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Item 1. Business

2025-03-25 compared with 2024-03-22 · 137 added, 159 removed, 55 unchanged (84% of the section changed)

Energy Focus 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”).

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

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

We specialize in energy-efficient LED lighting retrofit product, replacing fluorescent, high-intensity discharge (“HID”) lighting and other types of lamps in institutional buildings for primarily indoor lighting applications with our innovative, high-quality commercial and military-grade tubular LED (“TLED”) products, as well as other LED and lighting control products for commercial and consumer applications.

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

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 and commercial business since 2016, when we once commanded significant price premiums for our flicker-free TLEDs with industry leading 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 while not impacting the performance and quality.

Despite these efforts, our legacy products continue to face extreme price 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 patented emergency backup battery integrated TLED, EnFocus™, our unique 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.

We are looking forward to continually supporting the growth of our existing EnFocus™ product line which is particularly attractive for its ease of install and ease of use in spaces with transient occupation.

The Company have enhanced the performance of our RedCap® product by providing a more user-friendly experience 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.

Throughout 2023, the Company continued to make significant cost cutting efforts to address operational expenses while maintaining customer satisfaction and delivering goods on-time.

Investments into Energy Focus have contributed to the ability of the Company to continue to not only provide quality products and services, but to both expand and rationalize product offerings.

Energy Focus specializes in designing, developing, manufacturing, and selling energy-efficient lighting systems and controls.

We provide high-quality LED lighting solutions for both commercial and military maritime markets (MMM), helping our customers improve energy efficiency, productivity, and wellness through advanced LED retrofit products.

Our core products include energy-efficient tubular LED (TLED) lighting that replaces fluorescent and high-intensity discharge (HID) lamps in institutional and commercial buildings.

We also offer innovative solutions like our patented RedCap ® TLED with an integrated emergency backup battery.

The LED lighting market has faced intense competition and price erosion in recent years.

To stay competitive, we’ve reduced costs, streamlined our supply chain, and focused on product innovation.

We’ve also restructured our sales strategies, focusing more on direct sales, strategic partnerships, and customer feedback to drive product development.

Despite industry challenges, we continue to innovate, offering differentiated, high-value products that meet the most demanding market needs.

In 2024, we enhanced the RedCap ® product line, further improving user experience and functionality.

It is our belief that the continued dramatic rightsizing efforts undertaken in 2023 and 2024, along with reorganization of the sales team and ongoing development of innovative, high-value products and an expanded distribution network, will over time result in improved sales and bottom-line performance for the Company.

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These efforts include the following key developments that occurred during 2024:

• On June 28, 2023, we accepted the resignation of four members of the Board of Directors (the “Board”):

Jennifer Cheng, Brian Lagarto, Jeffery Parker, and Stephen Socolof.

Their terms as directors would have otherwise expired at the 2024 annual meeting of Shareholders of the Company.

The resignations did not involve any disagreement with the Company.

On July 2, 2023, the remaining members of the Board unanimously appointed the following four new members to the Board:

Kin-Fu Chen, Shou-Jang Lee, Jason Tien-Chia Tsai, and Chiao Chieh (Jay) Huang, each of the new members of the Board of Directors is an independent director under the corporate governance standards of the Nasdaq.

• On August 24, 2023, the Board approved the termination of the Company’s chief executive officer and appointed Chiao Chieh (Jay) Huang to serve as the Company’s new chief executive officer.

In line with this decision, Mr.

will discontinue his role as Chairman of the Board and the Board has appointed Kin-Fu Chen as the Chairman of the Board.

• In 2023, we carefully researched and analyzed our historical sales data and the current market landscape regarding our pricing position and general sales strategy.

We acknowledged the presence of increased competition in the MMM sales space, both with respect to pricing and the number of competitors.

Following our assessment, we made changes that positively affected our position within this space and are directly reflected in our Q4 2023 performance.

