ClearSign Technologies Corp: Form 10-Q for the period ended Mar 31, 2026

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.

Overview

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.

We have incurred losses since inception totaling $106.7 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 March 31, 2026, we have raised approximately $105.3 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.

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.

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 15 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.

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.

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.

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.

Recent Developments

Advancement Claim

On January 16, 2026, the Former Directors filed a petition for advancement (case number 2026-0082-CDW) in the Delaware court of Chancery for an advancement of legal fees relating to a request, by us, for the Former Directors to return material generated by the Special Committee, which was dissolved following our 2025 annual meeting of stockholders. The advancement proceeding effectuated an advancement of monies to the Former Directors counsel for monies incurred to represent the Former Directors in this matter. The advancement proceeding followed a prescribed court process where the legal fees were reviewed to determine a reasonable amount payable to the Former Directors’ counsel for representation in this matter. We do not believe this advancement claim will have a material adverse effect on the future operations of the Company, and we do not anticipate any additional claims for advancement of legal fees in this case in the future. The total advancement claim amounted to $319 thousand, of which $180 thousand was accrued during the three months ended December 31, 2025. We delivered the full amount of the advancement claim to their legal counsel during the three months ended March 31, 2026.

Reverse Stock Split

On February 26, 2026, at our special meeting of stockholders, our stockholders approved a certificate of amendment to our certificate of incorporation, as amended (a “Charter Amendment”) to effect a reverse stock split of our outstanding shares of common stock at a ratio to be determined by the Board (the “Reverse Split”). On March 6, 2026, we filed a Charter Amendment with the Secretary of State of Delaware to effect a 1-for-10 Reverse Split of our outstanding shares of common stock as of 12:01 a.m. Eastern Time on March 16, 2026, in order to regain compliance with Listing Rule 5550(a)(2) of The Nasdaq Stock Market LLC (“Nasdaq”).

Nasdaq Bid Price Compliance

On March 30, 2026, we received a letter from Nasdaq stating that, because our shares of common stock had a closing bid price at or above $1.00 per share for a minimum of 10 consecutive business days, we had regained compliance with the minimum bid price requirement of $1.00 per share for continued listing on Nasdaq, as set forth in Nasdaq Listing Rule 5550(a)(2), and that the matter is now closed.

Critical Accounting Policies

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.

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.

Results of Operations

Comparison of the Three Months Ended March 31, 2026 and 2025

Highlights of our quarter financial performance are as follows:

(in thousands, except per share data)

Revenues and Gross Profit (Loss)

Consolidated revenues for the three months ended March 31, 2026 were $191 thousand compared to $401 thousand for the same period in 2025, which were predominantly generated by fulfilling orders related to mid-stream and boiler burner product offerings. Revenues for the three months ended March 31, 2025 were predominantly generated from spare parts and engineering services offerings.

Gross profit decreased by $589 thousand, or 300.5%, for the three months ended March 31, 2026, compared to the same period in 2025. Gross profit decreased primarily due to lower revenues and 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 this customer.

Operating Expenses

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

Research and Development

R&D expenses decreased $198 thousand, or 44.3%, for the three months ended March 31, 2026, compared to the same period in 2025. The decrease was predominantly due to receipt of $115 thousand in monies for cost-sharing expenses associated with a collaborative R&D project. These monies were received in accordance with the terms of a collaborative R&D agreement that we entered into during the fourth quarter of 2025, pursuant to which we agreed to test our boiler burner product using hydrogen fuel for the purpose of assessing its emissions and efficiency.

General and Administrative

G&A expenses decreased $369 thousand, or 18.4%, for the three months ended March 31, 2026, compared to the same period in 2025. The decrease was predominantly due to $450 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. 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 (refer to “Recent Developments – Advancement Claim” above for further details).

Other Income, Net

Other income, net decreased $92 thousand, or 50.8%, for the three months ended March 31, 2026, compared to the same period in 2025. The decrease was predominantly due to a decrease in interest income from our short-term U.S. treasuries and money market accounts of $71 thousand driven by a lower year-over-year cash balance and declining interest rates.

Liquidity and Capital Resources

At March 31, 2026, our cash and cash equivalents balance totaled $7,736 thousand compared to $9,178 thousand at December 31, 2025, a decrease of $1,442 thousand. The decrease in the cash and cash equivalents balance is primarily attributable to our net loss of $2,190 thousand, which was partially offset primarily by a decrease in accounts receivables of $1,189 thousand.

At March 31, 2026, our current assets were in excess of current liabilities resulting in working capital of $6,609 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 March 31, 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.

Operating activities for the three months ended March 31, 2026, resulted in cash outflows of $1,348 thousand, primarily due to the net loss of $2,190 thousand and a decrease in other current liabilities of $180 thousand partially offset primarily by a decrease in accounts receivables of $1,189 thousand during such period.

Operating activities for the three months ended March 31, 2025, resulted in cash outflows of $1,111 thousand, primarily due to the net loss of $2,076 thousand partially offset primarily by non-cash expense of $118 thousand and an increase in contract liabilities of $814 thousand during such period. The change in contract liabilities during the three months ended March 31, 2025, was impacted by customer collections for uncompleted orders as of March 31, 2025.

Investing activities for the three months ended March 31, 2026, resulted in cash outflows of $64 thousand, which is primarily attributable to disbursements for patents and other intangible assets.

Investing activities for the three months ended March 31, 2025, resulted in cash outflows of $41 thousand, which is primarily attributable to $37 thousand of disbursements for patents and other intangible assets.

Financing activities for the three months ended March 31, 2026, resulted in cash outflows of $32 thousand, which is attributable to disbursements related to taxes paid for the vesting of certain employee restricted stock units.

Financing activities for the three months ended March 31, 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 employee restricted stock units, partially offset by $24 thousand in net proceeds received from the exercise of certain warrants.

Off-Balance Sheet Transactions

We do not have any off-balance sheet transactions.

Disclosure Controls and Procedures

We maintain disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, that are designed to reasonably ensure that information required to be disclosed in our reports filed under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal accounting and financial officer, as appropriate, to allow timely decisions regarding required disclosure.

We carried out an evaluation under the supervision and with the participation of management, including our Chief Executive Officer (principal executive officer) and our Chief Financial Officer (principal accounting and financial officer), of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2026, the end of the period covered by this Form 10-Q. Based upon the evaluation of our disclosure controls and procedures as of March 31, 2026, our Chief Executive Officer (principal executive officer) and our Chief Financial Officer (principal accounting and financial officer) concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2026 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Controls and Procedures

Our management, including our Chief Executive Officer (principal executive officer) and our Chief Financial Officer (principal accounting and financial officer), does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

We incorporate herein by reference the risk factors included under “Part I - Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2025 which we filed with the SEC on March 31, 2026. There are no material changes from the risk factors set forth in such prior filing.