QS Energy, Inc.

FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023

QS Energy, Inc. (“QS Energy”, “Company”) was incorporated on February 18, 1998, as a Nevada Corporation under the name Mandalay Capital Corporation. The Company changed its name to Save the World Air, Inc. on February 11, 1999. Effective August 11, 2015, the Company changed its name to QS Energy, Inc.

QS Energy develops and seeks to commercialize energy efficiency technologies that assist in meeting increasing global energy demands, improving the economics of oil transport, and reducing greenhouse gas emissions. The Company’s intellectual properties include a portfolio of domestic and international patents, a substantial portion of which have been developed in conjunction with and exclusively licensed from Temple University of Philadelphia, PA (“Temple”). QS Energy’s primary technology is called Applied Oil Technology (AOT), a commercial-grade crude oil pipeline transportation flow-assurance product.

Going Concern

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 twelve-months ended December 31, 2024, the Company incurred a net loss of $1,934,000, used cash in operations of $1,167,000 and as of December 31, 2024, had a stockholders’ deficit of $5,698,000. In addition, as of December 31, 2024, 43 notes payable with an aggregate balance of $2,339,000 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. The 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.

At December 31, 2024, the Company had cash on hand in the amount of $150,000. Management estimates that the current cash on hand will be sufficient to continue operations through March 2025. The AOT product is still in development and testing and has transitioned from laboratory testing to initial demonstration and continued testing in advance of our goal of seeking commercial acceptance and adoption by the upstream and midstream pipeline marketplace. QS Energy’s efforts in the foregoing regard have been substantially hampered by a lack of capital. The Company should be able to continue its efforts to commercialize its AOT product during 2025 only if sufficient capital is raised to do so. The Company can provide no assurances in its ability to raise the capital needed to continue efforts in 2025, or that any such capital will be available to it on acceptable terms and conditions.

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, as discussed below, the Company has substantial contractual commitments, including without limitation salaries to our executive officers pursuant to employment agreements, and certain payments to a former officer and consulting fees, during the remainder of 2025 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.

**Inflation **

Macroeconomic factors such as inflation, rising interest rates, governmental responses there to and possible recession caused thereby also add significant uncertainty to our operations and possible effects to the amount and type of financing available to the Company in the future.

Basis of Presentation

The accompanying consolidated financial statements and related notes include activities of the Company and have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

The consolidated financial statements include the accounts of QS Energy Inc. and its wholly owned subsidiaries, QS Energy Pool, Inc. and STWA Asia Pte. Limited. Intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Significant estimates include those related to assumptions used in valuing the issuance of convertible notes and the corresponding debt discount, assumptions used in valuing equity instruments issued for services, the realizability of deferred tax assets and the related valuation allowance, accruals for potential liabilities, and assumptions used in the determination of the Company’s liquidity. Actual results could differ from these estimates.

Revenue Recognition

Under its business plan, the Company anticipates the leasing of its primary technology. The Company will recognize lease revenue ratably over the life of the lease upon commencement of the lease. Revenue on future product sales will be recognized in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 606,Revenue from Contracts with Customers.

Cash

Cash consists of demand deposits with banks. The Company holds no cash equivalents as of December 31, 2024 and 2023, respectively. The Company maintains its cash with domestic financial institutions. At times, cash balances may exceed federally insured limits of $250,000 per depositor at each financial institution. The Company believes that no significant concentration of credit risk exists with respect to these cash balances because of its assessment of the creditworthiness and financial viability of the financial institutions.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method based on the estimated useful lives of the assets, generally ranging from three to ten years. Expenditures for major renewals and improvements that extend the useful lives of property and equipment are capitalized. Expenditures for repairs and maintenance are charged to expense as incurred. Leasehold improvements are amortized using the straight-line method over the shorter of the estimated useful life of the asset or the lease term.

Impairment of Long-lived Assets

Our long-lived assets, such as property and equipment, are reviewed for impairment at least annually, or when events and circumstances indicate that depreciable or amortizable long-lived assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets. When specific assets are determined to be unrecoverable, the cost basis of the asset is reduced to reflect the current value. Based upon management’s annual review, no impairments were recorded for the years ended December 31, 2024 and 2023.

Leases

The Company accounts for its leases in accordance with the guidance of ASC 842,Leases. The Company determines whether a contract is, or contains, a lease at inception. Right-of-use assets represent the Company’s right to use an underlying asset during the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are recognized at lease commencement based upon the estimated present value of unpaid lease payments over the lease term. The Company uses its incremental borrowing rate based on the information available at lease commencement in determining the present value of unpaid lease payments (see Note 3).

