What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-08-11 compared with 2026-05-12 · 159 added, 86 removed, 267 unchanged (48% of the section changed)

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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.

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.

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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.

The KARNO Power Module is powered by the 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, 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.

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

The Company intends to scale up its KARNO Power Module solution to address larger utility-scale power needs and plans 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.

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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.

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.

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The KARNO Core stands out for its ability to maximize heat transfer between components and working fluids.

Enabled by advances in additive manufacturing systems, parts are designed with many intricate flow channels for the movement of heat, coolant, helium and exhaust gases such that contact surface areas for heat transfer are maximized.

Enabled by advances in additive manufacturing systems, parts are designed with many intricate flow channels for the movement of heat, coolant, helium and exhaust gases such

that contact surface areas for heat transfer are maximized.

This enables the KARNO Power Module to achieve high levels of efficiency.

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Notably, best-in-class grid-level combined cycle gas turbine powerplants can obtain efficiencies above 50% but often incur transmission and distribution losses between 5% and 10% which the KARNO Power Module is expected to circumvent by being located near the point of power consumption.

Conventional generators emit pollutants because of incomplete combustion of fuel-air mixtures and operating conditions, with the formation of nitrous-oxide (“NOx”) and carbon monoxide (“CO”) compounds being particularly prominent.

Conventional generators emit pollutants because of incomplete combustion of fuel-air mixtures and sub-optimal operating conditions, with the formation of nitrous-oxide (“NOx”) and carbon monoxide (“CO”) compounds being particularly prominent.

Unlike conventional generators, the KARNO Power Module is designed for continuous flameless oxidation of the fuel at lower temperatures and extended reaction times.

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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.

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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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.

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.

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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:

Key attributes of the KARNO Power Module distinguish it from its conventional generator counterparts:

• Efficiency :

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• Low Noise and Vibration :

Unlike conventional generators, the KARNO Power Module operates without internal combustion, resulting in a significantly lower noise level of approximately 67 decibels at six feet.

• Higher Power Density :

Unlike conventional generators, the KARNO Power Module operates without internal combustion, resulting in a significantly lower noise level under normal operating conditions of approximately 67 decibels at six feet.

• 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.

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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 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.

The Multi-MW KARNO 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.

We believe that this modular and scalable approach enables seamless power expansion

while maintaining high efficiency and reliability.

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.

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• Data Centers:

As cloud computing, artificial intelligence, machine learning, and edge computing continue to expand, data centers are projected to grow rapidly, consuming an increasing share of global energy demand.

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

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.

As cloud computing, artificial intelligence, machine learning, and edge computing continue to expand, data centers are projected to consume an increasing share of global energy demand.

Onsite power generation is an emerging solution for new data center developments, although conventional generating technologies often face local resistance due to noise or emissions concerns.

Hyliion’s Multi-MW KARNO system is being designed to meet the needs of data center developers by providing a scalable, fuel-flexible onsite power solution with significantly reduced levels of noise and emissions than conventional diesel or natural gas generators.

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

Its ability to easily transition between pipeline-supplied fuels, such as hydrogen or natural gas, and onsite stored fuels, like methanol or diesel, eliminates the need for separate backup generation systems, reducing capital and operational costs.

As datacenter rack power densities rise to support increased AI workloads, Hyliion’s KARNO Power Module’s native 800V DC architecture simplifies power system design and enhances site resiliency.

Additionally, as data center rack power densities rise to support increased AI workloads, Hyliion’s KARNO Power Module’s native 800V DC architecture simplifies power system design and enhances site resiliency.

• Commercial & Industrial:

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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.

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.

• Biogas (Landfill, Wastewater & Digester Gas):

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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.

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.

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:

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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:

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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 a commercial launch of the 200 kW KARNO Power Module.

Since acquiring the KARNO technology from GE in September 2022, Hyliion has made significant investments in research and development to commercialize the 200 kW KARNO Power Module while simultaneously developing an 800 kW system for the U.S.

