1858 Cedar Hill Rd.

Lancaster, Ohio 43130

(Address of Principal Executive Offices)

(740) 415-2073

(Registrant’s Telephone Number, including area code)

(Former name or former address, if changed since last report.)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.0001

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [  ] No [X]

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes [  ]   No [X]

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

(1) Yes [X] No [  ]     (2) Yes [X] No [  ]

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X ] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [  ]

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company:

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [  ] No [X]

State the aggregate market value of the voting and non-voting common stock held by non-affiliates computed by reference to the price at which the common stock was last sold, or the average bid and asked price of such common stock, as of the last business day of the Registrant's most recently completed fiscal quarter.

March 31, 2016 - $7,651,014.  There are approximately 25,503,380 shares of common voting stock of the Registrant beneficially owned by non-affiliates on March 31, 2016.  There is a limited public market for the common stock of the Registrant, so this computation is based upon the closing bid price of $0.30 per share of the Registrant's common stock on the OTCQB.

APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.   X  Yes        No

Indicate the number of shares outstanding of each of the registrant’s classes of common equity, as of the latest practicable date:

April 14, 2016:  Common – 27,802,622

                           Preferred -- 600

Documents incorporated by reference: None.

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FORWARD LOOKING STATEMENTS

This Annual Report contains certain forward looking statements, as defined in the Private Securities Litigation Reform Act of 1995, including or related to our future results, events and performance (including certain projections, business trends and assumptions on future financings), and our expected future operations and actions.  In some cases, you can identify forward-looking statements by the use of words such as “may,” “should,” “plan,” “future,” “intend,” “could,” “estimate,” “predict,” “hope,” “potential,” “continue,” “believe,” “expect” or “anticipate” or the negative of these terms or other similar expressions. These forward-looking statements generally relate to our plans and objectives for future operations and are based upon management’s reasonable estimates of future results or trends. In evaluating these statements, you should specifically consider the risks that the anticipated outcome is subject to, including the factors discussed under "RISK FACTORS" and elsewhere.  These factors may cause our actual results to differ materially from any forward-looking statement.  Actual results may differ from projected results due, but not limited to, unforeseen developments, including those relating to the following:

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We fail to raise capital;

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We fail to implement our business plan;

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We fail to compete at producing cost effective products;

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Risks related to delays and expenses of engine technology development and pilot programs;

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The inability of our engines to compete with other forms of renewable energy;

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Market demand for electricity and alternative energy sources;

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The availability of additional capital at reasonable terms to support our business plan;

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Economic, competitive, demographic, business and other conditions in our markets;

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Changes or developments in laws, regulations or taxes in the energy industry;

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Actions taken or not taken by third-parties, including our suppliers and competitors;

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The failure to acquire or the loss of any license or patent;

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Changes in our business strategy or development plans;

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The availability and adequacy of our cash flow to meet its requirements; and

·

Other factors discussed under the section entitled “RISK FACTORS” or elsewhere herein.

You should read this Annual Report completely and with the understanding that actual future results may be materially different from what we expect.  Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, future financings, performance, or achievements.  Moreover, we do not assume any responsibility for accuracy and completeness of such statements in the future.  We do not plan to update any of the forward-looking statements after the date of this Annual Report to conform such statements to actual results.

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JUMPSTART OUR BUSINESS STARTUPS ACT DISCLOSURE

We qualify as an “emerging growth company,” as defined in Section 2(a)(19) of the Securities Act by the Jumpstart Our Business Startups Act (the “JOBS Act”). An issuer qualifies as an “emerging growth company” if it has total annual gross revenues of less than $1.0 billion during its most recently completed fiscal year, and will continue to be deemed an emerging growth company until the earliest of:

As an emerging growth company, we are exempt from various reporting requirements. Specifically, we are exempt from the following provisions:

Under the JOBS Act, emerging growth companies may delay adopting new or revised accounting standards that have different effective dates for public and private companies until such time as those standards apply to private companies.  

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PART I

ITEM 1. BUSINESS

Business Development

Organizational History

In this Annual Report, references to “Q2Power,” the “Company,” “we,” “our,” “us” and words of similar import refer to “Q2Power Technologies, Inc.,” the Registrant, a Delaware corporation. References to “Q2P” or the “Subsidiary” refer to Q2Power Corp., a Delaware corporation, our subsidiary and operating company.

The Company, formerly known as Anpath Group, Inc. (“Anpath”), was organized pursuant of the laws of the State of Delaware on August 26, 2004, under the name “Telecomm Sales Network, Inc.”.  On January 10, 2006, the Company completed the acquisition of EnviroSystems Inc., a Nevada corporation (“ESI”), pursuant to which ESI became a wholly-owned operating subsidiary of the Company. The Company conducted all its business through ESI, and on January 12, 2007, changed its name to Anpath.  On May 20, 2010, Anpath filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the District of Delaware, which the Company emerged from on December 23, 2010.  On December 28, 2010, the Company filed with the SEC a Form 15 suspending its duty to file reports with the SEC under Section 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  Upon effectiveness of a Registration Statement on Form 10, as amended, on April 20, 2014, Anpath once again became obligated to file such reports under Section 13 of the Exchange Act.  Effective August 5, 2015, Anpath effected a one for seven (1 for 7) reverse split of our outstanding common stock (the “Reverse Split”).  All computations contained herein take into account the Reverse Split.

The Merger

On November 12, 2015, the Company, its newly formed and wholly-owned subsidiary, AnPath Acquisition Sub, Inc., a Delaware corporation (“Merger Subsidiary”), and Q2P consummated their Agreement and Plan of Merger (the “Merger Agreement”), resulting in the Merger Subsidiary merging with and into Q2P.  As a result, Q2P was the surviving company and a wholly-owned subsidiary of AnPath (the “Merger”).  

As a result of the Merger, all outstanding shares of Q2P were exchanged for 24,034,475 shares of the Company’s common stock, representing approximately 93% of the total issued and outstanding common stock of the Company, excluding stock options, warrants and convertible notes outstanding at such time.  In addition, the Company assumed both the Q2P 2014 Founders Stock Option Plan and the 2014 Employees Stock Option Plan (the “Option Plans”), and 1,095,480 options outstanding thereunder.  Also pursuant to the Merger, the officers and directors of Q2P took over the management and Board of Directors of the Company.  

In connection with the Merger, the Company sold the former operating entity of Anpath, ESI, to three former officers and shareholders of Anpath in exchange for the return of 470,560 shares of common stock of the Company and ESI retaining all of the old liabilities of ESI including a litigation judgment.

In December 2015, the Company officially changed its name to Q2Power Technologies, Inc. to reflect the new business direction of the Company – that of Q2P – after the Merger.  In February 2016, the Company changed its fiscal year end from March 31 to December 31 to reflect the year-end of its operating Subsidiary, and up-listed its common stock to the OTCQB.  The financial statements and footnotes to the financial statements reflect this change of fiscal year end.

Q2P History prior to Merger

The business of the Company is the development of waste-to-power technologies and systems, as conducted through its operating Subsidiary, Q2P.  On July 28, 2014, Q2P (which at such time was called WHE Generation Corp., and renamed Q2Power Corp. on January 26, 2015) commenced operations as an independent company after receiving its initial round of seed funding and signing a formal Separation Agreement with Cyclone

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Power Technologies, Inc. (“Cyclone”).  Cyclone had originally established Q2P as a wholly-owned Florida limited liability company (“LLC”) in 2010.  In April 2014, in contemplation of its separation from Cyclone and initial funding, the Company redomiciled from Florida to Delaware and converted from an LLC to a corporation.  At December 31, 2014 and 2015, Cyclone owned approximately 18% of the outstanding stock of the Q2P and 3% of the outstanding stock of the Company (post-Merger), respectively.

The Separation Agreement between Q2P and Cyclone provided for a formal division of certain assets, liabilities and contracts related to Q2P’s business, as well as establishing procedures for exchange of information, indemnification of liability, and releases and waivers for the principals moving forward.  Also as part of the separation from Cyclone, Q2P received a license to use Cyclone’s patented engine technology for Q2P's waste-to-power systems on a worldwide exclusive basis for 20 years, with two 10-year renewal terms.  Q2P also received a lien on all of Cyclone’s patents in the instance that Cyclone declares bankruptcy in the future.

Business Strategy, Vision and Mission

  Q2Power strives to give businesses and communities the power to manage and monetize their waste through scalable technology and networked business solutions. We seek to eliminate costs and regulatory liabilities of waste disposal for under-served customers by using these waste resources to generate distributed renewable energy and other valuable reuse co-products. We call our small-scale, customer-centric solutions “Resource Ecosystems”, and see them as critical steps towards what we believe to be the inevitable decentralization (reducing transportation and increasing resource utilization) of the $75 Billion waste management industry in the United States. Our vision is to become an agent of change and global leader in this transformational shift from “wasteful” to “resourceful” attitudes and practices. In this way, we will work to contribute to the long term sustainability of our customers and our planet.  

The Company’s prime target market for development of our Resource Ecosystems are small-scale Waste Water Treatment Plants (“WWTPs”) and other sites such as farms that utilize Anaerobic Digestion – a proven process that reduces bio-solid volume, treats pathogens, and produces methane (a useful fuel, but also powerful greenhouse gas if not eliminated) as a by-product. Approximately 400 of these WWTPs (out of about 1200 nationwide) process under 20 million gallons per day (“MGD”) of waste water; but only 55 of them (14%) utilize their waste methane for power or heat, according to the U.S. Department of Energy (“DOE”) and Environmental Protection Agency (“EPA”). Further, most of these WWTPs send their bio-solids (i.e., sludge, the resulting waste of the AD process) to landfills, which is a major cost item. In the Company’s observation and research, these WWTPs are generally over-looked by established waste management and waste-to-power companies because they are too small for traditional, power and waste solutions.       