Income Taxes

The Company uses an asset and liability method for accounting for income taxes. The Company recognizes deferred tax assets and liabilities to reflect the estimated future tax effects, calculated at anticipated future tax rates, of future deductible or taxable amounts attributable to events that have been recognized on a cumulative basis in the financial statements. A valuation allowance related to a deferred tax asset is recorded when it is more likely than not that some portion of the deferred tax asset will not be realized.

Research and Development Costs

Research and development expenses relate primarily to the development, design, testing of preproduction prototypes and models, compensation, and consulting fees, and are expensed as incurred. Total research and development costs recorded during the years ended December 31, 2024 and 2023, amounted to $191,000 and $203,000, respectively.

Patent Costs

Patent costs consist of patent-related legal and filing fees. Due to the uncertainty associated with the successful development of our AOT product, all patent costs are expensed as incurred. During the years ended December 31, 2024 and 2023, patent costs were $34,000 and $30,000, respectively, and were included as part of operating expenses in the accompanying consolidated statements of operations.

Stock-Based Compensation

The Company periodically issues stock options and warrants to employees and non-employees in non-capital raising transactions for services and for financing costs. The Company accounts for stock-based payments to officers, directors, employees, and consultants by measuring the cost of services received in exchange for equity awards utilizing the grant date fair value of the awards, with the cost recognized as compensation expense on the straight-line basis in the Company’s financial statements over the vesting period of the awards. Recognition of compensation expense for non-employees is in the same period and manner as if the Company had paid cash for the services.

The fair value of the Company's stock options and warrants grant is estimated using the Black-Scholes Option Pricing model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the stock options or warrants, and future dividends. Compensation expense is recorded based upon the value derived from the Black-Scholes Option Pricing model and based on actual experience. The assumptions used in the Black-Scholes Option Pricing model could materially affect compensation expense recorded in future periods.

Accounting for Warrants

The Company evaluates all of its financial instruments, including issued warrants, to determine if such instruments are liability classified, pursuant to ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) or derivatives or contain features that qualify as embedded derivatives pursuant to ASC 815, Derivatives and Hedging (“ASC 815”). The classification of instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. Liability classified warrants are measured at fair value at inception and at each reporting date, with changes in fair value recognized in the statements of operations in the period of change.

Fair Value of Financial Instruments

Accounting standards require certain assets and liabilities to be reported at fair value in the financial statements and provide a framework for establishing that fair value. Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining fair value, the Company considers the principal or most advantageous market in which it transacts and considers assumptions that market participants would use when pricing the asset or liability. The framework for determining fair value is based on a hierarchy that prioritizes the inputs and valuation techniques used to measure fair value:

Level 1—Quoted prices in active markets for identical assets or liabilities.

Level 2—Inputs, other than the quoted prices in active markets, are observable either directly or indirectly.

Level 3—Unobservable inputs based on the Company’s assumptions.

The Company is required to use observable market data if such data is available without undue cost and effort.

The carrying amounts for cash, accounts payable, accrued expenses and convertible notes payable approximate their fair value due to the short-term nature of such instruments.

Loss per Common Share

Basic loss per share is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted loss per share reflects the potential dilution, using the treasury stock method that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the loss of the Company. In computing diluted loss per share, the treasury stock method assumes that outstanding options and warrants are exercised, and the proceeds are used to purchase common stock at the average market price during the period. Options and warrants may have a dilutive effect under the treasury stock method only when the average market price of the common stock during the period exceeds the exercise price of the options and warrants.

For the years ended December 31, 2024 and 2023, the dilutive impact of outstanding stock options of 25,294,103 shares and 25,757,155 shares; outstanding warrants of 44,044,009 shares and 17,953,239 shares; and notes convertible into approximately 48,304,534 and 34,716,235 shares of our common stock, respectively, have been excluded because their impact on the loss per share is anti-dilutive.

Segment Information

The Company’s Chief Executive Officer (”CEO”) is our chief operating decision maker (“CODM”) and evaluates performance and makes operating decisions about allocating resources based on financial data presented on a consolidated basis. Because our CODM evaluates financial performance on a consolidated basis, the Company has determined that it operates as a single reportable segment composed of the consolidated financial results of QS Energy, Inc. (see Note 12).

