# EDGAR Filing Document

**Accession Number:** 0001103795
**File Stem:** 0001683168-26-004036
**Filing Date:** 2026-5
**Character Count:** 100146
**Document Hash:** 7f795c55e8a0045590e5f4decebf9695
**Contains OCR:** False
**Source Format:** 

## Filing Content

## Filing Summary
**0001683168-26-004036.hdr.sgml**: 20260515

**ACCESSION NUMBER**: 0001683168-26-004036

**CONFORMED SUBMISSION TYPE**: 10-Q

**PUBLIC DOCUMENT COUNT**: 56

**CONFORMED PERIOD OF REPORT**: 20260331

**FILED AS OF DATE**: 20260515

**DATE AS OF CHANGE**: 20260515

**FILER**: 

**COMPANY DATA:**
- **COMPANY CONFORMED NAME:** QS Energy, Inc.
- **CENTRAL INDEX KEY:** 0001103795
- **STANDARD INDUSTRIAL CLASSIFICATION:** OIL & GAS FILED MACHINERY & EQUIPMENT [3533]
- **ORGANIZATION NAME:** 01 Energy & Transportation
- **EIN:** 522088326
- **STATE OF INCORPORATION:** NV
- **FISCAL YEAR END:** 1231

**FILING VALUES:**
- **FORM TYPE:** 10-Q
- **SEC ACT:** 1934 Act
- **SEC FILE NUMBER:** 000-29185
- **FILM NUMBER:** 26988502

**BUSINESS ADDRESS:**
- **STREET 1:** 23902 FM 2978
- **CITY:** TOMBALL
- **STATE:** TX
- **ZIP:** 77375
- **BUSINESS PHONE:** 775-300-7647

**MAIL ADDRESS:**
- **STREET 1:** 23902 FM 2978
- **CITY:** TOMBALL
- **STATE:** TX
- **ZIP:** 77375

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** SAVE THE WORLD AIR INC
- **DATE OF NAME CHANGE:** 20000120

?xml version='1.0' encoding='ASCII'? QS ENERGY, INC. 10-Q

[**Table of Contents**](#q1_001)

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

**FORM 10-Q**

**☒** **QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** 

**For the quarterly period ended March 31, 2026**

**or**

**☐** **TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

**For the transition period from __________ to __________**

Commission File Number: **000-29185**

**QS ENERGY, INC.**

(Exact name of registrant as specified in its charter)

---

| | |
|:---|:---|
| **Nevada** | **52-2088326** |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |

---

**23902 FM 2978**

**Tomball, TX 77375**

(Address, including zip code, of principal executive offices)

**(775) 300-7647**

(Registrant's telephone number, including area code)

**Securities registered pursuant to Section 12(b) of the Act:**

Title of each class Name of each exchange on which registered <br> None N/A

Check whether the Registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer", "smaller reporting company", and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐ Accelerated filer ☐ <br> Non-accelerated filer ☒ Smaller reporting company ☒ <br> Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares of the Registrant's Common Stock outstanding as of May 11, 2026 was 556,529,950.

**Forward-Looking Statements**

This Quarterly Report on Form 10-Q contains forward-looking statements. These forward-looking statements include predictions and statements regarding our future:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;· revenues and profits;

· customers;

· research and development expenses and efforts;

· scientific and other third-party test results;

· sales and marketing expenses and efforts;

· liquidity and sufficiency of existing cash;

· technology and products; and

· the effect of recent accounting pronouncements on our financial condition and results of operations.

You can identify these and other forward-looking statements by the use of words such as "may," "will," "expects," "anticipates," "believes," "estimates," "intends," "project," "potential," "forecast" "continues," "strategies," or the negative of such terms, or other comparable terminology, and also include statements concerning plans, objectives, goals, strategies and future events or performance.

Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth below under the heading "Risk Factors." We cannot assure you that we will achieve or accomplish our expectations, beliefs or projections. All forward-looking statements included in this document are based on information available to us on the date hereof. We assume no obligation to update any forward-looking statements.

**QS ENERGY, INC. FORM 10-Q**

**INDEX**

---

| | |
|:---|:---|
|  | **Page** |
| [**PART I – FINANCIAL INFORMATION**](#q1_002) | 4 |
| [Item 1. Unaudited Condensed Consolidated Financial Statements](#q1_003) | 4 |
| &nbsp;&nbsp;&nbsp;[Condensed Consolidated Balance Sheets, Unaudited](#q1_004) | 4 |
| &nbsp;&nbsp;&nbsp;[Condensed Consolidated Statements of Operations, Unaudited](#q1_005) | 5 |
| &nbsp;&nbsp;&nbsp;[Condensed Consolidated Statement of Stockholders' Deficit, Unaudited](#q1_006) | 6 |
| &nbsp;&nbsp;&nbsp;[Condensed Consolidated Statements of Cash Flows, Unaudited](#q1_007) | 7 |
| &nbsp;&nbsp;&nbsp;[Notes to Condensed Consolidated Financial Statements, Unaudited](#q1_008) | 8 |
| [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](#q1_009) | 18 |
| [Item 3. Quantitative and Qualitative Disclosure about Market Risk](#q1_010) | 25 |
| [Item 4. Controls and Procedures](#q1_011) | 25 |
| [**PART II – OTHER INFORMATION**](#q1_012) | 26 |
| [Item 1. Legal Proceedings](#q1_013) | 26 |
| [Item 1A. Risk Factors](#q1_014) | 26 |
| [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](#q1_015) | 26 |
| [Item 3. Defaults Upon Senior Securities](#q1_016) | 26 |
| [Item 4. Mine Safety Disclosures](#q1_017) | 26 |
| [Item 5. Other Information](#q1_018) | 26 |
| [Item 6. Exhibits](#q1_019) | 27 |
| [SIGNATURES](#q1_020) | 28 |

