Energy Focus, Inc/De EFOI US Equity☆

ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and related notes thereto, included in Part II, Item 8, “Financial Statements and Supplementary Data,” of this Annual Report.

Overview

Energy Focus, Inc. engages primarily in the design, development, manufacturing, marketing and sale of energy-efficient lighting systems and controls. We develop, market and sell high-quality light-emitting diode (“LED”) lighting and controls products in the commercial market and military maritime market (“MMM”). In addition to our lighting portfolio, we also offer UPS systems and other power management solutions, which have contributed meaningfully to our revenue in recent quarters and are expected to be a strategic area of continued growth.

Our mission is to enable our customers to run their facilities with greater energy efficiency, productivity, and human health and wellness through advanced LED retrofit solutions. Our goal is to be a market leader for the most demanding applications where performance, quality, value, environmental impact and health are considered paramount. We specialize in energy efficient LED lighting retrofit product, replacing fluorescent, high-intensity discharge lighting and other types of lamps in institutional buildings for primarily indoor lighting applications with our innovative, high-quality commercial and military-grade tubular LED (“TLED”) products, as well as other LED and lighting control products for commercial and consumer applications. We are also evaluating additional adjacent technologies, including GaN based power supplies and other energy solution products that support sustainability in our existing channels.

The LED lighting industry has changed dramatically over the past several years due to increasing competition and price erosion. We have been experiencing these industry forces in both our military and commercial business since 2016, when we once commanded significant price premiums for our flicker-free TLEDs with industry leading warranties. In more recent years, we have focused on redesigning our products for lower costs and consolidated our supply chain for stronger purchasing power in an effort to price our products more competitively while not impacting the performance and quality. Despite these efforts, our legacy products continue to face extreme price competition and a convergence of product functionality in the marketplace, and we have shifted to diversifying our supply chain in an effort to increase value and remain competitive. These trends are not unique to Energy Focus as evidenced by the increasing number of industry peers facing challenges, exiting LED lighting, selling assets and even going out of business.

In addition to continuously pursuing cost reductions, our strategy to combat these trends is to innovate both our technology and product offerings with differentiated products and solutions that offer greater, distinct value. Specific examples of these products we have developed include the RedCap®, our patented emergency backup battery integrated TLED, as well as our robust MMM product offering. The Company has enhanced the performance of our RedCap® product by providing a more user- friendly experience. We continue to evaluate our sales strategy and believe our go-to-market strategy that focuses more on direct-sales marketing, selectively expanding our channel partner network to cover territories across the country, and listening to the voice of the customer will lead to better and more impactful product development efforts that we believe will eventually translate into larger addressable markets and greater sales growth.

Since 2023, the Company has continued to make significant cost cutting efforts to address operational expenses while maintaining customer satisfaction and delivering goods on-time. Investments into Energy Focus have contributed to the ability of the Company to continue to not only provide quality products and services, but to both expand and rationalize product offerings.

It is our belief that the continued dramatic rightsizing efforts undertaken in 2024 and 2025, along with reorganization of the sales team and ongoing development of innovative, high-value products and an expanded distribution network, will over time result in improved sales and bottom-line performance for the Company.

We have taken steps to strengthen our financial structure through capital increases and cost reduction measures. As a result, we have fully eliminated all external high-interest debt, which we believe has improved our financial position. Our business expansion plans are supported by financial strategies that we expect will provide funding for our planned growth initiatives, although there can be no assurance that such funding will be adequate. Since 2024, our MMM business faced ongoing challenges due to delays in government funding and the timing of U.S. Navy awards. Several anticipated projects encountered repeated postponements. In addition, we face challenges from long sales cycles, which is typical in this sector. The timeline from bid submission to order placement often exceeds six months, and many MMM products are built-to-order, resulting in extended lead times before revenue recognition. To mitigate this volatility, we continue to actively pursue new opportunities with the U.S. Navy and other government sectors. We have undertaken efforts to reduce costs, which we believe have

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contributed to our competitiveness, and may have helped us secure new contracts and expand our sales pipeline in the remainder of 2025 and beyond.

We are actively expanding our commercial product offerings, including our newly introduced UPS systems for data centers. We also continue to advance the expansion of product lines such as ESS and GaN based power supplies, while leveraging the stability and opportunities within our MMM business. In 2024, we conducted a comprehensive review of our commercial pricing strategy and reassessed key partnerships within the energy-related market. These strategic adjustments have improved our market position, offering a more competitive pricing structure and a stronger value proposition for our customers. We believe that these initiatives, if successfully implemented, and if our financial position continues to improve, may contribute to growth across both our MMM and commercial business sectors, although there can be no assurance that such growth will occur.

Meanwhile, we continue to seek additional external funding alternatives and sources to support our growth strategies, plans and initiatives. The strategic investments in 2024 by Sander Electronics, Inc. (“Sander”), a shareholder of the Company, contributed meaningful external capital, as well as presented synergistic opportunities to improve and diversify our supply chain and product offerings.

Despite continuing progress on cost reduction throughout 2024 and 2025, the Company’s results reflect the challenges due to long and unpredictable sales cycles, unexpected delays in MMM and commercial customer retrofit budgets and project starts, and supply chain issues. There has also been continuing aggressive price competition in the lighting industry. We continue to incur losses and we have a substantial accumulated deficit, which continues to raise substantial doubt about our ability to continue as a going concern at December 31, 2025.

While we have made progress in reducing our net loss from $1.6 million in 2024 to $1.0 million in 2025 and improving our cash position from $0.6 million to $1.1 million, we continue to incur operating losses and have a substantial accumulated deficit of $155.9 million. Based on our current capital resources and projected cash requirements for ongoing operations, substantial doubt about our ability to continue as a going concern continues to exist as of December 31, 2025. We are actively pursuing additional sources of capital, including equity financings, debt financings, and strategic partnerships, to fund operations and support future growth. However, there can be no assurance that such financing will be available on acceptable terms, or at all.

Our Business Strategy

Demand-oriented Approach

In order to deepen our relationships with customers, we are in the process of re-establishing our service model, aiming to provide richer and more targeted customer service. We believe that by increasing opportunities for interaction with our customers, we can better understand their needs, thereby enhancing their loyalty to our brand.

To ensure that EFOI’s products, pricing, and customer service lifecycle are better aligned, we are building a comprehensive value model to ensure consistency in the products and services we provide throughout the customer journey. We have begun an in-depth analysis of our current and past top 10 customers over the last five years to identify the core factors that make them loyal customers. By analyzing this data, we hope to reveal the key elements that enhance customer stickiness, providing them with more reasons and value to stay with us. In particular, we are actively focusing on customers with high loyalty to better meet their needs. This is not only an acknowledgment of our products but also a validation of the quality of our service.

Supply-oriented Approach

EFOI is committed to adopting three main sustainable economy strategies: “Green Supply Chain”, “Green Product”, and “Green Manufacturing”, aiming to promote sustainability throughout the entire value chain. The Company is working closely with its supply chain partners to optimize recycling mechanisms and strengthen packaging design, integrating sustainable economy principles into the core of supply chain management.

Guided by the vision of “transcending traditional corporate social responsibility and creating shared value”, EFOI’s team is focusing on stakeholders, aiming to achieve a “dual profit engine” effect by combining financial performance and Environmental, Social, and Governance (ESG) practices. This strategy not only aligns with the Company’s responsibility and sustainability goals but is also expected to enhance overall performance and market competitiveness. EFOI's operational team's new strategy focuses on integrating environmental and economic benefits, aiming to create a win-win situation that benefits the company, society, and the environment.

Under the premise of a similar industrial environment and familiar relationships, our professional skills complement those of our supply chain partners. We believe this foundation of cooperation may enable us to pursue common goals of cost reduction,

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profit sharing, and exploring new business opportunities. This not only strengthens our cooperative relationship but also lays a solid foundation for our joint efforts towards a better future.

Financial-oriented Approach

The Company applies strategic financial management in the below perspective.

Control and Monitoring of Assets and Liabilities

•Assets: Regularly evaluate all assets, especially inventory, to ensure they remain in optimal condition in terms of value and performance. Minimize or mitigate the impact of inefficient and aging assets, focusing on assets with high efficiency and return.

