Company and
each of its subsidiaries have all franchises, permits, licenses, consents and other governmental or regulatory authorizations and
approvals necessary for the conduct of its business as now being conducted by it, except where the failure to possess such franchises,
permits, licenses, consents and other governmental or regulatory authorizations and approvals, individually or in the aggregate, do not
or would not have a Material Adverse Effect.

                (n)        Certain Fees . No brokers, finders or financial advisory fees or commissions will be payable by the
Company or any Subsidiary with respect to the transactions contemplated by this Agreement; except that finder’s fee will be payable
to GEMIA Inc., and Gulf Partners LLC, or their respective affiliated entities, in connection with this transaction.

                    (o)        Disclosure . Neither this Agreement nor the Commission Documents or any other documents,
certificates or instruments furnished to the Purchaser by or on behalf of the Company in connection with the transactions contemplated
by this Agreement contain any untrue statement of a material fact or omits to state a material fact necessary in order to make the
statements made herein or therein, in the light of the circumstances under which they were made herein or therein, not misleading.

                 (p)        Operation Of Business . The Company or one or more of its subsidiaries owns or controls all patents,
trademarks, service marks, trade names, copyrights, licenses and authorizations of the Company as set forth in the Commission
Documents, and all rights with respect to the foregoing, which are necessary for the conduct of its business as now conducted without,
to the Company’s knowledge, any conflict with the rights of others, except to the extent that any such conflict would not have a
Material Adverse Effect.

                  (q)        [Intentionally Omitted].

                   (r)       Material Agreements . The Company is not a party to any written or oral contract, instrument,
agreement, commitment, obligation, plan or arrangement, a copy of which would be required to be filed with the Commission as an
exhibit to an annual report on Form 10-K (collectively, “ Material Agreements ”) which has not been filed in the Commission
Documents. The Company has in all material respects performed all the obligations required to be performed by them to date under
the Material Agreements, have received no notice of default by the Company thereunder and, to the best of the Company’s knowledge,
are not in default under any Material Agreement now in effect, the result of which would have a Material Adverse Effect.


                                                                   8
                  (s)       Transactions With Affiliates . Except as set forth in the Commission Documents, there are no loans,
leases, agreements, contracts, royalty agreements, management contracts or arrangements or other continuing transactions exceeding
$100,000 between (a) the Company or any Subsidiary, on the one hand, and (b) any person or entity who would be covered by Item
404(a) of Regulation S-K, on the other hand.

                   (t)       Securities Act . The Company will comply in all material respects with all applicable federal and state
securities laws in connection with the offer, issuance and sale of the Shares hereunder. The Company will comply, when so filed, in
all material respects with the provisions of the Securities Act. The Commission has not issued any order preventing or suspending the
use of the Registration Statement. The Registration Statement, in the form in which it will become effective, and also in such form as
it may be amended or supplemented from time to time, will comply in all material respects with the provisions of the Securities Act
and will not at any such time contain an untrue statement of a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein in the light of the circumstances under which they are made, not misleading. The
Company has not distributed and, prior to the completion of the distribution of the Shares, will not distribute any offering material in
connection with the offering and sale of the Shares other than the Registration Statement, the related prospectus or other materials, if
any, permitted by the Securities Act.

                  (u)        Employees . As of the date hereof and as of the Effective Date, the Company does not have any
collective bargaining arrangements or agreements covering any of its employees. As of the date hereof and as of the Effective Date,
no officer, consultant or key employee of the Company whose termination, either individually or in the aggregate, would have a
Material Adverse Effect, has terminated or, to the knowledge of the Company, has any present intention of terminating his or her
employment or engagement with the Company.

                 (v)        Use of Proceeds . The proceeds from the sale of the Shares will be used by the Company for general
corporate purposes including for acquisitions and working capital.

                  (w)         Investment Company Act Status . The Company is not, and as a result of and immediately upon
Effective Date will not be, an “ investment company ” or a company “ controlled ” by an “ investment company ,” within the meaning
of the Investment Company Act of 1940, as amended.

                 (x)        ERISA . No liability to the Pension Benefit Guaranty Corporation has been incurred with respect to any
Plan by the Company or any of its subsidiaries which is or would have a Material Adverse Effect. The execution and delivery of this
Agreement and the issue and sale of the Shares will not involve any transaction which is subject to the prohibitions of Section 406 of
ERISA or in connection with which a tax could be imposed pursuant to Section 4975 of the Internal Revenue Code of 1986, as
amended. As used in this Section 3.1(y), the term “ Plan ” shall mean an “ employee pension benefit plan ” (as defined in Section 3 of
ERISA) which is or has been established or maintained, or to which contributions are or have been made, by the Company or any
Subsidiary or by any trade or business, whether or not incorporated, which, together with the Company or any Subsidiary, is under
common control, as described in Section 414(b) or (c) of the Code.

                  (y)        (Intentionally Omitted) .


                                                                    9
                  (z)       Acknowledgment Regarding Purchaser’s Purchase of Shares . The Company acknowledges and
agrees that the Purchaser is acting solely in the capacity of an arm’s length purchaser with respect to this Agreement and the
transactions contemplated hereunder. The Company further acknowledges that the Purchaser is not acting as a financial advisor or
fiduciary of the Company (or in any similar capacity) with respect to this Agreement and the transactions contemplated hereunder and
any advice given by the Purchaser or any of its representatives or agents in connection with this Agreement and the transactions
contemplated hereunder is merely incidental to the Purchaser’s purchase of the Shares.

         Section 3.2     Representatives and Warranties of the Purchaser . The Purchaser hereby makes the following
representations and warranties to the Company:

                  (a)       Organization and Standing of the Purchaser . The Purchaser is a company duly incorporated, validly
existing and in good standing under the laws of the Cayman Islands.

                  (b)         Authorization and Power . The Purchaser has the requisite corporate power and authority to enter into
and perform this Agreement and to purchase the Shares in accordance with the terms hereof. The execution, delivery and performance
of this Agreement by Purchaser and the consummation by it of the transactions contemplated hereby have been duly authorized by all
necessary corporate action, and no further consent or authorization of the Purchaser, its Board of Directors or stockholders is
required. This Agreement has been duly executed and delivered by the Purchaser. This Agreement constitutes, or shall constitute
when executed and delivered, a valid and binding obligation of the Purchaser enforceable against the Purchaser in accordance with its
terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation,
conservatorship, receivership, or similar laws relating to, or affecting generally the enforcement of, creditor’s rights and remedies or
by other equitable principles of general application.

                   (c)         No Conflicts . The execution, delivery and performance of this Agreement and the consummation by
the Purchaser of the transactions contemplated hereby and thereby or relating hereto do not and will not (i) result in a violation of such
Purchaser’s charter documents or bylaws or (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or
both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any
material agreement, mortgage, deed of trust, indenture, note, bond, license, lease agreement, instrument or obligation to which the
Purchaser is a party, (iii) create or impose or lien, charge or encumbrance on any property of the Purchaser under any agreement or
any commitment to which the Purchaser is party or by which the Purchaser is bound or by which any of its respective properties or
assets are bound, or (iv) result in a violation of any law, rule, or regulation, or any order, judgment or decree of any court or
governmental agency applicable to the Purchaser or its properties, except for such conflicts, defaults and violations as would not,
individually or in the aggregate, prohibit or otherwise interfere with the ability of the Purchaser to enter into and perform its
obligations under this Agreement in any material respect. The Purchaser is not required to obtain any consent, authorization or order
of, or make any filing or registration with, any court or governmental agency in order for it to execute, deliver or perform any of its
obligations under this Agreement or to purchase the Shares in accordance with the terms hereof; provided, however, that for purposes
of the representation made in this sentence, the Purchaser is assuming and relying upon the accuracy of the representations, warranties
and agreements of the Company herein.


                                                                   10
                  (d)        Accredited Investor . The Purchaser is an “accredited investor” as defined in Regulation D promulgated
under the Securities Act.

                  (e)        Financial Risks . The Purchaser acknowledges that it is able to bear the financial risks associated with an
investment in the Shares. The Purchaser is capable of evaluating the risks and merits of an investment in the Shares by virtue of its
experience as an investor and its knowledge, experience, and sophistication in financial and business matters and the Purchaser is
capable of bearing the entire loss of its investment in the Shares.

                   (f)        Information . The Purchaser and its advisors, if any, have been furnished with all materials relating to
the business, finances and operations of the Company and materials relating to the offer and sale of the Shares which have been
requested by the Purchaser. The Purchaser and its advisors, if any, have been afforded the opportunity to ask questions of the
Company. The Purchaser has sought such accounting, legal and tax advice as it has considered necessary to make an informed
investment decision with respect to its acquisition of the Shares. The Purchaser understands that it (and not the Company) shall be
responsible for its own tax liabilities that may arise as a result of this investment or the transactions contemplated by this Agreement.

                                                            ARTICLE IV
                                                            COVENANTS

         The Company covenants with the Purchaser, and the Purchaser covenants with the Company, as follows, which covenants of
one party are for the benefit of the other party, during the Investment Period.

         Section 4.1    Securities Compliance .

                 (a)       The Company shall notify the Commission and the Principal Market, if applicable, in accordance with
their rules and regulations, of the transactions contemplated by this Agreement, and shall take all other necessary action and
proceedings as may be required and permitted by applicable law, rule and regulation, for the legal and valid issuance of the Shares to
the Purchaser. The Company agrees that it shall, within the time required under the Exchange Act file a report on Form 8-K disclosing
this Agreement and the transaction contemplated hereby.

                  (b)        The Company shall take such action, if any, as is reasonably necessary in order to obtain an exemption for
or to qualify any subsequent resale of the Shares by the Investor, in each case, under applicable securities or “Blue Sky” laws of the
states of the United States in such states as is reasonably requested by the Investor from time to time, and shall provide evidence of
any such action so taken to the Investor.

         Section 4.2      Registration and Listing . The Company will take all action necessary to cause its Common Stock to
continue to be registered under Sections 12(b) or 12(g) of the Exchange Act, will comply in all material respects with its reporting and
filing obligations under the Exchange Act and take all action necessary to maintain compliance with such reporting and filing
obligations, and will not take any action or file any document (whether or not permitted by the Securities Act) to terminate or suspend
such registration or to terminate or suspend its reporting and filing obligations under the Exchange Act or Securities Act, except as
permitted herein. The Company will take all action necessary to continue the listing or trading of its Common Stock and the listing of
the Shares purchased by Purchaser hereunder on Principal Market or any relevant market or system, if applicable, and will comply in
all respects with the Company’s reporting, filing and other obligations under the bylaws or rules of the Principal Market or any
relevant market or system.


                                                                   11
         Section 4.3     W arrant . On the Effective Date, the Company shall deliver to the Purchaser a common stock purchase
warrant, in the form attached hereto as Exhibit B (the “ Warrant ”), to purchase up to 5,000,000 shares of Common Stock at an
exercise price per share of $0.27, with an expiration date that is the fifth anniversary of the Effective Date, subject to the terms and
conditions of the Warrant, including the vesting schedule set forth therein. The Company shall issue additional warrants to the
Purchaser, pursuant to terms agreed upon by both parties, after the Company has issued, and the Purchaser has purchased, $2 million
dollars worth of Common Stock through the exercise of Draw Downs.

       Section 4.4     Registration Rights Agreement . The Company and the Purchaser shall enter into the Registration Rights
Agreement with respect to the Shares, dated the Effective Date, in the form of Exhibit A attached hereto.

         Section 4.5     Compliance with Laws .

                  (a)       The Company shall comply with all applicable laws, rules, regulations and orders (including without
limitation Rule 415(a)(4) under the Securities Act) noncompliance with which would have a Material Adverse Effect.

                 (b)       The Purchaser shall comply with all applicable laws, rules, regulations and orders in connection with this
Agreement and the transactions contemplated hereby. Without limiting the foregoing, the Purchaser shall comply with the
requirements of the Securities Act and the Exchange Act including without limitation Rule 415(a)(4) under the Securities Act and
Rule 10b-5 and Regulation M under the Exchange Act.

         Section 4.6    Keeping of Records and Books of Account . The Company shall keep adequate records and books of
account, in which complete entries will be made in accordance with GAAP consistently applied, reflecting all financial transactions of
the Company, and in which, for each fiscal year, all proper reserves for depreciation, depletion, obsolescence, amortization, taxes, bad
debts and other purposes in connection with its business shall be made.

         Section 4.7     Limitations on Holdings and Issuances . Notwithstanding anything in this Agreement to the contrary, at no
time may the Company issue, and at no time shall the Purchaser be obligated to purchase, any Shares which would result in the
Purchaser beneficially owning, directly or indirectly, at the time of such proposed issuance more than 4.9% of the number of shares of
Common Stock issued and outstanding as of the date of such proposed issuance; provided , however , that upon the Purchaser
providing the Company with sixty-one (61) days notice (pursuant to Section 9.4 hereof) (the " Waiver Notice ") that the Purchaser
would like to waive this Section 4.7 with regard to any or all Shares issuable pursuant to this Agreement, this Section 4.7 will be of no
force or effect with regard to all or a portion of the Shares referenced in the Waiver Notice until the date that the Purchaser notifies the
Company (pursuant to Section 9.4 hereof) that the Purchaser revokes the Waiver Notice; provided , further , that during the sixty-one
(61) day period prior to the expiration of the Investment Period, the Purchaser may waive this Section 4.7 by providing a Waiver
Notice at any time during such sixty-one (61) day period.


                                                                    12
         Section 4.8     Registration Statement . Within 30 days of the Effective Date, the Company shall cause the Registration
Statement to be filed and seek that it be declared effective pursuant to the terms of the Registration Rights Agreement. The
Registration Statement shall register with the Commission the Shares to be issued under the Draw Downs. The Purchaser shall not be
obligated to accept a Draw Down request from the Company unless the Registration Statement is then effective and the prospectus
included in the Registration Statement is then current and in compliance with all applicable rules.

         Section 4.9    Other Agreements and Other Financings .

                   (a)      The Company shall not enter into any agreement in which the terms of such agreement would restrict or
impair the right to perform of the Company or any Subsidiary under this Agreement or the Articles.

                   (b)      The Company shall not enter into any agreement, the principal purpose of which is to secure an Other
Financing (as defined below) during the Investment Period. “ Other Financing ” shall mean an “equity line” that is substantially
similar to the financing provided for under this Agreement.

          Section 4.10      Stop Orders . The Company will advise the Purchaser promptly and, if requested by the Purchaser, will
confirm such advice in writing: (i) of the Company’s receipt of notice of any request by the Commission for amendment of or a
supplement to the Registration Statement, any related prospectus or for additional information; (ii) of the Company’s receipt of notice
of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or of the suspension of
qualification of the Shares for offering or sale in any jurisdiction or the initiation of any proceeding for such purpose; and (iii) of the
Company becoming aware of the happening of any event, which makes any statement of a material fact made in the Registration
Statement (as then amended or supplemented) untrue or which requires the making of any additions to or changes in the Registration
Statement (as then amended or supplemented) in order to state a material fact required by the Securities Act to be stated therein or
necessary in order to make the statements therein not misleading. If at any time the Commission shall issue any stop order suspending
the effectiveness of the Registration Statement, the Company will make commercially reasonable efforts to obtain the withdrawal of
such order at the earliest possible time.

         Section 4.11     Selling Restrictions; Volume Limitations .

                   (a)       The Purchaser covenants that during the Investment Period neither the Purchaser nor any of its affiliates
nor any entity managed by the Purchaser will, directly or indirectly, sell any securities of the Company except the Shares that it owns
or has the right to purchase pursuant to the provisions of a Draw Down Notice. During the Investment Period, neither the Purchaser
nor any of its affiliates nor any entity managed by the Purchaser will enter into a short position with respect to shares of Common
Stock of the Company, including in any account of the Purchaser’s or in any account directly or indirectly managed by the Purchaser
or any affiliate of the Purchaser or any entity managed by the Purchaser. During the Investment Period, the Purchaser shall not grant
any option to purchase or acquire any right to dispose or otherwise dispose for value of any shares of Common Stock or any securities
convertible into, or exchangeable for, or warrants to purchase, any shares of Common Stock, or enter into any swap, hedge or other
agreement that transfers, in whole or in part, the economic risk of ownership of the Common Stock, except for such sales permitted by
the preceding two sentences. In addition, on a daily Trading Day basis, the Purchaser agrees to restrict the volume of sales of Shares
by the Purchaser, its affiliates and any entity managed by the Purchaser to no more than ten percent (10%) (or such other percentage
based on the length of the Draw Down Pricing Period) of the Shares purchased pursuant to such Draw Down Notice.


                                                                    13
                   (b)       In addition to the foregoing, in connection with any sale of the Company’s securities (including any short
sale permitted by the preceding paragraph), the Purchaser shall comply in all respects with all applicable laws, rules, regulations and
orders, including, without limitation, the requirements of the Securities Act and the Exchange Act, including, without limitation, Rule
415(a)(4) under the Securities Act and Regulation M and Rule 10b-5 under the Exchange Act.

        Section 4.12     Structuring Fee .

                 (a)        The Purchaser will receive a structuring fee from the Company equal to one and one half percent (1.5%)
of the Aggregate Limit. Twenty-five percent (25%) of the Fee shall be payable on the Settlement Date of the first four (4) Drawn
Downs provided the full Fee is paid within 12 months from the filing of the Registration Statement. The Company may choose to pay
any Fee or portion thereof in common stock at a price equal to the Purchase Price as set forth in Section 6.1 at the time such Fee is
due.

