{"url_path":"/sec/turb/10-k/2026/item-5","section_key":"item-5","section_title":"Item 5 OPERATING AND FINANCIAL REVIEW AND PROSPECTS**","topic":"sec","document":{"doc_type":"20-F","doc_date":"2026-05-15","source_url":"https://www.sec.gov/Archives/edgar/data/1963439/0001213900-26-057672-index.html","accession_number":"0001213900-26-057672","cik":"0001963439","ticker":"TURB","issuer_name":"Turbo Energy, S.A.","edgar_url":"https://www.sec.gov/Archives/edgar/data/1963439/0001213900-26-057672-index.html","primary_entity_key":"0001963439","primary_entity_name":"Turbo Energy, S.A."},"word_count":6380,"has_tables":true,"body_markdown":"** **\n\n**ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS**\n\n** **\n\n*You should read the following\ndiscussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements\nand the related notes included elsewhere in this annual report on Form 20-F. This discussion may contain forward-looking statements. Our\nactual results may differ materially from those anticipated in these forward-looking statements because of various factors, including\nthose set forth under Item 3 “Key Information-D. Risk Factors” or in other parts of this annual report on Form 20-F. See also\n“Introductory Notes-Forward-looking Information.”*\n\n** **\n\n**A. Operating Results**\n\n** **\n\n**Introduction**\n\n** **\n\nThe following discussion, which\npresents the results of Turbo Energy, S.A. and its consolidated subsidiaries, should be read in conjunction with the accompanying consolidated\nfinancial statements and notes thereto for the years ended December 31, 2025, 2024 and 2023, along with the risk factors discussed in\nPart I, Item 3D, “Risk Factors,” and the cautionary statement regarding forward-looking information. For a discussion of our\nresults of operations for the year ended December 31, 2023, including a year-to-year comparison between the years ended December 2024\nand 2023, refer to Part I, Item 5, “Operating and Financial Review and Prospects” in our Annual Report Form 20-F for the year\nended December 31, 2024.\n\n \n\nAs used in this Report, references\nto “Company,” “we,” “us,” and “our” refer to Turbo Energy, S.A. and its consolidated subsidiaries,\nunless the context requires otherwise.\n\n \n\nThis discussion is intended\nto provide the reader with information that will assist in understanding our financial statements, the changes in certain key items in\nthose financial statements from period to period, and the primary factors that accounted for those changes, how operating results affect\nour financial condition and results of our operations of the Company as a whole, and how certain accounting principles and estimates affect\nour financial statements.\n\n \n\n**Recent Developments**\n\n** **\n\n*Capital Markets and Financial Position*\n\n \n\nDuring the year of 2026, Turbo\nEnergy executed several financing transactions in the U.S. capital markets, including the registered direct offering and issuances under\nthe ATM program, generating aggregate gross proceeds of approximately $5.0 million. The Company undertook these transactions as part of\nits broader strategy to strengthen liquidity, support operational growth initiatives and reinforce its financial position.\n\n* *\n\nOn March 25, 2026, the Company\nentered into a Sales Agreement with A.G.P./Alliance Global Partners relating to an at-the-market (“ATM”) offering program\nfor the sale of ADSs with an aggregate offering amount of up to approximately $3.0 million. From March 25, 2026 to the date of this report,\nTurbo Energy has sold a total of 558,281 ADSs for aggregate gross proceeds of approximately $1,795,185 under the ATM offering.\n\n \n\nOn March 11, 2026, Turbo Energy\nentered into a securities purchase agreement with a global institutional investor pursuant to which the Company sold 1,000,000 ADSs in\na registered direct offering at a purchase price of $3.25 per ADS, generating gross proceeds of approximately $3.25 million. The offering\nclosed on March 13, 2026 and generated net proceeds of approximately $2.96 million.\n\n \n\nOn February 9, 2026, Turbo\nEnergy announced the successful completion of a restructuring of its bank financing aimed at strengthening its financial position and\naligning liquidity with the Company’s medium- and long-term business plan. As part of this process, Turbo Energy reached agreements\nwith Bankinter, CaixaBank and BBVA, three of Spain’s leading financial institutions, enabling the conversion of existing bank facilities\ninto long-term financing structures totaling approximately €4.87 million (approximately $5.75 million in U.S. dollars), whose new\nmaturity date will be in 2029. The interest rate applicable in each period shall be the result of adding the relevant reference rate (12-month\nEURIBOR) plus a margin equivalent to 2% per annum.\n\n \n\nAdditionally, during 2024 and\n2025, Turbo Energy completed several financing transactions through the Enerfip crowdfunding platform, raising aggregate gross proceeds\nof approximately €2.5 million through multiple debt bond tranches.\n\n \n\n*Nasdaq Compliance*\n\n \n\nOn January 12, 2026, Turbo\nEnergy received a notification letter (the “Notice”) from the Listing Qualifications Department of The Nasdaq Stock Market\nLLC (“Nasdaq”) indicating that the Company was not in compliance with the minimum stockholders’ equity requirement for\ncontinued listing on the Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(b)(1).\n\n \n\nThe Notice stated that, based\non the Company’s Form 6-K dated November 4, 2025, which reported stockholders’ equity of approximately $1.5 million as of\nJune 30, 2025, the Company did not meet the minimum stockholders’ equity requirement of $2.5 million. The Notice also indicated\nthat the Company did not satisfy the alternative continued listing standards relating to market value of listed securities or net income\nfrom continuing operations.