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

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

During 2023, we thoroughly reviewed and adjusted our commercial pricing position as well as our strategic relationships and partnerships within the commercial LED market space.

We believe our new pricing position will give us a greater advantage than previously held against the competition and offer a more attractive entry point for our end customer base.

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

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

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

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

• On June 12, 2024, the Board approved the departure of Jason Tien-Chia Tsai and appointed Wen Cheng Chen as a new member.

All current Board members other than our CEO Mr.

Huang remain independent directors under the corporate governance standards of Nasdaq.

• On January 18, 2024, the Company and Streeterville Capital, LLC (“Streeterville”) entered into a payoff letter and exchange agreement (the “Agreement”) to pay off a note entered into by and between the Company and Streeterville in 2022 (the “2022 Streeterville Note”) early.

The Agreement provided that the Company made payments to reduce the outstanding obligations under the 2022 Streeterville Note of $1.0 million in cash by January 19, 2024 and exchange 94,440 shares of common stock by January 23, 2024 for the remaining $142 thousand.

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

At termination, the Company recognized $187 thousand of other income which was included in other income in the Condensed Consolidated Statements of Operations.

• On March 28, 2024, Energy Focus, Inc.

entered into certain securities purchase agreements with certain accredited investors, pursuant to which the Company agreed to issue and sell in a private placement an aggregate of 283,019 shares of the Company’s common stock, par value $0.0001 per share, for a purchase price per share of $1.59 (the “First Private Placement”).

Aggregate gross proceeds to the Company with respect to the First Private Placement were approximately $450 thousand, excluding the offering expenses paid by the Company.

The First Private Placement was closed on March 28, 2024.

• On June 21, 2024, Energy Focus, Inc.

entered into certain securities purchase agreements with certain accredited investors, pursuant to which the Company agreed to issue and sell in a private placement an aggregate of 534,591 shares of the Company’s common stock, par value $0.0001 per share, for a purchase price per share of $1.59 (the “Second Private Placement”).

Aggregate gross proceeds to the Company with respect to the Second Private Placement were approximately $850 thousand, excluding the offering expenses paid by the Company.

The Second Private Placement was closed on June 21, 2024.

• In 2024, we carefully researched and analyzed our historical sales data and the current market landscape, focusing on our pricing position and overall sales strategy.

We acknowledged the increasing competition in the MMM sales space, both in terms of pricing pressure and the growing number of competitors.

• The Company has aggressively re-evaluated operating expenses throughout the year to manage fixed costs.

During 2024, we have thoroughly reviewed and adjusted our commercial pricing position as well as our strategic relationships and partnerships within the commercial LED market space.

In 2025, we plan to pursue expansion into new markets and industries to diversify our portfolio and drive growth:

• ESS (Energy Storage Systems) Business Opportunity:

We intend to explore energy storage solutions that could complement our existing product lines and support sustainability efforts.

• AI Data Center UPS Development:

We aim to enter the AI data center market through development of advanced Uninterruptible Power Supply (UPS) systems tailored to meet the high-demand energy needs of AI-driven data centers.

• Global Market Expansion:

We are evaluating potential opportunities in the Taiwan and Japan markets, where we may leverage our expertise to respond to demand in these regions.

To pursue long-term growth and profitability, we expect to focus on:

• Expanding product offerings in energy storage and AI data center power solutions.

• Strengthening our global presence, particularly in Taiwan and Japan.

• Continuing to innovate in LED lighting and controls.

• Maintaining financial discipline through cost control and operational efficiency.

We believe these strategies, if successfully implemented, may create new revenue streams, potentially strengthen our market position, and could lead to improved financial performance in the coming years, although actual results may differ materially from our expectations.

Our Corporate Structure and History

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merged with Energy Focus, Inc.

(the “Company”), also a Delaware corporation, with the Company as the surviving entity after the merger.

We established an international branch which we may refer to as our “Taiwan branch” or “Taipei office” in Taipei, Taiwan in 2023.

