What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-03-22 compared with 2023-03-23 · 394 added, 477 removed, 576 unchanged (60% of the section changed)

4 unchanged sentences

Consolidated Statements of Comprehensive Loss for the years ended December 31, 2023 and 2022

Consolidated Statements of Stockholders’ (Deficit) Equity for the years ended December 31, 2022 and 2021

Consolidated Statements of Stockholders’ Equity (Deficit) for the years ended December 31, 2023 and 2022

Consolidated Statements of Cash Flows for the years ended December 31, 2023 and 2022

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We have audited the accompanying consolidated balance sheets of Energy Focus, Inc.

(the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive loss, stockholders’ (deficit) equity, and cash flows for the years then ended, and the related notes and Schedule II (collectively referred to as the “consolidated financial statements”).

(the "Company") as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive loss, stockholders' equity (deficit), and cash flows for the years then ended, and the related notes and Schedule II (collectively referred to as the "consolidated financial statements").

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

1 unchanged sentence

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.

As discussed in Note 4 to the consolidated financial statements, the Company has experienced recurring losses from operations and negative cash flows from operations that raise substantial doubt about its ability to continue as a going concern.

Management’s plans in regard to these matters are also described in Note 4.

As discussed in the notes to the consolidated financial statements, the Company has experienced recurring losses from operations and negative cash flows from operations that raise substantial doubt about its ability to continue as a going concern.

Management's plans in regard to these matters are also described in the notes.

The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

41 unchanged sentences

Trade accounts receivable, less allowances of $ 20 and $ 26 , respectively

Trade accounts receivable - related party 202 —

Inventories, net 4,439 5,476

Short-term deposits 592 712

Prepayments to vendors 792 592

Prepaid and other current assets 156 232

Receivable for claimed ERTC 445 445

Receivable for claimed Employee Retention Tax Credit — 445

Total current assets 9,189 7,242

4 unchanged sentences

Accounts payable $ 1,624 $ 2,204

Accounts payable - related party 2,146 —

Accrued liabilities 110 145

3 unchanged sentences

Accrued warranty reserve 150 183

Deferred revenue — 268

Operating lease liabilities 223 198

Finance lease liabilities — 1

Promissory notes payable, net of discounts and loan origination fees 1,323 2,618

Advanced capital contribution 450 —

Related party promissory notes payable — 814

9 unchanged sentences

Total liabilities 7,149 8,975

STOCKHOLDERS' (DEFICIT) EQUITY

STOCKHOLDERS' EQUITY (DEFICIT)

Preferred stock, par value $ 0.0001 per share:

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Accumulated deficit ( 153,315 ) ( 149,020 )

Total stockholders' (deficit) equity ( 477 ) 6,209

Total liabilities and stockholders' (deficit) equity $ 8,498 $ 14,391

Total stockholders' equity (deficit) 3,051 ( 477 )

Total liabilities and stockholders' equity (deficit) $ 10,200 $ 8,498

*Shares outstanding for prior periods have been restated for the 1-for-7 reverse stock split effective June 16, 2023.

The accompanying notes are an integral part of these consolidated financial statements.

5 unchanged sentences

Cost of sales 5,494 6,286

Gross (loss) profit ( 318 ) 1,698

Gross profit (loss) 223 ( 318 )

Operating expenses:

2 unchanged sentences

Loss on impairment — 338

Restructuring — ( 21 )

Total operating expenses 4,194 8,977

Loss from operations ( 3,971 ) ( 9,295 )

Other expenses:

Other expenses (income):

Interest income ( 57 ) —

Interest expense 380 954

Gain on forgiveness of PPP loan — ( 801 )

Other income ( 30 ) ( 30 )

1 unchanged sentence

Loss from operations before income taxes ( 4,290 ) ( 10,275 )

Provision for (benefit from) income taxes 4 ( 1 )

Provision for income taxes 3 4

Net loss $ ( 4,293 ) $ ( 10,279 )

Net loss per common share - basic and diluted:

Net loss per common stock basic and diluted:

Net loss $ ( 1.32 ) $ ( 8.88 )

Weighted average shares of common shares outstanding:

Weighted average shares of common stock outstanding:

Basic and diluted* 3,241 1,158

* Shares outstanding for prior periods have been restated for the 1-for-7 reverse stock split effective June 16, 2023.

The accompanying notes are an integral part of these consolidated financial statements.

9 unchanged sentences

ENERGY FOCUS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

6 unchanged sentences

Issuance of common stock under employee stock option and stock purchase plans — — 7 — 6 — — 6

Common stock withheld in lieu of income tax withholding on vesting of restricted stock units — — — — ( 1 ) — — ( 1 )

Issuance of common stock and warrants — — 187 1 3,499 — — 3,500

1 unchanged sentence

Issuance of common stock upon the exercise of warrants — — 209 — — — — —

Issuance of common stock upon the conversion from preferred stock ( 1,721 ) — 344 — — — — —

Stock-based compensation — — — — 117 — — 117

Stock issued in exchange transactions — — 94 — 304 — — 304

Net loss — — — — — — ( 10,279 ) ( 10,279 )

Balance at December 31, 2022 876 $ — 1,407 $ 1 $ 148,545 $ ( 3 ) $ ( 149,020 ) $ ( 477 )

Issuance of common stock under employee stock option and stock purchase plans — — 46 — 6 — — 6

Issuance of common stock and warrants — — 1,313 1 3,499 — — 3,500

Offering costs on issuance of common stock and warrants — — — — ( 334 ) — — ( 334 )

Issuance of common stock upon the exercise of warrants — — 1,465 — — — — —

Stock-based compensation — — — — 117 — — 117

Issuance of common stock — — 2,477 1 6,078 — — 6,079

Stock issued in exchange transactions — — 465 — 1,716 — — 1,716

Par value adjustment due to reverse stock split — — — ( 2 ) 2 — — —

Reduction in equity due to costs from reverse stock split — — — — ( 16 ) — — ( 16 )

Stock-based compensation — — — — 44 — — 44

Impact of adoption of ASU 2016-13 - CECL — — — — — — ( 2 ) ( 2 )

Net loss — — — — — — ( 4,293 ) ( 4,293 )

Balance at December 31, 2023 876 $ — 4,349 $ — $ 156,369 $ ( 3 ) $ ( 153,315 ) $ 3,051

* Shares outstanding for prior periods have been restated for the 1-for-7 reverse stock split effective June 16, 2023.

The accompanying notes are an integral part of these consolidated financial statements.

8 unchanged sentences

Capitalized interest on promissory notes payable — 40

Gain on forgiveness of PPP loan — ( 801 )

Depreciation 33 159

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Accounts receivable ( 1,131 ) 783

Accounts receivable - related party ( 202 ) —

Inventories 1,012 2,358

Short-term deposits 120 257

Prepayments to vendors ( 200 ) 120

Prepaid and other assets 521 247

Accounts payable ( 580 ) ( 1 )

Accounts payable- related party 2,146 —

Accrued and other liabilities ( 47 ) ( 584 )

Right of use assets and lease liabilities 75 ( 12 )

Deferred revenue — ( 268 )

7 unchanged sentences

Proceeds from the issuance of common stock and warrants 6,079 3,500

Proceeds from the exercise of warrants — 801

Costs related to reverse stock-split ( 16 ) —

Offering costs paid on the issuance of common stock and warrants — ( 334 )

1 unchanged sentence

Proceeds from exercise of stock options and purchases through employee stock purchase plan — 6

Common stock withheld in lieu of income tax withholding on vesting of restricted stock units — ( 1 )

Payments on the 2021 Streeterville Note — ( 1,640 )

Proceeds from the 2021 Streeterville Note — 1,515

Payments on the 2022 Streeterville Note ( 625 ) —

Proceeds from the 2022 Streeterville Note — 2,000

3 unchanged sentences

Net payments on credit line borrowings - Credit Facilities ( 1,402 ) ( 768 )

Advanced capital contribution 450 —

Net cash provided by financing activities 4,486 4,099

4 unchanged sentences

(amounts in thousands)

Net increase in cash ( 2,630 ) 504

Net increase (decrease) in cash 1,978 ( 2,630 )

Cash, beginning of year 52 2,682

11 unchanged sentences

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 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 with greater energy efficiency, productivity, and human health and wellness through advanced LED retrofit solutions.

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

Our mission is to enable our customers to run their facilities with greater energy efficiency and productivity, and increased human health and wellness through advanced LED retrofit solutions.

Our goal is to be the human wellness lighting and LED technology and market leader for the most demanding applications where performance, quality, value, environmental impact and health are considered paramount.

We specialize in LED lighting retrofit by replacing fluorescent, high-intensity discharge 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 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 our MMM and commercial and industrial lighting and control products.

We are also evaluating adjacent technologies including Gallium Nitride (“GaN”) based power supplies and additional market opportunities in energy solution products that promote sustainability.

The LED lighting industry has changed dramatically over the past several years due to increasing competition and price erosion.

We have been experiencing these industry forces in both our military business since 2016 and in our commercial segment, where we once commanded significant price premiums for our flicker-free TLEDs with primarily 10-year warranties.

In more recent years, we have focused on redesigning our products for lower costs and consolidated our supply chain for stronger purchasing power in an effort to price our products more competitively.

Despite these efforts, our legacy products continue to face aggressive pricing competition and a convergence of product functionality in the marketplace, and we have shifted to diversifying our supply chain in an effort to increase value and remain competitive.

These trends are not unique to Energy Focus as evidenced by the increasing number of industry peers facing challenges, exiting LED lighting, selling assets and even going out of business.

In addition to continuously pursuing cost reductions, our strategy to combat these trends is to innovate both our technology and product offerings with differentiated products and solutions that offer greater, distinct value.

Specific examples of these products we have developed include the RedCap ® , our emergency backup battery integrated TLED, EnFocus™, our new dimmable/color-tunable lighting and powerline control platform that we launched in 2020, and the second generation of EnFocus™ powerline control switches and circadian lighting system for both commercial and residential markets, which as a result of supply chain challenges we now plan to launch in 2023.

Similarly, our plans to expand and enhance the performance of our RedCap ® product line are also now expected in 2023.

We continue to evaluate our sales strategy and believe our go-to-market strategy that focuses more on direct-sales marketing, selectively expanding our channel partner network to cover territories across the country, and listening to the voice of the customer, will lead to better and more impactful product development efforts that we believe will eventually translate into larger addressable markets and greater sales growth for us.

The Company has experienced significant sales declines, operating losses and increases in its inventory.

Beginning in 2019, significant restructuring efforts were undertaken.

The Company replaced the entire senior management team, significantly reduced non-critical expenses, minimized the amount of inventory the Company was purchasing, dramatically changed the composition of our board of directors (“Board of Directors”) and the executive team, and recruited new departmental leaders across the Company.

The initial cost savings efforts to reduce costs to minimize cash usage included the elimination of certain positions, restructuring of the sales organization and incentive plan, flattening of the senior management team, additional operational streamlining, management compensation reductions, and outsourcing of certain functions including certain elements of supply chain and marketing.

During 2021 and 2022, we realized initial cost-savings benefits from these relaunch efforts, but continued to face significant operating losses.

Despite these cost-cutting efforts, the company faced a challenging commercial market with continuing impacts from the global pandemic combined with ongoing delays in MMM projects and funding that continued to depress sales through 2021 while the company invested in exploring additional lines of business with UVCD technology that ultimately gained little traction in the market.

At the beginning of 2022, the board of directors appointed our lead independent director to serve as interim chief executive officer and replace our previous chief executive officer.

During 2022, the company expanded its cost-reduction efforts, reduced its warehouse square footage, undertook an inventory reduction project, and dramatically reduced head count.

In February and September of 2022, we also added three experienced executives to our Board of Directors with extensive lighting and consumer

ENERGY FOCUS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

products industry experience.

We reinvested in our MMM sales channel with a strategic hire in May 2022 and continue to pursue these sales opportunities, though the sales cycles for what are frequently made-to-order products are longer than commercial offerings.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies of our Company, which are summarized below, are consistent with accounting principles generally accepted in the United States (“U.S.

GAAP”) and reflect practices appropriate to the business in which we operate.

Unless indicated otherwise, the information in the Notes to the Consolidated Financial Statements relates to our operations.

Going Concern and Nasdaq Continued Listing Requirements Compliance

Due to our financial performance as of December 31, 2023 and 2022, including net losses of $ 4.3 million and $ 10.3 million for the twelve months ended December 31, 2023 and 2022, respectively, and total cash used in operating activities of $ 2.4 million and $ 6.7 million for the twelve months ended December 31, 2023 and 2022, respectively, we determined that substantial doubt about our ability to continue as a going concern continues to exist at December 31, 2023.

As a result of restructuring actions and initiatives, we have tailored our operating expenses to be more in line with our expected sales volumes;

however, we continue to incur losses and have a substantial accumulated deficit.

Additionally, global supply chain and logistics constraints are impacting our inventory purchasing strategy, as we seek to manage both shortages of available components and longer lead times in obtaining components while balancing the development and implementation of an inventory reduction plan.

