10-Q

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 ended March 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 _____________

Commission file number 001-36583

ENERGY FOCUS, INC.

(Exact name of registrant as specified in its charter)  

Delaware	94-3021850
(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 address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.0001 per share	EFOI	The 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 every Interactive Data File required to be submitted 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 such files).  Yes ☑    No ☐

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

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☑	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, $0.0001 par value, as of May 9, 2023 was 19,243,610.

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION
			Page
ITEM 1.	FINANCIAL STATEMENTS
	a.	Condensed Consolidated Balance Sheets as of March 31, 2023 (Unaudited) and December 31, 2022	4
	b.	Condensed Consolidated Statements of Operations for the three months ended March 31, 2023 and 2022 (Unaudited)	6
	c.	Condensed Consolidated Statements of Changes in Stockholders' Equity for the three months ended March 31, 2023 and 2022 (Unaudited)	7
	d.	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022 (Unaudited)	8
	e.	Notes to the Condensed Consolidated Financial Statements (Unaudited)	10
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		29
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		38
ITEM 4.	CONTROLS AND PROCEDURES		38
PART II - OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS		39
ITEM 1A.	RISK FACTORS		39
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		39
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES		39
ITEM 4.	MINE SAFETY DISCLOSURES		39
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 for the applicable periods, considered as a single enterprise.

This Quarterly Report on Form 10-Q (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 (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, 2022 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 need for and ability to obtain additional financing in the near term, on acceptable terms or at all, to continue our operations;

•our ability to regain and maintain compliance with the continued listing standards of The Nasdaq Stock Market LLC (“Nasdaq”);

•our ability to refinance or 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 U.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;

•our ability to extend our product portfolio into new applications and 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, 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;

•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;

•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 products or 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;

•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, including tariffs and other potential barriers to international trade; 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, 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®, Intellitube®, RedCap®, and EnFocus™ are our registered trademarks. We may also refer to trademarks of other corporations and organizations in this document.

3

ITEM 1. FINANCIAL STATEMENTS

ENERGY FOCUS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

	March 31, 2023		December 31, 2022
	(Unaudited)
ASSETS
Current assets:
Cash	$	301	$	52
Trade accounts receivable, less allowances of $58 and $26, respectively	909		445
Inventories, net	4,938		5,476
Short-term deposits	615		592
Prepaid and other current assets	226		232
Receivable for claimed ERTC	445		445
Total current assets	7,434		7,242
Property and equipment, net	68		76
Operating lease, right-of-use asset	1,111		1,180
Total assets	$	8,613	$	8,498
LIABILITIES
Current liabilities:
Accounts payable	$	2,177	$	2,204
Accrued liabilities	229		145
Accrued payroll and related benefits	235		261
Accrued sales commissions	29		76
Accrued warranty reserve	143		183
Operating lease liabilities	205		198
Credit line borrowings, net of loan origination fees	388		1,447
Related party promissory notes payable	—		814
Promissory notes payable, net of discounts and loan origination fees	1,277		2,618
Total current liabilities	4,683		7,946

(continued on the next page)

4

ENERGY FOCUS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

	March 31, 2023		December 31, 2022
	(Unaudited)
Operating lease liabilities, net of current portion	975		1,029
Total liabilities	5,658		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, 2022	2		1
Additional paid-in capital	153,311		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

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

5

ENERGY FOCUS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(Unaudited) 

	Three months ended March 31,
	2023		2022
Net sales	$	930	$	2,061
Cost of sales	913		2,087
Gross profit (loss)	17		(26)
Operating expenses:
Product development	154		503
Selling, general, and administrative	1,066		2,127
Total operating expenses	1,220		2,630
Loss from operations	(1,203)		(2,656)
Other expenses (income):
Interest expense	123		184
Other income	—		(30)
Other expenses	7		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 diluted	16,172		6,437

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

6

ENERGY FOCUS, INC.

CONDENSED CONSOLIDATED 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
	Shares	Amount		Shares	Amount
Balance at December 31, 2022	876	$	—	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, 2023	876	$	—	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
	Shares	Amount		Shares	Amount
Balance at December 31, 2021	876	$	—	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, 2022	876	$	—	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.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

	Three months ended March 31,
	2023		2022
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)
Depreciation	8		44
Stock-based compensation	26		44
Provision for doubtful accounts receivable	29		(9)
Provision for slow-moving and obsolete inventories	(23)		129
Provision for warranties	(40)		(30)
Amortization of loan discounts and origination fees	62		69
Changes in operating assets and liabilities (sources / (uses) of cash):
Accounts receivable	(496)		(83)
Inventories	562		370
Short-term deposits	(23)		12
Prepaid and other assets	6		20
Accounts payable	(27)		61
Accrued and other liabilities	66		(211)
Deferred revenue	—		(268)
Total adjustments	150		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)

(continued on next page)

8

ENERGY FOCUS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

	Three months ended March 31,
	2023		2022
Cash flows from financing activities (sources / (uses) of cash):
Proceeds from the issuance of common stock and warrants	3,025		—
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 activities	1,432		281
Net increase (decrease) in cash	249		(2,457)
Cash beginning of period	52		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

March 31, 2023

(Unaudited)

NOTE 1. NATURE OF OPERATIONS

Energy Focus, Inc. engages primarily in the design, development, manufacturing, marketing and sale of energy-efficient lighting systems and controls. We develop, market and sell high quality light-emitting diode (“LED”) lighting and controls products in the commercial market and military maritime market (“MMM”), 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 be the human wellness lighting and LED technology and market leader for the most demanding applications where performance, quality, value, environmental impact and health are considered paramount. We specialize in LED lighting retrofit by replacing fluorescent, high-intensity discharge lighting and other types of lamps in institutional buildings for primarily indoor lighting applications with our innovative, high-quality commercial and military-grade tubular LED (“TLED”) products, as well as other LED and lighting control products for commercial and consumer applications. We are also evaluating adjacent technologies, including Gallium Nitride (“GaN”) based power supplies and additional market opportunities for energy solution products that support sustainability in our existing channels.

NOTE 2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The significant accounting policies of our Company, which are summarized below, are consistent with accounting principles generally accepted in the United States (“U.S. GAAP”) and reflect practices appropriate to the business in which we operate. Unless indicated otherwise, the information in the Notes to the Consolidated Financial Statements relates to our operations.

We have prepared the accompanying financial data for the three months ended March 31, 2023 and 2022 pursuant to the rules and regulations of the United States Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. 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, 2022 (“2022 Annual Report”). The Condensed Consolidated Balance Sheet as of December 31, 2022 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 March 31, 2023 and December 31, 2022, Condensed Consolidated Statements of Operations for the three months ended March 31, 2023 and 2022, Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2023 and 2022, and Condensed Consolidated Statements of Cash Flows for the three 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, 2022 was $1.5 million. Based on our timely submission of our plan to regain compliance (the “Plan”), Nasdaq granted us an extension through May 15, 2023 to regain compliance with the Minimum Stockholders’ Equity Rule.

On February 21, 2023, we received written notification (the “Bid Price Notification”) from the Staff stating that we had not regained compliance with the Bid Price Rule and our common stock is subject to delisting from Nasdaq. On February 24, 2023, we submitted a request for a hearing before the Nasdaq Hearings Panel (the “Panel”) to appeal the delisting (the “Appeal”). Under Nasdaq rules, the delisting of the Company’s common stock was stayed during the pendency of the Appeal and, during such time, the Company’s common stock continued to be listed on Nasdaq.

On March 28, 2023, the Company received written notification (the “Additional Staff Determination”) from the Staff stating that (i) following the Bid Price Notification, and in accordance with Listing Rule 5810(c)(2)(A), Nasdaq is no longer permitted to consider the stockholders’ equity compliance plan, (ii) the Additional Staff Determination serves as an additional basis for delisting the Company’s common stock from Nasdaq and (iii) the Panel will consider the Additional Staff Determination in rendering a determination regarding the continued listing of the Company’s common stock on Nasdaq.

On April 6, 2023, the Company participated in the Appeal before the Panel. The Company provided an update to the Panel on the Company’s substantial progress made towards the previously submitted 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 U.S. 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; 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 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

Net sales include revenues from 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 transferred products. We recognize revenue at the point in time when we transfer the promised products to the customer and the customer obtains control over the products. Distributors’ obligations to us are not contingent upon the resale of our products. We recognize revenue for shipping and handling charges at the time the goods are shipped to the customer, and the costs of outbound freight are included in cost of sales. We provide for product returns based on historical return rates. While we incur costs for

12

ENERGY FOCUS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2023

(Unaudited)

sales commissions to our sales employees and outside agents, we recognize commission costs concurrent with the related revenue, as the amortization period is 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 contract. 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,
	2023		2022
Net sales:
Commercial	$	321	$	1,134
MMM products	609		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 credit-worthiness of both existing and new customers. Although the insurance policy is no longer in place, all invoices issued under the previous coverage period are still covered under the policy.

On January 1, 2023, the Company adopted 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 is based on expected losses rather than incurred losses. This standard only impacts the Company’s trade receivables. The Company decided to use the roll rate method of valuing its reserve for trade receivables. The reserve is based on a careful 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 first quarter of 2023.

Pursuant to ASC 606, Revenue Recognition, contract assets and contract liabilities as of the beginning and ending of the reporting periods must be disclosed. Below is the breakout of the Company’s contract assets for such periods:

13

ENERGY FOCUS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2023

(Unaudited)

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

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 customers 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 net sales is derived from the destination to 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 stock 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 stock outstanding during the period. Dilutive potential shares of common stock consist of incremental shares upon the exercise of stock options, warrants and convertible securities, unless the effect would be anti-dilutive.

The following table presents a reconciliation of basic and diluted loss per share computations (in thousands):

	Three months ended March 31,
	2023		2022
Numerator:
Net loss	$	(1,333)	$	(2,821)
Denominator:
Basic and diluted weighted average shares of common stock outstanding	16,172		6,437

As a result of the net loss we incurred for the three months ended March 31, 2023, convertible securities representing approximately 175 thousand shares of common stock were excluded from the basic loss per share calculation because their inclusion would have been anti-dilutive.

As a result of the net loss we incurred for the three months ended March 31, 2022, warrants and convertible securities representing approximately 16 thousand and 175 thousand shares of common stock, respectively, were excluded from the basic loss per share calculation because their inclusion would have been anti-dilutive.

Product warranties

We warrant our commercial and MMM LED products and controls for periods generally ranging from five 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 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.

14

ENERGY FOCUS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2023

(Unaudited)

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

	Three months ended March 31,
	2023		2022
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

Financial 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 1	Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2	Unadjusted 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 3	Unobservable 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 March 31, 2023, sales to our primary distributor for the U.S. Navy, a U.S. Navy shipbuilder, and a distributor to the U.S. Department of Defense, accounted for approximately 22%, 27%, and 11% of net sales, respectively. When sales for our top military customers are combined, total net sales of military products comprised approximately 49% of net sales for the same period. For the three months ended March 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 15%, 21%, and 19% of net sales, respectively. When sales to our primary distributor for the U.S. Navy are combined with sales to 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.

15

ENERGY FOCUS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2023

(Unaudited)

A distributor for the U.S. Navy, a U.S. Navy shipbuilder, and a distributor to the U.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 net 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 or results of operations.

NOTE 3. INVENTORIES

Inventories are stated at the lower of standard cost (which approximates actual cost determined using the first-in, first-out cost method) or net realizable value, and consist of the following (in thousands):

	March 31, 2023		December 31, 2022
Raw materials	$	2,936	$	3,347
Finished goods	4,509		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,
	2023		2022
Beginning balance	$	(2,527)	$	(3,050)
Accrual	(56)		(145)
Reduction due to sold inventory	76		16
Reserves for excess, obsolete, and slow-moving inventories	$	(2,507)	$	(3,179)

16

ENERGY FOCUS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2023

(Unaudited)

NOTE 4. PROPERTY AND EQUIPMENT

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):

	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 cost	1,392		1,392
Less: accumulated depreciation	(1,324)		(1,316)
Property and equipment, net	$	68	$	76

Depreciation expense was $8 thousand and $44 thousand for the three months ended March 31, 2023 and 2022, 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 exercised in July 2022. As of March 25, 2022, the terms of our real estate operating lease have been modified beginning July 1, 2022 and extended through 2027. In accordance with ASC 842, Leases (“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 lease was calculated using an incremental borrowing rate of 16.96%, which was the Company’s blended borrowing rates (including interest, annual facility fees, collateral management fees, bank fees and other miscellaneous lender fees) on its revolving lines of credit with Crossroads Financial Group, LLC (as described below in Note 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):

	Three months ended March 31,
	2023		2022
Operating lease cost (income)
Sub-lease income	$	—	$	(25)
Lease cost	117		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, 2022 are as follows (in thousands):

	March 31, 2023		December 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 equipment	13		13
Allowances for depreciation	(13)		(13)
Finance lease assets, net	$	—	$	—

18

ENERGY FOCUS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 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 2025	379
April 2025 to March 2026	387
April 2026 to March 2027	391
April 2027 to March 2028	99
Total future undiscounted lease payments	1,641
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,
	2023		2022
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.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2023

(Unaudited)

NOTE 6. DEBT

Credit facilities

On August 11, 2020, we entered 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 the Loan and Security Agreement (the “Inventory Loan Agreement”) between the Company and Crossroads Financial Group, LLC, a North Carolina limited liability company (“Crossroads”). Borrowings under the original Inventory Facility were permitted up to the lower of (i) $3.0 million, which amount was subsequently increased to $3.5 million in April 2021, and (ii) a borrowing base determined from time to time based on the value of the Company’s eligible inventory, valued at 75% of inventory costs or 85% of the inventory net orderly liquidation value, less the availability reserves.

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 set forth in the Inventory Loan Agreement.

Pursuant to the Crossroads Amendment, Crossroads and the Company also agreed to extend the Inventory Facility’s current term through December 31, 2023, while eliminating the minimum borrowing amount and unused line fees and reducing the monthly service fee to a lower, fixed amount. The Company also agreed to a slightly increased interest rate, which was more than offset by the reduction in the monthly service fees. Pursuant to the Crossroads Amendment, the interest rate on borrowings under the Inventory Facility 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 “Credit line borrowings.” Outstanding balances include unamortized net issuance costs totaling $29 thousand and $47 thousand for 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. Huang		J. Huang		J. Huang		G. Huang		J. Huang		J. Huang		T. Lin		Total
Date entered	September 16, 2022		October 25, 2022		November 4, 2022		November 9, 2022		December 6, 2022		December 21, 2022		December 31, 2022
Term	9 months		9 months		9 months		9 months		9 months		9 months		9 months
Principal amount	$450,000		$50,000		$250,000		$350,000		$200,000		$100,000		$50,000		$1,450,000
Maturity date	June 16, 2023		July 25, 2023		August 4, 2023		August 9, 2023		September 6, 2023		September 21, 2023		September 30, 2023
Interest rate	8	%	8	%	8	%	8	%	8	%	8	%	8	%
Default interest rate	10	%	10	%	10	%	10	%	10	%	10	%	10	%
Outstanding Amount	$460,455		$50,734		$253,123		$353,989		$201,096		$100,219		$50,011		$1,469,627

Streeterville Notes

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

As a result of the operating loss incurred during each of the three months ended March 31, 2023 and 2022, and after the application of the annual limitation set forth under Section 382 of the Internal Revenue Code of 1986, as amended (the “IRC”), it was not necessary to record a provision for U.S. Federal income tax.

At March 31, 2023 and December 31, 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, 2022, we had a net operating loss carry-forward of approximately $132.4 million for federal income tax purposes ($77.6 million for state and local income tax purposes). However, due to changes in our capital structure, approximately $71.0 million of the $132.4 million is available to offset future taxable income after the application of the limitations found under Section 382 of the Internal 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 offset 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 the new limitations under the Tax Act. If not utilized, the carry-forwards generated prior to December 31, 2017 of $37.5 million will begin to expire in 2023 for federal purposes and have 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 11, “Income Taxes,” included under Item 8, “Financial Statements and Supplementary Data,” of our 2022 Annual Report.

NOTE 8. STOCKHOLDERS’ EQUITY

March 2023 Private Placements

On 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.

22

ENERGY FOCUS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2023

(Unaudited)

Aggregate gross proceeds to the Company in respect of the 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 transaction 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 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, 2023	As of March 31, 2022
	Number of Underlying Shares		Exercise Price	Expiration
Jan. 2020 Investor Warrants	187,734	187,734	$3.3700	January 13, 2025
Jan. 2020 Placement Agent Warrants	41,680	41,680	$4.9940	January 13, 2025
	229,414	229,414

25

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 March 31,
	2023		2022
Cost of sales	$	—	$	1
Product development	4		6
Selling, general, and administrative	22		37
Total stock-based compensation	$	26	$	44

Total unearned stock-based compensation was $144 thousand at March 31, 2023, compared to $285 thousand at 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 March 31, 2023 is expected to be recognized is approximately 2.6 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 detailed below. Note that there were no grants made during the three months ended March 31, 2023.

	Three months ended March 31,
	2023	2022
Fair value of options issued	NA	$	1.17
Exercise price	NA	$	1.48
Expected life of options (in years)	NA	6.1
Risk-free interest rate	NA	1.9		%
Expected volatility	NA	99.2		%
Dividend yield	NA	0.0		%

26

ENERGY FOCUS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2023

(Unaudited)

A summary of option activity under all outstanding stock incentive plans for the three months ended March 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, 2022	330,808	$	1.97
Granted	—	—
Canceled/forfeited	(65,903)	2.88
Balance at March 31, 2023	264,905	$	1.75	8.0
Vested and expected to vest at March 31, 2023	218,307	$	1.87	7.8
Exercisable at March 31, 2023	66,734	$	3.10	4.6

Restricted stock units

A summary of restricted stock unit activity under all outstanding stock incentive plans for the three months ended March 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, 2022	11,600	$	1.59
Granted	—	—
Balance at March 31, 2023	11,600	$	1.59	1.4

NOTE 9. COMMITMENTS AND CONTINGENCIES

Purchase Commitments

As of March 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 second quarter of 2023, and $15 thousand expected to ship 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 refundable tax credit against certain employer taxes. The ERTC was subsequently amended by the Taxpayer Certainty and Disaster Tax Relief Act of 2020, the Consolidated Appropriation Act of 2021, and the American Rescue Plan Act of 2021, all of which amended and extended the ERTC availability and guidelines under the CARES Act. Following these amendments, we and other businesses became retroactively eligible for the ERTC, and as a result of the foregoing legislation, are eligible to claim a refundable tax credit against the employer share of Social Security taxes equal to 70% of the qualified wages paid to employees between January 1, 2021 and September 30, 2021. Qualified wages are limited to $10,000 per employee per calendar quarter in 2021 for a maximum allowable ERTC per employee of $7,000 per calendar quarter in 2021.

