ENERGY FOCUS, INC/DE 10-K

ITEM 1. BUSINESS Overview The Company was founded in 1985 as Fiberstars, Inc., a California corporation, and reincorporated in Delaware in November 2006. In May 2007, Fiberstars, Inc. merged with and became Energy Focus, Inc., also a Delaware corporation. Our principal executive offices are located at 32000 Aurora Road, Suite B, Solon, Ohio 44139. Our telephone number is 440.715.1300. Our website address is www.energyfocus.com. Information on our website is not part of this Annual Report. Energy Focus, Inc. engages primarily in the design, development, manufacturing, marketing and sale of energy-efficient LED lighting systems and controls. We develop, market and sell high quality energy-efficient LED lighting products and controls and have recently announced development of a range of UVCD products. We develop, market and sell high quality LED lighting products and UVCD products and controls in the commercial and military maritime markets (“MMM”). Our mission is to enable our customers to run their facilities and offices with greater energy efficiency, productivity, and human health through advanced LED retrofit and UVCD solutions. Our goal is to be the LED and human-centric lighting (“HCL”) technology and market leader for the most demanding applications where performance, quality, value (high quality at an affordable price), environmental impact and health are considered paramount. We specialize in LED lighting retrofit by replacing fluorescent, high-intensity discharge (“HID”) lighting and other types of lamps and fixtures in institutional buildings for primarily indoor lighting applications with our innovative, high-quality commercial and military tubular LED (“TLED”), and other LED, UVCD and lighting control products. In 2020, we continued to build upon the transition and transformation activities started during 2019 in order to stabilize and regrow our business. This transition is exemplified by the following key and significant developments that occurred during 2020: 3 Table of Contents • We launched our EnFocus™ platform during the second quarter of 2020 and continued to receive positive feedback from existing, new, and prospective customers. The EnFocus™ platform offers two immediately available product lines: EnFocus™ DM, which provides a dimmable lighting solution, and EnFocus™ DCT, which provides both a dimmable and color tunable lighting solution. EnFocus™ enables buildings to have dimmable, color tunable and circadian-ready lighting using existing wiring, without requiring any wireless communications, through a relatively simple upgrade with EnFocus™ switches and tubular LEDs, a more environmentally sustainable solution compared with replacing each lighting fixture. • In response to the COVID-19 pandemic and an anticipated increase in sanitation and hygiene demand for buildings, facilities and homes, we started developing advanced UVCD products for both consumer as well as the commercial and industrial markets in the first quarter of 2020. We announced three initial UVCD products in October 2020: abUV™ circadian lighting and UVCD air disinfection integrated troffers controlled by the EnFocus™ platform technology; the nUVo™ portable disinfection device for offices and homes; and the mUVe™ autonomous robot designed for surface disinfection. • We continued to seek additional external funding alternatives and sources to support our growth strategies, plans and initiatives: ◦ In January 2020, we completed a registered direct offering for the sale of 688,360 shares of our common stock to certain institutional investors and sold, to the same institutional investors, warrants to purchase up to 688,360 shares of common stock in a concurrent private placement. In addition, we issued warrants to the placement agent to purchase up to 48,185 shares of common stock. Net proceeds from the sale of common stock and warrants were approximately $2.3 million; ◦ In April 2020, we were granted a loan from KeyBank National Association in the amount of approximately $795 thousand, pursuant to the Paycheck Protection Program under Division A of the Coronavirus Aid, Relief and Economic Security Act; ◦ We effected a five-for-one reverse stock split of our common stock in June 2020, to increase the per share trading price of the Company’s common stock to satisfy the $1.00 minimum bid price requirement for continued listing on The Nasdaq Capital Market; ◦ In August 2020, we refinanced our previous secured credit facility with new credit facilities secured by our inventory and receivables, which increased our borrowing capacity at a lower blended borrowing cost; and ◦ In December 2020, we amended certain terms of our outstanding warrants, which are now reflected as a component of equity. • Executive management growth - James R. Warren joined the Company as Senior Vice President, General Counsel and Corporate Secretary. The addition of Mr. Warren furthers the Company’s objectives of strengthening its operational foundation for the Company to be positioned for growth in the LED and UVCD markets. During 2020, we significantly expanded our engineering capabilities and invested in our intellectual property portfolio for both lighting controls and UVCD products, and we continued to broaden our product distribution network by engaging with new lighting