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Item 2. Management’s Discussion and Analysis

2025-05-13 compared with 2024-11-14 · 216 added, 241 removed, 101 unchanged (82% of the section changed)

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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.

The KARNO generator is a modular, fuel-agnostic power generating solution, enabled by additive manufacturing, that leverages a linear heat engine to generate electricity with significant improvements in efficiency, emissions and lifecycle operating cost compared to conventional generators.

The Company’s primary focus is to provide distributed power generators that operate on a wide range of fuel sources to adapt to an ever-changing energy economy.

Hyliion is initially targeting the commercial sector with a locally-deployable generator designed to meet a wide range of power generation needs.

This versatile generator is designed to operate on both conventional fuels and waste fuels such as landfill and flare gas.

The Company plans to scale up its generator solution to address larger utility-scale power needs and to develop future variants for household use and mobile applications such as vehicles and marine vessels.

Additionally, the generator technology is well-suited to provide combined heat and power (“CHP”) in various stationary applications.

Business Update - United States Government Contract

In September 2024, Hyliion was awarded a cost-plus-fixed-fee contract of up to $16 million by the United States Department of the Navy’s Office of Naval Research (“ONR”) to assess the applicability of its KARNO generator 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.

Hyliion believes the KARNO generator can provide a versatile, efficient, and

reliable power solution to meet the unique demands of U.S.

naval operations in maritime environments.

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

Market Opportunity

electrical grid is facing a multitude of challenges as it strives to manage the escalating demand for electricity while adapting to evolving generating resources.

The electrification of transportation, particularly the growing adoption of electric vehicles, is adding substantial load to the grid.

Additionally, the integration of renewable energy sources such as solar and wind power introduces variability and necessitates grid modernization and storage solutions for stability.

Hyliion believes that localized grid generation will become an increasing part of the solution to these challenges.

Hyliion also believes that the KARNO generator is suitable for a wide range of electrical power generating stationary and mobile applications and can address many concerns with conventional generators that inhibit consumers from adopting onsite generating systems today, including cost versus grid power, reliability, maintenance needs, noise, inflexibility and emissions.

Additionally, the KARNO generator is expected to be able to operate using a wide range of fuel sources including carbon-free fuels such as hydrogen and ammonia.

The planned initial KARNO generator variant is both power dense and easy to deploy.

It consists of a single four-shaft 200 kW generating unit along with essential balance-of-plant components, all arranged within a space-efficient, rectangular configuration occupying approximately three cubic meters.

Later planned developments include a 2 MW system with multiple KARNO generators inside the approximate footprint of a 20-foot shipping container.

Over time, we expect larger and smaller capacity versions of the KARNO generator will be offered with power levels varying based on the number of generator shafts included or the size of component parts.

The KARNO generator will initially compete in the market for power applications between 200 kW to 5 MW and later extend to larger and smaller power configurations.

We currently expect initial generator deployments to customers in late 2024 and 2025.

These early deployments will test and validate KARNO generator product attributes including efficiency, emissions, maintenance requirements, durability, control systems and other parameters.

We expect to receive compensation for these initial deployments as we believe the generator will provide tangible benefits to customers.

We also expect that early deployments will demonstrate the effectiveness of the KARNO generator in a wide range of electrical generating applications.

Target markets include:

• Prime Power:

Most consumers prefer the grid versus generating power locally due to the grid’s inherent advantages of simplicity, convenience, scalability and cost effectiveness.

For critical applications such as data centers, hospitals and refrigerated warehouses, local generators are needed in case of a grid power failure.

The KARNO generator introduces the opportunity for certain power consumers to rethink their primary and secondary power sources.

Due to its unique attributes in comparison to conventional generators, including high efficiency across power levels, minimal maintenance requirements, and reduced noise and emissions, the KARNO generator is a potentially more cost-effective base load power source for consumers, who could then utilize the electric grid as a backup source of power.

This arrangement holds particular appeal for consumers facing high grid electrical costs and low fuel costs, such as natural gas.

• Vehicle Charging:

The rapid growth of consumer electric vehicles is increasingly straining grid capacity and reliability.

