QS Energy, Inc.

Previous 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.

Current wording

Operating expenses were $13,312,000 for the fiscal year ended December 31, 2025, compared to $1,385,000 for the fiscal year ended December 31, 2024, an increase of $11,927,000. This increase was attributable to increases in non-cash compensation expenses of $9,317,000 and other expenses of $2,610,000. Specifically, the increase in non-cash expenses is attributable to an increase in stock compensation expense attributable to common stock and warrants issued for services of $2,747,000, options issued for reinstatement of the Company’s Director Compensation Policy of $2,594,000, and common stock issued as compensation of $3,976,000. The increase in other expenses is attributable to increases in salaries and benefits of $1,648,000, consulting fees of $633,000, legal and accounting fees of $132,000, corporate expenses of $86,000, insurance expenses of $82,000, travel expenses of $22,000, office expenses of $21,000, market fees of $8,000, auto expenses of $7,000, depreciation expenses of $2,000, meals and entertainment expenses of $2,000, and other expenses of $2,000, offset by decreases in patent maintenance expenses of $29,000, public and investor relations of $3,000, and rent expenses of $3,000.

Previous 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.

Current wording

Research and development expenses were $1,611,000 for the fiscal year ended December 31, 2025, compared to $191,000 for the fiscal year ended December 31, 2024, an increase of $1,420,000. This increase is attributable to AOT prototype and demonstration project development costs.

Previous 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.

Current wording

Interest expenses were $389,000 for the fiscal year ended December 31, 2025, compared to $358,000 for the fiscal year ended December 31, 2024, an increase of $31,000. This increase is attributable to an increase in interest and financing expense of $31,000 to account for the accrual of interest on past due convertible notes and the amortization of debt discount related to our convertible notes.

Previous 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.

Current wording

We had a net loss of $15,305,000 or $0.03 loss per share for the fiscal year ended December 31, 2025 compared to a net loss of $1,934,000 or $0.00 loss per share for the fiscal year ended December 31, 2024.

Previous 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.

Current wording

We have incurred negative cash flow from operations since our inception in 1998. As of December 31, 2025, we had cash of $6,000 and a stockholders’ deficit of $5,780,000. Our operating cash flow in 2025 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 $1,934,000 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.

Current wording

During the year ended December 31, 2025, the Company had a net loss of $15,305,000 and used cash in operations of $4,008,000. In addition, as of December 31, 2025, 51 notes payable with an aggregate balance of $1,116,000 and certain obligation to a former officer are past due. As a result, management has concluded, and our independent registered public accounting firm has agreed with our conclusion that there is a substantial doubt regarding the Company’s ability to continue as a going concern for a period of at least 12 months beyond the filing of this Annual Report on Form 10-K. The report of our independent registered public accounting firm on our financial statements for the year ended December 31, 2025, includes an explanatory paragraph regarding the existence of substantial doubt about our 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.

Previous 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.

Current wording

At December 31, 2025, the Company had cash on hand in the amount of $6,000. In January and February 2026, the Company issued 4,718,188 shares of its common stock upon the exercise of warrants for proceeds of $472,000 at an exercise price of $0.10 per share. Management estimates that the current funds on hand will be sufficient to continue operations through March 31, 2026. 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.