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What changed in ENERGY FOCUS, INC/DE's 10-K — 2024 vs 2025

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Paragraph-level year-over-year comparison of ENERGY FOCUS, INC/DE's 2024 and 2025 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 2025 report.

+366 added−355 removedSource: 10-K (2026-03-24) vs 10-K (2025-03-25)

Top changes in ENERGY FOCUS, INC/DE's 2025 10-K

366 paragraphs added · 355 removed · 249 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

35 edited+14 added−11 removed30 unchanged
Biggest changeIn 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.
Biggest changeIn addition, although not legally required to do so, we strive to obtain certification for substantially all our products. In the United States, we seek certification on substantially all of our products from UL Solutions (UL®), Intertek Testing Services (“ETL®”), or DesignLights Consortium (“DLC™”).
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.
The laws of some foreign countries in which we manufacture, sell or may sell 8 Table of Contents our products do not protect proprietary rights to products to the same extent as the laws of the United States. Please refer to Note 9, “Commitments and Contingencies,” of this Annual Report on Form 10-K, for additional information.
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.
Business Segments We currently operate in a single business segment that includes the marketing and sale of commercial and MMM lighting products and controls. Please refer to Note 12, “Product and Geographic Information,” and Note 13, “Segment Information,” included in Item 8, “Financial Statements and Supplementary Data,” of this Annual Report on Form 10-K, for additional information.
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.
Product Development Product development remains a central focus and a key differentiator in delivering industry-leading LED lighting solutions, GaN Power Supplies, and MMM lighting solutions. Gross product development expenses for the years ended December 31, 2025 and 2024 were $0.4 million and $0.5 million, respectively.
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.
New products: • Energy-saving GaN power supplies for efficient power delivery; and • ESS products designed for AI data centers Our products outperform traditional lighting and power solutions, offering financial savings, reduced carbon emissions, and improved occupant health.
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.
Human Capital As of December 31, 2025, we had 8 full-time employees and 4 part-time employees, with 7 based in the United States and 5 in Taiwan. We had 5 temporary contractors as of December 31, 2025. None of our employees or contractors are subject to collective bargaining agreements and we consider our relationship with our employees to be good.
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.
In 2024, two customers accounted for 33% of net sales, with sales to a distributor for the U.S. Navy accounting for approximately 16% and a shipbuilder for the U.S. Navy accounting for approximately 17%.
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).
Sales and Marketing Our company is dedicated to advancing innovative technologies and high-performance solutions across multiple sectors, including LED lighting, ESS, GaN power supplies, and AI Data Center UPS.
Navy ships, military sales have formed a substantial portion of our revenue. We continuously enhance our MMM product designs to reduce costs while maintaining performance standards. Although military sales are affected by fluctuating government funding, our strong presence in this market positions us for future growth. Simultaneously, we are committed to expanding our commercial market share, which holds vast potential.
Navy ships, military sales have formed a substantial portion of our revenue. We continuously enhance our MMM product designs to reduce costs while maintaining performance standards. Although military sales are affected by fluctuating government funding, our strong presence in this market positions us for future growth.
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.
Aggregate gross proceeds to the Company with respect to the March 2025 Private Placement were approximately $200 thousand, excluding the offering expenses paid by the Company.
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.
Aggregate gross proceeds to the Company with respect to the June 2025 Private Placement were approximately $200 thousand, excluding the offering expenses paid by the Company.
At December 31, 2023, two offshore suppliers accounted for approximately 16% and 57% (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.
At December 31, 2024, two suppliers accounted for approximately 32% and 48% (a related party, See Note 14, “Related Party Transactions” of this Annual Report on Form 10-K, for additional information) of our trade accounts payable balance, respectively.
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”).
The March 2025 Placement closed on March 31, 2025. • On June 19, 2025, Energy Focus, Inc. entered into certain securities purchase agreements with certain accredited investors, pursuant to which the Company agreed to issue and sell in a private placement an aggregate of 110,497 shares of the Company’s common stock, par value $0.0001 per share, for a purchase price per share of $1.81 (the “June 2025 Private Placement”).
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.
In certain cases, we rely on single-source suppliers for specific components or finished goods. We continuously optimize our global supply chain to meet client expectations in quality and volume while controlling costs and achieving target gross margins. Our approach includes evaluating opportunities for additional outsourcing or increased insourcing when it enhances cost efficiency, quality, or performance.
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.
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.
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.
In 2026, we plan to pursue expansion into new markets and industries to diversify our portfolio and drive growth: • ESS Business Opportunity: We intend to explore energy storage solutions that could complement our existing product lines and support sustainability efforts. • AI Data Center UPS Development: We aim to enter the AI data center market through development of advanced UPS systems tailored to meet the high-demand energy needs of AI-driven data centers. • Global Market Expansion: We are evaluating potential opportunities in the Taiwan and Japan markets, where we may leverage our expertise to respond to demand in these regions.
Furthermore, our high bay and low bay lighting solutions cater to large-scale facilities such as warehouses and retail stores, offering energy and maintenance cost savings. • Energy Storage Systems (ESS) 6 Table of Contents We are expanding into the ESS market, offering reliable energy storage solutions for both commercial and industrial applications.
Furthermore, our high bay and low bay lighting solutions cater to large-scale facilities such as warehouses and retail stores, offering energy and maintenance cost savings. • ESS We are expanding into the ESS market, offering reliable energy storage solutions for both commercial and industrial applications. Our ESS products support grid stability, renewable energy integration, and backup power needs.
Principal competitors in our markets include large lamp manufacturers and lighting fixture companies based in the United States, as well as TLED and LED replacement fixture manufacturers mostly based in Asia, whose financial resources may substantially exceed ours and whose cost structure as a percentage of sales may be well below ours.
Our ability to compete depends substantially upon the superior performance, incremental benefits and lower total cost of ownership of our products. 7 Table of Contents Principal competitors in our markets include large lamp manufacturers and lighting fixture companies based in the United States, as well as TLED and LED replacement fixture manufacturers mostly based in Asia, whose financial resources may substantially exceed ours and whose cost structure as a percentage of sales may be well below ours.
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.
We compete with LED systems produced by large lighting companies such as Signify Lighting, Osram Sylvania and GE Lighting, as well as smaller manufacturers or distributors such as LED Smart, Energy Source Group, Orion Energy Systems, and Keystone Technologies. Some of these competitors offer products with performance characteristics similar to those of our products.
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.
Competition Our LED lighting products compete against a variety of lighting products, including conventional light sources such as compact fluorescent lamps and HID lamps, as well as other TLEDs and integrated LED luminaire products.
Our 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.
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. 5 Table of Contents Our Products We design and deliver a wide range of energy-efficient solutions for commercial, industrial, and military markets, including: Commercial products to serve our targeted commercial markets: • RedCap ® emergency backup LED tubes; and • LED retrofit kits for replacing fluorescent lamps, downlights, and low/high-bay fixtures; and • Industrial LED dock lights; and • UPS systems products designed for AI data centers MMM LED lighting products to serve the U.S.
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.
In 2025, we recommitted to building upon the transformation activities that sought to stabilize and regrow our business. These efforts include the following key developments that occurred during 2025: • On June 30, 2025, the Board approved the departure of Gina (Mei-Yun) Huang, and on August 8, 2025, appointed Sophia Shee as a new member of the Board.
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.
One supplier (a related party, See Note 14 “Related Party Transactions” of this Annual Report on Form 10-K, for additional information) accounted for approximately 36% of our total expenditures for the twelve months ended December 31, 2024.
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.
The November 2025 Private Placement closed on December 2, 2025. 4 Table of Contents • In 2025, we carefully researched and analyzed our historical sales data and the current market landscape, focusing on our pricing position and overall sales strategy.
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.
Manufacturing and Suppliers We manufacture our lighting products and systems through a combination of in-house production at our Solon, Ohio facility and outsourced finished goods produced to our specifications. Our in-house operations focus on final assembly, testing, and quality control. We collaborate with several vendors to design custom components that meet our specific needs.
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.
In addition to LED lighting, we’ve expanded into energy-saving high-technology Gallium Nitride (“GaN”) power supplies, ESS, and UPS systems products tailored for AI data centers, positioning us at the forefront of sustainable technology for modern industries. The demand for energy-efficient solutions like LEDs and advanced power systems is growing rapidly, driven by cost savings, environmental goals, and health benefits.
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”).
The June 2025 Private Placement closed on June 23, 2025. • On August 15, 2025, Energy Focus, Inc. entered into certain securities purchase agreements with certain accredited investors, pursuant to which the Company agreed to issue and sell in a private placement an aggregate of 264,550 shares of the Company’s common stock, par value $0.0001 per share, for a purchase price per share of $1.89 (the “August 2025 Private Placement”).
The information on our website is not a part of, nor is it incorporated by reference into this Annual Report on Form 10-K.
The information on our website is not a part of, nor is it incorporated by reference into this Annual Report on Form 10-K. We file annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports with the Securities and Exchange Commission (“SEC”).
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.
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.
Our commercial LED lighting products, introduced in 2010, have gained traction in sectors like healthcare, education, and industrial facilities. Notably, we have been the primary LED supplier for a major northeast Ohio hospital system since 2015, enabling us to expand into additional healthcare networks.
Notably, we have been the primary LED supplier for a major northeast Ohio hospital system since 2015, enabling us to expand into additional healthcare networks. We also supply low-flicker LED lighting to schools, colleges, and universities, promoting energy efficiency and healthier learning environments.
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.
Our new product lines, including GaN power supplies, ESS, and UPS systems, further enhance efficiency and reliability, meeting the rising energy demands of AI-driven data centers and other high-tech applications. We’re also pioneers in flicker-free lighting—certified by Underwriters Laboratories at less than 1% flicker—reducing health issues like headaches and fatigue.
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.
Our quality assurance program includes rigorous testing at key stages of assembly and for all finished products, whether produced internally or sourced externally. Additionally, we are ISO 9001:2015 certified. Manufacturing costs are managed through a balance of internal production and outsourcing to trusted suppliers worldwide, primarily in the United States, Malaysia, Taiwan, and previously China.
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.
These efforts are intended to support qualification, testing, and integration of our products into customer programs. Intellectual Property We actively protect our intellectual property through patents, license agreements, trademark registrations, confidential disclosure agreements, and trade secrets, as appropriate. Certain patents are integral to our current product lines.
All current Board members other than our CEO Mr.
The resignations did not involve any disagreement with the Company. All current Board members, other than our Chief Executive Officer, Mr.
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.
Our core products include robust lighting fixtures and lamps for navy and military applications, Energy Storage Systems (“ESS”), Uninterruptible Power Supply (“UPS”), and tubular LED (“TLED”) lighting products, including battery backup units as well as general commercial and maritime lighting fixtures. The LED lighting market has faced intense competition and price erosion in recent years.
