What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2025-03-25 compared with 2024-03-22 · 195 added, 328 removed, 642 unchanged (45% of the section changed)

16 unchanged sentences

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

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.

As discussed in the notes to the consolidated financial statements, the Company has suffered 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.

46 unchanged sentences

Prepaid and other current assets 157 156

Receivable for claimed Employee Retention Tax Credit — 445

Total current assets 5,145 9,189

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Advanced capital contribution — 450

Related party promissory notes payable — 814

Credit line borrowings, net of loan origination fees — 1,447

Total current liabilities 2,443 6,351

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Accumulated deficit ( 154,897 ) ( 153,315 )

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.

Total stockholders' equity 2,915 3,051

Total liabilities and stockholders' equity $ 5,612 $ 10,200

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

5 unchanged sentences

Cost of sales 4,161 5,494

Gross profit (loss) 223 ( 318 )

Gross profit 699 223

Operating expenses:

1 unchanged sentence

Selling, general, and administrative 2,017 3,607

Loss on impairment — 338

Total operating expenses 2,541 4,194

3 unchanged sentences

Interest expense 5 380

Gain on debt extinguishment ( 187 ) —

Gain on partial lease termination ( 63 ) —

Other income ( 27 ) ( 30 )

7 unchanged sentences

Basic and diluted 4,947 3,241

* 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’ EQUITY (DEFICIT)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023

(amounts in thousands)

((amounts in thousands except share data))

Capital Accumulated

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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 — — 7 — 6 — — 6

Issuance of common stock and warrants — — 187 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 — — 209 — — — — —

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 — — 2,477 1 6,078 — — 6,079

6 unchanged sentences

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.

Issuance of common stock — — 818 1 1,300 — — 1,301

Conversion of advanced capital contribution to common stock — — 94 — 141 — — 141

Stock-based compensation — — — — 4 — — 4

Net loss — — — — — — ( 1,582 ) ( 1,582 )

Balance at December 31, 2024 876 $ — 5,261 $ 1 $ 157,814 $ ( 3 ) $ ( 154,897 ) $ 2,915

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

7 unchanged sentences

Other income — ( 40 )

Capitalized interest on promissory notes payable — 40

Gain on partial lease termination ( 63 ) —

Gain on debt extinguishment ( 187 ) —

Depreciation 37 33

Stock-based compensation 4 44

Provision for doubtful accounts receivable 6 14

Provision for credit losses and sales returns ( 69 ) 6

Provision for slow-moving and obsolete inventories 347 25

1 unchanged sentence

Amortization of loan discounts and origination fees 5 225

Loss on impairment — 338

Change in operating assets and liabilities:

8 unchanged sentences

Right of use assets and lease liabilities ( 43 ) 75

Deferred revenue — ( 268 )

Total adjustments 285 1,854

2 unchanged sentences

Acquisitions of property and equipment ( 19 ) ( 69 )

Proceeds from the sale of property and equipment — 25

Net cash used in investing activities ( 19 ) ( 69 )

2 unchanged sentences

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 on the 2022 Streeterville Note ( 625 ) —

Proceeds from the 2022 Streeterville Note — 2,000

Proceeds from related party promissory notes payable — 800

Proceeds from promissory notes payable — 650

Payments for deferred financing costs — ( 114 )

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

(continued on the following page)

3 unchanged sentences

(amounts in thousands)

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

Net (decrease) increase in cash ( 1,465 ) 1,978

Cash, beginning of year 2,030 52

2 unchanged sentences

Cash paid in year for interest $ 5 $ 380

Cash paid in year for income taxes $ — $ 1

Non-cash investing and financing activities:

5 unchanged sentences

Energy Focus, Inc.

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

(the “Company”) 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 with greater energy efficiency and productivity, and increased human health and wellness through advanced LED retrofit solutions.

Our mission is to enable our customers to run their facilities with greater energy efficiency, 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.

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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.

Additionally, we have expanded product offerings into both Maritime lighting and Energy Storage Solutions ( “ESS”).

BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

6 unchanged sentences

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.

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 pursuing cost-saving measures to enhance profitability.

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:

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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”).

