UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 
Form 10-Q
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period endedSeptember 30, 2017March 31, 2023
 
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from_____________to_____________
Commissionfile number 001-36583
 
ENERGY FOCUS, INC.
(Exact name of registrant as specified in its charter)  
Delaware94-3021850
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
32000 Aurora Road, Suite B Solon, OH
(Address of principal executive offices)
44139
(Zip Code)
(Registrant’s telephone number, including area code): (440)715-1300
None
(Former Name, Former Addressname, former address and Former Fiscal Year, If Changed Since Last Report)former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading
Symbol(s)		Name of each exchange
on which registered
Common Stock, par value $0.0001 per shareEFOIThe Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☑    No ☐
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes ☑    No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”,filer,” “accelerated filer”,filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐☐Accelerated filer☐
Non-accelerated filer ☐ (do not check if a smaller reporting company)☑Smaller reporting company☑
Emerging growth company☐
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐    No ☑
 
The number of outstanding shares of the registrant’s Common Stock,common stock, $0.0001 par value, as of November 6, 2017May 9, 2023 was 11,856,843.

19,243,610.


TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Page
ITEM 1.FINANCIAL STATEMENTS
a.Condensed Consolidated Balance Sheets as of September 30, 2017March 31, 2023 (Unaudited) and December 31, 2016 (Unaudited)2022
4
b.Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2017March 31, 2023 and 20162022 (Unaudited)
56
c.Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2017 and 2016 (Unaudited)
6
d.Condensed Consolidated Statement of Changes in Stockholders' Equity for the ninethree months ended September 30, 2017March 31, 2023 and 2022 (Unaudited)
7
e.d.Condensed Consolidated Statements of Cash Flows for the ninethree months ended September 30, 2017March 31, 2023 and 20162022 (Unaudited)
8
e.
f.Notes to the Condensed Consolidated Financial Statements (Unaudited)
10
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
2129
ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
38
ITEM 4.CONTROLS AND PROCEDURES
2938
PART II - OTHER INFORMATION
ITEM 1A.1.RISK FACTORSLEGAL PROCEEDINGS
3039
ITEM 1A.
ITEM 6.EXHIBITSRISK FACTORS
3039
ITEM 2.
SIGNATURESUNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
3139
ITEM 3.DEFAULTS UPON SENIOR SECURITIES
39
ITEM 4.EXHIBIT INDEXMINE SAFETY DISCLOSURES
3239
ITEM 5.OTHER INFORMATION
39
ITEM 6.EXHIBITS
40
SIGNATURES
42


1

PART I - FINANCIAL INFORMATION


Forward-looking statements


Unless the context otherwise requires, all references to “Energy Focus,” “we,” “us,” “our,” “our company,” or “the Company” refer to Energy Focus, Inc., a Delaware corporation, and its consolidated subsidiary and their respective predecessor entities for the applicable periods, considered as a single enterprise.
This Quarterly Report on Form 10-Q (“Quarterly(this “Quarterly Report”) includes statements that express our opinions, expectations, beliefs, plans, objectives, assumptions or projections regarding future events or future results and therefore are, or may be deemed to be, “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended.amended (the “Exchange Act”). These forward-looking statements can generally be identified by the use of forward-looking terminology, including the terms “believes,” “estimates,” “anticipates,” “expects,” “feels,” “seeks,” “forecasts,” “projects,” “intends,” “plans,” “may,” “will,” “should,” “could” or “would” or, in each case, their negative or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this Quarterly Report and include statements regarding our intentions, beliefs,or current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, strategies, capital expenditures,and the industry in which we operate.


By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Although we base these forward-looking statements on assumptions that we believe are reasonable when made in light of information currently available to us, we caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and industry developments may differ materially from statements made in or suggested by the forward-looking statements contained in this Quarterly Report. In addition, even if our results of operations, financial condition and liquidity, and industry developments are consistent with the forward-looking statements contained in this Quarterly Report, those results or developments may not be indicative of results or developments in subsequent periods.


We believe that important factors that could cause our actual results to differ materially from forward-looking statements include, but are not limited to, the risks and uncertainties outlined under “Risk Factors” under Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2016 and Part II, Item 1A of this Quarterly Report2022 and other matters described in this Quarterly Report and our other filings with the Securities and Exchange Commission generally. Some of these factors include:


•our history of operating lossesneed for and our ability to generate sufficient cash from operations or receive sufficientobtain additional financing in the near term, on acceptable terms or at all, to continue our operations;
our reliance on a limited number of customers, in particular our historical sales of products for the U.S. Navy, for a significant portion of our revenue, and •our ability to regain and maintain compliance with the continued listing standards of The Nasdaq Stock Market LLC (“Nasdaq”);
•our ability to refinance or grow such sales levels;extend maturing debt on acceptable terms or at all;
•our ability to continue as a going concern for a reasonable period of time;
•our ability to realize synergies with our strategic investor;
•instability in the entranceU.S. and global economies and business interruptions experienced by us, our customers and our suppliers, particularly in light of supply chain constraints and other long-term impacts of the coronavirus (“COVID-19”) pandemic;
•the competitiveness and market acceptance of our light-emitting diode (“LED”) lighting and control technologies and products;
•our ability to compete effectively against companies with lower prices or cost structures, greater resources, or more rapid development capabilities, and new competitors in our target markets;
general economic conditions in the United States and in other markets in which we operate or secure products;
•our ability to implementextend our product portfolio into new applications and manage our growth plans to increase sales and control expenses;end markets;
•our ability to increase demand in our targeted markets and to manage sales cycles that are difficult to predict and may span several quarters;
•the timing of large customer orders, and significant expenses and fluctuations between demand and capacity as we manage inventory and invest in growth opportunities;
•our ability to successfully scale our network of sales representatives, agents, distributors and other channel partners to compete with the sales reach of larger, established competitors;
•our ability to implement plans to increase sales and control expenses;
•our reliance on a limited number of customers for a significant portion of our revenue, and our ability to maintain or grow such sales levels;
•our ability to add new customers to reduce customer concentration;
2

•our ability to attract and retain a new chief financial officer;
•our ability to manage the size of our workforce while continuing to attract, develop and retain qualified personnel, and to do so in a timely manner;
•our ability to diversify our reliance on a limited number of third-party suppliers and development partners, our ability to manage third-party product development and obtain critical components and finished products on acceptable terms and of acceptable quality despite ongoing global supply chain challenges, and the impact of our fluctuating demand on the stability of such suppliers;
•our ability to timely, efficiently and cost-effectively transport products from our third-party suppliers by ocean marine and other logistics channels despite global supply chain and logistics disruptions;
•the impact of any type of legal inquiry, claim or dispute;
•the macro-economic conditions, including rising interest rates and recessionary trends, in the United States and in other markets in which we operate or secure products, which could affect our ability to obtain raw materials, component parts, freight, energy, labor, and sourced finished goods in a timely and cost-effective manner;
•our dependence on military maritime customers and on the levels and timing of government funding available to such customers, as well as the funding resources of our other customers in the public sector and commercial markets;
market acceptance of LED lighting technology;•business interruptions resulting from geopolitical actions such as war and terrorism, natural disasters, including earthquakes, typhoons, floods and fires, or from health epidemics or pandemics or other contagious outbreaks;
•our ability to respond to new lighting and control technologies and market trends, andtrends;
•our ability to fulfill our warranty obligations with safe and reliable products;
•any delays we may encounter in making new products available or fulfilling customer specifications;
•any flaws or defects in our ability to compete effectively against companies with greater resources, lower cost structures,products or more rapid development efforts;in the manner in which they are used or installed;
•our ability to protect our intellectual property rights and other confidential information, and manage infringement claims by others;
the impact of any type of legal inquiry, claim, or dispute;

our reliance on a limited number of third-party suppliers, our ability to obtain critical components and finished products from such suppliers on acceptable terms, and the impact of our fluctuating demand on the stability of such suppliers;
our ability to timely and efficiently transport products from our third-party suppliers to our facility by ocean marine channels;
our ability to successfully scale our network of sales representatives, agents, and distributors to match the sales reach of larger, established competitors;
any flaws or defects in our products or in the manner in which they are used or installed;
•our compliance with government contracting laws and regulations, through both direct and indirect sale channels, as well as other laws, such as those relating to the environment and health and safety;
•risks inherent in international markets, such as economic and political uncertainty, changing regulatory and tax requirements and currency fluctuations;fluctuations, including tariffs and other potential barriers to international trade; and
our ability to attract and retain qualified personnel, and to do so in a timely manner; and
•our ability to maintain effective internal controls and otherwise comply with our obligations as a public company.


In light of the foregoing, we caution you not to place undue reliance on our forward-looking statements. Any forward-looking statement that we make in this Quarterly Report speaks only as of the date of such statement, and we undertake no obligation to update any forward-looking statement or to publicly announce the results of any revision to any of those statements to reflect future events or developments.developments, except as required by law. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless specifically expressed as such, and should only be viewed as historical data. Furthermore, new risks and uncertainties arise from time to time, and it is impossible for us to predict those events or how they may affect us.


Energy Focus® isFocus®,Intellitube®, RedCap®, and EnFocus™ are our registered trademark.trademarks. We may also refer to trademarks of other corporations and organizations in this document.

3

ITEM 1. FINANCIAL STATEMENTS

ENERGY FOCUS, INC.
CONDENSEDCONSOLIDATED BALANCE SHEETS
(in thousands,except share and per share amounts)amounts)
(Unaudited)
March 31,
2023		December 31,
2022
(Unaudited)
ASSETS
Current assets:
Cash$301 $52 
Trade accounts receivable, less allowances of $58 and $26, respectively909 445 
Inventories, net4,938 5,476 
Short-term deposits615 592 
Prepaid and other current assets226 232 
Receivable for claimed ERTC445 445 
Total current assets7,434 7,242 
Property and equipment, net68 76 
Operating lease, right-of-use asset1,111 1,180 
Total assets$8,613 $8,498 
LIABILITIES  
Current liabilities:  
Accounts payable$2,177 $2,204 
Accrued liabilities229 145 
Accrued payroll and related benefits235 261 
Accrued sales commissions29 76 
Accrued warranty reserve143 183 
Operating lease liabilities205 198 
Credit line borrowings, net of loan origination fees388 1,447 
Related party promissory notes payable— 814 
Promissory notes payable, net of discounts and loan origination fees1,277 2,618 
Total current liabilities4,683 7,946 

(continued on the next page)

4

 September 30,
2017		 December 31,
2016
ASSETS   
Current assets:   
Cash and cash equivalents$11,935
 $16,629
Trade accounts receivable, less allowances of $73 and $236, respectively2,983
 5,640
Inventories, net6,779
 9,469
Prepaid and other current assets1,046
 882
Assets held for sale410
 —
Total current assets23,153
 32,620
    
Property and equipment, net1,352
 2,325
Other assets30
 33
Total assets$24,535
 $34,978
    
LIABILITIES   
Current liabilities:   
Accounts payable$2,176
 $3,257
Accrued liabilities316
 107
Accrued legal and professional fees64
 63
Accrued payroll and related benefits313
 522
Accrued sales commissions85
 325
Accrued severance14
 328
Accrued restructuring174
 —
Accrued warranty reserve187
 331
Deferred revenue16
 —
Total current liabilities3,345
 4,933
    
Other liabilities248
 107
Total liabilities3,593
 5,040
    
STOCKHOLDERS' EQUITY   
Preferred stock, par value $0.0001 per share:   
Authorized: 2,000,000 shares in 2017 and 2016   
Issued and outstanding: no shares in 2017 and 2016—
 —
Common stock, par value $0.0001 per share:   
Authorized: 30,000,000 shares in 2017 and 2016   
Issued and outstanding: 11,856,843 at September 30, 2017 and 11,710,549 at December 31, 20161
 1
Additional paid-in capital127,286
 126,875
Accumulated other comprehensive income (loss)1
 (1)
Accumulated deficit(106,346) (96,937)
Total stockholders' equity20,942
 29,938
Total liabilities and stockholders' equity$24,535
 $34,978


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


ENERGY FOCUS, INC.
CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONSBALANCE SHEETS
(in thousands,except share and per share amounts)
(Unaudited)
March 31,
2023		December 31,
2022
(Unaudited)
Operating lease liabilities, net of current portion975 1,029 
Total liabilities5,658 8,975 
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, par value $0.0001 per share:
Authorized: 5,000,000 shares (3,300,000 designated as Series A Convertible Preferred Stock) at March 31, 2023 and December 31, 2022
Issued and outstanding: 876,447 at March 31, 2023 and December 31, 2022— — 
Common stock, par value $0.0001 per share:
Authorized: 50,000,000 shares at March 31, 2023 and December 31, 2022
Issued and outstanding: 19,243,610 at March 31, 2023 and 9,848,438 at December 31, 20222 1 
Additional paid-in capital153,311 148,545 
Accumulated other comprehensive loss(3)(3)
Accumulated deficit(150,355)(149,020)
Total stockholders' equity (deficit)2,955 (477)
Total liabilities and stockholders' equity (deficit)$8,613 $8,498 
 Three months ended
September 30,		 Nine months ended
September 30,
 2017 2016 2017 2016
Net sales$5,002
 $8,261
 $15,119
 $23,812
Cost of sales3,865
 5,179
 11,920
 15,063
Gross profit1,137
 3,082
 3,199
 8,749
        
Operating expenses:       
Product development732
 809
 2,266
 2,467
Selling, general, and administrative2,393
 5,423
 8,802
 15,323
Restructuring(200) —
 1,534
 —
Total operating expenses2,925
 6,232
 12,602
 17,790
Loss from operations(1,788) (3,150) (9,403) (9,041)
        
Other expenses (income):       
Interest expense1
 —
 1
 —
Other (income) expense(16) 16
 5
 7
        
Loss from continuing operations before income taxes(1,773) (3,166) (9,409) (9,048)
Provision for income taxes—
 11
 —
 22
Loss from continuing operations(1,773) (3,177) (9,409) (9,070)
        
Discontinued operations:       
Loss on disposal of discontinued operations—
 —
 —
 (12)
Loss from discontinued operations—
 —
 —
 (12)
        
Net loss$(1,773) $(3,177) $(9,409) $(9,082)
        
Net loss per share - basic:       
From continuing operations$(0.15) $(0.27) $(0.80) $(0.78)
From discontinued operations—
 —
 —
 —
Net loss per share - basic:$(0.15) $(0.27) $(0.80) $(0.78)
        
Net loss per share - diluted:       
From continuing operations$(0.15) $(0.27) $(0.80) $(0.78)
From discontinued operations—
 —
 —
 —
Net loss per share - diluted:$(0.15) $(0.27) $(0.80) $(0.78)
        
Weighted average shares used in computing net loss per share:      
Basic11,856
 11,690
 11,789
 11,666
Diluted11,856
 11,690
 11,789
 11,666

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

ENERGY FOCUS, INC.
CONDENSEDCONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
(Unaudited)

 Three months ended
September 30,		 Nine months ended
September 30,
 2017 2016 2017 2016
Net loss$(1,773) $(3,177) $(9,409) $(9,082)
        
Other comprehensive income:       
Foreign currency translation adjustments—
 1
 2
 2
Comprehensive loss$(1,773) $(3,176) $(9,407) $(9,080)

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

ENERGY FOCUS, INC.
CONDENSEDCONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
(in thousands)
(Unaudited)

  Common
Stock		 Additional
Paid-in
Capital		 Accumulated
Other
Comprehensive
Income		 Accumulated
Deficit		 Total
Stockholders'
Equity
  Shares Amount        
             
Balance at December 31, 2016 11,711
 $1
 $126,875
 $(1) $(96,937) $29,938
             
Issuance of common stock under employee stock option and stock purchase plans 161
 
 105
     105
Common stock withheld in lieu of income tax withholding on vesting of restricted stock units (15)   (49)     (49)
Stock-based compensation   
 625
     625
Stock-based compensation reversal     (270)     (270)
Foreign currency translation adjustment   
   2
   2
Net loss from continuing operations for the nine months ended September 30, 2017         (9,409) (9,409)
             
Balance at September 30, 2017 11,857
 $1
 $127,286
 $1
 $(106,346) $20,942

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

ENERGY FOCUS, INC.
CONDENSEDCONSOLIDATED STATEMENTS OFCASH FLOWS
(in thousands)
(Unaudited)
 Nine months ended
September 30,
 2017 2016
Cash flows from operating activities:   
Net loss$(9,409) $(9,082)
Loss from discontinued operations—
 (12)
Loss from continuing operations(9,409) (9,070)
    