We also focus on commercial and smaller industrial customers that produce waste fuels in their primary manufacturing processes.  To the extent that we can combust these fuels on site while meeting EPA air quality guidelines, we can utilize our proprietary technology to generate electric power and useful process heat with resources that previously constituted a disposal cost item for the facility owners.  In doing so, we may be able to reduce their operating costs and power consumption from the grid, while eliminating certain liabilities and expenses of waste fuel transportation and disposal.  

Proprietary Technology

Our business model is based in large part on our proprietary technology, which currently includes a unique reciprocating piston external heat engine (the “Q2P Engine”).  The foundation for this technology comes from our 20-year (with two 10-year renewal periods) worldwide exclusive license agreement with Cyclone, our former parent.  Independently from Cyclone, we have developed this core technology to a working “pilot stage” product currently in the field, and have recevied our first commercial purchase order to be delivered in Q2 2016.  

We have also developed other critical technologies to support a total combined heat and power (“CHP”) system around the Q2P Engine, such as waste fuel burners, controls and other subcomponents (collectively with the Q2P Engine, referred to as a “CHP System”). The CHP System produces grid-ready electric power and process heat from the input of waste liquid or gasseous fuels such as methane, biogas, used motor oil, and other similar non-spec fuel resources.  Early internal testing of our combustion system shows relatively clean emissions from these waste

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fuels, meaning that we believe we can meet EPA air-quality standards for similarly-sized power systems; however this has not yet been verified by an independent third party.  Our complete CHP System package is housed in a portable shipping container, and has modular functionality, so Q2P Engines can be added to generate additional power, as needed.       

The Q2P Engine itself runs on a steam-based Rankine cycle, similar to how large-scale coal and nulear plants produce power; however, our technology is designed for small-scale distributed power generation applications.  This engine produces mechanical power when the working fluid (water) is presurized and super-heated to about 600F in a heat exchanger that is placed in the hot exhaust stream of another work-producing piece of equipment (such as our proprietary methane/biogas burner system). Through a specialized valving subsystem, this fluid is piped to the Q2P Engine’s cylinders where it expands rapidly to push pistons and turn a crank shaft.  The cooling gas then goes into a condensor where it turns back into a liquid to start the process again.  In this way, the system is “closed-loop”, not requiring any additional fluids to be added.  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.

Beyond the Q2P Engine and CHP Systems, we are reviewing other technology and products offerings that can provide additional value to our target customers, and expand our total addressable market.  For instance, our CHP Systems can generate electricity and process heat from methane produced by Anaerobic Digesters at wastewater treatment plants (“WWTPs”). We currently have a pilot project in the field which is generating power at a WWTP in central Ohio.  A large portion of a WWTP’s operating expenditures are spent removing the residual sludge from digesters, either by combusting or landfilling this material.  Technologies that can convert sludge to other useful products, such as compost, engineered soils or nutrients, could provide additional value for our future customers and new revenue streams for the Company.  We are pursuing synergistic alliances with companies that have both technology and business networks for the manufacturing and sale of such beneficial re-use products from waste like sludge.       

Business Model

We currently pursue direct sales of our Q2P Engine and CHP Systems to commercial and municipal customers.  We received our first purchase order in January 2016 for a 10kW CHP System that is capable of running on waste liquid fuels. This CHP System is expected to be delivered in Q2 2016, and we are receiving milestone-based payments for work completed during the contract period. We believe that there are many other similar customers in the US that could benefit from one of our CHP Systems by reducing waste liquid fuels that typically present a cost for the facility to dispose (as well as an EPA liability in some cases), and converting that negative value feedstock into power and process heat.  

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.  In this manner, we would retain ownership of our equipment and sell electricity and heat to our customers at a cost below their standard utility rates over a long-term agreement (typically 10 years).  These types of PPAs have been utilized for decades in the commercial and residential solar power industry.  Furthermore, we may be able to receive fees from certain customers for the disposal of some types of waste fuels.  This revenue stream is called a “tipping fee”, and in certain situations, waste disposal and environmental liability avoidance can be of more value to both the customer and the Company than the production of power and heat.  

We believe that our CHP Systems may provide a strong base to allow us to expand our product and service offerings with our customers.  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.  In doing so we could provide a total waste solution for these customers that may reduce their operating costs, eliminate regulatory liabilities of flaring methane and landfilling bio-solids, and allow them to become a more sustainable “green” facility – which has important public / political benefits for municipal facilities.  

For the Company, such an expanded business model offering could build value by potentially increasing annualized revenue from each customer (by now including tipping fees for bio-solids), and providing the feedstock

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for production and sales of revenue generating co-products. Such a strategy could also allow us to become more involved in the sustainability of small WWTPs and other commercial and industrial facilities; and create manufacturing economies of scale, infrastructure and sales networks that can be applied to the growing commercial and agricultural Anaerobic Digester markets over the following decade.  

As of the current date, the Company has installed one pilot system at a WWTP in central Ohio, which has been generating up to 10kW of power for that facility. We do not receive revenue from this installation, and have been using it primarily to test equipment, components and business models for future sales.   We are currently in discussions to install additional units at nearby facilities that are larger in size and will utilize heat recapture technology to place our waste heat back into the anaerobic digestion process.  In this way, our systems can provide two useful outputs (electricity and heat) from the host site’s waste methane, thereby increasing value to and potential revenue from each facility.

To market our products and services, we intend on developing agreements with distributors, value added resellers (VARs), contracted engineering companies, and other similar parties that have access to a broad base of customers.  For instance, we currently have a Collaboration Agreement with a company called Phoenix Power Group that develops steam generating equipment utilizing waste motor oil furnaces, and has access to a distribution network of tens of thousands of current users of these furnaces, such as garages, lube shops and car dealerships.  Our agreement with Phoenix Power allows them to purchase our Q2P Engines, control systems and other components to integrate with their steam generation and waste oil furnace system, and sell through their network this combined technology product, which is capable of generating up to 10 kW of grid-ready electric power and 80kW of space /water heating for a facility. The agreement also allows us to purchase their equipment, combine it with our technology, and sell that product to our customers provided we do not compete directly with their current market of garages, lube shops and other similar locations in the U.S. and Canada.          

Market Drivers

The waste-to-energy market is expected to reach $40 billion annually by 2020. Lawrence Berkeley National Laboratory has estimated that energy recycling represents nearly 100 gigawatts (GW) of untapped electrical capacity. This figure is roughly equal to 10% of current U.S. electric capacity and, as an alternative electricity source, would reduce carbon dioxide emissions (C02) by nearly 400 million metric tons.  

The Company sees a major trend in the waste-to-energy market being smaller, scalable facilities that are located closer to where waste is created, and in turn, where the resulting power and heat can most effectively be utilized.  In doing so, the costs and liabilities of waste transportation may be eliminated, and the value of electrical power and process heat could be maximized.  

Within this trend, we believe that Anaerobic Digestion will play a bigger part in sustainable waste management strategies in the future in the U.S. as new commercial scale facilities are developed. The DOE and EPA estimate that over 11,000 commercial Anaerobic Digesters could be developed nationally over the next decade – there are currently only about 250 of such commercial plants in this country, mainly on livestock farms. The U.S. is substantially behind regions like Europe in the development and use of Anaerobic Digestion, where currently tens of thousands of such plants are in operation.  

States like California and others in the Northeast are already developing legislative and regulatory imperatives for organic wastes like food and plant waste to be diverted from landfills to waste converting facilities like these. The EPA is developing stricter guidelines for the flaring, destruction and utilizing of methane.  Management believes regulations like these on the state and federal level requiring sustainable waste management practices that conserve resources and protect the environment will become more prominent over the coming years.

The main drivers for these growth trends include uncertain long-term energy costs, concerns over traditional fuel resources, growing environmental issues such as climate change, increasing waste generation, and restricted landfilling capacities.  Experts agree that waste-to-energy systems would help solve these issues by diversifying energy resources, reducing the waste volume, and cutting down on greenhouse gas emissions.   

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The Company’s CHP Systems are designed for micro-grid waste-to-power applications less than 250kW in output size. We believe that this sub-category to the larger waste-to-power market can be a $2 billion or greater opportunity over the following years, especially if this trend towards smaller facilities closer to waste generation is realized. Creating expanded products and services like co-products from sludge, in the Company’s opinion, could strengthen the economic case for technologies like Anaerobic Digestion, especially smaller facilities where generating value and revenue from every by-product is critical to financial success.  This could create substantial opportunities for the Company in the larger $75 Billion waste management industry in the U.S. over the coming years.

Manufacturing

Manufacturing Agreement. Q2P has a manufacturing agreement with Precision CNC LLC (“PCNC”) a related party, located in Lancaster, Ohio. This relationship covers a substantial part of our engine manufacturing currently, and is expected to continue to do so over the following three to five years.  PCNC is an ISO 9000 certified manufacturing company that specializes in tight tolerance, multi-axis, high speed machining and turning for high or low quantity production need, and possesses significant prototype production and manufacturing expertise.

Pursuant to our agreement, we are also subleasing approximately 2,500 square feet of facility space from PCNC consisting of approximately 1,000 square feet for engineers, 500 square feet for assembly of the Q2P Engines, and 1,000 square feet for testing and inventory. For this operating space, the Company is paying PCNC a monthly flat fee of $2,500 including utilities.  The two principals of PCNC, including Nate Hawkins who is the Company’s VP of Manufacturing, both receive compensation from the Company for their services and expertise in the manufacturing process of our technology.  The Company considers our working relationship with PCNC to be good, and believes that it provides us with great value in terms of cost and time reductions in both the R&D and production phases of our business. Loss of this relationship could have a material adverse effect on our results of operations if we were unable to find a partner with similar skills, resources and desire to assist the Company develop its technology.

