Telix QSAM Inc (QSAM)

[BuddyWhazhizname]

Highlights from Annual Report: http://ih.advfn.com/p.php?pid=nmona&article=71128335

Page 6: "The Q2P Engine has been running both in our facility and in initial field pilot programs for over one year, logging hundreds of hours of operating time." There are 8760 hours in a year of which about 2000 is a single shift working year. They said before they had build more than one prototype engine. "Hundreds of hours" means engines have averaged just a few hours per week of operation. How long they operated while producing power is another (unanswered) question.

Page 6: "As we grow, we intend to transition our business model to one that compensates the Company for the value we create for our customers over time. For instance, we may be able to market Power Purchase Agreements (PPAs) and leasing programs directly to municipal, commercial and industrial facility owners." PPAs used to be their prime strategy. Now they "may be able" to do this.

Page 6: "For instance, a WWTP that uses our CHP System to generate power and maintain the operating temperatures within their Anaerobic Digester, could also retain our services to remove sludge and convert that typically landfilled waste into useful co-products like compost and engineered soils." So now Q2Power is moving into the sewage sludge business. (This is the business their new Chairman of the Board Kevin Bolin went broke in.)

Page 8: "We intend to provide customers with a warranty covering the replacement of parts and materials. Such warranties will generally extend between two and five years, subject to the useful life and payback expectations of the particular engine and system." and, Page 9: "We expect our engines to be engineered to perform for up to 10,000 hours of operation, and meet all consumer safety regulations." These statements become important below.

Page 12: "Patents. Currently, the Q2P Engine is protected by one issued patent in the United States, and four internationally, according to our latest communications with Cyclone." That US Patent 7992386 has already lapsed.

Page 15: "As of the date of this Annual Report, we have 6 full-time employees and 2 part-time employees, and one consultant, our CFO."
- Christopher Nelson, CEO
- Douglas Hutchinson, COO
- Sudheer Pimputkar, CTO
- Gerald Fly, VP Power Systems
- Nathan Hawkins, VP Production
- Eric Schacht, VP Systems Engineering
- Packy Underwood, Sr. Technician
- Michelle Murcia, CFO

Nathan Hawkins is co-owner of their machine shop Precision CNC, so he is most likely one of the part-timers. That leaves the entire non-executive "staff" of Q2Power as the Senior Technician and the second part-timer.

Page 16: "We realized a loss of $3,536,021" in 2015, but only need "approximately $2.0 to $2.5 million over the next 12 months to continue its planned business operations." of ramping up production and marketing. They don't say how they will do more with less spending.

Pages 16-22: Of all the risks they describe, the fact that their engine has never been proven to run for 200 hours and they have no plan to make its life commercially acceptable is not mentioned.

Page 25: They are issuing convertible notes, i.e., toxic financing.

Page 27: "It is our goal to have our sales revenue support our engineering and technical operational expenses by the end of 2016"; "Management believes the Company will start generating higher revenues through the sale of its Q2P Engine and CHP Systems within the next six months, and may start generating revenue from other business lines such as bio-solid co-products by the end of the year." This is what their predecessor, Cyclone Power Technologies, has said every year since 2007 or before. They have always anticipated engine production in the next six months.

Page 28: "During the year ended December 31, 2015, the Company generated $20,000 of sales related to Q2P providing engineering services to one customer." They don't say who that customer is, what kind of services, or if they expect any repeat business.

Page 30: They still have $250,000 in deferred revenue from Phoenix Power. This means they still have not gotten the $150,000 progress payment for demonstrating their engine ran under load for 200 hours without failure. Q2Power and Cyclone before them have spent millions since 2007 to get this engine to work right. Statements about 2 to 5 year warranties, 10,000 hour design engine life and selling more systems this year are pure fantasy. The one system they did sell will never meet its milestones and will never be delivered.

Page 55: "On March 15, 2016, the Company entered into a 120 day term loan agreement with one accredited investor in the principal amount of $150,000. The loan bears 20% interest with interest payments due monthly. The holders received a 100,000 share equity kicker and a second security interest in the assets of the Company." This looks like they factored the invoice for that system being built for the customer in Florida. It is supposed to be delivered by the end of May when they expect to get $160,000. Q2Power must be seriously hard up for cash to accept such predatory terms. It's going to be interesting when that note is due and the customer hasn't accepted or paid for the system.

Looking at the annual report in total, a far, far greater proportion is spent describing all the ways the executives and directors are being rewarded than in describing how well their product is working.

Just like Cyclone Power Technologies, a house of cards built on 'Green' hype.