Adjustments to reconcile net loss to net cash used in operating activities:   
Depreciation514
 555
Stock-based compensation625
 1,076
Stock-based compensation reversal(270) —
Provision for doubtful accounts receivable19
 9
Provision for slow-moving and obsolete inventories and valuation reserves(644) (292)
Provision for warranties152
 110
Loss on dispositions of property and equipment108
 35
Changes in operating assets and liabilities:   
Accounts Receivable2,638
 5,027
Inventories3,334
 (5,993)
Prepaid and other assets(161) (308)
Accounts payable(1,173) (3,945)
Accrued and other liabilities(433) (761)
Deferred revenue16
 (93)
Total adjustments4,725
 (4,580)
Net cash used in operating activities(4,684) (13,650)
    
Cash flows from investing activities:   
Acquisitions of property and equipment(154) (1,475)
Proceeds from the sale of property and equipment97
 2
Net cash used in investing activities(57) (1,473)
    
Cash flows from financing activities:   
Proceeds from exercises of stock options and employee stock purchase plan purchases105
 386
Common stock withheld in lieu of income tax withholding on vesting of restricted stock units(49) —
Common stock withheld to satisfy exercise price and income tax withholding on option exercises—
 (309)
Net cash provided by financing activities56
 77
    
Effect of exchange rate changes on cash(9) 5
    
Net cash used in continuing operations(4,694) (15,041)


The accompanying notes are an integral part of these condensed consolidated financial statements.
(continued on the following page)
5


ENERGY FOCUS, INC.
CONDENSEDCONSOLIDATED STATEMENTS OFCASH FLOWS OPERATIONS
(in thousands)thousands, except per share amounts)
(Unaudited)
Three months ended
March 31,
20232022
Net sales$930 $2,061 
Cost of sales913 2,087 
Gross profit (loss)17 (26)
Operating expenses:
Product development154 503 
Selling, general, and administrative1,066 2,127 
Total operating expenses1,220 2,630 
Loss from operations(1,203)(2,656)
Other expenses (income):
Interest expense123 184 
Other income— (30)
Other expenses7 11 
Net loss$(1,333)$(2,821)
Net loss per common share - basic and diluted
Net loss$(0.08)$(0.44)
Weighted average shares of common stock outstanding:
Basic and diluted16,172 6,437 
 Nine months ended
September 30,
 2017 2016
    
Cash flows of discontinued operations:   
Operating cash flows, net—
 (12)
Net cash used in discontinued operations—
 (12)
    
Net decrease in cash and cash equivalents(4,694) (15,053)
Cash and cash equivalents, beginning of period16,629
 34,640
Cash and cash equivalents, end of period$11,935
 $19,587
    
Classification of cash and cash equivalents:   
Cash and cash equivalents$11,593
 $19,245
Restricted cash held342
 342
Cash and cash equivalents, end of period$11,935
 $19,587


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

6

ENERGY FOCUS, INC.
CONDENSEDCONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(in thousands)
(Unaudited)
Preferred
Stock		Common
Stock		Additional
Paid-in
Capital		Accumulated
Other
Comprehensive Loss		Accumulated
Deficit		Total
Stockholders'
Equity
SharesAmountSharesAmount
Balance at December 31, 2022876 $— 9,849 $1 $148,545 $(3)$(149,020)$(477)
Issuance of common stock— — 1,995 1 3,024 — — 3,025 
Stock issued in exchange transactions— — 7,400 — 1,716 — — 1,716 
Offering costs on issuance of common stock and warrants— — — — — — — 
Warrant liability— — — — — — — — 
Conversion of notes to preferred stock— — — — — — — — 
Common stock withheld in lieu of income tax withholding on vesting of restricted stock units— — — — — — — — 
Stock-based compensation— — — — 26 — — 26 
Impact of adoption of ASU 2016-13 - CECL— — — — — — (2)(2)
Net loss for the three months ended March 31, 2023— — — — — — (1,333)(1,333)
Balance at March 31, 2023876 $— 19,244 $2 $153,311 $(3)$(150,355)$2,955 

Preferred
Stock		Common
Stock		Additional
Paid-in
Capital		Accumulated
Other
Comprehensive
Loss		Accumulated
Deficit		Total
Stockholders'
Equity
SharesAmountSharesAmount
Balance at December 31, 2021876 $— 6,368 $— $144,953 $(3)$(138,741)$6,209 
Issuance of common stock upon the exercise of warrants— — 85 — — — — — 
Stock-based compensation— — — — 44 — — 44 
Net loss for the three months ended March 31, 2022— — — — — — (2,821)(2,821)
Balance at March 31, 2022876 $— 6,453 $— $144,997 $(3)$(141,562)$3,432 

The accompanying notes are an integral part of these condensed consolidated financial statements.
7

ENERGY FOCUS, INC.
CONDENSEDCONSOLIDATED STATEMENTS OFCASH FLOWS
(in thousands)
(Unaudited)
Three months ended
March 31,
20232022
Cash flows from operating activities:
Net loss$(1,333)$(2,821)
Adjustments to reconcile net loss to net cash used in operating activities:
Other income— (30)
Depreciation8 44 
Stock-based compensation26 44 
Provision for doubtful accounts receivable29 (9)
Provision for slow-moving and obsolete inventories(23)129 
Provision for warranties(40)(30)
Amortization of loan discounts and origination fees62 69 
Changes in operating assets and liabilities (sources / (uses) of cash):
Accounts receivable(496)(83)
Inventories562 370 
Short-term deposits(23)12 
Prepaid and other assets6 20 
Accounts payable(27)61 
Accrued and other liabilities66 (211)
Deferred revenue— (268)
Total adjustments150 118 
Net cash used in operating activities(1,183)(2,703)
Cash flows from investing activities:
Acquisitions of property and equipment— (35)
Net cash used in investing activities— (35)

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8

ENERGY FOCUS, INC.
CONDENSEDCONSOLIDATED STATEMENTS OFCASH FLOWS
(in thousands)
(Unaudited)

Three months ended
March 31,
20232022
Cash flows from financing activities (sources / (uses) of cash):
Proceeds from the issuance of common stock and warrants3,025 — 
Principal payments under finance lease obligations— (1)
Payments on the 2022 Streeterville Note(500)— 
Payments on the 2021 Streeterville Note— (615)
Net payments on proceeds from the credit line borrowings - Credit Facilities(1,093)897 
Net cash provided by financing activities1,432 281 
Net increase (decrease) in cash249 (2,457)
Cash beginning of period52 2,682 
Cash end of period$301 $225 

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

9
ENERGY FOCUS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017March 31, 2023
(Unaudited)




NOTE 1. NATURE OFOPERATIONS


Energy Focus, Inc. and its subsidiary engageengages primarily in the design, development, manufacturing, marketing and sale of energy-efficient lighting systems.systems and controls. We operate in a single industry segment, developingdevelop, market and selling our energy-efficientsell high quality light-emitting diode (“LED”) lighting and controls products intoin the general commercial industrialmarket and military maritime markets.market (“MMM”), and began to expand our offerings into the consumer market in the fourth quarter of 2021. Our mission is to enable our customers to run their facilities, offices with greater energy efficiency, productivity, and human health and wellness through advanced LED retrofit solutions. Our goal is to become a trustedbe the human wellness lighting and LED technology and market leader for the most demanding applications where performance, quality, value, environmental impact and health are considered paramount. We specialize in the LED lighting retrofit market by replacing fluorescent, high-intensity discharge lighting and other types of lamps in institutional buildings and high-intensity discharge (“HID”)for primarily indoor lighting in low-bay and high-bay applications with our innovative, high-quality commercial and militarymilitary-grade tubular LED (“TLED”) products.

Product development is a key focusproducts, as well as other LED and lighting control products for us. Our product development teams,commercial and consumer applications. We are also evaluating adjacent technologies, including our teams locatedGallium Nitride (“GaN”) based power supplies and additional market opportunities for energy solution products that support sustainability in our Solon, Ohio headquarters and at our product development center in Taipei, Taiwan, are dedicated to developing and designing leading-edge technology LED lighting products.existing channels.

NOTE 2.BASIS OF PRESENTATION ANDSUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation


The condensed consolidated financial statements (“financial statements”) include the accountssignificant accounting policies of theour Company, and its subsidiary Energy Focus Europe, Ltd. locatedwhich are summarized below, are consistent with accounting principles generally accepted in the United Kingdom,States (“U.S. GAAP”) and reflect practices appropriate to the business in which is not active.we operate. Unless indicated otherwise, the information in the accompanying financial statements and Notes to the condensed consolidated financial statementsConsolidated Financial Statements relates to our continuing operations.

We have prepared the accompanying financial data for the three and nine months ended September 30, 2017March 31, 2023 and 20162022 pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”).Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”)GAAP have been condensed or omitted pursuant to such rules and regulations. The accompanying financial data and information should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 20162022 (“20162022 Annual Report”). The Condensed Consolidated Balance Sheet as of December 31, 20162022 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements.

In the opinion of management, the accompanying condensed consolidated financial statements contain all normal and recurring adjustments necessary to present fairly our Condensed Consolidated Balance Sheets as of September 30, 2017March 31, 2023 and December 31, 2016,2022, Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2017March 31, 2023 and 2016, Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2017 and 2016,2022, Condensed Consolidated Statements of Changes in Stockholders’ Equity for the ninethree months ended September 30, 2017,March 31, 2023 and 2022, and Condensed Consolidated Statements of Cash Flows for the ninethree months ended March 31, 2023 and 2022.
10
ENERGY FOCUS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2023
(Unaudited)
Going Concern and Nasdaq Continued Listing Requirements Compliance
Due to our financial performance as of March 31, 2023 and December 31, 2022, including net losses of $1.3 million for the three months ended March 31, 2023 and $10.3 million for the twelve months ended December 31, 2022, and total cash used in operating activities of $1.2 million for the three months ended March 31, 2023 and $6.7 million for the twelve months ended December 31, 2022, we determined that substantial doubt about our ability to continue as a going concern continues to exist at March 31, 2023. As a result of restructuring actions and initiatives, we have tailored our operating expenses to be more in line with our expected sales volumes; however, we continue to incur losses and have a substantial accumulated deficit.
Additionally, global supply chain and logistics constraints are impacting our inventory purchasing strategy, as we seek to manage both shortages of available components and longer lead times in obtaining components while balancing the development and implementation of an inventory reduction plan. Disruptions in global logistics networks are also impacting our lead times and ability to efficiently and cost-effectively transport products from our third-party suppliers to our facility. As a result, we will continue to review and pursue selected external funding sources to ensure adequate financial resources to execute across the timelines required to achieve these objectives including, but not limited to, the following:
•obtaining financing from traditional or non-traditional investment capital organizations or individuals;
•obtaining funding from the sale of our common stock or other equity or debt instruments; and
•obtaining debt financing with lending terms that more closely match our business model and capital needs.
There can be no assurance that we will obtain funding on acceptable terms, in a timely fashion, or at all. Obtaining additional funding contains risks, including:
•additional equity financing may not be available to us on satisfactory terms, particularly in light of the current price of our common stock, and any equity we are able to issue could lead to dilution for current stockholders and have rights, preferences and privileges senior to our common stock;
•loans or other debt instruments may have terms or conditions, such as interest rate, restrictive covenants, conversion features, refinancing demands, and control or revocation provisions, which are not acceptable to management or the Company’s Board of Directors (the “Board of Directors”); and
•the current environment in the capital markets and volatile interest rates, combined with our capital constraints, may prevent us from being able to obtain adequate debt financing.
Along with the new additions to the Board of Directors, we hired a permanent Chief Executive Officer in September 2022, following a period of interim leadership by our current Lead Independent Director after the departure of our previous Chief Executive Officer in February 2022 and Chief Financial Officer and Chief Operating Officer in May 2022.
Considering both quantitative and qualitative information, we continue to believe that the combination of our plans to ensure adequate external funding, timely re-organizational actions, current financial position, liquid resources, obligations due or anticipated within the next year, development and implementation of an excess inventory reduction plan, plans and initiatives in our research and development, product development and sales and marketing, and development of potential channel partnerships, if adequately executed, could provide us with an ability to finance our operations through the next twelve months and may mitigate the substantial doubt about our ability to continue as a going concern.
Our Common Stock is listed on the Nasdaq Capital Market, which has as one of its continued listing requirements a minimum bid price of at least $1.00 per share. Recently our Common Stock has traded significantly below $1.00 per share. On August 23, 2022, we received a letter from the Listing Qualifications Staff (the “Staff”) of The Nasdaq Stock Market notifying us that we were no longer in compliance with the requirement to maintain a minimum closing bid price of $1.00 per share, as set forth in Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Rule”), because the closing bid price for our common stock was below the minimum $1.00 per share for 30 consecutive business days. In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we were provided an initial period of 180 calendar days, or until February 20, 2023, to regain compliance with the Bid Price Rule. During the initial compliance period, our Common Stock continued to trade on the Nasdaq Capital Market, but did not satisfy the Bid Price Rule.
On 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,
11
ENERGY FOCUS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2023
(Unaudited)
2022 filed on November 10, 2022 reflected that our stockholders’ equity as of September 30, 20172022 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 2016.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 Stockholders’ Equity Requirement 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 Stockholders’ Equity Requirement and (2) grant an exception allowing the Company up to 180 days following the Bid Price Notification to regain compliance with the Bid Price Requirement by effecting a reverse stock split following stockholder approval at the Annual Meeting. On May 1, 2023, the Panel granted the Company’s request 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 Stockholders’ Equity Requirement and (2) on or before July 7, 2023, the Company shall demonstrate compliance with the Bid Price Rule.
As of the date of this Quarterly Report, the Company believes it has regained compliance with the Stockholders’ Equity Requirement for continued listing on the Nasdaq Capital Market. However, there can be no assurance that the Appeal will be successful or that the Company will be able to regain compliance with the Bid Price Rule or maintain compliance with the Stockholders’ Equity Requirement, Bid Price Rule, or other Nasdaq listing requirements. If the Company fails to regain compliance with Nasdaq’s continued listing standards in accordance with the Panel’s decision, the Company’s common stock will be subject to delisting from Nasdaq.
Use of estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”)GAAP requires management to make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes. Management bases its estimates on historical experience and various other assumptions believed to be reasonable. Although these estimates are based on management’s best knowledge of current events and actions that may impact us in the future, actual results may vary from the estimates. Estimates include, but are not limited to, the establishment of reserves for accounts receivable, sales returns, inventory obsolescence and warranty claims; the useful lives of property and equipment; valuation allowance for net deferred taxes; the cost and offsetting income related to subleased property; and stock-based compensation. The Company began using estimates for its calculation of impairment to accounts receivable under Accounting Standards Codification (“ASC”) 326 commencing in 2023. In addition, estimates and assumptions associated with the determination of the fair value of financial

10
ENERGY FOCUS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017
(Unaudited)


instruments and evaluation of long-lived assets for impairment requires considerable judgment. Actual results could differ from those estimates and such differences could be material.

Revenue
Reclassifications

Certain amounts related to purchase price and manufacturing variances capitalized in inventories in 2016 and legal fees related to our restructuring actions in 2017 were reclassified to conform to current period reporting presentation with no impact on financial position, lossNet sales include revenues from operations, or cash used in operations.

Certain risks and concentrations

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

For the three months ended September 30, 2017, one of the largest global healthcare systems located in Northeast Ohio and a large energy services contracting company in our Southeastern sales region each accounted for approximately 23 percent of net sales. While the last contractually required stocking commitment under our exclusive distributor agreement with Atlantic Diving Supply, Inc. (“ADS”), a distributor for the U.S. Navy, was fulfilled in December 2016, sales to ADS for the three months ended September 30, 2017 accounted for approximately 12 percent of net sales, and when combined with non-exclusive sales to other distributors, sales of products and shipping and handling charges, net of estimates for product returns. Revenue is measured at the amount of consideration we expect to receive in exchange for the U.S. Navy comprised approximately 20 percent of net sales fortransferred products. We recognize revenue at the same period. Forpoint in time when we transfer the three months ended September 30, 2016, ADS accounted for approximately 40 percent of net sales and sales ofpromised products to the U.S. Navy comprised approximately 46 percent of net sales. In addition, another distributor of military maritime products to foreign navies accounted for approximately 12 percent of net sales for the three months ended September 30, 2016.

For the nine months ended September 30, 2017, the healthcare system located in Northeast Ohiocustomer and the energy services contracting company accountedcustomer obtains control over the products. Distributors’ obligations to us are not contingent upon the resale of our products. We recognize revenue for approximately 17 percentshipping and 12 percent of net sales, respectively. Whilehandling charges at the last contractually required stocking commitment under our exclusive distributor agreement with ADS was fulfilled in December 2016, salestime the goods are shipped to ADS accounted for approximately 12 percent of net sales, and when combined with non-exclusive sales to other distributors, sales of products for the U.S. Navy comprised approximately 18 percent of net sales for the nine months ended September 30, 2017. For the nine months ended September 30, 2016, sales to ADS accounted for approximately 32 percent of net sales, and total sales of products for the U.S. Navy of approximately 40 percent of net sales. In addition, the healthcare system located in Northeast Ohio accounted for approximately 11 percent of net sales for the nine months ended September 30, 2016.

