QS Energy Inc

Previous wording

Notwithstanding our efforts, the AOT system continues to be non-operational under normal operating conditions. As reported in previous updates on our website at https://qsenergy.com/updates and in our Form 8-K filed with the SEC on March 4, 2020, the AOT system 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 website update page, 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.

Current wording

Notwithstanding our efforts, the AOT system at that time continued to be non-operational under normal operating conditions. As reported in previous updates on our website at https://www.qsenergy.com/index.php/qs-updates/ and in our Form 8-K filed with the SEC on March 4, 2020, the AOT system 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 website update page, 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.

Previous wording

As reported in the Company’s Form 10-K and Form 10-Q filed with the SEC on March 31, 2020 and June 29, 2020, respectively, and in website updates published on the Company’s website at https://qsenergy.com/updates, the Company experienced a number of difficulties and delays at the demonstration site. Despite identifying and implementing numerous design modifications over several months, the Company was unable to successfully operate its AOT equipment.

Current wording

As reported in the Company’s Form 10-K and Form 10-Q filed with the SEC on March 31, 2020 and June 29, 2020, respectively, and in website updates published on the Company’s website at https://www.qsenergy.com/index.php/qs-updates/, the Company experienced a number of difficulties and delays at the demonstration site. Despite identifying and implementing numerous design modifications over several months, the Company was unable to successfully operate its AOT equipment.

Previous wording

Once all the parts were delivered for a full AOT, we assembled the stack and installed the stack into the vessel. The vessel was filled with oil and tested. We were able to apply full voltage of 40.1kV to the AOT. We believe the AOT is now ready to test with customer oil and be deployed back into the field. Having achieved a positive hydrostatic test, we were able to have our final engineering call with a potential development partner. We are currently in pursuit of a letter of intent and agreement to include financial metrics for a commercially viable contract (see paragraph below).

Current wording

Once all the parts were delivered for a full AOT, we assembled the stack and installed the stack into the vessel. The vessel was filled with oil and tested. We were able to apply full voltage of 40.1kV to the AOT. We believe the AOT is now ready to test with customer oil and be deployed back into the field.

Previous wording

In our ongoing effort to commercialize our AOT technology, as announced in our press release of June 12, 2024, we entered into a letter of intent on June 11, 2024, with VIP Petroleum, LLC (“VIP”) to collaborate on and outline preliminary terms of a memorandum of understanding (“MOU”) regarding the commercial deployment of our AOT technology on one or more pipeline networks owned and operated by VIP’s customer/clients. The MOU is still in process, and we hope to have it completed and signed as soon as possible. Following the completion and execution of the MOU, we hope to finalize a definitive agreement with VIP, and thereafter we hope to engage with a customer(s) of VIP to demonstrate the efficacy of our AOT product within the operating goals and requirements of the customer. If those customers’ goals and requirements are satisfied, we hope next to deploy our AOT product on the customer’s pipeline networks. While we believe the MOU and definitive agreement with VIP will be completed, and while we believe we will have an opportunity thereafter to seek deployment of our AOT product on a VIP customer’s pipeline network, we can offer no assurances that agreements will be signed with VIP or that VIP’s customers will approve or seek installation of our AOT product.

Current wording

In our ongoing effort to commercialize our AOT technology, as announced in our press release of June 12, 2024, we entered into a letter of intent on June 11, 2024, with VIPS Petroleum, LLC (“VIPS”) to collaborate on and outline preliminary terms of a memorandum of understanding (“MOU”) regarding the commercial deployment of our AOT technology on one or more pipeline networks owned and operated by VIPS’ customer/clients. The MOU was completed and signed with VIPS on September 25, 2024, as reported in our press release of September 26, 2024. We have now entered into a Collaboration Agreement with VIPS as of August 1, 2024 to collaborate with them in facilitating the deployment of our AOT technology and products to VIPS’ customers. We hope to finalize a definitive agreement with a VIPS customer or customers to demonstrate the efficacy of our AOT product within the operating goals and requirements of the customer. If those customers’ goals and requirements are satisfied, we hope next to deploy our AOT product on the customer’s pipeline networks. While we believe we have an opportunity to seek deployment of our AOT product on a VIPS customer’s pipeline network, we can offer no assurances that agreements will be signed with VIPS' customers or that such customers, if any, will approve or seek installation of our AOT product.

