Latest Updates and Information

Cautionary Statement: Some of the statements on this web page may constitute forward-looking statements under federal securities laws. Please visit the following link for our complete cautionary forward-looking statement: https://www.qsenergy.com/site-info/disclaimer. You should read all updates and press releases in the context of our SEC filings, including our Form 10-K filing of March 31, 2022 and our Form 10-Q filing of May 16, 2022, which can be accessed on our website and at https://ir.qsenergy.com/all-sec-filings. All updates on this web page are intended as general summaries, current as-of the referenced date. COVID-19 has both directly and indirectly impacted our supply chain and our ability to obtain working capital. It remains unclear what continued impact COVID-19 may have on our operations.  The Company will need to raise additional capital to fund continued operations, testing, and product development. We can provide no assurances that such funding will be available to us, or that any such funding would be at acceptable terms. For full context, we urge you to read all referenced SEC filings, updates and press releases. Nothing contained herein constitutes an offer to sell, nor a solicitation to buy, our securities.



August 9, 2022: Component Testing
Please read this and all website updates in the context of the Cautionary Statement above.
This Update is available in a printable PDF format at: Component Testing
Component Testing

Increasing Confidence

As stated in our previous “July Upcoming Component Testing” update, we anticipated that by August we would be conducting the component testing. As of August 8, 2022, we completed a successful component test. All parts arrived from our vendors last week and we built the stack assembly. All the parts fit as designed with no surprises.

The stack assembly performed as expected. We were able to apply the maximum voltage of the power supply to the stack assembly when submerged in oil. With this updated design, the power supply did NOT shut down due to arcing nor shorting which occurred with the previous design during various testing regimes. We achieved exactly what we hoped to and will now proceed to the hydrostatic test.

Cecil Bond Kyte said “I could not be happier with the results. We have validated the design changes which addressed the problems identified in the component testing of the prior design and I am looking forward to a positive hydrostatic test. We did what we said we would do and will continue to do so.”



July 18, 2022: Upcoming Component Testing

Please read this and all website updates in the context of the Cautionary Statement above.
This Update is available in a printable PDF format at: Upcoming Component Testing

 Upcoming Component Testing

Concentration + Confidence = Component Testing

In our April 15, 2022, Investor Update we summarized how the results of the AOT component testing resulted in a set of design criteria for the new stack assembly and the success of identifying alternate materials of construction. Recently, we have been working to reduce those findings to practice. We are now moving forward to the following three steps:

  1. Complete testing of the component stack assembly.
  2. A full-size hydrostatic test of the AOT.
  3. A field test with a development partner.

Our focus for this update is concerning the pending component tests. These tests are an important step validating newly designed parts minimizing both cost and time. We have seen before; the absence of a successful testing program can lead to an unintended failure. The follow up hydrostatic test is designed to run a fully assembled AOT at near operational conditions. Since we are not installed on a pipeline, we will lack flow and pressure, but all other factors will be the same as a customer installation. Lastly, a field test with a development partner would be under both flow and pressure as final validation of the AOT. As we have not seen mechanical issues due to flow or pressure a successful hydrostatic test should be a good predictor of a successful field test.  Therefore, the field test will be focused on validation of the beneficial effect of AOT on pipeline crude oil.

The component test is designed to validate the new stack assembly’s ability to address the 7 design criteria shared in the April 15, 2022, Investor Update. The new stack assembly addresses the 7 seven design criteria in the following ways:

  1. All metal surfaces will have rounded edges.
  2. All perpendicular surfaces between grids have been eliminated.
  3. Grids are better supported and will have a uniform separation.
  4. All electrical connections will have positive mechanical contact.
  5. All corners have been removed from the grid design.
  6. The entire perimeter of the grids are now surrounded with insulation.
  7. Two new materials have been selected for insulation, and the blind design will be less sensitive to insulation swelling.


Figure 1: Rendering of Component Stack Assembly

 

Another important parameter to validate is the fabrication method of the stack parts. We have selected fabrication techniques that allowed us to progress rapidly within our budgetary constraints. Component testing will confirm both the electrical performance of the stack assembly and the fabrication techniques for the parts themselves.

Progress toward the component test has been positive. The insulating rings for the component testing have been ordered and should be completed in the next few weeks. By August, we should be conducting the component test of the stack assembly as shown in the rendering Figure 1.

In summary, the component testing will verify if the new designs allow us to achieve a sufficiently high voltage to reach treatment field strengths in oil. The component testing of the stack assembly parts should show that we have protected against arcing and stopped the oil circulation zones that occurred when testing previously manufactured AOT parts. Once we verify that treatment field strength can be successfully reached, we will prepare to conduct a full-size hydrostatic test targeted for mid-September.

 “We have given you the technical reasons for our upcoming component test and to be followed by a hydrostatic test. The hydrostatic test is a key step showing development partners we have overcome the issues we faced in the previous demonstration project. I am pleased with the hard work and dedication of the entire QS Energy Staff as we move forward developing the AOT technology. In closing I would like to thank our investors and our board for their commitment to QS Energy,” said Cecil Bond Kyte, CEO QS Energy.


April 15, 2022:
Investor Update from Cecil Bond Kyte, CEO, and Christopher Gallagher, Ph.D, SVP Product Commercialization and Business Development
Please read this and all website updates in the context of the Cautionary Statement above.


October 6, 2021:
AOT Component Testing Update from Cecil Bond Kyte, CEO
Please read this and all website updates in the context of the Cautionary Statement above.
This Update is available in a printable PDF format at: AOT Component Testing Update

QS ENERGY PROVIDES AOT TESTING UPDATE

Update on AOT component testing

CARSON CITY, NV / October 6, 2021 / QS Energy, Inc. (the “Company” or “QS Energy”) (OTCQB:QSEP), a developer of integrated technology solutions for the energy industry, today provided an update to our press release of September 27, 2021.

