ENERGY FOCUS, INC/DE 10-K

ITEM 1. BUSINESS Overview Energy Focus, Inc. engages primarily in the design, development, manufacturing, marketing and sale of energy-efficient lighting systems and controls and ultraviolet-C light disinfection (“UVCD”) products. We develop, market and sell high quality light-emitting diode (“LED”) lighting and controls products and UVCD products in the commercial market and military maritime market (“MMM”), and began to expand our offerings into the consumer market in the fourth quarter of 2021. Our mission is to enable our customers to run their facilities, offices and homes with greater energy efficiency, productivity, and human health and wellness through advanced LED retrofit 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, 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 in institutional buildings for primarily indoor lighting applications with our innovative, high-quality commercial and military-grade tubular LED (“TLED”) products, as well as other LED and lighting control products for commercial and consumer applications. In late 2020, we announced the launch of our UVCD product portfolio. With initial development complete and two products now brought to market, we anticipate the development of additional UVCD products in 2022. In 2021, we continued to build upon the transition and transformation activities started during 2019 and 2020 that sought to stabilize and regrow our business. These transition efforts include the following key developments that occurred during 2021: • We announced plans for the second generation of EnFocus™ powerline control switches and circadian lighting system for both commercial and residential markets, which we plan to launch in 2022. EnFocus™ powerline control enables buildings to have dimmable, color tunable and circadian-ready lighting using existing wiring, without requiring laying additional cables or any wireless communication systems, through a relatively simple upgrade with EnFocus™ switches and LED lamps, a simpler, more secure, affordable and environmentally sustainable solution compared with replacing entire lighting fixtures and incorporating additional wired or wireless communication. • In response to the COVID-19 pandemic and an anticipated increase in sanitation and hygiene demand for buildings, facilities and homes, we developed advanced UVCD air disinfection products for both consumer as well as the commercial and industrial markets. Two of these UVCD products were available beginning in the fourth quarter of 2021: the nUVo™ Tower air disinfector, a portable air disinfection device for offices and homes, and the nUVo™ Traveler air disinfector, a portable air disinfection device for in-vehicle and other smaller enclosed or personal spaces. Additional nUVo™ product development is planned in 2022 as we expect to refocus our ongoing UVCD development efforts on the commercial and consumer spaces. • We continued to seek additional external funding alternatives and sources to support our growth strategies, plans and initiatives: ◦ In December 2021, we completed a private placement (the “December 2021 Private Placement”) with certain institutional investors pursuant to which we agreed to issue and sell (i) 1,193,185 shares of our common stock, (ii) pre-funded warrants (“Pre-Funded Warrants”) to purchase 85,228 shares of common stock at an exercise price of $0.0001 per share and (iii) warrants (collectively with the Pre-Funded Warrants, the “December 2021 Warrants”) to purchase up to an aggregate of 1,278,413 shares of common stock at an exercise price of $3.52 per share. Net proceeds from the December 2021 Private Placement were approximately $4.0 million. ◦ During the third quarter of 2021, we applied for approximately $876 thousand in tax refunds relating to our second and third quarter 2021 employer tax filings pursuant to the Employee Retention Tax Credits in accordance with amendments made in 2021 to the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). We received approximately $431 thousand during the fourth quarter of 2021 and expect to receive the remainder during 2022 after review of our amended tax filing. ◦ In June 2021, we completed a registered direct offering (the “June 2021 Equity Offering”) of 990,100 shares of our common stock to certain institutional investors. Net proceeds to us from the June 2021 Equity Offering was approximately $4.5 million; ◦ In April 2021, 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 $1.7 million, with net proceeds of approximately $1.5 million. ◦ In April 2021, we increased the maximum amount that may be available to the Company on our inventory financing facility with Crossroads Financial Group, LLC by $500 thousand, for a total capacity of $3.5 million possible borrowings. 4 Table of Contents ◦ During the first quarter of 2021, the $795 thousand Paycheck Protection Program loan (and the related interest) we received in 2020 under the CARES Act was forgiven by the Small Business Administration. During 2021, we continued to expand our engineering capabilities and invest in our intellectual property portfolio for both lighting and controls and UVCD products, and we broadened our product distribution network by engaging with new lighting agencies and energy service companies (“ESCOs”). We also extended our efforts from 2020 to streamline our operations by closely managing all spending done throughout the Company, while investing in new products and strategies that sought to reenergize sales. Throughout 2021, due to ongoing economic and building occupancy impacts from the COVID-19 pandemic, we again experienced a slowdown and continuing weakness in commercial sales as our customers in the healthcare, education, and commercial and industrial sectors put lighting retrofit projects on hold or delayed order placements. 