Previous wording

Operating expenses were $201,000 for the three-month period ended June 30, 2024, compared to $158,000 for the three-month period ended June 30, 2023, an increase of $43,000. This is due to a decrease in non-cash expenses of $2,000 offset by an increase in cash expenses of $45,000. Specifically, the decrease in non-cash expenses is attributable to a decrease in stock compensation expense attributable to warrants issued as compensation for services of $2,000. The increase in cash expense is attributable to legal and accounting of $22,000, consulting fees of $17,000, rent and utilities of $3,000, patent expenses of $3,000, public and investor relations of $2,000, corporate expenses of $2,000, insurance of $1,000, and travel expenses of $1,000, offset by a decrease in worker’s comp of $3,000, office expenses of $2,000, and depreciation expense of $1,000.

Current wording

Operating expenses were $231,000 for the three-month period ended September 30, 2024, compared to $164,000 for the three-month period ended September 30, 2023, an increase of $22,000. This is due to increases in non-cash expenses of $4,000 and in cash expenses of $18,000. Specifically, the increase in non-cash expenses is attributable to increases in stock compensation expenses attributable to the fair value of warrants issued as compensation for services of $4,000. The increase in cash expenses is attributable to increases in salaries of $45,000, consulting fees of $13,000, travel expenses of $4,000, public and investor relations of 2,000, office expenses of $1,000, and other expenses of $2,000, offset by decreases in rent and utilities of $3,000, and other expenses of $1,000.

Previous wording

Research and development expenses were $48,000 for the three-month period ended June 30, 2024, compared to $47,000 for the three-month period ended June 30, 2023, an increase of $1,000. This increase is attributable to increases in prototype product development costs of $1,000.

Current wording

Research and development expenses were $48,000 for the three-month period ended September 30, 2024, compared to $47,000 for the three-month period ended September 30, 2023, an increase of $1,000. This increase is attributable to decreases in prototype product development costs of $1,000.

Previous wording

Other expense were $84,000 expense for the three-month period ended June 30, 2024, compared to $79,000 expense for the three-month period ended June 30, 2023, a net increase in other expenses of $5,000. This increase is attributable to an increase in non-cash other expenses of $5,000. The increase in non-cash other expense is due to an increase in expense attributable to interest, beneficial conversion factors and warrants associated with convertible notes issued in the amount of $5,000.

Current wording

Other expenses were $86,000 expense for the three-month period ended September 30, 2024, compared to $90,000 expense for the three-month period ended September 30, 2023, a net decrease in other expenses of $4,000. This decrease is attributable to a decrease in non-cash other expenses of $4,000. The decrease in non-cash other expense is due to a decrease in expense attributable to interest, beneficial conversion factors and warrants associated with convertible notes issued in the amount of $4,000.

Previous wording

The Company had a net loss of $333,000, or $0.00 per share, for the three-month period ended June 30, 2024, compared to a net loss of $284,000, or $0.00 per share, for the three-month period ended June 30, 2023.

Current wording

The Company had a net loss of $320,000, or $0.00 per share, for the three-month period ended September 30, 2024, compared to a net loss of $301,000, or $0.00 per share, for the three-month period ended September 30, 2023.

Previous wording

Operating expenses were $527,000 for the six-month period ended June 30, 2024, compared to $344,000 for the six-month period ended June 30, 2023, an increase of $183,000. This is due to an increase in non-cash expenses of $134,000 and an increase in cash expenses of $49,000. Specifically, the increase in non-cash expenses is attributable to an increase in stock compensation expense attributable to common stock and warrants issued as compensation for services of $134,000. The increase in cash expense is attributable increases in patent expenses of $28,000, consulting fees of $22,000, rent and utilities of $5,000, legal and accounting of $3,000, public and investor relations of $2,000, insurance of $1,000, and corporate expenses of $1,000, offset by a decrease in office expenses of $6,000, travel expenses of $3,000, business meals of $2,000, bank fees of $2,000.