agencies and ESCOs as channel partners and becoming an approved supplier for GSA. We also streamlined our operations by continuing to closely manage all spending done throughout the Company, significantly reducing inventory purchases through more order driven methods, negotiating meaningful cost reductions through strategic sourcing initiatives for our products and services, while reinvesting in primarily sales driven initiatives and efforts. As a result of these efforts, we were able to significantly reduce operating losses even throughout the COVID-19 pandemic. While commercial sales were down versus 2019 levels, primarily due to impacts of the COVID-19 pandemic, we were able to achieve a 32.5% increase in annual sales over 2019 primarily through MMM sales growth. During 2020, in particular after the pandemic started to impact economic activities and building occupancies, we experienced a slowdown and continuing weakness in commercial sales as customers in the healthcare, education, and commercial and industrial sectors put lighting retrofit projects on hold or delayed order placements in reaction to the impacts of the COVID-19 pandemic. We continue to monitor the impact of the COVID-19 pandemic on our customers, suppliers and logistics providers, and to evaluate governmental actions being taken to curtail and respond to the spread of the virus. Although the specific timing of business recovery from the impact of the COVID-19 pandemic is still difficult to predict, we remain optimistic that as the number of infected cases stabilizes or declines and the vaccinated population grows throughout 2021, facility capital budgets will start unfreezing and building occupancy will rise, and our relaunch and growth efforts will further impact our financial performance in a positive way. We plan to achieve profitability through developing and launching new, innovative products such as EnFocus TM and our UVCD 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 4 Table of Contents partnerships. We also plan to continue to develop advanced lighting and lighting control applications built upon the EnFocus TM platform and to expand our UVCD product portfolio. In addition, we intend to continue to apply rigorous financial discipline in our decision making, improve business processes and policies, continue strategic sourcing activities and consistently evolve supply chain practices to help accelerate our path towards profitability. Our Industry We develop advanced LED retrofit technologies and UVCD product solutions that enable our customers to run their facilities with greater energy efficiency, productivity and employee wellness. We aim to be an LED and HCL technology leader and help create a healthier and safer environment by providing high-quality, energy-efficient, “flicker-free”, long-lived tubular and other LED lamps and fixture products, and lighting controls to replace existing linear fluorescent, incandescent, HID lamps and fixtures, as well as offering innovative and impactful UVCD product solutions. We believe these applications represent a significant portion of the LED lighting market and energy savings potential for our targeted commercial, industrial and MMM markets. We believe that the UVCD market is a growing opportunity and that the focus on health and sanitation will remain even after the COVID-19 pandemic is brought under control. LED lighting, and particularly LED retrofit of fluorescent and incandescent lights in existing buildings, represents a large and growing market. A 2020 report issued by the U.S. Department of Energy, Office of Energy Efficiency and Renewable Energy (“DOE”), entitled “Adoption of Light-Emitting Diodes in Common Lighting Applications” reports that from 2016 to 2018, installations of LED products have increased in all applications, increasing LED penetration to 30% of all general illumination lighting. In 2019, Navigant Research published a report that concluded that LED lighting had at least matched conventional lighting technologies on a range of features, including energy efficiency, lifetime, versatility and color quality, while becoming increasingly cost competitive. This same 2019 report forecasts that installed penetration of LED lamps and luminaires will increase dramatically through 2035, reaching about 84%. The increasing demand for LED lighting is being driven by energy and cost savings, environmental considerations and human health. Energy consumption can be reduced by over 50% by replacing fluorescent tubes with LED tubes and by another 20-30% (70% to over 80% in total) by utilizing smart lighting technologies, including dimmable TLEDs with ambient light and occupancy sensors. For this reason, building codes are increasingly requiring not only LEDs, but dimmable LEDs. Governments around the world are implementing regulations and standards that incentivize the use of LED lighting, both smart and conventional, to reduce energy consumption and, therefore, carbon dioxide emissions. Our new product research and development investments since April 2019 have been focusing on advanced and smart lighting technologies to capitalize on these trends, and EnFocus™ represents such a control platform that we aim to expand in terms of functionalities, applications and intelligence, going forward. There is also a growing awareness in