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 June 30, 2014

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 0-24230

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)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑    No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑    No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in

Rule 12b-2 of the Exchange Act.

Large accelerated filer 	Accelerated filer 
Non-accelerated filer  (do not check if a smaller reporting company)	Smaller reporting company ☑

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 August 12, 2014 was 9,376,818.

TABLE OF CONTENTS

		PART I - FINANCIAL INFORMATION	Page
Item 1.	Financial Statements
	a.	Condensed Consolidated Balance Sheets as of June 30, 2014 (Unaudited) and December 31, 2013	3
	b.	Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2014 and 2013 (Unaudited)	4
	c.	Condensed Consolidated Statements of Comprehensive Loss for the three and six months ended June 30, 2014 and 2013 (Unaudited)	5
	d.	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2013 (Unaudited)	6
	e.	Notes to Condensed Consolidated Financial Statements (Unaudited)	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations		19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		26
Item 4.	Controls and Procedures		26
		PART II - OTHER INFORMATION
Item 1A.	Risk Factors		26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		29
Item 5.	Other Information		29
Item 6.	Exhibits		30
	Signatures		30
	Exhibit Index		31

2

Item 1. Financial Statements

ENERGY FOCUS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(amounts in thousands except share and per share data)

	June 30,			December 31,
	2014			2013
ASSETS	(Unaudited)
Current assets:
Cash and cash equivalents	$	1,596		$	2,860
Trade accounts receivable less allowances of $55 and $84, respectively		3,817			3,348
Retainage receivable		472			577
Inventories, net		2,589			2,510
Costs and estimated earnings in excess of billings		129			145
Prepaid and other current assets		1,311			1,207
Assets held for sale		-			130
Total current assets		9,914			10,777
Property and equipment, net		531			536
Intangible assets, net		27			55
Collateralized assets		1,000			1,000
Other assets		116			440
Total assets	$	11,588		$	12,808
LIABILITIES
Current liabilities:
Accounts payable	$	3,624		$	3,707
Accrued liabilities		1,147			1,218
Deferred revenue		183			71
Billings in excess of costs and estimated earnings		22			764
Credit line borrowings		824			-
Current maturities of long-term debt		62			59
Total current liabilities		5,862			5,819
Other liabilities		49			54
Long-term debt		202			4,011
Total liabilities		6,113			9,884
STOCKHOLDERS' EQUITY
Preferred stock, par value $0.0001 per share:
Authorized: 2,000,000 shares in 2014 and 2013
Issued and outstanding: no shares in 2014 and 2013		-			-
Common stock, par value $0.0001 per share: Authorized: 15,000,000 shares in 2014 and 2013. Issued and outstanding: 8,012,461 at June 30, 2014 and 5,142,194 at December 31, 2013 (post-reverse split)		1			1
Additional paid-in capital		92,682			85,446
Accumulated other comprehensive income		469			462
Accumulated deficit		(87,677	)		(82,985	)
Total stockholders' equity		5,475			2,924
Total liabilities and stockholders' equity	$	11,588		$	12,808

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

3

ENERGY FOCUS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(amounts in thousands except per share amounts)

(Unaudited)

	Three months ended						Six months ended
	June 30,						June 30,
	2014			2013			2014			2013
Net sales	$	6,699		$	5,653		$	11,618		$	10,111
Cost of sales		4,525			4,415			8,022			7,990
Gross profit		2,174			1,238			3,596			2,121
Operating expenses:
Research and development		203			172			394			209
Selling, general, and administrative		2,533			2,471			4,837			4,553
Loss on impairment		-			325			-			325
Change in estimate of contingent liabilities		-			12			-			12
Total operating expenses		2,736			2,980			5,231			5,099
Loss from operations		(562	)		(1,742	)		(1,635	)		(2,978	)
Other income (expense):
Settlement of acquisition obligations		-			892			-			892
Other expense		(33	)		(145	)		(393	)		(239	)
Interest expense		(28	)		(167	)		(2,646	)		(293	)
Loss from continuing operations before income taxes		(623	)		(1,162	)		(4,674	)		(2,618	)
Benefit for income taxes		1			-			2			-
Net loss from continuing operations	$	(622	)	$	(1,162	)	$	(4,672	)	$	(2,618	)
Discontinued operations:
Income (loss) from discontinued operations before income taxes		-			484			(20	)		515
Provision for income taxes		-			(1	)		-			(4	)
Income (loss) from discontinued operations		-			483			(20	)		511
Net loss	$	(622	)	$	(679	)	$	(4,692	)	$	(2,107	)
Loss per share:
Basic
From continung operations	$	(0.08	)	$	(0.25	)	$	(0.72	)	$	(0.57	)
From discontinued operations		-			0.10			-			0.11
Total	$	(0.08	)	$	(0.15	)	$	(0.72	)	$	(0.46	)
Diluted
From continung operations	$	(0.08	)	$	(0.25	)	$	(0.72	)	$	(0.57	)
From discontinued operations		-			0.10			-			0.11
Total	$	(0.08	)	$	(0.15	)	$	(0.72	)	$	(0.46	)
Weighted average common shares outstanding:
Basic and diluted		7,836			4,623			6,512			4,547

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

4

ENERGY FOCUS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(amounts in thousands)

(Unaudited)

	Three months ended						Six months ended
	June 30,						June 30,
	2014			2013			2014			2013
Net loss	$	(622	)	$	(679	)	$	(4,692	)	$	(2,107	)
Other comprehensive income:
Foreign currency translation adjustments		5			(1	)		7			(39	)
Comprehensive loss	$	(617	)	$	(680	)	$	(4,685	)	$	(2,146	)

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

5

ENERGY FOCUS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(amounts in thousands)

(Unaudited)

	Six months ended
	June 30,
	2014			2013
Cash flows from operating activities:
Net loss	$	(4,692	)	$	(2,107	)
Adjustments to reconcile net loss to net cash used in operating activities:
Loss on impairment		-			325
Depreciation		114			327
Stock-based compensation		258			96
Settlement of acquisition obligations		-			(892	)
Provision for doubtful accounts receivable		(3	)		(33	)
Amortization of intangible assets		27			127
Amortization of discounts on long-term borrowings and acquisition related liabilities		2,815			110
Amortization of loan origination fees		83			56
Changes in assets and liabilities:
Accounts receivable, inventories, and other assets		(457	)		1,419
Accounts payable and accrued liabilities		(428	)		(2,297	)
Deferred revenue		(630	)		(669	)
Total adjustments		1,779			(1,431	)
Net cash used in operating activities		(2,913	)		(3,538	)
Cash flows from investing activities:
Acquisition of property and equipment		(107	)		(151	)
Proceeds from the sale of property and equipment		130			-
Net cash provided by (used in) investing activities		23			(151	)
Cash flows from financing activities:
Proceeds from issuances of common stock, net		806			-
Proceeds from exercise of stock options and employee stock purchase plan purchases		27			15
Proceeds from other borrowings, net of origination fees		-			4,779
Payments on other borrowings		(29	)		(26	)
Net proceeds on credit line borrowings		824			12
Net cash provided by financing activities		1,628			4,780
Effect of exchange rate changes on cash		(2	)		(6	)
Net (decrease) increase in cash and cash equivalents		(1,264	)		1,085
Cash and cash equivalents at beginning of period		2,860			1,181
Cash and cash equivalents at end of period	$	1,596		$	2,266
Classification of cash and cash equivalents:
Cash and cash equivalents	$	1,122		$	2,207
Restricted cash held		174			59
Cash held in escrow		300			-
Cash and cash equivalents at end of period	$	1,596		$	2,266
Supplemental Information - Non-cash financing activities
Conversion of subordinated convertible debt to equity, net of discount amortization	$	3,858		$	-

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

6

ENERGY FOCUS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014

(Unaudited)

NOTE 1. NATURE OF OPERATIONS

Energy Focus, Inc. and its subsidiaries (the “Company”) engage in the design, development, manufacturing, marketing, and installation of energy-efficient lighting systems and solutions where we serve two segments:

● Products: providing military, general commercial and industrial energy-efficient lighting offerings; and

● Solutions: providing turnkey, high-quality, energy-efficient lighting application alternatives, primarily to the existing public-sector building market. We have also begun pursuing opportunities in the commercial and industrial sectors.

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

Reverse Stock Split

At the Company’s annual meeting of stockholders held on July 15, 2014, the stockholders approved an amendment to the Certificate of Incorporation, as described in the Company’s proxy statement dated June 26, 2014, to effect a reverse stock split of the Company’s outstanding common stock at a ratio ranging from 1-for-7 to 1-for-15, with such ratio determined by the Company’s Board of Directors in its discretion without further approval from the stockholders. The Board of Directors subsequently authorized proceeding with the reverse stock split at a ratio of 1-for-10. On July 16, 2014, the Company filed a Certificate of Amendment to its Certificate of Incorporation effecting the reverse stock split effective at 5pm ET on July 16, 2014. Immediately after the July 16, 2014 effective date, the Company had 8,012,461 shares of common stock issued and outstanding. All share and per share amounts have been retroactively restated to reflect the reverse split. Effective at the same time as the reverse split, the authorized number of shares of our common stock was proportionately decreased from 150,000,000 shares to 15,000,000 shares. The par value remained the same.

Basis of Presentation

The financial statements include the accounts of the Company and its subsidiaries, Energy Focus LED Solutions, LLC (“EFLS”) in Nashville, Tennessee, and Crescent Lighting Limited (“CLL”) located in the United Kingdom. All significant inter-company balances and transactions have been eliminated.

We have prepared the accompanying financial data for the three and six months ended June 30, 2014 and 2013 pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States have been condensed or omitted pursuant to such rules and regulations. The accompanying financial data and information should be read in conjunction with our 2013 Annual Report on Form 10-K.

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 June 30, 2014 and December 31, 2013, Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2014 and 2013, Condensed Consolidated Statements of Comprehensive Loss for the three and six months ended June 30, 2014 and 2013, and Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2013.

7

ENERGY FOCUS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014

(Unaudited)

The preparation of condensed consolidated financial statements in accordance with GAAP in the United States requires management to make estimates and assumptions that affect the amounts reported in our condensed consolidated 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 the company in the future, actual results may be different 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, equipment, and intangible assets; revenues recognized on a percentage-of-completion basis; and stock-based compensation. In addition, estimates and assumptions associated with the determination of the fair value of financial instruments and evaluation of long-lived assets for impairment requires considerable judgment. Actual results could differ from those estimates and such differences could be material.

Our independent public accounting firm has issued an opinion in connection with our 2013 Annual Report on Form 10-K raising substantial doubt as to our ability to continue as a going concern. The interim financial statements have been prepared assuming we will continue to operate as a going concern, which contemplates the realization of assets and the settlement of liabilities in the normal course of business. The interim financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from uncertainty related to our ability to continue as a going concern.

Reclassifications

Certain prior year amounts have been reclassified within the Condensed Consolidated Financial Statements (“financial statements”), and related notes thereto, to be consistent with the current year presentation. See discussion of the reclassification of discontinued operations in Note 3, Discontinued Operations.

Recent Accounting Pronouncements

In July 2013, the Financial Accounting Standard Board (FASB) issued Accounting Standards Update (ASU) No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists, which amends ASC 740, Income Taxes. The amendments provide guidance on the financial statement presentation of an unrecognized tax benefit, as either a reduction of a deferred tax asset or as a liability, when a net operating loss carryforward, similar tax loss, or a tax credit carryforward exists. The amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013 and may be applied on either a prospective or retrospective basis. The adoption of this ASU did not materially impact our disclosures.

In May 2014, the FASB issued ASU No. 2014-09, Revenue Recognition - Revenue from Contracts with Customers, which is a comprehensive revenue recognition standard that will supersede nearly all existing revenue recognition guidance under U.S. GAAP. The standard is effective for interim and annual periods beginning after December 15, 2016, and either full retrospective adoption or modified retrospective adoption is permitted. The Company is in the process of evaluating the impact of the standard.

Update to Significant Accounting Policies

There have been no material changes to our significant accounting policies, as compared to the significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013.

Loss per Share

Basic loss per share is computed by dividing the net loss available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted loss per share is computed giving effect to all dilutive potential common shares that were outstanding during the period. Dilutive potential common shares consist of incremental shares upon exercise of stock options and warrants, unless the effect would be anti-dilutive.

8

ENERGY FOCUS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014

(Unaudited)

A reconciliation of basic and diluted loss per share is provided as follows (in thousands, except per share amounts):

	Three months ended						Six months ended
	June 30,						June 30,
	2014			2013			2014			2013
Basic and diluted loss per share:
Net loss	$	(622	)	$	(679	)	$	(4,692	)	$	(2,107	)
Basic and diluted loss per share:
Weighted average shares outstanding		7,836			4,623			6,512			4,547
Basic and diluted net loss per share	$	(0.08	)	$	(0.15	)	$	(0.72	)	$	(0.46	)

Options, warrants and convertible securities representing approximately 482,824 and 1,832,068 shares of common stock were excluded from the loss per share calculation for the three months ended June 30, 2014 and 2013, respectively, and 1,738,434 and 1,345,522 for the six months ended June 30, 2014 and 2013, respectively, because their inclusion would have been anti-dilutive.

Stock-Based Compensation

On May 6, 2014, the Company’s Board of Directors approved the Energy Focus, Inc. 2014 Stock Incentive Plan (the “2014 Plan”). The 2014 Plan was approved by the stockholders at the Company’s annual meeting on July 15, 2014, after which no further awards could be issued under the Energy Focus, Inc. 2008 Incentive Stock Plan (the “2008 Plan”). The 2014 Plan allows for awards up to 600,000 shares of common stock and expires on July 15, 2024. The 2008 Plan is described in detail in our 2013 Annual Report on Form 10-K. The following table summarizes our stock-based compensation (in thousands):

	Three months ended				Six months ended
	June 30,				June 30,
	2014		2013		2014		2013
Cost of sales	$	4	$	1	$	6	$	1
Research and development		3		8		2		15
Selling, general, and administrative		128		42		250		80
Total stock-based compensation	$	135	$	51	$	258	$	96

Total unearned compensation was $495 thousand related to stock-based compensation at June 30, 2014, compared to $295 thousand at June 30, 2013. These costs will be charged to expense and amortized on a straight-line basis in future periods through the third quarter of 2016. The weighted average period over which the unearned compensation is expected to be recognized is approximately 1.9 years.

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

	Six months ended
	June 30,
	2014			2013
Fair value of options issued	$	3.34		$	1.58
Exercise price	$	4.34		$	2.32
Expected life of option		5.6			7.4
Risk-free interest rate		1.79	%		1.30	%
Expected volatility		98.1	%		89.2	%
Dividend yield		0	%		0	%

9

ENERGY FOCUS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014

(Unaudited)

Option activity under our stock plans during the six months ended June 30, 2014 was as follows:

	Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in Years)
Outstanding as of December 31, 2013		286,188		$	15.30
Granted		208,000			4.34
Exercised		(500	)		2.30
Cancelled/forfeited		(83,561	)		15.61
Outstanding as of June 30, 2014		410,127		$	9.70		7.6
Vested and expected to vest as of June 30, 2014		372,885		$	8.59		8.4
Exercisable as of June 30, 2014		207,818		$	14.83		7.2

Product Warranties

We warrant finished goods against defects in material and workmanship under normal use and service for periods generally between one and five years for products and labor. Settlement costs consist of actual amounts expensed for warranty services which are largely a result of third-party service calls and the costs of replacement products. A liability for the estimated future costs under product warranties is maintained for products outstanding under warranty and is included in “Accrued liabilities” in the Condensed Consolidated Balance Sheets. The warranty activity for the respective periods is as follows (in thousands):

	Three months ended						Six months ended
	June 30,						June 30,
	2014			2013			2014			2013
Balance at the beginning of the period	$	75		$	140		$	75		$	159
Accruals for warranties issued		-			23			16			39
Settlements made during the period (in cash or in kind)		(7	)		(13	)		(23	)		(48	)
Balance at the end of the period	$	68		$	150		$	68		$	150

NOTE 3. DISCONTINUED OPERATIONS

In November 2013, we sold our pool products business for a cash purchase price of $5.2 million. Under the terms of the Agreement, we sold substantially all of the assets associated with the pool products business and the buyer assumed certain related liabilities. In connection with the sale, we and the buyer entered into a transition services agreement that continued until April 30, 2014. Under the Agreement, we provided services to transition the pool products business to the buyer. In addition, the Agreement contains representations, warranties and covenants of us and the buyer and prohibits us from competing with the buyer in the pool business for a period of five years following the closing. The Agreement also provided for an escrow of $500 thousand of the purchase price to secure customary indemnification obligations with respect to our representations, warranties and covenants and other obligations under the Agreement. Under the terms of our agreement, the first of five $100 thousand scheduled escrow releases commenced on March 25, 2014 and was to continue on the 25^th day of each of the next four subsequent months. As of June 30, 2014, $200 thousand of the cash held in escrow had been released to the Company and $300 thousand remained in escrow subject to the resolution of outstanding buyer claims.

10

ENERGY FOCUS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014

(Unaudited)

In conjunction with the sale, we have eliminated the expenses associated with this business from our Condensed Consolidated Statements of Operations and have reported the net loss from those activities as “discontinued operations” for the periods presented in this Quarterly Report. There were no revenues from discontinued operations for the three and six months ended June 30, 2014. Revenues for the three and six months ended June 30, 2013 were $1.7 million and $2.6 million, respectively. We recognized no expenses for the three months ended June 30, 2014, and approximately $20 thousand for the six months ended June 30, 2014. For the three and six months ended June 30, 2013, we recognized expenses of approximately $1.2 million and $2.1 million, respectively.

The sale of our pool products business is described in detail in our 2013 Annual Report on Form 10-K.

NOTE 4. INVENTORIES

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

	June 30,		December 31,
	2014		2013
Raw materials	$	1,130	$	1,611
Finished goods		1,459		899
Inventories, net	$	2,589	$	2,510

NOTE 5. PROPERTY AND EQUIPMENT

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

	June 30,			December 31,
	2014			2013
Equipment (useful life 3 - 15 years)	$	1,958		$	2,080
Tooling (useful life 2 - 5 years)		770			769
Furniture and fixtures (useful life 5 years)		98			115
Computer software (useful life 3 years)		539			521
Leasehold improvements (the shorter of useful life or lease life)		578			589
Construction in progress		57			9
Property and equipment at cost		4,000			4,083
Less: accumulated depreciation		(3,469	)		(3,547	)
Property and equipment, net	$	531		$	536

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ENERGY FOCUS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014

(Unaudited)

NOTE 6. INTANGIBLE ASSETS

The following table summarizes information related to net carrying value of intangible assets (in thousands):

	Amortization		June 30,		December 31,
	Life (in years)		2014		2013
Customer relationships		5	$	27	$	55

Amortization expense for intangible assets subject to amortization was $14 thousand and $63 thousand for the three months ended June 30, 2014 and 2013, respectively. For the six months ended June 30, 2014 and 2013, amortization expense was $28 thousand and $127 thousand, respectively. Customer relationships are amortized over their expected useful lives on an accelerated method that approximates the cash flows associated with those relationships. Based on the carrying value of amortized customer relationships, the Company estimates they will be fully amortized in 2014.