The introduction of commercial EVs, such as buses, delivery vans and large trucks is expected to intensify this challenge given their substantial power requirements during charging.

Many commercial operators cite the lack of electrical capacity access as the primary obstacle to expanding their electric vehicle fleets.

In this regard, we believe the KARNO generator offers a unique solution for vehicle charging.

Its flexibility in fuel sources, including the ability to use hydrogen, along with its low emissions and noise levels offer advantages over internal combustion generators.

A KARNO generator can also modulate power with minimal efficiency loss by activating or deactivating individual generators and by regulating the heat input to each generator.

Finally, KARNO’s high power density allows it to be deployed as a localized power source for vehicle charging without displacing a large amount of parking space.

• Waste Gas Power Generation:

Natural gas sourced from waste sites like landfills, water treatment plants and dairy farms is a growing market as producers seek to capture sources of methane emissions that would otherwise be released into the atmosphere or flared.

Also known as renewable natural gas (“RNG”), most sources are typically treated to remove impurities such as carbon dioxide, hydrogen sulfide and moisture before the gas can be utilized or injected into natural gas pipelines.

We believe the KARNO generator can compete effectively as a power generator fueled by waste gases with minimal pre-treatment of the fuels.

Similarly, natural gas extracted from gas or oil wells frequently requires processing to remove natural gas liquids and impurities.

At remote well sites, gas may be flared, or burned, due to insufficient pipeline capacity for transmission to consuming markets.

The KARNO generator creates a new opportunity – to transform flare gas into

valuable electricity, destined either for integration into the electric grid or for localized consumption.

As with RNG, the KARNO generator is anticipated to use flare gas with limited need for pre-treatment at a gas processing facility.

• Peak Shaving:

“Peaking charges” also referred to as “demand charges” are fees imposed by utilities on customers based on their highest recorded electricity usage during a billing cycle, often measured over a short interval, such as 15 minutes.

These charges serve to recuperate the expenses associated with maintaining grid capacity during periods of peak demand.

For customers with substantial peak demand, such as large industrial facilities and data centers, peaking charges can significantly inflate their electric bills.

Additionally, time-based electricity rates are now common to reduce demand on the grid during peak times.

Peak rates can be two to three times higher than base rates, increasing electricity charges even further for consumers.

In this context, distributed generation sources like the KARNO generator can help to mitigate the financial impact of peaking charges and rates by supplementing grid power during peak consumption periods.

• Backup Power:

The market for local backup power generators is well established but also poised for growth due to reduced reliability of the power grid, a greater share of intermittent renewable sources of electricity, the frequency and severity of extreme weather events, and the need for continuous power supply in critical applications.

Generator emissions are a growing concern in the backup power market due to increased focus on the health impacts of harmful compounds such as nitrogen oxides (“NOx”), carbon monoxide (“CO”), and volatile organic compounds (“VOCs”).

To address these concerns, emissions control technologies are often incorporated for conventional generators and alternative sources of fuel like natural gas are replacing diesel, which is also a source of particulate matter emissions if exhaust gases are untreated.

The backup power market is another opportunity for the KARNO generator which is particularly attractive for its low level of emissions and low noise level while in operation.

The KARNO generator is expected to reduce CO and NOx emissions by over 95% compared to diesel generators, and potentially without the need for exhaust after-treatment.

We therefore believe that KARNO generator presents an opportunity to provide solutions for end users that desire a lower emissions profile and in the event emissions regulations are further tightened.

Longer-term, we plan to develop variants for mobile applications including on-highway applications, rail (locomotives) and marine vessels.

Following initial deployments in late 2024, we expect to ramp up commercialization of the KARNO generator including expansion of production capacity and establishment of sales and distribution channels, potentially including market collaborations and extending our reach outside of the U.S.

In the future, we intend to develop KARNO generators of different sizes and configurations to capitalize on KARNO’s unique advantages and extend these advantages across a broader range of market opportunities.

KARNO Generator System

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

We initially envisioned utilizing the KARNO generator as new range-extending power source for the 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 generator and related research and development services that we have undertaken pursuant to contracts with the United States government.

