What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-03-25 compared with 2024-03-22 · 69 added, 106 removed, 143 unchanged (55% of the section changed)

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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 the continued support and 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 providing a more user- friendly experience in 2023.

Specific examples of these products we have developed include the RedCap®, our patented emergency backup battery integrated TLED, as well as our robust MMM product offering.

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

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.

Since 2023, the Company has 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.

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.

During 2022 and into 2023, our MMM business continued to face challenges resulting from the delayed availability of government funding and the timing of U.S.

Navy awards, with several anticipated projects facing repeated and ongoing delays.

This sector also maintains very long sales cycles.

The timeline between bid to order can often take at least six months, and many MMM products are built-to-order with resultant lead times before orders become revenue.

We continue to pursue opportunities from the U.S.

Navy and the government sector to minimize such volatility.

Previously in our MMM business, significant efforts undertaken to reduce costs in our product offerings have positioned us to be more competitive along with improved production efficiencies.

Such efforts allowed us to continue to win bids and proposals that helped grow our MMM sales pipeline in the second half of 2023.

While we continue to aggressively seek to increase sales of our commercial products,

the MMM business offers us continued sales opportunities, in addition to validating our product quality and strengthening our brand trust in the marketplace.

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 are pleased to see a growth during the fiscal year ended December 31, 2023 in quotation opportunities in both MMM and commercial product lines.

We have taken steps to strengthen our financial structure through capital increases and cost reduction measures.

As a result, we have fully eliminated all external high-interest debt, which we believe has improved our financial position.

Our business expansion plans are supported by financial strategies that we expect will provide funding for our planned growth initiatives, although there can be no assurance that such funding will be adequate.

During 2024, our MMM business faced ongoing challenges due to delays in government funding and the timing of U.S.

Several anticipated projects encountered repeated postponements, further complicated by the long sales cycles typical in this sector.

The timeline from bid submission to order placement often exceeds six months, and many MMM products are built-to-order, resulting in extended lead times before revenue recognition.

To mitigate this volatility, we continue to actively pursue new opportunities with the U.S.

Navy and other government sectors.

We have undertaken efforts to reduce costs and improve production efficiencies in MMM product lines which we believe have contributed to our competitiveness, and may have helped us secure new contracts and expand our sales pipeline in the latter half of 2024.

We intend to focus on developing our commercial product offerings, including planned new product lines such as Energy Storage Systems (ESS), GaN Power Supplies, and UPS systems for data centers, while continuing to leverage the stability and opportunities within our MMM business.

In 2024, we conducted a comprehensive review of our commercial pricing strategy and reassessed key partnerships within the energy related market.

These strategic adjustments have improved our market position, offering a more competitive pricing structure and a stronger value proposition for our customers.

We believe that these initiatives, if successfully implemented, and if our financial position continues to improve, may contribute to growth across both our MMM and commercial business sectors, although there can be no assurance that such growth will occur.

Meanwhile, we continue to seek additional external funding alternatives and sources to support our growth strategies, plans and initiatives.

The recent strategic investments in 2023 by Sander Electronics, Inc.

The strategic investments in 2023 and 2024 by Sander Electronics, Inc.

(“Sander”), a shareholder of the Company, contributed meaningful external capital, as well as presented synergistic opportunities to improve and diversify our supply chain and product offerings.

We plan to achieve profitability through increasing sales in our innovative products such as EnFocusTM powerline control technology and further leveraging our unique and proprietary technology such as RedCap®, 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 EnFocusTM platform that aim to serve the commercial market.

We are also evaluating adjacent technologies including ruggedized industrial retrofit lighting applications and GaN-based power supplies and other market opportunities in energy solutions products that support sustainability in our existing channels.

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

The EnFocus™ platform offers two immediately available product lines:

EnFocus™ DM, which provides a dimmable lighting solution, and EnFocus™ DCT, which provides both a dimmable and color tunable lighting solution.