\n\n \n\nIn accordance with Nasdaq\nListing Rules, the Company submitted a compliance plan to Nasdaq on February 26, 2026 within the required timeframe. If Nasdaq accepts\nthe plan, the Company may be granted an extension period to evidence compliance with the applicable listing requirements. The Notice had\nno immediate effect on the listing or trading of the Company’s ADSs on the Nasdaq Capital Market.\n\n \n\nThere can be no assurance that Nasdaq will accept the Company’s compliance plan or that\nthe Company will ultimately regain compliance within any extension period that may be granted.\n\n  \n\n51\n\n \n\n \n\n*Management and Governance*\n\n \n\nOn February 17, 2026, the\nCompany’s Board of Directors appointed Mariano Soria, Chief Executive Officer and member of the Board, to serve as Interim Chief\nFinancial Officer until a successor is appointed.\n\n \n\nOn February 13, 2026,\nLucia Tamarit resigned from her position as Chief Financial Officer of the Company in order to pursue other professional opportunities.\nHer resignation was not the result of any disagreement with the Company regarding its operations, policies or practices.\n\n \n\nOn February 11, 2025, the\nCompany announced the appointment of Julian Groves to its Board of Directors.\n\n \n\n*Strategic and Commercial Developments*\n\n \n\nDuring the years of 2025\nand 2026, Turbo Energy continued advancing its strategic transformation toward an integrated intelligent energy platform focused on AI-driven\nenergy management, commercial and industrial (“C&I”) energy infrastructure and recurring-service business models.\n\n \n\nOn May 11, 2026, Turbo Energy\nannounced a strategic partnership in Chile to accelerate the expansion of its Energy-as-a-Service (“EaaS”) platform and intelligent\ndistributed energy infrastructure initiatives across Latin America.\n\n \n\nOn April 28, 2026, Turbo\nEnergy announced the deployment of its AI-driven energy storage and optimization platform in international military operations supporting\nmobile energy infrastructure for the Spanish Army in overseas missions.\n\n \n\nOn April 20, 2026, Turbo\nEnergy announced a strategic partnership with Hithium to integrate Turbo Energy’s AI-driven optimization platform into battery storage\nsystems across Europe and Latin America, supporting deployment of intelligent energy infrastructure solutions within the commercial and\nindustrial sector.\n\n \n\nOn April 9, 2026, the Company\nannounced that the United States Patent and Trademark Office granted a U.S. patent protecting Turbo Energy’s AI-driven optimization\ntechnology for integrated residential solar generation, battery storage and electric vehicle charging systems.\n\n \n\nOn March 12, 2026, the Company\nannounced a strategic investment initiative intended to support the expansion of its AI-driven intelligent energy infrastructure platform\nand recurring-service business model initiatives.\n\n \n\nOn May 6, 2025, the\nCompany announced the filing of a patent application in Spain related to its SUNBOX Industry commercial and industrial energy storage\nplatform.\n\n* *\n\nOn April 1, 2025, Turbo Energy\nannounced that it obtained UL 5500 and UL 9540 certifications for its SUNBOX Home residential energy storage platform in the United States\nmarket.\n\n \n\nOn March 26, 2025, Turbo\nEnergy announced that it filed legal action in Spain against Sigenergy International S.L. relating to alleged misleading advertising claims\nassociated with competing integrated energy storage systems.\n\n** **\n\n52\n\n \n\n \n\nOn March 19, 2025,\nTurbo Energy announced its expansion into Latin America through the launch of its Energy-as-a-Service (“EaaS”) platform in\nChile, including deployment of the Company’s SUNBOX Industry intelligent energy storage system at the Alto Labranza shopping center\nin Temuco, Chile.\n\n \n\nOn February 26, 2025, Turbo\nEnergy announced the commercial launch of SUNBOX Home Lite, a compact residential energy storage solution designed for smaller residential\ninstallations.\n\n* *\n\n*Operational Developments*\n\n \n\nOn December 16, 2024, the\nCompany issued a shareholder update regarding the operational impact of the severe flooding events that affected Valencia and surrounding\nregions in Spain during late 2024.\n\n \n\nWhile certain warehouse inventory\nwas impacted by flooding, the Company reported that its operational infrastructure, production systems and supply chain capabilities remained\nsubstantially functional. The Company also disclosed that the affected inventory losses were expected to be fully recoverable through\ninsurance coverage.\n\n* *\n\n*Historical Commercial Partnerships*\n\n* *\n\nOn January 17, 2024, Turbo\nEnergy and Solar360 announced a strategic alliance for the deployment of intelligent solar energy storage systems across residential,\ncommercial and industrial applications in Spain.\n\n \n\n**Overview**\n\n** **\n\nTurbo Energy is a technology-driven energy solutions\ncompany focused on intelligent energy storage, AI-driven energy management and integrated distributed energy infrastructure. The Company\ndevelops and deploys proprietary solutions designed to optimize how energy is generated, stored and consumed across residential, commercial,\nindustrial and utility-scale applications.\n\n \n\nTurbo Energy’s integrated platform combines\nbattery storage systems, proprietary software and intelligent optimization technologies designed to help customers reduce electricity\ncosts, improve operational resilience, optimize energy efficiency and increase energy independence in increasingly decentralized energy\nmarkets.