Cecil Bond Kyte, Chief Executive Officer and Chairman of the Board, commented, “From May 2021 to present we have conducted many tests designed to isolate components and variables on the grid pack and we have found locations where arcing occurred unexpectedly. In this investor update we will share some of our key findings. Furthermore, we plan to implement and test some of these design changes in the coming weeks.”

Dr. Christopher Gallagher explained, “The inability to achieve treatment field strength has been a recurring theme through the demonstration project, where we were under contract to provide services to our partner, which ended in June of 2020. While at the demonstration site, all components were concealed in the AOT and the inconsistency of results made it very difficult to positively diagnose problems and implement solutions. Now, isolating components and parameters has allowed us to identify and replicate arcing events while observing where they occurred.  Knowing these points will give us an opportunity to improve the design of the current AOT.”

Key findings that prevented the AOT from operating during the Demonstration Project

A few major issues have prevented the AOT from achieving the voltage necessary to apply the AOT technology at the previous demonstration site.  A conceptual drawing of the grid pack is shown in Diagram 1 with the locations of the problems identified with arrows.


Diagram 1: Conceptual Drawing of Current Stack

The original grid pack installed at the demonstration site was recently found to have two locations where the electrical insulation had been damaged, and arcing limited the amount of voltage that could be applied.  By isolating the components, we were able to recreate the failure in the original grid pack.   The electrical insulation appears to have suffered many arcs and has melted.  It is likely the damage started as a point failure and grew with more energy discharge. While we were not able to create a short circuit, it is possible and perhaps even likely the gaps became filled with carbon due to the electrical discharge, which led to a short circuit during the demonstration.


Figure 1: Photo of damaged insulation.

As reported on September 13, 2019 in the Demonstration Project Status Update, the original AOT grid pack was replaced with the current grid pack to improve the intended reliability of the AOT by eliminating locations of potential arcing and short circuits.  The implemented changes seemed to prevent damage like what is shown in Figure 1. We have been able to achieve higher voltages without similar damage. We believe this points to the new materials of construction being better for our application.

As a result of our recent testing of the AOT, we discovered the blind flange required additional evaluation. Throughout testing, it was determined the blind presented some issues as well.  Arcing can be heard from inside the blind. Additionally, a crack has formed where the insulation was cast on the blind flange—see Figure 2. The crack may only be a surface crack, or it may be a separation which could allow fluid to penetrate.


Figure 2: Insulation at blind flange.

We also observed that the electrical insulation separated from the pressure vessel—see Figure 3. This observation has not yet correlated with any operational limitations and may not need to be addressed.


Figure 3: Pressure vessel insulation.

We found that the current internals had significant spacing variation as indicated in Diagram 1 item 4. During the demonstration project the issue had been noted and insulated spacers were designed and made to improve plate spacing and to provide additional electrical isolation to the shell.  The spacers worked to a degree, but we noted variation in plate spacing was still present. Given the limited voltage we had been able to achieve, it was not deemed a major issue at the time. During recent testing, we found that when the plates were isolated, arcing occurred at the closest point between them as expected. By investigating the grid pack where arcs formed, we found that there were a few locations where the gap decreased to almost half of the designed gap toward the centerline of the grid pack.  

One of the major issues was arcing between assembly bolts and the negative bus bar.  This issue was caused by the mechanical failure of spacers connecting the plates to the bus bar. The collapsed spacer created a very small gap, where there should have been strong metal to metal contact to connect, between the bolt and the bus bar. The gap allowed arcs to occur.  Replacement spacers eliminated the issue.

We have gathered facts about the issues that prevented us to increase voltage beyond a nominal value.  The plan has been implemented with the improvements for the internals to eliminate the identified problems.

The collective analysis and ultimate redesign should carry us through to a new demonstration. It is our expectation when we re-demonstrate our technology that we will not endure the failures of last year. As the design changes are implemented, we expect to test with oil from the demonstration site to validate the final design.

In closing, we are confident that a retest in the presence of a development partner will yield to the expectations prior to June 2020. Furthermore, despite any supply chain issues, we expect to be testing in the next few weeks.  Pending a positive outcome, we should be able to move forward towards a demonstration test in the presence of a development partner.

 

With gratitude,

 

Cecil Bond Kyte, CEO

April 22, 2021: Shareholder Letter from Cecil Bond Kyte, CEO
Please read this and all website updates in the context of the Cautionary Statement above.
This Shareholder Update is available in a printable PDF format at: Shareholder Update Letter

Dear Shareholder:

I am pleased to have taken on the role of CEO and Chairman of the Board of the Company, and I am excited about the opportunity to address and solve the challenges the Company has faced in its efforts to develop and commercialize its AOT technology. I, of course, cannot provide any guarantees about the outcome of my efforts or the commercialization of our AOT technology, except to say that I will be diligent and devoted in my efforts to achieve success for the Company.

As reported in our Form 8-K filed with the SEC on April 16, 2021, we are delinquent in our SEC filing obligations. More particularly, we have failed to file our annual report on Form 10-K for the calendar year ended December 31, 2020. We cannot file our 10-K until we commence and complete the audit of our financial statements for the calendar year ended 2020. We have been unable to do this because we lack funds to pay past due fees owed to our independent auditor, and fees payable to our auditor to cover the 2020 audit. We are seeking to remedy this, but can provide no assurances that we will be able to do so.  