Disruptions in global logistics networks are also impacting our lead times and ability to efficiently and cost-effectively transport products from our third-party suppliers to our facility.

As a result, we will continue to review and pursue selected external funding sources to ensure adequate financial resources to execute across the timelines required to achieve these objectives including, but not limited to, the following:

• obtaining financing from traditional or non-traditional investment capital organizations or individuals;

• obtaining funding from the sale of our common stock or other equity or debt instruments;

• obtaining debt financing with lending terms that more closely match our business model and capital needs.

There can be no assurance that we will obtain funding on acceptable terms, in a timely fashion, or at all.

Obtaining additional funding contains risks, including:

• additional equity financing may not be available to us on satisfactory terms, particularly in light of the current price of our common stock, and any equity we are able to issue could lead to dilution for current stockholders and have rights, preferences and privileges senior to our common stock;

• loans or other debt instruments may have terms or conditions, such as interest rate, restrictive covenants, conversion features, refinancing demands, and control or revocation provisions, which are not acceptable to management or the Company’s Board of Directors (the “Board of Directors”);

• the current environment in the capital markets and volatile interest rates, combined with our capital constraints, may prevent us from being able to obtain adequate debt financing.

ENERGY FOCUS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

anticipated within the next year, development and implementation of an excess inventory reduction plan, plans and initiatives in our research and development, product development and sales and marketing, and development of potential channel partnerships, if adequately executed, could provide us with an ability to finance our operations through the next twelve months and may mitigate the substantial doubt about our ability to continue as a going concern.

Nasdaq Capital Market Compliance

Our common stock is listed on the Nasdaq Capital Market, which has a minimum bid price of at least $ 1.00 per share as one of its continued listing requirements.

On August 23, 2022, we received a letter from the Nasdaq Listing Qualifications Staff (the “Staff”) notifying us that we were not in compliance with the Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Rule”), because the closing bid price for our common stock was below the minimum $ 1.00 per share for 30 consecutive business days.

In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we were provided an initial period of 180 calendar days, or until February 20, 2023, to regain compliance with the Bid Price Rule.

During the initial compliance period, our common stock continued to trade on the Nasdaq Capital Market, but did not satisfy the Bid Price Rule.

On November 16, 2022, we received a letter from the Staff notifying us that we were no longer in compliance with Nasdaq Listing Rule 5550(b)(1), which requires listed companies to maintain stockholders’ equity of at least $ 2.5 million if they do not meet the alternative compliance standards relating to the market value of listed securities or net income from continuing operations (the “Minimum Stockholders’ Equity Rule”).

Our Form 10-Q for the quarterly period ended September 30, 2022 filed on November 10, 2022 reflected that our stockholders’ equity as of September 30, 2022 was $ 1.5 million.

Based on our timely submission of our plan to regain compliance (the “Plan”), Nasdaq granted us an extension through May 15, 2023 to regain compliance with the Minimum Stockholders’ Equity Rule.

On February 21, 2023, we received written notification (the “Bid Price Notification”) from the Staff stating that we had not regained compliance with the Bid Price Rule and our common stock is subject to delisting from Nasdaq.

On February 24, 2023, we submitted a request for a hearing before the Nasdaq Hearings Panel (the “Panel”) to appeal the delisting (the “Appeal”).

Under Nasdaq rules, the delisting of the Company’s common stock was stayed during the pendency of the Appeal and, during such time, the Company’s common stock continued to be listed on Nasdaq.

On March 28, 2023, the Company received written notification (the “Additional Staff Determination”) from the Staff stating that (i) following the Bid Price Notification, and in accordance with Listing Rule 5810(c)(2)(A), Nasdaq is no longer permitted to consider the stockholders’ equity compliance plan, (ii) the Additional Staff Determination serves as an additional basis for delisting the Company’s common stock from Nasdaq and (iii) the Panel will consider the Additional Staff Determination in rendering a determination regarding the continued listing of the Company’s common stock on Nasdaq.

On April 6, 2023, the Company participated in the Appeal before the Panel.

The Company provided an update to the Panel on the Company’s substantial progress made towards the previously submitted Plan during the three months ended March 31, 2023, and requested the Panel grant the Company an exception to (1) re-allow the previously granted exception until May 15, 2023 for the Company to regain compliance with the Minimum Stockholders’ Equity Rule and (2) grant an exception allowing the Company up to 180 days following the Bid Price Notification to regain compliance with the Bid Price Rule by effecting a reverse stock split following stockholder approval at the Company’s 2023 annual meeting of stockholders.

On May 1, 2023, the Panel granted the Company’s request (the “Panel Decision”) to continue the Company’s listing on Nasdaq, subject to the following conditions:

(1) on or before May 15, 2023, the Company shall file with the SEC its quarterly report for the three months ended March 31, 2023 demonstrating compliance with the Minimum Stockholders’ Equity Rule and (2) on or before July 7, 2023, the Company shall demonstrate compliance with the Bid Price Rule.

On July 27, 2023, the Company received written notification from the Staff stating that the Company has regained compliance with the Bid Price Rule and the Minimum Stockholders’ Equity Rule, as required by the Panel Decision.

Pursuant to Nasdaq Listing Rule 5815(d)(4)(B), the Company will be subject to a mandatory panel monitor for a period of one year from July 27, 2023 (the “Monitoring Period”).

If, within the Monitoring Period, the Staff finds the Company again out of compliance with the Minimum Stockholders’ Equity Rule, notwithstanding Nasdaq Listing Rule 5810(c)(2), the Company will not be permitted to provide the Staff with a plan of compliance with respect to that deficiency and the Staff will not be permitted to grant additional time for the Company to regain compliance with respect to that deficiency, nor will the Company be afforded an applicable cure or compliance period pursuant to Nasdaq Listing Rule 5810(c)(3).

Instead, the Staff will issue a delist determination letter and the Company will have an opportunity to request a new hearing with the initial Panel or a newly convened hearings panel if the initial Panel is unavailable.

The Company will have the opportunity to respond and present to the Panel as provided by Nasdaq Listing Rule 5815(d)(4)(C).

The Company’s common stock may be at that time delisted from Nasdaq.

As of the date of this Annual Report, the Company believes it has maintained compliance with the Minimum Stockholders’ Equity Rule for continued listing on the Nasdaq Capital Market.

To become compliant with the Bid Price Rule, the Company

ENERGY FOCUS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

effected a 1-for-7 reverse stock split to increase the per share trading price of the common stock effective June 16, 2023 (See Note 9, “Stockholders’ Equity”).

However, there can be no assurance that the Company will be able to maintain compliance with the Minimum Stockholders’ Equity Rule, Bid Price Rule, or other Nasdaq listing requirements.

If the Company fails to maintain compliance with Nasdaq’s continued listing standards in accordance with the Panel’s decision, the Company’s common stock will be subject to delisting from Nasdaq.

Use of estimates

The preparation of financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods presented.

Estimates include, but are not limited to, the establishment of reserves for accounts receivable, sales returns, inventory excess and obsolescence reserve and warranty claims, the useful lives for property and equipment and stock-based compensation.

The preparation of financial statements in accordance with U.S.

GAAP requires management to make estimates and assumptions that affect the amounts in our financial statements and accompanying notes.

Management bases its estimates on historical experience and various other assumptions believed to be reasonable.

Although these estimates are based on management’s best knowledge of current events and actions that may impact us in the future, actual results may vary from the estimates.

Estimates include, but are not limited to, the establishment of reserves for accounts receivable, sales returns, inventory obsolescence and warranty claims, the useful lives of property and equipment, valuation allowance for net deferred taxes, and stock-based compensation.

The Company began using estimates for its calculation of allowance for doubtful accounts receivable under Accounting Standards Codification (“ASC”) 326, Measurement of Credit Losses on Financial Instruments (“CECL”) commencing in 2023.

In addition, estimates and assumptions associated with the determination of the fair value of financial instruments and evaluation of long-lived assets for impairment requires considerable judgment.

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All significant inter-company balances and transactions have been eliminated.

Unless indicated otherwise, the information in the Notes to Consolidated Financial Statements relates to our operations.

Revenue recognition

We have prepared the accompanying consolidated financial statements in accordance with U.S.

GAAP and pursuant to the rules and regulations of the United States Securities & Exchange Commission (“SEC”).

Net sales include revenues from sales of products and shipping and handling charges, net of estimates for product returns.

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Sales taxes assessed by governmental authorities and collected by us are accounted for on a net basis and are excluded from net sales.

Pursuant to ASC 606, Revenue Recognition, contract assets and contract liabilities as of the beginning and ending of the reporting periods must be disclosed.

Please find below the breakout of the Company’s contracts:

At December 31,

2022 2021 2020

Gross Accounts Receivable $ 471 $ 1,254 $ 2,029

Allowance for Doubtful Accounts ( 26 ) ( 14 ) ( 8 )

Net Accounts Receivable $ 445 $ 1,240 $ 2,021

A disaggregation of product net sales is presented in Note 11, “Product and Geographic Information.”

At December 31, 2022, we had cash of $ 0.1 million and at December 31, 2021, we had cash of $ 2.7 million on deposit with financial institutions located in the United States.

Accounts Receivable and Allowance for Credit Losses

Our trade accounts receivable consists of amounts billed to and currently due from customers.

Substantially all of our customers are concentrated in the United States.

In the normal course of business, we extend unsecured credit to our customers related to the sale of our products.

Credit is extended to customers based on an evaluation of the customer’s financial condition and the amounts due are stated at their estimated net realizable value.

We maintain allowances for sales returns and doubtful accounts receivable to provide for the estimated number of account receivables that will not be collected.

The allowance is based on an assessment of forward-looking customer credit-worthiness and historical payment experience, the age of outstanding receivables, and performance guarantees to the extent applicable.

Past due amounts are written off when our internal collection efforts have been unsuccessful, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts.

We do not generally require collateral from our customers.

Our standard payment terms with customers are net 30 days from the date of shipment, and we do not generally offer extended payment terms to our customers, but exceptions are made in some cases for major customers or with particular orders.

ENERGY FOCUS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Accordingly, we do not adjust trade accounts receivable for the effects of financing, as we expect the period between the transfer of product to the customer and the receipt of payment from the customer to be in line with our standard payment terms.

Through November 2022, we utilized a third-party account receivable insurance program with a very high credit worthy insurance company where we had the large majority of the accounts receivable arising during the policy term insured with a portion of self-retention.

This third party also provided credit-worthiness ratings and metrics that significantly assisted us in evaluating the credit-worthiness of both existing and new customers.

Although the insurance policy is no longer in place, all invoices issued under the previous coverage period are still covered under the policy.

On January 1, 2023, the Company adopted Financial Instruments - Credit Losses (“ASC 326”).

The standard adds to U.S.

GAAP an impairment model known as the CECL model, which is based on expected losses rather than incurred losses.

This standard only impacts the Company’s trade receivables.

The Company decided to use the historical loss rate method of valuing its reserve for trade receivables.

The allowance for credit losses is reviewed and assessed for adequacy on a quarterly basis.

We take into consideration (1) any circumstances of which we are aware of a customer's inability to meet its financial obligations and (2) our judgments as to prevailing economic conditions in the industry and their impact on our customers.

If circumstances change, and the financial condition of our customers is adversely affected and they are unable to meet their financial obligations, we may need to take additional allowances, which would result in an increase in our operating expense.

This resulted in a $ 2 thousand adjustment to Retained Earnings as of January 1, 2023 and charges to credit loss expense of $ 4 thousand for the year ended December 31, 2023.

Pursuant to ASC 606, Revenue Recognition , contract assets and contract liabilities as of the beginning and ending of the reporting periods must be disclosed.

Below is the breakout of the Company’s contract assets for such periods:

December 31, 2023 December 31, 2022 January 01, 2022

Accounts Receivable $ 1,590 $ 471 $ 1,254

Reserve for Credit Losses/Allowance for Doubtful Accounts ( 20 ) ( 26 ) ( 14 )

Net Accounts Receivable $ 1,570 $ 445 $ 1,240

Activity related to our reserve for credit losses was as follows (in thousands):

Allowance for doubtful accounts as of December 31, 2022 $ ( 26 )

Cumulative effect of the implementation of ASC 326 ( 2 )

Reserve for credit losses as of December 31, 2023 ( 4 )

Prior year reclassification of sales returns out of allowance for doubtful accounts 12

Allowance for doubtful accounts as of December 31, 2023 $ ( 20 )

Geographic information

All of our long-lived fixed assets are located in the United States.

For the years ended December 31, 2023 and 2022, approximately 100 % of sales were attributable to customers in the United States.

The geographic location of our net sales is derived from the destination to which we ship the product.

Cash consists of investments in money market funds and deposits with banks.

At December 31, 2023 and 2022, we had cash of $ 2.0 million and $ 52 thousand, respectively, on deposit with financial institutions located in the United States.

We state inventories at the lower of standard cost (which approximates actual cost determined using the first-in-first-out method) or net realizable value.

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As a result of our initiatives to sell down inventory, we sold some inventory below cost.

