Quarterly Report for Quarter Ending June 30, 2026 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and related notes included elsewhere in this Form 10-Q as well as our audited consolidated financial statements and related notes included in our most recent Annual Report on Form 10-K. In addition to historical information, this discussion and analysis here and throughout this Form 10-Q contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements due to a number of factors, including but not limited to, the risks described in the section titled "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2025.

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Overview

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We design and develop technologies for the purpose of decarbonization and improving key performance characteristics of combustion systems, including emission and operational performance, energy efficiency and overall cost-effectiveness. Our ClearSign Core™ technology has been proven in full scale industrial test furnaces and boilers and first customer installations are currently operating in normal commercial applications. We have generated nominal revenues from operations to date to meet operating expenses.

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We have incurred losses since inception totaling $108.0 million and we expect to experience operating losses and negative cash flow for the foreseeable future. We have historically financed our operations primarily through issuances of equity securities. As of June 30, 2026, we have raised approximately $109.2 million in gross proceeds through the sale of our equity securities. We may need to raise additional capital in the future, however, the significant volatility in the capital markets may negatively affect our ability to raise this additional capital.

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In order to generate meaningful revenues, our technologies must gain market recognition and acceptance to develop sufficient recurring sales. In addition, management believes that the successful growth and operation of our business is dependent upon our ability to obtain adequate sources of funding through co-development agreements, strategic partnering agreements, or equity or debt financing to support commercialization of our research and development efforts, protect intellectual property, form relationships with strategic partners and provide for working capital and general corporate purposes. There can be no assurance that we will be successful in achieving our long term plans, or that such plans, if consummated, will result in profitable operations or enable us to continue in the long term as a going concern.

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Our costs include employee salaries and benefits, compensation paid to consultants, materials and supplies for prototype development and manufacture, costs associated with development activities including materials, sub-contractors, travel and administration, legal and accounting expenses, sales and marketing costs, general and administrative expenses, and other costs associated with an early stage, publicly traded technology company. We currently have 16 full-time employees. Because using third party expertise and resources is more efficient than maintaining full time resources, we also expect to incur ongoing consulting expenses related to technology development and some administrative, sales and legal functions commensurate with our current level of activities.

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The amount that we spend for any specific purpose may vary significantly, and could depend on a number of factors including, but not limited to, the pace of progress of our commercialization and development efforts, actual needs with respect to product testing, development and research, market conditions, and changes in or revisions to our sales and marketing strategies.

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Research, development, and commercial acceptance of new technologies are, by their nature, unpredictable. Although we undertake development and commercialization efforts with reasonable diligence, there can be no assurance that the net proceeds from our securities offerings will be sufficient to enable us to develop our technology to the extent needed to create sufficient future sales to sustain operations. If the net proceeds from these offerings are insufficient for this purpose, we will consider other options to continue our path to commercialization, including, but not limited to, additional financing through follow-on equity offerings, debt financing, co-development agreements, sale or licensing of developed intellectual or other property, or other alternatives.

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We cannot assure that our technologies will be accepted, that we will ever earn revenues sufficient to support our operations, or that we will ever be profitable. Furthermore, we have no committed source of financing, and we cannot assure that we will be able to raise money as and when we need it to continue our operations. If we cannot raise funds as and when we need them, we may be required to scale back our development by reducing expenditures for employees, consultants, business development and marketing efforts or to otherwise severely curtail, or even to cease, our operations.

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Recent Developments

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Public Offering

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On May 28, 2026, we entered into an underwriting agreement (the "Underwriting Agreement") with Newbridge Securities Corporation (the "Underwriter"), relating to a firm-commitment underwritten public offering (the "Public Offering"), for the issuance and sale to primarily existing stockholders of the Company of 777,780 shares of common stock at a public offering price of $4.33 per share, less underwriting discounts and commissions, pursuant to our effective Form S-3, including the prospectus forming a part of the Registration Statement, as supplemented by a preliminary prospectus supplement, dated May 28, 2026, and a final prospectus supplement, dated May 28, 2026, each filed with the SEC. The Public Offering closed on June 1, 2026.

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Subsequently, on June 18, 2026, the Underwriter, pursuant to the full exercise of its over-allotment option, purchased 116,667 additional shares of common stock at a public offering price of $4.33 per share, less underwriting discounts and commissions.

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We received gross proceeds of approximately $3.9 million, and net proceeds of approximately $3.4 million, as a result of the Public Offering and related over-allotment option exercise.

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ATM Recommencement

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On July 6, 2026, we filed a prospectus supplement to recommence our ATM program with Wainwright to sell up to $6,875,000 in shares of our common stock (the "Placement Shares"), pursuant to the Sales Agreement between us and Wainwright, dated July 17, 2025. The issuance and sale of the Placement Shares by us under the Sales Agreement will be made pursuant to our Form S-3, as supplemented from time to time.

