What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2023-03-23 compared with 2022-03-17 · 81 added, 85 removed, 132 unchanged (56% of the section changed)

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.

engages primarily in the design, development, manufacturing, marketing and sale of energy-efficient lighting systems and controls.

We develop, market and sell high quality light-emitting diode (“LED”) lighting and controls products in the commercial market and military maritime market (“MMM”), and expanded 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 solutions.

Our goal is to be the human wellness lighting and LED lighting 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.

In late 2020, we announced the launch of ultraviolet-C light disinfection (“UVCD”) products.

After evaluating market demand and supply chain challenges for our UVCD products, we revised our business strategy to primarily focus on LED lighting and controls products for our MMM and commercial and industrial lighting and control products.

We are also evaluating adjacent technologies including Gallium Nitride (“GaN”) based power supplies and opportunities for energy solutions products that support sustainability in our existing channels.

In 2022, we recommitted to building upon the transformation activities started during 2019 and 2020 that sought to stabilize and regrow our business.

These efforts include the following key developments that occurred during 2022:

• We hired a permanent Chief Executive Officer in September 2022, following a period of interim leadership by our Lead Independent Director after the departure of our previous Chief Executive Officer in February 2022 and Chief Financial Officer and Chief Operating Officer in May 2022.

• We continued development of the second generation of EnFocus™ powerline control switches and circadian lighting system for commercial markets, which as a result of supply chain challenges we now plan to launch in 2023.

This upgrade offers a simpler, more secure, affordable and environmentally sustainable solution compared with replacing entire luminaire fixtures and incorporating additional wired or wireless communication.

• We reinvested in our MMM sales channel with a strategic hire in the second quarter of 2022 and are pursuing existing and new sales opportunities, though the sales cycles for what are frequently made-to-order products are longer than commercial offerings.

• Beginning in July 2022, we reduced our warehouse square footage, and undertook an inventory reduction project throughout 2022 focused on reducing our highly reserved commercial finished good inventory.

• The Company has aggressively re-evaluated operating expenses, and reduced our workforce significantly throughout the year to manage fixed costs.

• 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 2022, we entered into a note purchase agreement with Streeterville Capital, LLC (“Streeterville”) pursuant to which we sold and issued to Streeterville a promissory note in the principal amount of approximately $2.0 million, with net proceeds of approximately $1.8 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.

◦ 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 June 2022, we completed a private placement (the “June 2022 Private Placement”) with certain institutional investors pursuant to which we agreed to issue and sell (i) 1,313,462 shares of our common stock, (ii) pre-funded warrants (“June 2022 Pre-Funded Warrants”) to purchase 1,378,848 shares of common stock at an exercise price of $0.0001 per share and (iii) warrants (the “June 2022 Warrants,” and collectively with the June 2022 Pre-Funded Warrants, the “June 2022 Warrants”) to purchase up to an aggregate of 2,692,310 shares of common stock at an exercise price of $1.30 per share.

Net proceeds from the June 2022 Private Placement were approximately $3.2 million.

◦ From September 2022 to December 2022, we secured short-term unsecured bridge financing of $800 thousand from a member of our board of directors (the “Board of Directors”) and an aggregate of $650 thousand of short-term unsecured bridge financing from private parties, all of which was converted into equity in January 2023 at the time of a strategic investment by Sander Electronics.

◦ In October 2022 and December 2022, we repaid a previously outstanding promissory note with Streeterville by exchanging an aggregate of the approximately $330 thousand amount outstanding for common stock priced at-the-market.

◦ During January 2023, we sold an aggregate of $250 thousand of common stock to a member of our Board of Directors in private placements at fair market value, and also converted the approximately $809 thousand amount outstanding on previously issued short term promissory notes issued to that director as discussed above at fair market value.

◦ In January 2023, we sold an aggregate of $2.7 million of common stock to certain purchasers associated with Sander Electronics, Inc., including conversion of the approximately $609 thousand amount outstanding on previously outstanding short-term promissory notes as discussed above, priced at-the-market.