NOTE 7. CONTRACTS IN PROGRESS

Costs and estimated earnings on contracts in progress as of the periods indicated are summarized in the following table (in thousands):

	June 30,			December 31,
	2014			2013
Costs incurred on uncompleted contracts	$	7,733		$	7,347
Estimated earnings		1,772			1,603
Total revenues		9,505			8,950
Less: billings to date		9,398			9,569
Total	$	107		$	(619	)
Balance sheet classification:
Costs and estimated earnings in excess of billings on uncompleted contracts	$	129		$	145
Billings in excess of costs and estimated earnings on uncompleted contracts		(22	)		(764	)
Total	$	107		$	(619	)

NOTE 8. DEBT

Credit Facilities

On December 22, 2011, we entered into a $4.5 million revolving line of credit (“credit facility”) with Rosenthal & Rosenthal. The total loan amount available to us under the line of credit is equal to 85% of our net amount of eligible receivables, plus available inventory (the lesser of 50% of the lower of cost or market value of eligible inventory, or $250 thousand). The credit facility is secured by a lien on our domestic assets. The interest rate for borrowing on accounts receivable is 8.5%, on inventories 10.0% and on overdrafts 13.0%. Additionally, there is an annual 1% facility fee on the entire $4.5 million amount of the credit facility payable at the beginning of the year. The credit facility is a three year agreement, expiring on December 31, 2014, unless terminated sooner. There are liquidated damages of 1% if the credit facility is terminated prior to December 31, 2014. We are required to comply with certain financial covenants, measured quarterly, including, as defined in the agreement: a tangible net worth amount and a working capital amount. We were in compliance with the financial covenants at June 30, 2014. Borrowings under the revolving line of credit were $649 thousand at June 30, 2014, and are recorded in our Condensed Consolidated Balance Sheets as a current liability under the caption “Credit line borrowings.” At December 31, 2013, there was a debit/negative balance on the line of credit of $218 thousand, which is included in the Condensed Consolidated Balance Sheets under the caption “Cash and cash equivalents.” At June 30, 2014, there was approximately $706 thousand available for us to borrow under this line of credit.

12

ENERGY FOCUS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014

(Unaudited)

Additionally, our subsidiary in the United Kingdom has an invoice discounting arrangement whereby the amount available for borrowing is based at 80% of the eligible sales ledger of the subsidiary. The interest rate for borrowing under this arrangement is 3.02%. Borrowings under this arrangement were $175 thousand at June 30, 2014 and are recorded in our Condensed Consolidated Balance Sheets as a current liability under the caption “Credit line borrowings.” There was nothing outstanding under this arrangement at December 31, 2013.

Borrowings

The components of our debt at June 30, 2014 and December 31, 2013 were as follows (in thousands):

	June 30,			December 31,
	2014			2013
Unsecured Convertible Notes	$	-		$	6,145
Cognovit Note - Keystone Ruby, LLC		194			223
Unsecured Promissory Note - Quercus Trust		70			70
Discounts on long-term debt		-			(2,368	)
Subtotal		264			4,070
Less: Current maturies of long-term debt		(62	)		(59	)
Long-term debt	$	202		$	4,011

Effective March 31, 2014, the holders of the unsecured convertible notes converted the outstanding principal amount of $6.15 million into 2,671,739 shares of our common stock. As consideration for entering into agreements to convert their notes, the note holders will receive additional interest payments at the stated rate of the notes of 5% through September 30, 2014. At June 30, 2014, $77 thousand for this charge was included as a current liability under the caption “Accrued liabilities” in our Condensed Consolidated Balance Sheets. In relation to the conversion of the outstanding notes, we incurred a one-time charge of $2.7 million, including a non-cash charge of $2.3 million to write-off the remaining unamortized discount associated with the notes, $154 thousand for the additional six months interest described above, and $293 thousand to write-off the remaining loan origination costs incurred in connection with the convertible notes. For a full description of our debt financing, reference is made to Note 9, Debt, of our 2013 Annual Report on Form 10-K.

Future maturities of remaining borrowings are (in thousands):

	Long-Term
Year ending December 31,	Debt
2014 July through December	$	30
2015		66
2016		72
2017		26
2018		-
2019 and thereafter		70
Total commitment		264
Less: portion classified as current		(62	)
Long-term debt, net	$	202

13

ENERGY FOCUS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014

(Unaudited)

NOTE 9. SETTLEMENT OF ACQUISITION OBLIGATIONS

On June 28, 2013, the Company entered into a Settlement Agreement with EFLS, TLC Investments, LLC, Jamie Hall and Robert E. Wilson, terminating the Membership Interest Purchase Agreement and related agreements that the parties had entered into at the end of December 2009 in connection with the Company’s acquisition of EFLS. As part of the Settlement Agreement, the Company’s obligation to pay a $500 thousand special fee and a $500 thousand convertible promissory note including interest of $92 thousand were cancelled in their entirety in exchange for a $200 thousand payment and the forgiveness of a net receivable due to the Company of $78 thousand. Additionally, in the second quarter of 2013, the Company recognized a $66 thousand favorable adjustment related to the change in the estimate of a performance-related contingent obligation for a 2.5% payout based upon the fair value of projected annual billings of EFLS. See Note 12, Commitments and Contingencies.

The classification of these items in the Consolidated Statement of Operations for the three and six months ended June 30, 2013 is shown below (in thousands):

Change in estimate of contingent liabilities:
Forgiveness of net receivable due the Company	$	78
Adjustment to performance-related contingent obligation		(66	)
Net line item expense	$	12
Settlement of acquisition obligations:
Forgiveness of special fee	$	500
Forgiveness of convertible promissory note, including interest		592
Payment by the Company		(200	)
Net line item income	$	892

As a provision of the Settlement Agreement, the Company agreed to discontinue using the name Stones River Companies by July 1, 2014. As a result of this provision, the Company wrote off the remaining $325 thousand of the intangible asset for the Tradename. See Note 6, of our 2013 Annual Report on Form 10-K.

NOTE 10. SEGMENTS AND GEOGRAPHIC INFORMATION

We have two reportable segments: products and solutions. The products segment includes the marketing and sale of commercial, industrial, government, military and maritime lighting products, and research and development services. Our products are sold primarily in North America, Europe, and the Far East through a combination of direct sales employees, independent sales representatives and distributors. Our solutions segment provides turnkey, high-quality, energy-efficient lighting application alternatives, which are designed to enhance total value by positively impacting customers’ profitability, the environment, and the communities served. These solutions are sold through our EFLS subsidiary, and include not only our proprietary energy-efficient lighting solutions, but also sourced lighting systems, energy audits and service agreements.

14

ENERGY FOCUS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014

(Unaudited)

The following summarizes our reportable segment data for periods indicated (in thousands):

	Three months ended						Six months ended
	June 30,						June 30,
	2014			2013			2014			2013
Solutions:
Net sales	$	1,133		$	1,983		$	3,321		$	3,790
Cost of sales		948			1,775			2,513			3,298
Gross profit		185			208			808			492
Operating expenses:
Selling, general, and administrative		352			476			783			948
Loss on impairment		-			325			-			325
Total operating expenses		352			801			783			1,273
Segment (loss) income	$	(167	)	$	(593	)	$	25		$	(781	)
Products:
Net sales	$	5,566		$	3,670		$	8,297		$	6,321
Cost of sales		3,577			2,640			5,509			4,692
Gross profit		1,989			1,030			2,788			1,629
Operating expenses:
Research and development		55			172			118			209
Selling, general, and administrative		1,223			1,025			2,018			1,609
Total operating expenses		1,278			1,197			2,136			1,818
Segment income (loss)	$	711		$	(167	)	$	652		$	(189	)
Reconciliation of segment income (loss) to net loss:
Segment income (loss):
Solutions	$	(167	)	$	(593	)	$	25		$	(781	)
Products		711			(167	)		652			(189	)
Total segment income (loss)		544			(760	)		677			(970	)
Operating expenses:
Research and development		148			-			276			-
Selling, general, and administrative		958			970			2,036			1,996
Change in estimate of contingent liabilities		-			12			-			12
Total operating expenses		1,106			982			2,312			2,008
Other (expense) income		(61	)		580			(3,039	)		360
Loss from continuing operations before income taxes		(623	)		(1,162	)		(4,674	)		(2,618	)
Benefit (provision) for income taxes		1			-			2			-
Net loss from continuing operations	$	(622	)	$	(1,162	)	$	(4,672	)	$	(2,618	)

15

ENERGY FOCUS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014

(Unaudited)

The following table provides additional business unit gross profitability detail for our products segment for the periods indicated (in thousands):

	Three months ended					Six months ended
	June 30,					June 30,
	2014			2013		2014		2013
Products segment net sales:
Commercial	$	1,929		$	1,647	$	3,095	$	3,288
Government		3,620			1,603		5,162		1,856
R&D services		17			420		40		1,177
Total products segment net sales		5,566			3,670		8,297		6,321
Products segment cost of sales:
Commercial		1,194			1,168		1,965		2,321
Government		2,387			1,060		3,525		1,301
R&D services		(4	)		412		19		1,070
Total products segment cost of sales		3,577			2,640		5,509		4,692
Products segment gross profit:
Commercial		735			479		1,130		967
Government		1,233			543		1,637		555
R&D services		21			8		21		107
Total products segment gross profit	$	1,989		$	1,030	$	2,788	$	1,629

A geographic summary of net sales is as follows (in thousands):

	Three months ended				Six months ended
	June 30,				June 30,
	2014		2013		2014		2013
United States	$	5,590	$	4,885	$	9,873	$	8,770
International		1,109		768		1,745		1,341
Net sales	$	6,699	$	5,653	$	11,618	$	10,111

A geographic summary of long-lived assets, which consists of fixed assets and intangible assets, is as follows (in thousands):

	June 30,		December 31,
	2014		2013
United States	$	527	$	582
International		31		9
Long-lived assets, net	$	558	$	591

NOTE 11. INCOME TAXES

At June 30, 2014, we had recorded a full valuation allowance against our deferred tax assets in the United States, due to uncertainties related to our ability to utilize our deferred tax assets, primarily consisting of certain net operating losses carried forward. The valuation allowance is based upon management’s estimates of taxable income by jurisdiction and the period over which our deferred tax assets will be recoverable.

16

ENERGY FOCUS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014

(Unaudited)

As of December 31, 2013, we had a net operating loss carry-forward of approximately $72.1 million for federal, state and local income tax purposes. However, due to changes in our capital structure, approximately $14.5 million of this amount is available after the application of Internal Revenue Code (“IRC”) Section 382 limitations. If not utilized, these carry-forwards will begin to expire in 2021 for federal tax purposes and have begun to expire for state and local tax purposes. For a full discussion of the estimated restrictions on our utilization of net operating loss carry-forwards, see Note 14, Income Taxes, of our 2013 Annual Report on Form 10-K.

NOTE 12. COMMITMENTS AND CONTINGENCIES

In connection with the acquisition of EFLS in December 2009, we recorded a performance-related contingent obligation related to a 2.5% payout payable over 42 months commencing January 1, 2010 and based upon the fair value of projected annual billings of the acquired business, and a $500 thousand fee if the market price of our common stock was not equal to or greater than $20.00 per share for at least twenty trading days between June 30, 2010 and June 30, 2013 (due on June 30, 2013). We accrued for each of these contingent liabilities at their respective fair values at the time of the acquisition. For the three and six months ended June 30, 2013, we paid $82 thousand and $206 thousand, respectively, relating to the 2.5% payout.

On June 28, 2013, we entered into a Settlement Agreement with EFLS, TLC Investments, LLC, Jamie Hall and Robert E. Wilson, terminating the Membership Interest Purchase Agreement related to the acquisition of Stones River Companies, LLC, now known as EFLS. As part of the Settlement Agreement, our obligation to pay a $500 thousand special fee and a $500 thousand convertible promissory note were cancelled in their entirety. Therefore, at June 30, 2014 and December 31, 2013, nothing was remaining on the Company’s Condensed Consolidated Balance Sheets relating to these obligations.

NOTE 13. RELATED PARTY TRANSACTIONS

On December 12, 2012, our Board of Directors appointed James Tu to serve as our non-executive Chairman. On April 30, 2013, Mr. Tu became the Executive Chairman assuming the duties of the Principal Executive Officer. On October 30, 2013 Mr. Tu was appointed Executive Chairman and Chief Executive Officer by the Board of Directors. Mr. Tu is also the Founder, Chief Executive Officer and Chief Investment Officer of 5 Elements Global Advisors, an investment advisory and management company managing the holdings of 5 Elements Global Fund LP, a beneficial owner of more than 5% of our common stock. 5 Elements Global Advisors focuses on investing in clean energy companies with breakthrough, commercialized technologies and near-term profitability potential. Mr. Tu is also Co-Founder and Managing Partner of Communal International Ltd. “(Communal”), a British Virgin Islands company dedicated to assisting clean energy solutions companies maximize their technology and product potential and gain access to global marketing, distribution licensing, manufacturing and financing resources. Communal has a 50% ownership interest in 5 Elements Efficiencies (BVI) Ltd., a beneficial owner of more than 5% of our common stock. Yeh-Mei Cheng controls 5 Elements Energy Efficiencies (BVI) Ltd. and owns the other 50%. She is the co-founder of Communal International Ltd. with Mr. Tu and the mother of Simon Cheng, a current member of our Board of Directors and an employee of the Company, and Jennifer Cheng, a member of our Board of Directors through July 15, 2014.

On February 27, 2012, we entered into an Asian Business Development/Collaboration Agreement with Communal. The agreement has a 60 month term. Additionally, during the term of the agreement, we will pay Communal a 5% commission on the net sales that occur within the Territory, as defined by the agreement. We have incurred no commissions due under this agreement through June 30, 2014.

Effective on January 1, 2013, the Asian Business Development/Collaboration Agreement with Communal was amended to reflect the extension of the terms of the agreement for an additional 12 months, and the addition of certain services and countries in the territory covered by the agreement. In connection with the amended and restated agreement, we paid an additional $425 thousand in 2013, $175 thousand of which was paid in the first half of 2013. Nothing was paid during the first half of 2014. We recorded expense of $113 thousand under this agreement during the first half of 2014 and 2013. As of December 31, 2013, we may terminate the agreement upon 30 days written notice.

NOTE 14. SEPARATION ACCRUAL

During the second through fourth quarters of 2013, we incurred charges of $448 thousand for salary continuation and COBRA payments related to separation agreements with our former Chief Executive Officer, our former Chief Financial Officer, and our former Chief Technology Officer. At June 30, 2014 and December 31, 2013, we had a remaining accrual of $50 thousand and $247 thousand, respectively, for these charges included in the caption “Accrued liabilities” in the Condensed Consolidated Balance Sheets.

17

ENERGY FOCUS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014

(Unaudited)

NOTE 15. SUBSEQUENT EVENTS

On August 6, 2014, the Company announced the pricing of a public offering to sell 1.175 million shares of its common stock at a price of $4.50 per share. The underwriters were given an option to buy up to an additional 176,250 shares at $4.50 per share to cover over allotments. The offering closed on August 11, 2014. On August 8, 2014, the underwriters notified the Company that it was exercising its option to purchase an additional 176,250 shares of common stock from the Company. We estimate the net proceeds from the offering, after deducting the underwriting discount and estimated offering expenses payable by us, will be approximately $5.3 million including the underwriters exercise of the overallotment. As part of the underwriting agreement, the Company issued a warrant for 47,000 shares to the underwriter representing 4% of number of shares of common stock sold in the offering at an issue price of $5.40 per share representing 120% of the public offering price of the shares of common stock. In conjunction with the registered offering, the Company’s common stock began trading on The NASDAQ Capital Market (“NASDAQ”) under the symbol EFOI on August 7, 2014. For a complete description of the details of the registered offering, reference is made to the registration statement on Form S-1 filed with the SEC on May 21, 2014 and amended on July 22, 2014, July 25, 2014 and August 4, 2014 and the final prospectus contained therein filed on August 6, 2014.

18

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 Condensed Consolidated Financial Statements (“financial statements”) and related notes included in Item 1 of this Quarterly Report and the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2013.

All references to “Energy Focus,” “we,” “us,” “our,” or “the Company” means Energy Focus, Inc. and its subsidiaries, except where it is made clear that the term means only the parent company.

Statements and information included in this Annual Report on Form 10-K that are not purely historical are forward-looking statements. When used in this report, the words “believes,” “expects,” “anticipates,” “intends,” “assumes,” “estimates,” “evaluates,” “opinions,” “forecasts,” “may,” “could,” “future,” “forward,”, “plans”, “potential,” “probable,” and similar expressions are intended to identify forward-looking statements. Forward-looking statements in this Quarterly Report on Form 10-Q include statements regarding Energy Focus’ expectations, intentions, beliefs, and strategies regarding the future, including but not limited to; growth in the markets into which Energy Focus sells; conditions of the lighting industry and the economy in general; statements as to our competitive position; future operating results; net sales growth; expected operating expenses; gross product margin improvement; sources of net sales; anticipated revenue from government contracts; product development and enhancements; liquidity, ability to generate cash and cash reserves; our reliance upon a limited number of customers; our accounting policies; the effect of recent accounting announcements; the development and marketing of new products; relationships with customers and distributors; relationships with, dependence upon, and the ability to obtain components from suppliers; as well as our remarks concerning our ability to compete in certain markets; the evolution and future size of those markets; seasonal fluctuations; plans for and expected benefits of outsourcing and offshore manufacturing; trends in the price and performance of light-emitting diode (“LED”) lighting products; the benefits and performance of our lighting products; the adequacy of our current physical facilities; our strategy with regard to protecting our proprietary technology; and our ability to retain qualified employees.

These forward-looking statements involve risks and uncertainties. We may make other forward-looking statements from time to time, including in press releases and public conference calls and webcasts. All forward-looking statements made by Energy Focus are based on information available to us at the time the statements are made, and we assume no obligation to update any forward-looking statements. It is important to note that the forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those included in such forward-looking statements.

Energy Focus® and Intellitube® are our registered trademarks. We may also refer to trademarks of other corporations and organizations in this document.

