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What changed in ENERGY FOCUS, INC/DE's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of ENERGY FOCUS, INC/DE's 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+362 added−471 removedSource: 10-K (2025-03-25) vs 10-K (2024-03-22)

Top changes in ENERGY FOCUS, INC/DE's 2024 10-K

362 paragraphs added · 471 removed · 251 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeOur Products We design, develop, manufacture and market a wide variety of LED lighting technologies and solutions to serve our primary end user markets, including the following: Commercial products to serve our targeted commercial markets: • RedCap ® emergency battery backup TLEDs; • EnFocus™ powerline lighting control platform including dimming (“DM”) and color tuning (“DCT”); • LED retrofit solutions for existing luminaires, including replacement TLEDs for linear fluorescent lamps, downlights, and retrofit kits for low-bay, high-bay and office applications; and • Industrial grade LED Dock lights.
Biggest changeOur 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. 5 Table of Contents MMM LED lighting products to serve the U.S.
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,” included in Item 8, “Financial Statements and Supplementary Data,” of this Annual Report on Form 10-K, for additional information.
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 11, “Product and Geographic Information,” included in Item 8, “Financial Statements and Supplementary Data,” of this Annual Report on Form 10-K, for additional information.
It is our belief that the continued dramatic rightsizing efforts undertaken in 2022 and 2023, along with reorganization of the sales team and ongoing development of innovative, high-value products and an expanded distribution network, will over time result in improved sales and bottom-line performance for the Company.
It is our belief that the continued dramatic rightsizing efforts undertaken in 2023 and 2024, along with reorganization of the sales team and ongoing development of innovative, high-value products and an expanded distribution network, will over time result in improved sales and bottom-line performance for the Company.
We 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, Revolution Lighting Technologies, Orion Energy Systems, and Keystone Technologies.
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.
The SEC maintains a website that contains these reports at www.sec.gov . 10 Table of Contents
The SEC maintains a website that contains these reports at www.sec.gov . 9 Table of Contents
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.
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.
Concentration of Sales In 2023, two customers accounted for 48% of net sales, with sales to our primary distributor and shipbuilder for the U.S. Navy accounting for approximately 35% and sales to a shipbuilder for the U.S. Navy accounting for approximately 13%. When sales to our primary distributor for the U.S.
Concentration of Sales In 2024, two customers accounted for 33% of net sales, with sales to our primary distributor for the U.S. Navy accounting for approximately 16% and a shipbuilder for the U.S. Navy accounting for approximately 17%. In 2023, two customers accounted for 48% of net sales, with sales to our primary distributor for the U.S.
Navy comprised approximately 30% of net sales for the same period. 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.
Navy accounting for approximately 35% of net sales, and sales to a shipbuilder for the U.S. Navy accounting for approximately 13% of net sales. 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.
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.
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. 8 Table of Contents In addition, although not legally required to do so, we strive to obtain certification for substantially all our products.
No offshore supplier accounted for more than 10% of our total expenditures for the twelve months ended December 31, 2023. At December 31, 2023, two offshore suppliers accounted for approximately 16% and 57% (a related party, See Note 13, “Related Party Transactions”) of our trade accounts payable balance, respectively.
At December 31, 2024, two offshore suppliers accounted for approximately 36% and 54% (a related party, See Note 12, “Related Party Transactions” of this Annual Report on Form 10-K, for additional information) of our trade accounts payable balance, respectively. No offshore supplier accounted for more than 10% of our total expenditures for the twelve months ended December 31, 2023.
Some of these competitors offer products with performance characteristics similar to those of our products. 8 Table of Contents Manufacturing and Suppliers We produce our lighting products and systems through a combination of internal manufacturing and assembly at our Solon, Ohio facility, and sourced finished goods, manufactured to our specifications.
Some of these competitors offer products with performance characteristics similar to those of our products. 7 Table of Contents 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.
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 ® , Intertek Testing Services (“ETL ® ”), or DesignLights Consortium (“DLC™”).
In the United States, we seek certification on substantially all of our products from 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.
Product Development Product development has been a key area of operating focus and competitive differentiation for us in designing and developing industry leading LED lighting. Gross product development expenses for the years ended December 31, 2023 and 2022 were $0.6 million and $1.5 million, 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, 2024 and 2023 were $0.5 million and $0.6 million, respectively.
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. 9 Table of Contents 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.
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.
Manufacturing costs are managed through the balance of internal production and outsourced production for certain parts and components, as well as finished goods in specific product lines, to a small number of vendors in various locations throughout the world, primarily in the United States, Malaysia, Taiwan, and China.
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.
In 2023, 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 2023: • On June 28, 2023, we accepted the resignation of four members of the Board of Directors (the “Board”): Jennifer Cheng, Brian Lagarto, Jeffery Parker, and Stephen Socolof.
In 2024, 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 2024: • On June 12, 2024, the Board approved the departure of Jason Tien-Chia Tsai and appointed Wen Cheng Chen as a new member.
Additionally, we have various pending U.S. patent applications, and various pending Patent Cooperation Treaty patent applications filed with the World Intellectual Property Organization that serve as the basis for national patent filings in countries of interest. Our over 50 issued patents expire at various times through May 2040.
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.
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. Insurance All of our properties and equipment are covered by insurance and we believe that such insurance is adequate.
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 8, “Commitments and Contingencies,” of this Annual Report on Form 10-K, for additional information.
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.
Human Capital As of December 31, 2024, we had 9 full-time employees and 4 part-time employees, with 9 based in the United States and 4 in Taiwan. We had two temporary contractors as of December 31, 2024. None of our employees or contractors are subject to collective bargaining agreements and we consider our relationship with our employees to be good.
Our quality assurance program provides for testing of all sub-assemblies at key stages in the assembly process, as well as testing of finished products produced both internally and sourced through third parties. Additionally, we are 9001-2015 ISO certified.
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.
Intellectual Property We have a policy of seeking to protect our intellectual property through patents, license agreements, trademark registrations, confidential disclosure agreements, and trade secrets as management deems appropriate. Certain of our patents are key to our current product lines.
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. 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 acknowledged the presence of increased competition in the MMM sales space, both with respect to pricing and the number of competitors.
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.
Our primary target customers for our LED lighting and controls systems are enterprise end-users, as well as contractors or ESCOs that could incorporate our products into their projects. We also sell through lighting agencies that represent our products as a complement to our direct sales effort. We have in-house commercial sales personnel and external sales agencies representing Energy Focus products.
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.
Sales and Marketing Our innovative technologies and high-quality performance associated with LED lighting require a continued focus on educating our channel partners as well as end-users regarding the benefits and unique value propositions of our technologies and products.
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.
We continually attempt to improve our global supply chain practices to satisfy client demands in terms of quality and volumes, while controlling our costs and achieving targeted gross margins, and this includes the evaluation of additional outsourcing or further insourcing of internal production where cost, quality and performance can be maintained or improved.
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 Asia.
ITEM 1. BUSINESS Overview Energy Focus engages primarily in the design, development, manufacturing, marketing and sale of energy-efficient lighting systems and controls. We develop, market and sell high quality light-emitting diode (“LED”) lighting and controls products in the commercial market and military maritime market (“MMM”).
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 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”), also a Delaware corporation, with the Company as the surviving entity after the merger.
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.
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Our mission is to enable our customers to run their facilities, offices and homes with greater energy efficiency, productivity, and human health and wellness through advanced LED retrofit solutions. Our goal is to be a market leader for the most demanding applications where performance, quality, value, environmental impact and health are considered paramount.
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Our core products include energy-efficient tubular LED (TLED) lighting that replaces fluorescent and high-intensity discharge (HID) lamps in institutional and commercial buildings. We also offer innovative solutions like our patented RedCap ® TLED with an integrated emergency backup battery. The LED lighting market has faced intense competition and price erosion in recent years.
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We specialize in energy-efficient LED lighting retrofit product, replacing fluorescent, high-intensity discharge (“HID”) lighting and other types of lamps in institutional buildings for primarily indoor lighting applications with our innovative, high-quality commercial and military-grade tubular LED (“TLED”) products, as well as other LED and lighting control products for commercial and consumer applications.
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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.
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We are also evaluating adjacent technologies including Gallium Nitride (“GaN”) based power supplies and opportunities for energy solutions products that support sustainability in our existing channels. The LED lighting industry has changed dramatically over the past several years due to increasing competition and price erosion.
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In 2024, we enhanced the RedCap ® product line, further improving user experience and functionality.
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We have been experiencing these industry forces in both our military and commercial business since 2016, when we once commanded significant price premiums for our flicker-free TLEDs with industry leading warranties.
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All current Board members other than our CEO Mr.
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In more recent years, we have focused on redesigning our products for lower costs and consolidated our supply chain for stronger purchasing power in an effort to price our products more competitively while not impacting the performance and quality.
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Huang remain independent directors under the corporate governance standards of Nasdaq. • On January 18, 2024, the Company and Streeterville Capital, LLC (“Streeterville”) entered into a payoff letter and exchange agreement (the “Agreement”) to pay off a note entered into by and between the Company and Streeterville in 2022 (the “2022 Streeterville Note”) early.
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Despite these efforts, our legacy products continue to face extreme price competition and a convergence of product functionality in the marketplace, and we have shifted to diversifying our supply chain in an effort to increase value and remain competitive.
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The Agreement provided that the Company made payments to reduce the outstanding obligations under the 2022 Streeterville Note of $1.0 million in cash by January 19, 2024 and exchange 94,440 shares of common stock by January 23, 2024 for the remaining $142 thousand. In January 2024, the Company paid off the 2022 Streeterville Note in full.
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These trends are not unique to Energy Focus as evidenced by the increasing number of industry peers facing challenges, exiting LED lighting, selling assets and even going out of business.
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At termination, the Company recognized $187 thousand of other income which was included in other income in the Condensed Consolidated Statements of Operations. • On March 28, 2024, 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 283,019 shares of the Company’s common stock, par value $0.0001 per share, for a purchase price per share of $1.59 (the “First Private Placement”).
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In addition to continuously pursuing cost reductions, our strategy to combat these trends is to innovate both our technology and product offerings with differentiated products and solutions that offer greater, distinct value.
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Aggregate gross proceeds to the Company with respect to the First Private Placement were approximately $450 thousand, excluding the offering expenses paid by the Company.
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Specific examples of these products we have developed include the RedCap®, our patented emergency backup battery integrated TLED, EnFocus™, our unique dimmable/color-tunable lighting and powerline control platform that we launched in 2020, and the second generation of EnFocus™ powerline control switches and circadian lighting system.
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The First Private Placement was closed on March 28, 2024. • On June 21, 2024, 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 534,591 shares of the Company’s common stock, par value $0.0001 per share, for a purchase price per share of $1.59 (the “Second Private Placement”).
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We are looking forward to continually supporting the growth of our existing EnFocus™ product line which is particularly attractive for its ease of install and ease of use in spaces with transient occupation. The Company have enhanced the performance of our RedCap® product by providing a more user-friendly experience in 2023.
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Aggregate gross proceeds to the Company with respect to the Second Private Placement were approximately $850 thousand, excluding the offering expenses paid by the Company.
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We continue to evaluate our sales strategy and believe our go-to-market strategy that focuses more on direct-sales marketing, selectively expanding our channel partner network to cover territories across the country, and listening to the voice of the customer will lead to better and more impactful product development efforts that we believe will eventually translate into larger addressable markets and greater sales growth for us.
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The Second Private Placement was closed on June 21, 2024. • In 2024, we carefully researched and analyzed our historical sales data and the current market landscape, focusing on our pricing position and overall sales strategy.
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Throughout 2023, the Company continued to make significant cost cutting efforts to address operational expenses while maintaining customer satisfaction and delivering goods on-time. Investments into Energy Focus have contributed to the ability of the Company to continue to not only provide quality products and services, but to both expand and rationalize product offerings.
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During 2024, we have thoroughly reviewed and adjusted our commercial pricing position as well as our strategic relationships and partnerships within the commercial LED market space. 4 Table of Contents In 2025, we plan to pursue expansion into new markets and industries to diversify our portfolio and drive growth: • ESS (Energy Storage Systems) 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 Uninterruptible Power Supply (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.
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Their terms as directors would have otherwise expired at the 2024 annual meeting of Shareholders of the Company. The resignations did not involve any disagreement with the Company.
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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.
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On July 2, 2023, the remaining members of the Board unanimously appointed the following four new members to the Board: Kin-Fu Chen, Shou-Jang Lee, Jason Tien-Chia Tsai, and Chiao Chieh (Jay) Huang, each of the new members of the Board of Directors is an independent director under the corporate governance standards of the Nasdaq. • On August 24, 2023, the Board approved the termination of the Company’s chief executive officer and appointed Chiao Chieh (Jay) Huang to serve as the Company’s new chief executive officer.
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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.
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In line with this decision, Mr. Huang 4 Table of Contents will discontinue his role as Chairman of the Board and the Board has appointed Kin-Fu Chen as the Chairman of the Board. • In 2023, we carefully researched and analyzed our historical sales data and the current market landscape regarding our pricing position and general sales strategy.
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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.
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Following our assessment, we made changes that positively affected our position within this space and are directly reflected in our Q4 2023 performance. • Beginning in July 2022, we reduced our warehouse square footage, and undertook an inventory reduction project throughout 2022 focused on reducing our highly reserved commercial finished good inventory. • The Company has aggressively re-evaluated operating expenses, and reduced our workforce significantly throughout the year to manage fixed costs.
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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.
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During 2023, we thoroughly reviewed and adjusted our commercial pricing position as well as our strategic relationships and partnerships within the commercial LED market space. We believe our new pricing position will give us a greater advantage than previously held against the competition and offer a more attractive entry point for our end customer base.
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In addition to LED lighting, we’ve expanded into energy-saving high-technology GaN (Gallium Nitride) power supplies, Energy Storage Systems (ESS), and Uninterruptible Power Supply (UPS) products tailored for AI data centers, positioning us at the forefront of sustainable technology for modern industries.
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We will seek to remain agile as an organization to respond to potential or continuing weakness in the macroeconomic environment and in the meantime seek to expand sales channels and enter new markets that we believe will provide additional growth opportunities.
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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.
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We plan to achieve profitability through developing and launching new, innovative products, such as our EnFocus TM powerline control systems, our Redcap ® emergency battery backup tubular LEDs, evaluating new growth opportunities such as GaN-based power supply circuitry and other energy solution products, as well as executing on our multi-channel sales strategy that targets key verticals, such as government, healthcare, education and commercial and industrial, complemented by our marketing outreach campaigns and expanding channel partnerships.
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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.
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We also plan to continue to develop advanced lighting and lighting control applications built upon the EnFocus TM platform that aim to serve the commercial markets. In addition, we intend to continue to apply rigorous financial discipline in our organizational structure, decision-making, business processes and policies, strategic sourcing activities and supply chain practices to help accelerate our path towards profitability.
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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.
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We established an international branch which we may refer to as our “Taiwan branch” or “Taipei office” in Taipei, Taiwan in 2023. Our Industry We develop advanced LED lighting and controls retrofit technologies solutions that enable our customers to run their facilities with greater energy efficiency, productivity and human wellness.
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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.
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We aim to be the human wellness lighting and LED technology market leader by providing high-quality, energy-efficient, “flicker-free,” long-life LED lamps and retrofit products, as well as lighting controls, to replace existing linear fluorescent, incandescent, HID lamps and fixtures.
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New products: • Energy-saving GaN power supplies for efficient power delivery; and • Energy Storage Systems (ESS) and Uninterruptible Power Supply (UPS) products designed for AI data centers Our products outperform traditional lighting and power solutions, offering financial savings, reduced carbon emissions, and improved occupant health.
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We believe these applications represent a significant portion of the LED lighting market and energy savings potential for our targeted commercial, industrial and MMM markets. LED lighting, and particularly LED retrofit of fluorescent and incandescent lights in existing buildings, represents a large and growing market. A 2020 report issued by the U.S.