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In 2024, we enhanced the RedCap ® product line, further improving user experience and functionality.
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In 2025, we enhanced the RedCap ® product line, further improving user experience and functionality. Additionally, we have engaged in preliminary discussions and business development activities with certain contractors that serve U.S. Department of Defense (“DoD”) customers. These efforts are intended to explore potential opportunities and do not constitute awarded contracts or firm commitments.
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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.
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Chiao Chieh (Jay) Huang, are independent directors under the corporate governance standards of Nasdaq. • On March 27, 2025, Energy Focus, Inc. entered into certain securities purchase agreements with certain accredited investors, pursuant to which the Company agreed to issue and sell in a private placement an aggregate of 103,627 shares of the Company’s common stock, par value $0.0001 per share, for a purchase price per share of $1.93 (the “March 2025 Private Placement”).
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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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Aggregate gross proceeds to the Company with respect to the August 2025 Private Placement were approximately $500 thousand, excluding the offering expenses paid by the Company.
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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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The August 2025 Private Placement closed on August 19, 2025. • On November 26, 2025, Energy Focus, Inc. entered into certain securities purchase agreements with certain accredited investors, pursuant to which the Company agreed to issue and sell in a private placement an aggregate of 524,018 shares of the Company’s common stock, par value $0.0001 per share, for a purchase price per share of $2.29 (the “November 2025 Private Placement”).
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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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Aggregate gross proceeds to the Company with respect to the November 2025 Private Placement were approximately $1.2 million, excluding the offering expenses paid by the Company.
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We also supply low-flicker LED lighting to schools, colleges, and universities, promoting energy efficiency and healthier learning environments.
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During 2025, we have thoroughly reviewed and adjusted our commercial pricing position as well as our strategic relationships and partnerships within the commercial LED market space.
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Our ESS products support grid stability, renewable energy integration, and backup power needs.
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Simultaneously, we are committed to expanding our commercial market share, which holds vast potential. 6 Table of Contents Our commercial LED lighting products, introduced in 2010, have gained traction in sectors like healthcare, education, and industrial facilities.
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Our ability to compete depends substantially upon the superior performance, incremental benefits and lower total cost of ownership of our products.
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Concentration of Sales While total MMM sales declined 43% year-over-year, sales to our primary Navy distributor remained approximately flat at $0.8 million, increasing from 16% to 21% as a percentage of total sales as the denominator of total sales decreased. This increased concentration heightens our exposure to the loss of any major customer.
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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.
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We are focused on broadening our customer base and pursuing additional customer opportunities in international markets to mitigate customer concentration risk. In 2025, three customers accounted for 48% of net sales, with sales to a distributor for the U.S. Navy accounting for approximately 21% and two commercial customers accounting for approximately 27%.
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We continue to reduce transportation costs while actively managing shorter lead times for component procurement. One offshore supplier (a related party, See Note 12 “Related Party Transactions”) accounted for approximately 36% of our total expenditures for the twelve months ended December 31, 2024.
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Our suppliers are primarily based in the United States and Asia. We continue to reduce transportation costs while actively managing shorter lead times for component procurement.
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Through our website, we make available, free of charge, our annual proxy statement, annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, as soon as reasonably practicable after we electronically file such material with, or furnish them to, the Securities and Exchange Commission, or the SEC.
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Two suppliers (related parties, See Note 14 “Related Party Transactions” of this Annual Report on Form 10-K, for additional information) accounted for approximately 28% of our total expenditures for the twelve months ended December 31, 2025.
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At December 31, 2025, two suppliers accounted for approximately 11% and 71% (a related party, See Note 14, “Related Party Transactions” of this Annual Report on Form 10-K, for additional information) of our trade accounts payable balance.
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We believe that our customer-focused approach to product development ensures that our R&D investments yield impactful and innovative products, driving faster market adoption and strengthening our competitive advantage. Additionally, we collaborate with certain prime contractors serving the U.S. Department of Defense on product development initiatives that align with anticipated DoD program requirements for 2026 and 2027.
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Where appropriate in jurisdictions outside the United States, we seek to obtain other similar national or regional certifications for our products.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

53 edited+25 added−22 removed152 unchanged
Biggest changeWe 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.
Biggest changeWe may lose business from any one of our significant customers for a variety of reasons, many of which are outside of our control, including changes in customer procurement strategies or project timelines, changes in government funding and rebate programs, increased competition, changes in product specifications, and our ability to meet customer requirements, including delivery and quality expectations.
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 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 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.
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.
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.
As such, we will likely need additional external financing during 2026 and will continue to review and pursue external funding sources including, but not limited to, the following: • obtaining financing from traditional or non-traditional investment capital organizations or individuals; • obtaining funding from the sale of our common stock or other equity or debt instruments; and • obtaining debt financing with lending terms that more closely match our business model and capital needs.
(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.
(Please see Note 2 of our financial statements "Going Concern" for the year ended December 31, 2025 included in Part II, Item 8, “Financial Statements and Supplementary Data,” of this Annual Report.) We have a history of operating losses and will incur losses in the future as we continue our efforts to grow sales and streamline our operations at a profitable level.
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.
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.
International business operations are subject to inherent risks, including, among others: • difficulty in enforcing agreements and collecting receivables through foreign legal systems; • unexpected changes in regulatory requirements, tariffs, and other trade barriers, restrictions or disruptions; • potentially adverse tax consequences; • localized impacts of epidemics, pandemics or other contagious outbreaks, such as the COVID-19 pandemic; • the burdens of compliance with the U.S.
International business operations are subject to inherent risks, including, among others: • difficulty in enforcing agreements and collecting receivables through foreign legal systems; 18 Table of Contents • unexpected changes in regulatory requirements, tariffs, and other trade barriers, restrictions or disruptions; • potentially adverse tax consequences; • localized impacts of epidemics, pandemics or other contagious outbreaks, such as the COVID-19 pandemic; • the burdens of compliance with the U.S.
Our products are largely depending on the application of our technology. From time to time, third parties holding similar technologies and intellectual property rights, including companies, competitors, patent holding companies, customers and/or non-practicing entities, may assert intellectual property claims against us.
Our products are largely dependent on the application of our technology. From time to time, third parties holding similar technologies and intellectual property rights, including companies, competitors, patent holding companies, customers and/or non-practicing entities, may assert intellectual property claims against us.
Furthermore, any adverse outcome of a dispute may require us to pay damages, potentially including treble damages and attorney’s fees, if are found to have willfully infringed a party’s intellectual property; case making, licensing or using our solutions that are alleged to infringe or misappropriate the intellectual property of others; expend additional development resources to redesign our solutions’ enter into potentially unfavorable royalty or license agreements in order to obtain the right to use necessary technologies or works; and to indemnify our partners, customers and other third parties.
Furthermore, any adverse outcome of a dispute may require us to pay damages, potentially including treble damages and attorney’s fees, if we are found to have willfully infringed a party’s intellectual property; case making, licensing or using our solutions that are alleged to infringe or misappropriate the intellectual property of others; expend additional development resources to redesign our solutions’ enter into potentially unfavorable royalty or license agreements in order to obtain the right 20 Table of Contents to use necessary technologies or works; and to indemnify our partners, customers and other third parties.
Moreover, although we are not aware of any effort to amend any existing certification standard or implement a new certification standard in a manner that would render us unable to maintain certification for our existing products or obtain ratification for new products, our net sales might be adversely affected if such an amendment or implementation were to occur.
Moreover, although we are not aware of any effort to amend any existing certification standard or implement a new certification standard 21 Table of Contents in a manner that would render us unable to maintain certification for our existing products or obtain ratification for new products, our net sales might be adversely affected if such an amendment or implementation were to occur.
The outcome of litigation is difficult to assess or quantify. Lawsuits can result in the payment of substantial damages by defendants. If we are required to pay substantial damages and expenses as a result of these or other types of lawsuits, our business and results of operations would be adversely affected.
The outcome of litigation is difficult 19 Table of Contents to assess or quantify. Lawsuits can result in the payment of substantial damages by defendants. If we are required to pay substantial damages and expenses as a result of these or other types of lawsuits, our business and results of operations would be adversely affected.
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.
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.
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.
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.
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.
Some of these competitors offer products with performance characteristics similar to those of our products. Many of our competitors are larger, more established companies with greater resources to devote to research and development, manufacturing and marketing, as well as greater brand recognition.
In 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.
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.
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.
Notwithstanding continued performance improvements and cost reductions of LED lighting technologies, limited 14 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.
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.
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.
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.
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.
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.
Litigation could delay development or sales 16 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.
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.
This concentration of our supply chain with related parties create risks regarding pricing, payment terms, and supply continuity. While we believe the terms of our transactions with Sander Electronics are commercially reasonable, the overlapping ownership and management between our companies may result in conflicts of interest that could adversely affect our business.
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.
Our independent registered public accounting firm’s opinion on our audited financial statements for the year ended December 31, 2025 includes a modification stating that our losses and negative cash flows from operations and uncertainty in generating sufficient cash to meet our obligations and sustain our operations raise substantial doubt about our ability to continue as a going concern.
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.
Management initiated expansion into the Asian market in 2025. There is a risk that our strategy to return to profitability may not be as successful as we envision, or occur as quickly as we expect.
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.
Given the fiercely competitive lighting market in which we operate, we are constantly trying to balance 11 Table of Contents pricing with the quality-premium our products command both in brand reputation and performance.
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.
For the year ended December 31, 2025, we reported a net loss of $1.0 million and are dependent upon the availability of financing in order to continue our business.
Obtaining 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.
Obtaining additional financing contains risks, including: • additional equity financing may not be available to us on satisfactory terms, particularly in light of the current price of our common stock, and any equity we are able to issue could lead to dilution for current stockholders and have rights, preferences and privileges senior to our common stock; • loans or other debt instruments may have terms or conditions, such as interest rates, restrictive covenants, conversion features, refinancing demands, and control or revocation provisions, which are not acceptable to management or the Company’s Board of Directors (the “Board of Directors”); and • the current environment in the capital markets and volatile interest rates, combined with our capital constraints may prevent us from being able to obtain adequate debt financing.
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.
Factors that may contribute to fluctuations include: • changes in aggregate capital spending, cyclicality and other economic conditions, including inflationary pressures, or domestic and international demand in the industries; • the timing of large customer orders to which we may have limited visibility and cannot control; • competition for our products, including the entry of new competitors and significant declines in competitive pricing; • our ability to effectively manage our working capital; • our ability to generate increased demand in our current and targeted markets, particularly those in which we have limited experience; • our ability to satisfy customer demands in a timely and cost-effective manner; • pricing and availability of labor and materials; • quality testing and reliability of new products; • our inability to adjust certain fixed costs and expenses for changes in demand and the timing and significance of expenditures that may be incurred to facilitate our growth; • macroeconomic, geopolitical and health concerns; • seasonal fluctuations in demand and our revenue; and • disruption in component supply from foreign vendors. 15 Table of Contents Depressed general economic conditions may adversely affect our operating results and financial condition.