The difference between cost and sale price was applied to remaining inventory and included in lower of cost or market component of the provision for excess and obsolete inventory calculation.

The difference between cost and sale price

ENERGY FOCUS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

was applied to remaining inventory and included in lower of cost or market component of the provision for excess and obsolete inventory calculation.

We limited inventory and component purchases to top selling products that maintained high inventory turnover.

This resulted in a net decrease of our gross inventory levels of $ 2.9 million and excess and obsolete inventory reserves of $ 0.5 million as compared to 2021.

During 2021, we experienced global supply chain and logistics constraints, which impacted our inventory purchasing strategy, leading to a buildup of inventory and inventory components in an effort to manage both shortages of available components and longer lead times in obtaining components.

This resulted in a net increase of our gross inventory levels of $ 2.4 million.

We had an increase of excess inventory reserves of $ 0.2 million as compared to 2020.

Adjustments to our estimates, such as forecasted sales and expected product lifecycles, could harm our operating results and financial position.

This resulted in a net decrease of our gross inventory levels of $ 1.0 million and a net increase of excess and obsolete inventory reserves of $ 26 thousand as co mpared to 2022.

Please refer to Note 4, “ Inventories” for additional information.

Accounts receivable

Our trade accounts receivable consists of amounts billed to and currently due from customers.

Our customers are concentrated in the United States.

In the normal course of business, we extend unsecured credit to our customers related to the sale of our products.

Credit is extended to customers based on an evaluation of the customer’s financial condition and the amounts due are stated at their estimated net realizable value.

From time to time, we have utilized a third-party account receivables insurance program with a very high credit worthy insurance company where we have the large majority of the accounts receivable insured with a portion of self-retention.

This third party also provided credit-worthiness ratings and metrics that significantly assisted us in evaluating the credit worthiness of both existing and new customers.

We maintain allowances for sales returns and doubtful accounts receivable to provide for the estimated amount of account receivables that will not be collected.

The allowance is based on an assessment of customer creditworthiness and historical payment experience, the age of outstanding receivables, and performance guarantees to the extent applicable.

We do not generally require collateral from our customers.

As part of the process of preparing the Consolidated Financial Statements, we are required to estimate our income tax liability in each of the jurisdictions in which we do business.

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We continue to evaluate the need for a valuation allowance on a quarterly basis.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Financial Instruments

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We utilize valuation techniques that maximize the use of available market information and generally accepted valuation methodologies.

We assess the inputs used to measure fair value using a three-tier hierarchy.

The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value, giving the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).

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There were no reclassifications for all periods presented.

Long-lived assets

ENERGY FOCUS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Property and equipment

Property and equipment are stated at cost and include expenditures for additions and major improvements.

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When assets are sold or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the Consolidated Statements of Operations.

Refer to Note 6, “Property and Equipment,” for additional information.

Impairment of Long-lived assets

Long-lived assets are reviewed for impairment whenever events or circumstances indicate the carrying amount may not be recoverable.

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Refer to Note 5, “Property and Equipment,” for additional information.

Under the new lease standard, ASC 842, Leases (“Topic 842”), both operating and finance lease are capitalized on the balance sheet.

The Company determines if an arrangement is a lease at its inception.

A contract is or contains a lease if the contract conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration.

A period of time may be described in terms of the amount of use of an identified asset.

An operating lease is a contract that permits the use of an asset without transferring

ENERGY FOCUS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

the ownership rights of said asset.

A finance lease is a contract that permits the use of an asset and transfers ownership after the lease period is complete, and the lessor meets all other contract obligations.

The leased asset is amortized over the life of the lease contract.

Right-of-use (“ROU”) assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term.

We use our estimated incremental borrowing rate in determining the present value of lease payments considering the term of the lease, which is derived from information available at the lease commencement date.

The lease term includes renewal options when it is reasonably certain that the option will be exercised and excludes termination options.

Lease expense for these leases is recognized on a straight-line basis over the lease term.

We have elected not to recognize ROU assets and lease liabilities that arise from short-term leases for any class of underlying asset.

Operating leases are included in Operating lease, right-of-use-assets, Operating lease liabilities, and Long-term operating lease liabilities in our Consolidated Balance Sheets.

Product development

1 unchanged sentence

Research and development costs are expensed as they are incurred.

We recognized $ 0.6 million and $ 1.5 million for the years ended December 31, 2023 and 2022, respectively.

Net loss per share

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Dilutive potential shares of common stock consist of incremental shares upon the exercise of stock options, warrants and convertible securities, unless the effect would be anti-dilutive.

ENERGY FOCUS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents a reconciliation of basic and diluted loss per share computations (in thousands, except per share amounts):

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Basic and diluted weighted average common shares outstanding* 3,241 1,158

* Shares outstanding for prior periods have been restated for the 1-for-7 reverse stock split effective June 16, 2023.

As a result of the net loss we incurred for the year ended December 31, 2023, convertible preferred stock representing approximately 25 thousand shares of common stock were excluded from the basic loss per share calculation because their inclusion would have been anti-dilutive.

As a result of the net loss we incurred for the year ended December 31, 2022, convertible preferred stock representing approximately 25 thousand shares of common stock were excluded from the basic loss per share calculation because their inclusion would have been anti-dilutive.

We determined the exercise price of the June 2022 Pre-Funded Warrants to be nominal and, as such, have considered the approximately 196,978 shares underlying them, for the purposes of calculating basic EPS.

The June 2022 Pre-Funded Warrants were all exercised in July 2022.

As a result of the net loss we incurred for the year ended December 31, 2021, options, warrants and convertible preferred stock representing approximately 51 thousand, 47 thousand and 260 thousand shares of common stock, respectively, were excluded from the basic loss per share calculation because their inclusion would have been anti-dilutive.

We determined the exercise price of the December 2021 Pre-Funded Warrants to be nominal and, as such, have considered the approximately 85 thousand shares underlying them to be outstanding effective December 31, 2021, for the purposes of calculating basic EPS.

Stock-based compensation

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See Note 9, “Stockholders’ Equity,” for additional information.

Common stock, stock options, and warrants issued to non-employees that are not part of an equity offering are accounted for under the applicable guidance under Accounting Standards Codification (“ASC”) 505-50, “Equity-Based Payments to Non-Employees,” and are generally re-measured at each reporting date until the awards vest.

Advertising expenses

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They consist of costs for the placement of our advertisements in various media and the costs of demos provided to potential distributors of our products.

Advertising expenses were $ 0.3 million and $ 0.4 million for the years ended December 31, 2022 and 2021, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Advertising expenses were $ 6 thousand and $ 0.3 million for the years ended December 31, 2023 and 2022, respectively.

Product warranties

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One product was sold in 2020 with a twenty year warranty.

Warranty settlement costs consist of actual amounts expensed for warranty, which are largely a result of the cost of replacement products provided to our customers.

Warranty settlement costs consist of actual amounts expensed for warranty, which are largely a result of the cost of replacement products or rework services provided to our customers.

A liability for the estimated future costs under product warranties is maintained for products under warranty based on the actual claims incurred to date and the estimated nature, frequency, and costs of future claims.

One contract that expired in 2022 held a warranty of 10 years and this is driving the downward adjustment to existing warranties.

One contract that expired in 2022 held a warranty of 10 years and drove the downward adjustment to existing warranties.

These estimates are inherently uncertain and changes to our historical or projected experience may cause material changes to our warranty reserves in the future.

We continuously review the assumptions related to the adequacy of our warranty reserve, including product failure rates, and make adjustments to the existing warranty liability when there are changes to these estimates or the underlying replacement product costs, or the warranty period expires.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes warranty activity for the periods presented (in thousands):

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Adjustments to existing warranties ( 43 ) ( 136 )

Settlements made during the year (in kind) — 62

Accrued warranty reserve at the end of the period $ 183 $ 295

Recently issued accounting pronouncements

In June 2016, the FASB issued ASU No.

Accrued warranty reserve at the end of the year $ 150 $ 183

Recently issued accounting standards

On November 27, 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-07, Segment Reporting-Improvements to Reportable Segment Disclosures , which requires public entities to provide disclosures of significant segment expenses and other segment items.

The guidance requires public entities to provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually and also applies to public entities with a single reportable segment.

Entities are permitted to disclose more than one measure of a segment’s profit or loss if such measures are used by the chief operating decision-maker to allocate resources and assess performance, as long as at least one of those measures is determined in a way that is most consistent with the measurement principles used to measure the corresponding amounts in the consolidated financial statements.

The guidance is applied retrospectively to all periods presented in financial statements, unless it is impracticable, and is effective for fiscal years beginning after December 15, 2023, and for interim periods beginning after December 15, 2024.

Early adoption is permitted.

This standard will only impact disclosures and will be adopted by the Company on January 1, 2024.

We are currently evaluating the impact this ASU will have on our financial statements and disclosures.

On December 14, 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures , which establishes new income tax disclosure requirements in addition to modifying and eliminating certain existing requirements.

Under the new guidance, entities must consistently categorize and provide greater disaggregation of information in the rate reconciliation.

They must also further disaggregate income taxes paid.

The standard is intended to benefit investors by providing more detailed income tax disclosures that would be useful in making capital allocation decisions.

The guidance applies to all entities subject to income taxes and is effective for annual periods beginning after December 15, 2024.

The guidance will be applied on a prospective basis with the option to apply the standard retrospectively.

Early adoption is permitted.

The Company plans to adopt this standard on January 1, 2025.

We are currently evaluating the impact this ASU will have on our financial statements and disclosures.

Recently adopted accounting standards

In June 2016, the FASB issued Accounting Standard Update No.

2016-13, Financial Instruments - Credit Losses (Topic 326):

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The new guidance introduces an approach based on expected losses to estimate credit losses on certain financial instruments, including trade receivables, and requires an entity to recognize an allowance based on its estimate of expected credit losses rather than incurred losses.

This standard is effective for interim and annual periods starting after December 15, 2022 and generally requires adoption on a modified retrospective basis.

We are in the process of evaluating the impact of the standard.

For smaller reporting companies, this standard became effective for interim and annual periods starting after December 15, 2022, and has been adopted by the Company.

We adopted this guidance during the first quarter of 2023, and it did not have a material impact on our consolidated balance sheets or results of operations.

Certain risks and concentrations

Historically, our products were sold through a direct sales model, which included a combination of direct sales employees, electrical and lighting contractors, and distributors.

From time to time, we have utilized a third-party accounts receivable insurance and credit assessment company.

Although we maintain allowances for potential credit losses that we believe to be adequate, a payment default on a significant sale could materially and adversely affect our operating results and financial condition, although we have mitigated this risk somewhat through the accounts receivable insurance program.

We have certain customers whose net sales individually represented 10% or more of our total net sales, or whose net trade accounts receivable balance individually represented 10% or more of our total net trade accounts receivable as follows:

• In 2023, two customers accounted for 48 % of net sales, with sales to our primary distributor for the U.S.

Navy accounting for approximately 13 % and sales to a regional commercial lighting retrofit company accounting for approximately 14 % 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 30 % of net sales for the same period.

Navy accounting for approximately 35 % and sales to a shipbuilder for the U.S.

Navy accounting for approximately 13 %.

In 2022, two customers accounted for 27 % of net sales, with sales to our primary distributor for the U.S.

Navy accounting for approximately 13 % and sales to a regional commercial lighting retrofit company accounting for approximately 14 % 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.

• At December 31, 2023, one distributor to the U.S.

Department of Defense accounted for 74 % of our net trade accounts receivable, when combined with our net trade accounts receivable to shipbuilders for the U.S.

Navy, total net accounts

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

receivable related to U.S.

Navy sales is 78 % of total net accounts receivable.

At December 31, 2022, a distributor to the U.S.

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Navy sales is 30 % of total net accounts receivable.

At December 31, 2021, a distributor to the U.S.

Department of Defense accounted for 20 % of our net trade accounts receivable and a shipbuilder for the U.S.

Navy accounted for 36 % of our net trade accounts receivable.

ENERGY FOCUS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We require substantial amounts of purchased materials from selected vendors.

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We have certain vendors who individually represented 10% or more of our total expenditures, or whose net trade accounts payable balance individually represented 10% or more of our total net trade accounts payable, as follows:

• 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, a related party, accounted for approximately 28.0 % of our total expenditures for the twelve months ended December 31, 2023.

At December 31, 2023, two offshore suppliers accounted for approximately 16 % and 57 % (the latter a related party, see Note 13 “Related Party Transactions”) of our trade accounts payable balance.

• 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.

The Company leases certain equipment, manufacturing, warehouse and office space under non-cancellable operating leases expiring through 2027 under which it is responsible for related maintenance, taxes and insurance.

The Company had one equipment finance lease containing a bargain purchase option which was exercised in July 2022.

The lease term consists of the non-cancellable period of the lease, periods covered by options, to extend the lease if the Company is reasonably certain to exercise the option, and periods covered by an option to terminate the lease if the Company is reasonably certain not to exercise the option.

As of January 21, 2021, the terms of one of the equipment operating leases was extended through 2026.

