Item 1. Business
ITEM 1. BUSINESS
Overview
Energy Focus specializes in designing, developing, manufacturing, and selling energy-efficient lighting systems and controls. We provide high-quality LED lighting solutions for both commercial and military maritime markets (MMM), helping our customers improve energy efficiency, productivity, and wellness through advanced LED retrofit products.
Our core products include energy-efficient tubular LED (TLED) lighting that replaces fluorescent and high-intensity discharge (HID) lamps in institutional and commercial buildings. We also offer innovative solutions like our patented RedCap ® TLED with an integrated emergency backup battery.
The LED lighting market has faced intense competition and price erosion in recent years. To stay competitive, we’ve reduced costs, streamlined our supply chain, and focused on product innovation. We’ve also restructured our sales strategies, focusing more on direct sales, strategic partnerships, and customer feedback to drive product development.
Despite industry challenges, we continue to innovate, offering differentiated, high-value products that meet the most demanding market needs. In 2024, we enhanced the RedCap ® product line, further improving user experience and functionality.
It is our belief that the continued dramatic rightsizing efforts undertaken in 2023 and 2024, along with reorganization of the sales team and ongoing development of innovative, high-value products and an expanded distribution network, will over time result in improved sales and bottom-line performance for the Company.
In 2024, we recommitted to building upon the transformation activities that sought to stabilize and regrow our business. These efforts include the following key developments that occurred during 2024:
• On June 12, 2024, the Board approved the departure of Jason Tien-Chia Tsai and appointed Wen Cheng Chen as a new member. All current Board members other than our CEO Mr. Huang remain independent directors under the corporate governance standards of Nasdaq.
• On January 18, 2024, the Company and Streeterville Capital, LLC (“Streeterville”) entered into a payoff letter and exchange agreement (the “Agreement”) to pay off a note entered into by and between the Company and Streeterville in 2022 (the “2022 Streeterville Note”) early. The Agreement provided that the Company made payments to reduce the outstanding obligations under the 2022 Streeterville Note of $1.0 million in cash by January 19, 2024 and exchange 94,440 shares of common stock by January 23, 2024 for the remaining $142 thousand. In January 2024, the Company paid off the 2022 Streeterville Note in full. At termination, the Company recognized $187 thousand of other income which was included in other income in the Condensed Consolidated Statements of Operations.
• On March 28, 2024, Energy Focus, Inc. entered into certain securities purchase agreements with certain accredited investors, pursuant to which the Company agreed to issue and sell in a private placement an aggregate of 283,019 shares of the Company’s common stock, par value $0.0001 per share, for a purchase price per share of $1.59 (the “First Private Placement”). Aggregate gross proceeds to the Company with respect to the First Private Placement were approximately $450 thousand, excluding the offering expenses paid by the Company. The First Private Placement was closed on March 28, 2024.
• On June 21, 2024, Energy Focus, Inc. entered into certain securities purchase agreements with certain accredited investors, pursuant to which the Company agreed to issue and sell in a private placement an aggregate of 534,591 shares of the Company’s common stock, par value $0.0001 per share, for a purchase price per share of $1.59 (the “Second Private Placement”). Aggregate gross proceeds to the Company with respect to the Second Private Placement were approximately $850 thousand, excluding the offering expenses paid by the Company. The Second Private Placement was closed on June 21, 2024.
• In 2024, we carefully researched and analyzed our historical sales data and the current market landscape, focusing on our pricing position and overall sales strategy. We acknowledged the increasing competition in the MMM sales space, both in terms of pricing pressure and the growing number of competitors.
• The Company has aggressively re-evaluated operating expenses throughout the year to manage fixed costs.
During 2024, we have thoroughly reviewed and adjusted our commercial pricing position as well as our strategic relationships and partnerships within the commercial LED market space.
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In 2025, we plan to pursue expansion into new markets and industries to diversify our portfolio and drive growth:
• ESS (Energy Storage Systems) Business Opportunity: We intend to explore energy storage solutions that could complement our existing product lines and support sustainability efforts.
• AI Data Center UPS Development: We aim to enter the AI data center market through development of advanced Uninterruptible Power Supply (UPS) systems tailored to meet the high-demand energy needs of AI-driven data centers.
• Global Market Expansion: We are evaluating potential opportunities in the Taiwan and Japan markets, where we may leverage our expertise to respond to demand in these regions.
To pursue long-term growth and profitability, we expect to focus on:
• Expanding product offerings in energy storage and AI data center power solutions.
• Strengthening our global presence, particularly in Taiwan and Japan.
• Continuing to innovate in LED lighting and controls.
• Maintaining financial discipline through cost control and operational efficiency.
We believe these strategies, if successfully implemented, may create new revenue streams, potentially strengthen our market position, and could lead to improved financial performance in the coming years, although actual results may differ materially from our expectations.