        Section 4.13     Non-Public Information . Neither the Company nor any of its directors, officers or agents shall disclose
any material non-public information about the Company to the Purchaser.

          Section 4.14      DWAC Eligibility . The Company shall use its reasonable best efforts to cause the Common Stock and its
transfer agent to be, at the time of each Draw Down, eligible to participate in the DWAC system (“ DWAC Eligible ”).

                                         ARTICLE V
   OPINION OF COUNSEL AND CERTIFICATE; CONDITIONS TO THE SALE AND PURCHASE OF THE SHARES

          Section 5.1      Opinion of Counsel and Certificate . In connection with the execution and delivery of this Agreement, the
Purchaser has received (i) an opinion of outside counsel to the Company, dated the Effective Date, in the form of Exhibit C hereto,
and (ii) a certificate from the Company, dated the Effective Date, in the form of Exhibit D hereto.

          Section 5.2     Conditions Precedent to the Obligation of the Company to Sell the Shares . The obligation hereunder of
the Company to issue and sell the Shares to the Purchaser under any Draw Down Notice is subject to the satisfaction or waiver of each
of the conditions set forth below. These conditions are for the Company’s sole benefit and may be waived by the Company at any
time in its sole discretion.


                                                                  14
                  (a)        Accuracy of the Purchaser’s Representations and Warranties . Except for representations and
warranties that are expressly made as of a particular date, the representations and warranties of the Purchaser in this Agreement shall
be true and correct in all material respects as of the date when made and as of each Draw Down Exercise Date and each Settlement
Date as though made at that time.

                 (b)         Registration Statement . The Company shall have the necessary amount of Shares available to be
registered pursuant to the Registration Rights Agreement. The Company shall take all reasonable steps to have the Registration
Statement declared effective by the Commission. There shall be no stop order suspending effectiveness of the Registration Statement.

                  (c)        Performance by the Purchaser . The Purchaser shall have performed, satisfied and complied in all
material respects with all covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied
with by the Purchaser at or prior to each Draw Down Exercise Date and each Settlement Date, as applicable.

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

                   (e)        No Suspension, Etc . Trading in the Common Stock shall not have been suspended by the Commission
or Principal Market, and, at any time prior to each Draw Down Exercise Date and applicable Settlement Date, none of the events
described in clauses (i), (ii) and (iii) of Section 4.11 hereof shall have occurred, trading in securities generally as reported on the
Principal Market shall not have been suspended or limited, nor shall a banking moratorium have been declared either by the United
States or State authorities, nor shall there have occurred any material outbreak or escalation of hostilities or other national or
international calamity or crisis of such magnitude in its effect on, or any material adverse change in, any financial market which, in
each case, in the reasonable judgment of the Company, makes it impracticable or inadvisable to issue the Shares.

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

          Section 5.3    Conditions Precedent to the Obligation of the Purchaser To Accept a Draw Down and Purchase the
Shares . The obligation hereunder of the Purchaser to accept a Draw Down and to acquire and pay for the Shares is subject to the
satisfaction or waiver, at or before each Draw Down Exercise Date and each Settlement Date, of each of the conditions set forth
below. The conditions are for the Purchaser’s sole benefit and may be waived by the Purchaser at any time in its sole discretion.


                                                                  15
                   (a)        Accuracy of the Company’s Representations and Warranties . Except for representations and
warranties that are expressly made as of a particular date, each of the representations and warranties of the Company shall be true and
correct in all material respects as of the date when made and as of the Draw Down Exercise Date, as though made at that time,
including, without limitation, under Section 3.1(h) hereof.

                  (b)       Registration Statement . The Company shall have the necessary amount of Shares registered pursuant
to the Registration Rights Agreement. The Company shall take all reasonable steps to have the Registration Statement on Form S-1
declared effective by the Commission. There shall be no stop order suspending effectiveness of the Registration Statement.

                   (c)        No Suspension . Trading in the Common Stock shall not have been suspended by the Commission or
Principal Market, and, at any time prior to such Draw Down Exercise Date, trading in securities generally as reported on the Principal
Market shall not have been suspended or limited, nor shall a banking moratorium have been declared either by the United States or
State authorities, nor shall there have occurred any material outbreak or escalation of hostilities or other national or international
calamity or crisis of such magnitude in its effect on, or any material adverse change in, any financial market which, in each case, in the
reasonable judgment of the Purchaser, makes it impracticable or inadvisable to issue the Shares.

                  (d)          Performance by the Company . The Company shall have performed, satisfied and complied in all
material respects with all covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to each Draw Down Exercise Date and each Settlement Date and shall have delivered the Compliance
Certificate substantially in the form attached hereto as Exhibit E .

                 (e)      No Material Adverse Effect or Material Change in Ownership . No Material Adverse Effect or
Material Change in Ownership shall have occurred to the Company.

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

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

                   (h)        Aggregate Limit . The issuance and sale of the Shares issuable pursuant to such Draw Down Notice
will not violate Section 6.2 hereof.

                  (i)        Shares Authorized . The Shares issuable pursuant to such Draw Down Notice will have been duly
authorized by all necessary corporate action of the Company.


                                                                   16
                  (j)        Due Diligence . Prior to each Settlement Date and from time to time as reasonably requested by the
Purchaser, the Company shall make available for inspection and review by the Purchaser, its advisors and representatives, and any
underwriter participating in any disposition of the Shares on behalf of the Purchaser pursuant to the Registration Statement, any
amendment, prospectus or prospectus supplement thereto, or any blue sky, FINRA or other filing, all financial and other records, all
documents and filings with the Commission, and all other corporate documents and properties of the Company as may be reasonably
necessary for the purpose of such review. In addition, the Company shall cause its officers, directors and employees to supply all such
information reasonably requested by the Purchaser or any such representative, advisor or underwriter and to respond to all questions
and other inquiries reasonably made or submitted by any such individuals or entities.

                   (k)        Opinion of Counsel . Subsequent to the effective date of the Registration Statement and prior to the first
Draw Down under this Agreement, the Purchaser shall have received an opinion of counsel to the Company in substantially the form
set forth as Exhibit F hereto or as otherwise reasonably acceptable to the Purchaser’s counsel.

                                                         ARTICLE VI
                                                      DRAW DOWN TERMS

         Section 6.1    Draw Down Terms . Subject to the satisfaction of the conditions set forth in this Agreement, and subject to
Section 6.2 below, the parties agree (unless otherwise mutually agreed upon by the parties in writing) as follows:

                   (a)       The Company may, in its sole discretion, issue a Draw Down Notice (as defined in Section 6.1(h) hereof)
for a specified Draw Down Amount Requested. The Purchaser shall be obligated to accept the Draw Down Notice, provided that the
Purchaser, in its sole discretion, shall not be obligated to accept more than fifty percent (50%) of the Draw Down Amount Requested
and shall have the option to purchase up to two hundred percent (200%) of the Draw Down Amount Requested. Subject to Section
6.1(g) below, the Purchaser shall pay a per Share amount equal to ninety percent (90%) of the weighted average Daily Closing Price
during the Draw Down Pricing Period (the “ Purchase Price ”). Subject to Section 4.7 hereof, the Draw Down Amount Requested
shall not exceed four hundred percent (400%) (the “ Draw Down Limit ”) of the average daily trading volume for the ten (10) Trading
Days immediately preceding the Draw Down Exercise Date.

                  (b)       Prior to commencement of the Draw Down Pricing Period, the Company shall deliver the Shares to be
purchased in such Draw Down to the Purchaser. If Shares delivered to the Purchaser prior to commencement of the Draw Down
Pricing Period are delivered in certificated form and not DWAC Eligible, then the Drawing Down Pricing Period shall not begin until
the Shares are cleared by an appointed clearing agent.

                  (c)      Only one Draw Down shall be allowed in each Draw Down Pricing Period.

                  (d)      Each Draw Down shall be settled on the first Trading Day after the end of each Draw Down Pricing Period
(the “ Settlement Date ”).

                 (e)      At the end of each Draw Down Pricing Period, the Purchaser’s total Draw Down commitment under this
Agreement shall be reduced by the total amount of the Draw Down Amount for such Draw Down Pricing Period.


                                                                  17
                  (f)      Each Draw Down will automatically expire immediately after the last Trading Day of each Draw Down
Pricing Period.

                  (g)       If the Daily Closing Price on a given Trading Day in the Draw Down Pricing Period, multiplied by ninety
percent (90%), is less than the Threshold Price, then the total amount of the Draw Down Amount Requested will be reduced by 1/10th
(or such other fraction based on the length of the Draw Down Pricing Period) and no Shares will be purchased or sold with respect to
such Trading Day, unless otherwise agreed by the Parties.

                  (h)      As a condition to exercise of any Draw Down, the Company must (i) provide a notice to the Purchaser of
the Company’s exercise of any Draw Down via facsimile transmission before commencement of trading on the first Trading Day of
the Draw Down Pricing Period covered by such notice (the “ Draw Down Notice ”), substantially in the form attached hereto as
Exhibit G and (ii) deliver the Shares to the Purchaser or its designees via DWAC, if the Company is approved for DWAC in an
amount equal to the Draw Down Amount Requested (which amount shall be adjusted in the event that the amount accepted by the
Purchaser pursuant to Section 6.1(a) hereof is different that the Draw Down Amount Requested). The date the Company delivers the
Draw Down Notice and the Shares in accordance with this Section 6.1(h) shall be a “ Draw Down Exercise Date .” The Draw Down
Notice shall specify the Draw Down Amount Requested, set the Threshold Price for such Draw Down and designate the first Trading
Day of the Draw Down Pricing Period that the Company wishes to grant to the Purchaser during the Draw Down Pricing Period.

                  (i)      On each Settlement Date, the Purchaser shall provide the Company a closing notice in the form of Exhibit
G attached hereto and shall make payment for the Shares acquired pursuant to this Agreement to the Company’s designated account
by wire transfer of immediately available funds, provided that the Shares were received by the Purchaser in accordance with 6.1(b)
hereof.

                   (j)       If the Company tenders a Draw Down by delivering a Draw Down Notice to the Purchaser, and the
Purchaser fails to make payment for the shares on the Settlement Date, the Shares issuable upon exercise of the Warrants and the
structuring fee to be paid to the Purchaser pursuant to Section 4.12 shall be reduced by the percentage amount equal to the quotient of
the Draw Down Amount divided by $2,000,000, but only if Purchaser does not make payment for the shares within three (3) Trading
Days after notice thereof by the Company to Purchaser.

         Section 6.2     Aggregate Limit . Notwithstanding anything to the contrary herein, in no event may the Company issue a
Draw Down Notice to the extent that the sale of shares of Common Stock pursuant thereto and pursuant to all prior Draw Down
Notices issued hereunder would cause the Company to sell or the Purchaser to purchase shares of Common Stock which in the
aggregate are in excess of the Aggregate Limit. If the Company issues a Draw Down Notice that otherwise would permit the
Purchaser to purchase shares of Common Stock which would cause the aggregate purchases by Purchaser hereunder to exceed the
Aggregate Limit, such Draw Down Notice shall be void ab initio to the extent of the amount by which the dollar value of shares or
number of shares, as the case may be, of Common Stock otherwise issuable pursuant to such Draw Down Notice or together with the
dollar value of shares or number of shares, as the case may be, of all other Common Stock purchased by the Purchaser pursuant hereto
would exceed the Aggregate Limit.


                                                                  18
                                                            ARTICLE VII
                                                           TERMINATION

         Section 7.1      Term, Termination by Mutual Consent . Unless earlier terminated as provided hereunder, this Agreement
shall terminate automatically on the earlier of (i) twenty four (24) consecutive months from the Effective Date (the “ Investment
Period ”) and (ii) the date the Purchaser shall have purchased the Aggregate Limit. This Agreement may be terminated at any time by
mutual written consent of the parties, effective as of the date of such mutual written consent unless otherwise provided in such written
consent.

         Section 7.2        Other Termination . The Company shall inform the Purchaser, and the Purchaser shall have the right to
terminate this Agreement within the subsequent thirty (30) days (the “ Event Period ”), effective upon written notice to the Company
under Section 9.4 in the Event Period, if during the Investment Period (x) the Company enters into a definitive agreement with any
third party, the principal purpose of which is to secure any equity line financing which provides for an Other Financing as defined in
4.9(b) above, or (y) an event resulting in a Material Adverse Effect or Material Change in Ownership has occurred. In such event, the
Purchaser may terminate this Agreement upon one (1) business day’s prior written notice during the Event Period.

          Section 7.3   Effect of Termination . In the event of termination by the Company or the Purchaser, written notice thereof
shall forthwith be given to the other party as provided in Section 9.4 and the transactions contemplated by this Agreement shall be
terminated without further action by either party. If this Agreement is terminated as provided in Section 7.1 or 7.2 herein, this
Agreement shall become void and of no further force and effect, except as provided in Section 9.9 hereof. Nothing in this Section 7.3
shall be deemed to release the Company or the Purchaser from any liability for any breach under this Agreement, or to impair the
rights of the Company and the Purchaser to compel specific performance by the other party of its obligations under this Agreement.

                                                          ARTICLE VIII
                                                        INDEMNIFICATION

         Section 8.1   General Indemnity .

                   (a)         Indemnification by the Company . The Company will indemnify and hold harmless the Purchaser,
GEM and each person who controls the Purchaser or GEM within the meaning of Section 15 of the Securities Act or Section 20(a) of
the Exchange Act from and against any losses, claims, damages, liabilities and expenses (including reasonable costs of defense and
investigation and all attorneys’ fees) to which the Purchaser, GEM and each such controlling person may become subject, under the
Securities Act, the Exchange Act or otherwise, insofar as such losses, claims, damages, liabilities and expenses (or actions in respect
thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of a material fact contained, or incorporated
by reference, in the Registration Statement relating to Common Stock being sold to the Purchaser (including any prospectus relating
thereto), or any amendment or supplement to it, or (ii) the omission or alleged omission to state in the Registration Statement or any
document incorporated by reference in the Registration Statement, a material fact required to be stated therein or necessary to make
the statements therein not misleading. Pursuant to Section 8.2 hereof, the Company will reimburse the Purchaser, GEM and each such
controlling person promptly upon demand for any legal or other costs or expenses reasonably incurred by the Purchaser, GEM or such
controlling person in investigating, defending against, or preparing to defend against any such claim, action, suit or proceeding.


                                                                   19
                   (b)         Indemnification by the Purchaser . The Purchaser will indemnify and hold harmless the Company,
each of its directors and officers, and each person, if any, who controls the Company within the meaning of Section 15 of the
Securities Act or Section 20(a) of the Exchange Act from and against any losses, claims, damages, liabilities and expenses (including
reasonable costs of defense and investigation and all attorneys fees) to which the Company and each such controlling person may
become subject, under the Securities Act or otherwise, insofar as such losses, claims, damages, liabilities and expenses (or actions in
respect thereof) arise out of or are based upon (i) an untrue statement, alleged untrue statement, omission or alleged omission, included
in the Registration Statement in reliance upon, and in conformity with, written information furnished by the Purchaser to the Company
for inclusion in the Registration Statement, or (ii) the omission or alleged omission to state in the Registration Statement a material
fact required to be stated therein or necessary to make the statements therein not misleading, to the extent, but only to the extent, the
untrue statement, alleged untrue statement, omission or alleged omission was made in reliance upon, and in conformity with, written
information furnished by the Purchaser to the Company for inclusion in the Registration Statement. Pursuant to Section 8.2 hereof,
the Purchaser will reimburse the Company and each such director, officer or controlling person promptly upon demand for any legal
or other costs or expenses reasonably incurred by the Company or the other person in investigating, defending against, or preparing to
defend against any such loss, claim, damage, liability or expense.

          Section 8.2     Indemnification Procedures . Promptly after a person receives notice of a claim or the commencement of
an action for which the person intends to seek indemnification under Section 8.1, the person will notify the indemnifying party in
writing of the claim or commencement of the action, suit or proceeding; provided, however, that failure to notify the indemnifying
party will not relieve the indemnifying party from liability under Section 8.1, except to the extent it has been materially prejudiced by
the failure to give notice. The indemnifying party will be entitled to participate in the defense of any claim, action, suit or proceeding
as to which indemnification is being sought, and if the indemnifying party acknowledges in writing the obligation to indemnify the
party against whom the claim or action is brought, the indemnifying party may (but will not be required to) assume the defense against
the claim, action, suit or proceeding with counsel satisfactory to it. After an indemnifying party notifies an indemnified party that the
indemnifying party wishes to assume the defense of a claim, action, suit or proceeding, the indemnifying party will not be liable for
any legal or other expenses incurred by the indemnified party in connection with the defense against the claim, action, suit or
proceeding except that if, in the opinion of counsel to the indemnifying party, one or more of the indemnified parties should be
separately represented in connection with a claim, action, suit or proceeding, the indemnifying party will pay the reasonable fees and
expenses of one separate counsel for the indemnified parties. Each indemnified party, as a condition to receiving indemnification as
provided in Section 8.1, will cooperate in all reasonable respects with the indemnifying party in the defense of any action or claim as
to which indemnification is sought. No indemnifying party will be liable for any settlement of any action effected without its prior
written consent. No indemnifying party will, without the prior written consent of the indemnified party, effect any settlement of a
pending or threatened action with respect to which an indemnified party is, or is informed that it may be, made a party and for which it
would be entitled to indemnification, unless the settlement includes an unconditional release of the indemnified party from all liability
and claims which are the subject matter of the pending or threatened action.


