QS Energy, Inc.

THREE MONTHS ENDED MARCH 31, 2026 AND 2025

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 is seeking to commercialize energy efficiency technologies that assist in meeting increasing global energy demands, improving the economics of oil extraction and transport, and reducing greenhouse gas emissions. The Company's intellectual properties include a portfolio of domestic and international patents and patents pending, 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. AOT is engineered specifically to reduce pipeline pressure loss, increase pipeline flow rate and capacity, and reduce shippers’ reliance on diluents and drag reducing agents to meet pipeline maximum viscosity requirements. AOT is a 100% solid-state system that has shown to reduce crude oil viscosity by applying a high intensity electrical field to crude oil feedstock while in transit. The AOT product is seeking to transition from the testing, research and development stage to initial production for continued testing in advance of our goal of seeking acceptance and adoption by the midstream pipeline marketplace.

Basis of Presentation

The accompanying condensed consolidated financial statements are unaudited. These unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2025, filed with the SEC on March 31, 2026. The condensed consolidated balance sheet as of December 31, 2025, included herein was derived from the audited consolidated financial statements as of that date, but does not include all disclosures, including notes, required by GAAP.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to fairly present the Company’s financial position and results of operations for the interim periods reflected. Except as noted, all adjustments contained herein are of a normal recurring nature. Results of operations for the fiscal periods presented herein are not necessarily indicative of the full fiscal year-end results.

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

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 three-months ended March 31, 2026, the Company incurred a net loss of $781,000, used cash in operations of $468,000 and had a stockholders’ deficit of $5,789,000 as of March 31, 2026. In addition, as of March 31, 2026, 48 notes payable with an aggregate balance of $1,209,000, license agreement payables of $3,167,000 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 report on the Company's December 31, 2025 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.

At March 31, 2026, the Company had cash on hand in the amount of $33,000. In April 2026, the Company issued 1,009,320 shares of its common stock upon the exercise of warrants for proceeds of $101,000 at an exercise price of $0.10 per share. Management estimates that the current funds on hand will be sufficient to continue operations through approximately May 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 technologies; costs to manufacture and ship the products; costs to design and implement an effective system of internal controls and disclosure of 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 and consulting fees, during the remainder of 2026 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.

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 revenues and expenses during the reporting period. Significant estimates include those related to accruals for potential liabilities, assumptions used in valuing equity instruments issued for financing and services and realization of deferred tax assets, among others. Actual results could differ from those estimates.

Basic and Diluted Income (loss) per share

Our computation of earnings per share (“EPS”) includes basic and diluted EPS. Basic EPS is measured as the income (loss) available to common stockholders divided by the weighted average common shares outstanding for the period. Diluted income (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 income (loss) of the Company as if they had been converted at the beginning of the periods presented, or issuance date, if later.

At March 31, 2026 and 2025, we excluded the following dilutive shares as their effect would have been anti-dilutive.

Stock-Based Compensation

The Company periodically issues stock options and restricted stock awards to employees and non-employees in non-capital raising transactions for services and for financing costs. Stock option grants, which are generally time or performance vested, are measured at the grant date fair value and depending on the conditions associated with the vesting of the award, compensation cost is recognized on a straight-line or graded basis over the vesting period. 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 stock options granted is estimated using the Black-Scholes option-pricing model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life, and future dividends. The assumptions used in the Black-Scholes option pricing model could materially affect compensation expense recorded in future periods.

Research and Development Costs

Research and development costs are expensed as incurred, and consist primarily of fees paid to consultants and outside service providers, and other expenses relating to the acquisition, design, development and testing of the Company’s products. Certain research and development activities are incurred under contract. In those instances, research and development costs are charged to operations ratably over the life of the underlying contracts, unless the achievement of milestones, the completion of contracted work, or other information indicates that a different expensing schedule is more appropriate. Payments made pursuant to research and development contracts are initially recorded as advances on research and development contract services in the Company’s consolidated balance sheet and then charged to research and development costs in the Company’s consolidated statement of operations as those contract services are performed. For the three-month periods ended March 31, 2026 and 2025 research and development costs were $2,000 and $47,000, respectively.

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.