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

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

We believe these applications represent a significant portion of the LED lighting market and energy savings potential for our targeted commercial, industrial and MMM markets.

LED lighting, and particularly LED retrofit of fluorescent and incandescent lights in existing buildings, represents a large and growing market.

A 2020 report issued by the U.S.

Department of Energy, Office of Energy Efficiency and Renewable Energy (“DOE”), entitled “Adoption of Light-Emitting Diodes in Common Lighting Applications,” reports that from 2016 to 2018, installations of LED products have increased in all applications, increasing LED penetration to 30% of all general illumination lighting.

In 2019, Navigant Research published a report that concluded that LED lighting had at least matched conventional lighting technologies on a range of features, including energy efficiency, lifetime, versatility and color quality, while becoming increasingly cost competitive.

This same 2019 report forecasts that installed penetration of LED lamps and luminaires will increase dramatically through 2035, reaching about 84%.

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

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

For this reason, building codes are increasingly requiring not only LEDs, but dimmable LEDs.

Governments around the world

are implementing regulations and standards that incentivize the use of LED lighting, both smart and conventional, to reduce energy consumption and, therefore, carbon dioxide emissions.

Our new product research and development investments since 2019 have been focusing on advanced and smart lighting technologies to capitalize on these trends, and EnFocus™ represents such a control platform that we aim to expand in terms of functionalities, applications and intelligence, going forward.

There is also a growing awareness of the effects of both visible and non-visible light on human health and well-being.

Energy Focus has been a leader in flicker-free technology and one of the first to obtain Underwriters Laboratories (“UL ® ”) certification at less than 1% optical flicker.

Flicker, which is the modulation of the intensity of LED light at the frequency of the power supply, is well known to cause headaches, eye strain, fatigue, mood triggers and other health issues as well as interfering with electronic equipment such as barcode scanners.

Energy Focus is continually evaluating additional human wellness lighting and control solutions inspired by emerging health and wellness benefits.

Smart, or connected, lighting is disrupting the LED industry and providing new opportunities for growth.

The DOE defines connected lighting as an LED-based lighting system with integrated sensors and controllers that are networked (either wired or wireless), enabling lighting products within the system to communicate with each other and transmit data.

In addition to enabling the intensity and correlated color temperature (“CCT”) of lights to respond to ambient light, time of day and the activities of building occupants, connectivity enables building automation functions that extend well beyond lighting.

The interference of blue light with human circadian rhythms is well known.

This can be alleviated by circadian lighting, or controlled lighting that is able to change the intensity or CCT of the LEDs depending on the time of day in order to emulate natural light.

Since lighting fixtures are ubiquitous throughout buildings, the lighting infrastructure is an ideal vehicle to retrofit these and other smart or connected lighting capabilities into existing buildings, and also to design these capabilities into new construction.

From the customer feedback we have been receiving, we believe that the overall smart lighting market is still largely underdeveloped due to the cost and complexity for installations of related technologies today in the marketplace, representing significant potential for solutions that could meet customer needs and could also be affordable, easy to install and secure.

Much of this interest and demand has been muted from 2020 through 2022 as a result of the COVID-19 pandemic, which we believe has primarily delayed, rather than reduced, our opportunity in the smart lighting marketplace.

We believe our EnFocus™ lighting platform could effectively address the unmet needs for circadian and smart lighting, particularly for existing buildings that have limited economical options or IT expertise to implement otherwise complex lighting control systems.

While we believe the LED lighting and smart lighting market is large, growing and under-penetrated, it has also been characterized in recent years by intensifying competition, market leadership changes and aggressive pricing tactics on differentiated products.

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

In addition, we focus on executing our multi-channel sales strategy combined with a growing sales representative network to drive effective and frequent communication with customers in order to better understand and serve their needs.