So, first, we must garner the required resources to ensure compliance with all SEC rules and filing obligations applicable to us as a public company, including the preparation and filing of our annual report for the year 2020. Second, we must garner and dedicate resources to the continuing development and commercialization of our AOT technology. (In this regard, please see our website at https://qsenergy.com/updates, reporting the status and problems we have faced in our development and commercialization efforts.) It is our goal to dedicate sufficient resources to Dr. Christopher Gallagher, our lead engineer in the development of our AOT technology, with the objective of determining whether we have “an AOT design issue or an engineering issue.” We would prefer the latter, as that is where our assumptions currently stand.  I believe Dr. Gallagher is very capable and determined to sort out the variables that could lead us to a consistent and reliable commercial proof of concept of AOT. Once we can truly say that we have a commercial product, we plan to swiftly move to prove AOT in the field and to seek commercialization opportunities.

One of the first impressions I had of Dr. Gallagher’s attitude is that it simply comes down to the fact that he enjoys solving problems and winning.

The following is a statement from Dr. Gallagher:

“Heavy oil is a challenge to transport and a device that reduces pressure in a pipeline will allow more oil to be transported at the same cost.  I remain excited about the potential of the science behind the AOT to be a novel solution for heavy oil pipelines.  Given the interest QSE has received recently from prospective customers it seems the industry still wants the AOT unit. 

I would like to continue to help QSE find and solve the problem with the AOT and help turn the situation around.  QSE has invested in a great deal of design work and has reported limited successes and failures.    Notwithstanding scale up difficulties, the AOT device is fairly-straight forward.  Now that QSE knows there is an issue, the goal should be to find the cause of the short circuit and fix it.

Last year we found the conductivity of the oil at the pilot site had not been considered in the design and we fixed the AOT after lab and field testing revealed the problem.  I am hopeful QSE will solve other problems, as well.”

Again, I am pleased to be back with the Company and look forward to keeping you updated on my efforts and the Company’s progress. As always, I thank you for your continuing support.

Sincerely,

Cecil Bond Kyte, CEO

January 11, 2021: Company Update
Please read this and all website updates in the context of the Cautionary Statement above.

2020 was been a difficult year. As reported in the Company’s Form 8-K filed with the SEC on July 13, 2020, and further detailed in subsequent Forms 10-Q filed with the SEC on August 19, 2020 and November 23, 2020, our AOT equipment installed at the demonstration site experienced a series of failures. In short, the system would drop to very low voltage indicating a reduction in electrical resistance in the AOT. This voltage drop was both dynamic, developing over time as electrical current was applied, and transient, in that the power supply could be shut-down and re-started with this voltage drop characteristic repeating. In-field tests and modifications performed at the demonstration site appeared promising; however, after many attempts to bring the system up to operating voltage, it was determined in-field modifications would not resolve the underlying system failure and that we would be unable to fully diagnose these issues at the demonstration site. In late July, our equipment was removed from the demonstration site and was relocated to a facility where we may have access to heavy equipment and other resources necessary to disassemble, inspect, and test the equipment.

Though our engineers do have working concepts as to what may be causing the most recent voltage drop and arc-fault issues, it is unknown whether these issues can be solved with minor modifications to the current design. It is possible that a major redesign may be required.

With this in mind, subject to funding requirements, Christopher Gallagher, PhD, our lead engineer on this project has laid out a plan summarized as follows:

  • Full-scale unit testing. Conduct testing at the offsite storage location in an effort to isolate the cause of the voltage drop or electrical short. One set of tests would be designed to determine if treatment volume affects conductivity resulting in of an electrical short circuit. Similar short circuit issues were not seen on the smaller scale unit that was built and successfully run in China and in Wyoming.  If we can confirm the current AOT does not suffer a short with smaller treatment volume, then we may be able to find the sweet spot that balances treatment volume and the complexity of design.  If successful, this would be the quickest path to return to the field.  If reducing the treatment volume does not solve the problem, then there may be a flaw in the full-scale unit design. 
  • Disassembly and inspection. Though we have worked diligently to eliminate all potential paths of electrical conductivity within the AOT, it could be possible for an electrical short circuit to develop if unknown flaws have developed internal to the AOT. Given the size of the unit and that a short circuit, in theory, could be caused by internal damage or other flaw the size of a hair, it would be highly unlikely such a flaw would be found with standard visual inspection techniques. However, a fluorescent dye test might prove beneficial and would be attempted if a suitable service provider can be found, subject to funding.
  • If the above testing and inspection protocols are inconclusive, we would likely move to full-scale unit and component testing in an effort to isolate the blind (the flange at the top of the AOT) and the stack (the internal electrical components). This testing would only be needed if the reduced treatment volume testing did not show positive results.  This testing would also be more costly and challenging since we would likely need to build new test fixtures and would need to test the unit while flooded with oil or other material.  Due to testing constraints, we would likely start with non-hazardous biodegradable oils, returning to crude oil if testing with non-hazardous oil yields positive results.
  • In parallel, we would also like to build a variety of test fixtures to stress test materials in the presence of oil. Most materials are studied dry to determine their mechanical and electrical properties.  Since we have successfully powered the AOT to about 10,000V in air without short formation, we should consider and test the possibility the short circuit is the result of an interaction between the internal AOT materials and the oil which develops under AOT operating conditions.  
  • Again, subject to funding, we plan to build smaller scale test units which could be commercialized for new markets such as truck, ship and rail crude oil offloading. These smaller-scale units would allow us to test different materials and different design concepts at a much lower cost than full-scale testing and development. Although the crude oil midstream pipeline market would remain our top long-term target, parties both domestically and internationally have expressed interest in the potential benefits in truck, ship and rail offloading. As noted in an article titled “Crude Loves Rock’n’Rail – Heat It! Bitumen By Rail (Part 2)” (Fielden, Sandy. 2013b. RBN Energy LLC. http://www.rbnenergy.com/crude-loves-rocknrail-bitumen-by-rail-part-2), there are costly challenges to transporting heavy crude oil by rail. In his article, Fielden estimates heavy crude costs $5.00 more per barrel than light crude due to its high viscosity; an added $3,000 per railcar load at an average 600 bbl/car. While the midstream pipeline market is likely our largest target market, there has always been a plan to expand the application base on our AOT technology. Given the reduced cost, and shortened lead times associated with smaller equipment, we believe these markets should be strongly considered.