We believe that the unique capabilities of the KARNO generator will make it competitive in the stationary power market, competing favorably against conventional electrical generating systems and opening up potential new markets to enhance grid power availability and reliability.

The KARNO generator 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.

KARNO Generator Development

Our ongoing efforts with the KARNO generator encompass activities such as its design, development and rigorous testing, along with the development of essential balance-of-plant systems including cooling and controls systems.

Notably, we have reached a significant milestone by constructing the 125 kW ALPHA generator which we have been testing in our development facility.

Simultaneously, we are designing and assembling a 200 kW BETA generator, which is expected to serve as our design for initial commercial deployments.

We have also showcased a KARNO generator integrated as an on-board generator for our Hypertruck ERX powertrain system and with potential stationary power customers.

Moreover, we successfully demonstrated the generator’s capability to feed power back to the electric grid from our Cincinnati, Ohio facility and confirmed through

testing the capability of the generator’s oxidation system to be fueled using untreated natural gas from a Permian Basin well site.

As we progress toward our anticipated initial stationary generator deployments, scheduled for late 2024, pivotal development activities are underway, including enhancements to the linear generator system and its controls, validation of essential operating parameters, including efficiency, emissions and reliability, and build-out of balance-of-plant systems and controls.

These initial generator deployments, coupled with our ongoing testing and development endeavors, will play a vital role in the validation of other critical design specifications, including the generator’s projected operating life, maintenance requirements and durability.

We expect to achieve efficiencies over time, leading to a reduction in the manufacturing and assembly costs associated with the KARNO generator.

These efficiencies will stem in part from advancements in the speed and capacity of additive manufacturing machines offered by GE and other vendors.

The pace of advancements in additive technology are expected to improve over time, with the output of machines we intend to acquire over the next three to four years projected to increase compared to machines available today.

Additionally, we are actively pursuing design modifications that will enable specific components with simple geometry to be produced through conventional manufacturing processes.

Moreover, for less critical components, we are exploring utilization of lower-cost and lightweight materials like aluminum.

Lastly, we anticipate that economies of scale will reduce system component costs.

The Science of KARNO

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

In contrast, the KARNO generator harnesses the power of a heat engine to propel a linear generating system.

This innovative generator derives its linear motion from temperature differences inside the engine.

The generation of heat within the system occurs through flameless oxidation of fuels, like natural gas, hydrogen, or propane.

This thermal energy causes helium gas enclosed within a sealed cylinder to expand, thereby propelling linear motion in a connected piston-shaft system which includes a sequence of permanent magnets situated on the shaft passing through electrical coils.

Subsequently, the counter-motion generated by a piston at the opposite end of the shaft flows the helium gas to the cold side of a piston in an adjacent shaft, where excess heat is efficiently dissipated.

This cyclical process continues, resulting in a continuous source of electrical power for so long as heat is supplied to the generator.

Linear generators present several advantages over conventional generators, with key benefits including reduced maintenance, attributable to their simplified design with few moving parts.

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 generators.

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

Hyliion is initially targeting the commercial and industrial 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, 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.

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.

We initially 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.

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 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 Power Modules use an innovative thermal converter to power a linear electricity generating system.

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

Heat is generated through flameless oxidation of fuels, such as natural gas, hydrogen, or propane.

The thermal energy heats helium gas enclosed within a sealed cylinder, causing it to expand and drive linear motion in a connected piston-shaft system.

The shaft includes a sequence of permanent magnets that pass through electrical coils as the system oscillates, generating electricity.

Subsequently, the countermotion generated by a piston at the opposite end of the shaft flows the helium gas to the cold side of a piston in an adjacent shaft, where excess heat is efficiently dissipated.

This cyclical process continues, resulting in a continuous source of electrical power as long as heat is supplied to the KARNO Core.

Linear generators present several advantages over conventional generators, including higher thermal efficiency, lower emissions and reduced maintenance, benefits that are partly attributable to the generator’s simplified design with few moving parts.

