Financial Analysis

NOTE 11 COMMITMENTS AND CONTINGENCIES From time to time, the Company may be involved in general commercial disputes arising in the ordinary course of our business. The Company is not currently involved in legal proceedings that could reasonably be expected to have material adverse effect on its business, prospects, financial condition or results of operations. In the opinion of management of the Company, adequate provision has been made in the Companys financial statements at December 31, 2025 with respect to such matters. See also Notes 6 and 11. …

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The following table shows the Companys disaggregated net sales by product type (in thousands): SCHEDULE OF DISAGGREGATED NET SALES 2025 2024 Years Ended December 31, 2025 2024 DC power systems $ 4,485 $ 12,577 Engineering & Tech Support Services 152 384 Accessories 1,667 1,009 Total net sales $ 6,304 $ 13,970 The following table shows the Companys disaggregated net sales by customer type (in thousands): 2025 2024 Years Ended December 31, 2025 2024 Telecom $ 5,567 $ 12,300 Government/Military 495 1,145 Marine 48 364 Other (backup DC power to various industries ) 194 161 Total net sales $ 6,304 $ 13,970 …

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NOTE 8 STOCK OPTIONS The following table summarizes stock option activity: SCHEDULE OF STOCK OPTION ACTIVITY Number of Options Weighted Average Exercise Price Outstanding, December 31, 2023 20,002 $ 36.56 Granted Exercised Cancelled Outstanding, December 31, 2024 20,002 $ 36.56 Granted Exercised/Forfeited/Expired (7,144 ) 34.93 Outstanding and exercisable, December 31, 2025 12,858 $ 37.42 Effective July 8, 2016 the Companys board of directors approved the Polar Power 2016 Omnibus Incentive Plan (the 2016 Plan), authorizing the issuance of up to 250,627 shares of common stock as incentives to employees and consultants to the Company with awards limited to a maximum of 50,125 shares to any one participant in any calendar year. At December 31, 2025 and 2024, the Company had total outstanding options of 12,858 and 20,002 , respectively, which are fully vested, exercise prices ranging from $ 33.88 to $ 39.20 , and with 1,429 option shares set to expire in December 2027 and the remaining 11,429 option shares set to expire in April 2028. There was no intrinsic value of the outstanding options at December 31, 2025. …

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NOTE 10 INCOME TAXES The reconciliation of the effective income tax rate to the federal statutory rate is as follows: SCHEDULE OF EFFECTIVE INCOME TAX RATE TO THE FEDERAL STATUTORY RATE 2025 2024 Years Ended December 31, 2025 2024 Federal income tax rate (21 )% (21 )% State tax, net of federal benefit (7 )% (7 )% Valuation allowance 28 % 28 % Effective income tax rate - % - % Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial statement purposes and the amounts used for income tax purposes. Significant components of the Companys deferred tax assets and liabilities at December 31, 2025 and 2024 are as follows (in thousands): SCHEDULE OF DEFERRED TAX ASSETS AND LIABILITIES December 31, 2025 December 31, 2024 Deferred tax assets: Inventory valuation $ 1,283 $ 1,300 Accrued liabilities 262 243 Capitalized R&D 430 463 Operating lease liability 133 520 Net operating loss carryforwards 5,749 6,233 Gross deferred tax assets 7,857 8,759 Valuation allowance (7,818 ) (8,250 ) Total deferred tax assets 39 509 Deferred tax liabilities: Operating lease right-of-use asset, net (39 ) (461 ) Depreciation (48 ) Total deferred tax liabilities (39 ) (509 ) Net deferred tax asset (liability) $ - $ - At December 31, 2025, the Company had available Federal and state NOLs carryforwards to reduce future taxable income of approximately $ 27.5 million and $ 37.3 million, respectively. The Federal NOL can be …

