ITEM 1. BUSINESS
Overview
Energy Focus specializes in designing, developing, manufacturing, and selling energy-efficient lighting systems and controls. We provide high-quality LED lighting solutions for both commercial and military maritime markets (MMM), helping our customers improve energy efficiency, productivity, and wellness through advanced LED retrofit products.
Our core products include robust lighting fixtures and lamps for navy and military applications, Energy Storage Systems (“ESS”), Uninterruptible Power Supply (“UPS”), and tubular LED (“TLED”) lighting products, including battery backup units as well as general commercial and maritime lighting fixtures.
The LED lighting market has faced intense competition and price erosion in recent years. To stay competitive, we’ve reduced costs, streamlined our supply chain, and focused on product innovation. We’ve also restructured our sales strategies, focusing more on direct sales, strategic partnerships, and customer feedback to drive product development.
Despite industry challenges, we continue to innovate, offering differentiated, high-value products that meet the most demanding market needs. In 2025, we enhanced the RedCap® product line, further improving user experience and functionality.
Additionally, we have engaged in preliminary discussions and business development activities with certain contractors that serve U.S. Department of Defense (“DoD”) customers. These efforts are intended to explore potential opportunities and do not constitute awarded contracts or firm commitments.
In 2025, we recommitted to building upon the transformation activities that sought to stabilize and regrow our business. These efforts include the following key developments that occurred during 2025:
•On June 30, 2025, the Board approved the departure of Gina (Mei-Yun) Huang, and on August 8, 2025, appointed Sophia Shee as a new member of the Board. The resignations did not involve any disagreement with the Company. All current Board members, other than our Chief Executive Officer, Mr. Chiao Chieh (Jay) Huang, are independent directors under the corporate governance standards of Nasdaq.
•On March 27, 2025, Energy Focus, Inc. entered into certain securities purchase agreements with certain accredited investors, 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”). Aggregate gross proceeds to the Company with respect to the March 2025 Private Placement were approximately $200 thousand, excluding the offering expenses paid by the Company. The March 2025 Placement closed on March 31, 2025.
•On June 19, 2025, Energy Focus, Inc. entered into certain securities purchase agreements with certain accredited investors, 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”). Aggregate gross proceeds to the Company with respect to the June 2025 Private Placement were approximately $200 thousand, excluding the offering expenses paid by the Company. The June 2025 Private Placement closed on June 23, 2025.
•On August 15, 2025, Energy Focus, Inc. entered into certain securities purchase agreements with certain accredited investors, 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”). Aggregate gross proceeds to the Company with respect to the August 2025 Private Placement were approximately $500 thousand, excluding the offering expenses paid by the Company. The August 2025 Private Placement closed on August 19, 2025.
•On November 26, 2025, Energy Focus, Inc. entered into certain securities purchase agreements with certain accredited investors, pursuant to which the Company agreed to issue and sell in a private placement an aggregate of 524,018 shares of the Company’s common stock, par value $0.0001 per share, for a purchase price per share of $2.29 (the “November 2025 Private Placement”). Aggregate gross proceeds to the Company with respect to the November 2025 Private Placement were approximately $1.2 million, excluding the offering expenses paid by the Company. The November 2025 Private Placement closed on December 2, 2025.
•In 2025, we carefully researched and analyzed our historical sales data and the current market landscape, focusing on our pricing position and overall sales strategy. We acknowledged the increasing competition in the MMM sales space, both in terms of pricing pressure and the growing number of competitors.
•The Company has aggressively re-evaluated operating expenses throughout the year to manage fixed costs.
During 2025, we have thoroughly reviewed and adjusted our commercial pricing position as well as our strategic relationships and partnerships within the commercial LED market space.
In 2026, we plan to pursue expansion into new markets and industries to diversify our portfolio and drive growth:
•ESS Business Opportunity: We intend to explore energy storage solutions that could complement our existing product lines and support sustainability efforts.
•AI Data Center UPS Development: We aim to enter the AI data center market through development of advanced UPS systems tailored to meet the high-demand energy needs of AI-driven data centers.
•Global Market Expansion: We are evaluating potential opportunities in the Taiwan and Japan markets, where we may leverage our expertise to respond to demand in these regions.
To pursue long-term growth and profitability, we expect to focus on:
•Expanding product offerings in energy storage and AI data center power solutions.
•Strengthening our global presence, particularly in Taiwan and Japan.
•Continuing to innovate in LED lighting and controls.
•Maintaining financial discipline through cost control and operational efficiency.
We believe these strategies, if successfully implemented, may create new revenue streams, potentially strengthen our market position, and could lead to improved financial performance in the coming years, although actual results may differ materially from our expectations.
Our Corporate Structure and History
Fiberstars, Inc. was founded in 1985 in California and reincorporated in Delaware in November 2006. In May 2007, Fiberstars, Inc. merged with Energy Focus, Inc. (the “Company”), a Delaware corporation, with the Company emerging as the surviving entity. In 2023, we established an international branch, which we may refer to as our “Taiwan branch” or “Taipei office,” in Taipei, Taiwan, to enhance our Asia and worldwide business sales force.
Our Industry
We specialize in creating innovative, energy-saving solutions that combine advanced LED lighting, controls, and cutting-edge technology to help our customers operate their facilities more efficiently while promoting productivity and well-being. Our focus is on leading the market in human-centric lighting and high-tech energy solutions by offering top-quality, energy-efficient LED products, including "flicker-free" long-life lamps, retrofit kits, and advanced power technologies. In addition to LED lighting, we’ve expanded into energy-saving high-technology Gallium Nitride (“GaN”) power supplies, ESS, and UPS systems products tailored for AI data centers, positioning us at the forefront of sustainable technology for modern industries.
The demand for energy-efficient solutions like LEDs and advanced power systems is growing rapidly, driven by cost savings, environmental goals, and health benefits. Our new product lines, including GaN power supplies, ESS, and UPS systems, further enhance efficiency and reliability, meeting the rising energy demands of AI-driven data centers and other high-tech applications.
We’re also pioneers in flicker-free lighting—certified by Underwriters Laboratories at less than 1% flicker—reducing health issues like headaches and fatigue. Additionally, our smart lighting innovations, such as connected systems with sensors and circadian rhythm adjustments, are transforming how buildings operate, offering both energy savings and wellness benefits. While the market is competitive, we stand out by developing customer-focused, high-impact products and leveraging a strong sales network to meet evolving needs.
Our Products
We design and deliver a wide range of energy-efficient solutions for commercial, industrial, and military markets, including:
Commercial products to serve our targeted commercial markets:
•RedCap® emergency backup LED tubes; and
•LED retrofit kits for replacing fluorescent lamps, downlights, and low/high-bay fixtures; and
•Industrial LED dock lights; and
•UPS systems products designed for AI data centers
MMM LED lighting products to serve the U.S. Navy and allied foreign navies:
•Intellitube® and the Invisitube™ retrofit LEDs for the U.S. Navy and allied forces; and
•Military-grade LED fixtures like globe lights, berth lights, and high-bay kits.
New products:
•Energy-saving GaN power supplies for efficient power delivery; and
•ESS products designed for AI data centers
Our products outperform traditional lighting and power solutions, offering financial savings, reduced carbon emissions, and improved occupant health.
The key features of our products are as follows:
•High-efficiency designs with proprietary technology;
•Long-lasting performance, with most LEDs backed by a 10-year warranty;
•Ultra-low flicker for better health and equipment compatibility;
•Compliance with energy efficiency standards and rebate eligibility.
By expanding into GaN power supplies, ESS, and UPS systems, we’re addressing the growing needs of AI data centers and other tech-driven industries, reinforcing our commitment to innovation and sustainability. Our robust research and multi-channel sales strategy ensure we stay ahead in delivering reliable, high-quality solutions.
Sales and Marketing
Our company is dedicated to advancing innovative technologies and high-performance solutions across multiple sectors, including LED lighting, ESS, GaN power supplies, and AI Data Center UPS. We aim to strengthen our market presence in these areas while expanding our business reach in the Asia region.
•LED Lighting and Control Systems
We continue to focus on educating channel partners and end-users about the benefits and unique value propositions of our high-quality LED lighting technologies. Our primary customers include enterprise end-users, contractors, and ESCOs integrating our products into their projects. We also collaborate with lighting agencies that complement our direct sales efforts. Our in-house commercial sales team, along with external sales agencies, ensures broad market coverage, and we plan to extend this network across all U.S. regions.
Our sales strategy emphasizes our brand reputation and product education while simplifying procurement. We target industry verticals where our LED lighting offers significant economic, health, and safety benefits. Our products serve both commercial markets—valuing quality, efficiency, and ROI—and military markets (MMM), which require high durability and reliability.
Since launching our military-grade Intellitube® in 2011 for U.S. Navy ships, military sales have formed a substantial portion of our revenue. We continuously enhance our MMM product designs to reduce costs while maintaining performance standards. Although military sales are affected by fluctuating government funding, our strong presence in this market positions us for future growth. Simultaneously, we are committed to expanding our commercial market share, which holds vast potential.