Recent Accounting Pronouncements

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosure.” The amendments expand a public entity’s segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker, requiring other new disclosures, and requiring enhanced interim disclosures. ASU 2023-07 requires public entities with a single reportable segment to provide all the disclosures required by this standard and all existing segment disclosures in Topic 280 on an interim and annual basis. ASU 2023-07 is effective for annual periods beginning after December 15, 2023, and interim periods beginning after December 15, 2024, applied retrospectively with early adoption permitted. As of December 31, 2024, the Company has adopted ASU 2023-07. Adoption of the standard has not impacted our financial statements but has resulted in additional disclosures (See Note 12).

In November 2024, the FASB issued ASU No. 2024-03 “Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses.” This ASU requires public business entities to disclose, for interim and annual reporting periods, additional information about certain income statement expense categories. The requirements are effective for fiscal years beginning after December 15, 2026, and for interim periods beginning after December 15, 2027. Entities are permitted to apply either the prospective or retrospective transition methods. The Company is currently evaluating the impact that the adoption of this ASU will have on its consolidated financial statements.

The Company’s management has evaluated all other the recently issued, but not yet effective, accounting standards and guidance that have been issued or proposed by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission through the filing date of these financial statements and does not believe the future adoption of any such pronouncements will have a material effect on the Company’s financial position and results of operations.

At December 31, 2024 and 2023, property and equipment consists of the following:

Depreciation expense for the years ended December 31, 2024 and 2023 was $1,000 and $4,000, respectively.

The Company accounts for its leases in accordance with ASC 842, Leases. The Company determines whether a contract is, or contains, a lease at inception. Operating lease right-of-use (“ROU”) assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. ROU assets represent the Company’s right to use an underlying asset during the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. At December 31, 2024 and 2023, the Company had no long term leases.

During the years ended December 31, 2024 and 2023, the Company rented certain spaces on a month-to-month basis, and rent expense was $15,800 and 16,800, respectively.

Convertible notes

At December 31, 2022, convertible notes payable totaled $1,393,000. During the year ended December 31, 2023, the Company issued convertible promissory notes in the aggregate of $585,000 for cash proceeds of $532,000, net of original issue discount (OID) of $53,000. The notes are unsecured, with a 10% original issue discount, mature in twelve months from issuance, and are convertible into 11,715,748 shares of the Company’s common stock at $0.05 per share. In addition, the Company granted the note holders warrants to purchase 11,715,748 shares of the Company’s common stock with a relative value of $231,000. The warrants are fully vested, and expire one year from the date of issuance. The Company determined the fair value of the warrants by using a Black-Scholes option pricing model, with the following assumptions: expected term of 1.0 year, stock price of $0.06 to $0.07, exercise price of $0.07, volatility of 169% to 206%, risk-free rate of 4.64% to 5.46%, and no forfeiture rate. Also during 2023, convertible notes of $646,000, net of unamortized discount of $296,000, were converted into 15,129,048 shares of common stock. At December 31, 2023, total outstanding convertible notes payable totaled $1,332,000.

During the year ended December 31, 2024, the Company issued convertible promissory notes in the aggregate of $1,353,000 for cash proceeds of $1,230,000, net of OID of $123,000. The notes are unsecured, with a 10% original issue discount, mature in twelve months from issuance, and are convertible into 42,457,348 shares of the Company’s common stock at $0.03 to $0.05 per share. In addition, the Company granted the note holders warrants to purchase 42,457,348 shares of the Company’s common stock with a relative fair value of $782,000. The warrants are fully vested and expire one year from the date of issuance. The Company determined the fair value of the warrants by using a Black-Scholes option pricing model, with the following assumptions: expected term of 1.0 year, stock price of $0.05 to $0.12, exercise price of $0.04 to $0.07, volatility of 156% to 174%, risk-free rate of 3.98% to 5.09%, and no forfeiture rate. Also during 2024, convertible notes of $1,034,000, net of unamortized discount of $699,000, were converted into 32,341,748 shares of common stock. At December 31, 2024, total outstanding convertible notes payable totaled $1,651,000. As of December 31, 2024, convertible notes payable and accrued interest are convertible into 48,304,534 shares of common stock at conversion rates ranging from $0.02 to $0.48 per share. As of December 31, 2024, a total of 43 convertible notes and accrued interest in the aggregate of $2,339,000 have reached maturity and are past due. The Company is currently in negotiations with these noteholders to settle these past due notes payable.