The time and cost of implementing the above a plan is be significant. The Company does not currently have sufficient capital to take on this endeavor. We will need to raise substantial additional capital throughout 2021 and beyond to implement Dr. Gallagher’s plan; to restart testing and development of our AOT technology and to fund our operations and sales and marketing efforts, and to continue research and development of our AOT technology; and certain other expenses required to maintain our licenses with Temple University and legal and accounting expenses associated with maintaining our status as an SEC reporting company and related operational expenses. We can provide no assurances that additional capital will be available to us, or if it is, that such additional capital will be offered at acceptable terms, or that the implementation of Dr. Gallagher’s plans will resolve the problems we are facing in our efforts to commercialize our AOT technology.

Subject to raising sufficient funds, we hope to put Dr. Gallagher’s plans into action in early 2021. Our timeline to get back onto a demonstration site or to test AOT in other markets as described above will be dependent upon successes and lessons learned in the lab, and under small-scale and full-scale test procedures. Our hope is to be back in the field testing either at full-scale or with new smaller-scale commercial units in late 2021.

July 1, 2020: Demonstration Project Update
Please read this and all website updates in context with the Cautionary Statement above.

We arrived back at the AOT demonstration site today to run additional tests specified by the power supply manufacturer. These tests indicated a modification to the power supply control module might improve control loop functions which manage and coordinate operations of all power supply components (10 power supplies operating in series controlled by a single control module). This modification could resolve the drop in voltage (aka “voltage decay”) described in our June 26, 2020 update below. The power supply manufacturer has shipped the necessary component to the demonstration site to be installed by QS Energy personnel on a circuit board in the control module. After the modification to the power supply control module is complete, we will attempt to re-start the AOT at a low baseline power. If the unit holds voltage, we will attempt to complete the startup cycle and commission the unit as ready for test operations.

It is unclear if this modification to the power supply control module will resolve the issue of voltage decay experienced in our previous test, or if the AOT will operate as expected if the voltage decay issue is resolved.

June 26, 2020: Demonstration Project Update
Please read this and all website updates in context with the Cautionary Statement above.

Our engineering team was on site at the Demonstration Project this week to complete the system installation, startup testing, and commissioning, with the intention of achieving treatment voltage levels.  During the startup cycle, the system initially established a baseline (below operating/treatment level) high voltage. However, once a baseline voltage was achieved, system voltage would decay well below the baseline value. When powered up to a baseline level, voltage and amperage measurements were within expected levels, generally indicating the newly installed grid pack and blind flange assembly have been properly specified and configured, and that the new power supply should have sufficient power to achieve treatment voltages. In repeated tests, once that baseline level was achieved, voltage decayed well below the baseline.

It does not seem likely the problem we are experiencing with voltage decay is related to the short circuit indicated in previous tests since voltage can now be repeatably applied to the AOT while operated under pressure with crude oil flowing through the system.  When we experienced the short circuit while operating under pressure in previous tests, it was not possible to apply voltage to the AOT without the system exhibiting characteristics of a “dead short”, or electrical short-circuit.

It is unclear at this time if the voltage decay experienced in our startup testing cycle is due to power supply operations or is occurring internally to the AOT. Our engineers gathered data while on site and are reviewing data and observations with third-party experts, and we are working with the manufacturer of the power supply to gain their assistance in diagnosing the problem. 

We plan to return to the site next week to further test and troubleshoot the system.

June 18, 2020: AOT Demonstration Project Brief Update
Please read this and all website updates in context with the Cautionary Statement above.

Modified AOT InstallationInstallation of the modified AOT grid pack and blind flange assembly has commenced. As noted in yesterday’s update, the equipment arrived at the demonstration site on Tuesday, June 16th. Our pipeline partner installed the grid pack and blind flange assembly this afternoon, June 18th, overseen by Christopher Gallagher and Shannon Rasmussen of QS Energy. During the assembly and pre-installation procedure, our engineers conducted a series of high voltage impedance tests to verify both electrical continuity and the impedance of the assembled grid pack and blind flange. These tests showed that the system continues to test at high levels of impedance indicating the new insulating materials are performing as expected, consistent with earlier tests on the newly modified design described in the June 17, 2020 update.

Early next week, our pipeline partner is scheduled to complete the electrical hookup and install additional SCADA (system control and data acquisition) equipment at the site. Based on our most recent schedule, we plan to complete installation, start-up testing and commissioning next week (see the June 17, 2020 update for a description the startup and commissioning test cycle). Assuming successful commissioning, demonstration AOT test operations should begin by the end of next week, or shortly thereafter.

We look forward to providing you with status updates in near future.


June 17, 2020: AOT Demonstration Project Update
Please read this and all website updates in context with the Cautionary Statement above.