the industry of the profound influence lighting can have on human health and well-being. Flicker, which is the modulation of the intensity of LED light at the frequency of the power supply, is well known to cause headaches, eye strain, fatigue, mood triggers and other health issues as well as interfering with electronic equipment such as barcode scanners. The DOE, which has been a leading advocate of the solid-state lighting (“SSL”) revolution, presented a report at LightFair in May 2018, supporting these and other findings. For these reasons, there is growing demand for flicker-free LED lighting, particularly in healthcare and education where concentration, learning and wellness are imperative. Energy Focus tubes are UL-certified at less than 1% optical flicker, positioning us as a leading LED manufacturer to capitalize on this growing opportunity. Smart, or connected, lighting is disrupting the LED industry and providing new opportunities for growth. The DOE defines connected lighting as an LED-based lighting system with integrated sensors and controllers that are networked (either wired or wireless), enabling lighting products within the system to communicate with each other and transmit data. In addition to enabling the intensity and correlated color temperature (“CCT”) of lights to respond to ambient light, time of day and the activities of building occupants, connectivity enables building automation functions that extend well beyond lighting. The interference of blue light with human circadian rhythms is well known. This can be alleviated by circadian lighting, or controlled lighting that is able to change the intensity or CCT of the LEDs depending on the time of day in order to emulate natural light. Other examples of smart, or connected, lighting applications include asset tracking, indoor wayfinding, location-based services, air quality, humidity, smoke, fire and carbon monoxide detection, security and surveillance, and Internet-of-Things (“IoT”). Since lighting sockets are ubiquitous throughout buildings and have access to power, tubes, and controls fixtures are ideal vehicles to retrofit these capabilities into existing buildings. According to Market and Research, the global smart lighting market is estimated to grow from $13.4 billion in 2020 and to $30.6 billion by 2025, at a compound annual growth rate of 18%. 5 Table of Contents From the customer feedback we have been receiving, there is a great and growing interest in implementing technologies that assist with color-shift and various IoT applications and we believe that the overall smart lighting market is still largely underdeveloped due to the cost and complexity of installations of related technologies today in the marketplace, representing significant potential for solutions that could meet customer needs and that could also be affordable, easy to install and secure. Much of this interest and demand has been muted during 2020 as a result of the COVID-19 pandemic, which we believe has primarily delayed, rather than having reduced, our opportunity in the smart lighting marketplace. We believe our EnFocus™ lighting platform could effectively address the unmet needs for circadian and smart lighting, particularly for existing buildings that have limited economical options and/or IT expertise to implement otherwise complex lighting control systems. Our patent-pending UVCD technologies and products aim to provide effective, reliable and affordable UVCD solutions for buildings, facilities and homes. As part of our expanding HCL offering, we are harnessing the power of UV-C light for surface and air disinfection currently via three distinct commercial and consumer products, nUVo™, abUV™ and mUVe™. These products are designed to achieve upwards of 99.9% disinfection of surface and airborne pathogens such as molds, bacteria and viruses, including influenza and coronaviruses. While the LED lighting and smart lighting market is large, growing and underpenetrated, it has also been characterized in recent years by intensifying competition, market leadership changes and aggressive pricing tactics on commoditized products. Our strategy to overcome these challenges is to, first and foremost, develop advanced, impactful and customer-centric technologies and products. In addition, we focus on executing our multi-channel sales strategy and delivering active online educational campaigns combined with a strengthening and expanding sales representative network to ensure and enrich our effective and frequent communication with customers in order to better understand and serve their needs. By understanding the voice of the customer and by incorporating rapidly evolving technologies surrounding LED and smart lighting, be it hardware, software, sensor or cloud technologies, we believe that we will continue to be able to develop solutions that better address the customer’s needs with unique and novel product offerings, such as EnFocus™, our dimmable and tunable lighting and control platform, that deliver substantial value to our customers and accelerate LED and smart lighting adoptions. Our Products We design, develop, manufacture and market a wide variety of LED lighting technologies and UVCD products and solutions to serve our primary end user markets, including the following: Commercial products to serve our