QS Energy's Losses Mount Amidst R&D Push, Cash Infusion from Debt

Ticker: QSEP · Form: 10-Q · Filed: Aug 14, 2025 · CIK: 1103795

Sentiment: bearish

Topics: Energy Technology, Going Concern, Dilution Risk, Pre-Revenue, Liquidity Crisis, OTC Markets, Research & Development

TL;DR

**QSEP is burning cash at an alarming rate with no revenue, making it a speculative bet on future tech that might never materialize.**

AI Summary

QS Energy, Inc. (QSEP) reported a significant increase in net loss for the six months ended June 30, 2025, reaching $11,813,000, a substantial rise from the $782,000 net loss in the same period of 2024. This was primarily driven by a dramatic increase in operating expenses to $11,404,000 in 2025 from $527,000 in 2024. The company also saw an increase in research and development expenses to $151,000 in 2025 from $95,000 in 2024. Despite these losses, QS Energy's cash position improved to $778,000 as of June 30, 2025, up from $150,000 at December 31, 2024, largely due to $2,988,000 in net cash provided by financing activities, including $2,285,000 from the issuance of convertible notes and warrants. The company continues to operate on a going concern basis, with management estimating current funds will last through October 2025, and is actively seeking additional debt and equity financing. As of June 30, 2025, 33 convertible notes payable totaling $1,167,000 were past due, and the company has not yet generated revenue from its primary technology, Applied Oil Technology (AOT).

Why It Matters

For investors, QS Energy's continued lack of revenue generation and escalating net losses, reaching $11.8 million, signal a high-risk investment. The reliance on dilutive financing, evidenced by the issuance of 62,804,832 common shares from convertible notes, significantly impacts existing shareholders. Employees face uncertainty given the company's going concern warning and limited cash runway through October 2025. Customers for the AOT product are non-existent as the technology remains in testing, lagging behind competitors who may already offer viable solutions in the energy efficiency space. The broader market sees a micro-cap struggling to commercialize its technology, highlighting the challenges in bringing innovative energy solutions to market without substantial capital and proven demand.

Risk Assessment

Risk Level: high — The company reported a net loss of $11,813,000 for the six months ended June 30, 2025, and used $2,360,000 in cash from operations. Management explicitly states that current funds of $778,000 are only sufficient to continue operations through October 2025, and 33 convertible notes payable with an aggregate principal balance of $1,167,000 are past due, indicating severe liquidity and solvency issues.

Analyst Insight

Investors should exercise extreme caution and avoid QSEP given its significant net losses, lack of revenue, and explicit going concern warning. The company's reliance on dilutive financing and past-due debt obligations suggest a high probability of further shareholder dilution or potential bankruptcy. Monitor for any concrete commercialization milestones or significant revenue generation before considering any investment.

Financial Highlights

debt To Equity
N/A
revenue
$0
operating Margin
N/A
total Assets
$813,000
total Debt
$4,895,000
net Income
$ (11,813,000)
eps
$ (0.03)
gross Margin
N/A
cash Position
$778,000
revenue Growth
N/A

Revenue Breakdown

SegmentRevenueGrowth
Applied Oil Technology (AOT)$0N/A

Key Numbers

Key Players & Entities

FAQ

What is QS Energy, Inc.'s primary business and technology?

QS Energy, Inc. develops and seeks to commercialize energy efficiency technologies. Its primary technology is Applied Oil Technology (AOT), a commercial-grade crude oil pipeline transportation flow-assurance product designed to reduce pipeline pressure loss and increase flow rate by applying a high-intensity electrical field to crude oil.

Did QS Energy, Inc. generate any revenue in the first six months of 2025?

No, QS Energy, Inc. did not generate any revenue from the sale and/or lease of its AOT product during the three or six months ended June 30, 2025, or in the comparable periods of 2024.

What was QS Energy, Inc.'s net loss for the six months ended June 30, 2025?

QS Energy, Inc. reported a net loss of $11,813,000 for the six months ended June 30, 2025, which is a significant increase from the $782,000 net loss reported for the same period in 2024.

What is the company's cash position and how long can it sustain operations?

As of June 30, 2025, QS Energy, Inc. had cash on hand of $778,000. Management estimates these funds will be sufficient to continue operations only through October 2025.

What are the key factors contributing to QS Energy, Inc.'s going concern risk?

Key factors include a net loss of $11,813,000, cash used in operations of $2,360,000, a stockholders' deficit of $4,082,000 as of June 30, 2025, and 33 past-due convertible notes payable with an aggregate principal balance and accrued interest of $1,167,000.

