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 elsewhere in this Form 10-Q, and in the “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-Q is as of March 31, 2025, and, except as required under applicable rules and regulations, 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 elsewhere in this Form 10-Q, and in the “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-Q is as of June 30, 2023, and we undertake no duty to update this information.

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 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. As of the date of this 10-Q report, we have not entered into any contract, including any customer contract, which would provide for the deployment and use of our AOT products and technology.

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

Other income and expense were $115,000 expense for the three-month period ended March 31, 2025, compared to $76,000 expense for the three-month period ended March 31, 2024, a net increase in other expenses of $39,000. This increase is attributable to an increase in non-cash other expenses of $39,000. The increase in non-cash other expense is due to increases in expense attributable to interest, beneficial conversion factors and warrants associated with convertible notes issued in the amount of $39,000.

Current wording

Other expense were $143,000 expense for the three-month period ended June 30, 2025, compared to $84,000 expense for the three-month period ended June 30, 2024, a net increase in other expenses of $59,000. This increase is attributable to an increase in non-cash other expenses of $59,000. 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 $59,000.

Previous wording

The Company had a net loss of $9,674,000, or $0.02 per share, for the three-month period ended March 31, 2025, compared to a net loss of $449,000, or $0 per share, for the three-month period ended March 31, 2024.

Current wording

The Company had a net loss of $3,290,000, or $0.01 per share, for the three-month period ended June 30, 2025, compared to a net loss of $333,000, or $0.00 per share, for the three-month period ended June 30, 2024.

Previous wording

Operating expenses were $9,512,000 for the three-month period ended March 31, 2025, compared to $326,000 for the three-month period ended March 31, 2024, an increase of $9,186,000. This is due to an increase in non-cash expenses of $8,148,000, and an increase in cash expenses of $1,038,000. Specifically, the increase in non-cash expenses are attributable to an increase in stock compensation expense attributable to vested options and warrants issued as compensation of $4,164,000, options issued for reinstatement of the Company’s Director Compensation Policy of $2,481,000, and common stock issued for services of $1,503,000. The increase in cash expense is attributable to increases in salaries and benefits of $650,000, consulting expenses of $261,000, corporate expenses of $75,000, legal and accounting of $69,000, office expenses of $3,000, public and investor relations of $2,000, bank fees of $1,000, auto expenses of $1,000, travel expenses of $1,000 and other expenses of $1,000, offset by decreases in patent expenses of $25,000, and other expenses of $1,000.

Current wording

Operating expenses were $11,404,000 for the six-month period ended June 30, 2025, compared to $527,000 for the six-month period ended June 30, 2024, an increase of $10,877,000. This is due to an increase in non-cash expenses of $8,793,000 and an increase in cash expenses of $2,084,000. 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 $4,731,000, options issued for reinstatement of the Company’s Director Compensation Policy of $2,511,000, and common stock issued for services of $1,551,000. The increase in cash expense is attributable to increases in salaries and benefits of $1,443,000, consulting expenses of $449,000, corporate expenses of $94,000, legal and accounting of $85,000, office expenses of $17,000, travel expenses of $10,000, insurance expenses of $5,000, auto expenses of $4,000, public and investor relations of $2,000, bank fees of $1,000, and other expenses of $1,000, offset by decreases in patent expenses of $26,000 and other expenses of $1,000.

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 $4,347,000 as of March 31, 2025. Our negative operating cash flow for the periods ended March 31, 2025 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 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 $4,082,000 as of June 30, 2025. Our negative operating cash flow for the periods ended June 30, 2025 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 $9,674,000 and a negative cash flow from operations of $1,156,000 for the three-month period ended March 31, 2025. In addition, as of March 31, 2025, 30 notes payable with an aggregate balance of $1,207,000, license agreement payables of 2,492,000 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, 2024 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 $11,813,000 and a negative cash flow from operations of $2,360,000 for the six-month period ended June 30, 2025. In addition, as of June 30, 2025, 33 notes payable with an aggregate balance of $1,167,000 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, 2024 financial statements, has raised substantial doubt about the Company’s ability to continue as a going concern.

Previous wording

During the period ended March 31, 2025, we received cash from financing activities of $1,532,000 from the issuance of convertible notes and exercise of warrants and options, and used cash in operating activities of $1,156,000. At March 31, 2025, we had cash on hand in the amount of $526,000. 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, certain severance payments to a former officer and consulting fees, during the remainder of 2025 and beyond.

Current wording

At June 30, 2025, we had cash on hand in the amount of $778,000. 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 2025 and beyond.

Previous wording

For details of the licensing agreements with Temple University, see Financial Information, Part I, Note 6 (Research and Development) above.

Current wording

For details of the licensing agreements with Temple University, see Financial Statements attached hereto, Note 6 (Research and Development).

Previous wording

The preparation of consolidated 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 consolidated financial statements and the reported amounts of expenses during the reporting period. Certain significant estimates were made in connection with preparing our consolidated financial statements as described in Note 2 to Notes to Consolidated Financial Statements. Actual results could differ from those estimates.

Current wording

The preparation of consolidated 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Certain significant estimates were made in connection with preparing our consolidated financial statements as described in Note 2 to Notes to the Condensed Consolidated Financial Statements. Actual results could differ from those estimates.

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 three-months ended March 31, 2025, the Company incurred a net loss of $9,674,000, used cash in operations of $1,156,000 and had a stockholders’ deficit of $4,347,000 as of March 31, 2025. In addition, as of March 31, 2025, 30 notes payable with an aggregate balance of $1,207,000, license agreement payables of $2,492,000 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 report on the Company’s December 31, 2024 financial statements, has raised 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.

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 six-months ended June 30, 2025, the Company incurred a net loss of $11,813,000, used cash in operations of $2,360,000 and had a stockholders’ deficit of $4,082,000 as of that date. In addition, as of June 30, 2025, 33 notes payable with an aggregate balance of $1,167,000 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

See Note 2 in the accompanying financial statements for a discussion of recent accounting policies.

Current wording

See Footnote 2 in the accompanying financial statements for a discussion of recent accounting policies.