•Liabilities: Ensure a robust liability structure, optimize the cost of liabilities, and seek lower interest rates and more favorable repayment terms. Regularly review the liability situation to ensure the company’s level of liabilities remains within a safe range.

Structured Profitability

•Revenue Growth: Develop diversified revenue streams, reduce dependency on single business or market, continuously optimize products and services, and enhance market competitiveness.

•Cost Control: Strictly control operating costs, seek opportunities to reduce costs, and ensure the efficient use of resources to optimize operations.

•Cash Flow Management: Establish a sound accounts receivable and payable management system to ensure timely collection of receivables and reasonable arrangement of payments. Maintain sufficient cash reserves to cope with potential funding shortages.

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Results of operations

The following table sets forth items in our Consolidated Statements of Operations as a percentage of net sales for the periods indicated:

Operating expenses:

Selling, general, and administrative 36.1 41.5

Total operating expenses 47.7 52.3

Loss from operations (28.8) (37.9)

Other expenses (income):

Interest income (0.1) —

Interest expense — 0.1

Gain on debt extinguishment — (3.8)

Gain on partial lease termination (0.1) (1.3)

Gain on disposal of fixed assets (0.1) —

Other income — (0.6)

Other expenses 0.4 0.2

Net loss before income taxes (28.8) (32.5)

Provision for income taxes — —

Net sales

A further breakdown of our net sales is presented in the following table (in thousands):

Setup Service 35 —

Net sales of $3.6 million in 2025 decreased $1.3 million, or 27% compared to 2024, primarily driven by a decrease of 43% in MMM sales and an increase of 11% in commercial sales. The net sales decrease of MMM products sales in 2025 was primarily due to delays in military customer procurement and project execution related to federal budget approval timing. The increase in commercial sales was primarily driven by a $0.5 million UPS project delivered to a new customer in Taiwan, representing approximately 36% of commercial sales in 2025. While the project may represent a recurring revenue opportunity, future orders remain subject to customer requirements and timing.

Gross profit

Gross profit was $0.7 million, representing 19% of net sales in 2025, compared with gross profit of $0.7 million, or 14% of net sales in 2024. The year-over-year improvement in gross profit was driven mainly by a sustained reduction in the use of temporary outside labor and lower fixed costs, such as subscription fees and rent expense for production.

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Operating expenses

Product development

Product development expenses include salaries and related benefits, testing and related costs, travel expenses, cost of supplies, as well as overhead items, such as depreciation and facility costs. Product development costs are expensed as they are incurred.

Product development expenses were $0.4 million in 2025, a decrease of 21%, compared to $0.5 million in 2024. The $0.1 million decrease primarily resulted from lower payroll-related expenses resulting from structure optimization, as well as lower product testing and R&D supplies expenses.

Selling, general, and administrative

Selling, general, and administrative expenses were $1.3 million, or 36% of net sales in 2025, compared to $2.0 million, or 42% of net sales in 2024. The $0.7 million decrease is primarily due to reductions in consultant fees of $0.3 million, $0.1 million in rent fees, $0.1 million in insurance fees, and $0.1 million in director fees.

Otherexpenses (income)

Interest expenses (income)

There was no interest expense in 2025, compared to interest expense of $5 thousand in 2024. The decrease is primarily related to interest attributable to the 2022 Streeterville Note. There was no actual cash interest paid in 2025 compared to $5 thousand in 2024.

Gain on debt extinguishment

We recognized an $187 thousand gain on debt extinguishment in the first quarter of 2024, which was related to the early termination of the 2022 Streeterville Note. There was no such gain recognized in 2025.

Gain on partial lease termination

We recognized $2 thousand and $63 thousand of gain on partial lease terminations in 2025 and 2024, which were related to early terminations of the office lease.

Gain on disposal of fixed assets

We recognized $3 thousand of gain on sales of fixed assets in 2025, which was related to a one-time resale of a software license package to a related party customer as part of a specific project. There was no such gain recognized in 2024. See Note 14 “Related Party Transactions” included in Item 8, “Financial Statements and Supplementary Data,” of this Annual Report for further information.

Other income and expenses

Other income was less than $1 thousand in 2025, compared to other income of $27 thousand in 2024. Such other income is related to receipts of unclaimed property from vendors for previous payments.

We recognized other expenses of $10 thousand in 2025, compared to other expenses of $12 thousand in 2024. Other expenses are mainly composed of bank and collateral management fees. We recognized a non-cash loss of approximately $8 thousand on the settlement of returning inventory, cancelling prepayments made to the vendor, and settlement of outstanding accounts payables in the second quarter of 2025.

Provision for income taxes

For each of the years ended December 31, 2025 and 2024, our effective tax rate was 0%. In 2025, our effective tax rate was lower than the statutory rate due to a full valuation allowance as a result of the $1.1 million additional federal net operating loss we recognized for the year. In 2024, our effective tax rate was lower than the statutory rate due to a full valuation allowance as a result of the $3.4 million additional federal net operating loss we recognized for the year.

Deferred income tax assets are reduced by a valuation allowance when it is more likely than not that some portion of the deferred income tax assets will not be realized. In considering the need for a valuation allowance, we assess all evidence, both positive and negative, available to determine whether all or some portion of the deferred tax assets will not be realized. Such

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evidence includes, but is not limited to, recent earnings history, projections of future income or loss, reversal patterns of existing taxable and deductible temporary differences, and tax planning strategies. We have recorded a full valuation allowance against our deferred tax assets at December 31, 2025 and 2024, respectively. We had no net deferred liabilities at December 31, 2025 or 2024. We will continue to evaluate the need for a valuation allowance on a quarterly basis.

Please refer to Note 11, “Income Taxes” included in Item 8, “Financial Statements and Supplementary Data,” of this Annual Report for further information.

Net loss

For 2025, our net loss of $1.0 million decreased 35% from $1.6 million net loss for 2024. The decrease is primarily due to a decrease in cost of goods sold as well as operating expenses.

Financial condition

At December 31, 2025, we had $1.1 million in cash and no outstanding debt. We have historically incurred substantial losses, and as of December 31, 2025, we had an accumulated deficit of $155.9 million. Additionally, our sales have been concentrated among a few major customers. For the twelve months ended December 31, 2025, three customers accounted for approximately 48% of net sales.

In 2025 and 2024, we remain committed to building upon the initiatives started during 2019 that sought to stabilize and regrow our business. These efforts include the following key developments that occurred during 2025 and 2024:

•We reinvested in our MMM sales channel and are pursuing existing and new sales opportunities, though the sales cycles for what are frequently made-to-order products are longer than commercial offerings.

•We re-evaluated operating expenses and reduced our workforce significantly throughout 2024 and into 2025 to manage fixed costs.

•We continued to seek additional external funding alternatives and sources to support our growth strategies, plans and initiatives.

We continue to closely monitor our cost control efforts to streamline our operations by closely managing all spending throughout the Company, while carefully investing in new products and strategies that sought to reenergize sales.

We will seek to remain agile as an organization to respond to potential or continuing weakness in the macroeconomic environment and in the meantime seek to expand sales channels and enter new markets that we believe will provide additional growth opportunities. We plan to improve profitability through developing and launching new, innovative products, UPS systems, our Redcap® emergency battery backup tubular TLEDs, evaluating new growth opportunities such as GaN-based power supply circuitry and other energy solution products, as well as executing on our multi-channel sales strategy that targets key verticals, such as government, healthcare, education and commercial and industrial, complemented by our marketing outreach campaigns and expanding channel partnerships. In addition, we intend to continue to apply rigorous financial discipline in our organizational structure, decision-making, business processes and policies, strategic sourcing activities and supply chain practices to help accelerate our path towards profitability.

Liquidity andcapitalresources

Cash

At December 31, 2025, our cash balance was $1.1 million, compared to $0.6 million at December 31, 2024.

•As of December 31, 2025, we held total cash of $1.1 million, of which approximately $0.3 million was maintained in a bank account in Taiwan, with the remaining $0.8 million in bank accounts in the United States. These funds support the operations of our wholly owned Taiwanese branch and are denominated in NTD.

•The ability to access this cash for general corporate purposes in the United States may be subject to foreign exchange controls, local banking regulations, or unfavorable tax consequences. While there are currently no formal restrictions on the transfer of funds from Taiwan to the United States, repatriation of these funds may result in foreign withholding taxes or other costs, which could impact our overall liquidity. As such, our ability to deploy foreign cash for domestic use may be limited or delayed.