---

**PART I – FINANCIAL INFORMATION**

**Item 1. Unaudited Condensed Consolidated Financial Statements**

**QS ENERGY, INC.**

**Condensed Consolidated Balance Sheets**

---

| | | |
|:---|:---|:---|
|  | **March 31,**<br>**2026** | **December 31,**<br>**2025** |
|  | (unaudited) | |
| **ASSETS** |  |  |
| **Current assets:** |  |  |
| &nbsp;&nbsp;&nbsp;Cash | $33000 | $6000 |
| &nbsp;&nbsp;&nbsp;Prepaid expenses | 47000 | 49000 |
| Total current assets | 80000 | 55000 |
| **Total assets** | $80000 | $55000 |
| **LIABILITIES AND STOCKHOLDERS' DEFICIT** |  |  |
| **Current liabilities:** |  |  |
| &nbsp;&nbsp;&nbsp;Accounts payable - license agreements - past due | $3167000 | $3167000 |
| &nbsp;&nbsp;&nbsp;Accounts payable and accrued expenses | 1493000 | 1416000 |
| &nbsp;&nbsp;&nbsp;Convertible notes payable, net of discounts of $0 and $16,000 respectively; includes $1,209,000 and $1,116,000, respectively, in default | 1209000 | 1351000 |
| Total current liabilities | 5869000 | 5934000 |
| Total liabilities | 5869000 | 5934000 |
| **Commitments and contingencies** | **–** |  |
| **Stockholders' deficit** |  |  |
| &nbsp;&nbsp;&nbsp;Common stock, $.001 par value: 750,000,000 shares authorized, 550,786,275 and 543,350,596 shares issued and outstanding at March 31, 2026 and December 31, 2025, respectively | 550786 | 543351 |
| &nbsp;&nbsp;&nbsp;Additional paid-in capital | 137046214 | 136182649 |
| &nbsp;&nbsp;&nbsp;Accumulated deficit | (143386000) | (142605000) |
| Total stockholders' deficit | (5789000) | (5879000) |
| **Total liabilities and stockholders' deficit** | $80000 | $55000 |

---

See notes to condensed consolidated financial statements.

**QS ENERGY, INC.**

**Condensed Consolidated Statements of Operations, Unaudited**

---

| | | |
|:---|:---|:---|
|  | **Three months ended** | **Three months ended** |
|  | **March 31,** | **March 31,** |
|  | **2026** | **2025** |
| Revenues | $– | $– |
| Costs and expenses |  |  |
| Operating expenses | 735000 | 9512000 |
| &nbsp;&nbsp;&nbsp;Research and development expenses | 2000 | 47000 |
| Loss from operations | (737000) | (9559000) |
| Other income (expense) |  |  |
| &nbsp;&nbsp;&nbsp;Interest and financing expense | (44000) | (115000) |
| Net Loss | $(781000) | $(9674000) |
| Net loss per common share, basic and diluted | $(0.00) | $(0.02) |
| Weighted average common shares outstanding, basic and diluted | 547293706 | 438187647 |

---

See notes to condensed consolidated financial statements.

**QS ENERGY, INC.**

**Condensed Consolidated Statement of Stockholders' Deficit, Unaudited**

**For the Three months Ended MARCH 31, 2025 and 2026**

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **Common Stock** | **Common Stock** | | | |
|  | **Shares** | **Amount** | **Additional<br> Paid-in**<br>**Capital** | **Accumulated**<br>**Deficit** | **Total Stockholders'**<br>**Deficit** |
| **Balance, January 1, 2025** | 428424880 | $428425 | $121173575 | $(127300000) | $(5698000) |
| Common stock issued upon conversion of notes payable | 40278345 | 40278 | 1607722 |  | 1648000 |
| Relative fair value of warrants issued with convertible notes |  |  | 798000 |  | 798000 |
| Common stock issued on exercise of stock options and warrants | 3091400 | 3091 | 212909 |  | 216000 |
| Common stock issued upon cashless exercise of warrants to settle vendor payables | 1649997 | 1650 | 69350 |  | 71000 |
| Fair value of vested stock options and warrants |  |  | 6649000 |  | 6649000 |
| Fair value of common stock issued for services | 8800000 | 8800 | 1394200 |  | 1403000 |
| Fair value of common stock issued as compensation | 1500000 | 1500 | 238500 |  | 240000 |
| Net loss | – | – | – | (9674000) | (9674000) |
| **Balance, March 31, 2025** | 483744622 | $483744 | $132143256 | $(136974000) | $(4347000) |