Materials and Parts.  Parts production and fulfillment comprise a major portion of our cost in manufacturing our Engines and CHP Systems.  This is predominantly due to the fact that the Q2P Engine is just emerging from its prototype phase.  Because we are constantly testing and improving part design, we have not yet invested in dies and molds required to achieve volume efficiencies of scale.  There are approximately 20 major parts and components in each Q2P Engine (some require multiple pieces per engine) that require custom manufacturing.

We intend to use a portion of the proceeds in our future offerings to ramp-up our manufacturing capabilities, including investing in dies and molds starting with the units which will have the greatest impact on our cost structure. We expect that this investment will substantially reduce the costs of parts, and consequently, our total cost of manufacturing each power system. We estimate that we can reduce total costs by over 50% once part production has been automated, and approximately another 10 – 20% as volume increases.      

Testing and Quality Compliance. We expect to implement rigorous testing protocols for our products as we enter into the production phase of our business.  This will include testing for performance, efficiencies,

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durability and safety.  We expect our engines to be engineered to perform for up to 10,000 hours of operation, and meet all consumer safety regulations.  We may also contract testing labs to perform and report on these tests procedures.

Competitive Business Conditions

Competitive Technologies. The waste-to-power (“WtP”) market is still relatively underdeveloped.  Most systems that exist are large-scale and capital intensive, generating multi-megawatts of electricity through steam and combined cycle turbines.  This is not our market.  

The Company’s primary competition in small-scale waste-to-power applications comes from a patchwork of equipment and technologies that are usually “make-do” options, operating at relatively low efficiencies and high maintenance and capital costs.  Management believes that the Q2P system can provide a lower cost, highly efficient solution that is not otherwise available. However, the following equipment and alternative technologies do exist:

1)

Internal Combustion (IC) engines modified to run “dirty” syngas and methane: In most WtP systems that use biomass or bio-waste as the feedstock, either a biogas (such as through anaerobic digestion) or a syngas (such as through gasification) is created through the processing of an organic feedstock.  These gasses must usually be scrubbed, filtered, cooled, and compressed before they are fed into an IC engine to combust. The process of removing sulfides, siloxines, tars, water and other impurities from biogas and syngas sufficiently to use in IC engines is expensive, requires routine maintenance, and limits the types of feedstock that can be used (as different biomass has different chemical properties).  One of the major benefits of the Q2P Engine is that such “dirty” gasses are never introduced into our engine, and therefore, we are much less affected by the quality of the fuel. On a larger scale – 500kW to multi-megawatts – companies like GE/Jenbacher are major players in the IC engine market for WtP applications. At this size, the economics of using advanced filtration systems with routine maintenance cycles works better than at the micro-scale.  Once again however, this is not our market niche.

2)

Gas Micro-Turbines: Similar to the IC engine, a gas micro-turbine can be used after the biogas or syngas is cleaned and compressed. Once again, this is inefficient and expensive for micro-grid sized applications. Also, turbines typically work better at larger scale – for instance in industrial and power plant sized units. However, there are companies in this micro-sized field, including Capstone Turbine, building these systems.

               3)   Organic Rankine Cycle (ORC) systems:  ORC heat engines – which may be scroll turbines, similar to super-chargers in automobiles – use an organic working fluid that has a lower boiling point, higher vapor pressure, higher molecular mass, and higher mass flow compared to water.  ORC systems can be utilized for waste heat recovery (WHR) with heat sources as low as 300F, whereas steam systems are limited to heat sources greater than 500F. ORCs have commonly been used to generate power in geothermal power plants and pipeline compressor heat recovery applications. For high heat applications, ORC systems are relatively inefficient, expensive and wasteful of useful energy resources.  

               4)   Future Technologies: There are a number of advanced technologies in the research and development stage that can generate electricity directly from heat, and that could in the future provide additional options for power generation from waste heat sources. These technologies include thermoelectric, piezoelectric, thermionic, and thermo-photovoltaic (thermo-PV) devices. Several of these have undergone prototype testing in automotive applications and are under development for larger heat recovery.  All devices demonstrated to date, however, have been very small (several watts) and expensive.

               Competitive Advantages. In comparison to other products on the market today, management believes that the competitive advantages of the Q2P Engine are vast.  They include: (1) size of the engine (for equipment placement and portability issues); (2) operation of the engine with virtually unlimited heat sources and feedstock; (3) robustness of the engine during fluctuating heat inputs; and (4) cost of the engine to manufacture and operate.  In many circumstances, we have found that there are no viable alternative technologies for certain customer needs, and therefore, the Q2P Engine can fill an important gap in the market.  

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Industry Regulation

Emissions. 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 small external combustion engines like the Company’s engines. Therefore, we are not entirely certain as to how the EPA and other regulatory agencies will apply these rules to our technology.

We have begun to perform emissions testing on our Power Systems to compare them with existing emission standards of the EPA and CARB. These early tests have reinforced our claims that using an external combustion system can produce emissions below stated standards for similar sized systems. Such testing is on-going, and yet to be verified by third party agencies, however preliminary results look promising.  It is also important to note that our engines alone do not produce any additional emissions.  All testing of flue gasses are performed on the combustion systems – i.e., the furnace, gasifier or flare that is combusting waste products or otherwise expelling exhaust. In this manner, our partners and VAR customers would often bear a material portion of the costs to perform any needed testing for emission standards.  

Utilities / Interconnectivity. 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

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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 interconnection 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 technology is 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 and greenhouse gas emissions standards.

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.

Taxes / Incentives.  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. The future of certain of these tax credits for renewable energy is in doubt, as Congressional partisanship and other budgetary initiatives have seemingly limited or eliminated some important incentives provided previously.  In addition, certain proposed changes to the Internal Revenue Code of 1986 may result in positive tax benefits for our end users, but real world application of these tax benefits to our technology has yet to be tested.

Intellectual Property

License with Cyclone. We license the Q2P Engine technology from Cyclone, which developed and patented the relevant engines and components over the previous eight years with over $8 million in R&D expenditures during this time.  The following summary of our Amended and Restated License Agreement (the “License”) does not purport to be a complete description of the terms and conditions of the Amended and Restated License Agreement, and is qualified entirely by reference to the License, which we filed with our Current Report on Form 8-K, on November 18, 2015.  Key terms of the License between the Company and Cyclone are as follows:

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Term: We have a 20-year exclusive right to manufacture, market, sell, sub-license and sub-contract all Cyclone technology, including engines, components and other devices, for the WtP and WHR markets.  The term has two 10-year renewal periods.  We are currently in the second year of this agreement.

·

Territory: Our rights are worldwide.  

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Royalties: We pay a 5% royalty to Cyclone on all sales of the Q2P Engine.  We do not pay any royalties on the complete Power System, including other components that we have developed or purchased.

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Guarantees: There are no minimum annual guarantees during the license term, but if Q2P is not using specific engine models within the first 7 years, our license rights will be non-exclusive with respect to those specific engine models.

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Up-Front Fee: We paid a one-time payment of $175,000 in September 2014 for the rights in the license.

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·

Transfers: We must receive the approval of Cyclone to sell or transfer our license. No approval is needed in connection with a merger of our Company. We do not need approval for sub-licensing, only notice to Cyclone.

·

Improvements: We share equally with Cyclone the patent rights of all improvements we make to the licensed technology. New patents will be owned 50:50 with commercial rights to such improvements for WtP and WHR applications exclusively held by Q2P, and other applications exclusively held by Cyclone.  If Cyclone declares bankruptcy, its 50% ownership of these co-owned patents will automatically vest in the Company.

·

Right to First Opportunity: In the instance Cyclone declares bankruptcy, we shall have the first right to purchase Cyclone’s patents, which must be exercised within 30 days.  We have filed a lien on the Cyclone patents to protect our interests in this event.

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Infringement: We have the obligation to participate in the defense of patent infringement cases involving the Q2P Engine or improved technology.   

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. In addition, Cyclone has stated to us that they have 29 other patents on the Cyclone engine technology and its components generally. All of these patents, as well as the know-how and other trade secrets for the technology, are covered under our License.

Our success depends in part on our and Cyclone’s ability to maintain and protect our proprietary technology and to conduct our business without infringing on the proprietary rights of others. We rely primarily on a combination of patents and trade secrets, as well as employee and third party confidentiality agreements and our license agreement with Cyclone, to safeguard our intellectual property.

The patents covered under our License with Cyclone include:

US Patents

Waste Heat Engine (US Patent No. 7,992,386)

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)

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Trade Secrets. With respect to proprietary know-how that is not patentable and processes for which patents are difficult to enforce, we rely on among other things, trade secret protection and confidentiality agreements to safeguard our interests.  We believe that some elements of our system involve proprietary know-how, technology or data that are not covered by patents or patent applications, including certain technical processes, equipment designs, algorithms and procedures. We have taken security measures to protect these elements. All of our research and development personnel have entered into confidentiality and proprietary information agreements with us. These agreements address intellectual property protection issues and require our associates and employees to assign to us all of the inventions, designs and technologies they develop during the course of employment with us. We also require our customers and business partners to enter into confidentiality agreements before we disclose any sensitive aspects of our technology or business plans.

Trademarks. We have received approval from the USPTO for use of our Q2P and Q2Power trademarks.  We acquired from Cyclone the U.S. trademarks for “WHE”, WHE Generation” and “Generation WHE” in connection with our Separation Agreement.  The Company is not currently using these WHE marks.

Litigation

There are no legal proceedings pending, or to our knowledge, threatened against the Company.  

Exchange Act

We are subject to the following regulations of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), and applicable securities laws, rules and regulations promulgated under the Exchange Act by the SEC.  Compliance with these requirements of the Exchange Act increases our legal and accounting costs.