                                                                   20
          If for any reason the indemnification provided for in this Agreement is not available to, or is not sufficient to hold harmless,
an indemnified party in respect of any loss or liability referred to in Section 8.1 as to which it is entitled to indemnification thereunder,
each indemnifying party will, in lieu of indemnifying the indemnified party, contribute to the amount paid or payable by the
indemnified party as a result of such loss or liability, (i) in the proportion which is appropriate to reflect the relative benefits received
by the indemnifying party on the one hand and by the indemnified party on the other from the sale of Shares which is the subject of
the claim, action, suit or proceeding which resulted in the loss or liability or (ii) if that allocation is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits of the sale of such Shares, but also the relative fault of the
indemnifying party and the indemnified party with respect to the statements or omissions which are the subject of the claim, action,
suit or proceeding that resulted in the loss or liability, as well as any other relevant equitable considerations.


                                                                      21
                                                             ARTICLE IX
                                                           MISCELLANEOUS

         Section 9.1     Fees and Expenses . Each party shall bear its own fees and expenses related to the transactions contemplated
by this Agreement; provided, however, that the Company shall pay, at the Effective Date, all reasonable attorneys’ fees and expenses
(exclusive of disbursements and out-of-pocket expenses) incurred by the Purchaser up to $30,000 in connection with the preparation,
negotiation, execution and delivery of this Agreement. In addition, the Company shall pay all reasonable attorneys’ fees and expenses
incurred by the Purchaser in connection with any amendments, modifications or waivers of this Agreement. The Company shall pay
all stamp or other similar taxes and duties levied in connection with issuance of the Shares pursuant hereto.

         Section 9.2     Specific Enforcement, Consent to Jurisdiction .

                   (a)       The Company and the Purchaser acknowledge and agree that irreparable damage would occur in the event
that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that either party shall be entitled to an injunction or injunctions to prevent or cure breaches of the
provisions of this Agreement by the other party and to enforce specifically the terms and provisions hereof, this being in addition to
any other remedy to which either party may be entitled by law or equity.

                    (b)       Each of the Company and the Purchaser (i) hereby irrevocably submits to the jurisdiction of the United
States District Court and other courts of the United States sitting in the State of New York for the purposes of any suit, action or
proceeding arising out of or relating to this Agreement, and (ii) hereby waives, and agrees not to assert in any such suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction of such court, that the suit, action or proceeding is brought in
an inconvenient forum or that the venue of the suit, action or proceeding is improper. Each of the Company and the Purchaser
consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address in effect
for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice
thereof. Nothing in this Section shall affect or limit any right to serve process in any other manner permitted by law.

         Section 9.3     Entire Agreement; Amendment . This Agreement represents the entire agreement of the parties with respect
to the subject matter hereof, and there are no promises, undertakings, representations or warranties by either party relative to subject
matter hereof not expressly set forth herein. No provision of this Agreement may be amended other than by a written instrument
signed by both parties hereto.

         Section 9.4     No tices . Any notice, demand, request, waiver or other communication required or permitted to be given
hereunder shall be in writing and shall be effective (a) upon hand delivery, by telex (with correct answer back received), telecopy or
facsimile (with telecopy or facsimile machine confirmation of delivery received) at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to be received), or the first business day following such
delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the
second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual
receipt of such mailing, whichever shall first occur. The address for such communications shall be:


                                                                     22
If to the Company:         Cyclone Power Technologies Inc.
                           601 NE 26th Court
                           Pampano Beach, FL 33064
                           Attn: Christopher Nelson, President and General Counsel

With copies to:            Joel Mayersohn, Esq.
                           Roetzel & Andress
                           350 East Las Olas Boulevard
                           Las Olas Centre II, Suite 1150
                           P.O. Box 30310
                           Fort Lauderdale, FL 33303-0310
                           Direct Dial Number: 954-759-2739
                           Main Phone Number: 954-462-4150
                           Fax: 954-462-4260

If to the Purchaser:       GEM Global Yield Fund Limited
                           c/o CM Group
                           Commerce House
                           1 Bowring Road
                           Ramsey
                           Isle of Man
                           IM8 2LQ

With copies to:            Kramer Levin Naftalis & Frankel LLP
                           1177 Avenue of the Americas
                           New York, New York 10036
                           Telephone Number: (212) 715-9100
                           Fax: (212) 715-8000
                           Attention: Christopher S. Auguste, Esq.

         Either party hereto may from time to time change its address for notices by giving at least ten (10) days advance written
notice of such changed address to the other party hereto.

         Section 9.5      Waivers . No waiver by either party of any default with respect to any provision, condition or requirement of
this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any other provisions, condition or requirement
hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such
right accruing to it thereafter. No provision of this Agreement may be waived other than in a written instrument signed by the party
against whom enforcement of such waiver is sought.


                                                                  23
         Section 9.6      Headings . The article, section and subsection headings in this Agreement are for convenience only and shall
not constitute a part of this Agreement for any other purpose and shall not be deemed to limit or affect any of the provisions hereof.

         Section 9.7     Successors and Assigns . The Neither party may assign this Agreement to any person without the prior
consent of the other party. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and
assigns. The assignment by a party to this Agreement of any rights hereunder shall not affect the obligations of such party under this
Agreement.

          Section 9.8  Governing Law . This Agreement shall be governed by and construed in accordance with the internal laws of
the State of New York, without giving effect to the choice of law provisions.

        Section 9.9    Survival . The representations and warranties of the Company and the Purchaser contained in Article III and
the covenants contained in Article IV shall survive the execution and delivery hereof until the termination of this Agreement, and the
agreements and covenants set forth in Article VIII of this Agreement shall survive the execution and delivery hereof.

          Section 9.10    Counterparts . This Agreement may be executed in any number of counterparts, all of which taken together
shall constitute one and the same instrument and shall become effective when counterparts have been signed by each party and
delivered to the other parties hereto, it being understood that all parties need not sign the same counterpart. In the event any signature
is delivered by facsimile transmission, the party using such means of delivery shall cause four additional executed signature pages to
be physically delivered to the other parties within five days of the execution and delivery hereof.

         Section 9.11     Publicity . On or after the Effective Date, the Company may issue a press release or otherwise make a
public statement or announcement with respect to this Agreement or the transactions contemplated hereby or the existence of this
Agreement (including, without limitation, by filing a copy of this Agreement with the Commission); provided, however, that prior to
issuing any such press release, making any such public statement or announcement, the Company shall consult with the Purchaser on
the form and substance of such press release or other disclosure.

          Section 9.12    Severability . The provisions of this Agreement are severable and, in the event that any court of competent
jurisdiction shall determine that any one or more of the provisions or part of the provisions contained in this Agreement shall, for any
reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any
other provision or part of a provision of this Agreement, and this Agreement shall be reformed and construed as if such invalid or
illegal or unenforceable provision, or part of such provision, had never been contained herein, so that such provisions would be valid,
legal and enforceable to the maximum extent possible.

        Section 9.13     Further Assurances . From and after the date of this Agreement, upon the request of the Purchaser or the
Company, each of the Company and the Purchaser shall execute and deliver such instrument, documents and other writings as may be
reasonably necessary or desirable to confirm and carry out and to effectuate fully the intent and purposes of this Agreement.


                                                                     24
         IN WITNESS WHEREOF , the parties hereto have caused this Agreement to be duly executed by their respective
authorized officer as of the date first above written.


                                                          CYCLONE POWER TECHNOLOGIES, INC.



                                                          By: /s/ Christopher Nelson
                                                              Name: Christopher Nelson
                                                              Title: President


                                                       GEM GLOBAL YIELD FUND LIMITED

                                                       By:    /s/ Clive Needham
                                                              Name: Clive Needham
                                                              Title: Director


                                  Signature Page to Common Stock Purchase Agreement
                                                Schedule 3.1 (a) – Subsidiaries


The Company has two subsidiaries, as follows:

Cyclone-WHE LLC – currently 82.5% owned by the Company

Cyclone-TeamSteam USA LLC – currently 100% owned by the Company
                                   Schedule 3.1 (c) – Registration Rights, Warrants, Options


Registration Rights (as of June 1, 2012) :

The Company has granted piggy-back registration rights (which can be deferred at the insistence of the Investor) with respect
to the following number of shares and warrants:

        Shares: 2,200,000 – expires 6 month from issuance
        Warrants: 5,061,251


Warrants (as of June 1, 2012) :

        Total Outstanding                              Avg. Exercise Price
        6,581,751*                                    $0.20/share

        *With respect to 5,061,251 warrants, the Company has agreed to a price adjustment provision, which provides that
the current strike price will be adjusted if the Company issues stock (or equity convertible into stock) at a price lower than
$.20/share.


Options (as of June 1, 2012):

        Total Outstanding                            Avg. Exercise Price
        7,130,000                             $0.20/share

All information in this Schedule 3.1 (c) is further defined in the Company Commission Documents, specifically, its Form 10-Q
for the period ended March 31, 2012, and Form 10-K for the year ended December 31, 2011.
                                                Schedule 3.1 (k) - Liens


Schoell Marine, a company owned by Harry Schoell, the Company’s CEO and founder, has a UCC-1 lien on the patent of the
Company, which secures a 6% demand loan in the amount of $461,806.
        EXHIBIT A

Registration Rights Agreement

        (see attached)
EXHIBIT B

  Warrant

(see attached)
                                                                EXHIBIT C

                                                            Opinion of Counsel

                                                  LAW FIRM OF CHRISTOPHER M. NELSON
                                                          1182 CANOE POINT
                                                       DELRAY BEACH, FL 33444

October 1, 2012

Re:         $2,500,000 Aggregate Offering of Common Stock of Cyclone Power Technologies Inc.

Ladies and Gentlemen:

We have acted as special counsel to Cyclone Power Technologies Inc., a Florida corporation (the “ Company ”), in connection
with the Common Stock Purchase Agreement dated as of October 1, 2012 between you and the Company (the “ Purchase
Agreement ”). This letter is being furnished to you pursuant to Section 5.1 of the Purchase Agreement.

As such counsel, we have examined such matters of fact and questions of law as we have considered appropriate for purposes of this
letter. We have examined, among other things, the following: the Certificate of Incorporation and Bylaws of the Company and
certain resolutions of the Board of Directors of the Company relating to the Purchase Agreement and the transactions contemplated
thereby.

As to facts material to the opinions, statements and assumptions expressed herein, we have, with your consent, relied upon oral or
written statements and representations of officers and other representatives of the Company and others. We have not independently
verified such factual matters.

We are opining herein as to the effect on the subject transaction only of the Florida Corporation Law, and we express no opinion with
respect to the applicability thereto, or the effect thereon, of the laws of any other jurisdiction or any other laws, or as to any matters of
municipal law or the laws of any local agencies within any state.

Subject to the foregoing and the other matters set forth herein, it is our opinion that, as of the date hereof:

                  1.       The Company and each of its Subsidiaries is duly qualified to do business as a foreign corporation and is in
good standing in every jurisdiction in which the nature of the business conducted or property owned by it makes such qualification
necessary except for any jurisdiction in which the failure to be so qualified will not have a Material Adverse Effect.
                   2.       The execution of, and performance of the obligations under, the Purchase Agreement, and the issuance and
sale of the Shares by the Company pursuant to the Purchase Agreement will not, as of the date hereof: (i) conflict with, or constitute a
default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any material agreement, mortgage, deed of trust, indenture, note, bond,
license, lease agreement, instrument or obligation to which the Company is a party, (ii) create or impose a lien, charge or encumbrance
on any property of the Company under any agreement or any commitment to which the Company is a party or by which the Company
is bound or by which any of its respective properties or assets are bound, (iii) to my knowledge, result in a violation of any federal or
state order, judgment or decree applicable to the Company or any of its Subsidiaries or by which any property or asset of the Company
or any of its Subsidiaries are bound or affected, except, in all cases, for such conflicts, defaults, terminations, amendments,
acceleration, cancellations and violations as would not, individually or in the aggregate, have a Material Adverse Effect, (iv) violate
the Company’s Governing Documents; (v) violate any federal or New York statute, rule or regulation applicable to the Company; or
(vi) require any consents, approvals, or authorizations to be obtained by the Company, or any registrations, declarations or filings to be
made by the Company, in each case, under any federal or New York statute, rule or regulation applicable to the Company that have
not been obtained or made.

                 3.        There is no action, suit, claim, investigation or proceeding pending or, to my knowledge, threatened against
the Company or any Subsidiary which questions the validity of the Purchase Agreement or the transactions contemplated hereby or
any action taken or to be taken pursuant hereto or thereto. There is no action, suit, claim, investigation or proceeding pending or, to
my knowledge, threatened, against or involving the Company, any Subsidiary or any of their respective properties or assets and which,
if determined adversely to the Company or its Subsidiary, would have a Material Adverse Effect.

                 4.       The execution, delivery and performance of the Purchase Agreement have been duly authorized by all
necessary corporate action of the Company, and the Purchase Agreement has been duly executed and delivered by the Company.

          This letter is furnished only to you in your capacity as purchaser under the Purchase Agreement and is solely for your benefit
in connection with the transactions covered hereby. This letter may not be relied upon by you for any other purpose, or furnished to,
assigned to, quoted to, or relied upon by any other person, firm or other entity for any purpose (including any person, firm or other
entity that acquires Shares from you) without our prior written consent, which may be granted or withheld in our sole discretion. I am
a member of the Bar of the State of Florida. To the extent that New York law is stated in this letter, I am assuming that such law is
materially similar to Florida law; but I make no legal opinion to New York law.

                                                                    Very truly yours,

                                                                    Law Firm of Christopher M. Nelson

                                                                    /s/ Christopher Nelson
                                                                    Christopher Nelson,
                                                                    For the Firm
                                                               EXHIBIT D

                                          COMMON STOCK PURCHASE AGREEMENT
                                             CERTIFICATE OF THE COMPANY

                                                       CLOSING CERTIFICATE

                                                              October 1, 2012

         The undersigned, Cyclone Power Technologies Inc., a Florida corporation (the “ Company ”), delivers this certificate in
connection with the Common Stock Purchase Agreement, dated as of October 1, 2012 (the “ Agreement ”), by and among the
Company and GEM Global Yield Fund (the “Purchaser”), and hereby certifies on the date hereof, that (capitalized terms used herein
without definition have the meanings assigned to them in the Agreement):

          1.       Attached hereto as Exhibit A is a true, complete and correct copy of the Certificate of Incorporation of the Company
as filed with the Secretary of State of the State of Florida. The Certificate of Incorporation of the Company has not been further
amended or restated, and no document with respect to any amendment to the Certificate of Incorporation of the Company has been
filed in the office of the Secretary of State of the State of Florida since the date shown on the face of the state certification relating to
the Company’s Certificate of Incorporation, which is in full force and effect on the date hereof, and no action has been taken by the
Company in contemplation of any such amendment or the dissolution, merger or consolidation of the Company.

         2.      Attached hereto as Exhibit B is a true and complete copy of the Bylaws of the Company, as amended and restated
through, and as in full force and effect on, the date hereof, and no proposal for any amendment, repeal or other modification to the
Amended and Restated By-laws of the Company has been taken or is currently pending before the Board of Directors or stockholders
of the Company.

        3.        The Board of Directors of the Company has approved the transactions contemplated by the Agreement; said
approval has not been amended, rescinded or modified and remains in full force and effect as of the date hereof.

         4.       Each person who, as an officer of the Company, or as attorney-in-fact of an officer of the Company, signed (i) the
Agreement and (ii) any other document delivered prior hereto or on the date hereof in connection with the transactions contemplated
by the Agreement, was duly elected, qualified and acting as such officer or duly appointed and acting as such attorney-in-fact, and the
signature of each such person appearing on any such document is his genuine signature.
IN WITNESS WHEREOF, I have signed my name as of the date first above written.

                                                     Cyclone Power Technologies, Inc.



                                                     /s/ Frankie Fruge
                                                     Name: Frankie Fruge
                                                     Title: COO and Director
                                                 EXHIBIT E TO THE
                                         COMMON STOCK PURCHASE AGREEMENT
                                             COMPLIANCE CERTIFICATE

         In connection with the issuance of shares of common stock of Cyclone Power Technologies, Inc. (the “ Company ”) pursuant
to the Draw Down Notice, dated ___________, delivered by the Company to GEM Global Yield Fund (the “ Purchaser ”) pursuant to
Article VI of the Common Stock Purchase Agreement dated as of October 1, 2012, by and between the Company and GEM Global
Yield Fund (the “ Agreement ”), the undersigned hereby certifies as follows:

         1.      The undersigned is the duly elected ______________ of the Company.

          2.      Except as set forth in the attached Schedule, the representations and warranties of the Company set forth in Section
3.1 of the Agreement are true and correct in all material respects as though made on and as of the date hereof, except for
representations and warranties that speak as of a particular date.

         3.        The Company has performed in all material respects all covenants and agreements to be performed by the Company
on or prior to the Draw Down Exercise Date and the Settlement Date related to the Draw Down Notice and has complied in all
material respects with all obligations and conditions contained in Section 5.3 of the Agreement.