By understanding the voice of the customer and by incorporating rapidly evolving technologies surrounding LED and smart lighting, we believe that we will continue to be able to develop solutions that better address customers’ needs with unique and novel product offerings, such as EnFocus™, our dimmable and tunable lighting and control platform, that deliver substantial value to our customers and accelerate LED and smart lighting adoptions.

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

(the “Company”), a Delaware corporation, with the Company emerging as the surviving entity.

In 2023, we established an international branch, which we may refer to as our “Taiwan branch” or “Taipei office,” in Taipei, Taiwan, to enhance our Asia and worldwide business sales force.

We specialize in creating innovative, energy-saving solutions that combine advanced LED lighting, controls, and cutting-edge technology to help our customers operate their facilities more efficiently while promoting productivity and well-being.

Our focus is on leading the market in human-centric lighting and high-tech energy solutions by offering top-quality, energy-efficient LED products, including "flicker-free" long-life lamps, retrofit kits, and advanced power technologies.

In addition to LED lighting, we’ve expanded into energy-saving high-technology GaN (Gallium Nitride) power supplies, Energy Storage Systems (ESS), and Uninterruptible Power Supply (UPS) products tailored for AI data centers, positioning us at the forefront of sustainable technology for modern industries.

The demand for energy-efficient solutions like LEDs and advanced power systems is growing rapidly, driven by cost savings, environmental goals, and health benefits.

Our new product lines, including GaN power supplies, ESS, and UPS systems, further enhance efficiency and reliability, meeting the rising energy demands of AI-driven data centers and other high-tech applications.

We’re also pioneers in flicker-free lighting—certified by Underwriters Laboratories at less than 1% flicker—reducing health issues like headaches and fatigue.

Additionally, our smart lighting innovations, such as connected systems with sensors and circadian rhythm adjustments, are transforming how buildings operate, offering both energy savings and wellness benefits.

While the market is competitive, we stand out by developing customer-focused, high-impact products and leveraging a strong sales network to meet evolving needs.

We design and deliver a wide range of energy-efficient solutions for commercial, industrial, and military markets, including:

Commercial products to serve our targeted commercial markets:

• RedCap ® emergency battery backup TLEDs;

• EnFocus™ powerline lighting control platform including dimming (“DM”) and color tuning (“DCT”);

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

• Industrial grade LED Dock lights.

• RedCap ® emergency backup LED tubes;

• LED retrofit kits for replacing fluorescent lamps, downlights, and low/high-bay fixtures;

• Industrial LED dock lights.

MMM LED lighting products to serve the U.S.

Navy and allied foreign navies:

• Military-grade Intellitube ® retrofit TLED and the Invisitube™ ultra-low EMI TLED;

• Military-grade fixtures, including LED globe lights, berth lights;

high-bay fixtures and LED retrofit kits.

Our LED products are more energy-efficient than traditional lighting products, such as fluorescent, incandescent and HID lamps, and we believe they can improve the overall sustainability profile of our customers by providing financial, environmental and human health benefits, including achieving significant long-term energy and maintenance cost savings, reducing carbon emission, substantially reducing retrofit waste and enhancing the health and productivity of building occupants.

• Intellitube ® and the Invisitube™ retrofit LEDs for the U.S.

Navy and allied forces;

• Military-grade LED fixtures like globe lights, berth lights, and high-bay kits.

New products:

• Energy-saving GaN power supplies for efficient power delivery;

• Energy Storage Systems (ESS) and Uninterruptible Power Supply (UPS) products designed for AI data centers

Our products outperform traditional lighting and power solutions, offering financial savings, reduced carbon emissions, and improved occupant health.