Our exclusive distributor agreement with ADS ended on March 31, 2017 and we are currently evaluating all sales channels within the military maritime market to broaden our sales opportunities.

The energy services contracting companycustomer, and the global healthcare system locatedcosts of outbound freight are included in Northeast Ohio accountedcost of sales. We provide for approximately 28 percent and 18 percent of net trade accounts receivable, respectively, at September 30, 2017. At December 31, 2016, ADS and the global healthcare system located in Northeast Ohio accountedproduct returns based on historical return rates. While we incur costs for approximately 63 percent and 10 percent of net trade accounts receivable, respectively.

Recent accounting pronouncements

In May 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-09, Compensation—Stock Compensation: Scope of Modification Accounting, which provides guidance about which changes to the terms or conditions of a share-based payment award would require an entity to apply modification accounting. This standard is effective for fiscal years beginning after December 15, 2017. We are in the process of evaluating the impact of the standard.

In November, 2016, the FASB issued ASU No. 2016-18, Restricted Cash, which requires entities to show the changes in the total of cash, cash equivalents, restricted cash, and restricted cash equivalents in the statement of cash flow. This standard is

11
12
ENERGY FOCUS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017March 31, 2023
(Unaudited)


effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoptionsales commissions to our sales employees and outside agents, we recognize commission costs concurrent with the related revenue, as the amortization period is permitted, including adoption in an interim period. The new standard must be adopted retrospectively.less than one year. We do not incur any other incremental costs to obtain contracts with our customers. Our product warranties are assurance-type warranties, which promise the customer that the products are as specified in the processcontract. Therefore, the product warranties are not a separate performance obligation and are accounted for as described below. Sales taxes assessed by governmental authorities are accounted for on a net basis and are excluded from net sales.
The following table provides a disaggregation of product net sales for the periods presented (in thousands):
Three months ended
March 31,
 20232022
Net sales:  
Commercial$321 $1,134 
MMM products609 927 
Total net sales$930 $2,061 
Accounts Receivable
Our trade accounts receivable consists of amounts billed to and currently due from customers. Our customers are concentrated in the United States. In the normal course of business, we extend unsecured credit to our customers related to the sale of our products. Credit is extended to customers based on an evaluation of the customer’s financial condition and the amounts due are stated at their estimated net realizable value. 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. 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 impactcredit-worthiness of both existing and new customers. Although the standard.insurance policy is no longer in place, all invoices issued under the previous coverage period are still covered under the policy.

In August 2016,On January 1, 2023, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments, which is intended to reduce diversity in practice by making eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. This ASU is effective for fiscal years beginning after December 15, 2017, and will require adoption on a retrospective basis. We are in the process of evaluating the impact of the standard.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326):Company adopted ASC 326, Measurement of Credit Losses on Financial Instruments, (“CECL”). The standard adds to U.S. GAAP an impairment model known as the CECL model, which significantly changes the accounting for credit losses on instruments within its scope. The new guidance introduces an approachis based on expected losses to estimate credit losses on certain financial instruments, including trade receivables, and requires an entity to recognize an allowance based on its estimate of expected credit losses rather than incurred losses. This standard will be effectiveonly impacts the Company’s trade receivables. The Company decided to use the roll rate method of valuing its reserve for interim and annual periods beginning after December 15, 2019, and will generally require adoptiontrade receivables. The reserve is based on a modified retrospective basis. We arecareful review of claims made during 2022 against unpaid invoices. This resulted in a $2.6 thousand adjustment to Retained Earnings as of December 31, 2022 and a charge of $12 thousand to bad debt expense in the processfirst quarter of evaluating the impact2023.
Pursuant to ASC 606, Revenue Recognition, contract assets and contract liabilities as of the standard.

In February 2016, the FASB issued ASU No. 2016-02, Leases, which supersedes the current lease accounting requirements. This standard requires a lessee to record on the balance sheet the assetsbeginning and liabilities for the rights and obligations created by leases with lease terms of more than 12 months. In addition, this standard requires lessees to disclose certain key information about lease transactions. Upon implementation, an entity’s lease payment obligations will be recognized at their estimated present value along with a corresponding right-of-use asset. Lease expense recognition will be generally consistent with current practice. This standard will be effective for interim and annual periods beginning after December 15, 2018, and will require adoption on a modified retrospective basis. We are in the process of evaluating the impactending of the standard.

In January 2016,reporting periods must be disclosed. Below is the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, which amends certain aspectsbreakout of the recognition, measurement, presentation and disclosure of financial instruments. This amendment requires all equity investments to be measured at fair value with changes in the fair value recognized through net income (other than those accountedCompany’s contract assets for under the equity method of accounting or those that result in the consolidation of the investee). This standard will be effective for interim and annual periods beginning after December 15, 2017, and will require adoption on a prospective basis with a cumulative-effect adjustment to the beginning balance sheet. We are in the process of evaluating the impact of the standard.such periods:

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), as amended by ASU 2015-14, 2016-08, 2016-10, 2016-12, and 2016-20, which is a comprehensive revenue recognition standard which supersedes nearly all of the existing revenue recognition guidance under U.S. GAAP. This standard requires an entity to recognize revenue when it transfers promised goods or services to customers in amounts that reflect the consideration the entity expects for receive in exchange for those goods or services. Entities will need to use more judgments and estimates than under the current guidance, including estimating the amount of variable revenue to recognize for each performance obligation. Additional disclosures regarding the nature, amount, and timing of revenues and cash flows from contracts will also be required. This ASU is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period, using either a full retrospective or a modified retrospective approach. We will adopt the standard on January 1, 2018, as required, using the modified retrospective approach. We continue to evaluate the impact the guidance in this ASU will have on our disclosures. At this time, we do not expect the guidance to have a significant impact on our consolidated results of operations, cash flows, or financial position, as our revenue arrangements generally consist of a single performance obligation to transfer promised goods.



12
13
ENERGY FOCUS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017March 31, 2023
(Unaudited)


March 31, 2023December 31, 2022March 31, 2022
Gross Accounts Receivable$967 $471 $1,337 
Less: Allowance for Doubtful Accounts$(58)$(26)$(7)
Net Accounts Receivable$909 $445 $1,330 
Update

Geographic information
All of our long-lived fixed assets are located in the United States. For the three months ended March 31, 2023, 1% of sales were attributable to significant accounting policies

There have been no material changescustomers outside the United States. For the three months ended March 31, 2022, 2% of sales were attributable to customers outside the United States. The geographic location of our significant accounting policies, as comparednet sales is derived from the destination to those described in our 2016 Annual Report.

which we ship the product.
Net loss per share

Basic loss per share is computed by dividing net loss available to common stockholders by the weighted average number of shares of common sharesstock outstanding during the period, excluding the effects of any potentially dilutive securities. Diluted loss per share gives effect to all dilutive potential shares of common sharesstock outstanding during the period. Dilutive potential shares of common sharesstock consist of incremental shares upon the exercise or release of stock options, restricted stock units,warrants and warrants,convertible securities, unless the effect would be anti-dilutive.

The following table presents a reconciliation of basic and diluted loss per share computations (in thousands):
Three months ended
March 31,
 20232022
Numerator:  
Net loss$(1,333)$(2,821)
  
Denominator:
Basic and diluted weighted average shares of common stock outstanding16,172 6,437 
As a result of the net loss we incurred for the three and nine months ended September 30, 2017,March 31, 2023, convertible securities representing approximately 28175 thousand and 72 thousand potentially dilutive equity awards, respectively,shares of common stock were excluded from the netbasic loss per share calculation asbecause their inclusion would have been anti-dilutive.
As a result of the net loss we incurred for the three and nine months ended September 30, 2016,March 31, 2022, warrants and convertible securities representing approximately 7416 thousand and 150175 thousand potentially dilutive equity awards,shares of common stock, respectively, were excluded from the netbasic loss per share calculation asbecause their inclusion would have been anti-dilutive. Therefore, for the three and nine months ended September 30, 2017 and 2016, the basic weighted average shares outstanding were used in calculating diluted loss per share.

The following is a reconciliation of the numerator and denominator of the basic and diluted net loss per share computations for the periods presented below (in thousands):

 Three months ended
September 30,		 Nine months ended
September 30,
 2017 2016 2017 2016
Numerator:       
Loss from continuing operations$(1,773) $(3,177) $(9,409) $(9,070)
Loss from discontinued operations—
 —
 —
 (12)
Net loss$(1,773) $(3,177) $(9,409) $(9,082)
        
Denominator:       
Basic weighted average common shares outstanding11,856
 11,690
 11,789
 11,666
Potential common shares from equity awards and warrants—
 —
 —
 —
Diluted weighted average shares11,856
 11,690
 11,789
 11,666

13
ENERGY FOCUS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017
(Unaudited)



Product warranties

Through March 31, 2016, we warranted finished goods against defects in materialWe warrant our commercial and workmanship under normal useMMM LED products and servicecontrols for periods generally between one and ranging from five years. Beginning April 1, 2016, we warrant our commercial LED tubes, globes, and troffer luminaires for a period of to ten years. Warranty settlement costs consist of actual amounts expensed for warranty, which are largely a result of the cost of replacement products or rework services provided to our customers. A liability for the estimated future costs under product warranties is maintained for products outstanding under warranty based on the actual claims incurred to date and the estimated nature, frequency, and costs of future claims. As warranty coverage from prior period sales expire, previous accruals are released. 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. Extending the warranty did not have a material impact on our condensed consolidated financial statements in 2016 or for the three and nine months ended September 30, 2017. The following table summarizes warranty activity for the periods presented (in thousands):

 Three months ended
September 30,		 Nine months ended
September 30,
 2017 2016 2017 2016
Balance at beginning of period$179
 $298
 $331
 $314
Warranty accruals for current period sales18
 65
 152
 111
Adjustments to existing warranties30
 (60) (36) (112)
In kind settlements made during the period(40) (8) (260) (18)
Accrued warranty reserve$187
 $295
 $187
 $295

Geographic information

Approximately 98 percent of our long-lived fixed assets are located in the United States, with the remainder located in our product development center in Taiwan. Net sales attributable to customers outside the United States accounted for approximately one percent of our total net sales for each of the three months ended September 30, 2017 and 2016. Net sales attributable to customers outside the United States accounted for approximately one percent and two percent of our total net sales for the nine months ended September 30, 2017 and 2016, respectively. The geographic location of our net sales is derived from the destination to which we ship the product.

NOTE 3. RESTRUCTURING

During the first quarter of 2017, we announced a restructuring initiative with a goal of significantly reducing annual operating costs from 2016 levels. The initiative included an organizational consolidation of management and oversight functions in order to streamline and better align the organization into more focused, efficient, and cost effective reporting relationships, and involved headcount reductions and office closures. This initiative was designed to return the Company to profitability and mitigate the substantial doubt that existed at December 31, 2016 about our ability to continue as a going concern. The restructuring actions taken in the first nine months of 2017 resulted in a decrease in operating expenses, excluding restructuring and asset impairment charges, of approximately $3.1 million and $6.7 million over the third quarter and first nine months of 2016, respectively.

The actions taken in the first quarter of 2017 included closing our offices in Rochester, Minnesota, New York, New York, and Arlington, Virginia and impacted 20 employees, primarily located in these offices. During the second quarter of 2017, we fully exited the New York and Arlington facilities and took additional actions to improve our operating efficiencies. These actions impacted an additional 17 production and administrative employees in our Solon location.

14
ENERGY FOCUS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017March 31, 2023
(Unaudited)


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

Three months ended
March 31,
20232022
Balance at beginning of period$183 $295 
Warranty accruals for current period sales(1)(1)
Adjustments to existing warranties(39)(15)
In kind settlements made during the period— (14)
Accrued warranty reserve at end of period$143 $265 
DuringFinancial Instruments
Fair Value Measurements
The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value, giving the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below. We classify the inputs used to measure fair value into the following hierarchy:
Level 1Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability.
Level 3Unobservable inputs for the asset or liability.
The carrying amounts of certain financial instruments including cash, accounts receivable, accounts payable, and accrued liabilities approximate fair value due to their short maturities. Based on borrowing rates currently available to us for loans with similar terms, the carrying value of borrowings under our revolving credit facilities also approximates fair value.
A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. In determining the appropriate levels, we perform a detailed analysis of the assets and liabilities whose fair value is measured on a recurring basis. We review and reassess the fair value hierarchy classifications on a quarterly basis. Changes from one quarter to the next related to the observability of inputs in a fair value measurement may result in a reclassification between fair value hierarchy levels. There were no reclassifications for all periods presented.
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; we have certain suppliers, which individually represent 10% or more of our total purchases, or whose trade accounts payable balance individually represented 10% or more of our total trade accounts payable balance, as follows:
For the three months ended September 30, 2017 we recorded net restructuring credits totaling approximately $0.2 million, primarily relatedMarch 31, 2023, sales to our primary distributor for the U.S. Navy, a reduction of $0.3 million relatedU.S. Navy shipbuilder, and a distributor to the revisionU.S. Department of Defense, accounted for approximately 22%, 27%, and 11% of net sales, respectively. When sales for our initial estimatestop military customers are combined, total net sales of the cost and offsetting sublease incomemilitary products comprised approximately 49% of net sales for the remaining lease obligationssame period. For the three months ended March 31, 2022, sales to our primary distributor for the former New York, New York office. The sublease agreement was finalized in October 2017. This reduction was partially offset by the reclassificationU.S. Navy, a U.S. Navy shipbuilder, and a commercial building systems provider, accounted for approximately 15%, 21%, and 19% of other expenses primarily for legal costs relatednet sales, respectively. When sales to the restructuring actions totaling approximately $0.1 million.

For the nine months ended September 30, 2017, we recorded restructuring charges totaling approximately $1.5 million, consisting of approximately $0.7 million in severance and related benefits, $0.6 million in facilities costs related to the termination of the Rochester lease obligations and the remaining lease obligationsour primary distributor for the former New York and Arlington offices, and $0.2 million in other restructuring costs primarily relatedU.S. Navy are combined with sales to fixed asset and prepaid expenses write-offs.shipbuilders for the U.S. Navy, total net sales of products for the U.S. Navy comprised approximately 37% of net sales for the same period.

Our restructuring liabilities consist of one-time termination costs for severance and benefits to former employees and estimated ongoing costs related to long-term operating lease obligations. The recorded value of the termination severance and benefits to employees approximates fair value, as the remaining obligation is based on the arrangements made with the former employees, and these obligations will be completely satisfied in less than 12 months. The recorded value of the ongoing lease obligations is based on the remaining lease term and payment amount, net of estimated sublease income, discounted to present value. Changes in subsequent periods resulting from a revision to either the timing or the amount of estimated cash flows over the future period are measured using the credit adjusted, risk-free rate that was used to measure the restructuring liabilities initially. We estimated that we would receive a total of approximately $1.3 million in sublease payments to offset our remaining lease obligations, which extend until June 2021, of approximately $1.8 million. We expect to incur approximately $0.1 million in additional costs over the remaining life of our lease obligations, but we do not anticipate further major restructuring activities in the near future. The following is a reconciliation of the beginning and ending balances of our restructuring liability:


 Severance and Related Benefits Facilities Other Total
Balance at January 1, 2017$—
 $—
 $—
 $—
Additions643
 19
 12
 674
Payments(30) (19) (3) (52)
Balance at March 31, 2017$613
 $—
 $9
 $622
Additions127
 811
 106
 1,044
Accretion of lease obligations—
 16
 —
 16
Write-offs—
 9
 (95) (86)
Payments(313) (69) (20) (402)
Balance at June 30, 2017$427
 $767
 $—
 $1,194
Additions$—
 $—
 $68
 $68
Accretion of lease obligations$—
 $8
 $—
 $8
Adjustment of lease obligations$—
 $(276) $—
 $(276)
Write-offs$—
 $—
 $—
 $—
Payments$(253) $(109) $(68) $(430)
Balance at September 30, 2017$174
 $390
 $—
 $564

While the substantial doubt about our ability to continue as a going concern continued to exist at September 30, 2017, we had $11.9 million in cash and no debt obligations at the end of the quarter. In addition, the restructuring actions taken in the first nine months of 2017 resulted in a decrease in operating expenses, excluding restructuring and asset impairment charges, of approximately $3.1 million and $6.7 million over the third quarter and first nine months of 2016, respectively. During the first quarter of 2017, we announced a restructuring initiative with the goal of reducing our operating costs by an estimated $10 million from 2016 levels.  The intent of the restructuring strategy was to maximize operating cost reductions without sacrificing either our new product pipeline or potential long-term revenue growth. We continue to refine our cost savings estimate, and are now on track for a total cost reduction between $8.0 million to $9.0 million from the 2016 levels. Consequently, considering

15
ENERGY FOCUS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017March 31, 2023
(Unaudited)


both quantitativeA distributor for the U.S. Navy, a U.S. Navy shipbuilder, and qualitative information, we continuea distributor to believe that the combinationU.S. Department of Defense, accounted for approximately 32%, 22%, and 17% of net trade accounts receivable, respectively, at March 31, 2023. At December 31, 2022, a distributor to the U.S. Department of Defense accounted for 25% of our restructuring actions, currentnet trade accounts receivable, and when combined with our net trade accounts receivable to shipbuilders for the U.S. Navy, total net accounts receivable related to U.S. Navy sales is 30% of our net trade accounts receivable.
No one supplier accounted for more than 10% of our total expenditures for the three months ended March 31, 2023. For the three months ended March 31, 2022, one offshore supplier accounted for approximately 19% of total expenditures.
At March 31, 2023 and December 31, 2022, one offshore supplier accounted for approximately 36% of our trade accounts payable balance.
Recent adopted accounting standard
In June 2016, the Financial Accounting Standards Board 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. The adoption of this guidance did not have a material impact on our consolidated financial position liquid resources, obligations due or anticipated within the next year, executive reorganization, and implementationresults of our sales channel strategy will return us to profitability in 2018 and effectively mitigates the substantial doubt about our ability to continue as a going concern.operations.