---

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **Common Stock** | **Common Stock** | **Additional<br> Paid-in** | | |
|  | **Shares** | **Amount** | **Capital** | **Accumulated**<br>**Deficit** | **Total Stockholders'**<br>**Deficit** |
| **Balance, January 1, 2026** | 543350596 | $543351 | $136182649 | $(142605000) | $(5879000) |
| Common stock issued upon conversion of notes payable | 2449158 | 2449 | 183551 |  | 186000 |
| Common stock issued on exercise of stock options and warrants | 4953188 | 4953 | 490047 |  | 495000 |
| Common stock issued upon cashless exercise of warrants to settle vendor payables | 33333 | 33 | 4967 |  | 5000 |
| Fair value of vested stock options and warrants |  |  | 135000 |  | 135000 |
| Fair value of vested stock options issued to officers and directors |  |  | 50000 |  | 50000 |
| Net loss | – | – | – | (781000) | (781000) |
| **Balance, March 31, 2026** | 550786275 | $550786 | $137049214 | $(143386000) | $(5789000) |

---

**QS ENERGY, INC.**

**Condensed Consolidated Statements of Cash Flows, Unaudited**

---

| | | |
|:---|:---|:---|
|  | **Three months ended** | **Three months ended** |
|  | **March 31,** | **March 31,** |
|  | **2026** | **2025** |
| **Cash flows from Operating Activities** |  |  |
| Net loss | $(781000) | $(9674000) |
| Adjustments to reconcile net loss to net cash used in operating activities: |  |  |
| &nbsp;&nbsp;&nbsp;Fair value of vested stock options and warrants | 185000 | 6649000 |
| &nbsp;&nbsp;&nbsp;Fair value of common stock issued for services |  | 1403000 |
| &nbsp;&nbsp;&nbsp;Fair value of common stock issued as compensation |  | 240000 |
| &nbsp;&nbsp;&nbsp;Amortization of debt discount | 5000 | 46000 |
| &nbsp;&nbsp;&nbsp;Accrued interest expense | 39000 | 57000 |
| &nbsp;&nbsp;&nbsp;Depreciation and amortization |  |  |
| &nbsp;&nbsp;&nbsp;Changes in operating assets and liabilities: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prepaid expenses and other current assets | 2000 | (29000) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts payable and accrued expenses | 82000 | 93000 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts payable – license agreements | – | 59000 |
| Net cash used in operating activities | (468000) | (1156000) |
| **Cash flows from financing activities** |  |  |
| &nbsp;&nbsp;&nbsp;Net proceeds from exercise of warrants | 495000 | 216000 |
| &nbsp;&nbsp;&nbsp;Net proceeds from issuance of convertible notes and warrants |  | 1326000 |
| &nbsp;&nbsp;&nbsp;Principal payment on PPP loan payable | – | (10000) |
| Net cash provided by financing activities | 495000 | 1532000 |
| **Net increase in cash** | 27000 | 376000 |
| **Cash, beginning of period** | 6000 | 150000 |
| **Cash, end of period** | $33000 | $526000 |
| **Supplemental disclosures of cash flow information** |  |  |
| Cash paid during the year for: |  |  |
| &nbsp;&nbsp;&nbsp;Interest | $– | $– |
| &nbsp;&nbsp;&nbsp;Income Taxes | $1600 | $1600 |
| **Non-cash investing and financing activities** |  |  |
| &nbsp;&nbsp;&nbsp;Conversion of convertible notes and accrued interest into common stock | $196000 | $2345000 |
| &nbsp;&nbsp;&nbsp;Cashless exercise of warrants applied to settlement of accounts payable | 5000 | 71000 |
| &nbsp;&nbsp;&nbsp;Relative fair value of warrants issued with convertible notes | $– | $782000 |

---

See notes to condensed consolidated financial statements.

**QS ENERGY, INC. Notes to Condensed Consolidated Financial Statements, Unaudited**

**THREE MONTHS ENDED MARCH 31, 2026 AND 2025**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**1.** **Description of Business** 

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.

**<u>Basis of Presentation</u>**

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.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.** **Summary of Significant Accounting Policies** 

**<u>Going Concern</u>**

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.

**<u>Estimates</u>**

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.

**<u>Basic and Diluted Income (loss) per share</u>**

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.

---

| | | |
|:---|:---|:---|
|  | **March 31, <br> 2026** | **March 31, <br> 2025** |
| Options | 68137807 | 77365689 |
| Warrants | 27805903 | 57636519 |
| Common stock issuable upon conversion of notes payable | 14409650 | 27213883 |
| Total | 110353360 | 162216091 |

---

**<u>Stock-Based Compensation</u>**

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.

**<u>Research and Development Costs</u>**

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.

**<u>Fair Value of Financial Instruments</u>**

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.

**<u>Warrants</u>**

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.