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NOTE 6 OPERATING LEASES The Company manufactures and assembles its DC power systems at its two production facilities located in Gardena, California under two operating lease agreements that expire in 2026, requiring aggregate monthly payments of $ 125,000 . The balance of the right of use asset assets and lease obligations at December 31, 2024 was $ 1,645 and $ 1,856 , respectively. During 2025 the Company became delinquent in its rent payments to its landlords for its office and warehouse facilities. The landlord for its headquarters and manufacturing facility at 249 E. Gardena Blvd., Gardena, California filed a summons for eviction on October 24, 2025. On February 23, 2026, the landlord stopped the actions for eviction and continued discussions with the Company to resolve the delinquent rents and expired lease agreement. The Company expects to be in the position to make significant payment towards the delinquent rents in the near term and/or provide a payment plan mutually agreeable to both parties. The landlord for the other facility for which the Company is delinquent on rent, has not served the Company any legal documents or assessed late fees for the delinquent rent. However, they may do so in the future. The Company is also negotiating with this landlord on a payment plan for the delinquent rent. While the Company is negotiating with both landlords in good faith on payment plans, there is no guarantee that it and the landlords could reach an agreement on a payment plan …

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Recent Accounting Pronouncements In November 2024, the Financial Accounting Standards Board (FASB) issued ASU No. 2024-03, Income StatementReporting Comprehensive IncomeExpense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses which includes amendments that require disclosure in the notes to financial statements of specified information about certain costs and expenses, including purchases of inventory; employee compensation; and depreciation, amortization and depletion expenses for each caption on the income statement where such expenses are included. The amendments are effective for the Companys annual periods beginning January 1, 2027, with early adoption permitted, and should be applied either prospectively or retrospectively. The Company is in the process of evaluating this ASU to determine its impact on the Companys disclosures. The Companys management has evaluated all other recently issued, but not yet effective, accounting standards and guidance that have been issued or proposed by the FASB or other standards-setting bodies through the filing date of these financial statements and does not believe the future adoption of any such pronouncements will have a material effect on the Companys financial position and results of operations. …

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NOTE 9. SEGMENT INFORMATION The Company operates and manages its business as one reportable and operating segment. The Company designs, manufactures, and sells DC power systems for applications that do not have access to the utility grid (i.e., prime power and mobile applications) or have critical power needs and cannot be without power in the event of utility grid failure (i.e., back-up power applications). The measure of segment assets is reported on the balance sheet as total assets. In addition, the Company generates revenue primarily from the sale of its DC power systems, and to a lesser extent from the sale of parts and services to support its DC power systems. The Company manages the business activities on a consolidated basis. The Companys chief operating decision maker (CODM), Arthur D. Sams, reviews financial information presented on a consolidated basis and decides how to allocate resources based on net income (loss). Consolidated net income (loss) is used for evaluating financial performance and in establishing managements compensation. Significant segment expenses include research and development, salaries, insurance, and stock-based compensation. Operating expenses include all remaining costs necessary to operate our business, which primarily include external professional services and other administrative expenses. The following table presents the significant segment expenses and other segment items regularly reviewed by our CODM: SCHEDULE OF SIGNIFICANT SEGMENT …

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NOTE 7 STOCKHOLDERS EQUITY Preferred Stock The Companys board of directors is authorized to issue up to 5,000,000 shares of preferred stock in one or more series and to fix the rights, preferences, privileges, qualifications, limitations and restrictions thereof, including dividend rights and rates, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences and the number of shares constituting any series or the designation of such series, without any vote or action by the Companys stockholders. Any preferred stock to be issued could rank prior to the Companys common stock with respect to dividend rights and rights on liquidation. The Companys board of directors, without stockholder approval, may issue preferred stock with voting and conversion rights which could adversely affect the voting power of holders of common stock and discourage, delay or prevent a change in control of the Company. At December 31, 2025 and 2024, no shares of preferred stock were issued. Common Stock Issuance of common stock to director for accrued fees In January 2025, the Company issued 2,679 shares of common stock valued at $ 8 to Michael Field, the Companys independent director, as settlement for previously accrued fees for services. Issuance of common stock under ATM facility On October 6, 2025, the Company entered into the Sales Agreement with ThinkEquity LLC, pursuant to which the Company may sell and issue, subject to the limitations in the Sales Agreemen …

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NOTE 12 SUBSEQUENT EVENTS Subsequent to December 31, 2025, the Company has sold 962,500 shares of Common Stock in the ATM Offering at a weighted-average price of $ 2.60 per share, for net proceeds of $ 2,425 , after deducting commissions to the sales agent and other ATM Offering related expenses of $ 75 . During the first quarter of 2026, the Company paid $ 206 towards its past due lease obligations reported as of December 31, 2025. The Company also made the $ 250 payment required under the Forbearance Agreement with Pinnacle Bank. …

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