Warrants

The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities from Equity (“ASC 480”), and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own common stock and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. At March 31, 2026 and December 31, 2025, the Company has determined that the warrants issued and outstanding meet the requirements for equity classification. This assessment, which requires the use of professional judgment, is conducted when the warrants are issued and at the end each subsequent quarterly period while the warrants are outstanding. For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all of the criteria for equity classification, the warrants are required to be liability-classified and recorded at their initial fair value on the date of issuance and remeasured at fair value at each balance sheet date thereafter. Changes in the estimated fair value of the warrants that are liability-classified are recognized as a non-cash gain or loss in the statement of operations at each balance sheet date. At March 31, 2026 and December 31, 2025, the Company did not have any liability-classified warrants.

Recent Accounting Pronouncements

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.

As of March 31, 2026 and December 31, 2025, the Company owed $197,000 and $197,000, respectively, pursuant to a separation agreement with a former executive officer effective April 1, 2017 as amended by letter agreements dated effective August 16, 2018 and March 31, 2019, (the “Letter Agreements”) which have been included as part of accounts payable and accrued expenses on the accompanying condensed consolidated balance sheet. The payments are to be made at $10,000 per month. During the three months ended March 31, 2026 the Company madeno payments.

Convertible notes

At December 31, 2025, total outstanding convertible notes payable totaled $822,000. During the three-month period ended March 31, 2026, the Company issuedno convertible promissory notes.

During the period ended March 31, 2026, convertible notes and accrued interest of $196,000, net of unamortized discount of $10,000, were converted into 2,449,158 shares of common stock (see related accrued interest below). At March 31, 2026, total outstanding convertible notes payable totaled $631,000. As of March 31, 2026, convertible notes payable and accrued interest are convertible into approximately 14,409,650 shares of common stock at conversion rates ranging from $0.03 to $0.48 per share. As of March 31, 2026, a total of 48 convertible notes and accrued interest in the aggregate of $1,209,000 have reached maturity and are past due.

Accrued interest

At December 31, 2025, accrued interest on convertible notes payable totaled $545,000. During the three-month period ended March 31, 2026, accrued interest of $39,000 was recorded and accrued interest of $6,000 was converted into 70,408 shares of common stock.. At March 31, 2026, accrued interest on convertible notes payable totaled $578,000.

Debt discount

At December 31, 2025, the unamortized debt discount was $16,000. During the three-month period ended March 31, 2026, debt discount amortization of $6,000 was recorded, and $10,000 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 March 31, 2026, the unamortized debt discount was $0.

The Company constructs, develops and tests the AOT technologies 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, pipeline pumping equipment, crude oil tank batteries, viscometers, SCADA systems, computer equipment, 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 three-month periods ended March 31, 2026 and 2025, our research and development expenses were $2,000 and $47,000, respectively, including $2,000 and $1,000, respectively, in the manufacture and testing of the AOT prototype equipment.

Temple University Licensing Agreements-amount past due

On August 1, 2011, the Company entered into two Exclusive License Agreements with Temple University (“Temple”). One license agreement covered technology to reduce crude oil viscosity (referred to as the “AOT-1 Agreement”) and the second license agreement covered technology associated with an electric and/or magnetic field assisted fuel injector system (referred to as the “AOT-2 Agreement”, and together with the AOT-1 Agreement, the “License Agreements”). The License Agreements provide the Company with exclusive, worldwide rights to Temple’s patents, patent applications, and technical information related to the respective technologies. Pursuant to the original terms of the License 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 fees ranging from 4% to 7% on net sales and extended term net sales, and (iii) 25% of all revenues generated from sublicenses.

Effective as of September 26, 2025, the Company and Temple executed Amendment No. 2 to the AOT-1 Agreement and Amendment No. 1 to the AOT-2 Agreement, under which the Company and Temple agreed that total outstanding fees due to Temple through July 31, 2025, were $2,236,000 and $931,000, respectively, for an aggregate amount of $3,167,000 (collectively, the “Outstanding Amounts”). The Outstanding Amounts were required to be paid by October 11, 2025. As of the date of this filing, the Outstanding Amounts have not been paid to Temple. As of March 31, 2026 and December 31, 2025, total unpaid fees due to Temple under the License Agreements amounted to $3,167,000, which are included in accounts payable – license agreements in the accompanying consolidated balance sheets.

Under the amended agreements, royalty rates are structured as follows: 7% on the first $20 million of applicable net sales, 6% on sales between $20 million and $40 million, 5% on sales between $40 million and $100 million, and 4% on sales in excess of $100 million. These rates apply both during the initial term of the agreements and throughout the “Extended Term,” defined as a period of at least ten (10) years beginning upon the expiration of the last to expire patent (including continuations, extensions, and foreign counterparts), or upon early termination, whichever occurs earlier. During the Extended Term, royalties remain payable on all extended term net sales, regardless of patent expiration or the existence of valid claims.