Our Corporate Structure and History
Fiberstars, Inc. was founded in 1985 in California and reincorporated in Delaware in November 2006. In May 2007, Fiberstars, Inc. merged with Energy Focus, Inc. (the “Company”), a Delaware corporation, with the Company emerging as the surviving entity. In 2023, we established an international branch, which we may refer to as our “Taiwan branch” or “Taipei office,” in Taipei, Taiwan, to enhance our Asia and worldwide business sales force.
Our Industry
We specialize in creating innovative, energy-saving solutions that combine advanced LED lighting, controls, and cutting-edge technology to help our customers operate their facilities more efficiently while promoting productivity and well-being. Our focus is on leading the market in human-centric lighting and high-tech energy solutions by offering top-quality, energy-efficient LED products, including "flicker-free" long-life lamps, retrofit kits, and advanced power technologies. In addition to LED lighting, we’ve expanded into energy-saving high-technology GaN (Gallium Nitride) power supplies, Energy Storage Systems (ESS), and Uninterruptible Power Supply (UPS) products tailored for AI data centers, positioning us at the forefront of sustainable technology for modern industries.
The demand for energy-efficient solutions like LEDs and advanced power systems is growing rapidly, driven by cost savings, environmental goals, and health benefits. Our new product lines, including GaN power supplies, ESS, and UPS systems, further enhance efficiency and reliability, meeting the rising energy demands of AI-driven data centers and other high-tech applications.
We’re also pioneers in flicker-free lighting—certified by Underwriters Laboratories at less than 1% flicker—reducing health issues like headaches and fatigue. Additionally, our smart lighting innovations, such as connected systems with sensors and circadian rhythm adjustments, are transforming how buildings operate, offering both energy savings and wellness benefits. While the market is competitive, we stand out by developing customer-focused, high-impact products and leveraging a strong sales network to meet evolving needs.
Our Products
We design and deliver a wide range of energy-efficient solutions for commercial, industrial, and military markets, including:
Commercial products to serve our targeted commercial markets:
• RedCap ® emergency backup LED tubes; and
• LED retrofit kits for replacing fluorescent lamps, downlights, and low/high-bay fixtures; and
• Industrial LED dock lights.
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MMM LED lighting products to serve the U.S. Navy and allied foreign navies:
• Intellitube ® and the Invisitube™ retrofit LEDs for the U.S. Navy and allied forces; and
• Military-grade LED fixtures like globe lights, berth lights, and high-bay kits.
New products:
• Energy-saving GaN power supplies for efficient power delivery; and
• Energy Storage Systems (ESS) and Uninterruptible Power Supply (UPS) products designed for AI data centers
Our products outperform traditional lighting and power solutions, offering financial savings, reduced carbon emissions, and improved occupant health.
The key features of our products are as follows:
• High-efficiency designs with proprietary technology;
• Long-lasting performance, with most LEDs backed by a 10-year warranty;
• Ultra-low flicker for better health and equipment compatibility;
• Compliance with energy efficiency standards and rebate eligibility.
By expanding into GaN power supplies, ESS, and UPS systems, we’re addressing the growing needs of AI data centers and other tech-driven industries, reinforcing our commitment to innovation and sustainability. Our robust research and multi-channel sales strategy ensure we stay ahead in delivering reliable, high-quality solutions.
Sales and Marketing
Our company is dedicated to advancing innovative technologies and high-performance solutions across multiple sectors, including LED lighting, Energy Storage Systems (ESS), Gallium Nitride (GaN) Power Supplies, and AI Data Center Uninterruptible Power Supplies (UPS). We aim to strengthen our market presence in these areas while expanding our business reach in the Asia region.
• LED Lighting and Control Systems
We continue to focus on educating channel partners and end-users about the benefits and unique value propositions of our high-quality LED lighting technologies. Our primary customers include enterprise end-users, contractors, and ESCOs integrating our products into their projects. We also collaborate with lighting agencies that complement our direct sales efforts. Our in-house commercial sales team, along with external sales agencies, ensures broad market coverage, and we plan to extend this network across all U.S. regions.
Our sales strategy emphasizes our brand reputation and product education while simplifying procurement. We target industry verticals where our LED lighting offers significant economic, health, and safety benefits. Our products serve both commercial markets—valuing quality, efficiency, and ROI—and military markets (MMM), which require high durability and reliability.
Since launching our military-grade Intellitube ® in 2011 for U.S. Navy ships, military sales have formed a substantial portion of our revenue. We continuously enhance our MMM product designs to reduce costs while maintaining performance standards. Although military sales are affected by fluctuating government funding, our strong presence in this market positions us for future growth. Simultaneously, we are committed to expanding our commercial market share, which holds vast potential.