◦ In January 2023, we amended our inventory lending facility with Crossroads Financial Group, LLC (the “Inventory Facility”), reducing the maximum availability to $500 thousand, reducing monthly fees and paying down an aggregate of $1 million in January and February 2023.

◦ In January 2023, we amended the terms of our outstanding promissory note with Streeterville, agreeing to make $750 thousand in payments in 2023 and deferring other payments until 2024.

◦ In February 2023, we agreed to terminate our accounts receivable lending facility with Factors Southwest L.L.C.

(d/b/a FSW Funding) (the “Receivables Facility” and, together with the Inventory Facility, the “Credit Facilities”), reducing our monthly borrowing costs.

◦ In February 2023, we sold an aggregate of $400 thousand of common stock to a member of our Board of Directors in a private placement at fair market value.

During 2022, we continued to broaden our product distribution network by engaging with new lighting agencies and energy service companies (“ESCOs”).

We also redoubled our efforts from 2020 and 2021 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 2022, due to lingering economic and building occupancy impacts from the COVID-19 pandemic, we experienced 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 long-term impact of the COVID-19 pandemic on our customers, suppliers and logistics providers, and to evaluate governmental pandemic response.

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 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 seek to remain agile as an organization to respond to potential or continuing weakness in the macroeconomic environment and in the meantime seek to expand sales channels and enter new markets that we believe will provide additional growth opportunities.

We plan to achieve profitability through developing and launching new, innovative products, such as our EnFocus TM powerline control systems, our Redcap ® emergency battery backup tubular LEDs, evaluating new growth opportunities such as GaN-based power supply circuitry and other energy solution products, as well as executing on our multi-channel sales strategy that targets key verticals, such as government, healthcare, education and commercial and industrial, complemented by our marketing outreach campaigns and expanding channel partnerships.

We also plan to continue to develop advanced lighting and lighting control applications built upon the EnFocus TM platform that aim to serve the commercial markets.

In addition, we intend to continue to apply rigorous financial discipline in our organizational structure, decision-making, business processes and policies, strategic sourcing activities and supply chain practices to help accelerate our path towards profitability.

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 develop advanced LED lighting and controls retrofit technologies solutions that enable our customers to run their facilities with greater energy efficiency, productivity and human wellness.

We aim to be the human wellness lighting and LED technology market leader by providing high-quality, energy-efficient, “flicker-free,” long-life LED lamps and retrofit products, as well as lighting controls, to replace existing linear fluorescent, incandescent, HID lamps and fixtures.

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.

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.

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The increasing demand for LED lighting is being driven by energy and cost savings, environmental considerations and human health.

Energy consumption can be reduced by over 50% by replacing fluorescent tubes with LED tubes and by another 20-30% (70% to over 80% in total) by utilizing smart lighting technologies, including dimmable TLEDs with ambient light and occupancy sensors.

Energy consumption can be reduced by over 50% by replacing fluorescent tubes with LED tubes and by another 20-30% (70% to 80% in total) by utilizing smart lighting technologies, including dimmable TLEDs with ambient light and occupancy sensors.

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™

represents such a control platform that we aim to expand in terms of functionalities, applications and intelligence, going forward.

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™ 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.

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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.

Energy Focus is continually evaluating additional human wellness 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.

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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.

Much of this interest and demand has been muted from 2020 through 2022 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.

Our strategy to overcome these challenges is to develop advanced, impactful and customer-centric technologies and products, while also innovating on our core products to increase value and remain competitive.

In addition, we focus on executing our multi-channel sales strategy 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.

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:

We design, develop, manufacture and market a wide variety of LED lighting technologies and solutions to serve our primary end user markets, including the following:

Commercial products to serve our targeted commercial markets:

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• 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;

• LED retrofit solutions for existing luminaires, including replacement TLEDs for linear fluorescent lamps, downlights, and retrofit kits for low-bay, high-bay and office applications;

• Industrial grade LED Dock lights.

• nUVo™ Tower and nUVo™ Traveler portable UVCD air disinfectors.