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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.
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Department of Energy, Office of Energy Efficiency and Renewable Energy (“DOE”), entitled “Adoption of Light-Emitting Diodes in Common Lighting Applications,” reports that from 2016 to 2018, installations of LED products have increased in all applications, increasing LED penetration to 30% of all general illumination lighting.
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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.
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In 2019, Navigant Research published a report that concluded that LED lighting had at least matched conventional lighting technologies on a range of features, including energy efficiency, lifetime, versatility and color quality, while becoming increasingly cost competitive. This same 2019 report forecasts that installed penetration of LED lamps and luminaires will increase dramatically through 2035, reaching about 84%.
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Sales and Marketing Our company is dedicated to advancing innovative technologies and high-performance solutions across multiple sectors, including LED lighting, Energy Storage Systems (ESS), Gallium Nitride (GaN) Power Supplies, and AI Data Center Uninterruptible Power Supplies (UPS).
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The increasing demand for LED lighting is being driven by energy and cost savings, environmental considerations and human health. Energy consumption can be reduced by over 50% by replacing fluorescent tubes with LED tubes and by another 20-30% (70% to 80% in total) by utilizing smart lighting technologies, including dimmable TLEDs with ambient light and occupancy sensors.
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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.
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For this reason, building codes are increasingly requiring not only LEDs, but dimmable LEDs. Governments around the world 5 Table of Contents are implementing regulations and standards that incentivize the use of LED lighting, both smart and conventional, to reduce energy consumption and, therefore, carbon dioxide emissions.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeObtaining additional financing contains risks, including: • additional equity financing may not be available to us on satisfactory terms 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 and control or revocation provisions, which are not acceptable to management or our Board of Directors; and • the current environment in the capital markets combined with our capital constraints may prevent us from being able to obtain adequate debt financing. 11 Table of Contents 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.
Biggest changeObtaining additional financing contains risks, including: • additional equity financing may not be available to us on satisfactory terms 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 and control or revocation provisions, which are not acceptable to management or our Board of Directors; and • the current environment in the capital markets combined with our capital constraints may prevent us from being able to obtain adequate debt financing.
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, drive further operating efficiencies and develop and execute a strategic product pipeline for profitable and compelling MMM and LED lighting and control products.
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.
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; 22 Table of Contents • 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.
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.
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.
The development, introduction, and 14 Table of Contents 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.
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.
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; 12 Table of Contents • 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.
As such, we will likely need additional external financing during 2024 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.
As such, we will likely need additional external financing during 2025 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.
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.
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 20 Table of Contents 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.
Our independent registered public accounting firm’s opinion on our audited financial statements for the fiscal year ended December 31, 2023, 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 fiscal year ended December 31, 2024, included in this Annual Report, contains a modification relating to our ability to continue as a going concern.
The failure or inability of these shipping companies to deliver products or the unavailability of shipping or port services, even 13 Table of Contents 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.
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.
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, Revolution Lighting Technologies, Orion Energy Systems, and Keystone Technologies.
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.
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 and shipping costs, could cause our product prices to increase, which may reduce demand for our products or make us more susceptible to competition.
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.
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.
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. 15 Table of Contents Customers may be unable to obtain financing to make purchases from us.
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 19 Table of Contents royalty arrangement or result in us being unable to use certain intellectual property.
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.
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.
Accordingly, any such occurrences could adversely affect our financial condition, operating results and cash flows. 19 Table of Contents 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.
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.
Some of these competitors offer products with performance characteristics similar to those of our products. Many of our competitors are larger, more established companies 13 Table of Contents with greater resources to devote to research and development, manufacturing and marketing, as well as greater brand recognition.
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.
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.
Notwithstanding continued performance improvements and cost reductions of LED lighting technologies, limited 15 Table of Contents 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.
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.
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.
Any such issuances could be made at a price that reflects a discount to the then-current trading price of our 22 Table of Contents common stock. These issuances could be dilutive to our existing shareholders and cause the market price of our common stock to decline.
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 adversely impact our business and results of operations.
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.
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, including long-term effects of the COVID-19 pandemic; • seasonal fluctuations in demand and our revenue; and • disruption in component supply from foreign vendors. 16 Table of Contents Depressed general economic conditions may adversely affect our operating results and financial condition.
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, including long-term effects of the COVID-19 pandemic; • seasonal fluctuations in demand and our revenue; and • disruption in component supply from foreign vendors.
Litigation could delay development or sales 17 Table of Contents 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.
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.
Our independent registered public accounting firm’s opinion on our audited financial statements for the year ended December 31, 2023 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.
Our independent registered public accounting firm’s opinion on our audited financial statements for the year ended December 31, 2024 includes a modification stating that our losses and negative cash flows from operations and uncertainty in 10 Table of Contents generating sufficient cash to meet our obligations and sustain our operations raise substantial doubt about our ability to continue as a going concern.
Historically our customer base has been highly concentrated and a few customers have represented a substantial portion of our net sales. In 2023, two customers accounted for 48% of net sales. Total sales to our primary distributor to the U.S. Navy, combined with sales to shipbuilders for the U.S. Navy represented 70% of net sales in 2023.
Historically our customer base has been highly concentrated and a few customers have represented a substantial portion of our net sales. In 2024, two customers collectively accounted for 33% of net sales. Total sales to our primary distributor to the U.S. Navy, combined with sales to shipbuilders for the U.S. Navy represented 33% of net sales in 2024.
We have incurred substantial losses in the past and reported net losses from operations of $4.3 million and $10.3 million for the years ended December 31, 2023 and 2022, respectively.
We have incurred substantial losses in the past and reported net losses from operations of $1.6 million and $4.3 million for the years ended December 31, 2024 and 2023, respectively.
A decline in backlog levels could result in more variability and less predictability in our quarter-to-quarter net sales and operating results. 14 Table of Contents 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.
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.
Under Nasdaq rules, the delisting of the Company’s common stock was stayed during the pendency of the Appeal and, during such time, the Company’s common stock continued to be listed on Nasdaq. 21 Table of Contents On March 28, 2023, the Company received written notification (the “Additional Staff Determination”) from the Staff stating that (i) following the Bid Price Notification, and in accordance with Listing Rule 5810(c)(2)(A), Nasdaq is no longer permitted to consider the stockholders’ equity compliance plan, (ii) the Additional Staff Determination serves as an additional basis for delisting the Company’s common stock from Nasdaq and (iii) the Panel will consider the Additional Staff Determination in rendering a determination regarding the continued listing of the Company’s common stock on Nasdaq.
On March 28, 2023, the Company received written notification (the “Additional Staff Determination”) from the Staff stating that (i) following the Bid Price Notification, and in accordance with Listing Rule 5810(c)(2)(A), Nasdaq is no longer permitted to consider the stockholders’ equity compliance plan, (ii) the Additional Staff Determination serves as an additional basis for delisting the Company’s common stock from Nasdaq and (iii) the Panel will consider the Additional Staff Determination in rendering a determination regarding the continued listing of the Company’s common stock on Nasdaq.
For the year ended December 31, 2023, we reported a net loss of $4.3 million and are dependent upon the availability of financing in order to continue our business.
For the year ended December 31, 2024, we reported a net loss of $1.6 million and are dependent upon the availability of financing in order to continue our business.
Throughout the fiscal year ended December 31, 2023, our market price has ranged from a low of $0.28 to a high of $4.63 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.
Throughout the fiscal year ended December 31, 2024, our market price has ranged from $1.28 to $1.35 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.
In 2022, two customers accounted for 27% of net sales. Total sales to our primary distributor to the U.S. Navy combined with sales to shipbuilders for the U.S. Navy represented 30% of net sales in 2022.
In 2023, two customers collectively accounted for 48% of net sales. Total sales to our primary distributor to the U.S. Navy, combined with sales to shipbuilders for the U.S. Navy represented 70% of net sales in 2023.
As of December 31, 2023, we had an accumulated deficit of $153.3 million and cash of approximately $2.0 million, compared to an accumulated deficit of $149.0 million and cash of approximately $0.1 million as of December 31, 2022.
As of December 31, 2024, we had an accumulated deficit of $154.9 million and cash of approximately $0.6 million, compared to an accumulated deficit of $153.3 million and cash of approximately $2.0 million as of December 31, 2023.
We could lose business from any one of our significant customers for a variety of reasons, many of which are outside of our control, including ongoing long-term impacts of the COVID-19 pandemic, changes in levels of government funding and rebate programs, our inability to comply with government contracting laws and regulations, changes in customers’ procurement strategies or their lighting retrofit plans, changes in product specifications, additional competitors entering particular markets, our failure to keep pace with technological advances and cost reductions, and damage to our professional reputation, among others. 12 Table of Contents 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 could lose business from any one of our significant customers for a variety of reasons, many of which are outside of our control, including ongoing long-term impacts of the COVID-19 pandemic, changes in levels of government funding and rebate programs, our inability to comply with government contracting laws and regulations, changes in customers’ procurement strategies or their lighting retrofit plans, changes in product specifications, additional competitors entering particular markets, our failure to keep pace with technological advances and cost reductions, and damage to our professional reputation, among others.
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.
As a result, we may not be able to protect our proprietary rights adequately in the United States or abroad.
We are authorized to issue 50,000,000 shares of common stock of which 4,443,130 shares were issued and outstanding as of March 18, 2024, and 5,000,000 shares of preferred stock, of which 876,447 were issued and outstanding as of March 18, 2024.
We are authorized to issue 50,000,000 shares of common stock of which 5,260,741 shares were issued and outstanding as of March 25, 2025, and 5,000,000 shares of preferred stock, of which 876,447 were issued and outstanding as of March 25, 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.
Management plans to expand 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.
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.
Where appropriate in jurisdictions outside the United States, we seek to obtain other similar national or regional certifications for our products.
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 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. 18 Table of Contents 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.
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. 20 Table of Contents Moreover, although not legally required to do so, we strive to obtain certification for substantially all our products.
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.
Our business is sensitive to changes in general economic conditions, both inside and outside the United States.
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.
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 operation s.
We may be forced to acquire rights to 16 Table of Contents 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.
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.
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.
In the year ended December 31, 2023, financing activity to sustain ongoing losses has included (1) selling an aggregate of approximately $6.1 million common stock through several private placement transactions (Please see Note 9 of our financial statements for the year ended December 31, 2023 included in Part II, Item 8, “Financial Statements and Supplementary Data,” of this Annual Report.) and (2) converting approximately $1.7 million of outstanding promissory notes into common stock.
For the year ended December 31, 2023, financing activity to sustain ongoing losses included (1) selling an aggregate of approximately $6.1 million common stock through several private placement transactions and (2) converting approximately $1.7 million of outstanding promissory notes into common stock.
If we do not anticipate and effectively manage these risks, these factors may have a material adverse impact on our business operations. 18 Table of Contents 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.
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.
However, there can be no assurance that the Company will be able to maintain compliance with the Minimum Stockholders’ Equity Rule, Bid Price Rule, or other Nasdaq listing requirements. If the Company fails to maintain compliance with Nasdaq’s continued listing standards in accordance with the Panel’s decision, the Company’s common stock will be subject to delisting from Nasdaq.
However, there can be no assurance that the Company will be able to maintain compliance with the Minimum Stockholders’ Equity Rule, Bid Price Rule, or other Nasdaq listing requirements.
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.
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.
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. 23 Table of Contents 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.
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.
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.
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.
As we continue to develop more customer-centric new products such as EnFocus™ and GaN-based power supply circuitry, we hope to both add new customers more quickly and have our customers scale their purchasing levels more quickly.
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.
On February 24, 2023, we submitted a request for a hearing before the Nasdaq Hearings Panel (the “Panel”) to appeal the delisting (the “Appeal”).
On February 24, 2023, we submitted a request for a hearing before the Nasdaq Hearings Panel (the “Panel”) to appeal the delisting (the “Appeal”). Under Nasdaq rules, the delisting of the Company’s common stock was stayed during the pendency of the Appeal and, during such time, the Company’s common stock continued to be listed on Nasdaq.
As a result, there were no Inventory Facility and Receivables Facility as of December 31, 2023. We may not generate sufficient cash flows from our operations or be able to borrow sufficient funds to sustain our operations.
We may not generate sufficient cash flows from our operations or be able to borrow sufficient funds to sustain our operations.
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.
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 “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.
If the Company fails to maintain compliance with Nasdaq’s continued listing standards in accordance with the Panel’s decision, the Company’s common stock will be subject to delisting from Nasdaq. 21 Table of Contents 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 financial statements do not include any adjustments that might result from the outcome of this uncertainty. 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.
(Please see Note 2 of our financial statements "Going Concern" for the year ended December 31, 2024 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.
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.
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.
In the year ended December 31, 2022, financing activity to sustain ongoing losses included converting approximately $303 thousand of outstanding bridge financing into common stock, the issue and sale of approximately $1.5 million of unsecured bridge financing from October to December 2022, the issue and sale of approximately $3.2 million of common stock and warrants to purchase common stock in June 2022, and the offer and sale of $2.0 million of unsecured bridge debt financing in April 2022.
For the year ended December 31, 2024, financing activity to sustain ongoing losses included (1) proceeds from the issuance of common stock and warrants approximately $0.9 million and (2) payment on the 2022 Streeterville Note $1.0 million (Please see Note 7 of our financial statements for the year ended December 31, 2024 included in Part II, Item 8, “Financial Statements and Supplementary Data,” of this Annual Report.).
Removed
In August, 2020, we entered into two Credit Facilities secured by our assets and were subject to customary affirmative and negative operating covenants and events of defaults that restrict indebtedness, liens, corporate transactions, dividends, and affiliate transactions, among others.
Added
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.
Removed
The Receivables Facility capacity was $2.5 million, and the Inventory Facility capacity was initially $3.0 million and increased to $3.5 million in April 2021. As of December 31, 2022, we had cash of approximately $52 thousand and had debt balances of $1.4 million and $1.0 million under the Inventory Facility and the Receivables Facility, respectively.
Added
Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Removed
In January 2023, we amended the Inventory Facility, reducing the maximum availability to $500 thousand, reducing monthly fees and paying down an aggregate of $1 million in January and February 2023. In February 2023, we agreed to terminate the Receivables Facility. In September 2023, we paid down the remaining balance under the Inventory Facility.
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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.
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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.
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As a result, adding new customers could generally be a slow process, and increasing new customers’ sales to more significant levels usually takes a 11 Table of Contents long period of time.
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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.
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We may be subject to confidential information theft or misuse, which could harm our business and results of operation s. We face attempts by others to gain unauthorized access to our information technology systems on which we maintain proprietary and other confidential information.
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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.
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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.
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We are required to comply with certain legal requirements governing the materials in our products.
Added
Our relationship with Sander Electronics, Inc., a significant shareholder and supplier controlled by our CEO Chiao Chieh (Jay) Huang, creates substantial business and governance risks. As of December 31, 2024 Sander Electronics represented 54% of our accounts payable, and we have ongoing purchasing agreements with them for TLED products and spare parts.
Removed
On August 23, 2022, we received a letter from the Nasdaq Listing Qualifications Staff (the “Staff”) notifying us that we are not in compliance with Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Rule”), because the closing bid price for our common stock was below the minimum $1.00 per share for 30 consecutive business days.
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This concentration of our supply chain with a related party creates 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.
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In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we were provided an initial period of 180 calendar days, or until February 20, 2023, to regain compliance with the Bid Price Rule. During the initial compliance period, our common stock continued to trade on the Nasdaq Capital Market, but did not satisfy the Bid Price Rule.
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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.
Removed
On November 16, 2022, we received a letter from the Staff notifying us that we were no longer in compliance with Nasdaq Listing Rule 5550(b)(1), which requires listed companies to maintain stockholders’ equity of at least $2.5 million if they do not meet the alternative compliance standards relating to the market value of listed securities or net income from continuing operations (the “Minimum Stockholders’ Equity Rule”).