Additionally, they exhibit high power density and higher efficiency by circumventing the mechanical losses linked to rotating components such as bearings and gears while producing less noise and vibration.

In the case of KARNO, each shaft of the generator relies on a single moving part and utilizes a pressurized helium bearing system in place of oil-based lubricants.

Heat engines offer the advantages of fuel flexibility and high operating efficiency.

The KARNO generator 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 a large number of intricate flow channels for the movement of heat, cooling water, helium and exhaust gases such that contact surface areas for heat transfer are maximized.

This enables the KARNO generator to achieve high levels of efficiency.

The KARNO generator is expected to surpass the efficiency of conventional generating systems when employing various fuel sources and even outperform fuel cells when using hydrogen.

Notably, its high efficiency remains consistent across a broad range of output power levels.

In the case of the KARNO Core, each shaft relies on a single moving part and utilizes a pressurized helium bearing system in place of oil-based lubricants.

Thermal converters offer the advantages of fuel flexibility and high operating efficiency.

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.

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

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.

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

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

We anticipate that the KARNO generator will achieve an electrical generating efficiency of nearly 50%, calculated by considering the usable 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 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.

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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electrical power grid is estimated to operate at an efficiency between 33% and 40%.

Notably, best-in-class grid-level gas turbine powerplants can obtain efficiencies ranging between 45% to 55%.

However, they incur transmission and distribution losses between 5% and 10% which the KARNO generator can circumvent by being strategically located near the point of power consumption.

Conventional generators emit pollutants as a result of incomplete combustion of fuel-air mixtures, with the formation of NOx compounds being particularly prominent.

Unlike conventional generators, which often employ internal combustion engines operating at high temperatures with rapid and incomplete fuel combustion, the KARNO generator is designed for continuous fuel oxidation at lower temperatures than internal combustion engines and extended burn times.

This is achieved partly through

the recirculation of exhaust gases, which serves to prolong combustion duration and by pre-heating incoming air.

As a result, the KARNO generator is anticipated to achieve low levels of emissions, with CO and NOx emissions expected to be reduced by over 95% compared to best-in-class diesel engines and targeting CARB 2027 standards without the need for aftertreatment.

One of the notable advantages of the KARNO generator, in comparison to traditional generating units, is the expected significant 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.

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

This innovative design significantly mitigates efficiency losses attributed to friction, enhances the system’s operational longevity and eliminates the need for oil-based lubricants commonly found in conventional generators.

Furthermore, internal combustion engines require extensive overhauls after specific operating periods which are costly, require specialized expertise, and result in prolonged downtime.

Conversely, the KARNO generator is projected to require less costly and simplified maintenance service than internal combustion engines, translating into both cost savings and reduced downtime.

The KARNO generator, functioning as a heat engine, derives advantages from its expected capability to operate across a diverse spectrum of over 20 available fuel sources and fuel mixtures.

These include natural gas, propane, gasoline, jet fuel, and alternative fuels like bio-diesel, hydrogen and ammonia.

Moreover, the generator can seamlessly transition between these fuels or fuel blends, requiring few or no physical modifications to its flameless oxidation system.

This versatility enables a single generator to adapt to different use cases.

For example, the generator 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.

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

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

Benefits of the KARNO Generator Versus Conventional Competitors

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

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

• Generator Efficiency :

The anticipated operating efficiency of the KARNO generator could result in lower cost of electricity versus conventional generating systems and, in many markets, grid power.

Notably, best-in-class grid-level 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 strategically 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.

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

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 engines and targeting California’s Air Resources Board (“CARB”) 2027 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.

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 derives advantages from its expected capability to operate across a diverse spectrum of over 20 available fuel sources and fuel mixtures.

These include natural gas, propane, gasoline, jet fuel, and alternative fuels like biodiesel, hydrogen and ammonia.

Moreover, the KARNO Power Module can transition between these fuels or fuel blends.

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.

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.

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.

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

• Efficiency :

The anticipated operating efficiency of the KARNO Power Module could result in lower marginal cost of electricity generation versus conventional generating systems and, in some markets, grid power.