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•Management believes our current cash position and operating cash flows are sufficient to meet near-term working capital needs in both domestic and foreign jurisdictions.

The following is a summary of cash flows from operating, investing, and financing activities, as reflected in the Consolidated Statements of Cash Flows (in thousands):

Net cash used in operating activities $ (1,404) $ (1,297)

Net cash used in investing activities $ (197) $ (19)

Net cash provided by (used in) financing activities $ 2,100 $ (149)

Net cash used in operating activities

Net cash used in operating activities was $1.4 million for the year ended December 31, 2025. The net loss for 2025 was $1.0 million and was adjusted for non-cash items, including depreciation and amortization, stock-based compensation, provisions from inventory, warranty, accounts receivable reserves and working capital changes. During 2025, major adjustments included cash generated from $0.3 million from collection of accounts receivable, which is partially offset by $0.3 million change in inventory, $0.1 million change in accounts payable and $0.5 million change in related party accounts payable due to timing inventory receipts and payments.

Net cash used in operating activities was $1.3 million for the year ended December 31, 2024. The net loss for 2024 was $1.6 million and was adjusted for non-cash items, including depreciation and amortization, stock-based compensation, provisions for inventory, warranty, and accounts receivable reserves and working capital changes. During 2024, major adjustments included cash generated from $1.0 million from collection of accounts receivable, and $0.8 million from inventory, which is partially offset by $0.2 million change in accounts payable and $1.2 million change in related party accounts payable due to timing of inventory receipts and payments.

Cash used in investing activities

Net cash used in investing activities was $197 thousand and $19 thousand for the years ended December 31, 2025 and 2024, respectively, primarily from the acquisition of property and equipment and advances for investment in a joint venture, which was partially offset by proceeds from the sale of property and equipment.

Cash provided by financing activities

Net cash provided by financing activities for the year ended December 31, 2025 of $2.1 million, reflecting $2.1 million of net proceeds from the issuance of common stock.

Net cash used in financing activities was $0.1 million for the year ended December 31, 2024, primarily related to $0.9 million of net proceeds from the issuance of common stock, offset by $1.0 million related to net payments of the 2022 Streeterville Note.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.

Contractual and other obligations

Please refer to Note 9 “Purchase Commitments” included under Part II, Item 8, “Financial Statements and Supplementary Data,” of this Annual Report.

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Foreign currency exchange risk

Because we maintain operations and cash balances in Taiwan, we are exposed to fluctuations in the New Taiwan dollar (NTD) exchange rate relative to the U.S. dollar. Changes in exchange rates can affect the reported value of our foreign cash balances, revenues, and expenses, as well as result in transaction gains or losses on intercompany and third-party balances.

As of December 31, 2025, we had a net NTD exposure of approximately $439 thousand, consisting of NTD cash of $326 thousand, and NTD-denominated accounts receivable of $113 thousand. In addition, we held approximately $156 thousand in JPY denominated advances for investment in a joint venture related to our Japan ESS initiative.

For 2025, we recognized a net foreign currency transaction gain of approximately $20 thousand. We do not currently employ financial instruments to hedge our foreign currency exposure. We continue to monitor our NTD and JPY exposure and may consider hedging strategies in the future if our foreign currency risk increases materially.

Criticalaccountingpolicies andestimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingencies, and the reported amounts of net sales and expenses in the financial statements. Material differences may result in the amount and timing of net sales and expenses if different judgments or different estimates were utilized. Critical accounting policies, judgments, and estimates that we believe have the most significant impact on our financial statements are set forth below:

•revenue recognition,

•allowances for credit losses, returns and discounts,

•product warranty reserve,

•valuation of inventories,

•accounting for income taxes,

•share-based compensation, and

•leases.

Recently adopted accounting guidance

For information on recently adopted accounting guidance, please refer to Note 2, “Basis of Presentation and Summary of Significant Accounting Policies,” included under Part II, Item 8, “Financial Statements and Supplementary Data,” of this Annual Report.

ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, 17 CFR § 229.10(f)(1), the Company is not required to provide this information.

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ITEM8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

TABLE OF CONTENTS

Page

Reports of Independent Registered Public Accounting Firm (PCAOB ID 1808) 36

Consolidated Balance Sheets as of December 31, 2025 and 2024 38

Notes to Consolidated Financial Statements 45

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Stockholders and Board of Directors

Energy Focus, Inc.

Solon, Ohio

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Energy Focus, Inc. (the “Company”) as of December 31, 2025 and 2024, the related consolidated statements of operations, comprehensive loss, stockholders’ equity (deficit), and cash flows for the years then ended, and the related notes and Schedule II (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2025 and 2024, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Continuation as a Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in the notes to the consolidated financial statements, the Company has suffered recurring losses from operations and negative cash flows from operations that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in the notes. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Reserves for Excess, Obsolete and Slow-Moving Inventories

Description of the Matter

As described in Notes 2 and 4 to the consolidated financial statements, the Company assesses the valuation of inventories each reporting period based on the lower of cost or net realizable value. The Company establishes reserves for excess, obsolete and slow-moving inventories after evaluation of historical sales, current economic trends, forecasted sales, product lifecycles and current inventory levels. The assessment is both quantitative and qualitative. As of December 31, 2025, the Company had inventories of $2.9 million, net of reserves for excess, obsolete and slow-moving inventories.

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Auditing management's estimates for excess, obsolete and slow-moving inventories required subjective auditor judgment and evaluation of the reasonableness of significant assumptions used in developing the reserves as detailed above, as well as the inputs and related calculations related to historical sales and on-hand inventories.

How We Addressed the Matter in Our Audit

We obtained an understanding and evaluated the design of internal controls over the Company's reserves for excess, obsolete and slow-moving inventories, including management's assessment of the assumptions and data underlying the reserve calculation.

Our substantive audit procedures included, among others, testing the logic and integrity of calculations within management’s analysis; testing the completeness and accuracy of underlying data used, including inventory quantities, carrying costs and the estimate of net realizable value by product; and evaluating the reasonableness of management’s assumptions related to demand forecasts, estimated reserve percentages and qualitative considerations involving, among others, the implications of new or revised operational strategies. Evaluating the reasonableness of management’s assumptions involved (i) comparing historical sales by product, used as a basis for future demand, to audited sales subledgers on a sample basis, (ii) holding discussions with senior management to determine whether strategic or operational changes in the business were consistent with the projections of future demand that were utilized as the basis for the reserves recorded, and (iii) corroborating management’s qualitative considerations of future demand through review of unfulfilled customer purchase orders as of year-end on a sample basis.

/s/ GBQ Partners, LLC

We have served as the Company's auditor since 2019.

Columbus, Ohio

March 24, 2026

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ENERGY FOCUS, INC.

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31,

(in thousands, except share and per share amounts)

ASSETS

Current assets:

Trade accounts receivable, less allowances of $33 and $15, respectively 526 804

Prepayments to vendors 3 356

Prepaid and other current assets 126 157

Property and equipment, net 97 90

Operating lease, right-of-use asset 207 377

Advance for investment in joint venture 156 —

LIABILITIES

Current liabilities:

Accounts payable - related party 386 909

Accrued liabilities 56 90

Accrued legal and professional fees 44 54

Accrued payroll and related benefits 47 148

Accrued sales commissions 1 15

Accrued warranty reserve 91 118

Operating lease liabilities 139 139

(continued on the next page)

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ENERGY FOCUS, INC.

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31,

(in thousands, except share and per share amounts)

Operating lease liabilities, net of current portion 78 254

STOCKHOLDERS' EQUITY

Preferred stock, par value $0.0001 per share:

Common stock, par value $0.0001 per share:

Accumulated other comprehensive loss (3) (3)

Total liabilities and stockholders' equity $ 5,109 $ 5,612

The accompanying notes are an integral part of these consolidated financial statements.

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ENERGY FOCUS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31,

(in thousands, except per share amounts)

Operating expenses:

Selling, general, and administrative 1,284 2,017

Other expenses (income):

Interest income (2) —

Interest expense — 5

Gain on debt extinguishment — (187)

Gain on partial lease termination (2) (63)

Gain on disposal of fixed assets (3) —

Other income — (27)

Loss from operations before income taxes (1,027) (1,582)

Provision for income taxes — —

Net loss per common stock - basic and diluted

Weighted average shares of common stock outstanding:

The accompanying notes are an integral part of these consolidated financial statements.

