ENERGY FOCUS, INC/DE 10-Q

ITEM 5. OTHER INFORMATION On August 11, 2020, Energy Focus, Inc. (the “Company” or “Borrower”) entered into two debt financing arrangements (collectively, the “Facilities”). The first arrangement was an inventory financing facility (the “Inventory Facility”) in the form of a Loan and Security Agreement (the “Inventory Loan Agreement”) between the Company and Crossroads Financial Group, LLC, a North Carolina limited liability company (the “IF Lender”), dated as of August 11, 2020. The Inventory Facility matures on August 11, 2022, subject to early termination upon 90 days’ notice and otherwise in accordance with the terms of the Inventory Loan Agreement. The term is automatically extended in successive one (1) year increments unless terminated by either party in accordance with the Inventory Loan Agreement. Borrowings under the Inventory Facility are permitted up to the lower of (i) $3,000,000 and (ii) a borrowing base, determined from time to time based on the value of the Company’s eligible inventory, valued at 75% of inventory cost or 85% of the inventory net orderly liquidation value, less the availability reserves. As of the date of the Inventory Loan Agreement, the borrowing base was approximately $2.448 million, and therefore less than the $3,000,000 maximum amount. The outstanding indebtedness under the Inventory Facility currently accrues at an annual rate equal to the greater of (i) 5.75% and (ii) 4.00% plus the three (3) month LIBOR rate and is also subject to a service fee of 1.00% per month; provided that the combined amount is subject to a minimum monthly fee of $18,490. The Inventory Facility is secured by substantially all of the present and future assets of the Borrower and is also governed by an intercreditor agreement among the Borrower, IF Lender and RF Lender (defined below). The Inventory Loan Agreement also contains customary events of default, including, among others, breaches of representations, covenants or warranties thereunder; failure to perform any payment obligations; a sale of fifty percent (50%) or more of the beneficial interest in any class of voting stock of Borrower, or the failure of any key employee to devote all of its efforts in furtherance of the business affairs of Borrower for any one month or such person ceases to be employed by Borrower in the same capacity as of the date of the Inventory Loan Agreement. The Inventory Loan Agreement is subject to certain affirmative covenants which include, among others, (i) maintenance of Borrower’s factoring relationship under the Receivables Facility (as defined below); (ii) delivery to the IF Lender of certain reports and financial statements on a periodic basis, (iii) payment of taxes when due and (iv) maintenance of insurance. The Inventory Loan Agreement is subject to certain negative covenants which include, among others, restrictions (with certain exceptions) on the ability of Borrower: (i) to grant any lien on the collateral, except in favor of IF Lender or pursuant to the Receivables Facility; (ii) to merge with or into another person, liquidate or dissolve, acquire all or substantially all of the assets of any person, or sell, assign or otherwise dispose of a substantial part of its business; (iii) to sell, convey, assign, lease, transfer, abandon or otherwise dispose of any of its properties, except in the ordinary course of business; (iv) incur or guarantee any 36 indebtedness, (v) to make any distribution or dividend or to repurchase its capital stock, (vi) to enter into material transactions with its affiliates, other than in the ordinary course of business, (vii) relating to the storage and sale of inventory, and (viii) to establish new deposit accounts. The second arrangement was a receivables financing facility (the “Receivables Facility”) in the form of a Loan and Security Agreement (the “Receivables Loan Agreement”) between the Company and Factors Southwest L.L.C. (d/b/a FSW Funding), an Arizona limited liability company (the “RF Lender”), dated as of August 11, 2020. The Receivables Facility matures on August 11, 2022, subject to early termination in accordance with the terms of the Receivables Loan Agreement; provided that the term is automatically extended in successive one (1) year increments unless terminated by either party in accordance with the Receivables Loan Agreement. Borrowings under the Receivables Facility are permitted up to the lower of (i) $2,500,000 and (ii) a borrowing base determined from time to time based on the value of the Company’s eligible accounts receivable, valued at 90% of the face value of such accounts receivable, less availability reserves, if any. As of the date of the Receivables Loan Agreement, the borrowing base was approximately $1.637 million, which is less than the $2,500,000 maximum amount. Interest on outstanding indebtedness under the Receivables Facility currently accrues at an annual rate