EnFocus™ enables buildings to have dimmable, color tunable and circadian-ready lighting using existing wiring, without requiring laying additional data cables or any wireless communication systems, through a relatively simple upgrade with EnFocus™ switches and LED lamps, a far more secure, affordable and environmentally sustainable solution compared with replacing an entire luminaire and incorporating additional wired or wireless communication.

Despite continuing progress on cost reduction throughout 2023 and 2024, the Company’s results reflect the challenges due to long and unpredictable sales cycles, unexpected delays in MMM and commercial customer retrofit budgets and project starts, and supply chain issues.

There has also been continuing aggressive price competition in the lighting industry.

We continued to incur losses and we have a substantial accumulated deficit, which continues to raise substantial doubt about our ability to continue as a going concern at December 31, 2023.

On June 28, 2023, the Company received notices of resignation from the following four members of the Board of Directors:

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

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

These resignations did not involve any disagreement with the Company.

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

Kin-Fu Chen, Shou-Jang Lee, Jason Tien-Chia Tsai, and Chiao Chieh (Jay) Huang.

The Board of Directors affirmatively determined that, at the time of his appointment, 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 of Directors 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.

Huang discontinued his role as Chairman of the Board.

As part of this transition, the Board appointed Kin-Fu Chen as the Chairman of the Board.

We continue to incur losses and we have a substantial accumulated deficit, which continues to raise substantial doubt about our ability to continue as a going concern at December 31, 2024.

Our Business Strategy

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To ensure that EFOI’s products, pricing, and customer service lifecycle are better aligned, we are building a comprehensive value model to ensure consistency in the products and services we provide throughout the customer journey.

We have begun an in-depth analysis of our current and past top 10 customers over the last five years to identify the core factors that make them

loyal customers.

We have begun an in-depth analysis of our current and past top 10 customers over the last five years to identify the core factors that make them loyal customers.

By analyzing this data, we hope to reveal the key elements that enhance customer stickiness, providing them with more reasons and value to stay with us.

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Under the premise of a similar industrial environment and familiar relationships, our professional skills complement those of our supply chain partners.

This foundation of cooperation enables us to more easily achieve common goals of cost reduction, profit sharing, and exploring new business opportunities.

We believe this foundation of cooperation may enable us to pursue common goals of cost reduction, profit sharing, and exploring new business opportunities.

This not only strengthens our cooperative relationship but also lays a solid foundation for our joint efforts towards a better future.

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Selling, general, and administrative 41.5 63.1

Loss on impairment — 5.6

Total operating expenses 52.3 73.4

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Interest income — (1.0)

Interest expenses 380 954

Interest expense 0.1 6.6

Gain on debt extinguishment (3.8) —

Gain on partial lease termination (1.3) —

Other income (0.6) (0.5)

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Total net sales $ 4,860 $ 5,717

Our net sales of $5.7 million in 2023 decreased 4.2% compared to 2022, mainly driven by an increase of 85.6% in MMM sales and a decrease of 57.5% in commercial sales.

The increase in net MMM product sales in 2023 as compared to 2022 was mainly due to an increased military sales pipeline during the year and our strategic focus on our loyal military customers.

Net sales of our commercial products decreased in 2023 due to limited product availability impacts from supply chain constraints, our inventory reduction project, increased competition, and continuing fluctuations in the timing, pace, and size of commercial projects.

Our net sales of $4.9 million in 2024 decreased 15% compared to 2023, mainly driven by a decrease of 16% in MMM sales and a decrease of 13% in commercial sales.

The decrease in net MMM product sales in 2024 as compared to 2023 was mainly due

to a significant reduction in military demand toward the end of the year, driven by the impact of the U.S.

election cycle.

Net sales of our commercial products decreased in 2024 due to the effects of annual market cycles, high inflation, and our sales strategy, which reduced the proportion of commercial sales, along with market-adjusted pricing.

Gross profit (loss)

Gross profit was $0.2 million, or 3.9% of net sales, for 2023, compared with gross loss of $(0.3) million, or (5.3)% of net sales for 2022.