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ENERGY FOCUS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

FOR THE YEARS ENDED DECEMBER 31,

(in thousands)

Other comprehensive loss:

Foreign currency translation adjustments — —

The accompanying notes are an integral part of these consolidated financial statements.

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ENERGY FOCUS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024

(in thousands)

AdditionalPaid-inCapital AccumulatedOtherComprehensiveLoss

Preferred Stock Common Stock AccumulatedDeficit

Shares Amount Shares Amount Total

Conversion of advanced capital contribution to common stock — — 94 — 141 — — 141

Stock-based compensation — — — — 4 — — 4

Shares issued as stock-based compensation — — 43 — 121 — — 121

The accompanying notes are an integral part of these consolidated financial statements.

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ENERGY FOCUS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31,

(in thousands)

Cash flows from operating activities:

Adjustments to reconcile net loss to net cash used in operating activities:

Foreign exchange loss 1 —

Loss on settlement of vendor obligations 8 —

Gain on partial lease termination (2) (63)

Gain on debt extinguishment — (187)

Gain on disposal of fixed assets (3) —

Stock-based compensation 121 4

Provision for credit losses and sales returns 10 (69)

Provision for slow-moving and obsolete inventories 244 347

Provision for warranties (27) (32)

Amortization of loan discounts and origination fees — 5

Change in operating assets and liabilities:

Prepayments to vendors (1) 83

Prepaid and other assets 32 3

Accounts payable - related party (523) (1,237)

Accrued and other liabilities (159) (128)

Right of use assets and lease liabilities (4) (43)

Net cash used in operating activities (1,404) (1,297)

Cash flows from investing activities:

Acquisitions of property and equipment (54) (19)

Proceeds from the sale of property and equipment 13 —

Advance for investment in joint venture (156) —

Net cash used in investing activities (197) (19)

Cash flows from financing activities:

Payments on the 2022 Streeterville Note — (1,000)

Net cash provided by (used in) financing activities 2,100 (149)

(continued on the next page)

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CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31,

(amounts in thousands)

Effect of exchange rate changes on cash — —

Net increase (decrease) in cash 499 (1,465)

Supplemental information:

Cash paid in year for interest $ — $ 5

Non-cash investing and financing activities:

Debt-to-equity exchange transactions $ — $ 591

The accompanying notes are an integral part of these consolidated financial statements.

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NOTE 1.NATURE OF OPERATIONS

Energy Focus, Inc. (the “Company”) engages primarily in the design, development, manufacturing, marketing and sale of energy-efficient lighting systems and controls. We develop, market and sell high-quality light-emitting diode (“LED”) lighting and controls products in the commercial market and military maritime market (“MMM”). Our mission is to enable our customers to run their facilities with greater energy efficiency; and productivity, and increased human health and wellness through advanced LED retrofit solutions. Our goal is to be the human wellness lighting and LED technology and market leader for the most demanding applications where performance, quality, value, environmental impact and health are considered paramount. We specialize in LED lighting retrofit by replacing fluorescent, high-intensity discharge lighting and other types of lamps in institutional buildings for primarily indoor lighting applications with our innovative, high-quality commercial and military-grade tubular LED (“TLED”) products, as well as other LED and lighting control products for commercial applications. We are also evaluating adjacent technologies including Gallium Nitride (“GaN”) based power supplies and additional market opportunities for energy solution products that support sustainability in our existing channels.

NOTE 2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies of our Company, which are summarized below, are consistent with accounting principles generally accepted in the United States (“U.S. GAAP”) and reflect practices appropriate to the business in which we operate. Unless indicated otherwise, the information in the Notes to the Consolidated Financial Statements relates to our operations.

Going Concern and Nasdaq Continued Listing Requirements Compliance

Due to our financial performance as of December 31, 2025 and 2024, including net losses of $1.0 million and $1.6 million for the twelve months ended December 31, 2025 and 2024, respectively, and total cash used in operating activities of $1.4 million and $1.3 million for the twelve months ended December 31, 2025 and 2024, respectively, we determined that substantial doubt about our ability to continue as a going concern continues to exist at December 31, 2025. As a result of restructuring actions and initiatives, we have tailored our operating expenses to be more in line with our expected sales volumes; however, we continue to incur losses and have a substantial accumulated deficit.

Additionally, global supply chain and logistics constraints and the ongoing evolution of international trade policies are impacting our inventory purchasing strategy, as we seek to manage both shortages of available components and longer lead times in obtaining components while pursuing cost-effectiveness measures to enhance profitability. As a result, we will continue to review and pursue selected external funding sources to ensure adequate financial resources to execute across the timelines required to achieve these objectives including, but not limited to, the following:

•obtaining financing from traditional or non-traditional investment capital organizations or individuals;

•obtaining funding from the sale of our common stock or other equity or debt instruments; and

•obtaining debt financing with lending terms that more closely match our business model and capital needs.

There can be no assurance that we will obtain funding on acceptable terms, in a timely fashion, or at all. Obtaining additional funding contains risks, including:

•additional equity financing may not be available to us on satisfactory terms, particularly in light of the current price of our common stock, and any equity we are able to issue could lead to dilution for current stockholders and have rights, preferences and privileges senior to our common stock;

•loans or other debt instruments may have terms or conditions, such as interest rate, restrictive covenants, conversion features, refinancing demands, and control or revocation provisions, which are not acceptable to management or the Company’s Board of Directors; and

•the current environment in the capital markets and volatile interest rates, combined with our capital constraints, may prevent us from being able to obtain adequate debt financing.

Considering both quantitative and qualitative information, we continue to believe that the combination of our plans to ensure adequate external funding, timely re-organizational actions, current financial position, liquid resources, obligations due or anticipated within the next year, development and implementation of an excess inventory reduction plan, plans and initiatives in our research and development, product development and sales and marketing, and development of potential channel

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partnerships, if adequately executed, could provide us with an ability to finance our operations through the next twelve months and may mitigate the substantial doubt about our ability to continue as a going concern.

Nasdaq Capital Market Compliance

As of the date of this Annual Report, the Company believes it has maintained compliance with the Minimum Stockholders’ Equity Rule, which requires listed companies to maintain stockholders’ equity of at least $2.5 million for continued listing on the Nasdaq Capital Market. Our Common Stock is listed on the Nasdaq Capital Market, which has as one of its continued listing requirements a minimum bid price of at least $1.00 per share.

However, there can be no assurance that the Company will be able to maintain compliance with the Minimum Stockholders’ Equity Rule, Bid Price Rule, or other Nasdaq listing requirements. If the Company fails to maintain compliance with Nasdaq’s continued listing standards, the Company’s common stock will be subject to delisting from Nasdaq.

Use of estimates

The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the amounts in our financial statements and accompanying notes. Management bases its estimates on historical experience and various other assumptions believed to be reasonable. Although these estimates are based on management’s best knowledge of current events and actions that may impact us in the future, actual results may vary from the estimates. Estimates include, but are not limited to, the establishment of credit losses allowance for accounts receivable, sales returns, inventory obsolescence and warranty claims, the useful lives of property and equipment, valuation allowance for net deferred taxes, and stock-based compensation. In addition, estimates and assumptions associated with the determination of the fair value of financial instruments and evaluation of long-lived assets for impairment require considerable judgment. Actual results could differ from those estimates and such differences could be material.

Basis of presentation

The Consolidated Financial Statements include the accounts of the Company. All significant inter-company balances and transactions have been eliminated. We have prepared the accompanying consolidated financial statements in accordance with U.S. GAAP and pursuant to the rules and regulations of the United States Securities & Exchange Commission (“SEC”).