**<u>Recent Accounting Pronouncements</u>**

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.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**3.** **Accounts Payable and Accrued Expenses** 

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 made no payments.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**4.** **Convertible Notes Payable** 

---

| | | |
|:---|:---|:---|
|  | **March 31, 2026**<br> **(unaudited)** | **December 31,**<br> **2025** |
| Convertible notes | $631000 | $822000 |
| Accrued interest | 578000 | 545000 |
| Total outstanding debt, including $1,209,000 and $1,116,000 in default at March 31, 2026 and December 31, 2025, respectively | 1209000 | 1367000 |
| Unamortized debt discount | – | (16000) |
| Balance on convertible notes, net of note discounts | $1209000 | $1351000 |

---

<u>Convertible notes</u>

At December 31, 2025, total outstanding convertible notes payable totaled $822,000. During the three-month period ended March 31, 2026, the Company issued no 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.

<u>Accrued interest</u>

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.

<u>Debt discount</u>

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.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**5.** **Research and Development** 

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.

**<u>Temple University Licensing Agreements-amount past due</u>**

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.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**6.** **Common Stock** 

During the three months ended March 31, 2026, the Company issued 7,435,679 shares of its common stock as follows:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;· The Company issued 2,449,158 shares of its common stock upon the conversion of $190,000 in convertible notes and $6,000 of accrued interest, net of unamortized discount of $10,000 , pursuant to convertible notes conversion price of $0.08 .

· The Company issued 4,953,188 shares of its common stock upon the exercise of stock options and warrants of $495,000 with a conversion price of $0.10 per share.

· The Company issued 33,333 shares of its common stock upon the cashless exercise of warrants at $0.15 per share for $5,000 , which were applied to the settlement of vendor accounts payable.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**7.** **Stock Options and Warrants** 

The Company periodically issues stock options and warrants to employees and non-employees in capital raising transactions, for services, and for financing costs.

**<u>Options</u>**

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:

---

| | | |
|:---|:---|:---|
|  | **Options** | **Weighted <br> Avg. Exercise<br> Price** |
| January 1, 2026 | 69015001 | $0.07 |
| Granted (including 833,333 options granted to related parties) | 833333 | 0.15 |
| Exercised |  |  |
| Expired | (1710527) | 0.19 |
| March 31, 2026 | 68137807 | $0.07 |

---

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

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
| | **Outstanding Options** | **Outstanding Options** | **Outstanding Options** | **Exercisable Options** | **Exercisable Options** |
| <br>**Option** <br> **Exercise Price** <br> **Per Share** | **Shares** | **Life <br> (Years)** | **Weighted <br> Average Exercise <br> Price** | **Shares** | **Weighted <br> Average Exercise <br> Price** |
| $0.02 - $0.24 | 65637807 | 6.8 | $0.06 | 64804474 | $0.06 |
| $0.25 - $0.49 | 2500000 | 1 | $0.33 | 2500000 | $0.33 |
|  | 68137807 | 6.6 | $0.07 | 67304474 | $0.07 |

---

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.

**<u>Warrants</u>**

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.

---

| | | |
|:---|:---|:---|
|  | **Warrants** | **Weighted <br> Avg. Exercise<br> Price** |
| January 1, 2026 | 45622728 | $0.08 |
| Granted | 99999 | 0.09 |
| Exercised | (4986521) | 0.10 |
| Expired | (12930303) | 0.10 |
| March 31, 2026 | 27805903 | $0.07 |

---

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

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
| | **Outstanding Warrants** | **Outstanding Warrants** | **Outstanding Warrants** | **Exercisable Warrants** | **Exercisable Warrants** |
| <br>**Warrant Exercise Price Per Share** | **Shares** | **Life <br> (Years)** | **Weighted Average Exercise Price** | **Shares** | **Weighted Average Exercise Price** |
| $0.02 - $0.24 | 26672571 | 0.7 | $0.07 | 27639238 | $0.07 |
| $0.25 - $0.49 | 133332 | 1.4 | $0.27 | 133332 | $0.27 |
|  | 27805903 | 0.7 | $0.07 | 27772570 | $0.07 |

---

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.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**8.** **Related party transactions** 

**<u>Employment Agreement with CEO/CFO</u>**

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.)

**<u>Reimbursements for Rent</u>**

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.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**9.** **Commitments and Contingencies** 

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.

**<u>Collaboration Agreement</u>**

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.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**10.** **Segment Information** 

The Company operates and manages its business as one 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:

---

| | | |
|:---|:---|:---|
|  | **Period ended <br> March 31,** | **Period ended <br> March 31,** |
|  | **2026** | **2025** |
| Revenue | $– | $– |
| Less: |  |  |
| Research and development | (2000) | (47000) |
| Payroll and related | (180000) | (676000) |
| Share-based compensation | (184000) | (8292000) |
| Consulting related to intellectual property | (210000) | (326000) |
| Insurance | (75000) | (19000) |
| Operating expenses | (86000) | (199000) |
| Interest expense | (44000) | (115000) |
| Net loss | $(781000) | $(9674000) |

---

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**11.** **Subsequent Events** 

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.

**Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations**

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the Consolidated Financial Statements and supplementary data referred to in this Form 10-Q.