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Private Placement

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Newbridge Securities Waiver

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On July 21, 2026, we received a waiver (the "Waiver") from the Underwriter for certain restrictions on the sale of our capital stock as set forth in the Underwriting Agreement. The Waiver became effective on July 21, 2026, and remained effective until the earlier of (i) the consummation of the Private Sale (as defined below) or (ii) July 31, 2026. As a result of the consummation of the Private Sale, as described below, the Waiver terminated by its own terms.

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Stock Purchase Agreement

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On July 21, 2026, in connection with the receipt of the Waiver, we entered into the Private Purchase Agreement with the Investor, pursuant to which we sold and the Investor purchased 500,000 shares of common stock at a price per share of $3.54, for aggregate gross proceeds of $1,770,000 (the "Private Sale").

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Critical Accounting Policies

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The following discussion and analysis of financial condition and results of operations is based upon our unaudited condensed consolidated financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States. Certain accounting policies and estimates are particularly important to the understanding of our financial position and results of operations. These policies and estimates require the application of significant judgment by management. These estimates can be materially affected by changes from period to period as

economic factors and conditions outside of our control change. As a result, they are subject to an inherent degree of uncertainty. In applying these policies, our management uses their judgment to determine the appropriate assumptions to be used in the determination of certain estimates. Those estimates are based on our historical operations, our future business plans and projected financial results, the terms of existing contracts, our observance of trends in the industry, information provided by our customers and information available from other outside sources, as appropriate. We believe the current assumptions and other considerations used to estimate amounts reflected in the unaudited condensed consolidated financial statements included in this Form 10-Q are appropriate.

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This Form 10-Q and our most recent Annual Report on Form 10-K include discussions of our accounting policies, as well as methods and estimates used in the preparation of our audited consolidated financial statements. For further information on our critical accounting policies and estimates, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Form 10-K, the notes to our audited consolidated financial statements included in the Form 10-K and "Note 2 - Summary of Significant Accounting Policies" of our unaudited condensed consolidated financial statements included elsewhere in this Form 10-Q. Since our most recent Annual Report on Form 10-K, we have not experienced a material change to our critical accounting policies or the methods and applications used to develop our accounting estimates.

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Results of Operations

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Comparison of the Three and Six Months Ended June 30, 2026 and 2025

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Highlights of our quarter financial performance are as follows:

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Revenues and Gross Profit (Loss)

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Consolidated revenues for the three months ended June 30, 2026 were $560 thousand compared to $133 thousand for the same period in 2025. During the three months ended June 30, 2026 revenues were predominantly generated by delivering a portion of our flare system equipment order, fulfilling multiple spare parts orders and finalizing process burner CFD studies. Revenues for the three months ended June 30, 2025 were predominantly generated by delivering spare parts orders to multiple customers and a boiler burner order.

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Consolidated revenues for the six months ended June 30, 2026 were $751 thousand compared to $534 thousand for the same period in 2025. During the six months ended June 30, 2026 revenues were predominantly generated by delivering a portion of our flare system equipment order, fulfilling multiple spare parts orders, finalizing process burner CFD studies, completing a boiler burner order and delivering midstream burners. Revenues for the six months ended June 30, 2025 were predominantly generated by delivering spare parts orders to multiple customers, delivering a boiler burner, and successfully completing multiple CFD analyses.

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Gross profit increased by $173 thousand, or 314.5%, for the three months ended June 30, 2026, compared to the same period in 2025. Gross profit increased primarily due to higher revenues. Our gross profit margin, for the three months ended June 30, 2026, experienced a modest 0.6% decrease compared to the same period in 2025, which was predominantly driven by a change in product mix.

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Gross profit decreased by $416 thousand for the six months ended June 30, 2026, compared to the same period in 2025. Gross profit decreased primarily due to a $410 thousand increase in cost of goods sold expenses for a warranty accrual estimate adjusted during the three months ended March 31, 2026. The adjusted warranty accrual estimate related to process burners installed during the third quarter of 2025. These burners are operational and have met applicable emissions requirements up to 80% of the specified normal firing rates. However, a temporary adjustment to these burners was required to enable operational performance up to the maximum specified firing rate, which in turn affected burner compliance with our emission guarantees. To establish our technology and customer service reputation within the market, we have established a warranty accrual estimate, that we believe, will provide for us to meet both our product guarantees and maintain our good standing with our affected customer. Furthermore, gross profit also decreased by a change in product mix year-over-year driven by a decrease in spare parts revenue.

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Operating Expenses

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Operating expenses consist of research and development ("R&D") and general and administrative ("G&A") expenses. These are addressed separately below.

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Research and Development

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R&D expenses increased $201 thousand, or 81.4%, for the three months ended June 30, 2026, compared to the same period in 2025. The increase was predominantly due to $100 thousand in subcontractor costs related to our DOE project. As noted in "Note 11 - Government Assistance," above, monies received from the DOE grant are recorded as other income under government assistance.