Added
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.
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Our Form 10-Q for the quarterly period ended September 30, 2022 filed on November 10, 2022 reflected that our stockholders’ equity as of September 30, 2022 was $1.5 million. Based on our timely submission of our plan to regain compliance (the “Plan”), Nasdaq granted us an extension through May 15, 2023 to regain compliance with the Minimum Stockholders’ Equity Rule.
Added
Our Chief Executive Officer currently serves as our Principal Financial Officer, which may impact our internal controls and increase risks related to financial reporting. 17 Table of Contents 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.
Added
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.
Added
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.
Added
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.
Added
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™.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeRisk Management and Strategy 24 Table of Contents We maintain an Enterprise Risk Management (“ERM”) program to identify and respond to the most critical risks to our business, including cybersecurity risks. Risks and vulnerabilities from our increased reliance on information technology systems are assessed at least annually as part of our ERM program.
Biggest changeOur incident response plan includes notifying the Audit Committee, and then the Board of Directors, of any material threats or incidents that arise. 23 Table of Contents Risk Management and Strategy We maintain an Enterprise Risk Management (“ERM”) program to identify and respond to the most critical risks to our business, including cybersecurity risks.
PROPERTIES Our principal executive offices and our manufacturing facility are located in an approximately 62,000 square foot facility in Solon, Ohio, under a lease agreement expiring on June 30, 2027. We believe this facility is adequate to support our current operations.
PROPERTIES Our principal executive offices and our manufacturing facility are located in an approximately 29,692 square foot facility in Solon, Ohio, under a lease agreement expiring on June 30, 2027. We believe this facility is adequate to support our current operations.
Our Director of Operations & Information Technology regularly evaluates the Company’s cybersecurity risk profile and leads the development of strategies to mitigate risks and address cybersecurity issues that may arise, in consultation with members of our senior management team.
Our Director of Operations & Information Technology regularly evaluates the Company’s cybersecurity risk profile and leads the development of strategies to mitigate risks and address cybersecurity issues that may arise, in consultation with members of our senior management team. We have formal policies and procedures that address cybersecurity incident response and disaster recovery from interference with our critical applications.
In response to such assessments, controls are embedded into our processes and technology by our Director of Operations & Information Technology to seek to mitigate risks to our systems and processes from cybersecurity incidents.
Risks and vulnerabilities from our increased reliance on information technology systems are assessed at least annually as part of our ERM program. In response to such assessments, controls are embedded into our processes and technology by our Director of Operations & Information Technology to seek to mitigate risks to our systems and processes from cybersecurity incidents.
Removed
ITEM 1C. CYBERSECURITY Governance Cybersecurity is an integral part of the Board’s risk analysis and discussions with management. At least annually, the full Board is updated on the Company’s cybersecurity risks and risk mitigation strategy by our Director of Operations & Information Technology, who is responsible for management of our Information Technology program.
Added
ITEM 1C. CYBERSECURITY Governance Our Board of Directors assigned specific oversight responsibility for cybersecurity to our Audit Committee, which also oversees our general risk management. The Audit Committee reviews and discusses with management our policies, practices, and risks related to information security and cybersecurity. Our Chief Executive Officer has primary responsibility for assessing, monitoring, and managing cybersecurity risks.
Removed
The Board also receives ad hoc updates, as needed, about material changes to the Company’s cybersecurity program and/or the cybersecurity landscape, including briefings on major legislative and regulatory developments, from our Director of Operations & Information Technology.
Added
To strengthen our cybersecurity posture, we engage with external consultants for regular risk assessments, penetration testing, and vulnerability analyses, allowing for proactive identification and mitigation of potential threats. We also rigorously verify the cybersecurity practices of our third-party service providers, vendors, and partners, conducting due diligence before establishing relationships and ongoing monitoring to verify compliance with our cybersecurity standards.
Removed
Our Director of Operations & Information Technology has approximately 20 years of experience in his field, and Bachelor of Science in Information Technology Concentration in Information Systems Security and an MBA in Business Analytics. We have formal policies and procedures that address cybersecurity incident response and disaster recovery from interference with our critical applications.
Added
Our Principal Financial Officer provides an update to the Audit Committee on any risks related to cybersecurity on a quarterly basis.
Removed
The Cybersecurity Incident Response Plan, designed for our business environment, features the Director of IT and Operations as the incident coordinator. In the event of any suspicious activity or security breach, Energy Focus swiftly conducts an assessment to gauge the severity and scope of the incident, employing thorough investigation techniques to identify the root cause and affected systems.
Removed
Immediate containment measures are then executed to prevent further unauthorized access or damage. Throughout the incident response process, transparent and timely communication is upheld with internal stakeholders and relevant external parties, ensuring alignment, and understanding of response efforts. Following successful mitigation and restoration of normal operations, Energy Focus conducts a comprehensive post-incident review to glean insights and lessons learned.
Removed
These findings inform ongoing enhancements to our cybersecurity protocols, further bolstering our resilience against future threats. The incident coordinator oversees the detection, containment, and recovery procedures outlined in the plan. Effective communication protocols ensure timely notification to both internal and external stakeholders. Regular training sessions bolster staff preparedness, while post-incident reviews facilitate continuous improvement.
Removed
Appendices offer essential contact information and tools necessary for incident response. Cybersecurity user awareness training is mandatory for all new hires and for existing employees on an annual basis to help protect our employees and the Company against cybersecurity threats.
Removed
This annual training is customized to address specific cybersecurity challenges and scenarios that we may face within the real estate investment industry. Novel cybersecurity threats to the Company that are identified by our Information Technology team are communicated to all employees by email, as needed, in an effort to promote awareness and protect the Company from cyber-attacks.
Removed
Our Director of Operations & Information Technology regularly evaluates the Company’s cybersecurity risk profile and leads the development of strategies to mitigate risks and address cybersecurity issues that may arise, in consultation with members of our senior management team.
Removed
Our Director of Operations & Information Technology has approximately 20 years of experience in his field, and our Director of Operations & Information Technology holds certifications in cybersecurity from accredited information technology certification providers. We have formal policies and procedures that address cybersecurity incident response and disaster recovery from interference with our critical applications.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeITEM 2. PROPERTIES 25 ITEM 3. LEGAL PROCEEDINGS 25 ITEM 4. MINE SAFETY DISCLOSURES 26 PART II ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES 27 ITEM 6. [RESERVED] 27 ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 28 ITEM 7A.
Biggest changeITEM 2. PROPERTIES 24 ITEM 3. LEGAL PROCEEDINGS 24 ITEM 4. MINE SAFETY DISCLOSURES 25 PART II ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES 26 ITEM 6. [RESERVED] 26 ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 27 ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 36
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 33

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeITEM 3. LEGAL PROCEEDINGS From time to time, we may be involved in legal proceedings arising from the normal course of business. See Note 15, “Legal Matters,” to our financial statements for the year ended December 31, 2023 included in Part II, Item 8, “Financial Statements and Supplementary Data,” of this Annual Report. 25 Table of Contents
Biggest changeITEM 3. LEGAL PROCEEDINGS From time to time, we may be involved in legal proceedings arising from the normal course of business. See Note 13, “Legal Matters,” to our financial statements for the year ended December 31, 2024 included in Part II, Item 8, “Financial Statements and Supplementary Data,” of this Annual Report. 24 Table of Contents

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeMARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our common stock trades on The Nasdaq Capital Market under the symbol “EFOI.” Shareholders There were approximately 90 holders of record of our common stock as of March 7, 2024, however, a large number of our stockholders hold their stock in “street name” in brokerage accounts.
Biggest changeMARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our common stock trades on The Nasdaq Capital Market under the symbol “EFOI.” Shareholders There were approximately 80 holders of record of our common stock as of March 25, 2025, however, a large number of our stockholders hold their stock in “street name” in brokerage accounts.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe following is a summary of cash flows from operating, investing, and financing activities, as reflected in the Consolidated Statements of Cash Flows (in thousands): 2023 2022 Net cash used in operating activities $ (2,439) $ (6,713) Net cash used in investing activities $ (69) $ (16) Proceeds from the issuance of common stock and warrants $ 6,079 $ 3,500 Costs related to reverse stock-split (16) — Offering costs paid on the issuance of common stock and warrants — (334) Principal payments under finance lease obligations — (1) Proceeds from exercise of stock options and purchases through employee stock purchase plan — 6 Payments on the 2022 Streeterville Note (625) — Payments for deferred financing costs — (114) Payments on the 2021 Streeterville Note — (1,640) Proceeds from the 2022 Streeterville Note — 2,000 Proceeds from related party promissory notes payable — 800 Proceeds from promissory notes payable — 650 Net payments on credit line borrowings - Credit Facilities (1,402) (768) Advanced capital contribution 450 — Net cash provided by financing activities $ 4,486 $ 4,099 Net cash used in operating activities Net cash used in operating activities of $2.4 million in 2023 resulted primarily from the net loss incurred of $4.3 million, adjusted for non-cash items, including: depreciation and amortization of $0.3 million, stock-based compensation, net of $44 thousand, non-favorable provisions from inventory of $25 thousand and from accounts receivable of $6 thousand, and favorable provisions from warranty of $33 thousand and gain from paid-off of Credit Facilities of $40 thousand.
Biggest changeThe following is a summary of cash flows from operating, investing, and financing activities, as reflected in the Consolidated Statements of Cash Flows (in thousands): 2024 2023 Net cash used in operating activities $ (1,297) $ (2,439) Net cash used in investing activities $ (19) $ (69) Proceeds from the issuance of common stock and warrants $ 851 $ 6,079 Costs related to reverse stock-split — (16) Payments on the 2022 Streeterville Note (1,000) (625) Net payments on credit line borrowings - Credit Facilities — (1,402) Advanced capital contribution — 450 Net cash (used in) provided by financing activities $ (149) $ 4,486 Net cash used in operating activities Net cash used in operating activities of $1.3 million in 2024 resulted primarily from the net loss incurred of $1.6 million, adjusted for non-cash items, including: depreciation and amortization of $42 thousand, stock-based compensation, net of $4 thousand, non-favorable provisions from inventory of $347 thousand, favorable provisions for accounts receivable reserves of $69 thousand, and favorable provisions for warranties of $32 thousand.
Cash provided by financing activities Net cash provided by financing activities for the year ended December 31, 2023 of $4.5 million primarily resulted from the proceeds from the issuance of common stock and warrants of $6.1 million and advanced capital contribution of $0.5 million.
Net cash provided by financing activities for the year ended December 31, 2023 of $4.5 million primarily resulted from the proceeds from the issuance of common stock and warrants of $6.1 million and advanced capital contribution of $0.5 million.
Such evidence includes, but is not limited to, recent earnings history, projections of future income or loss, reversal patterns of existing taxable and deductible temporary differences, and tax planning strategies. We have recorded a full valuation allowance against our deferred tax assets at December 31, 2023 and 2022, respectively.
Such evidence includes, but is not limited to, recent earnings history, projections of future income or loss, reversal patterns of existing taxable and deductible temporary differences, and tax planning strategies. We have recorded a full valuation allowance against our deferred tax assets at December 31, 2024 and 2023, respectively.
Despite continuing progress on cost reduction throughout 2023 and 2022, the Company’s results reflect the challenges due to long and unpredictable sales cycles, unexpected delays in MMM and commercial customer retrofit budgets and project starts, and supply chain issues. There has also been continuing aggressive price competition in the lighting industry.
Despite continuing progress on cost reduction throughout 2023 and 2024, the Company’s results reflect the challenges due to long and unpredictable sales cycles, unexpected delays in MMM and commercial customer retrofit budgets and project starts, and supply chain issues. There has also been continuing aggressive price competition in the lighting industry.
It is our belief that the continued dramatic rightsizing efforts undertaken in 2022 and 2023, along with reorganization of the sales team and ongoing development of innovative, high-value products and an expanded distribution network, will over time result in improved sales and bottom-line performance for the Company.
It is our belief that the continued dramatic rightsizing efforts undertaken in 2023 and 2024, along with reorganization of the sales team and ongoing development of innovative, high-value products and an expanded distribution network, will over time result in improved sales and bottom-line performance for the Company.
We have begun an in-depth analysis of our current and past top 10 customers over the last five years to identify the core factors that make them 29 Table of Contents loyal customers. By analyzing this data, we hope to reveal the key elements that enhance customer stickiness, providing them with more reasons and value to stay with us.
We have begun an in-depth analysis of our current and past top 10 customers over the last five years to identify the core factors that make them loyal customers. By analyzing this data, we hope to reveal the key elements that enhance customer stickiness, providing them with more reasons and value to stay with us.
Throughout 2023, the Company continued to make significant cost cutting efforts to address operational expenses while maintaining customer satisfaction and delivering goods on-time. Investments into Energy Focus have contributed to the ability of the Company to continue to not only provide quality products and services, but to both expand and rationalize product offerings.
Since 2023, the Company has continued to make significant cost cutting efforts to address operational expenses while maintaining customer satisfaction and delivering goods on-time. Investments into Energy Focus have contributed to the ability of the Company to continue to not only provide quality products and services, but to both expand and rationalize product offerings.
We plan to achieve profitability through developing and launching new, innovative products, such as our EnFocusTM powerline control systems, our Redcap® emergency battery backup tubular TLEDs, evaluating new growth opportunities such as GaN-based power supply circuitry and other energy solution products, as well as executing on our multi-channel sales strategy that targets key verticals, such as government, healthcare, education and commercial and industrial, complemented by our marketing outreach campaigns and expanding channel partnerships.
We plan to achieve profitability through developing and launching new, innovative products, our Redcap® emergency battery backup tubular TLEDs, evaluating new growth opportunities such as GaN-based power supply circuitry and other energy solution products, as well as executing on our multi-channel sales strategy that targets key verticals, such as government, healthcare, education and commercial and industrial, complemented by our marketing outreach campaigns and expanding channel partnerships.
In 2023, our effective tax rate was lower than the statutory rate due to an increase in the valuation allowance as a result of the $6.3 million additional federal net 32 Table of Contents operating loss we recognized for the year.
In 2023, our effective tax rate was lower than the statutory rate due to an increase in the valuation allowance as a result of the $6.3 million additional federal net operating loss we recognized for the year.
We used $1.1 million through the timing of collection of accounts receivable, $0.2 million for prepayments to vendors, and $47 thousand through a decrease of other accrued liabilities.
We used $1.1 million through the timing of collection of accounts receivable, $200 thousand for prepayments to vendors, and $47 thousand through a decrease of other accrued liabilities.
Contractual and other obligations As of December 31, 2023, we had approximately $0.5 million in outstanding purchase commitments for inventory, of which the majority is expected to ship in the first quarter of 2024. We have 49% of the outstanding purchase commitments with a related party.
As of December 31, 2023, we had approximately $0.5 million in outstanding purchase commitments for inventory, of which the majority is expected to ship in the first quarter of 2024. We had 49% of the outstanding purchase commitments with a related party.
Other expenses in 2023 and 2022 primarily consisted of bank and collateral management fees. Provision for income taxes For each of the years ended December 31, 2023 and 2022, our effective tax rate was 0.0%.
Other expenses in 2024 and 2023 primarily consisted of bank and collateral management fees. 30 Table of Contents Provision for income taxes For each of the years ended December 31, 2024 and 2023, our effective tax rate was 0%.
In 2022, our effective tax rate was lower than the statutory rate due to an increase in the valuation allowance as a result of the $9.2 million additional federal net operating loss we recognized for the year.
In 2024, our effective tax rate was lower than the statutory rate due to an increase in the valuation allowance as a result of the $3.4 million additional federal net operating loss we recognized for the year.