Our commercial LED lighting products, introduced in 2010, have gained traction in sectors like healthcare, education, and industrial facilities. Notably, we have been the primary LED supplier for a major northeast Ohio hospital system since 2015, enabling us to expand into additional healthcare networks. We also supply low-flicker LED lighting to schools, colleges, and universities, promoting energy efficiency and healthier learning environments. Furthermore, our high bay and low bay lighting solutions cater to large-scale facilities such as warehouses and retail stores, offering energy and maintenance cost savings.
•ESS
We are expanding into the ESS market, offering reliable energy storage solutions for both commercial and industrial applications. Our ESS products support grid stability, renewable energy integration, and backup power needs. By leveraging our expertise in power electronics, we aim to provide efficient and scalable ESS solutions that cater to diverse energy demands.
•GaN Power Supplies
Our GaN Power Supplies represent the next generation of power conversion technology, delivering higher efficiency and power density compared to traditional silicon-based systems. These power supplies are ideal for applications requiring compact, lightweight, and high-performance solutions, including consumer electronics, industrial equipment, and renewable energy systems.
•AI Data Center UPS Solutions
We are introducing AI-driven UPS systems tailored for data centers, ensuring uninterrupted power supply and optimized energy management. Our AI UPS solutions utilize advanced algorithms to enhance system reliability, predict potential failures, and improve overall energy efficiency, supporting the growing demands of data centers worldwide.
Recognizing the immense market potential in Asia, we are prioritizing business expansion in this region. Our strategy includes establishing local partnerships, enhancing distribution networks, and customizing product offerings to meet regional needs. By strengthening our presence in Asia, we aim to tap into new growth opportunities and diversify our global revenue streams.
We employ a multi-channel sales approach, combining direct sales, external agencies, and selective e-commerce channels to reach a broad customer base. While our focus remains on core commercial and military markets, we continuously evaluate additional sales avenues to maximize market penetration. Our commitment to technological innovation and cost-effective engineering solutions allows us to enhance product features while reducing ownership costs. This strategic advantage supports our goal of expanding distribution channels and solidifying our competitive position.
With our diversified product portfolio and focused expansion strategies, we are well-positioned to drive sustainable growth across LED lighting, ESS, GaN Power Supplies, and AI Data Center UPS markets. Our increased emphasis on the Asia region further strengthens our global market presence, setting the stage for long-term success.
Concentration of Sales
While total MMM sales declined 43% year-over-year, sales to our primary Navy distributor remained approximately flat at $0.8 million, increasing from 16% to 21% as a percentage of total sales as the denominator of total sales decreased. This increased concentration heightens our exposure to the loss of any major customer. We are focused on broadening our customer base and pursuing additional customer opportunities in international markets to mitigate customer concentration risk.
In 2025, three customers accounted for 48% of net sales, with sales to a distributor for the U.S. Navy accounting for approximately 21% and two commercial customers accounting for approximately 27%.
In 2024, two customers accounted for 33% of net sales, with sales to a distributor for the U.S. Navy accounting for approximately 16% and a shipbuilder for the U.S. Navy accounting for approximately 17%.
Competition
Our LED lighting products compete against a variety of lighting products, including conventional light sources such as compact fluorescent lamps and HID lamps, as well as other TLEDs and integrated LED luminaire products. Our ability to compete depends substantially upon the superior performance, incremental benefits and lower total cost of ownership of our products.
Principal competitors in our markets include large lamp manufacturers and lighting fixture companies based in the United States, as well as TLED and LED replacement fixture manufacturers mostly based in Asia, whose financial resources may substantially exceed ours and whose cost structure as a percentage of sales may be well below ours. These competitors may introduce new or improved products that may reduce or eliminate some of the competitive advantage of our products and may have substantially lower pricing. We anticipate that the competition for our products will also come from new technologies that offer increased energy efficiency, lower initial costs, lower maintenance costs, or advanced features. We compete with LED systems produced by large lighting companies such as Signify Lighting, Osram Sylvania and GE Lighting, as well as smaller manufacturers or distributors such as LED Smart, Energy Source Group, Orion Energy Systems, and Keystone Technologies. Some of these competitors offer products with performance characteristics similar to those of our products.
Manufacturing and Suppliers
We manufacture our lighting products and systems through a combination of in-house production at our Solon, Ohio facility and outsourced finished goods produced to our specifications. Our in-house operations focus on final assembly, testing, and quality control. We collaborate with several vendors to design custom components that meet our specific needs. Our quality assurance program includes rigorous testing at key stages of assembly and for all finished products, whether produced internally or sourced externally. Additionally, we are ISO 9001:2015 certified.
Manufacturing costs are managed through a balance of internal production and outsourcing to trusted suppliers worldwide, primarily in the United States, Malaysia, Taiwan, and previously China. In certain cases, we rely on single-source suppliers for specific components or finished goods. We continuously optimize our global supply chain to meet client expectations in quality and volume while controlling costs and achieving target gross margins. Our approach includes evaluating opportunities for additional outsourcing or increased insourcing when it enhances cost efficiency, quality, or performance.
Our suppliers are primarily based in the United States and Asia. We continue to reduce transportation costs while actively managing shorter lead times for component procurement.
Two suppliers (related parties, See Note 14 “Related Party Transactions” of this Annual Report on Form 10-K, for additional information) accounted for approximately 28% of our total expenditures for the twelve months ended December 31, 2025. At December 31, 2025, two suppliers accounted for approximately 11% and 71% (a related party, See Note 14, “Related Party Transactions” of this Annual Report on Form 10-K, for additional information) of our trade accounts payable balance.
One supplier (a related party, See Note 14 “Related Party Transactions” of this Annual Report on Form 10-K, for additional information) accounted for approximately 36% of our total expenditures for the twelve months ended December 31, 2024. At December 31, 2024, two suppliers accounted for approximately 32% and 48% (a related party, See Note 14, “Related Party Transactions” of this Annual Report on Form 10-K, for additional information) of our trade accounts payable balance, respectively.
Product Development
Product development remains a central focus and a key differentiator in delivering industry-leading LED lighting solutions, GaN Power Supplies, and MMM lighting solutions. Gross product development expenses for the years ended December 31, 2025 and 2024 were $0.4 million and $0.5 million, respectively. We believe that our customer-focused approach to product development ensures that our R&D investments yield impactful and innovative products, driving faster market adoption and strengthening our competitive advantage.
Additionally, we collaborate with certain prime contractors serving the U.S. Department of Defense on product development initiatives that align with anticipated DoD program requirements for 2026 and 2027. These efforts are intended to support qualification, testing, and integration of our products into customer programs.
Intellectual Property
We actively protect our intellectual property through patents, license agreements, trademark registrations, confidential disclosure agreements, and trade secrets, as appropriate. Certain patents are integral to our current product lines. We have multiple pending U.S. and international patent applications filed under the Patent Cooperation Treaty with the World Intellectual Property Organization. Our portfolio includes over 50 issued patents, expiring at various times through May 2040. Patent protection typically lasts 20 years from the earliest effective filing date. However, there is no guarantee that existing patents are invulnerable or that pending applications will be granted. Competitors may develop similar products or access proprietary information despite these protections. The laws of some foreign countries in which we manufacture, sell or may sell
our products do not protect proprietary rights to products to the same extent as the laws of the United States. Please refer to Note 9, “Commitments and Contingencies,” of this Annual Report on Form 10-K, for additional information.
Insurance
All of our properties and equipment are covered by insurance and we believe that such insurance is adequate. In addition, we maintain general liability, product recall and workers’ compensation insurance in amounts we believe to be consistent with our risk of loss and industry practice.
Regulatory Compliance
We derive a significant portion of our revenues from direct and indirect sales to U.S., state, local and foreign governments and their respective agencies. Contracts with government customers are subject to various procurement laws and regulations, business prerequisites to qualify for such contracts, accounting procedures, intellectual property processes, and contract provisions relating to their formation, administration and performance, which may provide for various rights and remedies in favor of the governments that are not typically applicable to or found in commercial contracts.
In addition, although not legally required to do so, we strive to obtain certification for substantially all our products. In the United States, we seek certification on substantially all of our products from UL Solutions (UL®), Intertek Testing Services (“ETL®”), or DesignLights Consortium (“DLC™”). Where appropriate in jurisdictions outside the United States, we seek to obtain other similar national or regional certifications for our products. Although we believe that our broad knowledge and experience with electrical codes and safety standards have facilitated certification approvals, we cannot ensure that we will be able to obtain any such certifications for our new products or that, if certification standards are amended, we will be able to maintain such certifications for our existing products.