Overview

Energy Focus, Inc. and its subsidiaries engage in the design, development, manufacturing, marketing, and installation of energy-efficient lighting systems and solutions where we serve two segments:

● Products: providing military, general commercial and industrial energy-efficient lighting offerings; and

● Solutions: providing turnkey, high-quality, energy-efficient lighting application alternatives, primarily to the existing public-sector building market. We have also begun pursuing opportunities in the commercial and industrial sectors.

In November 2013, we sold and discontinued our pool products business, and are focusing our resources solely on our LED lighting retrofit business. With this goal, our solutions segment began focusing its efforts on only bidding all-LED replacement solutions in Energy Service Companies (“ESCO’s”) contract proposals versus fluorescent replacements. Additionally, research and development remains a key focus of for us. Our research and development team is dedicated to continuous improvement and innovation of our LED lighting technologies, and we have concentrated our efforts on bidding on research contracts and grants from those that support LED technologies.

19

Results of Operations

The following table sets forth the percentage of net sales represented by certain items reflected on our Condensed Consolidated Statements of Operations for the following periods:

	Three months ended						Six months ended
	June 30,						June 30,
	2014			2013			2014			2013
Net sales		100.0	%		100.0	%		100.0	%		100.0	%
Cost of sales		67.5			78.1			69.0			79.0
Gross profit		32.5			21.9			31.0			21.0
Operating expenses:
Research and development		3.0			3.0			3.4			2.1
Selling, general, and administrative		37.8			43.7			41.6			45.0
Loss on impairment		-			5.7			-			3.2
Change in estimate of contingent liabilities		-			0.2			-			0.1
Total operating expenses		40.8			52.6			45.0			50.4
Loss from operations		(8.3	)		(30.7	)		(14.0	)		(29.4	)
Other income (expense):
Settlement of acquisition obligations		-			15.8			-			8.8
Other expense		(0.5	)		(2.6	)		(3.4	)		(2.4	)
Interest expense		(0.4	)		(3.0	)		(22.8	)		(2.9	)
Net loss from continuing operations		(9.2	)		(20.5	)		(40.2	)		(25.9	)
Discontinued operations:
Income (loss) from discontinued operations		-			8.6			(0.2	)		5.1
Net loss		(9.2	)%		(11.9	)%		(40.4	)%		(20.8	)%

Our net sales breakdown by business segment is as follows (in thousands): 

	Three months ended				Six months ended
	June 30,				June 30,
	2014		2013		2014		2013
Solutions	$	1,133	$	1,983	$	3,321	$	3,790
Products:
Commercial		1,929		1,647		3,095		3,288
Government		3,620		1,603		5,162		1,856
R&D services		17		420		40		1,177
Total net sales - product segment		5,566		3,670		8,297		6,321
Total net sales	$	6,699	$	5,653	$	11,618	$	10,111

Net sales of $6.7 million for the second quarter of 2014 increased 18.5 percent as compared to the prior year’s second quarter. Solutions segment sales decreased 42.9 percent, while products segment sales increased 51.7 percent. The Solutions net sales decrease was a result of shifting our focus from turnkey LED ESCO solutions to the commercial LED market. Within the products segment, commercial products sales increased 17.1 percent, government products sales increased 125.8 percent due to increased sales to the U.S. Navy, and R&D services sales decreased 96.0 percent due to focusing our resources exclusively on projects and contract that support LED technology. Net sales of $11.6 million for the first half of 2014 increased 14.9 percent as compared to the first half of 2013. Solutions segment sales decreased 12.4 percent, while products segment sales increased 31.3 percent, preliminary due to increased sales to the U.S. Navy.

20

Gross Profit

Gross profit was $2.2 million, or 32.5 percent of net sales, for the three months ended June 30, 2014, an increase of $936 thousand, or 75.6 percent, compared to $1.2 million, or 21.9 percent of net sales, for the three months ended June 30, 2013. Solutions segment gross profit decreased $23 thousand; however, increased as a percentage of net sales to 16.3 percent compared to 10.5 percent of net sales for the prior year’s quarter. The increase as a percentage of net sales was due to improved business execution. Products segment gross profit increased $959 thousand, or 93.1 percent, for the three months ended June 30, 2014 to 35.7 percent of net sales from 28.1 percent in the prior year’s second quarter. The increase resulted from higher sales to the U.S. Navy and higher commercial products sales. Additionally, the gross margin percentage increased as a result of our continuous operational efficiency improvement efforts, as well as growing economies of scale from sales volume increases. 

Gross profit was $3.6 million, or 31.0 percent of net sales, for the six months ended June 30, 2014 compared to $2.1 million, or 21.0 percent of net sales, for the prior year’s six month period. Solutions segment gross profit increased $316 thousand to 24.3 percent of net sales from 13.0 percent of net sales for the prior year. The increase is due to improved business execution. Products segment gross profit increased $1.2 million, or 71.1 percent, to 33.6 percent of net sales from 25.8 percent of net sales for the prior year’s six month period. The increase is due primarily to higher sales to the U.S. Navy, and an improved customer mix with lower sales for R&D services, which carry lower gross margins. Additionally, the gross margin percentage increased as a result of our continuous operational efficiency improvement efforts, as well as growing economies of scale from sales volume increases. 

Operating Expenses

Research and Development

Gross research and development expenses were $329 thousand for the three months ended June 30, 2014, nearly a fifty percent decrease from $652 thousand for the three months ended June 30, 2013. For the first half of 2014, gross research and development expenses were $649 thousand, a $1.1 million decrease from the $1.8 million for the prior year’s comparable period. The decrease was due to scaling back our efforts and focusing our resources exclusively on projects and contracts that support LED technologies.

Research and development expenses include salaries, contractor and consulting fees, supplies and materials, as well as overhead costs such as depreciation and facilities costs. Research and development costs are expensed as they are incurred.

Total government reimbursements are the combination of revenues and credits from government contracts.

The gross and net research and development expense along with credits from government contracts is shown in the following table (in thousands):

	Three months ended						Six months ended
	June 30,						June 30,
Net Research & Development Expense	2014			2013			2014			2013
Total gross research and development expenses	$	329		$	652		$	649		$	1,759
Cost recovery through cost of sales		4			(411	)		(19	)		(1,168	)
Cost recovery and other credits		(130	)		(69	)		(236	)		(382	)
Research and development, net	$	203		$	172		$	394		$	209

Selling, General and Administrative

Selling, general, and administrative expenses totaled $2.5 million, or 37.8 percent of net sales, for the three months ended June 30, 2014, compared to $2.5 million, or 43.7 percent of net sales, for the three months ended June 30, 2013. The increase was due to higher commissions due to higher sales and increased stock-based compensation expense. For the six months ended June 30, 2014, selling, general, and administrative expenses were $4.8 million, or 41.6 percent of net sales, compared to $4.6 million, or 45.0 percent of net sales, for the prior year’s comparable period. The increase was a result of higher commissions due to higher sales, increased stock-based compensation expense, and increased legal costs.

Loss on Impairment

In conjunction with a settlement agreement in June 2013 between the Company and the former owners of EFLS, the Company agreed to discontinue the use of the name “Stones River Companies, LLC” and various derivatives thereof including SRC. Therefore, at June 30, 2013, the remaining unamortized balance of Tradenames of $325 thousand was written off. See Note 9, Settlement of Acquisition Obligations.

21

Change in Estimate of Contingent Liabilities

As a provision of the settlement agreement between the Company and the former owners of EFLS in June 2013, the net receivable due to the Company of $78 thousand was forgiven. Additionally, the Company recognized a $66 thousand favorable adjustment related to the change in the estimate of a performance-related contingent obligation for a 2.5% payout based upon the fair value of projected annual billings of EFLS. The Company recognized a net expense of $12 thousand related to these items in June 2013. See Note 9, Settlement of Acquisition Obligations.

Other Income and Expense

Settlement of Acquisition Obligations

As a provision of the settlement agreement between us and the former owners of EFLS in June 2013, our obligation to pay a $500 thousand special fee and a $500 thousand convertible promissory note including interest of $92 thousand were cancelled in their entirety in exchange for a $200 thousand payment. We recognized a net gain of $892 thousand related to these items in June 2013. See Note 9, Settlement of Acquisition Obligations, for further information.

Other Expense

For the three months ended June 30, 2014 and 2013, other expense was $33 thousand and $145 thousand, respectively. For the six months ended June 30, 2014 and 2013, other expense was $393 thousand and $239 thousand, respectively. The increase was primarily a result of the write-off of loan origination costs incurred in connection with the convertible notes.

Interest Expense

For the three months ended June 30, 2014 and 2013, interest expense was $28 thousand and $167 thousand, respectively. The decrease was due to the conversion of the outstanding unsecured convertible notes at March 31, 2014. For the six months ended June 30, 2014, interest expense was $2.6 million, and includes the $2.3 million non-cash charge to write-off the remaining unamortized discount associated with the notes, as well as $154 thousand to accrue the additional interest payments through September 30, 2014. Interest expense includes the amortization of debt discounts, interest on our line of credit facility, amortization of loan origination costs, facility and other fees related to the line of credit agreement, and interest expense for outstanding borrowings.

Net Loss

The net loss from continuing operations for the three months ended June 30, 2014 decreased $540 thousand from the prior year’s period primarily due to increased sales improved gross profits. For the six months ended June 30, 2014, the net loss from continuing operations was $4.7 million compared to a net loss from continuing operations of $2.6 million for the prior year’s six month period. The current year’s period includes one-time charges related to the conversion of the unsecured convertible notes at March 31, 2014, primarily for the write-off the remaining unamortized discount associated these notes. Excluding those charges, the net loss for the six months ended June 30, 2014 would have decreased from the comparable period of 2013 by $680 thousand.

22

Liquidity and Capital Resources

Cash and Cash Equivalents

At June 30, 2014, our cash and cash equivalents were $1.6 million, compared to $2.9 million at December 31, 2013; a decrease of $1.3 million. The balance at June 30, 2014 included restricted cash of $174 thousand, compared to $94 thousand at December 31, 2013. The restricted cash balance relates to funds to be used exclusively for a research and development project with the National Shipbuilding Research Program. Additionally, our cash balance at June 30, 2014 included $300 thousand of the purchase price from the sale of our pool products business held in escrow to secure our obligations of the sale, as compared to a $500 thousand balance at December 31, 2013. Under the terms of our agreement, the first of five $100 thousand scheduled escrow releases was to commence on March 25, 2014 and continue on the 25^th day of each of the next four subsequent months. As of June 30, 2014, $200 thousand of the cash held in escrow had been released to the Company and $300 thousand remained in escrow subject to the resolution of outstanding buyer claims.

On August 6, 2014, the Company announced the pricing of a public offering to sell 1.175 million shares of its common stock at a price of $4.50 per share. The underwriters were given an option to buy up to an additional 176,250 shares at $4.50 per share to cover over allotments. The offering closed on August 11, 2014. On August 8, 2014, the underwriters notified the Company that it was exercising its option to purchase an additional 176,250 shares of common stock from the Company. We estimate the net proceeds from the offering, after deducting the underwriting discount and estimated offering expenses payable by us, will be approximately $5.3 million including the underwriters exercise of the overallotment.

Cash Used in Operating Activities

Net cash used in operating activities was $2.9 million for the six months ended June 30, 2014, compared to net cash used of $3.5 million for the comparable period of 2013. Net cash used in operating activities primarily consisted of net losses adjusted for non-cash charges, as well as the effect of changes in working capital. The decrease in net cash used in operating activities for the six months ended June 30, 2014 was primarily a result of a lower net loss, after adjusting for non-cash charges.

Cash Provided by Investing Activities

Net cash provided by investing activities was $23 thousand for the six months ended June 30, 2014, compared to net cash used of $151 thousand for the comparable period of 2013. The increase was a result of receiving the proceeds on assets held for sale, as well as lower cash expended to acquire property and equipment.

Cash Provided by Financing Activities

Net cash provided by financing activities was $1.6 million for the six months ended June 30, 2014, compared to $4.8 million provided for the comparable period of 2013. The decrease was a result of receiving $4.8 million in net proceeds from the issuance of unsecured convertible debt in the first half of 2013.

Debt

Credit Facilities

On December 22, 2011, we entered into a $4.5 million revolving line of credit (“credit facility”) with Rosenthal & Rosenthal. The total loan amount available to us under the line of credit is equal to 85% of our net amount of eligible receivables, plus available inventory (the lesser of 50% of the lower of cost or market value of eligible inventory, or $250 thousand). The credit facility is secured by a lien on our domestic assets. The interest rate for borrowing on accounts receivable is 8.5%, on inventories 10.0% and on overdrafts 13.0%. Additionally, there is an annual 1% facility fee on the entire $4.5 million amount of the credit facility payable at the beginning of the year. The credit facility is a three year agreement, expiring on December 31, 2014, unless terminated sooner. There are liquidated damages of 1% if the credit facility is terminated prior to December 31, 2014. We intend to enter into a new arrangement beginning in 2015. We are required to comply with certain financial covenants, measured quarterly, including, as defined in the agreement: a tangible net worth amount and a working capital amount. We were in compliance with the financial covenants at June 30, 2014. Borrowings under the revolving line of credit were $649 thousand at June 30, 2014, and are recorded in our Condensed Consolidated Balance Sheets as a current liability under the caption “Credit line borrowings.” At December 31, 2013, there was a debit/negative balance on the line of credit of $218 thousand, which is included in the Condensed Consolidated Balance Sheets under the caption “Cash and cash equivalents.” At June 30, 2014, there was approximately $706 thousand available for us to borrow under this line of credit.

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Additionally, our subsidiary in the United Kingdom has an invoice discounting arrangement whereby the amount available for borrowing is based at 80% of the eligible sales ledger of the subsidiary. The interest rate for borrowing under this arrangement is 3.02%. Borrowings under this arrangement were $175 thousand at June 30, 2014 and are recorded in our Condensed Consolidated Balance Sheets as a current liability under the caption “Credit line borrowings.” There was nothing outstanding under this arrangement at December 31, 2013.

Borrowings

Long-term debt, including current maturities, totaled $264 thousand at June 30, 2014, and $4,070 thousand at December 31, 2013. The decrease was primarily due to the conversion of our outstanding convertible notes effective March 31, 2014. See Note 8, Debt, for further discussion of these transactions.

Liquidity

The accompanying financial statements have been prepared assuming we will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. We have incurred substantial losses, and as of June 30, 2014, we had an accumulated deficit of $87.7 million. We have raised approximately $18 million between 2011 and August 11, 2014 through the issuance of common stock and debt, which has been funding our operating expenses and working capital. Additionally, we received $4.8 million in cash, net of related expenses, through the sale of our pool products business in 2013. Although management has addressed the issues that have historically burdened our financial performance, we may require additional financing for operating expenses, working capital and other corporate purposes to sustain our operations and support our anticipated growth. In order for us to attain profitability and growth, we will need to continue executing our marketing and sales plans to further penetrate the military and maritime markets, and the commercial and industrial markets to increase our sales; improve the operating efficiencies in our turnkey energy-efficient lighting solutions business; development of new technologies into sustainable product lines; further improve gross margins; and continue to improve our supply chain performance.

Management remains optimistic about obtaining the funding necessary to continue as a going concern; however, there can be no assurances that this objective will be successful. As such, we may continue to review and pursue selected external funding sources, if necessary, including, but not limited to, the following:

● obtain funding from financial institutions in the form of a line of credit or term loan to replace the credit facility with Rosenthal & Rosenthal that will expire on December 31, 2014,

● obtain financing from traditional or non-traditional investment capital organizations or individuals, and

● potential sale or divestiture of one or more operating units,

●	obtain funding from the sale of our common stock or other equity or debt instruments or the exercise of warrants.
●

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

● loans or other debt instruments may have terms and/or conditions, such as interest rate, restrictive covenants and control or revocation provisions, which are not acceptable to management or our Board of Directors,

● the current environment in capital markets combined with our capital constraints may prevent us from being able to obtain adequate debt financing,

● financing may not be available for parties interested in pursuing the acquisition of one or more of our operating units, and

● additional equity financing may not be available to us in the current capital environment and could lead to further dilution of stockholder value for current stockholders.

If we were to fail to obtain the funds we need to sustain our operations and support our anticipated growth, loans or other external funding sources, we would need to delay or scale back our business plan, reduce our operating costs, or reduce our headcount, each of which would have a material adverse effect on our business, future prospects and financial condition.

Critical Accounting Policies

The preparation of financial statements requires that management make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingencies, and the reported amounts of net sales and expenses in the financial statements. Material differences may result in the amount and timing of net sales and expenses if different judgments or different estimates were utilized. Critical accounting policies, judgments, and estimates which the Company believes have the most significant impact on the financial statements include, but are not limited to, revenue recognition; the establishment of reserves for accounts receivable, sales returns, inventory obsolescence and warranty claims; the impairment of long-lived assets; accounting for income taxes; and share-based compensation. For the detailed discussion of the application of policies critical to our business operations, see our Annual Report on Form 10-K for the year ended December 31, 2013.

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Recent Accounting Pronouncements

In July 2013, the FASB issued ASU No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists, which amends ASC 740, Income Taxes. The amendments provide guidance on the financial statement presentation of an unrecognized tax benefit, as either a reduction of a deferred tax asset or as a liability, when a net operating loss carryforward, similar tax loss, or a tax credit carryforward exists. The amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013 and may be applied on either a prospective or retrospective basis. The adoption of this ASU did not materially impact our disclosures.

In May 2014, the FASB issued ASU No. 2014-09, Revenue Recognition - Revenue from Contracts with Customers, which is a comprehensive revenue recognition standard that will supersede nearly all existing revenue recognition guidance under U.S. GAAP. The standard is effective for interim and annual periods beginning after December 15, 2016, and either full retrospective adoption or modified retrospective adoption is permitted. The Company is in the process of evaluating the impact of the standard.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of June 30, 2014, we had British pounds sterling-denominated cash valued at $21 thousand held in the United Kingdom, based on the exchange rate at that date. The balances for cash held in the United Kingdom are subject to exchange rate risk. We have a policy of maintaining cash balances in local currency unless an amount of cash is occasionally transferred in order to repay inter-company debts.

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

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

Based on their evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, our Executive Chairman and Chief Executive Officer, as well as our Chief Financial Officer have concluded that, subject to the limitations noted above, our disclosure controls and procedures were effective to ensure that material information relating to us, including our consolidated subsidiaries, is made known to them by others within those entities, particularly during the period in which this Quarterly Report on Form 10-Q was being prepared.