Any attempts to buy or sell a significant quantity of our shares could materially affect our share price.
Any attempts to buy or sell a significant quantity of our shares could materially 22 Table of Contents affect our share price.
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.
Throughout the fiscal year ended December 31, 2025, our market price has ranged from $1.21 to $3.16 and continues to experience significant volatility. Broad market and industry factors also may adversely affect the market price of our common stock, regardless of our actual operating performance.
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.
A decline in backlog levels could result in more variability and less predictability in our quarter-to-quarter net sales and operating results. 13 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.
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.
Our Chief Executive Officer currently serves as our Principal Financial Officer, which may impact our internal controls and increase risks related to financial reporting. As of the date of this Report, our Chief Executive Officer currently serves as our Principal Financial Officer and Principal Accounting Officer due to the vacancy in our Chief Financial Officer position.
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.
We have incurred substantial losses in the past and reported net losses of $1.0 million and $1.6 million for the years ended December 31, 2025 and 2024, respectively.
As of December 31, 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.
As of December 31, 2025, we had an accumulated deficit of $155.9 million and cash of approximately $1.1 million, compared to an accumulated deficit of $154.9 million and cash of approximately $0.6 million as of December 31, 2024.
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.
If we do not anticipate and effectively manage these risks, these factors may have a material adverse impact on our business operations. Our business and operations are significantly dependent on Sander Electronics, which creates material conflicts of interest and business risks. Our relationships with Sander Electronics, Inc (located in the US), an affiliate of a shareholder and Sander Electronics Co.
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.).
For the year ended December 31, 2025, financing activity to sustain losses included issuance of common stock of approximately $2.1 million (Please see Note 10 of our financial statements for the year ended December 31, 2025 included in Part II, Item 8, “Financial Statements and Supplementary Data,” of this Annual Report.).
As a result, we may not be able to protect our proprietary rights adequately in the United States or abroad.
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.
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.
We are authorized to issue 50,000,000 shares of common stock of which 6,306,433 shares were issued and outstanding as of March 24, 2026, and 5,000,000 shares of preferred stock, of which 876,447 were issued and outstanding as of March 24, 2026.
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.
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.
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.
Ltd (located in Taiwan), a shareholder of the Company controlled by our CEO Chiao Chieh (Jay) Huang, create substantial business and governance risks. As of December 31, 2025 Sander Electronics represented 71% of our accounts payable, and we have ongoing purchasing agreements with them for TLED products and spare parts.
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.
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 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.
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 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.
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.
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.
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.
We generally do not have long-term contracts with our customers that commit them to purchase any minimum amount of our products or require them to continue to do business with us.
Historically our customer base has been highly concentrated and a limited number of customers have represented a substantial portion of our net sales. We generally do not have long-term contracts with our customers that commit them to purchase any minimum amount of our products or require them to continue to do business with us.
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.
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.
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.
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.
A lack of additional financing could also result in our inability to continue as a going concern and force us to sell certain assets or discontinue or curtail our operations and, as a result, investors in the Company could lose their entire investment.
A lack of additional financing could also result in our inability to continue as a going concern and force us to sell certain assets or discontinue or curtail our operations and, as a result, investors in the Company could lose their entire investment. 10 Table of Contents Our independent registered public accounting firm’s opinion on our audited financial statements for the fiscal year ended December 31, 2025, included in this Annual Report, contains a modification relating to our ability to continue as a going concern.
If we are not able to increase or decrease our production capacity at our targeted rate or if there are unforeseen costs associated with adjusting our capacity levels or there are unanticipated interruptions in our global supply chain or logistics from such possibilities as long-term effects of the COVID-19 pandemic, geopolitical tension as the military conflict in Ukraine and the Middle East, shifting workforces, or energy policies, we may not be able to achieve our financial targets.
If we are not able to increase or decrease our production capacity at our targeted rate or if there are unforeseen costs associated with adjusting our capacity levels, or there are unanticipated interruptions in our global supply chain or logistics due to factors outside of our control, such as geopolitical instability, labor availability constraints, changes in trade policies, inflationary pressures, or other macroeconomic conditions, we may not be able to achieve our financial targets.
If we are unable to implement plans to increase sales and control expenses to manage future growth effectively, our profitability goals and liquidity will be adversely affected.
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. 12 Table of Contents If we are unable to implement plans to increase sales and control expenses to manage future growth effectively, our profitability goals and liquidity will be adversely affected.
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.
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.
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.
Risks Associated with an Investment in Our Common Stock As a “thinly-traded” stock with a relatively small public float, the market price of our common stock is highly volatile and may decline regardless of our operating performance.
Our business could be subject to significant disruption, widespread negative publicity and a loss of customers, and we could suffer legal liabilities and monetary or other losses. We have international operations and are subject to risks associated with operating in international markets.
Our business could be subject to significant disruption, widespread negative publicity and a loss of customers, and we could suffer legal liabilities and monetary or other losses. We may fail to secure sufficient additional financing, which could prevent us from executing our business plan and continuing as a going concern.
Our 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.
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.
We may not generate sufficient cash flows from our operations or be able to borrow sufficient funds to sustain our operations.
For the year ended December 31, 2024, financing activity to sustain ongoing losses included (1) issuance of common stock approximately $0.9 million and (2) payments on the 2022 Streeterville Note $1.0 million. We may not generate sufficient cash flows from our operations or be able to borrow sufficient funds to sustain our operations.
Removed
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.
Added
As a result, the loss of, or a significant reduction in demand from, any of our significant customers could adversely affect our business, financial condition, results of operations, and prospects.
Removed
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.
Added
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.
Removed
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.
Added
Our cash balance of $1.1 million as of December 31, 2025, and ongoing operating losses raise substantial doubt about our ability to continue as a going concern. We are actively seeking additional capital through equity, debt, or strategic partnerships, but there can be no assurance that we will secure such funding on acceptable terms or at all.
Removed
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.
Added
Equity financing may significantly dilute existing shareholders, while debt financing could impose restrictive covenants or high interest rates. Failure to obtain adequate financing could result in reduced operations, delayed product development, or insolvency. Global trade policies, including tariffs, could increase costs and disrupt our supply chain, adversely affecting our operations and profitability.
Removed
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.
Added
Our operations are subject to risks arising from global trade policies, particularly the imposition of tariffs and other trade barriers by the United States, China, the European Union, and other nations, which have intensified under the current U.S. administration. As of December 31, 2025, approximately 92% of our purchase commitments are with Sander Electronics Co.
Removed
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
Ltd, a Taiwan-based related party, which could be indirectly affected by international trade tensions, including tariffs. These policies may increase the cost of imported components, extend delivery times due to customs delays, or reduce demand for our products if customers face higher prices.
Removed
Risks Associated with an Investment in Our Common Stock Our failure to comply with the continued listing requirements of Nasdaq could adversely affect the price of our common stock and its liquidity.
Added
For example, certain products have been subject to tariffs imposed in early 2025 on electronic components, which has increased our cost of sales by approximately 4%, or $109 thousand for the year ended December 31, 2025.
Removed
We have a history of failing to comply with the continued listing requirements of Nasdaq, although we have successfully cured all the pre-existed deficiency, we may not be able to cure any deficiency timely in the future.
Added
Based on current inventory levels and supply chain composition, these risks are heightened by our significant concentration of purchases with Taiwan-based related party suppliers (representing 92% of our purchase commitments as of December 31, 2025), which may be indirectly affected by U.S.-China trade tensions and broader Asian trade policies, even if not directly subject to specific tariffs.
Removed
On February 21, 2023, we received written notification (the “Bid Price Notification”) from the Staff stating that we had not regained compliance with the Bid Price Rule and our common stock is subject to delisting from Nasdaq.
Added
The unforeseen results of potential trade disputes and reciprocal tariffs worldwide could further impact our business. Increased trade protectionism, as governments seek to protect or revive domestic industries, may lead to restrictions on imports, such as tariffs, that could significantly affect global trade and, indirectly, the demand for our LED lighting products.
Removed
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.
Added
Such restrictions could increase the cost of exported goods, prolong delivery times, and elevate risks associated with exporting, potentially leading to a decline in the volume of exported goods and demand for our products.
Removed
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.
Added
The interconnected nature of global supply chains means that trade policies, even in countries not directly imposing or subject to tariffs, could disrupt our access to critical components. 17 Table of Contents Tensions over trade remain high, particularly between the U.S., China, and the European Union.
Removed
On April 6, 2023, the Company participated in the Appeal before the Panel.
Added
The current U.S. administration’s extensive use of tariffs as a policy tool has introduced significant uncertainty regarding future trade relationships with key markets, including China, the European Union, Canada, and Mexico. These tariffs have prompted, and may continue to prompt, retaliatory tariffs from other nations, raising concerns about a prolonged trade war.
Removed
The Company provided an update to the Panel on the Company’s substantial progress made towards the previously submitted Plan during the three months ended March 31, 2023, and requested the Panel grant the Company an exception to (1) re-allow the previously granted exception until May 15, 2023 for the Company to regain compliance with the Minimum Stockholders’ Equity Rule and (2) grant an exception allowing the Company up to 180 days following the Bid Price Notification to regain compliance with the Bid Price Rule by effecting a reverse stock split following stockholder approval at the Company’s 2023 annual meeting of stockholders.
Added
Protectionist developments, or the perception that they may occur, could materially adversely affect global economic conditions, reduce international trade, and disrupt our supply chain, particularly for components sourced from Asia.
Removed
On May 1, 2023, the Panel granted the Company’s request (the “Panel Decision”) to continue the Company’s listing on Nasdaq, subject to the following conditions: (1) on or before May 15, 2023, the Company shall file with the SEC its quarterly report for the three months ended March 31, 2023 demonstrating compliance with the Minimum Stockholders’ Equity Rule and (2) on or before July 7, 2023, the Company shall demonstrate compliance with the Bid Price Rule.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

8 edited+0 added−0 removed9 unchanged
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.
Biggest changeRisk 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. Risks and vulnerabilities from our increased reliance on information technology systems are assessed at least annually as part of our ERM program.
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.
PROPERTIES Our principal executive offices and our manufacturing facility are located in an approximately 25,392 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.
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. ITEM 2.
This annual training is customized to address specific cybersecurity challenges and scenarios that we may face within our operating environment. 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. ITEM 2.