• Low Maintenance :

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

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.

• Fuel Agnostic :

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

• Low Noise and Vibration :

Unlike conventional generators, the KARNO generator operates without internal combustion, resulting in a significantly lower noise level of approximately 67 decibels at six feet, which is approximately equivalent to a typical conversation.

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 :

The unique architecture and features of the KARNO generator that are enabled by advances in additive manufacturing, enable the generator to achieve a high level of power density.

For example, a 200 kW generator occupies less than a cubic meter of volume, excluding balance-of-plant systems.

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.

• Modularity :

The power output of a KARNO generator can be modulated by changing the level of heat applied to the system.

For larger power applications above 200 kW, multiple KARNO generators can be assembled to operate as a single unit and individual generators can be turned on or off to adjust the total power output of the system.

• Fast Startup Time :

It is anticipated that the KARNO generator will be able to begin generating electricity from a cold start in approximately 30 to 60 seconds.

Additionally, full power can be achieved in a matter of minutes.

Conversely, some generating systems, such as solid oxide fuel cells, require a warm-up period of up to 30 minutes.

The DC output of the KARNO Power Module allows multiple KARNO Power Modules to be connected on a single bus to achieve higher power outputs without impacting other performance characteristics.

Market Opportunity

As economies and industries evolve, the demand for electricity is accelerating, driven by the electrification of society, urbanization, increasing industrial output and technological growth.

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.

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 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.

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

Hyliion’s initial KARNO Power Module product is a 200 kW system that is power-dense and easy to deploy.

It features a compact, space-efficient rectangular design with a footprint of approximately 25 square feet, housing a single four-shaft linear generating unit and integrated balance-of-plant components.

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.

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.

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

Scheduled for commercialization in 2026, 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.

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:

• 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 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.

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.

Furthermore, the KARNO Power Module maintains high efficiency across broad range of load factors.

• 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.

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.

• Biogas (Landfill, Waste Water & 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.

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.

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.

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.

• Prime Power & Microgrids:

As electricity demand increases and grid infrastructure struggles, microgrids and prime power solutions are becoming essential for industries facing high consumption charges, peak demand pricing, and grid reliability concerns.

Businesses, industrial sites, and remote facilities increasingly seek localized power generation to mitigate rising energy costs, monetize assets, and improve operational resilience.

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.

• Backup Power:

The market for local backup power generators is well established and positioned to grow due to decreasing grid reliability, the increasing share of intermittent renewable energy sources, rising extreme weather events, and the need for uninterrupted power.

Also, the grid balancing and servicing market is expanding as utilities and independent power producers seek fast-ramping, distributed generation assets to balance supply and demand fluctuations.

Innovative business models such as Resiliency-as-a-Service and Virtual Power Plants have emerged to leverage distributed generation assets for grid resilience.

With growing concerns over emissions from internal combustion engine-powered generators in the backup power market we believe the KARNO Power Module presents an opportunity to provide solutions for end users that desire a lower emissions profile and in the event emissions regulations are further tightened.

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.

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.

• Waste Heat:

In hard-to-decarbonize industrial sectors such as cement, glass, and primary metals production, vast amounts of high-grade waste heat (1000°C+) are released during manufacturing processes.

Traditionally, much of this thermal energy is lost due to limited efficient recovery solutions.

Since the KARNO Power Module uses heat as its primary energy source to generate electricity, high-temperature industrial waste heat is expected to be able to be directly utilized to produce clean electricity, enabling industries to recover wasted energy, improve efficiency, and reduce emissions.

KARNO Power Module Development

Research and Development

Most of our current activities are focused on the R&D of our KARNO Power Module.

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

• data analytics;

• 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 product in 2025.

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.

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 early 2025 included developing production processes for this new motor as well as testing and validation of design parameters.

During 2024, we completed the design and sourcing of components for the balance-of-plant systems that support linear 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.

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, were also part of R&D activities.

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

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 $17.1 million by the ONR to assess the suitability of its 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.

In the first quarter of 2025 we delivered the first early deployment generator unit under this contract which we have been testing at our R&D facility in Cincinnati.