Under the premise of a similar industrial environment and familiar relationships, our professional skills complement those of our supply chain partners. This foundation of cooperation enables us to more easily achieve common goals of cost reduction, profit sharing, and exploring new business opportunities.
Under the premise of a similar industrial environment and familiar relationships, our professional skills complement those of our supply chain partners. We believe this foundation of cooperation may enable us to pursue common goals of cost reduction, profit sharing, and exploring new business opportunities.
The increases in cash were partially offset by payments on the 2021 Streeterville Note of $1.6 million, Credit Facilities of $0.8 million, and the deferred financing cost of $0.1 million. Off-balance sheet arrangements We had no off-balance sheet arrangements during the years ended December 31, 2023 and 2022.
The increases in cash were partially offset by payments on the 2022 Streeterville Note of $0.6 million and Credit Facilities of $1.4 million. 32 Table of Contents Off-balance sheet arrangements We had no off-balance sheet arrangements during the years ended December 31, 2024 and 2023.
Other income and expenses We recognized other income of $30 thousand each in 2023 and 2022. Other income in 2023 and 2022 primarily consisted of tax refunds and miscellaneous adjustments from accounts receivable, respectively. We recognized other expenses of $26 thousand in 2023, compared to other expenses of $56 thousand in 2022.
Other income in 2024 and 2023 primarily consisted of tax refunds and miscellaneous adjustments from accounts receivable. We recognized other expenses of $10 thousand in 2024, compared to other expenses of $26 thousand in 2023.
(“Sander”), a shareholder of the Company, contributed meaningful external capital, as well as presented synergistic opportunities to improve and diversify our supply chain and product offerings.
The strategic investments in 2023 and 2024 by Sander Electronics, Inc. (“Sander”), a shareholder of the Company, contributed meaningful external capital, as well as presented synergistic opportunities to improve and diversify our supply chain and product offerings.
Minimize or mitigate the impact of inefficient and aging assets, focusing on assets with high efficiency and return. • Liabilities: Ensure a robust liability structure, optimize the cost of liabilities, and seek lower interest rates and more favorable repayment terms. Regularly review the liability situation to ensure the company’s level of liabilities remains within a safe range.
Minimize or mitigate the impact of inefficient and aging assets, focusing on assets with high efficiency and return. 28 Table of Contents • Liabilities: Ensure a robust liability structure, optimize the cost of liabilities, and seek lower interest rates and more favorable repayment terms.
The year-over-year $3.5 million decrease is comprised of a combination of a $2.1 million decrease from a reduction in headcount for salaries, severance, and commissions, a $0.5 million decrease from trade show, marketing, and travel expenses, a $0.2 million decrease from a reduction of software costs, a $0.2 million from reduced recruiting and relocation expenses, a $0.2 million decrease from consultant and professional fees, and remaining from a decrease of all other general expenses.
The year-over-year $1.6 million decrease is comprised of a combination of a $0.9 million decrease from a reduction in headcount for salaries, severance, and commissions, a $0.1 million decrease from a reduction of software costs, a $0.8 million decrease from consultant and professional fees, and remaining from a decrease of all other general expenses.
Cash used in investing activities Net cash used in investing activities was $69 thousand in 2023, primarily from the acquisition of property and equipment. Net cash used in investing activities was $16 thousand in 2022, primarily from the acquisition of property and equipment and partially offset by the proceeds from the sale of property and equipment.
Cash used in investing activities Net cash used in investing activities was $19 thousand in 2024, primarily from the acquisition of property and equipment. Net cash used in investing activities was $69 thousand in 2023, primarily from the acquisition of property and equipment.
Gross profit (loss) Gross profit was $0.2 million, or 3.9% of net sales, for 2023, compared with gross loss of $(0.3) million, or (5.3)% of net sales for 2022.
Gross profit (loss) Gross profit was $0.7 million, or 14% of net sales, for 2024, compared with gross profit of $0.2 million, or 4% of net sales for 2023.
Maintain sufficient cash reserves to cope with potential funding shortages. 30 Table of Contents Results of operations The following table sets forth the percentage of net sales represented by certain items reflected on our Consolidated Statements of Operations for the following periods: 2023 2022 Net sales 100.0 % 100.0 % Cost of sales 96.1 105.3 Gross profit (loss) 3.9 (5.3) Operating expenses: Product development 10.3 25.0 Selling, general, and administrative 63.1 119.8 Loss on impairment — 5.6 Total operating expenses 73.4 150.4 Loss from operations (69.5) (155.7) Other expenses: Interest income (57) (57) — Interest expenses 380 954 Other income (0.5) (0.5) Other expenses, net 0.5 0.9 Net loss before income taxes (68.5) (172.2) Benefit from income taxes 0.1 0.2 Net loss (75.1) % (172.3) % Net sales A further breakdown of our net sales by product line is as follows (in thousands): 2023 2022 Commercial products $ 1,593 $ 3,746 MMM products 4,124 2,222 Total net sales $ 5,717 $ 5,968 Our net sales of $5.7 million in 2023 decreased 4.2% compared to 2022, mainly driven by an increase of 85.6% in MMM sales and a decrease of 57.5% in commercial sales.
Results of operations The following table sets forth the percentage of net sales represented by certain items reflected on our Consolidated Statements of Operations for the following periods: 2024 2023 Net sales 100.0 % 100.0 % Cost of sales 85.6 96.1 Gross profit (loss) 14.4 3.9 Operating expenses: Product development 10.8 10.3 Selling, general, and administrative 41.5 63.1 Total operating expenses 52.3 73.4 Loss from operations (37.9) (69.5) Other expenses: Interest income — (1.0) Interest expense 0.1 6.6 Gain on debt extinguishment (3.8) — Gain on partial lease termination (1.3) — Other income (0.6) (0.5) Other expenses, net 0.2 0.4 Net loss before income taxes (32.5) (75.0) Benefit from income taxes 0.1 0.1 Net loss (32.6) % (75.1) % Net sales A further breakdown of our net sales by product line is as follows (in thousands): 2024 2023 Commercial products $ 1,390 $ 1,593 MMM products 3,470 4,124 Total net sales $ 4,860 $ 5,717 Our net sales of $4.9 million in 2024 decreased 15% compared to 2023, mainly driven by a decrease of 16% in MMM sales and a decrease of 13% in commercial sales.
Net loss Net loss was $4.3 million for 2023. This compares with a net loss of $10.3 million for 2022, mainly driven by reduction of cost of goods sold, product development, selling, general, and administrative expenses as well as interest expenses.
This compares with a net loss of $4.3 million for 2023, mainly driven by reduction of cost of goods sold, product development, selling, general, and administrative expenses as well as interest expenses. Financial condition At December 31, 2024, we had $0.6 million in cash and no outstanding debt.
We believe that by increasing opportunities for interaction with our customers, we can better understand their needs, thereby enhancing their loyalty to our brand. To ensure that EFOI’s products, pricing, and customer service lifecycle are better aligned, we are building a comprehensive value model to ensure consistency in the products and services we provide throughout the customer journey.
To ensure that EFOI’s products, pricing, and customer service lifecycle are better aligned, we are building a comprehensive value model to ensure consistency in the products and services we provide throughout the customer journey.
Net cash provided by financing activities for the year ended December 31, 2022 of $4.1 million primarily resulted from the proceeds from the issuance of common stock and warrants of $3.5 million, proceeds from promissory notes payable of $0.7 million, related party promissory notes payable of $0.8 million, and the issuance of the 2022 Streeterville Note provided net proceeds of $2.0 million.
Cash provided by financing activities Net cash provided by financing activities for the year ended December 31, 2024 of $0.1 million, primarily resulted from $0.9 million of net proceeds from the issuance of common stock, offset by net payments of $1.0 million on the 2022 Streeterville Note.
In addition to continuously pursuing cost reductions, our strategy to combat these trends is to innovate both our technology and product offerings with differentiated products and solutions that offer greater, distinct value.
In addition to continuously pursuing cost reductions, our strategy to combat these trends is to innovate both our technology and product offerings with differentiated products and solutions that offer greater, distinct value. Specific examples of these products we have developed include the RedCap®, our patented emergency backup battery integrated TLED, as well as our robust MMM product offering.
We generated $0.8 million through the timing of collection of accounts receivable, $0.2 million from the change in prepaid and other current assets, $0.1 million for short-term deposits, and $2.4 million in inventory as we sold off a substantial portion of the stock on hand.
We generated $580 thousand in cash for an increase in accounts payable due to the timing of inventory receipts and payments, $521 thousand from the change in prepaid and other current assets, and $1.0 million in inventory as we sold off a substantial portion of the stock on hand.
In addition, we intend to continue to apply rigorous financial discipline to our organizational structure, business processes and policies, strategic sourcing activities and supply chain practices to help accelerate our path towards profitability.
In addition, we intend to continue to apply rigorous financial discipline in our organizational structure, decision-making, business processes and policies, strategic sourcing activities and supply chain practices to help accelerate our path towards profitability. 31 Table of Contents Liquidity and capital resources Cash At December 31, 2024, our cash balance was $0.6 million, compared to $2.0 million at December 31, 2023.
As part of this transition, the Board appointed Kin-Fu Chen as the Chairman of the Board. Our Business Strategy Demand-oriented Approach In order to deepen our relationships with customers, we are in the process of re-establishing our service model, aiming to provide richer and more targeted customer service.
Our Business Strategy Demand-oriented Approach In order to deepen our relationships with customers, we are in the process of re-establishing our service model, aiming to provide richer and more targeted customer service. We believe that by increasing opportunities for interaction with our customers, we can better understand their needs, thereby enhancing their loyalty to our brand.
Critical accounting policies, judgments, and estimates that we believe have the most significant impact on our financial statements are set forth below: • revenue recognition, • allowances for doubtful accounts, returns and discounts, • impairment of long-lived assets, • valuation of inventories, • accounting for income taxes, • share-based compensation, and • leases. 35 Table of Contents Recently adopted accounting guidance For information on recently adopted accounting guidance, please refer to Note 2, “Basis of Presentation and Summary of Significant Accounting Policies,” included under Part II, Item 8, “Financial Statements and Supplementary Data,” of this Annual Report.
Critical accounting policies, judgments, and estimates that we believe have the most significant impact on our financial statements are set forth below: • revenue recognition, • allowances for doubtful accounts, returns and discounts, • product warranty reserve, • valuation of inventories, • accounting for income taxes, • share-based compensation, and • leases.
Interest expenses primarily related to the interest on borrowings and non-cash amortization of fees related to the Credit Facilities and promissory notes in the principal amount of $2.0 million (the “2022 Streeterville Note”), that the Company issued to Streeterville Capital, LLC (“Streeterville”) pursuant to separate note purchase agreements.
Other expenses (income) Interest expenses (income) We incurred $5 thousand in interest expenses compared to interest expenses of $380 thousand in 2023. Interest expenses primarily related to the interest on promissory notes in the principal amounts of $2 million (the “2022 Streeterville Note”) the Company sold and issued to Streeterville pursuant to separate note purchase agreements.
This upgrade offers a simpler, more secure, affordable and environmentally sustainable solution compared with replacing entire luminaire fixtures and incorporating additional wired or wireless communication. • We reinvested in our MMM sales channel and are pursuing existing and new sales opportunities, though the sales cycles for what are frequently made-to-order products are longer than commercial offerings. • Beginning in July 2022, we reduced our warehouse square footage, and undertook an inventory reduction project throughout 2022 focused on reducing our highly reserved commercial finished good inventory. • The Company has aggressively re-evaluated operating expenses, and reduced its workforce significantly throughout 2022 and into 2023 to manage fixed costs. • We continued to seek additional external funding alternatives and sources to support our growth strategies, plans and initiatives.
These efforts include the following key developments that occurred during 2024 and 2023: • We reinvested in our MMM sales channel and are pursuing existing and new sales opportunities, though the sales cycles for what are frequently made-to-order products are longer than commercial offerings. • We aggressively re-evaluated operating expenses and reduced its workforce significantly throughout 2023 and into 2024 to manage fixed costs. • We continued to seek additional external funding alternatives and sources to support our growth strategies, plans and initiatives.
Due to the termination of employees, the need for temporary workers was increased. 31 Table of Contents Operating expenses Product development Product development expenses include salaries and related benefits, product testing and related costs, travel, supplies, as well as overhead items, such as depreciation and facilities costs. Product development costs are expensed as they are incurred.
Operating expenses Product development Product development expenses include salaries and related benefits, product testing and related costs, travel, supplies, as well as overhead items, such as depreciation and facilities costs. Product development costs are expensed as they are incurred. Gross product development expenses were $0.5 million in 2024, a decrease of 11%, compared to $0.6 million in 2023.
We continued to incur losses and we have a substantial accumulated deficit, which continues to raise substantial doubt about our ability to continue as a going concern at December 31, 2023. On June 28, 2023, the Company received notices of resignation from the following four members of the Board of Directors: Jennifer Cheng, Brian Lagarto, Jeffery Parker, and Stephen Socolof.
We continue to incur losses and we have a substantial accumulated deficit, which continues to raise substantial doubt about our ability to continue as a going concern at December 31, 2024.
Please refer to Note 9 included under Part II, Item 8 “Financial Statements and Supplementary Data,” of this Annual Report for the details. 33 Table of Contents During 2022 and into 2023, we redoubled our cost control efforts to streamline our operations by closely managing all spending done throughout the Company, while carefully investing in new products and strategies that sought to reenergize sales.
We continue to closely monitor our cost control efforts to streamline our operations by closely managing all spending throughout the Company, while carefully investing in new products and strategies that sought to reenergize sales.
Additionally, our sales have been concentrated among a few major customers and for the twelve months ended December 31, 2023, two customers accounted for approximately 48% of net sales. In 2023 and 2022, we recommitted to building upon the transformation activities started during 2019 that sought to stabilize and regrow our business.
In 2024 and 2023, we recommitted to building upon the transformation activities started during 2019 that sought to stabilize and regrow our business.
The timeline between bid to order can often take at least six months, and many MMM products are built-to-order with resultant lead times before orders become revenue. We continue to pursue opportunities from the U.S. Navy and the government sector to minimize such volatility.
Several anticipated projects encountered repeated postponements, further complicated by the long sales cycles typical in this sector. The timeline from bid submission to order placement often exceeds six months, and many MMM products are built-to-order, resulting in extended lead times before revenue recognition. To mitigate this volatility, we continue to actively pursue new opportunities with the U.S.
Beginning in the second quarter of 2023, the Company terminated several employees, and the result was a significant reduction in payroll-related expenses. Selling, general, and administrative Selling, general, and administrative expenses were $3.6 million, or 63.1% of net sales, in 2023, compared to $7.1 million, or 119.8% of net sales, in 2022.
Selling, general, and administrative Selling, general, and administrative expenses were $2.0 million, or 42% of net sales, in 2024, compared to $3.6 million, or 63% of net sales, in 2023.
If not utilized, the carry-forwards generated prior to December 31, 2017 of $0.9 million will begin to expire in 2024 for federal purposes and have begun to expire for state and local purposes. Please refer to Note 11, “Income Taxes,” included in Item 8, “Financial Statements and Supplementary Data,” of this Annual Report for further information.
We had no net deferred liabilities at December 31, 2024 or 2023. We will continue to evaluate the need for a valuation allowance on a quarterly basis. Please refer to Note 11, “Income Taxes,” included in Item 8, “Financial Statements and Supplementary Data,” of this Annual Report for further information. Net loss Net loss was $1.6 million for 2024.
Gross product development expenses were $0.6 million in 2023, a decrease of 60.6%, compared to $1.5 million in 2022. The $0.9 million decrease primarily resulted from lower payroll-related expenses due to a reduction in headcounts of $0.8 million and lower product development and testing cost of $0.1 million.