\n\n \n\nSince the launch of the SUNBOX platform in 2022,\nTurbo Energy has progressively expanded its portfolio of integrated energy solutions across residential, commercial and industrial (“C&I”)\nand utility-scale applications. The Company’s product ecosystem currently includes SUNBOX Home and SUNBOX Home Lite for residential\napplications, SUNBOX Industry for commercial and industrial deployments and SUNBOX Utility for utility-scale and advanced energy infrastructure\nprojects.\n\n \n\nTurbo Energy’s strategic positioning has\nevolved beyond traditional energy storage hardware toward intelligent energy integration, software-driven optimization and recurring-service\nbusiness models, including Energy-as-a-Service (“EaaS”) solutions and long-term energy management capabilities.\n\nThe Company’s growth strategy is focused\non:\n\n \n\n●expanding deployment of intelligent energy storage and management\nsystems across residential, commercial, industrial and utility-scale markets;\n\n \n\n●increasing penetration within higher-value commercial and industrial\n(“C&I”) segments through integrated turnkey energy solutions;\n\n \n\n●continuing development of AI-driven optimization technologies\nand proprietary energy management software;\n\n \n\n●expanding recurring-service and Energy-as-a-Service (“EaaS”)\nbusiness models;\n\n \n\n●selectively expanding international operations across Europe\nand Latin America; and\n\n \n\n●strengthening operational scalability, liquidity and long-term\nfinancial performance.\n\n \n\nTurbo Energy is a subsidiary of Umbrella Global\nEnergy, S.A., a renewable energy-focused investment and development group active in solar energy, energy technology and e-mobility, whose\nshares are traded on BME Growth in Spain under the ticker symbol “UMB.”\n\n \n\n53\n\n \n\n \n\nFor the year ended December\n31, 2025, total revenues increased to approximately €19.99 million (approximately US$23.46 million), from approximately €9.64\nmillion for the year ended December 31, 2024, representing year-over-year growth of more than 100%.\n\n \n\nThe Company reported a net loss of approximately\n€1.16 million for the year ended December 31, 2025, compared to net losses of approximately €3.34 million and €2.01 million\nfor the years ended December 31, 2024 and 2023, respectively.\n\n \n\nTurbo Energy believes the improvement in revenue\nperformance during 2025 reflects continued execution of its strategic transition toward higher-value intelligent energy infrastructure\nprojects, software-driven optimization solutions and integrated commercial and industrial energy deployments.\n\n \n\nDuring the years ended December 31, 2025, 2024\nand 2023, the Company’s principal business activities included the design, development, integration and commercialization of intelligent\nsolar energy storage systems, AI-driven energy management technologies and related energy infrastructure solutions.\n\n** **\n\n**Emerging Growth Company**\n\n \n\nWe qualify as an “emerging\ngrowth company” under the JOBS Act. As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure\nrequirements. These provisions include exemption from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act\nof 2002 in the assessment of the emerging growth company’s internal control over financial reporting. In addition, Section 107 of\nthe JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B)\nof the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the\nadoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage\nof the benefits of this extended transition period. Our financial statements may therefore not be comparable to those of companies that\ncomply with such new or revised accounting standards.\n\n \n\nWe will remain an emerging\ngrowth company until the earliest of (i) the last day of the fiscal year during which we have total annual gross revenues of at least\nUS$1.235 billion; (ii) the last day of our fiscal year following the fifth anniversary of the completion of our initial public offering;\n(iii) the date on which we have, during the preceding three year period, issued more than US$1.0 billion in non-convertible debt; or (iv)\nthe date on which we are deemed to be a “large accelerated filer” under the Exchange Act, which could occur if the market\nvalue of our ordinary shares that are held by non-affiliates exceeds US$700 million as of the last business day of our most recently completed\nsecond fiscal quarter. Once we cease to be an emerging growth company, we will not be entitled to the exemptions provided in the JOBS\nAct discussed above.\n\n \n\n**Principal Factors Affecting Our Financial Performance**\n\n** **\n\nOur\noperating and financial performance is influenced by a variety of factors, including:\n\n \n\n●our ability to maintain a differentiated and competitive value\nproposition across intelligent energy storage, energy management and integrated infrastructure solutions;\n\n \n\n●our ability to continue developing and commercializing innovative\nAI-driven technologies, software platforms and energy optimization solutions;\n\n \n\n●our ability to expand deployment of higher-value commercial\nand industrial (“C&I”) projects and recurring-service business models, including Energy-as-a-Service (“EaaS”)\ninitiatives;\n\n \n\n●our ability to establish and maintain strategic commercial,\ntechnology and distribution partnerships in key markets;\n\n \n\n●our ability to efficiently manage supply chain operations, manufacturing\nrelationships and component sourcing in a dynamic global market environment;\n\n \n\n●our ability to access capital markets and other financing sources\non acceptable terms to support liquidity, growth initiatives and operational requirements;\n\n \n\n●macroeconomic, geopolitical and energy market conditions that\nmay affect customer demand, electricity pricing dynamics, financing conditions and overall market activity;\n\n \n\n●regulatory developments and public policy relating to renewable\nenergy, energy storage, electrification and distributed energy infrastructure; and\n\n \n\n●fluctuations in logistics, transportation, component and raw\nmaterial costs, including battery-related supply chain dynamics.