Accrued interest

At December 31, 2022, accrued interest on convertible notes payable totaled $611,000. During the year ended December 31, 2023, accrued interest of $182,000 was recorded. At December 31, 2023, accrued interest on convertible notes payable totaled $793,000.

During the year ended December 31, 2024, accrued interest of $213,000 was recorded. At December 31, 2024, accrued interest on convertible notes payable totaled $1,006,000.

Debt discount

At December 31, 2022, the unamortized debt discount was $140,000. During the year ended December 31, 2023, debt discount of $284,000 was recorded for the relative fair value of warrants of $231,000 and OID of $53,000, debt discount amortization of $103,000 was recorded, and $296,000 of debt discount was removed and included in the carrying amount of related convertible notes payable that were converted into shares of common stock. At December 31, 2023, the unamortized debt discount was $25,000.

During the year ended December 31, 2024, debt discount of $905,000 was recorded for the relative fair value of warrants of $782,000 and OID of $123,000, debt discount amortization of $98,000 was recorded, and $699,000 of debt discount was removed and included in the carrying amount of related convertible notes payable that were converted into shares of common stock. At December 31, 2024, the unamortized debt discount was $133,000.

In June 2020, the Company was granted a loan (the “PPP loan”) from Cadence Bank in the aggregate amount of $151,000, pursuant to the Paycheck Protection Program (the “PPP”) under the CARES Act.

The PPP loan agreement matures on June 18, 2025, bears interest at a rate of 1% per annum, and is unsecured and guaranteed by the U.S. Small Business Administration (“SBA”). The Company applied ASC 470, Debt, to account for the PPP loan. The PPP loan may be prepaid at any time prior to maturity with no prepayment penalties. Funds from the PPP loan may only be used for qualifying expenses as described in the CARES Act, including qualifying payroll costs, qualifying group health care benefits, qualifying rent and debt obligations, and qualifying utilities. Management believes the entire loan amount has been used for qualifying expenses and all of the conditions outlined in the PPP loan program were adhered to by the Company. Under the terms of the PPP, certain amounts of the loan may be forgiven if they are used for qualifying expenses.

At December 31, 2021, the balance of the PPP loan was $75,000. During the year ended December 31, 2023, the Company paid $18,000 of principal on the PPP loan, and at December 31, 2023, the balance of the PPP loan was $57,000. During the year ended December 31, 2024, the Company paid $33,000 of principal on the PPP loan, and at December 31, 2024, the balance of the PPP loan was $24,000. The terms of the PPP loan provide for customary events of default including, among other things, payment defaults, breach of representations and warranties, and insolvency events. The Company was in compliance with the terms of the PPP loan as of December 31, 2024.

The Company constructs, develops and tests the AOT technology with internal resources and through the assistance of various third-party entities. Costs incurred and expensed include fees such as license fees, purchase of test equipment, viscometers, SCADA systems, computer equipment, direct costs related to AOT equipment manufacture and installation, payroll and other related equipment and various logistical expenses for the purposes of evaluating and testing the Company’s AOT prototypes.

Costs incurred for research and development are expensed as incurred. Purchased materials that do not have an alternative future use are also expensed. Furthermore, costs incurred in the construction of prototypes with no certainty of any alternative future use and established commercial uses are also expensed.

For the years ended December 31, 2024 and 2023, our research and development expenses were $191,000 and $203,000, respectively.

AOT Prototypes

During the years ended December 31, 2024 and 2023, the Company incurred total expenses of $3,000 and $14,000, respectively, in the manufacture and testing of the AOT prototype equipment. These expenses have been reflected as part of Research and Development expenses on the accompanying consolidated statements of operations.

Temple University Licensing Agreement-amount past due

On August 1, 2011, the Company and Temple University (“Temple”) entered into two (2) Exclusive License Agreements (collectively, the “License Agreements”) relating to Temple’s patent applications, patents and technical information pertaining to technology associated with an electric and/or magnetic field assisted fuel injector system (the “First Temple License”), and to technology to reduce crude oil viscosity (the “Second Temple License”). The License Agreements are exclusive, and the territory licensed to the Company is worldwide and replace previously issued License Agreements.

Pursuant to the two licensing agreements, the Company paid Temple a non-refundable license maintenance fee of $300,000, and agreed to pay (i) annual maintenance fees of $187,500; (ii) royalty fee ranging from 4% up to 7% from revenues generated from the licensing agreements; and (iii) 25% of all revenues generated from sub-licensees to secure or maintain the sub-license or option thereon. The term of the licenses commenced in August 2011 and will expire upon expiration of the patents. The agreements can also be terminated by either party upon notification under terms of the licensing agreements or if the Company ceases the development of the patent or fails to commercialize the patent rights.