targeted commercial markets: • Direct-wire single-ended and double-ended TLED replacements for linear fluorescent lamps; • RedCap ® emergency battery backup TLEDs; • EnFocus™ lighting platform including dimming (“DM”) and color tuning (“DCT”); • LED fixtures for fluorescent replacement or HID replacement in low-bay, high-bay and office applications; • LED downlights; • LED dock lights; • LED vapor tight lighting fixtures; • LED retrofit kits; • During 2021 we plan to start selling and delivering the following UVCD products: ◦ nUVo TM portable air disinfection tower for small offices and homes; ◦ abUV TM integrated LED lighting and UV-C air disinfection troffer powered by the EnFocus TM lighting control platform; and ◦ mUVe TM autonomous surface and floor disinfection robot. MMM LED lighting products to serve the U.S. Navy and allied foreign navies: • Military Intellitube®; • Military globe lights; • Military berth lights; • Invisitube ultra-low EMI TLED; • Military LED retrofit kits; • Military fixtures; • UVCD related products; and • EnFocus™ lighting platform. 6 Table of Contents Our LED products are more energy-efficient than traditional lighting products, such as fluorescent, incandescent and HID lamps, and we believe they can improve the overall sustainability profile of our customers by providing financial, environmental and human health benefits, including achieving significant long-term energy and maintenance cost savings, reducing carbon emission, substantially reducing retrofit waste and enhancing the health and productivity of building occupants. Leveraging and integrating a broad range of rapidly advancing technologies including LED lighting, UV-C disinfection, electronics, software, sensors, cloud and AI the Energy Focus UVCD solutions aim to provide impactful and affordable disinfection products for businesses and homes to effectively reduce infection risks for a broad range of pathogens, including, among others, influenza and coronaviruses amongst others. In addition to being ozone-free, the products are designed to guard against the risks of direct human exposure to UV-C rays. abUV TM and nUVo TM include enclosed, self-contained UV-C disinfection units that continuously inactivate viruses while reducing overall pathogen levels in the air. mUVe TM incorporates advanced sensor, machine vision and autonomous technologies to avoid human exposure during disinfection operations. The key features of our products are as follows: • Many of our products make use of proprietary or patented optical and electronics delivery systems that enable high efficiencies with superior lighting qualities, and proven records of extremely high product reliability; • Our products have exceptionally long life, with the majority of our TLED sales providing a 10-year warranty; • Our products have extremely low flicker. Our 500D series TLED products were the first in the lighting industry to be certified by Underwriters Laboratories (“UL ® ”) as “low optical flicker, less than 1%”; • Most of our products meet the lighting efficiency standards mandated by the Energy Independence and Security Act of 2007; • Most of our products qualify for federal and state tax and rebate incentives for commercial consumers available in certain states; and • Our UVCD surface and air disinfection product line is designed to inactivate more than 99.9% of airborne pathogens. Our product development capabilities, which we believe provide a strategic competitive advantage, include the following: • A long research, engineering, and market developmental history, with broad and intimate understanding of lighting technologies and LED lighting applications; • Strong and growing team of experienced and cross-disciplinary engineers that forms the foundation of our engineering innovation and competency not only in lighting but also in electrical, electronics, optical, thermal, mechanical, communications, air flow and software technologies; • Concentration on developing and providing high-quality, price competitive TLED lamps and the surrounding technologies to replace fluorescent and HID lamps and fixtures for commercial markets; • Providing high quality and high performing LED lighting products with a proven history of reliability; • Emphasis on proprietary and patent-pending technologies surrounding LED lighting and UVCD products; and • A deep understanding of the adoption dynamics and decision-making process for LED lighting products in existing MMM, government and commercial building markets. As we seek to develop new connected lighting LED solutions, we have invested and expect to continue to expand our investments in smart, connected and HCL research and development activities and partnerships. Lighting controls, including dimming, sensor and daylighting technologies, can yield significant energy savings and human health benefits. We believe that the controllability of LED technology and our ability and plan to integrate more occupancy sensing, data processing and network interface hardware and software into our existing products will allow us to further differentiate our LED solutions and provide greater non-energy benefits to our customers. Sales and Marketing Due to our belief that our innovative technologies and high-quality performance associated with LED lighting are not well understood nor easy