Additionally, as of March 25, 2022, the Company extended its headquarters real estate operating lease for manufacturing, warehouse and office space commencing July 1, 2022 to reflect a smaller footprint at reduced costs.

In accordance with “Topic 842”), as a result of the extensions, the related lease liabilities were remeasured and the right-of-use assets and corresponding lease liabilities were adjusted for each lease at the time of modification.

The present value of the lease obligation was calculated using an incremental borrowing rate of 15.93 % for the equipment lease and 16.96% for the real estate lease, which was the Company’s blended borrowing rate (including interest, annual facility fees, collateral management fees, bank fees and other miscellaneous lender fees) on its revolving lines of credit.

The present value of the remaining lease obligation was calculated using an incremental borrowing rate of 7.25 % (which excludes the annual facility fee and other lender fees), which was the Company’s borrowing rate on its revolving lines of credit at the time the leases were entered into.

The weighted average remaining lease term for operating leases is 4.4 years.

ENERGY FOCUS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Components of the operating, restructured and finance lease costs recognized in net loss were as follows (in thousands):

The Company leases certain equipment, manufacturing, warehouse and office space under non-cancellable operating leases with expirations through 2027 under which it is responsible for related maintenance, taxes and insurance.

The Company had one finance lease on a forklift containing a bargain purchase option, which was exercised in July 2022.

As of March 25, 2022, the terms of our real estate operating lease have been modified beginning July 1, 2022 and extended through 2027.

In accordance with ASC 842, Leases (“ASC 842”), the related lease liability was remeasured and the right-of-use asset was adjusted at the time of modification.

The present value of the lease obligations for the lease was calculated using an incremental borrowing rate of 16.96 % , which was the Company’s blended borrowing rates (including interest, annual facility fees, collateral management fees, bank fees and other miscellaneous lender fees) on its revolving lines of credit with Crossroads Financial Group, LLC (as described below in Note 7, “Debt”) and Factors Southwest L.L.C.

(as described below in Note 7, “Debt”).

The weighted average remaining lease term for the operating leases is 3.5 years.

Components of the operating lease costs recognized in net loss were as follows (in thousands):

For the years ended December 31,

Components of leases recognized in net income (loss):

Operating lease cost (income)

Sub-lease income $ — $ ( 90 )

Lease cost 461 501

Operating lease cost, net 411 446

Restructured lease cost (income)

Sub-lease income — ( 136 )

Lease cost — 110

Restructured lease income, net — ( 26 )

Finance lease cost

Interest of lease liabilities 1 —

Finance lease cost, net 1 —

Total lease cost, net $ 461 $ 411

Supplemental Consolidated Balance Sheet information related to the Company’s operating and finance leases are as follows (in thousands):

Supplemental Consolidated Balance Sheet information related to the Company’s operating leases are as follows (in thousands):

At December 31,

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Operating lease liabilities 1,021 1,227

Finance Leases

Property and equipment 13 13

Allowances for depreciation ( 13 ) ( 12 )

Finance lease assets, net — 1

Finance lease liabilities — 1

Total finance lease liabilities $ — $ 1

ENERGY FOCUS, INC.

2 unchanged sentences

Operating Leases

Jan 2023 to Dec 2023 $ 386

Jan 2024 to Dec 2024 379

Jan 2025 to Dec 2025 385

Jan 2026 to Dec 2026 390

Jan 2027 to Dec 2027 197

Total future undiscounted lease payments 1,351

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Operating cash flows from operating leases $ 383 $ 423

Operating cash flows from restructured leases $ — $ 35

Financing cash flows from finance leases $ — $ 1

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

RESTRUCTURING

Due to our financial performance in 2022 and 2021, including net losses of $ 10.3 million and $ 7.9 million, respectively, and total cash used in operating activities of $ 6.7 million and $ 9.8 million, respectively, we determined that substantial doubt about our ability to continue as a going concern continues to exist at December 31, 2022.

As a result of the restructuring actions and initiatives described in Note 1, we have tailored our operating expenses to be more in line with our expected sales volumes, however, we continue to incur losses and have a substantial accumulated deficit, and substantial doubt about our ability to continue as a going concern continues to exist at December 31, 2022.

Disruptions in global logistics networks are also impacting our lead times and ability to efficiently and cost-effectively transport products from our third-party suppliers to our facility.

• obtaining financing from traditional or non-traditional investment capital organizations or individuals;

• obtaining funding from the sale of our common stock or other equity or debt instruments;

• obtaining debt financing with lending terms that more closely match our business model and capital needs.

There can be no assurance that we will obtain funding on acceptable terms, in a timely fashion, or at all.

Obtaining additional funding contains risks, including:

• the current environment in the capital markets and volatile interest rates, combined with our capital constraints, may prevent us from being able to obtain adequate debt financing.

Along with the new additions to our Board of Directors, 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.

Considering both quantitative and qualitative information, we continue to believe that the combination of our plans to ensure adequate external funding, timely re-organizational actions, current financial position, liquid resources, obligations due or anticipated within the next year, development and implementation of an excess inventory reduction plan, plans and initiatives in our research and development, product development and sales and marketing, and development of potential channel partnerships, if adequately executed, could provide us with an ability to finance our operations through the next twelve months and may mitigate the substantial doubt about our ability to continue as a going concern.

On December 21, 2021, we received a letter from the Listing Qualifications staff (the “Staff”) of The Nasdaq Stock Market (“Nasdaq”) notifying us that, as a result of the resignation of a director, as previously disclosed, from the Board of Directors and the Audit and Finance Committee, we were not in compliance with Nasdaq Listing Rule 5605, which requires that our Audit and Finance Committee be comprised of at least three directors, all of whom are independent pursuant to the rules of Nasdaq and applicable law.

The notification letter had no immediate effect on our listing on the Nasdaq Capital Market.

The letter further provided that, pursuant to Nasdaq Listing Rule 5605(c)(4), we were entitled to a cure period to regain compliance with Nasdaq Listing Rule 5605.

On February 24, 2022, we announced the appointment of two additional independent directors, one of which, was appointed to fill the vacancy on the Audit and Finance Committee, bringing us into compliance with Nasdaq Listing Rule 5605.

On August 23, 2022, we received a letter from the Staff notifying us that we are not in compliance with the requirement to maintain a minimum closing bid price of $1.00 per share, as set forth in Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Rule”), because the closing bid price for our common stock was below the minimum $ 1.00 per share for 30 consecutive business days.

In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we were provided an initial period of 180 calendar days, or until February 20, 2023, to regain compliance with the Bid Price Rule.

During the initial compliance period, our common stock continued to trade on the Nasdaq Capital Market, but did not satisfy the Bid Price Rule.

On February 21, 2023, we received written notification (the “Notification”) from the Staff stating that we had not regained compliance with the Bid Price Rule and

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

were ineligible to obtain a second 180 calendar day period to regain compliance because we did not meet the Nasdaq Capital Market’s minimum $ 5,000,000 Stockholders’ Equity initial listing requirement as of September 30, 2022.

Pursuant to the Notification, our common stock is subject to delisting from Nasdaq pending our opportunity to request a hearing before the Nasdaq Hearings Panel (the “Panel”).

The Company intends to diligently pursue an appeal of the Notification before the Panel and regain compliance with the Bid Price Rule.

Under Nasdaq rules, the delisting of our common stock will be stayed during the pendency of the appeal and during such time, our common stock will continue to be listed on Nasdaq.

If we had not requested a hearing before the Panel by February 28, 2023, our common stock would have been scheduled for delisting at the opening of business on March 2, 2023.

On February 24, 2023, we submitted our request for an appeal before the Panel.

There can be no assurance that such appeal will be successful or that we will be able to regain compliance with the Bid Price Rule or maintain compliance with other Nasdaq listing requirements.

If our appeal is denied or if we fail to regain compliance with Nasdaq’s continued listing standards during any period granted by the Panel, our common stock will be subject to delisting from Nasdaq.

Our Form 10-Q for the Quarterly Period Ended September 30, 2022 filed on November 10, 2022 reflected that our stockholders’ equity as of September 30, 2022 was $ 1.5 million.

Based on our timely submission of our plan to regain compliance, Nasdaq granted us an extension through May 15, 2023 to regain compliance with the Minimum Stockholders’ Equity Rule.

ENERGY FOCUS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Inventories are stated at the lower of standard cost (which approximates actual cost determined using the first-in, first-out cost method) or net realizable value and consists of the following (in thousands):

Inventories consist of the following (in thousands):

At December 31,

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Reserves for excess, obsolete, and slow-moving inventories $ ( 2,553 ) $ ( 2,527 )

As part of our expense reduction initiatives, we significantly decreased our warehouse space beginning in the third quarter of 2022.

In connection with the space reduction, in the second quarter of 2022, we began disposing of a substantial portion of our excess and obsolete commercial finished goods inventory that was highly reserved, which effort continued into the fourth quarter of 2022.

The scraping of inventory primarily drove the decrease in excess inventory reserves of $ 0.5 million as compared to 2021.

We also focused on selling down inventory on hand and limited inventory and component purchases to top selling products with expected higher turnover.

This resulted in a net decrease of our gross inventory levels of $ 2.9 million.

We experienced significant global supply chain and logistics constraints during 2021, which impacted our inventory purchasing strategy, leading to a buildup of inventory and inventory components in an effort to manage both shortages of available components and longer lead times in obtaining components.

This resulted in a net increase of our gross inventory levels of $ 2.4 million and excess inventory reserves of $ 0.2 million as compared to 2020.

ENERGY FOCUS, INC.

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Vehicles (useful life 5 years)

Furniture and fixtures (useful life 5 years)

Computer software (useful life 3 years)

Leasehold improvements (the shorter of useful life or lease life) 141 141

Finance lease right-of-use asset — 13

UV - Robots (useful life 5 years)

Construction in progress 28 —

2 unchanged sentences

Property and equipment, net $ 112 $ 76

Depreciation expense was $ 0.2 million for both of the years ended December 31, 2022 and 2021.

During the third quarter of 2022 it was determined that the mUVeTM ultraviolet-C light disinfection robots were no longer of use and the net book value of $ 76 thousand was recorded as a loss on impairment of fixed assets.

During the fourth quarter, impairment charges totaling $ 258 thousand were recorded, which primarily relates to other assets disposed or otherwise abandoned following a review by management.

Depreciation expense was $ 33 thousand and $ 159 thousand for the years ended December 31, 2023 and 2022, respectively.

During the third quarter of 2022 it was determined that the light disinfection robots were no longer of use and the net book value of $ 76 thousand was recorded as a loss on impairment of fixed assets.

During the fourth quarter of 2022, impairment charges totaling $ 262 thousand were recorded, which primarily relates to other assets disposed or otherwise abandoned following a review by management.

Impairment charges were based on level 3 inputs, including estimated residual or sale value to market participants, in determining fair value.

8 unchanged sentences

Prepaid rent 41 39

Short-term deposits - non-inventory — 18

Total prepaid and other current assets $ 156 232

Credit Facilities

On August 11, 2020, we entered into two debt financing arrangements (together, the “Credit Facilities”) that allowed for expanded borrowing capacity at a lower blended borrowing cost.

The first arrangement is an inventory financing facility (the “Inventory Facility”) pursuant to the Loan and Security Agreement (the “Inventory Loan Agreement”) between the Company and Crossroads Financial Group, LLC, a North Carolina limited liability company (the “IF Lender”).

Borrowings under the Inventory Facility are permitted up to the lower of (i) $ 3.0 million, which was subsequently increased to $ 3.5 million in April 2022 and reduced to $ 500 thousand in January 2023 as described below, and (ii) a borrowing base determined from time to time based on the value of the Company’s eligible inventory, valued at 75 % of inventory costs or 85 % of the inventory net orderly liquidation value, less the availability reserves.

On January 18, 2023, the Company and the IF Lender entered into an

Debt consisted of the following (in thousands):

At December 31,

Credit facilities, net $ — $ 1,447

Promissory notes - related parties — 814

Streeterville notes, net 1,323 2,618

Advanced capital contribution 450 —

Total $ 1,773 $ 4,879

ENERGY FOCUS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

amendment to restructure and pay down the Inventory Facility.

Please refer to Note 15, “Subsequent Events” for further detail.

As of December 31, 2022, the terms of the Inventory Facility were as follows.

The outstanding indebtedness under the Inventory Facility accrues at an annual rate equal to the greater of (i) 5.75 % and (ii) 4.00 % plus the three-month LIBOR rate ( 4.77 % and 0.21 % at December 31, 2022 and 2021, respectively) and is also subject to a service fee of 1 % per month.

The annualized interest rate at December 31, 2022 and 2021, which includes interest fees, the annual facility fee, bank fees and other miscellaneous lender fees, was 25.5 % and 22.4 %, respectively.

The Inventory Facility’s interest and service fees combined amount is subject to a minimum monthly fee of $ 18 thousand.

There would be no breakage fee for the Company for the Inventory Facility if the Company were to refinance it with an American Bankers Association (“ABA”) equivalent institution.

The Inventory Facility is secured by substantially all of the present and future assets of the Company and is also governed by an intercreditor agreement among the Company, the IF Lender and the RF Lender (defined below).