Revenue

Net sales include revenues from sales of products and shipping and handling charges, net of estimates for product returns. Revenue is measured at the amount of consideration we expect to receive in exchange for the transferred products. We recognize revenue at the point in time when we transfer the promised products to the customer and the customer obtains control over the products. Distributors’ obligations to us are not contingent upon the resale of our products. We recognize revenue for shipping and handling charges at the time the goods are shipped to the customer, and the costs of outbound freight are included in cost of sales. We provide for product returns based on historical return rates. While we incur costs for sales commissions to our sales employees and outside agents, we recognize commission costs concurrent with the related revenue, as the amortization period is less than one year. We do not incur any other incremental costs to obtain contracts with our customers. Our product warranties are assurance-type warranties, which promise the customer that the products are as specified in the contract. Therefore, the product warranties are not a separate performance obligation and are accounted for as described below. Sales taxes assessed by governmental authorities and collected by us are accounted for on a net basis and are excluded from net sales.

We also generate revenue from services. Service revenue primarily consists of system configuration and setup services performed in connection with customer orders. These services are typically completed at or near the time of product shipment, are distinct from the related product sales and are accounted for as separate performance obligations, and revenue is recognized at a point in time when the service is rendered.

A disaggregation of product and service net sales is presented in Note 12, “Product and Geographic Information.”

Accounts Receivable

Our trade accounts receivable consists of amounts billed to and currently due from customers. In the normal course of business, we extend unsecured credit to our customers related to the sale of our products. Credit is extended to customers based on an evaluation of the customer’s financial condition and the amounts due are stated at their estimated net realizable value. We maintain allowances for sales returns and credit losses to provide for the estimated number of account receivables that will not be collected. The Company has determined that accounts receivable fall within the scope of the Current Expected Credit Losses

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(“CECL”) analysis in accordance with ASC 326. The Company decided to use the historical loss rate method of valuing its reserve for trade receivables. The reserve for credit losses is reviewed and assessed for adequacy on a quarterly basis. We take into consideration (1) any circumstances of which we are aware of a customer's inability to meet its financial obligations and (2) our judgments as to prevailing economic conditions in the industry and their impact on our customers. If circumstances change, and the financial condition of our customers is adversely affected and they are unable to meet their financial obligations, we may need to take additional allowances, which would result in an increase in our operating expenses. We do not generally require collateral from our customers.

Our standard payment terms with customers are net 30 days from the date of shipment, and we do not generally offer extended payment terms to our customers, but exceptions are made in some cases for major customers or with particular orders. Accordingly, we do not adjust trade accounts receivable for the effects of financing, as we expect the period between the transfer of product to the customer and the receipt of payment from the customer to be in line with our standard payment terms.

Pursuant to ASC 606, Revenue Recognition, contract assets and contract liabilities as of the beginning and ending of the reporting periods must be disclosed.Below is the breakout of the Company’s contract assets for such periods (in thousands):

Less: Allowance for Credit Losses (33) (15) (20)

Activity related to our allowance for credit losses for the years ended December 31, 2025 and 2024 was as follows (in thousands):

Allowance for credit losses as of January 1, 2024 $ (20)

Reduction of reserve for credit losses for the year ended December 31, 2024 5

Allowance for credit losses as of December 31, 2024 (15)

Increase in reserve for credit losses for the year ended December 31, 2025 (18)

Allowance for credit losses as of December 31, 2025 $ (33)

Geographic information

All our long-lived fixed assets are located in the United States. For the twelve months ended December 31, 2025 and 2024, approximately 83% and 100% of sales were attributable to customers in the United States, respectively, and 17% and 0%, were attributable to customers outside the United States, respectively. The geographic location of our net sales is derived from the destination to which we ship the product.

Cash

Cash consists of investments in money market funds and deposits with banks. At December 31, 2025 and 2024, we had cash of $1.1 million and $0.6 million, respectively, on deposit with financial institutions located in the United States and Taiwan. Our cash balances in U.S. banks may at times exceed federally insured limits; however, we place our deposits with high‐quality financial institutions and have not experienced any losses. Cash held in Taiwan is maintained with local financial institutions and is not insured by U.S. federal agencies. We monitor the credit quality of these institutions and have not experienced losses on such deposits.

Inventories

We state inventories at the lower of standard cost (which approximates actual cost determined using the first-in, first-out method) or net realizable value. We establish provisions for excess and obsolete inventories after evaluation of historical sales, current economic trends, forecasted sales, product lifecycles, and current inventory levels. The assessment is both quantitative and qualitative.

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Income taxes

As part of the process of preparing the Consolidated Financial Statements, we are required to estimate our income tax liability in each of the jurisdictions in which we do business. This process involves estimating our actual current tax expense together with assessing temporary differences resulting from differing treatment of items, such as deferred revenues, for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included in our Consolidated Balance Sheets. We then assess the likelihood of the deferred tax assets being recovered from future taxable income and, to the extent we believe it is more likely than not that the deferred tax assets will not be recovered, or is unknown, we establish a valuation allowance. Significant management judgment is required in determining our provision for income taxes, deferred tax assets and liabilities, and any valuation allowance recorded against our deferred tax assets. At December 31, 2025 and 2024, we recorded a full valuation allowance against our net deferred tax assets due to uncertainties related to our ability to utilize our deferred tax assets, primarily consisting of certain net operating losses carried forward. The valuation allowance is based upon our estimates of taxable income by jurisdiction and the period over which our deferred tax assets will be recoverable. In considering the need for a valuation allowance, we assess all evidence, both positive and negative, available to determine whether all or some portion of the deferred tax assets will not be realized. Such evidence includes, but is not limited to, recent earnings history, projections of future income or loss, reversal patterns of existing taxable and deductible temporary differences, and tax planning strategies. We continue to evaluate the need for a valuation allowance on a quarterly basis.

Financial Instruments

Fair value measurements

Fair value is defined as the price that would be received to sell an asset or would be paid to transfer a liability in an orderly transaction between market participants on the measurement date. The fair value of financial assets and liabilities are measured on a recurring or non-recurring basis. Financial assets and liabilities measured on a recurring basis are those that are adjusted to fair value each time a financial statement is prepared. Financial assets and liabilities measured on a non-recurring basis are those that are adjusted to fair value when a significant event occurs.

We utilize valuation techniques that maximize the use of available market information and generally accepted valuation methodologies. The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value, giving the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below. We classify the inputs used to measure fair value into the following hierarchy:

Level 3 Unobservable inputs for the asset or liability.

The carrying amounts of certain financial instruments including cash, accounts receivable, accounts payable, and accrued liabilities approximate fair value due to their short maturities.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. In determining the appropriate levels, we perform a detailed analysis of the assets and liabilities whose fair value is measured on a recurring basis. We review and reassess the fair value hierarchy classifications on a quarterly basis. Changes from one quarter to the next related to the observability of inputs in a fair value measurement may result in a reclassification between fair value hierarchy levels. There were no reclassifications for all periods presented.

Property and equipment

Property and equipment are stated at cost and include expenditures for additions and major improvements. Expenditures for repairs and maintenance are charged to operations as incurred. We use the straight-line method of depreciation over the estimated useful lives of the related assets (generally two years to 15 years) for financial reporting purposes. Accelerated methods of depreciation are used for federal income tax purposes. When assets are sold or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the Consolidated Statements of Operations.

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Impairment of Long-lived assets

Long-lived assets are reviewed for impairment whenever events or circumstances indicate the carrying amount may not be recoverable. Events or circumstances that would result in an impairment review primarily include operations reporting losses, a significant change in the use of an asset, or the planned disposal or sale of the asset. The asset would be considered impaired when the future net undiscounted cash flows generated by the asset are less than its carrying value. An impairment loss would be recognized based on the amount by which the carrying value of the asset exceeds its fair value, as determined by quoted market prices (if available) or the present value of expected future cash flows. Please refer to Note 5, “Property and Equipment,” for additional information.

Leases

The Company determines if an arrangement is a lease at its inception. A contract is or contains a lease if the contract conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration. Right-of-use (“ROU”) assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. We use our estimated incremental borrowing rate in determining the present value of lease payments considering the term of the lease, which is derived from information available at the lease commencement date. The lease term includes renewal options when it is reasonably certain that the option will be exercised and excludes termination options.

Lease expense for these leases is recognized on a straight-line basis over the lease term. We have elected not to recognize ROU assets and lease liabilities that arise from short-term leases for any class of underlying asset. Operating leases are included in Operating lease, right-of-use assets, Operating lease liabilities, and Long-term operating lease liabilities in our Consolidated Balance Sheets.