Human Capital
As of December 31, 2025, we had 8 full-time employees and 4 part-time employees, with 7 based in the United States and 5 in Taiwan. We had 5 temporary contractors as of December 31, 2025. None of our employees or contractors are subject to collective bargaining agreements and we consider our relationship with our employees to be good. We encourage and support the growth and development of our employees. Continual learning and career development is advanced through ongoing performance and development conversations with employees and reimbursement is available to employees from time to time for seminars, conferences, formal education, and other training events employees attend in connection with their job duties.
Our human capital resources objectives include, as applicable, identifying, recruiting, retaining, incentivizing and integrating our current and future employees. The principal purposes of our annual bonus plan and equity incentive plan are to attract, retain and motivate employees through the granting of long-term incentive compensation awards.
Business Segments
We currently operate in a single business segment that includes the marketing and sale of commercial and MMM lighting products and controls. Please refer to Note 12, “Product and Geographic Information,” and Note 13, “Segment Information,” included in Item 8, “Financial Statements and Supplementary Data,” of this Annual Report on Form 10-K, for additional information.
Available Information
Our principal executive offices are located at 32000 Aurora Road, Suite B, Solon, Ohio 44139. Our telephone number is 440.715.1300. Our website address is www.energyfocus.com. We are providing the address to our website solely for the information of investors. The information on our website is not a part of, nor is it incorporated by reference into this Annual Report on Form 10-K. We file annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports with the Securities and Exchange Commission (“SEC”). The SEC maintains a website that contains these reports at www.sec.gov.
ITEM 1A. RISK FACTORS
Risks Associated with Our Business
If we are unable to attract or retain qualified personnel, our business and product development efforts could be harmed.
We are highly dependent on our senior management and other key personnel due to our very lean organizational structure. Our future success will depend on our ability to attract, retain, develop and motivate qualified executive, technical, sales, marketing, operating, financial and management personnel, for whom competition is very intense. As we attempt to sustain and re-grow our business, it could be especially difficult to attract, retain and adequately compensate qualified personnel, especially in light of our lean cost structure and the tightening of the labor market, which has led to increased competition for employees. The loss of, or failure to attract, hire, and retain any such persons could delay product development cycles, disrupt our operations, increase our costs, or otherwise harm our business or results of operations. We also do not maintain “key person” insurance policies on any of our officers or our other employees, nor have employment contracts.
We rely on equity and debt financing to operate our business and will require additional financing in the near term, which we may not be able to raise on favorable terms or at all, and our failure to obtain funding when needed may force us to delay, scale back or eliminate our business plan or even discontinue or curtail our operations.
For the year ended December 31, 2025, we reported a net loss of $1.0 million and are dependent upon the availability of financing in order to continue our business.
For the year ended December 31, 2025, financing activity to sustain losses included issuance of common stock of approximately $2.1 million (Please see Note 10 of our financial statements for the year ended December 31, 2025 included in Part II, Item 8, “Financial Statements and Supplementary Data,” of this Annual Report.).
For the year ended December 31, 2024, financing activity to sustain ongoing losses included (1) issuance of common stock approximately $0.9 million and (2) payments on the 2022 Streeterville Note $1.0 million.
We may not generate sufficient cash flows from our operations or be able to borrow sufficient funds to sustain our operations. As such, we will likely need additional external financing during 2026 and will continue to review and pursue external funding sources 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 financing 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 rates, restrictive covenants, conversion features, refinancing demands, and control or revocation provisions, which are not acceptable to management or the Company’s Board of Directors (the “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.
If we fail to obtain the required additional financing to sustain our business before we are able to produce levels of revenue to meet our financial needs, we will need to delay, scale back or eliminate our business plan and further reduce our operating costs and headcount, each of which would have a material adverse effect on our business, future prospects, and financial condition. A lack of additional financing could also result in our inability to continue as a going concern and force us to sell certain assets or discontinue or curtail our operations and, as a result, investors in the Company could lose their entire investment.
Our independent registered public accounting firm’s opinion on our audited financial statements for the fiscal year ended December 31, 2025, included in this Annual Report, contains a modification relating to our ability to continue as a going concern.
Our independent registered public accounting firm’s opinion on our audited financial statements for the year ended December 31, 2025 includes a modification stating that our losses and negative cash flows from operations and uncertainty in generating sufficient cash to meet our obligations and sustain our operations raise substantial doubt about our ability to continue as a going concern.
While we continue to pursue funding sources and transactions that could raise capital, there can be no assurances that we will be successful in these efforts or will be able to resolve our liquidity issues or eliminate our operating losses. If we are unable to generate enough cash or obtain sufficient additional funding, we would need to scale back or significantly adjust our business plan, further reduce our operating costs and headcount, or discontinue or curtail our operations. Accordingly, our business, prospects, financial condition and results of operations could be materially and adversely affected, and we may be unable to continue as a going concern. If we are unable to continue as a going concern, we may have to liquidate our assets and may receive less than the value at which those assets are carried on our audited consolidated financial statements, and it is likely that investors will lose all or a part of their investment. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty. (Please see Note 2 of our financial statements "Going Concern" for the year ended December 31, 2025 included in Part II, Item 8, “Financial Statements and Supplementary Data,” of this Annual Report.)
We have a history of operating losses and will incur losses in the future as we continue our efforts to grow sales and streamline our operations at a profitable level.
We have incurred substantial losses in the past and reported net losses of $1.0 million and $1.6 million for the years ended December 31, 2025 and 2024, respectively. As of December 31, 2025, we had an accumulated deficit of $155.9 million and cash of approximately $1.1 million, compared to an accumulated deficit of $154.9 million and cash of approximately $0.6 million as of December 31, 2024.
In order for us to operate our business profitably, we need to grow our sales, maintain cost control discipline while balancing development of our product pipeline and potential long-term revenue growth, continue our efforts to reduce product cost, and drive further operating efficiencies and develop and execute a strategic product pipeline for profitable and compelling MMM and LED lighting and control products. Management initiated expansion into the Asian market in 2025. There is a risk that our strategy to return to profitability may not be as successful as we envision, or occur as quickly as we expect. We might require additional financing in the near-term and, if our operations do not achieve, or we experience an unanticipated delay in achieving, our intended level and pace of profitability, we will continue to need additional funding, none of which may be available on favorable terms or at all and could require us to sell certain assets or discontinue or curtail our operations.
While we are attempting to diversify our customer base, we have historically derived a significant portion of our revenue from a few customers, and the loss of one of these customers, or a reduction in their demand for our products, could adversely affect our business, financial condition, results of operations, and prospects.
Historically our customer base has been highly concentrated and a limited number of customers have represented a substantial portion of our net sales. We generally do not have long-term contracts with our customers that commit them to purchase any minimum amount of our products or require them to continue to do business with us. As a result, the loss of, or a significant reduction in demand from, any of our significant customers could adversely affect our business, financial condition, results of operations, and prospects. We may lose business from any one of our significant customers for a variety of reasons, many of which are outside of our control, including changes in customer procurement strategies or project timelines, changes in government funding and rebate programs, increased competition, changes in product specifications, and our ability to meet customer requirements, including delivery and quality expectations.
We are attempting to expand and diversify our customer base and reduce the dependence on one or a few customers, through the addition of sales representatives and other potential sales channels, but we cannot provide any assurance that our efforts will be successful. We anticipate that a limited number of customers could continue to comprise a substantial portion of our revenue for the foreseeable future. If we continue to do business with our significant customers, our concentration can cause variability in our results because we cannot control the timing or amounts of their purchases. A significant customer could cease to do or drastically reduce its business with us with little or no notice, which could adversely affect our results of operations and cash flows in particular periods.
Historically, we have experienced long sales-cycles, as well as slow ramp-up by new customers to purchase large amounts of LED products from us. Given the fiercely competitive lighting market in which we operate, we are constantly trying to balance
pricing with the quality-premium our products command both in brand reputation and performance. As a result, adding new customers could generally be a slow process, and increasing new customers’ sales to more significant levels usually takes a long period of time. As we continue to develop more customer-centric new products such as GaN-based power supply circuitry, we hope to both add new customers more quickly and have our customers scale their purchasing levels more quickly. However, there is no guarantee of faster customer acceptance or performance of these new products or any other that has been or is being developed.
If critical components and finished products that we develop with and purchase from a small number of third-party development partners and suppliers become unavailable or increase in price, or if our development partners, suppliers or delivery channels fail to meet our requirements for quality, quantity, and timeliness, our revenue and reputation in the marketplace could be harmed, which would damage our business.