(b) Changes in Internal Control over Financial Reporting

There were no changes in our internal controls over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the quarter. Further, there were no other items identified in connection with our internal evaluations that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1A. RISK FACTORS 

Reference is made to the Risk Factors set forth in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2013 (the “Annual Report”). See below for additional or updated Risk Factors:

We have a history of operating losses and may incur losses in the future, and our auditors have issued a “Going Concern” opinion.

We have experienced net losses from continuing operations of $4.7 million for the six months ended June 30, 2014 and $6.9 million, $6.6 million and $6.0 million for the years ended December 31, 2013, 2012 and 2011, respectively. As of June 30, 2014, we had cash and cash equivalents of $1.6 million and an accumulated deficit of $87.7 million. Although management has addressed many of the legacy issues that have historically burdened our financial performance, we still face challenges in order to reach profitability. In order for us to attain profitability and growth, we will need to successfully address these challenges, including improvement in gross margins, execution of our marketing and sales plans for our turnkey energy-efficient LED lighting solutions business, the development of new technologies into sustainable product lines, the continuation of cost containment throughout our organization, and continued improvements in our supply chain performance.

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There is a risk that our business may not be as successful as we envision. Our independent registered public accounting firm has issued an opinion in connection with our 2013 Annual Report raising substantial doubt as to our ability to continue as a going concern. This opinion stems from our historically poor operating performance, and our historical inability to generate sufficient cash flow to meet obligations and sustain operations without obtaining additional external financing. We currently have a revolving credit facility that provides funding for our operations that will expire on December 31, 2014. We intend to enter into a new arrangement beginning in 2015. Although we are optimistic about obtaining the funding necessary for us to continue as a going concern, there can be no assurances that this objective will be successful or that we will obtain funding on acceptable terms or in a timely fashion or at all. As such, we will continue to review and pursue selected external funding sources, if necessary, to execute these objectives including, but not limited to, the following:

● obtain funding from financial institutions in the form of a line of credit or term loan to replace the credit facility with Rosenthal & Rosenthal that will expire on December 31, 2014,

● obtain financing from traditional or non-traditional investment capital organizations or individuals,

● potential sale or divestiture of one or more operating units, and

● obtain funding from the sale of our common stock or other equity or debt instruments or the exercise of outstanding warrants.

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

● loans or other debt instruments may have terms and/or conditions, such as interest rate, restrictive covenants and control or revocation provisions, which are not acceptable to management or our Board of Directors,

● the current environment in capital markets combined with our capital constraints may prevent us from being able to obtain adequate debt financing,

● financing may not be available for parties interested in pursuing the acquisition of one or more of our operating units, and

● additional equity financing may not be available to us in the current capital environment and could lead to further dilution of stockholder value for current stockholders of record.

If we fail to raise additional capital, including from sales revenues, loans or other external funding sources, we may be required to change our planned business strategies. If we are unable to obtain adequate financing, we may not be able to successfully develop and market our products and services. As a result, we would need to curtail business operations, which would have a material negative effect on operating results, the value of our outstanding stock is likely to fall, and our business may fail, causing our stockholders to lose their entire investments.

We depend on independent distributors and sales representatives for a substantial portion of our net sales, and the failure to manage our relationships with these third parties, or the termination of these relationships, could cause our net sales to decline and harm our business.

Although we are building our sales force to sell directly to end clients, we currently rely significantly on indirect sales channels to market and sell our products. Most of our products are sold through third-party independent distributors and sales representatives. In addition, these parties provide technical sales support to end-users. Our current agreements within these sales channels are generally non-exclusive, meaning they can sell products of our competitors. We anticipate that any such agreements we enter into in the future will be on similar terms. Furthermore, our agreements are generally short-term, and can be cancelled by these sales channels without significant financial consequence. We cannot control how these distributors or sales representatives perform and cannot be certain that we or end-users will be satisfied by their performance. If these distributors and sales representatives significantly change their terms with us, or change their historical pattern of ordering products from us, there could be a significant impact on our net sales and profits.

Our business may suffer if we fail to comply with government contracting laws and regulations.

We derive a portion of our revenues from direct and indirect sales to U.S., state, local, and foreign governments and their respective agencies. Such contracts are subject to various procurement laws and regulations, business prerequisites to qualify for such contracts, accounting procedures, intellectual property process, and contract provisions relating to their formation, administration and performance, which may provide for various rights and remedies in favor of the governments that are not typically applicable to or found in commercial contracts. Failure to comply with these laws, regulations or provisions in our government contracts could result in litigation, the imposition of various civil and criminal penalties, termination of contracts, forfeiture of profits, suspension of payments, or suspension from future government contracting. If our government contracts are terminated, if we are suspended from government work, or if our ability to compete for new contracts is adversely affected, our business could suffer due to, among other factors, lost sales, the costs of any government action or penalties, damages to our reputation and the inability to recover our investment in developing and marketing products for government use.

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Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.

We have significant U.S. net operating loss and tax credit carryforwards (the “Tax Attributes”). Under federal tax laws, we can carry forward and use our Tax Attributes to reduce our future U.S. taxable income and tax liabilities until such Tax Attributes expire in accordance with the Internal Revenue Code of 1986, as amended (the “IRC”). Section 382 and Section 383 of the IRC provide an annual limitation on our ability to utilize our Tax Attributes, as well as certain built-in-losses, against future U.S. taxable income in the event of a change in ownership, as defined under the IRC. Share issuances in connection with our past financing transactions or other future changes in our stock ownership, which may be beyond our control, could result in changes in ownership for purposes of the IRC. Such changes in ownership could further limit our ability to use our Tax Attributes. Accordingly, any such occurrences could adversely affect our financial condition, operating results and cash flows.

Failure to effectively estimate employer-sponsored health insurance premiums and incremental costs due to the Affordable Healthcare Act could materially and adversely affect our results of operations, financial position, and cash flows.

In March 2010, the United States federal government enacted comprehensive health care reform legislation, which, among other things, includes guaranteed coverage requirements, eliminates pre-existing condition exclusions and annual and lifetime maximum limits, restricts the extent to which policies can be rescinded, and imposes new taxes on health insurers, self-insured companies, and health care benefits. The legislation imposes implementation effective dates that began in 2010 and extend through 2020, with many of the changes requiring additional guidance from federal agencies and regulations. Possible adverse effects could include increased costs, exposure to expanded liability, and requirements for us to revise the ways in which healthcare and other benefits are provided to employees. We continue to monitor the potential impacts the health care reform legislation will have on our financial results.

We may be subject to legal claims against us or claims by us which could have a significant impact on our resulting financial performance.

At any given time, we may be subject to litigation related to our products, suppliers, customers, employees, stockholders, distributors, sales representatives, sales of our assets, among other things, the disposition of which may have an adverse effect upon our business, financial condition, or results of operation. The outcome of litigation is difficult to assess or quantify. Lawsuits can result in the payment of substantial damages by defendants. If we are required to pay substantial damages and expenses as a result of these or other types of lawsuits our business and results of operations would be adversely affected. Regardless of whether any claims against us are valid or whether we are liable, claims may be expensive to defend and may divert time and money away from our operations. Insurance may not be available at all or in sufficient amounts to cover any liabilities with respect to these or other matters. A judgment or other liability in excess of our insurance coverage for any claims could adversely affect our business and the results of our operations.

We rely heavily on information technology in our operations and any material failure, weakness, interruption or breach of security could prevent us from effectively operating our business, which could have a material adverse effect on our business, financial condition and results of operations.

We rely heavily on our information technology systems, including our enterprise resource planning (“ERP”) software, across our operations and corporate functions, including for management of our supply chain, payment of obligations, data warehousing to support analytics, finance and accounting systems and other various processes and procedures, some of which are handled by third parties.

Our ability to efficiently and effectively manage our business depends significantly on the reliability and capacity of these systems. Our business and results of operations may be adversely affected if we experience system usage problems. The failure of these systems to operate effectively, maintenance problems, system conversions, back-up failures, problems or lack of resources for upgrading or transitioning to new platforms or damage or interruption from circumstances beyond our control, including, without limitation, fire, natural disasters, power outages, systems failure, security breaches, cyber-attacks, viruses or human error could result in, among other things, transaction errors, processing inefficiencies, loss of data, inability to generate timely SEC reports, loss of sales and customers and reduce efficiency in our operations. Additionally, we and our customers could suffer financial and reputational harm if customer or Company proprietary information is compromised by such events. Remediation of such problems could result in significant unplanned capital investments and any damage or interruption could have a material adverse effect on our business, financial condition and results of operations.

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The elimination of monetary liability against our directors under Delaware law and the existence of indemnification rights held by our directors, officers and employees may result in substantial expenditures by the Company and may discourage lawsuits against our directors, officers and employees.

Our Certificate of Incorporation eliminates the personal liability of our directors to our Company and our stockholders for damages for breach of fiduciary duty as a director or officer to the extent permissible under Delaware law. Further, our Bylaws provide that we are obligated to indemnify any of our directors or officers to the fullest extent authorized by Delaware law and, subject to certain conditions, advance the expenses incurred by any director or officer or director in defending any action, suit or proceeding prior to its final disposition. Those indemnification obligations could result in the Company incurring substantial expenditures to cover the cost of settlement or damage awards against our directors or officers, which we may be unable to recoup. These provisions and resultant costs may also discourage us from bringing a lawsuit against any of our current or former directors or officers for breaches of their fiduciary duties, and may similarly discourage the filing of derivative litigation by our stockholders against our directors and officers even though such actions, if successful, might otherwise benefit us or our stockholders.

As a “thinly-traded” stock, large sales can and have placed negative pressure on our common stock price.

Our common stock has generally been considered to be “thinly-traded,” and may remain so despite our listing on The NASDAQ Capital Market. Additionally, we have entered into in the past or may enter into in the future, financing or acquisition transactions resulting in a large number of newly issued shares that become immediately tradable or tradable simultaneously in the future. These factors coupled with a limited number of market makers impairs the liquidity of our stock, not only the number of shares that can be bought and sold, but also the through possible delays in the timing of transactions, and lower prices for our common stock than might otherwise prevail. This could make it difficult or impossible for an investor to sell shares of our common stock within a desired timeframe or to obtain a desired price.

In addition, from time to time, certain of our stockholders may be eligible to sell all, or a portion of, their shares of common stock by means of ordinary brokerage transactions in the open market pursuant to Rule 144, promulgated under the Securities Act of 1933, or under effective resale prospectuses. Any substantial sale of our common stock pursuant to Rule 144 or any resale prospectus may have an adverse effect on the market price of our securities.

The NASDAQ Capital Market may not continue to list our common stock for trading on its exchange if we do not comply with its continued listing requirements, which could adversely affect the price of our common stock and its liquidity.

We must comply with NASDAQ’s continued listing requirements related to, among other things, stockholders’ equity, market value, minimum bid price and corporate governance in order to remain listed on the NASDAQ Capital Market. Although we expect to meet the continued listing requirements, there can be no assurance we will continue to do so in the future. If we do not remain compliant with these continued listing requirements, we could be delisted. If we were delisted, it would be likely to have a negative impact on our stock price and liquidity. The delisting of our common stock could also deter broker-dealers from making a market in or otherwise generating interest in or recommending our common stock, and would adversely affect our ability to attract investors in our common stock. Furthermore, our ability to raise additional capital would be impaired. As a result of these factors, the value of the common stock could decline significantly.  

If equity research analysts do not publish research or reports about our business, or if they issue unfavorable commentary or downgrade our common stock, the market price of our common stock will likely decline.

The trading market for our common stock relies in part on the research and reports that equity research analysts, over whom we have no control, publish about us and our business. We may never obtain research coverage by securities and industry analysts. If no securities or industry analysts commence coverage of our company, the market price for our common stock could decline. In the event we obtain securities or industry analyst coverage, the market price of our common stock could decline if one or more equity analysts downgrade our common stock or if those analysts issue unfavorable commentary, even if it is inaccurate, or cease publishing reports about us or our business.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS

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

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		ENERGY FOCUS, INC.
Date: August 13, 2014	By:	/s/ James Tu
		James Tu
		Executive Chairman and Chief Executive Officer
	By:	/s/ Frank Lamanna
		Frank Lamanna
		Chief Financial Officer

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EXHIBIT INDEX

Exhibit Number	Description of Documents
3.1	Certificate of Amendment to the Certificate of Incorporation of Energy Focus, Inc. filed with the Secretary of the 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).
4.1	Warrant among the Registrant and Roth Capital Partners LLC dated August 11, 2014 (filed with this Report).
10.1*	2014 Stock Incentive Plan (incorporated by reference to Appendix A of the Registrant's Definitive Proxy Statement on Form DEF 14A filed on June 26, 2014).
10.2*	Form of Nonqualified Stock option Grant Agreement to Non-Employee Directors (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on July 16, 2014).
10.3*	Form of Nonqualified Stock option Grant Agreement to Employees (incorporated by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed on July 16, 2014).
10.4*	Form of Restricted Stock unit Grant Agreement to Employees (incorporated by reference to Exhibit 10.3 to the Registrant's Current Report on Form 8-K filed on July 16, 2014).
10.5*	Form of Incentive Stock Option Grant Agreement to Employees (incorporated by reference to Exhibit 10.4 to the Registrant's Current Report on Form 8-K filed on July 16, 2014).
31.1	Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of 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 the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets at June 30, 2014 and December 31, 2013, (ii) Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2014 and 2013, (iii) Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2014 and 2013, (iv) Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2013, (vi) the Notes to Condensed Consolidated Financial Statements.

* Management contract of compensatory plan or arrangement.

** Pursuant to Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

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EX-4

Exhibit 4.1

NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES HAVE 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 AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. SUBJECT TO THE PROVISIONS HEREOF, THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT SECURED BY SUCH SECURITIES.

ENERGY FOCUS, INC.

WARRANT

Warrant No. 2014-02 Original Issue Date: August 11, 2014

Energy Focus, Inc., a Delaware corporation (the “Company”), hereby certifies that, for value received, Roth Capital Partners, LLC or its registered assigns (the “Holder”), is entitled to purchase from the Company up to a total of 47,000 shares of Common Stock (each such share, a “Warrant Share” and all such shares, the “Warrant Shares”), at any time and from time to time from and after the 181^st day immediately following the date of effectiveness of that certain registration statement on Form S-1 (File No. 333-196140) filed by the Company, in accordance with FINRA Rule 5110(g)(1), and through and including the five year anniversary of the date of effectiveness of that certain registration statement on Form S-1 (File No. 333-196140), which such date is August 11, 2019 (the “Expiration Date”), and subject to the following terms and conditions:

1.     Definitions. As used in this Warrant, the following terms shall have the respective definitions set forth in this Section 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 144.

“Business Day” means any day except Saturday, Sunday and any day which is a federal legal holiday or a day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.

“Common Stock” means the common stock of the Company, $0.001 par value per share, and any securities into which such common stock may hereafter be reclassified or for which it may be exchanged as a class.

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Exercise Price” means $5.40, subject to adjustment in accordance with Section 9.

“Fundamental Transaction” means any of the following: (1) the Company effects any merger or consolidation of the Company with or into another Person, (2) the Company effects any sale of all or substantially all of its assets in one or a series of related transactions, (3) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange all or substantially all of their shares for other securities, cash or property, or (4) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property.

“New York Courts” means the state and federal courts sitting in the City of New York, Borough of Manhattan.

“Original Issue Date” means the Original Issue Date first set forth on the first page of this Warrant.

“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.

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

“Securities Act” means the Securities Act of 1933, as amended.

“Subsidiary” means any “significant subsidiary” as defined in Rule 1-02(w) of Regulation S-X promulgated by the Securities and Exchange Commission under the Exchange Act.

“Trading Day” means (i) a day on which the Common Stock is traded on a Trading Market, or (ii) if the Common Stock is not quoted on any Trading Market, a day on which the Common Stock is quoted in the over-the-counter market as reported by the OTC Markets Group, Inc. (or any similar organization or agency succeeding to its functions of reporting prices); provided, that in the event that the Common Stock is not listed or quoted as set forth in (i) or (ii) hereof, then Trading Day shall mean a Business Day.

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“Trading Market” means whichever of the New York Stock Exchange, the NYSE MKT, the NASDAQ Global Select Market, the NASDAQ Global Market, the NASDAQ Capital Market, OTC Bulletin Board, or the OTC Markets Group, Inc. OTCQX or OTCQB tier on which the Common Stock is listed or quoted for trading on the date in question.

“Warrant Shares” means the shares of Common Stock issuable upon exercise of this Warrant.

2.     Registration of Warrant. The Company shall register this Warrant upon records to be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.

3.     Transfers.     (a)     The Company shall register the transfer of any portion of this Warrant in the Warrant Register, upon surrender of this Warrant, with the Form of Assignment attached hereto duly completed and signed, to the Company at its address specified herein, together with the payment of all transfer taxes, if any, payable in connection therewith. Upon any such registration or transfer, a new Warrant to purchase Common Stock, in substantially the form of this Warrant (any such new Warrant, a “New Warrant”), evidencing the portion of this Warrant so transferred shall be issued to the transferee and a New Warrant evidencing the remaining portion of this Warrant not so transferred, if any, shall be issued to the transferring Holder. The acceptance of the New Warrant by the transferee thereof shall be deemed the acceptance by such transferee of all of the rights and obligations of a holder of a Warrant.

(b)     This Warrant may not be sold, transferred, assigned, pledged, or hypothecated, or be the subject of any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition of the securities by any person for a period of 180 days immediately following the date of effectiveness of that certain registration statement on Form S-1 (File No. 333-196140) filed by the Company, except as provided in FINRA Rule 5110(g)(2).After such time or as otherwise permitted by FINRA rules, transfers to others of this Warrant and any Warrant Shares may be made subject to compliance with or exemptions from the Securities Act and in accordance with applicable state securities laws.

4.     Exercise and Duration of Warrants. This Warrant shall be exercisable by the registered Holder at any time and from time to time from and after the 181^st day immediately following the date of effectiveness of that certain registration statement on Form S-1 (File No. 333-196140) filed by the Company, in accordance with FINRA Rule 5110(g)(1), and through and including the Expiration Date. At 5:30 p.m., New York City time on the Expiration Date, the portion of this Warrant not exercised prior thereto shall be and become void and of no value. The Company may not call or redeem any portion of this Warrant without the prior written consent of the affected Holder.

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5.     Delivery of Warrant Shares.