The amended agreements also clarified that the Company shall retain exclusive rights to any improvements developed solely by the Company during or after the Extended Term, and Temple shall have no ownership interest in such improvements. Notwithstanding this, the Company remains obligated to pay royalties on such sales during the Extended Term.

No revenues were recognized from these License Agreements during the year ended December 31, 2026 and 2025.

During the three months ended March 31, 2026, the Company issued 7,435,679 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

Options vest according to the terms of the specific grant and expire from 2 to 10 years from date of grant. The weighted-average, remaining contractual life of employee and non-employee options outstanding at March 31, 2026 was 6.6 years. Stock option activity for the period January 1, 2026, up to March 31, 2026, was as follows:

The weighted average exercise prices, remaining contractual lives for options granted, exercisable, and expected to vest as of March 31, 2026 were as follows:

In the three-month period ending March 31, 2026, the Company issued options to purchase 833,333 shares of common stock to members of the Board of Directors, including 500,000 options issued to the Company’s CEO/CFO pursuant to the Director Compensation Policy.833,333 options are exercisable at $0.15 per share and vest over one year. Total fair value of these options at grant date was $125,000 using the Black-Scholes Option Pricing model with the following assumptions: expected life of 5 years; risk free interest rate of 4.19%; volatility of 189% and dividend yield of 0%. During the three-month period ended March 31, 2026 and 2025, the Company recognized compensation costs based on the fair value of options that vested of $127,000 and $6,638,000, including amounts of $50,000 and $6,134,000 to officers and directors, respectively. .

As of March 31, 2026, the market price of the Company’s stock was $0.09 per share. At March 31, 2026, the aggregate intrinsic value of the options outstanding at March 31, 2026 was $2,759,000.

Warrants

The following table summarizes certain information about the Company’s stock purchase warrants activity for the period starting January 1, 2026 up to March 31, 2026.

The weighted average exercise prices, remaining contractual lives for warrants granted, exercisable, and expected to vest as of March 31, 2026 were as follows:

In the three-month period ending March 31, 2026, the Company issued warrants to purchase 99,999 shares of common stock in exchange for services. The warrants are exercisable at a price of $0.09 to $0.10, vest one month from the date of grant, and expire two years from the date of grant. Total fair value of these warrants at grant date was $6,000 using the Black-Scholes Option Pricing model with the following assumptions: life of 2 years; risk free interest rate of 3.48% to 3.88%; volatility of 136% to 140% and dividend yield of 0%. During the three-month period ended March 31, 2026, the Company recognized compensation costs based on the fair value of warrants that vested of $5,000.

During the period ended March 31, 2026, warrants to acquire 4,953,188 shares of common stock were exercised resulting in cash proceeds of $495,000 to the Company

At March 31, 2026, the market price of the Company’s common stock was $0.09 per share. At March 31, 2026, the aggregate intrinsic value of warrants outstanding was $692,000.

Employment Agreement with CEO/CFO

On February 19, 2025, effective January 1, 2025, the Company entered into an employment agreement (the “Employment Agreement”) with Mr. Cecil Bond Kyte to serve as the Company’s CEO and CFO, with an annual base salary of $420,000. In addition, the Employment Agreement provides for the payment of a retention bonus (“Bonus”) in the amount of $1,557,500 to Mr. Kyte, $519,167 of which was paid in January 2025 to Mr. Kyte on execution of the Employment Agreement; $519,167 of the Bonus was paid in part in May 2025 in anticipation of the execution of a customer contract with VIPS Petroleum, and the balance of that payment was paid in June and July 2025 to Mr. Kyte; and, $519,166 of the Bonus will be paid to Mr. Kyte upon the execution, closing, and effective date of debt or equity financing in favor of the Company in the amount of no less than $5,000,000.

As of March 31, 2026, certain payroll taxes of approximately $300,000 related to this bonus had not been remitted by either the employee or the Company to the applicable taxing authorities. Although these payroll taxes are the responsibility of the employee, the Company could become contingently liable in the event of nonpayment.