This 800 kW platform is also intended to serve as the foundational building block for future multi-megawatt KARNO systems targeting data centers and other large scale applications.

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.

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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.

We have completed the design and sourcing of initial 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.

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

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.

In 2025, we delivered two early adopter KARNO Power Modules to the U.S.

Navy, along with two additional units for internal testing and Underwriters Laboratories (“UL”) certification.

The Navy units are currently undergoing testing under our R&D contract with ONR and are performing in line with expectations.

We have also completed development work enabling the Navy Power Modules to operate on liquid diesel fuel, a key requirement for shipboard applications, and to seamlessly switch between liquid and gaseous fuels under operation.

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 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 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.

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

In 2025, key R&D activities included design enhancements to the regenerator, a critical printed component that functions as a thermal capacitor by storing heat as helium cycles between hot and cold temperature regions within the system.

The regenerator is a critical component needed to achieve the KARNO Power Module’s target power and overall system efficiency.

Early testing identified opportunities to improve the regenerator’s heat storage and transfer capability, leading to a redesigned architecture that has demonstrated improved performance during subsequent testing.

Additional design enhancements were also made to improve the thermal insulation of other system components, further reducing heat loss.

Development efforts continue to focus on optimizing the regenerator and related components, with the objective of converting more thermal energy into electrical output, thereby increasing both power output and overall system efficiency.

Also in 2025, we insourced linear electric motor production following an unsuccessful effort 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.

In 2026, R&D activities have focused on testing and validating KARNO Power Module operation and software controls while building additional units for early adopter customers for field testing, including the U.S.

We project that we remain on track to complete approximately 10 early adopter units during 2026.

To date, testing of both engineering development units and customer units has been conducted at our Ohio facility, allowing engineers to closely monitor system operation and rapidly incorporate design enhancements intended to improve performance and reliability.

Later in 2026, these initial units are expected to be deployed to customer sites, where they will undergo continued testing and validation while simultaneously operating in their intended commercial environments.

In the second quarter, we successfully completed the non-recurring portion of Underwriters Laboratories ("UL") certification testing for the KARNO Power Module, a key milestone required before delivering units to customer sites.

Testing included the linear electric motor, battery system, and complete Power Module.

Individual production units will continue to undergo final operational testing before receiving final UL certification until completion of facility level certification, which is expected in the coming months.

Recent accomplishments include the successful demonstration of uninterrupted operation while switching among hydrogen, natural gas, and diesel fuels, validating the system's fuel agnostic architecture in which both gaseous and liquid fuels are supported within a single integrated system rather than through separate hardware configurations.

Following this milestone, we began extended durability testing of the complete KARNO Power Module using diesel as the primary fuel source.

We also successfully demonstrated the operation of multiple Power Modules as a single coordinated generating system.

During testing, two 200 kW units automatically shared changing electrical loads while maintaining stable power delivery.

This capability is important for applications with variable electrical demand and supports development of a standardized 800 kW building block for future multi megawatt power plant configurations.

Development also continues on design enhancements intended to increase the generator's power output and efficiency toward design specifications.

These efforts include further optimization of the regenerator to increase its thermal storage capacity

during operating cycles, as well as improvements to the thermal insulation of other system components to further reduce heat losses.

Another major R&D objective in 2026 has been optimizing the throughput of our additive manufacturing fleet.

Following the acquisition of approximately two dozen additive printers over the past two years, we have focused on increasing printer speed and throughput while simultaneously optimizing the design of printed Power Module components for manufacturability and performance.

We are encouraged by the progress to date and have identified machine enhancements that we believe can increase print speeds by a factor of two to three, depending on the specific part and printer model.

Based on these expected improvements, together with anticipated technological advances in next generation additive manufacturing systems expected to become available in the coming quarters, we currently expect to accelerate planned purchases of additional printers from 2028 into 2027.

Additional testing and validation remain necessary before these improvements can be confirmed, but initial results have been encouraging.