The $0.1 million decrease primarily resulted from lower payroll-related expenses due to a reduction in headcounts of $0.9 million. This was partially offset by a $0.4 million increase in travel expenses and a $0.4 million increase in product testing, R&D supplies, and dues. During 2024, the Company terminated several employees, and the result was a significant reduction in payroll-related expenses.
We generated $0.6 million in cash for an increase in accounts payable due to the timing of inventory receipts and payments, $0.5 million from the change in prepaid and other current assets, and $1.0 million in inventory as we sold off a substantial portion of the stock on hand. 34 Table of Contents Net cash used in operating activities of $6.7 million in 2022 resulted primarily from the net loss incurred of $10.3 million, adjusted for non-cash items, including: depreciation and amortization of $0.5 million, stock-based compensation, net of $0.1 million, and non-favorable provisions from inventory of $32 thousand and a loss on impairment of property and equipment of $0.3 million, and favorable provisions from warranty of $0.1 million.
Net cash used in operating activities of $2.4 million in 2023 resulted primarily from the net loss incurred of $4.3 million, adjusted for non-cash items, including: depreciation and amortization of $258 thousand, stock-based compensation, net of $44 thousand, non-favorable provisions from inventory of $25 thousand and from accounts receivable of $6 thousand, and favorable provisions from warranty of $33 thousand and gain from paid-off of Credit Facilities of $40 thousand.
Removed
Specific examples of these products we have developed include the RedCap ® , our patented emergency backup battery integrated TLED, EnFocus™, our unique dimmable/color-tunable lighting and powerline control platform that we launched in 2020, and the second generation of EnFocus™ powerline control switches and circadian lighting system.
Added
The Company has enhanced the performance of our RedCap® product providing a more user- friendly experience.
Removed
We are looking forward to the continued support and growth of our existing EnFocus™ product line which is particularly attractive for its ease of install and ease of use in spaces with transient occupation. The Company have enhanced the performance of our RedCap® product providing a more user- friendly experience in 2023.
Added
We have taken steps to strengthen our financial structure through capital increases and cost reduction measures. As a result, we have fully eliminated all external high-interest debt, which we believe has improved our financial position.
Removed
During 2022 and into 2023, our MMM business continued to face challenges resulting from the delayed availability of government funding and the timing of U.S. Navy awards, with several anticipated projects facing repeated and ongoing delays. This sector also maintains very long sales cycles.
Added
Our business expansion plans are supported by financial strategies that we expect will provide funding for our planned growth initiatives, although there can be no assurance that such funding will be adequate. During 2024, our MMM business faced ongoing challenges due to delays in government funding and the timing of U.S. Navy awards.
Removed
Previously in our MMM business, significant efforts undertaken to reduce costs in our product offerings have positioned us to be more competitive along with improved production efficiencies. Such efforts allowed us to continue to win bids and proposals that helped grow our MMM sales pipeline in the second half of 2023.
Added
We have undertaken efforts to reduce costs and improve production efficiencies in MMM product lines which we believe have contributed to our competitiveness, and may have helped us secure new contracts and expand our sales pipeline in the latter half of 2024. 27 Table of Contents We intend to focus on developing our commercial product offerings, including planned new product lines such as Energy Storage Systems (ESS), GaN Power Supplies, and UPS systems for data centers, while continuing to leverage the stability and opportunities within our MMM business.
Removed
While we continue to aggressively seek to increase sales of our commercial products, 28 Table of Contents the MMM business offers us continued sales opportunities, in addition to validating our product quality and strengthening our brand trust in the marketplace.
Added
In 2024, we conducted a comprehensive review of our commercial pricing strategy and reassessed key partnerships within the energy related market. These strategic adjustments have improved our market position, offering a more competitive pricing structure and a stronger value proposition for our customers.
Removed
During 2023, we thoroughly reviewed and adjusted our commercial pricing position as well as our strategic relationships and partnerships within the commercial LED market space. We believe our new pricing position will give us a greater advantage than previously held against the competition and offer a more attractive entry point for our end customer base.
Added
We believe that these initiatives, if successfully implemented, and if our financial position continues to improve, may contribute to growth across both our MMM and commercial business sectors, although there can be no assurance that such growth will occur. Meanwhile, we continue to seek additional external funding alternatives and sources to support our growth strategies, plans and initiatives.
Removed
We are pleased to see a growth during the fiscal year ended December 31, 2023 in quotation opportunities in both MMM and commercial product lines. Meanwhile, we continue to seek additional external funding alternatives and sources to support our growth strategies, plans and initiatives. The recent strategic investments in 2023 by Sander Electronics, Inc.
Added
Regularly review the liability situation to ensure the company’s level of liabilities remains within a safe range.
Removed
We plan to achieve profitability through increasing sales in our innovative products such as EnFocusTM powerline control technology and further leveraging our unique and proprietary technology such as RedCap®, as well as executing on our multi-channel sales strategy that targets key verticals, such as government, healthcare, education and commercial and industrial, complemented by our marketing outreach campaigns and expanding channel partnerships.
Added
Maintain sufficient cash reserves to cope with potential funding shortages.
Removed
We also plan to continue to develop advanced lighting and lighting control applications built upon the EnFocusTM platform that aim to serve the commercial market. We are also evaluating adjacent technologies including ruggedized industrial retrofit lighting applications and GaN-based power supplies and other market opportunities in energy solutions products that support sustainability in our existing channels.
Added
The decrease in net MMM product sales in 2024 as compared to 2023 was mainly due 29 Table of Contents to a significant reduction in military demand toward the end of the year, driven by the impact of the U.S. election cycle.
Removed
The EnFocus™ platform offers two immediately available product lines: EnFocus™ DM, which provides a dimmable lighting solution, and EnFocus™ DCT, which provides both a dimmable and color tunable lighting solution.
Added
Net sales of our commercial products decreased in 2024 due to the effects of annual market cycles, high inflation, and our sales strategy, which reduced the proportion of commercial sales, along with market-adjusted pricing.
Removed
EnFocus™ enables buildings to have dimmable, color tunable and circadian-ready lighting using existing wiring, without requiring laying additional data cables or any wireless communication systems, through a relatively simple upgrade with EnFocus™ switches and LED lamps, a far more secure, affordable and environmentally sustainable solution compared with replacing an entire luminaire and incorporating additional wired or wireless communication.
Added
The increase in gross margin was mainly driven by a 2% of net sales decrease in fixed costs such as subscription fee, expenses related to rent expense for production, a 16% of net sales decrease in variable costs such as material cost and freight in expense, and an 8% of net sales unfavorable change in inventory reserves.
Removed
Their terms as directors would have otherwise expired at the 2024 annual meeting of stockholders of the Company. These resignations did not involve any disagreement with the Company.
Added
The reduction in warehouse space following the new lease agreement in July 2024 required both significant disposal of highly reserved, excess and obsolete inventory and a focus on selling inventory on hand throughout 2024. As a result of our initiatives of inventory management enhancement, we sold some inventory below cost.
Removed
On July 2, 2023, the remaining members of the Board of Directors unanimously appointed the following four new members to the Board of Directors: Kin-Fu Chen, Shou-Jang Lee, Jason Tien-Chia Tsai, and Chiao Chieh (Jay) Huang.
Added
This resulted in a net decrease of our gross inventory levels of $0.9 million and a net decrease of excess and obsolete inventory reserves of $2.2 million as co mpared to 2023 .
Removed
The Board of Directors affirmatively determined that, at the time of his appointment, each of the new members of the Board of Directors is an independent director under the corporate governance standards of the Nasdaq.
Added
The decrease is primarily related to early termination of the 2022 Streeterville Note. Gain on debt extinguishment We recognized $187 thousand of gain on debt extinguishment in 2024, which was related to the early termination of the 2022 Streeterville Note. There was no such gain recognized in 2023.
Removed
On August 24, 2023, the Board of Directors approved the termination of the Company’s chief executive officer and appointed Chiao Chieh (Jay) Huang to serve as the Company’s new chief executive officer. In line with this decision, Mr. Huang discontinued his role as Chairman of the Board.
Added
Gain on partial lease termination We recognized $63 thousand of gain on partial lease termination in 2024, which was related to the early termination of the office lease. There was no such gain recognized in 2023. Other income and expenses We recognized other income of $27 thousand and $30 thousand each in 2024 and 2023, respectively.
Removed
The increase in net MMM product sales in 2023 as compared to 2022 was mainly due to an increased military sales pipeline during the year and our strategic focus on our loyal military customers.
Added
We have historically incurred substantial losses, and as of December 31, 2024, we had an accumulated deficit of $154.9 million. Additionally, our sales have been concentrated among a few major customers and for the twelve months ended December 31, 2024, two customers collectively accounted for approximately 33% of net sales.
Removed
Net sales of our commercial products decreased in 2023 due to limited product availability impacts from supply chain constraints, our inventory reduction project, increased competition, and continuing fluctuations in the timing, pace, and size of commercial projects.
Added
We used $128 thousand through a decrease of other accrued liabilities. We generated $1.0 million in cash through collection of accounts receivable, $0.8 million from a reduction of inventory, and $0.3 million from an increase in accounts payable due to the timing of inventory receipts and payments. We paid off approximately $1.2 million in accounts payable to a related party.
Removed
The increase in gross margin resulted from our cost reduction plan related to a cut down of headcounts and was driven primarily by a reduction of scrap, freight in and out variances, which were partially offset by an increased cost of material and temporary labor.
Added
Contractual and other obligations As of December 31, 2024, we have approximately $0.3 million in outstanding purchase commitments for inventory, of which the majority is expected to ship in the first quarter of 2025. We have 88% of the outstanding purchase commitments with a related party.
Removed
In 2022, significant amounts of previously reserved inventories were scrapped over the course of the year. Freight and logistics expenses were notably higher at the beginning of 2022 as national imports faced backlogs at the ports. Beginning in the second quarter of 2023, the Company terminated several employees, and the result was a significant reduction in payroll-related expenses.
Added
Recently adopted accounting guidance For information on recently adopted accounting guidance, please refer to Note 2, “Basis of Presentation and Summary of Significant Accounting Policies,” included under Part II, Item 8, “Financial Statements and Supplementary Data,” of this Annual Report.
Removed
Loss on impairment No loss on impairment was recorded in 2023. As a result of the Company’s impairment analysis, in the third quarter of 2022, a loss on impairment of $76 thousand was recorded on the write-off of the UV-Robots.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

121 edited+32 added−92 removed77 unchanged
Biggest changeCONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022 (amounts in thousands) Additional Paid-in Capital Accumulated Other Comprehensive Loss Preferred Stock Common Stock Accumulated Deficit Shares Amount Shares* Amount Total Balance at December 31, 2021 876 $ — 910 $ — $ 144,953 $ (3) $ (138,741) $ 6,209 Issuance of common stock under employee stock option and stock purchase plans — — 7 — 6 — — 6 Issuance of common stock and warrants — — 187 1 3,499 — — 3,500 Offering costs on issuance of common stock and warrants — — — — (334) — — (334) Issuance of common stock upon the exercise of warrants — — 209 — — — — — Stock-based compensation — — — — 117 — — 117 Stock issued in exchange transactions — — 94 — 304 — — 304 Net loss — — — — — — (10,279) (10,279) Balance at December 31, 2022 876 $ — 1,407 $ 1 $ 148,545 $ (3) $ (149,020) $ (477) Issuance of common stock — — 2,477 1 6,078 — — 6,079 Stock issued in exchange transactions — — 465 — 1,716 — — 1,716 Par value adjustment due to reverse stock split — — — (2) 2 — — — Reduction in equity due to costs from reverse stock split — — — — (16) — — (16) Stock-based compensation — — — — 44 — — 44 Impact of adoption of ASU 2016-13 - CECL — — — — — — (2) (2) Net loss — — — — — — (4,293) (4,293) Balance at December 31, 2023 876 $ — 4,349 $ — $ 156,369 $ (3) $ (153,315) $ 3,051 *Shares outstanding for prior periods have been restated for the 1-for-7 reverse stock split effective June 16, 2023.
Biggest changeCONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023 ((amounts in thousands except share data)) Additional Paid-in Capital Accumulated Other Comprehensive Loss Preferred Stock Common Stock Accumulated Deficit Shares Amount Shares Amount Total Balance at December 31, 2022 876 $ — 1,407 $ 1 $ 148,545 $ (3) $ (149,020) $ (477) Issuance of common stock — — 2,477 1 6,078 — — 6,079 Stock issued in exchange transactions — — 465 — 1,716 — — 1,716 Par value adjustment due to reverse stock split — — — (2) 2 — — — Reduction in equity due to costs from reverse stock split — — — — (16) — — (16) Stock-based compensation — — — — 44 — — 44 Impact of adoption of ASU 2016-13 - CECL — — — — — — (2) (2) Net loss — — — — — — (4,293) (4,293) Balance at December 31, 2023 876 $ — 4,349 $ — $ 156,369 $ (3) $ (153,315) $ 3,051 Issuance of common stock — — 818 1 1,300 — — 1,301 Conversion of advanced capital contribution to common stock — — 94 — 141 — — 141 Stock-based compensation — — — — 4 — — 4 Net loss — — — — — — (1,582) (1,582) Balance at December 31, 2024 876 $ — 5,261 $ 1 $ 157,814 $ (3) $ (154,897) $ 2,915 The accompanying notes are an integral part of these consolidated financial statements. 41 Table of Contents ENERGY FOCUS, INC.
Our mission is to enable our customers to run their facilities with greater energy efficiency and productivity, and increased human health and wellness through advanced LED retrofit solutions. Our goal is to be the human wellness lighting and LED technology and market leader for the most demanding applications where performance, quality, value, environmental impact and health are considered paramount.
Our mission is to enable our customers to run their facilities with greater energy efficiency, productivity, and increased human health and wellness through advanced LED retrofit solutions. Our goal is to be the human wellness lighting and LED technology and market leader for the most demanding applications where performance, quality, value, environmental impact and health are considered paramount.
A disaggregation of product net sales is presented in Note 11, “Product and Geographic Information.” Accounts Receivable and Allowance for Credit Losses Our trade accounts receivable consists of amounts billed to and currently due from customers. Substantially all of our customers are concentrated in the United States.
A disaggregation of product net sales is presented in Note 11, “Product and Geographic Information.” Accounts Receivable and Allowance for Credit Losses Our trade accounts receivable consists of amounts billed to and currently due from customers. Substantially all our customers are concentrated in the United States.
The Inventory Facility was paid in full on September 24, 2023, using the interest rate of 11.16% per annum, and the Company wrote off the difference of $40 thousand between the final invoice amount and the carrying value of the debt, which was recorded as interest income.
The Inventory Facility was paid in full on September 24, 2023, using the interest rate of 11.16% per annum, and the Company wrote off the difference of $40 thousand between the final invoice amount and the carrying value of the debt, which was recorded as interest income in 2023.
As of December 31, 2023 and 2022, we had the following outstanding warrants: As of December 31, 2023 As of December 31, 2022 Number of Underlying Shares Exercise Price Expiration June 2022 Warrants 384,615 384,615 $9.10 December 16, 2026 December 2021 Warrants 182,630 182,630 $24.64 June 7, 2027 January 2020 Investor Warrants 26,819 26,819 $23.59 January 13, 2025 January 2020 Placement Agent Warrants 5,954 5,954 $34.96 January 13, 2025 600,018 600,018 Stock-based Compensation Stock-based compensation expense is attributable to stock options and restricted stock unit awards.
As of December 31, 2024 and 2023, we had the following outstanding warrants: As of December 31, 2024 As of December 31, 2023 Number of Underlying Shares Exercise Price Expiration June 2022 Warrants 384,615 384,615 $9.10 December 16, 2026 December 2021 Warrants 182,630 182,630 $24.64 June 7, 2027 January 2020 Investor Warrants 26,819 26,819 $23.59 January 13, 2025 January 2020 Placement Agent Warrants 5,954 5,954 $34.96 January 13, 2025 600,018 600,018 Stock-based Compensation Stock-based compensation expense is attributable to stock options and restricted stock unit awards.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. NATURE OF OPERATIONS Energy Focus, Inc. engages primarily in the design, development, manufacturing, marketing and sale of energy-efficient lighting systems and controls. We develop, market and sell high quality light-emitting diode (“LED”) lighting and controls products in the commercial market and military maritime market (“MMM”).