The Inventory Facility would have matured on August 11, 2023, subject to early termination upon 90 days’ notice and otherwise in accordance with the terms of the Inventory Loan Agreement.

The second arrangement is a receivables financing facility (the “Receivables Facility”) pursuant to the Loan and Security Agreement (the “Receivables Loan Agreement”) between the Company and Factors Southwest L.L.C.

Credit Facilities

On August 11, 2020, we entered into two debt financing arrangements (together, the “Credit Facilities”) that allowed for expanded borrowing capacity at a lower blended borrowing cost.

We paid off and terminated the Credit Facilities during the year ended December 31, 2023.

Inventory Facility with Crossroads

Borrowings under the original Inventory Facility were permitted up to the lower of (i) $ 3.0 million, which amount was subsequently increased to $ 3.5 million in April 2021, and (ii) a borrowing base determined from time to time based on the value of the Company’s eligible inventory, valued at 75 % of inventory costs or 85 % of the inventory net orderly liquidation value, less the availability reserves.

On January 18, 2023, the Company and Crossroads entered into an amendment to the Inventory Loan Agreement (the “Crossroads Amendment”) to restructure and pay down the Inventory Facility.

The Crossroads Amendment provided that the Company makes payments to reduce the outstanding obligations under the Inventory Facility of $ 750 thousand by January 20, 2023 and $ 250 thousand by February 15, 2023.

The Company also agreed to make monthly payments of approximately $ 40 thousand towards the remaining outstanding obligations under the Inventory Facility, and to reduce the maximum amount that may be available to the Company under the Inventory Facility from $ 3.5 million to $ 500 thousand, subject to the borrowing base as set forth in the Inventory Loan Agreement.

Pursuant to the Crossroads Amendment, Crossroads and the Company also agreed to extend the Inventory Facility’s current term through December 31, 2023, while eliminating the minimum borrowing amount and unused line fees and reducing the monthly service fee to a lower, fixed amount.

The Company also agreed to a slightly increased interest rate, which was more than offset by the reduction in the monthly service fees.

Pursuant to the Crossroads Amendment, the interest rate on borrowings under the Inventory Facility per annum was a rate equal to (i) the Three-Month LIBOR rate plus 5.5 % or (ii) at Crossroads’ discretion, an alternative reference rate, SOFR (Secured Overnight Financing Rate), plus 6.00 %.

The Inventory Facility was paid in full on September 24, 2023, using the interest rate of 11.16 % per annum, and the Company wrote off the difference of $ 40 thousand between the final invoice amount and the carrying value of the debt, which was recorded as interest income.

Receivables Facility with FSW Funding

The second Credit Facility was a receivables financing facility (the “Receivables Facility”) pursuant to the Loan and Security Agreement (the “Receivables Loan Agreement”) between the Company and Factors Southwest L.L.C.

(d/b/a FSW Funding), an Arizona limited liability company (the “RF Lender”).

Borrowings under the Receivables Facility are permitted up to the lower of (i) $ 2.5 million or (ii) a borrowing base determined from time to time based on the value of the Company’s eligible accounts receivable, valued at 90 % of the face value of such accounts receivable, less availability reserves, if any.

On February 7, 2023, the Company completed the termination of its Receivables Facility.

Please refer to Note 15, “Subsequent Events” for further detail.

As of December 31, 2022, the terms of the Receivables Facility were as follows.

Interest on outstanding indebtedness under the Receivables Facility accrues at an annual rate equal to (i) the highest prime rate announced from time to time by the Wall Street Journal ( 7.50 % and 3.25 % at December 31, 2022 and 2021, respectively) plus (ii) 2 %.

At December 31, 2022 and 2021, the annualized interest rate, which includes interest fees and the annual facility fee, was 10.1 % and 8.0 %, respectively.

The annualized interest rate on the collateral management fee was 6.3 % and 5.9 % at December 31, 2022 and 2021, respectively.

The Receivables Facility is also secured by substantially all of the present and future assets of the Company and is also governed by an intercreditor agreement among the Company, the IF Lender and the RF Lender.

A $ 25 thousand, or 1 %, facility fee was charged at closing.

There would be no breakage fee for the Company for the Receivables Facility if the Company were to refinance it with an ABA equivalent institution.

Borrowings under the Inventory Facility were $ 1.4 million and $ 1.2 million at December 31, 2022 and 2021, respectively.

Borrowings under the Receivables Facility were less than $ 0.1 million and $ 1.0 million at December 31, 2022 and 2021, respectively.

Borrowings under the Credit Facilities are recorded in the Consolidated Balance Sheet as of December 31, 2022 and 2021 as a current liability under the caption “Credit line borrowings, net of origination fees.” Outstanding balances include unamortized net issuance costs totaling $ 47 thousand and $ 84 thousand for the Inventory Facility and $ 15 thousand and $ 24 thousand for the Receivables Facility as of December 31, 2022 and 2021, respectively.

Promissory Notes

During the third and fourth quarters of the year ended December 31, 2022, we entered into short-term unsecured promissory notes (the “2022 Promissory Notes”) with Mei-Yun (Gina) Huang, Jay Huang, and Tingyu Lin.

Huang is a member of the Company’s Board of Directors and Jay Huang became a member of the Board of Directors in January 2023.

Borrowings under the Receivables Facility were permitted up to the lower of (i) $ 2.5 million and (ii) a borrowing base determined from time to time based on the value of the Company’s eligible accounts receivable, valued at 90 % of the face value of such accounts receivable, less availability reserves, if any.

On February 7, 2023, the Company and the RF Lender agreed to terminate the Receivables Facility.

All outstanding amounts under the Receivables Facility had been repaid prior to termination, and there were no prepayment fees in connection with termination.

The Receivables Facility was secured by substantially all of the present and future assets of the Company and was subject to an intercreditor agreement with Crossroads, which intercreditor agreement was also terminated.

Borrowings under the Inventory Facility was $ 1.4 million at December 31, 2022.

Borrowings under the Receivables Facility was $ 0.1 million at December 31, 2022.

These facilities are recorded in the Consolidated Balance Sheets as of December 31, 2022 as a current liability under the caption “Credit line borrowings.”

Promissory Notes-Related Parties

Gina Huang is a member of the Board of Directors and Mr.

Jay Huang is our Chief Executive Officer (“CEO”) and a former member of the Board of Directors.

The total liability for the 2022 Promissory Notes was $ 1.5 million at December 31, 2022.

All of the 2022 Promissory Notes were exchanged for common stock on January 17, 2023.

Please refer to Note 14, “Related Party Transactions” and Note 15, Subsequent Events” for further detail.

See Note 9, “Stockholders’ Equity.”

The following summarizes the 2022 Promissory Notes at December 31, 2022:

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2022 Streeterville Note

On April 21, 2022, we entered into a note purchase agreement with Streeterville Capital, LLC (“Streeterville”) pursuant to which we sold and issued to Streeterville a promissory note in the principal amount of approximately $ 2.0 million (the “2022 Streeterville Note”).

On April 21, 2022, we entered into a note purchase agreement (the “2022 Streeterville Note Purchase Agreement”) with Streeterville Capital, LLC (“Streeterville”) pursuant to which we sold and issued to Streeterville a promissory note in the principal amount of approximately $ 2.0 million (the “2022 Streeterville Note”).

The 2022 Streeterville Note was issued with an original issue discount of $ 215 thousand and Streeterville paid a purchase price of approximately $ 1.8 million for the 2022 Streeterville Note, from which the Company paid $ 15 thousand to Streeterville for Streeterville’s transaction expenses.

The 2022 Streeterville Note had an original maturity date of April 21, 2024, and accrues interest at 8 % per annum, compounded daily, on the outstanding balance.

On January 17, 2023, we agreed with Streeterville to restructure and pay down the 2022 Streeterville Note and extend its maturity date to December 1, 2024.

We agreed to make payments to reduce the outstanding amounts of the 2022 Streeterville Note of $ 500 thousand by January 20, 2023 (which amount has been paid) and $ 250 thousand by July 14, 2023.

Streeterville agreed to extend the term of the 2022 Streeterville Note through December 1, 2024, and beginning January 1, 2024, we will make twelve monthly repayments of approximately $ 117 thousand each.

On January 17, 2023, we agreed with Streeterville to restructure and pay down the 2022 Streeterville Note and extend its maturity date to December 1, 2024 (the “2022 Streeterville Note Amendment”).

We agreed to make payments to reduce the outstanding amounts of the 2022 Streeterville Note of $ 500 thousand by January 20, 2023 and by $ 250 thousand by July 14, 2023.

Beginning January 1, 2024, we agreed to make twelve monthly repayments of approximately $ 117 thousand each.

We have the right to prepay any of the scheduled repayments at any time or from time to time without additional penalty or fees.

Provided we make all payments as scheduled or earlier, the 2022 Streeterville Note will be deemed paid in full and shall automatically be deemed canceled.

Please refer to Note 15, “Subsequent Events” for further detail.

The total liability for the 2022 Streeterville Note, net of discount and financing fees, was $ 2.0 million at December 31, 2022.

In the event our common stock is delisted from Nasdaq, the amount outstanding under the 2022 Streeterville Note will automatically increase by 15 % as of the date of such delisting.

On March 31, 2023, the Company entered into an Exchange Agreement (the “March 2023 Exchange Agreement”) with Streeterville, pursuant to which we agreed to (i) partition from the 2022 Streeterville Note a new Promissory Note (the “March 2023 Partitioned Note”) in the original principal amount of $ 250 thousand (the “March 2023 Exchange Amount”), (ii) cause the outstanding balance of the 2022 Streeterville Note to be reduced by an amount equal to the March 2023 Exchange Amount, and (iii) exchange (the “March 2023 Exchange”) the March 2023 Partitioned Note for 71,715 shares of the Company’s common stock.

The March 2023 Exchange was priced at-the-market under the Nasdaq rules and was effected pursuant to one or more exemptions from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”).

There were no gross proceeds to the Company in respect of the March 2023 Exchange, provided that $ 125 thousand of the March 2023 Exchange Amount was applied toward the $ 250 thousand payment due on or before July 14, 2023 pursuant to the 2022 Streeterville Note Amendment, and $ 125 thousand was credited to satisfy the December 1, 2024 required payment.

The total liability for the 2022 Streeterville Note, net of discount and financing fees, was $ 1.3 million and $ 2.0 million at December 31, 2023 and 2022, respectively.

In January 2024, we paid off the 2022 Streeterville Note in full.

See Note 14 “Subsequent Events”.

Unamortized loan discount and debt issuance costs for Streeterville Notes were $ 36 thousand and $ 43 thousand at December 31, 2023 and 2022, respectively.

2021 Streeterville Note

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The 2021 Streeterville Note had a maturity date of April 27, 2023, and accrued interest at 8 % per annum, compounded daily, on the outstanding balance.

ENERGY FOCUS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Beginning on November 1, 2021, Streeterville could require the Company to redeem up to $ 205 thousand of the 2021 Streeterville Note in any calendar month.

5 unchanged sentences

We wrote off $ 100 thousand in remaining original issue discount costs at that time.

ENERGY FOCUS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The total liability for the 2021 Streeterville Note, net of discount and financing fees, was $ 1.7 million at December 31, 2021.

Unamortized loan discount and debt issuance costs were $ 43 thousand at December 31, 2021.

On April 17, 2020, the Company was granted a loan from KeyBank National Association (“KeyBank”) in the amount of approximately $ 795 thousand, pursuant to the PPP under Division A of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), which was enacted on March 27, 2020.

The funds were received on April 20, 2020 and accrued interest at a rate of 1 % per annum.

Under the terms of the PPP, certain amounts of the loan may be forgiven if they are used for qualifying expenses as described in the CARES Act.

The entire principal balance and interest were forgiven by the Small Business Administration on February 11, 2021.

The $ 801 thousand forgiveness income was recorded as other income in the Consolidated Statements of Operations during the year ended December 31, 2021.

Advanced capital contribution

In October 2023, an unrelated party agreed to subscribe the Company’s common stocks in the next round of private placement and transferred funds in the amount of $ 450 thousand.

There is no restriction in use of the funds and the advanced capital contribution bears no interest.

The terms of the next round of private placement are undetermined and the Company may return the funds on demand.

COMMITMENTS AND CONTINGENCIES

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As of December 31, 2023, we had approximately $ 0.5 million in outstanding purchase commitments for inventory, of which the majority is expected to ship in the first quarter of 2024.

We have 49 % of the outstanding purchase commitments with a related party.

STOCKHOLDERS’ EQUITY

Common Stocks

1-for-7 Reverse Stock Split

At the Company’s annual meeting of stockholders held on June 15, 2023, the Company’s stockholders approved a form of the certificate of amendment (“Certificate of Amendment”) to the Certificate of Incorporation and authorized our board of directors to amend the Certificate of Incorporation to effect a reverse stock split of the outstanding shares of the Company’s common stock at a ratio ranging from any whole number of at least 1-for-2 and up to 1-for-10, with the exact ratio within the foregoing range to be determined by the board of directors in its sole discretion.