How has QS Energy, Inc. been financing its operations?

The company has primarily financed its operations through the issuance of debt and equity securities. For the six months ended June 30, 2025, it generated $2,988,000 in net cash from financing activities, including $2,285,000 from the issuance of convertible notes and warrants.

What is the status of QS Energy, Inc.'s AOT product commercialization?

The AOT product is still seeking to transition from the testing, research, and development stage to initial production for continued testing. The company has not yet achieved its goal of acceptance and adoption by the midstream pipeline marketplace.

How many shares of common stock were outstanding as of August 6, 2025?

As of August 6, 2025, the number of shares of QS Energy, Inc.'s Common Stock outstanding was 525,511,400.

What were the operating expenses for QS Energy, Inc. in the first six months of 2025 compared to 2024?

Operating expenses for QS Energy, Inc. dramatically increased to $11,404,000 for the six months ended June 30, 2025, compared to $527,000 for the same period in 2024.

What is the significance of the FASB ASU No. 2024-03 mentioned in the filing?

The FASB ASU No. 2024-03 "Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses" requires public business entities to disaggregate income statement expenses. This pronouncement, issued in November 2024, will impact how QS Energy, Inc. reports its expenses in future financial statements.

Risk Factors

Industry Context

QS Energy operates in the energy technology sector, specifically focusing on oil extraction efficiency. The industry is characterized by high capital requirements, technological innovation, and cyclical commodity prices. Companies in this space often face challenges in commercializing new technologies and securing funding, especially during periods of market uncertainty or low oil prices.

Regulatory Implications

The company's going concern status and significant past-due liabilities necessitate clear disclosures to investors, as required by SEC regulations. Management's projections for cash runway and active pursuit of financing are critical information that must be transparently communicated to comply with financial reporting standards.

What Investors Should Do

  1. Monitor financing efforts closely.
  2. Assess the viability of AOT commercialization.
  3. Evaluate the risk of further dilution.
  4. Consider the default risk on convertible notes.

Key Dates

Glossary

Accumulated Deficit
The total net losses of a company since its inception, minus any net gains. It represents a negative balance in retained earnings. (QS Energy has a substantial accumulated deficit of $139,113,000 as of June 30, 2025, reflecting its history of losses.)
Convertible Notes Payable
Debt instruments that can be converted into a predetermined amount of the issuer's equity (common stock) at certain times. (QS Energy has $1,380,000 net convertible notes payable as of June 30, 2025, with $1,167,000 of this amount past due, indicating significant financial distress.)
Stockholders' Deficit
Occurs when a company's liabilities exceed its assets, resulting in a negative net worth for shareholders. (QS Energy has a total stockholders' deficit of $4,082,000 as of June 30, 2025, indicating that liabilities outweigh assets.)
Going Concern
An accounting assumption that a company will continue to operate for the foreseeable future, typically at least 12 months. If substantial doubt exists, it must be disclosed. (QS Energy's management has evaluated the company's ability to continue as a going concern and estimates funds will last only through October 2025, highlighting significant doubt.)
Original Issue Discount (OID)
The difference between the face amount of a debt instrument and the lower price at which it was originally issued. (QS Energy issued convertible notes with an OID of $229,000 during the period, reducing the cash proceeds received.)
Black-Scholes Option Pricing Model
A mathematical model used to estimate the theoretical price of European-style options. (Used by QS Energy to determine the fair value of warrants issued with convertible notes, with specific assumptions provided.)

Year-Over-Year Comparison

Compared to the prior year period, QS Energy has experienced a dramatic deterioration in its financial performance. Revenue remains at $0, but the net loss has ballooned from $782,000 to $11,813,000 for the six months ended June 30, 2025. This is primarily due to a massive increase in operating expenses, which rose from $527,000 to $11,404,000. While the cash position has improved from $150,000 to $778,000, this is largely due to financing activities, not operational improvements, and the cash runway remains critically short. The company also faces increased default risk with $1,167,000 in past-due convertible notes.