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.

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.

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.

Key Factors Affecting Operating Results

We believe that our performance and future success depend on several factors that present significant opportunities for us but also pose risks and challenges, including but not limited to economic uncertainties, supply chain disruptions, inflation and high interest rates as well as those discussed below and referenced in Part II, Item 1A “Risk Factors”.

Commercialization of KARNO Generator

Our focus is on continuing development and testing of our fuel-agnostic KARNO stationary generator and planning for the deployment of initial revenue-generating units with customers in late 2024.

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 through 2025.

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

The amount and timing of our future funding requirements, if any, will depend on many factors, including but not limited to the pace of completing initial KARNO generator design, testing and validation, the pace at which we invest in generator additive printing capacity, our plans for manufacturing KARNO generator 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, if any, 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.

Key Components of Statements of Operations

We historically generated revenues from sales of Hybrid systems for Class 8 semi-trucks and limited quantities of Class 8 semi-trucks outfitted with the Hybrid system.

As a result of the discontinuation of the electrified powertrain systems business and the shift to focus on the development and commercialization of the Company’s fuel-agnostic KARNO generator technology, we anticipate generating revenue after commercialization of our KARNO generator.

Additionally, we anticipate generating revenue from research and development services under the contracts described in Note 3 — “Summary of Significant Accounting Policies.”

We generate revenue by providing R&D services under contracts with third-parties, including the U.S.

Additionally, we expect to begin generating product revenue following the commercialization of our KARNO Power Module.

Cost of Revenue

Cost of revenue includes all direct costs such as labor and materials, overhead costs, warranty costs and any write-down of inventory to net realizable value, and costs associated with research and development services revenue.

Cost of revenue includes costs associated with R&D services revenue, such as direct costs, including labor and materials, and applicable overhead costs.

Research and Development Expense

Research and development expenses consist primarily of costs incurred for the discovery and development of our KARNO stationary generator and, prior to 2024, electrified powertrain solutions, which include:

• personnel-related expenses including salaries, benefits, travel and share-based compensation, for personnel performing research and development activities;

R&D expenses consist primarily of costs incurred for the discovery and development of our KARNO Power Module, which include:

• personnel-related expenses including salaries, benefits, travel and share-based compensation, for personnel performing R&D activities;

• fees paid to third parties such as contractors for outsourced engineering services and to consultants;

• expenses related to components for development and testing, materials, supplies and other third-party services;

• depreciation for equipment used in research and development activities;

• depreciation for equipment used in R&D activities;

• allocation of general overhead costs.

We expect to continue to invest in research and development activities to achieve operational and commercial goals.

We expect to continue to invest in R&D activities to achieve operational and commercial goals.

Selling, General and Administrative Expense

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

Other Income (Expense)

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

Since the acquisition of our KARNO generator 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 (expense).

Beginning in the quarter ending December 31, 2024, we expect to no longer record receipts associated with research and development activities as other income (expense).

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, 2024 to Three Months Ended September 30, 2023

Our results of operations for the three months ended September 30, 2024 (the “current quarter”) and 2023 on a consolidated basis are summarized as follows (in thousands, except share and per share data):

Three Months Ended September 30,

Comparison of Three Months Ended March 31, 2025 to Three Months Ended March 31, 2024

Our results of operations for the three months ended March 31, 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 March 31,

2025 2024 $ Change % Change

Product sales and other $ — $ 96 $ (96) (100.0) %

Total revenues — 96 (96) (100.0) %

Research and development services $ 489 $ — $ 489 N/A

Total revenues 489 — 489 N/A

Cost of revenues

Product sales and other — 677 (677) (100.0) %

Total cost of revenues — 677 (677) (100.0) %

Gross loss — (581) 581 (100.0) %

Research and development services 477 — 477 N/A

Total cost of revenues 477 — 477 N/A

Gross profit 12 — 12 N/A

Operating expenses

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Selling, general and administrative expenses 6,081 6,592 (511) (7.8) %