equal to (i) the highest prime rate announced from time to time by the Wall Street Journal plus (ii) 2.00%. The Receivables Facility is also secured by substantially all of the present and future assets of the Borrower and is also governed by an intercreditor agreement among the Borrower, IF Lender and RF Lender. A $25 thousand, or 1.00%, facility fee was charged at closing. The Receivables Loan Facility also contains customary events of default, including, among others, failure to perform any payment obligations; the failure to comply with its other material obligations under the Receivables Loan Agreement; a change of control of Borrower or any other obligor occurs; or the failure of any key employee to devote substantially all of his or her efforts in furtherance of the business affairs of Borrower or any obligor under the Receivables Loan Agreement, or such person ceases to be employed by Borrower or any obligor under the Receivables Loan Agreement in the same capacity as of the date of the Receivables Loan Agreement and Borrower has failed to demonstrate to RF Lender a reasonable replacement within 60 days. The Receivables Loan Agreement is subject to certain affirmative covenants which include, among others, (i) delivery to the RF Lender of certain reports and financial statements on a periodic basis; (ii) maintenance of properties; (iii) payment of taxes when due; (iv) maintenance of insurance; (v) compliance with laws; and (vi) maintenance of corporate existence. The Receivables Loan Agreement is subject to certain negative covenants which include, among others, restrictions (with certain exceptions) on the ability of Borrower: (i) to grant any lien on the collateral, except in favor of the RF Lender or as contemplated by the intercreditor agreement with the Inventory Facility, (ii) incur or guarantee any indebtedness other than pursuant to the Facilities or as otherwise permitted, (iii) to merge with or into another person, liquidate or dissolve, or sell, assign or otherwise dispose of all or a substantial part of its assets; (iv) to sell, convey, assign, lease, transfer, abandon or otherwise dispose of any of its properties, except in the ordinary course of business, (v) to change Borrower’s name or suffer a change in control, (vi) to make any distribution or dividend or to repurchase its capital stock, (vii) to enter into material transactions with its affiliates, other than in the ordinary course of business, (vii) to relocate its chief executive office, and (viii) fail to comply with certain covenants relating to the collateral. The Inventory Loan Agreement and Receivables Loan Agreement are being filed herewith solely to provide investors and security holders with information regarding their terms. They are not intended to be a source of financial, business or operational information about the Borrower or any of its subsidiaries. The representations, warranties and covenants contained in the Inventory Loan Agreement and Receivables Loan Agreement are made solely for purposes of the loan documents and are made as of specific dates; are solely for the benefit of the parties thereto; may be subject to qualifications and limitations agreed upon by the parties in connection with negotiating the terms of such loan documents, including being qualified by confidential disclosures made for the purpose of allocating contractual risk between the parties and are not for the purpose of establishing matters as facts; and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors or security holders. Investors and security holders should not rely on the representations, warranties and covenants or any description thereof as characterizations of the actual state of facts or condition of the Borrower or any of its subsidiaries. Moreover, information concerning the subject matter of the representations, warranties and covenants may change after the date of the loan documents, which subsequent information may or may not be fully reflected in public disclosures. Additionally, in connection with the entry into the Facilities described, on August 11, 2020, the Borrower terminated its existing credit agreement dated as of December 11, 2018, by and among Borrower and Austin Financial Services, Inc. The terminated credit facility permitted loans in an amount of up to $5,000,000. The terminated facility was secured by substantially all of the assets of Borrower. The other material terms of the terminated facility have been previously disclosed in Borrower’s periodic public filings. There was a $100,000 breakage fee associated with the terminated credit facility. 37 ITEM 6. EXHIBITS EXHIBIT INDEX Exhibit Number Description of Documents 3.1 Certificate of Incorporation of Energy Focus, Inc. (incorporated by reference to Appendix A to the Registrant’s Definitive Proxy Statement on Schedule 14A filed on May 1, 2006). 