QS Energy, Inc.

Previous wording

A history of important events associated with our goals and efforts to develop, test, and achieve commercialization of our AOT technology, as well as our efforts to achieve acceptance of our AOT technology by the oil and gas pipeline industry, has been reported in our prior SEC filings, including in our Form 10-K for the period ended December 31, 2025, filed with the SEC on March 31, 2026. As previously reported, our goals in the foregoing regard have not yet been achieved, and despite our ongoing efforts we can provide no assurances that we will be able to achieve our goals. See “Item 1A-Risk Factors,” below, and our Form 10-K filed with the SEC on March 31, 2026, and our prior SEC filings.

Current wording

A history of important events associated with our goals and efforts to develop, test, and achieve commercialization of our AOT technology, as well as our efforts to achieve acceptance of our AOT technology by the oil and gas pipeline industry, has been reported in our prior SEC filings, including in our Form 10-K for the period ended December 31, 2025, filed with the SEC on March 31, 2026. As previously reported, our goals in the foregoing regard have not been achieved, and despite our ongoing efforts we can provide no assurances that we will be able to achieve our goals. See “Item 1A-Risk Factors,” below, and our Form 10-K filed with the SEC on March 31, 2026, and our prior SEC filings.

Previous 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.

Current wording

We believe the partnership between VIPS and QS Energy has 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, website 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 AAIBO and stakeholders in Malaysia and the Company.

Previous wording

Additionally, 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 some 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.

Current wording

Additionally, 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 some progress across all workstreams associated with the 3.0 deployment plan, but no definitive agreements in furtherance of the 3.0 deployment plan have been executed, and, as previously reported, no revenue has been realized nor AOT purchases have been made under such deployment plan.

Previous wording

The multi-phase potential deployment of up to 400 AOT units previously disclosed under the VIPS Distributor Agreement was structured as an aggregate, multi territory framework across VIPS’s priority regions, including India, Malaysia and Ghana, rather than as a country specific order. This multi-territory framework has not yet produced any sales or revenue for the Company. We are now focusing on a potential sale of 150 units as an initial purchase order under the so-called Laksel LOI (discussed below). This represents a defined India focused initial program within our broader framework, targeting the region’s largest crude pipeline market, while the Amended VIPS Distributor Agreement continues to provide the contractual basis for pursuing additional opportunities in other territories, including potential applications in Malaysia where certain offshore to onshore crude transportation systems and related subsea infrastructure may, subject to further engineering evaluation, present longer term deployment use cases for the Company’s AOT technology.

Current wording

The multi-phase potential deployment of up to 400 AOT units previously disclosed under the VIPS Distributor Agreement was structured as an aggregate, multi territory framework across VIPS’s priority regions, including India, Malaysia and Ghana, rather than as a country specific order. This multi-territory framework has not yet produced any sales or revenue for the Company. As previously reported, we have been focused, and continue to focus, on a potential sale of 150 units as an initial purchase order under the so-called Laksel LOI (discussed below). This represents a defined India focused initial program within our broader framework, targeting the region’s largest crude pipeline market, while the Amended VIPS Distributor Agreement continues to provide the contractual basis for pursuing additional opportunities in other territories, including potential applications in Malaysia where certain offshore to onshore crude transportation systems and related subsea infrastructure may, subject to further engineering evaluation, present longer term deployment use cases for the Company’s AOT technology.

Previous wording

The Company's commercialization efforts in India, initiated through its collaboration and distribution arrangements with VIPS have progressed with the formalization of a relationship with Laksel Corporation Pte Ltd, which will serve as the designated EPC partner for the region — a role Laksel has held since the inception of the VIPS India initiative by virtue of its regional expertise, longstanding relationships with the Indian public sector oil and gas enterprises, and extensive prior project execution experience across Asia Pacific and the Middle East. As previously reported in Note 13 – Subsequent Events-- of the financial statements attached to our 10-K report filed with the SEC on March 31, 2026, our relationship with Laksel is reflected in the non-binding Laksel LOI. The Laksel LOI outlines a potential large-scale AOT deployment program on crude oil pipeline infrastructure in India but remains subject to financing, other conditions, and definitive documentation. While as of the date of this filing there has been some progress made in the preparation and review of definitive documentation and agreements in furtherance of the Laksel LOI, no such documentation or agreements have been completed, signed, or delivered. We can provide no assurances that such documentation and agreements will be finalized, nor can we provide any assurances that such documentation and agreements will be signed, delivered, or executed.