         Capitalized terms used but not otherwise defined herein shall have the meanings assigned to them in the Agreement.

         The undersigned has executed this Certificate this _____ day of _________, ____.

                              By:

                              Name:

                              Title:
                                                   EXHIBIT F
                                       COMMON STOCK PURCHASE AGREEMENT
                                          FORM OF DRAW DOWN NOTICE

        Reference is made to the Common Stock Purchase Agreement dated as of ______, 2012, (the “ Purchase Agreement ”) by
and between Cyclone Power Technologies, Inc., a Florida corporation (the “ Company ”) and GEM Global Yield Fund Limited, a
company incorporated under the laws of the Cayman Islands. Capitalized terms used and not otherwise defined herein shall have the
meanings given such terms in the Purchase Agreement.

         In accordance with and pursuant to Section 6.1 of the Purchase Agreement, the Company hereby issues this Draw Down
Notice to exercise a Draw Down request for the Draw Down Amount indicated below.

         Draw Down Amount:
         Draw Down Pricing Period start date:
         Draw Down Pricing Period end date:
         Settlement Date:
         Draw Down Threshold Price:
         Dollar Amount and Number of Shares of Common Stock Currently Unissued
         under the Registration Statement:
         Dollar Amount and Number of Shares of Common Stock Currently Available
         under the Aggregate Limit:




Dated:                                                                   By:
                                                                               Name:
                                                                               Title:

                                                                         Address:
                                                                         Facsimile No.



         Name:
         Title:
                                                EXHIBIT G TO THE
                                        COMMON STOCK PURCHASE AGREEMENT
                                            FORM OF CLOSING NOTICE


To:      [The Company]

Attention: [●]


We refer to the common stock purchase agreement (the " Agreement ") dated [●] 2012 between us, GEM Global Yield Fund Limited
and yourselves and to the Draw Down Notice delivered to us on [●] 20[●]. Terms defined in the Agreement have the same meaning
herein.

We hereby give you notice pursuant to Section 6.1(i) of the Agreement that we accept the Draw Down Notice, being [●] per cent. of
the Draw Down Amount stated therein. [The reason that such number of shares of Common Stock represents a smaller/greater
number than the number of shares of Common Stock set forth in the Draw Down Notice is as follows: [●].]

The average of the Closing Bid Prices in the Pricing Period (excluding any Closing Bid Prices pursuant to Section 6.1(g)) is [●] and
the resulting Purchase Price is [●] ([●] per cent. of such average Closing Bid Price). The aggregate Purchase Price pursuant to this
Closing Notice is therefore [●] . Copy extracts from Bloomberg showing each of the Closing Bid Prices during the Pricing Period are
attached.

Please deliver such shares of Common Stock in accordance with the following instructions: [●].

Electronic book entry transfer requested (check one) (1) YES ____ NO _____

[CREST] Participant ID:_____________________

[CREST] Account ID:__________________




                                                  Signed by: __________________________

                                                 Name: _____________________________

                                                 Date: ______________________________

                                                       For and on behalf of

                                                       GEM GLOBAL YIELD FUND LIMITED
                                                                                                                                  EXHIBIT 10.19

                                             REGISTRATION RIGHTS AGREEMENT

         REGISTRATION RIGHTS AGREEMENT (this “ Agreement ”), dated as of October 1, 2012, by and between
CYCLONE POWER TECHNOLOGIES, INC., a Florida corporation (the “ Company ”), and GEM GLOBAL YIELD FUND, a
company incorporated under the laws of the Cayman Islands (together with it permitted assigns, the “ Buyer ”). Capitalized terms
used herein and not otherwise defined herein shall have the respective meanings set forth in the Purchase Agreement.

                                                              WHEREAS:

        The Company has agreed, upon the terms and subject to the conditions of the Purchase Agreement, to issue to the Buyer up
to Two Million Five Hundred Dollars ($2,500,000) of Shares and to induce the Buyer to enter into the Purchase Agreement, the
Company has agreed to provide certain registration rights under the Securities Act of 1933, as amended, and the rules and regulations
thereunder, or any similar successor statute (collectively, the “ Securities Act ”), and applicable state securities laws.

         NOW, THEREFORE, in consideration of the promises and the mutual covenants contained herein and other good and
valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Buyer hereby agree as
follows:

         1.        DEFINITIONS .

                  As used in this Agreement, the following terms shall have the following meanings:

                   a.     “ Investor ” means the Buyer, any transferee or assignee thereof to whom a Buyer assigns its rights under
this Agreement and who agrees to become bound by the provisions of this Agreement in accordance with Section 9 and any transferee
or assignee thereof to whom a transferee or assignee assigns its rights under this Agreement and who agrees to become bound by the
provisions of this Agreement in accordance with Section 9.

                b.        “ Person ” means any person or entity including but not limited to any corporation, a limited liability
company, an association, a partnership, an organization, a business, an individual, a governmental or political subdivision thereof or a
governmental agency.

               c.      “ Purchase Agreement” means the Common Stock Purchase Agreement dated as of the date hereof,
between the Company and the Buyer, (as amended, restated, supplemented or otherwise modified from time to time).

                   d.       “ Register ,” “ registered ,” and “ registration ” refer to a registration effected by preparing and filing one
or more registration statements of the Company in compliance with the Securities Act and pursuant to Rule 415 under the Securities
Act or any successor rule providing for offering securities on a continuous basis (“ Rule 415 ”), and the declaration or ordering of
effectiveness of such registration statement(s) by the United States Securities and Exchange Commission (the “ Commission ”).
                  e.       “ Registrable Securities ” mean the Shares which have been, or which may from time to time be, issued or
issuable to the Investor pursuant to the Purchase Agreement, including, without limitation, Shares issuable upon the exercise of the
Warrants.

                   f.       “ Registration Statement ” means the registration statement of the Company, on Form S-1 covering only
the sale of the Registrable Securities.

         2.        REGISTRATION .

                    a.        Mandatory Registration. Within 30 days of the Effective Date, the Company shall cause the Registration
Statement to be filed and seek that it be declared effective. The Registration Statement shall register with the Commission the shares
to be issued under the Draw Downs (as defined in the Purchase Agreement). The Investor and its counsel shall have a reasonable
opportunity to review and comment upon such registration statement or amendment to such registration statement and any related
prospectus prior to its filing with the Commission. Investor shall furnish all information reasonably requested by the Company for
inclusion therein. The Company shall use its reasonable best efforts to have the Registration Statement or amendment declared
effective by the Commission at the earliest possible date. The Company shall use reasonable best efforts to keep the Registration
Statement effective pursuant to Rule 415 promulgated under the Securities Act and available for sales of all of the Registrable
Securities at all times until the date as of which the Investor may sell all of the Registrable Securities without restriction pursuant to
Rule 144(b)(1)(i) promulgated under the Securities Act (or successor thereto) (the “ Registration Period ”). The Registration
Statement (including any amendments or supplements thereto and prospectuses contained therein) shall not contain any untrue
statement of a material fact or omit to state a material fact required to be stated therein, or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading.

                   b.        Rule 424 Prospectus . The Company shall, as required by applicable securities regulations, from time to
time file with the Commission, pursuant to Rule 424 promulgated under the Securities Act, the prospectus, amendments and
prospectus supplements, if any, to be used in connection with sales of the Registrable Securities under the Registration Statement. The
Investor and its counsel shall have a reasonable opportunity to review and comment upon such prospectus prior to its filing with the
Commission. The Investor shall use its reasonable best efforts to comment upon such prospectus within two (2) Trading Days from
the date the Investor receives the proposed final version of such prospectus.

                   c.         Sufficient Number of Shares Registered . In the event the number of shares available under the
Registration Statement is insufficient to cover all of the Registrable Securities, the Company shall amend the Registration Statement or
file a new registration statement (a “ New Registration Statement ”), so as to cover all of such Registrable Securities as soon as
practicable, but in any event not later than twenty (20) Trading Days after the necessity therefore arises. The Company shall use it
reasonable best efforts to cause such amendment and/or New Registration Statement to become effective as soon as practicable
following the filing thereof.


                                                                   -2-
         3.        RELATED OBLIGATIONS .

                  With respect to the Registration Statement and whenever any Registrable Securities are to be registered pursuant to
Section 2 including on any New Registration Statement, the Company shall use its reasonable best efforts to effect the registration of
the Registrable Securities in accordance with the intended method of disposition thereof and, pursuant thereto, the Company shall
have the following obligations:

                   a.     The Company shall prepare and file with the Commission such amendments (including post-effective
amendments) and supplements to any registration statement and the prospectus used in connection with such registration statement,
which prospectus is to be filed pursuant to Rule 424 promulgated under the Securities Act, as may be necessary to keep the
Registration Statement or any New Registration Statement effective at all times during the Registration Period, and, during such
period, comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities of the Company
covered by the Registration Statement or any New Registration Statement until such time as all of such Registrable Securities shall
have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof as set forth in such
registration statement.

                   b.       The Company shall permit the Investor to review and comment upon the Registration Statement or any
New Registration Statement and all amendments and supplements thereto at least two (2) Trading Days prior to their filing with the
Commission, and not file any document in a form to which Investor reasonably objects. The Investor shall use its reasonable best
efforts to comment upon the Registration Statement or any New Registration Statement and any amendments or supplements thereto
within two (2) Trading Days from the date the Investor receives the final version thereof. The Company shall furnish to the Investor,
without charge any correspondence from the Commission or the staff of the Commission to the Company or its representatives
relating to the Registration Statement or any New Registration Statement.

                   c.      Upon request of the Investor, the Company shall furnish to the Investor, (i) promptly after the same is
prepared and filed with the Commission, at least one copy of such registration statement and any amendment(s) thereto, including
financial statements and schedules, all documents incorporated therein by reference and all exhibits, (ii) upon the effectiveness of any
registration statement, a copy of the prospectus included in such registration statement and all amendments and supplements thereto
(or such other number of copies as the Investor may reasonably request) and (iii) such other documents, including copies of any
preliminary or final prospectus, as the Investor may reasonably request from time to time in order to facilitate the disposition of the
Registrable Securities owned by the Investor. For the avoidance of doubt, any filing available to the Investor via the Commission’s
live EDGAR system shall be deemed “furnished to the Investor” hereunder.

                    d.      The Company shall use reasonable best efforts to (i) register and qualify the Registrable Securities covered
by a registration statement under such other securities or “blue sky” laws of such jurisdictions in the United States as the Investor
reasonably requests, (ii) prepare and file in those jurisdictions, such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to maintain the effectiveness thereof during the Registration
Period, (iii) take such other actions as may be necessary to maintain such registrations and qualifications in effect at all times during
the Registration Period, and (iv) take all other actions reasonably necessary or advisable to qualify the Registrable Securities for sale
in such jurisdictions; provided, however, that the Company shall not be required in connection therewith or as a condition thereto to
(x) qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(d), (y) subject
itself to general taxation in any such jurisdiction, or (z) file a general consent to service of process in any such jurisdiction. The
Company shall promptly notify the Investor who holds Registrable Securities of the receipt by the Company of any notification with
respect to the suspension of the registration or qualification of any of the Registrable Securities for sale under the securities or “blue
sky” laws of any jurisdiction in the United States or its receipt of actual notice of the initiation or threatening of any proceeding for
such purpose.


                                                                  -3-
                   e.       As promptly as practicable after becoming aware of such event or facts, the Company shall notify the
Investor in writing of the happening of any event or existence of such facts as a result of which the prospectus included in any
registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading,
and promptly prepare a supplement or amendment to such registration statement to correct such untrue statement or omission, and
deliver a copy of such supplement or amendment to the Investor (or such other number of copies as the Investor may reasonably
request). The Company shall also promptly notify the Investor in writing (i) when a prospectus or any prospectus supplement or
post-effective amendment has been filed, and when a registration statement or any post-effective amendment has become effective
(notification of such effectiveness shall be delivered to the Investor by facsimile on the same day of such effectiveness and by
overnight mail), (ii) of any request by the Commission for amendments or supplements to any registration statement or related
prospectus or related information, and (iii) of the Company’s reasonable determination that a post-effective amendment to a
registration statement would be appropriate.

                    f.       The Company shall use its reasonable best efforts to prevent the issuance of any stop order or other
suspension of effectiveness of any registration statement, or the suspension of the qualification of any Registrable Securities for sale in
any jurisdiction and, if such an order or suspension is issued, to obtain the withdrawal of such order or suspension at the earliest
possible moment and to notify the Investor of the issuance of such order and the resolution thereof or its receipt of actual notice of the
initiation or threat of any proceeding for such purpose.

                   g.      The Company shall (i) cause all the Registrable Securities to be listed on each securities exchange on which
securities of the same class or series issued by the Company are then listed, if any, if the listing of such Registrable Securities is then
permitted under the rules of such exchange, or (ii) secure designation and quotation of all the Registrable Securities on the Principal
Market. The Company shall pay all fees and expenses in connection with satisfying its obligation under this Section.

                 h.       Upon the Investor’s written request, the Company shall cooperate with the Investor to facilitate the timely
preparation and delivery of certificates (not bearing any restrictive legend) representing the Registrable Securities to be offered
pursuant to any registration statement and enable such certificates to be in such denominations or amounts as the Investor may
reasonably request and registered in such names as the Investor may request.


                                                                   -4-
                  i.      The Company shall at all times provide a transfer agent and registrar with respect to its Common Stock.

                   j.       If reasonably requested by the Investor, the Company shall (i) immediately incorporate in a prospectus
supplement or post-effective amendment such information as the Investor reasonably believes should be included therein relating to
the sale and distribution of Registrable Securities, including, without limitation, information with respect to the number of Registrable
Securities being sold, the purchase price being paid therefor and any other terms of the offering of the Registrable Securities; (ii) make
all required filings of such prospectus supplement or post-effective amendment as soon as notified of the matters to be incorporated in
such prospectus supplement or post-effective amendment; and (iii) supplement or make amendments to any registration statement.

                   k.      The Company shall use its reasonable best efforts to cause the Registrable Securities covered by any
registration statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to
consummate the disposition of such Registrable Securities.

                   l.       Within three (3) Trading Days after any registration statement which includes the Registrable Securities is
ordered effective by the Commission, the Company shall deliver, and shall cause legal counsel for the Company to deliver, to the
transfer agent for such Registrable Securities (with copies to the Investor) confirmation that such registration statement has been
declared effective by the Commission in the form attached hereto as Exhibit A . Thereafter, if requested by the Buyer at any time, the
Company shall require its counsel to deliver to the Buyer a written confirmation whether or not the effectiveness of such registration
statement has lapsed at any time for any reason (including, without limitation, the issuance of a stop order) and whether or not the
registration statement is current and available to the Buyer for sale of all of the Registrable Securities.

                  m.       The Company shall take all other reasonable actions necessary to expedite and facilitate disposition by the
Investor of Registrable Securities pursuant to any registration statement.

         4.        OBLIGATIONS OF THE INVESTOR .

                    a.      The Company shall notify the Investor in writing of the information the Company reasonably requires from
the Investor in connection with any registration statement hereunder. The Investor shall furnish to the Company such information
regarding itself, the Registrable Securities held by it and the intended method of disposition of the Registrable Securities held by it as
shall be reasonably required to effect the registration of such Registrable Securities and shall execute such documents in connection
with such registration as the Company may reasonably request.


                                                                  -5-
                  b.       The Investor agrees to cooperate with the Company as reasonably requested by the Company in connection
with the preparation and filing of any registration statement hereunder.

                  c.       The Investor agrees that, upon receipt of any notice from the Company of the happening of any event or
existence of facts of the kind described in Section 3(f) or the first sentence of 3(e), the Investor will immediately discontinue
disposition of Registrable Securities pursuant to any registration statement(s) covering such Registrable Securities until the Investor’s
receipt of the copies of the supplemented or amended prospectus contemplated by Section 3(f) or the first sentence of
3(e). Notwithstanding anything to the contrary, the Company shall cause its transfer agent to promptly deliver shares of Common
Stock without any restrictive legend in accordance with the terms of the Purchase Agreement in connection with any sale of
Registrable Securities with respect to which an Investor has entered into a contract for sale prior to the Investor’s receipt of a notice
from the Company of the happening of any event of the kind described in Section 3(f) or the first sentence of Section 3(e) and for
which the Investor has not yet settled.

         5.        EXPENSES OF REGISTRATION .

                   All reasonable expenses, other than sales or brokerage commissions, incurred in connection with registrations,
filings or qualifications pursuant to Sections 2 and 3, including, without limitation, all registration, listing and qualifications fees,
printers and accounting fees, and fees and disbursements of counsel for the Company, if any, shall be paid by the Company.

