Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended March 31, 2026

or

For the transition period from __________ to __________

Commission File Number: 000-29185

QS ENERGY, INC.

(Exact name of registrant as specified in its charter)

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:

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.

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:

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

PART I – FINANCIAL INFORMATION

Item 1. Unaudited Condensed Consolidated Financial Statements

QS ENERGY, INC.

Condensed Consolidated Balance Sheets

See notes to condensed consolidated financial statements.

QS ENERGY, INC.

Condensed Consolidated Statements of Operations, Unaudited

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

QS ENERGY, INC.

Condensed Consolidated Statements of Cash Flows, Unaudited

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

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

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

Going concern

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.

Summary

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.

Licensing Fees to Temple University

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.

Estimates

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.

Stock-Based Compensation

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.

Going Concern

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying consolidated financial statements, during the three-months ended March 31, 2026, the Company incurred a net loss of $781,000, used cash in operations of $468,000 and had a stockholders’ deficit of $5,789,000 as of March 31, 2026. In addition, as of March 31, 2026, 48 notes payable with an aggregate balance of $1,209,000, license agreement payables of $3,167,000 and certain obligations to a former officer are past due. These factors raise substantial doubt about the Company’s ability to continue as a going concern. In addition, the Company’s independent registered public accounting firm, in its report on the Company’s December 31, 2025 financial statements, has raised substantial doubt about the Company’s ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to raise additional funds and implement its business plan. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

Recent Accounting Polices

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

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.

(a)       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

Issuances

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

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.