Smaller Reporting Company

We are subject to the reporting requirements of Section 13 of the Exchange Act, and subject to the disclosure requirements of Regulation S-K of the SEC, as a “smaller reporting company.”  That designation will relieve us of some of the informational requirements of Regulation S-K.

Emerging Growth Company

We are also an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or “JOBS Act.”  As long as we remain an “emerging growth company,” we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not an “emerging growth company,” like those applicable to a “smaller reporting company,” including, but not limited to, a scaled down description of our business in SEC filings; no requirements to include risk factors in Exchange Act filings; no requirement to include certain selected financial data and supplementary financial information in SEC filings; not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act; reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements that we file under the Exchange Act; no requirement for Sarbanes-Oxley Act Section 404(b) auditor attestations of internal control over financial reporting; and exemptions from the requirements of holding an annual nonbinding advisory vote on executive compensation and seeking nonbinding stockholder approval of any golden parachute payments not previously approved.  We are also only required to file audited financial statements for the previous two fiscal years when filing registration statements, together with reviewed financial statements of any applicable subsequent quarter.

We may take advantage of these reporting exemptions until we are no longer an “emerging growth company.”  We can remain an “emerging growth company” for up to five years.  We would cease to be an “emerging growth company” prior to such time if we have total annual gross revenues of $1 billion or more and

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when we become a “larger accelerated filer,” have a public float of $700 million or more or we issue more than $1 billion of non-convertible debt over a three-year period.

Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

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Sarbanes/Oxley Act

Except for the limitations excluded by the JOBS Act discussed under the preceding heading “Emerging Growth Company,” we are also subject to the Sarbanes-Oxley Act of 2002.  The Sarbanes/Oxley Act created a strong and independent accounting oversight board to oversee the conduct of auditors of public companies and strengthens auditor independence.  It also requires steps to enhance the direct responsibility of senior members of management for financial reporting and for the quality of financial disclosures made by public companies; establishes clear statutory rules to limit, and to expose to public view, possible conflicts of interest affecting securities analysts; creates guidelines for audit committee members’ appointment, compensation and oversight of the work of public companies’ auditors; management assessment of our internal controls; prohibits certain insider trading during pension fund blackout periods; requires companies and auditors to evaluate internal controls and procedures; and establishes a federal crime of securities fraud, among other provisions. Compliance with the requirements of the Sarbanes/Oxley Act will substantially increase our legal and accounting costs.

Exchange Act Reporting Requirements

Section 14(a) of the Exchange Act requires all companies with securities registered pursuant to Section 12(g) of the Exchange Act like we are to comply with the rules and regulations of the SEC regarding proxy solicitations, as outlined in Regulation 14A.  Matters submitted to shareholders at a special or annual meeting thereof or pursuant to a written consent will require us to provide our shareholders with the information outlined in Schedules 14A (where proxies are solicited) or 14C (where consents in writing to the action have already been received or anticipated to be received) of Regulation 14, as applicable; and preliminary copies of this information must be submitted to the SEC at least 10 days prior to the date that definitive copies of this information are forwarded to our shareholders.

We are also required to file annual reports on Form 10-K and quarterly reports on Form 10-Q with the SEC on a regular basis, and will be required to timely disclose certain material events (e.g., changes in corporate control; acquisitions or dispositions of a significant amount of assets other than in the ordinary course of business; and bankruptcy) in a Current Report on Form 8-K.

Number of Total Employees and Number of Full Time Employees

As of the date of this Annual Report, we have 6 full-time employees and 2 part-time employees, and one consultant, our CFO.

Reports to Security Holders

You may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may also find all of the reports that we have filed electronically with the SEC at their Internet site www.sec.gov.

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ITEM 1A. RISK FACTORS

Risks Related to Our Company

A number of factors could affect the business of the Company and and/or our operating subsidiary, Q2P.  Any factor which could adversely affect the business of Q2P could, by extension, have a negative effect on the Company’s own financial performance.  Among these potential factors are the following:

The Company will need to raise capital to fund operations, and its failure to obtain funding when needed may force the Company to delay, reduce or eliminate product development efforts.

The Company will need to obtain operating capital either through equity offerings, debt offerings or a combination thereof, of approximately $2.0 to $2.5 million over the next 12 months to continue its planned business operations.  In addition, if in the future the Company is not capable of generating sufficient revenues from operations and its capital resources are insufficient to meet future requirements, the Company may have to raise funds to permit Q2P to continue the development, commercialization, marketing and sale of its products.  We presently have no committed sources of funding and we have not entered into any agreements or arrangements with respect to our fundraising efforts.  The Company cannot be certain that funding will be available on acceptable terms, or at all.  To the extent that the Company raises additional funds by issuing equity securities, its stockholders may experience significant dilution.  Any debt financing, if available, may involve restrictive covenants that impact its ability to conduct business.  If the Company is unable to raise additional capital if required or on acceptable terms, it may have to significantly delay, scale back or discontinue the development and/or commercialization of one or more of its products, restrict its operations or obtain funds by entering into agreements on unattractive terms.

To date, both the Company and Q2P have had significant operating losses, an accumulated deficit and have had limited revenues, and they do not expect to be profitable for at least the foreseeable future, if ever.

The Company and Q2P have been operating at a loss each year since the Company and Q2P’s inception, and the Company and Q2P expect to continue to incur losses for the next 12 to 18 months.  Historically, Q2P has had limited revenues.  We had minimal revenue in the year ended December 31, 2015 and no revenue in the year ended December 31, 2014.  Further Q2P may not be able to generate significant revenues in the future.  We realized a loss of $3,536,021 in the year ending December 31, 2015.  Q2P will need to generate significant revenues in order to achieve and maintain profitability.   Even in the Company and Q2P do achieve profitability, they may not be able to sustain or increase it.  If Q2P is not able to raise sufficient funds through investments by third parties, it could result in the Company’s and Q2P’s inability to continue as a going concern

Our financial statements contain an “auditor’s ‘going concern’ opinion”

The Independent Auditor’s Report issued in connection with our audited financial statements for the fiscal years ended December 31, 2015 and 2014, expressed substantial doubt about our ability to continue as a going concern, due to our history of operating losses and our working capital deficiency.  As of December 31, 2015, our accumulated deficit totaled $5,365,379.  See the Index to Financial Statements, Item 8 of this Annual Report.  

We remain at risk regarding our ability to conduct successful operations.

The results of our operations will depend, among other things, upon our ability to develop, install, manage and market waste- -to-power products and services.  Further, it is possible that our operations will not generate income sufficient to meet operating expenses or will generate income and capital appreciation, if any, at rates lower than those anticipated or necessary to sustain ourselves.  Our operations may be affected by many factors, some known by us, some unknown, and some of which are beyond our control.  Any of these problems, or a combination thereof, could have a materially adverse effect on our viability as an entity and might cause the investment of our shareholders to be impaired or lost.  Our strategic relationships are in various stages of development. Some of our developing projects may not be completed in time to allow production or marketing due to the inherent risks of new product and technology development, limitations on financing, competition, obsolescence, loss of key personnel and

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other factors.  Unanticipated obstacles can arise at any time and result in lengthy and costly delays or in a determination that further development is not feasible.  

For the foreseeable future, our success will be dependent upon our management.  

Our success is dependent upon the decision making of our directors, executive officers and other key employees.  We believe that our success depends on the continued service of these employees and our ability to hire additional key employees when and as needed.  Although we currently intend to retain our existing management, we cannot assure you that such individuals will remain with us.  We have fixed term employment agreements with only a few of our key employees, and have not obtained key man life insurance on the lives of any of them.  The unexpected loss of the services of one or more of our key executives, directors and advisors, and the inability to find suitable replacements within a reasonable period of time thereafter, could have a material adverse effect on the economic condition and results of operations of the Company.  

We may not be able to effectively control and manage our growth.

Our strategy envisions a period of potentially rapid growth. We currently maintain nominal administrative and personnel capacity due to the startup nature of our business, and our expected growth may impose a significant burden on our future planned administrative and operational resources.  The growth of our business will require significant investments of capital and increased demands on our management, workforce and facilities.  We will be required to substantially expand our administrative and operational resources and attract, train, manage and retain qualified management and other personnel. Failure to do so or satisfy such increased demands would interrupt or would have a material adverse effect on our business and results of operations.

We may pursue acquisitions, investments or other strategic relationships or alliances, which may consume significant resources, may be unsuccessful and could dilute holders of its common stock.  

Acquisitions, investments and other strategic relationships and alliances, if pursued, may involve significant cash expenditures, debt incurrence, operating losses, and expenses that could have a material adverse effect on our financial condition and operating results. Acquisitions involve numerous other risks, including:

·

Diversion of management time and attention from daily operations;

·

Difficulties integrating acquired businesses, technologies and personnel into the Company’s business;

·

Inability to obtain required regulatory approvals;

·

Inability to obtain required financing on favorable terms;

·

Entry into new markets in which the Company has little previous experience;

·

Potential loss of key employees, key contractual relationships or key customers of acquired companies or of the Company itself; and

·

Assumption of the liabilities and exposure to unforeseen liabilities of acquired companies.

If these types of transactions are pursued, it may be difficult for us to complete these transactions quickly and to integrate these acquired operations efficiently into our current business operations. Any acquisitions, investments or other strategic relationships and alliances by the Company may ultimately harm our business and financial condition. In addition, future acquisitions may not be as successful as originally anticipated and may result in impairment charges.

We are dependent to certain extent on the success of our licensor.  