We continuously evaluate if we have adequate controls in place utilizing a risk-based approach that aligns with the National Institute of Standards and Technology Cybersecurity Framework (NIST). Our information technology department diligently monitors our daily operations, overseeing the security of our computer networks through implemented systems and processes aimed at safeguarding sensitive data.
We continuously evaluate if we have adequate controls in place utilizing a risk-based approach that is informed by the National Institute of Standards and Technology Cybersecurity Framework (NIST). Our information technology department monitors our daily operations, overseeing the security of our computer networks through implemented systems and processes aimed at safeguarding sensitive data.
Although risks from cybersecurity threats have to date not materially affected, and we do not believe they are reasonably likely to materially affect, us, our business strategy, results of operations or financial condition, like other companies in our industry, we could, from time to time, experience threats and security incidents related to our and our third-party vendors’ information systems.
Although risks from cybersecurity threats have to date not materially affected, and based on information currently available, we do not believe they are reasonably likely to materially affect, us, our business strategy, results of operations or financial condition, like other companies in our industry, we could, from time to time, experience threats and security incidents related to 24 Table of Contents our third-party vendors’ information systems.
Utilizing encryption and authentication technologies, we fortify our systems against unauthorized access and data loss. This proactive approach ensures the integrity and confidentiality of our data, mitigating potential risks posed by cyber threats. In assessing cybersecurity risks, we adopt a risk-based approach, particularly concerning third-party vendors integral to our operations.
We utilize security technologies and controls designed to help protect our systems against unauthorized access and data loss. This proactive approach ensures the integrity and confidentiality of our data, mitigating potential risks posed by cyber threats. In assessing cybersecurity risks, we adopt a risk-based approach, particularly concerning third-party vendors integral to our operations.
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.
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.
Our Principal Financial Officer provides an update to the Audit Committee on any risks related to cybersecurity on a quarterly basis.
Our Principal Financial Officer provides an update to the Audit Committee on any risks related to cybersecurity on a quarterly basis. Our incident response plan includes notifying the Audit Committee, and then the Board of Directors, of any material threats or incidents that arise.

Item 2. Properties

Properties — owned and leased real estate

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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.
Biggest changeITEM 2. PROPERTIES 25 ITEM 3. LEGAL PROCEEDINGS 25 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 33
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 34

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 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
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, 2025 included in Part II, Item 8, “Financial Statements and Supplementary Data,” of this Annual Report.

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 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.
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 69 holders of record of our common stock as of March 24, 2026, 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 changeResults 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.
Biggest changeMaintain sufficient cash reserves to cope with potential funding shortages. 29 Table of Contents Results of operations The following table sets forth items in our Consolidated Statements of Operations as a percentage of net sales for the periods indicated: 2025 2024 Net sales 100.0 % 100.0 % Cost of sales 81.1 85.6 Gross profit 18.9 14.4 Operating expenses: Product development 11.6 10.8 Selling, general, and administrative 36.1 41.5 Total operating expenses 47.7 52.3 Loss from operations (28.8) (37.9) Other expenses (income): Interest income (0.1) — Interest expense — 0.1 Gain on debt extinguishment — (3.8) Gain on partial lease termination (0.1) (1.3) Gain on disposal of fixed assets (0.1) — Other income — (0.6) Other expenses 0.4 0.2 Net loss before income taxes (28.8) (32.5) Provision for income taxes — — Net loss (28.8) % (32.5) % Net sales A further breakdown of our net sales is presented in the following table (in thousands): 2025 2024 Commercial products $ 1,536 $ 1,390 MMM products 1,989 3,470 Setup Service 35 — Total net sales $ 3,560 $ 4,860 Net sales of $3.6 million in 2025 decreased $1.3 million, or 27% compared to 2024, primarily driven by a decrease of 43% in MMM sales and an increase of 11% in commercial sales.
The 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.
The strategic investments in 2024 by Sander Electronics, Inc. (“Sander”), a shareholder of the Company, contributed meaningful external capital, as well as presented synergistic opportunities to improve and diversify our supply chain and product offerings.
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.
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.
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.
Despite continuing progress on cost reduction throughout 2024 and 2025, the Company’s results reflect the challenges due to long and unpredictable sales cycles, unexpected delays in MMM and commercial customer retrofit budgets and project starts, and supply chain issues. There has also been continuing aggressive price competition in the lighting industry.
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.
It is our belief that the continued dramatic rightsizing efforts undertaken in 2024 and 2025, along with reorganization of the sales team and ongoing development of innovative, high-value products and an expanded distribution network, will over time result in improved sales and bottom-line performance for the Company.
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.
These efforts include the following key developments that occurred during 2025 and 2024: • We reinvested in our MMM sales channel and are pursuing existing and new sales opportunities, though the sales cycles for what are frequently made-to-order products are longer than commercial offerings. • We re-evaluated operating expenses and reduced our workforce significantly throughout 2024 and into 2025 to manage fixed costs. • We continued to seek additional external funding alternatives and sources to support our growth strategies, plans and initiatives.
The Company has enhanced the performance of our RedCap® product providing a more user- friendly experience.
The Company has enhanced the performance of our RedCap® product by providing a more user- friendly experience.
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.
We plan to improve profitability through developing and launching new, innovative products, UPS systems, our Redcap® emergency battery backup tubular TLEDs, evaluating new growth opportunities such as GaN-based power supply circuitry and other energy solution products, as well as executing on our multi-channel sales strategy that targets key verticals, such as government, healthcare, education and commercial and industrial, complemented by our marketing outreach campaigns and expanding channel partnerships.
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.
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, 28 Table of Contents profit sharing, and exploring new business opportunities.
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.
We continue to incur losses and we have a substantial accumulated deficit, which continues to raise substantial doubt about our ability to continue as a going concern at December 31, 2025.
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.
Such 31 Table of Contents evidence includes, but is not limited to, recent earnings history, projections of future income or loss, reversal patterns of existing taxable and deductible temporary differences, and tax planning strategies. We have recorded a full valuation allowance against our deferred tax assets at December 31, 2025 and 2024, respectively.
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.
In 2024, our effective tax rate was lower than the statutory rate due to a full valuation allowance as a result of the $3.4 million additional federal net operating loss we recognized for the year.
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.
Critical accounting policies, judgments, and estimates that we believe have the most significant impact on our financial statements are set forth below: • revenue recognition, • allowances for credit losses, returns and discounts, • product warranty reserve, • valuation of inventories, • accounting for income taxes, • share-based compensation, and • leases.
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.
Our business expansion plans are supported by financial strategies that we expect will provide funding for our planned growth initiatives, although there can be no assurance that such funding will be adequate. Since 2024, our MMM business faced ongoing challenges due to delays in government funding and the timing of U.S. Navy awards. Several anticipated projects encountered repeated postponements.
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.
We had no net deferred liabilities at December 31, 2025 or 2024. We will continue to evaluate the need for a valuation allowance on a quarterly basis. Please refer to Note 11, “Income Taxes” included in Item 8, “Financial Statements and Supplementary Data,” of this Annual Report for further information.
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. The LED lighting industry has changed dramatically over the past several years due to increasing competition and price erosion.
We are also evaluating additional adjacent technologies, including GaN based power supplies and other energy solution products that support sustainability in our existing channels. The LED lighting industry has changed dramatically over the past several years due to increasing competition and price erosion.
We have 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.
We have historically incurred substantial losses, and as of December 31, 2025, we had an accumulated deficit of $155.9 million. Additionally, our sales have been concentrated among a few major customers. For the twelve months ended December 31, 2025, three customers accounted for approximately 48% of net sales.
In 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.
In 2025, our effective tax rate was lower than the statutory rate due to a full valuation allowance as a result of the $1.1 million additional federal net operating loss we recognized for the year.
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.
Net cash used in financing activities was $0.1 million for the year ended December 31, 2024, primarily related to $0.9 million of net proceeds from the issuance of common stock, offset by $1.0 million related to net payments of the 2022 Streeterville Note.
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.
Selling, general, and administrative Selling, general, and administrative expenses were $1.3 million, or 36% of net sales in 2025, compared to $2.0 million, or 42% of net sales in 2024.
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.
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.
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.
In addition, we face challenges from long sales cycles, which is typical in this sector. The timeline from bid submission to order placement often exceeds six months, and many MMM products are built-to-order, resulting in extended lead times before revenue recognition. To mitigate this volatility, we continue to actively pursue new opportunities with the U.S. Navy and other government sectors.
In 2024 and 2023, we recommitted to building upon the transformation activities started during 2019 that sought to stabilize and regrow our business.
In 2025 and 2024, we remain committed to building upon the initiatives started during 2019 that sought to stabilize and regrow our business.
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.
The decrease is primarily related to interest attributable to the 2022 Streeterville Note. There was no actual cash interest paid in 2025 compared to $5 thousand in 2024. Gain on debt extinguishment We recognized an $187 thousand gain on debt extinguishment in the first quarter of 2024, which was related to the early termination of the 2022 Streeterville Note.
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.
There was no such gain recognized in 2025. Gain on partial lease termination We recognized $2 thousand and $63 thousand of gain on partial lease terminations in 2025 and 2024, which were related to early terminations of the office lease.
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.
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.
To ensure that EFOI’s products, pricing, and customer service lifecycle are better aligned, we are building a comprehensive value model to ensure consistency in the products and services we provide throughout the customer journey.
We 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.
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.
Cash provided by financing activities Net cash provided by financing activities for the year ended December 31, 2025 of $2.1 million, reflecting $2.1 million of net proceeds from the issuance of common stock.
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.
These strategic adjustments have improved our market position, offering a more competitive pricing structure and a stronger value proposition for our customers.
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.
However, there can be no assurance that such financing will be available on acceptable terms, or at all. Our Business Strategy Demand-oriented Approach In order to deepen our relationships with customers, we are in the process of re-establishing our service model, aiming to provide richer and more targeted customer service.
We 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.
We have undertaken efforts to reduce costs, which we believe have 27 Table of Contents contributed to our competitiveness, and may have helped us secure new contracts and expand our sales pipeline in the remainder of 2025 and beyond. We are actively expanding our commercial product offerings, including our newly introduced UPS systems for data centers.
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.
Net loss For 2025, our net loss of $1.0 million decreased 35% from $1.6 million net loss for 2024. The decrease is primarily due to a decrease in cost of goods sold as well as operating expenses. Financial condition At December 31, 2025, we had $1.1 million in cash and no outstanding debt.
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.
Net cash used in operating activities was $1.3 million for the year ended December 31, 2024. The net loss for 2024 was $1.6 million and was adjusted for non-cash items, including depreciation and amortization, stock-based compensation, provisions for inventory, warranty, and accounts receivable reserves and working capital changes.