Our commercial LED lighting products, introduced in 2010, have gained traction in sectors like healthcare, education, and industrial facilities. Notably, we have been the primary LED supplier for a major northeast Ohio hospital system since 2015, enabling us to expand into additional healthcare networks. We also supply low-flicker LED lighting to schools, colleges, and universities, promoting energy efficiency and healthier learning environments. Furthermore, our high bay and low bay lighting solutions cater to large-scale facilities such as warehouses and retail stores, offering energy and maintenance cost savings.
• Energy Storage Systems (ESS)
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We are expanding into the ESS market, offering reliable energy storage solutions for both commercial and industrial applications. Our ESS products support grid stability, renewable energy integration, and backup power needs. By leveraging our expertise in power electronics, we aim to provide efficient and scalable ESS solutions that cater to diverse energy demands.
• GaN Power Supplies
Our GaN Power Supplies represent the next generation of power conversion technology, delivering higher efficiency and power density compared to traditional silicon-based systems. These power supplies are ideal for applications requiring compact, lightweight, and high-performance solutions, including consumer electronics, industrial equipment, and renewable energy systems.
• AI Data Center UPS Solutions
We are introducing AI-driven UPS systems tailored for data centers, ensuring uninterrupted power supply and optimized energy management. Our AI UPS solutions utilize advanced algorithms to enhance system reliability, predict potential failures, and improve overall energy efficiency, supporting the growing demands of data centers worldwide.
Recognizing the immense market potential in Asia, we are prioritizing business expansion in this region. Our strategy includes establishing local partnerships, enhancing distribution networks, and customizing product offerings to meet regional needs. By strengthening our presence in Asia, we aim to tap into new growth opportunities and diversify our global revenue streams.
We employ a multi-channel sales approach, combining direct sales, external agencies, and selective e-commerce channels to reach a broad customer base. While our focus remains on core commercial and military markets, we continuously evaluate additional sales avenues to maximize market penetration. Our commitment to technological innovation and cost-effective engineering solutions allows us to enhance product features while reducing ownership costs. This strategic advantage supports our goal of expanding distribution channels and solidifying our competitive position.
With our diversified product portfolio and focused expansion strategies, we are well-positioned to drive sustainable growth across LED lighting, ESS, GaN Power Supplies, and AI Data Center UPS markets. Our increased emphasis on the Asia region further strengthens our global market presence, setting the stage for long-term success.
Concentration of Sales
In 2024, two customers accounted for 33% of net sales, with sales to our primary distributor for the U.S. Navy accounting for approximately 16% and a shipbuilder for the U.S. Navy accounting for approximately 17%.
In 2023, two customers accounted for 48% of net sales, with sales to our primary distributor for the U.S. Navy accounting for approximately 35% of net sales, and sales to a shipbuilder for the U.S. Navy accounting for approximately 13% of net sales.
Competition
Our LED lighting products compete against a variety of lighting products, including conventional light sources such as compact fluorescent lamps and HID lamps, as well as other TLEDs and integrated LED luminaire products. Our ability to compete depends substantially upon the superior performance, incremental benefits and lower total cost of ownership of our products. Principal competitors in our markets include large lamp manufacturers and lighting fixture companies based in the United States, as well as TLED and LED replacement fixture manufacturers mostly based in Asia, whose financial resources may substantially exceed ours and whose cost structure as a percentage of sales may be well below ours. These competitors may introduce new or improved products that may reduce or eliminate some of the competitive advantage of our products and may have substantially lower pricing. We anticipate that the competition for our products will also come from new technologies that offer increased energy efficiency, lower initial costs, lower maintenance costs, or advanced features. We compete with LED systems produced by large lighting companies such as Signify Lighting, Osram Sylvania and GE Lighting, as well as smaller manufacturers or distributors such as LED Smart, Energy Source Group, Orion Energy Systems, and Keystone Technologies. Some of these competitors offer products with performance characteristics similar to those of our products.
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Manufacturing and Suppliers
We manufacture our lighting products and systems through a combination of in-house production at our Solon, Ohio facility and outsourced finished goods produced to our specifications. Our in-house operations focus on final assembly, testing, and quality control. We collaborate with several vendors to design custom components that meet our specific needs. Our quality assurance program includes rigorous testing at key stages of assembly and for all finished products, whether produced internally or sourced externally. Additionally, we are ISO 9001:2015 certified.
Manufacturing costs are managed through a balance of internal production and outsourcing to trusted suppliers worldwide, primarily in the United States, Malaysia, Taiwan, and previously China. In certain cases, we rely on single-source suppliers for specific components or finished goods. We continuously optimize our global supply chain to meet client expectations in quality and volume while controlling costs and achieving target gross margins. Our approach includes evaluating opportunities for additional outsourcing or increased insourcing when it enhances cost efficiency, quality, or performance.