         6.        INDEMNIFICATION .

                   a.       To the fullest extent permitted by law, the Company will, and hereby does, indemnify, hold harmless and
defend the Investor, each Person, if any, who controls the Investor, the members, the directors, officers, partners, employees, agents,
representatives of the Investor and each Person, if any, who controls the Investor within the meaning of the Securities Act or the
Securities Exchange Act of 1934, as amended (the “ Exchange Act ”) (each, an “ Indemnified Person ”), against any losses, claims,
damages, liabilities, judgments, fines, penalties, charges, costs, attorneys’ fees, amounts paid in settlement or expenses, joint or
several, (collectively, “ Claims ”) incurred in investigating, preparing or defending any action, claim, suit, inquiry, proceeding,
investigation or appeal taken from the foregoing by or before any court or governmental, administrative or other regulatory agency,
body or the Commission, whether pending or threatened, whether or not an indemnified party is or may be a party thereto (“
Indemnified Damages ”), to which any of them may become subject insofar as such Claims (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are based upon: (i) any untrue statement or alleged untrue statement of a
material fact in the Registration Statement, any New Registration Statement or any post-effective amendment thereto or in any filing
made in connection with the qualification of the offering under the securities or other “blue sky” laws of any jurisdiction in which
Registrable Securities are offered (“ Blue Sky Filing ”), or the omission or alleged omission to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, (ii) any untrue statement or alleged untrue statement of a
material fact contained in the final prospectus (as amended or supplemented, if the Company files any amendment thereof or
supplement thereto with the SEC) or the omission or alleged omission to state therein any material fact necessary to make the
statements made therein, in light of the circumstances under which the statements therein were made, not misleading, (iii) any
violation or alleged violation by the Company of the Securities Act, the Exchange Act, any other law, including, without limitation,
any state securities law, or any rule or regulation thereunder relating to the offer or sale of the Registrable Securities pursuant to the
Registration Statement or any New Registration Statement or (iv) any material violation by the Company of this Agreement (the
matters in the foregoing clauses (i) through (iv) being, collectively, “ Violations ”). The Company shall reimburse each Indemnified
Person promptly as such expenses are incurred and are due and payable, for any reasonable legal fees or other reasonable expenses
incurred by them in connection with investigating or defending any such Claim. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(a): (i) shall not apply to a Claim by an Indemnified Person arising
out of or based upon a Violation which occurs in reliance upon and in conformity with information about the Investor furnished in
writing to the Company by such Indemnified Person expressly for use in connection with the preparation of the Registration
Statement, any New Registration Statement or any such amendment thereof or supplement thereto, if such prospectus was timely
made available by the Company pursuant to Section 3(c) or Section 3(e); (ii) with respect to any superseded prospectus, shall not inure
to the benefit of any such person from whom the person asserting any such Claim purchased the Registrable Securities that are the
subject thereof (or to the benefit of any person controlling such person) if the untrue statement or omission of material fact contained
in the superseded prospectus was corrected in the revised prospectus, as then amended or supplemented, if such revised prospectus
was timely made available by the Company pursuant to Section 3(c) or Section 3(e), and the Indemnified Person was promptly
advised in writing not to use the incorrect prospectus prior to the use giving rise to a violation and such Indemnified Person,
notwithstanding such advice, used it; (iii) shall not be available to the extent such Claim is based on a failure of the Investor to deliver
or to cause to be delivered the prospectus made available by the Company, if such prospectus was timely made available by the
Company pursuant to Section 3(c) or Section 3(e); and (iv) shall not apply to amounts paid in settlement of any Claim if such
settlement is effected without the prior written consent of the Company, which consent shall not be unreasonably withheld. Such
indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Indemnified Person and
shall survive the transfer of the Registrable Securities by the Investor pursuant to Section 9.

                                                                   -6-
                   b.       In connection with the Registration Statement or any New Registration Statement, the Investor agrees to
severally and not jointly indemnify, hold harmless and defend, to the same extent and in the same manner as is set forth in Section
6(a), the Company, each of its directors, each of its officers who signs the Registration Statement or any New Registration Statement,
each Person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act (collectively and
together with an Indemnified Person, an “ Indemnified Party ”), against any Claim or Indemnified Damages to which any of them
may become subject, under the Securities Act, the Exchange Act or otherwise, insofar as such Claim or Indemnified Damages arise
out of or are based upon any Violation, in each case to the extent, and only to the extent, that such Violation occurs in reliance upon
and in conformity with written information about the Investor set forth on Exhibit B attached hereto and furnished to the Company by
the Investor expressly for use in connection with such registration statement; and, subject to Section 6(d), the Investor will reimburse
any legal or other expenses reasonably incurred by them in connection with investigating or defending any such Claim; provided,
however, that the indemnity agreement contained in this Section 6(b) and the agreement with respect to contribution contained in
Section 7 shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of
the Investor, which consent shall not be unreasonably withheld; provided, further, however, that the Investor shall be liable under this
Section 6(b) for only that amount of a Claim or Indemnified Damages as does not exceed the net proceeds to the Investor as a result of
the sale of Registrable Securities pursuant to such registration statement. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such Indemnified Party and shall survive the transfer of the Registrable
Securities by the Investor pursuant to Section 9.


                                                                 -7-
                   c.        Promptly after receipt by an Indemnified Person or Indemnified Party under this Section 6 of notice of the
commencement of any action or proceeding (including any governmental action or proceeding) involving a Claim, such Indemnified
Person or Indemnified Party shall, if a Claim in respect thereof is to be made against any indemnifying party under this Section 6,
deliver to the indemnifying party a written notice of the commencement thereof, and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to
assume control of the defense thereof with counsel mutually satisfactory to the indemnifying party and the Indemnified Person or the
Indemnified Party, as the case may be; provided, however, that an Indemnified Person or Indemnified Party shall have the right to
retain its own counsel with the fees and expenses to be paid by the indemnifying party, if, in the reasonable opinion of counsel
retained by the indemnifying party, the representation by such counsel of the Indemnified Person or Indemnified Party and the
indemnifying party would be inappropriate due to actual or potential differing interests between such Indemnified Person or
Indemnified Party and any other party represented by such counsel in such proceeding The Indemnified Party or Indemnified Person
shall cooperate fully with the indemnifying party in connection with any negotiation or defense of any such action or claim by the
indemnifying party and shall furnish to the indemnifying party all information reasonably available to the Indemnified Party or
Indemnified Person which relates to such action or claim. The indemnifying party shall keep the Indemnified Party or Indemnified
Person fully apprised at all times as to the status of the defense or any settlement negotiations with respect thereto. No indemnifying
party shall be liable for any settlement of any action, claim or proceeding effected without its written consent, provided, however, that
the indemnifying party shall not unreasonably withhold, delay or condition its consent. No indemnifying party shall, without the
consent of the Indemnified Party or Indemnified Person, consent to entry of any judgment or enter into any settlement or other
compromise which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party
or Indemnified Person of a release from all liability in respect to such claim or litigation. Following indemnification as provided for
hereunder, the indemnifying party shall be subrogated to all rights of the Indemnified Party or Indemnified Person with respect to all
third parties, firms or corporations relating to the matter for which indemnification has been made. The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement of any such action shall not relieve such indemnifying
party of any liability to the Indemnified Person or Indemnified Party under this Section 6, except to the extent that the indemnifying
party is prejudiced in its ability to defend such action.


                                                                  -8-
                  d.       The indemnification required by this Section 6 shall be made by periodic payments of the amount thereof
during the course of the investigation or defense, as and when bills are received or Indemnified Damages are incurred.

                  e.      The indemnity agreements contained herein shall be in addition to (i) any cause of action or similar right of
the Indemnified Party or Indemnified Person against the indemnifying party or others, and (ii) any liabilities the indemnifying party
may be subject to pursuant to the law.

         7.        CONTRIBUTION .

                  To the extent any indemnification by an indemnifying party is prohibited or limited by law, the indemnifying party
agrees to make the maximum contribution with respect to any amounts for which it would otherwise be liable under Section 6 to the
fullest extent permitted by law; provided, however, that: (i) no seller of Registrable Securities guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any seller of Registrable Securities
who was not guilty of fraudulent misrepresentation; and (ii) contribution by any seller of Registrable Securities shall be limited in
amount to the net amount of proceeds received by such seller from the sale of such Registrable Securities.

         8.        REPORTS AND DISCLOSURE UNDER THE SECURITIES ACTS .

                   With a view to making available to the Investor the benefits of Rule 144 promulgated under the Securities Act or
any other similar rule or regulation of the Commission that may at any time permit the Investor to sell securities of the Company to the
public without registration (“ Rule 144 ”), the Company agrees, at the Company’s sole expense, to:

                  a.       make and keep public information available, as those terms are understood and defined in Rule 144;

                  b.      file with the Commission in a timely manner all reports and other documents required of the Company
under the Securities Act and the Exchange Act so long as the Company remains subject to such requirements and the filing of such
reports and other documents is required for the applicable provisions of Rule 144;

                   c.       furnish to the Investor so long as the Investor owns Registrable Securities, promptly upon request and
subject to the delivery by the Investor of a bona fide fair market offer for a licensing or funding opportunity pursuant to the Purchase
Agreement, (i) a written statement by the Company that it has complied with the reporting and or disclosure provisions of Rule 144,
the Securities Act and the Exchange Act, (ii) a copy of the most recent annual or quarterly report of the Company and such other
reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested to permit the Investor
to sell such securities pursuant to Rule 144 without registration (for the avoidance of doubt, any filing available to the Investor via the
Commission’s live EDGAR system shall be deemed “furnished to the Investor” hereunder); and


                                                                   -9-
                  d.       take such additional action as is requested by the Investor to enable the Investor to sell the Registrable
Securities pursuant to Rule 144, including, without limitation, delivering all such legal opinions, consents, certificates, resolutions and
instructions to the Company’s Transfer Agent as may be requested from time to time by the Investor and otherwise reasonably
cooperate with Investor and Investor’s broker to effect such sale of securities pursuant to Rule 144.

                  The Company agrees that damages may be an inadequate remedy for any breach of the terms and provisions of this
Section 8 and that Investor shall, whether or not it is pursuing any remedies at law, be entitled to equitable relief in the form of a
preliminary or permanent injunctions, without having to post any bond or other security, upon any breach or threatened breach of any
such terms or provisions. Investor agrees that the Rule 144 rights under this Agreement are subject to the delivery by the Investor of a
bona fide fair market offer for a licensing or funding opportunity pursuant to the Purchase Agreement.

         9.        ASSIGNMENT OF REGISTRATION RIGHTS .

                  The Company shall not assign this Agreement or any rights or obligations hereunder without the prior written
consent of the Investor. The Investor may not assign its rights under this Agreement without the written consent of the Company.

         10.       AMENDMENT OF REGISTRATION RIGHTS .

                   Provisions of this Agreement may be amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the mutual written consent of the Company and the Investor.

         11.       MISCELLANEOUS .

                  a.       A Person is deemed to be a holder of Registrable Securities whenever such Person owns or is deemed to
own of record such Registrable Securities. If the Company receives conflicting instructions, notices or elections from two or more
Persons with respect to the same Registrable Securities, the Company shall act upon the basis of instructions, notice or election
received from the registered owner of such Registrable Securities.

                  b.       Any notices, consents, waivers or other communications required or permitted to be given under the terms
of this Agreement must be in writing and will be deemed to have been delivered: (i) upon receipt, when delivered personally; (ii)
upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on
file by the sending party); or (iii) one (1) Trading Day after deposit with a nationally recognized overnight delivery service, in each
case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be:


                                                                  - 10 -
        If to the Company:

                 Cyclone Power Technologies Inc.
                 601 NE 26th Court
                 Pampano Beach, FL 33064
                 Attn: Christopher Nelson, President

        With a copy to:

                              Joel Mayersohn, Esq.
                              Roetzel & Andress
                              350 East Las Olas Boulevard
                              Las Olas Centre II, Suite 1150
                              P.O. Box 30310
                              Fort Lauderdale, FL 33303-0310
                              Direct Dial Number: 954-759-2739
                              Main Phone Number: 954-462-4150
                              Fax: 954-462-4260

        If to the Investor:

                 GEM Global Yield Fund Limited
                 c/o CM Group
                 Commerce House
                 1 Bowring Road
                 Ramsey
                 Isle of Man
                 IM8 2LQ

        With a copy to:

                 Kramer Levin Naftalis & Frankel LLP
                 1177 Avenue of the Americas
                 New York, New York 10036
                 Attention: Christopher S. Auguste, Esq.

or at such other address and/or facsimile number and/or to the attention of such other person as the recipient party has specified by
written notice given to each other party three (3) Trading Days prior to the effectiveness of such change. Written confirmation of
receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically
generated by the sender’s facsimile machine containing the time, date, recipient facsimile number and an image of the first page of
such transmission or (C) provided by a nationally recognized overnight delivery service, shall be rebuttable evidence of personal
service, receipt by facsimile or receipt from a nationally recognized overnight delivery service in accordance with clause (i), (ii) or
(iii) above, respectively.


                                                                 - 11 -
                  c.        Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party
in exercising such right or remedy, shall not operate as a waiver thereof.

                   d.      All matters concerning the construction, validity, enforcement and interpretation of this Agreement shall be
governed by the internal laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of New York or any other jurisdictions) that would cause the application of the laws of any jurisdictions other
than the State of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting
in the State of New York, for the adjudication of any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any
claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an
inconvenient forum or that the venue of such suit, action or proceeding is improper. Each party hereby irrevocably waives personal
service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party
at the address for such notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner
permitted by law. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction. EACH PARTY HEREBY IRREVOCABLY WAIVES
ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY
DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY
TRANSACTION CONTEMPLATED HEREBY.

                  e.       This Agreement and the Purchase Agreement constitute the entire agreement among the parties hereto with
respect to the subject matter hereof and thereof. There are no restrictions, promises, warranties or undertakings, other than those set
forth or referred to herein and therein. This Agreement and the Purchase Agreement supersede all prior agreements and
understandings among the parties hereto with respect to the subject matter hereof and thereof.

                  f.      Subject to the requirements of Section 9, this Agreement shall inure to the benefit of and be binding upon
the permitted successors and assigns of each of the parties hereto.

                 g.        The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect
the meaning hereof.

                  h.        This Agreement may be executed in identical counterparts, each of which shall be deemed an original but
all of which shall constitute one and the same agreement. This Agreement, once executed by a party, may be delivered to the other
party hereto by facsimile transmission or by e-mail in a “.pdf” format data file of a copy of this Agreement bearing the signature of the
party so delivering this Agreement.


                                                                  - 12 -
                   i.       Each party shall do and perform, or cause to be done and performed, all such further acts and things, and
shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request
in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated
hereby.

                  j.       The language used in this Agreement will be deemed to be the language chosen by the parties to express
their mutual intent and no rules of strict construction will be applied against any party.

                  k.        This Agreement is intended for the benefit of the parties hereto and their respective permitted successors
and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other Person.

                                                              ******


                                                                - 13 -
          IN WITNESS WHEREOF, the parties have caused this Registration Rights Agreement to be duly executed as of day and
year first above written.

                                                              THE COMPANY:

                                                              CYCLONE POWER TECHNOLOGIES, INC.

                                                              By: /s/ Christopher Nelson
                                                              Name: Christopher Nelson
                                                              Title: President



                                                              BUYER:

                                                              GEM GLOBAL YIELD FUND


                                                              By: /s/ Clive Needham
                                                              Name: Clive Needham
                                                              Title: Director




                                      Signature Page for Registration Rights Agreement
            EXHIBIT A

TO REGISTRATION RIGHTS AGREEMENT

 FORM OF NOTICE OF EFFECTIVENESS
   OF REGISTRATION STATEMENT
                              EXHIBIT B

             TO REGISTRATION RIGHTS AGREEMENT

Information About The Investor Furnished To The Company By The Investor
     Expressly For Use In Connection With The Registration Statement
                                                                                                                              EXHIBIT 10.20


                                                                                                                          EXHIBIT B

THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY
STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS
REGISTERED UNDER THE SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR THE
ISSUER SHALL HAVE RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER
THAT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF
APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.

                                                    WARRANT TO PURCHASE

                                                  SHARES OF COMMON STOCK

                                                                 OF

                                            CYCLONE POWER TECHNOLOGIES INC.

                                                     Expires September 30, 2017


No.: W-12-1                                                                                              Number of Shares: 5,000,000
Date of Issuance: October 1, 2012


          FOR VALUE RECEIVED, the undersigned, Cyclone Power Technologies Inc., a Florida corporation (together with its
successors and assigns, the " Issuer " and the “ Company ”), hereby certifies that GEM Global Yield Fund Limited (“ GEM ”) or its
registered assigns is entitled to subscribe for and purchase, during the Term (as hereinafter defined), in accordance with the terms of
this Warrant, up to 5 million (5,000,000) shares (“ Shares ”) (subject to adjustment as hereinafter provided) of the duly authorized,
validly issued, fully paid and non-assessable Common Stock of the Issuer, at an exercise price per share of $0.27. Capitalized terms
used in this Warrant and not otherwise defined herein shall have the respective meanings specified in Section 9 hereof.

        1.        Term . The term of this Warrant shall commence on _____, 2012 and shall expire at 6:00 p.m., Eastern Time, on
____, 2017 (such period being the " Term ").

        2.    Vesting; Method of Exercise; Payment; Issuance of New Warrant; Transfer and Exchange .

         (a)       Vesting. 4 million (4,000,000) of the Shares to which GEM is entitled upon exercise of this Warrant shall vest
upon execution of the Purchase Agreement. The remaining 1 million (1,000,000) Shares to which GEM is entitled upon exercise of
this Warrant shall vest in equal amounts of two-hundred and fifty thousand (250,000) Shares on the first Settlement Date (as defined
in the Purchase Agreement) of the first four (4) Draw Downs under the Purchase Agreement.
         (b)        Time of Exercise . The purchase rights represented by this Warrant may be exercised in whole or in part during the
Term.