Research and Development Services

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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.

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

Navy has identified its USX-1 Defiant vessel as the platform for KARNO Core sea trials, supporting both ship propulsion and auxiliary power.

The 800 kW KARNO Power Module being built for the vessel under this contract is in assembly, with completion expected during 2026.

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.

In July 2026, the Company was awarded a cost-plus-fixed-fee contract of up to $41.7 million by the ONR in support of the High Efficiency/Low Maintenance Ultra Reliable (“HELMUR”) Megawatt Scale Power Generation Units program.

Under the 36-month contract, the Company will design, develop, construct, test and deliver 2-megawatt and 3-megawatt KARNO power generation systems to locations identified by ONR.

The contract also includes work to advance the Company’s core technology, develop alternative core components to enhance system capabilities and reduce supply-chain risk associated with magnet availability, and further develop additive manufacturing processes.

Work under the contract will be performed primarily in Cedar Park, Texas and is expected to be completed by July 2029.

Funding for the contract was obligated at the time of award using fiscal year 2025 and 2026 Navy research, development, test and evaluation appropriations.

We will continue to provide R&D services to third parties under existing contracts and anticipate entering into additional R&D agreements in 2026 and 2027 with ONR and other government customers.

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

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Commercialization of KARNO Power Module

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.

Our focus remains on the continued development and testing of our fuel-agnostic KARNO Power Module, together with the deployment of initial units with early adopter customers.

We are targeting commercialization of the 200 kW KARNO Power Module following completion of these initial deployments and once sufficient testing and operating experience has been obtained to validate reliable operation and achievement of our design criteria.

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 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.

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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Results of Operations

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,

Comparison of Three Months Ended June 30, 2026 to Three Months Ended June 30, 2025

Our results of operations for the three months ended June 30, 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 June 30,

2026 2025 $ Change % Change

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Selling, general and administrative expenses 6,427 5,963 464 7.8 %

Exit and termination (benefits) costs (258) (346) 88 (25.4) %

Total operating expenses 15,664 15,754 (90) (0.6) %

Loss from operations (15,298) (15,623) 325 (2.1) %

Interest income 1,370 2,209 (839) (38.0) %

Net loss $ (13,928) $ (13,414) $ (514) 3.8 %

Net loss per share, basic and diluted $ (0.08) $ (0.08) $ — — %

Weighted-average shares outstanding, basic and diluted 178,441,616 175,308,965 3,132,651 1.8 %

Revenue and Cost of Revenues

Revenue for R&D services increased $3.4 million and associated cost of revenues increased $3.2 million due to the timing of performance of the R&D services.

The remaining amount of revenue that we may recognize under these contracts was up to $5.7 million as of June 30, 2026.

We may incur losses in the performance of these contracts.

In July 2026, we were awarded an additional contract of up to $41.7 million by the ONR on a best effort basis.

We expect to begin performance on this contract in the fourth quarter of 2026, increasing performance in the second and third quarters of 2027, and continuing through mid-2029.

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

We do not expect to generate significant R&D services revenue following substantial completion of the September 2024 ONR contract discussed in Note 3, “Summary of Significant Accounting Policies” of the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q, until performance under the July 2026 contract increases substantially, which we expect to occur around mid-2027.

Research and Development

R&D expenses decreased $0.6 million due to significant efforts toward performance of our contracts with the ONR.

Selling, General and Administrative Expenses

Selling, general, and administrative expenses increased $0.5 million attributable primarily to personnel expense, offset by other smaller changes.

Exit and Termination (Benefits) Costs

Exit and termination benefits decreased by $0.1 million as a result of the adoption of the Plan and items discussed in Note 2, “Disposals” of the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q, including recoveries from assets sold.

Interest Income

Interest income decreased $0.8 million primarily due to the decline in our investment balance.