Current wording

As previously reported, the Company's commercialization efforts in India, initiated through its collaboration and distribution arrangements with VIPS have progressed with the formalization of a relationship with Laksel Corporation Pte Ltd (“Laksel”), which will serve as the designated EPC partner for the region — a role Laksel has held since the inception of the VIPS India initiative by virtue of its regional expertise, longstanding relationships with the Indian public sector oil and gas enterprises, and extensive prior project execution experience across Asia Pacific and the Middle East. As previously reported in Notes 11 and 13 of the financial statements attached to our 10-K report filed with the SEC on March 31, 2026, our relationship with Laksel is reflected in the non-binding Laksel letter of intent (“Laksel LOI”).. The Laksel LOI outlines a potential large-scale AOT deployment program (“Program”) on crude oil pipeline infrastructure in India but remains subject to financing, other conditions, and definitive documentation. As of the date of this filing there has been some progress made in the preparation and review of definitive documentation and agreements in furtherance of the Laksel LOI. In this regard, effective August 10, 2026, Laksel and the Company executed an amendment to the non-binding Laksel LOI (“Amendment”). The Amendment provides for one change to the Laksel LOI. The senior secured financing contemplated in the Laksel LOI has now been replaced with a different finance structure for the purchase, installment, maintenance, and operation of the Company’s AOT product. This new financing structure contemplates the creation of a revenue stream profit participation pool to be shared among pipeline operators. Implementation of the Amendment, just as the case with the initial Laksel LOI, continues to be subject to and conditioned on the execution of definitive agreements and documents, as well as financing commitments. To date, no such documentation or agreements or financing commitments have been completed, signed, delivered, or funded. We can provide no assurances that such funding, documentation or agreements will be finalized, or that the Program will be funded under the new financing structure set forth in the Amendment.

Previous wording

To date, we have not received any purchase orders, nor generated any revenue, under the Amended Distributor Agreement, 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.

Current wording

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

Previous wording

The development of this flow loop marks a significant milestone in enhancing our customer support infrastructure and demonstrates our continued investment in operational excellence. We plan to repurpose the vessel from the demonstration site and integrate it with an upgraded stack, ensuring alignment with current customer project requirements. Importantly, this flow loop will serve not only as a resource for customer-driven projects but also as a platform for ongoing product improvement and innovation initiatives. This proactive approach supports our objective to deliver robust, value-added solutions to our clients and stakeholders.

Current wording

The development of this flow loop marks a significant milestone in enhancing our customer support infrastructure and demonstrates our continued investment in operational excellence. We plan to repurpose the vessel from the demonstration site and integrate it with an upgraded stack, ensuring alignment with potential customer project requirements. Importantly, this flow loop will serve not only as a resource for customer-driven projects but also as a platform for ongoing product improvement and innovation initiatives. This proactive approach supports our objective to deliver robust, value-added solutions to our clients and stakeholders.

Previous wording

The design and implementation of the flow loop have been successfully completed. The system is operational and has delivered positive initial results, validating its utility for future testing and qualification efforts.

Current wording

The design and implementation of the flow loop have been successfully completed. The system is operational and has delivered positive initial results, validating, we believe, its utility for future testing and qualification efforts.