MMM LED lighting products to serve the U.S.

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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:

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• Most of our products qualify for federal and state tax and rebate incentives for commercial consumers available in certain states.

• 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;

• Strong and lean team of experienced, cross-disciplinary engineers;

• Concentration on developing and providing high-quality, price competitive LED lamps and related 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;

• Emphasis on proprietary and patent-pending technologies surrounding LED lighting;

• 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.

As we seek to develop new LED lighting solutions, we expect to continue our investments in smart lighting and wellness lighting 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.

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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

United States.

We also sell through lighting agencies that represent our products

as a complement to our direct sales effort.

We have in-house commercial sales personnel and external sales agencies representing Energy Focus products.

We aim to continue to expand the coverage of our in-house sales team 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.

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.

Our LED 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.

We expect that our multi-channel sales strategy will continue to evolve and expand in the future.

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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.

Since 2019, we have been focusing on improving the design of our MMM products to significantly reduce product costs while maintaining the required performance.

These efforts helped offset some of the weakness experienced in our commercial business due to the impact of the COVID-19 pandemic, though sales levels were challenged as the amounts and timing of military funding fluctuated.

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.

During 2022, we reinvested in our military sales channel with a strategic hire of a U.S.

Navy veteran who specializes in government sales.

This has allowed us to better engage with the MMM and has presented us with the potential for expansion in military sales beyond the existing product portfolio.

We launched our first commercial LED lighting products in 2010.

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• 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.

In the past few years, technological and cost improvements have allowed LED low and high bay applications to be more competitive, and we believe we have attractive product offerings in this space that enable energy and maintenance cost savings.

In addition to our direct and indirect sales force, we have also re-evaluated our own e-commerce websites.

At our current scale, we have returned to our core sales channels to commercial and military customers, but will continue to evaluate additional channels from time-to-time.

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 provide us with the strategic advantage and flexibility to expand our distribution channels.

Concentration of Sales

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Navy comprised approximately 38% of net sales for the same period.

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.

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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

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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.

As a result of the continued macroeconomic impacts of the COVID-19 pandemic, throughout 2021 and 2022, we experienced global supply chain and logistics constraints that impacted our inventory purchasing strategy and increased our transportation costs, in continued efforts to manage both shortages of available components and longer lead times in obtaining components.

One offshore supplier accounted for approximately 16% of our total expenditures for the twelve months ended December 31, 2022.

At December 31, 2022, this same offshore supplier accounted for approximately 36% 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.

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.

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.

Product development has been a key area of operating focus and competitive differentiation for us in designing and developing industry leading LED lighting.

Gross product development expenses for the years ended December 31, 2022 and 2021 were $1.5 million and $1.9 million, respectively.

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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.

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.

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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.

At December 31, 2022, we had 20 full-time employees and 3 furloughed employees, all of whom were based in the United States, and no part-time employees.

We had one temporary contractor at December 31, 2022.

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.

Continual learning and career development is advanced through ongoing performance and development conversations with employees and reimbursement is available to employees from time to time for seminars, conferences, formal education, and other training events employees attend in connection with their job duties.

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.

Through teamwork and the adaptability of our management and staff during the COVID-19 pandemic, we embraced a flexible work environment with some of our corporate office employees effectively working from remote locations and others working both remotely and in the office on a hybrid basis.

Our human capital resources objectives include, as applicable, identifying, recruiting, retaining, incentivizing and integrating our current and future employees.

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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.

We currently operate in a single business segment that includes the marketing and sale of commercial and MMM lighting products and controls.

Please refer to Note 12, “Product and Geographic Information,” included in Item 8, “Financial Statements and Supplementary Data,” of this Annual Report on Form 10-K, for additional information.

Available Information

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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.

The information on our website is not a part of, nor is it incorporated by reference into this Annual

Report on Form 10-K.

Through our website, we make available, free of charge, our annual proxy statement, annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, as soon as reasonably practicable after we electronically file such material with, or furnish them to, the Securities and Exchange Commission, or the SEC.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business