\n\n \n\n54\n\n \n\n** **\n\n**Results of Operations**\n\n \n\nThe following table sets\nforth a summary of our consolidated results of operations for the years December 31, 2025 and 2024. For a discussion of our results of\noperations for the year ended December 31, 2024, including a year-to-year comparison between the years ended December 2024 and 2023,\nrefer to Part I, Item 5, “Operating and Financial Review and Prospects” in our Annual Report Form 20-F for the year ended\nDecember 31, 2024.\n\n \n\nThis information should\nbe read together with our consolidated financial statements and related notes included elsewhere in this annual report. Our historical\nresults presented below are not necessarily indicative of the results that may be expected for any future period.\n\n \n\n  \nYears Ended December 31  \n   \n  \n\n  \n2025  \n2024  \nIncrease (Decrease) \n\n  \n€  \n$  \n€  \n€  \n% \n\nRevenues \n   \n   \n   \n   \n  \n\nBatteries \n 4,488,821  \n 5,268,080  \n 3,078,584  \n 1,410,237  \n 46%\n\nInverters \n 2,424,886  \n 2,845,846  \n 1,817,121  \n 607,765  \n 33%\n\nE-Mobility \n 116,550  \n 136,783  \n -  \n 116,550  \n 100%\n\nPV Modules \n 432,777  \n 507,907  \n 763,306  \n (330,529) \n (43)%\n\nGo Solar \n -  \n -  \n 8,248  \n (8,248) \n (100)%\n\nSUNBOX Home \n 229,372  \n 269,191  \n 1,855,501  \n (1,626,129) \n (88)%\n\nSUNBOX Industry \n 11,929,036  \n 13,999,917  \n 1,600,004  \n 10,329,032  \n 646%\n\nStructure \n 878  \n 1,031  \n 18,981  \n (18,103) \n (95)%\n\nAccessories \n 169,790  \n 199,265  \n 172,695  \n (2,905) \n (2)%\n\nElectronic \n 36,874  \n 43,276  \n 75,176  \n (38,302) \n (51)%\n\nCustomer Services \n 12,122  \n 14,226  \n 25,003  \n (12,881) \n (52)%\n\nSpare Parts \n 2,824  \n 3,314  \n 1,800  \n 1,024  \n 57%\n\nOthers \n 30,596  \n 35,907  \n 200  \n 30,396  \n 15198%\n\n  \n 19,874,526  \n 23,324,744  \n 9,416,619  \n 10,457,907  \n 111%\n\n  \n    \n    \n    \n    \n   \n\nOther operating income \n 111,974  \n 131,413  \n 221,393  \n (109,419) \n (49)%\n\nTotal Revenue \n 19,986,500  \n 23,456,157  \n 9,638,012  \n 10,348,488  \n 107%\n\n  \n    \n    \n    \n    \n   \n\nCost and expenses \n    \n    \n    \n    \n   \n\nCost of revenue \n 16,089,421  \n 18,882,544  \n 9,080,343  \n 7,009,078  \n 77%\n\nSelling and administrative \n 3,030,784  \n 3,556,928  \n 2,997,990  \n 32,794  \n 1%\n\nSalaries and benefits \n 1,628,312  \n 1,910,987  \n 1,392,051  \n 236,261  \n 17%\n\nBad debt expense \n 13,214  \n 15,508  \n 138,941  \n (125,727) \n (90)%\n\n  \n 20,761,731  \n 24,365,967  \n 13,609,324  \n 7,152,406  \n 53%\n\n  \n    \n    \n    \n    \n   \n\nOther expenses (income) \n    \n    \n    \n    \n   \n\nInterest income \n 3,457  \n 4,057  \n 63,118  \n (59,661) \n (95)%\n\nInterest expense \n (668,033) \n (784,004) \n (382,357) \n (285,676) \n 75%\n\nGain from insurance recoveries on inventory \n -  \n -  \n 1,937,819  \n (1,937,819) \n (100)%\n\nImpairment on inventory due to natural disaster \n -  \n -  \n (2,133,385) \n 2,133,385  \n (100)%\n\nForeign exchange gain (loss) \n (132,832) \n (155,892) \n 4,516  \n (137,348) \n (3041)%\n\nOther income \n 13,173  \n 15,460  \n    \n 13,173  \n 100%\n\nRecovery of bad debts \n 57,536  \n 67,524  \n    \n 57,536  \n 100%\n\nLoss from disposal of equipment \n (42,761) \n (50,184) \n    \n (42,761) \n 100%\n\n  \n (769,460) \n (903,039) \n (510,289) \n (259,171) \n 51%\n\n  \n    \n    \n    \n    \n   \n\nNet Loss Before Income Tax \n (1,544,691) \n (1,812,849) \n (4,481,601) \n 2,936,910  \n (66)%\n\nIncome tax expense - current \n -  \n    \n -  \n    \n 0%\n\nIncome tax expense - deferred \n (388,382) \n (455,805) \n (1,144,601) \n 756,219  \n (66)%\n\nNet Loss \n (1,156,309) \n (1,357,044) \n (3,337,000) \n 2,180,691  \n (65)%\n\n \n\n55\n\n \n\n \n\n**Comparison of Years Ended December 31, 2025 and 2024 **\n\n \n\nRevenues\n\n \n\nTotal revenue for the year ended December 31, 2025 increased to €19,986,500\n(approximately US$23,456,157 from €9,638,012 for the year ended December 31, 2024. The increased in revenues was primarily attributable\nto an exponential increase in sales of the Sunbox Industry product, as a result of new projects related to the ceramics sector in Valencia,\nSpain.\n\n \n\nRevenue from Batteries increased\nby €1,410,237, or 46%, to €4,488,821 (approximately US$5,268,080) for the year ended December 31, 2025 from €3,078,584\nfor the year ended December 31, 2024 due to several factors. The increase in battery sales was largely attributable to the sector’s\nexternal factors, and by our Company’s high dependence on the Spanish market, where most of our sales have historically been concentrated.\nThe Spanish market, after several years of declining battery consumption, is growing again due to the increasingly clear profitability\nadvantage of photovoltaic plants hybridized with storage capacity.\n\n \n\nRevenue from Batteries accounted\nfor 23% of our total revenue for the year ended December 31, 2025, as compared to 33% for the year ended December 31, 2024. We have been\nselling our batteries since September 2013.\n\n \n\nRevenue from Inverters increased\nto €2,424,886 (approximately US$2,845,846) for the year ended December 31, 2025 from €1,817,121 for the year ended December\n31, 2024. The increase in invertor sales was primarily due to to Our revenue from inverters increased by €607,765, or 33%, due primarily\nto a combination of a recovery in demand and the success of the features of the hybrid inverter sold by Turbo Energy, which is currently\nthe most popular in the market. We have been selling inverters since September 2013.