As of the date of this Annual Report, the Company believes it has maintained compliance with the Minimum Stockholders’ Equity Rule, which requires listed companies to maintain stockholders’ equity of at least $ 2.5 million for continued listing on the Nasdaq Capital Market.

To become compliant with the Bid Price Rule, which has a minimum bid price of at least $ 1.00 per share as one of its continued listing requirements, the Company 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.

5 unchanged sentences

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.

Estimates include, but are not limited to, the expected credit loss provision, inventory obsolescence and warranty claims, the determination of the useful lives of property and equipment, valuation of long-lived assets, allowance for deferred tax assets, sales returns and stock-based compensation.

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

Actual results could differ from those estimates and such differences could be material.

18 unchanged sentences

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.

Substantially all 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.

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

On January 1, 2023, the Company adopted ASC 326.

The standard adds to U.S.

GAAP an impairment model known as the CECL model, which is based on expected

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.

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.

The reserve 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.

We do not generally require collateral from our customers.

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:

Below is the breakout of the Company’s contract assets for such periods (in thousands):

December 31, 2024 December 31, 2023 January 1, 2023

Accounts Receivable $ 819 $ 1,590 $ 471

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

Reserve for Credit Losses

( 15 ) ( 20 ) ( 26 )

Net Accounts Receivable $ 804 1,570 445

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

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

Allowance for credit losses as of January 1, 2023

Cumulative effect of the implementation of ASC 326 ( 2 )

Reserve for credit losses as of December 31, 2023

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

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

Prior year reclassification of sales returns out of allowance for credit losses

Allowance for credit losses as of December 31, 2023

Reduction of reserve for credit losses as of December 31, 2024

Allowance for credit losses as of December 31, 2024

Geographic information

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

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

For the years ended December 31, 2024 and 2023, approximately 100 % of sales were attributable to customers in the United States.

1 unchanged sentence

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.

At December 31, 2024 and 2023, we had cash of $ 0.6 million and $ 2.0 million, 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.

1 unchanged sentence

The assessment is both quantitative and qualitative.

The reduction in warehouse space following the new lease agreement in July 2022 required both significant disposal of highly reserved, excess and obsolete inventory and a focus on selling down inventory on hand throughout 2022.

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

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 $ 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.

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.

1 unchanged sentence

These differences result in deferred tax assets and liabilities, which are included in our Consolidated Balance Sheets.

We then assess the likelihood of the deferred tax assets being recovered from future taxable income and, to the extent we believe it is more likely than not that the deferred tax assets will not be recovered, or is unknown, we establish a valuation allowance.

We then assess the likelihood of the deferred tax assets being recovered from future taxable income and, to the

ENERGY FOCUS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

extent we believe it is more likely than not that the deferred tax assets will not be recovered, or is unknown, we establish a valuation allowance.

Significant management judgment is required in determining our provision for income taxes, deferred tax assets and liabilities, and any valuation allowance recorded against our deferred tax assets.

At December 31, 2023 and 2022, we have recorded a full valuation allowance against our net deferred tax assets due to uncertainties related to our ability to utilize our deferred tax assets, primarily consisting of certain net operating losses carried forward.

At December 31, 2024 and 2023, we recorded a full valuation allowance against our net deferred tax assets due to uncertainties related to our ability to utilize our deferred tax assets, primarily consisting of certain net operating losses carried forward.

The valuation allowance is based upon our estimates of taxable income by jurisdiction and the period over which our deferred tax assets will be recoverable.

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There were no reclassifications for all periods presented.

ENERGY FOCUS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Property and equipment

7 unchanged sentences

Events or circumstances that would result in an impairment review primarily include operations reporting losses, a significant change in the use of an asset, or the planned disposal or sale of the asset.

The asset would be considered impaired when the future net undiscounted cash flows generated by the asset are less than its carrying value.

The asset would be considered impaired

ENERGY FOCUS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

when the future net undiscounted cash flows generated by the asset are less than its carrying value.

An impairment loss would be recognized based on the amount by which the carrying value of the asset exceeds its fair value, as determined by quoted market prices (if available) or the present value of expected future cash flows.

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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.