For purposes of the amended ERTC, an eligible employer is defined as having experienced a significant (20% or more) decline in gross receipts during each of the first three 2021 calendar quarters when compared with the same quarter in 2019 or the immediately preceding quarter to the corresponding calendar quarter in 2019. The credit is taken against the

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 employer tax filings for the third quarter of 2021, we applied for and received a refund of $431 thousand, and we amended our filing for the second quarter of 2021, for which we received an additional refund of approximately $445 thousand. These amounts are recorded as other income in the Consolidated Statements of Operations during the quarter ended December 31, 2021, and the $445 thousand as an expected receivable in the Consolidated Balance Sheet as of March 31, 2023 and December 31, 2022.

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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 in Part I, Item 1, “Financial Statements” of this Quarterly Report, as well as Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of our Annual Report on Form 10-K for the year ended December 31, 2022 (“2022 Annual Report”).

Overview

Energy Focus, Inc. engages primarily in the design, development, manufacturing, marketing and sale of energy-efficient lighting systems and controls. We develop, market and sell high quality light-emitting diode (“LED”) lighting and controls products in the commercial market and military maritime market (“MMM”), 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 be the human wellness lighting and LED technology and market leader for the most demanding applications where performance, quality, value, environmental impact and health are considered paramount. We specialize in LED lighting retrofit by replacing fluorescent, high-intensity discharge lighting and other types of lamps in institutional buildings for primarily indoor lighting applications with our innovative, high-quality commercial and military-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.

In addition to continuously pursuing cost reductions, our strategy to combat these trends is to innovate both our technology and product offerings with differentiated products and solutions that offer greater, distinct value. Specific examples of these products we have developed include the RedCap®, our patented emergency backup battery integrated TLED, EnFocus™, our unique dimmable/color-tunable lighting and powerline control platform that we launched in 2020, and the second generation of EnFocus™ powerline control switches and circadian lighting system, 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.

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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 EnFocusTM powerline control technology and further leveraging our unique and proprietary technology such as RedCap®, as well as executing on our multi-channel sales strategy that targets key verticals, such as government, healthcare, education and commercial and industrial, complemented by our marketing outreach campaigns and expanding channel partnerships. We also plan to continue to develop advanced lighting and lighting control applications built upon the EnFocusTM platform that aim to serve 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 existing channels. In addition, we 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 cycles, unexpected delays in MMM and commercial customer retrofit budgets and project starts, and supply chain issues. There has also been continuing aggressive price competition in the lighting industry. We continued to incur losses and we have a substantial accumulated deficit, which continues to raise substantial doubt about our ability to continue as a going concern at March 31, 2023.

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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,
	2023		2022
Net sales	100.0	%	100.0	%
Cost of sales	98.2		101.3
Gross profit (loss)	1.8		(1.3)
Operating expenses:
Product development	16.6		24.4
Selling, general, and administrative	114.6		103.2
Total operating expenses	131.2		127.6
Loss from operations	(129.4)		(128.9)
Other expenses (income):
Interest expense	13.2		8.9
Other income	—		(1.5)
Other expenses	0.8		0.5
Net loss	(143.4)	%	(136.8)	%

Net sales

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

	Three months ended March 31,
	2023		2022
Commercial	$	321	$	1,134
MMM products	609		927
Total net sales	$	930	$	2,061

Net sales of $930 thousand for the first quarter of 2023 decreased $1.1 million, or 55%, compared to first quarter of 2022 net sales of $2.1 million, driven by a decrease in net MMM sales of $318 thousand due to an interrupted sales pipeline as management replaced the head of MMM sales mid-year 2022. The MMM sales cycle is prolonged and started to reverse its negative trend in the middle of the fourth quarter of 2022. Commercial net sales also decreased by $813 thousand, or 71.7%, as compared to first quarter of 2022.

Gross Profit

Gross profit margin was $17 thousand, or 2% of net sales, for the first quarter of 2023. This compares with gross loss of $26 thousand, or negative 1% of net sales, in the first quarter of 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 margin also consists of a variable component of approximately $300 thousand due primarily to lower volume. Gross margin for the first quarter of 2023 included favorable freight-in variances of $148 thousand, or 16% of net sales, favorable price and usage variances for material and labor of $236 thousand, or 26% of net sales, as well as favorable inventory reserves of $149 thousand, or 16% of net sales. Gross margin for the first quarter of 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.

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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.

Product development expenses were $154 thousand for the first quarter of 2023, down 69% from the first quarter of 2022. Product development expenses relate to customization of product offerings for key customers.

Selling, general and administrative

Selling, general and administrative expenses were $1.1 million for the first quarter of 2023, down 50% as compared to $2.1 million in the first quarter of 2022. The decrease in expenses from the first quarter of 2022 primarily relates to a reduction of $1.1 million in payroll and payroll-related expenses along with a decrease of $100 thousand in severance.

The primary drivers of the changes in expenses in the first quarter of 2023 versus the first quarter of 2022 were $0.6 million and $1.7 million, respectively, in payroll and payroll-related expenses, $0.3 million in both the first quarter of 2023 and the first quarter of 2022 in professional and legal 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 interest expense of $184 thousand for the first quarter of 2022. The decrease in interest expense is primarily related to interest attributable to the 2021 Streeterville Note (as defined below) as well as the amortization of debt costs related to the Credit Facilities (as defined below). The actual cash interest paid in the first quarter of 2023 was $0 compared to $78 thousand in the first quarter of 2022.

Other income and expenses

Other income of $30 thousand for the first quarter of 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 $11 thousand for the first quarter of 2022. Other expenses are mainly comprised of bank and collateral management fees.

Provision for income taxes

Due to the operating losses incurred during the three months ended March 31, 2023 and 2022, and after application of the annual limitation set forth under Section 382 of the Internal Revenue Code of 1986, as amended, it was not necessary to record a provision for U.S. federal income tax or various state income taxes as income tax benefits are fully offset by a valuation allowance recorded.

Net loss

For the three months ended March 31, 2023, our net loss of $1.3 million decreased 53% over the net loss for the three months ended March 31, 2022 of $2.8 million. The decrease is mainly due to lower fixed costs in the first quarter of 2023.

Financial condition

At March 31, 2023, we had $301 thousand in cash and a total of $1.7 million of debt, including $400 thousand outstanding under our Inventory Facility and $1.3 million aggregate principal amount of the 2022 Streeterville Note outstanding. We have historically incurred substantial losses, and as of March 31, 2023, we had an accumulated deficit of $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 60% of net sales.

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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.

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◦ 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 placements. 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 predict, we remain optimistic that facility capital budgets will start unfreezing, commercial building occupancy will rise, and our 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 provide additional growth opportunities. We plan to achieve profitability through developing and launching new, innovative products, such as our EnFocusTM powerline control systems, our Redcap® emergency battery backup tubular TLEDs, evaluating new growth opportunities such as GaN-based power supply circuitry and other energy solution products, as well as executing on our multi-channel sales strategy that targets key verticals, such as government, healthcare, education and commercial and industrial, complemented by our marketing outreach campaigns and expanding channel partnerships. We also plan to continue to develop advanced lighting and lighting control applications built upon the EnFocusTM platform that aim to serve the commercial markets. 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 compliance with Nasdaq Listing Rule 5605.

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On August 23, 2022, we received a letter from the Staff 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, 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 our common stock was 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 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 Quarterly Report, the Company believes it has regained compliance with the Minimum Stockholders’ Equity Rule for continued listing on the Nasdaq Capital Market. However, there can be no assurance that the Company will be able to regain compliance with the Bid Price Rule or maintain 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 accordance with the Panel’s decision, the Company’s common stock will be subject to delisting from Nasdaq.

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Liquidity and capital resources

Cash

At March 31, 2023, our cash balance was approximately $301 thousand, compared to approximately $52 thousand at December 31, 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):

	Three months ended March 31,
	2023		2022
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 $1.2 million for the three months ended March 31, 2023. The net loss for the three months ended March 31, 2023 was $1.3 million and was adjusted for non-cash items, including depreciation and amortization, stock-based compensation, provisions for inventory, warranty, and accounts receivable reserves and working capital changes. During the three 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 collection of accounts receivable and $27 thousand from accounts payable due to the timing of inventory receipts and payments. .

Net cash used in operating activities was $2.7 million for the three months ended March 31, 2022. The net loss for 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 the 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 receipts and payments, and $83 thousand through the timing of collection of accounts receivable. We used $370 thousand for inventories primarily due to the timing of inventory receipts, and we used $211 thousand due to changes in accrued and other liabilities (primarily due to a reduction of $0.1 million in accrued accounting and legal fees and $0.2 million in accrued bonuses; partially offset by increases of $100 thousand in accrued payroll).

Net cash used in investing activities

For the three months ended March 31, 2022, net cash used in investing activities was $35 thousand and resulted primarily from the purchase of software and a vehicle to support production operations, as well as development of the e-commerce platform.

Net cash provided by financing activities

Net cash provided by financing activities during the three months ended March 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 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 during the three months ended March 31, 2022 was $281 thousand, primarily related to net proceeds from borrowings under the Credit Facilities of $897 thousand and proceeds from the exercise of 156,446 warrants of $0.

Contractual and other obligations

As of March 31, 2023, we had approximately $1.4 million in outstanding purchase commitments for inventory. Almost all of this amount is expected to ship in the second quarter of 2023, with the balance expected to ship in the third quarter of 2023 and thereafter. Included in the total 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 as compared to those included in our 2022 Annual Report.

Critical accounting policies

There have been no material changes to our critical accounting policies as compared to those included in our 2022 Annual Report.

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 March 31, 2023, sales to our primary distributor for the U.S. Navy, a U.S. Navy shipbuilder, and a distributor to the U.S. Department of Defense, accounted for approximately 22%, 27%, and 11% of net sales, respectively. When sales for our top military customers are combined, total net sales of military products comprised approximately 49% of net sales for the same period. For the three months ended March 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 15%, 21%, and 19% of net sales, respectively. When sales to our primary distributor for the U.S. Navy are combined with sales to 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.

A distributor for the U.S. Navy, a U.S. Navy shipbuilder, and a distributor to the U.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 net trade accounts receivable 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

Evaluation of disclosure controls and procedures

We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) and Rule 15d-15(e) under 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, and that such information is accumulated and communicated to management, including our Chief Executive Officer, as appropriate, to allow for timely decisions regarding required disclosure.

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, as of March 31, 2023, the end of the period covered by this Quarterly 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 Executive Officer concluded that our disclosure controls and procedures were effective as of March 31, 2023.

Changes in internal control over financial reporting

During the quarterly period covered by this Quarterly Report, there have not been any changes in our internal control over financial reporting that materially affected, or are 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.

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 resign as Senior Vice President, General Counsel and Corporate Secretary of the Company later this year in order to pursue other personal and professional opportunities.

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ITEM 6. EXHIBITS

EXHIBIT INDEX

Exhibit Number	Description of Documents
3.1	Certificate of Incorporation of Energy Focus, Inc. (incorporated by reference to Appendix A to the Registrant’s Definitive Proxy Statement on Schedule 14A filed on May 1, 2006).
3.2	Certificate of Amendment to the Certificate of Incorporation of Energy Focus, Inc. filed with the Secretary of State of the State of Delaware on June 21, 2010 (incorporated by reference to Exhibit 3.2 to the Registrant’s Annual Report on Form 10-K filed on March 24, 2020).
3.3	Certificate of Amendment to the Certificate of Incorporation of Energy Focus, Inc. filed with the Secretary of State of the State of Delaware on October 9, 2012 (incorporated by reference to Exhibit 3.3 to the Registrant’s Annual Report on Form 10-K filed on March 24, 2020).
3.4	Certificate of Amendment to the Certificate of Incorporation of Energy Focus, Inc. filed with the Secretary of State of the State of Delaware on October 28, 2013 (incorporated by reference to Exhibit 3.4 to the Registrant’s Annual Report on Form 10-K filed on March 24, 2020).
3.5	Certificate of Amendment to the Certificate of Incorporation of Energy Focus, Inc. filed with the Secretary of State of the State of Delaware on July 16, 2014 (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on July 16, 2014).
3.6	Certificate of Amendment to the Certificate of Incorporation of Energy Focus, Inc. filed with the Secretary of State of the State of Delaware on July 24, 2015 (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on July 27, 2015).
3.7	Certificate of Amendment to the Certificate of Incorporation of Energy Focus, Inc. filed with the Secretary of State of the State of Delaware on January 15, 2020 (incorporated by reference to Exhibit 3.7 to the Registrant’s Annual Report on Form 10-K filed on March 24, 2020).
3.8	Certificate of Designation of Series A Convertible Preferred Stock of Energy Focus, Inc. (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on April 1, 2019).
3.9	Amendment to the Certificate of Designation of Series A Convertible Preferred Stock of Energy Focus, Inc. (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on May 30, 2019).
3.10	Amendment to the Certificate of Designation of Series A Convertible Preferred Stock of Energy Focus, Inc. filed with the Secretary of State of the State of Delaware on January 15, 2020 (incorporated by reference to Exhibit 3.10 to the Registrant’s Annual Report on Form 10-K filed on March 24, 2020).
3.11	Certificate of Amendment of Certificate of Incorporation, dated June 11, 2020 (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on June 11, 2020).
3.12	Bylaws of Energy Focus, Inc. (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on May 18, 2020).
3.13	Certificate of Ownership and Merger, Merging Energy Focus, Inc., a Delaware corporation, into Fiberstars, Inc., a Delaware corporation, filed with the Secretary of State of the State of Delaware on May 4, 2007 (incorporated by reference to Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q filed on May 10, 2007).
10.1	Securities Purchase Agreement, dated as of January 5, 2023, between the Company and Mei Yun (Gina) Huang (incorporated by reference to Exhibit 101 to the Registrant’s Current Report on Form 8-K filed on January 11, 2023).
10.2	Securities Purchase Agreement, dated as of January 10, 2023, between the Company and Mei Yun (Gina) Huang (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on January 11, 2023).
10.3	Form of Securities Purchase Agreement, dated as of January 17, 2023, between the Company and each purchaser named in the signature pages thereto (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on January 23, 2023).
10.4	Form of Registration Rights Agreement, dated as of January 17, 2023 between the Company and each purchaser named in the signature pages thereto (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on January 23, 2023).
10.5	Form of Exchange Agreement, dated January 17, 2023, between the Company and Mei Yun (Gina) Huang (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on January 23, 2023).
10.6	Second Amendment to Loan and Security Agreement, dated January 18, 2023, between the Company and Crossroads Financial Group, LLC (incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K filed on January 23, 2023).
10.7	Amendment to Promissory Note, dated January 17, 2023, between the Company and Streeterville Capital, LLC (incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K filed on January 23, 2023).

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10.8	Securities Purchase Agreement, dated as of February 24, 2023, between the Company and Mei Yun (Gina) Huang (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on February 28, 2023).
10.9+	Securities Purchase Agreement, dated as of March 28, 2023, between the Company and Chiao Chieh (Jay) Huang.
10.10+	Securities Purchase Agreement, dated as of March 30, 2023, between the Company and Mei Yun (Gina) Huang.
10.11+	Exchange Agreement, dated as of March 31, 2023, between the Company and Streeterville Capital, LLC.
31.1+	Certification of Principal Executive Officer and Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1++	Certification of Principal 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 March 31, 2023, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets at March 31, 2023 and December 31, 2022, (ii) Condensed Consolidated Statements of Operations for the three months ended March 31, 2023 and 2022, (iii) Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2023 and 2022, (v) Condensed Consolidated Statements of Cash Flows for the three and three months ended March 31, 2023 and 2022, and (vi) the Notes to Condensed Consolidated Financial Statements.
*104	Cover 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.

 

			ENERGY FOCUS, INC.
Date:	May 11, 2023	By:	/s/ Lesley A. Matt
			Lesley A. Matt
			Chief Executive Officer (Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer)

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EX-10.9

Exhibit 10.9

SECURITIES PURCHASE AGREEMENT

This Securities Purchase Agreement (this “Agreement”) is dated as of March 28, 2023, between Energy Focus, Inc., a Delaware corporation (the “Company”), and each purchaser identified on the signature pages hereto (each, including its successors and assigns, a “Purchaser” and, collectively, the “Purchasers”).

WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to Section 4(a)(2) of the Securities Act (as defined below), and Rule 506 promulgated thereunder, the Company desires to issue and sell to each Purchaser, and each Purchaser, severally and not jointly, desires to purchase from the Company, securities of the Company as more fully described in this Agreement.

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Company and each Purchaser agree as follows:

ARTICLE I.
DEFINITIONS

1.1    Definitions. In addition to the terms defined elsewhere in this Agreement, for all purposes of this Agreement, the following terms have the meanings set forth in this Section 1.1:

“Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 under the Securities Act.

“Board of Directors” means the board of directors of the Company.

“Business Day” means any day other than Saturday, Sunday or other day on which commercial banks in The City of New York are authorized or required by law to remain closed;provided, however, for clarification, commercial banks shall not be deemed to be authorized or required by law to remain closed due to “stay at home”, “shelter-in-place”, “non-essential employee”  or any other similar orders or restrictions or the closure of any physical branch locations at the direction of any governmental authority so long as the electronic funds transfer systems (including for wire transfers) of commercial banks in The City of New York generally are open for use by customers on such day.

“Closing” means the closing of the purchase and sale of the Securities pursuant to Section 2.1.

“Closing Date” means the Trading Day on which all of the Transaction Documents have been executed and delivered by the applicable parties thereto, but in no event later than the second Trading Day following the date hereof.

“Commission” means the United States Securities and Exchange Commission.

“Common Stock” means the common stock of the Company, par value $0.0001 per share, and any other class of securities into which such securities may hereafter be reclassified or changed.

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

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“Liens” means a lien, charge, pledge, security interest, encumbrance, right of first refusal, preemptive right or other restriction.

“Material Adverse Effect” shall have the meaning assigned to such term in Section 3.1(a).

“Per Share Purchase Price” equals $0.5069, subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of the Common Stock that occur after the date of this Agreement.

“Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

“Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, an informal investigation or partial proceeding, such as a deposition), whether commenced or threatened.

“Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.

“SEC Reports” means all reports, schedules, forms, statements and other documents required to be filed by the Company under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the two years preceding the date hereof (or such shorter period as the Company was required by law or regulation to file such material).

“Securities” means the Shares.

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

“Shares” means the shares of Common Stock issued to each Purchaser pursuant to this Agreement.

“Short Sales” means all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange Act (but shall not be deemed to include locating and/or borrowing shares of Common Stock).