\n\n \n\nRevenue from E-Mobility increased to €116,550 for the year ended\nDecember 31, 2025 from €0 for the year ended December 31, 2024. Revenue from E-Mobility accounted for 1% of our total revenue for\nthe year ended December 31, 2025, as compared to 0% for the year ended December 31, 2024. We offered our E-Mobility solution beginning\nin September 2023 and ceased offering it by the end of that year, during 2025 we have reactivated this solution.\n\n \n\nRevenue from PV Modules decreased\nto €432,777 (approximately US$507,907) for the year ended December 31, 2025 from €763,306 for the year ended December 31, 2024.\nThe decrease in sales of photovoltaic modules was primarily attributable to the Company’s strategic decision to reduce exposure\nto lower-margin module commercialization activities during 2025 amid elevated pricing volatility and challenging market conditions within\nthe global photovoltaic supply chain. Revenue from PV Modules accounted for 2% of our total revenue for the year ended December 31, 2025,\nas compared to 7.9% for the year ended December 31, 2024. We have been selling PV modules since September 2013.\n\n \n\nTotal sales of our *Go\nSolar* systems decreased to €0 (approximately US$0) for the year ended December 31, 2025, from €8,248 for the year ended\nDecember 31, 2024. This decrease in sales is due to the strategic decision to progressively discontinue certain lower-value product offerings\nthat were not aligned with Turbo Energy’s long-term focus on integrated intelligent energy infrastructure.\n\n \n\nSales of *SUNBOX Home* for\nresidential solar installations decreased to €229,372 (approximately US$269,191) for the year ended December 31, 2025, from €1,855,501\nfor the year ended December 31, 2024. The decrease in SUNBOX Home sales was primarily related to changes in purchasing patterns and product\nportfolio strategy among certain distribution partners during the period, as well as the Company’s increasing commercial focus on\ncommercial and industrial opportunities and next-generation intelligent energy solutions\n\n \n\nSales of *SUNBOX Industry*,\ndesigned for commercial and industrial applications, increased to €11,929,036 (approximately US$13,999,917) for the year ended December\n31, 2025, from €1,600,004 for the 12 months ended December 31, 2024. The increase in SUNBOX Industry sales was primarily driven by\nthe continued maturation of the Company’s commercial pipeline, growing market adoption of commercial and industrial intelligent\nenergy storage solutions and the execution of several large-scale projects within Spain’s ceramics and industrial sectors. The Company\nbelieves demand for integrated commercial and industrial energy infrastructure solutions continues to benefit from increasing electricity\ncost volatility, industrial electrification trends and growing interest in AI-driven energy optimization capabilities.\n\n \n\n*SUNBOX Home* sales\naccounted for 1% of our total revenue for the year ended December 31, 2025, as compared to 19.3% for the year ended December 31, 2024;\nand sales of *SUNBOX Industry* represented 60% of total revenues in 2025 compared to 17.0% in 2024.\n\n \n\nRevenue from the sale of\nstructures, accessories, electronics, customer services, spare parts and other ancillary products for the year ended December 31, 2025\ndecreased to €253,084 (approximately US$297,019) from €293,955 for the year ended December 31, 2024; and accounted for\n1% of total revenues for the year ended December 31, 2025 and 3.1% of total revenues in the previous year.\n\n \n\nFor the year ended December\n31, 2025, other operating income decreased to €111,974 (approximately US$131,413) from €221,393 for the year ended December\n31, 2024. The decrease was primarily due to in the prior year, there were exceptional income covered by insurance companies as a result\nof damage caused by the floods occurred in 2024 in Valencia.\n\n \n\n56\n\n \n\n \n\nCost of revenue\n\n \n\nOur cost of revenue includes\npurchase of finished goods, purchase of raw materials, outsourcing services and inventory adjustment. Our cost of revenue increased to\n€16,089,421 (approximately US$18,882,544) for the year ended December 31, 2025, from €9,080,343 for the year ended December\n31, 2024, representing a 77% increase in 2025 compared to 2024. The increase was largely attributed to higher revenues in 2025, mainly\ndue to the increased supply of batteries and Sunbox Industry.\n\n \n\nSelling and administrative expenses\n\n \n\nOur selling and administrative\nexpenses consist primarily of professional fees, shipping and handling, warehouse handling, marketing and advertising, leases and royalties,\nand amortization of right-of-use assets. Our selling and administrative expenses increased to €3,030,784 (approximately US$3,556,928)\nfor the year ended December 31, 2025, from €2,997,990 for the year ended December 31, 2024, representing a 1 % increase in 2025 compared\nto 2024. The increase was primarily due to the increase in repair and conservation cost, amortization of intangible assets and insurance\npremium cost.\n\n \n\nSalaries and benefits\n\n \n\nExpenses associated with\nsalaries and benefits increased to €1,628,312 (approximately US$1,910,987) for the year ended December 31, 2025, from €1,392,051\nfor the year ended December 31, 2024, representing a 17% increase in 2025 compared to 2024. The increase was primarily due to executing\nour workforce expansion plan designed to support and elevate our ongoing research and development efforts, sales and marketing activities\nand global expansion initiatives.