Total expenses recognized during each twelve-month period ended December 31, 2024 and 2023 pursuant to these two License Agreements amounted to $188,000 and has been reflected in Research and Development expenses on the accompanying consolidated statements of operations. In the twelve-month periods ended December 31, 2024 and 2023, the Company also recognized penalty interest on past-due balances of $48,000 and $48,000, respectively, which is included as part of interest and financing expense in the accompanying consolidated statements of operations.

As of December 31, 2024 and 2023, total unpaid fees due to Temple pursuant to these agreements are $2,433,000 and $2,198,000, respectively, which are included as part of Accounts Payable – license agreements in the accompanying consolidated balance sheets. With regards to the unpaid fees to Temple, a total of $135,000 are deferred until such time the Company achieves a revenue milestone of $835,000 or upon termination of the licensing agreements and the remaining $2,298,000 are deemed past due. The Company is currently in discussions with Temple to settle or cure the past due balance.

No revenues were earned from the two License Agreements during the year ended December 31, 2024 and 2023.

The Company did not provide for any Federal and State income tax for the years ended December 31, 2024 and 2023 due to the Company’s net losses. A reconciliation of income taxes with the amounts computed at the statutory federal rate follows:

The deferred tax assets and deferred tax liabilities recorded on the balance sheet are as follows:

As of December 31, 2024, the Company had net operating losses available for carry forward for state and federal tax purposes of approximately $60 million expiring through 2044. These carry forward benefits will be subject to annual limitations due to the ownership change limitations imposed by the Internal Revenue Code and similar state provisions. The annual limitation, if imposed, may result in the expiration of net operating losses before utilization.

As of December 31, 2024, the Company recorded a valuation allowance of $12,592,000 for its deferred tax assets since the Company believes that such assets did not meet the more likely than not criteria to be recoverable through projected future profitable operations in the foreseeable future. This valuation is based on the federal corporate tax rate of 21%.

Effective January 1, 2007, the Company adopted FASB guidance that addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under this guidance, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The FASB also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. As of December 31, 2024 and 2023, the Company does not have a liability for unrecognized tax benefits.

The Company files income tax returns in the U.S. federal jurisdiction and the State of Texas. The Company is subject to U.S. federal or state income tax examinations by tax authorities for years after 2002. During the periods open to examination, the Company has net operating loss and tax credit carry forwards for U.S. federal and state tax purposes that have attributes from closed periods. Since these net operating losses and tax credit carry forwards may be utilized in future periods, they remain subject to examination. The Company’s policy is to record interest and penalties on uncertain tax provisions as income tax expense. As of December 31, 2024, the Company has no accrued interest or penalties related to uncertain tax positions. The Company believes that it has not taken any uncertain tax positions that would impact its consolidated financial statements as of December 31, 2024 and 2023.

Year Ending December 31, 2024

During the year ended December 31, 2024, the Company issued an aggregate of 35,838,409 shares of its common stock as follows:

Year Ending December 31, 2023

During the year ended December 31, 2023, the Company issued an aggregate of 16,512,375 shares of its common stock as follows:

The Company periodically issues stock options and warrants to employees and non-employees in capital raising transactions, for services and for financing costs. Options and warrants vest and expire according to terms established at the grant date.

Options

Employee options vest according to the terms of the specific grant and expire from 5 to 10 years from date of grant. The weighted average, remaining contractual life of employee and non-employee options outstanding at December 31, 2024 was 2.9 years. Stock option activity for the period January 1, 2023 to December 31, 2024, was as follows:

The weighted average exercise prices, remaining contractual lives for options granted, exercisable, and expected to vest as of December 31, 2024, were as follows:

As of December 31, 2024, the market price of the Company’s stock was $0.15 per share. At December 31, 2024 the aggregate intrinsic value of the options outstanding was $1,287,000. Future unamortized compensation expense on the unvested outstanding options at December 31, 2024 is $0.

Year Ending December 31, 2024 and 2023

During the year ended December 31, 2024 and 2023, the Company did not issue any options.

Warrants

The following table summarizes certain information about the Company’s stock purchase warrants.

At December 31, 2024 the price of the Company’s common stock was $0.15 per share and the aggregate intrinsic value of the warrants outstanding was $4,704,000. As of December 31, 2024,44,010,676 warrants were fully vested and 33,333 warrants vest in January 2025.