3.2 Certificate of Amendment to the Certificate of Incorporation of Energy Focus, Inc. filed with the Secretary of State of the State of Delaware on June 21, 2010 (incorporated by reference to Exhibit 3.2 to the Registrant’s Annual Report on Form 10-K filed on March 24, 2020). 3.3 Certificate of Amendment to the Certificate of Incorporation of Energy Focus, Inc. filed with the Secretary of State of the State of Delaware on October 9, 2012 (incorporated by reference to Exhibit 3.3 to the Registrant’s Annual Report on Form 10-K filed on March 24, 2020). 3.4 Certificate of Amendment to the Certificate of Incorporation of Energy Focus, Inc. filed with the Secretary of State of the State of Delaware on October 28, 2013 (incorporated by reference to Exhibit 3.4 to the Registrant’s Annual Report on Form 10-K filed on March 24, 2020). 3.5 Certificate of Amendment to the Certificate of Incorporation of Energy Focus, Inc. filed with the Secretary of State of the State of Delaware on July 16, 2014 (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on July 16, 2014). 3.6 Certificate of Amendment to the Certificate of Incorporation of Energy Focus, Inc. filed with the Secretary of State of the State of Delaware on July 24, 2015 (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on July 27, 2015). 3.7 Certificate of Amendment to the Certificate of Incorporation of Energy Focus, Inc. filed with the Secretary of State of the State of Delaware on January 15, 2020 (incorporated by reference to Exhibit 3.7 to the Registrant’s Annual Report on Form 10-K filed on March 24, 2020). 3.8 Certificate of Designation of Series A Convertible Preferred Stock of Energy Focus, Inc. (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on April 1, 2019). 3.9 Amendment to the Certificate of Designation of Series A Convertible Preferred Stock of Energy Focus, Inc. (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on May 30, 2019). 3.10 Amendment to the Certificate of Designation of Series A Convertible Preferred Stock of Energy Focus, Inc. filed with the Secretary of State of the State of Delaware on January 15, 2020 (incorporated by reference to Exhibit 3.10 to the Registrant’s Annual Report on Form 10-K filed on March 24, 2020). 3.11 Certificate of Amendment of Certificate of Incorporation, dated June 11, 2020 (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on June 11, 2020. 3.12 Bylaws of Energy Focus, Inc. (incorporated by reference to Exhibit 3. 1 to the Registrant’s Current Report on Form 8 -K filed on May 18, 2 020 ). 3.13 Certificate of Ownership and Merger, Merging Energy Focus, Inc., a Delaware corporation, into Fiberstars, Inc., a Delaware corporation, filed with the Secretary of State of the State of Delaware on May 4, 2007 (incorporated by reference to Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q filed on May 10, 2007). 10.1 SBA Loan Agreement, dated as of April 17, 2020, between the Company and KeyBank National Association (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on F o r m 10-Q filed on May 13, 2020). 10.2+ Loan and Security Agreement , dated as of August 11, 2020, b y and b etween the Company and Crossroads Financial Group , LLC. 10.3+# Loan and Security Agreement , dated as of August 11, 2020, by and between the Company and F actors S outhwest L.L.C . 31.1+ Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2+ Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. . 38 32.1++ Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *101 The following financial information from our Quarterly Report for the quarter ended June 30, 2020, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets at June 30, 2020 and December 31, 2019, (ii) Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2020 and 2019, (iii) Condensed Consolidated Statements of Comprehensive Loss for the three and six months ended June 30, 2020 and 2019, (iv) Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and six months ended June 30, 2020 and 2019, (v) Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and 2019, and (vi) the Notes to Condensed Consolidated Financial Statements. *104 Cover Page Interactive Data File (embedded within the Inline XBRL document) * Pursuant to Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections. + Filed herewith ++ This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) or otherwise subject to the liability of that Section. Such exhibit shall not be deemed incorporated into any filing under the Securities Act of 1933, as amended, or the Exchange Act. # Portions of this exhibit have been redacted in compliance with Regulation S-K Item 601(b)(10) 39 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ENERGY FOCUS, INC. Date: August 13, 2020 By: /s/ James Tu James Tu Executive Chairman and Chief Executive Officer (Principal Executive Officer) Date: August 13, 2020 By: /s/ Tod A. Nestor Tod A. Nestor President, Chief Financial Officer and Secretary (Principal Financial and Accounting Officer) 40