As part of the Employment Agreement, Mr. Kyte was also issued in 2025 a stock option exercisable into 20,817,500 shares of the Company’s restricted common stock at an exercise price of $0.03 per share, and a stock option exercisable into 3,500,000 shares of the Company’s restricted common stock at an exercise price of $0.03 per share. The stock options had a fair value of $3,614,000 and vested immediately and expire in ten years. Mr. Kyte was also issued stock options exercisable into 7,218,750 shares of the Company’s restricted stock with a fair value of $1,072,000 in his capacity as a member of the Board of Directors and as a Chairman of the Board who oversees financial and audit functions, which vest up to one year, and have an exercise price of $0.02 to $0.15 per share.

During the three months ended March 31, 2026, Mr. Kyte received 500,000 options with a fair value of $75,000 at an exercisable price of $0.15 per share pursuant to the Company’s Director Compensation Policy which will vest over 1 year from issuance. (See Note 7, above.)

Reimbursements for Rent

The Company reimburses Mr. Kyte 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. The rental agreement ended on March 31, 2025. Under Mr. Kyte’s Employment Agreement, he receives a rent allowance of $1,000 per month, which is included as part of his compensation. Total rent expense during the three-month period ended March 31, 2026, and 2025 were $3,000 and $3,000, 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.

At March 31, 2026 and 2025, the Company has recorded $197,000 related to certain contractually provided benefits to a former executive officer pursuant to a severance agreement. The former executive officer disputes the amount of $197,000, claiming the amount is less than the amount to which he believes he is owed. Absent an agreement to settle the dispute, and in the event the former executive officer elects to initiate litigation regarding the dispute, including claims for interest and penalties to which the former executive officer believes he is entitled, the Company has reserved, and if necessary and appropriate will assert, all factual and legal defenses, counter-claims, rights, and remedies it may have in any such suit. The Company believes it has recorded an appropriate accrual for the matter.

Collaboration Agreement

In 2024, the Company entered into a Collaboration Agreement with VIPS Petroleum, LLC (“VIPS”) to collaborate with them in facilitating the deployment of our AOT technology and products to VIPS’ customers. On June 25, 2025, the Company entered into a Distributor Agreement with VIPS, providing for VIPS to serve as our exclusive distributor to promote, sell, and lease our AOT product in the territories of Malaysia, Ghana, and India, among other territories. To date, we have not received any purchase orders under the Distributor Agreement, nor has our AOT product been placed with, nor currently being used by, any of VIPS’ customers or anyone else.

The Distributor Agreement, as amended, provides that upon the Company’s receipt of payment for the purchase of two AOT Units, the Company shall issue VIPS/Stephen Bosco a stock purchase warrant exercisable into 25,000,000 restricted shares of the Company’s common stock, at a price of $0.07 cents per share (the “Exercise Price”). The warrant will vest on issuance and expire three years from the date of issuance. VIPS’ payment of the Exercise Price shall be rebate-based, meaning, for every AOT Unit sold by the Company to VIPS, the Company will process a post-sale rebate of 15% of the purchase price to VIPS. Post-sale rebates due VIPS, up to a maximum of $1,750,000, will be applied to, and be deemed payment of, the Exercise Price.

To date, we have not received any purchase orders, nor generated any revenue, under the Distributor Agreement, as amended, nor has our AOT product been placed with, nor is it currently being used by, any of VIPS’ customers or anyone else, and we can provide no assurances that our AOT product will be accepted or purchased by VIPS, or any of its customers, or anyone else.

As reported in our Form 10-K filed on March 31, 2026, the Company, together with VIPS and stakeholders identified under the VIPS Distributor Agreement, advanced the India commercialization pathway as reflected in the non-binding Laksel LOI.

The Company operates and manages its business asone reportable and operating segment dedicated to the oil and gas industry. 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 April and May 2026, the Company issued 1,259,320 shares of its common stock upon the exercise of options and warrants for proceeds of $126,000 at an exercise price of $0.10 per share.

In April 2026, the Company issued 284,355 shares of its common stock upon the conversion of notes payable and accrued interest thereon at a conversion price of $0.08 to $0.15 per share.

In April 2026, the Company issued 750,000 shares of its common stock to its corporate secretary as compensation of $75,000 valued at $0.10. The Company also issued its corporate secretary options to purchase 1,000,000 shares of common stock to its corporate secretary as compensation. The options are exercisable at a price of $0.10, are fully vested, and expire three years from the date of grant.

In April 2026, the Company issued 3,450,000 shares of its common stock to consultants as compensation of $345,000 valued at $0.10 per share. The Company also issued the consultants options to purchase 3,900,000 shares of common stock as compensation. The options are exercisable at a price of $0.10 per share, are fully vested and expire three years from the date of grant.