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 respond to the spread of the virus. Although the significance and duration of the ongoing impact on our customers and us is still uncertain, and 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, facility capital budgets will start unfreezing, commercial building occupancy will rise, and our growth efforts will further impact our financial performance in a positive way. We will remain agile as an organization to respond to potential or continuing weakness in the macroeconomic environment and in the meantime seek to expand sales channels and enter new markets, such as the UVCD and consumer markets, that we believe will provide additional growth opportunities. We plan to achieve profitability through developing and launching new, innovative products, such as our EnFocus TM powerline control systems, our Redcap ® emergency battery backup tubular LEDs, and our nUVo™ 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 partnerships. We also plan to continue to develop advanced lighting and lighting control applications built upon the EnFocus TM platform that aim to serve both consumer and commercial markets, and to refocus our UVCD product portfolio on high growth opportunities. 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. Our Industry We develop advanced LED lighting and controls retrofit technologies and UVCD product solutions that enable our customers to run their facilities and homes with greater energy efficiency, productivity and human wellness. We aim to be an LED and HCL technology leader, and to help create healthier and safer environments, by providing high-quality, energy-efficient, “flicker-free,” long-lived 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 also believe that the UVCD market is a growing opportunity and that the focus on health, sanitation and air quality will remain even after the COVID-19 pandemic’s impact subsides. 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 2019 have been focusing on advanced and smart lighting technologies to capitalize on these trends, and EnFocus™ 5 Table of Contents 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 of the effects of both visible and non-visible light on human health and well-being. Energy Focus has been a leader in flicker-free technology and one of the first to obtain Underwriters Laboratories (“UL ® ”) certification at less than 1% optical flicker. 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. Energy Focus is continually evaluating additional HCL lighting and control solutions inspired by emerging health and wellness benefits. 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. Since lighting fixtures are ubiquitous throughout buildings, the lighting infrastructure is an ideal vehicle to retrofit these and other smart or connected lighting capabilities into existing buildings, and also to design these capabilities into new construction. 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%. From the customer feedback we have been receiving, we believe that the overall smart lighting market is still largely underdeveloped due to the cost and complexity for installations of related technologies today in the marketplace, representing significant potential for solutions that could meet customer needs and could also be affordable, easy to install and secure. Much of this interest and demand has been muted during 2020 and 2021 as a result of the COVID-19 pandemic, which we believe has primarily delayed, rather than 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 or IT expertise to implement otherwise complex lighting control systems. Our UVCD technologies and products aim to provide effective, reliable and affordable UVCD solutions for buildings, facilities and homes. We are harnessing the power of high-dose ultraviolet-C (“UV-C”) light for air disinfection via various nUVo™ air disinfector consumer products. These products are designed to achieve upwards of 99.9% disinfection of airborne pathogens such as molds, bacteria and viruses, including influenza and coronaviruses. While we believe the LED lighting and smart lighting market is large, growing and under-penetrated, it has also been characterized in recent years by intensifying competition, market leadership changes and aggressive pricing tactics on differentiated 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 educational campaigns combined with a growing sales representative network to drive 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, we believe that we will continue to be able to develop solutions that better address customers’ 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: • RedCap ® emergency battery backup TLEDs; • EnFocus™ powerline lighting control platform including dimming (“DM”) and color tuning (“DCT”); • LED replacement fixtures, including replacement TLEDs for linear fluorescent lamps, downlights, and retrofit kits for low-bay, high-bay and office applications; • Industrial grade LED Dock lights; and • nUVo™ Tower and nUVo™ Traveler portable UVCD air disinfectors. 6 Table of Contents MMM LED lighting products to serve the U.S. Navy and allied foreign navies: • Military-grade Intellitube ® retrofit TLED and the Invisitube™ ultra-low EMI TLED; and • Military-grade fixtures, including LED globe lights, berth lights; high-bay fixtures and LED retrofit kits. 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. Our UVCD solutions aim to provide impactful and affordable disinfection products for businesses and homes to effectively reduce infection risks for a broad range of airborne pathogens, including, among others, influenza, coronaviruses and mold. In addition to being ozone-free, the products are designed to provide the appropriate dosage that effectively destroys airborne pathogens while also guarding against the risks of direct human exposure to UV-C rays through our patent-pending UV blocker technology. The nUVo TM products include enclosed, self-contained UV-C disinfection units that continuously inactivate viruses while reducing overall pathogen levels in the air. 