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Item 7. Management’s Discussion and Analysis

2026-03-31 compared with 2025-03-31 · 68 added, 75 removed, 90 unchanged (61% of the section changed)

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The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the audited consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K.

In addition to historical information, this discussion and analysis here and throughout this Form 10-K contains forward-looking statements that involve risks, uncertainties and assumptions.

In addition to historical information, this discussion and analysis here and throughout this report contains forward-looking statements that involve risks, uncertainties and assumptions.

Our actual results may differ materially from those anticipated in these forward-looking statements due to a number of factors, including but not limited to, the risks described in the section titled “Risk Factors.”

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Recent Developments

Public Offering and Concurrent Private Placement

On April 23, 2024, we completed an underwritten public offering, whereby we sold 4,620,760 shares of common stock and 5-year redeemable warrants to purchase up to 4,620,760 shares of common stock (the “Public Warrants”) (plus a 45-day option to purchase up to an additional 693,114 shares of common stock and Public Warrants to purchase up to 693,114 shares of common stock, or up to 693,114 shares of common stock only) at a price of $0.92 per set of one share of common stock and one Public Warrant.

Concurrently, we completed a private placement, whereby we sold 2,249,763 shares of common stock, pre-funded warrants (the “Pre-Funded Warrants”) to purchase up to 3,155,642 shares of common stock and redeemable warrants (the “Private Warrants”) to purchase up to 8,108,106 shares of common stock.

The offering prices in the private placement were $0.91 per share and $0.01 per Private Warrant, or $0.9099 per Pre-Funded Warrant and $0.01 per Private Warrant, as applicable.

The redeemable warrants issued in both offerings have an exercise price equal to $1.05 per share.

In connection with this offering, we issued Public Ventures, LLC (“Public Ventures”) 5-year warrants to purchase up to 369,660 shares of common stock at an exercise price of $1.1375 per share as part of their underwriter compensation, which underwriter warrants became exercisable on October 16, 2024 (the “Underwriter Warrants”).

We also issued Public Ventures 5-year warrants to purchase up to 432,432 shares of common stock at an exercise price of $1.1375 per share as part of their placement agent compensation in connection with the private placement, which warrants became exercisable on October 16, 2024 (the “Placement Agent Warrants,” and together with the Public Warrants, Private Warrants, Pre-Funded Warrants and Underwriter Warrants, the “Warrants,” and the shares issuable upon exercise of the Warrants, the “Warrant Shares”).

Both sets of warrants may be exercised on a cashless basis based on a formula set forth in the respective warrants.

Subsequently, on May 15, 2024, Public Ventures exercised its option in full to purchase an additional 693,114 shares of common stock and Public Warrants to purchase up to 693,114 shares of common stock at a price of $0.92 per set of one share of common stock and one Public Warrant, in connection with which we issued Public Ventures additional Underwriter Warrants to purchase up to 55,449 shares of common stock.

The public offering and the concurrent private placement resulted in combined gross proceeds of approximately $9,300 thousand, and net proceeds of approximately $8,100 thousand.

The exercise of Public Ventures’ option to purchase additional shares of common stock and Public Warrants resulted in additional gross proceeds of approximately $638 thousand.

Participation Right Exercise

On June 24, 2024, following clirSPV LLC’s (the “SPV”) notice to exercise its participation right in connection with the underwritten public offering and concurrent private placement discussed above (see “Note 8 – Equity” for additional information), we entered into a securities purchase agreement (the “Securities Purchase Agreement”) with the SPV whereby we issued an aggregate of (i) 3,907,000 shares of common stock, (ii) Pre-Funded Warrants to purchase up to 786,000 shares of common stock, and (iii) Private Warrants to purchase up to 7,039,500 shares of common stock.

Subsequently, on June 26, 2024, the SPV and we entered into an Amendment to the Securities Purchase Agreement (the “Amendment”) to provide for a revised allocation of the SPV’s subscription between shares of common stock and Pre-Funded Warrants in lieu thereof.

Pursuant to the Amendment, the SPV subscribed for:

(i) 3,350,000 shares of common stock, (ii) Pre-Funded Warrants to purchase up to 1,343,000 shares of common stock and (iii) Private Warrants to purchase up to 7,039,500 shares of common stock, for aggregate gross proceeds of approximately $4.3 million.

Amendment to Certificate of Incorporation

On June 25, 2024, we held our 2024 annual meeting of stockholders, at which our stockholders approved, among other items, an increase in the number of authorized shares of common stock available for issuance under our certificate of incorporation to 87,500,000 shares from 62,500,000 shares previously authorized.

Accordingly, on June 25, 2024, we filed an amendment to our certificate of incorporation with the Secretary of State of the State of Delaware, reflecting the increase of our authorized shares of common stock to 87,500,000 shares, which became effective upon filing.

Suspension of Activities in China

On October 1, 2024, we informed our employees that we were suspending our operations in China as a result of delayed progress in the commercialization of our products in that geographic market and as part of our efforts to align strategic priorities and to reduce operating costs.

The suspension of our operations in China involved declaring our Beijing, China wholly-owned subsidiary dormant, a legal entity status available under current China law, which became effective on March 12, 2025.

Under this legal entity status, operational activities will cease for a time period not to exceed three years.

By pursuing this entity status, we initiated a project to suspend current operational activities.

Suspension activities include disposal and shipment of certain equipment in China, the termination of 2 employees and related benefit costs, and legal entity filing fees.

In connection with this action, we estimated that we would incur certain one-time costs, primarily consisting of employee termination payments, as well as equipment disposal and shipment and legal filing fees.

See “Note 2 – Summary of Significant Accounting Policies – Foreign Operations” below for additional information .

Termination of clirSPV LLC Agreement

Effective as of February 19, 2025, that certain Stock Purchase Agreement, dated as of July 12, 2018, between us and the SPV (the “SPV Purchase Agreement”) was terminated as a result of the SPV’s beneficial ownership percentage declining to less than 10% of our issued and outstanding shares of common stock, as reported on a SPV filing with the SEC dated February 19, 2025.

As a result of the termination of the SPV Purchase Agreement, the related Voting Agreement entered into with the SPV, pursuant to which the SPV had a right to nominate one director to our Board at each of our annual meeting of stockholders, or any other meeting of stockholders at which members of our Board were to be elected, was also terminated, effective immediately.

Board Compensation Change

On December 22, 2025, the Board, upon recommendation of the Human Capital and Compensation Committee of the Board, approved an updated director compensation policy, effective as of January 1, 2026 (the “Director Compensation Policy”).

The Director Compensation Policy provides for an annual cash compensation of $60 thousand will be payable to the Company’s non-employee directors in equal quarterly installments, payable in arrears on the last day of each fiscal quarter in which the service occurred, with the amount pro-rated if a non-employee director started during a quarter.

Additionally, each non-employee director may elect to receive all or a portion of his or her cash compensation in the form of RSUs, which RSUs’ fair market value will be based on the closing price of our common stock as reported on Nasdaq on the date of grant.

Further, our non-employee directors will be eligible to receive non-statutory stock options grants with an aggregate fair market value of $40 thousand annually.

The non-statutory stock option grants will be issued in quarterly installments, in arrears, on the last day of each fiscal quarter in which the service occurred.

The RSUs and non-statutory stock options each non-employee director may receive under this Director Compensation Policy will be issued under our 2021 Plan.

Reverse Stock Split

On February 26, 2026, at our special meeting of stockholders, our stockholders approved a certificate of amendment to our certificate of incorporation (the “Charter Amendment”) to effect a reverse stock split of our outstanding shares of common stock at a ratio to be determined by the Board.

On March 6, 2026, we filed the Charter Amendment with the Secretary of State of Delaware which effected a 1-for-10 reverse stock split of our outstanding shares of common stock as of 12:01 a.m.

Eastern Time on March 16, 2026.

As a result of the reverse stock split, every ten shares of common stock were combined into one issued and outstanding share of common stock, with no change in the $0.0001 par value per share.

Holders of fractional shares received, in lieu of any fractional share, the number of shares rounded up to the next whole number at the participant level with the Depository Trust Company.

All equity awards outstanding and common stock reserved for issuance under our equity incentive plans and warrants outstanding immediately prior to the reverse stock split were proportionately adjusted, and any exercise prices were proportionately increased, to reflect the reverse stock split.

Compliance with Nasdaq Minimum Bid Price Requirement

We received written confirmation from Nasdaq notifying us that we have regained compliance with Nasdaq Listing Rule 5550(a)(2) on March 30, 2026.

Critical Accounting Policies

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The Company’s contracts generally include progress payments from customers upon completion of defined milestones.

As these payments are received, they are offset against accumulated project costs and recorded as either contract assets or contract liabilities.

As these payments are received, they are recorded as a contract liability.

Upon completion of the performance obligations and collectability is determined, revenue can be recorded.

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Allocations can occur based on overall estimated contract profit or readily identifiable cost assignments.

For any contract in connection with which the Company is expected to incur costs in excess of the contact price, the Company accrues the estimated loss in full in the period such determination is made.

For any contract in connection with which the Company is expected to incur costs in excess of the contract price, the Company accrues the estimated loss in the period such determination is made.

Deferred Costs and Cost of Sales

We recognize an asset for deferred costs incurred to fulfill a contract when those costs meet all of the following criteria:

(a) the costs relate directly to a contract or to an anticipated contract that we can specifically identify;

(b) the costs generate or enhance our resources that will be used in satisfying performance obligations in the future;

and, (c) the costs are expected to be recovered.

We capitalize contractual costs incurred for direct labor, overhead allocations, supplier costs and subcontractor costs.

Costs capitalized are amortized to costs of goods sold at a point in time upon completion of contractual performance obligations based on allocated costs assigned to such performance obligations.

For any contract expected to incur costs in excess of the total contractual value, we accrue the estimated loss in full in the period such determination is made.

Impairment of Long-Lived Assets

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Research and development costs are offset by any funds received from strategic partners in cost sharing, collaborative projects.

During the years ended December 31, 2024 and 2023, the Company received $145 thousand and $60 thousand, respectively, from such arrangements.

During the years ended December 31, 2025 and 2024, the Company received zero and $145 thousand, respectively, from such arrangements.

Share-Based Compensation

The costs of all employee stock options, as well as other equity-based compensation arrangements, are reflected in the audited, condensed consolidated financial statements based on the estimated fair value of the awards on the grant date.

That cost is recognized over the period during which an employee is required to provide service in exchange for the award, or in the case of performance options, expense is recognized upon completion of a milestone as defined in the grant agreement.

That cost is recognized over the period during which an employee is required to provide service in exchange for the award, or in the case of performance options, expense is recognized over the remaining service period when the Company has determined it is probable that the performance condition will be achieved.

Share-based compensation for stock grants to non-employees is determined as the fair value of the consideration received or the fair value of equity instruments issued, whichever is more reliably measured.

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Other income, net

Basic and diluted net income per common share

Basic and diluted net loss per common share

Revenues and Gross Profit

Consolidated revenues for the years ended December 31, 2025 and 2024 were $5,234 thousand and $3,596 thousand, respectively.

Revenues increased by $1,193 thousand, or 49.6%, during the year ended December 31, 2024 as compared to the same period in 2023.

Revenues for the years ended December 31, 2024 and 2023 were generated from orders related to both our product lines, process burners and boiler burners, with the predominate amount of revenues generated from our process burner product line.

Typically, our process burner contracts include three different performance obligations by which we can recognize revenue, which include design engineering, customer witness tests and burner shipment.

We allocate process burner contractual revenue to each of these performance obligations with weighting allocations assigned in the following order of importance:

burner shipment, customer witness test and engineering design.

The difference in revenue from the year ended December 31, 2024, to the same period in 2023, is mainly due to the higher number of process burners shipped.

During the year ended December 31, 2024, we shipped twenty-five process burners to two separate California refineries operated by two different customers, compared to eight process burners to a California refinery and three separate customer witness tests during the same period in 2023.

Revenues increased by $1,638 thousand, or 45.6%, during the year ended December 31, 2025, compared to the same period in 2024.

Revenues for the year ended December 31, 2025 were generated from orders related to our process burners, midstream burners, flares, engineering services and spare part offerings.

During the year ended 2025, our revenues were predominantly generated from our process burner offerings.

Typically, our process burner contracts include three to four different performance obligations by which we can recognize revenue, which include design engineering, customer witness tests and burner shipment, with a CFD study as an optional fourth performance obligation.

We allocate revenue to these performance obligations in the following order of importance:

burner shipment, customer witness test, CFD study and engineering design.

The difference in revenues from the year ended December 31, 2025, to the same period in 2024, is primarily due to an increase in performance obligations related to CFD studies, customer witness tests, flare shipments and spare part deliveries, which was slightly offset by a decrease in boiler burner deliveries.

During the year ended December 31, 2024, our revenues were predominantly generated from orders related to our process burner, boiler burner, and spare part offerings.

Gross profit increased by $306 thousand, or 27.4%, for the year ended December 31, 2025, compared to the same period in 2024.

The favorable increase in gross profit for the year ended December 31, 2024, was predominantly due to higher revenues.

Profit margin decreased by 2.9% from 34.0% for the year ended December 31, 2023, to 31.1% for the year ended December 31, 2024, which impacted our gross profit for such period by $104 thousand.

The unfavorable impact to profit margin was due to higher than expected start-up costs from our 1,200 HP boiler burner project during the fourth quarter of 2024, which caused us to incur an overall loss on the project.

The favorable increase in gross profit for the year ended December 31, 2025, was predominantly due to higher revenues, which was offset by an additional warranty accrual recognized during the year ended December 31, 2025.

Specifically, during the three months ended December 31, 2025, gross profit was impacted by $447 thousand for the additional warranty accrual recorded as part of our year-end financial reporting processes (see “Note 7 – Product Warranties” for more information).

We assessed the adequacy of our accrued warranty balance and determined an adjustment was necessary for potential in-field burner modifications related to certain completed jobs.

The year-over-year gross profit decreased due to additional warranty expenses, which was partially offset by a year-over-year increase in spare parts and engineering service orders, which typically contain a favorable profit margin profile compared to our other service and product offerings.

Operating Expenses

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Research and Development

R&D expenses increased $732 thousand, or 99.1%, for the year ended December 31, 2024, as compared to the same period in 2023.

This unfavorable year-over-year increase in R&D expenses was mainly driven by additional head count and related benefit costs of $269 thousand that did not exist in the same period in 2023.

In addition, we incurred an unfavorable additional year-over-year expense related to product development costs for our process burner product line for a total of $367 thousand for the year ended December 31, 2024.

During the year ended December 31, 2023, we experienced a year-over-year unfavorable increase of $234 thousand primarily attributable to $83 thousand related to the hiring of our new Chief Technology Officer, and $60 thousand related to our hydrogen burner project.

The hydrogen burner development project costs are offset by government assistance monies (see the “Other Income” discussion below for further details).

R&D expenses for the year ended December 31, 2025 remained relatively consistent year-over-year compared to the same period in 2024, and the decreases and increases in this expense category were not unexpected.

See “Note 2 – Summary of Significant Accounting Policies - Research and Development, and Government Assistance” for more information about the type of costs included within R&D expenses.

General and Administrative

G&A expenses increased $76 thousand, or 1.3%, for the year ended December 31, 2024, as compared to the same period in 2023.

This unfavorable increase in G&A expenses is primarily comprised of $394 thousand for a one-time non-recurring accrual estimate related to the decision to suspend our operations in China (see “Recent Developments – Suspension of Activities in China” above for more details).

This suspension involved declaring our Beijing, China wholly-owned subsidiary dormant, which is a legal entity status available under China law.

Under this legal entity status, operational activities cease for a period not to exceed three years.

The unfavorable increase in G&A expenses was partially offset by a decrease of $248 thousand in human capital costs primarily driven by the timing of employee departures and subsequent onboarding.

During the year ended December 31, 2023, we experienced a year-over-year unfavorable increase of $331 thousand primarily attributable to a $172 thousand difference for a non-cash, non-recurring expense related to the vesting of restricted stock units triggered by the departure of a director on our board, and a $81 thousand non-cash, non-recurring impairment of demonstration burners.

Other income increased by $402 thousand, or 51.1%, for the year ended December 31, 2024, as compared to the same period in 2023.

The favorable increase is primarily attributable to $442 thousand increase in government assistance from our DOE hydrogen burner development grant, and $192 thousand increase in interest income from a higher cash balance during 2024, as compared to the same period in 2023.

The favorable increase was partially offset by an unfavorable decrease of $197 thousand related to the decommissioning project of our Seattle office whereby we sold used equipment and materials during the year ended December 31, 2023.

During the year ended December 31, 2023, we experienced a favorable year-over-year increase of $428 thousand primarily attributable to an increase of $241 thousand in interest income and an increase of $197 thousand from our Seattle office decommissioning project.

G&A expenses for the year ended December 31, 2025 increased by $538 thousand, or 8.8%, compared to the same period in 2024.

This unfavorable increase in G&A expenses was primarily due to an increase of approximately $746 thousand in legal fees, including (i) approximately $131 thousand in legal fees pertaining to work performed in connection with a regulatory inquiry by the SEC into the trading of our securities in 2020;

(ii) approximately $435 thousand in legal fees pertaining to work performed for the former Special Committee;

and (iii) an accrual of approximately $180 thousand related to an advancement claim filed by three former directors (refer to “Item 3.

Legal Proceedings” for further details).

We also incurred an increase in legal and audit costs of approximately $205 thousand related to services provided for the preparation and filing of our “shelf” registration statement on Form S-3 (the “Form S-3”) and work performed in connection with our At-the-Market (“ATM”) program with H.C.

Wainwright & Co., LLC (“Wainwright”).

In addition, non-cash expenses increased approximately $469 thousand year-over-year related to the vesting of RSUs in connection with the departure of three directors from the Board.

Increases in G&A expenses for the year ended December 31, 2025 were partially offset by an expense decrease of approximately $394 thousand related to our China dormancy cost accrual that occurred during the year ended December 31, 2024, which did not occur during the same period in 2025.

G&A expense increases were further partially offset by a decrease of $154 thousand in costs related to certain incentive compensation to our employees and executive officers for which the performance target metrics were not achieved, and year-over-year increase in deferred costs due to labor and overhead cost capitalizations of $268 thousand during the year ended December 31, 2025.

Other income for the year ended December 31, 2025 remained relatively consistent year-over-year compared to the same period in 2024, and the decreases and increases in other income were not unexpected.

See “Consolidated Statements of Operations and Comprehensive Loss” for more information about the various types of income and expense included within this line item.

Liquidity and Capital Resources

At December 31, 2024, our cash and cash equivalents balance totaled $14,035 thousand compared to $5,684 thousand at December 31, 2023, an increase of $8,351 thousand.

The increase in cash and cash equivalents is primarily attributable to our public offering and the concurrent private placement and the related SPV’s exercise of its participation right during 2024 (see “Note 8 – Equity” for additional information), which was partially offset by our net loss of $5,299 thousand.

At December 31, 2025, our cash and cash equivalents balance totaled $9,178 thousand compared to $14,035 thousand at December 31, 2024, a decrease of $4,857 thousand.

The decrease in cash and cash equivalents is primarily attributable to our net loss of $5,496 thousand and an increase in our accounts receivables of $1,195 thousand, which was partially offset by our non-cash expenses of $1,238 thousand.

At December 31, 2025, our current assets were in excess of current liabilities resulting in working capital of $8,642 thousand as compared to $12,809 thousand at December 31, 2024.

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Until the growth of revenue increases to a level that covers operating expenses, we intend to continue to fund operations in this manner, although the volatility in the capital markets may negatively affect our ability to do so.

As of December 31, 2024, approximately 21.3 million shares of our common stock are issuable upon exercise of our outstanding warrants, which number excludes the shares of common stock issuable upon exercise of the Pre-Funded Warrants, and we may receive up to $22.5 million in aggregate gross proceeds from the cash exercises thereof, subject to certain beneficial ownership limitations set forth therein.

The Warrants require the warrant holder to tender cash upon exercise, with the exception of the Underwriter Warrants (as defined above) which allow the holder to exercise cashless if they so desire.

As of December 31, 2025, approximately 2.1 million shares (or 21.3 million on a pre-reverse stock split basis) of our common stock are issuable upon exercise of our outstanding warrants, which number excludes the shares of common stock issuable upon exercise of our outstanding pre-funded warrants, and we may receive up to $22.4 million in aggregate gross proceeds from the cash exercises thereof, subject to certain beneficial ownership limitations set forth therein.