On June 15, 2023, our board of directors determined to set the reverse stock split at 1-for-7 (the “Split Ratio”).

The Certificate of Amendment to our Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on June 15, 2023, with the reverse stock split becoming effective on June 16, 2023 (the “Effective Time”).

At the Effective Time, every seven shares of common stock issued and outstanding automatically combined into one validly issued, fully paid and non-assessable share of common stock.

No fractional shares were issued as a result of the reverse stock split.

The fractional shares were settled in cash in an amount not material to the Company.

The $ 0.0001 par value per share of common stock and other terms of the common stock were not affected by the reverse stock split.

The number of authorized shares of common stock under the Certificate of Incorporation remained unchanged at 50,000,000 shares.

The current financial statements, as well as the prior-period financial statements have been retroactively adjusted to reflect the reverse stock split.

Our outstanding shares of restricted stock and shares underlying our options and warrants entitling the holders to purchase shares of common stock have been adjusted as a result of the reverse stock split, as required by the terms of these securities.

Also, the number of shares reserved for issuance under our existing 2020 Stock Incentive Plan, as amended, and our 2013 Employee Stock Purchase Plan were reduced proportionately based on the Split Ratio.

Preferred shares outstanding were not affected by the reverse stock split and as such, those shares have not been adjusted.

The reverse stock split was effected solely to increase the per share trading price of the common stock to satisfy the Bid Price Rule for continued listing on Nasdaq.

The common stock began trading on Nasdaq on a split-adjusted basis at the opening of trading on June 19, 2023.

ENERGY FOCUS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Private Placements

The Company entered the securities purchase agreements with certain investors and issued 2,870,964 (including debt-to-equity exchange noted in Note 7, “Debt”) and 384,615 shares of common stock during the years ended December 31, 2023 and 2022, respectively.

September 2023 Private Placement

On September 29, 2023, the Company entered into a securities purchase agreement with certain purchasers, pursuant to which the Company agreed to issue and sell in a private placement an aggregate of 853,658 shares of the Company’s common stock, par value $ 0.0001 per share, for a purchase price per share of $ 2.05 (the “September 2023 Private Placement”).

Aggregate gross proceeds to the Company in respect of the September 2023 Private Placement were approximately $ 1.75 million.

The September 2023 Private Placement closed on September 29, 2023.

June 2023 Private Placement

In June 2022, we completed the June 2022 Private Placement with certain institutional investors for the sale of 1,313,462 shares of our common stock at a purchase price of $ 1.30 per share.

We also sold to the same institutional investors (i) June 2022 Pre-Funded Warrants to purchase 1,378,848 shares of common stock at an exercise price of $ 0.0001 per share and (ii) warrants to purchase up to an aggregate of 2,692,310 shares of common stock at an exercise price of $ 1.30 per share.

On June 29, 2023, the Company entered into a securities purchase agreement with certain purchasers, pursuant to which the Company agreed to issue and sell in a private placement an aggregate of 746,875 shares of the Company’s common stock, par value $ 0.0001 per share, for a purchase price per share of $ 1.76 (the “June 2023 Private Placement”).

One of the purchasers was Mr.

Huang, the Company’s CEO.

Aggregate gross proceeds to the Company in respect of the June 2023 Private Placement were approximately $ 1.3 million.

The June 2023 Private Placement closed on June 29, 2023.

March 2023 Private Placements

On March 28, 2023, the Company entered into a securities purchase agreement with Mr.

Chiao Chieh (Jay) Huang, pursuant to which the Company agreed to issue and sell, in a private placement (the “March 28, 2023 Private Placement”), 15,500 shares of the Company’s common stock for a purchase price of $ 3.55 per share.

On March 30, 2023, the Company entered into a securities purchase agreement with Mei Yun (Gina) Huang, a member of the Board of Directors, pursuant to which the Company agreed to issue and sell, in a private placement (collectively with the March 28, 2023 Private Placement, the “March 2023 Private Placements”), 71,428 shares of the Company’s common stock for a purchase price of $ 3.50 per share.

Aggregate gross proceeds to the Company in respect of the March 2023 Private Placements were $ 305 thousand.

Each of the March 2023 Private Placements was priced at-the-market under the Nasdaq rules.

February 2023 Private Placement

On February 24, 2023, the Company entered into a securities purchase agreement with Mei Yun (Gina) Huang, a member of the Board of Directors, pursuant to which the Company agreed to issue and sell, in a private placement (the “February 2023 Private Placement”), 114,744 shares of the Company’s common stock, for a purchase price of $ 3.49 per share.

Gross proceeds to the Company in respect of the February 2023 Private Placement were $ 400 thousand.

The February 2023 Private Placement was priced at fair market value under the Nasdaq rules.

January 2023 Sander Electronics Private Placement

On January 17, 2023, the Company entered into a securities purchase agreement (the “Sander Purchase Agreement”) with certain purchasers associated with Sander Electronics, Inc., pursuant to which the Company agreed to issue and sell in a private placement (the “Sander Private Placement”) an aggregate of 778,017 shares of common stock for a purchase price per share of $ 3.51 .

Consideration for the transaction included exchange of approximately $ 657 thousand in the aggregate of outstanding amounts on previous short-term bridge financings, including the 2022 Promissory Notes issued to Mr.

Huang, as described above in Note 7, “Debt”.

Aggregate gross proceeds from the Sander Private Placement were approximately $ 2.1 million.

The Sander Private Placement was priced at-the-market under the Nasdaq rules.

January 2023 Transactions with Mei Yun (Gina) Huang

ENERGY FOCUS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On January 5, 2023, the Company entered into a securities purchase agreement with Mei Yun (Gina) Huang, a member of the Board of Directors, pursuant to which the Company agreed to issue and sell, in a private placement, 36,828 shares of the Company’s common stock, for a purchase price of $ 2.72 per share.

On January 10, 2023, the Company entered into a securities purchase agreement with Ms.

Huang, pursuant to which the Company agreed to issue and sell, in a private placement, 46,543 shares of the Company’s common stock for a purchase price of $ 3.22 per share.

Aggregate gross proceeds to the Company in respect of these private placements to Ms.

Huang were $ 250 thousand.

Each of the private placements to Ms.

Huang was priced at fair market value under the Nasdaq rules.

On January 17, 2023, the Company and Ms.

Huang entered into exchange agreements pursuant to which the Company and Ms.

Huang agreed to exchange the approximately $ 817 thousand aggregate outstanding amounts on previous short-term bridge financings, including the 2022 Promissory Notes issued to Ms.

Huang, as described above in Note 7, “Debt”, for an aggregate of 207,371 shares of common stock at a price per share of $ 3.94 .

The exchanges were priced at fair market value under the Nasdaq rules.

June 2022 Private Placement

In June 2022, we completed a private placement (the “June 2022 Private Placement”) with certain institutional investors for the sale of 187,637 shares of our common stock at a purchase price of $ 9.10 per share.

We also sold to the same institutional investors (i) pre-funded warrants (the “June 2022 Pre-Funded Warrants”) to purchase 196,978 shares of common stock at an exercise price of $ 0.0007 per share and (ii) warrants (collectively with the June 2022 Pre-Funded Warrants, the “June 2022 Warrants”) to purchase up to an aggregate of 384,615 shares of common stock at an exercise price of $ 9.10 per share.

In connection with the June 2022 Private Placement, we paid the placement agent commissions of $ 252 thousand, plus $ 35 thousand in expenses, and we also paid legal, accounting and other fees of $ 47 thousand.

3 unchanged sentences

In July 2022, all of the June 2022 Pre-Funded Warrants were exercised.

As of December 31, 2022, June 2022 Warrants to purchase an aggregate of 2,692,310 shares of common stock remained outstanding, with an exercise price of $ 1.30 per share.

As of December 31, 2023, June 2022 Warrants to purchase an aggregate of 384,615 shares remained outstanding, with a weighted average exercise price of $ 9.10 per share.

The exercise of the remaining June 2022 Warrants outstanding could provide us with cash proceeds of up to $ 3.5 million in the aggregate.

December 2021 Private Placement

In December 2021, we completed the December 2021 Private Placement with certain institutional investors for the sale of 1,193,185 shares of our common stock at a purchase price of $ 3.52 per share.

We also sold to the same institutional investors (i) December 2021 Pre-Funded Warrants to purchase 85,228 shares of common stock at an exercise price of $ 0.0001 per share and (ii) warrants (collectively with the December 2021 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.

We paid the placement agent commission of $ 360 thousand plus $ 42 thousand in expenses in connection with the December 2021 Private Placement and we also paid legal, accounting and other fees of $ 97 thousand related to the December 2021 Private Placement.

Total offering costs of $ 499 thousand have been presented as a reduction of additional paid-in capital and have been netted within equity in the Consolidated Balance Sheet as of December 31, 2021.

In December 2021, we completed a private placement (the “December 2021 Private Placement”) with certain institutional investors for the sale of 170,455 shares of our common stock at a purchase price of $ 24.64 per share.

We also sold to the same institutional investors (i) pre-funded warrants (the “December 2021 Pre-Funded Warrants”) to purchase 12,175 shares of common stock at an exercise price of $ 0.0007 per share and (ii) warrants (collectively with the December 2021 Pre-Funded Warrants, the “December 2021 Warrants”) to purchase up to an aggregate of 182,630 shares of common stock at an exercise price of $ 24.64 per share.

In connection with the December 2021 Private Placement, we paid the placement agent commissions of $ 360 thousand plus $ 42 thousand in expenses and we also paid legal, accounting and other fees of $ 97 thousand.

Net proceeds from the December 2021 Private Placement were approximately $ 4.0 million.

We determined the exercise price of the December 2021 Pre-Funded Warrants to be nominal and, as such, have considered the 85,228 shares underlying them to be outstanding effective December 16, 2021, for the purposes of calculating basic EPS.

In January 2022, all of the December 2021 Pre-Funded Warrants were exercised.

As of December 31, 2022, December 2021 Warrants to purchase an aggregate of 1,278,413 shares of common stock remained outstanding, with an exercise price of $ 3.52

ENERGY FOCUS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2023, December 2021 Warrants to purchase an aggregate of 182,630 shares remained outstanding, with an exercise price of $ 24.64 per share.

The December 2021 Warrants expire on December 16, 2026.

The exercise of the remaining December 2021 Warrants outstanding could provide us with cash proceeds of up to $ 4.5 million in the aggregate.

June 2021 Equity Offering

In June 2021, we completed a registered direct offering of 990,100 shares of our common stock to certain institutional investors, at a purchase price of $ 5.05 per share.

We paid the placement agent commissions of $ 400 thousand, plus $ 51 thousand in expenses, in connection with the June 2021 Equity Offering and we also paid legal and other fees of $ 19 thousand related to the offering.

Total offering costs of $ 469 thousand have been presented as a reduction of additional paid-in capital and have been netted within equity in the Condensed Consolidated Balance Sheet as of December 31, 2021.

Net proceeds to us from the June 2021 Equity Offering were approximately $ 4.5 million.

January 2020 Equity Offering

In January 2020, we completed the January 2020 Equity Offering, pursuant to which we issued the January 2020 Warrants.

January 2020 Warrants to purchase an aggregate of 229,414 shares of common stock were outstanding at December 31, 2022 and 2021, with a weighted average exercise price of $ 3.67 per share.

During the year ended December 31, 2022, no January 2020 Warrants issued were exercised and did no t result in any proceeds.

During the twelve months ended December 31, 2021, 237,892 January 2020 Warrants were exercised, resulting in total proceeds of $ 801 thousand.

The exercise of the remaining January 2020 Warrants outstanding could provide us with cash proceeds of up to $ 841 thousand in the aggregate.

As of December 31, 2022 and 2021, we had the following outstanding January 2020 Warrants to purchase shares of common stock:

As of December 31, 2022 As of December 31, 2021

Number of Underlying Shares Exercise Price Expiration

Investor Warrants 187,734 187,734 $ 3.3700 January 13, 2025

Placement Agent Warrants 41,680 41,680 $ 4.9940 January 13, 2025

229,414 229,414

Preferred Stock

On March 29, 2019 we issued $ 1.7 million aggregate principal amount of subordinated convertible promissory notes (the “Convertible Notes”) to certain investors in a private placement exempt from registration requirements of the Securities Act of 1933, as amended (the “Securities Act”).

The Convertible Notes had a maturity date of December 31, 2021 and bore interest at a rate of 5.0 % per annum until June 30, 2019 and at a rate of 10.0 % thereafter.

Pursuant to the terms of the Convertible Notes, on January 16, 2020, following approval by our stockholders of certain amendments to the Certificate of Incorporation, the principal amount of all of the Convertible Notes and the accumulated interest thereon at the date of conversion (totaling $ 1.8 million) were converted at a conversion price of $ 0.67 per share into an aggregate of 2,709,018 shares of the Company’s Series A Preferred Stock, which is convertible on a one-for-five basis into shares of our common stock.

During the year ended December 31, 2020, 111,548 shares of the Series A Preferred Stock were converted into 22,310 shares of common stock.