The key features of our products are as follows:

• Many of our products make use of proprietary or patented optical and electronics delivery systems that enable high efficiencies with superior lighting qualities, and proven records of extremely high product reliability;

• Our products have exceptionally long life, with the majority of our TLED sales providing a 10-year warranty;

• Our products have extremely low flicker, including our 500D series TLED products, which were the first in the lighting industry to be certified by UL ® as “low optical flicker, less than 1%”;

• Most of our products meet the lighting efficiency standards mandated by the Energy Independence and Security Act of 2007;

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

Our product development capabilities, which we believe provide a strategic competitive advantage, include the following:

• A long research, engineering, and market developmental history, with broad and intimate understanding of lighting technologies and LED lighting applications;

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

• Concentration on developing and providing high-quality, price competitive LED lamps and related technologies to replace fluorescent and HID lamps and fixtures for commercial markets;

• Providing high quality and high performing LED lighting products with a proven history of reliability;

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

• A deep understanding of LED lighting product applications in existing MMM, government, commercial and residential building markets.

As we seek to develop new LED lighting solutions, we expect to continue our investments in smart lighting and wellness lighting research and development, as well as channel partnerships.

Lighting controls, including dimming, sensor and daylighting technologies, can yield significant energy savings and human health benefits.

We believe that the controllability of LED technology and our ability and plan to integrate more occupancy sensing and other controls into our existing products will allow us to further differentiate our LED solutions and provide greater non-energy benefits to our customers.

• High-efficiency designs with proprietary technology;

• Long-lasting performance, with most LEDs backed by a 10-year warranty;

• Ultra-low flicker for better health and equipment compatibility;

• Compliance with energy efficiency standards and rebate eligibility.

By expanding into GaN power supplies, ESS, and UPS systems, we’re addressing the growing needs of AI data centers and other tech-driven industries, reinforcing our commitment to innovation and sustainability.

Our robust research and multi-channel sales strategy ensure we stay ahead in delivering reliable, high-quality solutions.

Sales and Marketing

Our innovative technologies and high-quality performance associated with LED lighting require a continued focus on educating our channel partners as well as end-users regarding the benefits and unique value propositions of our technologies and products.

Our primary target customers for our LED lighting and controls systems are enterprise end-users, as well as contractors or ESCOs that could incorporate our products into their projects.

We also sell through lighting agencies that represent our products as a complement to our direct sales effort.

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

We aim to continue to expand the coverage of our in-house sales team to eventually cover all geographic regions across the United States.

Our MMM sales strategy leverages our brand and past performance and focuses on education about our products as well as ease of procurement.

We focus on industry verticals where the economic and non-economic benefits such as health and safety, as well as technical specifications, of our high-quality lighting product offerings are most compelling.

Our LED lighting products fall into two broad market categories, commercial markets, which tend to focus on quality, efficacy, total cost of ownership and return on investment, and MMM which require more rigorous military specifications for durability and dependability.

We also entered consumer markets during fiscal year 2021.

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

With the introduction of our military-grade Intellitube ® product in 2011, which replaced two-foot fluorescent lamps on U.S.

Navy ships, military sales have represented the majority of our overall sales.

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

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

While we continue to aggressively pursue growth on the commercial side of our business due to its much larger potential and size, the MMM

business does offer us the opportunity to not just maintain our reputable foothold in this space but continue to grow and position ourselves for an even brighter future within MMM.

We launched our first commercial LED lighting products in 2010.

Since then, we have been building and expanding our commercial and industrial market presence where the economic and non-energy benefits and technical specifications of our high-quality lighting product offerings are compelling, particularly for mission-critical facilities in the enterprise verticals such as healthcare, eldercare, education and the commercial and industrial space.

• Given the 24/7 lighting requirements of hospital systems, we believe that our LED solutions offer the proven quality, performance, long lifetime, return on investment and low flicker lightning that is particularly attractive to this target market.

Since 2015, we have been the primary LED lighting supplier and partner for a major northeast Ohio hospital system and, as a result of our continued success, we have been able to leverage this relationship to expand into more hospital systems across the country.

• As we advocate for the benefits of low-flicker LED lighting in schools, both in terms of energy-efficiency and in creating a healthy and effective learning environment, we continue to receive orders to retrofit school districts, colleges and universities.