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. NATURE OF OPERATIONS Energy Focus, Inc. (the “Company”) engages primarily in the design, development, manufacturing, marketing and sale of energy-efficient lighting systems and controls. We develop, market and sell high quality light-emitting diode (“LED”) lighting and controls products in the commercial market and military maritime market (“MMM”).
We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
For certain types of claims, we maintain insurance coverage for personal injury and property damage, product liability and other liability coverages in amounts and with deductibles that we believe are prudent, but there can be no assurance that these coverages will be applicable or adequate to cover adverse outcomes of claims or legal proceedings against us. 71 Table of Contents ENERGY FOCUS, INC.
For certain types of claims, we maintain insurance coverage for personal injury and property damage, product liability and other liability coverages in amounts and with deductibles that we believe are prudent, but there can be no assurance that these coverages will be applicable or adequate to cover adverse outcomes of claims or legal proceedings against us. 62 Table of Contents ENERGY FOCUS, INC.
For the years ended December 31, 2023 and 2022, approximately 100% of sales were attributable to customers in the United States. The geographic location of our net sales is derived from the destination to which we ship the product. Cash Cash consists of investments in money market funds and deposits with banks.
For the years ended December 31, 2024 and 2023, approximately 100% of sales were attributable to customers in the United States. The geographic location of our net sales is derived from the destination to which we ship the product. Cash Cash consists of investments in money market funds and deposits with banks.
The 2022 Streeterville Note had an original maturity date of April 21, 2024, and accrues interest at 8% per annum, compounded daily, on the outstanding balance. On January 17, 2023, we agreed with Streeterville to restructure and pay down the 2022 Streeterville Note and extend its maturity date to December 1, 2024 (the “2022 Streeterville Note Amendment”).
The 2022 Streeterville Note had an original maturity date of April 21, 2024, and accrued interest at 8% per annum, compounded daily, on the outstanding balance. On January 17, 2023, we agreed with Streeterville to restructure and pay down the 2022 Streeterville Note and extend its maturity date to December 1, 2024 (the “2022 Streeterville Note Amendment”).
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As a “smaller reporting company” as defined by Item 10 of Regulation S-K, 17 CFR § 229.10(f)(1), the Company is not required to provide this information. 36 Table of Contents ITEM 8.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As a “smaller reporting company” as defined by Item 10 of Regulation S-K, 17 CFR § 229.10(f)(1), the Company is not required to provide this information. 33 Table of Contents ITEM 8.
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2024 and 2023, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Continuation as a Going Concern The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in the notes to the consolidated financial statements, the Company has experienced recurring losses from operations and negative cash flows from operations that raise substantial doubt about its ability to continue as a going concern.
Continuation as a Going Concern The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in the notes to the consolidated financial statements, the Company has suffered recurring losses from operations and negative cash flows from operations that raise substantial doubt about its ability to continue as a going concern.
Considering both quantitative and qualitative information, we continue to believe that the combination of our plans to ensure adequate external funding, timely re-organizational actions, current financial position, liquid resources, obligations due or 48 Table of Contents ENERGY FOCUS, INC.
Considering both quantitative and qualitative information, we continue to believe that the combination of our plans to ensure adequate external funding, timely re-organizational actions, current financial position, liquid resources, obligations due or 44 Table of Contents ENERGY FOCUS, INC.
As of December 31, 2023 and 2022, there were 876,447 Series A Preferred Stock issued and outstanding which can be convertible into 25 thousand shares of common stock at the option of the holder. Warrants During the years ended December 31, 2023 and 2022, no warrants were exercised.
As of December 31, 2024 and 2023, there were 876,447 Series A Preferred Stock issued and outstanding which can be convertible into 25 thousand shares of common stock at the option of the holder. Warrants During the years ended December 31, 2024 and 2023, no warrants were exercised.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Property and equipment Property and equipment are stated at cost and include expenditures for additions and major improvements. Expenditures for repairs and maintenance are charged to operations as incurred. We use the straight-line method of depreciation over the estimated useful lives of the related assets (generally two to 15 years) for financial reporting purposes.
Property and equipment Property and equipment are stated at cost and include expenditures for additions and major improvements. Expenditures for repairs and maintenance are charged to operations as incurred. We use the straight-line method of depreciation over the estimated useful lives of the related assets (generally two to 15 years) for financial reporting purposes.
The Series A Preferred Stock (a) has a preference upon liquidation equal to $0.67 per share and then participates on an as-converted basis with the common stock with respect to any additional distributions, (b) shall receive any dividends declared and payable on our common stock on an as-converted basis, and (c) is convertible at the option of the holder into shares of our common stock on a 1- for- 35 basis.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Series A Preferred Stock (a) has a preference upon liquidation equal to $0.67 per share and then participates on an as-converted basis with the common stock with respect to any additional distributions, (b) shall receive any dividends declared and payable on our common stock on an as-converted basis, and (c) is convertible at the option of the holder into shares of our common stock on a 1- for- 35 basis.
At December 31, 2023 and 2022, we have recorded a full valuation allowance against our net deferred tax assets due to uncertainties related to our ability to utilize our deferred tax assets, primarily consisting of certain net operating losses carried forward.
At December 31, 2024 and 2023, we recorded a full valuation allowance against our net deferred tax assets due to uncertainties related to our ability to utilize our deferred tax assets, primarily consisting of certain net operating losses carried forward.
Going Concern and Nasdaq Continued Listing Requirements Compliance Due to our financial performance as of December 31, 2023 and 2022, including net losses of $4.3 million and $10.3 million for the twelve months ended December 31, 2023 and 2022, respectively, and total cash used in operating activities of $2.4 million and $6.7 million for the twelve months ended December 31, 2023 and 2022, respectively, we determined that substantial doubt about our ability to continue as a going concern continues to exist at December 31, 2023.
Going Concern and Nasdaq Continued Listing Requirements Compliance Due to our financial performance as of December 31, 2024 and 2023, including net losses of $1.6 million and $4.3 million for the twelve months ended December 31, 2024 and 2023, respectively, and total cash used in operating activities of $1.3 million and $2.4 million for the twelve months ended December 31, 2024 and 2023, respectively, we determined that substantial doubt about our ability to continue as a going concern continues to exist at December 31, 2024.
These costs will be charged to expense and amortized on a straight-line basis in subsequent periods. The remaining weighted average period over which the unearned compensation is expected to be amortized was approximately 2.7 years years as of December 31, 2023 and 2.8 years as of December 31, 2022.
These costs will be charged to expense and amortized on a straight-line basis in subsequent periods. The remaining weighted average period over which the unearned compensation is expected to be amortized was approximately 1.8 years as of December 31, 2024 and 2.8 years as of December 31, 2023.
NOTE 10. INCOME TAXES We file income tax returns in the U.S. federal jurisdiction, as well as in various state and local jurisdictions. With few exceptions, we are no longer subject to U.S. federal, state, and local, or non-U.S. income tax examinations by tax authorities for years before 2020.
INCOME TAXES We file income tax returns in the U.S. federal jurisdiction, as well as in various state and local jurisdictions. With few exceptions, we are no longer subject to U.S. federal, state, and local, or non-U.S. income tax examinations by tax authorities for years before 2021.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS On January 5, 2023, the Company entered into a securities purchase agreement with Mei Yun (Gina) Huang, a member of the Board of Directors, pursuant to which the Company agreed to issue and sell, in a private placement, 36,828 shares of the Company’s common stock, for a purchase price of $2.72 per share.
January 2023 Transactions with Mei Yun (Gina) Huang On January 5, 2023, the Company entered into a securities purchase agreement with Mei Yun (Gina) Huang, a member of the Board of Directors, pursuant to which the Company agreed to issue and sell, in a private placement, 36,828 shares of the Company’s common stock, for a purchase price of $2.72 per share.
We have the right to prepay any of the scheduled repayments at any time or from time to time without additional penalty or fees.
We had the right to prepay any of the scheduled repayments at any time or from time to time without additional penalty or fees.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Accordingly, we do not adjust trade accounts receivable for the effects of financing, as we expect the period between the transfer of product to the customer and the receipt of payment from the customer to be in line with our standard payment terms.
Accordingly, we do not adjust trade accounts receivable for the effects of financing, as we expect the period between the transfer of product to the customer and the receipt of payment from the customer to be in line with our standard payment terms.
At December 31, 2023 and 2022, we had cash of $2.0 million and $52 thousand, respectively, on deposit with financial institutions located in the United States. Inventories We state inventories at the lower of standard cost (which approximates actual cost determined using the first-in-first-out method) or net realizable value.
At December 31, 2024 and 2023, we had cash of $0.6 million and $2.0 million, respectively, on deposit with financial institutions located in the United States. Inventories We state inventories at the lower of standard cost (which approximates actual cost determined using the first-in-first-out method) or net realizable value.
Department of Defense accounted for 25% of our net trade accounts receivable, when combined with our net trade accounts receivable to shipbuilders for the U.S. Navy, total net accounts receivable related to U.S. Navy sales is 30% of total net accounts receivable. We require substantial amounts of purchased materials from selected vendors.
Department of Defense accounted for 74% of our net trade accounts receivable, when combined with our net trade accounts receivable to shipbuilders for the U.S. Navy, total net accounts receivable related to U.S. Navy sales is 78% of total net accounts receivable. We require substantial amounts of purchased materials from selected vendors.
As of December 31, 2023, the Company had inventories of $4.4 million, net of reserves for excess, obsolete and slow-moving inventories. 38 Table of Contents Auditing management's estimates for excess, obsolete and slow-moving inventories required subjective auditor judgment and evaluation of the reasonableness of significant assumptions used in developing the reserves as detailed above, as well as the inputs and related calculations related to historical sales and on-hand inventories.
As of December 31, 2024, the Company had inventories of $3.3 million, net of reserves for excess, obsolete and slow-moving inventories. 35 Table of Contents Auditing management's estimates for excess, obsolete and slow-moving inventories required subjective auditor judgment and evaluation of the reasonableness of significant assumptions used in developing the reserves as detailed above, as well as the inputs and related calculations related to historical sales and on-hand inventories.
Certain risks and concentrations We have certain customers whose net sales individually represented 10% or more of our total net sales, or whose net trade accounts receivable balance individually represented 10% or more of our total net trade accounts receivable as follows: • In 2023, two customers accounted for 48% of net sales, with sales to our primary distributor for the U.S.
Certain risks and concentrations We have certain customers whose net sales individually represented 10% or more of our total net sales, or whose net trade accounts receivable balance individually represented 10% or more of our total net trade accounts receivable as follows: • In 2024, two customers collectively accounted for 33% of net sales, with sales to our primary distributor for the U.S.
The Letter and Exchange Agreement provide that the Company makes payments to reduce the outstanding obligations under the 2022 Streeterville Note of $1.0 million in cash by January 19, 2024 and exchanges 94,440 shares of common stocks by January 23, 2024 for the remaining amount.
The Letter and Exchange Agreement provided that the Company made payments to reduce the outstanding obligations under the 2022 Streeterville Note of $1.0 million in cash by January 19, 2024 and exchange 94,440 shares of common stocks by January 23, 2024 for the remaining amount.
We review and reassess the fair value hierarchy classifications on a quarterly basis. Changes from one quarter to the next related to the observability of inputs in a fair value measurement may result in a reclassification between fair value hierarchy levels. There were no reclassifications for all periods presented. 52 Table of Contents ENERGY FOCUS, INC.
We review and reassess the fair value hierarchy classifications on a quarterly basis. Changes from one quarter to the next related to the observability of inputs in a fair value measurement may result in a reclassification between fair value hierarchy levels. There were no reclassifications for all periods presented.
Additionally, certain vendors require advance deposits prior to the fulfillment of orders. Deposits paid on unfulfilled orders totaled $0.8 million and $0.6 million at December 31, 2023 and 2022, respectively.
Additionally, certain vendors require advance deposits prior to the fulfillment of orders. Deposits paid on unfulfilled orders totaled $0.4 million and $0.8 million at December 31, 2024 and 2023, respectively.
Our standard payment terms with customers are net 30 days from the date of shipment, and we do not generally offer extended payment terms to our customers, but exceptions are made in some cases for major customers or with particular orders. 50 Table of Contents ENERGY FOCUS, INC.
Our standard payment terms with customers are net 30 days from the date of shipment, and we do not generally offer extended payment terms to our customers, but exceptions are made in some cases for major customers or with particular orders.
Below is the breakout of the Company’s contract assets for such periods: December 31, 2023 December 31, 2022 January 01, 2022 Accounts Receivable $ 1,590 $ 471 $ 1,254 Less: Reserve for Credit Losses/Allowance for Doubtful Accounts (20) (26) (14) Net Accounts Receivable $ 1,570 $ 445 $ 1,240 Activity related to our reserve for credit losses was as follows (in thousands): Allowance for doubtful accounts as of December 31, 2022 $ (26) Cumulative effect of the implementation of ASC 326 (2) Reserve for credit losses as of December 31, 2023 (4) Prior year reclassification of sales returns out of allowance for doubtful accounts 12 Allowance for doubtful accounts as of December 31, 2023 $ (20) Geographic information All of our long-lived fixed assets are located in the United States.
Below is the breakout of the Company’s contract assets for such periods (in thousands): December 31, 2024 December 31, 2023 January 1, 2023 Accounts Receivable $ 819 $ 1,590 $ 471 Less: Reserve for Credit Losses (15) (20) (26) Net Accounts Receivable $ 804 1,570 445 Activity related to our reserve for credit losses was as follows (in thousands): Allowance for credit losses as of January 1, 2023 $ (26) Cumulative effect of the implementation of ASC 326 (2) Reserve for credit losses as of December 31, 2023 (4) Prior year reclassification of sales returns out of allowance for credit losses 12 Allowance for credit losses as of December 31, 2023 $ (20) Reduction of reserve for credit losses as of December 31, 2024 5 Allowance for credit losses as of December 31, 2024 $ (15) Geographic information All our long-lived fixed assets are located in the United States.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA TABLE OF CONTENTS Page Reports of Independent Registered Public Accounting Firm (PCAOB ID 1808) 38 Consolidated Balance Sheets as of December 31, 2023 and 2022 40 Consolidated Statements of Operations for the years ended December 31, 2023 and 2022 42 Consolidated Statements of Comprehensive Loss for the years ended December 31, 2023 and 2022 43 Consolidated Statements of Stockholders’ Equity (Deficit) for the years ended December 31, 2023 and 2022 44 Consolidated Statements of Cash Flows for the years ended December 31, 2023 and 2022 45 Notes to Consolidated Financial Statements 48 37 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Stockholders and Board of Directors Energy Focus, Inc.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA TABLE OF CONTENTS Page Reports of Independent Registered Public Accounting Firm (PCAOB ID 1808) 35 Consolidated Balance Sheets as of December 31, 2024 and 2023 37 Consolidated Statements of Operations for the years ended December 31, 2024 and 2023 39 Consolidated Statements of Comprehensive Loss for the years ended December 31, 2024 and 2023 40 Consolidated Statements of Stockholders’ Equity (Deficit) for the years ended December 31, 2024 and 2023 41 Consolidated Statements of Cash Flows for the years ended December 31, 2024 and 2023 42 Notes to Consolidated Financial Statements 44 34 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Stockholders and Board of Directors Energy Focus, Inc.
(the "Company") as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive loss, stockholders' equity (deficit), and cash flows for the years then ended, and the related notes and Schedule II (collectively referred to as the "consolidated financial statements").