“Subscription Amount” means, as to each Purchaser, the aggregate amount to be paid for Shares purchased hereunder as specified below such Purchaser’s name on the signature page of this Agreement and next to the heading “Subscription Amount,” in United States dollars and in immediately available funds.

“Trading Day” means a day on which the Nasdaq Capital Market is open for trading.

“Trading Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global

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Select Market, the New York Stock Exchange, OTCQB or OTCQX (or any successors to any of the foregoing).

“Transaction Documents” means this Agreement, the exhibits and all schedules hereto and any other documents or agreements executed in connection with the transactions contemplated hereunder.

“Transfer Agent” means Broadridge Corporate Issuer Solutions, P.O. Box 1342, Brentwood, New York 11717, and any successor transfer agent of the Company.

ARTICLE II.PURCHASE AND SALE

2.1    Closing. On the Closing Date, upon the terms and subject to the conditions set forth herein, the Company agrees to sell, and the Purchasers, severally and not jointly, agree to purchase, up to an aggregate of $400,000 of Shares. Each Purchaser’s Subscription Amount as set forth on the signature page hereto executed by such Purchaser shall be made available for “Delivery Versus Payment” settlement with the Company or its designee. The Company shall deliver to each Purchaser its respective Shares, and each Purchaser shall deliver the other items set forth in Section 2.2 at the Closing. The Closing shall occur at the offices of the Company or such other location as the parties shall mutually agree. Unless otherwise directed by the Purchasers, settlement of the Shares shall occur via “Delivery Versus Payment” (i.e., on the Closing Date, the Company shall issue the Shares registered in the respective Purchasers’ names and addresses and released by the Transfer Agent directly to the account(s) identified by each Purchaser; upon receipt of such Shares, payment for such Shares shall be made by the applicable Purchaser (or its clearing firm) by wire transfer to the Company).

2.2    Payment. On or prior to the Closing Date, except as otherwise indicated below, each shall be made available for “Delivery Versus Payment” settlement with the Company or its designee.

ARTICLE III.
REPRESENTATIONS AND WARRANTIES

3.1    Representations and Warranties of the Company. The Company hereby makes the following representations and warranties to each Purchaser:

(a)    Organization and Qualification. The Company is an entity duly incorporated or otherwise organized, validly existing and in good standing under the laws of Delaware, with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted. The Company is not in violation nor default of any of the provisions of its respective certificate of incorporation, bylaws or other organizational or charter documents. The Company is duly qualified to conduct business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, would not reasonably be expected to result in (i) a material adverse effect on the legality, validity or enforceability of any Transaction Document, (ii) a material adverse effect on the results of operations, assets, business, or condition (financial or otherwise) of the Company, or (iii) a material adverse effect on the Company’s ability to perform in any material respect on a timely basis its obligations under any Transaction Document (any of clauses (i), (ii) or (iii), a “Material Adverse Effect”) and no Proceeding has been instituted in any such jurisdiction revoking, limiting

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or curtailing or seeking to revoke, limit or curtail such power and authority or qualification.

(b)    Authorization; Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by this Agreement and each of the other Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of this Agreement and each of the other Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Company and no further action is required by the Company, the Board of Directors or the Company’s stockholders in connection herewith or therewith other than in connection with the Required Approvals. This Agreement and each other Transaction Document to which it is a party has been (or upon delivery will have been) duly executed by the Company and, when delivered in accordance with the terms hereof and thereof, will (assuming due execution, authorization and delivery by the parties thereto) constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law or public policy.

(c)    Issuance of the Securities. The Securities are duly authorized. The Shares, when issued and paid for in accordance with the applicable Transaction Documents, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company other than restrictions on transfer provided for in the Transaction Documents. The Company has reserved from its duly authorized capital stock the maximum number of shares of Common Stock issuable pursuant to the Transaction Documents.

3.2    Representations and Warranties of the Purchasers. Each Purchaser, for itself and for no other Purchaser, hereby represents and warrants as of the date hereof and as of the Closing Date to the Company as follows (unless as of a specific date therein, in which case they shall be accurate as of such date):

(a)    Organization; Authority. Such Purchaser is an entity duly incorporated or formed, validly existing and in good standing under the laws of the jurisdiction of its incorporation or formation with full right, corporate, partnership, limited liability company or similar power and authority to enter into and to consummate the transactions contemplated by the Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of the Transaction Documents and performance by such Purchaser of the transactions contemplated by the Transaction Documents have been duly authorized by all necessary corporate, partnership, limited liability company or similar action, as applicable, on the part of such Purchaser. Each Transaction Document to which it is a party has been duly executed by such Purchaser, and when delivered by such Purchaser in accordance with the terms thereof, will constitute the valid and legally binding obligation of such Purchaser, enforceable against such Purchaser in accordance with its terms, except: (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law or public policy.

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(b)    Understandings or Arrangements. Such Purchaser understands that the Securities are “restricted securities” and have not been registered under the Securities Act or any applicable state securities law and is acquiring the Securities as principal for its own account and not with a view to or for distributing or reselling such Securities or any part thereof in violation of the Securities Act or any applicable state securities law, has no present intention of distributing any of such Securities in violation of the Securities Act or any applicable state securities law and has no direct or indirect arrangement or understandings with any other persons to distribute or regarding the distribution of such Securities in violation of the Securities Act or any applicable state securities law (this representation and warranty not limiting such Purchaser’s right to sell the Securities pursuant to the Registration Statement or otherwise in compliance with applicable federal and state securities laws). Such Purchaser is acquiring the Securities hereunder in the ordinary course of its business.

(c)    Purchaser Status. At the time such Purchaser was offered the Securities, it was, and as of the date hereof it is either: (i) an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7), (a)(8), (a)(9), (a)(12), or (a)(13) under the Securities Act or (ii) a “qualified institutional buyer” as defined in Rule 144A(a) under the Securities Act.

(d)    Experience of Such Purchaser. Such Purchaser, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Securities, and has so evaluated the merits and risks of such investment. Such Purchaser is able to bear the economic risk of an investment in the Securities and, at the present time, is able to afford a complete loss of such investment.

(e)    General Solicitation. Such Purchaser is not purchasing the Securities as a result of any advertisement, article, notice or other communication regarding the Securities published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or, to the knowledge of such Purchaser, any other general solicitation or general advertisement.

(f)    Access to Information. Such Purchaser acknowledges that it has had the opportunity to review the Transaction Documents (including all exhibits and schedules thereto) and the SEC Reports and has been afforded, (i) the opportunity to ask such questions as it has deemed necessary of, and to receive answers from, representatives of the Company concerning the terms and conditions of the offering of the Securities and the merits and risks of investing in the Securities; (ii) access to information about the Company and its financial condition, results of operations, business, properties, management and prospects sufficient to enable it to evaluate its investment; and (iii) the opportunity to obtain such additional information that the Company possesses or can acquire without unreasonable effort or expense that is necessary to make an informed investment decision with respect to the investment.

(g)    Certain Transactions and Confidentiality. Other than consummating the transactions contemplated hereunder, such Purchaser has not, nor has any Person acting on behalf of or pursuant to any understanding with such Purchaser, directly or indirectly executed any purchases or sales, including Short Sales, of the securities of the Company during the period commencing as of the time that such Purchaser first received information about the offering of the Securities (written or oral) from the Company setting forth the material terms of the transactions contemplated hereunder and ending immediately prior to the execution hereof. Other than to other Persons party to this Agreement or to such Purchaser’s representatives that are bound by confidentiality

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obligations, including, without limitation, its officers, directors, partners, legal and other advisors, employees, agents and Affiliates, such Purchaser has maintained the confidentiality of all disclosures made to it in connection with this transaction (including the existence and terms of this transaction).

The Company acknowledges and agrees that the representations contained in this Section 3.2 shall not modify, amend or affect such Purchaser’s right to rely on the Company’s representations and warranties contained in this Agreement or any representations and warranties contained in any other Transaction Document or any other document or instrument executed and/or delivered in connection with this Agreement or the consummation of the transactions contemplated hereby, except to the extent that any such representations and warranties of the Company are made subject to or assuming the accuracy of the Purchaser’s representations contained in this Section 3.2. Notwithstanding the foregoing, for the avoidance of doubt, nothing contained herein shall constitute a representation or warranty, or preclude any actions, with respect to locating or borrowing shares in order to effect Short Sales or similar transactions in the future.

ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES

4.1    Transfer Restrictions.

(a)    The Securities may only be disposed of in compliance with state and federal securities laws. In connection with any transfer of the Securities other than pursuant to an effective registration statement or Rule 144, to the Company or to an Affiliate of a Purchaser, the Company may require the transferor thereof to provide to the Company an opinion of counsel selected by the transferor and reasonably acceptable to the Company, the form and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that such transfer does not require registration of such transferred Securities under the Securities Act. As a condition of transfer, any such transferee shall agree in writing to be bound by the terms of this Agreement and the Registration Rights Agreement and shall have the rights and obligations of a Purchaser under this Agreement and the Registration Rights Agreement.

(b)    The Purchasers agree to the imprinting of a legend on any of the Securities in the following form:

THIS SECURITY HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.

(c)    Each Purchaser, severally and not jointly with the other Purchasers, agrees with the Company that such Purchaser will sell any Securities pursuant to either the registration requirements of the Securities Act, including any applicable prospectus delivery requirements, or an exemption therefrom, and that if Securities are sold pursuant to a registration statement, they will be sold in compliance with the plan of distribution set forth therein, and acknowledges that the removal of the restrictive legend from the

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book entries representing Securities will be predicated upon the Company’s reliance upon this understanding.

4.2    Acknowledgment of Dilution. The Company acknowledges that the issuance of the Securities may result in dilution of the outstanding shares of Common Stock, which dilution may be substantial under certain market conditions. The Company further acknowledges that its obligations under the Transaction Documents, including, without limitation, its obligation to issue the Shares pursuant to the Transaction Documents, are unconditional and absolute and not subject to any right of set off, counterclaim, delay or reduction, regardless of the effect of any such dilution or any claim the Company may have against any Purchaser and regardless of the dilutive effect that such issuance may have on the ownership of the other stockholders of the Company.

ARTICLE V.MISCELLANEOUS

5.1    Termination.  This Agreement may be terminated by any Purchaser, as to such Purchaser’s obligations hereunder only and without any effect whatsoever on the obligations between the Company and the other Purchasers, by written notice to the other parties, if the Closing has not been consummated on or before the fifth (5th) Trading Day following the date hereof; provided, however, that no such termination will affect the right of any party to sue for any breach by any other party (or parties).

5.2    Fees and Expenses. Except as expressly set forth in the Transaction Documents to the contrary, each party shall pay the fees and expenses of its own advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of the Transaction Documents. The Company shall pay all Transfer Agent fees (including, without limitation, any fees required for same-day processing of any instruction letter delivered by the Company), stamp taxes and other taxes and duties levied in connection with the delivery of any Securities to the Purchasers.

5.3    Entire Agreement. The Transaction Documents, together with the exhibits and schedules thereto, contain the entire understanding of the parties with respect to the subject matter hereof and thereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules.

5.4    Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of: (a) the time of transmission, if such notice or communication is delivered via facsimile at the facsimile number or email attachment at the email address as set forth on the signature pages attached hereto at or prior to 5:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the time of transmission, if such notice or communication is delivered via facsimile at the facsimile number or email attachment at the email address as set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (c) the second Trading Day following the date of mailing, if sent by United States nationally recognized overnight courier service or (d) upon actual receipt by the party to whom such notice is required to be given. The address for such notices and communications shall be as set forth on the signature pages attached hereto. To the extent that any notice provided pursuant to any Transaction Document constitutes or contains material, non-public information regarding the Company, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K.

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5.5    Amendments; Waivers. No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed, in the case of an amendment, by the Company and Purchasers which purchased at least a majority in interest of the Shares based on the initial Subscription Amounts hereunder (or, prior to the Closing Date, the Company and each Purchaser) or, in the case of a waiver, by the party against whom enforcement of any such waived provision is sought. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right. Any amendment effected in accordance with this Section 5.5 shall be binding upon each Purchaser and holder of Securities and the Company.

5.6    Headings. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.

5.7    Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of each Purchaser (other than by merger). Any Purchaser may assign any or all of its rights under this Agreement to any Person to whom such Purchaser assigns or transfers any Securities, provided that such transferee agrees in writing to be bound, with respect to the transferred Securities, by the provisions of the Transaction Documents that apply to the “Purchasers.”

5.8    No Third-Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person.

5.9    Governing Law. All questions concerning the construction, validity, enforcement and interpretation of the Transaction Documents shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each party agrees that all legal Proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, partners, members, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any Action or Proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such Action or Proceeding is improper or is an inconvenient venue for such Proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such Action or Proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law. If any party shall commence an Action or Proceeding to enforce any provisions of the Transaction Documents, then, in addition to the obligations of the Company under Section 4.9, the prevailing party in such Action or Proceeding shall be reimbursed by the non-prevailing party for its reasonable attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such Action or Proceeding.

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5.10    Survival. The representations and warranties contained herein shall survive the Closing and the delivery of the Securities.

5.11    Execution. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to each other party, it being understood that the parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission, by e-mail delivery of a “.pdf” format data file, by other electronic signing created on an electronic platform (such as DocuSign) or by digital signing (such as Adobe Sign), such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile, “.pdf”, electronic signing or digital signing signature page were an original thereof.

5.12    Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

5.13    Rescission and Withdrawal Right. Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) any of the other Transaction Documents, whenever any Purchaser exercises a right, election, demand or option under a Transaction Document and the Company does not timely perform its related obligations within the periods therein provided, then such Purchaser may rescind or withdraw, in its sole discretion from time to time upon written notice to the Company, any relevant notice, demand or election in whole or in part without prejudice to its future actions and rights.

5.14    Replacement of Securities. If any certificate or instrument evidencing any Securities is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof (in the case of mutilation), or in lieu of and substitution therefor (in case of loss, theft or destruction), a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction and (in the case of loss, theft or destruction) of customary indemnity satisfactory to the Company. The applicant for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs (including customary indemnity) associated with the issuance of such replacement Securities.

5.15    Remedies. In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, each of the Purchasers and the Company will be entitled to specific performance under the Transaction Documents. The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations contained in the Transaction Documents and hereby agree to waive and not to assert in any Action for specific performance of any such obligation the defense that a remedy at law would be adequate.

5.16    Payment Set Aside. To the extent that the Company makes a payment or payments to any Purchaser pursuant to any Transaction Document or a Purchaser enforces or exercises its rights thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be

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fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other Person under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred.

5.17    Independent Nature of Purchasers’ Obligations and Rights. The obligations of each Purchaser under any Transaction Document are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance or non-performance of the obligations of any other Purchaser under any Transaction Document. Nothing contained herein or in any other Transaction Document, and no action taken by any Purchaser pursuant hereto or thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Documents. Each Purchaser shall be entitled to independently protect and enforce its rights including, without limitation, the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Purchaser to be joined as an additional party in any Proceeding for such purpose. Each Purchaser has been represented by its own separate legal counsel in its review and negotiation of the Transaction Documents. The Company has elected to provide all Purchasers with the same terms and Transaction Documents for the convenience of the Company and not because it was required or requested to do so by any of the Purchasers. It is expressly understood and agreed that each provision contained in this Agreement and in each other Transaction Document is between the Company and a Purchaser, solely, and not between the Company and the Purchasers, collectively, and not between and among the Purchasers.

5.18    Saturdays, Sundays, Holidays, etc.    If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then such action may be taken or such right may be exercised on the next succeeding Business Day.

5.19    Construction. The parties agree that each of them and/or their respective counsel have reviewed and had an opportunity to revise the Transaction Documents and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of the Transaction Documents or any amendments thereto. In addition, each and every reference to share prices and shares of Common Stock in any Transaction Document shall be subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of the Common Stock that occur after the date of this Agreement.

5.20    WAIVER OF JURY TRIAL. IN ANY ACTION, SUIT, OR PROCEEDING IN ANY JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE PARTIES EACH KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY WAIVES FOREVER TRIAL BY JURY.

(Signature Pages Follow)

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IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

ENERGY FOCUS, INC.	Address for Notice: Lesley A. Matt Chief Executive Officer 32000 Aurora Road, Suite B Solon, OH 44139
By:/s/ Lesley A. Matt      Name: Lesley A. Matt      Title: Chief Executive Officer With a copy to (which shall not constitute notice):	Email: lmatt@energyfocus.com
Energy Focus, Inc. James R. Warren Senior Vice President, General Counsel And Corporate Secretary 3200 Aurora Road, Suite B Solon, OH 44139 Email: jwarren@energyfocus.com

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGE FOR PURCHASER FOLLOWS]

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[PURCHASER SIGNATURE PAGES TO EFOI SECURITIES PURCHASE AGREEMENT]

IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

Name of Purchaser: Chiao Chieh (Jay) Huang

Signature of Purchaser: /s/ Chiao Chieh (Jay) Huang

Name of Authorized Signatory: N/A

Title of Authorized Signatory: N/A

Email Address of Authorized Signatory: ______________________________________________

Address for Notice to Purchaser:

Address for Delivery of Securities to Purchaser (if not same as address for notice):

Subscription Amount: $55,000, allocated as follows:

Shares: 108,502

EIN Number: _______________________

[SIGNATURE PAGES CONTINUE]

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EX-10.10

Exhibit 10.10

SECURITIES PURCHASE AGREEMENT

This Securities Purchase Agreement (this “Agreement”) is dated as of March 30, 2023, between Energy Focus, Inc., a Delaware corporation (the “Company”), and each purchaser identified on the signature pages hereto (each, including its successors and assigns, a “Purchaser” and, collectively, the “Purchasers”).

WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to Section 4(a)(2) of the Securities Act (as defined below), and Rule 506 promulgated thereunder, the Company desires to issue and sell to each Purchaser, and each Purchaser, severally and not jointly, desires to purchase from the Company, securities of the Company as more fully described in this Agreement.

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Company and each Purchaser agree as follows:

ARTICLE I.
DEFINITIONS

1.1    Definitions. In addition to the terms defined elsewhere in this Agreement, for all purposes of this Agreement, the following terms have the meanings set forth in this Section 1.1:

“Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 under the Securities Act.

“Board of Directors” means the board of directors of the Company.

“Business Day” means any day other than Saturday, Sunday or other day on which commercial banks in The City of New York are authorized or required by law to remain closed;provided, however, for clarification, commercial banks shall not be deemed to be authorized or required by law to remain closed due to “stay at home”, “shelter-in-place”, “non-essential employee”  or any other similar orders or restrictions or the closure of any physical branch locations at the direction of any governmental authority so long as the electronic funds transfer systems (including for wire transfers) of commercial banks in The City of New York generally are open for use by customers on such day.