In an effort to reduce research and development and manufacturing costs, we have outsourced the research, development and production of certain parts and components, as well as finished goods in our product lines, to a small number of vendors in various locations throughout the world, primarily in the United States, Malaysia, Taiwan and China. We generally purchase these sole or limited source items with purchase orders, and we have limited guaranteed supply arrangements with such suppliers. While we believe alternative sources for these components and products are available, we select suppliers based on their expected ability to provide quality products at a cost-effective price, to meet our specifications, and to deliver within scheduled time frames. We do not control the time and resources that these suppliers devote to our business, and we cannot be sure that these suppliers will perform their obligations to us. If our ability to manage third-party product development efforts are unsuccessful or our suppliers fail to perform their obligations in a timely manner or at satisfactory quality levels, we may suffer lost or delayed sales, increased costs of goods sold, reductions in revenue or margin, and damage to our reputation in the market, all of which would adversely affect our business. As demand for our products fluctuates, which fluctuations can be hard to predict, we may not need a sustained level of inventory, which may cause financial hardship for our suppliers or they may need to divert production capacity elsewhere. In the past, we have had to purchase quantities of certain components that are critical to our product manufacturing and were in excess of our estimated near-term requirements as a result of supplier delivery constraints and concerns over component availability, and we may need to do so in the future. As a result, we have had, and may need to continue, to devote additional working capital to support a large amount of component and raw material inventory that may not be used over a reasonable period to produce saleable products, and we may be required to increase our excess and obsolete inventory reserves to provide for these excess quantities, particularly if demand for our products does not meet our expectations.
We may be vulnerable to unanticipated product development delays, price increases and payment term changes. Significant increases in the prices of sourced components and products, shipping costs and recent tariff policy changes could cause our product prices to increase, which may reduce demand for our products or make us more susceptible to competition. Furthermore, in the event that we are unable to pass along increases in operating costs to our customers, margins and profitability may be adversely affected. Accordingly, the loss of all or one of these suppliers could have a material adverse effect on our operations until such time as an alternative supplier could be found.
Additionally, consolidation in the lighting industry could result in one or more current suppliers being acquired by a competitor, rendering us unable to continue purchasing key components and products at competitive prices.
We also may be subject to various import duties and tariffs applicable to materials manufactured in foreign countries and may be affected by various other import and export restrictions, as well as other considerations or developments impacting upon international trade, including economic or political instability, tariffs, shipping delays and product quotas. These international trade factors will, under certain circumstances, have an impact on the cost of components, which will have an impact on the cost to us of the manufactured product and the wholesale and retail prices of our products.
We rely on arrangements with independent shipping companies for the delivery of our products from vendors abroad. The failure or inability of these shipping companies to deliver products or the unavailability of shipping or port services, even temporarily, could have a material adverse effect on our business. We may also be adversely affected by an increase in freight surcharges due to global logistics capacity constraints, rising fuel costs and added security costs.
If we are unable to implement plans to increase sales and control expenses to manage future growth effectively, our profitability goals and liquidity will be adversely affected.
Our ability to achieve our desired growth depends on the adoption of high-quality LED lighting and controls within the general lighting market and our ability to affect and adapt to these rates of adoption. The pace of continued growth in these markets is uncertain, and in order to grow our sales, we may need to:
•manage organizational complexity and ensure effective and timely communication;
•expand the skills and capabilities of our current management, engineering and sales teams;
•add experienced senior level managers;
•attract, retain and adequately compensate qualified employees;
•adequately maintain and adjust the operational and financial controls that support our business;
•expand research and development, sales and marketing, technical support, distribution capabilities, manufacturing planning or administrative functions and capabilities;
•maintain or establish additional manufacturing facilities and equipment, as well as secure sufficient third-party manufacturing resources, to adequately meet customer demand or lower manufacturing costs; and
•manage an increasingly complex supply chain to maintain a sufficient supply of materials and deliver on time to our manufacturing facilities.
These efforts to grow our business, both in terms of size and in diversity of customer bases served, may put a significant strain on our resources. We have implemented comprehensive cost-saving initiatives to reduce our net loss and mitigate doubt about our ability to continue as a going concern. These initiatives have improved efficiency and streamlined our operations, but we continue to operate at a loss and may need additional funding or further cost-cutting to manage liquidity.
Our possible future growth may exceed our current capacity and require rapid expansion in certain functional areas. We may lack sufficient funding to appropriately expand or incur significant expenses as we attempt to scale our resources and make investments in our business that we believe are necessary to achieve short-term and long-term growth goals. Such investments take time to become fully operational, and we may not be able to expand quickly enough to exploit targeted market opportunities. In addition to our own manufacturing capacity, we are increasingly utilizing contract manufacturers and original design manufacturers (“ODMs”) to produce our products for us. There are also inherent execution risks in expanding product lines and production capacity, whether through our facilities or that of a third-party manufacturer, that could increase costs and reduce our operating results, including design and construction cost overruns, poor production process yields and reduced quality control. If we are unable to fund any necessary expansion or manage our growth effectively, we may not be able to adequately meet demand, our expenses could increase without a proportionate increase in revenue, our margins could decrease, and our business and results of operations could be adversely affected.
Our results of operations, financial condition and business could be harmed if we are unable to balance customer demand and capacity.
As our customer base and customer demand for our products changes and as we launch new products, we must be able to adjust our production capacity to meet demand. We are continually taking steps to address our manufacturing capacity needs for our products. If we are not able to increase or decrease our production capacity at our targeted rate or if there are unforeseen costs associated with adjusting our capacity levels, or there are unanticipated interruptions in our global supply chain or logistics due to factors outside of our control, such as geopolitical instability, labor availability constraints, changes in trade policies, inflationary pressures, or other macroeconomic conditions, we may not be able to achieve our financial targets. In addition, as we introduce new products and further refine existing products, we must balance the production and inventory of prior generation products with the production and inventory of new products, whether manufactured by us or our contract manufacturers, to maintain a product mix that will satisfy customer demand and mitigate the risk of incurring cost write-downs on the previous generation products, related raw materials and tooling.
If customer demand does not materialize at the rate forecasted, we may not be able to scale back our manufacturing expenses or overhead costs to correspond to the demand. This could result in lower margins, write-downs of our inventory and adverse impacts to our business and results of operations. Additionally, if product demand decreases or we fail to forecast demand accurately, our results may be adversely impacted due to higher costs resulting from lower factory utilization, causing higher fixed costs per unit produced. In addition, our efforts to improve quoted delivery lead-time performance may result in corresponding reductions in order backlog. A decline in backlog levels could result in more variability and less predictability in our quarter-to-quarter net sales and operating results.
If we are not able to compete effectively against companies with lower cost structures or greater resources, or new competitors who enter our target markets, our sales will be adversely affected.
The lighting industry is highly competitive. In the high-performance lighting markets in which we sell our advanced lighting systems, our products compete with lighting products utilizing traditional lighting technology provided by many vendors. Our higher quality and value advanced lighting and control systems also face competition from lower quality, commodity lighting products when customers may be overly purchase-price sensitive. For sales of MMM products, we compete with a small number of qualified military lighting lamp and fixture suppliers. In certain commercial applications, we typically compete with LED systems produced by large lighting companies. Our primary competitors include Signify, Osram Sylvania, LED Smart, Energy Source Group, Orion Energy Systems, and Keystone Technologies. Some of these competitors offer products with performance characteristics similar to those of our products. Many of our competitors are larger, more established companies with greater resources to devote to research and development, manufacturing and marketing, as well as greater brand recognition. In addition, larger competitors who purchase greater unit volumes from component suppliers may be able to negotiate lower costs, thereby enabling them to offer lower pricing to end customers. Moreover, the relatively low barriers to entry into the lighting industry and the limited proprietary nature of many lighting products also permit new competitors to enter the industry easily and with lower costs.
In each of our markets, we also anticipate the possibility that LED component manufacturers, including those that currently supply us with LEDs, may seek to compete with us. Our competitors’ lighting technologies and products may be more readily accepted by customers than our products will be. Moreover, if one or more of our competitors or suppliers were to merge, the change in the competitive landscape could adversely affect our competitive position. Additionally, to the extent that competition in our markets intensifies, we may be required to further reduce our prices in order to remain competitive. If we do not compete effectively, or if we reduce our prices without making commensurate reductions in our costs, our net sales, margins, and profitability and our future prospects for success may be harmed.
We work with independent agents and sales representatives for a portion of our net sales, and the failure to incentivize, retain and manage our relationships with these third parties, or the termination of these relationships, could cause our net sales to decline and harm our business.
In the past, we pursued an agency-driven sales channel strategy in order to expand our market presence throughout the United States. As a result, at that time, we had increased our reliance on independent sales agent channels to market and sell our LED lighting and control products. In addition, these parties provide technical sales support to end-users. The current agreements with our agents are generally non-exclusive on the agents’ product portfolio, meaning they can sell our competitors’ products. Any such agreements we enter into in the future may be on similar terms. Our agents may not be motivated to or successfully pursue the sales opportunities available to them, or they may prefer to sell or be more familiar with the products of our competitors. If our agents do not achieve our sales objectives or these relationships take significant time to develop, our revenue may decline, fail to grow or not increase as rapidly as we intend in order to achieve profitability and grow our business. We improved and continued to maintain our agency relationships that were both mutually beneficial and strategically important. Although we believe that our agency strategy will increase the role of independent agents and sales representatives over time, direct sales using internal sales personnel still account for a substantial portion of our sales, and our agency plans may take longer to contribute significantly to our operating results.