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

**Available Information**

The Company's common stock is quoted under the symbol "QSEP" on the Over-the-Counter bulletin board-pink sheets. More information including the Company's updates, fact sheet, logos and media articles are available at our corporate website, www.qsenergy.com.

**Overview**

QS Energy, Inc. ("QS Energy" or "Company" or "we" or "us" or "our") develops and seeks to commercialize energy efficiency technologies that assist in meeting increasing global energy demands, improving the economics of oil transport, and reducing greenhouse gas emissions. The Company's intellectual properties include a portfolio of domestic and international patents, a substantial portion of which have been developed in conjunction with and exclusively licensed by us from Temple University of Philadelphia, PA ("Temple"). QS Energy's primary technology (and for now only technology) is called Applied Oil Technology (AOT), a commercial-grade crude oil pipeline transportation flow-assurance product. 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 in lab and other tests has shown to reduce crude oil viscosity by applying a high intensity electrical field to crude oil while in transit. AOT technology has shown to deliver reductions in crude oil viscosity and pipeline pressure loss as demonstrated in independent third-party tests performed by the U.S. Department of Energy, the PetroChina Pipeline R&D Center, and ATS RheoSystems, a division of CANNON™, at full-scale test facilities in the U.S. and China, and under commercial operating conditions on one of North America's largest high-volume crude oil pipelines. Prior testing on a commercial crude oil condensate pipeline demonstrated high correlation between laboratory analysis and full-scale AOT operations under commercial operating conditions with onsite measurements and data collected by the pipeline operator on its supervisory control and data acquisition ("SCADA") system. The AOT product is still in development and testing and has transitioned from laboratory testing to initial demonstration and continued testing in advance of our goal of seeking commercial acceptance and adoption by the upstream and midstream pipeline marketplace. Such commercial acceptance and adoption have not been achieved. We continue to devote the bulk of our efforts to the promotion, design, testing and the commercial manufacturing and test operations of our crude oil AOT pipeline product in the upstream and midstream energy sector. Our efforts in the foregoing regard have been substantially hampered by our lack of capital. We believe we should be able to continue our efforts to commercialize our AOT product during 2026 only if we are able to raise sufficient capital to do so. We can provide no assurances that we will be able to raise the capital we need to continue our efforts in 2026, or that any such capital will be available to us on acceptable terms and conditions. Nor can we provide assurances our technology will be accepted and deployed by the pipeline industry. See "Risk Factors," below in Item 1A.

Our 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. The name change was affected through a short-form merger pursuant to Section 92A.180 of the Nevada Revised Statutes. Additionally, QS Energy Pool, Inc., a California corporation, was formed as a wholly owned subsidiary of the Company on July 6, 2015 to serve as a vehicle for the Company to explore, review, and consider acquisition opportunities. To date, QS Energy Pool has not entered into any acquisition transaction. However, the Company will still consider, if appropriate to do so, and subject to the availability of adequate and acceptable capital and financing, entering into potential beneficial acquisitions. The Company is considering dissolving QS Energy Pool to reduce costs associated with operating this subsidiary. The Company's common stock is quoted under the symbol "QSEP" on the Over-the-Counter Bulletin Board (Pink Sheets).

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.

In our ongoing effort to commercialize our AOT technology, as announced in our press release of June 12, 2024, we entered into a letter of intent on June 11, 2024, with VIPS Petroleum, LLC ("VIPS") to collaborate on and outline preliminary terms of a memorandum of understanding ("MOU") regarding the commercial deployment of our AOT technology on one or more pipeline networks owned and operated by VIPS' customer/clients. The MOU was completed and signed with VIPS on September 25, 2024, as reported in our press release of September 26, 2024. We have now entered into a Collaboration Agreement with VIPS as of August 1, 2024 to collaborate with them in facilitating the deployment of our AOT technology and products to VIPS' customers. We hope to finalize a definitive agreement with a VIPS customer or customers to demonstrate the efficacy of our AOT product within the operating goals and requirements of the customer. If those customers' goals and requirements are satisfied, we hope next to deploy our AOT product on the customer's pipeline networks. As of the date of this filing, we have not entered into any agreement with any of VIPS' customers for the deployment of our AOT technology and products. While we believe we have an opportunity to seek deployment of our AOT product on a VIPS customer's pipeline network, we can offer no assurances that agreements will be signed with VIPS' customers or that such customers, if any, will approve or seek installation of our AOT product.

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.

As reported in our form 8-K, filed with the SEC on June 25, 2025, we 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. As previously reported, we have also amended the Distributor Agreement, as follows:

Section 3.2 (Additional Revenue), Section 3.3 (Order Process & Payment Terms), and Section 3.5 (Additional Consideration) of the Distributor Agreement was amended, effective September 3, 2025 ("Amended Distributor Agreement").