During the year ended December 31, 2021, 1,721,023 shares of Series A Preferred Stock were converted into 344,205 shares of common stock.

The Series A Preferred Stock that was converted in 2021 was held by a Schedule 13D ownership group (under Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, and Rule 13d-5 promulgated thereunder) that includes Fusion Park LLC (“Fusion Park”) and 5 Elements Global Fund L.P.

(controlled affiliates of James Tu, the Company's former Executive Chairman and Chief Executive Officer and former member of the Board of Directors), as well as Brilliant Start Enterprise Inc.

(“Brilliant Start”) and Jag International Ltd.

(controlled affiliates of Gina Huang, a current member of the Company's Board of Directors).

Upon conversion of their respective shares of Series A Preferred Stock in 2021, Fusion Park and Brilliant Start received 184,851 and 159,354 shares, respectively, of the Company’s common stock.

The Series A Preferred Stock was created by the filing of the Original Series A Certificate of Designation.

The Series A Preferred Stock was created by the filing of a Certificate of Designation with the Secretary of State of the State of Delaware on March 29, 2019, which designated 2,000,000 shares of the Company’s preferred stock, par value $ 0.0001 per share, as Series A Preferred Stock (the “Original Series A Certificate of Designation”).

On January 15, 2020 with prior stockholder approval, the Company amended the Certificate of Incorporation to increase the number of authorized shares of preferred stock to 5,000,000 .

The Original Series A Certificate of Designation was also amended on January 15, 2020, to increase the number of shares of preferred stock designated as Series A Preferred Stock to 3,300,000 (the Original Series A Certificate of Designation, as so amended, the “Series A Certificate of Designation”).

The Original Series A Certificate of Designation was also amended on January 15, 2020, to

ENERGY FOCUS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

increase the number of shares of preferred stock designated as Series A Preferred Stock to 3,300,000 (the Original Series A Certificate of Designation, as so amended, the “Series A Certificate of Designation”).

Pursuant to the Series A Certificate of Designation, each holder of outstanding shares of Series A Preferred Stock is entitled to vote with holders of outstanding shares of common stock, voting together as a single class, with respect to any and all matters presented to the stockholders of the Company for their action or consideration, except as provided by law.

In any such vote, each share of Series A Preferred Stock shall entitle its holder to a number of votes equal to 1.582 % of the number of shares of common stock into which such share of Series A Preferred Stock is convertible.

The Series A Preferred Stock (a) has a preference upon liquidation equal to $ 0.67 per share and then participates on an as-converted basis with the common stock with respect to any additional distributions, (b) shall receive any dividends declared and payable on our common stock on an as-converted basis, and (c) is convertible at the option of the holder into shares of our common stock on a one-for-five basis.

On March 29, 2019, the Company also filed a Certificate of Elimination with respect to its authorized, but unissued, Series A Participating Preferred Stock, to return such shares to the status of undesignated preferred stock available for designation as Series A Preferred Stock.

The purchase agreement related to the Convertible Notes contained customary representations and warranties and provided for resale registration rights with respect to the shares of our common stock issuable upon conversion of the Series A Preferred Stock.

As of December 31, 2023 and 2022, there were 876,447 Series A Preferred Stock issued and outstanding which can be convertible into 25 thousand shares of common stock at the option of the holder.

During the years ended December 31, 2023 and 2022, no warrants were exercised.

As of December 31, 2023 and 2022, we had the following outstanding warrants:

December 31, 2023

December 31, 2022

Number of Underlying Shares Exercise Price Expiration

June 2022 Warrants 384,615 384,615 $ 9.10 December 16, 2026

December 2021 Warrants 182,630 182,630 $ 24.64 June 7, 2027

January 2020 Investor Warrants 26,819 26,819 $ 23.59 January 13, 2025

January 2020 Placement Agent Warrants 5,954 5,954 $ 34.96 January 13, 2025

600,018 600,018

Stock-based Compensation

On March 18, 2020, our Board of Directors approved the Energy Focus, Inc.

2020 Stock Incentive Plan (the “2020 Plan”).

The 2020 Plan was approved by the stockholders at our annual meeting on September 17, 2020, after which no further awards could be issued under the Energy Focus, Inc.

2014 Stock Incentive Plan (the “2014 Plan”).

The 2020 Plan initially allows for awards up to 350,000 shares of common stock and expires on September 17, 2030.

On June 22, 2022, the stockholders approved an amendment and restatement of the 2020 Plan that increased the shares available for issuance under the 2020 Plan by an additional 300,000 shares.

At December 31, 2022, 480,741 shares remain available to grant under the 2020 Plan.

Effective September 12, 2022, as a material inducement to our Chief Executive Officer’s acceptance of employment, we granted her an initial stock option award to purchase 150,000 shares of the Company’s common stock (the “Inducement Option Award”), which Inducement Option Award will generally vest over a four-year period, with 25% generally vesting on the first anniversary of the grant date, and the remainder generally vesting in substantially equal monthly installments for 36 months thereafter.

The Inducement Option Award, which was intended to be an inducement award under Rule 5635(c)(4) of the Nasdaq Stock Market Listing Rules, was effective on September 12, 2022 and has a per share exercise price equal to the closing price of a share of the Company’s common stock on such date.

We have awards outstanding pursuant to the 2014 Plan and one other historical equity-based compensation plan, however no new awards may be granted under these plans.

Generally, stock options are granted at fair market value and expire ten years from the grant date.

Employee grants generally vest in three or four years , while grants to non-employee directors generally vest in one year .

The specific terms of each grant are determined by our Board of Directors.

Stock-based compensation expense is attributable to stock options and restricted stock unit awards.

For all stock-based awards, we recognize compensation expense using a straight-line amortization method.

For all stock-based awards, we recognize expense using a straight-line amortization method.

The following table summarizes stock-based compensation expense and the impact it had on operations for the periods presented (in thousands):

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Total stock-based compensation $ 44 $ 117

At December 31, 2022 and 2021, we had unearned stock compensation expense of $ 0.1 million and $ 0.3 million, respectively.

At December 31, 2023 and 2022, we had unearned stock compensation expense of $ 64 thousand and $ 128 thousand, respectively.

These costs will be charged to expense and amortized on a straight-line basis in subsequent periods.

The remaining weighted average period over which the unearned compensation is expected to be amortized was approximately 2.8 years as of December 31, 2022 and 2.7 years as of December 31, 2021.

ENERGY FOCUS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The remaining weighted average period over which the unearned compensation is expected to be amortized was approximately 2.7 years years as of December 31, 2023 and 2.8 years as of December 31, 2022.

Stock Options

1 unchanged sentence

Estimates utilized in the calculation include the expected life of the option, risk-free interest rate, and expected volatility, and are further comparatively detailed as follows:

ENERGY FOCUS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fair value of options issued $ 2.49 $ 0.77

18 unchanged sentences

We have not paid dividends in the past, and do not expect to pay dividends over the corresponding expected term as of the grant date.

ENERGY FOCUS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Options outstanding under all plans at December 31, 2023 have a contractual life of ten years , and vesting periods between one and four years .

4 unchanged sentences

Granted 32,317 6.67

Cancelled ( 36,706 ) 5.35

Expired ( 1,650 ) 49.18

Exercised ( 22,893 ) 21.00

Canceled/forfeited ( 318 ) 19.52

Expired ( 36 ) 10.18

Outstanding at December 31, 2022 47,102 13.78

Granted 11,427 $ 3.04

Cancelled ( 160,778 ) 2.99

Canceled/forfeited ( 24,076 ) 18.55

Expired ( 3,878 ) 17.03

Exercised ( 250 ) 1.45

Outstanding at December 31, 2022 330,808 $ 1.97

Balance at December 31, 2023 30,575 $ 5.60

Vested and expected to vest at December 31, 2023 25,679 $ 5.77

Exercisable at December 31, 2023 8,068 $ 7.53

*Options have been restated for the 1-for-7 reverse stock split effective June 16, 2023.

The “Expected to Vest” options are the unvested options that remain after applying the pre-vesting forfeiture rate assumption to total unvested options.

250 options were exercised during 2022 and 4,225 options were exercised during 2021.

No options were exercised during 2023 and 22,893 options were exercised during 2022.

All outstanding equity awards were out of the money as of December 31, 2023.

ENERGY FOCUS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The options outstanding at December 31, 2023 have been segregated into ranges for additional disclosure as follows:

8 unchanged sentences

30,576 8.7 $ 5.60 8,068 8.3 $ 7.53

ENERGY FOCUS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Restricted Stock Units

3 unchanged sentences

Restricted Stock Units Outstanding* Weighted

At December 31, 2020 4,480 $ 8.64

Granted 50,000 5.26

Vested ( 52,080 ) 5.46

At December 31, 2021 2,400 $ 7.14

Outstanding at December 31, 2021 343 $ 1.02

Granted 7,143 $ 0.18

Vested ( 40,800 ) 1.51

At December 31, 2022 11,600 $ 1.59

Employee stock purchase plans

In September 2013, our stockholders approved the 2013 Employee Stock Purchase Plan (the “2013 Plan”) to replace the 1994 prior purchase plan.

A total of 100,000 shares of common stock were provided for issuance under the 2013 Plan.

The 2013 Plan permits eligible employees to purchase common stock through payroll deductions at a price equal to the lower of 85 percent of the fair market value of our common stock at the beginning or end of the offering period.

Employees may end their participation at any time during the offering period, and participation ends automatically upon termination of employment with us.

During 2022 and 2021, employees purchased 3,971 and 22,000 shares, respectively.

At December 31, 2022, 28,523 shares remained available for purchase under the 2013 Plan.

Expired ( 5,829 ) $ 0.22

Outstanding at December 31, 2022 1,657 $ 11.13

Expired ( 1,428 ) $ 4.90

Canceled/forfeited ( 229 ) $ 49.99

Outstanding at December 31, 2023 — $ —

*Restricted stock units have been restated for the 1-for-7 reverse stock split effective June 16, 2023.

We file income tax returns in the U.S.

5 unchanged sentences

At December 31, 2023 and 2022, respectively, there were no accrued interest and penalties related to uncertain tax positions.

ENERGY FOCUS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table shows the components of the provision for income taxes (in thousands):

2 unchanged sentences

Provision for (benefit from) income taxes $ 3 $ 4

ENERGY FOCUS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The principal items accounting for the difference between income taxes computed at the U.S.

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We had no net deferred tax liabilities at December 31, 2023 or 2022, respectively.

In 2021, we recognized various states tax benefits as a result of the adjustment from the 2020 provision to the actual tax on the 2020 returns that were filed in 2020.

The CARES Act was enacted on March 27, 2020 and the Consolidated Appropriations Act (the “Relief Act”) was enacted on December 27, 2020 in the United States.

The key provisions of the CARES Act and the Relief Act, as applicable to the Company, include the following:

The ability to use NOLs to offset income without the 80% taxable income limitation enacted as part of the Tax Cuts and Jobs Act (“TCJA”) of 2017, and to carry back NOLs to offset prior year income for five years.

These are temporary provisions that apply to NOLs incurred in 2018, 2019 or 2020 tax years.

We did not recognize any tax benefit for the year ended December 31, 2021 related to our ability to carry back prior year losses, as well as projected current year losses, under the CARES Act to years with the previous 35% tax rate.

ENERGY FOCUS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The ability to claim a current deduction for interest expense up to 50% of Adjusted Taxable Income (“ATI”) for tax years 2019 and 2020.

This limitation was previously 30% of ATI pursuant to the Tax Act, and will revert to 30% after 2020.

The Company has no current interest expense limitation.

In addition to the aforementioned provisions, the CARES Act also provided the following non-income tax provisions as applicable to the Company:

• The ability to defer the payment of the employer portion of social security taxes incurred between March 27, 2020 and December 31, 2020, with 50% of the deferred amount to be paid by December 31, 2021 and the remaining 50% to be paid by December 31, 2022.

• In the year ended December 31, 2022, the Company paid $ 77 thousand of payroll taxes previously deferred from the year ended December 21, 2021.

• The ability to claim an Employee Retention Tax Credit (“ERTC”), which is a refundable payroll tax credit, subject to certain limitations.

Refer to Note 13, “Other Income” for details.

• The Company received approximately $ 795 thousand in PPP loans, which were forgiven in 2021.

The CARES Act provides that the loan forgiveness is tax-exempt for federal purposes.

Refer to Note 8, “Debt” for details.

PRODUCT AND GEOGRAPHIC INFORMATION

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At December 31, 2023 and 2022, approximately 100 % of our long-lived assets, which consist of property and equipment, were located in the United States.

Employee Retention Tax Credit

RECEIVABLE FOR CLAIMED EMPLOYEE RETENTION TAX CREDIT

The CARES Act, which was enacted on March 27, 2020, provides an ERTC that is a refundable tax credit against certain employer taxes.

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Qualified wages are limited to $10,000 per employee per calendar quarter in 2021 for a maximum allowable ERTC per employee of $7,000 per calendar quarter in 2021.