We recognized $ 0.5 million and $ 0.6 million research and development costs for the years ended December 31, 2024 and 2023, respectively.

Net loss per share

2 unchanged sentences

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):

2 unchanged sentences

Basic and diluted weighted average common shares outstanding

* 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 years ended December 31, 2024 and 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.

Stock-based compensation

1 unchanged sentence

Management applies the Black-Scholes option pricing model to value stock options issued to employees and directors and applies judgment in estimating key assumptions that are important elements of the model in expense recognition.

These elements include the expected life of the option, the expected stock-price volatility, and expected forfeiture rates.

These elements include the

ENERGY FOCUS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

expected life of the option, the expected stock-price volatility, and expected forfeiture rates.

Compensation expense is generally amortized on a straight-line basis over the requisite service period, which is generally the vesting period.

3 unchanged sentences

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

Advertising expenses were $ 6 thousand for each of the years ended December 31, 2024 and 2023, respectively.

Product warranties

3 unchanged sentences

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 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.

ENERGY FOCUS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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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.

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Early adoption is permitted.

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

The Company plans to

ENERGY FOCUS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

adopt this standard on January 1, 2025.

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

In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements:

Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative.

ASU 2023-06 modifies the disclosure or presentation requirements of a variety of Topics in the Codification.

Certain of the amendments represent clarifications to or technical corrections of the current requirements.

Because of the variety of Topics amended, a broad range of entities may be affected by one or more of those amendments.

Many of the amendments allow users to more easily compare entities subject to the SEC’s existing disclosures with those entities that were not previously subject to the SEC’s requirements.

Also, the amendments align the requirements in the Codification with the SEC’s regulations.

For entities subject to the SEC’s existing disclosure requirements and for entities required to file or furnish financial statements with or to the SEC in preparation for the sale of or for purposes of issuing securities that are not subject to contractual restrictions on transfer, the effective date for each amendment will be the date on which the SEC’s removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited.

For all other entities, the amendments will be effective two years later.

The amendments in this update should be applied prospectively.

For all entities, if by June 30, 2027, the SEC has not removed the applicable requirement from Regulation S-X or Regulation S-K, the pending content of the related amendment will be removed from the Codification and will not become effective for any entity.

The Company is currently evaluating the potential impact this standard will have on its consolidated financial statements and related disclosures.

Recently adopted accounting standards

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

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

Measurement of Credit Losses on Financial Instruments , which significantly changes the accounting for credit losses on instruments within its scope.

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.

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.

Early adoption is permitted.

The Company adopted ASU 2023-07 in 2024.

Refer to Note 11 for related disclosures.

Other accounting standards that have been issued by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.

We do not discuss recent standards that are not anticipated to have an impact on or are unrelated to our consolidated financial condition, results of operations, cash flows or disclosures.

Certain risks and concentrations

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.

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

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

Navy accounting for approximately 17 %.

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.

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

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

Navy accounting for approximately 13 %.

• At December 31, 2024, three customers collectively accounted for 88 % of our net trade accounts receivables.

This including approximately 21 % from distributor to the U.S.

Navy, approximately 52 % from shipbuilder to the U.S.

Navy, and approximately 15 % from commercial customer accounts.

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

ENERGY FOCUS, INC.

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.

Department of Defense accounted for 25 % of our net trade accounts receivable, when combined with our net trade accounts receivable to shipbuilders for the U.S.

Navy, total net accounts receivable related to U.S.

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With specific materials, all of our purchases are from a single vendor.

The availability and costs of materials may be subject to change due to, among other things, new laws or regulations, suppliers’ allocation to other purchasers, interruptions in production by suppliers, global health issues such as the COVID-19 pandemic, and changes in exchange rates and worldwide price and demand levels.

ENERGY FOCUS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

COVID-19 pandemic, and changes in exchange rates and worldwide price and demand levels.

Our inability to obtain adequate supplies of materials for our products at favorable prices could have a material adverse effect on our business, financial position, or results of operations by decreasing our profit margins and by hindering our ability to deliver products to our customers on a timely basis.

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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, 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 36 % of our total expenditures for the twelve months ended December 31, 2024.

