Stockholders' Equity

12 Months Ended

Dec. 31, 2021

Equity [Abstract]

Stockholders' Equity

STOCKHOLDERS’ EQUITY

December 2021 Private Placement

In December 2021, we completed 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 to purchase 85,228 shares of common stock at an exercise price of $0.0001 per share and (ii) warrants (collectively with the 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. We paid the placement agent commission of $360 thousand plus $42 thousand in expenses in connection with the December 2021 Private Placement and we also paid legal, accounting and other fees of $97 thousand related to the December 2021 Private Placement. 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 Pre-Funded Warrants to be nominal and, as such, have considered the 85,228 shares underlying them to be outstanding effective December 16, 2021, for the purposes of calculating basic EPS.

As of December 31, 2021, December 2021 Warrants to purchase an aggregate of 1,363,641 shares remained outstanding, with a weighted average exercise price of $3.30 per share. None of the December 2021 Warrants were exercised as of December 31, 2021. In January 2022, all of the Pre-Funded Warrants were exercised. The exercise of the remaining December 2021 Warrants outstanding could provide us with cash proceeds of up to $4.5 million in the aggregate.

As of December 31, 2021, we had the following outstanding December 2021 Warrants to purchase shares of common stock:

	As of December 31, 2021
	Number of Underlying Shares	Exercise Price	Expiration
Common Warrants	1,278,413	$3.5200	December 16, 2026
Pre-Funded Warrants	85,228	$0.0001	None
	1,363,641

June 2021 Equity Offering

In June 2021, we completed a registered direct offering of 990,100 shares of our common stock to certain institutional investors, at a purchase price of $5.05 per share. We paid the placement agent commissions of $400 thousand, plus $51 thousand in expenses, in connection with the June 2021 Equity Offering and we also paid legal and other fees of $19 thousand related to the offering. Total offering costs of $470 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, 2021. Net proceeds to us from the June 2021 Equity Offering were approximately $4.5 million.

Preferred Stock

Pursuant to the terms of the Convertible Notes, on January 16, 2020, following approval by our stockholders of certain amendments to the 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 (“Fusion Park”) and 5 Elements Global Fund L.P. (controlled affiliates of James Tu, the Company's former Executive Chairman and Chief Executive Officer and current member of the Board of Directors), as well as Brilliant Start Enterprise Inc. (“Brilliant Start”) and Jag International Ltd. (controlled affiliates of Gina Huang, a member of the Company's Board of Directors). Upon conversion of their respective shares of Series A Preferred Stock in 2021, Fusion Park and Brilliant Start received 184,851 and 159,354 shares, respectively, of the Company’s common stock.

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 the Certificate of Incorporation to increase the number of authorized shares of preferred stock to 5,000,000. The Original Series A Certificate of Designation was also amended on January 15, 2020, to increase the number of shares of preferred stock designated as Series A Preferred Stock to 3,300,000 (the Original Series A Certificate of Designation, as so amended, the “Series A Certificate of Designation”).

Pursuant to the Series A Certificate of Designation, each holder of outstanding shares of Series A Preferred Stock is entitled to vote with holders of outstanding shares of common stock, voting together as a single class, with respect to any and all matters presented to the stockholders of the Company for their action or consideration, except as provided by law. In any such vote, each share of Series A Preferred Stock shall entitle its holder to a number of votes equal to 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 contained customary representations and warranties and provided for resale registration rights with respect to the shares of our common stock issuable upon conversion of the Series A Preferred Stock.