\n\n \n\nBad debt expense\n\n \n\nBad debt expense decreased to €13,214 (approximately US$15,508)\nfor the year ended December 31, 2025, from €138,941 for the year ended December 31, 2024, representing a 90% decrease in 2025 compared\nto 2024. The decrease was primarily due to in accordance to the principle of accounting prudence, provisioning for the balance owed by\na large customer with whom we are currently in a legal dispute, in 2025 there were less clients under this circumstance than in 2024.\n\n \n\nInterest income\n\n \n\nInterest income decreased\nto €3,457 (approximately US$15,460) for the year ended December 31, 2025, from €63,118 for the year ended December 31, 2024,\nrepresenting a 95% decrease in 2025 compared to 2024. The decrease was primarily due to the interest generated from our investment products,\nthrough medium-term deposits with banks\n\n  \n\nInterest expense \n\n \n\nOur interest expense increased\nto €668,033 (approximately US$784,004)) for the year ended December 31, 2025, from €382,357 for the year ended December 31,\n2024, representing a 75% increase in 2025 compared to 2024. The increase was primarily due to the increase in interest from debt bond\nand factoring service.\n\n \n\nRecovery of bad debts\n\n \n\nWe recorded recovery of\nbad debts of €57,536 (approximately US$67,524) during the year ended December 31, 2025, compared to €0 for the year ended December\n31, 2024.\n\n \n\nLoss from disposal of equipment\n\n \n\nWe incurred loss from disposal\nof equipment of €42,761 (approximately US$50,184) during the year ended December 31, 2025, compared to €0 for the year ended\nDecember 31, 2024.\n\n \n\nForeign exchange gain (loss)\n\n \n\nDue to fluctuation in the\nEuro/US Dollar exchange rates, our foreign exchange gain (loss) decreased to €132,832 loss (approximately US$155,892) for the year\nended December 31, 2025 from €4,516 gain for the year ended December 31, 2024. The decrease in 2025 was due to increased foreign\ncurrency denominated transactions and fluctuations in the Euro/US Dollar exchange rates during the period.\n\n \n\n57\n\n \n\n \n\nIncome tax expense\n\n \n\nWe recorded income tax (recovery)\nexpenses - current of €0 (US$0) for the year ended December 31, 2025, as compared to €0 for the year ended December\n31, 2024, representing a 0% decrease in 2025 compared to 2024. Income tax (recovery) expense - deferred for the years ended December 31,\n2025 and 2024 totaled 388,382 (approximately US$455,805) and €(1,144,601), respectively, representing 66% decrease.\n\n \n\nTaxation\n\n \n\n*Corporate income tax*\n\n \n\nCorporate income tax reflects\nthe amounts we estimate for taxes based upon income before taxes as calculated in accordance with applicable tax regulations. The statutory\ncorporate income tax rate in Spain is currently 25%. We calculate our effective tax rate under IFRS as our corporate income tax over\nour income (loss) before tax.\n\n \n\nNet loss\n\n \n\nOur net loss for the years\nended December 31, 2025 and 2024 was €(1,156,309) (approximately US$(1,357,044) and €(3,337,000), respectively. The €2,180,691,\nor 65% decrease in net loss in 2025 compared to 2024 was attributable to the substantial increase in revenues and improved gross margin\nperformance, partially offset by higher interest expense and unfavorable foreign exchange movements.\n\n \n\n**B. Liquidity and Capital Resources**\n\n \n\nAs of December 31, 2025 and\n2024, we had cash on hand of 493,129 (approximately US$578,736), and €2,384,625, respectively. To date, we have financed our operations\nprimarily through capital contributions from our parent company and part of our net proceeds of the registered direct offering and at\nthe market offering completed or launched in March 2026. We expect to finance our operations and working capital needs in the near future\nfrom cash generated through operations.\n\n \n\nWe believe that our current\nlevels of cash and cash flows from operations will be sufficient to meet our anticipated cash needs for our operations and expansion\nplans for at least the next 12 months. We may, however, in the future require additional cash resources due to changing business conditions,\nimplementation of our business expansion strategies, or other investments or acquisitions we may elect to pursue. If our own financial\nresources are insufficient to satisfy our capital requirements, we may seek to sell additional equity or debt securities or obtain additional\ncredit facilities. The sale of additional equity securities could result in dilution to our shareholders. The incurrence of indebtedness\nwould result in increased debt service obligations and could require us to agree to operating and financial covenants that would restrict\nour operations. Financing may not be available in amounts or on terms acceptable to us, if at all. Any failure by us to raise additional\nfunds on terms favorable to us, or at all, could limit our ability to expand our business operations and could harm our overall business\nprospects.\n\n \n\nThe following table summarizes\nthe key cash flow components from our consolidated statements of cash flows for the periods indicated.\n\n \n\n  \nYear Ended December 31,  \n  \n\n  \n2025  \n2024  \nChanges \n\n  \n€  \n$  \n€  \n€  \n% \n\nCash Flows provided by (used in) operating activities \n (1,897,896) \n (2,227,371) \n 986,949  \n (2,884,845) \n -292.3%\n\nCash Flows provided by (used in) investing activities \n (622,549) \n (730,624) \n 938,455) \n (1,561,004) \n -166.3%\n\nCash Flows provided by (used in) financing activities \n 628,949  \n 738,135  \n (161,310  \n 790,259  \n -489.9%\n\nNet change in cash during period \n (1,891,496) \n (2,219,860) \n 1,764,094  \n (3,655,590) \n -207.2%\n\n \n\n58\n\n \n\n** **\n\n**Operating Activities **\n\n \n\nNet cash used in our operating\nactivities was €(1,897,896) (approximately US$2,227,371) for the year ended December 31, 2025, as compared to net cash provided by\noperating activities of €986,949 and €182,845 for the years ended December 31, 2024 and 2023, respectively. The change from\ncash provided to cash used in operating activities was primarily driven by significant increases in amounts due from an increase in expenses\nassociated with inventory purchases and a higher volume of advance payments to suppliers for inventory procurement driven by increased\nsales, partially offset by amounts due from related parties.