Our suppliers are primarily based in Asia. We continue to reduce transportation costs while actively managing shorter lead times for component procurement.
One offshore supplier (a related party, See Note 12 “Related Party Transactions”) accounted for approximately 36% of our total expenditures for the twelve months ended December 31, 2024. At December 31, 2024, two offshore suppliers accounted for approximately 36% and 54% (a related party, See Note 12, “Related Party Transactions” of this Annual Report on Form 10-K, for additional information) of our trade accounts payable balance, respectively.
No offshore supplier accounted for more than 10% of our total expenditures for the twelve months ended December 31, 2023. At December 31, 2023, two offshore suppliers accounted for approximately 16% and 57% (a related party, See Note 12, “Related Party Transactions” of this Annual Report on Form 10-K, for additional information) of our trade accounts payable balance, respectively.
Product Development
Product development remains a central focus and a key differentiator in delivering industry-leading LED lighting solutions, GaN Power Supplies, and MMM lighting solutions. Gross product development expenses for the years ended December 31, 2024 and 2023 were $0.5 million and $0.6 million, respectively. We believe that our customer-focused approach to product development ensures that our R&D investments yield impactful and innovative products, driving faster market adoption and strengthening our competitive advantage.
Intellectual Property
We actively protect our intellectual property through patents, license agreements, trademark registrations, confidential disclosure agreements, and trade secrets, as appropriate. Certain patents are integral to our current product lines. We have multiple pending U.S. and international patent applications filed under the Patent Cooperation Treaty with the World Intellectual Property Organization. Our portfolio includes over 50 issued patents, expiring at various times through May 2040. Patent protection typically lasts 20 years from the earliest effective filing date. However, there is no guarantee that existing patents are invulnerable or that pending applications will be granted. Competitors may develop similar products or access proprietary information despite these protections. The laws of some foreign countries in which we manufacture, sell or may sell our products do not protect proprietary rights to products to the same extent as the laws of the United States. Please refer to Note 8, “Commitments and Contingencies,” of this Annual Report on Form 10-K, for additional information.
Insurance
All of our properties and equipment are covered by insurance and we believe that such insurance is adequate. In addition, we maintain general liability, product recall and workers’ compensation insurance in amounts we believe to be consistent with our risk of loss and industry practice.
Regulatory Compliance
We derive a significant portion of our revenues from direct and indirect sales to U.S., state, local and foreign governments and their respective agencies. Contracts with government customers are subject to various procurement laws and regulations, business prerequisites to qualify for such contracts, accounting procedures, intellectual property processes, and contract provisions relating to their formation, administration and performance, which may provide for various rights and remedies in favor of the governments that are not typically applicable to or found in commercial contracts.
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In addition, although not legally required to do so, we strive to obtain certification for substantially all our products. In the United States, we seek certification on substantially all of our products from UL ® , Intertek Testing Services (“ETL ® ”), or DesignLights Consortium (“DLC™”). Where appropriate in jurisdictions outside the United States, we seek to obtain other similar national or regional certifications for our products. Although we believe that our broad knowledge and experience with electrical codes and safety standards have facilitated certification approvals, we cannot ensure that we will be able to obtain any such certifications for our new products or that, if certification standards are amended, we will be able to maintain such certifications for our existing products.
Human Capital
As of December 31, 2024, we had 9 full-time employees and 4 part-time employees, with 9 based in the United States and 4 in Taiwan. We had two temporary contractors as of December 31, 2024. None of our employees or contractors are subject to collective bargaining agreements and we consider our relationship with our employees to be good. We encourage and support the growth and development of our employees. Continual learning and career development is advanced through ongoing performance and development conversations with employees and reimbursement is available to employees from time to time for seminars, conferences, formal education, and other training events employees attend in connection with their job duties.
Our human capital resources objectives include, as applicable, identifying, recruiting, retaining, incentivizing and integrating our current and future employees. The principal purposes of our annual bonus plan and equity incentive plan are to attract, retain and motivate employees through the granting of long-term incentive compensation awards.
Business Segments
We currently operate in a single business segment that includes the marketing and sale of commercial and MMM lighting products and controls. Please refer to Note 11, “Product and Geographic Information,” included in Item 8, “Financial Statements and Supplementary Data,” of this Annual Report on Form 10-K, for additional information.
Available Information
Our principal executive offices are located at 32000 Aurora Road, Suite B, Solon, Ohio 44139. Our telephone number is 440.715.1300. Our website address is www.energyfocus.com. We are providing the address to our website solely for the information of investors. The information on our website is not a part of, nor is it incorporated by reference into this Annual Report on Form 10-K. Through our website, we make available, free of charge, our annual proxy statement, annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, as soon as reasonably practicable after we electronically file such material with, or furnish them to, the Securities and Exchange Commission, or the SEC. The SEC maintains a website that contains these reports at www.sec.gov .
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