While we operate independently of our licensor and former parent company, Cyclone Power Technologies, the success or failure of Cyclone could have an effect on our reputation, results of operations, our assets, and our

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ultimate success.  A failure of Cyclone to maintain patents, defend patent infringement claims, or improve upon its technology could affect our business.  A failure of Cyclone to remain a going concern and satisfy its creditors could result in Q2P and its contracts with Cyclone being the subject of costly and/or protracted litigation, which would also negatively affect our operations, assets and our ability to raise capital. Should Cyclone become bankrupt or insolvent, Q2P has a UCC-1 lien on all Cyclone’s patent rights, but we cannot guaranty that such a security interest can be enforced when required.

Risks Related to Our Common Stock

Our common stock is quoted on the OTCQB and there is an extremely limited trading market for our common stock.

Our common stock is quoted on the OTCQB. There is extremely limited and sporadic trading of our common stock and no assurance can be given, when, if ever, an active trading market will develop or, if developed, that it will be sustained. As a result, investors in our common stock may be unable to sell their shares. 

The price of our common stock may fluctuate significantly, which could lead to losses for stockholders.

The securities of public companies can experience extreme price and volume fluctuations, which can be unrelated or out of proportion to the operating performance of such companies. We expect our common stock price will be subject to similar volatility. Any negative change in the public's perception of the prospects of our company or companies in our market could also depress our common stock price, regardless of our actual results. Factors affecting the trading price of our common stock may include:

If securities analysts do not publish research or reports about our business or if they downgrade our stock, the price of our stock could decline.

The trading market for our common stock may be affected by research and reports that industry or financial analysts may in the future publish about us or our business, over which we will have no control. There are many large, well-established publicly traded companies active in our industry and market, which means it will be unlikely that we will receive widespread, if any, analyst coverage. Furthermore, if one or more of the analysts who in the future elect to cover us, downgrade our stock, our stock price would likely decline rapidly.

We have no intention to pay dividends on our common stock.

For the foreseeable future, we intend to retain future earnings, if any, to finance our operations and do not anticipate paying any cash dividends with respect to our common stock. As a result, investors should not expect to receive dividends on any of the shares of our common stock purchased by them, for a long period of time, if ever.

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The application of the “penny stock” rules could adversely affect the market price of our common stock and increase your transaction costs to sell those shares.

As long as the trading price of our common stock is below $5.00 per share, the open-market trading of our common stock will be subject to the “penny stock” rules. The penny stock rules impose additional sales practice requirements on broker-dealers who sell securities to persons other than established customers and accredited investors (generally those with assets in excess of $1 million or annual income exceeding $200,000 or $300,000 together with their spouses). For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchase of securities and have received the purchaser’s written consent to the transaction before the purchase. Additionally, for any transaction involving a penny stock, unless exempt, the broker-dealer must deliver, before the transaction, a disclosure schedule prescribed by the Commission relating to the penny stock market. The broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative and current quotations for the securities. Finally, monthly statements must be sent disclosing recent price information on the limited market in penny stocks. These additional burdens imposed on broker-dealers may restrict the ability or decrease the willingness of broker-dealers to sell our common stock, and may result in decreased liquidity of our common stock and increased transaction costs for sales and purchases of our common stock as compared to other securities.

Risks Related to Our Business and Industry

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 quickly and efficiently deploy our products, maintain them and enhance them, we will require an increasing number of technology developers. We expect customers that purchase or 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 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. 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.

Our sales cycles may be long.  

We expect that the period between our initial contact with a potential customer and the purchase of our products and services will often be long and subject to delays associated with the budgeting, approval, and competitive evaluation processes which frequently accompany capital expenditures. We are attempting to overcome these risks by offering our customers zero-capital cost financing methods for our power generation services, including Power Purchase Agreements; however, we have not yet proven that such financing strategies will be accepted by our future customers, nor do we have adequate funding or structures in place to provide such arrangements currently. We believe that a customer’s decision to purchase our engines or power services is discretionary, involves a significant commitment of resources, and is influenced by customer budgetary cycles. To successfully sell our engines or power services, we generally must educate our potential customers regarding their use and benefits, which can require significant time and resources.

We must be prepared to enforce our IP, which may place unanticipated financial burdens on us.  

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 part, upon our proprietary technology and other intellectual property rights.  We plan to file new patent applications domestically and internationally as they apply to the core engine technology and its components. Although our licensor, Cyclone,

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holds the rights to certain patents and patent applications pending on the core engine and other engine technology, 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 the products is also protected by trade secrets and confidentiality and licensing agreements.  We intend to rely upon a combination of trade secret and patent laws, and nondisclosure and other contractual restrictions on copying and distribution to protect our proprietary technology.

Under our license agreement with Cyclone, we have the financial responsibility for sharing in the enforcement and protection of the intellectual property rights related to the engine, including any advancements or improvements thereto.  Such enforcement would most likely be very costly, and we may not have the financial resources to pursue required action.  Even if we were to litigate to enforce our intellectual property rights or protect our trade secrets, we 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.

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.

Our failure to further refine our technology and develop and introduce improved products could render our systems uncompetitive or obsolete.

We will need to invest significant financial resources in research and development to keep pace with technological advances in the alternative energy industries. However, research and development activities are inherently uncertain and we could encounter practical difficulties in commercializing our research results. Our significant expenditures on research and development may not produce corresponding benefits. Other companies are developing a variety of competing technologies and could produce solutions that prove more cost-effective or have better performance than our engine systems. As a result, our engines may be rendered obsolete by the technological advances of our competitors which could reduce our net sales and market share.

Our future success depends on our ability to ramp-up manufacturing and add or outsource production lines in a cost-effective manner, both of which are subject to risks and uncertainties. Our future success depends on our ability to significantly increase both our manufacturing capacity and production throughput in a cost-effective and efficient manner. If we cannot do so, we may be unable to expand our business, decrease our cost per watt, maintain our competitive position, satisfy future contractual obligations or sustain profitability.

Problems with product quality or performance may cause us to incur warranty expenses, damage our market reputation and prevent us from maintaining or increasing our market share.  

Our engines will be sold with a materials and workmanship warranty for technical defects. As a result, we bear the risk of extensive warranty claims long after we have sold our engines and recognized net sales. Any widespread product failures may damage our market reputation and cause our sales to decline and require us to repair or replace the defective engines, which could have a material adverse effect on our financial results.

We may encounter adoption risks of our technology.

If our waste-to-power technology is not suitable for widespread adoption, or if sufficient demand for waste-to-power solutions does not develop or takes longer to develop than we anticipate, a major portion of our business may fail to develop.  The waste-to-power market (especially at the micro-grid scale) is at a relatively early stage of

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development and the extent to which such systems will be widely adopted is uncertain. If such technology proves unsuitable for widespread adoption or if demand for renewable power fails to develop sufficiently, we may be unable to grow our business or generate sufficient net sales to sustain profitability. In addition, demand for waste-to-power solutions in our targeted markets —mainly the United States — may not develop or may develop to a lesser extent than we anticipate.  Many factors may affect the viability of widespread adoption of this technology including the following:

·

Cost-effectiveness of waste-to-power systems compared to conventional and other non-renewable energy sources and products;

·

Performance and reliability of waste-to-power technology compared to conventional and other non-renewable energy sources and products;

·

Availability and substance of government subsidies and incentives to support the development of the waste-to-power, waste heat recovery and cogeneration industries;

·

Fluctuations in economic and market conditions that affect the viability of conventional and non- renewable energy sources, such as increases or decreases in the price of oil, natural gas and other fossil fuels;

·

Fluctuations in capital expenditures by end-users, which tend to decrease when the economy slows and interest rates increase; and

·

Deregulation of the electric power industry and the broader energy industry to permit wide spread adoption of renewable micro-grid electricity.

Elimination or expiration of government subsidies, economic incentives and other support for alternative energy could reduce demand for our power systems.

Reduced growth in or the reduction, elimination or expiration of government subsidies, economic incentives and other support for on-grid alternative power may result in the diminished competitiveness of solutions relative to conventional and non-renewable sources of energy, and could materially and adversely affect the growth of the alternative energy industry and our sales. We believe that the near-term growth of the market for on-grid applications, where energy is used to supplement the electricity a consumer purchases from the utility network, depends significantly on the availability and size of government subsidies and economic incentives. For instance, currently the cost of many renewable power forms (such as solar and wind) exceeds the retail price of electricity in most significant markets in the world. As a result, federal, state and local governmental bodies in many countries, including the United States, have provided subsidies in the form of feed-in tariffs, rebates, tax incentives and other incentives to end-users, distributors, systems integrators and manufacturers of renewable power products. Many of these government incentives expire (such as the current 2016 expiration of the Investment Tax Credit in the US), phase out over time, exhaust the allocated funding or require renewal by the applicable authority.

Electric utility companies or generators of electricity from fossil fuels or other renewable energy sources could also lobby for a change in the relevant legislation in their markets to protect their revenue streams. Reduced growth in or the reduction, elimination or expiration of government subsidies and economic incentives for on-grid alternative energy applications, especially those in our target markets, could cause our net sales to decline and materially and adversely affect our business, financial condition and results of operations.

Tightening of the supply of capital by global financial markets may make it difficult for end-users or us to finance the cost of our systems and could reduce the demand for our products.  

We expect that many of our end-users will depend on debt financing to fund the initial capital expenditure required to purchase and install a power system utilizing our technology. Further, our PPA financing model for our customers requires us to raise substantial funding, which may ultimately need to be debt financing. As a result, increases in interest rates could make it difficult for our end-users or us to secure the financing necessary to purchase and install a system on favorable terms or at all, and thus lower demand for our products and reduce our net sales. In addition, the reduction in the supply of non-recourse project debt financing or tax equity investments could reduce the number of power projects that receive financing and thus lower demand for our products. An increase in interest rates or decrease in access to capital could make alternative investments more attractive relative to our products.