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.
Product development costs are expensed as they are incurred. Product development expenses were $0.4 million in 2025, a decrease of 21%, compared to $0.5 million in 2024. The $0.1 million decrease primarily resulted from lower payroll-related expenses resulting from structure optimization, as well as lower product testing and R&D supplies expenses.
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.
Cash used in investing activities Net cash used in investing activities was $197 thousand and $19 thousand for the years ended December 31, 2025 and 2024, respectively, primarily from the acquisition of property and equipment and advances for investment in a joint venture, which was partially offset by proceeds from the sale of property and equipment.
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.
During 2024, major adjustments included cash generated from $1.0 million from collection of accounts receivable, and $0.8 million from inventory, which is partially offset by $0.2 million change in accounts payable and $1.2 million change in related party accounts payable due to timing of inventory receipts and payments.
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.
We recognized other expenses of $10 thousand in 2025, compared to other expenses of $12 thousand in 2024. Other expenses are mainly composed of bank and collateral management fees.
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%.
We recognized a non-cash loss of approximately $8 thousand on the settlement of returning inventory, cancelling prepayments made to the vendor, and settlement of outstanding accounts payables in the second quarter of 2025. Provision for income taxes For each of the years ended December 31, 2025 and 2024, our effective tax rate was 0%.
Removed
Regularly review the liability situation to ensure the company’s level of liabilities remains within a safe range.
Added
In addition to our lighting portfolio, we also offer UPS systems and other power management solutions, which have contributed meaningfully to our revenue in recent quarters and are expected to be a strategic area of continued growth.
Removed
Maintain sufficient cash reserves to cope with potential funding shortages.
Added
We also continue to advance the expansion of product lines such as ESS and GaN based power supplies, while leveraging the stability and opportunities within our MMM business. In 2024, we conducted a comprehensive review of our commercial pricing strategy and reassessed key partnerships within the energy-related market.
Removed
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.
Added
While we have made progress in reducing our net loss from $1.6 million in 2024 to $1.0 million in 2025 and improving our cash position from $0.6 million to $1.1 million, we continue to incur operating losses and have a substantial accumulated deficit of $155.9 million.
Removed
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.
Added
Based on our current capital resources and projected cash requirements for ongoing operations, substantial doubt about our ability to continue as a going concern continues to exist as of December 31, 2025. We are actively pursuing additional sources of capital, including equity financings, debt financings, and strategic partnerships, to fund operations and support future growth.
Removed
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.
Added
The net sales decrease of MMM products sales in 2025 was primarily due to delays in military customer procurement and project execution related to federal budget approval timing. The increase in commercial sales was primarily driven by a $0.5 million UPS project delivered to a new customer in Taiwan, representing approximately 36% of commercial sales in 2025.
Removed
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.
Added
While the project may represent a recurring revenue opportunity, future orders remain subject to customer requirements and timing. Gross profit Gross profit was $0.7 million, representing 19% of net sales in 2025, compared with gross profit of $0.7 million, or 14% of net sales in 2024.
Removed
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.
Added
The year-over-year improvement in gross profit was driven mainly by a sustained reduction in the use of temporary outside labor and lower fixed costs, such as subscription fees and rent expense for production. 30 Table of Contents Operating expenses Product development Product development expenses include salaries and related benefits, testing and related costs, travel expenses, cost of supplies, as well as overhead items, such as depreciation and facility costs.
Removed
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 .
Added
The $0.7 million decrease is primarily due to reductions in consultant fees of $0.3 million, $0.1 million in rent fees, $0.1 million in insurance fees, and $0.1 million in director fees. Other expenses (income) Interest expenses (income) There was no interest expense in 2025, compared to interest expense of $5 thousand in 2024.
Removed
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.
Added
Gain on disposal of fixed assets We recognized $3 thousand of gain on sales of fixed assets in 2025, which was related to a one-time resale of a software license package to a related party customer as part of a specific project. There was no such gain recognized in 2024.
Removed
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.
Added
See Note 14 “Related Party Transactions” included in Item 8, “Financial Statements and Supplementary Data,” of this Annual Report for further information. Other income and expenses Other income was less than $1 thousand in 2025, compared to other income of $27 thousand in 2024. Such other income is related to receipts of unclaimed property from vendors for previous payments.
Removed
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.
Added
Liquidity and capital resources Cash At December 31, 2025, our cash balance was $1.1 million, compared to $0.6 million at December 31, 2024. • As of December 31, 2025, we held total cash of $1.1 million, of which approximately $0.3 million was maintained in a bank account in Taiwan, with the remaining $0.8 million in bank accounts in the United States.
Removed
The following is a summary of cash flows from operating, investing, and financing activities, as reflected in the Consolidated Statements of Cash Flows (in thousands): 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.
Added
These funds support the operations of our wholly owned Taiwanese branch and are denominated in NTD. • The ability to access this cash for general corporate purposes in the United States may be subject to foreign exchange controls, local banking regulations, or unfavorable tax consequences.
Removed
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.
Added
While there are currently no formal restrictions on the transfer of funds from Taiwan to the United States, repatriation of these funds may result in foreign withholding taxes or other costs, which could impact our overall liquidity.
Removed
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.
Added
As such, our ability to deploy foreign cash for domestic use may be limited or delayed. 32 Table of Contents • Management believes our current cash position and operating cash flows are sufficient to meet near-term working capital needs in both domestic and foreign jurisdictions.
Removed
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.
Added
The following is a summary of cash flows from operating, investing, and financing activities, as reflected in the Consolidated Statements of Cash Flows (in thousands): 2025 2024 Net cash used in operating activities $ (1,404) $ (1,297) Net cash used in investing activities $ (197) $ (19) Net cash provided by (used in) financing activities $ 2,100 $ (149) Net cash used in operating activities Net cash used in operating activities was $1.4 million for the year ended December 31, 2025.
Removed
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.
Added
The net loss for 2025 was $1.0 million and was adjusted for non-cash items, including depreciation and amortization, stock-based compensation, provisions from inventory, warranty, accounts receivable reserves and working capital changes.
Removed
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.
Added
During 2025, major adjustments included cash generated from $0.3 million from collection of accounts receivable, which is partially offset by $0.3 million change in inventory, $0.1 million change in accounts payable and $0.5 million change in related party accounts payable due to timing inventory receipts and payments.
Added
Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.
Added
Contractual and other obligations Please refer to Note 9 “Purchase Commitments” included under Part II, Item 8, “Financial Statements and Supplementary Data,” of this Annual Report. 33 Table of Contents Foreign currency exchange risk Because we maintain operations and cash balances in Taiwan, we are exposed to fluctuations in the New Taiwan dollar (NTD) exchange rate relative to the U.S. dollar.
Added
Changes in exchange rates can affect the reported value of our foreign cash balances, revenues, and expenses, as well as result in transaction gains or losses on intercompany and third-party balances. As of December 31, 2025, we had a net NTD exposure of approximately $439 thousand, consisting of NTD cash of $326 thousand, and NTD-denominated accounts receivable of $113 thousand.
Added
In addition, we held approximately $156 thousand in JPY denominated advances for investment in a joint venture related to our Japan ESS initiative. For 2025, we recognized a net foreign currency transaction gain of approximately $20 thousand. We do not currently employ financial instruments to hedge our foreign currency exposure.
Added
We continue to monitor our NTD and JPY exposure and may consider hedging strategies in the future if our foreign currency risk increases materially.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

111 edited+56 added−56 removed63 unchanged
Biggest changeFederal — — 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.
Biggest changeNOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table presents cash income taxes paid, net of refunds (in thousands): For the year ended December 31, 2025 2024 U.S. federal $ — $ — State 3 5 Foreign — — Total cash income taxes paid, net of refunds $ 3 $ 5 The following table shows the pre-tax loss (in thousands): For the year ended December 31, 2025 2024 Pre-tax Loss: Domestic $ (1,027) $ (1,582) Foreign — — Total pre-tax loss $ (1,027) $ (1,582) 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 in both dollar (in thousands) and percentage are as follows: For the year ended December 31, 2025 2024 U.S. statutory rate $ (230) 21.0 % $ (710) 21.0 % State taxes (net of federal tax benefit) (36) 3.3 (152) 4.5 Valuation allowance (718) 65.5 (622) 18.4 Federal NOLs write off 287 (26.2) 399 (11.8) Federal temporary 19 (1.7) 409 (12.1) State NOLs write off 663 (60.5) 656 (19.4) State temporary 15 (1.4) 20 (0.6) $ — 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, 2025 2024 Accrued expenses and other reserves $ 694 $ 684 Right-of-use asset (45) (82) Lease liabilities 47 86 Tax credits, deferred R&D, and other 536 579 Net operating loss 20,056 20,739 Valuation allowance (21,288) (22,006) Net deferred tax assets $ — $ — In 2025 and 2024, our effective tax rate was lower than the statutory rate due to a full valuation allowance as a result of the $1.1 million and $3.4 million additional federal net operating loss we recognized for the year. 61 Table of Contents ENERGY FOCUS, INC.
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.
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.
An impairment loss would be recognized based on the amount by which the carrying value of the asset exceeds its fair value, as determined by quoted market prices (if available) or the present value of expected future cash flows. Refer to Note 5, “Property and Equipment,” for additional information.
An impairment loss would be recognized based on the amount by which the carrying value of the asset exceeds its fair value, as determined by quoted market prices (if available) or the present value of expected future cash flows. Please refer to Note 5, “Property and Equipment,” for additional information.
Operating leases are included in Operating lease, right-of-use-assets, Operating lease liabilities, and Long-term operating lease liabilities in our Consolidated Balance Sheets. Product development Product development expenses include salaries, contractor and consulting fees, supplies and materials, as well as costs related to other overhead items such as depreciation and facilities costs. Research and development costs are expensed as they are incurred.
Operating leases are included in Operating lease, right-of-use assets, Operating lease liabilities, and Long-term operating lease liabilities in our Consolidated Balance Sheets. Product development Product development expenses include salaries, contractor and consulting fees, supplies and materials, as well as costs related to other overhead items such as depreciation and facilities costs. Product development costs are expensed as they are incurred.
Obtaining additional funding contains risks, including: • additional equity financing may not be available to us on satisfactory terms, particularly in light of the current price of our common stock, and any equity we are able to issue could lead to dilution for current stockholders and have rights, preferences and privileges senior to our common stock; • loans or other debt instruments may have terms or conditions, such as interest rate, restrictive covenants, conversion features, refinancing demands, and control or revocation provisions, which are not acceptable to management or the Company’s Board of Directors (the “Board of Directors”); and • the current environment in the capital markets and volatile interest rates, combined with our capital constraints, may prevent us from being able to obtain adequate debt financing.
