QS Energy, Inc.

Previous wording

This discussion contains forward-looking statements that involve risks and uncertainties. Such statements, which include statements concerning future revenue sources and concentration, selling, general and administrative expenses, research and development expenses, capital resources, additional financings and additional losses, are subject to risks and uncertainties, including, but not limited to, those discussed above in Item 1 and elsewhere in this Form 10-K, particularly in “Risk Factors,” that could cause actual results to differ materially from those projected. Unless otherwise expressly indicated, the information set forth in this Form 10-K is as of December 31, 2022, and we undertake no duty to update this information.

Current wording

This discussion contains forward-looking statements that involve risks and uncertainties. Such statements, which include statements concerning future revenue sources and concentration, selling, general and administrative expenses, research and development expenses, capital resources, additional financings and additional losses, are subject to risks and uncertainties, including, but not limited to, those discussed above in Part I, Item 1 and elsewhere in this Form 10-K, particularly in “Risk Factors,” that could cause actual results to differ materially from those projected. Unless otherwise expressly indicated, the information set forth in this Form 10-K is as of December 31, 2024, and we undertake no duty to update this information.

Previous wording

Operating expenses were $688,000 for the fiscal year ended December 31, 2023, compared to $765,000 for the fiscal year ended December 31, 2022, a decrease of $77,000. This decrease was attributable to a decrease in non-cash expenses of $90,000, offset by an increase in cash expenses of $13,000. Specifically, the decrease in non-cash expenses is attributable a decrease in stock-based compensation related to consultants of $90,000. The increase in cash expenses is attributable to increases in patent maintenance expenses of $17,000, office expenses of $13,000, insurance of $5,000, rent expenses of $5,000, legal and accounting fees of $5,000, consulting fees of $3,000, offset by decreases in travel expenses of $17,000, bank fees of $8,000, auto expenses of $7,000, salaries and benefits of $2,000, and mail and freight of $1,000.

Current wording

Operating expenses were $1,385,000 for the fiscal year ended December 31, 2024, compared to $688,000 for the fiscal year ended December 31, 2023, an increase of $697,000. This increase was attributable to increases in non-cash expenses of $255,000 and cash expenses of $442,000. Specifically, the increase in non-cash expenses is attributable to an increase in stock-based compensation related to consultants of $255,000. The increase in cash expenses is attributable to increases in salaries and benefits of $202,000, consulting fees of $192,000, legal and accounting fees of $21,000, corporate expenses of $17,000, public and investor relations of $10,000, patent maintenance expenses of $4,000, travel expenses of $2,000, rent expenses of $2,000, and other expenses of $2,000, offset by decreases in office expenses of $7,000 and depreciation expenses of $3,000.

Previous wording

Research and development expenses were $203,000 for the fiscal year ended December 31, 2023, compared to $486,000 for the fiscal year ended December 31, 2022, a decrease of $283,000. This decrease is attributable to AOT prototype and demonstration project development costs.

Current wording

Research and development expenses were $191,000 for the fiscal year ended December 31, 2024, compared to $203,000 for the fiscal year ended December 31, 2023, a decrease of $12,000. This decrease is attributable to AOT prototype and demonstration project development costs.

Previous wording

Interest expenses were $333,000 for the fiscal year ended December 31, 2023, compared to $360,000 for the fiscal year ended December 31, 2022, a decrease of $27,000. This decrease is attributable to a decrease in interest and financing expense of $27,000 to account the relative fair value of the warrants issued with our convertible notes and the notes’ beneficial conversion feature that were recorded as note discounts.

Current wording

Interest expenses were $358,000 for the fiscal year ended December 31, 2024, compared to $333,000 for the fiscal year ended December 31, 2023, an increase of $25,000. This increase is attributable to an increase in interest and financing expense of $25,000 to account for the accrual of interest on past due convertible notes and the amortization of debt discount related to the relative fair value of the warrants issued with our convertible notes and the notes’ original issue discount.

Previous wording

We had a net loss of $1,224,000 or $0.00 loss per share for the fiscal year ended December 31, 2023 compared to a net loss of $1,548,000 or $0.00 loss per share for the fiscal year ended December 31, 2022.

Current wording

We had a net loss of $1,934,000 or $0.00 loss per share for the fiscal year ended December 31, 2024 compared to a net loss of $1,224,000 or $0.00 loss per share for the fiscal year ended December 31, 2023.

Previous wording

We have incurred negative cash flow from operations since our inception in 1998. As of December 31, 2023, we had cash of $70,000 and a stockholders’ deficit of $5,244,000. Our operating cash flow in 2023 was funded primarily through cash reserves, the exercise of stock purchase warrants and options for cash, and the issuance of convertible notes for cash.

Current wording

We have incurred negative cash flow from operations since our inception in 1998. As of December 31, 2024, we had cash of $150,000 and a stockholders’ deficit of $5,698,000. Our operating cash flow in 2024 was funded primarily through cash reserves, the exercise of stock purchase warrants for cash, and the issuance of convertible notes for cash.

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, the Company had a net loss of $1,224,000 and used cash in operations of $629,000 for the year ended December 31, 2023. In addition, as of December 31, 2023, thirty-eight notes payable with an aggregate balance of $2,022,000 and certain obligation to a former officer are past due. These factors raise substantial doubt about our ability to continue as a going concern within one year after the date that the financial statements are issued. Our ability to continue as a going concern is dependent upon our ability to raise additional funds and implement our business plan. The consolidated financial statements do not include any adjustments that might be necessary if we are 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, the Company had a net loss of $1,934,000 and used cash in operations of $1,167,000 for the year ended December 31, 2024. In addition, as of December 31, 2024, 43 notes payable with an aggregate balance of $2,339,000 and certain obligation to a former officer are past due. These factors raise substantial doubt about our ability to continue as a going concern within one year after the date that the financial statements are issued. In addition, the Company’s independent registered public accounting firm, in their report on the Company’s December 31, 2024, audited financial statements, raised substantial doubt about the Company’s ability to continue as a going concern. Our ability to continue as a going concern is dependent upon our ability to raise additional funds and implement our business plan. The consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

Previous wording

At December 31, 2023, the Company had cash on hand in the amount of $70,000. Management estimates that the current funds on hand will be sufficient to continue operations through January 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 technology; costs to manufacture and ship the products; costs to maintain 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 below, the Company has substantial contractual commitments, including without limitation certain payments to a former officer, during the remainder of 2024 and beyond. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing or cause substantial dilution for our stock holders, in case of equity financing.

Current wording

At December 31, 2024, the Company had cash on hand in the amount of $150,000. Management estimates that the current funds on hand will be sufficient to continue operations through March 2025. 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 technology; costs to manufacture and ship the products; costs to maintain 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 below, the Company has substantial contractual commitments, including without limitation certain payments to a former officer, during the remainder of 2024 and beyond. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing or cause substantial dilution for our stockholders, in case of equity financing.