Furthermore, our agency agreements are generally short-term and can be cancelled by either party without significant financial consequence. The termination of or the inability to negotiate extensions of these contracts on acceptable terms could adversely impact sales of our products. Additionally, we cannot be certain that we or end-users will be satisfied by their performance. If these agents significantly change their terms with us, or change their end-user relationships, there could be an impact on our net sales and profits.
If our LED lighting and control technology products fail to gain widespread market acceptance or we are unable to respond effectively as new technologies and market trends emerge, our competitive position and our ability to generate revenue, and profits may be harmed.
To be successful in our respective markets for LED lighting and control technology products, we depend on continued market acceptance of our existing LED lighting and control technology, including in the consumer and commercial markets. Potential customers may be reluctant to adopt LED lighting products as an alternative to traditional lighting technology because of their higher initial costs or perceived risks relating to their novelty, reliability, usefulness, quality and cost-effectiveness when compared to other established lighting sources available in the market. Changes in economic and market conditions may also make traditional lighting technologies more appealing. For example, declining energy prices in certain regions or countries may favor existing lighting technologies that are less energy-efficient, reducing the rate of adoption for LED lighting products in those areas. Notwithstanding continued performance improvements and cost reductions of LED lighting technologies, limited
customer awareness of the benefits of LED lighting products, lack of widely accepted standards governing LED lighting products and customer unwillingness to adopt LED lighting products could significantly limit the demand for LED lighting products. Even potential customers that are inclined to adopt energy-efficient lighting technology may defer investment as LED lighting products continue to experience rapid technological advances. Any of the foregoing could adversely impact our results of operations and limit our market opportunities.
In addition, we will need to keep pace with rapid changes in LED lighting and control technology, changing customer requirements, new product introductions and cost reductions by competitors and evolving industry standards, any of which could render our existing products obsolete if we fail to respond in a timely manner. The development, introduction, and acceptance of new, re-designed or reduced cost products incorporating advanced technology is a complex process subject to numerous uncertainties, including:
•available funding to sustain adequate development efforts;
•achievement of technology breakthroughs required to make commercially viable devices, and in turn, protecting those breakthroughs through intellectual property;
•the accuracy of our predictions for market requirements;
•our ability to predict, influence, or react to evolving standards;
•acceptance of our new product designs;
•acceptance of new technologies in certain markets;
•the combination of other desired technological advances with lighting products, such as controls;
•the availability of qualified research and development personnel;
•our timely completion of product designs and development;
•our ability to develop repeatable processes to manufacture new products in sufficient quantities, with the desired specifications, and at competitive costs;
•our ability to effectively transfer products and technology from development to manufacturing; and
•market acceptance of our products.
We could experience delays in the introduction of these products. We could also devote substantial resources to the development of new technologies or products that are ultimately not successful.
If effective new sources of light, other than LEDs, are discovered and commercialized, our current products and technologies could become less competitive or obsolete. If others develop innovative proprietary lighting technology that is superior to ours, or if we fail to accurately anticipate technology, pricing and market trends, address market saturation and customer confusion, respond on a timely basis with our own development of new and reliable products and enhancements to existing products, and achieve broad market acceptance of these products and enhancements, our competitive position may be harmed and we may not achieve sufficient growth in our net sales to attain or sustain profitability.
Our operating results may fluctuate due to factors that are difficult to forecast and not within our control.
Our past operating results may not be accurate indicators of future performance, and you should not rely on such results to predict our future performance. Our operating results have fluctuated significantly in the past and could fluctuate in the future. Factors that may contribute to fluctuations include:
•changes in aggregate capital spending, cyclicality and other economic conditions, including inflationary pressures, or domestic and international demand in the industries;
•the timing of large customer orders to which we may have limited visibility and cannot control;
•competition for our products, including the entry of new competitors and significant declines in competitive pricing;
•our ability to effectively manage our working capital;
•our ability to generate increased demand in our current and targeted markets, particularly those in which we have limited experience;
•our ability to satisfy customer demands in a timely and cost-effective manner;
•pricing and availability of labor and materials;
•quality testing and reliability of new products;
•our inability to adjust certain fixed costs and expenses for changes in demand and the timing and significance of expenditures that may be incurred to facilitate our growth;
•macroeconomic, geopolitical and health concerns;
•seasonal fluctuations in demand and our revenue; and
•disruption in component supply from foreign vendors.
Depressed general economic conditions may adversely affect our operating results and financial condition.
Our business is sensitive to changes in general economic conditions, both inside and outside the United States. Slow growth in the economy or an economic downturn, particularly one affecting construction and building renovation, or that causes end-users to reduce or delay their purchases of lighting products, services, or retrofit activities, would have a material adverse effect on our business, cash flows, financial condition and results of operations. LED lighting retrofit projects, in particular, tend to require a significant capital commitment, which is offset by cost savings achieved over time. As such, a lack of available capital, whether due to economic factors or conditions in the equity or debt markets, could have the effect of reducing demand for our products. A decrease in demand could adversely affect our ability to meet our working capital requirements and growth objectives, or could otherwise adversely affect our business, financial condition, and results of operations.
Customers may be unable to obtain financing to make purchases from us.
Some of our customers require financing in order to purchase our products, and the initial investment is higher than that which is required with traditional lighting products. The potential cost or inability of these customers to access the capital needed to finance purchases of our products and meet their payment obligations to us could adversely impact the appeal of our products relative to those with lower upfront costs and have a negative impact on our financial condition and results of operations. There can be no assurance that third-party finance companies will provide capital to our customers.
A significant portion of our business is dependent upon the existence of government funding, which may not be available into the future and could result in a reduction in sales and harm to our business.
Some of our customers are dependent on governmental funding, including U.S. and foreign allied navies and U.S. military bases. If any of these customers or potential customers abandon, curtail, or delay planned LED lighting retrofit projects as a result of the levels of funding available to them or changes in budget priorities, it would adversely affect our opportunities to generate product sales.
Our products could contain defects, or they may be installed or operated incorrectly, which could reduce sales of those products or result in claims against us.
Despite product testing, defects may be found in our existing or future products. This could result in, among other things, a delay in the recognition or loss of net sales, the write-down or destruction of existing inventory, insurance recoveries that fail to cover the full costs associated with product recalls or other claims, significant warranty, support, and repair costs, diversion of the attention of our engineering personnel from our product development efforts, and damage to our relationships with our customers. The occurrence of these problems could also result in reputational and brand damage or the delay or loss of market acceptance of our lighting products and would likely harm our business. In addition, our customers may specify quality, performance, and reliability standards that we must meet. If our products do not meet these standards, we may be required to replace or rework the products. In some cases, our products may contain undetected defects or flaws that only become evident after shipment. Even if our products meet standard specifications, our customers may attempt to use our products in applications for which they were not designed or in products that were not designed or manufactured properly, resulting in product failures and creating customer satisfaction issues.
Some of our products use line voltages (such as 120- or 240-volts AC), which involve enhanced risk of electrical shock, injury or death in the event of a short circuit or other malfunction. Defects, integration issues or other performance problems in our lighting products could result in personal injury or financial or other damages to end-users or could damage market acceptance of our products. Our customers and end-users could also seek damages from us for their losses. A product liability claim brought against us, even if unsuccessful, would likely be time consuming and costly to defend and the adverse publicity generated by such a claim against us or others in our industry could negatively impact our reputation.
We provide warranty periods generally ranging from one to ten years on our LED lighting products. Although we believe our reserves are appropriate, we are making projections about the future reliability of new products and technologies, and we may experience increased variability in warranty claims. Increased warranty claims could result in significant losses due to a rise in warranty expense and costs associated with customer support.
Our industry is characterized by vigorous protection and pursuit of intellectual property rights and positions, which may result in protracted and expensive litigation. We have engaged in litigation in the past and litigation may be necessary in the future to enforce our intellectual property rights or to determine the validity and scope of the proprietary rights of others. Litigation may also be necessary to defend against claims of infringement or invalidity by others. Additionally, we could be required to defend against individuals and groups who have been purchasing intellectual property assets for the sole purpose of making claims of infringement and attempting to extract settlements from companies like ours. Litigation could delay development or sales
efforts and an adverse outcome in litigation, or any similar proceedings, could subject us to significant liabilities, require us to license disputed rights from others or require us to cease marketing or using certain products or technologies. We may not be able to obtain any licenses on acceptable terms, if at all, and may attempt to redesign those products that contain allegedly infringing intellectual property, which may not be possible. We also may have to indemnify certain customers if it is determined that we have infringed upon or misappropriated another party’s intellectual property. The costs of addressing any intellectual property litigation claim, including legal fees and expenses and the diversion of management resources, regardless of whether the claim is valid, could be significant and could materially harm our business, financial condition, and results of operations.
From time to time, we have been and may in the future be subject to claims or allegations that we infringe upon or have misappropriated the intellectual property of third parties. Defending against such claims is costly and intellectual property litigation often involves complex questions of fact and law, with unpredictable results. We may be forced to acquire rights to such third-party intellectual property on unfavorable terms (if rights are made available at all), pay damages, modify accused products to be non-infringing, or stop selling the applicable product altogether.