Obtaining additional funding contains risks, including: • additional equity financing may not be available to us on satisfactory terms, particularly in light of the current price of our common stock, and any equity we are able to issue could lead to dilution for current stockholders and have rights, preferences and privileges senior to our common stock; • loans or other debt instruments may have terms or conditions, such as interest rate, restrictive covenants, conversion features, refinancing demands, and control or revocation provisions, which are not acceptable to management or the Company’s Board of Directors; and • the current environment in the capital markets and volatile interest rates, combined with our capital constraints, may prevent us from being able to obtain adequate debt financing.
Additionally, Effective July 1, 2024, our warehouse and office lease was amended to reduce the rentable square feet from 62,335 square feet to 29,692 square feet and the rent expenses were decreased in proportion to the reduction in rentable square.
Effective July 1, 2024, our warehouse and office lease was amended to reduce the rentable square feet from 62,335 square feet to 29,692 square feet, and the rent expenses were decreased in proportion to the reduction in rentable square feet.
Income taxes As part of the process of preparing the Consolidated Financial Statements, we are required to estimate our income tax liability in each of the jurisdictions in which we do business.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Income taxes As part of the process of preparing the Consolidated Financial Statements, we are required to estimate our income tax liability in each of the jurisdictions in which we do business.
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.
As of December 31, 2025 and 2024, we had the following outstanding warrants: As of December 31, 2025 As of December 31, 2024 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 $23.59 January 13, 2025 January 2020 Placement Agent Warrants — 5,954 $34.96 January 13, 2025 567,245 600,018 Stock-based Compensation Stock-based compensation expense is attributable to stock options and restricted stock unit awards.
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.
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. 34 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, 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.
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2025 and 2024, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
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.
As of December 31, 2025 and 2024, there were 876,447 Series A Preferred Stock issued and outstanding which can be convertible into 25 thousand shares of common stock at the option of the holder. Warrants During the years ended December 31, 2025 and 2024, no warrants were exercised.
(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”).
(the “Company”) as of December 31, 2025 and 2024, the related consolidated statements of operations, comprehensive loss, stockholders’ equity (deficit), and cash flows for the years then ended, and the related notes and Schedule II (collectively referred to as the “consolidated financial statements”).
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.
At December 31, 2025 and 2024, we recorded a full valuation allowance against our net deferred tax assets due to uncertainties related to our ability to utilize our deferred tax assets, primarily consisting of certain net operating losses carried forward.
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.
Going Concern and Nasdaq Continued Listing Requirements Compliance Due to our financial performance as of December 31, 2025 and 2024, including net losses of $1.0 million and $1.6 million for the twelve months ended December 31, 2025 and 2024, respectively, and total cash used in operating activities of $1.4 million and $1.3 million for the twelve months ended December 31, 2025 and 2024, respectively, we determined that substantial doubt about our ability to continue as a going concern continues to exist at December 31, 2025.
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.
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.
Settlement of Return of Slow-Moving Inventory On December 30, 2024, in connection with its strategy to reduce a certain quantity of low-turnover inventory, the Company entered into an agreement with the vendor, an unrelated party, to return the inventory purchased between 2021 and 2022 and transfer EnFocus™ registered trademarks (carry amount of $0).
Settlement of Return of Slow-Moving Inventory On December 30, 2024, in connection with its strategy to reduce a certain quantity of low-turnover inventory, the Company entered into an agreement with the vendor, an unrelated party, to return the inventory purchased between 2021 and 2022 and transfer EnFocus™ registered trademarks (carrying amount of $0 as of December 31,2024).
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.
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.
Stock-based compensation We recognize compensation expense based on the estimated grant date fair value under the authoritative guidance. Management applies the Black-Scholes option pricing model to value stock options issued to employees and directors and applies judgment in estimating key assumptions that are important elements of the model in expense recognition.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Stock-based compensation We recognize compensation expense based on the estimated grant date fair value under the authoritative guidance. Management applies the Black-Scholes option pricing model to value stock options issued to employees and directors and applies judgment in estimating key assumptions that are important elements of the model in expense recognition.
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.
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, 2025 and 2024, respectively. We had no net deferred tax liabilities at December 31, 2025 and 2024. NOTE 12.
Impairment of Long-lived assets Long-lived assets are reviewed for impairment whenever events or circumstances indicate the carrying amount may not be recoverable. Events or circumstances that would result in an impairment review primarily include operations reporting losses, a significant change in the use of an asset, or the planned disposal or sale of the asset.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Impairment of Long-lived assets Long-lived assets are reviewed for impairment whenever events or circumstances indicate the carrying amount may not be recoverable. Events or circumstances that would result in an impairment review primarily include operations reporting losses, a significant change in the use of an asset, or the planned disposal or sale of the asset.
Preferred Stock The Series A Preferred Stock was created by the filing of a Certificate of Designation with the Secretary of State of the State of Delaware on March 29, 2019, which designated 2,000,000 shares of the Company’s preferred stock, par value $0.0001 per share, as Series A Preferred Stock (the “Original Series A Certificate of Designation”).
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Preferred Stock The Series A Preferred Stock was created by the filing of a Certificate of Designation with the Secretary of State of the State of Delaware on March 29, 2019, which designated 2,000,000 shares of the Company’s preferred stock, par value $0.0001 per share, as Series A Preferred Stock (the “Original Series A Certificate of Designation”).
Chiao Chieh (Jay) Huang, CEO of the Company, pursuant to which the Company agreed to issue and sell in a private placement an aggregate of 534,591 shares of the Company’s common stock, par value $0.0001 per share, for a purchase price per share of $1.59 (the “June 2024 Private Placement”). Consideration for the transaction included an exchange of $850 thousand.
Chiao Chieh (Jay) Huang, CEO of the Company, pursuant to which the Company agreed to issue and sell in a private placement an aggregate of 534,591 shares of the Company’s common stock, par value $0.0001 per share, for a purchase price per share of $1.59 (the “June 2024 Private Placement”).
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.
As of December 31, 2025, the Company had inventories of $2.9 million, net of reserves for excess, obsolete and slow-moving inventories. 36 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.
June 2024 Private Placement On June 21, 2024, the Company entered into a securities purchase agreement with Sander Electronics Inc., a shareholder of the Company controlled by Mr.
The March 2025 Private Placement closed on March 31, 2025. June 2024 Private Placement On June 21, 2024, the Company entered into a securities purchase agreement with Sander Electronics Inc., a shareholder of the Company controlled by Mr.
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 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. NOTE 16.
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.
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.
The following table presents a reconciliation of basic and diluted loss per share computations (in thousands, except per share amounts): For the years ended December 31, 2024 2023 Numerator: Net loss $ (1,582) $ (4,293) Denominator: Basic and diluted weighted average common shares outstanding 4,947 3,241 As a result of the net loss we incurred for the years ended December 31, 2024 and 2023 , convertible preferred stock representing approximately 25 thousand shares of common stock were excluded from the basic loss per share calculation because their inclusion would have been anti-dilutive.
The following table presents a reconciliation of basic and diluted loss per share computations (in thousands, except per share amounts): For the years ended December 31, 2025 2024 Numerator: Net loss $ (1,027) $ (1,582) Denominator: Basic and diluted weighted average common shares outstanding 5,553 4,947 As a result of the net loss we incurred for the years ended December 31, 2025 and 2024 , convertible preferred stock representing approximately 25 thousand shares of common stock were excluded from the basic loss per share calculation because their inclusion would have been anti-dilutive. 49 Table of Contents ENERGY FOCUS, INC.
We establish provisions for excess and obsolete inventories after evaluation of historical sales, current economic trends, forecasted sales, product lifecycles, and current inventory levels. The assessment is both quantitative and qualitative.
We establish provisions for excess and obsolete inventories after evaluation of historical sales, current economic trends, forecasted sales, product lifecycles, and current inventory levels. The assessment is both quantitative and qualitative. 47 Table of Contents 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.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA TABLE OF CONTENTS Page Reports of Independent Registered Public Accounting Firm (PCAOB ID 1808) 36 Consolidated Balance Sheets as of December 31, 2025 and 2024 38 Consolidated Statements of Operations for the years ended December 31, 2025 and 2024 40 Consolidated Statements of Comprehensive Loss for the years ended December 31, 2025 and 2024 41 Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2025 and 2024 42 Consolidated Statements of Cash Flows for the years ended December 31, 2025 and 2024 43 Notes to Consolidated Financial Statements 45 35 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Stockholders and Board of Directors 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.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS FOR THE YEARS ENDED DECEMBER 31, (in thousands) 2025 2024 Net loss $ (1,027) $ (1,582) Other comprehensive loss: Foreign currency translation adjustments — — Comprehensive loss $ (1,027) $ (1,582) The accompanying notes are an integral part of these consolidated financial statements. 41 Table of Contents ENERGY FOCUS, INC.
See Note 9, “Stockholders’ Equity.” Streeterville Notes 2022 Streeterville Note On April 21, 2022, we entered into a note purchase agreement (the “2022 Streeterville Note Purchase Agreement”) with Streeterville Capital, LLC (“Streeterville”) pursuant to which we sold and issued to Streeterville a promissory note in the principal amount of approximately $2.0 million (the “2022 Streeterville Note”).
NOTE 8. DEBT Streeterville Notes 2022 Streeterville Note On April 21, 2022, we entered into a note purchase agreement with Streeterville Capital, LLC (“Streeterville”), pursuant to which we sold and issued to Streeterville a promissory note in the principal amount of approximately $2.0 million (the “2022 Streeterville Note”).
We do not discuss recent standards that are not anticipated to have an impact on or are unrelated to our consolidated financial condition, results of operations, cash flows or disclosures.
We do not discuss recent standards that are not anticipated to have an impact on or are unrelated to our consolidated financial condition, results of operations, cash flows or disclosures. 51 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 pursuing cost-saving measures to enhance profitability.
Additionally, global supply chain and logistics constraints and the ongoing evolution of international trade policies are impacting our inventory purchasing strategy, as we seek to manage both shortages of available components and longer lead times in obtaining components while pursuing cost-effectiveness measures to enhance profitability.
The Company recorded this as a lease modification in accordance with ASC 842 Leases (“ASC 842”) and recorded a reduction to the right of use asset and lease liability of approximately $395 thousand using an incremental borrowing rate of approximately 13.64%.
The Company recorded this as a lease modification in accordance with ASC 842 Leases (“ASC 842”) and recorded a reduction to the right of use asset and lease liability of approximately $395 thousand using an incremental borrowing rate of approximately 13.64%. The Company recognized a gain on the lease modification of $63 thousand during the third quarter of 2024.