Exit and termination costs (929) — (929) N/A

Total operating expenses 14,181 33,301 (19,120) (57.4) %

Loss from operations (14,181) (33,882) 19,701 (58.1) %

Interest income 2,979 3,534 (555) (15.7) %

Other income, net — 26 (26) (100.0) %

Net loss $ (11,202) $ (30,322) $ 19,120 (63.1) %

Net loss per share, basic and diluted $ (0.06) $ (0.17) $ 0.11 (64.7) %

Weighted-average shares outstanding, basic and diluted 173,612,768 181,641,060 (8,028) (4.4) %

Revenue and Cost of Revenues

Revenue associated with our Hybrid products decreased $0.1 million and associated cost of revenues decreased $0.7 million as a result of our strategic review and decision to discontinue our powertrain business.

Research and Development

Research and development expenses decreased $15.7 million due to:

• A decrease of $22.5 million for the design and testing of our Hypertruck ERX system;

• An increase of $6.8 million for the design and testing of our KARNO stationary generator.

Selling, General and Administrative

Selling, general, and administrative expenses decreased $2.5 million primarily due to wind down of our powertrain business:

• A decrease of $1.1 million in personnel and benefits;

• A decrease of $0.7 million in professional services;

• A decrease of $0.4 million in insurance;

• A decrease of $0.1 million in marketing.

Exit and termination costs 1,423 4,431 (3,008) (67.9) %

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

Interest Income

Interest income decreased $0.6 million primarily due to the decline in investment balance.

Comparison of Nine Months Ended September 30, 2024 to Nine Months Ended September 30, 2023

The following table summarizes our results of operations on a consolidated basis for the nine months ended September 30, 2024 (the “current nine months”) and 2023 (in thousands, except share and per share data):

Nine Months Ended September 30,

2024 2023 $ Change % Change

Product sales and other $ — $ 672 $ (672) (100.0) %

Total revenues — 672 (672) (100.0) %

Cost of revenues

Product sales and other — 1,675 (1,675) (100.0) %

Total cost of revenues — 1,675 (1,675) (100.0) %

Gross loss — (1,003) 1,003 (100.0) %

Operating expenses

Research and development 25,741 73,472 (47,731) (65.0) %

Selling, general and administrative expenses 18,502 30,265 (11,763) (38.9) %

Exit and termination costs 2,946 — 2,946 N/A

Total operating expenses 19,734 18,991 743 3.9 %

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

Other income, net 32 14 18 128.6 %

Net loss $ (17,254) $ (15,592) $ (1,662) 10.7 %

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Revenue and Cost of Revenues

Revenue associated with our Hybrid products decreased $0.7 million and associated cost of revenues decreased $1.7 million as a result of our strategic review and decision to discontinue our powertrain business.

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 $0.5 million and associated cost of revenues increased $0.5 million.

Research and Development

Research and development expenses decreased $47.7 million due to:

• A decrease of $63.6 million for the design and testing of our Hypertruck ERX system;

• An increase of $15.9 million for the design and testing of our KARNO stationary generator.

R&D expenses increased $4.3 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 later in 2025.

Selling, General and Administrative

Selling, general, and administrative expenses decreased $11.8 million primarily due to wind down of our powertrain business:

• A decrease of $7.0 million in personnel and benefits;

• A decrease of $2.4 million in professional services;

• A decrease of $0.9 million in marketing;

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.

Exit and Termination Costs

Exit and termination costs increased by $2.9 million as a result of the adoption of the Plan and items discussed in Note 2 of the notes to the consolidated financial statements, including recoveries from assets sold.

Exit and termination costs decreased by $3.0 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 $0.8 million primarily due to the decline in investment balance.

Interest income decreased $0.9 million primarily due to the decline in our investment balance.

Liquidity and Capital Resources

At September 30, 2024, our current assets were $161.4 million, consisting primarily of cash and cash equivalents of $28.1 million, short-term investments of $122.9 million and prepaid expenses of $5.7 million.

Our current liabilities were $9.2 million primarily comprised of accounts payable, accrued expenses and operating lease liabilities.

