{"url_path":"/sec/usaq/10-q/2026/item-2","section_key":"item-2","section_title":"Item 2 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.**","topic":"sec","document":{"doc_type":"10-Q","doc_date":"2026-05-14","source_url":"https://www.sec.gov/Archives/edgar/data/856984/0001493152-26-022888-index.html","accession_number":"0001493152-26-022888","cik":"0000856984","ticker":"USAQ","issuer_name":"QHSLab, Inc.","edgar_url":"https://www.sec.gov/Archives/edgar/data/856984/0001493152-26-022888-index.html","primary_entity_key":"0000856984","primary_entity_name":"QHSLab, Inc."},"word_count":2554,"has_tables":true,"body_markdown":"**ITEM\n2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.**\n\n \n\n*The\nfollowing discussion provides information which management believes is relevant to an assessment and understanding of our results of\noperations and financial condition. The discussion should be read along with our unaudited condensed consolidated financial statements\nfor the three months ended March 31, 2026 and 2025 and notes thereto contained elsewhere in this Report, and our annual report on Form\n10-K for the twelve months ended December 31, 2025 including the consolidated financial statements and notes thereto contained in such\nReport. The following discussion and analysis contains forward-looking statements, which involve risks and uncertainties. Our actual\nresults may differ significantly from the results, expectations and plans discussed in these forward-looking statements. See “Cautionary\nNote Concerning Forward-Looking Statements.”*\n\n \n\n*Overview*\n\n \n\nWe\nare a medical device technology and SaaS company focused on enabling PCPs and other\nhealthcare providers to increase their revenues by providing them with relevant, value-based tools to evaluate and treat chronic disease\nas well as provide preventive care through reimbursable procedures. In some cases, the products we provide our physician clients will\nenable them to diagnose and treat patients with chronic diseases which they historically have referred to specialists, allowing them\nto increase their practice revenue. As part of our mission, we are providing PCPs and other healthcare providers with the software, training\nand devices necessary to allow them to treat their patients using value-based healthcare, informatics and personalized medicine. Our\ndigital healthcare, clinical decision support and point of care solutions also support non face to face remote patient and therapeutic\nmonitoring, to address chronic care and preventive medicine and are reimbursable to the medical practice.\n\n \n\nIncreasingly,\nregulators and insurance companies have come to recognize what health care technologists have been saying for nearly 20 years, which\nis that most chronic conditions are better managed with more frequent and short encounters often without a physician’s direct participation,\nrather than infrequent visits. More health insurers have realized that Artificial Intelligence (“AI”) enabled digital medicine\ntechnologies such as those provided through our proprietary internally-developed Quality Health System Lab Expert System software (“QHSLab”)\ncan provide the necessary encounters to foster patient compliance in between face to face visits to a physician.\n\n \n\nBased\non the success of PCPs using our QHSLab allergy diagnostics combined with the products acquired from MedScience Research Group, Inc.\n(“MedScience”), we intend to increase our revenues by charging physicians a monthly subscription fee for the use of QHSLab\nand soliciting additional PCPs to increase their revenues by using our proven revenue generating QHSLab and AllergiEnd® line of products.\nWe also plan to introduce additional point of care diagnostics and treatments, and digital medicine programs that PCPs can use and prescribe\nin their practices. In all cases, PCPs will be paid under existing government and private insurance programs, based upon analyses conducted\nutilizing QHSLab and treatments provided as a result of such analyses.\n\n \n\nOur\nability to operate profitably is determined by our ability to generate revenues from the licensing of our QHSLab software and the sale\nof diagnostic related products and treatment protocols and the provision of services through our QHSLab system. Our ability to generate\na profit from these sales is determined by our ability to increase the number of physicians using these products. We will continue to\nupgrade QHSLab in an effort to increase the number of products sold based upon the services it can provide and for which we are able\nto charge a fee.\n\n \n\nWe\noperate as a single operating segment and single reportable segment. Operating segments are defined as components of a business that\ncan earn revenue and incur expenses and for which discrete financial information is evaluated regularly by the CODM in deciding how to allocate resources and assess performance. Our CODM, the Chief Executive Officer, allocates resources\nand assesses performance based upon condensed consolidated financial information and due to the interconnected relationship of our products\nwhich are predominately offered to the same class of customer, manages our business as a single operating segment.\n\n \n\n19\n\n \n\n \n\nDuring the fourth quarter of 2020 we began to sell\nthe Allergi*End*® Products, consisting of Allergi*End*® Allergy Diagnostics and Allergen Immunotherapy treatments, to\nphysicians. During the second quarter of 2022, we began to enter into SaaS subscription agreements to provide physicians with access to\nour proprietary internally-developed QHSLab platform software that provides clinical decision support and patient monitoring for numerous\nchronic conditions seen in primary care settings including allergy, asthma, anxiety, depression, chronic pain, and sleep disorders for\nexample. During the fourth quarter of 2022, we began entering into Integrated Service Program (ISP) agreements to provide physicians’\noffices with agreed-upon clinical decision support, digital health assessments, administrative workflow, and reimbursement support services\nutilizing our QHSLab platform.