NOTE 3. INVENTORIES

NOTE 4.DISCONTINUED OPERATIONS

The loss on disposal of discontinued operations for the nine months ended September 30, 2016 of $12 thousand consists of legal fees incurred for the settlement of an outstanding arbitration claim related to our pool products business, which we sold in November 2013. On March 18, 2016, we executed a settlement agreement for this claim and the funds held in escrow plus the interest earned on the account were released to the buyer. For additional information regarding the sale of our pool products business and the settlement of this arbitration claim, please refer to Note 3, “Discontinued Operations,” included under Item 8 of our 2016 Annual Report.

NOTE 5. INVENTORIES

Inventories are stated at the lower of standard cost (which approximates actual cost determined using the first-in, first-out cost method) or market,net realizable value, and consist of the following (in thousands):
March 31,
2023		December 31,
2022
Raw materials$2,936 $3,347 
Finished goods4,509 4,656 
Reserves for excess, obsolete, and slow-moving inventories(2,507)(2,527)
Inventories, net$4,938 $5,476 

The following is a roll-forward of the reserves for excess, obsolete, and slow-moving inventories (in thousands):
Three months ended
March 31,
20232022
Beginning balance$(2,527)$(3,050)
Accrual(56)(145)
Reduction due to sold inventory76 16 
Reserves for excess, obsolete, and slow-moving inventories$(2,507)$(3,179)
16
 September 30,
2017		 December 31,
2016
Raw materials$4,263
 $5,049
Finished goods7,468
 10,016
Reserves for excess, obsolete, and slow moving inventories and valuation reserves$(4,952) $(5,596)
Inventories, net$6,779
 $9,469
ENERGY FOCUS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2023
(Unaudited)
NOTE6.4.PROPERTY AND EQUIPMENT AND ASSETS HELD FOR SALE

Property and equipment are stated at cost and depreciated using the straight-line method over the estimated useful lives of the related assets and consist of the following (in thousands):

 September 30,
2017		 December 31,
2016
Equipment (useful life 3 to 15 years)$1,749
 $2,231
Tooling (useful life 2 to 5 years)371
 863
Vehicles (useful life 5 years)47
 39
Furniture and fixtures (useful life 5 years)137
 170
Computer software (useful life 3 years)1,043
 977
Leasehold improvements (the shorter of useful life or lease life)201
 256
Projects in progress48
 154
Property and equipment at cost3,596
 4,690
Less: accumulated depreciation(2,244) (2,365)
Property and equipment, net$1,352
 $2,325

March 31,
2023		December 31,
2022
Equipment (useful life 3 to 15 years)$1,061 $1,061 
Tooling (useful life 2 to 5 years)190 190 
Leasehold improvements (the shorter of useful life or lease life)141 141 
Property and equipment at cost1,392 1,392 
Less: accumulated depreciation(1,324)(1,316)
Property and equipment, net$68 $76 
Depreciation expense was $0.2 million$8 thousand and $44 thousand for each of the three months ended September 30, 2017March 31, 2023 and 2016. Depreciation expense2022, respectively.
17
ENERGY FOCUS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2023
(Unaudited)
NOTE 5. LEASES
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 $0.5 millionexercised in July 2022. As of March 25, 2022, the terms of our real estate operating lease have been modified beginning July 1, 2022 and $0.6 millionextended through 2027. In accordance with ASC 842, Leases (“Topic 842”), the related lease liability was remeasured and the right-of-use asset was adjusted for each lease at the time of modification. The present value of the lease obligations for the nine months ended September 30, 2017lease 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 2016, respectively.other miscellaneous lender fees) on its revolving lines of credit with Crossroads Financial Group, LLC (as described below in Note 6, “Debt”) and Factors Southwest L.L.C. (as described below in Note 6, “Debt”). The present value of the other remaining lease obligations continues to be calculated using an incremental borrowing rate of 7.25% (which excludes the annual facility fee and other lender fees), which was the Company’s borrowing rate on its former revolving line of credit with Austin Financial Services, Inc. (the “Austin Credit Facility”). The weighted average remaining lease term for operating leases is 4.2 years.

Components of the operating lease costs recognized in net loss were as follows (in thousands):
As
Three months ended March 31,
 20232022
Operating lease cost (income)
Sub-lease income$— $(25)
Lease cost117 132 
Operating lease cost, net$117 $107 
Supplemental balance sheet information related to the Company’s operating leases as of March 31, 2023 and December 31, 2016, we recorded an impairment charge related to certain equipment that we were no longer using and adjusted the carrying value of this equipment to its estimated net realizable value of $0.4 million. During the first quarter of

2022 are as follows (in thousands):
 March 31, 2023December 31, 2022
Operating Leases
Operating lease right-of-use assets$1,111 $1,180 
Operating lease liabilities$1,180 $1,227 
Finance Leases
Property and equipment13 13 
Allowances for depreciation(13)(13)
Finance lease assets, net$— $— 
16
18
ENERGY FOCUS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017March 31, 2023
(Unaudited)

Future minimum lease payments required under operating leases for each of the 12-month rolling periods below in effect at March 31, 2023 are as follows (in thousands):
Operating Leases
April 2023 to March 2024$385 
April 2024 to March 2025379 
April 2025 to March 2026387 
April 2026 to March 2027391 
April 2027 to March 202899 
Total future undiscounted lease payments1,641 
Less imputed interest(461)
Total lease obligations$1,180 
Supplemental cash flow information related to leases for the three months ended March 31, 2023 and 2022, was as follows (in thousands):
Three months ended March 31,
 20232022
Supplemental cash flow information 
Cash paid, net, for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$95 $136 
Financing cash flows from finance leases$— $1 
19

ENERGY FOCUS, INC.
2017,NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2023
(Unaudited)
NOTE 6. DEBT
Credit facilities
On August 11, 2020, we beganentered into two debt financing arrangements (together, the “Credit Facilities”) that allowed for expanded borrowing capacity at a lower blended borrowing cost. The first arrangement is an inventory financing facility (the “Inventory Facility”) pursuant to seek outthe Loan and Security Agreement (the “Inventory Loan Agreement”) between the Company and Crossroads Financial Group, LLC, a buyer for this equipment,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.
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 provides that the Company make payments to reduce the outstanding obligations under the Inventory Facility of $750 thousand by January 20, 2023 and $250 thousand by February 15, 2023 (which amounts the Company has paid). 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 such, we reclassifiedset 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 continueunused line fees and reducing the monthly service fee to classifya lower, fixed amount. The Company also agreed to a slightly increased interest rate, which was more than offset by the amountreduction in the monthly service fees. Pursuant to the Crossroads Amendment, the interest rate on ourborrowings under the Inventory Facility is now a per annum rate equal to (i) the Three-Month LIBOR rate plus 5.5% (currently 10.28% per annum) or (ii) at Crossroads’ discretion, an alternative reference rate, SOFR (Secured Overnight Financing Rate), plus 6% (currently 10.176% per annum). As of March 31, 2023, the effective rate was equal to 10.44%.
The second Credit Facility was a receivables financing facility (the “Receivables Facility”) pursuant to the Loan and Security Agreement (the “Receivables Loan Agreement”) between the Company and Factors Southwest L.L.C. (d/b/a FSW Funding), an Arizona limited liability company (the “RF Lender”). Borrowings under the Receivables Facility were permitted up to the lower of (i) $2.5 million or (ii) a borrowing base determined from time to time based on the value of the Company’s eligible accounts receivable, valued at 90% of the face value of such accounts receivable, less availability reserves, if any.
On February 7, 2023, the Company and the RF Lender agreed to terminate the Receivables Facility.  All outstanding amounts under the Receivables Facility were repaid prior to termination, and there were no prepayment fees in connection with termination.  The Receivables Facility was secured by substantially all of the present and future assets of the Company and was subject to an intercreditor agreement with the IF Lender, which intercreditor agreement was also terminated.
Borrowings under the Inventory Facility were approximately $400 thousand and $1.4 million at March 31, 2023 and December 31, 2022, respectively. Borrowings under the Receivables Facility were approximately $67 thousand at December 31, 2022. These facilities are recorded in the Condensed Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022 as a current liability under the caption “Assets held“Credit line borrowings.” Outstanding balances include unamortized net issuance costs totaling $29 thousand and $47 thousand for sale.the Inventory Facility as of March 31, 2023 and December 31, 2022, respectively, and $15 thousand for the Receivables Facility as of December 31, 2022.
Promissory Notes
During the third and fourth quarters of the year ended December 31, 2022, we entered into short-term unsecured promissory notes (the “2022 Promissory Notes”) with Mei Yun (Gina) Huang, Jay Huang, and Tingyu Lin. Ms. Huang is a member of the Board of Directors and Mr. Huang became a member of the Board of Directors in January 2023 in connection with the Sander Private Placement, as described below in Note 8, “Stockholders’ Equity.” 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. See Note 8, “Stockholders’ Equity.”

20
ENERGY FOCUS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2023
(Unaudited)
The following summarizes the 2022 Promissory Notes at December 31, 2022:
At December 31, 2022
G. HuangJ. HuangJ. HuangG. HuangJ. HuangJ. HuangT. LinTotal
Date enteredSeptember 16, 2022October 25, 2022November 4, 2022November 9, 2022December 6, 2022December 21, 2022December 31, 2022
Term9 months9 months9 months9 months9 months9 months9 months
Principal amount$450,000$50,000$250,000$350,000$200,000$100,000$50,000$1,450,000
Maturity dateJune 16, 2023July 25, 2023August 4, 2023August 9, 2023September 6, 2023September 21, 2023September 30, 2023
Interest rate8 %8 %8 %8 %8 %8 %8 %
Default interest rate10 %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
2022 Streeterville Note
On April 21, 2022, we entered into a note purchase agreement (the “2022 Streeterville Note Purchase Agreement”) with Streeterville Capital, LLC (“Streeterville”) pursuant to which we sold and issued to Streeterville a promissory note in the principal amount of approximately $2.0 million (as amended, the “2022 Streeterville Note”). The 2022 Streeterville Note was issued with an original issue discount of $215 thousand and Streeterville paid a purchase price of approximately $1.8 million for the 2022 Streeterville Note, from which the Company paid $15 thousand to Streeterville for Streeterville’s transaction expenses.
The 2022 Streeterville Note had an original maturity date of April 21, 2024, and accrues interest at 8% per annum, compounded daily, on the outstanding balance. On January 17, 2023, we agreed with Streeterville to restructure and pay down the 2022 Streeterville Note and extend its maturity date to December 1, 2024 (the “2022 Streeterville Note Amendment”). We agreed to make payments to reduce the outstanding amounts of the 2022 Streeterville Note by $500 thousand by January 20, 2023 (which amount has been paid) and by $250 thousand by July 14, 2023 ($125 thousand of which has already been satisfied pursuant to the March 2023 Exchange Agreement (as defined below)). Streeterville agreed to extend the term of the 2022 Streeterville Note through December 1, 2024, and beginning January 1, 2024, we would make twelve monthly repayments of approximately $117 thousand each. We would have the right to prepay any of the scheduled repayments at any time or from time to time without additional penalty or fees. Provided we make all payments as scheduled or earlier, the 2022 Streeterville Note will be deemed paid in full and shall automatically be deemed canceled.
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 502,008 shares of the Company’s common stock.
The March 2023 Exchange was priced at-the-market under the Nasdaq rules and was effected pursuant to one or more exemptions from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”). There are no gross proceeds to the Company in respect of the March 2023 Exchange, provided that $125 thousand of the March 2023 Exchange Amount will be applied toward the $250 thousand payment due on or before July 14, 2023 pursuant to the 2022 Streeterville Note Amendment, $125 thousand will be credited to satisfy the December 1, 2024 required payment and a portion of the November 1, 2024 required payment, in each case pursuant to the 2022 Streeterville Note Amendment.
The total liability for the 2022 Streeterville Note, net of discount and financing fees, was approximately $1.3 million and $2.0 million at March 31, 2023 and December 31, 2022, respectively.
In the event our common stock is delisted from Nasdaq, the amount outstanding under the 2022 Streeterville Note will automatically increase by 15% as of the date of such delisting.
21
ENERGY FOCUS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2023
(Unaudited)
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.
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.

NOTE 7. INCOME TAXES


The components of the provision for income taxes are shown below for the periods presented (in thousands):

 Three months ended
September 30,		 Nine months ended
September 30,
 2017 2016 2017 2016
Current:       
U.S. federal$—
 $1
 $—
 $1
State—
 10
 —
 21
Provision for income taxes$—
 $11
 $—
 $22

As a result of the operating loss incurred during the three and nine months ended September 30, 2017 andeach of the three months ended September 30, 2016,March 31, 2023 and 2022, and after the application of the annual limitation set forth under Section 382 of the Internal Revenue Code (“IRC”of 1986, as amended (the “IRC”), it was not necessary to record a provision for U.S. federalFederal income tax or various states income taxes.The expense recorded for the three and nine months ended September 30, 2016, represents the adjustment of the 2015 provision to the actual tax on the 2015 returns.

tax.
At September 30, 2017March 31, 2023 and December 31, 2016,2022, we had a full valuation allowance recorded against our deferred tax assets.
The valuation allowance was recorded due to uncertainties related to our ability to realize the deferred tax assets, primarily consisting of certain net operating loss carry-forwards. The valuation allowance is based on management’s estimates of taxable income by jurisdiction and the periods over which the deferred tax assets will be recoverable.

At December 31, 2016,2022, we had a net operating loss carry-forward of approximately $79.8$132.4 million for U.S. federal income tax purposes ($77.6 million for state and local income tax purposes.purposes). However, due to changes in our capital structure, approximately $25.4$71.0 million of the net operating loss carry-forward$132.4 million is available to offset future taxable income and after the application of the limitations found under Section 382 of the IRC, weInternal Revenue Code of 1986, as amended. As a result of the Tax Cuts and Jobs Act of 2017 (the “Tax Act”), net operating loss carry-forwards generated in tax years beginning after December 31, 2017 can only expectoffset 80% of taxable income and can be carried forward indefinitely. The $9.2 million and $9.6 million in federal net operating losses generated in 2022 and 2021, respectively, will be subject to have approximately $18.5 million of this amount available for use in 2017.the new limitations under the Tax Act. If not used, theseutilized, the carry-forwards generated prior to December 31, 2017 of $37.5 million will begin to expire in 20212023 for federal purposes and in 2021 or soonerhave begun to expire for state and local purposes. For a full discussion of the estimated restrictions on our utilization of net operating loss carry-forwards, please refer to Note 10,11, “Income Taxes,” included under Item 8, “Financial Statements and Supplementary Data,” of our 20162022 Annual Report.