Amendment No. 1 referenced in Section 3.3 of the Amended Distributor Agreement now provides for, among other things and conditions, an initial pre-phase purchase order of two (2) AOT units for a total purchase price of ten million dollars ($10,000,000), payment of which has not been made. Thereafter, Amendment No.1 of Section 3.3 provides for five (5) purchase order phases, the first of which (Phase 1) provides for an order of ten (10) AOT units for a total purchase price of $50,000,000 ($5,000,000 per unit), payable with a down payment of $25,000,000 followed by two payments of $12,500,000 each. These orders and payments are subject to satisfaction of several conditions including, without limitation, compliance and verification with SBLC and FAT conditions (defined and discussed in the paragraph below). Amendment No. 1 of Section 3.3 also provides for phase 2 through phase 5 order, payment, and funding conditions, as well as approval conditions and compliance. Sample purchase orders for pre-phase and phases 1 through 5 are, attached to the Amended Distribution Agreement, together with other sample invoices and sample orders. The samples do not represent actual orders or payments but establish only the form pursuant to which future orders and payments may be made. We can provide no assurances that conditions will be satisfied triggering any purchase or payment under the Amended Distributor Agreement or its attachments.

Amendment No. 3 referenced in Section 3.5 of the Amended Distributor Agreement now provides that upon the Company's receipt of payment of ten million dollars ($10,000,000) for the purchase of two (2) AOT Units, the Company shall issue VIPS/Stephen Bosco a Stock Purchase Warrant ("Warrant") providing VIPS the right to purchase 25,000,000 million restricted shares of common stock of the Company, at a price of $0.07 cents per share ("Exercise Price"). The Warrant will vest on issuance and expire three (3) years from the date of issuance. VIPS' payment of the Exercise Price of $1,750,000 for all 25,000,000 shares shall be rebate-based, meaning, as previously reported in the Company's Form 8-K filing on June 25, 2025, for every AOT Unit sold by the Company to VIPS for a purchase price per unit of $5,000,000, the Company will process a post-sale rebate of 15% of the purchase price, or $750,000, 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.

Amendment No.2 referenced in Section 3.2 of the Amended Distributor Agreement now provides a formula for the sharing of additional revenue between the Company and VIPS based on incremental barrels and carbon credits achieved through the use of the Company's AOT Units.

A copy of the Amended Distributor Agreement, together with amendments and samples attached thereto are included in our Form 10-K filed with the SEC on March 31, 2026. The above summary of the Amended Distributor Agreement provides selected information only and is qualified in its entirety by the Amended Distributor Agreement. The Amended Distributor Agreement and attachments thereto should be carefully read in their entirety.

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.

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.

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.

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.

QS Energy has collaborated with its manufacturing partners to ensure readiness for anticipated production demands. This proactive approach positions us to efficiently scale operations and support anticipated growth, if we are able to secure contacts for the deployment and use of our AOT products and technology.

We believe the supply chain is ready for production of our AOT product, if we are able to secure a contract for its deployment. We also believe investments are being made by potential third-party users of our AOT product in technology and data analysis, which we hope will lead to contracts for the deployment and use of our AOT product and technology.

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

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.

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.

We have initiated consultations with the Environmental Protection Agency (EPA) and other relevant stakeholders to evaluate the requirements for operating the loop with crude oil. These discussions have been constructive, and as anticipated, only minor system modifications are necessary to accommodate crude oil safely and compliantly.

It is important to note that the decision to construct the flow loop was a strategic initiative—not a requirement. Our team identified the loop as a proactive investment to improve testing fidelity, accelerate development timelines, and strengthen stakeholder confidence. To mark this milestone, we invited key stakeholders to participate in a christening event on September 8, 2025, reinforcing our commitment to transparency, collaboration, and continuous improvement.

Our expenses to date have been funded through the sale of shares of common stock and convertible debt, as well as proceeds from the exercise of stock purchase warrants and options. We will need to raise substantial additional capital through 2026, and beyond, to fund work on our AOT, our sales and marketing efforts, continuing research and development, and certain other expenses, including without limitation, legal and accounting expenses, until we are able to achieve a revenue base. We can provide no assurances that additional capital will be available to us, or if it is, that such additional capital will be offered at acceptable terms.

There are significant risks associated with our business, our technology, our Company, and our stock. See "Risk Factors," below.

We are dedicated to the crude oil production and transportation marketplace, with a specifically targeted product offering for enhancing the flow-assurance parameters of new and existing pipeline gathering and transmission systems.

Our primary goal is to provide the oil industry with a cost-effective method by which to increase the number of barrels of oil able to be transported per day through the industry's existing and newly built pipelines. The greatest impact on oil transport volume may be realized through reductions in pipeline operator reliance on diluent for viscosity reduction utilizing AOT technology; a process the Company refers to as electronic diluent, or "eDiluent". The Company filed for trademark protection of the term eDiluent in 2017. We also seek to provide the oil industry with a way to reduce emissions from operating equipment. We believe our goals may be realizable via viscosity reduction using our AOT product line.

We believe QS Energy's technologies will enable the petroleum industry to gain key value advantages boosting profit, while satisfying the needs of regulatory bodies at the same time. Key players in the pipeline industry continue to demonstrate interest in our technologies.

