Telix QSAM Inc (QSAM)

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History of the Q2Power Energy System

Q2Power was created to build systems that would generate electricity from heat that might be surplus heat from industrial processes or heat created by burning methane such as the methane created in waste water treatment plants.

Christopher Nelson had been President of Cyclone Power Technologies of Florida whose business was developing a modern steam engine. Nelson spun out a model called the Waste Heat Engine (WHE) as the basis for Q2Power's business.

In the Q2 2016 quarterly report, Q2Power stated R&D of this technology had been suspended and the company's business was shifted to looking for opportunities in the composting of waste water sewage sludge. The Ohio facility where the R&D work was done was closed and the lease ended on June 27, 2016. R&D staff had been terminated on May 27, 2016. All computer systems, software and office furniture was used to pay off back rent and services provided by the landlord.

A prototype system had been installed at the Lancaster, Ohio waste water treatement plant in 2015, but no information on its performance was ever released.

A system was sold in January 2016 to a customer in Florida for delivery in May 2016 but only an initial payment for completing the design work was made. No further progress payments have been made.

The rest of this post gives more detailed information on the Q2Power technology.

Timeline:

2004 Inventor Harry Schoell of Florida starts Cyclone Power Technologies to develop and market an advanced steam engine he has designed.

September 24, 2007 PR: Cyclone Power Technologies Files Patent Application for New, Eco-Friendly Waste Heat Engine Technology. The Waste Heat Engine (WHE) becomes the basis for what will eventually become Q2Power. Inventor Harry Schoell states: "The company believes that the WHE could be in commercial production by the end of 2008."

November 17, 2008 Bent Glass Design of Hatboro, PA purchases a Waste Heat Engine (WHE) cogeneration system from Cyclone Power Technologies.
December 14, 2010: The WHE system at Bent Glass Designs is finally reported to be operating and feeding electrical power into the grid.
April 20, 2012: Cyclone reports "When we initially installed our waste heat engine at the Bent Glass facility in December 2010, we ran the engine for a couple of weeks, but soon realized that the engine required further development." This is the last mention of the Bent Glass Design project by Cyclone. No information on system operation or performance is released.

May 05, 2009 Renovalia Energy, S.A., of Spain.is licensed to develop a production version of the WHE engine for use with solar collectors and manufacture it for the solar energy market.
April 20, 2012: Cyclone reports "We are not sure whether Renovalia will proceed to the next step of building engines". No engines are known to have been built under this license.

December 11, 2009 Great Wall Alternative Power Systems Ltd. of China is licensed to develop a production version of the WHE engine and manufacture it for the Chinese market.
September 2013: Great Wall Alternative Power Systems terminates WHE engine license agreement with Cyclone Power Technologies. No marketable version of the engine was known to be built under the agreement.

July 2010 Cyclone-WHE LLC subsidiary is established by Cyclone to develop, license and market WHE engines.
Christopher Nelson, Cyclone's Executive Vice President and General Counsel, is named the Managing Director of Cyclone-WHE.

December 21, 2010 Cyclone Power Technologies and Phoenix Power Group of Tennessee. announce they "intend on launching several dozen pilot programs in the first half of 2011 for the 10kW waste oil power generator called the Phoenix-10, and the small-scale industrial waste heat recovery unit called the WHE-GEN-10. Broader commercial sales of these units are anticipated to commence later in the year." No pilot programs were reported after this announcement.

March 2011 Christopher Nelson promoted from Executive VP to President of Cyclone.
Agreement announced between Cyclone Power Technologies and TopLine Energy Systems LLC of Florida (a venture of the Topline autoparts company) to engineer and provide "parts for 12 completed engines within 60 days"
In April 2012 Cyclone stated four engines had been produced but no specifications or performance data of the Topline designed engines was ever given out, nor was the Topline venture ever mentioned after that.

February 2013 Cyclone "signed an agreement with The Ohio State University’s Center for Automotive Research (OSU-CAR) to assist in the commercialization of its external combustion engine technology."
November 5, 2013: The WHE-DR engine, designed and built by OSU-CAR, is announced. It was "expected to be ready to transition into limited production by the end of this year" (i.e., 2013). No production has occurred.

July 17, 2014 Cyclone Power Technologies separates WHE Generation Corp into an independent company. "Christopher Nelson resigned as President of Cyclone to assume the position of Chief Executive Officer of WHE GEN."
WHE GEN adopts the name Q2Power in early 2015.

August 27, 2015 Anpath Group (APGR), a listed company with no operations signs a merger agreement with Q2Power. The merger is completed in November with Q2Power assuming a majority postion in the new company.