17
ENERGY FOCUS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017
(Unaudited)


NOTE 8.STOCKHOLDERS’ EQUITY

March 2023 Private Placements
WarrantsOn March 28, 2023,the Company entered into a securities purchase agreement with Jay Huang, a member of the Board of Directors, pursuant to which the Company agreed to issue and sell, in a private placement (the “March 28, 2023 Private Placement”), 108,502 shares of the Company’s common stock for a purchase price of $0.5609 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”), 500,000 shares of the Company’s common stock for a purchase price of $0.5000 per share.
A summary
22
ENERGY FOCUS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2023
(Unaudited)
Aggregate gross proceeds to the Company in respect of warrant activitythe March 2023 Private Placements were $305 thousand, before deducting estimated offering expenses payable by the Company. Each of the March 2023 Private Placements was priced at-the-market under the Nasdaq rules.
February 2023 Private Placement
On February 24, 2023, the Company entered into a securities purchase agreement with Mei Yun (Gina) Huang, a member of the Board of Directors, pursuant to which the Company agreed to issue and sell, in a private placement (the “February 2023 Private Placement”), 803,212 shares of the Company’s common stock, for a purchase price of $0.4980 per share.
Gross proceeds to the Company in respect of the February 2023 Private Placement were $400 thousand, before deducting estimated offering expenses payable by the Company. The February 2023 Private Placement was priced at fair market value under the Nasdaq rules.
January 2023 Sander Electronics Private Placement
On January 17, 2023, the Company entered into a securities purchase agreement (the “Sander Purchase Agreement”) with certain purchasers associated with Sander Electronics, Inc., pursuant to which the Company agreed to issue and sell in a private placement (the “Sander Private Placement”) an aggregate of 5,446,252 shares of common stock for a purchase price per share of $0.5008. Consideration for the ninetransaction included exchange of approximately $657 thousand in the aggregate of outstanding amounts on previous short-term bridge financings, including the 2022 Promissory Notes issued to Mr. Huang, as described above in Note 6, “Debt”.
Aggregate gross proceeds from the Sander Private Placement were approximately $2.1 million. The Sander Private Placement was priced at-the-market under the Nasdaq rules. Pursuant to the Sander Purchase Agreement, the Company agreed to increase the size of the Board of Directors to eight members and to appoint each of Jay (Chiao Chieh) Huang and Wen-Jeng Chang as a director for a term expiring at the 2023 annual meeting of the Company’s stockholders or his earlier resignation, death or removal in accordance with the Company’s bylaws.
January 2023 Transactions with Mei Yun (Gina) Huang
On January 5, 2023, the Company entered into a securities purchase agreement with Mei Yun (Gina) Huang, a member of the Board of Directors, pursuant to which the Company agreed to issue and sell, in a private placement, 257,798 shares of the Company’s common stock, for a purchase price of $0.3879 per share. On January 10, 2023, the Company entered into a securities purchase agreement with Ms. Huang, pursuant to which the Company agreed to issue and sell, in a private placement, 325,803 shares of the Company’s common stock for a purchase price of $0.4604 per share.
Aggregate gross proceeds to the Company in respect of these private placements to Ms. Huang are $250 thousand, before deducting estimated offering expenses payable by the Company. Each of the private placements to Ms. Huang was priced at fair market value under the Nasdaq rules.
On January 17, 2023, the Company and Ms. Huang entered into exchange agreements pursuant to which the Company and Ms. Huang agreed to exchange the approximately $809,000 aggregate outstanding amounts on previous short-term bridge financings, including the 2022 Promissory Notes issued to Ms. Huang, as described above in Note 6, “Debt”, for an aggregate of 1,436,959 shares of common stock at a price per share of $0.5630. 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 1,313,462 shares of our common stock at a purchase price of $1.30 per share. We also sold to the same institutional investors (i) pre-funded warrants (the “June 2022 Pre-Funded Warrants”) to purchase 1,378,848 shares of common stock at an exercise price of $0.0001 per share and (ii) warrants (collectively with the June 2022 Pre-Funded Warrants, the “June 2022 Warrants”) to purchase up to an aggregate of 2,692,310 shares of common stock at an exercise price of $1.30 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
23
ENERGY FOCUS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2023
(Unaudited)
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 1,378,848 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 March 31, 2023, June 2022 Warrants to purchase an aggregate of 2,692,310 shares of common stock remained outstanding, with an exercise price of $1.30 per share. 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 1,193,185 shares of our common stock at a purchase price of $3.52 per share. We also sold to the same institutional investors (i) pre-funded warrants (the “December 2021 Pre-Funded Warrants”) to purchase 85,228 shares of common stock at an exercise price of $0.0001 per share and (ii) warrants (collectively with the December 2021 Pre-Funded Warrants, the “December 2021 Warrants”) to purchase up to an aggregate of 1,278,413 shares of common stock at an exercise price of $3.52 per share. In connection with the December 2021 Private Placement, we paid the placement agent commission of $360 thousand plus $42 thousand in expenses and we also paid legal, accounting and other fees of $97 thousand. Total offering costs of $499 thousand have been presented as a reduction of additional paid-in capital and have been netted within equity in the Consolidated Balance Sheet as of December 31, 2021. Net proceeds from the December 2021 Private Placement were approximately $4.0 million. We determined the exercise price of the December 2021 Pre-Funded Warrants to be nominal and, as such, considered the 85,228 shares underlying them to be outstanding effective December 16, 2021, for purposes of calculating net loss per share.
In January 2022, all of the December 2021 Pre-Funded Warrants were exercised. As of March 31, 2023, December 2021 Warrants to purchase an aggregate of 1,278,413 shares remained outstanding, with an exercise price of $3.52 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
On March 29, 2019, we issued $1.7 million aggregate principal amount of subordinated convertible promissory notes (the “Convertible Notes”) to certain investors in a private placement exempt from registration requirements of the Securities Act. The Convertible Notes had a maturity date of December 31, 2021 and bore interest at a rate of 5.0% per annum until June 30, 2019 and at a rate of 10.0% thereafter.
Pursuant to the terms of the Convertible Notes, on January 16, 2020, following approval by our stockholders of certain amendments to the Company’s Certificate of Incorporation, the principal amount of all of the Convertible Notes and the accumulated interest thereon at the date of conversion (totaling $1.8 million) were converted at a conversion price of $0.67 per share into an aggregate of 2,709,018 shares of the Company’s Series A Preferred Stock, which is convertible on a one-for-five basis into shares of our common stock. During the year ended December 31, 2020, 111,548 shares of the Series A Preferred Stock were converted into 22,310 shares of common stock. During the year ended December 31, 2021, 1,721,023 shares of Series A Preferred Stock were converted into 344,205 shares of common stock. The Series A Preferred Stock that was converted in 2021 was held by a Schedule 13D ownership group (under Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, and Rule 13d-5 promulgated thereunder) that includes Fusion Park LLC and 5 Elements Global Fund L.P. (controlled affiliates of James Tu, the Company's former Executive Chairman and Chief Executive Officer), as well as Brilliant Start Enterprise Inc. and Jag International Ltd. (controlled affiliates of Mei Yun (Gina) Huang, a member of the Company's Board of Directors).
The Series A Preferred Stock was created by the filing of a Certificate of Designation with the Secretary of State of the State of Delaware on March 29, 2019, which designated 2,000,000 shares of the Company’s preferred stock, par value $0.0001 per share, as Series A Preferred Stock (the “Original Series A Certificate of Designation”). On January 15, 2020 with prior stockholder approval, the Company amended its Certificate of Incorporation to increase the number of authorized shares of preferred stock to 5,000,000. The Original Series A Certificate of Designation was also amended on January 15, 2020, to increase the number of shares of preferred stock designated as Series A Preferred Stock to 3,300,000 (the Original Series A Certificate of Designation, as so amended, the “Series A Certificate of Designation”).
24
ENERGY FOCUS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2023
(Unaudited)
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 11.07% of the number of shares of common stock into which such share of Series A Preferred Stock is convertible.
The Series A Preferred Stock (a) has a preference upon liquidation equal to $0.67 per share and then participates on an as-converted basis with the common stock with respect to any additional distributions, (b) shall receive any dividends declared and payable on our common stock on an as-converted basis, and (c) is convertible at the option of the holder into shares of our common stock on a one-for-five basis. On March 29, 2019, the Company also filed a Certificate of Elimination with respect to its authorized, but unissued, Series A Participating Preferred Stock, to return such shares to the status of undesignated preferred stock available for designation as Series A Preferred Stock.
The purchase agreement related to the Convertible Notes contains customary representations and warranties and provides for resale registration rights with respect to the shares of our common stock issuable upon conversion of the Series A Preferred Stock.
January 2020 Equity Offering
Issuance of Common Stock and Warrants
In January 2020, we completed a registered direct offering for the sale of 688,360 shares of our common stock to certain institutional investors, at a purchase price of $3.37 per share. We also sold, to the same institutional investors, warrants (the “January 2020 Investor Warrants”) to purchase up to 688,360 shares of common stock at an exercise price of $3.37 per share in a concurrent private placement for a purchase price of $0.625 per warrant. In addition, we issued to the placement agent in connection with such registered direct offering and concurrent private placement warrants (the “January 2020 Placement Agent Warrants” and, collectively with the January 2020 Investor Warrants, the “January 2020 Warrants”) to purchase up to 48,185 shares of common stock at an exercise price of $4.99 per share.
January 2020 Warrants issued to purchase an aggregate of 229,414 shares remain outstanding at March 31, 2023 with a weighted average exercise price of $3.67 per share. The exercise of January 2020 Warrants could provide us with cash proceeds of up to approximately $0.8 million in the aggregate if all January 2020 Warrants are exercised. During the three months ended September 30, 2017 is presented as follows:March 31, 2023 and March 31, 2022, no January 2020 Warrants were exercised.

As of March 31, 2023 and 2022, we had the following outstanding January 2020 Warrants:
As of March 31, 2023As of March 31, 2022
Number of Underlying SharesExercise PriceExpiration
Jan. 2020 Investor Warrants187,734187,734$3.3700January 13, 2025
Jan. 2020 Placement Agent Warrants41,68041,680$4.9940January 13, 2025
229,414229,414

25
 Warrants
Outstanding		 Weighted
Average
Exercise
Price During
Period
Balance at December 31, 20166,750
 $4.30
Exercised—
 —
Canceled/forfeited(6,750) 4.30
Expired—
 —
Balance at September 30, 2017—
 $—
ENERGY FOCUS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2023
(Unaudited)
Stock-based compensation

Stock-based compensation expense is attributable to stock options and restricted stock unit awards. For all stock-based awards, we recognize expense using a straight-line amortization method.

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

 Three months ended
September 30,		 Nine months ended
September 30,
 2017 2016 2017 2016
Cost of sales$10
 $13
 $40
 $37
Product development16
 24
 45
 60
Selling, general, and administrative166
 399
 540
 979
Total stock-based compensation$192
 $436
 $625
 $1,076

The table above excludes approximately $0.3 million in stock-based compensation expense from prior periods that was reversed and included as a reduction to restructuring expenses due to the workforce reduction associated with our restructuring actions in the first six months of 2017.

Three months ended
March 31,
20232022
Cost of sales$— $1 
Product development4 6 
Selling, general, and administrative22 37 
Total stock-based compensation$26 $44 
Total unearned stock-based compensation was $0.9 million$144 thousand at September 30, 2017,March 31, 2023, compared to $1.6 million$285 thousand at September 30, 2016.March 31, 2022. These costs will be charged to expense and amortized on a straight-line basis in future periods. The weighted average period over which the unearned compensation at September 30, 2017March 31, 2023 is expected to be recognized is approximately 1.92.6 years.


Stock options

The fair value of each stock option is estimated on the date of grant using the Black-Scholes option pricing model. Estimates utilized in the calculation include the expected life of the option, risk-free interest rate, and expected volatility, and are further comparatively detailed as follows:


below. Note that there were no grants made during the three months ended March 31, 2023.
Three months ended
March 31,
20232022
Fair value of options issuedNA$1.17 
Exercise priceNA$1.48 
Expected life of options (in years)NA6.1
Risk-free interest rateNA1.9 %
Expected volatilityNA99.2 %
Dividend yieldNA0.0 %
18
26
ENERGY FOCUS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017March 31, 2023
(Unaudited)


 Nine months ended
September 30,
 2017 2016
Fair value of options issued$2.66
 $5.36
Exercise price$3.55
 $7.59
Expected life of options (in years)5.8
 5.8
Risk-free interest rate2.1% 1.6%
Expected volatility91.9% 93.9%
Dividend yield0.0% 0.0%

A summary of option activity under all outstanding stock incentive plans for the ninethree months ended September 30, 2017March 31, 2023 is presented as follows:

 Number of
Options		 Weighted
Average
Exercise
Price Per
Share		 Weighted
Average
Remaining
Contractual
Life (in years)
Balance at December 31, 2016530,734
 $7.48
  
Granted192,984
 3.55
  
Exercised(40,500) 2.30
  
Canceled/forfeited(298,720) 5.73
  
Expired(56,111) 10.65
  
Balance at September 30, 2017328,387
 $6.86
 8.0
      
Vested and expected to vest at September 30, 2017301,768
 $7.16
 7.8
      
Exercisable at September 30, 2017179,162
 $9.63
 6.8

Number of
Options		Weighted
Average
Exercise
Price Per
Share		Weighted
Average
Remaining
Contractual
Life (in years)
Balance at December 31, 2022330,808 $1.97 
Granted— — 
Canceled/forfeited(65,903)2.88 
Balance at March 31, 2023264,905 $1.75 8.0
Vested and expected to vest at March 31, 2023218,307 $1.87 7.8
Exercisable at March 31, 202366,734 $3.10 4.6
Restricted stock units

A summary of restricted stock unit activity under all outstanding stock incentive plans for the ninethree months ended September 30, 2017March 31, 2023 is presented as follows:
Restricted
Stock Units		Weighted
Average
Grant
Date
Fair Value		Weighted
Average
Remaining
Contractual
Life (in years)
Balance at December 31, 202211,600 $1.59 
Granted— — 
Balance at March 31, 202311,600 $1.59 1.4


 Restricted
Stock Units		 Weighted
Average
Grant
Date
Fair Value		 Weighted
Average
Remaining
Contractual
Life (in years)
Balance at December 31, 2016250,115
 $6.34
  
Granted375,542
 3.18
  
Released(115,622) 5.78
  
Canceled/forfeited(183,265) 5.45
  
Balance at September 30, 2017326,770
 $3.41
 2.5


19
ENERGY FOCUS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017
(Unaudited)


NOTE 9.COMMITMENTS AND CONTINGENCIES

Purchase Commitments
We may be the subjectAs of threatened or pending legal actions and contingenciesMarch 31, 2023, we had approximately $1,391 thousand in outstanding purchase commitments for inventory. Of this amount, approximately $1,376 thousand is expected to ship in the normal coursesecond quarter of conducting our business. We provide for costs related2023, and $15 thousand expected to these matters whenship in the third quarter of 2023 and thereafter.
NOTE 10. OTHER INCOME
Employee Retention Tax Credit
The Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), which was enacted on March 27, 2020, provides an Employee Retention Tax Credit (“ERTC”) that is a loss is probablerefundable 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 amount can be reasonably estimated. The effectAmerican 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 outcomeforegoing legislation, are eligible to claim a refundable tax credit against the employer share of these matters onSocial 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
27
ENERGY FOCUS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2023
(Unaudited)
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 are eligible to receive the ERTC for the second and third quarters of 2021. As part of the filing of our future resultsemployer tax filings for the third quarter of operations2021, we applied for and liquidity cannot be predicted because any such effect depends on future resultsreceived a refund of operations$431 thousand, and we amended our filing for the second quarter of 2021, for which we received an additional refund of approximately $445 thousand. These amounts are recorded as other income in the Consolidated Statements of Operations during the quarter ended December 31, 2021, and the amount or timing$445 thousand as an expected receivable in the Consolidated Balance Sheet as of the resolution of such matters. For certain types of claims, we maintain insurance coverage for personal injuryMarch 31, 2023 and property damage, product liability and other liability coverages in amounts and with deductibles that we believe are prudent, but there can be no assurance that these coverages will be applicable or adequate to cover adverse outcomes of claims or legal proceedings against us.December 31, 2022.

28



ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and related notes thereto included underin Part I, Item 1, “Financial Statements” of this Quarterly Report, as well as the section entitledItem 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included under Item 7Operations,” of our 2016 Annual Report.Report on Form 10-K for the year ended December 31, 2022 (“2022 Annual Report”).

Overview

Energy Focus, Inc. and its subsidiary engageengages primarily in the design, development, manufacturing, marketing and sale of energy-efficient lighting systems.systems and controls. We operate in a single industry segment, developingdevelop, market and selling our energy-efficientsell high quality light-emitting diode (“LED”) lighting and controls products intoin the general commercial industrial,market and military maritime markets.market (“MMM”), and expanded our offerings into the consumer market in the fourth quarter of 2021. Our mission is to enable our customers to run their facilities with greater energy efficiency, productivity, and human health and wellness through advanced LED retrofit solutions. Our goal is to become abe the human wellness lighting and LED technology and market leader for the most demanding applications where performance, quality, value, environmental impact and health are considered paramount. We specialize in the LED lighting retrofit market by replacing fluorescent, high-intensity discharge lighting and other types of lamps in general purpose and high-intensity discharge (“HID”)institutional buildings for primarily indoor lighting in low-bay and high-bay applications with our innovative, high-quality commercial and militarymilitary-grade tubular LED (“TLED”) products, as well as other LED and lighting control products for commercial and consumer applications. In late 2020, we announced the launch of ultraviolet-C light disinfection (“UVCD”) products. After evaluating market demand and supply chain challenges for our UVCD products, we revised our business strategy to primarily focus on our MMM and commercial and industrial lighting and control products.