The increase in gross margin resulted from our cost reduction plan related to a cut down of headcounts and was driven primarily by a reduction of scrap, freight in and out variances, which were partially offset by an increased cost of material and temporary labor.

In 2022, significant amounts of previously reserved inventories were scrapped over the course of the year.

Freight and logistics expenses were notably higher at the beginning of 2022 as national imports faced backlogs at the ports.

Beginning in the second quarter of 2023, the Company terminated several employees, and the result was a significant reduction in payroll-related expenses.

Due to the termination of employees, the need for temporary workers was increased.

Gross profit was $0.7 million, or 14% of net sales, for 2024, compared with gross profit of $0.2 million, or 4% of net sales for 2023.

The increase in gross margin was mainly driven by a 2% of net sales decrease in fixed costs such as subscription fee, expenses related to rent expense for production, a 16% of net sales decrease in variable costs such as material cost and freight in expense, and an 8% of net sales unfavorable change in inventory reserves.

The reduction in warehouse space following the new lease agreement in July 2024 required both significant disposal of highly reserved, excess and obsolete inventory and a focus on selling inventory on hand throughout 2024.

As a result of our initiatives of inventory management enhancement, we sold some inventory below cost.

This resulted in a net decrease of our gross inventory levels of $0.9 million and a net decrease of excess and obsolete inventory reserves of $2.2 million as co mpared to 2023 .

Operating expenses

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Gross product development expenses were $0.5 million in 2024, a decrease of 11%, compared to $0.6 million in 2023.

The $0.9 million decrease primarily resulted from lower payroll-related expenses due to a reduction in headcounts of $0.8 million and lower product development and testing cost of $0.1 million.

Beginning in the second quarter of 2023, the Company terminated several employees, and the result was a significant reduction in payroll-related expenses.

The $0.1 million decrease primarily resulted from lower payroll-related expenses due to a reduction in headcounts of $0.9 million.

This was partially offset by a $0.4 million increase in travel expenses and a $0.4 million increase in product testing, R&D supplies, and dues.

During 2024, the Company terminated several employees, and the result was a significant reduction in payroll-related expenses.

Selling, general, and administrative

Selling, general, and administrative expenses were $2.0 million, or 42% of net sales, in 2024, compared to $3.6 million, or 63% of net sales, in 2023.

The year-over-year $3.5 million decrease is comprised of a combination of a $2.1 million decrease from a reduction in headcount for salaries, severance, and commissions, a $0.5 million decrease from trade show, marketing, and travel expenses, a $0.2 million decrease from a reduction of software costs, a $0.2 million from reduced recruiting and relocation expenses, a $0.2 million decrease from consultant and professional fees, and remaining from a decrease of all other general expenses.

Loss on impairment

No loss on impairment was recorded in 2023.

As a result of the Company’s impairment analysis, in the third quarter of 2022, a loss on impairment of $76 thousand was recorded on the write-off of the UV-Robots.

An additional $262 thousand loss on impairment was recorded in the fourth quarter of 2022, which consisted of tooling, equipment, software, hardware, and construction-in-progress.

The year-over-year $1.6 million decrease is comprised of a combination of a $0.9 million decrease from a reduction in headcount for salaries, severance, and commissions, a $0.1 million decrease from a reduction of software costs, a $0.8 million decrease from consultant and professional fees, and remaining from a decrease of all other general expenses.

Other expenses (income)

Interest expenses (income)

We incurred $380 thousand in interest expenses and $57 thousand in interest income in 2023.

Interest expenses primarily related to the interest on borrowings and non-cash amortization of fees related to the Credit Facilities and promissory notes in the principal amount of $2.0 million (the “2022 Streeterville Note”), that the Company issued to Streeterville Capital, LLC (“Streeterville”) pursuant to separate note purchase agreements.

Interest income primarily related to the gain recognized through the pay-off of the Credit Facilities to Crossroads Financial Group, LLC.