We may be subject to confidential information theft or misuse, which could harm our business and results of operations.
We face attempts by others to gain unauthorized access to our information technology systems on which we maintain proprietary and other confidential information. Our security measures may be breached as the result of industrial or other espionage actions of outside parties, employee error, malfeasance or otherwise, and as a result, an unauthorized party may obtain access to our systems. In addition, these same risks to our information technology systems also apply to the third-party service providers’ information technology systems utilized by the Company. Additionally, outside parties may attempt to access our confidential information through other means, for example by fraudulently inducing our employees to disclose confidential information. We actively seek to prevent, detect and investigate any unauthorized access, which occasionally occurs despite our best efforts. We might be unaware of any such access or unable to determine its magnitude and effects. The theft, corruption or unauthorized use or publication of our trade secrets and other confidential business information as a result of such an incident could adversely affect our competitive position and the value of our investment in research and development could be reduced. Our business could be subject to significant disruption, widespread negative publicity and a loss of customers, and we could suffer legal liabilities and monetary or other losses.
We may fail to secure sufficient additional financing, which could prevent us from executing our business plan and continuing as a going concern.
Our cash balance of $1.1 million as of December 31, 2025, and ongoing operating losses raise substantial doubt about our ability to continue as a going concern. We are actively seeking additional capital through equity, debt, or strategic partnerships, but there can be no assurance that we will secure such funding on acceptable terms or at all. Equity financing may significantly dilute existing shareholders, while debt financing could impose restrictive covenants or high interest rates. Failure to obtain adequate financing could result in reduced operations, delayed product development, or insolvency.
Global trade policies, including tariffs, could increase costs and disrupt our supply chain, adversely affecting our operations and profitability.
Our operations are subject to risks arising from global trade policies, particularly the imposition of tariffs and other trade barriers by the United States, China, the European Union, and other nations, which have intensified under the current U.S. administration. As of December 31, 2025, approximately 92% of our purchase commitments are with Sander Electronics Co. Ltd, a Taiwan-based related party, which could be indirectly affected by international trade tensions, including tariffs. These policies may increase the cost of imported components, extend delivery times due to customs delays, or reduce demand for our products if customers face higher prices. For example, certain products have been subject to tariffs imposed in early 2025 on electronic components, which has increased our cost of sales by approximately 4%, or $109 thousand for the year ended December 31, 2025. Based on current inventory levels and supply chain composition, these risks are heightened by our significant concentration of purchases with Taiwan-based related party suppliers (representing 92% of our purchase commitments as of December 31, 2025), which may be indirectly affected by U.S.-China trade tensions and broader Asian trade policies, even if not directly subject to specific tariffs.
The unforeseen results of potential trade disputes and reciprocal tariffs worldwide could further impact our business. Increased trade protectionism, as governments seek to protect or revive domestic industries, may lead to restrictions on imports, such as tariffs, that could significantly affect global trade and, indirectly, the demand for our LED lighting products. Such restrictions could increase the cost of exported goods, prolong delivery times, and elevate risks associated with exporting, potentially leading to a decline in the volume of exported goods and demand for our products. The interconnected nature of global supply chains means that trade policies, even in countries not directly imposing or subject to tariffs, could disrupt our access to critical components.
Tensions over trade remain high, particularly between the U.S., China, and the European Union. The current U.S. administration’s extensive use of tariffs as a policy tool has introduced significant uncertainty regarding future trade relationships with key markets, including China, the European Union, Canada, and Mexico. These tariffs have prompted, and may continue to prompt, retaliatory tariffs from other nations, raising concerns about a prolonged trade war. Protectionist developments, or the perception that they may occur, could materially adversely affect global economic conditions, reduce international trade, and disrupt our supply chain, particularly for components sourced from Asia. Such disruptions could strain our liquidity, increase operating costs, and hinder our ability to compete effectively in the LED lighting market, adversely impacting our business, results of operations, and financial condition.
Foreign currency fluctuations may adversely affect our financial results.
We have operations and business relationships in Taiwan and Japan that expose us to foreign currency risk. As of December 31, 2025, we held approximately $326 thousand in New Taiwan dollar (“NTD”) denominated cash, and $113 thousand in NTD accounts receivable, resulting in a net NTD exposure of approximately $439 thousand. In addition, we held approximately $156 thousand in Japanese Yen (“JPY”) denominated advance for investment in joint venture related to our Japan ESS initiative. Fluctuations in the exchange rate between the U.S. dollar and NTD and JPY directly impact our financial results when these amounts are translated to U.S. dollars for financial reporting purposes. Additionally, economic, political and other risks associated with foreign operations could adversely affect our financial results.
During 2025, we recognized a foreign exchange gain of $20 thousand related to NTD and JPY transactions and balances, including period-end remeasurement of foreign currency denominated monetary items. These fluctuations can be significant relative to our quarterly results and may increase volatility in our reported financial performance. We do not currently hedge our foreign currency exposure, and significant strengthening of the U.S. dollar relative to the NTD or JPY could adversely impact our results of operations and financial condition.
A portion of our cash and operating activities are located in Taiwan, and we are subject to risks associated with foreign currency fluctuations, repatriation restrictions, and local regulations. While there are no current limitations on our ability to access funds held in Taiwan, future government actions, currency controls, or changes in tax law could restrict or delay our ability to repatriate earnings or transfer funds. Additionally, fluctuations in the exchange rate between the New Taiwan dollar and the U.S. dollar may materially affect our reported financial results, and we do not currently hedge this exposure.
Although the substantial majority of our business activity takes place in the U.S., we derive a portion of our revenues and earnings from operations in foreign countries, which is expected to increase with our investment in foreign locations. As a result, we are subject to risks associated with doing business internationally. The risks of doing business in foreign countries include, among other factors: the potential for adverse changes in the local political climate, in diplomatic relations between foreign countries and the U.S. or in government policies, laws or regulations; international conflicts; terrorist activity that may cause social disruption; logistical and communications challenges; costs of complying with a variety of laws and regulations; difficulty in staffing and managing geographically diverse operations; deterioration of foreign economic conditions; inflation and fluctuations in interest rates; foreign currency exchange rate fluctuations; foreign exchange restrictions; differing local business practices and cultural considerations; restrictions on imports and exports or sources of supply, including energy and raw materials; changes in duties, quotas, tariffs, taxes or other protectionist measures; and potential issues related to matters covered by the Foreign Corrupt Practices Act, regulations related to import/export controls, the Office of Foreign Assets Control sanctions program, anti-boycott provisions or similar laws. We believe that our business activities outside of the U.S. involve a higher degree of risk than our domestic activities, and any one or more of these factors could adversely affect our operating results and financial condition. In addition, global and regional economic conditions and the volatility of worldwide capital and credit markets have significantly impacted and may continue to significantly impact our foreign customers and markets. These factors may result in decreased demand in our foreign operations.
We have international operations and are subject to risks associated with operating in international markets.
We outsource the production of certain parts and components, as well as finished goods in certain product lines, to a small number of vendors in various locations outside of the United States, including Malaysia, Taiwan and China. Although we do not currently generate significant sales from customers outside the United States, we are targeting foreign allied navies as a potential opportunity to generate additional sales of our MMM products as well as a limited number of foreign geographic markets which we expect to expand over time.
International business operations are subject to inherent risks, including, among others:
•difficulty in enforcing agreements and collecting receivables through foreign legal systems;
•unexpected changes in regulatory requirements, tariffs, and other trade barriers, restrictions or disruptions;
•potentially adverse tax consequences;
•localized impacts of epidemics, pandemics or other contagious outbreaks, such as the COVID-19 pandemic;
•the burdens of compliance with the U.S. Foreign Corrupt Practices Act, similar anti-bribery laws in other countries, and a wide variety of other laws;
•import and export license requirements and restrictions of the United States and each other country in which we operate;
•exposure to different legal standards and reduced protection for intellectual property rights in some countries;
•currency fluctuations and restrictions; and
•political, social, and economic instability, including war and the threat of war, acts of terrorism, pandemics, boycotts, curtailment of trade, or other business restrictions.
If we do not anticipate and effectively manage these risks, these factors may have a material adverse impact on our business operations.
Our business and operations are significantly dependent on Sander Electronics, which creates material conflicts of interest and business risks.