\n\n \n\n*Results\nof Operations during the three months ended March 31, 2026 as compared to the three months ended March 31, 2025.*\n\n \n\nRevenues\n\n \n\nFor\nthe period ended March 31, 2026, we generated revenues of $728,685 compared to $645,419 of revenues for the period ended March 31, 2025.\nThe increase in revenues for the period ended March 31, 2026, is attributed to the growth of the revenue associated with ISP services\nwhich more than made up for the inclusion of revenues in the March 31, 2025, quarter as a result of the achievement of the performance\nobligations associated with a clinical study undertaken by us pursuant to an agreement with a third party which was not replicated in\nthe period ended March 31, 2026. ISP Revenue increased 130.5% to $374,501 compared to $162,502 in the first quarter of 2025.\n\n \n\nOur\nrevenues consisted of the following:\n\n \n\n  \nFor the Three Months Ended \n\n  \nMarch 31, \n\n  \n2026  \n2025 \n\nIntegrated Service Program \n$374,501  \n$162,502 \n\nAllergy Diagnostic Kit Sales \n 228,770  \n 264,913 \n\nImmunotherapy Treatment Sales \n 91,070  \n 97,329 \n\nClinical Study Revenue \n -  \n 89,100 \n\nSubscription Revenue \n 11,948  \n 9,285 \n\nShipping and handling \n 11,640  \n 9,970 \n\nTraining and Other Revenue \n 10,756  \n 12,320 \n\nTotal revenue \n$728,685  \n$645,419 \n\n \n\nCost\nof Revenues and Gross Profit\n\n \n\nCost\nof revenues consists of the cost of the Allergi*End*® test kits and allergen immunotherapy pharmacy prepared treatment sets,\nshipping costs to our customers as well as administrative services and labor expenses directly related to ISP sales and the amortization\nof our capitalized software.\n\n \n\nFor\nthe three months ended March 31, 2026 and 2025, cost of revenues was $257,882 and $215,475, respectively.\n\n \n\nThe Company generated gross profit of $470,803 for\nthe three months ended March 31, 2026, compared to $429,944 for the three months ended March 31, 2025, an increase of $40,859, or 9.5%.\nGross margin decreased from 66.6% for the three months ended March 31, 2025 to 64.6% for the three months ended March 31, 2026.\n\n \n\nThe decrease in gross margin was primarily due to\nchanges in revenue mix, including growth in the Company’s ISP revenue and the introduction\nof a new service line that includes revenue-sharing arrangements with a third-party provider. This service line contributed to the increase\nin total revenue and gross profit in absolute dollars but carries a higher cost of revenue relative to the Company’s other offerings,\nresulting in a lower overall gross margin percentage.\n\n \n\nManagement believes the increase in gross profit reflects\ncontinued growth in the Company’s operations. The change in gross margin is consistent with the Company’s evolving revenue\nmix and does not reflect a decline in the cost structure of its core product lines, which continue to benefit from operational efficiencies\nand prior cost optimization initiatives.\n\n \n\nAs\nwe continue to introduce new products at an early stage in our development cycle, the gross margins may vary significantly between periods,\ndue, among other things, to differences among our customers and products sold, customer negotiating strengths, and product mix.\n\n \n\nSales\nand Marketing\n\n \n\nSales\nand marketing expenses consist primarily of costs associated with selling and marketing our products to PCPs, principally ongoing sales\nefforts to recruit new PCPs and maintain our relationships with PCPs already using our software and products. These expenses include\nemployee compensation and costs of consultants.\n\n \n\nFor\nthe three months ended March 31, 2026, sales and marketing expenses totaled $218,424 compared to $144,399 for the three months ended\nMarch 31, 2025, an increase of $74,025.\n\n \n\nThe\nincrease in sales and marketing expenses for the period ended March 31, 2026 compared to the same period in 2025 relate to an increase\nin payroll-related and strategic marketing expenses as we invest in more sales and marketing activities to support our increasing ISP\nrevenue. We expect our sales and marketing expenses to increase as we seek to build our customer base and launch additional products.\nNevertheless, if we are successful in onboarding a sufficient number of PCPs and maintaining our relationships with these PCPs once they\nbegin to fully utilize our products, sales and marketing expenses could decrease as a percentage of revenues, though we may increase\nour marketing efforts as funds become available.\n\n \n\n20\n\n \n\n \n\nGeneral\nand Administrative\n\n \n\nGeneral\nand administrative expenses consist primarily of costs associated with operating a business including accounting, legal and management\nconsulting fees.\n\n \n\nFor\nthe three months ended March 31, 2026, general and administrative expenses totaled $207,822, an increase of $52,299, compared to $155,523\nfor the three months ended March 31, 2025. The increase is primarily due to increased payroll-related expenses associated with expanding\nstrategic and operational roles to support growing operations along with other operational expenses such as rent, insurance and accounting\nfees.\n\n \n\nResearch\nand Development\n\n \n\nResearch\nand development (“R&D”) includes expenses incurred in connection with the research and development of our medical device\ntechnology solution, including software development. R&D costs are expensed as they are incurred.\n\n \n\nFor\nthe three months ended March 31, 2026, R&D expenses totaled $120,909, a decrease of $3,124 compared to $124,033 for the three months\nended March 31, 2025.