After successfully working through a series of supply chain disruptions caused by COVID-19, our vendors and our engineering team worked overtime to complete repairs and modifications to our AOT demonstration unit with minimal impact on our schedule. Modifications to the AOT grid pack and blind flange assembly were completed over the weekend. The equipment was carefully packed and shipped from Houston on Monday and arrived at the demonstration site yesterday, Tuesday June 16th. Our engineers will be on site this week to oversee final preparation and installation of the equipment which, barring weather or other unforeseen delays, should be completed by the end of the week.

Prior to shipping the equipment, our engineers conducted high voltage impedance testing on the grid pack, the blind flange, and the assembly to verify that the modified design and new insulating materials are performing as expected.  All tests yielded good results with higher insulation values recorded than those measured in previous tests.  We believe this is the result of the reliability engineering changes that were implemented during the rebuild process.

Tests performed prior to shipment were performed under dry (open-air) conditions and at ambient pressure. Additional tests will be performed under dry (no crude oil), flooded (filled with crude oil), closed-in (not under pressure), and open (operating pressure) conditions during installation and commissioning to further assess design modifications prior to testing under commercial operating conditions. Assuming the system passes all tests performed during the start-up and commissioning process, demonstration test operations may begin as early as next week.

Our engineers have made several modifications to the design based on engineering efforts to improve quality control, electrical insulation, and overall system performance and reliability. Many of these modifications were designed to mitigate the electrical short experienced in prior tests as described in previous updates. Based on best information and analysis to date, we believe the modifications to the grid pack and blind flange assembly should improve the insulative properties and may resolve the short circuit issue. However, no assurances can be made that these design changes will resolve the electrical short issue, that the demonstration project will perform as expected, or that additional design modifications will not be required.

As noted in this and previous updates, COVID-19 has both directly and indirectly impacted our supply chain and our ability to obtain working capital. It remains unclear what continued impact COVID-19 may have on our ability to test at the demonstration project site. Based on our limited current capital resources, the Company will need to raise additional capital to fund continued operations and testing at the demonstration site. We can provide no assurances that such funding will be available to us, or that any such funding would be at acceptable terms.

With these cautions in mind, we are excited to be back out in the field. Our engineers have done amazing work under unique and challenging conditions to modify and prepare our equipment for this critical test cycle. We will continue to keep you posted on our progress with updates on this website.


May 22, 2020: Shareholder Update: Don Dickson, Interim CEO
Please read this and all website updates in context with the Cautionary Statement above.

AOT Demonstration Project Installation Dear Shareholders,

Since taking on the role of interim CEO on April 15th I have had the chance to roll up my sleeves and work with our exceptionally talented and dedicated management and engineering team. They are focused on taking decisive actions to transform the business, continuing to innovate and improve our product in new and diverse ways, and unlocking future growth opportunities. Our supply chain is working efficiently and after adjustments largely due to COVID-19 restrictions is on target to deliver upgraded AOT equipment to the demonstration site in early June.

Over the past few weeks, I have developed a much deeper understanding of our AOT technology, the many challenges our engineers have faced over its development cycle, and design changes that are being implemented in our latest configuration. You likely know from reading prior reports that our technology has had multiple issues with what appear to be short circuits developing when treating the crude oil transported through the pipeline at the demonstration site. In our most recent test, a short circuit developed when operated at pressure under typical commercial operating conditions. Our engineers traced the most likely cause of this short to the blind flange at the top of the AOT unit and are now in the final stage of implementing changes to this component designed to mitigate the effects of pipeline operating pressure. We have also taken this opportunity to implement relatively minor changes to the internal grid pack designed to improve system reliability and quality control.

COVID-19 and other unforeseen circumstances could affect our schedule, but with only one week remaining in the month of May, I am confident in our timeline to restart testing in June and believe we are taking the right steps to move our business and testing forward.

I wish you all a fun, safe and healthy Memorial Day weekend, and look forward to updating you in June with activity at the demonstration site. As always, I recommend you read this Shareholder Update in context with previous updates on this website (qsenergy.com/updates) and SEC filings including our Form 10-K filed on March 31, 2020.

Best Regards,
Don Dickson
CEO, QS Energy


April 22, 2020: Demonstration project and COVID-19 update
Please read this and all website updates in context with the Cautionary Statement above.

Greetings from QS Energy. We hope you all have been able to stay home, stay safe and stay healthy.

Our demonstration project continues to move forward but testing at the site has been delayed largely due to effects of COVID-19 restrictions. Although our operations have not been directly impacted, one of our critical-path suppliers who is working on modifications to AOT demonstration project equipment experienced a slowdown as they reconfigured operations to accommodate remote engineering. Now that their operations have stabilized, they have finalized engineering work required to implement our team’s design modifications to the blind flange and electrical interconnect assembly as described in our March 20, 2020 website update and have provided us with a final production schedule. Based on this new schedule we are now targeting delivery of components in early June and hope to restart testing at the demonstration site before the end of June. This delay, brought on in part by COVID-19, is disappointing but we are excited to get back into the field and look forward to restarting AOT test operations.

COVID-19 continues to have sweeping impacts on the oil and gas markets. With supplies up and international tensions driving prices to all-time lows, the futures spot market experienced negative pricing for West Texas Intermediate crude (WTI; a shale deposit light crude) yesterday the first time in its history, leading to widespread speculation of financial turmoil in the oil and gas sector. With prices down and demand for storage exceeding capacity, light crude wells are being shut-in throughout the oil patch.