In 2022, we incurred $954 thousand in interest expense, primarily related to the interest on borrowings and non-cash amortization of fees related to the Credit Facilities, interest on promissory notes in the principal amounts of $1.7 million (the “ 2021 Streeterville Note”) and $2 million (the “2022 Streeterville Note”) the Company sold and issued to Streeterville pursuant to separate note purchase agreements, and interest on the short-term bridge financing in the aggregate principal amount of $1.45 million pursuant to promissory notes sold and issued by us to certain private parties, including one of our directors.

We incurred $5 thousand in interest expenses compared to interest expenses of $380 thousand in 2023.

Interest expenses primarily related to the interest on promissory notes in the principal amounts of $2 million (the “2022 Streeterville Note”) the Company sold and issued to Streeterville pursuant to separate note purchase agreements.

The decrease is primarily related to early termination of the 2022 Streeterville Note.

Gain on debt extinguishment

We recognized $187 thousand of gain on debt extinguishment in 2024, which was related to the early termination of the 2022 Streeterville Note.

There was no such gain recognized in 2023.

Gain on partial lease termination

We recognized $63 thousand of gain on partial lease termination in 2024, which was related to the early termination of the office lease.

There was no such gain recognized in 2023.

Other income and expenses

We recognized other income of $30 thousand each in 2023 and 2022.

Other income in 2023 and 2022 primarily consisted of tax refunds and miscellaneous adjustments from accounts receivable, respectively.

We recognized other income of $27 thousand and $30 thousand each in 2024 and 2023, respectively.

Other income in 2024 and 2023 primarily consisted of tax refunds and miscellaneous adjustments from accounts receivable.

We recognized other expenses of $10 thousand in 2024, compared to other expenses of $26 thousand in 2023.

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For each of the years ended December 31, 2024 and 2023, our effective tax rate was 0%.

In 2023, our effective tax rate was lower than the statutory rate due to an increase in the valuation allowance as a result of the $6.3 million additional federal net

operating loss we recognized for the year.

In 2024, our effective tax rate was lower than the statutory rate due to an increase in the valuation allowance as a result of the $3.4 million additional federal net operating loss we recognized for the year.

In 2023, our effective tax rate was lower than the statutory rate due to an increase in the valuation allowance as a result of the $6.3 million additional federal net operating loss we recognized for the year.

Deferred income tax assets are reduced by a valuation allowance when it is more likely than not that some portion of the deferred income tax assets will not be realized.

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

At December 31, 2023, we had net operating loss carry-forwards of approximately $138.7 million for federal income tax purposes ($48.0 million for state and local income tax purposes).

However, due to changes in our capital structure, approximately $84.30 million of the $138.7 million is available after the application of IRC Section 382 limitations.

As a result of the Tax Cuts and Jobs Act of 2017 (the “Tax Act”), net operating loss carry-forwards generated in tax years beginning after December 31, 2017 can only offset 80% of taxable income.

These net operating loss carry-forwards can no longer be carried back, but they can be carried forward indefinitely.

The $6.3 million and $9.2 million in federal net operating losses generated in December 31, 2023 and 2022, respectively, will be subject to the new limitations under the Tax Act.

If not utilized, the carry-forwards generated prior to December 31, 2017 of $0.9 million will begin to expire in 2024 for federal purposes and have begun to expire for state and local purposes.

Please refer to Note 11, “Income Taxes,” included in Item 8, “Financial Statements and Supplementary Data,” of this Annual Report for further information.

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Financial condition

At December 31, 2023, we had $2.0 million in cash and a total of $1.3 million of debt, net of discounts and unamortized debt costs, related to the 2022 Streeterville Note outstanding.

At December 31, 2024, we had $0.6 million in cash and no outstanding debt.

We have historically incurred substantial losses, and as of December 31, 2024, we had an accumulated deficit of $154.9 million.

Additionally, our sales have been concentrated among a few major customers and for the twelve months ended December 31, 2023, two customers accounted for approximately 48% of net sales.

Additionally, our sales have been concentrated among a few major customers and for the twelve months ended December 31, 2024, two customers collectively accounted for approximately 33% of net sales.

In 2024 and 2023, we recommitted to building upon the transformation activities started during 2019 that sought to stabilize and regrow our business.

These efforts include the following key developments that occurred during 2024 and 2023:

• We continued development of the second generation of EnFocus™ powerline control switches and circadian lighting system for commercial markets, which as a result of supply chain challenges we now plan to reintroduce in 2024.

EnFocus™ powerline control enables buildings to have dimmable, color tunable and circadian-ready lighting using existing wiring, without requiring laying additional cables or any wireless communication systems, through a relatively simple upgrade with EnFocus™ switches and EnFocus™ LED lamps.

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

• We reinvested in our MMM sales channel and are pursuing existing and new sales opportunities, though the sales cycles for what are frequently made-to-order products are longer than commercial offerings.

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

• The Company has aggressively re-evaluated operating expenses, and reduced its workforce significantly throughout 2022 and into 2023 to manage fixed costs.

• We aggressively re-evaluated operating expenses and reduced its workforce significantly throughout 2023 and into 2024 to manage fixed costs.

• We continued to seek additional external funding alternatives and sources to support our growth strategies, plans and initiatives.

In September 2023, we entered into a security purchase agreement, pursuant to which we raised aggregate gross proceeds of $1.8 million.

Please refer to Note 9 included under Part II, Item 8 “Financial Statements and Supplementary Data,” of this Annual Report for the details.

During 2022 and into 2023, we redoubled our cost control efforts to streamline our operations by closely managing all spending done throughout the Company, while carefully investing in new products and strategies that sought to reenergize sales.

We continue to closely monitor our cost control efforts to streamline our operations by closely managing all spending throughout the Company, while carefully investing in new products and strategies that sought to reenergize sales.

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 EnFocusTM powerline control systems, our Redcap® emergency battery backup tubular TLEDs, 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 EnFocusTM platform that aim to serve the commercial markets.

We plan to achieve profitability through developing and launching new, innovative products, our Redcap® emergency battery backup tubular TLEDs, 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.

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.

Liquidity and capital resources

At December 31, 2023, our cash balance was $2.0 million, compared to $52 thousand at December 31, 2022.

At December 31, 2024, our cash balance was $0.6 million, compared to $2.0 million at December 31, 2023.

The following is a summary of cash flows from operating, investing, and financing activities, as reflected in the Consolidated Statements of Cash Flows (in thousands):

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Costs related to reverse stock-split — (16)

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

Principal payments under finance lease obligations — (1)

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

Payments on the 2022 Streeterville Note (1,000) (625)

Payments for deferred financing costs — (114)

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

Proceeds from the 2022 Streeterville Note — 2,000

Proceeds from related party promissory notes payable — 800

Proceeds from promissory notes payable — 650

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

Advanced capital contribution — 450

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

Net cash (used in) provided by financing activities $ (149) $ 4,486

Net cash used in operating activities

Net cash used in operating activities of $1.3 million in 2024 resulted primarily from the net loss incurred of $1.6 million, adjusted for non-cash items, including:

depreciation and amortization of $0.3 million, stock-based compensation, net of $44 thousand, non-favorable provisions from inventory of $25 thousand and from accounts receivable of $6 thousand, and favorable provisions from warranty of $33 thousand and gain from paid-off of Credit Facilities of $40 thousand.

We used $1.1 million through the timing of collection of accounts receivable, $0.2 million for prepayments to vendors, and $47 thousand through a decrease of other accrued liabilities.

We generated $0.6 million in cash for an increase in accounts payable due to the timing of inventory receipts and payments, $0.5 million from the change in prepaid and other current assets, and $1.0 million in inventory as we sold off a substantial portion of the stock on hand.

depreciation and amortization of $42 thousand, stock-based compensation, net of $4 thousand, non-favorable provisions from inventory of $347 thousand, favorable provisions for accounts receivable reserves of $69 thousand, and favorable provisions for warranties of $32 thousand.