          (c)      Method of Exercise . The Holder hereof may exercise this Warrant, in whole or in part, by the surrender of this
Warrant (with the exercise form attached hereto duly executed) at the principal office of the Issuer, and by the payment to the Issuer of
an amount of consideration therefor equal to the Warrant Price in effect on the date of such exercise multiplied by the number of
shares of Warrant Stock with respect to which this Warrant is then being exercised, payable at such Holder's election (i) by certified or
official bank check or by wire transfer to an account designated by the Issuer, (ii) by "cashless exercise" in accordance with the
provisions of subsection (d) of this Section 2, or (iii) by a combination of the foregoing methods of payment selected by the Holder of
this Warrant.

         (d)        Cashless Exercise .

          (i)      Notwithstanding any provisions herein to the contrary, subject to Section d(c)(ii) below, if (i) the Per Share Market
Value of one share of Common Stock is greater than the Warrant Price (at the date of calculation as set forth below) and (ii) a
registration statement under the Securities Act providing for the resale of the Warrant Stock is not then in effect by the date such
registration statement is required to be effective pursuant to the Registration Rights Agreement (as defined in the Purchase
Agreement) or not effective at any time during the Effectiveness Period (as defined in the Registration Rights Agreement) in
accordance with the terms of the Registration Rights Agreement, in lieu of exercising this Warrant by payment of cash, the Holder
may exercise this Warrant by a cashless exercise and shall receive the number of shares of Common Stock equal to an amount (as
determined below) by surrender of this Warrant at the principal office of the Issuer together with the properly endorsed Notice of
Exercise in which event the Issuer shall issue to the Holder a number of shares of Common Stock computed using the following
formula:

          X = Y - (A)(Y)
                              B

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

                   Y=       the number of shares of Common Stock purchasable upon exercise of all of the Warrant or, if only a
                            portion of the Warrant is being exercised, the portion of the Warrant being exercised.

                   A=       the Warrant Price.

                   B=       the Per Share Market Value of one share of Common Stock.

          (e)        Issuance of Stock Certificates . In the event of any exercise of this Warrant in accordance with and subject to the
terms and conditions hereof, certificates for the shares of Warrant Stock so purchased shall be dated the date of such exercise and
delivered to the Holder hereof within a reasonable time, not exceeding five (5) Trading Days after such exercise (the “ Delivery Date
”) or, at the request of the Holder (provided that a registration statement under the Securities Act providing for the resale of the
Warrant Stock is then in effect or that the shares of Warrant Stock are otherwise exempt from registration), issued and delivered to the
Depository Trust Company (“ DTC ”) account on the Holder’s behalf via the Deposit Withdrawal Agent Commission System (“
DWAC ”) within a reasonable time, not exceeding three (3) Trading Days after such exercise, and the Holder hereof shall be deemed
for all purposes to be the holder of the shares of Warrant Stock so purchased as of the date of such exercise. Notwithstanding the
foregoing to the contrary, the Issuer or its transfer agent shall be obligated to issue and deliver the shares to the DTC on a holder’s
behalf via DWAC only if such exercise is in connection with a sale or other exemption from registration by which the shares may be
issued without a restrictive legend and the Issuer and its transfer agent are participating in DTC through the DWAC system. The
Holder shall deliver this original Warrant, or an indemnification reasonably acceptable to the Issuer undertaking with respect to such
Warrant in the case of its loss, theft or destruction, at such time that this Warrant is fully exercised. With respect to partial exercises of
this Warrant, the Issuer shall keep written records for the Holder of the number of shares of Warrant Stock exercised as of each date of
exercise.


                                                                    -2-
         (f)        Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Exercise . In addition to any other rights
available to the Holder, if the Issuer fails to cause its transfer agent to transmit to the Holder a certificate or certificates representing
the Warrant Stock pursuant to an exercise on or before the Delivery Date, and if after such date the Holder is required by its broker to
purchase (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of the
Warrant Stock which the Holder anticipated receiving upon such exercise (a “ Buy-In” ), then the Issuer shall (1) pay in cash to the
Holder the amount by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of
Common Stock so purchased exceeds (y) the amount obtained by multiplying (A) the number of shares of Warrant Stock that the
Issuer was required to deliver to the Holder in connection with the exercise at issue times (B) the price at which the sell order giving
rise to such purchase obligation was executed, and (2) at the option of the Holder, either reinstate the portion of the Warrant and
equivalent number of shares of Warrant Stock for which such exercise was not honored or deliver to the Holder the number of shares
of Common Stock that would have been issued had the Issuer timely complied with its exercise and delivery obligations
hereunder. For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with
respect to an attempted exercise of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of
$10,000, under clause (1) of the immediately preceding sentence the Issuer shall be required to pay the Holder $1,000. The Holder
shall provide the Issuer written notice indicating the amounts payable to the Holder in respect of the Buy-In, together with applicable
confirmations and other evidence reasonably requested by the Issuer. Nothing herein shall limit a Holder’s right to pursue any other
remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive
relief with respect to the Issuer’s failure to timely deliver certificates representing shares of Common Stock upon exercise of this
Warrant as required pursuant to the terms hereof.

 (g)        Transferability of Warrant . Subject to Section 2(h) hereof, this Warrant may be transferred by a Holder, in whole or in
part, without the consent of the Issuer. If transferred pursuant to this paragraph, this Warrant may be transferred on the books of the
Issuer by the Holder hereof in person or by duly authorized attorney, upon surrender of this Warrant at the principal office of the
Issuer, properly endorsed (by the Holder executing an assignment in the form attached hereto) and upon payment of any necessary
transfer tax or other governmental charge imposed upon such transfer. This Warrant is exchangeable at the principal office of the
Issuer for Warrants to purchase the same aggregate number of shares of Warrant Stock, each new Warrant to represent the right to
purchase such number of shares of Warrant Stock as the Holder hereof shall designate at the time of such exchange. All Warrants
issued on transfers or exchanges shall be dated the Original Issue Date and shall be identical with this Warrant except as to the number
of shares of Warrant Stock issuable pursuant thereto.


                                                                    -3-
          (h)        Continuing Rights of Holder . The Issuer will, at the time of or at any time after each exercise of this Warrant,
upon the request of the Holder hereof, acknowledge in writing the extent, if any, of its continuing obligation to afford to such Holder
all rights to which such Holder shall continue to be entitled after such exercise in accordance with the terms of this Warrant, provided
that if any such Holder shall fail to make any such request, the failure shall not affect the continuing obligation of the Issuer to afford
such rights to such Holder.

         (i)         Compliance with Securities Laws.

                   (i)        The Holder of this Warrant, by acceptance hereof, acknowledges that this Warrant and the shares of
           Warrant Stock to be issued upon exercise hereof are being acquired solely for the Holder's own account and not as a
           nominee for any other party, and for investment, and that the Holder will not offer, sell or otherwise dispose of this
           Warrant or any shares of Warrant Stock to be issued upon exercise hereof except pursuant to an effective registration
           statement, or an exemption from registration, under the Securities Act and any applicable state securities laws.

                   (ii)     Except as provided in paragraph (iii) below, this Warrant and all certificates representing shares of
           Warrant Stock issued upon exercise hereof shall be stamped or imprinted with a legend in substantially the following form:

                  THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE
                  HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
                  AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS AND MAY
                  NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED
                  UNDER THE SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES LAWS
                  OR THE ISSUER SHALL HAVE RECEIVED AN OPINION OF COUNSEL REASONABLY
                  SATISFACTORY TO THE ISSUER THAT REGISTRATION OF SUCH SECURITIES UNDER
                  THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE
                  SECURITIES LAWS IS NOT REQUIRED.


                                                                   -4-
                        (iii)     The Issuer agrees to reissue this Warrant or certificates representing any of the Warrant Stock, without
              the legend set forth above if at such time, prior to making any transfer of any such securities, the Holder shall give written
              notice to the Issuer describing the manner and terms of such transfer. Such proposed transfer will not be effected until: (a)
              either (i) the Issuer has received an opinion of counsel reasonably satisfactory to the Issuer, to the effect that the
              registration of such securities under the Securities Act is not required in connection with such proposed transfer, (ii) a
              registration statement under the Securities Act covering such proposed disposition has been filed by the Issuer with the
              Securities and Exchange Commission and has become effective under the Securities Act, (iii) the Issuer has received other
              evidence reasonably satisfactory to the Issuer that such registration and qualification under the Securities Act and state
              securities laws are not required, or (iv) the Holder provides the Issuer with reasonable assurances that such security can be
              sold pursuant to Rule 144 under the Securities Act; and (b) either (i) the Issuer has received an opinion of counsel
              reasonably satisfactory to the Issuer, to the effect that registration or qualification under the securities or "blue sky" laws of
              any state is not required in connection with such proposed disposition, or (ii) compliance with applicable state securities or
              "blue sky" laws has been effected or a valid exemption exists with respect thereto. The Issuer will respond to any such
              notice from a holder within five (5) Trading Days. In the case of any proposed transfer under this Section 2(h), the Issuer
              will use reasonable efforts to comply with any such applicable state securities or "blue sky" laws, but shall in no event be
              required, (x) to qualify to do business in any state where it is not then qualified, (y) to take any action that would subject it
              to tax or to the general service of process in any state where it is not then subject, or (z) to comply with state securities or
              “blue sky” laws of any state for which registration by coordination is unavailable to the Issuer. The restrictions on transfer
              contained in this Section 2(h) shall be in addition to, and not by way of limitation of, any other restrictions on transfer
              contained in any other section of this Warrant. Whenever a certificate representing the Warrant Stock is required to be
              issued to a the Holder without a legend, in lieu of delivering physical certificates representing the Warrant Stock, the Issuer
              shall cause its transfer agent to electronically transmit the Warrant Stock to the Holder by crediting the account of the
              Holder or Holder's Prime Broker with DTC through its DWAC system (to the extent not inconsistent with any provisions
              of this Warrant or the Purchase Agreement).

         (j)        Accredited Investor Status . In no event may the Holder exercise this Warrant in whole or in part unless the Holder
is an “accredited investor” as defined in Regulation D under the Securities Act.

         3.          Stock Fully Paid; Reservation and Listing of Shares; Covenants .

         (a)         Stock Fully Paid . The Issuer represents, warrants, covenants and agrees that all shares of Warrant Stock which
may be issued upon the exercise of this Warrant or otherwise hereunder will, when issued in accordance with the terms of this
Warrant, be duly authorized, validly issued, fully paid and non-assessable and free from all taxes, liens and charges created by or
through the Issuer. The Issuer further covenants and agrees that during the period within which this Warrant may be exercised, the
Issuer will at all times have authorized and reserved for the purpose of the issuance upon exercise of this Warrant a number of
authorized but unissued shares of Common Stock equal to at least one hundred fifty (150%) of the number of shares of Common
Stock issuable upon exercise of this Warrant without regard to any limitations on exercise.


                                                                      -5-
          (b)         Reservation . If any shares of Common Stock required to be reserved for issuance upon exercise of this Warrant
or as otherwise provided hereunder require registration or qualification with any Governmental Authority under any federal or state
law before such shares may be so issued, the Issuer will in good faith use its best efforts as expeditiously as possible at its expense to
cause such shares to be duly registered or qualified. If the Issuer shall list any shares of Common Stock on any securities exchange or
market it will, at its expense, list thereon, and maintain and increase when necessary such listing, of, all shares of Warrant Stock from
time to time issued upon exercise of this Warrant or as otherwise provided hereunder (provided that such Warrant Stock has been
registered pursuant to a registration statement under the Securities Act then in effect), and, to the extent permissible under the
applicable securities exchange rules, all unissued shares of Warrant Stock which are at any time issuable hereunder, so long as any
shares of Common Stock shall be so listed. The Issuer will also so list on each securities exchange or market, and will maintain such
listing of, any other securities which the Holder of this Warrant shall be entitled to receive upon the exercise of this Warrant if at the
time any securities of the same class shall be listed on such securities exchange or market by the Issuer.

          (c)         Covenants . The Issuer shall not by any action including, without limitation, amending the Certificate of
Incorporation or the by-laws of the Issuer, or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but
will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or
appropriate to protect the rights of the Holder hereof. Without limiting the generality of the foregoing, the Issuer will (i) not permit
the par value, if any, of its Common Stock to exceed the then effective Warrant Price, (ii) not amend or modify any provision of the
Certificate of Incorporation or by-laws of the Issuer in any manner that would adversely affect the rights of the Holder, (iii) take all
such action as may be reasonably necessary in order that the Issuer may validly and legally issue fully paid and nonassessable shares
of Common Stock, free and clear of any liens, claims, encumbrances and restrictions (other than as provided herein) upon the exercise
of this Warrant, and (iv) use its best efforts to obtain all such authorizations, exemptions or consents from any public regulatory body
having jurisdiction thereof as may be reasonably necessary to enable the Issuer to perform its obligations under this Warrant.

         (d)         Loss, Theft, Destruction of Warrant . Upon receipt of evidence satisfactory to the Issuer of the ownership of and
the loss, theft, destruction or mutilation of any Warrant and, in the case of any such loss, theft or destruction, upon receipt of
indemnity or security satisfactory to the Issuer or, in the case of any such mutilation, upon surrender and cancellation of such Warrant,
the Issuer will make and deliver, in lieu of such lost, stolen, destroyed or mutilated Warrant, a new Warrant of like tenor and
representing the right to purchase the same number of shares of Common Stock.

        (e)        Payment of Taxes . The Issuer will pay any documentary stamp taxes attributable to the initial issuance of the
Warrant Stock issuable upon exercise of this Warrant; provided , however , that the Issuer shall not be required to pay any tax or taxes
which may be payable in respect of any transfer involved in the issuance or delivery of any certificates representing Warrant Stock in
a name other than that of the Holder in respect to which such shares are issued.


                                                                   -6-
         4.        Adjustment of Warrant Price . The price at which such shares of Warrant Stock may be purchased upon exercise of
this Warrant shall be subject to adjustment from time to time as set forth in this Section 4. The Issuer shall give the Holder notice of
any event described below which requires an adjustment pursuant to this Section 4 in accordance with the notice provisions set forth in
Section 5.

         (a)        Recapitalization, Reorganization, Reclassification, Consolidation, Merger or Sale .


          (i) In case the Issuer after the Original Issue Date shall do any of the following (each, a " Triggering Event "): (a)
         consolidate or merge with or into any other Person and the Issuer shall not be the continuing or surviving corporation of such
         consolidation or merger, or (b) permit any other Person to consolidate with or merge into the Issuer and the Issuer shall be the
         continuing or surviving Person but, in connection with such consolidation or merger, any Capital Stock of the Issuer shall be
         changed into or exchanged for Securities of any other Person or cash or any other property, or (c) transfer all or substantially
         all of its properties or assets to any other Person, or (d) effect a capital reorganization or reclassification of its Capital Stock,
         then, and in the case of each such Triggering Event, proper provision shall be made to the Warrant Price and the number of
         shares of Warrant Stock that may be purchased upon exercise of this Warrant so that, upon the basis and the terms and in the
         manner provided in this Warrant, the Holder of this Warrant shall be entitled upon the exercise hereof at any time after the
         consummation of such Triggering Event, to the extent this Warrant is not exercised prior to such Triggering Event, to receive
         at the Warrant Price as adjusted to take into account the consummation of such Triggering Event, in lieu of the Common
         Stock issuable upon such exercise of this Warrant prior to such Triggering Event, the Securities, cash and property to which
         such Holder would have been entitled upon the consummation of such Triggering Event if such Holder had exercised the
         rights represented by this Warrant immediately prior thereto (including the right of a shareholder to elect the type of
         consideration it will receive upon a Triggering Event), subject to adjustments (subsequent to such corporate action) as nearly
         equivalent as possible to the adjustments provided for elsewhere in this Section 4; provided , however , the Holder at its
         option may elect to receive shares of Common Stock issuable upon exercise of the Warrant at a conversion price equal to
         eighty percent (80%) of the average VWAP of the Common Stock for the forty (40) Trading Days preceding the date of such
         Triggering Event. Immediately upon the occurrence of a Triggering Event, the Issuer shall notify the Holder in writing of
         such Triggering Event and provide the calculations in determining the number of shares of Warrant Stock issuable upon
         exercise of the new warrant and the adjusted Warrant Price. Upon the Holder’s request, the continuing or surviving
         corporation as a result of such Triggering Event shall issue to the Holder a new warrant of like tenor evidencing the right to
         purchase the adjusted number of shares of Warrant Stock and the adjusted Warrant Price pursuant to the terms and provisions
         of this Section 4(a)(i). Notwithstanding the foregoing to the contrary, this Section 4(a)(i) shall only apply if the surviving
         entity pursuant to any such Triggering Event is a company that has a class of equity securities registered pursuant to the
         Securities Exchange Act of 1934, as amended, and its common stock is listed or quoted on a national securities exchange,
         national automated quotation system or the OTC Bulletin Board. In the event that the surviving entity pursuant to any such
         Triggering Event is not a public company that is registered pursuant to the Securities Exchange Act of 1934, as amended, or
         its common stock is not listed or quoted on a national securities exchange, national automated quotation system or the OTC
         Bulletin Board, then the Holder shall have the right to demand that the Issuer pay to the Holder an amount in cash equal to
         the value of this Warrant calculated in accordance with the Black-Scholes formula.


