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Cyclone Power Technologies
601 NE 26
Ct., Pompano Beach, FL 33064
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August 17, 2010
Dear Friends of Cyclone,
Greetings from South Florida! I would like to share with you some of the financial, technical and
operational highlights from the first half of 2010, as detailed in our Quarterly Report filed with the
OTC Markets.

Financial Development

In the first half of 2010 we generated $104,900 of revenue compared to $94,938 for the same
period in 2009, an increase of 10%, partially due to the delivery in 2010 of our biomass-to-power
engine system to Robotic Technology under a U.S. Department of Defense sponsored project. We
generated an additional $70,000 in cash flow during the recent three-month period; however,
under GAAP rules until we deliver prototypes to our customers, these funds are accounted for as
deferred revenue (a balance sheet item). At June 30, we had $595,000 in cumulative deferred
revenue and an additional $117,475 in license deposits.
We incurred operating expenses for the first half of 2010 of $1,156,936 as compared to $1,164,209
for the same period in 2009. Despite having more engineers on staff as we grow our operations and
paying higher professional services in connection with the filing of audited financial statements
with our 2009 Annual Report, our overall R&D costs in the first half of 2010 were lower than in
2009. This change reflects the assignment of resources from research to the production of
deliverable inventory as some of our engine prototypes near completion. Overall, however, net loss
for the first six months of 2010 was $1,255,572 as compared to a slightly lower net loss of
$1,127,345 for the same period in 2009.
We ended the second quarter of 2010 with cash of $102,590 and total current assets of $345,956.
Other than debt owed to our officers and directors for deferred salary and loans provided to the
Company, we have virtually no long-term debt only $15,950 which is being converted to stock in
the third quarter of 2010. We believe that this fact reduces the financial stress on the Company and
allows us to operate leaner and without fear of defaulting on any unaffiliated third-party debt. Very
few companies can say that in today's economy.

In the first half of 2010, we partially supported operations by selling 1,750,882 shares of common
stock for $145,377, and 81,700 shares of Series A Preferred Stock for $407,600. We also issued for
services 4,068,947 shares of restricted common stock, 2,500 shares of Series A Preferred Stock and
450,000 common stock options valued at $351,517 in total. As we have said before, we believe that
the continued interest among our key employees and contractors to receive stock and stock options
in lieu of some or all of their cash compensation demonstrates an unwavering commitment to the
completion of our technological development and the success of our company.
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Cyclone Power Technologies
601 NE 26
Ct., Pompano Beach, FL 33064
Page 2
We are still on track to file our initial registration statement with the Securities and Exchange
Commission sometime in the second half of 2010. We are attempting to coordinate this filing with
the raise of additional funds for the Company, which we hope to complete during the next quarter.
In April we added Bruce Schames as our CFO who will, in addition to his normal duties, assist us in
both this initial filing and future reporting requirements with the SEC. Bruce has been a licensed
CPA since 1971; he has represented both public and private clients in his own practice since 2001,
during which time he conducted SEC audits and assisted in the preparation and filing of Forms 10-K
and 10-Q; and previously, he served as CFO for two Nasdaq-listed companies. We welcome Bruce
You can find our full financial statements with footnotes in our Quarterly Report for the period
ended June 30, 2010, filed with
Engine Projects and Technological Development
Waste Energy Recovery: In the second quarter of 2010, we completed the baseline Waste Heat
Engine (WHE-25) and delivered a full waste heat recovery beta system to our customer,
Bent Glass
, Inc. This power system will produce up to 10kW of electricity from the heat exhausted
from their furnaces. Right now installation is almost complete and we are working with PECO, the
local electric utility, to process our Net Metering application before we flip the switch.
We are also in discussions with several other beta sites to test our waste heat recovery systems
once our initial unit is proven at Bent Glass. We will conduct these projects through our
consolidated subsidiary, Cyclone-WHE LLC, which was formed with the expectation of generating
revenue from the sale and installation of complete waste heat recovery systems (i.e., not through
licensing revenue, as is Cyclone's business model). Christopher Nelson, our General Counsel, has
been appointed as Managing Director of this subsidiary, and over the following months, will be
building a team around him to pursue this very exciting and widely underserved market.

With respect to our WHE-25 engine, our licensee Great Wall Alternative Power Systems Ltd. has
completed the first phase of its License Agreement involving the establishment of secure
intellectual property protocols in China for our technology, and will now enter the production
prototyping phase of the WHE-25 for multiple waste and renewable energy applications for the
China market.

We also continue to advance the development of our flagship Mark V engine for use with waste oil
fuels. Dynomometer testing of this engine to date has demonstrated excellent, albeit early, power
and performance results. En
gineering extrapolations based on the current engine configuration
confirm output of approximately 55 hp at 1800rpm and over 100hp at 3600prm.
This project is
being funded in part by
Phoenix Power Group
, who has also teamed-up with
Clean Burn Energy
, the leading manufacturer and distributor of waste oil heaters in the world, and several
potential customers for these important renewable energy products.
Military: In the first half of 2010, we delivered our biomass-to-power system to our client
Inc., which commissioned the system pursuant to its Phase II SBIR project sponsored
by the Defense Advanced Research Projects Agency (
), an agency of the U.S. Department of
Defense. Similar to our waste energy projects noted above, we believe that there are vast
commercial opportunities for Cyclone's biomass-to-power system beyond military purposes, and
we are currently in discussions with several potential customers to develop biomass and combined
heat & power (CHP) systems for the residential markets worldwide.
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Cyclone Power Technologies
601 NE 26
Ct., Pompano Beach, FL 33064
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In the first half of 2010, we also continued to perform testing and design services for Raytheon
Integrated Defense Systems, a business of
Raytheon Company
. We have two outstanding
purchase orders from them for design and development services, and we continue our discussions
regarding the next phases of a larger collaborative project slated to begin in late 2010.
Solar: Our solar thermal engine (S-1) being developed for
Renovalia Energy
is progressing well
and performance testing has commenced during the second quarter of 2010. We are achieving
power output in excess of what we originally calculated, and making excellent headway with
increasing the durability of component parts. We anticipate phase 1 prototyping of this engine to be
completed soon.
Land Steam Record: As development of our Mark V engine progresses (see above), so does our
project with the
U.S. Land Steam Record
team, which plans to use this engine to power the fastest
steam vehicle on earth. We will not make the August/September 2010 time trials in Bonneville, UT,
but we are expecting to conduct unofficial tests in North Carolina in the Spring of 2011, and then
attempt another official run in Bonneville next year.

Between our Mark V, S-1 and WHE-25 engines, we are very pleased with the overall development
status of our technology. Many people do not realize that we have almost 1,000 hours of running
and testing our engines, have achieved verified thermal efficiencies above 30%, and are very
close to putting the first of these engine models into small-scale commercial production.
During the first half of 2010 we made great strides in the advancement of our technology and
business. We are very thankful for your support in helping make this happen. It is our goal to make
a meaningful impact on our world by introducing an engine that challenges the way we currently
produce power for electrical, automotive and other important everyday applications. By using pure
renewable biofuels, waste heat and waste fuels, solar thermal heat and biomass all in Cyclone
Engines, we feel the possibilities for our collective future are very bright.
Harry Schoell, CEO & Director