• Low and high bay applications are generally used in commercial and industrial markets to provide light to large open areas like big-box retail stores, warehouses and manufacturing facilities.

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

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

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

We believe that our renewed and continuing focus on multi-disciplinary technology innovation and engineering designs to both expand product features and benefits, while lowering product costs of ownership, will continue to enhance the overall competitiveness of our LED lighting and provide us with the strategic advantage and flexibility to expand our distribution channels.

Our company is dedicated to advancing innovative technologies and high-performance solutions across multiple sectors, including LED lighting, Energy Storage Systems (ESS), Gallium Nitride (GaN) Power Supplies, and AI Data Center Uninterruptible Power Supplies (UPS).

We aim to strengthen our market presence in these areas while expanding our business reach in the Asia region.

• LED Lighting and Control Systems

We continue to focus on educating channel partners and end-users about the benefits and unique value propositions of our high-quality LED lighting technologies.

Our primary customers include enterprise end-users, contractors, and ESCOs integrating our products into their projects.

We also collaborate with lighting agencies that complement our direct sales efforts.

Our in-house commercial sales team, along with external sales agencies, ensures broad market coverage, and we plan to extend this network across all U.S.

Our sales strategy emphasizes our brand reputation and product education while simplifying procurement.

We target industry verticals where our LED lighting offers significant economic, health, and safety benefits.

Our products serve both commercial markets—valuing quality, efficiency, and ROI—and military markets (MMM), which require high durability and reliability.

Since launching our military-grade Intellitube ® in 2011 for U.S.

Navy ships, military sales have formed a substantial portion of our revenue.

We continuously enhance our MMM product designs to reduce costs while maintaining performance standards.

Although military sales are affected by fluctuating government funding, our strong presence in this market positions us for future growth.

Simultaneously, we are committed to expanding our commercial market share, which holds vast potential.

Our commercial LED lighting products, introduced in 2010, have gained traction in sectors like healthcare, education, and industrial facilities.

Notably, we have been the primary LED supplier for a major northeast Ohio hospital system since 2015, enabling us to expand into additional healthcare networks.

We also supply low-flicker LED lighting to schools, colleges, and universities, promoting energy efficiency and healthier learning environments.

Furthermore, our high bay and low bay lighting solutions cater to large-scale facilities such as warehouses and retail stores, offering energy and maintenance cost savings.

• Energy Storage Systems (ESS)

We are expanding into the ESS market, offering reliable energy storage solutions for both commercial and industrial applications.

Our ESS products support grid stability, renewable energy integration, and backup power needs.

By leveraging our expertise in power electronics, we aim to provide efficient and scalable ESS solutions that cater to diverse energy demands.

• GaN Power Supplies

Our GaN Power Supplies represent the next generation of power conversion technology, delivering higher efficiency and power density compared to traditional silicon-based systems.

These power supplies are ideal for applications requiring compact, lightweight, and high-performance solutions, including consumer electronics, industrial equipment, and renewable energy systems.

• AI Data Center UPS Solutions

We are introducing AI-driven UPS systems tailored for data centers, ensuring uninterrupted power supply and optimized energy management.

Our AI UPS solutions utilize advanced algorithms to enhance system reliability, predict potential failures, and improve overall energy efficiency, supporting the growing demands of data centers worldwide.

Recognizing the immense market potential in Asia, we are prioritizing business expansion in this region.

Our strategy includes establishing local partnerships, enhancing distribution networks, and customizing product offerings to meet regional needs.

By strengthening our presence in Asia, we aim to tap into new growth opportunities and diversify our global revenue streams.

We employ a multi-channel sales approach, combining direct sales, external agencies, and selective e-commerce channels to reach a broad customer base.

While our focus remains on core commercial and military markets, we continuously evaluate additional sales avenues to maximize market penetration.

Our commitment to technological innovation and cost-effective engineering solutions allows us to enhance product features while reducing ownership costs.