                                                                    -7-
          (ii)      In the event that the Holder has elected not to exercise this Warrant prior to the consummation of a Triggering
         Event and has also elected not to receive shares of Common Stock pursuant to the provisions of Section 4(a)(i) above, so long
         as the surviving entity pursuant to any Triggering Event is a company that has a class of equity securities registered pursuant
         to the Securities Exchange Act of 1934, as amended, and its common stock is listed or quoted on a national securities
         exchange, national automated quotation system or the OTC Bulletin Board, the surviving entity and/or each Person (other
         than the Issuer) which may be required to deliver any Securities, cash or property upon the exercise of this Warrant as
         provided herein shall assume, by written instrument delivered to, and reasonably satisfactory to, the Holder of this Warrant,
         (A) the obligations of the Issuer under this Warrant (and if the Issuer shall survive the consummation of such Triggering
         Event, such assumption shall be in addition to, and shall not release the Issuer from, any continuing obligations of the Issuer
         under this Warrant) and (B) the obligation to deliver to such Holder such Securities, cash or property as, in accordance with
         the foregoing provisions of this subsection (a), such Holder shall be entitled to receive, and the surviving entity and/or each
         such Person shall have similarly delivered to such Holder an opinion of counsel for the surviving entity and/or each such
         Person, which counsel shall be reasonably satisfactory to such Holder, or in the alternative, a written acknowledgement
         executed by the President or Chief Financial Officer of the Issuer, stating that this Warrant shall thereafter continue in full
         force and effect and the terms hereof (including, without limitation, all of the provisions of this subsection (a)) shall be
         applicable to the Securities, cash or property which the surviving entity and/or each such Person may be required to deliver
         upon any exercise of this Warrant or the exercise of any rights pursuant hereto.

 (b)          Stock Dividends, Subdivisions and Combinations . If at any time the Issuer shall:

                       (i)      make or issue or set a record date for the holders of the Common Stock for the purpose of entitling
         them to receive a dividend payable in, or other distribution of, shares of Common Stock,

                        (ii)      subdivide its outstanding shares of Common Stock into a larger number of shares of Common Stock,
         or

                        (iii)     combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock,

then (1) the number of shares of Common Stock for which this Warrant is exercisable immediately after the occurrence of any such
event shall be adjusted to equal the number of shares of Common Stock which a record holder of the same number of shares of
Common Stock for which this Warrant is exercisable immediately prior to the occurrence of such event would own or be entitled to
receive after the happening of such event, and (2) the Warrant Price then in effect shall be adjusted to equal (A) the Warrant Price then
in effect multiplied by the number of shares of Common Stock for which this Warrant is exercisable immediately prior to the
adjustment divided by (B) the number of shares of Common Stock for which this Warrant is exercisable immediately after such
adjustment.


                                                                   -8-
 (c)     Certain Other Distributions . If at any time the Issuer shall make or issue or set a record date for the holders of all of the
Common Stock for the purpose of entitling them to receive any divi-dend or other distribution of:

                           (i)       cash,

                           (ii)    any evidences of its indebtedness, any shares of stock of any class or any other securities or
         property of any nature whatsoever (other than cash, Common Stock Equivalents or Additional Shares of Common Stock), or

                           (iii)    any warrants or other rights to subscribe for or purchase any evidences of its indebtedness, any
         shares of stock of any class or any other securities or property of any nature whatsoever (other than cash, Common Stock
         Equivalents or Additional Shares of Common Stock),

then (1) the number of shares of Common Stock for which this Warrant is exercisable shall be adjusted to equal the product of the
number of shares of Common Stock for which this Warrant is exercisable immediately prior to such adjustment multiplied by a
fraction (A) the numerator of which shall be the Per Share Market Value of Common Stock at the date of taking such record and (B)
the denominator of which shall be such Per Share Market Value minus the amount allocable to one share of Common Stock of any
such cash so distributable and of the fair value (as determined in good faith by the Board of Directors of the Issuer and supported by
an opinion from an investment banking firm mutually agreed upon by the Issuer and the Holder) of any and all such evidences of
indebtedness, shares of stock, other securities or property or warrants or other subscription or purchase rights so distributable, and (2)
the Warrant Price then in effect shall be adjusted to equal (A) the Warrant Price then in effect multiplied by the number of shares of
Common Stock for which this Warrant is exercisable immediately prior to the adjustment divided by (B) the number of shares of
Common Stock for which this Warrant is exercisable immediately after such adjustment. A reclassification of the Common Stock
(other than a change in par value, or from par value to no par value or from no par value to par value) into shares of Common Stock
and shares of any other class of stock shall be deemed a distribution by the Issuer to the holders of its Common Stock of such shares of
such other class of stock within the meaning of this Section 4(c) and, if the outstanding shares of Common Stock shall be changed into
a larger or smaller number of shares of Common Stock as a part of such reclassification, such change shall be deemed a subdivision or
combination, as the case may be, of the outstanding shares of Common Stock within the meaning of Section 4(b).

 (d)        Issuance of Additional Shares of Common Stock . In the event the Issuer shall at any time following the Original Issuance
Date issue any Additional Shares of Common Stock (otherwise than as provided in the foregoing subsections (b) through (c) of this
Section 4), at a price per share less than the most recent price paid for Common Stock under the Purchase Agreement or without
consideration, then the Warrant Price upon each such issuance shall be adjusted to the price equal to the consideration per share paid
for such Additional Shares of Common Stock.


                                                                  -9-
 (e)        Issuance of Common Stock Equivalents . In the event the Issuer shall at any time
following the Original Issuance Date take a record of the holders of its Common Stock for the purpose of entitling them to receive a
distribution of, or shall in any manner (whether directly or by assumption in a merger in which the Issuer is the surviving corporation)
issue or sell, any Common Stock Equivalents, whether or not the rights to exchange or convert thereunder are immediately
exercisable, and the price per share for which Common Stock is issuable upon such conversion or exchange shall be less than the most
recent price paid for Common Stock under the Purchase Agreement, or if, after any such issuance of Common Stock Equivalents, the
price per share for which Additional Shares of Common Stock may be issuable thereafter is amended or adjusted, and such price as so
amended shall be less than the most recent price paid for Common Stock under the Purchase Agreement at the time of such
amendment or adjustment, then the Warrant Price then in effect shall be adjusted as provided in Section 4(d). No further adjustments
of the number of shares of Common Stock for which this Warrant is exercisable and the Warrant Price then in effect shall be made
upon the actual issue of such Common Stock upon conversion or exchange of such Common Stock Equivalents. If the conversion or
exercise price of a Common Stock Equivalent is not stated or fixed at the time of issuance or sale, this provision shall not apply until
such time that said Common Stock Equivalent is actually converted or exercised.

          (f)       Other Provisions applicable to Adjustments under this Section . The following provisions shall be ap-plicable to
the making of adjustments of the number of shares of Common Stock for which this Warrant is exercisable and the Warrant Price then
in effect provided for in this Section 4:

 (i)        Computation of Consideration . To the extent that any Additional Shares of Common Stock or any Common Stock
Equivalents (or any warrants or other rights therefor) shall be issued for cash consideration, the consideration received by the Issuer
therefor shall be the amount of the cash received by the Issuer therefor, or, if such Additional Shares of Common Stock or Common
Stock Equivalents are offered by the Issuer for subscription, the subscription price, or, if such Additional Shares of Common Stock or
Common Stock Equivalents are sold to underwriters or dealers for public offering without a subscription offering, the initial public
offering price (in any such case subtracting any amounts paid or receivable for accrued interest or accrued dividends and without
taking into account any compensation, discounts or expenses paid or incurred by the Issuer for and in the underwriting of, or otherwise
in connection with, the issuance thereof). In connection with any merger or consolidation in which the Issuer is the surviving
corporation (other than any consolidation or merger in which the previously outstanding shares of Common Stock of the Issuer shall
be changed to or exchanged for the stock or other securities of another corporation), the amount of consideration therefore shall be,
deemed to be the fair value, as determined reasonably and in good faith by the Board, of such portion of the assets and business of the
nonsurviving corporation as the Board may determine to be attributable to such shares of Common Stock or Common Stock
Equivalents, as the case may be. The consideration for any Additional Shares of Common Stock issuable pursuant to any warrants or
other rights to subscribe for or purchase the same shall be the consideration received by the Issuer for issuing such warrants or other
rights plus the additional con-sideration payable to the Issuer upon exercise of such warrants or other rights. The consideration for any
Additional Shares of Common Stock issuable pursuant to the terms of any Common Stock Equivalents shall be the consideration
received by the Issuer for issuing war-rants or other rights to subscribe for or purchase such Common Stock Equivalents, plus the
consideration paid or payable to the Issuer in respect of the subscription for or purchase of such Common Stock Equivalents, plus the
additional consideration, if any, payable to the Issuer upon the exercise of the right of conversion or exchange in such Common Stock
Equivalents. In the event of any consolidation or merger of the Issuer in which the Issuer is not the surviving corporation or in which
the previously outstanding shares of Common Stock of the Issuer shall be changed into or exchanged for the stock or other securities
of another corporation, or in the event of any sale of all or substantially all of the assets of the Issuer for stock or other securities of
any corporation, the Issuer shall be deemed to have issued a number of shares of its Common Stock for stock or securities or other
property of the other corporation computed on the basis of the actual exchange ratio on which the transaction was predicated, and for a
consideration equal to the fair market value on the date of such transaction of all such stock or securities or other property of the other
corporation. In the event any consideration received by the Issuer for any securities consists of property other than cash, the fair
market value thereof at the time of issuance or as otherwise applicable shall be as determined in good faith by the Board. In the event
Common Stock is issued with other shares or securities or other assets of the Issuer for consideration which covers both, the
consideration computed as provided in this Section 4(f)(i) shall be allocated among such securities and assets as determined in good
faith by the Board.


                                                                   - 10 -
 (ii)       When Adjustments to Be Made . The adjustments required by this Section 4 shall be made whenever and as often as any
specified event requiring an adjustment shall occur, except that any adjustment of the number of shares of Common Stock for which
this Warrant is exercisable that would otherwise be required may be postponed (except in the case of a subdivision or combination of
shares of the Common Stock, as provided for in Section 4(b)) up to, but not beyond the date of exercise if such adjustment either by
itself or with other adjustments not previously made adds or subtracts less than one percent (1%) of the shares of Common Stock for
which this Warrant is exercisable immediately prior to the making of such adjustment. Any adjustment representing a change of less
than such minimum amount (except as aforesaid) which is postponed shall be carried forward and made as soon as such adjustment,
together with other adjustments required by this Section 4 and not previously made, would result in a minimum adjustment or on the
date of exercise. For the purpose of any adjustment, any specified event shall be deemed to have occurred at the close of business on
the date of its occurrence.

 (iii)     Fractional Interests . In computing ad-justments under this Section 4, fractional interests in Common Stock shall be taken
into account to the near-est one one-hundredth (1/100 th ) of a share.

           (iv)       When Adjustment Not Required . If the Issuer shall take a record of the holders of its Common Stock for the
purpose of entitling them to receive a dividend or distribution or subscription or purchase rights and shall, thereafter and before the
distribution to stockholders thereof, legally abandon its plan to pay or deliver such dividend, distribution, subscription or purchase
rights, then thereafter no adjustment shall be required by reason of the taking of such record and any such adjustment previously made
in respect thereof shall be rescinded and annulled.


                                                                - 11 -
        (g)        Form of Warrant after Adjustments . The form of this Warrant need not be changed because of any adjustments in
the Warrant Price or the number and kind of Securities purchasable upon the exercise of this Warrant.

 (h)        Escrow of Warrant Stock . If after any property becomes distributable pursuant to this Section 4 by reason of the taking of
any record all of the holders of Common Stock, but prior to the occurrence of the event for which such record is taken, and the Holder
exer-cises this Warrant, any shares of Common Stock issuable upon exercise by reason of such adjustment shall be deemed the last
shares of Common Stock for which this Warrant is exercised (notwithstanding any other provision to the contrary herein) and such
shares or other property shall be held in escrow for the Holder by the Issuer to be issued to the Holder upon and to the extent that the
event actually takes place, upon payment of the current Warrant Price. Notwithstanding any other provision to the contrary herein, if
the event for which such record was taken fails to occur or is rescinded, then such escrowed shares shall be cancelled by the Issuer and
escrowed property returned.

          5.        Notice of Adjustments . Whenever the Warrant Price or Warrant Share Number shall be adjusted pursuant to
Section 4 hereof (for purposes of this Section 5, each an " adjustment "), the Issuer shall cause its Chief Financial Officer to prepare
and execute a certificate setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the
method by which such adjustment was calculated (including a description of the basis on which the Board made any determination
hereunder), and the Warrant Price and Warrant Share Number after giving effect to such adjustment, and shall cause copies of such
certificate to be delivered to the Holder of this Warrant promptly after each adjustment. Any dispute between the Issuer and the
Holder of this Warrant with respect to the matters set forth in such certificate may at the option of the Holder of this Warrant be
submitted to a national or regional accounting firm reasonably acceptable to the Issuer and the Holder, provided that the Issuer shall
have ten (10) days after receipt of notice from such Holder of its selection of such firm to object thereto, in which case such Holder
shall select another such firm and the Issuer shall have no such right of objection. The firm selected by the Holder of this Warrant as
provided in the preceding sentence shall be instructed to deliver a written opinion as to such matters to the Issuer and such Holder
within thirty (30) days after submission to it of such dispute. Such opinion shall be final and binding on the parties hereto. The costs
and expenses of the initial accounting firm shall be paid equally by the Issuer and the Holder and, in the case of an objection by the
Issuer, the costs and expenses of the subsequent accounting firm shall be paid in full by the Issuer.

          6.        Fractional Shares . No fractional shares of Warrant Stock will be issued in connection with any exercise hereof, but
in lieu of such fractional shares, the Issuer shall round the number of shares to be issued upon exercise up to the nearest whole number
of shares.

 7.        Ownership Cap and Exercise Restriction. Notwithstanding anything to the contrary set forth in this Warrant, at no time
may a Holder of this Warrant exercise this Warrant if the number of shares of Common Stock to be issued pursuant to such exercise
would exceed, when aggregated with all other shares of Common Stock owned by such Holder and its affiliates at such time, the
number of shares of Common Stock which would result in such Holder and its affiliates beneficially owning (as determined in
accordance with Section 13(d) of the Exchange Act and the rules thereunder) in excess of 4.99% of the then issued and outstanding
shares of Common Stock; provided , however , that upon a Holder of this Warrant providing the Issuer with sixty-one (61) days notice
(pursuant to Section 13 hereof) (the " Waiver Notice ") that such Holder would like to waive this Section 7 with regard to any or all
shares of Common Stock issuable upon exercise of this Warrant, this Section 7 will be of no force or effect with regard to all or a
portion of the Warrant referenced in the Waiver Notice until the date that the Holder notifies the Issuer (pursuant to Section 13 hereof)
that the Holder revokes the Waiver Notice; provided , further , that during the sixty-one (61) day period prior to the expiration of the
Term, the Holder may waive this Section 7 by providing a Waiver Notice at any time during such sixty-one (61) day period.


                                                                 - 12 -
8.   [ Reserved .]

9.    Definitions . For the purposes of this Warrant, the following terms have the following meanings:

      " Additional Shares of Common Stock " means all shares of Common Stock issued by the Issuer after the Original Issue
     Date, and all shares of Other Common Stock, if any, issued by the Issuer after the Original Issue Date, except: (i) securities
     issued (other than for cash) in connection with a merger, acquisition, or consolidation, (ii) securities issued pursuant to the
     conversion or exercise of convertible or exercisable securities issued or outstanding on or prior to the date of the Purchase
     Agreement or issued pursuant to the Purchase Agreement (so long as the conversion or exercise price in such securities are
     not amended to lower such price and/or adversely affect the Holder unless the issuance of shares pursuant to the Purchase
     Agreement results in a lower adjusted price), (iii) the Warrant Stock, (iv) securities issued in connection with bona fide
     strategic license agreements, consulting agreements, or other partnering or technology development arrangements so long as
     such issuances are not for the purpose of raising capital, (v) Common Stock issued or the issuance or grants of options to
     purchase Common Stock pursuant to the Issuer’s stock option plans and employee stock purchase plans outstanding as they
     exist on the date of the Purchase Agreement or as subsequently approved by the Board provided that the amount of Common
     Stock issued pursuant to such plans does not exceed five percent (5%) of the Common Stock outstanding, and (vi) any
     warrants issued to the finders, placement agents or their respective designees for the transactions contemplated by the
     Purchase Agreement or in subsequent offerings or placements. The exclusions set forth in this definition shall also apply to
     the issuance or sale of Common Stock Equivalents.

              “ Board " shall mean the Board of Directors of the Issuer.

               " Capital Stock " means and includes (i) any and all shares, interests, participations or other equivalents of or
     interests in (however designated) corporate stock, including, without limitation, shares of preferred or preference stock, (ii)
     all partnership interests (whether general or limited) in any Person which is a partnership, (iii) all membership interests or
     limited liability company interests in any limited liability company, and (iv) all equity or ownership interests in any Person of
     any other type.

              " Certificate of Incorporation " means the Certificate of Incorporation of the Issuer as in effect on the Original Issue
     Date, and as hereafter from time to time amended, modified, supplemented or restated in accordance with the terms hereof
     and thereof and pursuant to applicable law.


                                                              - 13 -
                “Closing Price ” shall mean the closing price of the Common Stock, as recorded by the Principal Market, on a
       particular day.