January 14, 2016 Q2Power announces another agreement with Phoenix Power Corp. No mention is made of meeting the 200 Hour Running Requirement (see below). The announcement with Phoenix Power is similar to several announcements predicting product production made by Q2Power's predecessor Cyclone Power with Phoenix Power since 2009.

February 10, 2016 Q2Power files an amended 8K stating "Management believes the Company will start generating revenues through commercialization of its Q2P Engine and Q2P System within the next three to six months" (page 5), and that on January 21 they sold their first system to a company in Florida (page 18). Price was $160,000 to be paid for progress milestones over the next four months.

June 21, 2016 Layoffs of R&D staff and shift of direction to composting of sewage biosolids announced. No progress mentioned in the system sold to the customer in Florida in January for delivery in May. No mention of meeting the 200 hour operating requirement to received the progress payment from Phoenix Power. No facilities, employees or contracts for the composting business mentioned.


Summary:

Development of the waste heat engine has been underway continuously since 2007 involving Cyclone Power Technologies, Renovalia Energy, S.A., of Spain, Great Wall Alternative Power Systems Ltd. of China, TopLine Energy Systems LLC of Florida, The Ohio State University’s Center for Automotive Research and Q2Power, but no marketable engine has resulted. Q2Power states (page 16): "We license the Q2P Engine technology from Cyclone, which developed and patented the relevant engines and components over the previous 10 years with over $8 million in R&D expenditures during this time." No explanations of what the actual problems are with the engine or why repeated predictions of engine production have failed to materialize have ever been given.

Christopher Nelson, Q2Power CEO, was Managing Director of the WHE engine operation since July 2010 while all of these efforts to commercialize the engine failed.

Technology:

The heart of the Q2Power system is a small steam engine. Any source of heat that can boil water can generate steam that powers the engine. The output of the engine typically would drive an electrical generator, producing electricity that is sold for revenue.
Preliminary applications are proposed for burning methane that is a normal waste byproduct of garbage landfills and municiple sewage treatment plants. Phoenix Power Systems of Tennessee was established to combine the WHE generator with waste oil furnaces that burn used motor oil in garages.

A unique feature of the WHE engine is that it uses water rather than oil as a lubricant. This eliminates the need to remove oil from water and vice-versa, but water has only 1/250th the lubricity of oil. The many-years delays in engine production is attributed to the technological difficulties in making a water lubricated engine. Engineers from the Ohio State University made a presentation in March 2014 on their work improving the WHE engine. Water lubricated bearings was the primary reported hurdle and a research program to develop usable bearings was their primary task going forward. No solution to the bearing problem has been reported.

IP Protection:

Q2Power has a 20 year license on the entire patent portfolio of Cyclone Power Technolotgies. Most of these, however, protect features of the Cyclone "regenerative" steam engine which are not found on the WHE engine. The U.S. Waste Heat Engine Patent, US7992386, was allowed to lapse on August 9, 2015 due to failure to pay maintenance fees.

Versions of this patent may still be in effect in China (CN102203383B), but has also lapsed in many European countries (EP2352904).

Q2Power's license also includes all trade secrets held by Cyclone Power Technologies. Cyclone, however, has never developed a marketable engine using these trade secrets and has not filed required financial statements since early 2015.The effectiveness of Cyclone's core technologies have never been demonstrated in the market.

The 200 Hour Running Requirement:

Phoenix Power Systems contracted with Cyclone in 2009 to provide engines. The contract was restated in September 2013 after no engines had been delivered. The development milestones include:

2.$150,000: Upon the completion of 200 hours of durability testing of WHE version 5.0 as conducted and/or overseen by OSU. The durability testing shall consist of the WHE engine operating, without failure, and producing 10hp to 20hp; provided that Licensee certifies that its CCHX steam generator can produce sufficient steam for these tests;

3.$10,000: upon delivery of each of 10 working prototype WHE engines to Licensee (total of $100,000).
The $250,000 is held in escrow and is reported as deferred revenue in Q2Power's balance sheet as of the 8K of November 12, 2015. As long as the $150,000 deferred revenue is maintained on the books for not meeting Milestone #2, the Q2Power engine has not been demonstrated to run continuously under load for 200 hours.

To put this in perspective, Yanmar (a large Japanese engine manufacturer) sells a 25 kW generator set that also runs on biomethane, has a maintenance interval (e.g., oil changes) of 6,000 hours and extended warranty plans up to 60,000 hours. That's at least 300 times longer than the Q2Power technology engine has ever operated under load. Q2Power (or its predecessor Cyclone) has not disclosed how long they have been able to make the engine run without failure. This is a key material fact.