The LED lighting industry has changed dramatically over the past several years due to increasing competition and price erosion. We have been experiencing these industry forces in both our military and commercial business since 2016, where we once commanded significant price premiums for our flicker-free TLEDs with industry leading warranties. In more recent years, we have focused on redesigning our products for lower costs and consolidated our supply chain for stronger purchasing power in an effort to price our products more competitively while not impacting the performance and quality. Despite these efforts, our legacy products continue to face extreme pricing competition and a convergence of product functionality in the marketplace, and we have shifted to diversifying our supply chain in an effort to increase value and remain competitive. These trends are not unique to Energy Focus as evidenced by the increasing number of industry peers facing challenges, exiting LED lighting, selling assets and even going out of business.
NetIn addition to continuously pursuing cost reductions, our strategy to combat these trends is to innovate both our technology and product offerings with differentiated products and solutions that offer greater, distinct value. Specific examples of theseproducts we have developed include the RedCap®, our patented emergency backup battery integrated TLED, EnFocus™, our unique dimmable/color-tunable lighting and powerline control platform that we launched in 2020, and the second generation of EnFocus™ powerline control switches and circadian lighting system, which as a result of supply chain challenges we now plan to launch in 2023. Similarly, our plans to expand and enhance the performance of our RedCap®product line are also now expected in 2023. We continue to evaluate our sales strategy and believe our go-to-market strategy that focuses more on direct-sales marketing, selectively expanding our channel partner network to cover territories across the country, and listening to the voice of the customer, will lead to better and more impactful product development efforts that we believe will eventually translate into larger addressable markets and greater sales growth for us.
Prior to 2019, the Company experienced significant sales declines, operating losses and increases in its inventory. Beginning in 2019, significant restructuring efforts were undertaken. As part of the initial cost savings efforts to minimize cash usage, the Company replaced the entire senior management team, significantly reduced non-critical expenses, minimized the amount of inventory the Company was purchasing, dramatically changed the composition of its Board of Directors (the “Board of Directors”) and recruited new departmental leaders across the Company. These cost savings efforts also included the elimination of certain positions, restructuring of the sales organization and incentive plan, additional operational streamlining, management compensation reductions, and outsourcing of certain functions, including certain elements of supply chain and marketing.
During 2021 and 2022, we realized initial cost-savings benefits from these relaunch efforts, but continued to face significant operating losses. Despite these cost-cutting efforts, the Company faced a challenging commercial market with continuing impacts from the global pandemic combined with ongoing delays in MMM projects and funding that continued to depress sales through 2021 while the Company invested in exploring additional lines of business with UVCD technology that ultimately gained little traction in the market.
29

At the beginning of 2022, the Board of Directors appointed our lead independent director to serve as interim Chief Executive Officer and replace our previous chief executive officer. During 2022, the Company redoubled its cost-reduction efforts, reduced its warehouse square footage, undertook an inventory reduction project, and dramatically reduced head count. During 2022, we also added three experienced executives to our Board of Directors with extensive lighting and consumer products industry experience, and in September 2022, we hired a permanent Chief Executive Officer. We reinvested in our MMM sales channel with a strategic hire in May 2022 and continue to pursue these sales opportunities, though the sales cycles for what are frequently made-to-order products are longer than commercial offerings.
It is our belief that the dramatic rightsizing efforts undertaken in 2022, along with ongoing development of innovative, high-value products and an expanded sales and distribution network, will over time result in improved sales and bottom-line performance for the Company.
During 2021 and into 2022, our MMM business continued to face challenges resulting from the delayed availability of government funding and the timing of U.S. Navy awards, with several anticipated projects facing repeated and ongoing delays. This sector also maintains very long sales cycles. The timeline between bid to sale can often take at least six months. We continue to pursue opportunities from the U.S. Navy and the government sector to minimize such volatility. Previously in our MMM business, significant efforts undertaken to reduce costs in our product offerings have positioned us to be more competitive along with improved production efficiencies. Such efforts allowed us to continue to win bids and proposals that helped grow our MMM sales in 2020, offsetting some of the weakness being experienced in our commercial business that year, though new MMM orders dwindled as we entered 2022. In May 2022, we reinvested in our MMM sales channel with a strategic hire to lead our MMM sales effort. While we continue to aggressively seek to increase sales of our commercial products, the MMM business offers us continued sales opportunities, in addition to validating our product quality and strengthening our brand trust in the marketplace. However, due to product mix impacts resulting from the continued impact of the COVID-19 pandemic on commercial sales, our current financial results are in part driven by, and reflect volatility in, our MMM sales.
Meanwhile, we continue to seek additional external funding alternatives and sources to support our growth strategies, plans and initiatives. We plan to achieve profitability through developing and launching innovative products such as reported, increasedEnFocusTM powerline control technology and further leveraging our unique and proprietary technology such as RedCap®, as well as executing on our multi-channel sales strategy that targets key verticals, such as government, healthcare, education and commercial and industrial, complemented by 9.5 percent forour marketing outreach campaigns and expanding channel partnerships. We also plan to continue to develop advanced lighting and lighting control applications built upon the three months ended September 30, 2017 as comparedEnFocusTM platform that aim to the three months ended September 30, 2016. For the nine months ended September 30, 2017, net sales ofserve both consumer and commercial markets. We are also evaluating adjacent technologies including Gallium Nitride ( “GaN”)-based power supplies and other market opportunities in energy solutions products that support sustainability in our commercial products increased by 6.0 percent as compared to the nine months ended September 30, 2016.existing channels. In addition, newwe intend to continue to apply rigorous financial discipline in our organizational structure, business processes and policies, strategic sourcing activities and supply chain practices to help accelerate our path towards profitability.
We launched our patented EnFocus™ platform during the second quarter of 2020 and, despite the ongoing, significant delay and slowdown in our customers’ lighting projects following the impacts of the COVID-19 pandemic, we continue to receive positive feedback from the market. The EnFocus™ platform offers two immediately available product lines: EnFocus™ DM, which provides a dimmable lighting solution, and EnFocus™ DCT, which provides both a dimmable and color tunable lighting solution. EnFocus™ enables buildings to have dimmable, color tunable and circadian-ready lighting using existing wiring, without requiring laying additional data cables or any wireless communication systems, through a relatively simple upgrade with EnFocus™ switches and LED lamps, a far more secure, affordable and environmentally sustainable solution compared with replacing an entire luminaire and incorporating additional wired or wireless communication.
Despite continuing progress on cost reduction throughout 2022, the Company’s results reflect the challenges due to long and unpredictable sales accounted for approximately $2.4 million, or 16 percent, of net salescycles, unexpected delays in MMM and commercial customer retrofit budgets and project starts, and supply chain issues. There has also been continuing aggressive price competition in the first nine months of 2017lighting industry. We continued to incur losses and more than three times the total new product sales for the full year 2016. While we experienced commercial sales growth in the third quarter and first nine months of 2017 compared to the same periods in 2016, the sale cycles for our commercial target markets typically span several months and our financial results continue to be subject to the fluctuations in the timing, pace, and size of commercial projects.

Our military maritime sales declined by 77.3 percent for the three months ended September 30, 2017, as compared to the three months ended September 30, 2016. For the nine months ended September 30, 2017, net sale of our military maritime products decreased by 76.3 percent as compared to the nine months ended September 30, 2016. Overall demand for our military maritime products increased during the first nine months of 2017 compared to the first nine months of 2016, but our distributor for the U.S. Navy has the ability to satisfy that demand with inventory purchased during 2016 under an exclusive agreement that ended on March 31, 2017. We are currently evaluating all sales channels within the military maritime market to broaden our sale opportunities.

Given the decline in our military maritime business and the timing uncertainty of commercial sales growth, we implemented a restructuring initiative during the first quarter of 2017 with a goal of significantly reducing our annual operating costs from 2016 levels. This initiative was designed to return the Company to profitability and mitigate the substantial doubt that existed at December 31, 2016 about our ability to continue as a going concern. The restructuring initiative included an organizational consolidation of management and oversight functions in order to streamline and better align the organization into more focused, efficient, and cost effective reporting relationships, and involved headcount reductions and office closures and consolidation.

We have spent the first three quarters of 2017 implementing our restructuring plan including, closing the Rochester, Minnesota, New York, New York, and Arlington, Virginia offices, reducing our headcount by approximately 28 percent, reducing our operating expenses excluding, restructuring charges, by approximately 38 percent compared to the first nine months of 2016, and implementing our sales and marketing strategy. During the nine months ended September 30, 2017, we incurred approximately $1.5 million in restructuring charges related to these actions. We do not anticipate incurring further material restructuring charges in the near future. For additional information on our restructuring actions, please refer to Note 3, “Restructuring,” included under Part I, Item 1 of this Quarterly Report. The actions we have taken thus far in 2017 are leadinga substantial accumulated deficit, which continues to growth in our commercial sales and a much lower spend rate.

While theraise substantial doubt about our ability to continue as a going concern continued to exist at September 30, 2017, we had $11.9 million in cash and no debt obligations at the end of the quarter. In addition, the restructuring actions taken in the first nine months of 2017 resulted in a decrease in operating expenses, excluding restructuring and asset impairment charges, of approximately $3.1 million and $6.7 million over the third quarter and first nine months of 2016, respectively. During the second quarter of 2017, the first full quarter of our restructuring activities, we refined our cost savings estimates, and are now on track for a total cost reduction of approximately $9.0 million from the 2016 levels. Consequently, considering both quantitative and qualitative information, we continue to believe that the combination of our restructuring actions, current financial position, liquid resources, obligations due or anticipated within the next year, executive reorganization, andMarch 31, 2023.

30
implementation of our sales channel strategy will return us to profitability in 2018 and effectively mitigates the substantial doubt about our ability to continue as a going concern.


Results of operations

The following table sets forth items in our Condensed Consolidated Statements of Operations as a percentage of net sales for the periods indicated:
Three months ended
March 31,
20232022
Net sales100.0 %100.0 %
Cost of sales98.2 101.3 
Gross profit (loss)1.8 (1.3)
Operating expenses:
Product development16.6 24.4 
Selling, general, and administrative114.6 103.2 
Total operating expenses131.2 127.6 
Loss from operations(129.4)(128.9)
Other expenses (income):
Interest expense13.2 8.9 
Other income— (1.5)
Other expenses0.8 0.5 
Net loss(143.4)%(136.8)%


 Three months ended
September 30,		 Nine months ended
September 30,
 2017 2016 2017 2016
Net sales100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales77.3
 62.7
 78.8
 63.3
Gross profit22.7
 37.3
 21.2
 36.7
        
Operating expenses:       
Product development14.6
 9.8
 15.0
 10.4
Selling, general, and administrative47.8
 65.6
 58.2
 64.3
Restructuring(4.0) —
 10.1
 —
Total operating expenses58.4
 75.4
 83.3
 74.7
Loss from operations(35.7) (38.1) (62.1) (38.0)
        
Other expenses (income):       
Interest expense—
 —
 —
 —
Other (income) expense(0.3) 0.2
 —
 —
        
Loss from continuing operations before income taxes(35.4) (38.3) (62.1) (38.0)
Provision for income taxes—
 0.1
 —
 0.1
Loss from continuing operations(35.4) (38.4) (62.1) (38.1)
        
Discontinued operations:       
Loss on disposal of discontinued operations—
 —
 —
 (0.1)
Loss on disposal of discontinued operations—
 —
 —
 (0.1)
        
Net loss(35.4)% (38.4)% (62.1)% (38.2)%

Net sales

A further breakdown of our net sales is presented in the following table (in thousands):

 Three months ended
September 30,		 Nine months ended
September 30,
 2017 2016 2017 2016
Commercial products$3,947
 $3,606
 $12,204
 $11,510
Military maritime products1,055
 4,655
 2,915
 12,302
Total net sales$5,002
 $8,261
 $15,119
 $23,812


Three months ended
March 31,
20232022
Commercial$321 $1,134 
MMM products609 927 
Total net sales$930 $2,061 
Net sales of $5.0 million$930 thousand for the third quarter of 2017 decreased 39.5 percent compared to the third quarter of 2016 principally due to lower military maritime product sales, partially offset by an increase in commercial product sales. Net sales of our commercial products increased 9.5 percent compared to the third quarter of 2016, reflecting our continued efforts to penetrate our targeted vertical markets. Net sales of our military maritime products decreased 77.3 percent, primarily due to our distributor’s ability to satisfy U.S. Navy demand for our products out of their existing inventory, as discussed above.

Net sales of $15.1 million for the nine months ended September 30, 2017 decreased 36.5 percent compared to the nine months ended September 30, 2016. Net sales of our commercial products increased 6.0 percent, as the strength in the second and third quarter sales offset the weakness experienced in the first quarter 2017 commercial sales. Netof 2023 decreased $1.1 million, or 55%, compared to first quarter of 2022 net sales of our military maritime products decreased 76.3 percent, primarily$2.1 million, driven by a decrease in net MMM sales of $318 thousand due to our distributor’s abilityan interrupted sales pipeline as management replaced the head of MMM sales mid-year 2022. The MMM sales cycle is prolonged and started to satisfy U.S. Navy demand for our products outreverse its negative trend in the middle of their existing inventory,the fourth quarter of 2022. Commercial net sales also decreased by $813 thousand, or 71.7%, as discussed above.compared to first quarter of 2022.

Gross profit
Profit
Gross profit margin was $1.1 million,$17 thousand, or 22.7 percent2% of net sales, for the thirdfirst quarter of 2017, compared to $3.1 million,2023. This compares with gross loss of $26 thousand, or 37.3 percentnegative 1% of net sales, forin the thirdfirst quarter of 2016.2022. The year-over-year increase in gross margin rate was driven by a $300 thousand, or 15%, decrease in fixed costs such as production salaries. The increase in gross profit wasmargin also consists of a variable component of approximately $300 thousand due primarily to lower sales and product mix. The decrease in gross profit as a percentage of sales is primarilyvolume. Gross margin for the result of lower volumes in 2017, unfavorably impacting our manufacturing and overhead absorption, and product mix, as the military maritime products sold in the secondfirst quarter of 2016 generally had a higher gross margin. Additionally, the Company’s margins were lower than expected as the average cost2023 included favorable freight-in variances of inventory on hand was higher than expected due to quantities purchased in 2016 and purchase commitments for product received in early 2017 to satisfy anticipated demand which did not materialize through the first six months of 2017. Based on demand during the three months ended September 30, 2017 and through disciplined purchasing activities, we depleted the majority of this higher cost inventory during the third quarter of 2017.

Gross profit was $3.2 million,$148 thousand, or 21.2 percent16% of net sales, favorable price and usage variances for the nine months ended September 30, 2017, compared to $8.7 million,material and labor of $236 thousand, or 36.8 percent26% of net sales, as well as favorable inventory reserves of $149 thousand, or 16% of net sales. Gross margin for the nine months ended September 30, 2016. The decrease in gross profit as a percentage of sales is primarily the result of lower volumes, unfavorably impacting our manufacturing and overhead absorption, and product mix, as the military maritime products sold in the first nine months of 2016 generally had a higher standard gross margin. Additionally, the Company’s margins were lower than expected as the average cost of inventory on hand was higher than expected due to quantities purchased in 2016 and purchase commitments for product received in early 2017 to satisfy anticipated demand which did not materialize through the first six months of 2017. Based on demand during the three months ended September 30, 2017 and through disciplined purchasing activities, we depleted the majority of this higher cost inventory during the third quarter of 2017.2022 included unfavorable freight-in variances of $161 thousand, or 8% of net sales, and unfavorable price and usage variances for material and labor of $93 thousand, or 4% of net sales, as well as unfavorable inventory reserves of $129 thousand, or 6% of net sales.

31

Operating expenses

Product development
Product development expenses include salaries and related expenses, contractor and consulting fees, legal fees, supplies and materials, as well as overhead, such as depreciation and facility costs. Product development costs are expensed as they are incurred.

Total gross and net product development spending, including revenues and credits from government contracts, is presented in the following table (in thousands):

 Three months ended
September 30,		 Nine months ended
September 30,
 2017 2016 2017 2016
Gross product development expenses$732
 $809
 $2,266
 $2,560
Cost recovery and other credits—
 —
 —
 (93)
Net product development expenses$732
 $809
 $2,266
 $2,467

Gross productProduct development expenses were $0.7 million$154 thousand for the thirdfirst quarter of 2017, a $0.1 million decrease compared to2023, down 69% from the thirdfirst quarter of 2016. The decrease was primarily a result of lower salaries and related benefits of $0.1 million due to our cost reduction initiatives.