“Closing” means the closing of the purchase and sale of the Securities pursuant to Section 2.1.

“Closing Date” means the Trading Day on which all of the Transaction Documents have been executed and delivered by the applicable parties thereto, but in no event later than the second Trading Day following the date hereof.

“Commission” means the United States Securities and Exchange Commission.

“Common Stock” means the common stock of the Company, par value $0.0001 per share, and any other class of securities into which such securities may hereafter be reclassified or changed.

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

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“Liens” means a lien, charge, pledge, security interest, encumbrance, right of first refusal, preemptive right or other restriction.

“Material Adverse Effect” shall have the meaning assigned to such term in Section 3.1(a).

“Per Share Purchase Price” equals $0.5000, subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of the Common Stock that occur after the date of this Agreement.

“Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

“Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, an informal investigation or partial proceeding, such as a deposition), whether commenced or threatened.

“Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.

“SEC Reports” means all reports, schedules, forms, statements and other documents required to be filed by the Company under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the two years preceding the date hereof (or such shorter period as the Company was required by law or regulation to file such material).

“Securities” means the Shares.

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

“Shares” means the shares of Common Stock issued to each Purchaser pursuant to this Agreement.

“Short Sales” means all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange Act (but shall not be deemed to include locating and/or borrowing shares of Common Stock).

“Subscription Amount” means, as to each Purchaser, the aggregate amount to be paid for Shares purchased hereunder as specified below such Purchaser’s name on the signature page of this Agreement and next to the heading “Subscription Amount,” in United States dollars and in immediately available funds.

“Trading Day” means a day on which the Nasdaq Capital Market is open for trading.

“Trading Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global

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Select Market, the New York Stock Exchange, OTCQB or OTCQX (or any successors to any of the foregoing).

“Transaction Documents” means this Agreement, the exhibits and all schedules hereto and any other documents or agreements executed in connection with the transactions contemplated hereunder.

“Transfer Agent” means Broadridge Corporate Issuer Solutions, P.O. Box 1342, Brentwood, New York 11717, and any successor transfer agent of the Company.

ARTICLE II.PURCHASE AND SALE

2.1    Closing. On the Closing Date, upon the terms and subject to the conditions set forth herein, the Company agrees to sell, and the Purchasers, severally and not jointly, agree to purchase, up to an aggregate of $400,000 of Shares. Each Purchaser’s Subscription Amount as set forth on the signature page hereto executed by such Purchaser shall be made available for “Delivery Versus Payment” settlement with the Company or its designee. The Company shall deliver to each Purchaser its respective Shares, and each Purchaser shall deliver the other items set forth in Section 2.2 at the Closing. The Closing shall occur at the offices of the Company or such other location as the parties shall mutually agree. Unless otherwise directed by the Purchasers, settlement of the Shares shall occur via “Delivery Versus Payment” (i.e., on the Closing Date, the Company shall issue the Shares registered in the respective Purchasers’ names and addresses and released by the Transfer Agent directly to the account(s) identified by each Purchaser; upon receipt of such Shares, payment for such Shares shall be made by the applicable Purchaser (or its clearing firm) by wire transfer to the Company).

2.2    Payment. On or prior to the Closing Date, except as otherwise indicated below, each shall be made available for “Delivery Versus Payment” settlement with the Company or its designee.

ARTICLE III.
REPRESENTATIONS AND WARRANTIES

3.1    Representations and Warranties of the Company. The Company hereby makes the following representations and warranties to each Purchaser:

(a)    Organization and Qualification. The Company is an entity duly incorporated or otherwise organized, validly existing and in good standing under the laws of Delaware, with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted. The Company is not in violation nor default of any of the provisions of its respective certificate of incorporation, bylaws or other organizational or charter documents. The Company is duly qualified to conduct business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, would not reasonably be expected to result in (i) a material adverse effect on the legality, validity or enforceability of any Transaction Document, (ii) a material adverse effect on the results of operations, assets, business, or condition (financial or otherwise) of the Company, or (iii) a material adverse effect on the Company’s ability to perform in any material respect on a timely basis its obligations under any Transaction Document (any of clauses (i), (ii) or (iii), a “Material Adverse Effect”) and no Proceeding has been instituted in any such jurisdiction revoking, limiting

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or curtailing or seeking to revoke, limit or curtail such power and authority or qualification.

(b)    Authorization; Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by this Agreement and each of the other Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of this Agreement and each of the other Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Company and no further action is required by the Company, the Board of Directors or the Company’s stockholders in connection herewith or therewith other than in connection with the Required Approvals. This Agreement and each other Transaction Document to which it is a party has been (or upon delivery will have been) duly executed by the Company and, when delivered in accordance with the terms hereof and thereof, will (assuming due execution, authorization and delivery by the parties thereto) constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law or public policy.

(c)    Issuance of the Securities. The Securities are duly authorized. The Shares, when issued and paid for in accordance with the applicable Transaction Documents, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company other than restrictions on transfer provided for in the Transaction Documents. The Company has reserved from its duly authorized capital stock the maximum number of shares of Common Stock issuable pursuant to the Transaction Documents.

3.2    Representations and Warranties of the Purchasers. Each Purchaser, for itself and for no other Purchaser, hereby represents and warrants as of the date hereof and as of the Closing Date to the Company as follows (unless as of a specific date therein, in which case they shall be accurate as of such date):

(a)    Organization; Authority. Such Purchaser is an entity duly incorporated or formed, validly existing and in good standing under the laws of the jurisdiction of its incorporation or formation with full right, corporate, partnership, limited liability company or similar power and authority to enter into and to consummate the transactions contemplated by the Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of the Transaction Documents and performance by such Purchaser of the transactions contemplated by the Transaction Documents have been duly authorized by all necessary corporate, partnership, limited liability company or similar action, as applicable, on the part of such Purchaser. Each Transaction Document to which it is a party has been duly executed by such Purchaser, and when delivered by such Purchaser in accordance with the terms thereof, will constitute the valid and legally binding obligation of such Purchaser, enforceable against such Purchaser in accordance with its terms, except: (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law or public policy.

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(b)    Understandings or Arrangements. Such Purchaser understands that the Securities are “restricted securities” and have not been registered under the Securities Act or any applicable state securities law and is acquiring the Securities as principal for its own account and not with a view to or for distributing or reselling such Securities or any part thereof in violation of the Securities Act or any applicable state securities law, has no present intention of distributing any of such Securities in violation of the Securities Act or any applicable state securities law and has no direct or indirect arrangement or understandings with any other persons to distribute or regarding the distribution of such Securities in violation of the Securities Act or any applicable state securities law (this representation and warranty not limiting such Purchaser’s right to sell the Securities pursuant to the Registration Statement or otherwise in compliance with applicable federal and state securities laws). Such Purchaser is acquiring the Securities hereunder in the ordinary course of its business.

(c)    Purchaser Status. At the time such Purchaser was offered the Securities, it was, and as of the date hereof it is either: (i) an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7), (a)(8), (a)(9), (a)(12), or (a)(13) under the Securities Act or (ii) a “qualified institutional buyer” as defined in Rule 144A(a) under the Securities Act.

(d)    Experience of Such Purchaser. Such Purchaser, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Securities, and has so evaluated the merits and risks of such investment. Such Purchaser is able to bear the economic risk of an investment in the Securities and, at the present time, is able to afford a complete loss of such investment.

(e)    General Solicitation. Such Purchaser is not purchasing the Securities as a result of any advertisement, article, notice or other communication regarding the Securities published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or, to the knowledge of such Purchaser, any other general solicitation or general advertisement.

(f)    Access to Information. Such Purchaser acknowledges that it has had the opportunity to review the Transaction Documents (including all exhibits and schedules thereto) and the SEC Reports and has been afforded, (i) the opportunity to ask such questions as it has deemed necessary of, and to receive answers from, representatives of the Company concerning the terms and conditions of the offering of the Securities and the merits and risks of investing in the Securities; (ii) access to information about the Company and its financial condition, results of operations, business, properties, management and prospects sufficient to enable it to evaluate its investment; and (iii) the opportunity to obtain such additional information that the Company possesses or can acquire without unreasonable effort or expense that is necessary to make an informed investment decision with respect to the investment.

(g)    Certain Transactions and Confidentiality. Other than consummating the transactions contemplated hereunder, such Purchaser has not, nor has any Person acting on behalf of or pursuant to any understanding with such Purchaser, directly or indirectly executed any purchases or sales, including Short Sales, of the securities of the Company during the period commencing as of the time that such Purchaser first received information about the offering of the Securities (written or oral) from the Company setting forth the material terms of the transactions contemplated hereunder and ending immediately prior to the execution hereof. Other than to other Persons party to this Agreement or to such Purchaser’s representatives that are bound by confidentiality

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obligations, including, without limitation, its officers, directors, partners, legal and other advisors, employees, agents and Affiliates, such Purchaser has maintained the confidentiality of all disclosures made to it in connection with this transaction (including the existence and terms of this transaction).

The Company acknowledges and agrees that the representations contained in this Section 3.2 shall not modify, amend or affect such Purchaser’s right to rely on the Company’s representations and warranties contained in this Agreement or any representations and warranties contained in any other Transaction Document or any other document or instrument executed and/or delivered in connection with this Agreement or the consummation of the transactions contemplated hereby, except to the extent that any such representations and warranties of the Company are made subject to or assuming the accuracy of the Purchaser’s representations contained in this Section 3.2. Notwithstanding the foregoing, for the avoidance of doubt, nothing contained herein shall constitute a representation or warranty, or preclude any actions, with respect to locating or borrowing shares in order to effect Short Sales or similar transactions in the future.

ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES

4.1    Transfer Restrictions.

(a)    The Securities may only be disposed of in compliance with state and federal securities laws. In connection with any transfer of the Securities other than pursuant to an effective registration statement or Rule 144, to the Company or to an Affiliate of a Purchaser, the Company may require the transferor thereof to provide to the Company an opinion of counsel selected by the transferor and reasonably acceptable to the Company, the form and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that such transfer does not require registration of such transferred Securities under the Securities Act. As a condition of transfer, any such transferee shall agree in writing to be bound by the terms of this Agreement and the Registration Rights Agreement and shall have the rights and obligations of a Purchaser under this Agreement and the Registration Rights Agreement.

(b)    The Purchasers agree to the imprinting of a legend on any of the Securities in the following form:

THIS SECURITY HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.

(c)    Each Purchaser, severally and not jointly with the other Purchasers, agrees with the Company that such Purchaser will sell any Securities pursuant to either the registration requirements of the Securities Act, including any applicable prospectus delivery requirements, or an exemption therefrom, and that if Securities are sold pursuant to a registration statement, they will be sold in compliance with the plan of distribution set forth therein, and acknowledges that the removal of the restrictive legend from the

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book entries representing Securities will be predicated upon the Company’s reliance upon this understanding.

4.2    Acknowledgment of Dilution. The Company acknowledges that the issuance of the Securities may result in dilution of the outstanding shares of Common Stock, which dilution may be substantial under certain market conditions. The Company further acknowledges that its obligations under the Transaction Documents, including, without limitation, its obligation to issue the Shares pursuant to the Transaction Documents, are unconditional and absolute and not subject to any right of set off, counterclaim, delay or reduction, regardless of the effect of any such dilution or any claim the Company may have against any Purchaser and regardless of the dilutive effect that such issuance may have on the ownership of the other stockholders of the Company.

ARTICLE V.MISCELLANEOUS

5.1    Termination.  This Agreement may be terminated by any Purchaser, as to such Purchaser’s obligations hereunder only and without any effect whatsoever on the obligations between the Company and the other Purchasers, by written notice to the other parties, if the Closing has not been consummated on or before the fifth (5th) Trading Day following the date hereof; provided, however, that no such termination will affect the right of any party to sue for any breach by any other party (or parties).

5.2    Fees and Expenses. Except as expressly set forth in the Transaction Documents to the contrary, each party shall pay the fees and expenses of its own advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of the Transaction Documents. The Company shall pay all Transfer Agent fees (including, without limitation, any fees required for same-day processing of any instruction letter delivered by the Company), stamp taxes and other taxes and duties levied in connection with the delivery of any Securities to the Purchasers.

5.3    Entire Agreement. The Transaction Documents, together with the exhibits and schedules thereto, contain the entire understanding of the parties with respect to the subject matter hereof and thereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules.

5.4    Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of: (a) the time of transmission, if such notice or communication is delivered via facsimile at the facsimile number or email attachment at the email address as set forth on the signature pages attached hereto at or prior to 5:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the time of transmission, if such notice or communication is delivered via facsimile at the facsimile number or email attachment at the email address as set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (c) the second Trading Day following the date of mailing, if sent by United States nationally recognized overnight courier service or (d) upon actual receipt by the party to whom such notice is required to be given. The address for such notices and communications shall be as set forth on the signature pages attached hereto. To the extent that any notice provided pursuant to any Transaction Document constitutes or contains material, non-public information regarding the Company, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K.

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5.5    Amendments; Waivers. No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed, in the case of an amendment, by the Company and Purchasers which purchased at least a majority in interest of the Shares based on the initial Subscription Amounts hereunder (or, prior to the Closing Date, the Company and each Purchaser) or, in the case of a waiver, by the party against whom enforcement of any such waived provision is sought. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right. Any amendment effected in accordance with this Section 5.5 shall be binding upon each Purchaser and holder of Securities and the Company.

5.6    Headings. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.

5.7    Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of each Purchaser (other than by merger). Any Purchaser may assign any or all of its rights under this Agreement to any Person to whom such Purchaser assigns or transfers any Securities, provided that such transferee agrees in writing to be bound, with respect to the transferred Securities, by the provisions of the Transaction Documents that apply to the “Purchasers.”

5.8    No Third-Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person.

5.9    Governing Law. All questions concerning the construction, validity, enforcement and interpretation of the Transaction Documents shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each party agrees that all legal Proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, partners, members, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any Action or Proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such Action or Proceeding is improper or is an inconvenient venue for such Proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such Action or Proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law. If any party shall commence an Action or Proceeding to enforce any provisions of the Transaction Documents, then, in addition to the obligations of the Company under Section 4.9, the prevailing party in such Action or Proceeding shall be reimbursed by the non-prevailing party for its reasonable attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such Action or Proceeding.

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5.10    Survival. The representations and warranties contained herein shall survive the Closing and the delivery of the Securities.

5.11    Execution. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to each other party, it being understood that the parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission, by e-mail delivery of a “.pdf” format data file, by other electronic signing created on an electronic platform (such as DocuSign) or by digital signing (such as Adobe Sign), such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile, “.pdf”, electronic signing or digital signing signature page were an original thereof.

5.12    Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

5.13    Rescission and Withdrawal Right. Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) any of the other Transaction Documents, whenever any Purchaser exercises a right, election, demand or option under a Transaction Document and the Company does not timely perform its related obligations within the periods therein provided, then such Purchaser may rescind or withdraw, in its sole discretion from time to time upon written notice to the Company, any relevant notice, demand or election in whole or in part without prejudice to its future actions and rights.

5.14    Replacement of Securities. If any certificate or instrument evidencing any Securities is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof (in the case of mutilation), or in lieu of and substitution therefor (in case of loss, theft or destruction), a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction and (in the case of loss, theft or destruction) of customary indemnity satisfactory to the Company. The applicant for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs (including customary indemnity) associated with the issuance of such replacement Securities.

5.15    Remedies. In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, each of the Purchasers and the Company will be entitled to specific performance under the Transaction Documents. The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations contained in the Transaction Documents and hereby agree to waive and not to assert in any Action for specific performance of any such obligation the defense that a remedy at law would be adequate.

5.16    Payment Set Aside. To the extent that the Company makes a payment or payments to any Purchaser pursuant to any Transaction Document or a Purchaser enforces or exercises its rights thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be

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fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other Person under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred.

5.17    Independent Nature of Purchasers’ Obligations and Rights. The obligations of each Purchaser under any Transaction Document are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance or non-performance of the obligations of any other Purchaser under any Transaction Document. Nothing contained herein or in any other Transaction Document, and no action taken by any Purchaser pursuant hereto or thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Documents. Each Purchaser shall be entitled to independently protect and enforce its rights including, without limitation, the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Purchaser to be joined as an additional party in any Proceeding for such purpose. Each Purchaser has been represented by its own separate legal counsel in its review and negotiation of the Transaction Documents. The Company has elected to provide all Purchasers with the same terms and Transaction Documents for the convenience of the Company and not because it was required or requested to do so by any of the Purchasers. It is expressly understood and agreed that each provision contained in this Agreement and in each other Transaction Document is between the Company and a Purchaser, solely, and not between the Company and the Purchasers, collectively, and not between and among the Purchasers.

5.18    Saturdays, Sundays, Holidays, etc.    If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then such action may be taken or such right may be exercised on the next succeeding Business Day.

5.19    Construction. The parties agree that each of them and/or their respective counsel have reviewed and had an opportunity to revise the Transaction Documents and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of the Transaction Documents or any amendments thereto. In addition, each and every reference to share prices and shares of Common Stock in any Transaction Document shall be subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of the Common Stock that occur after the date of this Agreement.

5.20    WAIVER OF JURY TRIAL. IN ANY ACTION, SUIT, OR PROCEEDING IN ANY JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE PARTIES EACH KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY WAIVES FOREVER TRIAL BY JURY.

(Signature Pages Follow)

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IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

ENERGY FOCUS, INC.	Address for Notice: Lesley A. Matt Chief Executive Officer 32000 Aurora Road, Suite B Solon, OH 44139
By:/s/ Lesley A. Matt      Name: Lesley A. Matt      Title: Chief Executive Officer With a copy to (which shall not constitute notice):	Email: lmatt@energyfocus.com
Energy Focus, Inc. James R. Warren Senior Vice President, General Counsel And Corporate Secretary 3200 Aurora Road, Suite B Solon, OH 44139 Email: jwarren@energyfocus.com

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGE FOR PURCHASER FOLLOWS]

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[PURCHASER SIGNATURE PAGES TO EFOI SECURITIES PURCHASE AGREEMENT]

IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

Name of Purchaser: Mei Yun Huang

Signature of Purchaser: /s/ Mei Yun Huang

Name of Authorized Signatory: N/A

Title of Authorized Signatory: N/A

Email Address of Authorized Signatory: ______________________________________________

Address for Notice to Purchaser:

Address for Delivery of Securities to Purchaser (if not same as address for notice):

Subscription Amount: $250,000, allocated as follows:

Shares: 500,000

EIN Number: _______________________

[SIGNATURE PAGES CONTINUE]

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EX-10.11

Exhibit 10.11

THE EXCHANGE CONTEMPLATED HEREIN IS INTENDED TO COMPORT WITH THE REQUIREMENTS OF SECTION 3(a)(9) OF THE SECURITIES ACT OF 1933, AS AMENDED.