Our relationships with Sander Electronics, Inc (located in the US), an affiliate of a shareholder and Sander Electronics Co. Ltd (located in Taiwan), a shareholder of the Company controlled by our CEO Chiao Chieh (Jay) Huang, create substantial business and governance risks. As of December 31, 2025 Sander Electronics represented 71% of our accounts payable, and we have ongoing purchasing agreements with them for TLED products and spare parts. This concentration of our supply chain with related parties create risks regarding pricing, payment terms, and supply continuity. While we believe the terms of our transactions with Sander Electronics are commercially reasonable, the overlapping ownership and management between our companies may result in conflicts of interest that could adversely affect our business. Moreover, any deterioration in our relationship with Sander Electronics, or their inability to meet our supply requirements, could materially disrupt our operations. These risks are heightened because we have limited alternative suppliers readily available to replace Sander Electronics' production capacity. Additionally, our significant reliance on a related party supplier may draw increased regulatory scrutiny and impact our ability to demonstrate adequate internal controls over related party transactions. The materiality of this relationship could also affect our ability to obtain favorable terms from alternative suppliers.
Our Chief Executive Officer currently serves as our Principal Financial Officer, which may impact our internal controls and increase risks related to financial reporting.
As of the date of this Report, our Chief Executive Officer currently serves as our Principal Financial Officer and Principal Accounting Officer due to the vacancy in our Chief Financial Officer position. This dual role may result in:
•Reduced segregation of duties in our internal control framework
•Increased risk of errors or irregularities in financial reporting going undetected
•Limited independent review of financial decisions and reporting processes
•Potential delays in identifying and remediating control deficiencies
•Challenges in maintaining adequate checks and balances in financial operations
•Increased burden on our CEO, potentially affecting overall operational oversight
While we have implemented additional review procedures and controls to mitigate these risks, we cannot assure that these measures will be sufficient. The concentration of these roles could materially impact the effectiveness of our internal controls over financial reporting and disclosure controls and procedures. This could result in material misstatements in our financial statements, missed filing deadlines, or other compliance issues that could adversely affect our business, financial condition, and stock price.
Risks Associated with Legal and Regulatory Matters
We may be subject to legal claims against us or claims by us that could have a significant impact on our resulting financial performance.
At any given time, we may be subject to litigation or claims related to our products, intellectual property, suppliers, customers, employees, shareholders, distributors, sales representatives and sales of our assets, among other things, the disposition of which may have an adverse effect upon our business, financial condition, or results of operations. The outcome of litigation is difficult
to assess or quantify. Lawsuits can result in the payment of substantial damages by defendants. If we are required to pay substantial damages and expenses as a result of these or other types of lawsuits, our business and results of operations would be adversely affected. Regardless of whether any claims against us are valid or whether we are liable, claims may be expensive to defend and may divert time and money away from our operations. Insurance may not be available at all or in sufficient amounts to cover any liabilities with respect to these or other matters. A judgment or other liability in excess of our insurance coverage for any claims could adversely affect our business and the results of our operations.
Our business may suffer if we fail to comply with government contracting laws and regulations.
We derive a significant portion of our revenues from direct and indirect sales to U.S., state, local and foreign governments and their respective agencies. Contracts with government customers are subject to various procurement laws and regulations, business prerequisites to qualify for such contracts, accounting procedures, intellectual property processes, and contract provisions relating to their formation, administration and performance, which may provide for various rights and remedies in favor of the governments that are not typically applicable to or found in commercial contracts. Failure to comply with these laws, regulations, or provisions in our government contracts could result in litigation, the imposition of various civil and criminal penalties, termination of contracts, forfeiture of profits, suspension of payments, or suspension from future government contracting. If our government contracts are terminated, if we are suspended from government work, or if our ability to compete for new contracts is adversely affected, our business could suffer due to, among other factors, lost sales, the costs of any government action or penalties, damages to our reputation and the inability to recover our investment in developing and marketing products for MMM use.
If we are unable to obtain and adequately protect our intellectual property rights or are subject to claims that our products infringe on the intellectual property rights of others, our ability to commercialize our products could be substantially limited.
We consider our technology and processes proprietary. If we are not able to adequately protect or enforce the proprietary aspects of our technology, competitors may utilize our proprietary technology. As a result, our business, financial condition, and results of operations could be adversely affected. We protect our technology through a combination of patent, copyright, trademark and trade secret laws, employee and third-party nondisclosure agreements, and similar means. Despite our efforts, other parties may attempt to disclose, obtain, or use our technologies. Our competitors may also be able to independently develop products that are substantially equivalent or superior to our products or slightly modify our products. In addition, the laws of some foreign countries do not protect our proprietary rights as fully as do the laws of the United States. As a result, we may not be able to protect our proprietary rights adequately in the United States or abroad. Furthermore, there can be no assurance that we will be issued patents for which we have applied or obtain additional patents, or that we will be able to obtain licenses to patents or other intellectual property rights of third parties that we may need to support our business in the future. The inability to obtain certain patents or rights to third-party patents and other intellectual property rights in the future could have a material adverse effect on our business.
We may be subject to intellectual property infringement claims or other allegations by third parties, which may materially and adversely affect our business, results of operations and prospects.
Our products are largely dependent on the application of our technology. From time to time, third parties holding similar technologies and intellectual property rights, including companies, competitors, patent holding companies, customers and/or non-practicing entities, may assert intellectual property claims against us.
Although we believe that our products do not infringe upon the intellectual property rights of third parties, we cannot be certain that our operations do not or will not infringe upon or otherwise violate intellectual property rights or other rights held by third parties, and there may be third-party intellectual property rights or other rights that are infringed by our products without our awareness. We may be from time to time in the future subject to legal proceedings and claims relating to the intellectual property rights or other rights of third parties, some even without merit. If we are forced to defend against any infringement or misappropriation claims, whether they are with or without merit, are settled out of court, or are determined in our favor, we may be required to expend significant time and financial resources on the defense of such claims. Regardless of the merits or eventual outcome, such a claim could adversely impact our brand and business. Any such assertions may require us to enter into royalty arrangement or result in us being unable to use certain intellectual property. Infringement assertions by third parties may involve patent holding companies or other patent owners who have no relevant product revenue, and therefore our own issued and pending patents may provide little or no deterrence to these patent owners in bringing intellectual property right claims against us. Furthermore, any adverse outcome of a dispute may require us to pay damages, potentially including treble damages and attorney’s fees, if we are found to have willfully infringed a party’s intellectual property; case making, licensing or using our solutions that are alleged to infringe or misappropriate the intellectual property of others; expend additional development resources to redesign our solutions’ enter into potentially unfavorable royalty or license agreements in order to obtain the right
to use necessary technologies or works; and to indemnify our partners, customers and other third parties. Any of these events could adversely impact our business, results of operations and financial condition.
If we were found to have violated the intellectual property rights of others, we may be subject to liability for our infringement activities or may be prohibited from using such intellectual property or relevant contents, and we may incur licensing or usage fees or be forced to develop alternatives of our own. As a result, our reputation may be harmed and our business and financial performance may be materially and adversely affected.
The ability to use our net operating loss carryforwards and certain other tax attributes may be limited.
We have significant U.S. net operating loss and tax credit carryforwards (the “Tax Attributes”). Under federal tax laws, we can carry forward and use our Tax Attributes to reduce our future U.S. taxable income and tax liabilities until such Tax Attributes expire in accordance with the Internal Revenue Code of 1986, as amended (the “IRC”). Section 382 and Section 383 of the IRC provide an annual limitation on our ability to utilize our Tax Attributes, as well as certain built-in-losses, against future U.S. taxable income in the event of a change in ownership, as defined under the IRC. Share issuances in connection with our past financing transactions or other future changes in our stock ownership, which may be beyond our control, could result in changes in ownership for purposes of the IRC. Such changes in ownership could further limit our ability to use our Tax Attributes. Accordingly, any such occurrences could adversely affect our financial condition, operating results and cash flows.
The cost of compliance with environmental, health, safety, and other laws and regulations could adversely affect our results of operations or financial condition.
We are subject to a broad range of environmental, health, safety, and other laws and regulations. These laws and regulations impose increasingly stringent environmental, health, and safety protection standards and permit requirements regarding, among other things, air emissions, wastewater storage, treatment, and discharges, the use and handling of hazardous or toxic materials, waste disposal practices, the remediation of environmental contamination, and working conditions for our employees. Some environmental laws, such as the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Clean Water Act, and comparable laws in U.S. states and other jurisdictions world-wide, impose joint and several liability for the cost of environmental remediation, natural resource damages, third-party claims, and other expenses, without regard to the fault or the legality of the original conduct, on those persons who contributed to the release of a hazardous substance into the environment. We may also be affected by future laws or regulations, including those imposed in response to energy, climate change, geopolitical, or similar concerns. These laws may impact the sourcing of raw materials and the manufacture and distribution of our products and place restrictions and other requirements on the products that we can sell in certain geographical locations.
We may be exposed to certain regulatory and financial risks related to climate change.
Growing concerns about climate change may result in the imposition of additional regulations or restrictions to which we may
become subject. A number of governments or governmental bodies have introduced or are contemplating regulatory changes in
response to climate change. The outcome of new legislation or regulation in the U.S. and other jurisdictions in which we operate may result in new or additional requirements, fees or restrictions on certain activities. Compliance with these climate change initiatives may also result in additional costs to us, including, among other things, increased production costs, additional taxes, reduced emission allowances or additional restrictions on production or operations. Any adopted future climate change regulations could also negatively impact our ability to compete with companies situated in areas not subject to such limitations. We may not be able to recover the cost of compliance with new or more stringent laws and regulations, which could adversely affect our results of operations, cash flow or financial condition.