This strategic advantage supports our goal of expanding distribution channels and solidifying our competitive position.

With our diversified product portfolio and focused expansion strategies, we are well-positioned to drive sustainable growth across LED lighting, ESS, GaN Power Supplies, and AI Data Center UPS markets.

Our increased emphasis on the Asia region further strengthens our global market presence, setting the stage for long-term success.

Concentration of Sales

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

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

In 2024, two customers accounted for 33% of net sales, with sales to our primary distributor for the U.S.

Navy accounting for approximately 16% and a shipbuilder for the U.S.

Navy accounting for approximately 17%.

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 70% of net sales for the same period.

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% of net sales, 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% of net sales, and sales to a shipbuilder for the U.S.

Navy accounting for approximately 13% of net sales.

Our LED lighting products compete against a variety of lighting products, including conventional light sources such as compact fluorescent lamps and HID lamps, as well as other TLEDs and integrated LED luminaire products.

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We anticipate that the competition for our products will also come from new technologies that offer increased energy efficiency, lower initial costs, lower maintenance costs, or advanced features.

We compete with LED systems produced by large lighting companies such as Signify Lighting, Osram Sylvania and GE Lighting, as well as smaller manufacturers or distributors such as LED Smart, Revolution Lighting Technologies, Orion Energy Systems, and Keystone Technologies.

We compete with LED systems produced by large lighting companies such as Signify Lighting, Osram Sylvania and GE Lighting, as well as smaller manufacturers or distributors such as LED Smart, Energy Source Group, Orion Energy Systems, and Keystone Technologies.

Some of these competitors offer products with performance characteristics similar to those of our products.

Manufacturing and Suppliers

We produce our lighting products and systems through a combination of internal manufacturing and assembly at our Solon, Ohio facility, and sourced finished goods, manufactured to our specifications.

Our internal lighting system manufacturing consists primarily of final assembly, testing, and quality control.

We have worked with several vendors to design custom components to meet our specific needs.

Our quality assurance program provides for testing of all sub-assemblies at key stages in the assembly process, as well as testing of finished products produced both internally and sourced through third parties.

We manufacture our lighting products and systems through a combination of in-house production at our Solon, Ohio facility and outsourced finished goods produced to our specifications.

Our in-house operations focus on final assembly, testing, and quality control.

We collaborate with several vendors to design custom components that meet our specific needs.

Our quality assurance program includes rigorous testing at key stages of assembly and for all finished products, whether produced internally or sourced externally.

Additionally, we are ISO 9001:2015 certified.

Manufacturing costs are managed through the balance of internal production and outsourced production for certain parts and components, as well as finished goods in specific product lines, to a small number of vendors in various locations throughout the world, primarily in the United States, Malaysia, Taiwan, and China.

In some cases, we rely upon a single supplier to source certain components, sub-assemblies, or finished goods.

We continually attempt to improve our global supply chain practices to satisfy client demands in terms of quality and volumes, while controlling our costs and achieving targeted gross margins, and this includes the evaluation of additional outsourcing or further insourcing of internal production where cost, quality and performance can be maintained or improved.

A 2021 DOE report entitled, “2020 LED Manufacturing Supply Chain”, indicated that most of the world’s LED lamp production and a significant portion of LED luminaire manufacturing takes place in China with virtually no LED lamp manufacturing taking place in the United States today.

Our supplier concentration is heavily focused within Asia.

As a result of the continued macroeconomic impacts of the COVID-19 pandemic, throughout 2022 and 2023, we experienced logistics constraints with higher cost comparing to pre-COVID-19 that impacted our inventory purchasing strategy and increased our transportation costs, in continued efforts to manage longer lead times in obtaining components.

Manufacturing costs are managed through a balance of internal production and outsourcing to trusted suppliers worldwide, primarily in the United States, Malaysia, Taiwan, and previously China.

In certain cases, we rely on single-source suppliers for specific components or finished goods.