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.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) FOR THE YEARS ENDED DECEMBER 31, (amounts in thousands) 2025 2024 Effect of exchange rate changes on cash — — Net increase (decrease) in cash 499 (1,465) Cash, beginning of year 565 2,030 Cash, end of year $ 1,064 $ 565 Supplemental information: Cash paid in year for interest $ — $ 5 Non-cash investing and financing activities: Debt-to-equity exchange transactions $ — $ 591 The accompanying notes are an integral part of these consolidated financial statements. 44 Table of Contents ENERGY FOCUS, INC.
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.
The following table provides a breakdown of product net sales for the years indicated (in thousands): Year ended December 31, 2025 2024 Commercial products $ 1,536 $ 1,390 MMM products 1,989 3,470 Setup Service 35 — Total net sales $ 3,560 $ 4,860 A geographic summary of net sales is as follows (in thousands): For the year ended December 31, 2025 2024 United States $ 2,967 $ 4,848 International 593 12 Total net sales $ 3,560 $ 4,860 At December 31, 2025 and 2024, approximately 100% of our long-lived assets, which consist of property and equipment, were located in the United States.
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.
The reserve for credit losses is reviewed and assessed for adequacy on a quarterly basis. We take into consideration (1) any circumstances of which we are aware of a customer's inability to meet its financial obligations and (2) our judgments as to prevailing economic conditions in the industry and their impact on our customers.
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.
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.
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.
They consist of costs for the placement of our advertisements in various media and the costs of demos provided to potential distributors of our products. Advertising expenses were $1 thousand and $6 thousand for the years ended December 31, 2025 and 2024, respectively.
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.
Our practice is to recognize interest and penalties related to income tax matters in income tax expense when and if they become applicable. At December 31, 2025 and 2024, respectively, there were no accrued interest and penalties related to uncertain tax positions. 59 Table of Contents ENERGY FOCUS, INC.
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, (amounts in thousands except share data) 2024 2023 Operating lease liabilities, net of current portion 254 798 Total liabilities 2,697 7,149 STOCKHOLDERS' EQUITY (DEFICIT) Preferred stock, par value $0.0001 per share: Authorized: 5,000,000 shares (3,300,000 shares designated as Series A Convertible Preferred Stock) at December 31, 2024 and December 31, 2023 Issued and outstanding: 876,447 shares at December 31, 2024 and December 31, 2023 — — Common stock, par value $0.0001 per share: Authorized: 50,000,000 shares at December 31, 2024 and December 31, 2023 Issued and outstanding: 5,260,741 shares at December 31, 2024 and 4,348,690 shares at December 31, 2023 1 — Additional paid-in capital 157,814 156,369 Accumulated other comprehensive loss (3) (3) Accumulated deficit (154,897) (153,315) Total stockholders' equity 2,915 3,051 Total liabilities and stockholders' equity $ 5,612 $ 10,200 The accompanying notes are an integral part of these consolidated financial statements. 38 Table of Contents ENERGY FOCUS, INC.
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, (in thousands, except share and per share amounts) 2025 2024 Operating lease liabilities, net of current portion 78 254 Total liabilities 1,000 2,697 STOCKHOLDERS' EQUITY Preferred stock, par value $0.0001 per share: Authorized: 5,000,000 shares (3,300,000 shares designated as Series A Convertible Preferred Stock) at December 31, 2025 and December 31, 2024 Issued and outstanding: 876,447 shares at December 31, 2025 and December 31, 2024 — — Common stock, par value $0.0001 per share: Authorized: 50,000,000 shares at December 31, 2025 and December 31, 2024 Issued and outstanding: 6,306,433 shares at December 31, 2025 and 5,260,741 shares at December 31, 2024 1 1 Additional paid-in capital 160,035 157,814 Accumulated other comprehensive loss (3) (3) Accumulated deficit (155,924) (154,897) Total stockholders' equity 4,109 2,915 Total liabilities and stockholders' equity $ 5,109 $ 5,612 The accompanying notes are an integral part of these consolidated financial statements. 39 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.
Components of the operating lease costs recognized in net loss were as follows (in thousands): For the years ended December 31, 2025 2024 Lease cost $ 175 $ 303 Supplemental Consolidated Balance Sheet information related to the Company’s operating leases as of December 31, 2025 and 2024 are follows (in thousands): At December 31, 2025 2024 Operating Leases Operating lease right-of-use assets $ 207 $ 377 Operating lease liabilities 217 393 53 Table of Contents ENERGY FOCUS, INC.
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.
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, 2025 2024 Equipment (useful life 3 - 15 years) $ 496 $ 490 Tooling (useful life 2 - 5 years) 210 171 Vehicles (useful life 5 years) 41 41 Leasehold improvements (the shorter of useful life or lease life) 124 124 Property and equipment at cost 871 826 Less: accumulated depreciation (774) (736) Property and equipment, net $ 97 $ 90 Depreciation expense was $37 thousand for the years ended December 31, 2025 and 2024.
The advanced capital contribution was exchanged for common stock on March 28, 2024. See Note 9, “Stockholders’ Equity.” NOTE 8. COMMITMENTS AND CONTINGENCIES Purchase Commitments As of December 31, 2024, we had approximately $0.3 million in outstanding purchase commitments for inventory, of which the majority is expected to ship in the first quarter of 2025.
The advanced capital contribution was exchanged for common stock on March 28, 2024. See Note 10, “Stockholders’ Equity.” NOTE 9. COMMITMENTS AND CONTINGENCIES Purchase Commitments As of December 31, 2025, we had approximately $0.4 million in outstanding purchase commitments for inventory.
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.
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, 2025 2024 Selling, general, and administrative 121 4 Total stock-based compensation $ 121 $ 4 Total unearned stock compensation expense was $1 thousand and $2 thousand at December 31, 2025 and 2024, respectively.
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, (amounts in thousands except per share data) 2024 2023 Net sales $ 4,860 $ 5,717 Cost of sales 4,161 5,494 Gross profit 699 223 Operating expenses: Product development 524 587 Selling, general, and administrative 2,017 3,607 Total operating expenses 2,541 4,194 Loss from operations (1,842) (3,971) Other expenses (income): Interest income — (57) Interest expense 5 380 Gain on debt extinguishment (187) — Gain on partial lease termination (63) — Other income (27) (30) Other expenses 10 26 Loss from operations before income taxes (1,580) (4,290) Provision for income taxes 2 3 Net loss $ (1,582) $ (4,293) Net loss per common stock basic and diluted: Net loss $ (0.32) $ (1.32) Weighted average shares of common stock outstanding: Basic and diluted 4,947 3,241 The accompanying notes are an integral part of these consolidated financial statements. 39 Table of Contents ENERGY FOCUS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, (in thousands, except per share amounts) 2025 2024 Net sales $ 3,560 $ 4,860 Cost of sales 2,888 4,161 Gross profit 672 699 Operating expenses: Product development 412 524 Selling, general, and administrative 1,284 2,017 Total operating expenses 1,696 2,541 Loss from operations (1,024) (1,842) Other expenses (income): Interest income (2) — Interest expense — 5 Gain on debt extinguishment — (187) Gain on partial lease termination (2) (63) Gain on disposal of fixed assets (3) — Other income — (27) Other expenses 10 12 Loss from operations before income taxes (1,027) (1,582) Provision for income taxes — — Net loss $ (1,027) $ (1,582) Net loss per common stock - basic and diluted Net loss $ (0.18) $ (0.32) Weighted average shares of common stock outstanding: Basic and diluted 5,553 4,947 The accompanying notes are an integral part of these consolidated financial statements. 40 Table of Contents ENERGY FOCUS, INC.
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.
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.
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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The maturities of lease liabilities under operating leases by years at December 31, 2025 are as follows (in thousands): Operating Leases 2026 159 2027 80 Total future undiscounted lease payments 239 Less imputed interest (22) Total lease obligations $ 217 Supplemental cash flow information related to leases was as follows (in thousands): Years ended December 31, 2025 2024 Supplemental Cash Flow Information: Cash paid, net, for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 175 $ 343 NOTE 4.
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.
Expenditures for repairs and maintenance are charged to operations as incurred. We use the straight-line method of depreciation over the estimated useful lives of the related assets (generally two years to 15 years) for financial reporting purposes. Accelerated methods of depreciation are used for federal income tax purposes.
Dilutive potential shares of common stock consist of incremental shares upon the exercise of stock options, warrants and convertible securities, unless the effect would be anti-dilutive.
Diluted loss per share gives effect to all dilutive potential shares of common stock outstanding during the period. Dilutive potential shares of common stock consist of incremental shares upon the exercise of stock options, warrants and convertible securities, unless the effect would be anti-dilutive.
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.
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.
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.
NOTE 6. PREPAID AND OTHER CURRENT ASSETS Prepaid and other current assets consisted of the following (in thousands): At December 31, 2025 2024 Prepaid insurance $ 46 $ 36 Prepaid expenses 62 77 Prepaid rent 18 44 Total prepaid and other current assets $ 126 157 NOTE 7.
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.
Estimates include, but are not limited to, the establishment of credit losses allowance for accounts receivable, sales returns, inventory obsolescence and warranty claims, the useful lives of property and equipment, valuation allowance for net deferred taxes, and stock-based compensation.
Consideration for the transaction included exchange of $450 thousand in the aggregate of outstanding amounts on previous advanced capital contributions, as described above in Note 6, “Debt”. Aggregate gross proceeds to the Company in respect of the March 2024 Private Placement were approximately $450 thousand. The March 2024 Private Placement was priced at-the-market under the Nasdaq rules.
Consideration for the transaction included exchange of $450 thousand in the aggregate of outstanding amounts on capital contributions received in October 2023. Aggregate gross proceeds to the Company in respect of the March 2024 Private Placement were approximately $450 thousand. The March 2024 Private Placement was priced at-the-market under the Nasdaq rules. 57 Table of Contents ENERGY FOCUS, INC.
With specific materials, all of our purchases are from a single vendor. The availability and costs of materials may be subject to change due to, among other things, new laws or regulations, suppliers’ allocation to other purchasers, interruptions in production by suppliers, global health issues such as the 50 Table of Contents ENERGY FOCUS, INC.
With specific materials, all of our purchases are from a single vendor. The availability and costs of materials may be subject to change due to, among other things, new laws or regulations, suppliers’ allocation to other purchasers, interruptions in production by suppliers, and changes in exchange rates tariff and worldwide price and demand levels.
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.
These costs will be charged to expense and amortized on a straight-line basis in future periods. The weighted average period over which the unearned compensation at December 31, 2025 is expected to be amortized was approximately 1.3 years. 58 Table of Contents ENERGY FOCUS, INC.
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.