1-for-5 Reverse Stock Split

On June 11, 2020, in accordance with previous stockholder approval, our Board of Directors effected a 1-for-5 reverse stock split of the Company’s common stock, par value $0.0001 per share. The reverse stock split became effective at the Effective Time upon the filing of the Certificate of Amendment to the Certificate of Incorporation with the Delaware Secretary of State. At the Effective Time, every five shares of common stock issued and outstanding automatically combined into one validly issued, fully paid and non-assessable share of common stock. No fractional shares were issued as a result of the reverse stock split. The fractional shares were settled in cash in an amount not material to the Company. The $0.0001 par value per share of

common stock and other terms of the common stock were not affected by the reverse stock split. The number of authorized shares of common stock under the Certificate of Incorporation remained unchanged at 50,000,000 shares.

Proportional adjustments were made to the conversion and exercise prices of our outstanding warrants and stock options, and to the number of shares issued and issuable under our stock incentive plans in connection with the reverse stock split. The financial statements for the twelve months ended December 31, 2020 have been retroactively adjusted to reflect the reverse stock split. Preferred shares outstanding were not affected by the reverse stock split and, as such, those shares have not been adjusted.

The reverse stock split was effected solely to increase the per share trading price of the common stock to satisfy the $1.00 minimum bid price requirement pursuant to Nasdaq Listing Rule 5550(a)(2) for continued listing on Nasdaq. The common stock began trading on Nasdaq on a split-adjusted basis at the opening of trading on June 12, 2020.

January 2020 Equity Offering

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 to purchase up to 688,360 shares of common stock at an exercise price of $3.37 per share (the, “Investor Warrants”) in a concurrent private placement for a purchase price of $0.625 per warrant. We paid the placement agent commissions of $193 thousand plus $50 thousand in expenses in connection with the registered direct offering and the concurrent private placement and we also paid legal, accounting and other fees of $231 thousand related to the offering. Total offering costs of $510 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 and 2020. In addition, we issued warrants to the placement agent to purchase up to 48,185 shares of common stock at an exercise price of $4.99 per share (together with the Investor Warrants, the “January 2020 Warrants”). Net proceeds to us from the sale of common stock and January 2020 Warrants were approximately $2.3 million. In accordance with the terms of the Iliad Note, 10% of the gross proceeds from the January 2020 Equity Offering ($275 thousand) were used to make payments on the Iliad Note, of which $226 thousand went towards the outstanding principal amount and the balance to interest.

January 2020 Warrants issued to purchase an aggregate of 229,414 shares remain outstanding at December 31, 2021, with a weighted average exercise price of $3.67 per share. During the twelve months ended December 31, 2021, 237,892 January 2020 Warrants issued were exercised resulting in total proceeds of $801 thousand. The exercise of the remaining January 2020 Warrants outstanding could provide us with cash proceeds of up to $841 thousand in the aggregate. At December 31, 2020, January 2020 Warrants issued to purchase an aggregate of 467,306 shares remained outstanding, with a weighted average exercise price of $3.51 per share. During the twelve months ended December 31, 2020, 269,240 January 2020 Warrants issued were exercised, resulting in total proceeds of $918 thousand.

As of December 31, 2021 and 2020, we had the following outstanding January 2020 Warrants to purchase shares of common stock:

	As of December 31, 2021	As of December 31, 2020
	Number of Underlying Shares		Exercise Price	Expiration
Investor Warrants	187,734	425,626	$3.3700	January 13, 2025
Placement Agent Warrants	41,680	41,680	$4.9940	January 13, 2025
	229,414	467,306

Warrant Classification

We account for common stock warrants as either liabilities or equity instruments depending on the specific terms of the warrant agreement. Common stock warrants that could require cash settlement are accounted for as liabilities and are revalued at fair value at each balance sheet date subsequent to the initial issuance. Changes in the fair market value of the warrant are reflected in the consolidated statement of operations as income (expense) based upon the change in fair value of warrants. Common stock warrants without cash settlement provisions are accounted for as equity and re-measurement at each balance sheet date is not required.