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R&D expenses increased $3 thousand, or 0.4%, for the six months ended June 30, 2026, compared to the same period in 2025. The increase was predominantly due to $100 thousand in subcontractor costs related to our DOE project described above, which were partially offset by $115 thousand receipt of funds for cost-sharing expenses associated with a collaborative R&D project.

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General and Administrative

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G&A expenses decreased $368 thousand, or 22.4%, for the three months ended June 30, 2026, compared to the same period in 2025. The decrease was predominantly due to $300 thousand in accrued legal fees during the prior period that were not present during the current period, which legal fees related to work performed by the former Special Committee to respond, manage and otherwise address attempts by several stockholders to submit director nomination notices in connection with our 2025 annual meeting of stockholders.

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G&A expenses decreased $737 thousand, or 20.2% for the six months ended June 30, 2026, compared to the same period in 2025. The decrease was predominantly due to $750 thousand in year-over-year legal fees related to work performed by the former Special Committee. The decrease in year-over-year legal fees was partially offset by an increase of $139 thousand in legal fees associated with an advancement claim by the Former Directors (see "Note 10 - Commitments and Contingencies - Litigation" for more information).

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Other Income, Net

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Other income, net, for the three and six months ended June 30, 2026 remained relatively consistent compared to the respective prior periods in 2025.

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Liquidity and Capital Resources

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At June 30, 2026, our cash and cash equivalents balance totaled $9,889 thousand compared to $9,178 thousand at December 31, 2025, an increase of $711 thousand. The increase in the cash and cash equivalents balance is primarily attributable to $3,413 thousand in net proceeds from the issuance of common stock in connection with the Public Offering (see "Recent Developments - Public Offering" for more information), an increase of $315 thousand in contract liabilities driven by customer receipts and non-cash expenses of $327 thousand, which was partially offset by net cash used in operations. Further, subsequent to June 30, 2026, we received an additional $1,749 thousand in net proceeds in connection with the Private Sale, which was consummated on July 22, 2026 (see "Recent Developments - Private Placement - Stock Purchase Agreement" for more information).

At June 30, 2026, our current assets were in excess of current liabilities resulting in working capital of $8,846 thousand compared to $8,642 thousand at December 31, 2025. We believe we have sufficient cash and expected cash collections to fund current operating expenses for over twelve months. We have no contractual debt obligations and to the extent we may require additional funds beyond twelve months from the date hereof, and customer cash collections cannot fund our needs, we may utilize equity offerings. Historically, we have funded operations predominantly through equity offerings. Until the growth of revenue increases to a level that covers our operating expenses, we intend to continue to fund operations in this manner, although the volatility in the capital markets may negatively affect our ability to do so. As of June 30, 2026, approximately 2.1 million shares of our common stock are issuable upon exercise of our outstanding warrants, which number excludes the shares of common stock issuable upon exercise of our outstanding pre-funded warrants, and we may receive up to $22.4 million in aggregate gross proceeds from the cash exercises thereof, subject to certain beneficial ownership limitations set forth therein. These warrants require the warrant holder to tender cash upon exercise, with the exception of the warrants issued to Public Ventures LLC as compensation for their services in connection with our public offering and concurrent private placement in April 2024, which allow the holder to exercise cashless if they so desire. These equity financial instruments may from time to time fund future cash needs, but the volatility of our common stock price and the risk tolerance of warrant holders will determine the extent to which we will be able to raise funds in this manner.

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Operating activities for the six months ended June 30, 2026, resulted in cash outflows of $2,584 thousand, primarily due to the net loss of $3,497 thousand, which was partially offset by an increase in accounts receivable of $986 thousand driven by customer billings, an increase in contract liabilities of $315 thousand driven by customer cash collections and non-cash expenses of $327 thousand during such period.

Operating activities for the six months ended June 30, 2025, resulted in cash outflows of $1,622 thousand, primarily due to the net loss of $3,756 thousand and a decrease of $967 thousand in deferred costs, which was partially offset by non-cash expenses of $245 thousand and an increase in contract liabilities of $2,495 thousand during such period.

Investing activities for the six months ended June 30, 2026, resulted in cash outflows of $89 thousand, which is primarily attributable to disbursements for patents and other intangible assets.

Investing activities for the six months ended June 30, 2025, resulted in cash outflows of $57 thousand, which is primarily attributable to disbursements for patents and other intangible assets.

Financing activities for the six months ended June 30, 2026, resulted in cash inflows of $3,381 thousand, which is primarily attributable $3,413 thousand in net proceeds from the issuance of common stock in connection with the Public Offering.

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Financing activities for the six months ended June 30, 2025, resulted in cash outflows of $17 thousand, which is primarily attributable to $41 thousand of disbursements related to taxes paid for the vesting of certain employee restricted stock units, partially offset by $24 thousand in net proceeds received from the exercise of certain warrants.

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Off-Balance Sheet Transactions

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We do not have any off-balance sheet transactions.

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