EXCHANGE AGREEMENT

This Exchange Agreement (this “Agreement”) is entered into as of March 31, 2023 by and between Streeterville Capital, LLC, a Utah limited liability company (“Lender”), and Energy Focus, Inc., a Delaware corporation (“Borrower”). Capitalized terms used in this Agreement without definition shall have the meanings given to them in the Original Note (as defined below).

A.    Borrower previously sold and issued to Lender that certain Promissory Note dated April 21, 2022 in the original principal amount of $2,000,000.00 (as amended, the “Original Note”) pursuant to that certain Note Purchase Agreement dated April 21, 2022 by and between Lender and Borrower (the “Purchase Agreement,” and together with the Original Note and all other documents entered into in conjunction therewith, the “Transaction Documents”).

B.    Subject to the terms of this Agreement, Borrower and Lender desire to partition a new Promissory Note in the form of the Original Note (the “Partitioned Note”) in the original principal amount of $250,000.00 (the “Exchange Amount”) from the Original Note and then cause the outstanding balance of the Original Note to be reduced by an amount equal to the Exchange Amount, which represents the total outstanding balance (including principal and interest, if any) of the Partitioned Note.

C.    Borrower and Lender desire to exchange (such exchange is referred to as the “Exchange”) the Partitioned Note for 502,008 shares of Borrower’s Common Stock, par value $0.0001 (the “Common Stock,” and such 502,008 shares of Common Stock, the “Exchange Shares”), according to the terms and conditions of this Agreement.

D.    The Exchange will consist of Lender surrendering the Partitioned Note in exchange for the Exchange Shares, which, subject to the accuracy of Lender’s representations in Section 7 below, will be issued free of any restrictive securities legend.

E.    Other than the surrender of the Partitioned Note, no consideration of any kind whatsoever shall be given by Lender to Borrower in connection with this Agreement or the Exchange.

F.    Lender and Borrower now desire to exchange the Partitioned Note for the Exchange Shares on the terms and conditions set forth herein.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

1.    Recitals and Definitions. Each of the parties hereto acknowledges and agrees that the recitals set forth above in this Agreement are true and accurate, are contractual in nature, and are hereby incorporated into and made a part of this Agreement.

2.    Partition. Effective as of the date hereof, Borrower and Lender agree that the Partitioned Note is hereby partitioned from the Original Note. Following such partition of the Original Note, Borrower and Lender agree that the Original Note shall remain in full force and effect, provided that the outstanding balance of the Original Note shall be reduced by an amount equal to the Exchange Amount.

3.    Issuance of Shares. The Exchange shall occur with Lender surrendering the Partitioned Note to Borrower on March 31, 2023, on which date (a) the Partitioned Note shall be cancelled and all obligations of Borrower under the Partitioned Note shall be deemed fulfilled and (b) the Borrower shall provide written instructions to the Borrower’s transfer agent to issue the Exchange Shares into the name of the Lender on the stock records of the Borrower. Pursuant to the terms and conditions of this Agreement, the Exchange Shares shall be delivered to Lender on or before April 4, 2023. All Exchange Shares delivered hereunder shall be delivered via DWAC to Lender’s designated brokerage account. Borrower agrees to provide all necessary cooperation or assistance that may be required to cause all Exchange Shares delivered hereunder to become Free Trading (the first date on which all Exchange Shares become Free Trading, the “Free Trading Date”). For purposes hereof, the term “Free Trading” means that (a) the Exchange Shares have been cleared and approved for public resale by the compliance departments of Lender’s brokerage firm and the clearing firm servicing such brokerage, and (b) the Exchange Shares are held in the name of the clearing firm servicing Lender’s brokerage firm and have been deposited into such clearing firm’s account for the benefit of Lender.

4.    Closing. The closing of the transaction contemplated hereby (the “Closing”) along with the delivery of the Exchange Shares to Lender shall occur on the date that is mutually agreed to by Borrower and Lender by means of the exchange by express courier or email of .pdf documents, but shall be deemed to have occurred at the offices of Hansen Black Anderson Ashcraft PLLC in Lehi, Utah

5.    Application to Payment Schedule. Borrower and Lender agree that the Exchange Amount will be applied to the payment schedule set forth in Section 3 of the Note as follows: (a) $125,000.00 will be credited toward the $250,000.00 payment due on or before July 14, 2023; (b) $7,640.00 will be credited toward the November 1, 2024 payment; and (c) $117,360.00 will be credited toward the December 1, 2024 payment.

6.    Holding Period, Tacking and Legal Opinion. Borrower represents, warrants and agrees that for the purposes of Rule 144 (“Rule 144”) of the Securities Act of 1933, as amended (the “Securities Act”), the holding period of the Partitioned Note and the Exchange Shares will include Lender’s holding period of the Original Note from April 21, 2022. Borrower agrees not to take a position contrary to this Section 5 in any document, statement, setting, or situation. Subject to the accuracy of Lender’s representations in Section 7 below, Borrower agrees to take all action necessary to issue the Exchange Shares without restriction, and not containing any restrictive legend without the need for any action by Lender; provided that the applicable holding period has been met. In furtherance thereof, prior to the Closing, counsel to Lender may, in its sole discretion, provide an opinion that: (a) the Exchange Shares may be resold pursuant to Rule 144 without volume or manner-of-sale restrictions; and (b) the transactions contemplated hereby and all other documents associated with this transaction comport with the requirements of Section 3(a)(9) of the Securities Act. Borrower represents that it is not subject to Rule 144(i). The Exchange Shares are being issued in substitution of and exchange for and not in satisfaction of the Partitioned Note. The Exchange Shares shall not constitute a novation or satisfaction and accord of the Partitioned Note. Borrower acknowledges and understands that the representations and agreements of Borrower in this Section 5 are a material inducement to Lender’s decision to consummate the transactions contemplated herein.

7.    Borrower’s Representations, Warranties and Agreements. In order to induce Lender to enter into this Agreement, Borrower, for itself, and for its affiliates, successors and assigns, hereby acknowledges, represents, warrants and agrees as follows: (a) Borrower has full power and authority to enter into this Agreement and to incur and perform all obligations and covenants contained herein, all of which have been duly authorized by all proper and necessary action, (b) no consent, approval, filing or registration with or notice to any governmental authority is required as a condition to the validity of this Agreement or the performance of any of

2

the obligations of Borrower hereunder, other than periodic filing obligations under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), (c) no Event of Default has occurred under the Original Note and any Events of Default that may have occurred thereunder have not been, and are not hereby, waived by Lender, (d) except as specifically set forth herein, nothing herein shall in any manner release, lessen, modify or otherwise affect Borrower’s obligations under the Original Note, (e) the issuance of the Exchange Shares has been duly authorized by all necessary corporate action and, when issued in exchange for the Partitioned Note pursuant to this terms of this Agreement, the Exchange Shares will be validly issued, fully paid and non-assessable, free and clear of all taxes, liens, claims, pledges, mortgages, restrictions, obligations, security interests and encumbrances of any kind, nature and description, (f) Borrower has not received any consideration in any form whatsoever for entering into this Agreement, other than the surrender of the Partitioned Note, and (g) Borrower has taken no action which would give rise to any claim by any person for a brokerage commission, placement agent or finder’s fee or other similar payment by Borrower related to this Agreement.

8.    Lender’s Representations, Warranties and Agreements. In order to induce Borrower to enter into this Agreement, Lender, for itself, and for its affiliates, successors and assigns, hereby acknowledges, represents, warrants and agrees as follows: (a) Lender has full power and authority to enter into this Agreement and to incur and perform all obligations and covenants contained herein, all of which have been duly authorized by all proper and necessary action, (b) no consent, approval, filing or registration with or notice to any governmental authority is required as a condition to the validity of this Agreement or the performance of any of the obligations of Lender hereunder, (c) Lender has received no commission or remuneration from Borrower in connection with the Exchange, (d) Lender was not solicited by anyone on behalf of Lender to enter into this Agreement and perform the Exchange, (e) Lender is not providing anything of value for the Exchange Shares to be issued except for the Partitioned Note, (f) Lender is an “accredited investor” as defined in Regulation D promulgated under the Securities Act and has sufficient knowledge and experience in financial and business matters so as to be capable of bearing the economic risks of participation in the Exchange, and it is capable of evaluating the merits and risks of participating in the Exchange, including any risks associated with surrendering any rights related to the Partitioned Note in exchange from the rights and risks related to the Exchange Shares, (g) Lender has good and marketable title to the Partitioned Note being delivered pursuant to the Exchange, the Partitioned Note will be delivered free and clear of all taxes, liens, claims, pledges, mortgages, restrictions, obligations, security interests and encumbrances of any kind, nature and description, and (h) Lender has taken no action which would give rise to any claim by any person for a brokerage commission, placement agent or finder’s fee or other similar payment by Borrower related to this Agreement.

9.    Ownership Limitation. Notwithstanding anything to the contrary contained in this Agreement, Borrower shall not deliver Exchange Shares in an amount that would cause Lender (together with its affiliates) to beneficially own a number of shares exceeding 9.99% of the number of shares of Common Stock outstanding on such date (including for such purpose the Common Stock issuable upon such issuance) (the “Maximum Percentage”). For purposes of this section, beneficial ownership of Common Stock will be determined pursuant to Section 13(d) of the Exchange Act. By written notice to Borrower, Lender may increase, decrease or waive the Maximum Percentage as to itself, but any such waiver will not be effective until the 61st day after delivery thereof. The foregoing 61-day notice requirement is enforceable, unconditional and non-waivable and shall apply to all affiliates and assigns of Lender.

10.    Governing Law; Venue. This Agreement shall be construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Agreement shall be governed by, the internal laws of the State of Utah, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Utah or any other jurisdictions) that would cause the application of the laws of any

3

jurisdictions other than the State of Utah. The provisions set forth in the Purchase Agreement to determine the proper venue for any disputes are incorporated herein by this reference. BORROWER HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

11.    Arbitration of Claims. This Agreement shall be subject to the arbitration of claims provisions set forth in Section 7.1 of the Purchase Agreement.

12.    Counterparts. This Agreement may be executed in any number of counterparts with the same effect as if all signing parties had signed the same document. All counterparts shall be construed together and constitute the same instrument. The exchange of copies of this Agreement and of signature pages by facsimile transmission or other electronic transmission (including email) shall constitute effective execution and delivery of this Agreement as to the parties and may be used in lieu of the original Agreement for all purposes. Signatures of the parties transmitted by facsimile transmission or other electronic transmission (including email) shall be deemed to be their original signatures for all purposes.

13.    Attorneys’ Fees. In the event of any action at law or in equity to enforce or interpret the terms of this Agreement, the parties agree that the party who is awarded the most money shall be deemed the prevailing party for all purposes and shall therefore be entitled to an additional award of the full amount of the attorneys’ fees and expenses  paid by such prevailing party in connection with the litigation and/or dispute without reduction or apportionment based upon the individual claims or defenses  giving rise to the fees and expenses.  Nothing herein shall restrict or impair a court’s power to award fees and expenses for frivolous or bad faith pleading.

14.    No Reliance. Borrower acknowledges and agrees that neither Lender nor any of its officers, directors, members, managers, equity holders, representatives or agents has made any representations or warranties to Borrower or any of its agents, representatives, officers, directors, or employees except as expressly set forth in this Agreement and the Transaction Documents and, in making its decision to enter into the transactions contemplated by this Agreement, Borrower is not relying on any representation, warranty, covenant or promise of Lender or its officers, directors, members, managers, equity holders, agents or representatives other than as set forth in this Agreement.

15.    Severability. If any part of this Agreement is construed to be in violation of any law, such part shall be modified to achieve the objective of the parties to the fullest extent permitted and the balance of this Agreement shall remain in full force and effect.

16.    Entire Agreement. This Agreement, together with the Transaction Documents, and all other documents referred to herein, supersedes all other prior oral or written agreements between Borrower, Lender, its affiliates and persons acting on its behalf with respect to the matters discussed herein, and this Agreement and the instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither Lender nor Borrower makes any representation, warranty, covenant or undertaking with respect to such matters.

17.    Amendments. This Agreement may be amended, modified, or supplemented only by written agreement of the parties. No provision of this Agreement may be waived except in writing signed by the party against whom such waiver is sought to be enforced.

18.    Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns. This Agreement or any of the

4

severable rights and obligations inuring to the benefit of or to be performed by Lender hereunder may be assigned by Lender to a third party, including its financing sources, in whole or in part. Borrower may not assign this Agreement or any of its obligations herein without the prior written consent of Lender.

19.    Continuing Enforceability; Conflict Between Documents. Except as otherwise modified by this Agreement, the Original Note and each of the other Transaction Documents shall remain in full force and effect, enforceable in accordance with all of its original terms and provisions. This Agreement shall not be effective or binding unless and until it is fully executed and delivered by Lender and Borrower. If there is any conflict between the terms of this Agreement, on the one hand, and the Original Note or any other Transaction Document, on the other hand, the terms of this Agreement shall prevail.

20.    Time of Essence. Time is of the essence with respect to each and every provision of this Agreement.

21.    Notices. Unless otherwise specifically provided for herein, all notices, demands or requests required or permitted under this Agreement to be given to Borrower or Lender shall be given as set forth in the “Notices” section of the Purchase Agreement.

22.    Further Assurances. Each party shall do and perform or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.

[Remainder of page intentionally left blank]

5

IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first set forth above.

BORROWER:

ENERGY FOCUS, INC.

By:     /s/ Lesley Matt                

Name:    Lesley Matt                

Title:     CEO                    

LENDER:

STREETERVILLE CAPITAL, LLC

By: /s/ John M. Fife                

John M. Fife, President

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Lesley A. Matt, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Energy Focus, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and I have;

(a)    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)    Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)    Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)    Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

(a)    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

/s/ Lesley A. Matt    
Lesley A. Matt
Chief Executive Officer
Date: May 11, 2023

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Energy Focus, Inc. (the “Company”) for the quarterly period ended March 31, 2023 (the “Report”), I, Stephen Socolof, Chairman and Interim Chief Executive Officer of the Company and I, Tod A. Nestor, Chief Operating Officer and Chief Financial Officer of the Company, each certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002, that to the best of my knowledge:

(i) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Lesley A. Matt    
Lesley A. Matt
Chief Executive Officer
Date: May 11, 2023

A signed original of this written statement required by Section 906 has been provided to Energy Focus, Inc. and will be retained by Energy Focus, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Cover Page - shares	3 Months Ended
	Mar. 31, 2023	May 09, 2023
Cover [Abstract]
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Mar. 31, 2023
Document Transition Report	false
Entity File Number	001-36583
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	94-3021850
Entity Address, Address Line One	32000 Aurora Road
Entity Address, Address Line Two	Suite B
Entity Address, City or Town	Solon
Entity Address, State or Province	OH
Entity Address, Postal Zip Code	44139
City Area Code	(440)
Local Phone Number	715-1300
Title of 12(b) Security	Common Stock, par value $0.0001 per share
Trading Symbol	EFOI
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		19,243,610
Entity Central Index Key	0000924168
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2023
Document Fiscal Period Focus	Q1
Amendment Flag	false
Entity Registrant Name	ENERGY FOCUS, INC/DE

XML

Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Current assets:
Cash	$ 301	$ 52
Trade accounts receivable, less allowances of $58 and $26, respectively	909	445
Inventories, net	4,938	5,476
Short-term deposits	615	592
Prepaid and other current assets	226	232
Receivable for claimed ERTC	445	445
Total current assets	7,434	7,242
Property and equipment, net	68	76
Operating lease, right-of-use asset	1,111	1,180
Total assets	8,613	8,498
Current liabilities:
Accounts payable	2,177	2,204
Accrued liabilities	229	145
Accrued payroll and related benefits	235	261
Accrued sales commissions	29	76
Accrued warranty reserve	143	183
Operating lease liabilities	205	198
Credit line borrowings, net of loan origination fees	388	1,447
Related party promissory notes payable	0	814
Promissory notes payable, net of discounts and loan origination fees	1,277	2,618
Total current liabilities	4,683	7,946
Operating lease liabilities, net of current portion	975	1,029
Total liabilities	5,658	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	0	0
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, 2022	2	1
Additional paid-in capital	153,311	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

XML

Condensed Consolidated Balance Sheets (Parentheticals) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Trade accounts receivable, less allowances	$ 58	$ 26
Preferred stock, par value (USD per share)	$ 0.0001	$ 0.0001
Preferred stock, authorized (in shares)	5,000,000	5,000,000
Preferred stock, issued (in shares)	876,447	876,447
Preferred stock, outstanding (in shares)	876,447	876,447
Common stock, par value (USD per share)	$ 0.0001	$ 0.0001
Common stock, authorized (in shares)	50,000,000	50,000,000
Common stock, issued (in shares)	19,243,610	9,848,438
Common stock, outstanding (in shares)	19,243,610	9,848,438
Series A Convertible Preferred Stock
Preferred stock, authorized (in shares)	3,300,000	3,300,000

XML

Condensed Consolidated Statements of Operations - USD ($) shares in Thousands, $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Income Statement [Abstract]
Net sales	$ 930	$ 2,061
Cost of sales	913	2,087
Gross profit (loss)	17	(26)
Operating expenses:
Product development	154	503
Selling, general, and administrative	1,066	2,127
Total operating expenses	1,220	2,630
Loss from operations	(1,203)	(2,656)
Other expenses (income):
Interest expense	123	184
Other income	0	(30)
Other expenses	7	11
Net loss	$ (1,333)	$ (2,821)
Net loss per common share - basic and diluted
Net loss, basic (USD per share)	$ (0.08)	$ (0.44)
Net loss, diluted (USD per share)	$ (0.08)	$ (0.44)
Weighted average shares of common stock outstanding:
Basic (in shares)	16,172	6,437
Diluted (in shares)	16,172	6,437