to communicate due to the nature of rapid technological evolution, we have been focusing on better educating our channel partners as well as end-users regarding the benefits and unique value propositions of our technologies and products. Our primary target customers are enterprise end-users, as well as contractors or energy service companies that could incorporate our products into their projects. We also sell through lighting agencies that represent our products as a complement to our direct sales effort. As of December 31, 2020, we have five in-house commercial sales personnel and seventeen sales agencies, each of which has, on average, approximately four agents representing Energy Focus products. We aim to continue to expand our in-house sales team, which now covers regions in the Midwest, Northeast, South, Southeast and Southwest, to eventually cover all geographic regions across the United States. Our MMM sales strategy leverages our brand and past performance and focuses on education about our products as well as ease of procurement. 7 Table of Contents We focus on industry verticals where the economic and non-economic benefits such as health and safety, as well as technical specifications, of our high-quality lighting product offerings are most compelling. Our LED and UVCD lighting products fall into two broad market categories, commercial markets, which tend to focus on quality, efficacy, total cost of ownership and return on investment, and MMM which require higher, more rigorous military specifications for durability and dependability. We also plan to enter consumer markets during fiscal year 2021, selling directly via e-commerce with digital marketing strategies that profile our UVCD technologies and products that aim to deliver effective and impactful disinfection for homes and small businesses. We expect that our multi-channel sales strategy will continue to evolve and expand in the future. With the introduction of our military Intellitube ® product in 2011, which replaced two-foot fluorescent lamps on U.S. Navy ships, military sales had represented the majority of our overall sales. Since our management change in April 2019, we have been focusing on improving the design of our MMM products to significantly reduce product costs while maintaining the required performance. Such efforts allowed us to win bids and proposals that helped grow our MMM sales during 2020, offsetting some of the weakness being experienced in our commercial business due to the impact of the COVID-19 pandemic. While we continue to aggressively pursue growth on the commercial side of our business due to its much larger potential and size, the MMM business does offer us continued sales, in addition to validating our product quality and strengthening our brand trust in the marketplace. We launched our first commercial LED lighting products in 2010. Since then, we have been building and expanding our commercial and industrial market presence where the economic and non-energy benefits, and technical specifications of our high-quality lighting product offerings are compelling, particularly for mission-critical facilities in the enterprise verticals such as healthcare, education and the commercial and industrial space. For example: • Given the 24/7 lighting requirements of hospital systems, we believe that our LED solutions offer the proven quality, performance, long lifetime, return on investment and low flicker lightning that is particularly attractive to this target market. Since 2015, we have been the primary LED lighting supplier and partner for a major northeast Ohio hospital system and, as a result of our continued success, we have been able to leverage this relationship to expand into more hospital systems across the country. • As we advocate for the benefits of low-flicker LED lighting in schools, both in terms of energy-efficiency and in creating a healthy and effective learning environment, we continue to receive orders to retrofit school districts, colleges and universities. Our LED lighting products are now installed in over 100 school districts across the country and in an increasing number of colleges and universities. • Low and high bay applications are generally used in commercial and industrial markets to provide light to large open areas like big-box retail stores, warehouses and manufacturing facilities. In the past few years, technological and cost improvements have allowed LED low and high bay applications to be more competitive against traditional low and high bay applications with fluorescent or metal halide light sources. In the industrial market in particular, due to the usage of metal halide lighting, the energy and maintenance savings that can be achieved by switching to our LED products could be substantial, and we believe we have attractive product offerings in this space. In addition to our direct and indirect sales force, we have also launched our own e-commerce website that targets both commercial customers and retail consumers, while also offering financing options for customers. In addition, we believe that our renewed and continuing focus on multi-disciplinary technology innovation and engineering designs to both expand product features and benefits, while lowering product costs of ownership, will continue to enhance the overall competitiveness