Our manufacturing strategy is to contract with third-party vendors and suppliers, each with a strong reputation and proven track record in the pipeline industry. These vendors are broken up by product component subcategory, enabling multiple manufacturing capacity redundancies and safeguards to be utilized. In addition, this strategy allows the Company to eliminate the prohibitively high capital expenditures such as costs of building, operating and maintaining its own manufacturing facilities, ratings, personnel and licenses, thereby eliminating unnecessary capital intensity and risk.

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

---

| | | | |
|:---|:---|:---|:---|
|  | **Three months ended** | **Three months ended** | **Three months ended** |
|  | **March 31,** | **March 31,** | **March 31,** |
|  | **2026** | **2025** | **Change** |
| **Revenues** | $– | $– | $– |
| **Costs and Expenses** |  |  |  |
| **Operating expenses** | 735000 | 9512000 | (8777000) |
| **Research and development expenses** | 2000 | 47000 | (45000) |
| **Loss from operations** | (737000) | (9559000) | 8822000 |
| **Other income (expense)** |  |  |  |
| Interest and financing expense | (44000) | (115000) | 71000 |
| **Net Loss** | $(781000) | $(9674000) | $8893000 |

---

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.

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

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.

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.

**Liquidity and Capital Resources**

**<u>Going concern</u>**

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.

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.

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.

**<u>Summary</u>**

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.

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.

**<u>Licensing Fees to Temple University</u>**

For details of the licensing agreements with Temple University, see Financial Information, Part I, Note 5 (Research and Development) above.

**Critical Accounting Policies and Estimates**

Our discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, expenses, and related disclosure of contingent assets and liabilities. We evaluate, on an on-going basis, our estimates and judgments, including those related to the useful life of the assets. We base our estimates on historical experience and assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The methods, estimates and judgments we use in applying our most critical accounting policies have a significant impact on the results that we report in our consolidated financial statements. The SEC considers an entity's most critical accounting policies to be those policies that are both most important to the portrayal of a company's financial condition and results of operations and those that require management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about matters that are inherently uncertain at the time of estimation. For a more detailed discussion of the accounting policies of the Company, see Note 2 of the Notes to the Consolidated Financial Statements, "Summary of Significant Accounting Policies".

We believe the following critical accounting policies, among others, require significant judgments and estimates used in the preparation of our consolidated financial statements.

**<u>Estimates</u>**

The preparation of consolidated 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 consolidated financial statements and the reported amounts of expenses during the reporting period. Certain significant estimates were made in connection with preparing our consolidated financial statements as described in Note 2 to Notes to Consolidated Financial Statements. Actual results could differ from those estimates.

**<u>Stock-Based Compensation</u>**

The Company periodically issues stock options and warrants to employees and non-employees in non-capital raising transactions for services and for financing costs. The Company accounts for stock option and warrant grants issued and vesting to employees based on the authoritative guidance provided by the Financial Accounting Standards Board whereas the value of the award is measured on the date of grant and recognized over the vesting period. The Company accounts for stock option and warrant grants issued and vesting to non-employees in accordance with the authoritative guidance of the Financial Accounting Standards Board whereas the value of the stock compensation is based upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete. Non-employee stock-based compensation charges generally are amortized over the vesting period on a straight-line basis. In certain circumstances where there are no future performance requirements by the non-employee, option grants are immediately vested and the total stock-based compensation charge is recorded in the period of the measurement date.

The fair value of the Company's common stock option grants is estimated using the Black-Scholes Option Pricing model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the common stock options, and future dividends. Compensation expense is recorded based upon the value derived from the Black-Scholes Option Pricing model, and based on actual experience. The assumptions used in the Black-Scholes Option Pricing model could materially affect compensation expense recorded in future periods.

**<u>Going Concern</u>**

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.

**<u>Recent Accounting Polices</u>**

See Note 2 in the accompanying financial statements for a discussion of recent accounting policies.

**Item 3. Quantitative and Qualitative Disclosure about Market Risk**

We are a smaller reporting company and are not required to provide information under this Item 3.

**Item 4. Controls and Procedures**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**1.** **Disclosure Controls and Procedures** 

***Evaluation of Disclosure Controls and Procedures***

The Company's management, with the participation of the Company's Chief Executive and Financial Officer, evaluated, as of March 31, 2026, the effectiveness of the Company's disclosure controls and procedures, as such term is defined under Securities and Exchange Act of 1934 Rules 13a-15(f), which were designed to be effective at the reasonable assurance level. Based on this evaluation, the Company's Chief Executive and Financial Officer concluded that the Company's disclosure controls and procedures were not effective as of March 31, 2026. As of March 31, 2026, management's assessment identified the material weaknesses in the Company's internal control over financial reporting:

We continue to have a material weakness in our internal control over financial reporting as disclosed in our 2025 Form 10-K, filed with the SEC on March 31, 2026, in that the Company has (i) inadequate segregation of duties consistent with control objectives; and (ii) the Company has an insufficient number of personnel with an appropriate level of U.S. GAAP knowledge and experience and ongoing training in the application of U.S. GAAP and SEC disclosure requirements commensurate with the Company's financial reporting requirements.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**(a)&nbsp;&nbsp;&nbsp;&nbsp; Changes in Internal Control over Financial Reporting**

No change in the Company's internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the three-month period ended March 31, 2026 that has materially changed or affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

**PART II – OTHER INFORMATION**

**Item 1. Legal Proceedings**

There is no litigation of any significance with the exception of the matters that have arisen under, and are being handled in, the normal course of business.