For purposes of the amended ERTC, an eligible employer is defined as having experienced a significant (20% or more) decline in gross receipts during each of the first three 2021 calendar quarters when compared with the same quarter in 2019 or the

ENERGY FOCUS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

immediately preceding quarter to the corresponding calendar quarter in 2019.

The credit is taken against the Company’s share of Social Security Tax when the Company’s payroll provider files, or subsequently amends the applicable quarterly employer tax filings.

Under the amended guidelines, we were eligible to receive the ERTC for the second and third quarters of 2021.

As part of the filing of our employer tax filings for the third quarter of 2021, we applied for and received a refund of $ 431 thousand, and we amended our filing for the second quarter of 2021, for which we expect to receive an additional refund of approximately $ 445 thousand.

These amounts are recorded as other income in the Consolidated Statements of Operations during the year ended December 31, 2021, and the $ 445 thousand expected receivable is included as a receivable for claimed ERTC in the Consolidated Balance Sheet as of December 31, 2022 and 2021.

On April 17, 2020, the Company was granted a loan from KeyBank in the amount of approximately $ 795 thousand, pursuant to the PPP under the CARES Act, which was enacted on March 27, 2020.

The funds were received on April 20, 2020 and accrued interest at a rate of 1 % per annum.

Under the terms of the PPP, certain amounts of the loan may be forgiven if they are used for qualifying expenses as described in the CARES Act.

The entire principal balance and interest were forgiven by the SBA on February 11, 2021.

The $ 801 thousand forgiveness income was recorded as other income in the Condensed Consolidated Statements of Operations during the year ended December 31, 2021.

As part of the filing of our employer tax filings for the third quarter of 2021, we applied for and received a refund of $ 431 thousand, and we amended our filing for the second quarter of 2021, for which we received an additional refund of approximately $ 445 thousand during 2023.

This amount was recorded as a receivable in the Consolidated Balance Sheet as of December 31, 2022 and was received during 2023.

RELATED PARTY TRANSACTIONS

On January 11, 2022, our Board of Directors appointed Stephen Socolof, our Lead Independent Director, as Interim Chief Executive Officer to replace James Tu.

On February 11, 2022, Mr.

Tu and the Company entered into a Separation and Release Agreement and Mr.

Tu resigned from the Board of Directors.

On September 16, 2022 and November 9, 2022, the Company issued and sold 2022 Promissory Notes to one of the members of its Board of Directors, Gina Huang, for $ 450 thousand and $ 350 thousand, respectively.

Please refer to Note 8, “Debt” for further detail.

During the third and fourth quarters of the year ended December 31, 2022, we issued and sold 2022 Promissory Notes for an aggregate principal amount of $ 600,000 to Jay Huang.

Huang became a member of the Board of Directors in January 2023.

Please refer to Note 8, “Debt” and Note 15, “Subsequent Events,” for further detail.

Promissory Notes

On September 16, 2022 and November 9, 2022, the Company issued and sold 2022 Promissory Notes to one of the members of its Board of Directors, Mei-Yun (Gina) Huang, for $ 450 thousand and $ 350 thousand, respectively.

ENERGY FOCUS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SUBSEQUENT EVENTS

Huang Purchase Agreements

On January 5, 2023, the Company entered into a securities purchase agreement with Mei-Yun (Gina) Huang, a member of the Board of Directors, pursuant to which the Company agreed to issue and sell, in a private placement 257,798 shares of the Company’s common stock, for a purchase price of $ 0.3879 per share.

On January 10, 2023, the Company entered into a securities purchase agreement with Ms.

Huang, pursuant to which the Company agreed to issue and sell, in a private placement 325,803 shares of the Company’s common stock for a purchase price of $ 0.4604 per share.

On February 24, 2023, the Company entered into a securities purchase agreement with Ms.

Huang, pursuant to which the Company agreed to issue and sell, in a private placement 803,212 shares of the Company’s common stock for a purchase price of $ 0.4980 per share

Aggregate gross proceeds to the Company in respect of these private placements to Ms.

Huang are $ 650 thousand, before deducting estimated offering expenses payable by the Company.

Each of the private placements to Ms.

Huang was priced at fair market value under the Nasdaq rules.

The issuance and sale of the shares pursuant to the purchase agreements with Ms.

Huang are not being registered under the Securities Act, and were made pursuant to the exemption provided in Section 4(a)(2) under the Securities Act and Regulation D promulgated thereunder.

Sander Securities Purchase Agreement

On January 17, 2023, the Company entered into a securities purchase agreement (the “Sander Purchase Agreement”) with certain purchasers associated with Sander Electronics, Inc.

(the “Sander Purchasers”), pursuant to which the Company agreed to issue and sell in a private placement (the “Sander Private Placement”) an aggregate of 5,446,252 shares (the “Sander Shares”) of the Company’s common stock, for a purchase price per share of $ 0.5008 .

Consideration for the transaction included exchange of approximately $ 657,000 in the aggregate of outstanding amounts on previous short-term bridge financings.

Aggregate gross proceeds to the Company in respect of the Sander Private Placement is approximately $ 2.1 million, before immaterial offering expenses payable by the Company.

The Sander Private Placement closed on January 20, 2023.

The Sander Private Placement was priced at-the-market under the Nasdaq rules.

The issuance and sale of the Sander Shares pursuant to the Sander Purchase Agreement are not being registered under the Securities Act, and were made pursuant to certain exemptions from registration, including Sections 3(a)(9) and 4(a)(2) of the Securities Act and Regulation D promulgated thereunder, in reliance on the representations and covenants of the Sander Purchasers under the Sander Purchase Agreement.

Pursuant to the Sander Purchase Agreement, the Company agreed to increase the size of the Board of Directors to eight members and to appoint each of Jay Huang and Wen-Jeng Chang as a director for a term expiring at the 2023 annual meeting of the Company’s stockholders or his earlier resignation, death or removal in accordance with the Company’s bylaws.

On January 17, 2023, in connection with the Sander Purchase Agreement, the Company entered into a registration rights agreement with each of the Sander Purchasers.

Exchange Agreement

As discussed in Note 8, “Debt,” on September 16, 2022 and November 9, 2022 the Company sold and issued to Mei Yun (Gina) Huang, a member of the Board of Directors, 2022 Promissory Notes totaling an aggregate principal amount of $ 800,000 .

On January 17, 2023, the Company and Ms.

Huang entered into exchange agreements (the “Exchange Agreements”) with respect to the 2022 Promissory Notes, pursuant to which the Company and Ms.

Huang agreed to exchange (the “Exchanges”) the approximately $ 809,000 aggregate outstanding amounts under the 2022 Promissory Notes for an aggregate of 1,436,959 shares of Common Stock (the “Exchange Shares”) at a price per share of $ 0.5630 .

The Exchanges were priced at fair market value under the Nasdaq rules.

The Exchanges of the Exchange Shares pursuant to the Exchange Agreements are not being registered under the Securities Act, and were effected pursuant to the exemption provided in Section 3(a)(9) of the Securities Act.

Second Amendment to Inventory Facility

On January 18, 2023, the Company and Crossroads entered into a Second Amendment to the Inventory Loan Agreement (the “Crossroads Amendment”) to restructure and pay down the Inventory Facility.

The Crossroads Amendment provides that the Company will make payments to reduce the outstanding obligations under the Inventory Facility of $ 750,000 by January 20,

During the third and fourth quarters of the year ended December 31, 2022, we issued and sold 2022 Promissory Notes for an aggregate principal amount of $ 600,000 to Chiao Chieh (Jay) Huang, our CEO.

Please refer to Note 7, “Debt” for further detail.

Purchase Transactions

The Company has a purchase agreement for TLED products and spare parts with Sander Electronics, Inc., a shareholder of the Company.

Purchases from Sander Electronics, Inc.

for the year ended December 31, 2023 totaled $ 2.1 million.

Accounts payable to Sander Electronics, Inc.

amounted to $ 2.1 million as of December 31, 2023.

The Company did not enter into any transactions with Sander Electronics, Inc.

during the fiscal year of 2022.

Private Placements

Please refer to Note 9 for further details on Private Placements in 2023 and 2022.

ENERGY FOCUS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2023 (which amount the Company has paid) and $ 250,000 by February 15, 2023.

The Company also agreed to make monthly payments of approximately $ 40,200 towards the remaining outstanding obligations under the Inventory Facility, and to reduce the maximum amount that may be available to the Company under the Inventory Facility from $ 3,500,000 to $ 500,000 , subject to the borrowing base as set forth in the Inventory Loan Agreement.

The Company also agreed to a slightly increased interest rate, which was more than offset by the reduction in the monthly service fees.

Pursuant to the Crossroads Amendment, the interest rate on borrowings under the Inventory Facility is now a per annum rate equal to (i) the Three Month Libor rate plus 5.5 % (currently 10.28 % per annum) or (ii) at Crossroads’ discretion, an alternative reference rate, SOFR (Secured Overnight Financing Rate), plus 6 % (currently 10.176 % per annum).

The foregoing summary description of the Crossroads Amendment is not complete and is qualified in its entirety by reference to the full text of the Crossroads Amendment, which is filed as an exhibit to this Current Report on Form 8-K and is incorporated by reference herein.

Amendment to 2022 Streeterville Note

On April 21, 2022, the Company sold and issued to Streeterville the 2022 Streeterville Note.

On January 17, 2023, the Company and Streeterville entered into an Amendment to Promissory Note (the “Streeterville Amendment”) to restructure and pay down the 2022 Streeterville Note.

Pursuant to the Streeterville Amendment, the Company agreed to make payments to reduce the outstanding amounts of the 2022 Streeterville Note of $ 500,000 by January 20, 2023 (which amount the Company has paid) and $ 250,000 by July 14, 2023.

Streeterville agreed to extend the term of the 2022 Streeterville Note through December 1, 2024, and beginning January 1, 2024, the Company will make twelve monthly repayments of approximately $ 117,000 each.

The Company will have the right to prepay any of the scheduled repayments at any time or from time to time without additional penalty or fees.

Provided the Company makes all payments as scheduled or earlier, the 2022 Streeterville Note will be deemed paid in full and shall automatically be deemed canceled.

Termination of Receivables Facility

On February 7, 2023, the Company terminated the Receivables Facility pursuant to the Receivables Loan between the Company and FSW Funding.

All outstanding amounts under the Receivables Facility had been repaid prior to termination, and there were no prepayment fees in connection with termination.

The Receivables Facility was secured by substantially all of the present and future assets of the Company and was subject to an intercreditor agreement with the Company’s inventory lending facility lender, which intercreditor agreement was also terminated.

SUBSEQUENT EVENTS

Early Payoff 2022 Streeterville Note

On January 18, 2024, the Company and Streeterville entered into a payoff letter (the “Letter”) and exchange agreement (“Exchange Agreement”) to pay off the 2022 Streeterville Note early.

The Letter and Exchange Agreement provide that the Company makes payments to reduce the outstanding obligations under the 2022 Streeterville Note of $ 1.0 million in cash by January 19, 2024 and exchanges 94,440 shares of common stocks by January 23, 2024 for the remaining amount.

In January 2024, we paid off the 2022 Streeterville Note in full early.

ENERGY FOCUS, INC.

6 unchanged sentences

For certain types of claims, we maintain insurance coverage for personal injury and property damage, product liability and other liability coverages in amounts and with deductibles that we believe are prudent, but there can be no assurance that these coverages will be applicable or adequate to cover adverse outcomes of claims or legal proceedings against us.

SUPPLEMENTARY FINANCIAL INFORMATION TO ITEM 8.

The following table sets forth our selected unaudited financial information for the four quarters in the years ended December 31, 2022 and 2021, respectively.

This information has been prepared on the same basis as the audited financial statements and, in the opinion of management, contains all adjustments necessary for a fair presentation thereof.

QUARTERLY FINANCIAL DATA (UNAUDITED)

( amounts in thousands, except per share amounts )

Quarter Third

Quarter Second

Quarter First

Net (loss) sales $ 663 $ 1,764 $ 1,480 $ 2,061

Gross (loss) profit ( 238 ) ( 163 ) 109 ( 26 )

Net loss ( 2,310 ) ( 2,662 ) ( 2,486 ) ( 2,821 )

Net loss per common share attributable to common stockholders (basic and diluted):

$ ( 0.23 ) $ ( 0.29 ) $ ( 0.35 ) $ ( 0.44 )

Weighted average shares used in computing net loss per common share (basic and diluted) 9,583 9,190 4,211 6,437

Quarter Third

Quarter Second

Quarter First

Net sales $ 2,405 $ 2,749 $ 2,074 $ 2,637

Gross (loss) profit 189 563 393 553

Net loss ( 2,631 ) ( 1,140 ) ( 2,473 ) ( 1,642 )

Net loss per common share attributable to common stockholders (basic and diluted):

$ ( 0.50 ) $ ( 0.22 ) $ ( 0.59 ) $ ( 0.45 )

Weighted average shares used in computing net loss per common share (basic and diluted) 5,312 5,086 4,211 3,612

ENERGY FOCUS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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 8. Financial Statements and Supplementary Data