We continuously optimize our global supply chain to meet client expectations in quality and volume while controlling costs and achieving target gross margins.

Our approach includes evaluating opportunities for additional outsourcing or increased insourcing when it enhances cost efficiency, quality, or performance.

Our suppliers are primarily based in Asia.

We continue to reduce transportation costs while actively managing shorter lead times for component procurement.

One offshore supplier (a related party, See Note 12 “Related Party Transactions”) accounted for approximately 36% of our total expenditures for the twelve months ended December 31, 2024.

At December 31, 2024, two offshore suppliers accounted for approximately 36% and 54% (a related party, See Note 12, “Related Party Transactions” of this Annual Report on Form 10-K, for additional information) of our trade accounts payable balance, respectively.

No offshore supplier accounted for more than 10% 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% (a related party, See Note 13, “Related Party Transactions”) of our trade accounts payable balance, respectively.

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.

At December 31, 2023, two offshore suppliers accounted for approximately 16% and 57% (a related party, See Note 12, “Related Party Transactions” of this Annual Report on Form 10-K, for additional information) of our trade accounts payable balance, respectively.

Product Development

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

Product development remains a central focus and a key differentiator in delivering industry-leading LED lighting solutions, GaN Power Supplies, and MMM lighting solutions.

Gross product development expenses for the years ended December 31, 2024 and 2023 were $0.5 million and $0.6 million, respectively.

We believe that our customer-centric product development efforts represent a better leverage on our R&D investments and aim to continue to focus on developmental projects that could produce more impactful and differentiated products and solutions in a timelier manner for faster customer adoption.

We believe that our customer-focused approach to product development ensures that our R&D investments yield impactful and innovative products, driving faster market adoption and strengthening our competitive advantage.

Intellectual Property

We have a policy of seeking to protect our intellectual property through patents, license agreements, trademark registrations, confidential disclosure agreements, and trade secrets as management deems appropriate.

Certain of our patents are key to our current product lines.

Additionally, we have various pending U.S.

patent applications, and various pending Patent Cooperation Treaty patent applications filed with the World Intellectual Property Organization that serve as the basis for national patent filings in countries of interest.

Our over 50 issued patents expire at various times through May 2040.

Generally, the term of patent protection is twenty years from the earliest effective filing date of the patent application.

There can be no assurance;

however, that our issued patents are valid or that any patents applied for will be issued, and that our competitors or clients will not copy aspects of our lighting systems or obtain information that we regard as proprietary.

There can also be no assurance that others will not independently develop products similar to ours.

We actively protect our intellectual property through patents, license agreements, trademark registrations, confidential disclosure agreements, and trade secrets, as appropriate.

Certain patents are integral to our current product lines.

We have multiple pending U.S.

and international patent applications filed under the Patent Cooperation Treaty with the World Intellectual Property Organization.

Our portfolio includes over 50 issued patents, expiring at various times through May 2040.

Patent protection typically lasts 20 years from the earliest effective filing date.

However, there is no guarantee that existing patents are invulnerable or that pending applications will be granted.

Competitors may develop similar products or access proprietary information despite these protections.

The laws of some foreign countries in which we manufacture, sell or may sell our products do not protect proprietary rights to products to the same extent as the laws of the United States.

Please refer to Note 8, “Commitments and Contingencies,” of this Annual Report on Form 10-K, for additional information.

All of our properties and equipment are covered by insurance and we believe that such insurance is adequate.

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Human Capital

As of December 31, 2023, we had 13 full-time employees and one part-time employee, all of whom were based in the United States, and no part-time employees.

We had one temporary contractor as of December 31, 2023.

As of December 31, 2024, we had 9 full-time employees and 4 part-time employees, with 9 based in the United States and 4 in Taiwan.

We had two temporary contractors as of December 31, 2024.

None of our employees or contractors are subject to collective bargaining agreements and we consider our relationship with our employees to be good.

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What changed 10-K

Item 1. Business