XML

Condensed Consolidated Statements of Changes in Stockholders' Equity - USD ($) shares in Thousands, $ in Thousands	Total	Cumulative Effect, Period of Adoption, Adjusted Balance	Preferred Stock	Common Stock	Additional Paid-in Capital	Accumulated Other Comprehensive Loss	Accumulated Deficit	Accumulated Deficit Cumulative Effect, Period of Adoption, Adjusted Balance
Beginning balance (in shares) at Dec. 31, 2021			876	6,368
Beginning balance at Dec. 31, 2021	$ 6,209		$ 0	$ 0	$ 144,953	$ (3)	$ (138,741)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of common stock upon the exercise of warrants (in shares)				85
Stock-based compensation	44				44
Net loss	(2,821)						(2,821)
Ending balance (in shares) at Mar. 31, 2022			876	6,453
Ending balance at Mar. 31, 2022	3,432		$ 0	$ 0	144,997	(3)	(141,562)
Beginning balance (in shares) at Dec. 31, 2021			876	6,368
Beginning balance at Dec. 31, 2021	6,209		$ 0	$ 0	144,953	(3)	(138,741)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net loss	(10,300)
Ending balance (in shares) at Dec. 31, 2022			876	9,849
Ending balance at Dec. 31, 2022	$ (477)	$ (2)	$ 0	$ 1	148,545	(3)	(149,020)	$ (2)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Accounting Standards Update [Extensible List]	Accounting Standards Update 2016-13 [Member]
Issuance of common stock (in shares)				1,995
Issuance of common stock	$ 3,025			$ 1	3,024
Stock issued in exchange transactions (in shares)				7,400
Stock issued in exchange transactions	1,716				1,716
Stock-based compensation	26				26
Net loss	(1,333)						(1,333)
Ending balance (in shares) at Mar. 31, 2023			876	19,244
Ending balance at Mar. 31, 2023	$ 2,955		$ 0	$ 2	$ 153,311	$ (3)	$ (150,355)

XML

Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands	3 Months Ended		12 Months Ended
	Mar. 31, 2023	Mar. 31, 2022	Dec. 31, 2022
Cash flows from operating activities:
Net loss	$ (1,333)	$ (2,821)	$ (10,300)
Adjustments to reconcile net loss to net cash used in operating activities:
Other income	0	(30)
Depreciation	8	44
Stock-based compensation	26	44
Provision for doubtful accounts receivable	29	(9)
Provision for slow-moving and obsolete inventories	(23)	129
Provision for warranties	(40)	(30)
Amortization of loan discounts and origination fees	62	69
Changes in operating assets and liabilities (sources / (uses) of cash):
Accounts receivable	(496)	(83)
Inventories	562	370
Short-term deposits	(23)	12
Prepaid and other assets	6	20
Accounts payable	(27)	61
Accrued and other liabilities	66	(211)
Deferred revenue	0	(268)
Total adjustments	150	118
Net cash used in operating activities	(1,183)	(2,703)	(6,700)
Cash flows from investing activities:
Acquisitions of property and equipment	0	(35)
Net cash used in investing activities	0	(35)
Cash flows from financing activities (sources / (uses) of cash):
Proceeds from the issuance of common stock and warrants	3,025	0
Principal payments under finance lease obligations	0	(1)
Net payments on proceeds from the credit line borrowings - Credit Facilities	(1,093)	897
Net cash provided by financing activities	1,432	281
Net increase (decrease) in cash	249	(2,457)
Cash beginning of period	52	2,682	2,682
Cash end of period	301	225	$ 52
2022 Streeterville Note
Cash flows from financing activities (sources / (uses) of cash):
Repayments of notes payable	(500)	0
2021 Streeterville Note
Cash flows from financing activities (sources / (uses) of cash):
Repayments of notes payable	$ 0	$ (615)

XML

Nature of Operations	3 Months Ended
	Mar. 31, 2023
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Nature of Operations	NATURE OF OPERATIONSEnergy Focus, Inc. engages primarily in the design, development, manufacturing, marketing and sale of energy-efficient lighting systems and controls. We develop, market and sell high quality light-emitting diode (“LED”) lighting and controls products in the commercial market and military maritime market (“MMM”), 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 be the human wellness lighting and LED technology and market leader for the most demanding applications where performance, quality, value, environmental impact and health are considered paramount. We specialize in LED lighting retrofit by replacing fluorescent, high-intensity discharge lighting and other types of lamps in institutional buildings for primarily indoor lighting applications with our innovative, high-quality commercial and military-grade tubular LED (“TLED”) products, as well as other LED and lighting control products for commercial and consumer applications. We are also evaluating adjacent technologies, including Gallium Nitride (“GaN”) based power supplies and additional market opportunities for energy solution products that support sustainability in our existing channels.

XML

Basis of Presentation and Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2023

Accounting Policies [Abstract]

Basis of Presentation and Summary of Significant Accounting Policies

BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The significant accounting policies of our Company, which are summarized below, are consistent with accounting principles generally accepted in the United States (“U.S. GAAP”) and reflect practices appropriate to the business in which we operate. Unless indicated otherwise, the information in the Notes to the Consolidated Financial Statements relates to our operations.

We have prepared the accompanying financial data for the three months ended March 31, 2023 and 2022 pursuant to the rules and regulations of the United States Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. 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, 2022 (“2022 Annual Report”). The Condensed Consolidated Balance Sheet as of December 31, 2022 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 March 31, 2023 and December 31, 2022, Condensed Consolidated Statements of Operations for the three months ended March 31, 2023 and 2022, Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2023 and 2022, and Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022.

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,

2022 filed on November 10, 2022 reflected that our stockholders’ equity as of September 30, 2022 was $1.5 million. Based on our timely submission of our plan to regain compliance (the “Plan”), Nasdaq granted us an extension through May 15, 2023 to regain compliance with the Minimum Stockholders’ Equity Rule.

On February 21, 2023, we received written notification (the “Bid Price Notification”) from the Staff stating that we had not regained compliance with the Bid Price Rule and our common stock is subject to delisting from Nasdaq. On February 24, 2023, we submitted a request for a hearing before the Nasdaq Hearings Panel (the “Panel”) to appeal the delisting (the “Appeal”). Under Nasdaq rules, the delisting of the Company’s common stock was stayed during the pendency of the Appeal and, during such time, the Company’s common stock continued to be listed on Nasdaq.

On March 28, 2023, the Company received written notification (the “Additional Staff Determination”) from the Staff stating that (i) following the Bid Price Notification, and in accordance with Listing Rule 5810(c)(2)(A), Nasdaq is no longer permitted to consider the stockholders’ equity compliance plan, (ii) the Additional Staff Determination serves as an additional basis for delisting the Company’s common stock from Nasdaq and (iii) the Panel will consider the Additional Staff Determination in rendering a determination regarding the continued listing of the Company’s common stock on Nasdaq.

On April 6, 2023, the Company participated in the Appeal before the Panel. The Company provided an update to the Panel on the Company’s substantial progress made towards the previously submitted 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 U.S. 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; 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 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

Net sales include revenues from 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 transferred products. We recognize revenue at the point in time when we transfer the promised products to the customer and the customer obtains control over the products. Distributors’ obligations to us are not contingent upon the resale of our products. We recognize revenue for shipping and handling charges at the time the goods are shipped to the customer, and the costs of outbound freight are included in cost of sales. We provide for product returns based on historical return rates. While we incur costs for

sales commissions to our sales employees and outside agents, we recognize commission costs concurrent with the related revenue, as the amortization period is 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 contract. 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,
	2023		2022
Net sales:
Commercial	$	321	$	1,134
MMM products	609		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 credit-worthiness of both existing and new customers. Although the insurance policy is no longer in place, all invoices issued under the previous coverage period are still covered under the policy.

On January 1, 2023, the Company adopted 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 is based on expected losses rather than incurred losses. This standard only impacts the Company’s trade receivables. The Company decided to use the roll rate method of valuing its reserve for trade receivables. The reserve is based on a careful 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 first quarter of 2023.

Pursuant to ASC 606, Revenue Recognition, contract assets and contract liabilities as of the beginning and ending of the reporting periods must be disclosed. Below is the breakout of the Company’s contract assets for such periods:

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

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 customers 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 net sales is derived from the destination to 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 stock 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 stock outstanding during the period. Dilutive potential shares of common stock consist of incremental shares upon the exercise of stock options, warrants and convertible securities, unless the effect would be anti-dilutive.

The following table presents a reconciliation of basic and diluted loss per share computations (in thousands):

	Three months ended March 31,
	2023		2022
Numerator:
Net loss	$	(1,333)	$	(2,821)
Denominator:
Basic and diluted weighted average shares of common stock outstanding	16,172		6,437

As a result of the net loss we incurred for the three months ended March 31, 2023, convertible securities representing approximately 175 thousand shares of common stock were excluded from the basic loss per share calculation because their inclusion would have been anti-dilutive.

As a result of the net loss we incurred for the three months ended March 31, 2022, warrants and convertible securities representing approximately 16 thousand and 175 thousand shares of common stock, respectively, were excluded from the basic loss per share calculation because their inclusion would have been anti-dilutive.

Product warranties

We warrant our commercial and MMM LED products and controls for periods generally ranging from five 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 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.

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

	Three months ended March 31,
	2023		2022
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

Financial 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 1	Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2	Unadjusted 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 3	Unobservable 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 March 31, 2023, sales to our primary distributor for the U.S. Navy, a U.S. Navy shipbuilder, and a distributor to the U.S. Department of Defense, accounted for approximately 22%, 27%, and 11% of net sales, respectively. When sales for our top military customers are combined, total net sales of military products comprised approximately 49% of net sales for the same period. For the three months ended March 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 15%, 21%, and 19% of net sales, respectively. When sales to our primary distributor for the U.S. Navy are combined with sales to 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.

A distributor for the U.S. Navy, a U.S. Navy shipbuilder, and a distributor to the U.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 net 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 or results of operations.

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Inventories

3 Months Ended

Mar. 31, 2023

Inventory Disclosure [Abstract]

Inventories

INVENTORIES

Inventories are stated at the lower of standard cost (which approximates actual cost determined using the first-in, first-out cost method) or net realizable value, and consist of the following (in thousands):

	March 31, 2023		December 31, 2022
Raw materials	$	2,936	$	3,347
Finished goods	4,509		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,
	2023		2022
Beginning balance	$	(2,527)	$	(3,050)
Accrual	(56)		(145)
Reduction due to sold inventory	76		16
Reserves for excess, obsolete, and slow-moving inventories	$	(2,507)	$	(3,179)

XML

Property and Equipment

3 Months Ended

Mar. 31, 2023

Property, Plant and Equipment [Abstract]

Property and Equipment

PROPERTY AND EQUIPMENT

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):

	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 cost	1,392		1,392
Less: accumulated depreciation	(1,324)		(1,316)
Property and equipment, net	$	68	$	76

Depreciation expense was $8 thousand and $44 thousand for the three months ended March 31, 2023 and 2022, respectively.

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Leases

3 Months Ended

Mar. 31, 2023

Leases [Abstract]

Leases

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 exercised in July 2022. As of March 25, 2022, the terms of our real estate operating lease have been modified beginning July 1, 2022 and extended through 2027. In accordance with ASC 842, Leases (“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 lease was calculated using an incremental borrowing rate of 16.96%, which was the Company’s blended borrowing rates (including interest, annual facility fees, collateral management fees, bank fees and other miscellaneous lender fees) on its revolving lines of credit with Crossroads Financial Group, LLC (as described below in Note 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):

	Three months ended March 31,
	2023		2022
Operating lease cost (income)
Sub-lease income	$	—	$	(25)
Lease cost	117		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, 2022 are as follows (in thousands):

	March 31, 2023		December 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 equipment	13		13
Allowances for depreciation	(13)		(13)
Finance lease assets, net	$	—	$	—

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 2025	379
April 2025 to March 2026	387
April 2026 to March 2027	391
April 2027 to March 2028	99
Total future undiscounted lease payments	1,641
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,
	2023		2022
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

Leases

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 exercised in July 2022. As of March 25, 2022, the terms of our real estate operating lease have been modified beginning July 1, 2022 and extended through 2027. In accordance with ASC 842, Leases (“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 lease was calculated using an incremental borrowing rate of 16.96%, which was the Company’s blended borrowing rates (including interest, annual facility fees, collateral management fees, bank fees and other miscellaneous lender fees) on its revolving lines of credit with Crossroads Financial Group, LLC (as described below in Note 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):

	Three months ended March 31,
	2023		2022
Operating lease cost (income)
Sub-lease income	$	—	$	(25)
Lease cost	117		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, 2022 are as follows (in thousands):

	March 31, 2023		December 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 equipment	13		13
Allowances for depreciation	(13)		(13)
Finance lease assets, net	$	—	$	—

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 2025	379
April 2025 to March 2026	387
April 2026 to March 2027	391
April 2027 to March 2028	99
Total future undiscounted lease payments	1,641
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,
	2023		2022
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

XML

Debt

3 Months Ended

Mar. 31, 2023

Debt Disclosure [Abstract]

Debt

DEBT

Credit facilities

On August 11, 2020, we entered 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 the Loan and Security Agreement (the “Inventory Loan Agreement”) between the Company and Crossroads Financial Group, LLC, a North Carolina limited liability company (“Crossroads”). Borrowings under the original Inventory Facility were permitted up to the lower of (i) $3.0 million, which amount was subsequently increased to $3.5 million in April 2021, and (ii) a borrowing base determined from time to time based on the value of the Company’s eligible inventory, valued at 75% of inventory costs or 85% of the inventory net orderly liquidation value, less the availability reserves.

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 set forth in the Inventory Loan Agreement.

Pursuant to the Crossroads Amendment, Crossroads and the Company also agreed to extend the Inventory Facility’s current term through December 31, 2023, while eliminating the minimum borrowing amount and unused line fees and reducing the monthly service fee to a lower, fixed amount. The Company also agreed to a slightly increased interest rate, which was more than offset by the reduction in the monthly service fees. Pursuant to the Crossroads Amendment, the interest rate on borrowings under the Inventory Facility 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 “Credit line borrowings.” Outstanding balances include unamortized net issuance costs totaling $29 thousand and $47 thousand for 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.”

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

At December 31, 2022
	G. Huang		J. Huang		J. Huang		G. Huang		J. Huang		J. Huang		T. Lin		Total
Date entered	September 16, 2022		October 25, 2022		November 4, 2022		November 9, 2022		December 6, 2022		December 21, 2022		December 31, 2022
Term	9 months		9 months		9 months		9 months		9 months		9 months		9 months
Principal amount	$450,000		$50,000		$250,000		$350,000		$200,000		$100,000		$50,000		$1,450,000
Maturity date	June 16, 2023		July 25, 2023		August 4, 2023		August 9, 2023		September 6, 2023		September 21, 2023		September 30, 2023
Interest rate	8	%	8	%	8	%	8	%	8	%	8	%	8	%
Default interest rate	10	%	10	%	10	%	10	%	10	%	10	%	10	%
Outstanding Amount	$460,455		$50,734		$253,123		$353,989		$201,096		$100,219		$50,011		$1,469,627

Streeterville Notes

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.

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.

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Income Taxes

3 Months Ended

Mar. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

As a result of the operating loss incurred during each of the three months ended March 31, 2023 and 2022, and after the application of the annual limitation set forth under Section 382 of the Internal Revenue Code of 1986, as amended (the “IRC”), it was not necessary to record a provision for U.S. Federal income tax.

At March 31, 2023 and December 31, 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, 2022, we had a net operating loss carry-forward of approximately $132.4 million for federal income tax purposes ($77.6 million for state and local income tax purposes). However, due to changes in our capital structure, approximately $71.0 million of the $132.4 million is available to offset future taxable income after the application of the limitations found under Section 382 of the Internal 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 offset 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 the new limitations under the Tax Act. If not utilized, the carry-forwards generated prior to December 31, 2017 of $37.5 million will begin to expire in 2023 for federal purposes and have 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 11, “Income Taxes,” included under Item 8, “Financial Statements and Supplementary Data,” of our 2022 Annual Report.

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Stockholders' Equity

3 Months Ended

Mar. 31, 2023

Equity [Abstract]

Stockholders' Equity

STOCKHOLDERS’ EQUITY

March 2023 Private Placements

On 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.

Aggregate gross proceeds to the Company in respect of the 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 transaction 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

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”).

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 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, 2023	As of March 31, 2022
	Number of Underlying Shares		Exercise Price	Expiration
Jan. 2020 Investor Warrants	187,734	187,734	$3.3700	January 13, 2025
Jan. 2020 Placement Agent Warrants	41,680	41,680	$4.9940	January 13, 2025
	229,414	229,414

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 March 31,
	2023		2022
Cost of sales	$	—	$	1
Product development	4		6
Selling, general, and administrative	22		37
Total stock-based compensation	$	26	$	44

Total unearned stock-based compensation was $144 thousand at March 31, 2023, compared to $285 thousand at 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 March 31, 2023 is expected to be recognized is approximately 2.6 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 detailed below. Note that there were no grants made during the three months ended March 31, 2023.

	Three months ended March 31,
	2023	2022
Fair value of options issued	NA	$	1.17
Exercise price	NA	$	1.48
Expected life of options (in years)	NA	6.1
Risk-free interest rate	NA	1.9		%
Expected volatility	NA	99.2		%
Dividend yield	NA	0.0		%

A summary of option activity under all outstanding stock incentive plans for the three months ended March 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, 2022	330,808	$	1.97
Granted	—	—
Canceled/forfeited	(65,903)	2.88
Balance at March 31, 2023	264,905	$	1.75	8.0
Vested and expected to vest at March 31, 2023	218,307	$	1.87	7.8
Exercisable at March 31, 2023	66,734	$	3.10	4.6

Restricted stock units

A summary of restricted stock unit activity under all outstanding stock incentive plans for the three months ended March 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, 2022	11,600	$	1.59
Granted	—	—
Balance at March 31, 2023	11,600	$	1.59	1.4

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Commitments and Contingencies	3 Months Ended
	Mar. 31, 2023
Commitments and Contingencies Disclosure [Abstract]
Commitments and Contingencies	COMMITMENTS AND CONTINGENCIESPurchase CommitmentsAs of March 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 second quarter of 2023, and $15 thousand expected to ship in the third quarter of 2023 and thereafter.

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Other Income

3 Months Ended

Mar. 31, 2023

Other Income and Expenses [Abstract]

Other Income

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 refundable tax credit against certain employer taxes. The ERTC was subsequently amended by the Taxpayer Certainty and Disaster Tax Relief Act of 2020, the Consolidated Appropriation Act of 2021, and the American Rescue Plan Act of 2021, all of which amended and extended the ERTC availability and guidelines under the CARES Act. Following these amendments, we and other businesses became retroactively eligible for the ERTC, and as a result of the foregoing legislation, are eligible to claim a refundable tax credit against the employer share of Social Security taxes equal to 70% of the qualified wages paid to employees between January 1, 2021 and September 30, 2021. Qualified wages are limited to $10,000 per employee per calendar quarter in 2021 for a maximum allowable ERTC per employee of $7,000 per calendar quarter in 2021.

For purposes of the amended ERTC, an eligible employer is defined as having experienced a significant (20% or more) decline in gross receipts during each of the first three 2021 calendar quarters when compared with the same quarter in 2019 or the immediately preceding quarter to the corresponding calendar quarter in 2019. The credit is taken against the

Company’s share of Social Security Tax when the Company’s payroll provider files, or subsequently amends the applicable quarterly employer tax filings.