(a)     To effect exercises hereunder, the Holder shall not be required to physically surrender this Warrant unless the aggregate Warrant Shares represented by this Warrant is being exercised. Upon delivery of the Exercise Notice (in the form attached hereto) to the Company (with the attached Warrant Shares Exercise Log) at its address for notice set forth herein and upon payment of the Exercise Price multiplied by the number of Warrant Shares that the Holder intends to purchase hereunder, the Company shall promptly (but in no event later than three Trading Days after the Date of Exercise (as defined herein)) issue and deliver to the Holder, a certificate for the Warrant Shares issuable upon such exercise. The Company shall, upon request of the Holder and subsequent to the date on which a registration statement covering the resale of the Warrant Shares has been declared effective by the Securities and Exchange Commission and if at such time Holder is not an Affiliate of the Company, use its reasonable best efforts to deliver Warrant Shares hereunder electronically through the Depository Trust & Clearing Corporation or another established clearing corporation performing similar functions, if available, provided, that, the Company may, but will not be required to, change its transfer agent if its current transfer agent cannot deliver Warrant Shares electronically through the Depository Trust Corporation. A “Date of Exercise” means the date on which the Holder shall have delivered to the Company: (i) the Exercise Notice (with the Warrant Exercise Log attached to it), appropriately completed and duly signed and (ii) payment of the Exercise Price for the number of Warrant Shares so indicated by the Holder to be purchased.

(b)     If by the third Trading Day after a Date of Exercise the Company fails to deliver the required number of Warrant Shares in the manner required pursuant to Section 5(a), then the Holder will have the right to rescind such exercise.

(c)     If by the third Trading Day after a Date of Exercise the Company fails to deliver the required number of Warrant Shares in the manner required pursuant to Section 5(a), and if after such third Trading Day and prior to the receipt of such Warrant Shares, the Holder purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a "Buy-In"), then the Company shall (1) pay in cash to the Holder the amount by which (x) the Holder's total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (A) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue by (B) the closing bid price of the Common Stock on the Date of Exercise and (2) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In.

(d)     The Company’s obligations to issue and deliver Warrant Shares in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other Person (except in the event such breach or violation would cause the issuance and delivery of Warrant Shares by the Company to be unlawful), and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with the issuance of Warrant Shares. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing Warrant Shares upon exercise of the Warrant as required pursuant to the terms hereof.

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(e)     Each certificate for the Warrant Shares shall bear a legend substantially similar to the legend contained on the first page hereof unless the resale of such Warrant Shares shall have been registered under the Securities Act or the Warrant Shares have been sold pursuant to an exemption from the Securities Act.

6.     Charges, Taxes and Expenses. Issuance and delivery of Warrant Shares upon exercise of this Warrant shall be made without charge to the Holder for any issue or transfer tax, withholding tax, transfer agent fee or other incidental tax or expense in respect of the issuance of such certificates, all of which taxes and expenses shall be paid by the Company; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the registration of any certificates for Warrant Shares or Warrants in a name other than that of the Holder. The Holder shall be responsible for all other tax liability that may arise as a result of holding or transferring this Warrant or receiving Warrant Shares upon exercise hereof.

7.     Replacement of Warrant. If this Warrant is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation hereof, or in lieu of and substitution for this Warrant, a New Warrant, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction and customary and reasonable indemnity (which shall not include a surety bond), if requested. Applicants for a New Warrant under such circumstances shall also comply with such other reasonable regulations and procedures and pay such other reasonable third-party costs as the Company may prescribe. If a New Warrant is requested as a result of a mutilation of this Warrant, then the Holder shall deliver such mutilated Warrant to the Company as a condition precedent to the Company’s obligation to issue the New Warrant.

8.     Reservation of Warrant Shares. The Company covenants that it will at all times reserve and keep available out of the aggregate of its authorized but unissued and otherwise unreserved Common Stock, solely for the purpose of enabling it to issue Warrant Shares upon exercise of this Warrant as herein provided, the number of Warrant Shares which are then issuable and deliverable upon the exercise of this entire Warrant, free from preemptive rights or any other contingent purchase rights of Persons other than the Holder (taking into account the adjustments and restrictions of Section 9). The Company covenants that all Warrant Shares so issuable and deliverable shall, upon issuance and the payment of the applicable Exercise Price in accordance with the terms hereof, be duly and validly authorized, issued and fully paid and nonassessable.

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9.     Certain Adjustments. The Exercise Price and number of Warrant Shares issuable upon exercise of this Warrant are subject to adjustment from time to time as set forth in this Section 9.

(a)     Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding, (i) pays a stock dividend on its Common Stock or otherwise makes a distribution on any class of capital stock that is payable in shares of Common Stock, (ii) subdivides outstanding shares of Common Stock into a larger number of shares, or (iii) combines outstanding shares of Common Stock into a smaller number of shares, then in each such case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to clause (i) of this paragraph shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution (provided that such dividend or distribution is actually effected), and any adjustment pursuant to clause (ii) or (iii) of this paragraph shall become effective immediately after the effective date of such subdivision or combination.

(b)     Fundamental Transactions. If, at any time while this Warrant is outstanding there is a Fundamental Transaction, then the Holder shall have the right thereafter to receive, upon exercise of this Warrant, the same amount and kind of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of the number of Warrant Shares then issuable upon exercise in full of this Warrant (the “Alternate Consideration”). For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. At the Holder’s option and request, any successor to the Company or surviving entity in such Fundamental Transaction shall issue to the Holder a new warrant substantially in the form of this Warrant and consistent with the foregoing provisions and evidencing the Holder’s right to purchase the Alternate Consideration for the aggregate Exercise Price upon exercise thereof. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this paragraph (b) and ensuring that the Warrant (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction.

(c)     Number of Warrant Shares. Simultaneously with any adjustment to the Exercise Price pursuant to this Section 9, the number of Warrant Shares that may be purchased upon exercise of this Warrant shall be increased or decreased proportionately, so that after such adjustment the aggregate Exercise Price payable hereunder for the adjusted number of Warrant Shares shall be the same as the aggregate Exercise Price in effect immediately prior to such adjustment.

(d)     Calculations. All calculations under this Section 9 shall be made to the nearest cent or the nearest 1/100^th of a share, as applicable. The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Company, and the disposition of any such shares shall be considered an issue or sale of Common Stock.

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(e)     Notice of Adjustments. Upon the occurrence of each adjustment pursuant to this Section 9, the Company at its expense will promptly compute such adjustment in accordance with the terms of this Warrant and prepare a certificate setting forth such adjustment, including a statement of the adjusted Exercise Price and adjusted number or type of Warrant Shares or other securities issuable upon exercise of this Warrant (as applicable), describing the transactions giving rise to such adjustments and showing in detail the facts upon which such adjustment is based. Upon written request, the Company will promptly deliver a copy of each such certificate to the Holder and to the Company’s Transfer Agent.

(f)     Notice of Corporate Events. If the Company (i) declares a dividend or any other distribution of cash, securities or other property in respect of its Common Stock, including without limitation any granting of rights or warrants to subscribe for or purchase any capital stock of the Company or any Subsidiary, (ii) authorizes or approves, enters into any agreement contemplating or solicits stockholder approval for any Fundamental Transaction or (iii) authorizes the voluntary dissolution, liquidation or winding up of the affairs of the Company, then the Company shall deliver to the Holder a notice describing the material terms and conditions of such transaction (but only to the extent such disclosure would not result in the dissemination of material, non-public information to the Holder) at least 10 calendar days prior to the applicable record or effective date on which a Person would need to hold Common Stock in order to participate in or vote with respect to such transaction, and the Company will take all steps reasonably necessary in order to ensure that the Holder is given the practical opportunity to exercise this Warrant prior to such time so as to participate in or vote with respect to such transaction; provided, however, that the failure to deliver such notice or any defect therein shall not affect the validity of the corporate action required to be described in such notice.

10.     Payment of Exercise Price. The Holder may pay the Exercise Price in one of the following manners:

(a)     Cash Exercise. The Holder may deliver immediately available funds; or

(b)     Cashless Exercise. The Holder may notify the Company in an Exercise Notice of its election to utilize cashless exercise, in which event the Company shall issue to the Holder the number of Warrant Shares determined as follows:

X = Y [(A-B)/A]

where:

X = the number of Warrant Shares to be issued to the Holder.

Y = the number of Warrant Shares with respect to which this Warrant is being exercised.

A = the average of the daily volume weighted average price for the five Trading Days immediately prior to (but not including) the Exercise Date.

B = the Exercise Price.

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For purposes of Rule 144 promulgated under the Securities Act, it is intended, understood and acknowledged that the Warrant Shares issued in a cashless exercise transaction shall be deemed to have been acquired by the Holder, and the holding period for the Warrant Shares shall be deemed to have commenced, on the date this Warrant was originally issued.

11.     Limitations on Exercise. Notwithstanding anything to the contrary contained herein, the number of Warrant Shares that may be acquired by the Holder upon any exercise of this Warrant (or otherwise in respect hereof) shall be limited to the extent necessary to ensure that, following such exercise (or other issuance), the total number of shares of Common Stock then beneficially owned by such Holder and its Affiliates and any other Persons whose beneficial ownership of Common Stock would be aggregated with the Holder’s for purposes of Section 13(d) of the Exchange Act, does not exceed 4.99% of the total number of issued and outstanding shares of Common Stock (including for such purpose the shares of Common Stock issuable upon such exercise). For such purposes, beneficial ownership shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. This provision shall not restrict the number of shares of Common Stock which a Holder may receive or beneficially own in order to determine the amount of securities or other consideration that such Holder may receive in the event of a Fundamental Transaction as contemplated in Section 9 of this Warrant. This restriction may not be waived. Notwithstanding anything to the contrary contained in this Warrant, (a) no term of this Section may be waived by any party, nor amended such that the threshold percentage of ownership would be directly or indirectly increased, (b) this restriction runs with the Warrant and may not be modified or waived by any subsequent holder hereof and (c) any attempted waiver, modification or amendment of this Section will be void ab initio.

12.     No Fractional Shares. No fractional shares of Warrant Shares will be issued in connection with any exercise of this Warrant. In lieu of any fractional shares which would, otherwise be issuable, the Company shall pay cash equal to the product of such fraction multiplied by the closing price of one Warrant Share as reported by the applicable Trading Market on the date of exercise.

13.     Notices. Any and all notices or other communications or deliveries hereunder (including, without limitation, any Exercise Notice) shall be in writing and shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section prior to 5:30 p.m. (New York City time) on a Trading Day, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (iii) the Trading Day following the date of mailing, if sent by nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given. The addresses for such communications shall be: (i) if to the Company, to 32000 Aurora Road, Suite B, Solon, Ohio 44139, Attn: Chief Executive Officer, or to Facsimile No.: (440) 715-1314 (or such other address as the Company shall indicate in writing in accordance with this Section), or (ii) if to the Holder, to the address or facsimile number appearing on the Warrant Register or such other address or facsimile number as the Holder may provide to the Company in accordance with this Section.

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14.     Warrant Agent. The Company shall serve as warrant agent under this Warrant. Upon 10 days’ notice to the Holder, the Company may appoint a new warrant agent. Any corporation into which the Company or any new warrant agent may be merged or any corporation resulting from any consolidation to which the Company or any new warrant agent shall be a party or any corporation to which the Company or any new warrant agent transfers substantially all of its corporate trust or shareholders services business shall be a successor warrant agent under this Warrant without any further act. Any such successor warrant agent shall promptly cause notice of its succession as warrant agent to be mailed (by first class mail, postage prepaid) to the Holder at the Holder’s last address as shown on the Warrant Register.

15.     Miscellaneous.

(a)     This Warrant shall be binding on and inure to the benefit of the parties hereto and their respective successors and assigns. Subject to the preceding sentence, nothing in this Warrant shall be construed to give to any Person other than the Company and the Holder any legal or equitable right, remedy or cause of action under this Warrant. This Warrant may be amended only in writing signed by the Company and the Holder and their successors and assigns. The foregoing sentence shall be subject to the restrictions on waivers and amendments set forth in Section 11 of this Warrant.

(b)     All questions concerning the construction, validity, enforcement and interpretation of this Warrant 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 this Warrant and the transactions herein contemplated (“Proceedings”) (whether brought against a party hereto or its respective Affiliates, employees or agents) shall be commenced exclusively in the New York Courts. Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any Proceeding, any claim that it is not personally subject to the jurisdiction of any New York Court, or that such Proceeding has been commenced in an improper or inconvenient forum. Each party hereto hereby irrevocably waives personal service of process and consents to process being served in any such 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 Warrant 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 manner permitted by law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Warrant or the transactions contemplated hereby. If either party shall commence a Proceeding to enforce any provisions of this Warrant, then the prevailing party in such Proceeding shall be reimbursed by the other party for its attorney’s fees and other costs and expenses incurred with the investigation, preparation and prosecution of such Proceeding.

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

(d)     In case any one or more of the provisions of this Warrant shall be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Warrant shall not in any way be affected or impaired thereby and the parties will attempt in good faith to agree upon a valid and enforceable provision which shall be a commercially reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Warrant.

(e)     Prior to exercise of this Warrant, the Holder hereof shall not, by reason of being a Holder, be entitled to any rights of a stockholder with respect to the Warrant Shares.

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IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its authorized officer as of the date first indicated above.

ENERGY FOCUS, INC.
By:	/s/ James Tu
	Name: James Tu
	Title: Executive Chairman and Chief Executive Officer

Accepted as of the date first indicated above:

ROTH CAPITAL PARTNERS, LLC

By: /s/ Gordon Roth                                         
Name: Gordon Roth    
Title: Chief Financial Officer

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EXERCISE NOTICE
ENERGY FOCUS, INC.
WARRANT DATED AUGUST 11, 2014

The undersigned Holder hereby irrevocably elects to purchase _____________ shares of Common Stock pursuant to the above referenced Warrant. Capitalized terms used herein and not otherwise defined have the respective meanings set forth in the Warrant.

(1)     The undersigned Holder hereby exercises its right to purchase _________________ Warrant Shares pursuant to the Warrant.

(2)   The Holder intends that payment of the Exercise Price shall be made as (check one):

_____          "Cash Exercise" under Section 10 _______________

_____          "Cashless Exercise" under Section 10 ______________

(3) If the Holder has elected a Cash Exercise, the holder shall pay the sum of $____________ to the Company in accordance with the terms of the Warrant.

(4) Pursuant to this Exercise Notice, the Company shall deliver to the holder _______________ Warrant Shares in accordance with the terms of the Warrant.

(5) By its delivery of this Exercise Notice, the undersigned represents and warrants to the Company that in giving effect to the exercise evidenced hereby the Holder will not beneficially own in excess of the number of shares of Common Stock (determined in accordance with Section 13(d) of the Securities Exchange Act of 1934) permitted to be owned under Section 11 of this Warrant to which this notice relates.

Dated: ,	Name of Holder:
	(Print)
	By:
	Name:
	Title:
	(Signature must conform in all respects to name of holder as specified on the face of the Warrant)

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Warrant Shares Exercise Log

Date Number of Warrant Shares Available to be Exercised Number of Warrant Shares Exercised Number of Warrant Shares Remaining to be Exercised

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ENERGY FOCUS, INC.
WARRANT DATED AUGUST 11, 2014
WARRANT NO. 2014-02

FORM OF ASSIGNMENT

[To be completed and signed only upon transfer of Warrant]

FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto ________________________________ the right represented by the above-captioned Warrant to purchase ____________ shares of Common Stock to which such Warrant relates and appoints ________________ attorney to transfer said right on the books of the Company with full power of substitution in the premises.

Dated:     _______________, ____

_______________________________________
(Signature must conform in all respects to name of holder as specified on the face of the Warrant)

_______________________________________
Address of Transferee

_______________________________________

_______________________________________

In the presence of:

__________________________

EX-31

EXHIBIT 31.1

CERTIFICATION

I, James Tu, 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. The registrant's other certifying officer and I are 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 we 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. The registrant's other certifying officer and 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 controls over financial reporting.

Date: August 13, 2014

/s/James Tu                         

James Tu
Executive Chairman and Chief Executive Officer

EX-31

EXHIBIT 31.2

CERTIFICATION

I, Frank Lamanna, 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. The registrant's other certifying officer and I are 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 we have:

(e) 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;

(f) 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;

(g) 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

(h) 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. The registrant's other certifying officer and 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):

(c) 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

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

Date: August 13, 2014

/s/Frank Lamanna              

Frank Lamanna
Chief Financial Officer

EX-32

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 June 30, 2014 (the “Report”), I, James Tu, Executive Chairman and Chief Executive Officer of the Company, and I, Frank Lamanna, 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/ James Tu

James Tu

Executive Chairman and Chief Executive Officer

August 13, 2014

/s/ Frank Lamanna

Frank Lamanna

Chief Financial Officer

August 13, 2014

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

Note 4 - Inventories (Details) - Inventories (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Inventories [Abstract]
Raw materials	$ 1,130	$ 1,611
Finished goods	1,459	899
Inventories, net	$ 2,589	$ 2,510

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Note 10 - Segments and Geographic Information (Details) - Summary of Geographic Long-Lived Assets (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Note 10 - Segments and Geographic Information (Details) - Summary of Geographic Long-Lived Assets [Line Items]
Long-lived assets, net	$ 558	$ 591
UNITED STATES
Note 10 - Segments and Geographic Information (Details) - Summary of Geographic Long-Lived Assets [Line Items]
Long-lived assets, net	527	582
International [Member]
Note 10 - Segments and Geographic Information (Details) - Summary of Geographic Long-Lived Assets [Line Items]
Long-lived assets, net	$ 31	$ 9

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Note 9 - Settlement of Acquisition Obligations (Details) (USD $) In Thousands, unless otherwise specified	1 Months Ended	3 Months Ended	6 Months Ended	1 Months Ended
	Jun. 28, 2013	Jun. 30, 2013	Jun. 30, 2013	Jun. 28, 2013 Special Fee [Member] Stone River Companies, LLC [Member]	Jun. 28, 2013 Trade Names [Member]	Jun. 28, 2013 Principal [Member] Stone River Companies, LLC [Member]	Jun. 28, 2013 Accrued Interest [Member] Stone River Companies, LLC [Member]	Jun. 28, 2013 Stone River Companies, LLC [Member]	Dec. 31, 2009 Stone River Companies, LLC [Member]
Note 9 - Settlement of Acquisition Obligations (Details) [Line Items]
Business Combination, Contingent Consideration Arrangements, Change in Amount of Contingent Consideration, Liability		$ 12	$ 12	$ 500
Extinguishment of Debt, Amount						500	92
Business Combination, Consideration Transferred								200
Due from Related Parties	78
Adjustment to Contingent Consideration	66
Business Combination, Contingent Consideration, Payout Payable	2.50%								2.50%
Impairment of Intangible Assets, Finite-lived					$ 325