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Existing regulations and policies and changes to these regulations and policies may present technical, regulatory and economic barriers to the purchase and use of power products.

The market for electricity generation products is heavily influenced by foreign, federal, state and local government regulations and policies concerning the electric utility industry, as well as policies promulgated by electric utilities. These regulations and policies often relate to electricity pricing and technical interconnection of customer-owned electricity generation. In the United States and in a number of other countries, these regulations and policies have been modified in the past and may be modified again in the future. These regulations and policies could deter end-user purchases of alternative power products and investment in the research and development of this technology. For example, without a mandated regulatory exception for waste-to-power and waste heat recovery systems, utility customers are often charged interconnection or standby fees for putting distributed power generation on the electric utility grid. These fees could increase the cost to end-users of using Q2P-based systems and make them less desirable, thereby harming our business, prospects, results of operations and financial condition. We anticipate that our power systems and their installation will be subject to oversight and regulation in accordance with national and local ordinances relating to building codes, safety, environmental protection, utility interconnection and metering and related matters. It is difficult to track the requirements of individual states and design equipment to comply with the varying standards. Any new government regulations or utility policies pertaining to our systems may result in significant additional expenses to us, our resellers and their customers and, as a result, could cause a significant reduction in demand for our products.

We shall be dependent upon our suppliers for the components used in the systems we install.

Many of the components used in our anticipated engine systems are to be purchased from a limited number of manufacturers, including our agreement with Precision CNC for the machining of custom parts. We are subject to market prices for the components that we purchase for our planned installations, which are subject to fluctuation.  We cannot ensure that the prices charged by our suppliers will not increase because of changes in market conditions or other factors beyond our control.  An increase in the price of components used in our potential systems could result in reduced margins and/or an increase in costs to our customers and could have a material adverse effect on our revenues and demand for our services. There is no assurance that we will be able to have our Engine and Systems manufactured on acceptable terms or of acceptable quality, the failure of which could lead to a loss of sales and revenues.

We face intense competition, and many of our competitors have substantially greater resources than we do.

We operate in a competitive environment that is characterized by price inflation and rapid technological change. We will be competing with major international and domestic companies with substantially greater resources than our own.  Our major competitors include General Electric, Siemens, Cummins, Caterpillar, Capstone Turbine and similar companies on a large scale, plus numerous other smaller players and other similar companies. Our competitors may have greater market recognition and substantially greater financial, technical, marketing, distribution, purchasing, manufacturing, personnel and other resources than we do.  Many of our competitors are developing and are currently producing and/or installing products based on waste-to-power and cogeneration energy technology and services that may ultimately have costs similar to, or lower than, our projected costs.  Many of our current and potential competitors have longer operating histories, greater name recognition, access to larger customer bases and significantly greater financial, sales and marketing, manufacturing, distribution, technical and other resources than we do. As a result, they may be able to respond more quickly to changing customer demands or to devote greater resources to the development, promotion and sales of products than we can. There can be no assurance that we will be able to compete successfully against current and future competitors. If we are unable to compete effectively, or if competition results in a deterioration of market conditions, our business and results of operations would be adversely affected.

We have experienced technological changes in our industry. New technologies may prove inappropriate and result in liability to us or may not gain market acceptance by our customers.

The waste-to-power industry (and the alternative energy industry, in general) is subject to rapid technological change. Our future success will depend on our ability to appropriately respond to changing

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technologies and changes in function of products and quality. Significant improvements in the efficiency of alternative engine systems may give competitors using those products competitive advantages that we cannot overcome.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.  Not required for smaller reporting companies.

ITEM 2. PROPERTIES

Q2Power conducts its business from the offices of Q2P in Lancaster, Ohio.  This facility consists of approximately 2,500 square feet of facility space, which is sublet from PCNC, includes approximately 1,000 square feet for engineers, 500 square feet for assembly of the Q2P Engines, and 1,000 square feet for testing and inventory. For this operating space, the Company is paying PCNC a monthly flat fee of $2,500 including utilities and shared staff. The Company also maintains an executive office in Florida, for which it has paid on average about $550 per month since July 2014. The Company has no agreement for this space, which is leased by Greenblock Capital, a company for which our CEO is also Managing Director.

ITEM 3. LEGAL PROCEEDINGS

We are not a party to any pending legal proceeding and, to the knowledge of our management, no federal, state or local governmental agency is presently contemplating any proceeding against us.  No director, executive officer, affiliate of ours, or owner of record or beneficially of more than five percent of our common stock is a party adverse to the Company or has a material interest adverse to us in any proceeding.

When the Company sold the ESI subsidiary to three former shareholders following the Merger, that company had a judgment against it from a litigation brought in the Superior Court of the County of Iredell, North Carolina, seeking payment of wages of approximately $25,000, together with vacation pay, the value of health insurance benefits and medical expenses.  On April 10, 2015, the Court entered judgment against ESI in favor of the plaintiff.  Claims made by the plaintiff against AnPath (the Company at that time) and certain of the officers and directors of Anpath at that time were dismissed by the Court. The Company does not believe it has any liability in this matter, and that the judgment was properly retained by ESI in the sale; however, the judgment is still outstanding and management cannot guaranty that it will not be brought back into the litigation or collection efforts in the future.  

ITEM 4. MINE SAFETY DISCLOSURES

None; not applicable.

PART II

ITEM 5:  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

There is no “established trading market” for our shares of common stock.  Commencing on or about August 25, 2011, our shares of common stock were listed on the OTC Pink market under the symbol “APGR”.  As of December 2015, shares of the Company’s common stock were listed on the OTC Pink market under the symbol “QPWR”, and on January 12, 2016 we up-listed our common stock to the OTCQB market.  No assurance can be given that any market for our common stock will develop or be maintained.  If a public market ever develops in the future, the sale of shares of our common stock that are deemed to be “restricted securities” pursuant to Rule 144 of the SEC by members of management or others may have a substantial adverse impact on any such market.  With the exception of the shares outlined below under the heading “Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities,” all current holders of shares of our common stock will have satisfied the six-month holding period requirement of Rule 144 in May 2016.  

23

Set forth below are the high and low closing bid prices for our common stock for each quarter of the years 2014 and 2015.  These bid prices were obtained from OTC Markets Group, Inc.  All prices listed herein reflect inter-dealer prices, without retail mark-up, mark-down or commissions and may not represent actual transactions. Prices reflect a 7:1 reverse split effective as of August 5, 2015.  

Rule 144

The following is a summary of the current requirements of Rule 144:

We issued all of these securities to persons who were “accredited investors” as that term is defined in Rule 501 of Regulation D of the SEC, or to “sophisticated investors” or key employees; and each such person had prior access to all material information about us prior to the offer and sale of these securities, and had the right to consult legal and accounting professionals. We believe that the offer and sale of these securities were exempt from the registration requirements of the Securities Act, pursuant to Sections 4(a)(2) and 4(6) thereof, and Rule 506 of Regulation D of the SEC.  

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Purchases of Equity Securities by Us and Affiliated Purchasers

None.

ITEM 6:  SELECTED FINANCIAL DATA

Not required for smaller reporting companies.

ITEM 7: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-looking Statements

Statements made in this Annual Report which are not purely historical are forward-looking statements with respect to the goals, plan objectives, intentions, expectations, financial condition, results of operations, future performance and business of our Company and our wholly-owned subsidiary, Q2P, including, without limitation, (i) our ability to raise capital, and (ii) statements preceded by, followed by or that include the words “may,” “would,” “could,” “should,” “expects,” “projects,” “anticipates,” “believes,” “estimates,” “plans,” “intends,” “targets” or similar expressions.

Forward-looking statements involve inherent risks and uncertainties, and important factors (many of which are beyond our control) that could cause actual results to differ materially from those set forth in the forward-looking statements, including the following, general economic or industry conditions, nationally and/or in the communities in which we may conduct business, changes in the interest rate environment, legislation or regulatory requirements, conditions of the securities markets, our ability to raise capital, changes in accounting principles, policies or guidelines, financial or political instability, acts of war or terrorism, other economic, competitive, governmental, regulatory and technical factors affecting our current or potential business and related matters.  Accordingly, results actually achieved may differ materially from expected results in these statements.  Forward-looking statements speak only as of the date they are made.  We do not undertake, and specifically disclaim, any obligation to update any forward-looking statements to reflect events or circumstances occurring after the date of such statements.  We have no obligation to update any of our forward-looking statements other than as required by law.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF OPERATIONS

Overview

The following discussion contains forward-looking statements that reflect the Company’s plans, estimates and beliefs, and actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Current Report, particularly in “RISK FACTORS.”

The Company’s operating subsidiary, Q2P was originally formed by Cyclone Power Technologies Inc. (“Cyclone”) in April 2010 in the state of Florida as a limited liability company called “Cyclone-WHE LLC.” The purpose of the Company at such time was essentially the same as it is today: to pursue waste-to-power and waste heat recovery business opportunities on a global basis.  The Company re-domiciled to Delaware as a corporation in April 2014, formally split from Cyclone in July 2014 pursuant to a Separation Agreement, and changed its name to “Q2Power Corp.” in February 2015.  It is licensed to do business in Florida and Ohio, where it maintains offices.  

On November 12, 2015, Q2P consummated its Agreement and Plan of Merger (the “Merger Agreement”) with the Company (then called Anpath Group, Inc.) and the Company’s newly formed and wholly-owned subsidiary, AnPath Acquisition Sub, Inc., a Delaware corporation (“Merger Subsidiary”), resulting in the Merger

26

Subsidiary merging with and into Q2P.  As a result, Q2P was the surviving company and a wholly-owned subsidiary of AnPath (the “Merger”).  