We used $128 thousand through a decrease of other accrued liabilities.

We generated $1.0 million in cash through collection of accounts receivable, $0.8 million from a reduction of inventory, and $0.3 million from an increase in accounts payable due to the timing of inventory receipts and payments.

We paid off approximately $1.2 million in accounts payable to a related party.

Net cash used in operating activities of $2.4 million in 2023 resulted primarily from the net loss incurred of $4.3 million, adjusted for non-cash items, including:

depreciation and amortization of $0.5 million, stock-based compensation, net of $0.1 million, and non-favorable provisions from inventory of $32 thousand and a loss on impairment of property and equipment of $0.3 million, and favorable provisions from warranty of $0.1 million.

We used $0.6 million through a decrease of other accrued liabilities and $0.3 million from changes in deferred revenue.

We generated $0.8 million through the timing of collection of accounts receivable, $0.2 million from the change in prepaid and other current assets, $0.1 million for short-term deposits, and $2.4 million in inventory as we sold off a substantial portion of the stock on hand.

depreciation and amortization of $258 thousand, stock-based compensation, net of $44 thousand, non-favorable provisions from inventory of $25 thousand and from accounts receivable of $6 thousand, and favorable provisions from warranty of $33 thousand and gain from paid-off of Credit Facilities of $40 thousand.

We used $1.1 million through the timing of collection of accounts receivable, $200 thousand for prepayments to vendors, and $47 thousand through a decrease of other accrued liabilities.

We generated $580 thousand in cash for an increase in accounts payable due to the timing of inventory receipts and payments, $521 thousand from the change in prepaid and other current assets, and $1.0 million in inventory as we sold off a substantial portion of the stock on hand.

Cash used in investing activities

Net cash used in investing activities was $19 thousand in 2024, primarily from the acquisition of property and equipment.

Net cash used in investing activities was $16 thousand in 2022, primarily from the acquisition of property and equipment and partially offset by the proceeds from the sale of property and equipment.

Net cash used in investing activities was $69 thousand in 2023, primarily from the acquisition of property and equipment.

Cash provided by financing activities

Net cash provided by financing activities for the year ended December 31, 2024 of $0.1 million, primarily resulted from $0.9 million of net proceeds from the issuance of common stock, offset by net payments of $1.0 million on the 2022 Streeterville Note.

Net cash provided by financing activities for the year ended December 31, 2023 of $4.5 million primarily resulted from the proceeds from the issuance of common stock and warrants of $6.1 million and advanced capital contribution of $0.5 million.

The increases in cash were partially offset by payments on the 2022 Streeterville Note of $0.6 million and Credit Facilities of $1.4 million.

Net cash provided by financing activities for the year ended December 31, 2022 of $4.1 million primarily resulted from the proceeds from the issuance of common stock and warrants of $3.5 million, proceeds from promissory notes payable of $0.7 million, related party promissory notes payable of $0.8 million, and the issuance of the 2022 Streeterville Note provided net proceeds of $2.0 million.

The increases in cash were partially offset by payments on the 2021 Streeterville Note of $1.6 million, Credit Facilities of $0.8 million, and the deferred financing cost of $0.1 million.

Off-balance sheet arrangements

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Contractual and other obligations

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.

As of December 31, 2024, we have approximately $0.3 million in outstanding purchase commitments for inventory, of which the majority is expected to ship in the first quarter of 2025.

We have 88% of the outstanding purchase commitments with a related party.

There have been no other material changes to our contractual and other obligations as compared to those included in our 2022 Annual Report.

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

Critical accounting policies and estimates

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• allowances for doubtful accounts, returns and discounts,

• impairment of long-lived assets,

• product warranty reserve,

• valuation of inventories,

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

What changed 10-K

Item 7. Management’s Discussion and Analysis