QSEP 10-K & 10-Q changes, risk factors and insider trading

We generated insignificant revenues from operations in late 2006 and subsequently did not generate any revenues until 2014, and thereafter we have generated no revenues, and we have incurred recurring net losses every year since our inception in 1998. For the fiscal years ended December 31, 20242025 and 2023,2024, we had net losses of $1,934,000$15,305,000 and $1,224,000$1,934,000 respectively. To date, we have dedicated most of our financial resources to research and development, general and administrative expenses (including the payment of salaries and bonuses) and initial sales and marketing activities. We have funded all of our activities through sales of our debt and equity securities for cash. We anticipate net losses and negative cash flow to continue until such time as our products are brought to market in sufficient amounts to offset operating losses. Our ability to achieve profitability is dependent upon our continuing research and development, product development, and sales and marketing efforts, to deliver viable products and the Company’s ability to successfully bring them to market. Although our management is optimistic that we will succeed in marketing products incorporating our technologies, there can be no assurance that we will ever generate significant revenues or that any revenues that may be generated will be sufficient for us to become profitable or thereafter maintain profitability. If we cannot generate sufficient revenues or become or remain profitable, we may have to cease our operations and liquidate our business.

OurThere independent registered public accounting firm has expressedis substantial doubt about our ability to continue as a going concern, which may hinder our ability to obtain future financing.

During the year ended December 31, 2024,2025, we incurred a net loss of $1,934,000$15,305,000 and used cash in operations of $1,168,000$4,008,000 and had a stockholders’ deficit of $5,646,000$5,780,000 as of December 31, 2024.2025. TheseAs factorsa raiseresult, management has concluded, and our independent registered public accounting firm has agreed with our conclusion that there is a substantial doubt aboutregarding the Company’s ability to continue as a going concern withinfor a period of oneat yearleast 12 months beyond the filing of thethis dateAnnual thatReport itson financialForm statements are issued.10-K. As a result, the report of our independent registered public accounting firm included an explanatory paragraph in its report on our financial statements as of and for the year ended December 31, 2024,2025, with respect to this uncertainty. This going concern opinion could materially limit our ability to raise additional funds through the issuance of new debt or equity securities and subsequent reports by our independent registered public accounting firm on our financial statements may also includeincludes an explanatory paragraph withregarding respectthe toexistence of substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is subject to our ability to obtain significant additional capital to fund our operations and to generate revenue from sales, of which there is no assurance. If we fail to raise sufficient capital, we may have to liquidate our business and you may lose your investment.

We have not generated cash flow from operations since our inception in February 1998 and have relied on external sources of capital to fund operations. We had $150,000$6,000 in cash at December 31, 20242025 and used cash in operations of $1,168,000$4,008,000 (a substantial portion of which has been used to pay salaries and bonuses to employees and consultants) for the year ended December 31, 2024.2025.

During fiscal 2024,2025, our cash burn rate amounted to approximately $97,000$334,000 per month (a substantial portion of which has been used to pay salaries and bonuses to employees and consultants) and could increase during the remainder of fiscal 2025.2026. In order to fund our capital needs, we conducted private offerings of our securities in 20232024 and 2024.2025. While discussion regarding additional interim and permanent financings are being actively conducted, management cannot predict with certainty that an equity line of credit will be available to provide adequate funds, or any funds at all, or whether any additional interim or permanent financings will be available at all or, if it is available, if it will be available on favorable terms. If we cannot obtain needed capital, our research and development, and sales and marketing plans, business and financial condition and our ability to reduce losses and generate profits will be materially and adversely affected.

A large portion of our expenses, including salaries, bonuses, expenses for our facilities, equipment and personnel, is relatively fixed and not subject to further significant reduction. reduction. In addition, we expect our operating expenses will increase in the future as we continue our commercialization efforts and increase our production and marketing activities, among other activities. Although we expect to generate revenues from sales of our products, revenues revenues may decline or not grow as anticipated and our operating results could be substantially harmed for a particular fiscal period. Moreover, Moreover, our operating results in some quarters may not meet the expectations of stock market analysts and investors. In that case, our stock price most likely would decline.

The Company recognizes domestic and foreign governmental actions, including but not limited to trade restrictions and tariffs, the current war in the Middle East leading to the disruption of oil and gas production and the worldwide transport of oil and gas, may adversely affect our ability to export our our technologies, or may adversely affect the economics of cross-border transactions.