As a result of the Merger, all outstanding shares of Q2P were exchanged for 24,034,475 shares of the Company’s common stock, representing approximately 93% of the total issued and outstanding common stock of the Company, excluding stock options, warrants and convertible notes outstanding at such time.  In addition, the Company assumed both the Q2P 2014 Founders Stock Option Plan and the 2014 Employees Stock Option Plan (the “Option Plans”), and 1,095,480 options outstanding thereunder.  Also pursuant to the Merger, the officers and directors of Q2P took over the management and Board of Directors of the Company.  

In connection with the Merger, the Company sold the former operating entity of Anpath, ESI, to three former officers and shareholders of Anpath in exchange for the return of 470,560 shares of common stock of the Company and ESI retaining all of the old liabilities of ESI including a litigation judgment.

In December 2015, the Company officially changed its name to Q2Power Technologies, Inc. to reflect the new business direction of the Company – that of Q2P – after the Merger.  In February 2016, the Company changed its fiscal year end from March 31 to December 31 to reflect the year-end of its operating Subsidiary, and up-listed its common stock to the OTCQB.  The financial statements and footnotes to the financial statements reflect this change of fiscal year end.

A.

Plan of Operation

During the next 12 months we expect to spend approximately $2.0 to $2.5 million on operations, a material portion of which will go towards the development of our technology, deployment of additional pilot units, sales efforts, executive / administrative salaries, and general costs of being a public company. We may also pursue partnerships with or acquisitions of other synergistic revenue-producing business lines. We anticipate launching our commercialized Q2P Engine and CHP System and commencing sales of these products in 2016. This plan has already begun to generate revenue for the Company, as we signed our first sales agreement for a 10kW CHP System running on waste liquid fuels in January 2016, and expect additional orders like this in the coming quarters.  Revenue from these sales will help off-set our operational burn rate, in particular our R&D expenses (including salaries of technical personnel), some of which will become costs of goods sold and inventory as we enter into our commercial phase.  

In the next 12 months we will need to raise additional funds to keep us operating at full capacity and on schedule with these plans. Our average monthly burn-rate is currently $150,000 per month, which has been reduced by management from about $200,000 per month in the first half of 2015. However, we estimate that this will increase again to approximately $200,000 per month by the middle of 2016 as we ramp-up development and sales efforts, including the hiring of new personnel.

It is our goal to have our sales revenue support our engineering and technical operational expenses by the end of 2016, reducing our monthly burn rate to primarily executive / administrative expenses, legal and accounting, and other costs of being a public company.  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.  Funds to cover operational short-falls over the following 12 months, estimated to be between $2.0 and $2.5 million, may be raised through the issuance of equity securities and/or debt funding.  Management is actively pursuing such financing, however, there can be no assurance that financing will be available when required in sufficient amounts, on acceptable terms or at all.

B.

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

Fiscal Year Ended December 31, 2015, Compared to Fiscal Year Ended December 31, 2014.

On February 12, 2016, the Board of Directors approved a change in the fiscal year end for the Company from March 31 to December 31.  This change is a result of the Merger, and reflects the fiscal year end period for

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Q2P, the operating Subsidiary.  The Company’s financial statements further reflect the operations of Q2P in 2014 and 2015 up until the date of the Merger, November 12, 2015, and thereafter, the combined operations of Q2P and the public Company.  

Statement of Operations

During the year ended December 31, 2015, the Company generated $20,000 of sales related to Q2P providing engineering services to one customer.  During the year ended December 31, 2014, the Company recorded no revenues.  Cost of sales during these periods were $5,802 and $0, respectively.

Q2Power recorded total expenses of $3,398,997 in the year ended December 31, 2015, an increase of $1,791,295 (111%) from our total expenses of $1,607,702 for the year ended December 31, 2014.  This increase in expenses resulted in a loss from operations of $3,384,799 in 2015, up from 1,607,703 (111%) in the previous year period. Some of the principal reasons behind the higher expenses and loss from operations in 2015 over the previous year were: intensive operations for Q2P in 2014 were only conducted for approximately half the year subsequent to the separation from Cyclone and initial round of funding at the end of July; operations for Q2P in 2015 involved a significant amount of personnel and R&D ramp-up and growth; and the Merger in 2015 resulted in materially higher professional fees.

Included in the expenses for 2015 and 2014 were the following material items:  Payroll increased to $559,219 in 2015 from $71,472 in the prior year (682%), which was principally due to the half year of payroll in 2014 plus additional engineers and other business and technical personnel being added in 2015.  Professional fees increased to $1,134,543, from $748,975 in the prior year (52%), primarily due to additional consultants on staff (paid in cash and stock), and higher legal and accounting costs in connection with the Merger and being a public company.  Research and development increased to $1,423,769 in 2015 from $565,431 in the previous year (152%) primarily due to the half year of operations in 2014, expanded technical and engineering staff, and more rigorous R&D efforts, including the deployment of the Company’s first pilot system in July 2015.  

In total, the Company incurred a net loss of $3,536,021 in 2015 compared to $1,612,094 in 2014, an increase of $1,923,927.  The change in net loss was due to the higher operating expenses in 2015, as described above, plus a derivative liabilities loss of $131,530.  These derivative liabilities are further explained below.  

Balance Sheet

Material changes in the Company’s balance sheet in 2015 over 2014 were due in part to 2015 reflecting the combined Q2P and public company assets, liabilities and equity.  In particular, Q2P assumed two Convertible Debentures in the total principal amount of $435,750 that existed with the public company prior to the Merger. Additionally, these Convertible Debentures, plus the Warrants that accompanied them, carried with them derivative liabilities due to the right of the holder to reduce the conversion price in the instance the Company issued stock at a lower price than $0.21 per share.  The derivative liability for these securities, plus the additional derivative liabilities in connection with the issuance of 500 shares of our Series A Preferred Stock for a $500,000 investment and the Warrants that accompanied that funding amounted to total derivative liabilities of $1,067,989 at the end of 2015, which did not exist in 2014.

Primarily as a result of the Convertible Debentures and derivative liabilities, as well as accounts payable that increased by $337,493 in 2015 over 2014, the Company’s total current liabilities in 2015 increased to $2,465,292 from $626,532 in 2014.  Accumulated deficit at December 31, 2015 was $5,365,379 as compared to $1,829,358 at the end of 2014, resulting from the higher net loss, and off-set in part by $942,544 in additional paid-in capital from our financings.

Cash Flow

Net loss in 2015 of $3,536,021 was off-set by non-cash operating expenses of: $717,082 in stock issued for services and related amortization expense, $517,039 in stock options issued to employees, $131,530 in derivative liability losses, $84,251 of depreciation and amortization, and $219,787 increase in accounts payable and accrued expenses.  As a result net cash used in operating activities amounted to $1,868,962 in 2015.    

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Financial Condition, Liquidity and Capital Resources

Since July 2014, the Company through Q2P has primarily devoted its efforts to commercializing the Q2P Engine and CHP System, developing its business model and recruiting executive management and key employees.   As a new entity, the Company has limited current business operations and nominal assets. The Company currently operates at a loss with minimal revenue and approximately $150,000 a month in operating expenses, which is comprised of salaries and fees to officers, directors and employees, our R&D budget, legal and accounting expenses, some marketing and other general expenses. We have also used equity, including common stock and stock options, to pay some expenses over the last year. Since 2015 we have reduced our monthly burn from about $200,000 per month by terminating or renegotiating some consulting fees and employment contracts, and making other cuts in our operational budget. This monthly burn is expected to increase materially, however, over the following months as we add costs of being a public company and fund our growth.  The Company's burn rate and limited funds raise substantial doubt about the Company's ability to operate as a going concern.  See "Note 2 -- Basis of Presentation and Going Concern" in the Company's consolidated financial statements.

Since July 2014, Q2P has raised approximately $3.8 million in capital over four separate financings, inclusive of cash invested and some debt and payables converted to stock. With these funds, the Company has been able to complete the prototype stage of its technology, place our first operating pilot unit in the field, recruit a solid engineering and business team, secure top tier Directors with significant industry experience, and generate our first commercial product sale.  We will attempt to raise additional funding in 2016 to advance the Company’s technology through full commercialization and manufacturing. Details of these prior financings follows:

During the year ended December 31, 2014, Q2P raised $353,501 in its initial Seed Round Funding, excluding transaction costs of $51,000, in a convertible debt security which automatically converted to common stock at a post-Merger equivalent of approximately $0.35 per share on September 30, 2014.  

Q2P raised $1,416,367 at a post-Merger stock price equivalent of approximately $0.79 per share in its Series A Funding Round during the year ended December 31, 2014.  Direct offering costs related to the Series A Funding Round were $30,000.  In January 2015, Q2P closed a continuation round of its Series A Funding, whereby it raised an additional $362,360 at the same price and terms.

On May 14, 2015, Q2P’s Board of Directors authorized a Rights Offering whereby each shareholder of Q2P received one Subscription Right for each share of common stock owned as of that date. The Subscription Rights allowed participating shareholders to purchase shares of common stock in Q2P at a post-Merger stock price equivalent of approximately $0.18 per share. The Rights Offering closed on June 3, 2015, at which time Subscriptions from approximately 90% of the Q2P shareholders totaling $1,061,975 had been received, inclusive of $821,516 in cash, the cancellation of $83,158 and $103,251 of payables and accrued expenses incurred in 2014 for outside and employee services, respectively, and $54,050 of subscriptions receivable.  Transaction costs associated with the Rights Offering totaled $10,000.  

At the time of the Merger, Q2P had 70,689,632 shares of common stock outstanding, which converted to 24,034,475 shares of the Company pursuant to the Merger. Shares purchased in the Rights Offering accounted for approximately 75% of the shares converted for Company common stock.   