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Note 11 - Income Taxes (Details) (USD $) In Millions, unless otherwise specified	Dec. 31, 2013
Note 11 - Income Taxes (Details) [Line Items]
Operating Loss Carryforwards	$ 72.1
Available After IRC Section 382 Limitations [Member]
Note 11 - Income Taxes (Details) [Line Items]
Operating Loss Carryforwards	$ 14.5

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Note 8 - Debt (Details) - Summary of Debt Components (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Debt Instrument [Line Items]
Discounts on long-term debt		$ (2,368)
Subtotal	264	4,070
Less: Current maturies of long-term debt	(62)	(59)
Long-term debt	202	4,011
Unsecured Convertible Notes [Member]
Debt Instrument [Line Items]
Debt Instruments		6,145
Cognovit Note - Keystone Ruby, LLC [Member]
Debt Instrument [Line Items]
Debt Instruments	194	223
Unsecured Promissory Note - Quercus Trust [Member]
Debt Instrument [Line Items]
Debt Instruments	$ 70	$ 70

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Note 2 - Basis of Presentation and Summary of Significant Accounting Policies (Details) - Reconciliation of Basic and Diluted Loss per Share (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Basic and diluted loss per share:
Net loss	$ (622)	$ (679)	$ (4,692)	$ (2,107)
Basic and diluted loss per share:
Weighted average shares outstanding	7,836	4,623	6,512	4,547
Basic and diluted net loss per share	$ (0.08)	$ (0.15)	$ (0.72)	$ (0.46)

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Note 13 - Related Party Transactions (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended	6 Months Ended
	Dec. 31, 2013 Communal [Member] Additional Commited Payment [Member]	Jun. 30, 2014 Communal [Member] 5 Elements Efficienties (BVI) Ltd [Member] Yeh-Mei Cheng [Member]	Jun. 30, 2014 Communal [Member]	Jun. 30, 2013 Communal [Member]	Jun. 30, 2014 5 Elements Efficienties (BVI) Ltd [Member]
Note 13 - Related Party Transactions (Details) [Line Items]
Limited Liability Company (LLC) or Limited Partnership (LP), Managing Member or General Partner, Ownership Interest		50.00%			50.00%
Commission Fee, Percent			5.00%
Payments for Commissions			$ 0
Related Party Transaction, Amounts of Transaction	425			175
Related Party Transaction, Expenses from Transactions with Related Party			$ 113	$ 113

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Note 5 - Property and Equipment (Tables)

6 Months Ended

Jun. 30, 2014

Property, Plant and Equipment [Abstract]

Property, Plant and Equipment [Table Text Block]

	June 30,			December 31,
	2014			2013
Equipment (useful life 3 - 15 years)	$	1,958		$	2,080
Tooling (useful life 2 - 5 years)		770			769
Furniture and fixtures (useful life 5 years)		98			115
Computer software (useful life 3 years)		539			521
Leasehold improvements (the shorter of useful life or lease life)		578			589
Construction in progress		57			9
Property and equipment at cost		4,000			4,083
Less: accumulated depreciation		(3,469	)		(3,547	)
Property and equipment, net	$	531		$	536

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Note 10 - Segments and Geographic Information (Details)	6 Months Ended
	Jun. 30, 2014
Segment Reporting [Abstract]
Number of Reportable Segments	2

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Note 6 - Intangible Assets (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Goodwill and Intangible Assets Disclosure [Abstract]
Amortization of Intangible Assets	$ 14	$ 63	$ 28	$ 127

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Note 2 - Basis of Presentation and Summary of Significant Accounting Policies (Details) - Warranty Activity (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Warranty Activity [Abstract]
Balance at the beginning of the period	$ 75	$ 140	$ 75	$ 159
Accruals for warranties issued		23	16	39
Settlements made during the period (in cash or in kind)	(7)	(13)	(23)	(48)
Balance at the end of the period	$ 68	$ 150	$ 68	$ 150

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Note 10 - Segments and Geographic Information (Details) - Additional Business Unit Gross Profitability Detail for Products Segment (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Products segment net sales:
Products segment net sales	$ 6,699	$ 5,653	$ 11,618	$ 10,111
Products segment gross profit:
Products segment gross profit	2,174	1,238	3,596	2,121
Pool and Commercial Products [Member]
Products segment net sales:
Products segment net sales	1,929	1,647	3,095	3,288
Products segment cost of sales:
Products segment cost of sales	1,194	1,168	1,965	2,321
Products segment gross profit:
Products segment gross profit	735	479	1,130	967
Government Products [Member]
Products segment net sales:
Products segment net sales	3,620	1,603	5,162	1,856
Products segment cost of sales:
Products segment cost of sales	2,387	1,060	3,525	1,301
Products segment gross profit:
Products segment gross profit	1,233	543	1,637	555
Research and Development Services [Member] | Products Segment [Member]
Products segment net sales:
Products segment net sales	5,566	3,670	8,297	6,321
Products segment cost of sales:
Products segment cost of sales	3,577	2,640	5,509	4,692
Products segment gross profit:
Products segment gross profit	1,989	1,030	2,788	1,629
Research and Development Services [Member]
Products segment net sales:
Products segment net sales	17	420	40	1,177
Products segment cost of sales:
Products segment cost of sales	(4)	412	19	1,070
Products segment gross profit:
Products segment gross profit	21	8	21	107
Products Segment [Member]
Products segment net sales:
Products segment net sales	5,566	3,670	8,297	6,321
Products segment gross profit:
Products segment gross profit	$ 1,989	$ 1,030	$ 2,788	$ 1,629

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Note 8 - Debt (Details) - Future Maturities of Remaining Borrowings (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Future Maturities of Remaining Borrowings [Abstract]
2014 July through December	$ 30
2015	66
2016	72
2017	26
2018	0
2019 and thereafter	70
Total commitment	264	4,070
Less: portion classified as current	(62)	(59)
Long-term debt, net	$ 202	$ 4,011

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Note 3 - Discontinued Operations

6 Months Ended

Jun. 30, 2014

Discontinued Operations and Disposal Groups [Abstract]

Disposal Groups, Including Discontinued Operations, Disclosure [Text Block]

NOTE 3. DISCONTINUED OPERATIONS

In November 2013, we sold our pool products business for a cash purchase price of $5.2 million. Under the terms of the Agreement, we sold substantially all of the assets associated with the pool products business and the buyer assumed certain related liabilities. In connection with the sale, we and the buyer entered into a transition services agreement that continued until April 30, 2014. Under the Agreement, we provided services to transition the pool products business to the buyer. In addition, the Agreement contains representations, warranties and covenants of us and the buyer and prohibits us from competing with the buyer in the pool business for a period of five years following the closing. The Agreement also provided for an escrow of $500 thousand of the purchase price to secure customary indemnification obligations with respect to our representations, warranties and covenants and other obligations under the Agreement. Under the terms of our agreement, the first of five $100 thousand scheduled escrow releases commenced on March 25, 2014 and was to continue on the 25^th day of each of the next four subsequent months. As of June 30, 2014, $200 thousand of the cash held in escrow had been released to the Company and $300 thousand remained in escrow subject to the resolution of outstanding buyer claims.

In conjunction with the sale, we have eliminated the expenses associated with this business from our Condensed Consolidated Statements of Operations and have reported the net loss from those activities as “discontinued operations” for the periods presented in this Quarterly Report. There were no revenues from discontinued operations for the three and six months ended June 30, 2014. Revenues for the three and six months ended June 30, 2013 were $1.7 million and $2.6 million, respectively. We recognized no expenses for the three months ended June 30, 2014, and approximately $20 thousand for the six months ended June 30, 2014. For the three and six months ended June 30, 2013, we recognized expenses of approximately $1.2 million and $2.1 million, respectively.

The sale of our pool products business is described in detail in our 2013 Annual Report on Form 10-K.

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Note 6 - Intangible Assets (Details) - Summary of Net Carrying Value of Intangible Assets (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2014	Dec. 31, 2013
Finite-Lived Intangible Assets [Line Items]
Customer relationships	$ 27	$ 55
Customer Relationships [Member]
Finite-Lived Intangible Assets [Line Items]
Customer relationships	5 years
Customer relationships	$ 27	$ 55

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Note 9 - Settlement of Acquisition Obligations (Tables)

6 Months Ended

Jun. 30, 2014

Business Combinations [Abstract]

Schedule of Business Acquisitions, by Acquisition [Table Text Block]

Change in estimate of contingent liabilities:
Forgiveness of net receivable due the Company	$	78
Adjustment to performance-related contingent obligation		(66	)
Net line item expense	$	12
Settlement of acquisition obligations:
Forgiveness of special fee	$	500
Forgiveness of convertible promissory note, including interest		592
Payment by the Company		(200	)
Net line item income	$	892

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Note 8 - Debt (Tables)

6 Months Ended

Jun. 30, 2014

Debt Disclosure [Abstract]

Schedule of Long-term Debt Instruments [Table Text Block]

	June 30,			December 31,
	2014			2013
Unsecured Convertible Notes	$	-		$	6,145
Cognovit Note - Keystone Ruby, LLC		194			223
Unsecured Promissory Note - Quercus Trust		70			70
Discounts on long-term debt		-			(2,368	)
Subtotal		264			4,070
Less: Current maturies of long-term debt		(62	)		(59	)
Long-term debt	$	202		$	4,011

Schedule of Maturities of Long-term Debt [Table Text Block]

	Long-Term
Year ending December 31,	Debt
2014 July through December	$	30
2015		66
2016		72
2017		26
2018		-
2019 and thereafter		70
Total commitment		264
Less: portion classified as current		(62	)
Long-term debt, net	$	202

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Note 12 - Commitments and Contingencies (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	1 Months Ended	3 Months Ended	6 Months Ended	1 Months Ended			3 Months Ended	6 Months Ended	36 Months Ended
	Jun. 28, 2013	Jun. 30, 2013	Jun. 30, 2013	Jun. 28, 2013 Special Fee [Member] Stone River Companies, LLC [Member]	Jun. 28, 2013 Principal [Member] Stone River Companies, LLC [Member]	Dec. 31, 2009 Stone River Companies, LLC [Member]	Jun. 30, 2013 Stone River Companies, LLC [Member]	Jun. 30, 2013 Stone River Companies, LLC [Member]	Jun. 30, 2013 Stone River Companies, LLC [Member]
Note 12 - Commitments and Contingencies (Details) [Line Items]
Business Combination, Contingent Consideration, Payout Payable	2.50%					2.50%
Business Combination, Contingent Consideration, Liability						$ 500
Business Combination Contingent Consideration Stock Triger Price (in Dollars per share)									$ 20.00
Payments for (Proceeds from) Previous Acquisition							82	206
Business Combination, Contingent Consideration Arrangements, Change in Amount of Contingent Consideration, Liability		12	12	500
Extinguishment of Debt, Amount					$ 500

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Note 7 - Contracts in Progress (Details) - Summary of Costs and Estimated Earnings on Contracts in Progress (USD $) In Thousands, unless otherwise specified	6 Months Ended	12 Months Ended
	Jun. 30, 2014	Dec. 31, 2013
Summary of Costs and Estimated Earnings on Contracts in Progress [Abstract]
Costs incurred on uncompleted contracts	$ 7,733	$ 7,347
Estimated earnings	1,772	1,603
Total revenues	9,505	8,950
Less: billings to date	9,398	9,569
Total	107	(619)
Balance sheet classification:
Costs and estimated earnings in excess of billings on uncompleted contracts	129	145
Billings in excess of costs and estimated earnings on uncompleted contracts	(22)	(764)
Total	$ 107	$ (619)

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Note 10 - Segments and Geographic Information (Tables)

6 Months Ended

Jun. 30, 2014

Segment Reporting [Abstract]

Reconciliation of Operating Profit (Loss) from Segments to Consolidated [Table Text Block]

	Three months ended						Six months ended
	June 30,						June 30,
	2014			2013			2014			2013
Solutions:
Net sales	$	1,133		$	1,983		$	3,321		$	3,790
Cost of sales		948			1,775			2,513			3,298
Gross profit		185			208			808			492
Operating expenses:
Selling, general, and administrative		352			476			783			948
Loss on impairment		-			325			-			325
Total operating expenses		352			801			783			1,273
Segment (loss) income	$	(167	)	$	(593	)	$	25		$	(781	)
Products:
Net sales	$	5,566		$	3,670		$	8,297		$	6,321
Cost of sales		3,577			2,640			5,509			4,692
Gross profit		1,989			1,030			2,788			1,629
Operating expenses:
Research and development		55			172			118			209
Selling, general, and administrative		1,223			1,025			2,018			1,609
Total operating expenses		1,278			1,197			2,136			1,818
Segment income (loss)	$	711		$	(167	)	$	652		$	(189	)
Reconciliation of segment income (loss) to net loss:
Segment income (loss):
Solutions	$	(167	)	$	(593	)	$	25		$	(781	)
Products		711			(167	)		652			(189	)
Total segment income (loss)		544			(760	)		677			(970	)
Operating expenses:
Research and development		148			-			276			-
Selling, general, and administrative		958			970			2,036			1,996
Change in estimate of contingent liabilities		-			12			-			12
Total operating expenses		1,106			982			2,312			2,008
Other (expense) income		(61	)		580			(3,039	)		360
Loss from continuing operations before income taxes		(623	)		(1,162	)		(4,674	)		(2,618	)
Benefit (provision) for income taxes		1			-			2			-
Net loss from continuing operations	$	(622	)	$	(1,162	)	$	(4,672	)	$	(2,618	)

Reconciliation of Revenue from Segments to Consolidated [Table Text Block]

	Three months ended					Six months ended
	June 30,					June 30,
	2014			2013		2014		2013
Products segment net sales:
Commercial	$	1,929		$	1,647	$	3,095	$	3,288
Government		3,620			1,603		5,162		1,856
R&D services		17			420		40		1,177
Total products segment net sales		5,566			3,670		8,297		6,321
Products segment cost of sales:
Commercial		1,194			1,168		1,965		2,321
Government		2,387			1,060		3,525		1,301
R&D services		(4	)		412		19		1,070
Total products segment cost of sales		3,577			2,640		5,509		4,692
Products segment gross profit:
Commercial		735			479		1,130		967
Government		1,233			543		1,637		555
R&D services		21			8		21		107
Total products segment gross profit	$	1,989		$	1,030	$	2,788	$	1,629

Schedule of Revenue from External Customers Attributed to Foreign Countries by Geographic Area [Table Text Block]

	Three months ended				Six months ended
	June 30,				June 30,
	2014		2013		2014		2013
United States	$	5,590	$	4,885	$	9,873	$	8,770
International		1,109		768		1,745		1,341
Net sales	$	6,699	$	5,653	$	11,618	$	10,111

Schedule of Disclosure on Geographic Areas, Long-Lived Assets in Individual Foreign Countries by Country [Table Text Block]

	June 30,		December 31,
	2014		2013
United States	$	527	$	582
International		31		9
Long-lived assets, net	$	558	$	591

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Note 1 - Nature of Operations (Details)	6 Months Ended
	Jun. 30, 2014
Disclosure Text Block [Abstract]
Number of Reportable Segments	2

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Note 2 - Basis of Presentation and Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2014

Accounting Policies [Abstract]

Significant Accounting Policies [Text Block]

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

Reverse Stock Split

At the Company’s annual meeting of stockholders held on July 15, 2014, the stockholders approved an amendment to the Certificate of Incorporation, as described in the Company’s proxy statement dated June 26, 2014, to effect a reverse stock split of the Company’s outstanding common stock at a ratio ranging from 1-for-7 to 1-for-15, with such ratio determined by the Company’s Board of Directors in its discretion without further approval from the stockholders. The Board of Directors subsequently authorized proceeding with the reverse stock split at a ratio of 1-for-10. On July 16, 2014, the Company filed a Certificate of Amendment to its Certificate of Incorporation effecting the reverse stock split effective at 5pm ET on July 16, 2014. Immediately after the July 16, 2014 effective date, the Company had 8,012,461 shares of common stock issued and outstanding. All share and per share amounts have been retroactively restated to reflect the reverse split. Effective at the same time as the reverse split, the authorized number of shares of our common stock was proportionately decreased from 150,000,000 shares to 15,000,000 shares. The par value remained the same.

Basis of Presentation

The financial statements include the accounts of the Company and its subsidiaries, Energy Focus LED Solutions, LLC (“EFLS”) in Nashville, Tennessee, and Crescent Lighting Limited (“CLL”) located in the United Kingdom. All significant inter-company balances and transactions have been eliminated.

We have prepared the accompanying financial data for the three and six months ended June 30, 2014 and 2013 pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States have been condensed or omitted pursuant to such rules and regulations. The accompanying financial data and information should be read in conjunction with our 2013 Annual Report on Form 10-K.

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 June 30, 2014 and December 31, 2013, Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2014 and 2013, Condensed Consolidated Statements of Comprehensive Loss for the three and six months ended June 30, 2014 and 2013, and Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2013.

The preparation of condensed consolidated financial statements in accordance with GAAP in the United States requires management to make estimates and assumptions that affect the amounts reported in our condensed consolidated 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 the company in the future, actual results may be different 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, equipment, and intangible assets; revenues recognized on a percentage-of-completion basis; and stock-based compensation. In addition, estimates and assumptions associated with the determination of the fair value of financial instruments and evaluation of long-lived assets for impairment requires considerable judgment. Actual results could differ from those estimates and such differences could be material.

Our independent public accounting firm has issued an opinion in connection with our 2013 Annual Report on Form 10-K raising substantial doubt as to our ability to continue as a going concern. The interim financial statements have been prepared assuming we will continue to operate as a going concern, which contemplates the realization of assets and the settlement of liabilities in the normal course of business. The interim financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from uncertainty related to our ability to continue as a going concern.

Reclassifications

Certain prior year amounts have been reclassified within the Condensed Consolidated Financial Statements (“financial statements”), and related notes thereto, to be consistent with the current year presentation. See discussion of the reclassification of discontinued operations in Note 3, Discontinued Operations.

Recent Accounting Pronouncements

In July 2013, the Financial Accounting Standard Board (FASB) issued Accounting Standards Update (ASU) No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists, which amends ASC 740, Income Taxes. The amendments provide guidance on the financial statement presentation of an unrecognized tax benefit, as either a reduction of a deferred tax asset or as a liability, when a net operating loss carryforward, similar tax loss, or a tax credit carryforward exists. The amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013 and may be applied on either a prospective or retrospective basis. The adoption of this ASU did not materially impact our disclosures.

In May 2014, the FASB issued ASU No. 2014-09, Revenue Recognition - Revenue from Contracts with Customers, which is a comprehensive revenue recognition standard that will supersede nearly all existing revenue recognition guidance under U.S. GAAP. The standard is effective for interim and annual periods beginning after December 15, 2016, and either full retrospective adoption or modified retrospective adoption is permitted. The Company is in the process of evaluating the impact of the standard.