Our net sales might be adversely impacted if our lighting systems do not meet certain certification and compliance standards.
We are required to comply with certain legal requirements governing the materials in our products. Although we are not aware of any efforts to amend any existing legal requirements or implement new legal requirements in a manner with which we cannot comply, our net sales might be adversely affected if such an amendment or implementation were to occur.
Moreover, although not legally required to do so, we strive to obtain certification for substantially all our products. In the United States, we seek certification on substantially all of our products from UL®, ETL®, or DLC™. Where appropriate in jurisdictions outside the United States, we seek to obtain other similar national or regional certifications for our products. Although we believe that our broad knowledge and experience with electrical codes and safety standards have facilitated certification approvals, we cannot ensure that we will be able to obtain any such certifications for our new products or that, if certification standards are amended, we will be able to maintain such certifications for our existing products. Moreover, although we are not aware of any effort to amend any existing certification standard or implement a new certification standard
in a manner that would render us unable to maintain certification for our existing products or obtain ratification for new products, our net sales might be adversely affected if such an amendment or implementation were to occur.
We rely heavily on information technology in our operations and any material failure, weakness, interruption or breach of security could prevent us from effectively operating our business, which could have a material adverse effect on our business, financial condition, and results of operations.
We rely heavily on our information technology systems, including our enterprise resource planning (“ERP”) and customer relationship management (“CRM”) software, across our operations and corporate functions, including for management of our supply chain, payment of obligations, data warehousing to support analytics, finance systems, accounting systems, and other various processes and procedures, some of which are handled by third parties, as well as lead generation, customer tracking, customer sourcing, etc. We also rely heavily on remote communication tools such as Microsoft Teams and Zoom to accommodate remote work environment and external meetings.
Our ability to efficiently and effectively manage our business depends significantly on the reliability and capacity of these systems. Our business and results of operations may be adversely affected if we experience system usage problems. The failure of these systems to operate effectively, maintenance problems, system conversions, back-up failures, problems or lack of resources for upgrading or transitioning to new platforms or damage or interruption from circumstances beyond our control, including, without limitation, fire, natural disasters, power outages, systems failure, security breaches, cyber-attacks, viruses or human error could result in, among other things, transaction errors, processing inefficiencies, loss of data, inability to generate timely SEC reports, loss of sales and customers and reduced efficiency in our operations. Additionally, we and our customers could suffer financial and reputational harm if customer or Company proprietary information is compromised by such events. Remediation of such problems could result in significant unplanned capital investments and any damage or interruption could have a material adverse effect on our business, financial condition, and results of operations.
Risks Associated with an Investment in Our Common Stock
As a “thinly-traded” stock with a relatively small public float, the market price of our common stock is highly volatile and may decline regardless of our operating performance.
Our common stock is “thinly-traded” and we have a relatively small public float, which increases volatility in the share price and makes it difficult for investors to buy or sell shares in the public market without materially affecting our share price. Throughout the fiscal year ended December 31, 2025, our market price has ranged from $1.21 to $3.16 and continues to experience significant volatility. Broad market and industry factors also may adversely affect the market price of our common stock, regardless of our actual operating performance. Factors that could cause wide fluctuations in our stock price may include, among other things:
•actual or anticipated variations in our financial condition and operating results;
•general economic conditions and trends;
•addition or loss of significant customers and the timing of significant customer purchases;
•our ability to effectively implement our growth plans, including new products, and the significance and timing of associated expenses;
•unanticipated impairments and other changes that reduce our earnings;
•overall conditions or trends in our industry;
•the entry or exit of new competitors into our target markets;
•any litigation or legal claims;
•the terms and amount of any additional financing that we may obtain, if any;
•unfavorable publicity;
•additions or departures of key personnel;
•geopolitical changes, global health concerns and macroeconomic changes;
•changes in the estimates of our operating results or changes in recommendations by any securities or industry analysts that elect to follow our common stock;
•market expectations following periods of rapid growth;
•the potential impact of increased volatility due to elevated trading on the price of our stock;
•industry-wide news events that may affect market perceptions of the value of our stock; and
•sales of our common stock by us or our stockholders, including sales by our directors and officers.
Because our common stock is thinly-traded, investors seeking to buy or sell a certain quantity of our shares in the public market may be unable to do so within one or more trading days and it may be difficult for stockholders to sell all of their shares in the market at any given time at prevailing prices. Any attempts to buy or sell a significant quantity of our shares could materially
affect our share price. In addition, because our common stock is thinly-traded and we have a relatively small public float, the market price of our shares may be disproportionately affected by any news, commentary or rumors regarding us or our industry, regardless of the source or veracity, which could also result in increased volatility.
In addition, in the past, following periods of volatility in the market price of a company’s securities, securities litigation has often been instituted against these companies. Volatility in the market price of our shares could also increase the likelihood of regulatory scrutiny. Securities litigation, if instituted against us, or any regulatory inquiries or actions that we face could result in substantial costs, diversion of our management’s attention and resources and unfavorable publicity, regardless of the merits of any claims made against us or the ultimate outcome of any such litigation or action.
We could issue additional shares of common stock or preferred stock without stockholder approval, or new securities with terms or rights superior to those of our existing shareholders, which may adversely affect the market price of our common stock.
We expect to require additional financing to fund future operations, including our research, development, sales and marketing activities. We are authorized to issue 50,000,000 shares of common stock of which 6,306,433 shares were issued and outstanding as of March 24, 2026, and 5,000,000 shares of preferred stock, of which 876,447 were issued and outstanding as of March 24, 2026. Our Board of Directors has the authority, without action or vote of our shareholders, to issue authorized but unissued shares of common and preferred stock subject to Nasdaq’s rules. Additionally, if we raise additional funds by issuing equity securities, the percentage ownership of our current shareholders will be reduced, and, if the equity securities issued are preferred shares, the holders of the new preferred shares may have rights superior to those of our existing shareholders, which could adversely affect rights of our existing shareholders and the market price of our common stock. In addition, in order to raise additional capital or acquire businesses in the future, we may need to issue securities that are convertible or exchangeable for shares of our common or preferred stock. If we raise additional funds by issuing debt securities, the holders of those debt securities would have some rights senior to those of our existing shareholders, and the terms of these debt securities could impose restrictions on operations and create a significant interest expense for us which could have a materially adverse effect on our business. Any such issuances could be made at a price that reflects a discount to the then-current trading price of our common stock. These issuances could be dilutive to our existing shareholders and cause the market price of our common stock to decline.
The exercise of outstanding warrants to purchase our common stock or the conversion of shares of our Series A Preferred Stock (as defined below) into shares of common stock may dilute the ownership interest of our investors.
In connection with past financing activity, we have issued convertible preferred stock and warrants to purchase our common stock. The exercise of some or all of the outstanding warrants to purchase our common stock or the conversion of some or all of the outstanding Series A Preferred Stock may dilute the ownership interests of our shareholders. Any sales of our common stock issuable upon the exercise of the warrants or conversion of the Series A Preferred Stock could adversely affect prevailing market prices of our common stock. In addition, the anticipated exercise of the warrants or conversion of the Series A Preferred Stock could depress the price of our common stock, which in turn may result in the value of our common stock declining significantly.
We have never paid dividends on our common stock, and we do not anticipate paying any cash dividends in the foreseeable future.
We have never declared or paid dividends on our common stock, nor do we anticipate paying any cash dividends for the foreseeable future. We currently intend to retain future earnings, if any, to finance the operations and expansion of our business. Any future determination to pay cash dividends will be at the discretion of our Board of Directors and will be dependent upon our earnings, financial condition, operating results, capital requirements, a capital structure strategy and other factors as deemed necessary by our Board of Directors.
The elimination of monetary liability against our directors under Delaware law and the existence of indemnification rights held by our directors and officers may result in substantial expenditures by the Company and may discourage lawsuits against our directors and officers.
Our Certificate of Incorporation eliminates the personal liability of our directors to the Company and our shareholders for damages for breach of fiduciary duty as a director to the extent permissible under Delaware law. Further, our Bylaws provide that we are obligated to indemnify any of our directors or officers to the fullest extent authorized by Delaware law and, subject to certain conditions, advance the expenses incurred by any director or officer in defending any action, suit or proceeding prior to its final disposition. Those indemnification obligations could result in the Company incurring substantial expenditures to cover the cost of settlement or damage awards against our directors or officers, which we may be unable to recoup. These provisions and resultant costs may also discourage us from bringing a lawsuit against any of our current or former directors or officers for breaches of their fiduciary duties, and may similarly discourage the filing of derivative litigation by our shareholders against our directors and officers even though such actions, if successful, might otherwise benefit us or our shareholders.