Subsequent to the Merger, the Company raised an additional $600,000 in its Series A 6% Convertible Preferred Stock (the “Preferred Stock”) from two separate accredited investors in November 2015 and January 2016, respectively.  The Preferred Stock is convertible at $0.26 per share at the discretion of the holders, and contains price protection provisions in the instance that the Company issues shares at a lower price, subject to certain exemptions. Preferred Stock holders also received other rights and protections including piggy-back registration rights, rights of first refusal to invest in subsequent offerings, security over the Company’s assets (secondary to the Company’s debt holders), and certain negative covenant guaranties that the Company will not incur non-ordinary debt, enter into variable pricing security sales, redeem or repurchase stock or make distributions, and other similar warranties. The Preferred Stock is redeemable after two years if not converted, and has no voting rights until converted to common stock.  The Preferred Stock holders also received 50% warrant coverage at an exercise price of $.50, with a five-year term and similar price protections as in the Preferred Stock.       

All promissory notes and shares in these offerings were sold pursuant to an exemption from the registration requirements of the Securities Exchange Commission under Regulation D to accredited or sophisticated investors 

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who completed questionnaires confirming their status. Unless otherwise described in this Current Report, reference to “restricted” common stock means that the shares have not been registered and are restricted from resale pursuant to Rule 144 of the Securities Act of 1933, as amended.

Separation from Cyclone and Related License Agreement

On July 29, 2014, Q2P (which at such time was called WHE Generation Corp., and renamed Q2Power Corp. on January 26, 2015) commenced operations as an independent company after receiving its initial round of seed funding and signing a formal separation agreement (the “Separation Agreement”) from Cyclone.  The Separation Agreement between Q2P and Cyclone provided for a formal division of certain assets, liabilities and contracts related to Q2P’s business, as well as establishing procedures for exchange of information, indemnification of liability, and releases and waivers for the principals moving forward.  As part of the separation from Cyclone, Q2P also purchased for $175,000 certain licensing rights to use Cyclone’s patented technology on a worldwide, exclusive basis for 20 years with two 10-year renewal terms for Q2P’s waste heat and waste-to-power business (the “License Agreement”).   The License Agreement contains a royalty provision equal to 5% of gross sales payable to Cyclone on sales of engines derived from technology licensed from Cyclone.

Also, as part of the separation from Cyclone, Q2P assumed a license agreement between Cyclone and Phoenix Power Group, which included deferred revenue of $250,000 from payments previously made to Cyclone for undelivered products.  The net balances as of December 31, 2015 for the Cyclone licensing rights and the Phoenix deferred revenue were $113,201 and $250,000, respectively. The Company also assumed a contract with Clean Carbon of Australia and a corresponding $10,064 prepayment for services or other value to be provided in the future.  This deposit has been presented as deferred revenue on the December 31, 2015 and December 31, 2014 consolidated balance sheets.

The licensing rights are amortized over its estimated useful life of 4 years. Amortization expense for the years ended December 31, 2015 and 2014 was $43,750 and $18,229, respectively.

Stock Repurchase Agreement

On September 25, 2014, Q2P entered into a Stock Repurchase Agreement with Cyclone (the “Stock Repurchase Agreement”) whereby Q2P agreed to purchase 2,083,333 shares of common stock of the Company at a purchase price of $0.24 per share, for total consideration of $500,000.  Of the purchase price, $350,000 was paid on September 30, 2014, at which time Q2P retired 1,458,333 shares previously held by Cyclone.  The $150,000 balance of the purchase price was recorded as Related Party Obligation – Cyclone.  The 624,999 shares associated with the $150,000 portion of the purchase price were reissued to Cyclone on July 21, 2015, based on claims made by Q2P that Cyclone had not fulfilled material terms in the Stock Repurchase Agreement, as well as other claims, and as a result the balance of $150,000 would not be owed. Cyclone disputed these claims.   Q2P also recorded $567,637 against additional paid in capital related to the shares of common stock of Cyclone held as an investment by Q2P that were returned to Cyclone, payables of Cyclone paid by Q2P on behalf of Cyclone and write-off of the intercompany receivable from Cyclone. This was offset by the deferred revenue from Phoenix Power and Clean Carbon of Australia that was transferred to Q2P in the Separation Agreement.

In April 2016, the Company and Cyclone resolved their dispute regarding the Stock Purchase Agreement, whereby the parties agreed to terminate that agreement and all amounts owed by either party to the other, including a release of all claims.  The Company paid a consultant 100,000 shares of restricted common stock in connection with the negotiation and signing of that agreement.

Cash and Working Capital

We have incurred negative cash flows from operations since inception. As of December 31, 2015, the Company had an accumulated deficit of $5,365,379. Details of this are discussed above in the Balance Sheet disclosure.

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Off-Balance Sheet Arrangements

The Company did not engage in any "off-balance sheet arrangements" (as that term is defined in Item 303(a)(4)(ii) of Regulation S-K) as of June 30, 2015.

ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required for smaller reporting companies.

ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of

Q2Power Technologies, Inc.

We have audited the accompanying consolidated balance sheet of Q2Power Technologies and Subsidiary (the “Company") as of December 31, 2015, and the related consolidated statements of operations, stockholders’ and members’ equity (deficit), and cash flows for the year then ended.  The financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit 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 audit 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 includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audit provides a reasonable basis for our opinion. 

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Q2Power Technologies and Subsidiary as of December 31, 2015, and the consolidated results of their operations and their cash flows for the year 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 operating losses raises substantial doubt about its ability to continue as a going concern.  Management’s plans in regard to these matters are also described in Note 2.  The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. 

/s/ EisnerAmper LLP

Fort Lauderdale, Florida

April 14, 2016

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We have audited the accompanying balance sheet of Q2Power Technologies, Inc. (f/k/a Q2Power Corp.) (the “Company”) as of December 31, 2014, and the related statements of operations, stockholders’ and members’ equity (deficit), and cash flows for the year then ended. The financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit 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 audit 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 audit provides a reasonable basis for our opinion. 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Q2Power Technologies, Inc. (f/k/a Q2Power Corp.) as of December 31, 2014, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the 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 financial statements do not include any adjustments that might result from the outcome of this uncertainty.  

/s/ Mallah Furman 

Fort Lauderdale, Florida August 19, 2015 

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Q2POWER TECHNOLOGIES, INC.

CONSOLIDATED BALANCE SHEETS

December 31,
				2015			2014
ASSETS
CURRENT ASSETS
	Cash		$	1,012		$	265,374
	Restricted cash			-			10,010
	Prepaid expenses			24,333			7,683
		TOTAL CURRENT ASSETS		25,345			283,067
SOFTWARE, PROPERTY AND EQUIPMENT, NET				100,734			52,389
OTHER ASSETS
	Licensing rights in Cyclone, net			113,021			156,771
		Total other assets		113,021			156,771
TOTAL ASSETS			$	239,100		$	492,227
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
	Accounts payable and accrued expenses		$	541,763		$	204,270
	Debentures-Alpha Capital Anstalt			435,750			-
	Derivative liabilities			1,067,989			-
	Related party obligation – Cyclone			150,000			150,000
	Capitalized lease obligations-current portion			9,726			12,198
	Deferred revenue and license deposits			260,064			260,064
		TOTAL CURRENT LIABILITIES		2,465,292			626,532
NON CURRENT LIABILITIES
	Capitalized lease obligation-net of current portion			-			10,165
		Total non-current liabilities		-			10,165
		TOTAL LIABILITIES		2,465,292			636,697
Redeemable convertible preferred stock - Series A; $0.0001 par value, 1,500 designated Series A, 500 and 0 shares issued and outstanding at December 31, 2015 and 2014, respectively (liquidation preference of $504,028)				319,264			-
STOCKHOLDERS' DEFICIT
	Preferred stock, $0.0001 par value; 5,000,000
	shares authorized, no shares issued and outstanding			-			-
	Common stock, $0.0001 par value, 100,000,000 shares
	authorized, 26,624,227 and 5,232,542  shares issued and outstanding at December 31, 2015 and 2014, respectively			2,662			523
	Additional paid-in capital			3,106,369			2,163,825
	Treasury stock, 212,500 shares, at cost			(150,000)			(150,000)
	Subscription receivable			(3,787)			(100,000)
	Prepaid expenses with common stock - related parties			(135,321)			(229,459)
	Accumulated deficit			(5,365,379)			(1,829,358)
		TOTAL STOCKHOLDERS' DEFICIT		(2,545,456)			(144,470)
TOTAL LIABIITIES AND STOCKHOLDERS' DEFICIT			$	239,100		$	492,227

See notes to the consolidated financial statements.

34

Q2POWER TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

The Company’s NOL and tax credit carryovers may be significantly limited under the Internal Revenue Code (IRC). NOL and tax credit carryovers are limited under Section 382 when there is a significant “ownership

46

change” as defined in the IRC.  During the year ended December 31, 2015 and in prior years, the Company may have experienced such ownership changes, which could impose such limitations.

The limitations imposed by the IRC would place an annual limitation on the amount of NOL and tax credit carryovers that can be utilized. When the Company completes the necessary studies, the amount of NOL carryovers available may be reduced significantly.  However, since the valuation allowance fully reserves for all available carryovers, the effect of the reduction would be offset by a reduction in the valuation allowance.  

NOTE 8 – NOTES PAYABLE AND DEBENTURES

On September 23, 2015, the Company entered into a Modification and Extension Agreement to modify the terms of the debentures to extend the maturity date of the debentures to July 31, 2016, and reset the conversion price of the debentures to $0.21. Pursuant to the Merger, the debentures and warrants remained an outstanding obligation of the Company, thus were assumed by Q2P.

NOTE 9 – FAIR VALUE MEASUREMENT AND DERIVATIVES

The Company measures fair value in accordance with a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below: