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Item 2. Management’s Discussion and Analysis

2026-05-12 compared with 2025-11-12 · 152 added, 178 removed, 201 unchanged (62% of the section changed)

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This Quarterly Report on Form 10-Q (“Form 10-Q”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

All statements, other than statements of historical fact, contained in this Quarterly Report on Form 10-Q are forward-looking statements, including, but not limited to, statements regarding our strategy, prospects, plans, objectives, future operations, future revenue and earnings, projected margins and expenses, markets for our services, potential acquisitions or strategic alliances, financial position, and liquidity and anticipated cash needs and availability.

The words “anticipates,” “believes,” “targets,” “should,” “contemplates,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “will,” “would,” “potential,” “remains,” “continues,” “likely,” or variations of such words and similar expressions or the negatives thereof are intended to identify forward-looking statements.

All statements, other than statements of historical fact, contained in this Form 10-Q are forward-looking statements, including, but not limited to, statements regarding our strategy, prospects, plans, objectives, future operations, future revenue and earnings, projected margins and expenses, markets for our services, potential acquisitions or strategic alliances, financial position, and liquidity and anticipated cash needs and availability.

The words “anticipates,” “believes,” “targets,” “should,” “contemplates,” “estimates,” “expects,” “intends,” “may,” “could,” “plans,” “projects,” “will,” “would,” “potential,” “remains,” “continues,” “likely,” or variations of such words and similar expressions or the negatives thereof are intended to identify forward-looking statements.

However, not all forward-looking statements contain these identifying words.

These forward-looking statements represent our management’s expectations as of the date of this filing and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance and achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.

We cannot guarantee the accuracy of the forward-looking statements, and you should be aware that results and events could differ materially and adversely from those contained in the forward-looking statements due to a number of risks and uncertainties including, but not limited to, those described in the section entitled “Risk Factors” included in our 2024 Annual Report on Form 10-K, this Quarterly Report on Form 10-Q, and in other documents we file from time to time with the U.S.

We cannot guarantee the accuracy of the forward-looking statements, and you should be aware that results and events could differ materially and adversely from those contained in the forward-looking statements due to a number of risks and uncertainties including, but not limited to, those described in the section entitled “Risk Factors” included in our 2025 Annual Report on Form 10-K, this Form 10-Q, and in other documents we file from time to time with the U.S.

Securities and Exchange Commission (the “Commission” or the “SEC”) that disclose risks and uncertainties that may affect our business.

Readers are urged to carefully review and consider the various disclosures made in this Quarterly Report on Form 10-Q and in other documents we file from time to time with the Commission.

Furthermore, such forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q.

Except as required by law, we do not undertake, and expressly disclaim any duty, to publicly update or revise these statements, whether as a result of new information, new developments, or otherwise and even if experience or future changes make it clear that any projected results expressed in this Quarterly Report on Form 10-Q or future quarterly reports, press releases or company statements will not be realized.

Unless specifically indicated otherwise, the forward-looking statements in this Quarterly Report on Form 10-Q do not reflect the potential impact of any investments, divestitures, mergers, acquisitions or other business combinations that have not been completed as of the date of this filing.

In addition, the inclusion of any statement in this Quarterly Report on Form 10-Q does not constitute an admission by us that the events or circumstances described in such statement are material.

Readers are urged to carefully review and consider the various disclosures made in this Form 10-Q and in other documents we file from time to time with the Commission.

Furthermore, such forward-looking statements speak only as of the date of this Form 10-Q.

Except as required by law, we do not undertake, and expressly disclaim any duty, to publicly update or revise these statements, whether as a result of new information, new developments, or otherwise and even if experience or future changes make it clear that any projected results expressed in this Form 10-Q or future quarterly reports, press releases or company statements will not be realized.

Unless specifically indicated otherwise, the forward-looking statements in this Form 10-Q do not reflect the potential impact of any investments, divestitures, mergers, acquisitions or other business combinations that have not been completed as of the date of this filing.

In addition, the inclusion of any statement in this Form 10-Q does not constitute an admission by us that the events or circumstances described in such statement are material.

We qualify all of our forward-looking statements by these cautionary statements.

In addition, the industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors including those described in the section entitled “Risk Factors” included in our 2024 Annual Report on Form 10-K and in this Quarterly Report on Form 10-Q.

These and other factors could cause our results to differ materially from those expressed in this Quarterly Report on Form 10-Q.

In addition, the industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors including those described in the section entitled “Risk Factors” included in our 2025 Annual Report on Form 10-K and in this Form 10-Q.

These and other factors could cause our results to differ materially from those expressed in this Form 10-Q.

Hyliion is committed to creating innovative solutions that enable clean, efficient, and flexible electricity production while contributing positively to the environment in the energy economy.

Hyliion’s primary product offering, the KARNO TM Power Module, is a modular, fully enclosed, fuel-agnostic and fully integrated power generating solution.

The KARNO Power Module is powered by KARNO Core, a heat engine coupled to a linear generator, to produce electricity with significant improvements in efficiency, emissions and lifecycle cost compared to conventional generation technologies.

Hyliion’s primary product offering, the KARNO Power Module, is a modular, fully enclosed, fuel-agnostic and fully integrated power generating solution.

The KARNO Power Module is powered by KARNO Core, a heat powered linear generator, to produce electricity with significant improvements in efficiency, emissions and lifecycle cost compared to conventional generation technologies.

Hyliion’s KARNO Power Modules enable effective power generation using a wide range of fuel sources, including conventional fuels such as natural gas, propane or diesel, waste fuels such as landfill gas, wellhead gas, and zero carbon fuels such as renewable hydrogen and ammonia.

Hyliion is initially targeting the datacenter, commercial and industrial, and defense sectors with a locally-deployable generator designed to meet a wide range of power generation needs.

The Company plans to scale up its Power Module solution to address larger utility-scale power needs and to develop future variants for industrial waste heat, nuclear, household use and e-mobility applications such as vehicles and marine vessels.

Additionally, the Power Module technology is well-suited to provide combined heat and power in various stationary applications.

Hyliion is initially targeting the datacenter, commercial, industrial, and defense sectors with a locally-deployable generator designed to meet a wide range of power generation needs.

The Company plans to scale up its KARNO Power Module solution to address larger utility-scale power needs and to develop future variants for industrial waste heat, nuclear, household use and e-mobility applications such as vehicles and marine vessels.

Additionally, the KARNO Power Module technology is well-suited to provide combined heat and power in various stationary applications.

KARNO Power Modules

The KARNO technology emerged out of General Electric’s long-running R&D investments in aerospace and metal additive manufacturing across multiple industries and in areas such as generator thermal and performance design.

envisioned utilizing the KARNO Core as new range-extending power source for our Hypertruck powertrain system, given its ability to operate on a wide range of fuel sources, including natural gas and hydrogen.

After the previously-announced wind down of our powertrain operations, we shifted our focus to the development and commercialization of the KARNO Power Module as a standalone product targeting power generation and e-mobility markets, and related R&D services that we have undertaken pursuant to contracts with the United States government.

Originally envisioned as a range-extending power source for our Hypertruck powertrain system, we now intend to commercialize the KARNO Power Module as a standalone product targeting power generation, defense, and e-mobility markets, as well as related R&D services

that we have undertaken pursuant to contracts with the United States government.

We believe that the unique capabilities of the KARNO Power Module will make it competitive in the market for distributed power systems, competing favorably against conventional generating systems and new alternative power systems such as fuel cells and other linear generators.

The KARNO Power Module and KARNO Core technology, including the technology that we acquired from General Electric, and the technology developed by Hyliion subsequent to the acquisition, is protected by numerous patents and trademarks which we believe provide Hyliion extensive and lasting protection for its intellectual property.

The KARNO Power Module and KARNO Core technology, including the technology that we acquired from General Electric, and the technology developed by Hyliion subsequent to the acquisition, is protected by numerous patents and trademarks which we believe provide us with extensive and lasting protection for our intellectual property.

The Science of the KARNO Power Module

The KARNO Power Module is distinguished from conventional generating systems that rely on reciprocating internal combustion engines or gas turbines to drive a rotating shaft.

Instead, the KARNO Cores that power the KARNO Power Modules use an innovative thermal converter to power a linear electricity generating system.

Instead, the KARNO Core that powers the KARNO Power Module uses an innovative thermal converter to power a linear electricity generating system.

The KARNO Core produces linear motion from temperature differences within the system.

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The KARNO Power Module is expected to surpass the efficiency of many conventional generating systems when employing various fuel sources and its high efficiency is expected to remain consistent across a broad range of output power levels.

In contrast, fuel cells reach peak efficiency at low power levels but experience diminishing efficiency as output increases towards full power.

In comparison, fuel cells reach peak efficiency at low power levels but experience diminishing efficiency as output increases towards full power.

Internal combustion engines typically achieve peak efficiency within a limited operational output range and may suffer increased wear at low power levels.

The KARNO Power Module offers a distinct advantage in power adjustment by modulating the rate of heat introduction, enabling seamless power adjustments without compromising the KARNO Core’s efficiency.

We anticipate that the KARNO Power Module will achieve an electrical generating efficiency of up to 50%, calculated by considering the usable DC output power in relation to the energy from the fuel source.

The KARNO Power Module offers a distinct advantage in power adjustment by modulating the rate of heat introduction, enabling seamless power adjustments without compromising efficiency.

We anticipate that the KARNO Power Module will initially achieve an electrical generating efficiency of approximately 45%, calculated by considering the usable power output in relation to the energy from the fuel source.

We believe that ongoing engineering improvements are expected to increase the KARNO Power Module’s efficiency to 50% or higher in future design iterations.

High efficiency is expected to remain relatively consistent across a wide range of output power levels, spanning from tens of kilowatts to multiple megawatts.

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This is achieved partly through the recirculation of exhaust gases, which serves to prolong oxidation, and by pre-heating incoming air.

As a result, the KARNO Power Module is anticipated to achieve ultra-low levels of emissions, with NOx and CO emissions expected to be reduced by over 95% compared to best-in-class diesel or

natural gas engines and meeting South Coast Air Quality Management District (“SCAQMD”) Rule 1110.3 emission standards without the need for aftertreatment.

As a result, the KARNO Power Module is anticipated to achieve ultra-low levels of emissions, with NOx and CO emissions expected to be reduced by over 95% compared to best-in-class diesel or natural gas engines and meeting South Coast Air Quality Management District (“SCAQMD”) Rule 1110.3 emission standards without the need for aftertreatment.

One of the notable advantages of the KARNO Power Module in comparison to traditional generating units is the expected reduction in maintenance requirements and cost.

Conventional generators typically incur periodic and usage-based maintenance expense that can range between 5% to 20% of their total operating cost throughout their lifespan, influenced by factors such as utilization and operating parameters.

The KARNO Power Module’s primary advantage arises from having only a single moving linear actuator per shaft (4 shafts per 200 kW KARNO Core), which glides on low friction helium bearings.

This innovative design significantly mitigates efficiency losses attributed to friction, enhancing the system’s operational longevity and eliminating the need for oil-based lubricants.

The KARNO Power Module’s primary advantage arises from having only a single moving part per shaft (4 shafts per 200 kW KARNO Core), which glides on low friction helium bearings.

This innovative design

mitigates efficiency losses attributed to friction, enhancing the system’s operational longevity and eliminating the need for oil-based lubricants.

The KARNO Power Module derives advantages from its expected capability to operate across a diverse spectrum of over 20 available fuel sources and fuel blends.

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This versatility enables a single KARNO Power Module to adapt to different use cases.

For example, the KARNO Power Module may operate on natural gas for prime power generation when a pipeline connection is available and on waste gas near a landfill or dairy farm, and switch to locally stored diesel fuel for continuous generation if primary fuel supply is interrupted.

Furthermore, as hydrogen becomes more widely available, the KARNO Power Module will be able to adapt to this cleaner fuel.

As the energy landscape evolves, the KARNO Power Module’s fuel-agnostic nature positions it as a flexible solution to electricity generation needs, enhancing energy security.

For example, the KARNO Power Module may operate on natural gas for prime power generation when a pipeline connection is available, on waste gas near a landfill or dairy farm, and switch to locally stored diesel fuel for continuous generation if its primary fuel supply is interrupted.

Furthermore, we expect that as hydrogen becomes more widely available, the KARNO Power Module will be able to adapt to this cleaner fuel.

As the energy landscape evolves, we believe that the KARNO Power Module’s fuel-agnostic nature positions it as a flexible solution to electricity generation needs, enhancing energy security.

Benefits of the KARNO Power Module Versus Conventional Competitors

We believe the versatility and operating characteristics of the KARNO Power Module will make it an effective system for a variety of conventional and emerging electricity generating applications.

We believe the versatility and operating characteristics of the KARNO Power Module make it an effective system for a variety of conventional and emerging electricity generating applications.

Key attributes of the KARNO Power Module distinguish it from its conventional generator counterparts, which may open new market opportunities:

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• Low Maintenance :

With only a single moving part per shaft, the simplicity of the KARNO Power Module is expected to reduce both periodic maintenance expenses, overhaul costs and longer uptime.

With only a single moving part per shaft, the simplicity of the KARNO Power Module is expected to reduce both periodic maintenance expenses and overhaul costs and deliver longer uptime.

• Fuel Agnostic :

While many traditional generators operate on a single fuel source or require system modification to achieve fuel flexibility, the KARNO Power Module is truly fuel-agnostic and can switch between fuel choices during operation with few or no modifications.

While many traditional generators operate on a single fuel source or require system modification to achieve fuel flexibility, the KARNO Power Module is designed to be fuel-agnostic and can switch between fuel choices during operation with few or no modifications.

• Low Noise and Vibration :

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• Higher Power Density :

The unique architecture and features of the KARNO Power Module that are achieved by advances in additive manufacturing are expected to enable the KARNO Power Module to achieve a high power density.

The unique architecture and features of the KARNO Power Module that are enabled by advances in additive manufacturing are expected to enable the KARNO Power Module to achieve a high power density relative to competing power generation technologies.

• Modularity :

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Electricity powers factories, drives the digital revolution, supports healthcare, education, and financial services, and serves as the foundation of economic productivity.

Additional growth drivers include the widespread adoption of automation, artificial intelligence, expanding data centers and the electrification of transportation.

Additional drivers include the projected widespread growth of artificial intelligence, automation, expanding data centers and the electrification of transportation.

However, as global energy demand rises, traditional centralized power generation and distribution models face mounting challenges.

Aging grid transmission infrastructure across the world faces growing challenges as it strives to balance the availability of affordable, reliable power with maintaining grid stability and integrating new sources of clean power generation.

The aging of grid transmission infrastructure is creating new challenges as operators work to balance the availability of affordable, reliable power with maintaining grid stability and integrating new sources of clean power generation.

The addition of intermittent renewable power generation further complicates grid management, emphasizing the need for resilient and adaptive electricity systems.

Distributed power generation offers a solution by decentralizing electricity production, reducing transmission needs and delivering power closer to consumption points.

Hyliion’s KARNO Power Module is an innovative solution in the emerging distributed generation space, offering a reliable power generator that combines high efficiency, fuel flexibility, and low emissions.

Designed for both stationary and mobile applications, the KARNO Power Module addresses many of the challenges that have traditionally limited the widespread

adoption of onsite power solutions.

Distributed power generation offers a solution by decentralizing electricity production, reducing transmission needs and delivering power closer to points of consumption.

We believe that Hyliion’s KARNO Power Module is an innovative solution in the emerging distributed generation space, offering a reliable power generator that combines high efficiency, fuel flexibility, and low emissions.

Designed for both stationary and mobile applications, the KARNO Power Module addresses many of the challenges that have traditionally limited the widespread adoption of onsite power solutions.

These include high operating costs, reliability issues, complex maintenance, noise pollution, space constraints, and dependency on limited fuel sources.

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The KARNO Power Module supports fuel switching during operation without power loss, while flexible deployment options allow it to operate in grid-following, grid-forming, or islanded configurations (when paired with an external inverter), making it suitable for a wide range of applications.

Additionally, the KARNO Power Module features real-time monitoring of over 1,000 operational parameters through its KARNO Cloud ® platform, enabling proactive diagnostics, predictive maintenance, and performance optimization, ensuring maximum uptime.

Additionally, the KARNO Power Module features real-time monitoring of over 1,000 operational parameters through its KARNO Cloud ®

platform, enabling proactive diagnostics, predictive maintenance, and performance optimization, ensuring maximum uptime.

With cloud connectivity, users gain instant access to remote monitoring and control features, providing insights into system performance, fuel efficiency, and system health.

Beyond the 200 kW variant, Hyliion is advancing the development of a larger 2 MW KARNO system, which integrates multiple 200 kW KARNO Core units operating in tandem within a compact 160 square-foot footprint - approximately the size of a 20’ shipping container.

Beyond the 200 kW variant, Hyliion is advancing the development of a larger Multi-MW (2 MW+) KARNO system, which integrates multiple 200 kW KARNO Core units operating in tandem in a compact containerized footprint.

The Multi-MW KARNO (2 MW+) system will target key market segments such as data centers and industrial prime power applications.

We are also developing a modular 800 kW system consisting of four KARNO Core units that is planned to be delivered to the U.S.

Navy in 2026 as part of our project with ONR.

We believe that this modular and scalable approach enables seamless power expansion while maintaining high efficiency and reliability.

The 2 MW solution will target key market segments such as data centers and industrial prime power applications.

By utilizing multiple 200 kW generating blocks, the system offers built-in redundancy and the flexibility for customers to customize capacity to match their power needs.

Hyliion also plans to expand the KARNO product line with both larger and smaller capacity versions, adjusting power levels by varying the number of generator shafts and component sizes.

Initially, the KARNO Power Module will address power applications ranging from 200 kW to the low hundreds of megawatts, addressing a broad spectrum of distributed generation needs.

Hyliion also plans to expand the KARNO product line over time with both larger and smaller capacity versions, adjusting power levels by varying the number of generator shafts and component sizes.

Initially, the KARNO Power Module will target power applications ranging from 200 kW to the low megawatt range, addressing a broad spectrum of distributed generation needs.

With its ability to deliver reliable, fuel-flexible, and highly efficient power, the KARNO Power Module is uniquely positioned to serve a variety of key market segments, including:

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Onsite generation is an emerging solution to power new data center installations.

Hyliion’s 2 MW KARNO product is being designed to address the needs of data center developers by providing a scalable, fuel-flexible onsite power solution with best-in-class power density and versatility.

Hyliion’s Multi-MW (2MW+) KARNO system is being designed to address the needs of data center developers by providing a scalable, fuel-flexible onsite power solution with best-in-class power density and versatility.

Capable of operating on more than 20 different fuels, the KARNO Power Module enables data center developers to minimize onsite generation infrastructure.

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With relatively high efficiency, fuel adaptability and low maintenance needs, KARNO Power Modules provide a cost-effective alternative to grid electricity, allowing businesses to optimize energy costs while ensuring uninterrupted operations.

Its ability to seamlessly integrate with energy storage and renewable sources enables installation of effective hybrid energy solutions.

Additionally, the KARNO Power Module’s cogeneration capabilities allow industries to utilize both electricity and thermal energy, improving overall system efficiency and recovering usable waste heat.

Its ability to integrate with energy storage and renewable sources is expected to enable installation of effective hybrid energy solutions.

Additionally, the KARNO Power Module’s cogeneration capabilities may allow industries to utilize both electricity and thermal energy, improving overall system efficiency and recovering usable waste heat.

Defense organizations around the world are pursuing advanced energy solutions to support modern, rapidly evolving, distributed operations across land, sea, air, and autonomous platforms.

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Built with minimal moving parts and robust architecture, the KARNO technology delivers extended maintenance intervals and high system uptime under challenging conditions.

Whether deployed in forward operating bases, shipboard power systems, microgrids, or unmanned autonomous platforms, the scalable KARNO Power Module and KARNO Core aim to deliver reliable, next-generation power for the strategic and tactical demands of global defense operations.

Whether deployed in forward operating bases, shipboard power systems, microgrids, or unmanned autonomous platforms, we expect that the scalable KARNO Power Module can deliver reliable, next-generation power for the strategic and tactical demands of global defense operations.

• Vehicle Charging:

The rapid adoption of electric vehicles (“EVs”) is placing increasing strain on grid capacity, a challenge expected to grow with the introduction of commercial EVs, including buses, delivery vans, and heavy-duty trucks.

The adoption of electric vehicles (“EVs”) is placing increasing strain on grid capacity, a challenge expected to grow with the introduction of commercial EVs, including buses, delivery vans, and heavy-duty trucks.

These vehicles require substantial power for charging, intensifying grid demands.

While Direct Current (“DC”)

fast charging technology and infrastructure are evolving to meet this need, many commercial operators cite limited grid capacity and high electricity costs as barriers to scaling their EV fleets.

Hyliion’s KARNO Power Module offers an advantaged solution for commercial EV charging.

Its native DC output integrates seamlessly with DC fast charging infrastructure, eliminating power losses associated with conversion.

Additionally, the KARNO Power Module’s compact footprint and quiet operation make it ideal for deployment in space-constrained locations, such as urban charging hubs, fleet depots, and remote charging stations where grid access is limited or expensive.

When paired with onsite energy storage systems and renewable energy sources like solar or wind, KARNO Power Modules can enable resilient and sustainable microgrids for EV charging.

While Direct Current (“DC”) fast charging technology and infrastructure are evolving to meet this need, many commercial operators cite limited grid capacity and high electricity costs as barriers to scaling their EV fleets.

We believe the KARNO Power Module offers an advantaged solution for commercial EV charging.

Its native DC output integrates with DC fast charging infrastructure, eliminating power losses associated with conversion.

Additionally, the KARNO Power Module’s compact footprint and quiet operation will make it suitable for deployment in space-constrained locations, such as urban charging hubs, fleet depots, and remote charging stations where grid access is limited or expensive.

with onsite energy storage systems and renewable energy sources like solar or wind, KARNO Power Modules can enable resilient and sustainable microgrids for EV charging.

• Biogas (Landfill, Wastewater & Digester Gas):

Biogas sourced from landfills, wastewater treatment plants, and dairy digesters represents a rapidly growing market as industries and municipalities seek to convert methane-rich waste gases into electricity and prevent methane, a potent greenhouse gas, from escaping into the environment or being flared.

Biogas sourced from landfills, wastewater treatment plants, and dairy digesters represents a growing market as industries and municipalities seek to convert methane-rich waste gases into electricity and prevent methane, a potent greenhouse gas, from escaping into the environment or being flared.

Current power generation technologies often struggle to process biogas due to contaminants such as hydrogen sulfide and siloxanes, as well as moisture and fluctuating gas compositions, necessitating preconditioning and purification before the fuel can be utilized.

The KARNO Power Module’s advanced architecture and corrosion-resistant materials enable it to operate with minimal gas preconditioning, making it a cost-effective, high-performance solution for converting waste gas into reliable power.

• Oil & Gas and Syngas Gas:

The oil and gas industry is rapidly electrifying due to growing power needs across drilling, production, refining, and transportation operations.

We believe the KARNO Power Module’s advanced architecture and corrosion-resistant materials enable it to operate with minimal gas preconditioning, making it a cost-effective, high-performance solution for converting waste gas into reliable power.

• Oil & Gas and Syngas:

The oil and gas industry is electrifying due to growing power needs across drilling, production, refining, and transportation operations.

However, wellhead and flare gas, byproducts of oil and gas extraction, are often wasted due to insufficient pipeline capacity or poor gas quality, leading to lost energy and increased emissions.

The KARNO Power Module enables conversion of waste gas into usable electricity with minimal pre-treatment, enabling onsite power generation and grid integration.

Its fuel flexibility, use of corrosion-resistant materials, and ability to handle variable fuel quality make it an ideal technology of choice for oilfield electrification while significantly reducing emissions.

We believe the KARNO Power Module’s fuel flexibility, use of corrosion-resistant materials, and ability to handle variable fuel quality make it a suitable technology of choice for oilfield electrification while significantly reducing emissions.

Additionally, the KARNO Power Module’s fuel-agnostic capability allows it to generate clean electricity from hydrogen-rich syngas, a valuable byproduct of gasification or industrial processes.

The KARNO Power Module is particularly suitable for applications that require a source of electric power in mobile applications such as electric vehicles, railroad locomotives, remote power generation and marine vessels.

The KARNO Power Module is designed to be particularly suitable for applications that require a source of electric power in mobile applications such as electric vehicles, railroad locomotives, remote power generation and marine vessels.

Compared to conventional power sources, the KARNO Power Module is expected to offer higher efficiency, lower emissions, quieter operation, reduced maintenance needs and the flexibility to operate on a wider range of fuel sources.

Additionally, the KARNO Power Module’s high power density, modularity and native DC power output offers an added advantage where space constraints and integration are considerations.

Additionally, the KARNO Power Module’s high power density, modularity and native DC power output offer an added advantage where space constraints and integration are considerations.

• Backup Power:

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We undertake significant testing and validation of our products and components to ensure that they will meet the demands of our customers.

Our R&D activities primarily take place at our facility in Cincinnati, Ohio and at our headquarters in Cedar Park, Texas.

Our R&D activities

primarily take place at our facility in Cincinnati, Ohio and at our headquarters in Cedar Park, Texas.

Our R&D is primarily focused on:

• development of the KARNO Core and Power Module including testing and validation;

• integration of the KARNO Core and Power Module technology into various applications;

• accelerated lifetime testing processes to improve reliability, maintainability and system-level robustness;

• development of the KARNO Core and KARNO Power Module including testing and validation;

• integration of the KARNO Core and KARNO Power Module technology into various applications;

• accelerated lifetime testing to improve reliability, maintainability and system-level robustness;

• development of battery systems that can be used as a starter power source for the KARNO Power Module or as a load buffer solution;

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• alternative products for existing and in-development components and technology.

Since acquiring the KARNO technology from GE in September 2022, Hyliion has made significant R&D investments to support an expected commercial launch of the 200 kW KARNO Power Module.

Early efforts focused on the development of a 125 kW KARNO Core, which has been successfully operated in our Ohio facility and utilized for extensive testing and further advancements.

Since acquiring the KARNO technology from GE in September 2022, Hyliion has made significant R&D investments to support a commercial launch of the 200 kW KARNO Power Module.

Early efforts focused on the development of a 125 kW KARNO Core, which was successfully operated in our Ohio facility and utilized for extensive testing and further advancements.

Through this system, we validated the ability of the KARNO Core’s fuel oxidation system to operate on a wide range of fuel sources, including natural gas, hydrogen, gas mixtures, and untreated landfill and Permian Basin well gas.

Additionally, testing of the oxidation system demonstrated very low levels of pollutant emissions in the exhaust stream.

The 125 kW KARNO Core also served as platform for developing and validating key components that are now incorporated into the larger 200 kW KARNO Power Module slated for market launch.

These advancements include improved helium gas bearings for greater durability, a magnetic encoder for precise shaft position detection and optimized printed components to increase KARNO Core efficiency and manufacturing speed.

The higher powered 200 kW KARNO Core also incorporates a larger Hyliion-designed linear electric motor.

Development activities in 2024 and 2025 included developing production processes for this new motor as well as testing and validation of design parameters.

We have completed the design and sourcing of components for the balance-of-plant systems that support KARNO Core operation for the 200 kW system, including the system enclosure.

The balance of plant includes cooling, pressure control, fuel and air, battery, high and low voltage, inlet air and exhaust systems.

The 125 kW KARNO Core also served as a platform for developing and validating key components that are now incorporated into the higher-power 200 kW KARNO Power Module slated for market launch.

The 200 kW KARNO Core also incorporates a larger Hyliion-designed linear electric motor.

Recent R&D activities included developing production processes for this new motor as well as testing and validation of system design parameters.

We have completed the design and sourcing of components for the balance-of-plant systems that support KARNO Core operation for the 200 kW system, incl uding the system enclosure.

The balance-of-plant includes cooling, pressure control, fuel, battery, high and low voltage, inlet air and exhaust systems.

Development work also includes control software, safety systems, the human-to-machine interface and the physical integration of systems.

Validation of essential operating parameters, including efficiency, emissions and reliability, are also part of R&D activities.

To date in 2025, we have delivered two early adopter customer units planned for the year as well as two additional Power Modules that are used for internal testing and for UL Solutions (“UL”) certification.

The two customer units are undergoing testing under our R&D contract with the ONR and are performing well mechanically, while we address minor software and test equipment issues.

Initial KARNO Power Module deployments, along with our ongoing testing and development efforts, will continue to validate critical design specifications, including projected operating life, maintenance requirements and durability.

Earlier in 2025, we announced that delivery of early deployment customer units and validation of generator design parameters were delayed due to design and production problems related to a key printed component − the regenerator − as well as delays in ramping up production of linear electric motors by a contract manufacturer.

In 2025, we delivered two early adopter customer units to the U.S.

Navy as well as two additional KARNO Power Modules that we are using for internal testing and Underwriters Laboratories (“UL”) certification.

The two units are undergoing testing under our R&D contract with ONR and are performing in accordance with expectations mechanically while we enhance the ability of the units to operate on diesel fuel.

We believe that initial KARNO Power Module deployments, along with our ongoing testing and development efforts, will validate critical design specifications, including projected operating life, maintenance requirements and durability.

In early 2025, we announced that delivery of early depl oyment customer units and validation of KARNO Power Module design parameters were delayed due to design and production problems related to a key printed component − the regenerator − as well as delays in ramping up production of linear electric motors by a contract manufacturer.

The regenerator functions as a heat capacitor, storing thermal energy within the system as helium gas cycles between hot and cold temperature regions.

It is a critical component for achieving the generator’s target power levels and overall system efficiency.

It is a critical component for achieving the KARNO Power Module’s target power levels and overall system efficiency.

An early regenerator design was found to have insufficient heat storage and transfer capability.

Additionally, residual powder from the additive manufacturing process could not easily be removed after printing due to the small passageways in the regenerator’s flow channels.

The regenerator part has since been redesigned to increase heat storage and transfer capabilities.

Testing of this updated design indicates that it will address the performance shortfall seen with the earlier configuration although the improved thermal characteristics revealed other locations where performance is being affected by heat losses within the system.

Design modifications are underway to increase the insulative properties of these components with improved results expected in the coming months.

The regenerator has since been redesigned to increase heat storage and transfer capability.

Testing of the updated design demonstrates significant performance improvement compared with the earlier configuration.

While the improved thermal characteristics enhanced overall performance, testing also identified other areas where heat losses within the system were adversely affecting results.

Design modifications have been implemented to increase the insulative properties of other system components with improved performance observed during subsequent testing.

Further design modifications to the regenerator and other components are now under way to enable even greater conversion of heat losses into higher power output and

improved efficiency.

Furthermore, new post-processing techniques have been implemented and verified to effectively remove residual powder from regenerators after printing.

The updated regenerator can be easily retrofitted into existing KARNO Cores once available.

We recently insourced linear electric motor production after earlier efforts to outsource this work to a contract manufacturer.

This transition is accelerating the ramp-up in motor production capacity and enabling greater control over manufacturing

While production challenges and the shift in operations delayed early deployment unit deliveries, output has since increased and is now expected to meet ongoing production needs.

In mid-2025, we insourced linear electric motor production following earlier unsuccessful efforts to outsource this work to a contract manufacturer.

This transition is accelerating the ramp-up in motor production capacity and enabling greater control over manufacturing quality.

In the first quarter of 2026, R&D activities included continued testing and validation of KARNO Power Module operation and software controls, UL certification testing, and ongoing assembly of early customer deployment units.

Other ongoing development activities include modifications designed to increase the generator’s power output and efficiency toward design specifications, additive printer commissioning and speed enhancements, development of controls to enable multi KARNO Power Module operation, and development of manufacturing processes to support 200 kW KARNO Power Module commercialization.

Research and Development Services

We provide R&D services to third parties, including the U.S.

In September 2024, Hyliion was awarded a cost-plus-fixed-fee contract of up to $16.0 million by the ONR to assess the suitability of its KARNO Power Module for Navy vessels and stationary power applications.

We provide R&D services to third parties, including the ONR.

In September 2024, Hyliion was awarded a cost-plus-fixed-fee contract of up to $16.0 million by the ONR to assess the suitability of the KARNO Power Module for Navy vessels and stationary power applications.

The contract aligns with ONR’s objective of leveraging advanced technology to reduce its carbon footprint while enhancing operating capabilities.

Upon successful validation and demonstration, the KARNO Power Module could be used as an electric power system in future platforms and for stationary power needs.

To date in 2025, we have delivered two KARNO Cores under this contract which we have been testing at our R&D facility in Cincinnati.

We expect to deliver additional KARNO Cores and Power Modules during 2026, including a multi-KARNO Power Module system, and will expand testing to include long duration operation, simulation of ship motion and the ability of the system to operate in extreme temperature environments.

We will continue to provide R&D services to third parties under existing contracts and, based on interest from current and prospective customers, anticipate entering into additional R&D agreements in the future.

In 2025, we delivered two KARNO Cores under this contract which we have been testing at our R&D facility in Cincinnati.

In 2026, we expect to deliver additional KARNO Cores, including a four-core 800 kW KARNO Power Module system, and 200 kW KARNO Power Modules.

We will also expand testing to include long duration operation, diesel fuel integration, simulation of ship motion and the ability of the system to operate in extreme temperature environments.

We will continue to provide R&D services to third parties under existing contracts and anticipate entering into additional R&D agreements in 2026 with ONR and other government customers.

Customers engage Hyliion to explore and validate the KARNO Power Module’s capabilities tailored to their specific requirements.

Key areas of interest include testing its low-emissions flameless oxidation system and evaluating applications that leverage the KARNO Power Module ’s high power output and compact configuration.

Customers are also drawn to the KARNO Power Module’s fuel versatility including the ability to easily transition between fuels.

Key areas of interest include testing its low-emissions flameless oxidation system and evaluating applications that leverage the KARNO Power Module’s high power output, compact configuration and versatility, including the ability to easily transition between fuels.

R&D services may also involve testing the KARNO Power Module under various operating conditions, including harsh environments, and in mobile applications to assess its performance.

Certain customers seek to measure and validate its low emissions profile and test different power configurations to ensure the technology aligns with their operational and environmental needs.

Certain customers seek to measure and validate the KARNO Power Module’s low emissions profile and test different power configurations to ensure the technology aligns with their operational and environmental needs.

Key Factors Affecting Operating Results

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Our focus is on continuing development and testing of our fuel-agnostic KARNO Power Module and the deployment of initial units with customers.

We are targeting commercialization by year end, subject to the timing of development and deployments.

We anticipate that a substantial portion of our capital resources and efforts in the near future will be focused on these activities.

The amount and timing of our future funding requirements will depend on many factors, including but not limited to the pace of completing initial KARNO Power Module testing and validation, the pace at which we invest in KARNO Core additive printing capacity, our plans for manufacturing KARNO Power Module components (whether in-house or through outsourcing to third parties), the range of product offerings we plan to bring to market and external market factors beyond our control.

The amount and timing of our future funding requirements will depend on many factors, including but not limited to the pace of completing initial KARNO Power Module testing and validation, the timing of KARNO Power Module commercialization, the pace at which we invest in KARNO Core additive printing capacity, our plans for manufacturing KARNO Power Module components (whether in-house or through outsourcing to third parties), the range of product offerings we plan to bring to market and external market factors beyond our control.

Key Components of Statements of Operations

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Exit and Termination Costs

Exit and termination costs consist of employee severance and retention payments, accelerated non-cash stock-based compensation expense, contract termination and other cancellation costs, non-cash charges including accelerated depreciation and amortization, carrying value adjustment to assets held for sale, and recoveries from resale of assets.

These costs are a result of the Plan approved on November 7, 2023 to wind down our powertrain business.

Exit and termination costs consist primarily of recoveries from resale of assets.

Other income currently consists primarily of interest income earned on our investments.

Since the acquisition of our KARNO technology, we have continued to perform as a subcontractor on a contract with the ONR and recorded such amounts, net of costs incurred, as other income.

Beginning in the quarter ending December 31, 2024, we no longer record amounts received for the performance of R&D services as other income and now record such amounts received as revenue.

Results of Operations

Comparison of Three Months Ended September 30, 2025 to Three Months Ended September 30, 2024

Our results of operations for the three months ended September 30, 2025 (the “current quarter”) and 2024 on a consolidated basis are summarized as follows (in thousands, except share and per share data):

Three Months Ended September 30,

2025 2024 $ Change % Change

Research and development services $ 759 $ — $ 759 N/A

Total revenues 759 — 759 N/A

Cost of revenues

Research and development services 806 — 806 N/A

Total cost of revenues 806 — 806 N/A

Gross loss (47) — (47) N/A

Operating expenses

Research and development 10,136 9,462 674 7.1 %

Selling, general and administrative expenses 5,184 5,648 (464) (8.2) %

Exit and termination benefits (70) (929) 859 (92.5) %

Total operating expenses 15,250 14,181 1,069 7.5 %

Loss from operations (15,297) (14,181) (1,116) 7.9 %

Interest income 1,960 2,979 (1,019) (34.2) %

Net loss $ (13,337) $ (11,202) $ (2,135) 19.1 %

Net loss per share, basic and diluted $ (0.08) $ (0.06) $ (0.02) 33.3 %

Weighted-average shares outstanding, basic and diluted 175,652,193 173,612,768 2,039 1.2 %

Revenue and Cost of Revenues

In the fourth quarter of 2024, we began recognizing revenue for R&D services performed as both a prime and subcontractor to the United States government.

Revenue for R&D services increased $0.8 million and associated cost of revenues increased $0.8 million.

Research and Development

R&D expenses increased $0.7 million due to higher spending related to the design and testing of our KARNO Power Module, growth in the production of additive components, and the procurement of parts for our initial KARNO Power Module deployments planned to occur later in 2025.

Selling, General and Administrative Expenses

Selling, general, and administrative expenses decreased $0.5 million primarily due to:

• a decrease of $0.3 million in facilities costs;

• a decrease of $0.2 million in insurance;

partially offset by

• an increase of $0.2 million in personnel and benefits.

Exit and Termination Benefits

Exit and termination benefits decreased by $0.9 million as a result of the adoption of the Plan and items discussed in Note 2 of the notes to the condensed consolidated financial statements, including recoveries from assets sold.

Interest Income

Interest income decreased $1.0 million primarily due to the decline in our investment balance and lower interest rates.

Comparison of Nine Months Ended September 30, 2025 to Nine Months Ended September 30, 2024

The following table summarizes our results of operations on a consolidated basis for the nine months ended September 30, 2025 (the “current nine months”) and 2024 (in thousands, except share and per share data):

Nine Months Ended September 30,

Comparison of Three Months Ended March 31, 2026 to Three Months Ended March 31, 2025

Our results of operations for the three months ended March 31, 2026 (the “current quarter”) and 2025 on a consolidated basis are summarized as follows (in thousands, except share and per share data):

Three Months Ended March 31,

2026 2025 $ Change % Change

Product sales and other $ 2,763 $ — $ 2,763 N/A

Total revenues 2,763 — 2,763 N/A

Research and development services $ 2,832 $ 489 $ 2,343 479.1 %

Total revenues 2,832 489 2,343 479.1 %

Cost of revenues

Product sales and other 2,667 — 2,667 N/A

Total cost of revenues 2,667 — 2,667 N/A

Gross profit 96 — 96 N/A

Research and development services 2,622 477 2,145 449.7 %

Total cost of revenues 2,622 477 2,145 449.7 %

Gross profit 210 12 198 1,650.0 %

Operating expenses

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Selling, general and administrative expenses 6,181 6,081 100 1.6 %

Exit and termination costs 1,007 2,946 (1,939) (65.8) %

Exit and termination (benefits) costs (414) 1,423 (1,837) N/A

Total operating expenses 13,437 19,734 (6,297) (31.9) %

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Interest income 1,490 2,468 (978) (39.6) %

Gain on disposal of assets — 3 (3) (100.0) %

Other income, net — 32 (32) (100.0) %

Net loss $ (11,737) $ (17,254) $ 5,517 (32.0) %

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Revenue and Cost of Revenues

In the fourth quarter of 2024, we began recognizing revenue for R&D services performed as both a prime and subcontractor to the United States government.

Revenue for R&D services increased $2.8 million and associated cost of revenues increased $2.7 million.

Revenue for R&D services increased $2.3 million and associated cost of revenues increased $2.1 million due to the timing of performance of the R&D services.

The remaining amounts of revenue that we may recognize under these contracts was up to $11.2 million as of March 31, 2026, which is expected to primarily be recognized in 2026.

These contracts can be cancelled by the United States government at any time for, among other reasons, convenience.

Research and Development

R&D expenses increased $6.8 million due to higher spending related to the design and testing of our KARNO Power Module, growth in the production of additive components, and the procurement of parts for our initial KARNO Power Module deployments planned to occur later in 2025.

R&D expenses decreased $4.6 million due to significant efforts toward performance of our contracts with the ONR, including the production of capitalized inventory that may either be utilized for future revenue generation under these contracts or for R&D activities.

Selling, General and Administrative Expenses

Selling, general, and administrative expenses decreased $1.3 million primarily due to:

• a decrease of $0.7 million in facilities costs;

• a decrease of $0.7 million in insurance;

• a decrease of $0.2 million in professional services;

partially offset by

• an increase of $0.7 million in personnel and benefits.

Selling, general, and administrative expenses were relatively flat with an increase of $0.2 million attributable to personnel expense, offset by other smaller changes.

Exit and Termination Costs

Exit and termination costs decreased by $1.9 million as a result of the adoption of the Plan and items discussed in Note 2 of the notes to the condensed consolidated financial statements, including recoveries from assets sold.

Exit and termination costs decreased by $1.8 million as a result of the adoption of the Plan and items discussed in Note 2, “Disposals” of the Notes to Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q, including recoveries from assets sold.

Interest Income

Interest income decreased $2.9 million primarily due to the decline in our investment balance and lower interest rates.

Interest income decreased $1.0 million primarily due to the decline in our investment balance.

Liquidity and Capital Resources

At September 30, 2025, our total current assets were $110.0 million, consisting primarily of cash and cash equivalents of $17.9 million, short-term investments of $87.1 million and prepaid expenses of $4.2 million.

At March 31, 2026, our total current assets were $81.4 million, consisting primarily of cash and cash equivalents of $20.3 million, short-term investments of $52.2 million and prepaid expenses of $4.0 million.

Our total current liabilities were $8.1 million and were primarily comprised of accounts payable, accrued expenses and operating lease liabilities.

We also had $66.9 million of investments in longer-term liquid securities which we maintain to generate higher income on capital that we do not expect to spend in the next 12 months.

We believe the credit quality and liquidity of our investment portfolio at September 30, 2025 is strong and will provide sufficient liquidity to satisfy operating requirements , working capital purposes and strategic initiatives.

We believe the credit quality and liquidity of our investment portfolio at March 31, 2026 is strong and will provide sufficient liquidity to satisfy operating requirements , working capital purposes and strategic initiatives.

The unrealized gains and losses of the portfolio may remain volatile as changes in the general interest rate environment and supply and demand fluctuations of the securities within our portfolio impact daily market valuations.

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In addition, these unusual and unpredictable market developments may also create liquidity challenges for certain of the assets in our investment portfolio.

Based on our past performance, we believe our current and long-term assets will be sufficient to continue and execute on our business strategy and meet our capital requirements for the next twelve months.

Our primary short-term cash needs are costs associated with KARNO Power Module development, building our initial deployment units and capital investments for additive printer acquisitions.

Based on our past performance, we believe our current and long-term assets will be sufficient to continue to execute on our business strategy and meet our capital requirements for the next twelve months.

Our primary short-term cash needs are costs associated with KARNO Power Module development, building our initial deployment units and capital investments for additive printer acquisitions and other assets.

Longer term, our capital needs will be determined by our go-to-market strategy as well as governmental R&D, which may include development of our own KARNO Power Module manufacturing capacity or outsourcing this work to third parties or business partners.

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Based on current projections of operating expenses, capital spending, working capital growth and historical share repurchases, we expect to have approximately $100 million in cash, short-term and long-term investments remaining on our balance sheet at the end of 2026.

This projection assumes the completion of about $10 million in equipment-backed financing or debt before the end of the year.

It is possible that this financing could be delayed into 2026 or may not occur at all if acceptable terms cannot be obtained.

We expect to continue to incur net losses in the short term as we execute on our strategic initiatives by completing the development and commercialization of the KARNO Power Module with anticipated initial customer deployments through the end of 2025 and into early 2026.

This projection assumes the completion of about $10 million in equipment-backed financing or debt.

It is possible that this financing could be delayed or may not occur at all if acceptable terms cannot be obtained.

We expect to continue to incur net losses in the short term as we execute on our strategic initiatives by completing the development and commercialization of the KARNO Power Module with customer deployments anticipated to continue throughout 2026.

However, actual results could vary materially and adversely as a result of a number of factors including, but not limited to, those discussed in Part II, Item 1A.

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We regularly evaluate our funding needs and sources of capital and may seek external funding in the appropriate circumstances.

While we expect that we have sufficient capital to get through commercialization of the KARNO Power Module, we do anticipate that at some time we will seek additional sources of capital to accelerate investments in assets needed for growth following commercialization, primarily additive printing machines and related assets.

With our current cash and investments, we are well positioned to be deliberate and opportunistic in determining the timing and structure of a capital raise.