The shares of our common stock are thinly traded on the OTC Bulletin Board (pink sheets), meaning that the number of persons interested in purchasing our common shares at or near bid prices at any given time may be relatively small or non-existent. This situation is attributable to a number of factors, including the fact that we are a small company with no revenue, engaged in a high-risk business which is relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community that can generate or influence daily trading volume and valuation. Should we even come to the attention of such persons, they tend to be risk-averse and would be reluctant to follow an unproven, early stage company such as ours or purchase or recommend the purchase of our shares until such time as we became more seasoned and viable. As a consequence, there may be periods of several days or more when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous trading without negatively impacting impacting share price. We cannot provide any assurance that a broader or more active public trading market for shares of our common stock will develop or be sustained. Due to these conditions, we cannot give any assurance that shareholders will be able to sell their shares at or near bid prices or at all.

The market price for our common stock has been volatile during the last year, ranging from a closing price of $0.03$0.12 on MayJune 17,10, 20242025 to a closing price of $0.17$0.33 on DecemberMarch 10, 2024,28,2025, and a closing price of $0.16$0.10 on March 21,27, 2025.2026. See Part II, item 5, below. Additionally, the price of our stock has been both higher and lower than those amounts on an intra-day basis in the last year. Because our stock is thinly traded, its price can change dramatically over short periods, even in a single day. The market price of our common stock could fluctuate widely in response to many factors, including, developments with respect to patents or proprietary rights, announcements of technological innovations by us or our competitors, announcements of new products or new contracts by us or our competitors, actual or anticipated variations in our operating results due to the level of development expenses and other factors, changes in financial estimates by securities analysts and whether any future earnings of ours meet or exceed such estimates, conditions and trends in our industry, new accounting standards, general economic, political and market conditions and other factors.

We may not be successful in identifying, making, financingfinancing, and integrating acquisitions.

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, compared to $688,000 for the fiscal year ended December 31, 2023, an increase of $697,000.$11,927,000. This increase was attributable to increases in non-cash expenses of $255,000 and cashcompensation expenses of $442,000.$9,317,000 and other expenses of $2,610,000. Specifically, the increase in non-cash expenses is attributable to an increase in stock-basedstock compensation relatedexpense attributable to consultantscommon stock and warrants issued for services of $255,000.$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 cash other expenses is attributable to increases in salaries and benefits of $202,000,$1,648,000, consulting fees of $192,000,$633,000, legal and accounting fees of $21,000, $132,000, corporate expenses of $17,000,$86,000, publicinsurance and investor relationsexpenses of $82,000, $10,000, patent maintenancetravel expenses of $4,000,$22,000, traveloffice expenses of $21,000, market fees of $8,000, auto expenses of $7,000, depreciation expenses of $2,000, rentmeals and entertainment expenses of $2,000, and other expenses of $2,000, offset by decreases in officepatent maintenance expenses of $29,000, public and investor relations of $3,000, and rent expenses of $7,000 and depreciation expenses of $3,000.

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, comparedan to $203,000 for the fiscal year ended December 31, 2023, a decreaseincrease of $12,000.$1,420,000. This decreaseincrease is attributable to AOT prototype and demonstration project development costs.

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, compared to $333,000 for the fiscal year ended December 31, 2023, an increase of $25,000.$31,000. This increase is attributable to an increase in interest and financing expense of $25,000$31,000 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.notes.

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplatesDuring the realizationyear ofended assetsDecember 31, and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying consolidated financial statements,2025, the Company had a net loss of $1,934,000$15,305,000 and used cash in operations of $1,167,000 for the year ended December 31, 2024.$4,008,000. In addition, as of December 31, 2025, 51 2024, 43 notes payable with an aggregate balance of $2,339,000$1,116,000 and certain obligation to a former officer are past due. TheseAs factorsa result, management raisehas 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 concernconcern. Our 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.

At December 31, 2024,2025, the Company had cash on hand in the amount of $150,000.$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 2025.31, 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.

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 MarchJune 31,30, 2026, and, except as required under applicable rules and regulations, we undertake no duty to update this information.

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.

We believe the partnership between 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, 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 themAAIBO and stakeholders in Malaysia and the Company.