Under the amended guidelines, we are eligible to receive the ERTC for the second and third quarters of 2021. As part of the filing of our employer tax filings for the third quarter of 2021, we applied for and received a refund of $431 thousand, and we amended our filing for the second quarter of 2021, for which we received an additional refund of approximately $445 thousand. These amounts are recorded as other income in the Consolidated Statements of Operations during the quarter ended December 31, 2021, and the $445 thousand as an expected receivable in the Consolidated Balance Sheet as of March 31, 2023 and December 31, 2022.

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Basis of Presentation and Summary of Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2023

Accounting Policies [Abstract]

Basis of presentation

Basis of presentation

The significant accounting policies of our Company, which are summarized below, are consistent with accounting principles generally accepted in the United States (“U.S. GAAP”) and reflect practices appropriate to the business in which we operate. Unless indicated otherwise, the information in the Notes to the Consolidated Financial Statements relates to our operations.

We have prepared the accompanying financial data for the three months ended March 31, 2023 and 2022 pursuant to the rules and regulations of the United States Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. 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, 2022 (“2022 Annual Report”). The Condensed Consolidated Balance Sheet as of December 31, 2022 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 March 31, 2023 and December 31, 2022, Condensed Consolidated Statements of Operations for the three months ended March 31, 2023 and 2022, Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2023 and 2022, and Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022.

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,

2022 filed on November 10, 2022 reflected that our stockholders’ equity as of September 30, 2022 was $1.5 million. Based on our timely submission of our plan to regain compliance (the “Plan”), Nasdaq granted us an extension through May 15, 2023 to regain compliance with the Minimum Stockholders’ Equity Rule.

On February 21, 2023, we received written notification (the “Bid Price Notification”) from the Staff stating that we had not regained compliance with the Bid Price Rule and our common stock is subject to delisting from Nasdaq. On February 24, 2023, we submitted a request for a hearing before the Nasdaq Hearings Panel (the “Panel”) to appeal the delisting (the “Appeal”). Under Nasdaq rules, the delisting of the Company’s common stock was stayed during the pendency of the Appeal and, during such time, the Company’s common stock continued to be listed on Nasdaq.

On March 28, 2023, the Company received written notification (the “Additional Staff Determination”) from the Staff stating that (i) following the Bid Price Notification, and in accordance with Listing Rule 5810(c)(2)(A), Nasdaq is no longer permitted to consider the stockholders’ equity compliance plan, (ii) the Additional Staff Determination serves as an additional basis for delisting the Company’s common stock from Nasdaq and (iii) the Panel will consider the Additional Staff Determination in rendering a determination regarding the continued listing of the Company’s common stock on Nasdaq.

On April 6, 2023, the Company participated in the Appeal before the Panel. The Company provided an update to the Panel on the Company’s substantial progress made towards the previously submitted 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

Use of estimates

The preparation of financial statements in accordance with U.S. 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; 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 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

Revenue

Net sales include revenues from 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 transferred products. We recognize revenue at the point in time when we transfer the promised products to the customer and the customer obtains control over the products. Distributors’ obligations to us are not contingent upon the resale of our products. We recognize revenue for shipping and handling charges at the time the goods are shipped to the customer, and the costs of outbound freight are included in cost of sales. We provide for product returns based on historical return rates. While we incur costs for

sales commissions to our sales employees and outside agents, we recognize commission costs concurrent with the related revenue, as the amortization period is 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 contract. 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.

Accounts Receivable

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 credit-worthiness of both existing and new customers. Although the insurance policy is no longer in place, all invoices issued under the previous coverage period are still covered under the policy.

On January 1, 2023, the Company adopted 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 is based on expected losses rather than incurred losses. This standard only impacts the Company’s trade receivables. The Company decided to use the roll rate method of valuing its reserve for trade receivables. The reserve is based on a careful 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 first quarter of 2023.

Pursuant to ASC 606, Revenue Recognition, contract assets and contract liabilities as of the beginning and ending of the reporting periods must be disclosed. Below is the breakout of the Company’s contract assets for such periods:

Net loss per share

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 stock 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 stock outstanding during the period. Dilutive potential shares of common stock consist of incremental shares upon the exercise of stock options, warrants and convertible securities, unless the effect would be anti-dilutive.

Product warranties

Product warranties

We warrant our commercial and MMM LED products and controls for periods generally ranging from five 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 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.

Financial Instruments

Financial 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 1	Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2	Unadjusted 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 3	Unobservable 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

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 March 31, 2023, sales to our primary distributor for the U.S. Navy, a U.S. Navy shipbuilder, and a distributor to the U.S. Department of Defense, accounted for approximately 22%, 27%, and 11% of net sales, respectively. When sales for our top military customers are combined, total net sales of military products comprised approximately 49% of net sales for the same period. For the three months ended March 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 15%, 21%, and 19% of net sales, respectively. When sales to our primary distributor for the U.S. Navy are combined with sales to 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.

A distributor for the U.S. Navy, a U.S. Navy shipbuilder, and a distributor to the U.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 net 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

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 or results of operations.

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Basis of Presentation and Summary of Significant Accounting Policies (Tables)

3 Months Ended

Mar. 31, 2023

Accounting Policies [Abstract]

Schedule of Breakdown of Product Net Sales

The following table provides a disaggregation of product net sales for the periods presented (in thousands):

	Three months ended March 31,
	2023		2022
Net sales:
Commercial	$	321	$	1,134
MMM products	609		927
Total net sales	$	930	$	2,061

Schedule of Accounts Receivable, Allowance for Credit Loss

Below is the breakout of the Company’s contract assets for such periods:

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

Reconciliation of Basic and Diluted Income (Loss) Per Share

The following table presents a reconciliation of basic and diluted loss per share computations (in thousands):

	Three months ended March 31,
	2023		2022
Numerator:
Net loss	$	(1,333)	$	(2,821)
Denominator:
Basic and diluted weighted average shares of common stock outstanding	16,172		6,437

Schedule of Warranty Activity

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

	Three months ended March 31,
	2023		2022
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

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Inventories (Tables)

3 Months Ended

Mar. 31, 2023

Inventory Disclosure [Abstract]

Schedule of Inventory

Inventories are stated at the lower of standard cost (which approximates actual cost determined using the first-in, first-out cost method) or net realizable value, and consist of the following (in thousands):

	March 31, 2023		December 31, 2022
Raw materials	$	2,936	$	3,347
Finished goods	4,509		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,
	2023		2022
Beginning balance	$	(2,527)	$	(3,050)
Accrual	(56)		(145)
Reduction due to sold inventory	76		16
Reserves for excess, obsolete, and slow-moving inventories	$	(2,507)	$	(3,179)

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Property and Equipment (Tables)

3 Months Ended

Mar. 31, 2023

Property, Plant and Equipment [Abstract]

Schedule of Property and Equipment

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):

	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 cost	1,392		1,392
Less: accumulated depreciation	(1,324)		(1,316)
Property and equipment, net	$	68	$	76

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Leases (Tables)

3 Months Ended

Mar. 31, 2023

Leases [Abstract]

Components of Lease Cost and Supplemental Cash Flow Information

Components of the operating lease costs recognized in net loss were as follows (in thousands):

	Three months ended March 31,
	2023		2022
Operating lease cost (income)
Sub-lease income	$	—	$	(25)
Lease cost	117		132
Operating lease cost, net	$	117	$	107

Schedule of Supplemental Balance Sheet Information

Supplemental balance sheet information related to the Company’s operating leases as of March 31, 2023 and December 31, 2022 are as follows (in thousands):

	March 31, 2023		December 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 equipment	13		13
Allowances for depreciation	(13)		(13)
Finance lease assets, net	$	—	$	—

Schedule of Future Maturities of Operating Lease Liabilities

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 2025	379
April 2025 to March 2026	387
April 2026 to March 2027	391
April 2027 to March 2028	99
Total future undiscounted lease payments	1,641
Less imputed interest	(461)
Total lease obligations	$	1,180

Supplemental Cash Flow Information Related to Leases

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,
	2023		2022
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

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Debt (Tables)

3 Months Ended

Mar. 31, 2023

Debt Disclosure [Abstract]

Schedule of Promissory Notes

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

At December 31, 2022
	G. Huang		J. Huang		J. Huang		G. Huang		J. Huang		J. Huang		T. Lin		Total
Date entered	September 16, 2022		October 25, 2022		November 4, 2022		November 9, 2022		December 6, 2022		December 21, 2022		December 31, 2022
Term	9 months		9 months		9 months		9 months		9 months		9 months		9 months
Principal amount	$450,000		$50,000		$250,000		$350,000		$200,000		$100,000		$50,000		$1,450,000
Maturity date	June 16, 2023		July 25, 2023		August 4, 2023		August 9, 2023		September 6, 2023		September 21, 2023		September 30, 2023
Interest rate	8	%	8	%	8	%	8	%	8	%	8	%	8	%
Default interest rate	10	%	10	%	10	%	10	%	10	%	10	%	10	%
Outstanding Amount	$460,455		$50,734		$253,123		$353,989		$201,096		$100,219		$50,011		$1,469,627

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Stockholders' Equity (Tables)

3 Months Ended

Mar. 31, 2023

Equity [Abstract]

Schedule of Stockholders' Equity Note, Warrants or Rights

As of March 31, 2023 and 2022, we had the following outstanding January 2020 Warrants:

	As of March 31, 2023	As of March 31, 2022
	Number of Underlying Shares		Exercise Price	Expiration
Jan. 2020 Investor Warrants	187,734	187,734	$3.3700	January 13, 2025
Jan. 2020 Placement Agent Warrants	41,680	41,680	$4.9940	January 13, 2025
	229,414	229,414

Summary of Stock-based Compensation Expense

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

	Three months ended March 31,
	2023		2022
Cost of sales	$	—	$	1
Product development	4		6
Selling, general, and administrative	22		37
Total stock-based compensation	$	26	$	44

Schedule of Valuation Assumptions

Estimates utilized in the calculation include the expected life of the option, risk-free interest rate, and expected volatility, and are further detailed below. Note that there were no grants made during the three months ended March 31, 2023.

	Three months ended March 31,
	2023	2022
Fair value of options issued	NA	$	1.17
Exercise price	NA	$	1.48
Expected life of options (in years)	NA	6.1
Risk-free interest rate	NA	1.9		%
Expected volatility	NA	99.2		%
Dividend yield	NA	0.0		%

Summary of Option Activity

A summary of option activity under all outstanding stock incentive plans for the three months ended March 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, 2022	330,808	$	1.97
Granted	—	—
Canceled/forfeited	(65,903)	2.88
Balance at March 31, 2023	264,905	$	1.75	8.0
Vested and expected to vest at March 31, 2023	218,307	$	1.87	7.8
Exercisable at March 31, 2023	66,734	$	3.10	4.6

Summary of Restricted Stock Activity

A summary of restricted stock unit activity under all outstanding stock incentive plans for the three months ended March 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, 2022	11,600	$	1.59
Granted	—	—
Balance at March 31, 2023	11,600	$	1.59	1.4

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Basis of Presentation and Summary of Significant Accounting Policies - Basis of presentation (Details) $ / shares in Units, $ in Thousands	3 Months Ended		12 Months Ended
	Mar. 31, 2023 USD ($) $ / shares	Mar. 31, 2022 USD ($)	Dec. 31, 2022 USD ($)	Nov. 16, 2022 USD ($)	Sep. 30, 2022 USD ($)	Aug. 23, 2022 d $ / shares	Dec. 31, 2021 USD ($)
Accounting Policies [Abstract]
Net loss | $	$ (1,333)	$ (2,821)	$ (10,300)
Cash used in operating activities | $	$ (1,183)	(2,703)	(6,700)
Common stock, minimum bid price (USD per share) | $ / shares	$ 1.00
Common stock, trade price (USD per share) | $ / shares	$ 1.00
Common stock, closing bid price (USD per share) | $ / shares						$ 1.00
Number of consecutive days for bid | d						30
Stockholders' equity | $	$ 2,955	$ 3,432	$ (477)	$ 2,500	$ 1,500		$ 6,209

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Basis of Presentation and Summary of Significant Accounting Policies - Disaggregation of Revenue (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Revenue from External Customer [Line Items]
Total net sales	$ 930	$ 2,061
Commercial
Revenue from External Customer [Line Items]
Total net sales	321	1,134
MMM products
Revenue from External Customer [Line Items]
Total net sales	$ 609	$ 927

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Basis of Presentation and Summary of Significant Accounting Policies - Accounts Receivable and Geographic information (Details) - USD ($)	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022	Dec. 31, 2022
Concentration Risk [Line Items]
Contract with customer, payment terms	30 days
Accumulated deficit	$ (150,355,000)		$ (149,020,000)
Accounts receivable, allowance for credit loss	$ 12,000
Countries Outside of the United States | Revenue | Geographic Concentration Risk
Concentration Risk [Line Items]
Concentration risk (less than for geographic concentration risk)	1.00%	2.00%
Cumulative Effect, Period of Adoption, Adjustment
Concentration Risk [Line Items]
Accumulated deficit			$ 2,600

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Basis of Presentation and Summary of Significant Accounting Policies - Net Accounts Receivable (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022	Mar. 31, 2022
Accounting Policies [Abstract]
Gross Accounts Receivable	$ 967	$ 471	$ 1,337
Less: Allowance for Doubtful Accounts	(58)	(26)	(7)
Net Accounts Receivable	$ 909	$ 445	$ 1,330

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Basis of Presentation and Summary of Significant Accounting Policies - Reconciliation of Basic and Diluted Loss per Share (Details) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		12 Months Ended
	Mar. 31, 2023	Mar. 31, 2022	Dec. 31, 2022
Numerator:
Net loss	$ (1,333)	$ (2,821)	$ (10,300)
Denominator:
Basic (in shares)	16,172	6,437
Diluted (in shares)	16,172	6,437

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Basis of Presentation and Summary of Significant Accounting Policies - Net Loss per Share (Details) - shares shares in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Series A Convertible Preferred Stock
Impairment Effects on Earnings Per Share [Line Items]
Securities excluded from net loss per share calculation (in shares)	175	175
Warrants
Impairment Effects on Earnings Per Share [Line Items]
Securities excluded from net loss per share calculation (in shares)		16

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Basis of Presentation and Summary of Significant Accounting Policies - Product Warranties (Details)	3 Months Ended
	Mar. 31, 2023
Commercial | Minimum
Product Warranty Liability [Line Items]
Standard product warranty, number of years	5 years
Commercial | Maximum
Product Warranty Liability [Line Items]
Standard product warranty, number of years	10 years
MMM LED Products | Minimum
Product Warranty Liability [Line Items]
Standard product warranty, number of years	5 years
MMM LED Products | Maximum
Product Warranty Liability [Line Items]
Standard product warranty, number of years	10 years

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Basis of Presentation and Summary of Significant Accounting Policies - Warranty Activity (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Movement in Standard and Extended Product Warranty, Increase (Decrease) [Roll Forward]
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	0	(14)
Accrued warranty reserve at end of period	$ 143	$ 265

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Basis of Presentation and Summary of Significant Accounting Policies - Certain Risks and Concentrations (Details)	3 Months Ended		12 Months Ended
	Mar. 31, 2023	Mar. 31, 2022	Dec. 31, 2022
Total Expenditures | Supplier Concentration Risk | Offshore Supplier
Concentration Risk [Line Items]
Concentration risk (less than for geographic concentration risk)	10.00%	19.00%
Accounts Payable | Supplier Concentration Risk | Offshore Supplier
Concentration Risk [Line Items]
Concentration risk (less than for geographic concentration risk)	36.00%		36.00%
Distributor to the U.S. Navy | Revenue | Customer Concentration Risk
Concentration Risk [Line Items]
Concentration risk (less than for geographic concentration risk)	22.00%	15.00%
Distributor to the U.S. Navy | Accounts Receivable | Customer Concentration Risk
Concentration Risk [Line Items]
Concentration risk (less than for geographic concentration risk)	32.00%
Shipbuilder for U.S. Navy | Revenue | Customer Concentration Risk
Concentration Risk [Line Items]
Concentration risk (less than for geographic concentration risk)	27.00%	21.00%
Shipbuilder for U.S. Navy | Accounts Receivable | Customer Concentration Risk
Concentration Risk [Line Items]
Concentration risk (less than for geographic concentration risk)	22.00%		30.00%
Distributor to the U.S. Department of Defense | Revenue | Customer Concentration Risk
Concentration Risk [Line Items]
Concentration risk (less than for geographic concentration risk)	11.00%
Distributor to the U.S. Department of Defense | Accounts Receivable | Customer Concentration Risk
Concentration Risk [Line Items]
Concentration risk (less than for geographic concentration risk)	17.00%		25.00%
Top Military Customers | Revenue | Customer Concentration Risk
Concentration Risk [Line Items]
Concentration risk (less than for geographic concentration risk)	49.00%
Commercial Building Systems Provider | Revenue | Customer Concentration Risk
Concentration Risk [Line Items]
Concentration risk (less than for geographic concentration risk)		19.00%
Distributor to the U.S. Navy Combined with Sales to Shipbuilders | Revenue | Customer Concentration Risk
Concentration Risk [Line Items]
Concentration risk (less than for geographic concentration risk)		37.00%

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Inventories - Schedule of Inventory (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Inventory Disclosure [Abstract]
Raw materials	$ 2,936	$ 3,347
Finished goods	4,509	4,656
Reserves for excess, obsolete, and slow-moving inventories	(2,507)	(2,527)
Inventories, net	$ 4,938	$ 5,476

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Inventories - Reserve Rollforward (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Inventory, Reserve [Roll Forward]
Beginning balance	$ (2,527)	$ (3,050)
Accrual	(56)	(145)
Reduction due to sold inventory	76	16
Reserves for excess, obsolete, and slow-moving inventories	$ (2,507)	$ (3,179)

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Property and Equipment - Schedule of Property and Equipment (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022	Dec. 31, 2022
Property, Plant and Equipment [Line Items]
Property and equipment at cost	$ 1,392		$ 1,392
Less: accumulated depreciation	(1,324)		(1,316)
Property and equipment, net	68		76
Depreciation	8	$ 44
Equipment
Property, Plant and Equipment [Line Items]
Property and equipment at cost	$ 1,061		1,061
Equipment | Minimum
Property, Plant and Equipment [Line Items]
Property and equipment, useful life	3 years
Equipment | Maximum
Property, Plant and Equipment [Line Items]
Property and equipment, useful life	15 years
Tooling
Property, Plant and Equipment [Line Items]
Property and equipment at cost	$ 190		190
Tooling | Minimum
Property, Plant and Equipment [Line Items]
Property and equipment, useful life	2 years
Tooling | Maximum
Property, Plant and Equipment [Line Items]
Property and equipment, useful life	5 years
Leasehold improvements
Property, Plant and Equipment [Line Items]
Property and equipment at cost	$ 141		$ 141