Product development

Product development expenses include salaries, contractor and consulting fees, supplies and materials, as well as costs related to other overhead items such as depreciation and facilities costs. Product development costs are expensed as they are incurred. We recognized $0.4 million and $0.5 million product development costs for the years ended December 31, 2025 and 2024, respectively.

Net loss per share

Basic loss per share is computed by dividing net loss available to common stockholders by the weighted average number of shares of common stock outstanding during the period, excluding the effects of any potentially dilutive securities. Diluted loss per share gives effect to all dilutive potential shares of common stock outstanding during the period. Dilutive potential shares of common stock consist of incremental shares upon the exercise of stock options, warrants and convertible securities, unless the effect would be anti-dilutive.

The following table presents a reconciliation of basic and diluted loss per share computations (in thousands, except per share amounts):

For the years ended December 31,

Numerator:

Denominator:

Basic and diluted weighted average common shares outstanding 5,553 4,947

As a result of the net loss we incurred for the years ended December 31, 2025 and 2024, convertible preferred stock representing approximately 25 thousand shares of common stock were excluded from the basic loss per share calculation because their inclusion would have been anti-dilutive.

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Stock-based compensation

We recognize compensation expense based on the estimated grant date fair value under the authoritative guidance. Management applies the Black-Scholes option pricing model to value stock options issued to employees and directors and applies judgment in estimating key assumptions that are important elements of the model in expense recognition. These elements include the expected life of the option, the expected stock-price volatility, and expected forfeiture rates. Compensation expense is generally amortized on a straight-line basis over the requisite service period, which is generally the vesting period. Please refer to Note 10, “Stockholders’ Equity,” for additional information.

Advertising expenses

Advertising expenses are charged to operations in the period incurred. They consist of costs for the placement of our advertisements in various media and the costs of demos provided to potential distributors of our products. Advertising expenses were $1 thousand and $6 thousand for the years ended December 31, 2025 and 2024, respectively.

Product warranties

We warrant our products and controls for periods generally ranging from one to ten years, depending on the product type and customer application. One product was sold in 2020 with a twenty-year warranty. Warranty settlement costs consist of actual amounts expensed for warranty, which are largely a result of the cost of replacement products or rework services provided to our customers. A liability for the estimated future costs under product warranties is maintained for products under warranty based on the actual claims incurred to date and the estimated nature, frequency, and costs of future claims. These estimates are inherently uncertain and changes to our historical or projected experience may cause material changes to our warranty reserves in the future. We continuously review the assumptions related to the adequacy of our warranty reserve, including product failure rates, and make adjustments to the existing warranty liability when there are changes to these estimates or the underlying replacement product costs, or the warranty period expires.

The following table summarizes warranty activity for the periods presented (in thousands):

At December 31,

Balance at the beginning of the year $ 118 $ 150

Warranty accruals for current period sales 7 3

Adjustments to existing warranty reserves (34) (35)

Accrued warranty reserve at the end of the year $ 91 $ 118

Foreign Currency Transactions

The functional currency of the Company and its Taiwan branch is the U.S. dollar.

Transactions denominated in currencies other than the U.S. dollar are remeasured into U.S. dollars using exchange rates in effect at the time of the transaction. Monetary assets and liabilities denominated in foreign currencies are remeasured at period-end exchange rates. Foreign currency transaction gains and losses are recognized in earnings in the period in which they arise and are included in operating expenses, net, depending on the nature of the underlying transaction.

The Company recorded foreign currency transaction gains of approximately $20 thousand for the year ended December 31, 2025, which are included as a component of selling, general and administrative expenses within the accompanying consolidated statements of operations. No foreign currency transaction gain or loss was recorded in 2024.

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Recently issued accounting standards

In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative. ASU 2023-06 modifies the disclosure or presentation requirements of a variety of Topics in the Codification. Certain amendments represent clarifications to or technical corrections of the current requirements. Because of the variety of Topics amended, a broad range of entities may be affected by one or more of those amendments. Many of the amendments allow users to more easily compare entities subject to the SEC’s existing disclosures with those entities that were not previously subject to the SEC’s requirements. Also, the amendments align the requirements in the Codification with the SEC’s regulations. For entities subject to the SEC’s existing disclosure requirements and for entities required to file or furnish financial statements with or to the SEC in preparation for the sale of or for purposes of issuing securities that are not subject to contractual restrictions on transfer, the effective date for each amendment will be the date on which the SEC’s removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited. For all other entities, the amendments will be effective two years later. The amendments in this update should be applied prospectively. For all entities, if by June 30, 2027, the SEC has not removed the applicable requirement from Regulation S-X or Regulation S-K, the pending content of the related amendment will be removed from the Codification and will not become effective for any entity. The Company is currently evaluating the potential impact this standard will have on its consolidated financial statements and related disclosures.

In November 2024, the FASB issued ASU 2024-03, Disaggregation of Income Statement Expenses. The standard requires public business entities to disclose additional disaggregated information about certain income statement expense captions, including the nature of expenses such as employee compensation, depreciation, and other significant expense categories. The amendments are effective for fiscal years beginning after December 15, 2026, and may be applied either prospectively or retrospectively. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of this standard will have on its consolidated financial statements and related disclosures.

In July 2025, the FASB issued ASU 2025-05, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets. The amendments provide a practical expedient for estimating expected credit losses for certain current accounts receivable and contract assets arising from revenue transactions. The guidance is effective for fiscal years beginning after December 15, 2025, and early adoption is permitted. The Company has not early adopted this standard and is currently evaluating the impact that the adoption of this standard will have on its consolidated financial statements and related disclosures.

Recently adopted accounting standards

On December 14, 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures, which establishes new income tax disclosure requirements in addition to modifying and eliminating certain existing requirements. Under the new guidance, entities must consistently categorize and provide greater disaggregation of information in the rate reconciliation. They must also further disaggregate income taxes paid. The standard is intended to benefit investors by providing more detailed income tax disclosures that would be useful in making capital allocation decisions. The guidance applies to all entities subject to income taxes and is effective for annual periods beginning after December 15, 2024. The guidance will be applied on a prospective basis with the option to apply the standard retrospectively. The Company adopted this standard on January 1, 2025 and the adoption does not have significant impact to the Company.

Other accounting standards that have been issued by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. We do not discuss recent standards that are not anticipated to have an impact on or are unrelated to our consolidated financial condition, results of operations, cash flows or disclosures.

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Certain risks and concentrations

We have certain customers whose net sales individually represented 10% or more of our total net sales, or whose net trade accounts receivable balance individually represented 10% or more of our total net trade accounts receivable.

Total net sales were concentrated among a few customers for the twelve months ended December 31, 2025 and 2024 as follows:

Twelve months ended December 31,

Customer A 21.1 % — %

Customer B (located in Taiwan) 16.2 % — %

Customer C 11.2 % — %

Customer D — % 15.8 %

Customer E — % 17.0 %

At December 31, 2025 and 2024, our trade accounts receivables were concentrated among a few customers as follows:

Customer B (located in Taiwan) 21.7 % — %

Customer E 19.5 % — %

Customer G — % 51.8 %

We require substantial amounts of purchased materials from selected vendors. With specific materials, all of our purchases are from a single vendor. The availability and costs of materials may be subject to change due to, among other things, new laws or regulations, suppliers’ allocation to other purchasers, interruptions in production by suppliers, and changes in exchange rates tariff and worldwide price and demand levels. Our inability to obtain adequate supplies of materials for our products at favorable prices could have a material adverse effect on our business, financial position, or results of operations by decreasing our profit margins and by hindering our ability to deliver products to our customers on a timely basis. Additionally, certain vendors require advance deposits prior to the fulfillment of orders. Deposits paid on unfulfilled orders totaled $3 thousand and $356 thousand at December 31, 2025 and 2024, respectively.

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We have certain vendors who individually represented 10% or more of our total expenditures, or whose net trade accounts payable balance individually represented 10% or more of our total net trade accounts payable.