Update to Significant Accounting Policies

There have been no material changes to our significant accounting policies, as compared to the significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013.

Loss per Share

Basic loss per share is computed by dividing the net loss available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted loss per share is computed giving effect to all dilutive potential common shares that were outstanding during the period. Dilutive potential common shares consist of incremental shares upon exercise of stock options and warrants, unless the effect would be anti-dilutive.

A reconciliation of basic and diluted loss per share is provided as follows (in thousands, except per share amounts):

	Three months ended						Six months ended
	June 30,						June 30,
	2014			2013			2014			2013
Basic and diluted loss per share:
Net loss	$	(622	)	$	(679	)	$	(4,692	)	$	(2,107	)
Basic and diluted loss per share:
Weighted average shares outstanding		7,836			4,623			6,512			4,547
Basic and diluted net loss per share	$	(0.08	)	$	(0.15	)	$	(0.72	)	$	(0.46	)

Options, warrants and convertible securities representing approximately 482,824 and 1,832,068 shares of common stock were excluded from the loss per share calculation for the three months ended June 30, 2014 and 2013, respectively, and 1,738,434 and 1,345,522 for the six months ended June 30, 2014 and 2013, respectively, because their inclusion would have been anti-dilutive.

Stock-Based Compensation

On May 6, 2014, the Company’s Board of Directors approved the Energy Focus, Inc. 2014 Stock Incentive Plan (the “2014 Plan”). The 2014 Plan was approved by the stockholders at the Company’s annual meeting on July 15, 2014, after which no further awards could be issued under the Energy Focus, Inc. 2008 Incentive Stock Plan (the “2008 Plan”). The 2014 Plan allows for awards up to 600,000 shares of common stock and expires on July 15, 2024. The 2008 Plan is described in detail in our 2013 Annual Report on Form 10-K. The following table summarizes our stock-based compensation (in thousands):

	Three months ended				Six months ended
	June 30,				June 30,
	2014		2013		2014		2013
Cost of sales	$	4	$	1	$	6	$	1
Research and development		3		8		2		15
Selling, general, and administrative		128		42		250		80
Total stock-based compensation	$	135	$	51	$	258	$	96

Total unearned compensation was $495 thousand related to stock-based compensation at June 30, 2014, compared to $295 thousand at June 30, 2013. These costs will be charged to expense and amortized on a straight-line basis in future periods through the third quarter of 2016. The weighted average period over which the unearned compensation is expected to be recognized is approximately 1.9 years.

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

	Six months ended
	June 30,
	2014			2013
Fair value of options issued	$	3.34		$	1.58
Exercise price	$	4.34		$	2.32
Expected life of option		5.6			7.4
Risk-free interest rate		1.79	%		1.30	%
Expected volatility		98.1	%		89.2	%
Dividend yield		0	%		0	%

Option activity under our stock plans during the six months ended June 30, 2014 was as follows:

	Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in Years)
Outstanding as of December 31, 2013		286,188		$	15.30
Granted		208,000			4.34
Exercised		(500	)		2.30
Cancelled/forfeited		(83,561	)		15.61
Outstanding as of June 30, 2014		410,127		$	9.70		7.6
Vested and expected to vest as of June 30, 2014		372,885		$	8.59		8.4
Exercisable as of June 30, 2014		207,818		$	14.83		7.2

Product Warranties

We warrant finished goods against defects in material and workmanship under normal use and service for periods generally between one and five years for products and labor. Settlement costs consist of actual amounts expensed for warranty services which are largely a result of third-party service calls and the costs of replacement products. A liability for the estimated future costs under product warranties is maintained for products outstanding under warranty and is included in “Accrued liabilities” in the Condensed Consolidated Balance Sheets. The warranty activity for the respective periods is as follows (in thousands):

	Three months ended						Six months ended
	June 30,						June 30,
	2014			2013			2014			2013
Balance at the beginning of the period	$	75		$	140		$	75		$	159
Accruals for warranties issued		-			23			16			39
Settlements made during the period (in cash or in kind)		(7	)		(13	)		(23	)		(48	)
Balance at the end of the period	$	68		$	150		$	68		$	150

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Note 2 - Basis of Presentation and Summary of Significant Accounting Policies (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		6 Months Ended			0 Months Ended				1 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013	Dec. 31, 2013	Jul. 16, 2014 Subsequent Event [Member]	Jul. 17, 2017 Subsequent Event [Member]	Jul. 17, 2014 Subsequent Event [Member]	May 06, 2014 2014 Plan [Member]	Jun. 26, 2014 Minimum [Member]	Jun. 26, 2014 Maximum [Member]
Note 2 - Basis of Presentation and Summary of Significant Accounting Policies (Details) [Line Items]
Stockholders' Equity Note, Stock Split, Conversion Ratio						10				7	15
Common Stock, Shares, Issued	8,012,461		8,012,461		5,142,194			8,012,461
Common Stock, Shares, Outstanding	8,012,461		8,012,461		5,142,194			8,012,461
Common Stock, Shares Authorized	15,000,000		15,000,000		15,000,000	150,000,000	15,000,000
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	482,824	1,832,068	1,738,434	1,345,522
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized									600,000
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized (in Dollars)	$ 495	$ 295	$ 495	$ 295
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition			1 year 328 days

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Note 5 - Property and Equipment (Details) - Property and Equipment (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Property, Plant and Equipment [Line Items]
Property and equipment at cost	$ 4,000	$ 4,083
Less: accumulated depreciation	(3,469)	(3,547)
Property and equipment, net	531	536
Equipment [Member]
Property, Plant and Equipment [Line Items]
Property and equipment at cost	1,958	2,080
Tooling [Member]
Property, Plant and Equipment [Line Items]
Property and equipment at cost	770	769
Furniture and Fixtures [Member]
Property, Plant and Equipment [Line Items]
Property and equipment at cost	98	115
Software and Software Development Costs [Member]
Property, Plant and Equipment [Line Items]
Property and equipment at cost	539	521
Leasehold Improvements [Member]
Property, Plant and Equipment [Line Items]
Property and equipment at cost	578	589
Construction in Progress [Member]
Property, Plant and Equipment [Line Items]
Property and equipment at cost	$ 57	$ 9

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Note 10 - Segments and Geographic Information (Details) - Summary of Geographic Sales (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Note 10 - Segments and Geographic Information (Details) - Summary of Geographic Sales [Line Items]
Net Sales	$ 6,699	$ 5,653	$ 11,618	$ 10,111
UNITED STATES
Note 10 - Segments and Geographic Information (Details) - Summary of Geographic Sales [Line Items]
Net Sales	5,590	4,885	9,873	8,770
International [Member]
Note 10 - Segments and Geographic Information (Details) - Summary of Geographic Sales [Line Items]
Net Sales	$ 1,109	$ 768	$ 1,745	$ 1,341

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Condensed Consolidated Balance Sheets (Current Period Unaudited) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Current assets:
Cash and cash equivalents	$ 1,596	$ 2,860
Trade accounts receivable less allowances of $55 and $84, respectively	3,817	3,348
Retainage receivable	472	577
Inventories, net	2,589	2,510
Costs and estimated earnings in excess of billings	129	145
Prepaid and other current assets	1,311	1,207
Assets held for sale		130
Total current assets	9,914	10,777
Property and equipment, net	531	536
Intangible assets, net	27	55
Collateralized assets	1,000	1,000
Other assets	116	440
Total assets	11,588	12,808
Current liabilities:
Accounts payable	3,624	3,707
Accrued liabilities	1,147	1,218
Deferred revenue	183	71
Billings in excess of costs and estimated earnings	22	764
Credit line borrowings	824
Current maturities of long-term debt	62	59
Total current liabilities	5,862	5,819
Other liabilities	49	54
Long-term debt	202	4,011
Total liabilities	6,113	9,884
STOCKHOLDERS' EQUITY
Common stock, par value $0.0001 per share: Authorized: 15,000,000 shares in 2014 and 2013. Issued and outstanding: 8,012,461 at June 30, 2014 and 5,142,194 at December 31, 2013 (post-reverse split)	1	1
Additional paid-in capital	92,682	85,446
Accumulated other comprehensive income	469	462
Accumulated deficit	(87,677)	(82,985)
Total stockholders' equity	5,475	2,924
Total liabilities and stockholders' equity	$ 11,588	$ 12,808

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Note 8 - Debt (Details) (USD $)	1 Months Ended	6 Months Ended	1 Months Ended	4 Months Ended		1 Months Ended				1 Months Ended					6 Months Ended
	Dec. 22, 2011	Jun. 30, 2014	Mar. 31, 2014 Unsecured Convertible Notes [Member] Common Stock [Member]	Jun. 30, 2014 Unsecured Convertible Notes [Member] Common Stock [Member]	Jun. 30, 2014 Convertible Debt [Member] Accounts Payable and Accrued Liabilities [Member]	Mar. 31, 2014 Convertible Debt [Member]	Jun. 30, 2014 Convertible Debt [Member]	Dec. 22, 2011 Percentage of Inventory, Lower of Cost or Market Value [Member]	Dec. 22, 2011 Inventory, Maximum Value [Member]	Dec. 22, 2011 Borrowing on Accounts Receivable [Member]	Dec. 22, 2011 Borrowing on Inventories [Member]	Dec. 22, 2011 Borrowing on Overdrafts [Member]	Jun. 30, 2014 Revolving Credit Facility [Member]	Jun. 30, 2014 Line of Credit [Member] Credit Line Borrowings [Member] Subsidiaries [Member] UNITED KINGDOM	Jun. 30, 2014 Line of Credit [Member] Subsidiaries [Member] UNITED KINGDOM	Dec. 31, 2013 Cash Equivalents [Member] Revolving Credit Facility [Member]
Note 8 - Debt (Details) [Line Items]
Line of Credit Facility, Maximum Borrowing Capacity	$ 4,500,000
Line of Credit Facility Available Percentage of Receivables	85.00%
Line of Credit Facility Available Threshold Percent								50.00%
Line of Credit Facility Available Threshold Value									250,000
Line of Credit Facility, Interest Rate During Period										8.50%	10.00%	13.00%
Line of Credit Facility, Commitment Fee Percentage	1.00%
Line of Credit Facility, Expiration Period	3 years
Line of Credit Facility Liquidation Damages	1.00%
Long-term Line of Credit													649,000	175,000		(218,000)
Line of Credit Facility, Remaining Borrowing Capacity		706,000
Line of Credit Facility, Available Percent of Eligible Sales															80.00%
Debt Instrument, Interest Rate, Stated Percentage															3.02%
Debt Conversion, Converted Instrument, Amount		3,858,000		6,150,000
Debt Conversion, Converted Instrument, Shares Issued (in Shares)				2,671,739
Debt Conversion, Converted Instrument, Additional Interest Rate							5.00%
Interest Payable, Current					77,000
Induced Conversion of Convertible Debt Expense			2,700,000
Debtor Reorganization Items, Write-off of Deferred Financing Costs and Debt Discounts			2,300,000
Interest Expense, Debt						154,000
Write off of Deferred Debt Issuance Cost						$ 293,000

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Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
Cash flows from operating activities:
Net loss	$ (4,692)	$ (2,107)
Adjustments to reconcile net loss to net cash used in operating activities:
Loss on impairment		325
Depreciation	114	327
Stock-based compensation	258	96
Settlement of acquisition obligations		(892)
Provision for doubtful accounts receivable	(3)	(33)
Amortization of intangible assets	28	127
Amortization of discounts on long-term borrowings and acquisition related liabilities	2,815	110
Amortization of loan origination fees	83	56
Changes in assets and liabilities:
Accounts receivable, inventories, and other assets	(457)	1,419
Accounts payable and accrued liabilities	(428)	(2,297)
Deferred revenue	(630)	(669)
Total adjustments	1,779	(1,431)
Net cash used in operating activities	(2,913)	(3,538)
Cash flows from investing activities:
Acquisition of property and equipment	(107)	(151)
Proceeds from the sale of property and equipment	130
Net cash provided by (used in) investing activities	23	(151)
Cash flows from financing activities:
Proceeds from issuances of common stock, net	806
Proceeds from exercise of stock options and employee stock purchase plan purchases	27	15
Proceeds from other borrowings, net of origination fees		4,779
Payments on other borrowings	(29)	(26)
Net proceeds on credit line borrowings	824	12
Net cash provided by financing activities	1,628	4,780
Effect of exchange rate changes on cash	(2)	(6)
Net (decrease) increase in cash and cash equivalents	(1,264)	1,085
Cash and cash equivalents at beginning of period	2,860	1,181
Cash and cash equivalents at end of period	1,596	2,266
Conversion of subordinated convertible debt to equity, net of discount amortization	3,858
Classification of cash and cash equivalents:
Cash and cash equivalents	1,122	2,207
Restricted cash held	174	59
Cash held in escrow	300
Customer-Related Intangible Assets [Member]
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of intangible assets	$ 27	$ 127

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Note 15 - Subsequent Events (Details) (USD $) In Thousands, except Share data, unless otherwise specified	6 Months Ended	0 Months Ended
	Jun. 30, 2014	Aug. 06, 2014 Subsequent Event [Member]
Note 15 - Subsequent Events (Details) [Line Items]
Stock Issued During Period, Shares, New Issues		1,175,000
Share Price (in Dollars per share)		$ 4.50
Additional Shares of Common Stock Purchasable		176,250
Proceeds from Issuance of Common Stock (in Dollars)	$ 806	$ 5,300
Class of Warrant or Right, Number of Securities Called by Warrants or Rights		47,000
Warrant Issuance of Common Stock Sold, Percent		4.00%
Class of Warrant or Right, Exercise Price of Warrants or Rights (in Dollars per share)		$ 5.40
Warrant Issuance Price of Share Price, Percent		120.00%

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Note 2 - Basis of Presentation and Summary of Significant Accounting Policies (Details) - Estimates Utilized in the Black-Scholes Option Pricing Model (USD $)	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
Estimates Utilized in the Black-Scholes Option Pricing Model [Abstract]
Fair value of options issued (in Dollars per share)	$ 3.34	$ 1.58
Exercise price (in Dollars per share)	$ 4.34	$ 2.32
Expected life of option	5 years 219 days	7 years 146 days
Risk-free interest rate	1.79%	1.30%
Expected volatility	98.10%	89.20%
Dividend yield	0.00%	0.00%

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Accounting Policies, by Policy (Policies)

6 Months Ended

Jun. 30, 2014

Accounting Policies [Abstract]

Basis of Accounting, Policy [Policy Text Block]

Basis of Presentation

The financial statements include the accounts of the Company and its subsidiaries, Energy Focus LED Solutions, LLC (“EFLS”) in Nashville, Tennessee, and Crescent Lighting Limited (“CLL”) located in the United Kingdom. All significant inter-company balances and transactions have been eliminated.

We have prepared the accompanying financial data for the three and six months ended June 30, 2014 and 2013 pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States have been condensed or omitted pursuant to such rules and regulations. The accompanying financial data and information should be read in conjunction with our 2013 Annual Report on Form 10-K.

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 June 30, 2014 and December 31, 2013, Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2014 and 2013, Condensed Consolidated Statements of Comprehensive Loss for the three and six months ended June 30, 2014 and 2013, and Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2013.

The preparation of condensed consolidated financial statements in accordance with GAAP in the United States requires management to make estimates and assumptions that affect the amounts reported in our condensed consolidated 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 the company in the future, actual results may be different 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, equipment, and intangible assets; revenues recognized on a percentage-of-completion basis; and stock-based compensation. In addition, estimates and assumptions associated with the determination of the fair value of financial instruments and evaluation of long-lived assets for impairment requires considerable judgment. Actual results could differ from those estimates and such differences could be material.

Our independent public accounting firm has issued an opinion in connection with our 2013 Annual Report on Form 10-K raising substantial doubt as to our ability to continue as a going concern. The interim financial statements have been prepared assuming we will continue to operate as a going concern, which contemplates the realization of assets and the settlement of liabilities in the normal course of business. The interim financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from uncertainty related to our ability to continue as a going concern.

Reclassification, Policy [Policy Text Block]

Reclassifications

Certain prior year amounts have been reclassified within the Condensed Consolidated Financial Statements (“financial statements”), and related notes thereto, to be consistent with the current year presentation. See discussion of the reclassification of discontinued operations in Note 3, Discontinued Operations.

New Accounting Pronouncements, Policy [Policy Text Block]

Recent Accounting Pronouncements

In July 2013, the Financial Accounting Standard Board (FASB) issued Accounting Standards Update (ASU) No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists, which amends ASC 740, Income Taxes. The amendments provide guidance on the financial statement presentation of an unrecognized tax benefit, as either a reduction of a deferred tax asset or as a liability, when a net operating loss carryforward, similar tax loss, or a tax credit carryforward exists. The amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013 and may be applied on either a prospective or retrospective basis. The adoption of this ASU did not materially impact our disclosures.

In May 2014, the FASB issued ASU No. 2014-09, Revenue Recognition - Revenue from Contracts with Customers, which is a comprehensive revenue recognition standard that will supersede nearly all existing revenue recognition guidance under U.S. GAAP. The standard is effective for interim and annual periods beginning after December 15, 2016, and either full retrospective adoption or modified retrospective adoption is permitted. The Company is in the process of evaluating the impact of the standard.

Update to Significant Accounting Policies

There have been no material changes to our significant accounting policies, as compared to the significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013.

Earnings Per Share, Policy [Policy Text Block]

Loss per Share

Basic loss per share is computed by dividing the net loss available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted loss per share is computed giving effect to all dilutive potential common shares that were outstanding during the period. Dilutive potential common shares consist of incremental shares upon exercise of stock options and warrants, unless the effect would be anti-dilutive.

A reconciliation of basic and diluted loss per share is provided as follows (in thousands, except per share amounts):

	Three months ended						Six months ended
	June 30,						June 30,
	2014			2013			2014			2013
Basic and diluted loss per share:
Net loss	$	(622	)	$	(679	)	$	(4,692	)	$	(2,107	)
Basic and diluted loss per share:
Weighted average shares outstanding		7,836			4,623			6,512			4,547
Basic and diluted net loss per share	$	(0.08	)	$	(0.15	)	$	(0.72	)	$	(0.46	)

Options, warrants and convertible securities representing approximately 482,824 and 1,832,068 shares of common stock were excluded from the loss per share calculation for the three months ended June 30, 2014 and 2013, respectively, and 1,738,434 and 1,345,522 for the six months ended June 30, 2014 and 2013, respectively, because their inclusion would have been anti-dilutive.