\n\n \n\n**Investing Activities**\n\n \n\nNet cash used in investing\nactivities totaled €(622,549) (approximately US$730,624) for the year ended December 31, 2025, as compared to net cash provided\nby investing activities of €938,455 and net cash used in investing activities of €(2,588,759) for the years ended December\n31, 2024 and 2023, respectively. The decrease in 2025 was primarily due to the absence during the year of disbursements or investments\nrelated to short-term investments, as well as lower purchases of intangible assets compared to 2024.\n\n \n\n**Financing Activities**\n\n \n\nNet cash provided by our\nfinancing activities was €(628,949) (approximately US$738,135) for the year ended December 31, 2025, as compared to net cash used\nin financing activities of €(161,310) and net cash provided by financing activities of €2,523,860 for the years ended December\n31, 2024 and 2023, respectively. The improvement was primarily due to the increased cash available under our lines of credit and proceeds\nreceived from our Enerfip bond offering to European investors partially offset by repayment of loans to related parties.\n\n \n\n**C. Research and Development, Patents and Licenses**\n\n \n\nWe incurred €631,294\n(approximately US$740,887), €926,953 and €516,686 in research and development expense during the years ended December 31, 2025,\n2024 and 2023, respectively. The decrease in 2025 was primarily due to the completion during the year of key development milestones,\nincluding the new Turbo Energy software SKN2 and the first beta units of the new SUNBOX energy storage solution developed for the U.S.\nmarket, partially offset by continued investment in new product lines.\n\n \n\n**D. Trend Information**\n\n \n\nOther than as disclosed\nelsewhere in this annual report, we are not aware of any trends, uncertainties, demand, commitments or events that are reasonably likely\nto have a material effect on our net revenues and income from operations, profitability, liquidity, capital resources, or would cause\nreported financial information not to be indicative of future operation results or financial condition.\n\n \n\n**E. Critical Accounting Estimates**\n\n \n\nThe preparation of our financial\ninformation requires management to make estimates, judgments and assumptions concerning the future. Estimates, judgments and assumptions\nare continually evaluated and are based on historical experience and other factors, including expectations of future events that are\nbelieved to be reasonable under the circumstances. The resulting accounting estimates will, by definition, seldom equal the related actual\nresults.\n\n \n\nFor a summary of all of\nour significant accounting policies, see Note 2 to our audited consolidated financial statements as of December 31, 2025 and 2024 and\nfor the years ended December 31, 2025 and 2024 included elsewhere in this annual report.\n\n \n\n**Valuation of Inventory**\n\n \n\nManagement makes estimates\nof future customer demand for products when establishing appropriate provisions for inventory obsolescence. In making these estimates,\nmanagement considers the shelf-life of inventory and profitability of recent sales.\n\n \n\n59\n\n \n\n \n\n**Revenue Recognition**\n\n \n\nThe Company designs, develops\nand distributes equipment for the generation, management and storage of photovoltaic energy. Our energy storage products are managed,\nfrom the cloud and through the inverter of the installation, by an advanced software system which is optimized by artificial intelligence\n(“AI”). The key advantage is that our products, compared to conventional battery storage systems, reduce electricity bill\nand protect the installation from power outages.\n\n \n\nThe Company’s revenue\nis primarily generated from sales of the inverters, batteries, and photovoltaic modules to installers and other distributors for residential\nconsumers under individual customer purchase orders, some of which have underlying master sales agreements that specify terms governing\nthe product sales.\n\n \n\nThe Company recognizes such\nrevenue at the point in time when control of the products is transferred to the customer at the estimated net consideration for which\ncollection is probable, taking into account the customer’s rights to unit rebates, and rights to return unsold product.\n\n \n\nTransfer of control occurs\neither when products are shipped to or received by the distributor or direct customer, based on the terms of the specific agreement with\nthe customer, if the Company has a present right to payment and transfer of legal title and the risks and rewards of ownership to the\ncustomer has occurred. For most of the Company’s product sales, transfer of control occurs upon shipment to the distributor or\ndirect customer. In assessing whether collection of consideration from a customer is probable, the Company considers the customer’s\nability and intention to pay that amount of consideration when it is due. Payment of invoices is due as specified in the underlying customer\nagreement, typically 30 to 60 days from the invoice date, which occurs on the date of transfer of control of the products to the customer.\n\n \n\nSince payment terms are\nless than a year, the Company has elected the practical expedient and does not assess whether a customer contract has a significant financing\ncomponent.\n\n \n\nA five-step approach is\napplied in the recognition of revenue: (1) identify the contract with a customer, (2) identify the performance obligations in the contract,\n(3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize\nrevenue when the Company satisfies a performance obligation. Customer purchase orders plus the underlying master sales agreements are\nconsidered to be contracts with the customer for purposes of applying the five-step approach.\n\n \n\nReturns under the Company’s\ngeneral assurance warranty of products have not been material historically and warranty-related services are not considered a separate\nperformance obligation under the customer orders.\n\n \n\nEach distinct promise to\ntransfer products is considered to be an identified performance obligation for which revenue is recognized upon transfer of control of\nthe products to the customer. The Company has also elected to record sales commissions when incurred, as the period over which the sales\ncommission asset that would have been recognized is less than one year.\n\n \n\n**Income Tax Expense**\n\n \n\nIncome tax expense comprises\ncurrent and deferred tax. Deferred tax is recognized in the statements of income and comprehensive income except to the extent that they\nrelate to items recognized directly in equity or in other comprehensive income or loss.\n\n \n\nCurrent income tax is the\nexpected tax payable or receivable in respect of the taxable income or loss for the period, using income tax rates enacted or substantively\nenacted at the reporting date, and any adjustments to tax payable in respect of previous periods.\n\n \n\nDeferred income taxes are\ncalculated using the liability method on temporary differences between the carrying amounts of assets and liabilities and their related\ntax bases. However, deferred tax is not provided on the initial recognition of goodwill or on the initial recognition of an asset or\nliability unless the related transaction is a business acquisition or affects tax or accounting profit. The deferred tax assets and liabilities\nhave been measured using substantively enacted tax rates that will be in effect when the amounts are expected to settle. Deferred tax\nassets are only recognized to the extent that it is probable that they will be able to be utilized against future taxable income. The\nassessment of the probability of future taxable income in which deferred tax assets can be utilized is based on the Company’s latest\napproved forecast, which is adjusted for significant non-taxable income and expenses and specific limits to the use of any unused tax\nloss or credit. If a positive forecast of taxable income indicates the probable use of a deferred tax asset, especially when it can be\nused without a time limit, that deferred tax asset is usually recognized in full. The recognition of deferred tax assets that are subject\nto economic limits or uncertainties are assessed individually by management based on the specific facts and circumstances.\n\n \n\nDeferred tax assets and\nliabilities are offset only when the Company has a right and intention to offset current tax assets and liabilities from the same taxation\nauthority. Changes in deferred tax assets or liabilities are recognized as a component of income or expense in the statements of income\nand comprehensive income, except where they relate to items that are recognized in other comprehensive income or loss or directly in\nequity.\n\n \n\n60\n\n \n\n \n\n**Liquidity**\n\n \n\nThe Company incurred a net\nloss of €(1,156,309) (approximately US$ (1,357,044) during the year ended December 31, 2025.\n\n \n\nThe Company successfully\ncompleted its IPO on the Nasdaq in September 2023, whereby it raised €3.8 million net of expenses related to the process.\n\n \n\nDuring the year of 2026,\nthe Company carried out several fundraising transactions in the U.S. market through the issuance of ordinary shares represented by American\nDepositary Securities (ADSs), using placement structures commonly used in that market, including a registered direct offering and subsequent\nplacements under an “at-the-market” (ATM) program. These transactions resulted in the issuance of approximately 7.8 million\nshares, equivalent to approximately 1.56 million ADSs, for total gross proceeds of approximately USD 5.0 million.\n\n \n\nThe Company finds itself\nin a sector where many industry research studies and forecasts have projected large exponential growth in the coming years. Turbo Energy\nis a consolidated company with more than 10 years of proven experience. In the past three years, we have been making significant investments\nin research and development to help ensure that we are well positioned to present the markets we serve with highly differentiated value\npropositions when compared to other companies operating in the solar energy storage sector. To that end, our R&D investments have\nyielded the commercialization of proprietary, patented and patent pending hardware offerings, which include our line of all-in-one *SUNBOX*\nsolar energy storage solutions designed for residential, commercial and industrial and utility-scale applications. In addition, we have\npioneered leading edge software solutions, which incorporate our advanced AI-powered capabilities for energy management and optimization.\n\n \n\nThe Company’s existing\ncash resources are expected to provide sufficient funds to operate its business and support our global expansion plan for more than the\nnext 12 months. In addition, our parent company, Umbrella Global Energy, has expressed its full support of Turbo Energy and is capable\nof providing resources to the Company in the event they are needed.\n\n \n\n**G. Safe Harbor**\n\n \n\nSee “Introductory Notes-Forward-Looking\nInformation.”"}