Below is the breakout of the Company’s contract assets for such periods (in thousands): December 31, 2025 December 31, 2024 January 1, 2024 Gross Accounts Receivable $ 559 $ 819 $ 1,590 Less: Allowance for Credit Losses (33) (15) (20) Net Accounts Receivable $ 526 804 1,570 Activity related to our allowance for credit losses for the years ended December 31, 2025 and 2024 was as follows (in thousands): Allowance for credit losses as of January 1, 2024 $ (20) Reduction of reserve for credit losses for the year ended December 31, 2024 5 Allowance for credit losses as of December 31, 2024 (15) Increase in reserve for credit losses for the year ended December 31, 2025 (18) Allowance for credit losses as of December 31, 2025 $ (33) Geographic information All our long-lived fixed assets are located in the United States.
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.
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, 2025 2024 Current: U.S. federal $ — $ — State — — Foreign — — Total current $ — $ — Deferred: U.S.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS anticipated within the next year, development and implementation of an excess inventory reduction plan, plans and initiatives in our research and development, product development and sales and marketing, and development of potential channel partnerships, if adequately executed, could provide us with an ability to finance our operations through the next twelve months and may mitigate the substantial doubt about our ability to continue as a going concern.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS partnerships, if adequately executed, could provide us with an ability to finance our operations through the next twelve months and may mitigate the substantial doubt about our ability to continue as a going concern.
Accelerated methods of depreciation are used for federal income tax purposes. When assets are sold or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the Consolidated Statements of Operations.
When assets are sold or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the Consolidated Statements of Operations. 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.
Considering both quantitative and qualitative information, we continue to believe that the combination of our plans to ensure adequate external funding, timely re-organizational actions, current financial position, liquid resources, obligations due or anticipated within the next year, development and implementation of an excess inventory reduction plan, plans and initiatives in our research and development, product development and sales and marketing, and development of potential channel 45 Table of Contents ENERGY FOCUS, INC.
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.
These elements include the expected life of the option, the expected stock-price volatility, and expected forfeiture rates. Compensation expense is generally amortized on a straight-line basis over the requisite service period, which is generally the vesting period. Please refer to Note 10, “Stockholders’ Equity,” for additional information. Advertising expenses Advertising expenses are charged to operations in the period incurred.
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.
Changes from one quarter to the next related to the observability of inputs in a fair value measurement may result in a reclassification between fair value hierarchy levels. There were no reclassifications for all periods presented. Property and equipment Property and equipment are stated at cost and include expenditures for additions and major improvements.
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.
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 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.
The asset would be considered impaired when the future net undiscounted cash flows generated by the asset are less than its carrying value.
LEASES The Company leases certain equipment, manufacturing, warehouse and office space under non-cancellable operating leases with expirations through 2027 under which it is responsible for related maintenance, taxes and insurance. As of March 25, 2022, the terms of our real estate operating lease have been modified beginning July 1, 2022 and extended through 2027.
LEASES The Company leases certain equipment, manufacturing, warehouse and office space under non-cancellable operating leases with expirations through 2027 under which it is responsible for related maintenance, taxes and insurance.
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.
For the twelve months ended December 31, 2025 and 2024, approximately 83% and 100% of sales were attributable to customers in the United States, respectively, and 17% and 0%, were attributable to customers outside the United States, respectively. The geographic location of our net sales is derived from the destination to which we ship the product.
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, (amounts in thousands) 2024 2023 Cash flows from operating activities: Net loss $ (1,582) $ (4,293) Adjustments to reconcile net loss to net cash used in operating activities: Other income — (40) Gain on partial lease termination (63) — Gain on debt extinguishment (187) — Depreciation 37 33 Stock-based compensation 4 44 Provision for credit losses and sales returns (69) 6 Provision for slow-moving and obsolete inventories 347 25 Provision for warranties (32) (33) Amortization of loan discounts and origination fees 5 225 Change in operating assets and liabilities: Accounts receivable 1,037 (1,131) Accounts receivable - related party — (202) Inventories 829 1,012 Prepayments to vendors 83 (200) Prepaid and other assets 3 521 Accounts payable (301) (580) Accounts payable- related party (1,237) 2,146 Accrued and other liabilities (128) (47) Right of use assets and lease liabilities (43) 75 Total adjustments 285 1,854 Net cash used in operating activities (1,297) (2,439) Cash flows from investing activities: Acquisitions of property and equipment (19) (69) Net cash used in investing activities (19) (69) Cash flows from financing activities: 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 (continued on the following page) 42 Table of Contents ENERGY FOCUS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, (in thousands) 2025 2024 Cash flows from operating activities: Net loss $ (1,027) $ (1,582) Adjustments to reconcile net loss to net cash used in operating activities: Foreign exchange loss 1 — Loss on settlement of vendor obligations 8 — Gain on partial lease termination (2) (63) Gain on debt extinguishment — (187) Gain on disposal of fixed assets (3) — Depreciation 37 37 Stock-based compensation 121 4 Provision for credit losses and sales returns 10 (69) Provision for slow-moving and obsolete inventories 244 347 Provision for warranties (27) (32) Amortization of loan discounts and origination fees — 5 Change in operating assets and liabilities: Accounts receivable 266 1,037 Inventories (262) 829 Prepayments to vendors (1) 83 Prepaid and other assets 32 3 Accounts payable (115) (301) Accounts payable - related party (523) (1,237) Accrued and other liabilities (159) (128) Right of use assets and lease liabilities (4) (43) Total adjustments (377) 285 Net cash used in operating activities (1,404) (1,297) Cash flows from investing activities: Acquisitions of property and equipment (54) (19) Proceeds from the sale of property and equipment 13 — Advance for investment in joint venture (156) — Net cash used in investing activities (197) (19) Cash flows from financing activities: Issuance of common stock 2,100 851 Payments on the 2022 Streeterville Note — (1,000) Net cash provided by (used in) financing activities 2,100 (149) (continued on the next page) 43 Table of Contents ENERGY FOCUS, INC.
Chiao Chieh (Jay) Huang, pursuant to which the Company agreed to issue and sell, in a private placement (the “March 28, 2023 Private Placement”), 15,500 shares of the Company’s common stock for a purchase price of $3.55 per share.
Chiao Chieh (Jay) Huang, pursuant to which the Company agreed to issue and sell in a private placement an aggregate of 103,627 shares of the Company’s common stock, par value $0.0001 per share, for a purchase price per share of $1.93 (the “March 2025 Private Placement").
Columbus, Ohio March 25, 2025 36 Table of Contents ENERGY FOCUS, INC.
Columbus, Ohio March 24, 2026 37 Table of Contents ENERGY FOCUS, INC.
CONSOLIDATED 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.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024 (in thousands) Additional Paid-in Capital Accumulated Other Comprehensive Loss Preferred Stock Common Stock Accumulated Deficit Shares Amount Shares Amount Total Balance at January 1,2024 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 Issuance of common stock — — 1,002 — 2,100 — — 2,100 Shares issued as stock-based compensation — — 43 — 121 — — 121 Net loss — — — — — — (1,027) (1,027) Balance at December 31, 2025 876 $ — 6,306 $ 1 $ 160,035 $ (3) $ (155,924) $ 4,109 The accompanying notes are an integral part of these consolidated financial statements. 42 Table of Contents ENERGY FOCUS, INC.
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.
Additionally, certain vendors require advance deposits prior to the fulfillment of orders. Deposits paid on unfulfilled orders totaled $3 thousand and $356 thousand at December 31, 2025 and 2024, respectively. 52 Table of Contents ENERGY FOCUS, INC.
June 2023 Private Placement On June 29, 2023, the Company entered into a securities purchase agreement with certain purchasers, pursuant to which the Company agreed to issue and sell in a private placement an aggregate of 746,875 shares of the Company’s common stock, par value $0.0001 per share, for a purchase price per share of $1.76 (the “June 2023 Private Placement”).
Chiao Chieh (Jay) Huang, pursuant to which the Company agreed to issue and sell in a private placement an aggregate of 110,497 shares of the Company’s common stock, par value $0.0001 per share, for a purchase price per share of $1.81 (the “June 2025 Private Placement”).
A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. In determining the appropriate levels, we perform a detailed analysis of the assets and liabilities whose fair value is measured on a recurring basis.
In determining the appropriate levels, we perform a detailed analysis of the assets and liabilities whose fair value is measured on a recurring basis. We review and reassess the fair value hierarchy classifications on a quarterly basis.
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.
A disaggregation of product and service net sales is presented in Note 12, “Product and Geographic Information.” Accounts Receivable Our trade accounts receivable consists of amounts billed to and currently due from customers. In the normal course of business, we extend unsecured credit to our customers related to the sale of our products.
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.
If not utilized, the NOLs generated prior to December 31, 2017 of $7.3 million will begin to expire in 2026 for federal purposes and have begun to expire for state and local purposes.
Net loss per share Basic loss per share is computed by dividing net loss available to common stockholders by the weighted average number of shares of common stock outstanding during the period, excluding the effects of any potentially dilutive securities. Diluted loss per share gives effect to all dilutive potential shares of common stock outstanding during the period.
We recognized $0.4 million and $0.5 million product development costs for the years ended December 31, 2025 and 2024, respectively. Net loss per share Basic loss per share is computed by dividing net loss available to common stockholders by the weighted average number of shares of common stock outstanding during the period, excluding the effects of any potentially dilutive securities.
Many of the amendments allow users to more easily compare entities subject to the SEC’s existing disclosures with those entities that were not previously subject to the SEC’s requirements. Also, the amendments align the requirements in the Codification with the SEC’s regulations.
Because of the variety of Topics amended, a broad range of entities may be affected by one or more of those amendments. Many of the amendments allow users to more easily compare entities subject to the SEC’s existing disclosures with those entities that were not previously subject to the SEC’s requirements.
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.
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, (in thousands, except share and per share amounts) 2025 2024 ASSETS Current assets: Cash $ 1,064 $ 565 Trade accounts receivable, less allowances of $33 and $15, respectively 526 804 Inventories, net 2,930 3,263 Prepayments to vendors 3 356 Prepaid and other current assets 126 157 Total current assets 4,649 5,145 Property and equipment, net 97 90 Operating lease, right-of-use asset 207 377 Advance for investment in joint venture 156 — Total assets $ 5,109 $ 5,612 LIABILITIES Current liabilities: Accounts payable $ 158 $ 970 Accounts payable - related party 386 909 Accrued liabilities 56 90 Accrued legal and professional fees 44 54 Accrued payroll and related benefits 47 148 Accrued sales commissions 1 15 Accrued warranty reserve 91 118 Operating lease liabilities 139 139 Total current liabilities 922 2,443 (continued on the next page) 38 Table of Contents ENERGY FOCUS, INC.

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