                " Common Stock " means the common stock, $0.0001 par value per share, of the Issuer and any other Capital Stock
       into which such stock may hereafter be changed.

               " Common Stock Equivalent " means any Convertible Security or warrant, option or other right to subscribe for or
       purchase any Additional Shares of Common Stock or any Convertible Security.

                " Convertible Securities " means evidences of indebtedness, shares of Capital Stock or other Securities which are or
       may be at any time convertible into or exchangeable for Additional Shares of Common Stock. The term "Convertible
       Security" means one of the Convertible Securities.

                 " Governmental Authority " means any governmental, regulatory or self-regulatory entity, department, body,
       official, authority, commission, board, agency or instrumentality, whether federal, state or local, and whether domestic or
       foreign.

                  " Holders " mean the Persons who shall from time to time own any Warrant. The term "Holder" means one of the
       Holders.

                " Independent Appraiser " means a nationally recognized or major regional investment banking firm or firm of
       independent certified public accountants of recognized standing (which may be the firm that regularly examines the financial
       statements of the Issuer) that is regularly engaged in the business of appraising the Capital Stock or assets of corporations or
       other entities as going concerns, and which is not affiliated with either the Issuer or the Holder of any Warrant.

                  " Original Issue Date " means July 3, 2012.

“ OTC Bulletin Board ” means the over-the-counter electronic bulletin board.

                “ Other Common Stock ” means any other Capital Stock of the Issuer of any class which shall be authorized at any
       time after the date of this Warrant (other than Common Stock) and which shall have the right to participate in the distribution
       of earnings and assets of the Issuer without limitation as to amount.

        “ Outstanding Common Stock ” means, at any given time, the aggregate amount of outstanding shares of Common Stock,
       assuming full exercise, conversion or exchange (as applicable) of all options, warrants and other Securities which are
       convertible into or exercisable or exchangeable for, and any right to subscribe for, shares of Common Stock that are
       outstanding at such time.

        “ Person ” means an individual, corporation, limited liability company, partnership, joint stock company, trust,
       unincorporated organization, joint venture, Governmental Authority or other entity of whatever nature.


                                                                - 14 -
          “ Per Share Market Value ” means on any particular date (a) the last closing bid price per share of the Common
Stock on such date on a registered national stock exchange on which the Common Stock is then listed, or if there is no such
price on such date, then the closing price on such exchange or quotation system on the date nearest preceding such date, or
(b) if the Common Stock is not listed or traded then on any registered national stock exchange, the last closing bid price for a
share of Common Stock in the over-the-counter market, as reported by the OTC Bulletin Board or by Pink Sheets LLC (or
similar organization or agency succeeding to its functions of reporting prices) at the close of business on such date, or (c) if
the Common Stock is not then publicly traded the fair market value of a share of Common Stock as determined by an
Independent Appraiser selected in good faith by the Holder; provided , however , that the Issuer, after receipt of the
determination by such Independent Appraiser, shall have the right to select an additional Independent Appraiser, in which
case, the fair market value shall be equal to the average of the determinations by each such Independent Appraiser; and
provided , further that all determinations of the Per Share Market Value shall be appropriately adjusted for any stock
dividends, stock splits or other similar transactions during such period. The determination of fair market value by an
Independent Appraiser shall be based upon the fair market value of the Issuer determined on a going concern basis as
between a willing buyer and a willing seller and taking into account all relevant factors determinative of value, and shall be
final and binding on all parties. In determining the fair market value of any shares of Common Stock, no consideration shall
be given to any restrictions on transfer of the Common Stock imposed by agreement or by federal or state securities laws, or
to the existence or absence of, or any limitations on, voting rights.

         “ Purchase Agreement ” means the Common Stock Purchase Agreement dated as of the date hereof, between the
Issuer and the GEM Global Yield Fund Limited.

         “ Securities ” means any debt or equity securities of the Issuer, whether now or hereafter authorized, any instrument
convertible into or exchangeable for Securities or a Security, and any option, warrant or other right to purchase or acquire any
Security. “Security” means one of the Securities.

         “ Securities Act ” means the Securities Act of 1933, as amended, or any similar federal statute then in effect.

          “ Subsidiary ” means any corporation at least 50% of whose outstanding Voting Stock shall at the time be owned
directly or indirectly by the Issuer or by one or more of its Subsidiaries, or by the Issuer and one or more of its Subsidiaries.

         “ Term ” has the meaning specified in Section 1 hereof.

          “ Trading Day ” means (a) a day on which the Common Stock is traded on a national securities exchange, or (b) if
the Common Stock is not traded on a national securities exchange, a day on which the Common Stock is quoted in the
over-the-counter market as reported by the OTC Bulletin Board or Pink Sheets LLC (or any similar organization or agency
succeeding its functions of reporting prices); provided , however , that in the event that the Common Stock is not listed or
quoted as set forth in (a) or (b) hereof, then Trading Day shall mean any day except Saturday, Sunday and any day which
shall be a legal holiday or a day on which banking institutions in the State of New York are authorized or required by law or
other government action to close.


                                                         - 15 -
         “ VWAP ” means, for any date, the price determined by the first of the following clauses that applies: (a) the daily
volume weighted average price of the Common Stock for such date (or the nearest preceding date) on a national securities
exchange or the OTC Bulletin Board as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City
time) to 4:02 p.m. (New York City time); (b) if the Common Stock is not then quoted for trading on a national securities
exchange or the OTC Bulletin Board and if prices for the Common Stock are then reported by Pink Sheets, LLC (or a similar
organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common
Stock so reported; or (c) in all other cases, the fair market value of a share of Common Stock as determined by an
independent appraiser selected in good faith by the Holder and reasonably acceptable to the Issuer.

         “ Voting Stock ” means, as applied to the Capital Stock of any corporation, Capital Stock of any class or classes
(however designated) having ordinary voting power for the election of a majority of the members of the Board of Directors
(or other governing body) of such corporation, other than Capital Stock having such power only by reason of the happening
of a contingency.

         “ Warrant Price ” means $0.27, as such price may be adjusted from time to time as shall result from the adjustments
specified in this Warrant, including Section 4 hereto.

        “ Warrant Share Number ” means at any time the aggregate number of shares of Warrant Stock which may at such
time be purchased upon exercise of this Warrant, after giving effect to all prior adjustments and increases to such number
made or required to be made under the terms hereof.

        “ Warrant Stock ” means Common Stock issuable upon exercise of this Warrant.

10.       Other Notices . In case at any time:

                           (A)      the Issuer shall make any distributions to the holders of Common Stock; or

                           (B)      the Issuer shall authorize the granting to all holders of its Common Stock of rights to
                                    subscribe for or purchase any shares of Capital Stock of any class or other rights; or

                           (C)      there shall be any reclassification of the Capital Stock of the Issuer; or

                           (D)      there shall be any capital reorganization by the Issuer; or


                                                        - 16 -
                                     (E)      there shall be any (i) consolidation or merger involving the Issuer or (ii) sale, transfer or
                                              other disposition of all or substantially all of the Issuer’s property, assets or business
                                              (except a merger or other reorganization in which the Issuer shall be the surviving
                                              corporation and its shares of Capital Stock shall continue to be outstanding and
                                              unchanged and except a consolidation, merger, sale, transfer or other disposition
                                              involving a wholly-owned Subsidiary); or

                                     (F)      there shall be a voluntary or involuntary dissolution, liquidation or winding-up of the
                                              Issuer or any partial liquidation of the Issuer or distribution to holders of Common
                                              Stock;

then, in each of such cases, the Issuer shall, to the extent permitted by law, give written notice to the Holder of the date on which (i)
the books of the Issuer shall close or a record shall be taken for such dividend, distribution or subscription rights or (ii) such
reorganization, reclassification, consolidation, merger, disposition, dissolution, liquidation or winding-up, as the case may be, shall
take place. Such notice also shall specify the date as of which the holders of Common Stock of record shall participate in such
dividend, distribution or subscription rights, or shall be entitled to exchange their certificates for Common Stock for securities or other
property deliverable upon such reorganization, reclassification, consolidation, merger, disposition, dissolution, liquidation or
winding-up, as the case may be. To the extent permitted by law, such notice shall be given at least twenty (20) days prior to the action
in question and not less than five (5) days prior to the record date or the date on which the Issuer’s transfer books are closed in respect
thereto. This Warrant entitles the Holder to receive copies of all financial and other information distributed or required to be
distributed to the holders of the Common Stock.

         11.        Amendment and Waiver . Any term, covenant, agreement or condition in this Warrant may be amended, or
compliance therewith may be waived (either generally or in a particular instance and either retroactively or prospectively), by a
written instrument or written instruments executed by the Issuer and the Holder.

          12.         Governing Law; Jurisdiction . This Warrant shall be governed by and construed in accordance with the internal
laws of the State of New York, without giving effect to any of the conflicts of law principles which would result in the application of
the substantive law of another jurisdiction. This Warrant shall not be interpreted or construed with any presumption against the party
causing this Warrant to be drafted. The Issuer and the Holder agree that venue for any dispute arising under this Warrant will lie
exclusively in the state or federal courts located in New York, and the parties irrevocably waive any right to raise forum non
conveniens or any other argument that New York is not the proper venue. The Issuer and the Holder irrevocably consent to personal
jurisdiction in the state and federal courts of the state of New York. The Issuer and the Holder consent to process being served in any
such suit, action or proceeding by mailing a copy thereof to such party at the address in effect for notices to it under this Warrant and
agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing in this Section 12 shall
affect or limit any right to serve process in any other manner permitted by law. The Issuer and the Holder hereby agree that the
prevailing party in any suit, action or proceeding arising out of or relating to this Warrant or the Purchase Agreement, shall be entitled
to reimbursement for reasonable legal fees from the non-prevailing party. The parties hereby waive all rights to a trial by jury.


                                                                  - 17 -
 13.         Notices . Any notice, demand, request, waiver or other communication required or permitted to be given hereunder shall
be in writing and shall be effective (a) upon hand delivery by telecopy or facsimile at the address or number designated belo w (if
delivered on a business day during normal business hours where such notice is to be received), or the first business day following such
delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the
second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual
receipt of such mailing, whichever shall first occur. The addresses for such communications shall be:

If to the Issuer:                   Cyclone Power Technologies Inc.
                                    601 NE 26th Court
                                    Pampano Beach, Fl. 33064
                                    Attn: Christopher Nelson, President and General Counsel


                                                                - 18 -
with copies (which copies
shall not constitute notice)
to:                          Roetzel & Andress
                             350 East Las Olas Boulevard
                             Las Olas Centre II, suite 1150
                             Fort Lauderdale, FL 33303-0310
                             Main Phone Number: (954) 462-4150
                             Fax: (954) 462-4260
                             Attn: Joel Mayersohn, Esq.

If to the Holder:          GEM Global Yield Fund Limited
                           c/o CM Group
                           Commerce House
                           1 Bowring Road
                           Ramsey
                           Isle of Man
                           IM8 2LQ

with copies (which copies
shall not constitute notice)
to:                          Kramer Levin Naftalis & Frankel LLP
                             1177 Avenue of the Americas
                             New York, New York 10036
                             Telephone Number: (212) 715-9100
                             Fax: (212) 715-8000
                             Attention: Christopher S. Auguste, Esq.

         Any party hereto may from time to time change its address for notices by giving written notice of such changed address to the
other party hereto.

         14.        Warrant Agent . The Issuer may, by written notice to each Holder of this Warrant, appoint an agent having an
office in New York, New York for the purpose of issuing shares of Warrant Stock on the exercise of this Warrant pursuant to
subsection (b) of Section 2 hereof, exchanging this Warrant pursuant to subsection (d) of Section 2 hereof or replacing this Warrant
pursuant to subsection (d) of Section 3 hereof, or any of the foregoing, and thereafter any such issuance, exchange or replacement, as
the case may be, shall be made at such office by such agent.

         15.        Remedies . The Issuer stipulates that the remedies at law of the Holder of this Warrant in the event of any default
or threatened default by the Issuer in the performance of or compliance with any of the terms of this Warrant are not and will not be
adequate and that, to the fullest extent permitted by law, such terms may be specifically enforced by a decree for the specific
performance of any agreement contained herein or by an injunction against a violation of any of the terms hereof or otherwise.

         16.        Successors and Assigns . This Warrant and the rights evidenced hereby shall inure to the benefit of and be binding
upon the successors and assigns of the Issuer, the Holder hereof and (to the extent provided herein) the Holders of Warrant Stock
issued pursuant hereto, and shall be enforceable by any such Holder or Holder of Warrant Stock.


                                                                 - 19 -
         17.        Modification and Severability . If, in any action before any court or agency legally empowered to enforce any
provision contained herein, any provision hereof is found to be unenforceable, then such provision shall be deemed modified to the
extent necessary to make it enforceable by such court or agency. If any such provision is not enforceable as set forth in the preceding
sentence, the unenforceability of such provision shall not affect the other provisions of this Warrant, but this Warrant shall be
construed as if such unenforceable provision had never been contained herein.

        18.        Headings . The headings of the Sections of this Warrant are for convenience of reference only and shall not, for
any purpose, be deemed a part of this Warrant.

         19.        Registration Rights . The Holder of this Warrant is entitled to the benefit of certain registration rights with respect
to the shares of Warrant Stock issuable upon the exercise of this Warrant pursuant to that certain Registration Rights Agreement, of
even date herewith, by and among the Issuer and the Holder (the “ Registration Rights Agreement ”) and the registration rights with
respect to the shares of Warrant Stock issuable upon the exercise of this Warrant by any subsequent Holder may only be assigned in
accordance with the terms and provisions of the Registration Rights Agreement.

                                    [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]


                                                                  - 20 -
IN WITNESS WHEREOF, the Issuer has executed this Warrant as of the day and year first above written.


                                                      CYCLONE POWER TECHNOLOGIES INC.



                                                      By: /s/ Christopher Nelson
                                                          Name: Christopher Nelson
                                                          Title: President



                                          Signature Page to Warrant
                                                         EXERCISE FORM
                                                           WARRANT

                                            CYCLONE POWER TECHNOLOGIES INC.

The undersigned _______________, pursuant to the provisions of the within Warrant, hereby elects to purchase _____ shares of
Common Stock of covered by the within Warrant.

Dated: _________________                              Signature              ___________________________

                                                      Address                _____________________
                                                                              _____________________

Number of shares of Common Stock beneficially owned or deemed beneficially owned by the Holder on the date of Exercise:
_________________________

The undersigned is an “accredited investor” as defined in Regulation D under the Securities Act of 1933, as amended.

The undersigned intends that payment of the Warrant Price shall be made as (check one):

                  Cash Exercise_______

                  Cashless Exercise_______

If the Holder has elected a Cash Exercise, the Holder shall pay the sum of $________ by certified or official bank check (or via wire
transfer) to the Issuer in accordance with the terms of the Warrant.

If the Holder has elected a Cashless Exercise, a certificate shall be issued to the Holder for the number of shares equal to the whole
number portion of the product of the calculation set forth below, which is ___________. The Company shall pay a cash adjustment in
respect of the fractional portion of the product of the calculation set forth below in an amount equal to the product of the fractional
portion of such product and the Per Share Market Value on the date of exercise, which product is ____________.

         X = Y - (A)(Y)
                  B

Where:

The number of shares of Common Stock to be issued to the Holder __________________(“X”).

The number of shares of Common Stock purchasable upon exercise of all of the Warrant or, if only a portion of the Warrant is being
exercised, the portion of the Warrant being exercised ___________________________ (“Y”).

The Warrant Price ______________ (“A”).


                                                                  - 22 -
The Per Share Market Value of one shares of Common Stock _______________________ (“B”).



                                                          ASSIGNMENT

FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto __________________ the within Warrant
and all rights evidenced thereby and does irrevocably constitute and appoint _____________, attorney, to transfer the said Warrant on
the books of the within named corporation.

Dated: _________________                             Signature              ___________________________

                                                     Address               _____________________
                                                                            _____________________

                                                     PARTIAL ASSIGNMENT

FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto __________________ the right to purchase
_________ shares of Warrant Stock evidenced by the within Warrant together with all rights therein, and does irrevocably constitute
and appoint ___________________, attorney, to transfer that part of the said Warrant on the books of the within named corporation.

Dated: _________________                             Signature              ___________________________

                                                     Address               _____________________
                                                                            _____________________


FOR USE BY THE ISSUER ONLY:

This Warrant No. W-___ canceled (or transferred or exchanged) this _____ day of ___________, _____, shares of Common Stock
issued therefor in the name of _______________, Warrant No. W-_____ issued for ____ shares of Common Stock in the name of
_______________.



                                                                 - 23 -
                              EXHIBIT 21




Subsidiaries of the Company




    Cyclone-WHE LLC

 Cyclone Performance LLC
                                                                                                                             EXHIBIT 23.1




                       CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




We consent to the use within this Registration Statement on Form S-1 of Cyclone Power Technologies, Inc. of our report dated April
13, 2012, relating to the consolidated balance sheets of Cyclone Power Technologies, Inc., as of December 31, 2011 and 2010 and the
related consolidated statements of operations, stockholders' deficit and cash flows for the years then ended. We also consent to the
reference to our firm under the heading "Experts" in such Registration Statement.



/s/ Mallah Furman

Fort Lauderdale, Florida
October 12, 2012