Heavy crudes, which represent QS Energy’s target market, are also experiencing historically low prices. It is interesting to note, however, the role transportation costs play in heavy crude pricing and profitability. As reported in a March 29, 2020 article by Robert Tuttle posted on OilWorld.com titled “Some Canadian crude costs more to ship than buy,” Western Canadian Select crude (WCS) has been trading at  barrel prices “cheaper than a Starbucks venti-sized pumpkin spice latte.” At prices this low, the cost of transportation becomes a principal factor in profitability. A primary driver in the cost of transportation is the fact that heavy crude must be blended with condensate to reduce viscosity to the point the heavy crude can flow through a pipeline. This goes to the core value of our AOT technology. Our goal is to decrease transportation costs and increase producer and operator profit margins by reducing dependence on condensates/diluents and increasing effective pipeline capacity and flowrates.

As noted in our previous update, it remains unclear what continued impact COVID-19 may have on our supply chain, or on our ability to test on-site at the demonstration project, or on our ability to obtain additional working capital, the lack of which would adversely impact our ability to continue our demonstration project testing activities. That said, we remain confident in our strategy and plans to complete current modifications to the AOT demonstration unit and restart testing at the demonstration site. We will keep you posted on our progress with updates on this website.


April 16, 2020: SEC Form 8-K filed
Please read this and all website updates in context with the Cautionary Statement above.

As reported in our SEC Form 8-K filed today (4/16/2020), Jason Lane voluntarily resigned as CEO of the company for personal reasons, effective April 15, 2020. Also effective April 15, 2020, Gary Buchler has voluntarily resigned from the Company’s Board of Directors after three years of service on the Board. Although Mr. Lane has stepped down from day-to-day management of the Company, he will continue to serve as a Chairman of the Company’s Board of Directors.

Don Dickson, a member of the Company’s Board of Directors, has been appointed interim CEO for a term of 90 days effective April 15, 2020. As a long-time member of the Company’s Board and an oil industry executive with years of pipeline operating experience, Mr. Dickson is highly qualified to guide QS Energy through this transition period. Mr. Dickson was appointed to the Company’s Board of Directors in August 2013 and currently serves as a member of the Company’s Audit Committee. Previously, Mr. Dickson served as Chief Executive Officer / President for Advanced Pipeline Services (APS). APS was established for the purpose of providing a full range of services to the oil and gas industry. Core business areas were in new construction of pipeline and facilities, horizontal directional drilling and pipeline integrity/rehabilitation.  APS had operations and offices in both Texas, Eagleford and Permian Basin Fields. Prior to APS, Mr. Dickson worked for Kinder Morgan in their natural gas operations, retiring after twenty-nine years. During his time at Kinder Morgan he served in different engineering capacities including as Director on two major pipeline projects, the 42” (REX) Rockies Mountain Express through the state of Illinois, and the 42” (MEP) Midcontinent Express Pipeline through the state of Louisiana. He also was Director of Operations with Tetra Resources completing various onshore and offshore oil and gas wells and a Senior Engineer with Halliburton Services. After APS Mr. Dickson rejoined Kinder Morgan working Project Management on several major projects, NED in the Northeast part of the United States and Cortez Expansion CO2 line from southwest Colorado to Texas. Mr. Dickson has since retired from Kinder Morgan a second time and is currently working as a consultant and performing inspections in the oil and gas industry for different companies. Mr. Dickson earned his B.S. in Engineering from Oklahoma State University.

We would like to thank Mr. Buchler for his years of service with the Company and are excited to continue working with Mr. Dickson and Mr. Lane in their new executive roles.


March 20, 2020: Demonstration Project and COVID-19 Update
Please read this and all website updates in context with the Cautionary Statement above.

Progress continues on our efforts to restart testing at the AOT Demonstration Project site. As reported on March 4, 2020, the AOT demonstration equipment is currently nonoperational due to an electrical short which appears to develop when the AOT is powered up under normal pipeline operating conditions. Our engineers believe the electrical short is most likely developing in the electrical connection assembly built into the blind flange at the top of the pressure vessel, which is subject to pipeline pressure under commercial operations.

Over the past two weeks, our engineers designed modifications to the blind flange, electrical connections and related housing intended to minimize the effects of high pressure and likelihood of internal electrical short circuits. Concurrently, we shipped a blind flange with high voltage assembly from inventory to a shop with specialized equipment used to strip the flange of all electrical insulation materials. Once the stripping process is complete, castings will be made to complete the internal assembly. Our engineers believe this modification may solve the electrical short issue we have experienced in prior tests.

While the blind flange assembly is being remanufactured, we have taken the opportunity to implement a number of relatively minor modifications to system configurations which had been planned for future units based on results of our engineering team’s reliability engineering work over the past two years. These modifications are designed to improve the reliability of internal electrical connections, increase the structural support of the internal grid pack, and maintain higher quality control over internal component positioning and alignment during vertical installation.

QS Energy is working to maintain normal operations during the current COVID-19 pandemic under social distancing and shelter-in-place guidelines as recommended or required by the CDC, federal, state and county government agencies. Over the past few years, the Company moved much of its operations to the cloud. Our employees can perform most vital functions remotely. As a result, most day-to-day operations have been minimally impacted by COVID-19.

It is unclear, however, what impact COVID-19 may have on our supply chain, or on our ability to operate on-site at the demonstration project. As of today, no suppliers related to the demonstration project have announced reduced operating capacity or advised us of delays related to COVID-19 restrictions, and we have not been made aware of any COVID-19 restrictions at the demonstration site that would impact our ability to restart our demonstration testing.