Comparison of Six Months Ended June 30, 2026 to Six Months Ended June 30, 2025

The following table summarizes our results of operations on a consolidated basis for the six months ended June 30, 2026 (the “current six months”) and 2025 (in thousands, except share and per share data):

Six Months Ended June 30,

2026 2025 $ Change % Change

Research and development services $ 7,776 $ 2,004 $ 5,772 288.0 %

Total revenues 7,776 2,004 5,772 288.0 %

Cost of revenues

Research and development services 7,200 1,861 5,339 286.9 %

Total cost of revenues 7,200 1,861 5,339 286.9 %

Gross profit 576 143 433 302.8 %

Operating expenses

Research and development 17,165 22,367 (5,202) (23.3) %

Selling, general and administrative expenses 12,608 12,044 564 4.7 %

Exit and termination (benefits) costs (672) 1,077 (1,749) N/A

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Revenue for R&D services increased $5.8 million and associated cost of revenues increased $5.3 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.

The remaining amount of revenue that we may recognize under these contracts was up to $5.7 million as of June 30, 2026.

We may incur losses in the performance of these contracts.

In July 2026, we were awarded an additional contract of up to $41.7 million by the ONR on a best effort basis.

We expect to begin performance on this contract in the fourth quarter of 2026, increasing performance in the second and third quarters of 2027, and continuing through mid-2029.

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

Research and Development

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Selling, General and Administrative Expenses

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 $1.8 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.

Selling, general, and administrative expenses increased $0.6 million attributable primarily to personnel expense, offset by other smaller changes.

Exit and Termination (Benefits) Costs

Exit and termination costs decreased by $1.7 million as a result of the adoption of the Plan and items discussed in Note 2, “Disposals” of the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q, including recoveries from assets sold.

Interest Income

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Liquidity and Capital Resources

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.

At June 30, 2026, our total current assets were $71.6 million, consisting primarily of cash and cash equivalents of $13.2 million, short-term investments of $51.0 million, accounts receivable of $2.7 million and prepaid expenses of $3.6 million.

Our total current liabilities were $9.4 million and were primarily comprised of accounts payable, accrued expenses and operating lease liabilities.

We also had $68.2 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 March 31, 2026 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 June 30, 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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We have up to $6.1 million remaining authorized for repurchases under our $20 million share repurchase program but have currently paused any additional repurchases.

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.

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

Based on current projections of operating expenses, capital spending, working capital growth and historical share repurchases, we expect to have approximately $115 million to $120 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 approximately $10 million to $15 million of equipment financing during 2026 under the proposed arrangement described below, and does not assume any sales of common stock under our at-the-market offering program.

The equipment financing remains subject to credit approval and agreement execution, and the amount and timing of any fundings will depend on equipment delivery and acceptance.

The financing may be delayed, completed for a lesser amount, or not completed at all.

We have accepted a proposal from an equipment financing provider for up to $15 million of financing that would be secured by certain of our additive manufacturing, CNC machining and other production equipment, and paid a good faith deposit in July 2026.

The proposal is non-binding, and the financing remains subject to the provider's credit approval, equipment inspection and execution of definitive documentation, and may not be completed on the proposed terms or at all.

If completed, we expect to make monthly payments over a five-year term and to account for the arrangement as a secured borrowing.

We expect to use any proceeds to fund capital investments supporting KARNO Power Module commercialization and for general corporate purposes.

In August 2026, we entered into an at-the-market sales agreement with Needham & Company, LLC and Northland Securities, Inc., under which we may sell, from time to time at our discretion, shares of our common stock having an aggregate offering price of up to $100 million.

We are not obligated to sell any shares under the program, and any sales will depend on market conditions, our capital needs and other factors.

Sales under the program, if any, would provide an additional source of liquidity to accelerate investments in assets needed for growth following commercialization, primarily additive printing machines and related assets, and would be dilutive to existing stockholders.

We expect to use the ATM program opportunistically based on our capital requirements, and market conditions.

Sales of shares under the program, if any, may cause dilution to stockholders.

For additional information, see “Part II—Item 5.

Other Information—At-the-Market Offering Program.”