of our LED lighting and UVCD products and provide us with the strategic advantage and flexibility to expand our distribution channels. Concentration of Sales In 2020, two customers accounted for 62% of net sales, with sales to our primary distributor for the U.S. Navy accounting for approximately 49% of net sales, and sales to a regional commercial lighting retrofit company accounting for approximately 12% of net sales. When sales to our primary distributor for the U.S. Navy are combined with sales to shipbuilders for the U.S. Navy, total net sales of products for the U.S. Navy comprised approximately 53% of net sales for the same period. In 2019, two customers accounted for 45% of net sales and total sales to distributors to the U.S. Navy represented 23% 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 full fixture lighting products. Our ability to compete depends 8 Table of Contents substantially upon the superior performance, incremental benefits and lower total cost of ownership of our products. Principal competitors in our markets include large lamp manufacturers and lighting fixture companies based in the United States, as well as TLED 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. These competitors may introduce new or improved products that may reduce or eliminate some of the competitive advantage of our products and may have substantially lower pricing. We anticipate that the competition for our products will also come from new technologies that offer increased energy efficiency, lower maintenance costs, and/or advanced features. We compete with LED systems produced by large lighting companies such as Philips Lighting, Osram Sylvania and GE Lighting, as well as smaller manufacturers or distributors such as LED Smart, Revolution Lighting Technologies, Orion Energy Systems, Green Creative and Keystone Technologies. Some of these competitors offer products with performance characteristics similar to those of our products. For our UVCD products, we expect abUV TM to compete with both lighting companies that might expand into the UVCD market with integrated UV and lighting fixtures, such as Philips and Healthe, as well as HVAC air duct disinfection equipment providers, such as Honeywell, REKO Lighting and OdorStop. For nUVo TM , we expect to compete largely with air purifier brands in the market today, such as Dyson, Molekule and RxAir. We expect mUVe TM to compete with disinfection equipment and robot companies that use either UV or conventional chemical sprays, such as Xenex, UVD Robots and SmartGuardUV. We believe that our proprietary and patent-pending product designs in our UVCD products will enable our products to be more powerful and effective in inactivating virus in a more timely and energy efficient manner. Manufacturing and Suppliers We produce our lighting products and systems through a combination of internal manufacturing and assembly at our Solon, Ohio facility, and sourced finished goods, manufactured to our specifications. Our internal lighting system manufacturing consists primarily of final assembly, testing, and quality control. We have worked with several vendors to design custom components to meet our specific needs. Our quality assurance program provides for testing of all sub-assemblies at key stages in the assembly process, as well as testing of finished products produced both internally and sourced through third parties. Additionally, we are 9001-2015 ISO certified. Manufacturing costs are managed through the balance of internal production and an outsourced production model for certain parts and components, as well as finished goods in specific product lines, to a small number of vendors in various locations throughout the world, primarily in the United States, Malaysia, Taiwan, and China. In some cases, we rely upon a single supplier to source certain components, sub-assemblies, or finished goods. We continually attempt to improve our global supply chain practices to satisfy client demands in terms of quality and volumes, while controlling our costs and achieving targeted gross margins, and this includes the evaluation of additional outsourcing or further insourcing of internal production where cost, quality and performance can be maintained or improved. One offshore supplier and one domestic supplier accounted for approximately 21% and 12%, respectively, of our total expenditures for the twelve months ended December 31, 2020. At December 31, 2020, this same offshore supplier accounted for approximately 44% of our trade accounts payable balance. For the twelve months ended December 31, 2019, one offshore supplier accounted for approximately 21% of our total expenditures. This same offshore supplier accounted for approximately 54% of our trade accounts payable balance at December 31, 2019. Product Development Product development has been a key area of operating focus and competitive differentiation for us in designing and developing industry leading LED lighting and UVCD products. Gross product development expenses for the years ended December 31, 2020 and 2019 were $1.4 million and $1.3 million, respectively. We believe that our customer-centric product development efforts represent a better leverage on our R&D investments and aim to continue to focus on developmental projects that could produce more impactful