**Item 1A. Risk Factors**

There have been no material changes in the risk factors previously disclosed in our Form 10-K for the period ended December 31, 2025, which we filed with the SEC on March 31, 2026.

**Item 2. Unregistered Sales of Equity Securities and Use of Proceeds**

**<u>Issuances</u>**

Except as reported below, the Company did not have any private offerings exempt from registration during the three months ended March 31, 2026.

In private offerings exempt from registration, during the three months ended March 31, 2025, the Company issued 40,278,345 shares of its common stock upon the conversion of $1,846,000 in convertible notes and accrued interest of $499,000 at $0.03 to $0.15 per share. In connection with the issuances of the foregoing securities, the Company relied on the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended ("Securities Act"), and other exemptions including the exemption under Regulation S promulgated under the Securities Act, for transactions not involving a public offering.

The proceeds received by the Company in connection with the above issuances of shares were used and continue to be used for general corporate purposes.

**Item 3. Defaults Upon Senior Securities**

None.

**Item 4. Mine Safety Disclosures**

None.

**Item 5. Other Information**

The Company provides updates on its website in a section thereunder labeled "Recent Updates" at https://qsenergy.com/updates.

During the quarter ended March 31, 2026, no director or officer of the Company adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement," as each term is defined in Item 408(a) of Regulation S-K.

**Item 6. Exhibits**

---

| | |
|:---|:---|
| **Exhibit No.** | **Description** |
| 31.1 | [Certification of Chief Executive Officer of Quarterly Report Pursuant to Rule 13(a)-15(e) or Rule 15(d)-15(e)](qsenergy_ex3101.htm) |
| 31.2 | [Certification of Chief Financial Officer of Quarterly Report pursuant to Rule 13(a)-15(e) or Rule 15(d)-15(e)](qsenergy_ex3102.htm) |
| 32 | [Certification of Chief Executive Officer and Chief Financial Officer of Quarterly Report Pursuant to 18 U.S.C. Section 1350](qsenergy_ex3200.htm) |
| 101.INS | Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
| 104 | Cover Page Interactive Data File (formatted in iXBRL, and included in exhibit 101). |

---

**SIGNATURES**

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has caused this Report to be signed on its behalf by the undersigned, hereunto duly authorized.

---

| | | |
|:---|:---|:---|
|  | QS ENERGY, INC. | QS ENERGY, INC. |
| Date: May 15, 2026 | By: | /s/ Cecil Bond Kyte |
|  |  | Cecil Bond Kyte |
|  |  | Chief Executive Officer, Chief Financial Officer, and Chairman of the Board of Directors |

---

## Exhibit 31.1

**EXHIBIT 31.1**

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

AND RULES 13A-14 AND 15D-14 UNDER THE SECURITIES EXCHANGE ACT OF 1934

I, Cecil Bond Kyte, certify that:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1. I have reviewed this Quarterly Report on Form 10-Q of QS Energy, Inc.;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) or 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(d)-15(f) for the registrant and have:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its condensed consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

---

| | |
|:---|:---|
| Date: May 15, 2026 | /s/ CECIL BOND KYTE |
| Date: May 15, 2026 | Cecil Bond Kyte |
| Date: May 15, 2026 | Chief Executive Officer |

---

## Exhibit 31.2

**EXHIBIT 31.2**

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

AND RULES 13A-14 AND 15D-14 UNDER THE SECURITIES EXCHANGE ACT OF 1934

I, Cecil Bond Kyte, certify that:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1. I have reviewed this Quarterly Report on Form 10-Q of QS Energy, Inc.;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) or 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(d)-15(f) for the registrant and have:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its condensed consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

---

| | |
|:---|:---|
| Date: May 15, 2026 | /s/ CECIL BOND KYTE |
| Date: May 15, 2026 | Cecil Bond Kyte |
| Date: May 15, 2026 | Chief Financial Officer |

---

## Ex-32

**EXHIBIT 32**

CERTIFICATION OF PERIODIC FINANCIAL REPORT BY THE

CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Solely for the purposes of complying with 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, we, the undersigned Chief Executive Officer and the Chief Financial Officer of QS Energy, Inc. (the "Company"), hereby certify, based on our knowledge, that the Quarterly Report on Form 10-Q of the Company for the quarter ended March 31, 2026 (the "Report") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

---

| | |
|:---|:---|
| Date: May 15, 2026 | /s/ CECIL BOND KYTE |
| Date: May 15, 2026 | Cecil Bond Kyte |
| Date: May 15, 2026 | Chief Executive Officer |
| Date: May 15, 2026 | /s/ CECIL BOND KYTE |
| Date: May 15, 2026 | Cecil Bond Kyte |
| Date: May 15, 2026 | Chief Financial Officer |

---