Total expenditures were concentrated among a few suppliers for the twelve months ended December 31, 2025 and 2024 as follows:

Twelve months ended December 31,

Suppliers C and D, related parties* 28.0 % 36.3 %

* See Note 14 “Related Party Transactions”

At December 31, 2025 and 2024, our trade accounts payable were concentrated among a few suppliers as follows:

Supplier A — % 31.7 %

Supplier B 10.8 % — %

Suppliers C and D, related parties* 70.9 % 48.4 %

* See Note 14 “Related Party Transactions”

NOTE 3. LEASES

The Company leases certain equipment, manufacturing, warehouse and office space under non-cancellable operating leases with expirations through 2027 under which it is responsible for related maintenance, taxes and insurance. Effective July 1, 2024, our warehouse and office lease was amended to reduce the rentable square feet from 62,335 square feet to 29,692 square feet, and the rent expenses were decreased in proportion to the reduction in rentable square feet. The Company recorded this as a lease modification in accordance with ASC 842 Leases (“ASC 842”) and recorded a reduction to the right of use asset and lease liability of approximately $395 thousand using an incremental borrowing rate of approximately 13.64%. The Company recognized a gain on the lease modification of $63 thousand during the third quarter of 2024.

On October 3, 2025, the Company further amended the lease to reduce the rentable area, from 29,692 square feet to 25,392 square feet, and rent expenses were decreased in proportion to the reduction in rentable square feet. The Company recorded a reduction to the right of use asset and lease liability of approximately $40 thousand using an incremental borrowing rate of approximately 13.64% and the Company recognized a gain on the lease modification of $2 thousand. The weighted average remaining lease term for the operating leases is 1.5 years.

Components of the operating lease costs recognized in net loss were as follows (in thousands):

For the years ended December 31,

Supplemental Consolidated Balance Sheet information related to the Company’s operating leases as of December 31, 2025 and 2024 are follows (in thousands):

At December 31,

Operating Leases

Operating lease right-of-use assets $ 207 $ 377

Operating lease liabilities 217 393

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The maturities of lease liabilities under operating leases by years at December 31, 2025 are as follows (in thousands):

Operating Leases

Total future undiscounted lease payments 239

Less imputed interest (22)

Total lease obligations $ 217

Supplemental cash flow information related to leases was as follows (in thousands):

Years ended December 31,

Supplemental Cash Flow Information:

Cash paid, net, for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases $ 175 $ 343

NOTE 4. INVENTORIES

Inventories are stated at the lower of standard cost (which approximates actual cost determined using the first-in, first-out cost method) or net realizable value. During 2025, the Company was subject to increased import tariffs on certain products. Such tariffs are capitalized as part of inventory cost and contributed to higher cost of sales during the year. The Company continues to monitor the impact of tariffs on its operations and margins.

Inventories consist of the following (in thousands):

At December 31,

Reserves for excess, obsolete, and slow-moving inventories (591) (347)

(1) The December 31, 2024 balances have been revised to reflect the permanent markdown in cost of $2,464 recorded as of January 1, 2024.

The following is a roll-forward of the reserves for excess, obsolete, and slow-moving inventories (in thousands):

At December 31,

Beginning balance $ (347) $ (89)

Reduction due to inventory sold 137 89

Reserves for excess, obsolete, and slow-moving inventories $ (591) $ (347)

(2) The balance as of January 1, 2024 reflects the permanent markdown in cost of $2,464 recorded in connection with inventory cost adjustments.

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NOTE 5.PROPERTY AND EQUIPMENT

Property and equipment are stated at cost and depreciated using the straight-line method over the estimated useful lives of the related assets and consist of the following (in thousands):

At December 31,

Equipment (useful life 3 - 15 years) $ 496 $ 490

Tooling (useful life 2 - 5 years) 210 171

Vehicles (useful life 5 years) 41 41

Leasehold improvements (the shorter of useful life or lease life) 124 124

Property and equipment at cost 871 826

Less: accumulated depreciation (774) (736)

Property and equipment, net $ 97 $ 90

Depreciation expense was $37 thousand for the years ended December 31, 2025 and 2024.

NOTE 6. PREPAID AND OTHER CURRENT ASSETS

Prepaid and other current assets consisted of the following (in thousands):

At December 31,

Prepaid insurance $ 46 $ 36

Prepaid expenses 62 77

Total prepaid and other current assets $ 126 157

NOTE 7. ADVANCE FOR INVESTMENT IN JOINT VENTURE

Other noncurrent assets consisted of the following (in thousands):

At December 31,

Advance for investment in joint venture $ 156 $ —

In November 2025, the Company advanced $156 thousand in connection with a proposed joint venture arrangement with a third-party counterparty that is not a related party. The amount represents a refundable investment commitment (refundable if the transaction is not completed, subject to the terms of the arrangement) and is recorded at cost as an advance for investment. The joint venture is intended to support the Company’s ESS initiatives in the Japan power market. The joint venture agreement has not yet been finalized as of December 31, 2025. Upon completion of the transaction, the advance will be reclassified to an investment balance, if appropriate. The Company will assess its ownership interest and the appropriate accounting model, including whether the investment will be accounted for under the equity method, upon formation of the joint venture.

NOTE 8. DEBT

Streeterville Notes

2022 Streeterville Note

On April 21, 2022, we entered into a note purchase agreement with Streeterville Capital, LLC (“Streeterville”), pursuant to which we sold and issued to Streeterville a promissory note in the principal amount of approximately $2.0 million (the “2022 Streeterville Note”). The note was subsequently restructured in January 2023 and March 2023, with partial conversion to equity.

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On January 18, 2024, the Company and Streeterville entered into an agreement to fully satisfy the remaining obligations under the 2022 Streeterville Note through $1.0 million in cash and the issuance of 94,440 shares of common stock. On January 23, 2024, the 2022 Streeterville Note was terminated, upon which the Company recognized an $187 thousand gain on debt extinguishment.

As of December 31, 2025, the Company has no outstanding debt obligations.

Advanced capital contribution

In October 2023, an unrelated party agreed to subscribe the Company’s common stock in the next round of private placement and transferred funds in the amount of $450 thousand. There was no restriction in use of the funds and the advanced capital contribution bore no interest. The advanced capital contribution was exchanged for common stock on March 28, 2024. See Note 10, “Stockholders’ Equity.”

NOTE 9. COMMITMENTS AND CONTINGENCIES

Purchase Commitments

As of December 31, 2025, we had approximately $0.4 million in outstanding purchase commitments for inventory. Of this amount, $0.3 million is expected to ship in the first quarter of 2026 and $0.1 million is expected to ship in the second quarter of 2026. We have 92% of the outstanding purchase commitments with related parties.

Settlement of Return of Slow-Moving Inventory

On December 30, 2024, in connection with its strategy to reduce a certain quantity of low-turnover inventory, the Company entered into an agreement with the vendor, an unrelated party, to return the inventory purchased between 2021 and 2022 and transfer EnFocusTM registered trademarks (carrying amount of $0 as of December 31,2024).

The transaction was completed in the second quarter of 2025, at which time the inventory return, cancellation of prepayments, and settlement of outstanding accounts payable were finalized. As a result, the Company recognized a non-cash loss of approximately $8 thousand in 2025.

NOTE 10.STOCKHOLDERS’ EQUITY

Private Placements

The Company entered the securities purchase agreements with certain investors and issued 1,002,692 and 912,050 shares of common stock during the years ended December 31, 2025 and 2024, respectively.

November 2025 Private Placement

On November 26, 2025, the Company entered into a securities purchase agreement with each of its Chief Executive Officer and Principal Financial Officer, Mr. Chiao Chieh (Jay) Huang and MAN-BO HOTEL CO. LTD, an affiliate entity, which is owned by the spouse of Kin-Fu Chen, the Chairman of the Company’s Board of Directors, respectively, pursuant to which the Company agreed to issue and sell in a private placement 262,009 shares of the Company’s common stock, par value $0.0001 per share to each, and in aggregate, 524,018 shares of Common Stock for a purchase price per share of $2.29 (the “November 2025Private Placement”). The purchase price was determined by the Board of Directors to be at a premium to the Nasdaq closing price of our common stock on the date of the agreement. The Board of Directors approved the purchase price per share based on its judgment of the Company’s capital needs, market conditions, and limited financing alternatives available at the time. The Board determined this price to be reasonable and in the best interests of the Company and its shareholders. These transactions were approved by independent members of the Board of Directors.

Aggregate gross proceeds to the Company with respect to the November 2025 Private Placement were approximately $1.2 million. The November 2025 Private Placement closed on December 2, 2025.