and differentiated products and solutions in a more timely manner for faster customer adoption. Intellectual Property We have a policy of seeking to protect our intellectual property through patents, license agreements, trademark registrations, confidential disclosure agreements, and trade secrets as management deems appropriate. Certain of our patents are key to our current product lines. Additionally, we have various pending U.S. patent applications, and various pending Patent Cooperation Treaty patent applications filed with the World Intellectual Property Organization that serve as the basis for national patent filings in countries of interest. Our issued patents expire at various times through April 2037. Generally, the term of patent 9 Table of Contents protection is twenty years from the earliest effective filing date of the patent application. There can be no assurance; however, that our issued patents are valid or that any patents applied for will be issued, and that our competitors or clients will not copy aspects of our lighting systems or obtain information that we regard as proprietary. There can also be no assurance that others will not independently develop products similar to ours. The laws of some foreign countries in which we manufacture, sell or may sell our products do not protect proprietary rights to products to the same extent as the laws of the United States. Insurance All of our properties and equipment are covered by insurance and we believe that such insurance is adequate. In addition, we maintain general liability and workers’ compensation insurance in amounts we believe to be consistent with our risk of loss and industry practice. Regulatory Compliance We derive a significant portion of our revenues from direct and indirect sales to U.S., state, local and foreign governments and their respective agencies. 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. In addition, although not legally required to do so, we strive to obtain certification for substantially all our products. In the United States, we seek certification on substantially all of our products from UL®, Intertek Testing Services (“ETL®”), or DesignLights Consortium (“DLC™”). Where appropriate in jurisdictions outside the United States, we seek to obtain other similar national or regional certifications for our products. Although we believe that our broad knowledge and experience with electrical codes and safety standards have facilitated certification approvals, we cannot ensure that we will be able to obtain any such certifications for our new products or that, if certification standards are amended, we will be able to maintain such certifications for our existing products. Human Capital At December 31, 2020, we had 57 full-time employees and two part-time employees, all of whom were based in the United States. We also had twelve temporary contract employees at December 31, 2020. None of our employees or contract employees are subject to collective bargaining agreements and we consider our relationship with our employees to be good. We encourage and support the growth and development of our employees. Continual learning and career development is advanced through ongoing performance and development conversations with employees and reimbursement is available to employees for seminars, conferences, formal education, and other training events employees attend in connection with their job duties. Our core values of accountability, trust, extraordinariness, fun, openness, integrity and kindness underscore everything we do and drive our day-to-day interactions. The safety, health and wellness of our employees is a top priority. The COVID-19 pandemic has presented a unique challenge with regard to maintaining employee safety while continuing successful operations. Through teamwork and the adaptability of our management and staff, we were able to transition, over a short period of time, a majority of our corporate office employees to effectively working from remote locations on a full-time basis, with others working both remotely and in the office on a hybrid basis, and also to ensure a safely-distanced working environment for employees who remain in our facility. Our human capital resources objectives include, as applicable, identifying, recruiting, retaining, incentivizing and integrating our current and future employees. The principal purposes of our annual bonus plan and equity incentive plan are to attract, retain and motivate employees through the granting of long-term incentive compensation awards. 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 13, “Product and Geographic Information,” included in Item 8, “Financial Statements and Supplementary Data,” of this Annual Report, for additional information. Available Information We maintain a website at www.energyfocus.com . We are providing the address to our website solely for the information of investors. The information on our website is not a part of, nor is it incorporated by reference into this Annual Report. Through our website, we make available, free of charge, our annual proxy statement, annual reports on Form 10-K, quarterly reports on 10 Table of Contents 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. The SEC maintains a website that contains these reports at www.sec.gov . 11 Table of Contents