COVID-19 has had a significant negative financial impact across a wide spectrum of industries, both in terms of operations and our access to operating capital. As noted in previous updates, the Company’s ability to continue operations is, in part, dependent on our access to funding. A recent survey published by the National Association of Manufacturers reports that due to COVID-19, 35% of manufacturers surveyed anticipate supply chain disruptions, 53% anticipate changes to operations, and 78% anticipate a negative financial impact. With these facts in mind, no assurances can be made that COVID-19 will not affect our supply chain, lead to access or operating restrictions at the demonstration site, or impact our ability to fund continued operations.

Despite the potential for deep impacts of COVID-19, and subject to obtaining sufficient working capital, we intend to continue our strategy and plans to complete current modifications to the AOT demonstration unit and restart testing at the demonstration site. We will continue to post updates on the AOT demonstration project, and impacts, if any, due to COVID-19.


March 4, 2020: AOT Demonstration Project Update
Please read this and all website updates in context with the Cautionary Statement above.

Over the past few weeks, we have been working to resolve a continuing electrical issue with our AOT demonstration equipment. Although we have made progress and believe this technical issue can be resolved, the system continues to be non-operational under normal pipeline operating conditions.

As reported in previous updates, the AOT system has experienced shutdowns during the commissioning process. In December 2019, after installing a modified grid pack and new high-capacity power supply, the system shut down presenting with an electrical short which was determined to be due to damage to the system’s internal grid pack likely incurred during installation. After repairing and re-installing the modified grid pack in January 2020, the system shut down again during commissioning presenting with error conditions similar to the December 2019 failure. At that time, based on external inspections and on-site testing, our engineers suspected the grid pack had again been damaged during re-installation and that such suspected damage was the most likely cause of the electrical short circuit. As reported in our January 24, 2020 web page update, it was determined at that time the best course of action would be to remove the modified grid pack and re-install the original grid pack which had previously been installed multiple times without sustaining damage, and perform a detailed inspection of the modified grid pack in an effort to determine the cause of the electrical short circuit.

Executing this plan, our team removed the modified grid pack and re-installed the original grid pack assembly in the AOT. After removal, our engineers performed a detailed inspection of the modified grid pack. Inconsistent with our expectations, no damage to the modified grid pack was found during this inspection, leaving the cause of the most recent electrical short circuit undiagnosed.

Over the past few weeks, we have tested and attempted to operate the AOT under a variety of conditions. We have been able to bring the system up to high voltage under static “shut-in” conditions; however, the system continues to shut down due to an electrical short circuit when operated under pressure. In simple terms, this means we can flood the system with crude oil, shut-in the system by closing the intake and outtake valves isolating the system from the pipeline’s operating pressure, and power up the system in excess of 10,000 volts. Once the valves are opened and the system is subjected to the pipeline’s operating pressure, the system develops an electrical short circuit and shuts down.

As the presence of high pressure appears to trigger the short circuit, it is unlikely the fault is in the grid pack assembly as this component is fully submerged in crude oil and is generally subjected to equal pressure on all components. The electrical short is more likely developing in the electrical connection assembly built into the flange at the top of the pressure vessel, which is subjected to high pressure under normal operating conditions. Unfortunately, this electrical connection assembly cannot be inspected without destroying the assembly itself. Instead, our engineers have developed a plan to replace the installed electrical connection assembly with an assembly from inventory which we plan to rebuild prior to installation.

As part of an ongoing reliability-engineering effort, our engineers had been working on incremental modifications to improve electrical isolation within the electrical connection assembly. These previously developed plans have allowed us to move quickly with vendors and present an expedited plan to the pipeline operator. We are in the process of finalizing the timelines and budget for this plan based on vendor backlog for each of the tasks. Based on current estimates, this process may take approximately six weeks. This schedule may vary depending on vendor backlogs and other factors which may be out of our control.

Our engineers have presented our plan to rebuild and the electrical connection assembly to pipeline management. Pipeline management has expressed frustration and concern over the continued delays and current status of the demonstration project. Last week, our CEO, Jason Lane, met with pipeline management to express our total commitment to this project and discuss plans, schedules and next steps. We heard back from pipeline management this week requesting confirmation of timelines and budget to ensure all parties are clear on plans to move forward.

The Company’s ability to continue operations at the demonstration site is dependent upon continued support of pipeline management and our ability to fund continued operations. We can provide no assurances pipeline management will continue to support ongoing work at the demonstration site, or that our plan to rebuild and test the electrical connection assembly will be successful. Because of our inability to fully diagnose the cause of our current electrical problems, we can provide no assurances that we will not face other operational issues after completing a full diagnosis and evaluation of our technology. As disclosed in our SEC filings, we have not yet been able to generate revenue from operations, and Company expenses to date have been funded through the sale of shares of common stock and convertible debt, as well as proceeds from the exercise of stock purchase warrants and options. We will need to raise substantial additional capital through 2020, and beyond, to fund continued work at the demonstration site along with Company operating and capital expenses. We can provide no assurances that additional capital will be available to us, or if it is, that such additional capital will be offered at acceptable terms.


January 24, 2020: AOT Demonstration Project Update
Please read this and all website updates in context with the Cautionary Statement above.

We have had a setback in the recent testing of our AOT demonstration project. As you may recall, re-installation of our modified AOT grid pack  (see our December 9, 2019 press release regarding AOT grid pack modifications) was completed the second week of January as reported in our January 9, 2020 web page update below. Due to severe weather forecast at the demonstration site, commissioning was postponed until the following week. On January 16th, during our final commissioning sequence, the equipment presented with an error condition indicating what appears to be an electrical short circuit. After a system review and analysis of data collected during the installation and commissioning process, our engineers have determined the most likely cause of the electrical short circuit is a mechanical failure in the modified AOT grid pack which may have been damaged during the installation and commissioning process. It should be noted that despite the apparent electrical short circuit, tests performed during commissioning indicate the new high-capacity power supply is operating as designed.