Current wording

Operating expenses were $758,000 for the nine-month period ended September 30, 2024, compared to $508,000 for the nine-month period ended September 30, 2023, an increase of $250,000. This is due to increases in non-cash expenses of $138,000 and in cash expenses of $67,000. Specifically, the increase in non-cash expenses is attributable to an increase in stock compensation expenses attributable to the fair value of common stock issued for services of $138,000. The increase in cash expense is attributable increases in salaries of $45,000, consulting fees of $35,000, patent expenses of $28,000, public and investor relations of $4,000, legal and accounting of $4,000, rent and utilities of $2,000, insurance of $1,000, corporate expenses of $1,000, and other expenses of $1,000, offset by decreases office expenses of $5,000, depreciation expenses of $2,000, and banking expenses of $2,000.

Previous wording

Research and development expenses were $95,000 for the six-month period ended June 30, 2024, compared to $101,000 for the six-month period ended June 30, 2023, a decrease of $6,000. This decrease is attributable to decreases in prototype product development costs of $5,000 and tools of $1,000.

Current wording

Research and development expenses were $143,000 for the nine-month period ended September 30, 2024, compared to $148,000 for the nine-month period ended September 30, 2023, a decrease of $5,000. This decrease is attributable to a decrease in prototype product development costs of $5,000.

Previous wording

Other expense were $160,000 for the six-month period ended June 30, 2024, compared to $173,000 expense for the six-month period ended June 30, 2023, a net decrease in other expenses of $13,000. This decrease is attributable to a decrease in non-cash other expenses of $13,000. The decrease in non-cash other expense is due to decreases in expense attributable to interest, beneficial conversion factors and warrants associated with convertible notes issued in the amount of $13,000.

Current wording

Other expenses were $246,000 expense for the nine-month period ended September 30, 2024, compared to $263,000 expense for the nine-month period ended September 30, 2024, a net decrease in other expenses of $17,000. This decrease is attributable to a decrease in non-cash other expenses of $17,000. The decrease in non-cash other expense is due to decreases in expense attributable to interest, beneficial conversion factors and warrants associated with convertible notes issued in the amount of $17,000.

Previous wording

The Company had a net loss of $782,000 or $0.00 per share, for the six-month period ended June 30, 2024, compared to a net loss of $618,000, or $0.00 per share, for the six-month period ended June 30, 2023.

Current wording

The Company had a net loss of $1,147,000 or $0.00 per share, for the nine-month period ended September 30, 2024, compared to a net loss of $919,000, or $0.00 per share, for the nine-month period ended September 30, 2023.

Previous wording

As reflected in the accompanying condensed consolidated financial statements, the Company has not yet generated significant revenues and has incurred recurring net losses. We have incurred negative cash flow from operations since our inception in 1998 and a stockholders’ deficit of $5,542,000 as of June 30, 2024. Our negative operating cash flow for the periods ended June 30, 2024 was funded primarily through issuance of convertible notes and execution of options and warrants to purchase common stock.

Current wording

As reflected in the accompanying condensed consolidated financial statements, the Company has not yet generated revenues and has incurred recurring net losses. We have incurred negative cash flow from operations since our inception in 1998 and a stockholders’ deficit of $5,552,000 as of September 30, 2024. Our negative operating cash flow for the periods ended September 30, 2024 was funded primarily through issuance of convertible notes and execution of options and warrants to purchase common stock.

Previous wording

The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying condensed consolidated financial statements, the Company had a net loss of $782,000 and a negative cash flow from operations of $319,000 for the six-month period ended June 30, 2024. In addition, as of June 30, 2024, 42 notes payable with an aggregate balance of $2,200,000 and certain obligations to a former officer are past due. These factors raise substantial doubt about our ability to continue as a going concern. In addition, the Company’s independent registered public accounting firm, in its report on the Company’s December 31, 2023 financial statements, has raised substantial doubt about the Company’s ability to continue as a going concern.

Current wording

The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying condensed consolidated financial statements, the Company had a net loss of $1,147,000 and a negative cash flow from operations of $589,000 for the nine-month period ended September 30, 2024. In addition, as of September 30, 2024, 43 notes payable with an aggregate balance of $2,287,000 and certain obligations to a former officer are past due. These factors raise substantial doubt about our ability to continue as a going concern. In addition, the Company’s independent registered public accounting firm, in its report on the Company’s December 31, 2023 financial statements, has raised substantial doubt about the Company’s ability to continue as a going concern.