At March 31, 2025, our current assets were $128.0 million, consisting primarily of cash and cash equivalents of $12.3 million, short-term investments of $108.8 million and prepaid expenses of $4.9 million.

Our current liabilities were $9.2 million and were primarily comprised of accounts payable, accrued expenses and operating lease liabilities.

We also had $77.7 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, 2024 is strong and will provide sufficient liquidity to satisfy operating requirements, work ing capital purposes and strategic initiatives.

We believe the credit quality and liquidity of our investment portfolio at March 31, 2025 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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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.

We do not expect to need to raise additional equity capital for the foreseeable future.

Our primary short-term cash needs are costs associated with KARNO generator development and building of our initial deployment units.

Longer term, our capital needs will be determined by our go-to-market strategy, which may include development of our own KARNO generator manufacturing capacity or outsourcing this work to third parties or business partners.

In December 2023, we announced an authorized share repurchase program to repurchase up to $20 million of our outstanding common stock.

We repurchased $14.0 million in common stock during the six months ended June 30, 2024 but have currently paused any additional repurchases under this program.

Based on current projections of operating expenses, capital spending, working capital growth and historical share repurchases, we expect to have between $220 and $230 million in cash, short-term and long-term investments remaining on our balance sheet at the end of 2024.

We expect to continue to incur net losses in the short term, as we continue to execute on our strategic initiatives by completing the development and commercialization of the KARNO generator with anticipated initial customer deployments in late 2024.

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.

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.

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 $155 million in cash, short-term and long-term investments remaining on our balance sheet at the end of 2025.

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

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.

“Risk Factors.”

The amount and timing of our future funding requirements, if any, will depend on many factors, including the scope and results of our research and development efforts, the breadth of product offerings we plan to commercialize, the growth of sales, and our long-term plan manufacturing plan for the KARNO generator including the pace of investments in additive manufacturing assets, methods of financing these investments, as well as factors that are outside of our control.

During the periods presented, we did not have any relat ionships 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, 2024 and 2023 is summarized as follows (in thousands):

Nine Months Ended September 30,

The amount and timing of our future funding requirements, if any, 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.

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

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, 2025 and 2024 is summarized as follows (in thousands):

Three Months Ended March 31,

Cash from operating activities $ (14,004) $ (22,702)

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Cash from Operating Activities

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 nine months ended September 30, 2023, cash flows used in operating activities were $92.4 million.

Cash used primarily related to a net loss of $94.4 million, adjusted for a $5.3 million change in working capital accounts and $7.2 million in certain non-cash expenses (including $5.2 million related to share-based compensation, partially offset by $2.7 million related to accounts payable, accrued expenses and other liabilities and $1.2 million related to prepaid expenses and other assets).

Cash from Investing Activities

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 nine months ended September 30, 2023, cash flows provided by investing activities were $1.6 million.

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 three months ended March 31, 2024, cash flows used in operating activiti es were $22.7 million.

Cash used primarily related to a net loss of $15.6 million, adjusted for a $13.1 million change in working capital accounts and $6.0 million in non-cash expenses (including $5.6 million related to accounts payable, accrued expenses and other liabilities and $7.4 million related to prepaid expenses and other current assets, partially offset by $5.6 million in assets held for sale carrying value adjustments and $1.3 million related to share-based compensation).

Cas h from Investing Activities

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 three months ended March 31, 2024, cash flows provided by investing activities w ere $27.9 million.

Cash provided related to the sale or maturity of investments of $53.9 million, partially offset by the purchase of investments of $23.7 million and acquired property and equipment of $2.8 million.

Cash from Financing Activities

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 nine months ended September 30, 2023, 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 three months ended March 31, 2024, cash flows used in financing activities were $11.3 million, primarily due to treasury stock repurchases.

Critical Accounting Policies and Estimates

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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.

If there are any modifications or cancellations of the underlying unvested securities, we may be required to accelerate any remaining unearned share-based compensation cost or

incur incremental cost.

If there are any modifications or cancellations of the

underlying unvested securities, we may be required to accelerate any remaining unearned share-based compensation cost or incur incremental cost.

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

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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