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, including our 500D series TLED products, which were the first in the lighting industry to be certified by 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 air disinfection products are 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 lean team of experienced, 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 LED lamps and the surrounding technologies to replace fluorescent and HID lamps and fixtures for commercial and residential 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 LED lighting product applications in existing MMM, government, commercial and residential building markets. As we seek to develop new connected lighting LED solutions, we expect to continue our investments in smart, connected and HCL research and development, as well as channel 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 and other controls 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 Our innovative technologies and high-quality performance associated with LED lighting require a continued focus on educating our channel partners as well as end-users regarding the benefits and unique value propositions of our technologies and products. Our primary target customers for our LED lighting and controls systems are enterprise end-users, as well as contractors or ESCOs that could incorporate our products into their projects. We also sell through lighting agencies that represent our products as a complement to our direct sales effort. We have in-house commercial sales personnel and numerous sales agencies representing Energy Focus products. We aim to continue to expand the coverage of 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 7 Table of Contents 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. 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 more rigorous military specifications for durability and dependability. We also entered 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-grade Intellitube ® product in 2011, which replaced two-foot fluorescent lamps on U.S. Navy ships, military sales have 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. Despite military funding holds throughout 2021, we continued to win bids and proposals, which contributed to our MMM sales during the year, though at levels lower than 2020. 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 the opportunity for 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, eldercare, 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. • 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 websites to target both commercial customers and retail consumers, while also offering financing options for customers. 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 2021, two customers accounted for 43% of net sales, with sales to our primary distributor for the U.S. Navy accounting for approximately 30% of net sales, and sales to a regional commercial lighting retrofit company accounting for approximately 13% 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 38% of net sales for the same period. 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. 8 Table of Contents 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 LED lighting products. Our ability to compete depends 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 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. 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 initial costs, lower maintenance costs, or advanced features. We compete with LED systems produced by large lighting companies such as Signify Lighting, Osram Sylvania and GE Lighting, as well as smaller manufacturers or distributors such as LED Smart, Revolution Lighting Technologies, Orion Energy Systems, Green Creative and Keystone Technologies. Some of these competitors offer products with performance characteristics similar to those of our products. For our nUVo TM UVCD air disinfector products, we expect to compete largely with air purifier brands in the market today, such as Dyson, Molekule, Puro, Novaerus and RxAir. We believe that our proprietary and patent-pending product designs, as well as lower total lifecycle operating costs, 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 outsourced production for certain parts and components, as well as finished goods in specific product lines, to a small number of vendors in various locations throughout the world, primarily in the United States, Malaysia, Taiwan, and China. 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. A 2021 DOE report entitled, “2020 LED Manufacturing Supply Chain”, indicated that most of the world’s LED lamp production and a significant portion of LED luminaire manufacturing takes place in China with virtually no LED lamp manufacturing taking place in the United States today. Our supplier concentration is heavily focused within Asia. As a result of the macroeconomic impacts of the COVID-19 pandemic, throughout 2021, we experienced global supply chain and logistics constraints, which impacted our inventory purchasing strategy, leading to a buildup of inventory and inventory components, as well as increased transportation costs, in an effort to manage both shortages of available components and longer lead times in obtaining components. One offshore supplier accounted for approximately 29% of our total expenditures for the twelve months ended December 31, 2021. At December 31, 2021, this same offshore supplier accounted for approximately 60% of our trade accounts payable balance. 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. 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, 2021 and 2020 were $1.9 million and $1.4 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. 9 Table of Contents 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 May 2040. Generally, the term of patent 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, product recall 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, 2021, we had 58 full-time employees, all of whom were based in the United States, and no part-time employees. We also had four temporary contractors at December 31, 2021. None of our employees or contractors are subject to collective bargaining agreements and we consider our relationship with our employees to be good. We encourage and support the growth and development of our employees. 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 have been able to transition some 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. 10 Table of Contents Business Segments We currently operate in a single business segment that includes the marketing and sale of commercial and MMM lighting products and controls and UVCD products. Please refer to Note 12, “Product and Geographic Information,” included in Item 8, “Financial Statements and Supplementary Data,” of this Annual Report, for additional information. Available Information 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. 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 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