Previous wording

Operating expenses were $735,000 for the three-month period ended March 31, 2026, compared to $9,512,000 for the three-month period ended March 31, 2025, a decrease of $8,777,000. This is due to a decrease in non-cash expenses of $8,108,000, and a decrease in cash expenses of $669,000. Specifically, the decrease in non-cash expenses are attributable to a decrease in stock compensation expense attributable to vested options and warrants issued as compensation of $4,155,000, options issued for the Company’s Director Compensation Policy of $2,450,000, and common stock issued for services of $1,503,000. The decrease in cash expense is attributable to decreases in salaries and benefits of $497,000, consulting expenses of $116,000, corporate expenses of $75,000, legal and accounting of $28,000, rent expense of $4,000, office expenses of $3,000, public and investor relations of $1,000, auto expenses of $1,000, travel expenses of $1,000 and other expenses of $1,000, offset by increases in insurance of $55,000, market expenses of $2,000, and other expenses of $1,000.

Current wording

Operating expenses were $2,125,000 for the three-month period ended June 30, 2026, compared to $1,892,000 for the three-month period ended June 30, 2025, an increase of $233,000. This is due to an increase in non-cash expenses of $901,000, and a decrease in cash expenses of $668,000. Specifically, the increase in non-cash expenses are attributable to increases in stock compensation expense attributable to vested options and warrants issued as compensation of $527,000, options issued for the Company’s Director Compensation Policy of $1,000, and common stock issued for services of $373,000. The decrease in cash expense is attributable to decreases in salaries and benefits of $631,000, consulting expenses of $23,000, legal and accounting of $21,000, corporate expenses of $14,000, office expenses of $12,000, travel expenses of $8,000, patent expense of $3,000, rent expense of $2,000, market expense of $2,000, and auto expenses of $1,000, offset by increases in insurance of $47,000, and bank fees of $2,000.

Previous wording

Other income and expense were $44,000 expense for the three-month period ended March 31, 2026, compared to $115,000 expense for the three-month period ended March 31, 2025, a net decrease in other expenses of $71,000. This decrease is attributable to a decrease in non-cash other expenses of $71,000. The increase in non-cash other expense is due to decrease in expense attributable to interest, beneficial conversion factors and warrants associated with convertible notes issued in the amount of $71,000.

Current wording

Other income and expense were $29,000 expense for the three-month period ended June 30, 2026, compared to $143,000 expense for the three-month period ended June 30, 2025, a net decrease in other expenses of $114,000. This decrease is attributable to a decrease in non-cash other expenses of $114,000. The increase in non-cash other expense is due to decrease in expense attributable to interest, beneficial conversion factors and warrants associated with convertible notes issued in the amount of $114,000.

Previous wording

The Company had a net loss of $781,000, or $0.00 per share, for the three-month period ended March 31, 2026, compared to a net loss of $9674,000, or $0.02 per share, for the three-month period ended March 31, 2025.

Current wording

The Company had a net loss of $2,163,000, or $0 per share, for the three-month period ended June 30, 2026, compared to a net loss of $2,139,000, or $0 per share, for the three-month period ended June 30, 2025.

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 $5,789,000 as of March 31, 2026. Our negative operating cash flow for the periods ended March 31, 2026 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 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 $5,498,000 as of June 30, 2026. Our negative operating cash flow for the periods ended June 30, 2026 was funded primarily through 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 $781,000 and a negative cash flow from operations of $468,000 for the three-month period ended 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 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, 2025 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 $2,944,000 and a negative cash flow from operations of $1,228,000 for the six-month period ended June 30, 2026. In addition, as of June 30, 2026, 46 notes payable with an aggregate balance of $1,201,000, license agreement payables of $3,167,000 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, 2025 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, 2026, we received cash from financing activities of $500,000 from the exercise of warrants, and used cash in operating activities of $468,000. At March 31, 2026, we had cash on hand in the amount of $33,000. 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 2026 and beyond.

Current wording

During the period ended June 30, 2026, we received cash from financing activities of $1,342,000 from the exercise of options and warrants, and used cash in operating activities of $1,228,000. At June 30, 2026, we had cash on hand in the amount of $120,000. 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 2026 and beyond.

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, 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.

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, 2026, the Company incurred a net loss of $2,944,000, used cash in operations of $1,228,000 and had a stockholders’ deficit of $5,498,000 as of June 30, 2026. In addition, as of June 30, 2026, 46 notes payable with an aggregate balance of $1,201,000, 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.