Gross product2022. Product development expenses were $2.3 millionrelate to customization of product offerings for the nine months ended September 30, 2017, a $0.3 million decrease compared to the nine months ended September 30, 2016. The decrease was primarily a result of lower salaries and benefits of $0.2 million and lower travel and related expenses of $0.1 million due to our cost reduction initiatives.key customers.

Selling, general andadministrative

Selling, general and administrative expenses were $2.4$1.1 million for the thirdfirst quarter of 2017,2023, down 50% as compared to $5.4$2.1 million forin the thirdfirst quarter of 2016.2022. The $3.0 million decrease in selling, generalexpenses from the first quarter of 2022 primarily relates to a reduction of $1.1 million in payroll and administrativepayroll-related expenses is the direct resultalong with a decrease of our restructuring initiatives to reduce operating expenses. $100 thousand in severance.
The primary drivers of the lowerchanges in expenses in the third quarter of 2017 were decreases in salaries and related benefits of $1.1 million, legal and professional expenses of $0.4 million, recruiting and relocation costs of $0.3 million, consulting costs of $0.2 million, trade show and other marketing costs of $0.2 million, travel and related expenses of $0.2 million, and building rent expense of $0.1 million. For the three months ended September 30, 2017, sales commissions decreased approximately $0.2 million compared to the three months ended September 30, 2016. This decrease was primarily due to the lower military maritime product sales in the second quarter of 2017 compared to the second quarter of 2016. In addition, in November 2016, we terminated the agreement with the outside sales representative we had been using since October 2015 for sales to the U.S. Navy.

Selling, general and administrative expenses were $8.8 million for the nine months ended September 30, 2017, compared to $15.3 million for the nine months ended September 30, 2016. The $6.5 million decrease in selling, general and administrative expenses is the direct result of our continued efforts to reduce operating expenses through our restructuring initiatives. The primary drivers of the lower expenses in the first half of 2017 were decreases in salaries and related benefits of $2.4 million, consulting costs of $0.9 million, legal and professional costs of $0.5 million, recruiting and relocation costs of $0.5 million, trade show and other marketing costs of $0.4 million, travel and related expenses of $0.4 million, and building rent expense of $0.3 million. For the nine months ended September 30, 2017, sales commissions decreased approximately $0.7 million compared to the nine months ended September 30, 2016. This decrease was primarily due to the lower military maritime product sales in the first half of 2017 compared to the first half of 2016 and the termination of the agreement with the outside sales representative discussed above.

Restructuring

In the first quarter of 2017, we announced a restructuring initiative with a goal of significantly reducing our annual operating costs from 2016 levels. This initiative included an organizational consolidation of management and oversight functions in order to streamline and better align the organization into more focused, efficient, and cost effective reporting relationships, and involved headcount reductions of approximately 28 percent and office closures. This initiative was designed to return the Company to profitability and mitigate the substantial doubt that existed at December 31, 2016 about our ability to continue as a going concern, and considered both quantitative and qualitative information, including our financial position, liquid resources, and obligations due or anticipated within the next year. The restructuring actions taken in the first nine months of 2017 resulted in a decrease in operating expenses, excluding restructuring and asset impairment charges, of approximately $3.1 million and $6.7 million over the third quarter and first nine months of 2016, respectively.

The actions taken in the first quarter of 2017 included closing our offices in Rochester, Minnesota, New York, New York, and Arlington, Virginia and impacted 20 employees, primarily located in these offices. During2023 versus the secondfirst quarter of 2017, we fully exited2022 were $0.6 million and $1.7 million, respectively, in payroll and payroll-related expenses, $0.3 million in both the New Yorkfirst quarter of 2023 and Arlington facilitiesthe first quarter of 2022 in professional and took additional actionslegal fees, $0.2 million and $0.1 million, respectively, in network and software expenses in the first quarter of 2023 and the first quarter of 2022.
Interest expense
Interest expense was $123 thousand for the first quarter of 2023, compared to improve our operating efficiencies. These actions impacted an additional 17 production and administrative employeesinterest expense of $184 thousand for the first quarter of 2022. The decrease in our Solon location.

During the three months ended September 30, 2017 we recorded net restructuring credits totaling approximately $0.2 million,interest expense is primarily related to a reduction of $0.3 million relatedinterest attributable to the revision2021 Streeterville Note (as defined below) as well as the amortization of our initial estimates of the cost and offsetting sublease income for the remaining lease obligations for the former New York, New York office. The sublease agreement was finalized in October 2017. This reduction was partially offset by the reclassification of other expenses primarily for legaldebt costs related to the restructuring actions totaling approximately $0.1 million.

For the nine months ended September 30, 2017, we recorded restructuring charges totaling approximately $1.5 million, consisting of approximately $0.7 millionCredit Facilities (as defined below). The actual cash interest paid in severance and related benefits, $0.6 million in facilities costs related to the termination of the Rochester lease obligations and the remaining lease obligations for the former New York and Arlington offices, and $0.2 million in other restructuring costs primarily related to fixed asset and prepaid expenses write-offs.

We estimated that we would receive a total of approximately $1.3 million in sublease payments to offset our remaining lease obligations, which extend until June 2021, of approximately $1.8 million. We expect to incur approximately $0.1 million in

additional costs over the remaining life of our lease obligations, but we do not anticipate further major restructuring activities in the near future.

While the substantial doubt about our ability to continue as a going concern continued to exist at September 30, 2017, we had $11.9 million in cash and no debt obligations at the end of the quarter. In addition, the restructuring actions taken in the first nine months of 2017 resulted in a decrease in operating expenses, excluding restructuring and asset impairment charges, of approximately $3.1 million and $6.7 million over the third quarter and first nine months of 2016, respectively. During the first quarter of 2017, we announced a restructuring initiative with2023 was $0 compared to $78 thousand in the goalfirst quarter of reducing our operating costs by an estimated $10 million from 2016 levels.  The intent of the restructuring strategy was to maximize operating cost reductions without sacrificing either our new product pipeline or potential long-term revenue growth. We continue to refine our cost savings estimate, and are now on track for a total cost reduction between $8.0 million and $9.0 million from the 2016 levels. Consequently, considering both quantitative and qualitative information, we continue to believe that the combination of our restructuring actions, current financial position, liquid resources, obligations due or anticipated within the next year, executive reorganization, and implementation of our sales channel strategy will return us to profitability in 2018 and effectively mitigates the substantial doubt about our ability to continue as a going concern.

2022.
Other income and expenses

Other income was $16of $30 thousand for the thirdfirst quarter of 2017,2022 relates to an aged customer credit balance the Company had been carrying for which the customer had not responded to various inquiries. This credit was recorded to income during the first quarter of 2022.
Other expenses were $7 thousand for the first quarter of 2023, compared to other expenses of $16$11 thousand for the thirdfirst quarter of 2016. The income for the three months ended September 30, 2017 primarily consisted of interest income on our cash balances and miscellaneous utility company rebates, partially offset by losses on the disposal of fixed assets. The expenses for the three months ended September 30, 2016 primarily consisted of losses on the disposal of fixed assets partially offset by interest income on our cash balances.2022. Other expenses were $5 thousandare mainly comprised of bank and $7 thousand for the nine months ended September 30, 2017 and 2016, respectively. The expenses for the first nine months of 2017 and 2016 primarily consisted of losses on the disposal of fixed assets partially offset by interest income on our cash balances.collateral management fees.


Provision for (benefit from) income taxes

Due to the operating losses incurred during the three and nine months ended September 30, 2017March 31, 2023 and the three months ended September 30, 20162022, and after application of the annual limitation set forth under Section 382 of the IRC,Internal Revenue Code of 1986, as amended, it was not necessary to record a provision for U.S. federal income tax or various statesstate income taxes. The expense recorded for the three and nine months ended September 30, 2016, represents the adjustment of the 2015 provision to the actualtaxes as income tax on the 2015 returns, which were filed during the period.benefits are fully offset by a valuation allowance recorded.

Net (loss) income

loss
For the three and nine months ended September 30, 2017,March 31, 2023, our net loss was $1.8of $1.3 million and $9.4 million, respectively, compared todecreased 53% over the net loss of $3.2 million and $9.1 million for the three and nine months ended September 30, 2016, respectively. Lower net sales and changesMarch 31, 2022 of $2.8 million. The decrease is mainly due to lower fixed costs in product mix in 2017, as compared to the same prior year periods, as well as the restructuring costs incurred in 2017 contributed to the difference in operating results.first quarter of 2023.

Financial condition

WhileAt March 31, 2023, we had $301 thousand in cash and cash equivalentsa total of $11.9$1.7 million at September 30, 2017of debt, including $400 thousand outstanding under our Inventory Facility and no debt, we$1.3 million aggregate principal amount of the 2022 Streeterville Note outstanding. We have historically incurred substantial losses, and as of September 30, 2017,March 31, 2023, we had an accumulated deficit of $106.3$150.4 million. Additionally, our sales have been concentrated among a few major customers and for the three months ended March 31, 2023, three customers accounted for approximately 58 percent and 41 percent60% of net sales for the three and nine months ended September 30, 2017, respectively. Two customers accounted for approximately 52 percent and 43 percent of net sales for the three and nine months ended September 30, 2016, respectively.sales.

32

In 2022 and 2023, we recommitted to building upon the transformation activities started during 2019 and 2020 that sought to stabilize and regrow our business. These efforts include the following key developments that occurred during 2022 and 2023:
•We hired a permanent Chief Executive Officer in September 2022, following a period of interim leadership by our Lead Independent Director after the departure of our previous Chief Executive Officer in February 2022 and Chief Financial Officer and Chief Operating Officer in May 2022.
•We continued development of the second generation of EnFocus™ powerline control switches and circadian lighting system for commercial markets, which as a result of supply chain challenges we now plan to launch in 2023. EnFocus™ powerline control enables buildings to have dimmable, color tunable and circadian-ready lighting using existing wiring, without requiring laying additional cables or any wireless communication systems, through a relatively simple upgrade with EnFocus™ switches and EnFocus™ LED lamps. This upgrade offers a simpler, more secure, affordable and environmentally sustainable solution compared with replacing entire luminaire fixtures and incorporating additional wired or wireless communication.
•We reinvested in our MMM sales channel with a strategic hire in the second quarter of 2022 and are pursuing existing and new sales opportunities, though the sales cycles for what are frequently made-to-order products are longer than commercial offerings.
•Beginning in July 2022, we reduced our warehouse square footage, and undertook an inventory reduction project throughout 2022 focused on reducing our highly reserved commercial finished good inventory.
•The Company has aggressively re-evaluated operating expenses, and reduced its workforce significantly throughout 2022 and the first quarter of 2023 to manage fixed costs.
•We continued to seek additional external funding alternatives and sources to support our growth strategies, plans and initiatives:
◦In April 2022, we entered into a note purchase agreement with Streeterville Capital, LLC (“Streeterville”) pursuant to which we sold and issued to Streeterville a promissory note (the “2022 Streeterville Note”) in the principal amount of approximately $2.0 million, with net proceeds of approximately $1.8 million.

◦ In June 2022, we completed a private placement (the “June 2022 Private Placement”) with certain institutional investors pursuant to which we agreed to issue and sell (i) 1,313,462 shares of our common stock, (ii) pre-funded warrants to purchase 1,378,848 shares of common stock at an exercise price of $0.0001 per share and (iii) warrants to purchase up to an aggregate of 2,692,310 shares of common stock at an exercise price of $1.30 per share. Net proceeds from the June 2022 Private Placement were approximately $3.2 million.

◦ From September 2022 to December 2022, we secured short-term unsecured bridge financing of $800 thousand from a member of the Board of Directors and an aggregate of $650 thousand of short-term unsecured bridge financing from private parties, all of which was converted into equity in January 2023 at the time of a strategic investment by Sander Electronics, Inc.

◦ In October 2022 and December 2022, we repaid the promissory note that we issued and sold to Streeterville on April 27, 2021 by exchanging the approximately $330 thousand aggregate principal amount outstanding for common stock priced at-the-market.

◦ During January 2023, we sold an aggregate of $250 thousand of common stock to a member of the Board of Directors in private placements at fair market value, and also converted the approximately $809 thousand principal amount outstanding on previously issued short-term promissory notes issued to that director in connection with the $800 thousand short-term unsecured bridge financing, as discussed above, at fair market value.

◦ In January 2023, we sold an aggregate of $2.7 million of common stock to certain purchasers associated with Sander Electronics, Inc., including conversion of the approximately $609 thousand principal amount outstanding on previously outstanding short-term promissory notes issued in connection with the $650 thousand short-term unsecured bridge financing, as discussed above, priced at-the-market.

33

◦ In January 2023, we amended our inventory lending facility with Crossroads Financial Group, LLC (the “Inventory Facility”), reducing the maximum availability to $500 thousand, reducing monthly fees and paying down an aggregate of $1.0 million of outstanding borrowings under the Inventory Facility in January and February 2023.

◦ In January 2023, we amended the terms of the 2022 Streeterville Note with Streeterville, agreeing to make $750 thousand in payments in 2023 and deferring other payments until 2024.

◦ In February 2023, we agreed to terminate our accounts receivable lending facility with Factors Southwest L.L.C. (d/b/a FSW Funding) (the “Receivables Facility” and, together with the Inventory Facility, the “Credit Facilities”), reducing our monthly borrowing costs.

◦ In February 2023, we sold an aggregate of $400 thousand of common stock to a member of the Board of Directors in a private placement at fair market value.

◦ In March 2023, we repaid a portion of the 2022 Streeterville Note by exchanging approximately $500 thousand aggregate principal amount outstanding for common stock priced at-the-market.

◦ In March 2023, we entered into two private placement agreements, pursuant to which aggregate gross proceeds to the Company in respect of the private placements were $305 thousand, before deducting estimated offering expenses payable by the Company.

During 2022, we continued to broaden our product distribution network by engaging with new lighting agencies and energy service companies (“ESCOs”). We also redoubled our efforts from 2020 and 2021 to streamline our operations by closely managing all spending done throughout the Company, while investing in new products and strategies that sought to reenergize sales.
Throughout 2022, due to lingering economic and building occupancy impacts from the COVID-19 pandemic, we experienced continuing weakness in commercial sales as our customers in the healthcare, education, and commercial and industrial sectors put lighting retrofit projects on hold or delayed order forplacements. We continue to monitor the long-term impact of the COVID-19 pandemic on our customers, suppliers and logistics providers, and to evaluate governmental pandemic response. Although the significance and duration of the ongoing impact on our customers and us is still uncertain, and the specific timing of business recovery from the impact of the COVID-19 pandemic is still difficult to operatepredict, we remain optimistic that facility capital budgets will start unfreezing, commercial building occupancy will rise, and our business profitably,growth efforts will further impact our financial performance in a positive way.
We will seek to remain agile as an organization to respond to potential or continuing weakness in the macroeconomic environment and in the meantime seek to expand sales channels and enter new markets that we believe will needprovide additional growth opportunities. We plan to achieve profitability through developing and launching new, innovative products, such as our EnFocusTM powerline control systems, our Redcap® emergency battery backup tubular TLEDs, evaluating new growth opportunities such as GaN-based power supply circuitry and other energy solution products, as well as executing on our multi-channel sales strategy that targets key verticals, such as government, healthcare, education and commercial and industrial, complemented by our marketing outreach campaigns and expanding channel partnerships. We also plan to continue to develop new technologiesadvanced lighting and lighting control applications built upon the EnFocusTM platform that aim to serve the commercial markets. In addition, we intend to continue to apply rigorous financial discipline in our organizational structure, decision-making, business processes and policies, strategic sourcing activities and supply chain practices to help accelerate our path towards profitability.
On December 21, 2021, we received a letter from the Listing Qualifications staff (the “Staff”) of The Nasdaq Stock Market LLC (“Nasdaq”) notifying us that, as a result of the resignation of a director, as previously disclosed, from the Board of Directors and the Audit and Finance Committee, we were not in compliance with Nasdaq Listing Rule 5605, which requires that our Audit and Finance Committee be comprised of at least three directors, all of whom are independent pursuant to the rules of Nasdaq and applicable law. The notification letter had no immediate effect on our listing on the Nasdaq Capital Market. The letter further provided that, pursuant to Nasdaq Listing Rule 5605(c)(4), we were entitled to a cure period to regain compliance with Nasdaq Listing Rule 5605. On February 24, 2022, we announced the appointment of two additional independent directors, one of which, was appointed to fill the vacancy on the Audit and Finance Committee, bringing us into sustainable product linescompliance with Nasdaq Listing Rule 5605.
34

On August 23, 2022, we received a letter from the Staff notifying us that allow uswe were no longer in compliance with the requirement to effectively compete to expand our customer base, execute our marketing and sales plansmaintain a minimum closing bid price of $1.00 per share, as set forth in Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Rule”), because the closing bid price for our energy-efficient LED lighting products,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 “Stockholders’ Equity Requirement 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 continueour common stock was subject to improve our supply chain and organizational structure. The restructuring and cost cutting initiatives implementeddelisting 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 first halfpendency of 2017 were designedthe Appeal and, during such time, the Company’s common stock continued to allow usbe 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 effectively executeconsider the Stockholders’ Equity Requirement 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 Stockholders’ Equity Requirement 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 2023 annual meeting of the Company’s stockholders. On May 1, 2023, the Panel granted the Company’s request 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 Securities and Exchange Commission 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.
As of the date of this strategy.


There is a risk that our efforts may not be as successful as we envision, as we focusQuarterly Report, the Company believes it has regained compliance with the Minimum Stockholders’ Equity Rule for continued listing on expanding our customer base and growing net sales from commercial customers in our targeted vertical markets. Additionally, while we remain dedicated to serving the U.S. Navy, new competition may prevent us from securing sales at our historic levels. If our operations do not achieve, or we experience an unanticipated delay in achieving, our intended level of profitability, we may require additional funding.

We terminated our revolving credit facility effective December 31, 2015, and are not actively pursuing securing a new line of credit at this time. ThereNasdaq Capital Market. However, there can be no assurance that wethe Company will generate sufficient cash flowsbe able to sustain and grow our operationsregain compliance with the Bid Price Rule or if necessary, obtain funding on acceptable termsmaintain compliance with the Minimum Stockholders’ Equity Rule, Bid Price Rule, or other Nasdaq listing requirements. If the Company fails to regain compliance with Nasdaq’s continued listing standards in a timely fashion or at all. As such, we may continue to review and pursue selected external funding sources to execute these objectives including, but not limited to,accordance with the following:

obtain financing from traditional or non-traditional investment capital organizations or individuals; and
obtain funding fromPanel’s decision, the sale of ourCompany’s common stock or other equity or debt instruments.will be subject to delisting from Nasdaq.

35
Obtaining financing through the above-mentioned mechanisms contains risks, including:


additional equity financing may not be available to us on satisfactory terms and any equity that we are able to issue could lead to dilution of stockholder value for current stockholders;
loans or other debt instruments may have terms and/or conditions, such as interest rate, restrictive covenants and unfavorable control or revocation provisions or would restrict our growth opportunities; and
the current environment in capital markets combined with our capital constraints may prevent us from being able to obtain adequate debt financing.

If we fail to generate cash to grow our business, we would need to delay or scale back our business plan and further reduce our operating costs or headcount, each of which could have a material adverse effect on our business, future prospects, and financial condition.

Liquidity andcapitalresources
Cash and cash equivalents
At September 30, 2017,March 31, 2023, our cash and cash equivalents balance was approximately $11.9 million,$301 thousand, compared to approximately $16.6 million$52 thousand at December 31, 2016. The balance at September 30, 2017 and December 31, 2016 included restricted cash of $0.3 million for a letter of credit requirement under a lease obligation.2022.

The following summarizes cash flows from operating, investing, and financing activities, as reflected in the Condensed Consolidated Statements of Cash Flows included in Part I, Item 1, “Financial Statements,” of this Quarterly Report (in thousands):
 Nine months ended
September 30,
 2017 2016
Net cash used in operating activities$(4,684) $(13,650)
    
Net cash used in investing activities$(57) $(1,473)
    
Net cash provided by financing activities$56
 $77

Three months ended
March 31,
20232022
Net cash used in operating activities$(1,183)$(2,703)
Net cash used in investing activities$— $(35)
Net cash provided by financing activities$1,432 $281 
Net cash used in operating activities

Net cash used in operating activities was $4.7$1.2 million for the ninethree months ended September 30, 2017, and resulted primarily from theMarch 31, 2023. The net loss incurred of $9.4for the three months ended March 31, 2023 was $1.3 million and was adjusted for non-cash items, including:including depreciation and amortization, stock-based compensation, and provisions for inventory, warranty, and warrantyaccounts receivable reserves and working capital changes. InDuring the first ninethree months ended March 31, 2023, we generated $562 thousand from inventory and $66 thousand due to changes in accrued and other liabilities. We used $496 thousand through the timing of 2017 tradecollection of accounts receivable decreased,and $27 thousand from accounts payable due to the timing of inventory receipts and volume of our shipments in December 2016 compared to September 2017. In addition, in the first nine months of 2017, inventory and trade accounts payable balances decreased, as we implemented a more disciplined purchasing strategy in 2017. payments. .
Net cash used in operating activities was $13.7$2.7 million for the ninethree months ended September 30, 2016, and resulted from theMarch 31, 2022. The net loss incurredfor the three months ended March 31, 2022 was $2.8 million and was adjusted for non-cash items, including depreciation and amortization, stock-based compensation, provisions for inventory, warranty, gain on forgiveness of $9.1 million, as well as increasedthe Paycheck Protection Program (PPP) loan and accounts receivable reserves and working capital changes. During the three months ended March 31, 2022, we generated $61 thousand in cash from accounts payable due to the timing of inventory balancesreceipts and payments, and $83 thousand through the timing of collection of accounts receivable. We used $370 thousand for inventories primarily due to meet the demand for our commercial products that was slower than anticipated, higher prepaid

expensestiming of inventory receipts, and we used $211 thousand due to changes in accrued and other assets principally relatedliabilities (primarily due to deposits on inventory purchases,a reduction of $0.1 million in accrued accounting and lowerlegal fees and $0.2 million in accrued sales commissions and incentives, as amounts accrued at December 31, 2015 were paid in the first quarter of 2016. These increases werebonuses; partially offset by lower trade accounts receivable at September 30, 2016 compared to December 31, 2015. As a resultincreases of the timing of shipments$100 thousand in December 2015, the cash was not received until the first quarter of 2016.

accrued payroll).
Net cash used in investing activities

NetFor the three months ended March 31, 2022, net cash used in investing activities was $57$35 thousand for the nine months ended September 30, 2017, and resulted primarily from the purchase of software and equipmenta vehicle to support our website and marketing efforts, partially offset by proceeds received fromproduction operations, as well as development of the sale of certain computer equipment and reimbursements from our landlord for certain leasehold improvements. Net cash used in investing activities was $1.5 million for the nine months ended September 30, 2016, and resulted primarily from acquisitions of computer equipment and software and additional modules and functionality of our ERP system.e-commerce platform.

Net cash provided by financing activities

Net cash provided by financing activities was $56 thousand and $77 thousand forduring the ninethree months ended September 30, 2017March 31, 2023 was $1.4 million, primarily related to proceeds from the private placement of common stock of $3.0 million, offset by net payments on the Credit Facilities of $1.1 million and 2016, respectively. the 2022 Streeterville Note of $500 thousand.
In January 2022, all of the Company’s pre-funded warrants to purchase 85,228 shares of common stock at an exercise price of $0.0001 per share that were issued in December 2021 were exercised. As of March 31, 2023, warrants issued in December 2021 (the “December 2021 Warrants”) exercisable for an aggregate of 1,278,413 shares remained outstanding with an exercise price of $3.52 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.
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Net cash provided by financing activities forduring the ninethree months ended September 30, 2017March 31, 2022 was $281 thousand, primarily related to net proceeds from borrowings under the Credit Facilities of $897 thousand and 2016 resultedproceeds from the proceeds received for the exercise of stock options and employee stock purchase plan purchases, partially offset by the effect156,446 warrants of issuing and immediately repurchasing our stock for employee tax withholding related to restricted stock unit vesting and stock swap and hold stock option exercises.$0.

Contractual and other obligations

In conjunction with our restructuring and cost cutting initiativesAs of March 31, 2023, we evaluated opportunitieshad approximately $1.4 million in outstanding purchase commitments for inventory. Almost all of this amount is expected to either terminate or renegotiate the contractual lease obligations for our Rochester, Minnesota, New York, New York, and Arlington, Virginia office locations. During the first quarter of 2017, we terminated the Rochester lease obligation for a payment of $19 thousand. We executed a sublease for the Arlington officeship in June 2017 and executed a sublease for the New York office in October 2017. Both the Arlington sublease and the New York sublease are at current market conditions for similar office rental properties. As we completely vacated these premises during the second quarter of 2017, we recognized2023, with the estimated present valuebalance expected to ship in the third quarter of 2023 and thereafter. Included in the remainingtotal of outstanding purchase commitments are orders of $733 thousand to a related party.
There have been no other material changes to our contractual and other obligations on these leases adjusted for the anticipated subleases as restructuring expensescompared to those included in our condensed consolidated financial statements. During the three months ended September 30, 2017 we recorded net restructuring credits totaling approximately $0.2 million, primarily related to a reduction of $0.3 million related to facilities costs for the remaining lease obligations for the former New York, New York office. The sublease agreement was finalized in October 2017. We estimated that we would receive a total of approximately $1.3 million in sublease payments to offset our remaining lease obligations of approximately $1.8 million, which extend until June 2021. Additional information regarding the facility restructuring is presented in Note 3 to our condensed consolidated financial statements titled, “Restructuring.”2022 Annual Report.

Critical accounting policies

There have been no material changes to our critical accounting policies as compared to those included in our 20162022 Annual Report.


Certain risks and concentrations

We hadhave certain customers whose net sales individually represented 10 percent10% or more of our total net sales, or whose net trade accounts receivable balance individually represented 10 percent10% or more of our total net trade accounts receivable,receivable; we have certain suppliers, which individually represent 10% or more of our total purchases, or whose trade accounts payable balance individually represented 10% or more of our total trade accounts payable balance, as follows:

For the three months ended September 30, 2017, one of the largest global healthcare systems located in Northeast Ohio and large energy services contracting company inMarch 31, 2023, sales to our Southeastern sales region each accounted for approximately 23 percent of net sales. While the last contractually required stocking commitment under our exclusive distributor agreement with Atlantic Diving Supply, Inc. (“ADS”), aprimary distributor for the U.S. Navy, was fulfilled in December 2016, salesa U.S. Navy shipbuilder, and a distributor to ADS for the three months ended September 30, 2017U.S. Department of Defense, accounted for approximately 12 percent22%, 27%, and 11% of net sales, and whenrespectively. When sales for our top military customers are combined, with non-exclusive sales to other distributors,total net sales of military products for the U.S. Navy comprised approximately 20 percent49% of net sales for the same period. For the three months ended September 30, 2016, ADSMarch 31, 2022, sales to our primary distributor for the U.S. Navy, a U.S. Navy shipbuilder, and a commercial building systems provider, accounted for approximately 40 percent of net sales15%, 21%, and sales of products to the U.S. Navy comprised approximately 46 percent of net sales. In addition, another distributor of military maritime products to foreign navies accounted for approximately 12 percent of net sales for the three months ended September 30, 2016.

For the nine months ended September 30, 2017, the healthcare system located in Northeast Ohio and the energy services contracting company accounted for approximately 17 percent and 12 percent19% of net sales, respectively. While the last contractually required stocking commitment under our exclusive distributor agreement with ADS was fulfilled in December 2016,When sales to ADS accountedour primary distributor for approximately 12 percent of net sales, and whenthe U.S. Navy are combined with non-exclusive sales to other distributors,shipbuilders for the U.S. Navy, total net sales of products for the U.S. Navy comprised approximately 18 percent37% of net sales for the nine months ended September 30, 2017. For the nine months ended September 30, 2016, sales to ADS accounted for approximately 32 percent of net sales, and total sales of productssame period.
A distributor for the U.S. Navy, a U.S. Navy shipbuilder, and a distributor to the U.S. Department of approximately 40 percent of net sales. In addition, the healthcare system located in Northeast OhioDefense, accounted for approximately 11 percent of net sales for the nine months ended September 30, 2016.

Our exclusive distributor agreement with ADS ended on March 31, 201732%, 22%, and we are currently evaluating all sales channels within the military maritime market to broaden our sales opportunities.

The energy services contracting company and the global healthcare system located in Northeast Ohio accounted for approximately 28 percent and 18 percent17% of net trade accounts receivable, respectively, at September 30, 2017.March 31, 2023. At December 31, 2016, ADS and2022, a distributor to the global healthcare system located in Northeast OhioU.S. Department of Defense accounted for approximately 63 percent and 10 percent25% of our net trade accounts receivable respectively.and a shipbuilder for the U.S. Navy accounted for 30% of our net trade accounts receivable.

No one supplier accounted for more than 10% of our total expenditures for the three months ended March 31, 2023. For the three months ended March 31, 2022, one offshore supplier accounted for approximately 19% of total expenditures.
At March 31, 2023 and December 31, 2022, one offshore supplier accounted for approximately 36% of our trade accounts payable balance for each quarter.
Recent accounting pronouncements

For information on recent accounting pronouncements, please refer to Note 2, “Basis of Presentation and Summary of Significant Accounting Policies,” included under Part I, Item 1, “Financial Statements,” of this Quarterly Report.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this item.
ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures

We maintain “disclosuredisclosure controls and procedures,” as such term is defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer, and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating
Pursuant to Rule 13a-15(b) under the Exchange Act, our management must evaluate, with the participation of our Chief Executive Officer, the effectiveness of our disclosure controls and procedures, management recognizes that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectivesas of the disclosure controls and procedures are met. Our disclosure controls and procedures have been designed to meet reasonable assurance standards. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. Any design of disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Based on their evaluation as ofMarch 31, 2023, the end of the period covered by this Quarterly Report on Form 10-Q,Report. Management, with the participation of our Chief Executive Officer, did evaluate the effectiveness of our disclosure controls and procedures as of the end of period covered by this Quarterly Report. Based on this evaluation, our Chief FinancialExecutive Officer have concluded that subject to the limitations noted above, our disclosure controls and procedures were effective as of September 30, 2017.March 31, 2023.

(b) Changes in internal control over financial reporting

There hasDuring the quarterly period covered by this Quarterly Report, there have not been no material changeany changes in our internal control over financial reporting (as defined in Rules 13a-15(f) under the Exchange Act) during the three months ended September 30, 2017 that has materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION


ITEM 1. LEGAL PROCEEDINGS
From time to time, we may be involved in various claims and legal actions arising in the ordinary course of business. As of March 31, 2023, we were not involved in any material legal proceedings.
ITEM 1A. RISK FACTORS

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this item.
There have been no material changes
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
ITEM 5. OTHER INFORMATION
On May 10, 2023, the Company received notice from James R. Warren regarding his intention to our risk factors,resign as comparedSenior Vice President, General Counsel and Corporate Secretary of the Company later this year in order to those described in our 2016 Annual Report.pursue other personal and professional opportunities.

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ITEM 6. EXHIBITS

The information required by this Item is set forth on the Exhibit Index that follows the signature page of this report.

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
EXHIBIT INDEX
Exhibit
Number		ENERGY FOCUS, INC.
Date:November 8, 2017By:/s/ Theodore L. Tewksbury III
Theodore L. Tewksbury III
Chairman, Chief Executive Officer and President
Description of Documents
By:/s/ Michael H. Port
Michael H. Port
Chief Financial Officer


EXHIBIT INDEX

Exhibit
Number
Description of Documents
3.1
3.2
3.3
3.23.4
3.5
3.33.6
3.7
31.13.8
3.9
3.10
3.11
3.12
3.13
10.1
10.2
10.3
10.4
10.5
10.6
10.7
40

10.8
10.9+
10.10+
10.11+
31.1+
31.232.1++
32.1
Certification of PrincipalPrincipal Executive Officer and Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*101
The following financial information from our Quarterly Report for the quarter ended September 30, 2017,March 31, 2023, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets at September 30, 2017March 31, 2023 and December 31, 2016,2022, (ii) Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2017March 31, 2023 and 2016,2022, (iii) Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2017 and 2016, (iv) Condensed Consolidated Statements of Changes in Stockholders’ Equity for the ninethree months ended September 30, 2017,March 31, 2023 and 2022, (v) Condensed Consolidated Statements of Cash Flows for the ninethree and three months ended September 30, 2017March 31, 2023 and 2016,2022, and (vi) the Notes to Condensed Consolidated Financial Statements.
*104Cover Page Interactive Data File (embedded within the Inline XBRL document)

*    Pursuant to Regulation S-T, this interactive data file is not deemed filed for purposes of Section 11 of the Securities Act, or Section 18 of the Exchange Act, or otherwise subject to the liabilities of these sections.
+     Filed herewith.
++ This exhibit shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that section. Such exhibit shall not be deemed incorporated into any filing under the Securities Act or the Exchange Act.

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
*Pursuant to Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of SectionsENERGY FOCUS, INC.
Date:May 11, or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934,2023By:/s/ Lesley A. Matt
Lesley A. Matt
Chief Executive Officer
(Principal Executive Officer, Principal Financial Officer and otherwise is not subject to liability under these sections.Principal Accounting Officer)



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