Additionally, QS Energy, in coordination 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, schedule, which incorporates a five-point Standby Letter of Credit (SBLC) trigger framework tied to Factory Acceptance Testing (FAT), completion 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.

The multi-phase potential deployment deployment of up to 400 AOT units previously disclosed under the VIPS Distributor Agreement was structured as an aggregate, multi territory framework 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. WeAs arepreviously nowreported, focusingwe 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.

TheAs previously reported, the Company's commercialization 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,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 NoteNotes 11 and 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.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. While asAs 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, signed,delivered, or delivered.funded. We can provide no assurances that such funding, documentation andor agreements will be finalized, nor can we provide any assurancesor that such documentation and agreementsthe Program will be signed,funded delivered,under orthe executed.new financing structure set forth in the Amendment.

To date, we have not received any purchase orders, nor generated any revenue, under the Amended Distributor Agreement,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,VIPS or Laksel, or any of itstheir customers, or anyone else.

The development of this flow loop 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 currentpotential 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.

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

Results of Operations for Three months ended June March 31,30, 2026 and 2025

Operating expenses were $735,000$2,125,000 for the three-month period ended MarchJune 31,30, 2026, compared to $9,512,000$1,892,000 for the three-month period ended MarchJune 31,30, 2025, aan decreaseincrease of $8,777,000.$233,000. This is due to aan decreaseincrease in non-cash expenses of $8,108,000,$901,000, and a decrease in cash expenses of $669,000.$668,000. Specifically, the decreaseincrease in non-cash expenses are attributable to a decreaseincreases in stock compensation expense attributable to vested options and warrants issued as compensation of $4,155,000,$527,000, options issued for the Company’s Director Compensation Policy of $2,450,000,$1,000, and common stock issued issued for services of $1,503,000.$373,000. The decrease in cash expense is attributable to decreases in salaries and benefits of $497,000,$631,000, consulting expenses expenses of $116,000, corporate expenses of $75,000,$23,000, legal and accounting of $28,000,$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 $4,000,$2,000, officemarket expensesexpense of $3,000, public$2,000, 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 $47,000, $55,000,and marketbank expensesfees of $2,000, and other expenses of $1,000.$2,000.

Research and development expenses were $2,000$9,000 for the three-month period ended MarchJune 31,30, 2026, compared to $47,000$104,000 for the three-month period ended MarchJune 31,30, 2025.

Other income and expense were $44,000$29,000 expense for the three-month period ended MarchJune 31,30, 2026, compared to $115,000$143,000 expense for the three-month period ended MarchJune 31,30, 2025, a net decrease in other expenses of $71,000.$114,000. This decrease is attributable to a decrease in non-cash other expenses of $71,000.$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 $71,000.$114,000.

The Company had a net loss of of $781,000,$2,163,000, or $0.00$0 per share, for the three-month period ended MarchJune 31,30, 2026, compared to a net loss of $9674,000,$2,139,000, or $0.02$0 per share, for for the three-month period ended MarchJune 31,30, 2025.

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$5,498,000 as of MarchJune 31,30, 2026. Our negative operating cash flow for the periods ended MarchJune 31,30, 2026 was funded primarily through issuance of convertible notes and execution of options and warrants to purchase common stock.

The accompanying condensed consolidated 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$2,944,000 and a negative cash flow from operations of $468,000$1,228,000 for the three-monthsix-month period ended MarchJune 31, 30, 2026. In addition, as of MarchJune 31,30, 2026, 4846 notes payable with an aggregate balance of $1,209,000,$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.

During the period ended MarchJune 31,30, 2026, we received cash from financing activities of $500,000$1,342,000 from the exercise of options and warrants, and used cash in operating activities of $468,000.$1,228,000. At MarchJune 31,30, 2026, we had cash on hand in the amount of $33,000.$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.

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-monthssix-months ended MarchJune 31,30, 2026, the Company incurred a net loss of $781,000,$2,944,000, used cash in operations of $468,000$1,228,000 and had a stockholders’ deficit deficit of $5,789,000$5,498,000 as of MarchJune 31,30, 2026. In addition, as of MarchJune 31,30, 2026, 4846 notes payable with an aggregate balance of $1,209,000,$1,201,000, license license agreement payables of $3,167,000 and certain obligations to a former officer are past due. These factors raise substantial doubt about 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.