Previous wording

At June 30, 2024, we had cash on hand in the amount of $132,000. We will need additional funds to operate our business, including without limitation the expenses we will incur in connection with the license agreements with Temple University; costs associated with product development and commercialization of the AOT and related technologies; costs to manufacture and ship our products; costs to design and implement an effective system of internal controls and disclosure controls and procedures; costs of maintaining our status as a public company by filing periodic reports with the SEC and costs required to protect our intellectual property. In addition, as discussed above, we have substantial contractual commitments, including without limitation salaries to our executive officers pursuant to employment agreements, certain severance payments to a former officer and consulting fees, during the remainder of 2024 and beyond.

Current wording

At September 30, 2024, we had cash on hand in the amount of $237,000. We will need additional funds to operate our business, including without limitation the expenses we will incur in connection with the license agreements with Temple University; costs associated with product development and commercialization of the AOT and related technologies; costs to manufacture and ship our products; costs to design and implement an effective system of internal controls and disclosure controls and procedures; costs of maintaining our status as a public company by filing periodic reports with the SEC and costs required to protect our intellectual property. In addition, as discussed above, we have substantial contractual commitments, including without limitation salaries to our executive officers pursuant to employment agreements, certain severance payments to a former officer and consulting fees, during the remainder of 2024 and beyond.

Previous wording

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying consolidated financial statements, during the six-months ended June 30, 2024, the Company incurred a net loss of $782,000, used cash in operations of $319,000 and had a stockholders’ deficit of $5,542,000 as of that date. In addition, as of June 30, 2024, 42 notes payable with an aggregate balance of $2,200,000 and certain obligations to a former officer are past due. These factors raise substantial doubt about the Company’s ability to continue as a going concern. In addition, the Company’s independent registered public accounting firm, in its ability of the Company to continue as a going concern is dependent upon the Company’s ability to raise additional funds and implement its business plan. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

Current wording

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying consolidated financial statements, during the nine-months ended September 30, 2024, the Company incurred a net loss of $1,147,000, used cash in operations of $589,000 and had a stockholders’ deficit of $5,552,000 as of that date. In addition, as of September 30, 2024, 43 notes payable with an aggregate balance of $2,287,000 and certain obligations to a former officer are past due. These factors raise substantial doubt about the Company’s ability to continue as a going concern. In addition, the Company’s independent registered public accounting firm, in its ability of the Company to continue as a going concern is dependent upon the Company’s ability to raise additional funds and implement its business plan. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

Previous wording

At June 30, 2024, the Company had cash on hand in the amount of $132,000. Management estimates that the current funds on hand will be sufficient to continue operations through August 2024. Management is currently seeking additional funds, primarily through the issuance of debt and equity securities for cash to operate our business, including without limitation the expenses it will incur in connection with the license agreements with Temple; costs associated with product development and commercialization of the AOT technologies; costs to manufacture and ship the products; costs to design and implement an effective system of internal controls and disclosure controls and procedures; costs of maintaining our status as a public company by filing periodic reports with the SEC and costs required to protect our intellectual property. In addition, the Company has substantial contractual commitments, including without limitation salaries to our executive officers pursuant to employment agreements, certain payments to a former officer and consulting fees, during the remainder of 2024 and beyond.

Current wording

At September 30, 2024, the Company had cash on hand in the amount of $237,000. Management estimates that the current funds on hand will be sufficient to continue operations through December 2024. Management is currently seeking additional funds, primarily through the issuance of debt and equity securities for cash to operate our business, including without limitation the expenses it will incur in connection with the license agreements with Temple; costs associated with product development and commercialization of the AOT technologies; costs to manufacture and ship the products; costs to design and implement an effective system of internal controls and disclosure controls and procedures; costs of maintaining our status as a public company by filing periodic reports with the SEC and costs required to protect our intellectual property. In addition, the Company has substantial contractual commitments, including without limitation salaries to our executive officers pursuant to employment agreements, certain payments to a former officer and consulting fees, during the remainder of 2024 and beyond.