August 2025 Private Placement

On August 15, 2025, the Company entered into a securities purchase agreement with its Chief Executive Officer, Mr. Chiao Chieh (Jay) Huang, pursuant to which the Company agreed to issue and sell in a private placement an aggregate of 264,550 shares of the Company’s common stock, par value $0.0001 per share, for a purchase price per share of $1.89 (the “August 2025 Private Placement”). The purchase price was determined by the Board of Directors to be at a premium to the Nasdaq closing

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price of our common stock on the date of the agreement. The Board of Directors approved the purchase price per share based on its judgment of the Company’s capital needs, market conditions, and limited financing alternatives available at the time. The Board determined this price to be reasonable and in the best interests of the Company and its shareholders. These transactions were approved by independent members of the Board of Directors.

Aggregate gross proceeds to the Company with respect to the August 2025 Private Placement were approximately $500 thousand. The August 2025 Private Placement closed on August 19, 2025.

June 2025 Private Placement

On June 19, 2025, the Company entered into a securities purchase agreement with its Chief Executive Officer, Mr. Chiao Chieh (Jay) Huang, pursuant to which the Company agreed to issue and sell in a private placement an aggregate of 110,497 shares of the Company’s common stock, par value $0.0001 per share, for a purchase price per share of $1.81 (the “June 2025 Private Placement”). The purchase price was determined by the Board of Directors to be at a premium to the Nasdaq closing price of our common stock on the date of the agreement. The Board of Directors approved the purchase price per share based on its judgment of the Company’s capital needs, market conditions, and limited financing alternatives available at the time. The Board determined this price to be reasonable and in the best interests of the Company and its shareholders. These transactions were approved by independent members of the Board of Directors.

Aggregate gross proceeds to the Company with respect to the June 2025 Private Placement were approximately $200 thousand. The June 2025 Private Placement closed on June 23, 2025.

March 2025 Private Placement

On March 27, 2025, the Company entered into a securities purchase agreement with its Chief Executive Officer, Mr. Chiao Chieh (Jay) Huang, pursuant to which the Company agreed to issue and sell in a private placement an aggregate of 103,627 shares of the Company’s common stock, par value $0.0001 per share, for a purchase price per share of $1.93 (the “March 2025 Private Placement"). The purchase price was determined by the Board of Directors to be at a premium to the Nasdaq closing price of our common stock on the date of the agreement. The Board of Directors approved the purchase price per share based on its judgment of the Company’s capital needs, market conditions, and limited financing alternatives available at the time. The Board determined this price to be reasonable and in the best interests of the Company and its shareholders. These transactions were approved by independent members of the Board of Directors.

Aggregate gross proceeds to the Company with respect to the March 2025 Private Placement were approximately $200 thousand. The Private Placement was priced higher than the closing price $1.92 of the Common Stock on the Nasdaq on the day of signing of the purchase agreement. The issuance and sale of the shares pursuant to the purchase agreement are not being registered under the Securities Act of 1933, as amended (the “Securities Act”), and were made pursuant to certain exemptions from registration, including Section 4(a)(2) of the Securities Act, in reliance on the representations and covenants of the purchaser under the purchase agreement. The March 2025 Private Placement closed on March 31, 2025.

June 2024 Private Placement

On June 21, 2024, the Company entered into a securities purchase agreement with Sander Electronics Inc., a shareholder of the Company controlled by Mr. Chiao Chieh (Jay) Huang, CEO of the Company, pursuant to which the Company agreed to issue and sell in a private placement an aggregate of 534,591 shares of the Company’s common stock, par value $0.0001 per share, for a purchase price per share of $1.59 (the “June 2024 Private Placement”).

Aggregate gross proceeds to the Company in respect of the June 2024 Private Placement were approximately $850 thousand. The June 2024 Private Placement closed on June 21, 2024.

March 2024 Private Placement

On March 28, 2024, the Company entered into a securities purchase agreement with certain purchaser, pursuant to which the Company agreed to issue and sell in a private placement an aggregate of 283,019 shares of the Company’s common stock, par value $0.0001 per share, for a purchase price per share of $1.59 (the “March 2024 Private Placement”). Consideration for the transaction included exchange of $450 thousand in the aggregate of outstanding amounts on capital contributions received in October 2023.

Aggregate gross proceeds to the Company in respect of the March 2024 Private Placement were approximately $450 thousand. The March 2024 Private Placement was priced at-the-market under the Nasdaq rules.

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Preferred Stock

The Series A Preferred Stock was created by the filing of a Certificate of Designation with the Secretary of State of the State of Delaware on March 29, 2019, which designated 2,000,000 shares of the Company’s preferred stock, par value $0.0001 per share, as Series A Preferred Stock (the “Original Series A Certificate of Designation”). On January 15, 2020 with prior stockholder approval, the Company amended the Certificate of Incorporation to increase the number of authorized shares of preferred stock to 5,000,000. The Original Series A Certificate of Designation was also amended on January 15, 2020, to increase the number of shares of preferred stock designated as Series A Preferred Stock to 3,300,000 (the Original Series A Certificate of Designation, as so amended, the “Series A Certificate of Designation”).

Pursuant to the Series A Certificate of Designation, each holder of outstanding shares of Series A Preferred Stock is entitled to vote with holders of outstanding shares of common stock, voting together as a single class, with respect to any and all matters presented to the stockholders of the Company for their action or consideration, except as provided by law. In any such vote, each share of Series A Preferred Stock shall entitle its holder to a number of votes equal to1.582% of the number of shares of common stock into which such share of Series A Preferred Stock is convertible.

The Series A Preferred Stock (a) has a preference upon liquidation equal to $0.67 per share and then participates on an as-converted basis with the common stock with respect to any additional distributions, (b) shall receive any dividends declared and payable on our common stock on an as-converted basis, and (c) is convertible at the option of the holder into shares of our common stock on a 1- for- 35 basis.

As of December 31, 2025 and 2024, there were 876,447 Series A Preferred Stock issued and outstanding which can be convertible into 25 thousand shares of common stock at the option of the holder.

Warrants

During the years ended December 31, 2025 and 2024, no warrants were exercised.

As of December 31, 2025 and 2024, we had the following outstanding warrants:

Number of Underlying Shares Exercise Price Expiration

Stock-based Compensation

Stock-based compensation expense is attributable to stock options and restricted stock unit awards. For all stock-based awards, we recognize expense using a straight-line amortization method.

The following table summarizes stock-based compensation expense and the impact it had on operations for the periods presented (in thousands):

For the year ended December 31,

Selling, general, and administrative 121 4

Total stock-based compensation $ 121 $ 4

Total unearned stock compensation expense was $1 thousand and $2 thousand at December 31, 2025 and 2024, respectively. These costs will be charged to expense and amortized on a straight-line basis in future periods. The weighted average period over which the unearned compensation at December 31, 2025 is expected to be amortized was approximately 1.3 years.

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Stock Options

For the years ended December 31, 2025 and 2024, the Company did not grant any stock options.

Options outstanding under all plans have a contractual life of ten years, and vesting periods between one and four years. A summary of option activity under all outstanding stock incentive plans for the years ended December 31, 2025 and 2024 is presented as follows:

Granted —

Canceled/forfeited —

Granted —

Expired —

Restricted Stock Units

We are able to issue restricted stock units to certain employees and non-employee Directors under the 2020 Plan with vesting periods ranging from one to four years. As of December 31, 2025 and 2024, the outstanding restricted stock is zero.

Fully Vested Shares

In December 2025, the Board approved and issued 43,000 fully vested shares as bonus compensation to certain employees and the Company recognized $121 thousand as stock-based compensation.

NOTE 11. INCOME TAXES

We file income tax returns in the U.S. federal jurisdiction, as well as in various state and local jurisdictions. With few exceptions, we are no longer subject to U.S. federal, state, and local, or non-U.S. income tax examinations by tax authorities for years before 2021. Our practice is to recognize interest and penalties related to income tax matters in income tax expense when and if they become applicable. At December 31, 2025 and 2024, respectively, there were no accrued interest and penalties related to uncertain tax positions.

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The following table shows the components of the provision for income taxes (in thousands):

For the year ended December 31,

Current:

U.S. federal $ — $ —

State — —

Foreign — —

Total current $ — $ —

Deferred:

U.S. Federal — —

State — —

Foreign — —