At December 31, 2022, this same offshore supplier accounted for approximately 36 % of our trade accounts payable balance.

At December 31, 2024, two offshore suppliers collectively accounted for approximately 36 % and 54 % (a related party, See Note 12, “Related Party Transactions”) 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 12, “Related Party Transactions”) of our trade accounts payable balance, respectively.

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”).

Additionally, Effective July 1, 2024, our warehouse and office lease was amended to reduce the rentable square feet from 62,335 square feet to 29,692 square feet and the rent expenses were decreased in proportion to the reduction in rentable square.

The Company recorded this as a lease modification in accordance with ASC 842 Leases (“ASC 842”) and recorded a reduction to the right of use asset and lease liability of approximately $ 395 thousand using an incremental borrowing rate of approximately 13.64 %.

The Company recognized a gain on the lease modification of $ 63 thousand which was recorded as other income in the Statement of Operations.

The weighted average remaining lease term for the operating leases is 2.5 years.

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For the years ended December 31,

Sub-lease income $ — $ ( 90 )

Lease cost $ 303 $ 461

Total lease cost, net $ 461 $ 411

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

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

At December 31,

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Operating cash flows from operating leases $ 343 $ 383

Financing cash flows from finance leases $ — $ 1

Inventories consist of the following (in thousands):

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Finished goods 2,585 4,803

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

Reduction due to permanent markdowns ( 2,464 ) —

Reserves for excess, obsolete, and slow-moving inventories ( 347 ) ( 2,553 )

Inventories, net $ 3,263 $ 4,439

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Accrual ( 347 ) ( 404 )

Reduction due to sold inventory 378 323

Write-off for disposed inventory — 512

Reduction due to inventory sold 89 378

Reduction due to permanent markdowns

Reserves for excess, obsolete, and slow-moving inventories $ ( 347 ) $ ( 2,553 )

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Depreciation expense was $ 37 thousand and $ 33 thousand for the years ended December 31, 2024 and 2023, 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.

As impaired assets relate primarily to the Company and/or its discontinued products, management determined fair value was insignificant.

For the year ended December 31, 2022, the Company recognized a loss of $ 338 thousand on the impairment of fixed assets.

No such loss was recorded during the year ended December 31, 2023.

In 2024, the Company disposed of fully depreciated equipment and tooling.

Therefore, no gain or loss was recorded during the year ended December 31, 2024.

PREPAID AND OTHER CURRENT ASSETS

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At December 31,

Credit facilities, net $ — $ 1,447

Promissory notes - related parties — 814

Streeterville notes, net — 1,323

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Total $ — $ 1,773

ENERGY FOCUS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Credit Facilities

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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 (“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.

ENERGY FOCUS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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, Chiao Chieh (Jay) Huang, and Tingyu Lin.

In 2022, we entered into short-term unsecured promissory notes (the “2022 Promissory Notes”) with Mei-Yun (Gina) Huang, Chiao Chieh (Jay) Huang, and Tingyu Lin.

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.

Jay Huang is our Chief Executive Officer (“CEO”).

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

See Note 9, “Stockholders’ Equity.”

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

ENERGY FOCUS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

At December 31, 2022

Date entered September 16, 2022 October 25, 2022 November 4, 2022 November 9, 2022 December 6, 2022 December 21, 2022 December 31, 2022

Term 9 months 9 months 9 months 9 months 9 months 9 months 9 months

Principal amount $ 450,000 $ 50,000 $ 250,000 $ 350,000 $ 200,000 $ 100,000 $ 50,000 $ 1,450,000

Maturity date June 16, 2023 July 25, 2023 August 4, 2023 August 9, 2023 September 6, 2023 September 21, 2023 September 30, 2023

Interest rate 8 % 8 % 8 % 8 % 8 % 8 % 8 %

Default interest rate 10 % 10 % 10 % 10 % 10 % 10 % 10 %

Outstanding Amount $ 460,455 $ 50,734 $ 253,123 $ 353,989 $ 201,096 $ 100,219 $ 50,011 $ 1,469,627

Streeterville Notes

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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.