Our outstanding warrants require the warrant holder to tender cash upon exercise, with the exception of the outstanding underwriter’s warrants and placement agent warrants, which allows the holder of such warrants to exercise cashless if they so desire.

These equity financial instruments may from time-to-time fund future cash needs, but the volatility of our common stock price and the risk tolerance of warrant holders will determine the extent in which we will be able to raise funds in this manner.

Additionally, under our ATM program with Wainwright, acting as sales agent, we are able to offer and sell shares of our common stock from time to time for an aggregate offering price of up to $10.39 million pursuant to our Form S-3 (see “Note 9 – Equity” for more information).

Operating activities for the year ended December 31, 2025, resulted in cash outflows of $4,736 thousand, primarily due to the net loss of $5,496 thousand and an increase in our accounts receivables of $1,195 thousand during such period, which was partially offset by net non-cash expenses of $1,238 thousand.

The increase in accounts receivables was predominately driven by a shipment of twenty-six process burners and completion of multiple CFD studies during the month of December 2025.

Operating activities for the year ended December 31, 2024, resulted in cash outflows of $4,373 thousand, primarily due to the net loss of $5,299 thousand and a decrease in contract liabilities of $1,408 thousand during such period, which was partially offset by net non-cash expenses of $846 thousand, and an increase in accounts payable, accrued liabilities and lease liabilities of $816 thousand.

The decision to suspend our China operations during the third quarter of 2024 continues to impact our accounts payable and accrued liabilities by an increase of $239 thousand during the year ended December 31, 2024.

During the third quarter of 2024, we recorded a one-time accrual estimate of $394 thousand for the costs to prepare and place our Beijing, China subsidiary into a dormant state.

As of December 31, 2024, we have incurred $155 thousand in cash outflows with the remaining $239 thousand in accrued liabilities predominantly related to severance costs.

Our warranty reserve naturally increased due to increased product shipments during the year ended December 31, 2024, which impacted accounts payable and accrued liabilities (see “Note 6 – Product Warranties” below for additional information).

The change in contract liabilities during the year ended December 31, 2024, was predominantly impacted by our shipment of process burners during the year ended December 31, 2024 (see “Note 5 – Revenue, Contract Assets and Contract Liabilities” below for additional information).

Operating activities for the year ended December 31, 2023 resulted in cash outflows of $3,233 thousand, primarily due to the loss for the period of $5,194 thousand, offset with non-cash expenses of $1,045 thousand, and an increase of $869 thousand of contract liabilities, which represents payments from customers in advance of future project costs.

The increase in accounts payable, accrued liabilities and lease liabilities was predominately driven by our decision to suspend our China operations during the year ended December 31, 2024.

Investing activities for the year ended December 31, 2025, resulted in cash outflows of $101 thousand, which is primarily attributable to $97 thousand of disbursements for patents and other intangible assets.

Investing activities for the year ended December 31, 2023 resulted in cash inflows of $2,490 thousand, which is primarily attributable to the redemption $4,847 thousand of short-term held-to-maturity U.S.

treasuries, partially offset by $2,162 thousand of purchases for the same type of investments.

Financing activities for the year ended December 31, 2024, resulted in cash inflows of $12,946 thousand, which is primarily attributable to the net proceeds received of $12,967 thousand from the issuance of securities in connection with the recent equity offerings (see “Note 8 – Equity” for additional information).

Financing activities for the year ended December 31, 2023 included $15 thousand in disbursements for taxes paid related to vesting of employee restricted stock units.

Investing activities for the year ended December 31, 2024, resulted in cash outflows of $218 thousand, which is primarily attributable to $179 thousand of disbursements for patents and other intangible assets.

Financing activities for the year ended December 31, 2025, resulted in cash outflows of $21 thousand, which is primarily attributable to $45 thousand of disbursements related to taxes paid for the vesting of certain employee RSUs and stock awards, partially offset by $24 thousand in net proceeds received from the exercise of our outstanding warrants.

Off-Balance Sheet Transactions

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis