QS Energy, Inc.

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.

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. As of the date of this filing, we have not entered into any agreement with any of VIPS’ customers for the deployment of our AOT technology and products. 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

The partnership between VIPS and QS Energy has significantly strengthened over the reporting period. This collaboration has advanced to the signing of a Memorandum of Understanding (MOU) with the Australia Asia India Business Organization (AAIBO), as disclosed in our December 10, 2024, update, “QS Energy Achieves Phase 4 Milestone with Southeast Asia’s Leading Energy Producer.” Engagements with AAIBO and stakeholders in Malaysia have led to progress toward formalizing a contract. Still, no contract has been entered into between them and the Company.

Current wording

We believe the partnership between VIPS and QS Energy has significantly strengthened. This collaboration has advanced to the signing of a Memorandum of Understanding (MOU) with the Australia Asia India Business Organization (AAIBO), as disclosed in our December 10, 2024, update, “QS Energy Achieves Phase 4 Milestone with Southeast Asia’s Leading Energy Producer.” Engagements with AAIBO and stakeholders in Malaysia have led to progress toward formalizing a contract. Still, no contract has been entered into between them and the Company.

Previous wording

QS Energy, in coordination with VIPS Petroleum, its customer counterparties, and associated financial institutions, is engaged in the execution of the initial commercial deployment plan for the 3.0 generation AOT Units. The parties maintain active alignment on the master schedule, which incorporates a five-point Standby Letter of Credit (SBLC) trigger framework tied to Factory Acceptance Testing (FAT), completion of manufacturing by specified dates, scheduled delivery to destination countries, and defined installation windows coordinated with crude oil operators. Activities to date have resulted in measurable progress across all workstreams associated with the 3.0 deployment plan.

Current wording

QS Energy, in coordination with VIPS, VIPS’ customer counterparties, and associated financial institutions, is engaged in negotiations seeking execution of an initial commercial deployment plan for the 3.0 generation AOT Units. The parties maintain active alignment on the master schedule, which incorporates a five-point Standby Letter of Credit (SBLC) trigger framework tied to Factory Acceptance Testing (FAT), completion of manufacturing by specified dates, scheduled delivery to destination countries, and defined installation windows coordinated with crude oil operators. Activities to date have resulted in measurable progress across all workstreams associated with the 3.0 deployment plan, but no revenue has been realized nor AOT purchases have been made under such deployment plan.

Previous wording

As part of our ongoing commitment to advancing QS Energy’s strategic objectives, we have initiated preparations to deploy an AOT™ Midstream Viscosity Reduction Unit in Corpus Christi, Texas in collaboration with ReadyFlo Systems. Final engineering and design work is underway for a 300-meter flow loop, which will enable us to conduct operational trials of the AOT™ under live-flow conditions utilizing customer crude oil streams.

Current wording

As part of our ongoing commitment to advancing QS Energy’s strategic objectives, we have initiated preparations to deploy an AOT™ Midstream Viscosity Reduction Unit in Corpus Christi, Texas in collaboration with ReadyFlo Systems. Final engineering and design work was performed for a 300-meter flow loop, which will enable us to conduct operational trials of the AOT™ under live-flow conditions utilizing customer crude oil streams.

Previous wording

Operating expenses were $1,892,000 for the three-month period ended June 30, 2025, compared to $201,000 for the three-month period ended June 30, 2024, an increase of $1,691,000. This is due to increases in non-cash expenses of $645,000 and cash expenses of $1,046,000. 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 $567,000, options issued for reinstatement of the Company’s Director Compensation Policy of $30,000, and common stock issued for services of $48,000. The increase in cash expense is attributable to increases in salaries and benefits of $793,000, consulting expenses of $188,000, corporate expenses of $19,000, legal and accounting of $16,000, office expenses of $14,000, travel expenses of $9,000, insurance expenses of $5,000, auto expenses of $2,000, and bank fees of $1,000, offset by decreases in patent expenses of $1,000.

Current wording

Operating expenses were $646,000 for the three-month period ended September 30, 2025, compared to $231,000 for the three-month period ended September 30, 2024, an increase of $415,000. This is due to increases in non-cash expenses of $135,000 and in cash expenses of $280,000. Specifically, the increase in non-cash expenses is attributable to increases in stock compensation expenses attributable to the fair value of vested options issued for compensation of $83,000 and reinstatement of the Company’s Director Compensation Policy of $56,000, offset by a decrease in the fair value of warrants issued as compensation for services of $4,000. The increase in cash expenses is attributable to increases in consulting fees of $113,000, salaries of $83,000, legal and accounting of $35,000, insurance of $22,000, travel expenses of $10,000, corporate expenses of $7,000, meals and entertainment of 5,000, auto expense of $3,000, bank fees of $3,000, office expenses of $2,000, and other expenses of $2,000, offset by decreases in public and investor relations of $3,000, and rent and utilities of $2,000.