The 2022 Streeterville Note had an original maturity date of April 21, 2024, and accrued 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 (the “2022 Streeterville Note Amendment”).

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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.

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

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.

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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

On April 27, 2021, we entered into a note purchase agreement with Streeterville pursuant to which we sold and issued to Streeterville a promissory note in the principal amount of approximately $ 1.7 million (the “2021 Streeterville Note”).

The 2021 Streeterville Note was issued with an original issue discount of $ 194 thousand and Streeterville paid a purchase price of $ 1.5 million for the 2021 Streeterville Note, after deduction of $ 15 thousand of Streeterville’s transaction expenses.

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.

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

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.

The Company had the right on three occasions to defer all redemptions that Streeterville could otherwise require the Company to make during any calendar month.

Each exercise of this deferral right by the Company increased the amount outstanding under the Streeterville Note by 1.5 %.

The Company exercised this right twice during the fourth quarter of 2021, once during the second quarter of 2022 and once during the third quarter of 2022.

The Company and Streeterville agreed to exchange common stock, priced at-the-market, for the required redemptions in October 2022 and December 2022, totaling $ 305 thousand converted to equity.

These exchanges satisfied the redemption notices provided by Streeterville, and following the December 2022 exchange, the 2021 Streeterville Note was paid in full.

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

O n 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 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 stocks by January 23, 2024 for the remaining amount.

On January 23, 2024, the 2022 Streeterville Note was terminated and the Company had no outstanding obligations to Streeterville, upon which the Company recognized a $ 187 thousand other income which is included in gain on debt extinguishment in the Condensed Consolidated Statements of Operations.

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.

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

There was no restriction in use of the funds and the advanced capital contribution bore no interest.

The advanced capital contribution was exchanged for common stock on March 28, 2024.

See Note 9, “Stockholders’ Equity.”

COMMITMENTS AND CONTINGENCIES

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

Settlement of Return of Slow-Moving Inventory

On December 30, 2024, in connection with its strategy to reduce a certain quantity of low-turnover inventory, the Company entered into an agreement with the vendor, an unrelated party, to return the inventory purchased between 2021 and 2022 and transfer EnFocus™ registered trademarks (carry amount of $ 0 ).

As a result, the Company will recognize a non-cash gain of approximately $ 5 thousand on the settlement of returning inventory, cancelling prepayments made with the vendor, and settlement of outstanding accounts payable with the vendor.

Please see below for the related accounts as of December 31, 2024 and the gain that will be recognized on the return date, which is expected to be in the early second quarter of year 2025.

At December 31,

Inventories, net

Prepayments to vendors

Accounts payable ( 650 )

EnFocus™ trademark

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.

At the Company’s annual meeting of stockholders held on June 15, 2023, the Company’s stockholders approved 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”).

The reverse stock split became 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.

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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

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.

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.

The Company entered the securities purchase agreements with certain investors and issued 912,050 and 2,870,964 shares (including debt-to-equity exchange noted in Note 7, “Debt”) of common stock during the years ended December 31, 2024 and 2023, respectively.

June 2024 Private Placement

On June 21, 2024, the Company entered into a securities purchase agreement with Sander Electronics Inc., a shareholder of the Company controlled by Mr.

Chiao Chieh (Jay) Huang, CEO of the Company, 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 “June 2024 Private Placement”).

Consideration for the transaction included an exchange of $ 850 thousand.

Aggregate gross proceeds to the Company in respect of the June 2024 Private Placement were approximately $ 850 thousand.

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

March 2024 Private Placement

On March 28, 2024, the Company entered into a securities purchase agreement with certain purchaser, 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 “March 2024 Private Placement”).

Consideration for the transaction included exchange of $ 450 thousand in the aggregate of outstanding amounts on previous advanced capital contributions, as described above in Note 6, “Debt”.

Aggregate gross proceeds to the Company in respect of the March 2024 Private Placement were approximately $ 450 thousand.

The March 2024 Private Placement was priced at-the-market under the Nasdaq rules.

September 2023 Private Placement

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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.

ENERGY FOCUS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

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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.

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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.

Total offering costs of $ 334 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, 2022.

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

We determined the exercise price of the June 2022 Pre-Funded Warrants to be nominal and, as such, have considered the 196,978 shares underlying them to be outstanding effective June 7, 2022, for purposes of calculating net loss per share.

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

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 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.

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

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.

Preferred Stock

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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

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”).

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”).

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.

ENERGY FOCUS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 1- for- 35 basis.

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Cost of sales $ — $ 2

Product development — 15

Selling, general, and administrative 4 42

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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 2.7 years years as of December 31, 2023 and 2.8 years as of December 31, 2022.

The remaining weighted average period over which the unearned compensation is expected to be amortized was approximately 1.8 years as of December 31, 2024 and 2.8 years as of December 31, 2023.

Stock Options

For the years ended December 31, 2024 and 2023, the Company did not grant any stock options.

The fair value of each stock option is estimated on the date of grant using the Black-Scholes option pricing model.

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Dividend yield 0.00 % 0.00 %

We utilize the simplified method as provided by ASC 718-10 to calculate the expected stock option life.

Under ASC 718-10, the expected stock option life is based on the midpoint between the vesting date and the end of the contractual term of the stock option award.

The use of this simplified method in place of using the actual historical exercise data is allowed when a stock option award meets all of the following criteria:

the exercise price of the stock option equals the stock price on the date of grant;

the exercisability of the stock option is only conditional upon completing the service requirement through the vesting date;

employees who terminate their service prior to the vesting date forfeit their stock options;

employees who terminate their service after vesting are granted a limited time period to exercise their stock options;

and the stock options are nontransferable and non-hedgeable.

We believe that our stock option awards meet all of these criteria.

The estimated expected life of the option is calculated based on contractual life of the option, the vesting life of the option, and historical exercise patterns of vested options.

The risk-free interest rate is based on U.S.

treasury zero-coupon yield curve on the grant date for a maturity similar to the expected life of the option.

The volatility estimates are calculated using historical volatility of our stock price calculated over a period of time representative of the expected life of the option.

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.

Options outstanding under all plans at December 31, 2024 have a contractual life of ten years , and vesting periods between one and four years .

4 unchanged sentences

Granted 11,427 $ 3.04

Exercised ( 22,893 ) 21.00

Canceled/forfeited ( 24,076 ) 18.55

Expired ( 3,878 ) 17.03

Outstanding at December 31, 2022 47,102 13.78

Granted 11,427 $ 3.04

Canceled/forfeited ( 24,076 ) 18.55

Balance at December 31, 2023 30,575 $ 5.60

Expired ( 9 ) 53.33

2 unchanged sentences

Exercisable at December 31, 2024 16,735 $ 6.20

*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.

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

No options were exercised during 2024 and 2023.

All outstanding equity awards were out of the money as of December 31, 2024.

ENERGY FOCUS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The options outstanding at December 31, 2024 have been segregated into ranges for additional disclosure as follows:

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Restricted Stock Units

In 2015, we began issuing restricted stock units to certain employees and non-employee Directors under the 2014 Plan with vesting periods ranging from one to four years from the grant date.

In 2020, we began issuing restricted stock units to certain employees and non-employee Directors under the 2020 Plan with vesting periods ranging from one to four years .

The following table shows a summary of restricted stock unit activity:

Restricted Stock Units Outstanding* Weighted

Outstanding at December 31, 2021 343 $ 1.02

Granted 7,143 $ 0.18

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.

During the years ended December 31, 2024 and 2023, no restricted stock units were issued, and as of December 31, 2024 and 2023, there were no outstanding restricted stock units.

ENERGY FOCUS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We file income tax returns in the U.S.

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At December 31, 2024 and 2023, 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):

1 unchanged sentence

State $ 2 $ 3

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

Provision for income taxes $ 2 $ 3

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

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Valuation allowance 18.4 ( 29.5 )

Other 4.1 ( 4.1 )

Federal NOLs write off ( 11.9 ) ( 0.1 )

Federal temporary ( 12.1 ) 0.2

State NOLs write off ( 19.4 ) 7.6

State temporary ( 0.6 ) ( 3.7 )

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets are as follows (in thousands):

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Net deferred tax assets $ — $ —

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 2022, our effective tax rate was lower than the statutory rate due to an increase in the valuation allowance of the $ 9.2 million additional federal net operating loss we recognized for the year.