Year Ending December 31, 2024

Year Ending December 31, 2023

Accrued Expenses – Related Party

As of December 31, 2024 and 2023, total accrued expenses – related parties amounted to $6,000 and $6,000 and are included in accrued expense on the accompany consolidated balance sheet. The accrued expenses – related parties consist of unpaid board and committee fees to members of the Company’s Board of Directors.

Reimbursements for Rent – Related Party

The Company reimburses Cecil Bond Kyte, Company CEO and CFO, in rent expenses for a home office and partial storage space in Carson City, Nevada at a rate of $1,000 per month under a month-to-month rental agreement (“Carson Rental Agreement”). Total rent expense under the Carson Rental Agreement during the years ended December 31, 2024, and 2023 were $12,000 and $12,000, respectively which are included as part of Operating Expenses in the attached consolidated statement of operations.

We are involved in certain legal proceedings that arise from time to time in the ordinary course of our business. Except for income tax contingencies, we record accruals for contingencies to the extent that our management concludes that the occurrence is probable and that the related amounts of loss can be reasonably estimated. Legal expenses associated with the contingency are expensed as incurred. There is no current or pending litigation of any significance with the exception of the matters that have arisen under, and are being handled in, the normal course of business.

Contractual Commitments

The Company’s contractual commitments for future periods, licensing agreements and minimum guaranteed compensation payments as described in the following table and associated footnotes:

**12. Segment information **

The Company operates and manages its business as one reportable and operating segment dedicated to biopharmaceutical research and development company specializing in oncology. The measure of segment assets is reported on the balance sheet as total consolidated assets. In addition, the Company manages the business activities on a consolidated basis.

The Company’s CODM reviews financial information presented on a consolidated basis and decides how to allocate resources based on consolidated net income (loss).

Significant segment expenses include research and development, salaries, insurance, and stock-based compensation. Operating expenses include all remaining costs necessary to operate our business, which primarily include external services and other administrative expenses. The following table presents the significant segment expenses and other segment items regularly reviewed by our CODM:

In January through March 2025, pursuant to terms of a consulting agreement, the Company granted warrants to purchase 99,999 shares of common stock with an exercise price of $0.14 to $0.15 per share, vesting one month from grant and expiring two years from the date of grant.

In January through March 2025, the Company issued convertible promissory notes in the aggregate of $1,119,000 for cash proceeds of 1,017,000, net of OID $102,000. The notes are unsecured, have an implied interest rate of 10%, mature in twelve months from issuance, and are convertible into 13,988,839 shares of the Company’s common stock at $0.08 per share. In addition, the Company granted the note holders warrants to purchase 13,988,839 shares of the Company’s common stock at $0.10 per share. The warrants are fully vested and expire one year from the date of issuance.

In January 2025, the Company issued 3,051,400 shares of its common stock upon the exercise of warrants for proceeds of $214,000 at an exercise price of $0.07 per share.

In February 2025, the Company issued 166,665 shares of its common stock upon settlement of accounts payable of $12,000, at $0.06 to $0.09 per share.

In February and March 2025, the Company issued 10,283,332 shares of its common stock as compensation to consultants of $1,462,000, at $0.04 to $0.16 per share.

In March 2025, the Company issued stock option grants to purchase up to 11,050,000 shares of its common stock at $0.03 per share to consultants and an employee. The options fully vest up to two years on the issuance thereof and expire 10 years from the effective date of issuance.

On February 14, 2025, upon reinstatement of the Company’s Director Compensation Policy, the Company, pursuant to its Director Compensation Policy, issued to Mr. Kyte options to purchase 7,218,750 shares, and to Mr. Bunting options to purchase 5,541,666 shares, of restricted common stock of the Company at exercise prices of $0.02 to $0.15 per share (“Director Options”). The Director Options fully vest up to twelve months on the issuance thereof and expire 10 years from the effective date of issuance.

On February 19, 2025, the Company entered into an Employment Agreement with Cecil Bond Kyte, pursuant to which, among other things, Mr. Kyte was issued additional options to purchase shares of common stock of the Company. See a discussion of Mr. Kyte’s Employment Agreement in Item 11 (Executive Compensation) of the Form 10-K, to which these Consolidated Financial Statements of the Company are attached.

In January through March 2025, the Company issued 12,471,915 shares of its common stock upon the conversion of notes payable and accrued interest thereon at conversion prices ranging between $0.07 to $0.15 per share.