Filing Stats: 4,456 words · 18 min read · ~15 pages · Grade level 15.5 · Accepted 2025-08-14 16:01:48

Key Financial Figures

Filing Documents

Forward-Looking Statements

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: 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,"

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. 2 QS ENERGY, INC. FORM 10-Q INDEX

– FINANCIAL INFORMATION

PART I – FINANCIAL INFORMATION 4

Unaudited Condensed Consolidated Financial Statements

Item 1. Unaudited Condensed Consolidated Financial Statements 4 Condensed Consolidated Balance Sheets 4 Condensed Consolidated Statements of Operations, Unaudited 5 Condensed Consolidated Statement of Stockholders' Deficit, Unaudited 6 Condensed Consolidated Statements of Cash Flows, Unaudited 8 Notes to Condensed Consolidated Financial Statements, Unaudited 9

Management's Discussion and Analysis of Financial Condition and Results of Operations

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 19

Quantitative and Qualitative Disclosure about Market Risk

Item 3. Quantitative and Qualitative Disclosure about Market Risk 31

Controls and Procedures

Item 4. Controls and Procedures 32

– OTHER INFORMATION

PART II – OTHER INFORMATION 33

Legal Proceedings

Item 1. Legal Proceedings 33

Risk Factors

Item 1A. Risk Factors 33

Unregistered Sales of Equity Securities and Use of Proceeds

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 33

Defaults Upon Senior Securities

Item 3. Defaults Upon Senior Securities 33

Mine Safety Disclosures

Item 4. Mine Safety Disclosures 33

Other Information

Item 5. Other Information 33

Exhibits

Item 6. Exhibits 34

SIGNATURES

SIGNATURES 35 3 PART I – FINANCIAL INFORMATION

Unaudited Condensed Consolidated Financial

Item 1. Unaudited Condensed Consolidated Financial QS ENERGY, INC. Condensed Consolidated Balance Sheets June 30, 2025 December 31, (unaudited) 2024 ASSETS Current assets: Cash $ 778,000 $ 150,000 Prepaid expenses 32,000 11,000 Total current assets 810,000 161,000 Property and equipment, net 3,000 3,000 Total assets $ 813,000 $ 164,000 LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Accounts payable-license agreements - past due $ 2,551,000 $ 2,433,000 Accounts payable and accrued expenses 964,000 881,000 Convertible notes payable, net of discounts of $ 79,000 and $ 133,000 , respectively; includes $ 1,167,000 and $ 2,339,000 , respectively, past due 1,380,000 2,524,000 PPP loan payable – 24,000 Total current liabilities 4,895,000 5,862,000 Total liabilities 4,895,000 5,862,000 Commitments and contingencies – – Stockholders' deficit Common stock, $ 0.001 par value: 750,000,000 shares authorized, 519,215,177 and 428,424,880 shares issued and outstanding at June 30, 2025 and December 31, 2024, respectively 519,216 428,425 Additional paid-in capital 134,511,784 121,173,575 Accumulated deficit ( 139,113,000 ) ( 127,300,000 ) Total stockholders' deficit ( 4,082,000 ) ( 5,698,000 ) Total liabilities and stockholders' deficit $ 813,000 $ 164,000 See notes to condensed consolidated financial statements. 4 QS ENERGY, INC. Condensed Consolidated Statements of Operations, Unaudited Three months ended Six months ended June 30, June 30, 2025 2024 2025 2024 Revenues $ – $ – $ – $ – Costs and Expenses Operating expenses 1,892,000 201,000 11,404,000 527,000 Research and development expenses 104,000 48,000 151,000 95,000 Loss from operations ( 1,996,000 ) ( 249,000 ) ( 11,555,000 ) ( 622,000 ) Other income (expense) Gain on partial forgiveness of PPP note payable – – – – Interest and financing expense ( 143,000 ) ( 84,0

financial statements

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. 11 3. Accounts Payable and Accrued Expenses As of June 30, 2025 and December 31, 2024, 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, 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 six months ended June 30, 2025, the Company made no payments. 4. Convertible Notes Payable Schedule of convertible notes payable June 30, 2025 (unaudited) December 31, 2024 Convertible notes $ 899,000 $ 1,651,000 Accrued interest 560,000 1,006,000 Total outstanding debt, including $ 1,167,000 and $ 2,339,000 in default at June 30, 2025 and December 31, 2024, respectively 1,459,000 2,657,000 Convertible note discount ( 79,000 ) ( 133,000 ) Balance on convertible notes, net of note discounts $ 1,380,000 $ 2,524,000 Convertible notes payable At December 31, 2024, total outstanding notes payable totaled $ 1,651,000 . During the six-month period ended June 30, 2025, the Company issued convertible promissory notes in the aggregate of $ 2,515,000 for cash proceeds of $ 2,285,000 , net of original issue discount ("OID") of $ 229,000 . The notes are unsecured, mature in twelve months from i

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