\n\n \n\nThe\ndecrease in R&D expenses for the period ended March 31, 2026, as compared to 2025, was driven by maintaining software development\nexpenses level as we continue to expand the commercialization of our QHSLab platform software while investing more in sales and marketing\nefforts during the period. We expect that our R&D expenses will increase as we invest in and expand our operations and\nfurther develop new products and services as part of the Company’s growth strategy.\n\n \n\nOther\nIncome and Expense\n\n \n\nFor\nthe three months ended March 31, 2026, interest expense decreased by $58,044 to $9,526 from $67,570 for the three months ended March\n31, 2025. The decrease is driven by the conversion and settlement of multiple loans during the fourth quarter of 2025 including the elimination\nof default interest associated with certain of the notes.\n\n \n\n*Liquidity\nand Capital Resources*\n\n \n\nLiquidity\nis a measure of a company’s ability to generate funds to support its current and future operations, satisfy its obligations, and\notherwise operate on an ongoing basis. On March 31, 2026, we had current assets totaling $619,058, including $362,088 of cash, $201,202\nof accounts receivable, $27,517 of inventory, and $28,251 related to prepaid expenses and other current assets. At such date we had total\ncurrent liabilities of $368,005 consisting of $218,136 in accounts payable, $19,688 in other current liabilities and $130,181 representing\nthe current portions of outstanding loans, including a related-party loan. There were no balances classified as long-term liabilities\non our condensed consolidated balance sheets.\n\n \n\nOn\nDecember 31, 2025, we had current assets totaling $883,009, including $636,157 of cash, $190,610 of accounts receivable, $35,790 of inventory,\nand $20,452 related to prepaid expenses and other current assets. At such date we had total current liabilities of $449,860 consisting\nof $326,431 in accounts payable, $17,858 in other current liabilities and $105,571 representing the current portions of outstanding loans\nand convertible notes. There was $96,218 of outstanding loan balances classified as long-term liabilities on our condensed consolidated\nbalance sheets.\n\n \n\nWe\nused cash flows of $200,242 and $49,549 from operations during the three-month periods ending March 31, 2026 and 2025, respectively.\n\n \n\n21\n\n \n\n \n\n*Plan\nof Operation and Funding*\n\n \n\nThe\naccompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization\nof assets and the satisfaction of liabilities in the normal course of business. We had an accumulated deficit of $4,007,457 at March\n31, 2026, generated a net loss of $103,906 for the three months ended March 31, 2026 and generated net income of $457,417 for the year\nended December 31, 2025, principally as a result of a gain of $1,145,695 on the extinguishment of debt. We used cash in operations of\n$200,242 in the quarter ended March 31, 2026, and generated cash from operations of $178,118 in the year ended December 31, 2025. Despite\nthe extinguishment of much of our debt, our history of losses combined with the amount of our revenues, raise substantial doubt about\nour ability to continue as a going concern for a reasonable period of time. Our continuation as a going concern is dependent upon our\nability to generate positive cash flow from operations or obtain necessary equity or debt financing. The condensed consolidated financial\nstatements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts\nand classification of liabilities that might be necessary should we be unable to continue as a going concern.\n\n \n\nOur\nworking capital requirements are expected to increase in line with the growth of our business. We will likely increase our debt\nlevels as we seek to expand our business. Existing working capital and anticipated cash flows are expected to be adequate to fund\nour operations over the next twelve months although no assurance to that effect can be given. If necessary, we would seek to supplement the amounts available to fund our operations\nthrough the issuance of debt or equity.\n\n \n\nWhile\nwe are focused on our business, we intend to continually explore our options to raise additional capital or, when available, borrow additional\nfunds on terms which we believe are favorable to us. Additional issuances of equity or convertible debt securities will result in dilution\nto our current shareholders, could require the issuance of equity securities at prices we believe are below our true value and could\ncause the price of our common stock to decrease. Further, such securities might have rights, preferences or privileges senior to our\ncommon stock. Additional borrowings could require that we grant the lenders a security interest or other rights that impede our ability\nto operate as we deem best for our shareholders. Further, any default under a loan agreement could result in an action which could force\nus to seek bankruptcy protection. Additional financing may not be available upon acceptable terms, or at all. If adequate funds are not\navailable or are not available on acceptable terms, we may not be able to maintain or expand our existing operations, take advantage\nof prospective new business endeavors or opportunities, which could significantly and materially restrict our business and adversely\nimpact our financial results.\n\n \n\nOur\nability to obtain funds through the issuance of debt or equity is dependent upon the state of the financial markets at such time as we\nmay seek to raise funds. The state of the capital markets may be adversely impacted by various risks and uncertainties, including, but\nnot limited to future and current impacts of global events such as wars in the Ukraine, Israel and Iran, increases in inflation and other\nrisks detailed in the risk factors sections detailed in our Annual Report on Form 10-K for the year ended December 31, 2025."}