In 2024 and 2023, 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 and $ 6.3 million additional federal net operating loss we recognized for the year.

At December 31, 2024, we had federal and state net operating loss carry-forwards (“NOLs”) of approximately $ 141.1 million for federal income tax purposes ($ 39.1 million for state and local income tax purposes).

However, due to changes in our capital structure, approximately $ 86.8 million of the $ 141.1 million is available after the application of IRC Section 382 limitations.

As a result of the Tax Cuts and Job Act of 2017 (the “Tax Act”), NOLs generated in tax years beginning after December 31, 2017 can only offset 80% of taxable income.

As a result of the Tax Cuts and Job Act of 2017 (the “Tax Act”), NOLs generated in tax years beginning after December 31, 2017

ENERGY FOCUS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

can only offset 80% of taxable income.

These NOLs 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 will be subject to the new limitations under the Tax Act.

The $ 3.4 million and $ 6.3 million in federal net operating losses generated in 2024 and 2023 will be subject to the new limitations under the Tax Act.

If not utilized, the NOLs generated prior to December 31, 2017 of $ 1.0 million will begin to expire in 2025 for federal purposes and have begun to expire for state and local purposes.

Since we believe it is more likely than not that the benefit from NOLs will not be realized, we have provided a full valuation allowance against our deferred tax assets at December 31, 2024 and 2023, respectively.

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

ENERGY FOCUS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We had no net deferred tax liabilities at December 31, 2024 and 2023.

PRODUCT AND GEOGRAPHIC INFORMATION

We focus our efforts on the sale of LED lighting and controls products in the commercial market and MMM, and began to expand our offerings into the consumer market in the fourth quarter of 2021.

We focus our efforts on the sale of LED lighting and controls products in the commercial market and MMM.

Our products are sold primarily in the United States through a combination of direct sales employees, lighting agents, independent sales representatives and distributors.

We currently operate in a single industry segment, developing and selling our LED lighting products and controls into the MMM and commercial markets.

Operating segments are defined as components of an entity about which discrete financial information is evaluated regularly by the Company’s chief operating decision maker (CODM) in deciding how to allocate resources and assess performance.

The Company operates and manages its business as one business segment.

The Company has a single management team that reports to the Chief Executive Officer, the Company's CODM, who comprehensively manages the entire Company.

The accounting policies of the segment are the same as those described in the summary of significant accounting policies.

When evaluating the Company’s financial performance, the CODM is regularly provided with more detailed expense information than what is included in the Company’s statements of operations and comprehensive loss.

The CODM uses net loss, as reported in the statements of operations and comprehensive loss, in evaluating the performance of the segment.

Decisions regarding resource allocation are made primarily during the annual budget planning process and reallocated as needed throughout the year.

The measure of segment assets is reported on the balance sheets as total assets.

The following table provides a breakdown of product net sales for the years indicated (in thousands):

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At December 31, 2024 and 2023, approximately 100 % of our long-lived assets, which consist of property and equipment, were located in the United States.

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.

The ERTC was subsequently amended by the Taxpayer Certainty and Disaster Tax Relief Act of 2020, the Consolidated Appropriation Act of 2021, and the American Rescue Plan Act of 2021, all of which amended and extended the ERTC availability and guidelines under the CARES Act.

Following these amendments, we and other businesses became retroactively eligible for the ERTC, and as a result of the foregoing legislation, are eligible to claim a refundable tax credit against the employer share of Social Security taxes equal to 70% of the qualified wages paid to employees between January 1, 2021 and September 30, 2021.

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 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 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

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

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

1 unchanged sentence

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.

for the year ended December 31, 2023 totaled $ 2.1 million, which remained unpaid as of December 31, 2023.

The Company made new purchases for $ 0.6 million from Sander Electronics, Inc.

during 2024 .

As of December 31, 2024 a ccounts payable to Sander Electronics, Inc.

is $ 0.9 million .

Private Placements

2 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

LEGAL MATTERS

8 unchanged sentences

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