(the “Company”) as of December 31, 2024 and 2023, the related consolidated statements of operations, comprehensive loss, stockholders’ equity (deficit), and cash flows for the years then ended, and the related notes and Schedule II (collectively referred to as the “consolidated financial statements”).
PROPERTY AND EQUIPMENT Property and equipment are stated at cost and depreciated using the straight-line method over the estimated useful lives of the related assets and consist of the following (in thousands): At December 31, 2023 2022 Equipment (useful life 3 - 15 years) $ 1,061 $ 1,061 Tooling (useful life 2 - 5 years) 190 190 Vehicles (useful life 5 years) 41 — Leasehold improvements (the shorter of useful life or lease life) 141 141 Construction in progress 28 — Property and equipment at cost 1,461 1,392 Less: accumulated depreciation (1,349) (1,316) Property and equipment, net $ 112 $ 76 Depreciation expense was $33 thousand and $159 thousand for the years ended December 31, 2023 and 2022, respectively.
PROPERTY AND EQUIPMENT Property and equipment are stated at cost and depreciated using the straight-line method over the estimated useful lives of the related assets and consist of the following (in thousands): At December 31, 2024 2023 Equipment (useful life 3 - 15 years) $ 490 $ 1,061 Tooling (useful life 2 - 5 years) 171 190 Vehicles (useful life 5 years) 41 41 Leasehold improvements (the shorter of useful life or lease life) 124 141 Construction in progress — 28 Property and equipment at cost 826 1,461 Less: accumulated depreciation (736) (1,349) Property and equipment, net $ 90 $ 112 Depreciation expense was $37 thousand and $33 thousand for the years ended December 31, 2024 and 2023, respectively.
In any such vote, each share of Series A Preferred Stock shall entitle its holder to a number of votes equal to 1.582% of the number of shares of common stock into which such share of Series A Preferred Stock is convertible.
In any such vote, each share of Series A Preferred Stock shall entitle its holder to a number of votes equal to 1.582% of the number of shares of common stock into which such share of Series A Preferred Stock is convertible. 57 Table of Contents ENERGY FOCUS, INC.
STOCKHOLDERS’ EQUITY Common Stocks 1-for-7 Reverse Stock Split At the Company’s annual meeting of stockholders held on June 15, 2023, the Company’s stockholders approved a form of the certificate of amendment (“Certificate of Amendment”) to the Certificate of Incorporation and authorized our board of directors to amend the Certificate of Incorporation to effect a reverse stock split of the outstanding shares of the Company’s common stock at a ratio ranging from any whole number of at least 1-for-2 and up to 1-for-10, with the exact ratio within the foregoing range to be determined by the board of directors in its sole discretion.
STOCKHOLDERS’ EQUITY Common Stock 1-for-7 Reverse Stock Split At the Company’s annual meeting of stockholders held on June 15, 2023, the Company’s stockholders approved a reverse stock split of the outstanding shares of the Company’s common stock at a ratio ranging from any whole number of at least 1-for-2 and up to 1-for-10, with the exact ratio within the foregoing range to be determined by the board of directors in its sole discretion.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS FOR THE YEARS ENDED DECEMBER 31, (amounts in thousands) 2023 2022 Net loss $ (4,293) $ (10,279) Other comprehensive loss: Foreign currency translation adjustments — — Comprehensive loss $ (4,293) $ (10,279) The accompanying notes are an integral part of these consolidated financial statements. 43 Table of Contents ENERGY FOCUS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS FOR THE YEARS ENDED DECEMBER 31, (amounts in thousands) 2024 2023 Net loss $ (1,582) $ (4,293) Other comprehensive loss: Foreign currency translation adjustments — — Comprehensive loss $ (1,582) $ (4,293) The accompanying notes are an integral part of these consolidated financial statements. 40 Table of Contents ENERGY FOCUS, INC.
The following table summarizes stock-based compensation expense and the impact it had on operations for the periods presented (in thousands): For the year ended December 31, 2023 2022 Cost of sales $ 2 $ 2 Product development — 15 Selling, general, and administrative 42 100 Total stock-based compensation $ 44 $ 117 At December 31, 2023 and 2022, we had unearned stock compensation expense of $64 thousand and $128 thousand, respectively.
The following table summarizes stock-based compensation expense and the impact it had on operations for the periods presented (in thousands): For the year ended December 31, 2024 2023 Cost of sales $ — $ 2 Selling, general, and administrative 4 42 Total stock-based compensation $ 4 $ 44 At December 31, 2024 and 2023, we had unearned stock compensation expense of $2 thousand and $64 thousand, respectively.
Federal — — Provision for (benefit from) income taxes $ 3 $ 4 The principal items accounting for the difference between income taxes computed at the U.S. statutory rate and the (benefit from) provision for income taxes reflected in our Consolidated Statements of Operations are as follows: For the year ended December 31, 2023 2022 U.S. statutory rate 21.0 % 21.0 % State taxes (net of federal tax benefit) 4.5 1.3 Valuation allowance (29.5) (18.2) Other 4.1 (4.1) 0.0 % 0.0 % The tax effects of temporary differences that give rise to significant portions of the deferred tax assets are as follows (in thousands): At December 31, 2023 2022 Accrued expenses and other reserves $ 1,195 $ 1,458 Right-of-use-asset (197) (294) Lease liabilities 224 306 Tax credits, deferred R&D, and other 470 438 Net operating loss 20,935 18,856 Valuation allowance (22,627) (20,764) Net deferred tax assets $ — $ — In 2023, our effective tax rate was lower than the statutory rate due to an increase in the valuation allowance as a result of the $6.3 million additional federal net operating loss we recognized for the year.
Federal — — Provision for income taxes $ 2 $ 3 The principal items accounting for the difference between income taxes computed at the U.S. statutory rate and the (benefit from) provision for income taxes reflected in our Consolidated Statements of Operations are as follows: For the year ended December 31, 2024 2023 U.S. statutory rate 21.0 % 21.0 % State taxes (net of federal tax benefit) 4.5 4.5 Valuation allowance 18.4 (29.5) Federal NOLs write off (11.9) (0.1) Federal temporary (12.1) 0.2 State NOLs write off (19.4) 7.6 State temporary (0.6) (3.7) 0.0 % 0.0 % The tax effects of temporary differences that give rise to significant portions of the deferred tax assets are as follows (in thousands): At December 31, 2024 2023 Accrued expenses and other reserves $ 684 $ 1,195 Right-of-use-asset (82) (197) Lease liabilities 86 224 Tax credits, deferred R&D, and other 579 470 Net operating loss 20,739 20,935 Valuation allowance (22,006) (22,627) Net deferred tax assets $ — $ — In 2024 and 2023, our effective tax rate was lower than the statutory rate due to an increase in the valuation allowance as a result of the $3.4 million and $6.3 million additional federal net operating loss we recognized for the year.
Inventory Facility with Crossroads The first arrangement is an inventory financing facility (the “Inventory Facility”) pursuant to the Loan and Security Agreement (the “Inventory Loan Agreement”) between the Company and Crossroads Financial Group, LLC, a North Carolina limited liability company (“Crossroads”).
Inventory Facility with Crossroads The first arrangement is an inventory financing facility (the “Inventory Facility”) pursuant to the Loan and Security Agreement (the “Inventory Loan Agreement”) between the Company and Crossroads Financial Group, LLC, a North Carolina limited liability company (“Crossroads”). 53 Table of Contents ENERGY FOCUS, INC.
We have certain vendors who individually represented 10% or more of our total expenditures, or whose net trade accounts payable balance individually represented 10% or more of our total net trade accounts payable, as follows: • One offshore supplier, a related party, accounted for approximately 28.0% of our total expenditures for the twelve months ended December 31, 2023.
We have certain vendors who individually represented 10% or more of our total expenditures, or whose net trade accounts payable balance individually represented 10% or more of our total net trade accounts payable, as follows: • One offshore supplier accounted for approximately 36% of our total expenditures for the twelve months ended December 31, 2024.
The following table provides a breakdown of product net sales for the years indicated (in thousands): Year ended December 31, 2023 2022 Commercial products $ 1,593 $ 3,746 MMM products 4,124 2,222 Total net sales $ 5,717 $ 5,968 A geographic summary of net sales is as follows (in thousands): For the year ended December 31, 2023 2022 United States $ 5,690 $ 5,815 International 27 153 Total net sales $ 5,717 $ 5,968 At December 31, 2023 and 2022, approximately 100% of our long-lived assets, which consist of property and equipment, were located in the United States.
The following table provides a breakdown of product net sales for the years indicated (in thousands): Year ended December 31, 2024 2023 Commercial products $ 1,390 $ 1,593 MMM products 3,470 4,124 Total net sales $ 4,860 $ 5,717 A geographic summary of net sales is as follows (in thousands): For the year ended December 31, 2024 2023 United States $ 4,848 $ 5,690 International 12 27 Total net sales $ 4,860 $ 5,717 At December 31, 2024 and 2023, approximately 100% of our long-lived assets, which consist of property and equipment, were located in the United States.
If circumstances change, and the financial condition of our customers is adversely affected and they are unable to meet their financial obligations, we may need to take additional allowances, which would result in an increase in our operating expense.
If circumstances change, and the financial condition of our customers is adversely affected and they are unable to meet their financial obligations, we may need to take additional allowances, which would result in an increase in our operating expenses. We do not generally require collateral from our customers.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) FOR THE YEARS ENDED DECEMBER 31, (amounts in thousands) 2023 2022 Net increase (decrease) in cash 1,978 (2,630) Cash, beginning of year 52 2,682 Cash, end of year $ 2,030 $ 52 Supplemental information: Cash paid in year for interest $ 380 $ 364 Cash paid in year for income taxes $ — $ 1 Non-cash investing and financing activities: Debt-to-equity exchange transactions $ 1,716 $ 304 The accompanying notes are an integral part of these consolidated financial statements. 47 Table of Contents ENERGY FOCUS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) FOR THE YEARS ENDED DECEMBER 31, (amounts in thousands) 2024 2023 Net (decrease) increase in cash (1,465) 1,978 Cash, beginning of year 2,030 52 Cash, end of year $ 565 $ 2,030 Supplemental information: Cash paid in year for interest $ 5 $ 380 Non-cash investing and financing activities: Debt-to-equity exchange transactions $ 591 $ 1,716 The accompanying notes are an integral part of these consolidated financial statements. 43 Table of Contents ENERGY FOCUS, INC.
We continuously review the assumptions related to the adequacy of our warranty reserve, including product failure rates, and make adjustments to the existing warranty liability when there are changes to these estimates or the underlying replacement product costs, or the warranty period expires. 54 Table of Contents ENERGY FOCUS, INC.
We continuously review the assumptions related to the adequacy of our warranty reserve, including product failure rates, and adjust to the existing warranty liability when there are changes to these estimates or the underlying replacement product costs, or the warranty period expires.
The allowance for credit losses is reviewed and assessed for adequacy on a quarterly basis. We take into consideration (1) any circumstances of which we are aware of a customer's inability to meet its financial obligations and (2) our judgments as to prevailing economic conditions in the industry and their impact on our customers.
We take into consideration (1) any circumstances of which we are aware of a customer's inability to meet its financial obligations and (2) our judgments as to prevailing economic conditions in the industry and their impact on our customers.
We then assess the likelihood of the deferred tax assets being recovered from future taxable income and, to the extent we believe it is more likely than not that the deferred tax assets will not be recovered, or is unknown, we establish a valuation allowance.
We then assess the likelihood of the deferred tax assets being recovered from future taxable income and, to the 46 Table of Contents ENERGY FOCUS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS extent we believe it is more likely than not that the deferred tax assets will not be recovered, or is unknown, we establish a valuation allowance.
As a result of the Tax Cuts and Job Act of 2017 (the “Tax Act”), NOLs generated in tax years beginning after December 31, 2017 can only offset 80% of taxable income. These NOLs can no longer be carried back, but they can be carried forward indefinitely.
As a result of the Tax Cuts and Job Act of 2017 (the “Tax Act”), NOLs generated in tax years beginning after December 31, 2017 60 Table of Contents ENERGY FOCUS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS can only offset 80% of taxable income. These NOLs can no longer be carried back, but they can be carried forward indefinitely.
Our practice is to recognize interest and penalties related to income tax matters in income tax expense when and if they become applicable. At December 31, 2023 and 2022, respectively, there were no accrued interest and penalties related to uncertain tax positions. 66 Table of Contents ENERGY FOCUS, INC.
Our practice is to recognize interest and penalties related to income tax matters in income tax expense when and if they become applicable. At December 31, 2024 and 2023, respectively, there were no accrued interest and penalties related to uncertain tax positions.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Future minimum lease payments required under operating and finance leases for each of the years 2024 through 2027 are as follows (in thousands): Operating Leases 2024 379 2025 385 2026 390 2027 197 Total future undiscounted lease payments 1,351 Less imputed interest (330) Total lease obligations $ 1,021 Supplemental cash flow information related to leases was as follows (in thousands): Years ended December 31, 2023 2022 Supplemental Cash Flow Information: Cash paid, net, for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 383 $ 423 Financing cash flows from finance leases $ — $ 1 NOTE 4.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Future minimum lease payments required under operating and finance leases for each of the years 2025 through 2027 are as follows (in thousands): Operating Leases 2025 182 2026 186 2027 94 Total future undiscounted lease payments 462 Less imputed interest (69) Total lease obligations $ 393 Supplemental cash flow information related to leases was as follows (in thousands): Years ended December 31, 2024 2023 Supplemental Cash Flow Information: Cash paid, net, for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 343 $ 383 NOTE 4.
Since we believe it is more likely than not that the benefit from NOLs will not be realized, we have provided a full valuation allowance against our deferred tax assets at December 31, 2023 and 2022, respectively. We had no net deferred tax liabilities at December 31, 2023 or 2022, respectively. 67 Table of Contents ENERGY FOCUS, INC.
Since we believe it is more likely than not that the benefit from NOLs will not be realized, we have provided a full valuation allowance against our deferred tax assets at December 31, 2024 and 2023, respectively. We had no net deferred tax liabilities at December 31, 2024 and 2023. NOTE 11.
We recognize revenue at the point in time when we transfer the promised products to the customer and the customer obtains control over the products. Distributors’ obligations to us are not contingent upon the resale of our products.
Revenue is measured at the amount of consideration we expect to receive in exchange for the transferred products. We recognize revenue at the point in time when we transfer the promised products to the customer and the customer obtains control over the products. Distributors’ obligations to us are not contingent upon the resale of our products.
The guidance applies to all entities subject to income taxes and is effective for annual periods beginning after December 15, 2024. The guidance will be applied on a prospective basis with the option to apply the standard retrospectively. Early adoption is permitted. The Company plans to adopt this standard on January 1, 2025.
The guidance applies to all entities subject to income taxes and is effective for annual periods beginning after December 15, 2024. The guidance will be applied on a prospective basis with the option to apply the standard retrospectively. Early adoption is permitted. The Company plans to 49 Table of Contents ENERGY FOCUS, INC.
At December 31, 2023, we had federal and state net operating loss carry-forwards (“NOLs”) of approximately $138.7 million for federal income tax purposes ($48.0 million for state and local income tax purposes). However, due to changes in our capital structure, approximately $84.3 million of the $138.7 million is available after the application of IRC Section 382 limitations.
At December 31, 2024, we had federal and state net operating loss carry-forwards (“NOLs”) of approximately $141.1 million for federal income tax purposes ($39.1 million for state and local income tax purposes). However, due to changes in our capital structure, approximately $86.8 million of the $141.1 million is available after the application of IRC Section 382 limitations.
Navy accounting for approximately 35% and sales to a shipbuilder for the U.S. Navy accounting for approximately 13%. In 2022, two customers accounted for 27% of net sales, with sales to our primary distributor for the U.S.