Our engineers have prepared a plan to remove, test and visually inspect all components of the modified AOT grid pack. Subject to weather and resource availability (i.e. manpower, crane, etc.), we will use best efforts to remove, test and inspect of the modified AOT grid pack next week. In parallel, we plan to inspect and test the original AOT grid pack (shown in the attached image) which is currently being stored at the demonstration site and should be available for operation subject to inspection and test results.

We believe the best course of action may be to run our next full system test utilizing the original AOT grid pack as this grid pack has been successfully installed without incurring damage and has operated at normal pipeline flow rates under limited test conditions as described in our September 13, 2019 press release. Data collected in these limited tests indicate the original AOT grid pack powered by the new high-capacity power supply could provide significant flow rate improvement.

We will re-assess our demonstration project test plan after completion of the inspection, investigation, and testing procedures described above, but, as you know, we can provide no assurances about the outcome of our investigative and re-assessment efforts. We will continue, as always, to provide progress, plan and schedule updates on this web page.


January 9, 2020: AOT Demonstration Project Update
Please read this and all website updates in context with the Cautionary Statement above.

Reconfiguration and repairs to the AOT grid pack are complete, our engineering team is onsite, weather at the demonstration site is clear and re-installation of the reconfigured/repaired AOT grid pack has begun. Re-installation should be completed this afternoon. Due to extreme weather forecast across the Southern United States over the next few days, final commissioning of the AOT equipment will likely be completed next week. Subject to successful commissioning, AOT demonstration test operations will begin shortly thereafter.


January 3, 2020: AOT Demonstration Project Update
Please read this and all website updates in context with the Cautionary Statement above.

This is a short update on work currently being performed on the AOT demonstration equipment. For full context, please see the December 31, 2019 and December 6, 2019 updates below.

As reported earlier this week, the internal grid pack of the AOT demonstration unit was recently shipped to a local shop for minor reconfiguration changes and repairs. All parts and supplies were delivered to the shop yesterday (1/2/2020). Work was completed this afternoon (1/3/2020) supervised by our engineering team. Quality assurance and system component testing was initiated this afternoon and should be completed early next week. Assuming successful component testing, the AOT grid pack should be ready for re-installation by the middle of next week.

Our engineers will be onsite next week to oversee transportation and re-installation of the AOT grid pack. Subject to weather constraints (work cannot be performed under certain conditions including lightning, high wind or rain), the AOT grid pack is scheduled to be re-installed on Thursday of next week (1/9/2020) with onsite testing to begin shortly thereafter.



December 31, 2019: Year End Update
Please read this and all website updates in context with the Cautionary Statement above.

Greetings all on this fine New Year’s Eve. Many of you have been anxiously awaiting news regarding test operations at our AOT demonstration site. Though we had planned to re-initiate test operations before the end of 2019, we’ve had to delay operations. We currently plan have AOT demonstration test operations up and running in January.

As noted in our December 6, 2019 update, we completed AOT grid pack modifications and installation in early December. Installation and high-voltage testing of the new power supply was completed in mid-December. After finalizing the power connections, electrical safety and insulation testing was performed on the AOT as part of final commissioning.  During these tests, an electrical measurement was made in the AOT indicating an internal system anomaly. After a thorough examination and additional on-site testing, our engineers determined a physical inspection of the internals was required prior to flooding the system with heavy crude oil.

The good news is that the internal inspection revealed relatively minor damage to some internal components which was likely the cause of the anomalous readings.  This damage likely occurred during vertical assembly of the system in early December. Once found, our engineers quickly formed a repair plan, including minor configuration changes designed to avoid similar damage during vertical assembly. The AOT grid pack has been shipped to a local shop and parts for these repairs have been ordered and are scheduled to arrive on Thursday, January 2nd. Christopher Gallagher, PhD, Senior Vice President of Product Commercialization and Business Development, and Shannon Rasmussen, Vice President of Engineering, plan to be on-site at the local shop on Thursday to oversee repairs.

If all goes as scheduled, the repaired AOT grid pack will be shipped back to the demonstration site the week of January 6th, and will be installed as soon as required resources (crane and manpower) are available. Assuming no further delays, AOT demonstration project testing should commence in mid-January.

We appreciate your continued patience and support and will continue to provide updates at this web page (qsenergy.com/updates) as this project proceeds.

We look forward to an exciting new year.

Happy New Year to all.



December 6, 2019: AOT Demonstration Project Update
Please read this and all website updates in context with the Cautionary Statement above.

As we prepare to resume AOT demonstration testing, we are pleased to provide an update on the status of the upgraded equipment. The new high-capacity power supply and parts for the planned AOT internal grid pack modifications arrived at the demonstration site on schedule in late November. Installation of the modified grid pack was completed earlier this week. Modifications have been completed to the electrical skid and controller cabinets, increasing both electrical and cooling capacity. Final installation of the new power supply in the modified cabinets should be completed next week upon delivery of the final components required to complete the electrical connections and control interface. Assuming these final components are delivered on schedule, we remain on track to complete recommissioning of the AOT unit and resume demonstration testing before the end of this year.

Given the heightened level of activity, we plan to provide more frequent general updates on the status of the AOT Demonstration Project.  In addition to our normal press releases and filings with the Securities and Exchange Commission for material developments, we plan to provide interim updates on the Company’s website (https://www.qsenergy.com/updates) and by email (https://ir.stockpr.com/qsenergy/email-alerts).  We hope all stakeholders will find this added communication channel helpful during this phase of the demonstration project.