The January 2020 Warrants we issued in the January 2020 Equity Offering contained a provision for net cash settlement in the event that there is a fundamental transaction involving the Company (e.g., merger, sale of substantially all assets, tender offer, or share exchange). Due to this provision, the January 2020 Warrants were initially classified as liabilities, as opposed to equity, and were recorded at their fair values at each balance sheet date with fair value adjustments recognized as a component of earnings. During December 2020, the warrant holders agreed to a modification of the terms of their January 2020 Warrants which removed the potential cash settlement option upon the occurrence of a fundamental transaction. As such, during the fourth quarter of 2020, the warrant liability was fair-valued through the modification date and then was reclassified into equity and the January 2020 Warrants are no longer subject to re-measurement at each balance sheet date.

Stock-based compensation

On March 18, 2020, our Board of Directors approved the Energy Focus, Inc. 2020 Stock Incentive Plan (the “2020 Plan”). The 2020 Plan was approved by the stockholders at our annual meeting on September 17, 2020, after which no further awards could be issued under the Energy Focus, Inc. 2014 Stock Incentive Plan (the “2014 Plan”). The 2020 Plan initially allows for awards up to 350,000 shares of common stock and expires on September 17, 2030. At December 31, 2021, 208,256 shares remain available to grant under the 2020 Plan.

On May 6, 2014, our Board of Directors approved the 2014 Plan. The 2014 Plan was approved by the stockholders at our annual meeting on July 15, 2014, after which no further awards could be issued under the Energy Focus, Inc. 2008 Incentive Stock Plan (the “2008 Plan”). The 2014 Plan initially allowed for awards up to 120,000 shares of common stock and expires on July 15, 2024. On July 22, 2015, the stockholders approved an amendment to the 2014 Plan to increase the shares available for issuance under the 2014 Plan by an additional 120,000 shares. On June 21, 2017, the stockholders approved an amendment to the 2014 Plan to increase the shares available for issuance under the 2014 Plan by an additional 260,000. No awards may be granted under this plan.

We have one other historical equity-based compensation plan under which options are currently outstanding; however, no new awards may be granted under this plan. Generally, stock options are granted at fair market value and expire ten years from the grant date. Employee grants generally vest in three or four years, while grants to non-employee directors generally vest in one year. The specific terms of each grant are determined by our Board of Directors.

Stock-based compensation expense is attributable to stock options and restricted stock unit awards. For all stock-based awards, we recognize compensation 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):

	For the year ended December 31,
	2021		2020
Cost of sales	$	9	$	2
Product development	14		10
Selling, general, and administrative	406		119
Total stock-based compensation	$	429	$	131

At December 31, 2021 and 2020, we had unearned stock compensation expense of $0.3 million and $0.2 million, respectively. These costs will be charged to expense and amortized on a straight-line basis in subsequent periods. The remaining weighted average period over which the unearned compensation is expected to be amortized was approximately 2.7 years as of December 31, 2021 and 3.1 years as of December 31, 2020. 

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:

	2021			2020
Fair value of options issued	$	3.92		$	2.06
Exercise price	$	5.07		$	2.68
Expected life of option (in years)	6.2			6.1
Risk-free interest rate	0.9		%	0.7		%
Expected volatility	96.3		%	93.6		%
Dividend yield	0.00		%	0.00		%

We utilize the simplified method as provided by ASC 718-10 to calculate the expected stock option life. Under ASC 718-10, the expected stock option life is based on the midpoint between the vesting date and the end of the contractual term of the stock option award. The use of this simplified method in place of using the actual historical exercise data is allowed when a stock option award meets all of the following criteria: the exercise price of the stock option equals the stock price on the date of grant; the exercisability of the stock option is only conditional upon completing the service requirement through the vesting date; employees who terminate their service prior to the vesting date forfeit their stock options; employees who terminate their service after vesting are granted a limited time period to exercise their stock options; and the stock options are nontransferable and non-hedgeable. We believe that our stock option awards meet all of these criteria. The estimated expected life of the option is calculated based on contractual life of the option, the vesting life of the option, and historical exercise patterns of vested options. The risk-free interest rate is based on U.S. treasury zero-coupon yield curve on the grant date for a maturity similar to the expected life of the option. The volatility estimates are calculated using historical volatility of our stock price calculated over a period of time representative of the expected life of the option. We have not paid dividends in the past, and do not expect to pay dividends over the corresponding expected term as of the grant date.

Options outstanding under all plans at December 31, 2021 have a contractual life of ten years, and vesting periods between one and four years. A summary of option activity under all plans was as follows:

	Number of Options	Weighted Average Exercise Price Per Share
Outstanding at December 31, 2019	155,031	$	5.23
Granted	112,350	2.68
Cancelled	(33,774)	9.56
Exercised	(12,157)	2.11
Outstanding at December 31, 2020	221,450	$	3.45
Granted	88,240	5.07
Cancelled	(36,706)	5.35
Expired	(1,650)	49.18
Exercised	(4,225)	1.96
Outstanding at December 31, 2021	267,109	$	3.46
Vested and expected to vest at December 31, 2021	231,462	$	3.41
Exercisable at December 31, 2021	92,121	$	3.28

The “Expected to Vest” options are the unvested options that remain after applying the pre-vesting forfeiture rate assumption to total unvested options. 4,225 options were exercised during 2021 and 12,157 options were exercised during 2020. The total intrinsic value of options outstanding and options exercisable at December 31, 2021 was $426 thousand and $191 thousand, respectively, which was calculated using the closing stock price at the end of the year of $4.27 per share less the option price of the in-the-money grants.

The options outstanding at December 31, 2021 have been segregated into ranges for additional disclosure as follows:

OPTIONS OUTSTANDING							OPTIONS EXERCISABLE
Range of Exercise Prices			Number of Shares Outstanding	Weighted Average Remaining Contractual Life (in years)	Weighted Average Exercise Price		Number of Shares Exercisable	Weighted Average Remaining Contractual Life (in years)	Weighted Average Exercise Price
$1.45	—	$1.68	69,377	8.2	$	1.49	27,078	8.1	$	1.49
$1.69	—	$2.20	79,975	7.5	2.10		43,900	7.5	2.10
$2.21	—	$5.42	38,406	8.6	2.77		11,046	7.8	2.46
$5.43	—	$5.81	58,474	9.1	5.55		319	7.4	5.52
$5.82	—	$29.75	20,877	7.5	10.69		9,778	6.1	14.40
			267,109	8.2	$	3.46	92,121	7.6	$	3.28

Restricted Stock Units

In 2015, we began issuing restricted stock units to certain employees and non-employee Directors under the 2014 Plan with vesting periods ranging from one to four years from the grant date. In 2020, we began issuing restricted stock units to certain employees and non-employee Directors under the 2020 Plan with vesting periods ranging from one to four years.

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

	Restricted Stock Units Outstanding	Weighted Average Grant Date Fair Value
At December 31, 2019	6,603	$	13.17
Granted	19,200	2.44
Vested	(20,068)	3.96
Forfeited	(1,255)	12.40
At December 31, 2020	4,480	8.64
Granted	50,000	5.26
Vested	(52,080)	5.46
At December 31, 2021	2,400	$	7.14

Employee stock purchase plans

In September 2013, our stockholders approved the 2013 Employee Stock Purchase Plan (the “2013 Plan”) to replace the 1994 prior purchase plan. A total of 100,000 shares of common stock were provided for issuance under the 2013 Plan. The 2013 Plan permits eligible employees to purchase common stock through payroll deductions at a price equal to the lower of 85 percent of the fair market value of our common stock at the beginning or end of the offering period. Employees may end their participation at any time during the offering period, and participation ends automatically upon termination of employment with us. During 2021 and 2020, employees purchased 22,000 and 26,632 shares, respectively. At December 31, 2021, 28,523 shares remained available for purchase under the 2013 Plan.