While we expect that we have sufficient capital to commercialize the KARNO Power Module, we do anticipate that, at some time, we will seek additional sources of capital to accelerate investments in assets needed for growth following commercialization, primarily additive printing machines and related assets.

With our current cash and investments, we believe we are well positioned to be deliberate and opportunistic in determining the timing and structure of a capital raise.

During the periods presented, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities, which were established for the purpose of facilitating off-balance sheet arrangements.

Net cash, cash equivalents and restricted cash provided by or used in operating activities, investing activities and financing activities for the nine months ended September 30, 2025 and 2024 is summarized as follows (in thousands):

Nine Months Ended September 30,

Net cash, cash equivalents and restricted cash provided by or used in operating activities, investing activities and financing activities for the three months ended March 31, 2026 and 2025 is summarized as follows (in thousands):

Three Months Ended March 31,

Cash from operating activities $ (12,726) $ (14,004)

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Cash from Operating Activities

For the nine months ended September 30, 2025, cash flows used in operating activities were $34.7 million.

Cash used primarily related to a net loss of $44.0 million, adjusted for a $0.1 million change in working capital accounts and $9.2 million in non-cash expenses (including $4.1 million related to share-based compensation, $4.1 million related to depreciation and amortization, $2.5 million related to prepaid expenses and other current assets, and $1.6 million in assets held for sale carrying value adjustments, partially offset by $1.8 million related to accounts payable, accrued expenses and other liabilities and $0.7 million related to gain on asset sales).

For the nine months ended September 30, 2024, cash flows used in operating activities were $43.3 million.

Cash used primarily related to a net loss of $37.7 million, adjusted for a $13.6 million change in working capital accounts and $7.9 million in non-cash expenses (including $6.7 million related to accounts payable, accrued expenses and other liabilities, $5.2 million related to prepaid expenses and other current assets, and $2.1 million related to gain on asset sales, partially offset by $5.6 million in assets held for sale carrying value adjustments and $3.5 million related to share-based compensation).

For the three months ended March 31, 2026, cash flows used in operating activities were $12.7 million.

Cash used primarily related to a net loss of $11.7 million, adjusted for a $4.4 million change in working capital accounts and $3.4 million in non-cash expenses (including $1.5 million related to share-based compensation, $2.1 million related to depreciation and amortization, $0.9 million related to prepaid expenses and other current assets, partially offset by $2.5 million related to accounts receivable and $1.9 million related to inventory).

For the three months ended March 31, 2025, cash flows used in operating activities were $14.0 million.

Cash used primarily related to a net loss of $17.3 million, adjusted for a $0.4 million change in working capital accounts and $3.7 million in non-cash expenses (including $1.6 million related to prepaid expenses and other current assets, $1.6 million in assets held for sale carrying value adjustments, and $1.3 million related to share-based compensation, partially offset by $1.5 million related to accounts payable, accrued expenses and other liabilities and $0.3 million related to gain on asset sales).

Cash from Investing Activities

For the nine months ended September 30, 2025, cash flows provided by investing activities were $43.9 million.

For the three months ended March 31, 2026, cash flows provided by investing activities were $10.1 million.

Cash provided related to the sale or maturity of investments of $25.5 million and the proceeds from sale of assets of $1.6 million, offset by the purchase of investments of $15.2 million and acquired property and equipment of $1.9 million.

For the nine months ended September 30, 2024, cash flows provided by investing activities were $64.9 million.

Cash provided related to the sale or maturity of investments of $126.7 million and the proceeds from sale of assets of $4.1 million, partially offset by the purchase of investments of $55.4 million and acquired property and equipment of $10.5 million.

For the three months ended March 31, 2025, cash flows provided by investing activities were $17.6 million.

Cash provided related to the sale or maturity of investments of $24.6 million and the proceeds from sale of assets of $0.2 million, offset by acquired property and equipment of $7.3 million.

Cash from Financing Activities

For the nine months ended September 30, 2025, cash flows used in financing activities were $0.6 million, primarily due to taxes paid related to the net share settlement of equity awards.

For the nine months ended September 30, 2024, cash flows used in financing activities were $14.3 million, primarily due to treasury stock repurchases.

For the three months ended March 31, 2026, cash flows used in financing activities were nil.

For the three months ended March 31, 2025, cash flows used in financing activities were $0.4 million, primarily due to taxes paid related to the net share settlement of equity awards.

Critical Accounting Policies and Estimates

In preparing our condensed consolidated financial statements, we applied the same critical accounting policies as described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025, supplemented by those described below, that affect judgments and estimates of amounts recorded for certain assets, liabilities, revenues and expenses.

As of March 31, 2026, we have not yet commercialized the KARNO Power Module.

Unless such components are capitalizable, costs incurred for components acquired prior to our determination of reaching a commercial stage are expensed as R&D costs, resulting in zero cost basis for those components.

As a result, moving-average prices for inventory that is capitalized in future periods may be significantly affected by those zero cost items.

When inventory may be utilized in performance of our contracts with the ONR, we capitalize that inventory including certain allocations of overhead, labor, and other direct costs and classify it as work-in-process inventory.

When this inventory is

designated to and utilized in an activity, we record either an R&D or a cost of sale charge in the period in which the utilization occurs.

All inventory at March 31, 2026 is classified as work-in-process.

Inventory is valued using the specific identification cost method and is stated at the lower of cost or net realizable value.

We review our inventory to determine whether its carrying value exceeds the net amount realizable we expect to receive upon the ultimate sale of the inventory.

Share-Based Compensation

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We recognize compensation expense for awards with only service conditions on a straight-line basis over the requisite service period for the entire award.

In the first quarter of 2025, we granted 2.7 million market-conditioned restricted stock units that may vest between February 18, 2026 and December 31, 2027 contingent upon achieving underlying closing stock price thresholds.

These awards were valued at $1.46 per unit using fair value hierarchy Level III inputs including an underlying share volatility of 90% and a risk-free rate of 4.23%.

If we were to utilize different assumptions, including the estimate of underlying share volatility of our market-conditioned awards, share-based compensation cost could be under or overstated.

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Share-based compensation cost affects our research and development and selling, general and administrative expenses.

The Company granted 2.3 million restricted stock units in the three months ended March 31, 2026 that are subject to vest between February 11, 2026 and December 31, 2028 contingent upon achieving underlying closing stock price thresholds.

Through March 31, 2026, there was no achievement of underlying closing stock price thresholds on these awards.

These awards were valued at $1.57 per unit using a Monte Carlo simulation including a blend of historical and implied share volatility of 105% and a risk-free rate of 3.48%.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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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-Q

Item 2. Management’s Discussion and Analysis