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Leases - Narrative (Details)	Mar. 31, 2023
Operating Leased Assets [Line Items]
Operating lease, discount rate	7.25%
Operating lease, weighted average remaining lease term	4 years 2 months 12 days
Real Estate
Operating Leased Assets [Line Items]
Operating lease, borrowing rate	16.96%

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Leases - Components of Lease Cost (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Leases [Abstract]
Sub-lease income	$ 0	$ (25)
Lease cost	117	132
Operating lease cost, net	$ 117	$ 107

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Leases - Schedule of Supplemental Balance Sheet Information (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 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 equipment	13	13
Allowances for depreciation	(13)	(13)
Finance lease assets, net	$ 0	$ 0

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Leases - Schedule of Future Maturities of Lease Liabilities (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Operating Leases
April 2023 to March 2024	$ 385
April 2024 to March 2025	379
April 2025 to March 2026	387
April 2026 to March 2027	391
April 2027 to March 2028	99
Total future undiscounted lease payments	1,641
Less imputed interest	(461)
Operating lease liabilities	$ 1,180	$ 1,227

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Leases - Schedule of Supplemental Cash Flow Information (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Leases [Abstract]
Operating cash flows from operating leases	$ 95	$ 136
Financing cash flows from finance leases	$ 0	$ 1

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Debt - Credit Facilities (Details)				1 Months Ended
	Feb. 15, 2023 USD ($)	Jan. 20, 2023 USD ($)	Jan. 18, 2023 USD ($)	Feb. 15, 2023 USD ($)	Mar. 31, 2023 USD ($)	Jan. 17, 2023 USD ($)	Dec. 31, 2022 USD ($)	Apr. 20, 2021 USD ($)	Aug. 11, 2020 USD ($) creditFacility
Line of Credit Facility [Line Items]
Number of debt financing facilities | creditFacility									2
Credit line borrowings, net of loan origination fees					$ 388,000		$ 1,447,000
Second Amendment To Inventory Facility
Line of Credit Facility [Line Items]
Maximum borrowing capacity on line of credit			$ 500,000			$ 3,500,000
Repayments of long-term debt	$ 250,000	$ 750,000
Remaining outstanding obligations amount				$ 40,000
Second Amendment To Inventory Facility | London Interbank Offered Rate (LIBOR)
Line of Credit Facility [Line Items]
Interest rate			5.50%
Default interest rate			10.28%
Second Amendment To Inventory Facility | Secured Overnight Financing Rate (SOFR) Overnight Index Swap Rate
Line of Credit Facility [Line Items]
Interest rate			6.00%
Default interest rate			10.176%
Debt instrument, interest rate, effective percentage					10.44%
Revolving Credit Facility | Inventory Facility
Line of Credit Facility [Line Items]
Maximum borrowing capacity on line of credit								$ 3,500,000	$ 3,000,000
Inventory costs									75.00%
Inventory, net orderly liquidation value									85.00%
Credit line borrowings, net of loan origination fees					$ 400,000		1,400,000
Amortized net issuance costs					$ 29,000		47,000
Revolving Credit Facility | Receivables Facility
Line of Credit Facility [Line Items]
Maximum borrowing capacity on line of credit									$ 2,500,000
Percent of accounts receivable used as borrowing capacity									90.00%
Credit line borrowings, net of loan origination fees							67,000
Amortized net issuance costs							$ 15,000

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Debt - Promissory Note Narrative (Details) $ in Millions	Dec. 31, 2022 USD ($)
2022 Promissory Note | Director
Debt Instrument [Line Items]
Due to related parties	$ 1.5

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Debt - Promissory Notes (Details) - Twenty Twenty Two Promissory Note	12 Months Ended
	Dec. 31, 2022 USD ($)
Debt Instrument [Line Items]
Principal amount	$ 1,450,000
Outstanding Amount	$ 1,469,627
G. Huang | September 16 2022
Debt Instrument [Line Items]
Term	9 months
Principal amount	$ 450,000
Interest rate	8.00%
Default interest rate	10.00%
Outstanding Amount	$ 460,455
G. Huang | November 9, 2022
Debt Instrument [Line Items]
Term	9 months
Principal amount	$ 350,000
Interest rate	8.00%
Default interest rate	10.00%
Outstanding Amount	$ 353,989
J. Huang | October 25, 2022
Debt Instrument [Line Items]
Term	9 months
Principal amount	$ 50,000
Interest rate	8.00%
Default interest rate	10.00%
Outstanding Amount	$ 50,734
J. Huang | November 4, 2022
Debt Instrument [Line Items]
Term	9 months
Principal amount	$ 250,000
Interest rate	8.00%
Default interest rate	10.00%
Outstanding Amount	$ 253,123
J. Huang | December 6, 2022
Debt Instrument [Line Items]
Term	9 months
Principal amount	$ 200,000
Interest rate	8.00%
Default interest rate	10.00%
Outstanding Amount	$ 201,096
J. Huang | December 21, 2022
Debt Instrument [Line Items]
Term	9 months
Principal amount	$ 100,000
Interest rate	8.00%
Default interest rate	10.00%
Outstanding Amount	$ 100,219
T. Lin | December 31, 2022
Debt Instrument [Line Items]
Term	9 months
Principal amount	$ 50,000
Interest rate	8.00%
Default interest rate	10.00%
Outstanding Amount	$ 50,011

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Debt - Streeterville Notes (Details) $ in Thousands				3 Months Ended	12 Months Ended
	Mar. 31, 2023 USD ($) shares	Apr. 21, 2022 USD ($)	Apr. 27, 2021 USD ($) deferral	Mar. 31, 2023 USD ($)	Dec. 31, 2021 USD ($)	Dec. 01, 2024 USD ($)	Jan. 01, 2024 USD ($)	Jul. 14, 2023 USD ($)	Jan. 20, 2023 USD ($)	Dec. 31, 2022 USD ($)
2022 Streeterville Note
Debt Instrument [Line Items]
Principal amount		$ 2,000							$ 500
Issue discount		215
Purchase price		1,800
Unamortized debt issuance costs		$ 15
Interest rate		8.00%
Debt instrument, tranche amount	$ 125			$ 125
Percentage increase if delisted from Nasdaq				15.00%
2022 Streeterville Note | Scenario, Forecast
Debt Instrument [Line Items]
Principal amount							$ 117	$ 250
March 2023 Partitioned Note
Debt Instrument [Line Items]
Debt instrument, tranche amount	$ 125			$ 125
Conversion of notes to stock (in shares) | shares	502,008
March 2023 Partitioned Note | Scenario, Forecast
Debt Instrument [Line Items]
Principal amount								$ 250
Debt instrument, tranche amount						$ 125
Streeterville Note Purchase Agreement
Debt Instrument [Line Items]
Total liability, net of discount and financing fees	$ 1,300			$ 1,300						$ 2,000
2021 Streeterville Note
Debt Instrument [Line Items]
Principal amount			$ 1,700
Issue discount			194							$ 305
Purchase price			1,500
Unamortized debt issuance costs			$ 15
Interest rate			8.00%
Maximum redemption amount			$ 205
Right to defer mandatory redemption, number of deferrals | deferral			3
Percentage increase due to deferral of redemption option			1.50%
Write off of remaining issuance costs					$ 100

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Income Taxes (Details) - USD ($) $ in Millions	Mar. 31, 2023	Dec. 31, 2022	Dec. 31, 2021
Operating Loss Carryforwards [Line Items]
Operating loss carry-forwards		$ 9.2	$ 9.6
Operating loss, subject to expiration	$ 37.5
U.S. Federal, State and Local Tax Authorities
Operating Loss Carryforwards [Line Items]
Deferred tax assets, operating loss carry-forwards		132.4
Deferred tax assets, operating loss carryforwards, portion available after application of IRC Section 382 limitations		71.0
State and Local Jurisdiction
Operating Loss Carryforwards [Line Items]
Deferred tax assets, operating loss carry-forwards		$ 77.6

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Stockholders' Equity - March 2023 Private Placements (Details) - March 2023 Private Placement - USD ($) $ / shares in Units, $ in Thousands			1 Months Ended
	Mar. 30, 2023	Mar. 28, 2023	Mar. 31, 2023
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Sale of common stock (in shares)	500,000	108,502
Sale of common stock (USD per share)	$ 0.5000	$ 0.5609
Aggregate gross proceeds amount			$ 305

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Stockholders' Equity - February 2023 Private Placement (Details) - February 2023 Private Placement $ / shares in Units, $ in Thousands	Feb. 24, 2023 USD ($) $ / shares shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Sale of common stock (in shares) | shares	803,212
Sale of common stock (USD per share) | $ / shares	$ 0.4980
Proceeds from issuance of private placement | $	$ 400

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Stockholders' Equity - January 2023 Sander Electronics Private Placement (Details) - January 2023 Sander Electronics Private Placement - USD ($) $ / shares in Units, $ in Thousands		3 Months Ended
	Jan. 17, 2023	Mar. 31, 2023
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Sale of common stock (in shares)	5,446,252
Sale of common stock (USD per share)	$ 0.5008
Aggregate gross proceeds amount		$ 2,100
Bridge Loan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Short-term debt	$ 657

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Stockholders' Equity - January 2023 Transactions with Mei Yun (Gina) Huang (Details) - January 2023 Transactions with Mei Yun (Gina) Huang - USD ($) $ / shares in Units, $ in Thousands				3 Months Ended
	Jan. 17, 2023	Jan. 10, 2023	Jan. 05, 2023	Mar. 31, 2023
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Sale of common stock (in shares)	1,436,959	325,803	257,798
Sale of common stock (USD per share)	$ 0.5630	$ 0.4604	$ 0.3879
Proceeds from issuance of private placement	$ 809			$ 250

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Stockholders' Equity - June 2022 Private Placement (Details) - June 2022 Private Placement - USD ($) $ / shares in Units, $ in Thousands	1 Months Ended	3 Months Ended	12 Months Ended
	Jun. 30, 2022	Mar. 31, 2023	Dec. 31, 2022
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Sale of common stock (in shares)	1,313,462
Sale of common stock (USD per share)	$ 1.30
Securities called by warrants (in shares)		2,692,310
Exercise price of common stock (USD per share)		$ 1.30
Amount paid for placement agent commissions	$ 252
Amount paid related to expenses for registered direct offering and concurrent private placement	35
Amount paid for clearing fees	47
Offering costs paid on the issuance of common stock and warrants			$ 334
Proceeds from sale of common stock and warrants	$ 3,200
Estimated proceeds from issuance of warrants		$ 3,500
Pre-Funded Warrants
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Securities called by warrants (in shares)	1,378,848
Exercise price of common stock (USD per share)	$ 0.0001
Warrants
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Securities called by warrants (in shares)	2,692,310
Exercise price of common stock (USD per share)	$ 1.30

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Stockholders' Equity - December 2021 Private Placement (Details) - December 2021 Private Placement - USD ($) $ / shares in Units, $ in Thousands		1 Months Ended	3 Months Ended
	Dec. 16, 2021	Dec. 31, 2021	Mar. 31, 2023
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Sale of common stock (in shares)		1,193,185
Sale of common stock (USD per share)		$ 3.52
Securities called by warrants (in shares)			1,278,413
Exercise price of common stock (USD per share)			$ 3.52
Amount paid for placement agent commissions		$ 360
Amount paid related to expenses for registered direct offering and concurrent private placement		42
Amount paid for clearing fees		97
Offering costs paid on the issuance of common stock and warrants		499
Proceeds from sale of common stock and warrants		$ 4,000
Estimated proceeds from issuance of warrants			$ 4,500
Pre-Funded Warrants
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Securities called by warrants (in shares)		85,228
Exercise price of common stock (USD per share)		$ 0.0001
Warrants issued (in shares)	85,228
Warrants
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Securities called by warrants (in shares)		1,278,413
Exercise price of common stock (USD per share)		$ 3.52

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Stockholders' Equity - Preferred Stock (Details) - USD ($) $ / shares in Units, $ in Millions			12 Months Ended
	Jan. 16, 2020	Mar. 29, 2019	Dec. 31, 2021	Dec. 31, 2020	Mar. 31, 2023	Dec. 31, 2022	Jan. 15, 2020	Jul. 01, 2019	Jun. 30, 2019
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Preferred stock, authorized (in shares)					5,000,000	5,000,000	5,000,000
Common stock, par value (USD per share)					$ 0.0001	$ 0.0001
Votes equal to the number of shares of common stock convertible	11.07%
Series A Convertible Preferred Stock
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Preferred stock, authorized (in shares)					3,300,000	3,300,000	3,300,000
Convertible Debt
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Proceeds from issuance of subordinated convertible promissory notes		$ 1.7
Derivative, Fixed Interest Rate								10.00%	5.00%
Net proceeds from the conversion of convertible debt to preferred stock	$ 1.8
Conversion rate (USD per share)	$ 0.67
Conversion of notes to stock (in shares)	2,709,018
Preferred stock, authorized (in shares)		2,000,000
Common stock, par value (USD per share)		$ 0.0001
Convertible Debt | Preferred Stock
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Conversion of notes to preferred stock (in shares)			1,721,023	111,548
Convertible Debt | Common Stock
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Conversion of notes to preferred stock (in shares)			344,205	22,310

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Stockholders' Equity - January 2020 Equity Offering (Details) - USD ($) $ / shares in Units, $ in Thousands	1 Months Ended	3 Months Ended
	Jan. 31, 2020	Mar. 31, 2023	Mar. 31, 2022
Jan. 2020 Investor Warrants
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Sale of common stock (in shares)	688,360
Sale of common stock (USD per share)	$ 3.37	$ 3.3700
Securities called by warrants (in shares)	688,360
Purchase price (USD per share)	$ 0.625
Warrants issued (in shares)		187,734	187,734
Institutional Investor
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Exercise price of common stock (USD per share)	$ 3.37
January 2020 Warrants
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Securities called by warrants (in shares)	48,185
Exercise price of common stock (USD per share)	$ 4.99
January 2020 Equity Offering
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Exercise price of common stock (USD per share)		$ 3.67
Warrants issued (in shares)		229,414	229,414
Estimated proceeds from issuance of warrants		$ 800
Issuance of common stock upon the exercise of warrants (in shares)		0	0

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Stockholders' Equity - Outstanding Warrants from the January 2020 Equity Offering (Details) - $ / shares	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022	Jan. 31, 2020
January 2020 Equity Offering
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Warrants issued (in shares)	229,414	229,414
Exercise price of common stock (USD per share)	$ 3.67
Jan. 2020 Investor Warrants
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Warrants issued (in shares)	187,734	187,734
Sale of common stock (USD per share)	$ 3.3700		$ 3.37
Jan. 2020 Placement Agent Warrants
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Warrants issued (in shares)	41,680	41,680
Exercise price of common stock (USD per share)	$ 4.9940

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Stockholders' Equity - Stock-Based Compensation (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Share-based Payment Arrangement, Expensed and Capitalized, Amount [Line Items]
Stock-based compensation expense	$ 26	$ 44
Unearned stock-based compensation	$ 144	285
Unearned compensation expected to be recognized, period	2 years 7 months 6 days
Cost of sales
Share-based Payment Arrangement, Expensed and Capitalized, Amount [Line Items]
Stock-based compensation expense	$ 0	1
Product development
Share-based Payment Arrangement, Expensed and Capitalized, Amount [Line Items]
Stock-based compensation expense	4	6
Selling, general, and administrative
Share-based Payment Arrangement, Expensed and Capitalized, Amount [Line Items]
Stock-based compensation expense	$ 22	$ 37

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Stockholders' Equity - Estimates Utilized (Details) - Stock Option	3 Months Ended
	Mar. 31, 2022 $ / shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Fair value of options issued (USD per share)	$ 1.17
Exercise price (USD per share)	$ 1.48
Expected life of options (in years)	6 years 1 month 6 days
Risk-free interest rate	1.90%
Expected volatility	99.20%
Dividend yield	0.00%

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Stockholders' Equity - Stock Options and a Summary of Activity (Details)	3 Months Ended
	Mar. 31, 2023 $ / shares shares
Number of Options
Outstanding at beginning of period (in shares) | shares	330,808
Granted (in shares) | shares	0
Canceled/forfeited (in shares) | shares	(65,903)
Outstanding at end of period (in shares) | shares	264,905
Vested and expected to vest at period end (in shares) | shares	218,307
Exercisable at period end (in shares) | shares	66,734
Weighted Average Exercise Price Per Share
Outstanding at beginning of period (USD per share) | $ / shares	$ 1.97
Granted (USD per share) | $ / shares	0
Canceled/forfeited (USD per share) | $ / shares	2.88
Outstanding at end of period (USD per share) | $ / shares	1.75
Vested and expected to vest at period end (USD per share) | $ / shares	1.87
Exercisable at period end (USD per share) | $ / shares	$ 3.10
Weighted Average Remaining Contractual Life (in years)
Outstanding at end of period	8 years
Vested and expected to vest at period end	7 years 9 months 18 days
Exercisable at period end	4 years 7 months 6 days

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Stockholders' Equity - Restricted Stock Units (Details)	3 Months Ended
	Mar. 31, 2023 $ / shares shares
Weighted Average Remaining Contractual Life (in years)
Outstanding at end of period	8 years
Restricted Stock Units
Restricted Stock Units
Outstanding at beginning of period (in shares) | shares	11,600
Granted (in shares) | shares	0
Outstanding at end of period (in shares) | shares	11,600
Weighted Average Grant Date Fair Value
Outstanding at beginning of period (USD per share) | $ / shares	$ 1.59
Granted (USD per share) | $ / shares	0
Outstanding at end of period (USD per share) | $ / shares	$ 1.59
Weighted Average Remaining Contractual Life (in years)
Outstanding at end of period	1 year 4 months 24 days

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Commitments and Contingencies (Details) - USD ($) $ in Thousands	3 Months Ended
	Sep. 30, 2023	Jun. 30, 2023	Mar. 31, 2023
Outstanding purchase commitments			$ 1,391
Scenario, Forecast
Purchase commitment	$ 15	$ 1,376

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Other Income (Details) - USD ($) $ in Thousands	3 Months Ended
	Sep. 30, 2021	Mar. 31, 2023	Dec. 31, 2022	Jun. 30, 2021
Other Income and Expenses [Abstract]
ERTC refund	$ 431
ERTC expected receivable		$ 445	$ 445	$ 445