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.

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“Risk Factors.”

The amount and timing of our future funding requirements will depend on many factors, including the scope and results of our R&D efforts, the breadth of product offerings we plan to commercialize, the growth of sales, working capital needs, and our long-term manufacturing plan for the KARNO Power Module including the pace of investments in additive manufacturing assets, methods of financing these investments, as well as factors that are outside of our control.

The amount and timing of our future funding requirements will depend on many factors, including the scope and results of our R&D efforts, the breadth of product offerings we plan to commercialize, the growth of sales, working capital needs, and our long-term manufacturing plan for the KARNO Power Module, including the pace of investments in additive manufacturing assets and the methods of financing those investments, as well as factors that are outside of our control.

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 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.

While we believe that we have sufficient capital to support the anticipated commercialization of the KARNO Power Module, we do anticipate that, at some time, we will seek further capital to accelerate these growth investments, whether through sales under our at-the-market program or other financing sources.

Any such financing may include equity or debt securities and may not be available on acceptable terms, or at all.

With our current cash and investments, we believe we are well positioned to be deliberate and opportunistic in determining the timing and structure of any additional 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 three months ended March 31, 2026 and 2025 is summarized as follows (in thousands):

Three Months Ended March 31,

Net cash, cash equivalents and restricted cash provided by or used in operating activities, investing activities and financing activities for the six months ended June 30, 2026 and 2025 is summarized as follows (in thousands):

Six Months Ended June 30,

Cash from operating activities $ (19,816) $ (23,999)

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Cash from Operating Activities

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).

For the six months ended June 30, 2026, cash flows used in operating activities were $19.8 million.

Cash used primarily related to a net loss of $25.7 million, adjusted for a $1.7 million change in working capital accounts and $7.6 million in non-cash expenses (including $3.2 million related to share-based compensation, $4.2 million related to depreciation and amortization, $1.3 million related to prepaid expenses and other current assets, and $1.6 million related to accounts payable, accrued expenses and other current liabilities, partially offset by $2.2 million related to accounts receivable and $1.2 million related to inventory).

For the six months ended June 30, 2025, cash flows used in operating activities were $24.0 million.

Cash used primarily related to a net loss of $30.7 million, adjusted for a $0.6 million change in working capital accounts and $6.1 million in non-cash expenses (including $2.7 million related to share-based compensation, $2.4 million related to depreciation and amortization, $1.9 million related to prepaid expenses and other current assets, and $1.6 million in assets held for sale carrying value adjustments, partially offset by $0.9 million related to accounts payable, accrued expenses and other liabilities and $0.6 million related to gain on asset sales).

Cash from Investing Activities

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

For the six months ended June 30, 2026, cash flows provided by investing activities were $10.0 million.

Cash provided related to the sale or maturity of investments of $45.0 million and the proceeds from sale of assets of $1.9 million, offset by the purchase of investments of $34.7 million and acquired property and equipment of $2.1 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.

For the six months ended June 30, 2025, cash flows provided by investing activities were $30.9 million.

Cash provided related to the sale or maturity of investments of $60.0 million and the proceeds from sale of assets of $0.8 million, offset by the purchase of investments of $18.4 million and acquired property and equipment of $11.6 million.

Cash from Financing Activities

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.

For the six months ended June 30, 2026, cash flows provided by financing activities were nominal.

For the six months ended June 30, 2025, cash flows used in financing activities were $0.5 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.

As of June 30, 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.

As a result, certain components on hand have a zero cost basis, and inventory capitalized in future periods that incorporates these components will reflect carrying amounts, and related cost of revenue upon sale, that are lower than would result had those components been initially capitalized.

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.

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 June 30, 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.

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

Share-Based Compensation

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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.

The Company granted 2.3 million restricted stock units in the six months ended June 30, 2026 that are subject to vest between February 11, 2026 and December 31, 2028 contingent upon achieving underlying closing stock price thresholds.

Through June 30, 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%.

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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