Previous wording

Research and development expenses were $104,000 for the three-month period ended June 30, 2025, compared to $48,000 for the three-month period ended June 30, 2024, an increase of $56,000. This increase is attributable to increases in prototype product development costs of $56,000.

Current wording

Research and development expenses were $1,773,000 for the three-month period ended September 30, 2025, compared to $48,000 for the three-month period ended September 30, 2024, an increase of $1,196,000. This increase is attributable to increases in prototype product development costs of $1,494,000.

Previous 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.

Current wording

Other expenses were $74,000 expense for the three-month period ended September 30, 2025, compared to $86,000 expense for the three-month period ended September 30, 2024, a net decrease in other expenses of $12,000. This decrease is attributable to a decrease in non-cash other expenses of $12,000. 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 $12,000.

Previous 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.

Current wording

The Company had a net loss of $1,964,000, or $0.00 per share, for the three-month period ended September 30, 2025, compared to a net loss of $320,000, or $0.00 per share, for the three-month period ended September 30, 2024.

Previous 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.

Current wording

Operating expenses were $12,050,000 for the nine-month period ended September 30, 2025, compared to $758,000 for the nine-month period ended September 30, 2024, an increase of $11,292,000. This is due to increases in non-cash expenses of $8,928,000 and in cash expenses of $2,364,000. 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 $4,810,000, options issued for reinstatement of the Company’s Director Compensation Policy of $2,567,000, and common stock issued for services of $1,551,000. The increase in cash expense is attributable increases in salaries of $1,525,000, consulting fees of $561,000, legal and accounting of $120,000, corporate expenses of $98,000, insurance of $27,000, travel expenses of $20,000, office expenses of $20,000, auto expenses of $6,000, bank fees of $5,000, market fees of $5,000, meals and entertainment of $4,000, computer expenses of $2,000, and other expenses of $2,000, offset by decreases in patent expenses of $27,000, and rent and utilities of $4,000.

Previous wording

Research and development expenses were $151,000 for the six-month period ended June 30, 2025, compared to $95,000 for the six-month period ended June 30, 2024, an increase of $56,000. This increase is attributable to increases in prototype product development costs of $56,000.

Current wording

Research and development expenses were $1,395,000 for the nine-month period ended September 30, 2025, compared to $143,000 for the nine-month period ended September 30, 2024, an increase of $1,252,000. This increase is attributable to an increase in prototype product development costs of $1,395,000.

Previous wording

Other expense were $258,000 for the six-month period ended June 30, 2025, compared to $160,000 expense for the six-month period ended June 30, 2025, a net increase in other expenses of $98,000. This increase is attributable to an increase in non-cash other expenses of $98,000. 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 $98,000.

Current wording

Other expenses were $332,000 expense for the nine-month period ended September 30, 2025, compared to $246,000 expense for the nine-month period ended September 30, 2025, a net increase in other expenses of $86,000. This increase is attributable to an increase in non-cash other expenses of $86,000. 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 $83,000.

Previous wording

The Company had a net loss of $11,813,000 or $0.03 per share, for the six-month period ended June 30, 2025, compared to a net loss of $782,000, or $0.00 per share, for the six-month period ended June 30, 2024.

Current wording

The Company had a net loss of $13,777,000 or $0.03 per share, for the nine-month period ended September 30, 2025, compared to a net loss of $1,147,000, or $0.00 per share, for the nine-month period ended September 30, 2024.

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 $4,082,000 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.

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 $5,439,000 as of September 30, 2025. Our negative operating cash flow for the periods ended September 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 $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.

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 $13,777,000 and a negative cash flow from operations of $3,378,000 for the nine-month period ended September 30, 2025. In addition, as of September 30, 2025, 42 notes payable with an aggregate balance of $1,070,000 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

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.

Current wording

At September 30, 2025, we had cash on hand in the amount of $49,000. We will need additional funds to operate our business, including without limitation the expenses we will incur in connection with the license agreements, and the amendments thereto, 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 Statements attached hereto, Note 6 (Research and Development).

Current wording

For details of the licensing agreements, and amendments thereto, with Temple University, see Financial Statements included herewith, Note 6 (Research and Development-Temple University Licensing Agreements).

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, 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.

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, 2025, the Company incurred a net loss of $13,777,000, used cash in operations of $3,378,000 and had a stockholders’ deficit of $5,439,000 as of that date. In addition, as of September 30, 2025, 42 notes payable with an aggregate balance of $1,070,000 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, 2025, the Company had cash on hand in the amount of $778,000. Management estimates that the current funds on hand will be sufficient to continue operations through October 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 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 2025 and beyond.

Current wording

At September 30, 2025, the Company had cash on hand in the amount of $49,000. Management estimates that the current funds on hand will be sufficient to continue operations through December 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 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 2025 and beyond.