Navy accounting for approximately 16% and sales to a shipbuilder for the U.S. Navy accounting for approximately 17%. In 2023, two customers collectively accounted for 48% of net sales, with sales to our primary distributor for the U.S. Navy accounting for approximately 35% and sales to a shipbuilder for the U.S.
Purchase Transactions The Company has a purchase agreement for TLED products and spare parts with Sander Electronics, Inc., a shareholder of the Company. Purchases from Sander Electronics, Inc. for the year ended December 31, 2023 totaled $2.1 million. Accounts payable to Sander Electronics, Inc. amounted to $2.1 million as of December 31, 2023.
NOTE 12. RELATED PARTY TRANSACTIONS Purchase Transactions The Company has a purchase agreement for TLED products and spare parts with Sander Electronics, Inc., a shareholder of the Company. Purchases from Sander Electronics, Inc. for the year ended December 31, 2023 totaled $2.1 million, which remained unpaid as of December 31, 2023.
They consist of costs for the placement of our advertisements in various media and the costs of demos provided to potential distributors of our products. Advertising expenses were $6 thousand and $0.3 million for the years ended December 31, 2023 and 2022, respectively.
Advertising expenses Advertising expenses are charged to operations in the period incurred. They consist of costs for the placement of our advertisements in various media and the costs of demos provided to potential distributors of our products. Advertising expenses were $6 thousand for each of the years ended December 31, 2024 and 2023, respectively.
PREPAID AND OTHER CURRENT ASSETS Prepaid and other current assets consisted of the following (in thousands): At December 31, 2023 2022 Prepaid insurance $ 32 $ 63 Prepaid expenses 81 130 Prepaid rent 41 39 Other 2 — Total prepaid and other current assets $ 156 232 NOTE 7.
PREPAID AND OTHER CURRENT ASSETS Prepaid and other current assets consisted of the following (in thousands): At December 31, 2024 2023 Prepaid insurance $ 36 $ 32 Prepaid expenses 77 81 Prepaid rent 44 41 Other — 2 Total prepaid and other current assets $ 157 156 NOTE 7.
Components of the operating lease costs recognized in net loss were as follows (in thousands): For the years ended December 31, 2023 2022 Sub-lease income $ — $ (90) Lease cost 461 501 Total lease cost, net $ 461 $ 411 Supplemental Consolidated Balance Sheet information related to the Company’s operating leases are as follows (in thousands): At December 31, 2023 2022 Operating Leases Operating lease right-of-use assets $ 899 $ 1,180 Operating lease liabilities 1,021 1,227 56 Table of Contents ENERGY FOCUS, INC.
Components of the operating lease costs recognized in net loss were as follows (in thousands): For the years ended December 31, 2024 2023 Lease cost $ 303 $ 461 Supplemental Consolidated Balance Sheet information related to the Company’s operating leases is as follows (in thousands): At December 31, 2024 2023 Operating Leases Operating lease right-of-use assets $ 377 $ 899 Operating lease liabilities 393 1,021 51 Table of Contents ENERGY FOCUS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table shows the components of the provision for income taxes (in thousands): For the year ended December 31, 2023 2022 Current: State $ 3 $ 4 Deferred: U.S.
The following table shows the components of the provision for income taxes (in thousands): For the year ended December 31, 2024 2023 Current: State $ 2 $ 3 Deferred: U.S.
SUBSEQUENT EVENTS Early Payoff 2022 Streeterville Note On January 18, 2024, the Company and Streeterville entered into a payoff letter (the “Letter”) and exchange agreement (“Exchange Agreement”) to pay off the 2022 Streeterville Note early.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS O n January 18, 2024, the Company and Streeterville entered into a payoff letter (the “Letter”) and exchange agreement (“Exchange Agreement”) to pay off the 2022 Streeterville Note early.
We are also evaluating adjacent technologies including Gallium Nitride (“GaN”) based power supplies and additional market opportunities for energy solution products that support sustainability in our existing channels. NOTE 2.
We are also evaluating adjacent technologies including Gallium Nitride (“GaN”) based power supplies and additional market opportunities for energy solution products that support sustainability in our existing channels. Additionally, we have expanded product offerings into both Maritime lighting and Energy Storage Solutions ( “ESS”). NOTE 2.
These elements include the expected life of the option, the expected stock-price volatility, and expected forfeiture rates. Compensation expense is generally amortized on a straight-line basis over the requisite service period, which is generally the vesting period. See Note 9, “Stockholders’ Equity,” for additional information. Advertising expenses Advertising expenses are charged to operations in the period incurred.
These elements include the 48 Table of Contents ENERGY FOCUS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS expected life of the option, the expected stock-price volatility, and expected forfeiture rates. Compensation expense is generally amortized on a straight-line basis over the requisite service period, which is generally the vesting period. See Note 9, “Stockholders’ Equity,” for additional information.
INVENTORIES Inventories consist of the following (in thousands): At December 31, 2023 2022 Raw materials $ 2,189 $ 3,347 Finished goods 4,803 4,656 Reserve for excess, obsolete, and slow-moving inventories (2,553) (2,527) Inventories, net $ 4,439 $ 5,476 The following is a roll-forward of the reserves for excess, obsolete, and slow-moving inventories (in thousands): At December 31, 2023 2022 Beginning balance $ (2,527) $ (3,050) Accrual (404) (312) Reduction due to sold inventory 378 323 Write-off for disposed inventory — 512 Reserves for excess, obsolete, and slow-moving inventories $ (2,553) $ (2,527) . 57 Table of Contents ENERGY FOCUS, INC.
INVENTORIES Inventories consist of the following (in thousands): At December 31, 2024 2023 Raw materials $ 3,489 $ 2,189 Finished goods 2,585 4,803 Reduction due to permanent markdowns (2,464) — Reserves for excess, obsolete, and slow-moving inventories (347) (2,553) Inventories, net $ 3,263 $ 4,439 The following is a roll-forward of the reserves for excess, obsolete, and slow-moving inventories (in thousands): At December 31, 2024 2023 Beginning balance $ (2,553) $ (2,527) Accrual (347) (404) Reduction due to inventory sold 89 378 Reduction due to permanent markdowns 2,464 — Reserves for excess, obsolete, and slow-moving inventories $ (347) $ (2,553) 52 Table of Contents ENERGY FOCUS, INC.
Additionally, global supply chain and logistics constraints are impacting our inventory purchasing strategy, as we seek to manage both shortages of available components and longer lead times in obtaining components while balancing the development and implementation of an inventory reduction plan.
Additionally, global supply chain and logistics constraints are impacting our inventory purchasing strategy, as we seek to manage both shortages of available components and longer lead times in obtaining components while pursuing cost-saving measures to enhance profitability.
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, (amounts in thousands except share data) 2023 2022 ASSETS Current assets: Cash $ 2,030 $ 52 Trade accounts receivable, less allowances of $20 and $26, respectively 1,570 445 Trade accounts receivable - related party 202 — Inventories, net 4,439 5,476 Prepayments to vendors 792 592 Prepaid and other current assets 156 232 Receivable for claimed Employee Retention Tax Credit — 445 Total current assets 9,189 7,242 Property and equipment, net 112 76 Operating lease, right-of-use asset 899 1,180 Total assets $ 10,200 $ 8,498 LIABILITIES Current liabilities: Accounts payable $ 1,624 $ 2,204 Accounts payable - related party 2,146 — Accrued liabilities 110 145 Accrued legal and professional fees 64 — Accrued payroll and related benefits 199 261 Accrued sales commissions 62 76 Accrued warranty reserve 150 183 Operating lease liabilities 223 198 Promissory notes payable, net of discounts and loan origination fees 1,323 2,618 Advanced capital contribution 450 — Related party promissory notes payable — 814 Credit line borrowings, net of loan origination fees — 1,447 Total current liabilities 6,351 7,946 (continued on the following page) The accompanying notes are an integral part of these consolidated financial statements. 40 Table of Contents ENERGY FOCUS, INC.
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, (amounts in thousands except share data) 2024 2023 ASSETS Current assets: Cash $ 565 $ 2,030 Trade accounts receivable, less allowances of $15 and $20, respectively 804 1,570 Trade accounts receivable - related party — 202 Inventories, net 3,263 4,439 Prepayments to vendors 356 792 Prepaid and other current assets 157 156 Total current assets 5,145 9,189 Property and equipment, net 90 112 Operating lease, right-of-use asset 377 899 Total assets $ 5,612 $ 10,200 LIABILITIES Current liabilities: Accounts payable $ 970 $ 1,624 Accounts payable - related party 909 2,146 Accrued liabilities 90 110 Accrued legal and professional fees 54 64 Accrued payroll and related benefits 148 199 Accrued sales commissions 15 62 Accrued warranty reserve 118 150 Operating lease liabilities 139 223 Promissory notes payable, net of discounts and loan origination fees — 1,323 Advanced capital contribution — 450 Total current liabilities 2,443 6,351 (continued on the following page) The accompanying notes are an integral part of these consolidated financial statements. 37 Table of Contents ENERGY FOCUS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The options outstanding at December 31, 2023 have been segregated into ranges for additional disclosure as follows: OPTIONS OUTSTANDING OPTIONS EXERCISABLE Range of Exercise Prices Number of Shares Outstanding Weighted Average Remaining Contractual Life (in years) Weighted Average Exercise Price Number of Shares Exercisable Weighted Average Remaining Contractual Life (in years) Weighted Average Exercise Price $3.04 — $4.14 7,142 9.3 $ 3.04 — — $ — $4.15 — $5.73 21,428 8.7 5.25 6,702 8.7 5.25 $5.74 — $13.48 882 7.2 8.34 453 6.7 9.26 $13.49 — $27.55 661 5.8 16.80 661 5.8 16.80 $27.56 — $59.78 463 7.0 39.91 252 6.8 40.68 30,576 8.7 $ 5.60 8,068 8.3 $ 7.53 Restricted Stock Units In 2015, we began issuing restricted stock units to certain employees and non-employee Directors under the 2014 Plan with vesting periods ranging from one to four years from the grant date.
The options outstanding at December 31, 2024 have been segregated into ranges for additional disclosure as follows: OPTIONS OUTSTANDING OPTIONS EXERCISABLE Range of Exercise Prices Number of Shares Outstanding Weighted Average Remaining Contractual Life (in years) Weighted Average Exercise Price Number of Shares Exercisable Weighted Average Remaining Contractual Life (in years) Weighted Average Exercise Price $3.04 — $4.14 7,142 8.3 $ 3.04 2,976 8.3 $ 3.04 $4.15 — $5.73 21,428 7.7 5.25 12,062 7.7 5.25 $5.74 — $13.48 882 6.2 8.34 680 5.9 8.97 $13.49 — $27.55 661 4.8 16.80 661 4.8 16.80 $27.56 — $48.79 453 6.1 39.61 356 6.1 39.97 30,566 7.7 $ 5.58 16,735 7.6 $ 6.20 Restricted Stock Units In 2020, we began issuing restricted stock units to certain employees and non-employee Directors under the 2020 Plan with vesting periods ranging from one to four years.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS increase the number of shares of preferred stock designated as Series A Preferred Stock to 3,300,000 (the Original Series A Certificate of Designation, as so amended, the “Series A Certificate of Designation”).
The Original Series A Certificate of Designation was also amended on January 15, 2020, to increase the number of shares of preferred stock designated as Series A Preferred Stock to 3,300,000 (the Original Series A Certificate of Designation, as so amended, the “Series A Certificate of Designation”).
Management bases its estimates on historical experience and various other assumptions believed to be reasonable. Although these estimates are based on management’s best knowledge of current events and actions that may impact us in the future, actual results may vary from the estimates.
Although these estimates are based on management’s best knowledge of current events and actions that may impact us in the future, actual results may vary from the estimates.
The guidance is applied retrospectively to all periods presented in financial statements, unless it is impracticable, and is effective for fiscal years beginning after December 15, 2023, and for interim periods beginning after December 15, 2024. Early adoption is permitted. This standard will only impact disclosures and will be adopted by the Company on January 1, 2024.
The guidance is applied retrospectively to all periods presented in financial statements, unless it is impracticable, and is effective for fiscal years beginning after December 15, 2023, and for interim periods beginning after December 15, 2024. Early adoption is permitted. The Company adopted ASU 2023-07 in 2024. Refer to Note 11 for related disclosures.
At December 31, 2023, two offshore suppliers accounted for approximately 16% and 57% (the latter a related party, see Note 13 “Related Party Transactions”) of our trade accounts payable balance. • One offshore supplier accounted for approximately 16% of our total expenditures for the twelve months ended December 31, 2022.
At December 31, 2024, two offshore suppliers collectively accounted for approximately 36% and 54% (a related party, See Note 12, “Related Party Transactions”) of our trade accounts payable balance, respectively. • No offshore supplier accounted for more than 10% of our total expenditures for the twelve months ended December 31, 2023.
On January 15, 2020 with prior stockholder approval, the Company amended the Certificate of Incorporation to increase the number of authorized shares of preferred stock to 5,000,000. The Original Series A Certificate of Designation was also amended on January 15, 2020, to 63 Table of Contents ENERGY FOCUS, INC.
On January 15, 2020 with prior stockholder approval, the Company amended the Certificate of Incorporation to increase the number of authorized shares of preferred stock to 5,000,000.
Estimates include, but are not limited to, the establishment of reserves for accounts receivable, sales returns, inventory obsolescence and warranty claims, the useful lives of property and equipment, valuation allowance for net deferred taxes, and stock-based compensation.
Estimates include, but are not limited to, the expected credit loss provision, inventory obsolescence and warranty claims, the determination of the useful lives of property and equipment, valuation of long-lived assets, allowance for deferred tax assets, sales returns and stock-based compensation.
We provide for costs related to these matters when a loss is probable and the amount can be reasonably estimated. The effect of the outcome of these matters on our future results of operations and liquidity cannot be predicted because any such effect depends on future results of operations and the amount or timing of the resolution of such matters.
The effect of the outcome of these matters on our future results of operations and liquidity cannot be predicted because any such effect depends on future results of operations and the amount or timing of the resolution of such matters.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Private Placements The Company entered the securities purchase agreements with certain investors and issued 2,870,964 (including debt-to-equity exchange noted in Note 7, “Debt”) and 384,615 shares of common stock during the years ended December 31, 2023 and 2022, respectively.
The common stock began trading on Nasdaq on a split-adjusted basis at the opening of trading on June 19, 2023. Private Placements The Company entered the securities purchase agreements with certain investors and issued 912,050 and 2,870,964 shares (including debt-to-equity exchange noted in Note 7, “Debt”) of common stock during the years ended December 31, 2024 and 2023, respectively.
The asset would be considered impaired when the future net undiscounted cash flows generated by the asset are less than its carrying value.
The asset would be considered impaired 47 Table of Contents ENERGY FOCUS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS when the future net undiscounted cash flows generated by the asset are less than its carrying value.
Stock Options The fair value of each stock option is estimated on the date of grant using the Black-Scholes option pricing model. Estimates utilized in the calculation include the expected life of the option, risk-free interest rate, and expected volatility, and are further comparatively detailed as follows: 64 Table of Contents ENERGY FOCUS, INC.
Estimates utilized in the calculation include the expected life of the option, risk-free interest rate, and expected volatility, and are further comparatively detailed as follows: 58 Table of Contents ENERGY FOCUS, INC.
If not utilized, the NOLs generated prior to December 31, 2017 of $0.9 million will begin to expire in 2024 for federal purposes and have begun to expire for state and local purposes.
The $3.4 million and $6.3 million in federal net operating losses generated in 2024 and 2023 will be subject to the new limitations under the Tax Act. If not utilized, the NOLs generated prior to December 31, 2017 of $1.0 million will begin to expire in 2025 for federal purposes and have begun to expire for state and local purposes.

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