Share-based Compensation, Option and Incentive Plans Policy [Policy Text Block]

Stock-Based Compensation

On May 6, 2014, the Company’s Board of Directors approved the Energy Focus, Inc. 2014 Stock Incentive Plan (the “2014 Plan”). The 2014 Plan was approved by the stockholders at the Company’s annual meeting on July 15, 2014, after which no further awards could be issued under the Energy Focus, Inc. 2008 Incentive Stock Plan (the “2008 Plan”). The 2014 Plan allows for awards up to 600,000 shares of common stock and expires on July 15, 2024. The 2008 Plan is described in detail in our 2013 Annual Report on Form 10-K. The following table summarizes our stock-based compensation (in thousands):

	Three months ended				Six months ended
	June 30,				June 30,
	2014		2013		2014		2013
Cost of sales	$	4	$	1	$	6	$	1
Research and development		3		8		2		15
Selling, general, and administrative		128		42		250		80
Total stock-based compensation	$	135	$	51	$	258	$	96

Total unearned compensation was $495 thousand related to stock-based compensation at June 30, 2014, compared to $295 thousand at June 30, 2013. These costs will be charged to expense and amortized on a straight-line basis in future periods through the third quarter of 2016. The weighted average period over which the unearned compensation is expected to be recognized is approximately 1.9 years.

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

	Six months ended
	June 30,
	2014			2013
Fair value of options issued	$	3.34		$	1.58
Exercise price	$	4.34		$	2.32
Expected life of option		5.6			7.4
Risk-free interest rate		1.79	%		1.30	%
Expected volatility		98.1	%		89.2	%
Dividend yield		0	%		0	%

Option activity under our stock plans during the six months ended June 30, 2014 was as follows:

	Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in Years)
Outstanding as of December 31, 2013		286,188		$	15.30
Granted		208,000			4.34
Exercised		(500	)		2.30
Cancelled/forfeited		(83,561	)		15.61
Outstanding as of June 30, 2014		410,127		$	9.70		7.6
Vested and expected to vest as of June 30, 2014		372,885		$	8.59		8.4
Exercisable as of June 30, 2014		207,818		$	14.83		7.2

Standard Product Warranty, Policy [Policy Text Block]

Product Warranties

We warrant finished goods against defects in material and workmanship under normal use and service for periods generally between one and five years for products and labor. Settlement costs consist of actual amounts expensed for warranty services which are largely a result of third-party service calls and the costs of replacement products. A liability for the estimated future costs under product warranties is maintained for products outstanding under warranty and is included in “Accrued liabilities” in the Condensed Consolidated Balance Sheets. The warranty activity for the respective periods is as follows (in thousands):

	Three months ended						Six months ended
	June 30,						June 30,
	2014			2013			2014			2013
Balance at the beginning of the period	$	75		$	140		$	75		$	159
Accruals for warranties issued		-			23			16			39
Settlements made during the period (in cash or in kind)		(7	)		(13	)		(23	)		(48	)
Balance at the end of the period	$	68		$	150		$	68		$	150

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Note 2 - Basis of Presentation and Summary of Significant Accounting Policies (Details) - Option Activity (USD $)	6 Months Ended
	Jun. 30, 2014	Dec. 31, 2013
Option Activity [Abstract]
Outstanding as of	410,127	286,188
Outstanding as of	$ 9.70	$ 15.30
Outstanding as of	7 years 219 days
Vested and expected to vest as of June 30, 2014	372,885
Vested and expected to vest as of June 30, 2014	$ 8.59
Vested and expected to vest as of June 30, 2014	8 years 146 days
Exercisable as of June 30, 2014	207,818
Exercisable as of June 30, 2014	$ 14.83
Exercisable as of June 30, 2014	7 years 73 days
Granted	208,000
Granted	$ 4.34
Exercised	(500)
Exercised	$ 2.30
Cancelled/forfeited	(83,561)
Cancelled/forfeited	$ 15.61

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Note 4 - Inventories (Tables)

6 Months Ended

Jun. 30, 2014

Inventory Disclosure [Abstract]

Schedule of Inventory, Current [Table Text Block]

	June 30,		December 31,
	2014		2013
Raw materials	$	1,130	$	1,611
Finished goods		1,459		899
Inventories, net	$	2,589	$	2,510

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Note 1 - Nature of Operations

6 Months Ended

Jun. 30, 2014

Disclosure Text Block [Abstract]

Nature of Operations [Text Block]

NOTE 1. NATURE OF OPERATIONS

Energy Focus, Inc. and its subsidiaries (the “Company”) engage in the design, development, manufacturing, marketing, and installation of energy-efficient lighting systems and solutions where we serve two segments:

● Products: providing military, general commercial and industrial energy-efficient lighting offerings; and

● Solutions: providing turnkey, high-quality, energy-efficient lighting application alternatives, primarily to the existing public-sector building market. We have also begun pursuing opportunities in the commercial and industrial sectors.

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Condensed Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) (USD $) In Thousands, except Share data, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Trade accounts receivable, allowances (in Dollars)	$ 55	$ 84
Preferred stock, par value (in Dollars per share)	$ 0.0001	$ 0.0001
Preferred stock, shares authorized	2,000,000	2,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value (in Dollars per share)	$ 0.0001	$ 0.0001
Common stock, shares authorized	15,000,000	15,000,000
Common stock, shares issued	8,012,461	5,142,194
Common stock, shares outstanding	8,012,461	5,142,194

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Note 11 - Income Taxes

6 Months Ended

Jun. 30, 2014

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

NOTE 11. INCOME TAXES

At June 30, 2014, we had recorded a full valuation allowance against our deferred tax assets in the United States, due to uncertainties related to our ability to utilize our deferred tax assets, primarily consisting of certain net operating losses carried forward. The valuation allowance is based upon management’s estimates of taxable income by jurisdiction and the period over which our deferred tax assets will be recoverable.

As of December 31, 2013, we had a net operating loss carry-forward of approximately $72.1 million for federal, state and local income tax purposes. However, due to changes in our capital structure, approximately $14.5 million of this amount is available after the application of Internal Revenue Code (“IRC”) Section 382 limitations. If not utilized, these carry-forwards will begin to expire in 2021 for federal tax purposes and have begun to expire for state and local tax purposes. For a full discussion of the estimated restrictions on our utilization of net operating loss carry-forwards, see Note 14, Income Taxes, of our 2013 Annual Report on Form 10-K.

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Document And Entity Information	6 Months Ended
	Jun. 30, 2014	Aug. 12, 2014
Document and Entity Information [Abstract]
Entity Registrant Name	ENERGY FOCUS, INC/DE
Document Type	10-Q
Current Fiscal Year End Date	--12-31
Entity Common Stock, Shares Outstanding		9,376,818
Amendment Flag	false
Entity Central Index Key	0000924168
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Filer Category	Smaller Reporting Company
Entity Well-known Seasoned Issuer	No
Document Period End Date	Jun. 30, 2014
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q2

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Note 12 - Commitments and Contingencies

6 Months Ended

Jun. 30, 2014

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies Disclosure [Text Block]

NOTE 12. COMMITMENTS AND CONTINGENCIES

In connection with the acquisition of EFLS in December 2009, we recorded a performance-related contingent obligation related to a 2.5% payout payable over 42 months commencing January 1, 2010 and based upon the fair value of projected annual billings of the acquired business, and a $500 thousand fee if the market price of our common stock was not equal to or greater than $20.00 per share for at least twenty trading days between June 30, 2010 and June 30, 2013 (due on June 30, 2013). We accrued for each of these contingent liabilities at their respective fair values at the time of the acquisition. For the three and six months ended June 30, 2013, we paid $82 thousand and $206 thousand, respectively, relating to the 2.5% payout.

On June 28, 2013, we entered into a Settlement Agreement with EFLS, TLC Investments, LLC, Jamie Hall and Robert E. Wilson, terminating the Membership Interest Purchase Agreement related to the acquisition of Stones River Companies, LLC, now known as EFLS. As part of the Settlement Agreement, our obligation to pay a $500 thousand special fee and a $500 thousand convertible promissory note were cancelled in their entirety. Therefore, at June 30, 2014 and December 31, 2013, nothing was remaining on the Company’s Condensed Consolidated Balance Sheets relating to these obligations.

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Condensed Consolidated Statements of Operations (Unaudited) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Net sales	$ 6,699	$ 5,653	$ 11,618	$ 10,111
Cost of sales	4,525	4,415	8,022	7,990
Gross profit	2,174	1,238	3,596	2,121
Operating expenses:
Research and development	203	172	394	209
Selling, general, and administrative	2,533	2,471	4,837	4,553
Loss on impairment		325		325
Change in estimate of contingent liabilities		12		12
Total operating expenses	2,736	2,980	5,231	5,099
Loss from operations	(562)	(1,742)	(1,635)	(2,978)
Other income (expense):
Settlement of acquisition obligations		892		892
Other expense	(33)	(145)	(393)	(239)
Interest expense	(28)	(167)	(2,646)	(293)
Loss from continuing operations before income taxes	(623)	(1,162)	(4,674)	(2,618)
Benefit for income taxes	1		2
Net loss from continuing operations	(622)	(1,162)	(4,672)	(2,618)
Income (loss) from discontinued operations before income taxes		484	(20)	515
Provision for income taxes		(1)		(4)
Income (loss) from discontinued operations		483	(20)	511
Net loss	$ (622)	$ (679)	$ (4,692)	$ (2,107)
Basic
From continung operations (in Dollars per share)	$ (0.08)	$ (0.25)	$ (0.72)	$ (0.57)
From discontinued operations (in Dollars per share)		$ 0.10		$ 0.11
Total (in Dollars per share)	$ (0.08)	$ (0.15)	$ (0.72)	$ (0.46)
Diluted
From continung operations (in Dollars per share)	$ (0.08)	$ (0.25)	$ (0.72)	$ (0.57)
From discontinued operations (in Dollars per share)		$ 0.10		$ 0.11
Total (in Dollars per share)	$ (0.08)	$ (0.15)	$ (0.72)	$ (0.46)
Weighted average common shares outstanding:
Basic and diluted (in Shares)	7,836	4,623	6,512	4,547

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Note 6 - Intangible Assets

6 Months Ended

Jun. 30, 2014

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Intangible Assets Disclosure [Text Block]

NOTE 6. INTANGIBLE ASSETS

The following table summarizes information related to net carrying value of intangible assets (in thousands):

	Amortization		June 30,		December 31,
	Life (in years)		2014		2013
Customer relationships		5	$	27	$	55

Amortization expense for intangible assets subject to amortization was $14 thousand and $63 thousand for the three months ended June 30, 2014 and 2013, respectively. For the six months ended June 30, 2014 and 2013, amortization expense was $28 thousand and $127 thousand, respectively. Customer relationships are amortized over their expected useful lives on an accelerated method that approximates the cash flows associated with those relationships. Based on the carrying value of amortized customer relationships, the Company estimates they will be fully amortized in 2014.

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Note 5 - Property and Equipment

6 Months Ended

Jun. 30, 2014

Property, Plant and Equipment [Abstract]

Property, Plant and Equipment Disclosure [Text Block]

NOTE 5. PROPERTY AND EQUIPMENT

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

	June 30,			December 31,
	2014			2013
Equipment (useful life 3 - 15 years)	$	1,958		$	2,080
Tooling (useful life 2 - 5 years)		770			769
Furniture and fixtures (useful life 5 years)		98			115
Computer software (useful life 3 years)		539			521
Leasehold improvements (the shorter of useful life or lease life)		578			589
Construction in progress		57			9
Property and equipment at cost		4,000			4,083
Less: accumulated depreciation		(3,469	)		(3,547	)
Property and equipment, net	$	531		$	536

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Note 2 - Basis of Presentation and Summary of Significant Accounting Policies (Tables)

6 Months Ended

Jun. 30, 2014

Accounting Policies [Abstract]

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

	Three months ended						Six months ended
	June 30,						June 30,
	2014			2013			2014			2013
Basic and diluted loss per share:
Net loss	$	(622	)	$	(679	)	$	(4,692	)	$	(2,107	)
Basic and diluted loss per share:
Weighted average shares outstanding		7,836			4,623			6,512			4,547
Basic and diluted net loss per share	$	(0.08	)	$	(0.15	)	$	(0.72	)	$	(0.46	)

Schedule of Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Table Text Block]

	Three months ended				Six months ended
	June 30,				June 30,
	2014		2013		2014		2013
Cost of sales	$	4	$	1	$	6	$	1
Research and development		3		8		2		15
Selling, general, and administrative		128		42		250		80
Total stock-based compensation	$	135	$	51	$	258	$	96

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions [Table Text Block]

	Six months ended
	June 30,
	2014			2013
Fair value of options issued	$	3.34		$	1.58
Exercise price	$	4.34		$	2.32
Expected life of option		5.6			7.4
Risk-free interest rate		1.79	%		1.30	%
Expected volatility		98.1	%		89.2	%
Dividend yield		0	%		0	%

Schedule of Share-based Compensation, Stock Options, Activity [Table Text Block]

	Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in Years)
Outstanding as of December 31, 2013		286,188		$	15.30
Granted		208,000			4.34
Exercised		(500	)		2.30
Cancelled/forfeited		(83,561	)		15.61
Outstanding as of June 30, 2014		410,127		$	9.70		7.6
Vested and expected to vest as of June 30, 2014		372,885		$	8.59		8.4
Exercisable as of June 30, 2014		207,818		$	14.83		7.2

Schedule of Product Warranty Liability [Table Text Block]

	Three months ended						Six months ended
	June 30,						June 30,
	2014			2013			2014			2013
Balance at the beginning of the period	$	75		$	140		$	75		$	159
Accruals for warranties issued		-			23			16			39
Settlements made during the period (in cash or in kind)		(7	)		(13	)		(23	)		(48	)
Balance at the end of the period	$	68		$	150		$	68		$	150

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Note 13 - Related Party Transactions

6 Months Ended

Jun. 30, 2014

Related Party Transactions [Abstract]

Related Party Transactions Disclosure [Text Block]

NOTE 13. RELATED PARTY TRANSACTIONS

On December 12, 2012, our Board of Directors appointed James Tu to serve as our non-executive Chairman. On April 30, 2013, Mr. Tu became the Executive Chairman assuming the duties of the Principal Executive Officer. On October 30, 2013 Mr. Tu was appointed Executive Chairman and Chief Executive Officer by the Board of Directors. Mr. Tu is also the Founder, Chief Executive Officer and Chief Investment Officer of 5 Elements Global Advisors, an investment advisory and management company managing the holdings of 5 Elements Global Fund LP, a beneficial owner of more than 5% of our common stock. 5 Elements Global Advisors focuses on investing in clean energy companies with breakthrough, commercialized technologies and near-term profitability potential. Mr. Tu is also Co-Founder and Managing Partner of Communal International Ltd. “(Communal”), a British Virgin Islands company dedicated to assisting clean energy solutions companies maximize their technology and product potential and gain access to global marketing, distribution licensing, manufacturing and financing resources. Communal has a 50% ownership interest in 5 Elements Efficiencies (BVI) Ltd., a beneficial owner of more than 5% of our common stock. Yeh-Mei Cheng controls 5 Elements Energy Efficiencies (BVI) Ltd. and owns the other 50%. She is the co-founder of Communal International Ltd. with Mr. Tu and the mother of Simon Cheng, a current member of our Board of Directors and an employee of the Company, and Jennifer Cheng, a member of our Board of Directors through July 15, 2014.

On February 27, 2012, we entered into an Asian Business Development/Collaboration Agreement with Communal. The agreement has a 60 month term. Additionally, during the term of the agreement, we will pay Communal a 5% commission on the net sales that occur within the Territory, as defined by the agreement. We have incurred no commissions due under this agreement through June 30, 2014.

Effective on January 1, 2013, the Asian Business Development/Collaboration Agreement with Communal was amended to reflect the extension of the terms of the agreement for an additional 12 months, and the addition of certain services and countries in the territory covered by the agreement. In connection with the amended and restated agreement, we paid an additional $425 thousand in 2013, $175 thousand of which was paid in the first half of 2013. Nothing was paid during the first half of 2014. We recorded expense of $113 thousand under this agreement during the first half of 2014 and 2013. As of December 31, 2013, we may terminate the agreement upon 30 days written notice.

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Note 9 - Settlement of Acquisition Obligations

6 Months Ended

Jun. 30, 2014

Business Combinations [Abstract]

Business Combination Disclosure [Text Block]

NOTE 9. SETTLEMENT OF ACQUISITION OBLIGATIONS

On June 28, 2013, the Company entered into a Settlement Agreement with EFLS, TLC Investments, LLC, Jamie Hall and Robert E. Wilson, terminating the Membership Interest Purchase Agreement and related agreements that the parties had entered into at the end of December 2009 in connection with the Company’s acquisition of EFLS. As part of the Settlement Agreement, the Company’s obligation to pay a $500 thousand special fee and a $500 thousand convertible promissory note including interest of $92 thousand were cancelled in their entirety in exchange for a $200 thousand payment and the forgiveness of a net receivable due to the Company of $78 thousand. Additionally, in the second quarter of 2013, the Company recognized a $66 thousand favorable adjustment related to the change in the estimate of a performance-related contingent obligation for a 2.5% payout based upon the fair value of projected annual billings of EFLS. See Note 12, Commitments and Contingencies.

The classification of these items in the Consolidated Statement of Operations for the three and six months ended June 30, 2013 is shown below (in thousands):

Change in estimate of contingent liabilities:
Forgiveness of net receivable due the Company	$	78
Adjustment to performance-related contingent obligation		(66	)
Net line item expense	$	12
Settlement of acquisition obligations:
Forgiveness of special fee	$	500
Forgiveness of convertible promissory note, including interest		592
Payment by the Company		(200	)
Net line item income	$	892

As a provision of the Settlement Agreement, the Company agreed to discontinue using the name Stones River Companies by July 1, 2014. As a result of this provision, the Company wrote off the remaining $325 thousand of the intangible asset for the Tradename. See Note 6, of our 2013 Annual Report on Form 10-K.

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Note 7 - Contracts in Progress

6 Months Ended

Jun. 30, 2014

Contracts In Progress [Abstract]

Contracts In Progress [Text Block]

NOTE 7. CONTRACTS IN PROGRESS

Costs and estimated earnings on contracts in progress as of the periods indicated are summarized in the following table (in thousands):

	June 30,			December 31,
	2014			2013
Costs incurred on uncompleted contracts	$	7,733		$	7,347
Estimated earnings		1,772			1,603
Total revenues		9,505			8,950
Less: billings to date		9,398			9,569
Total	$	107		$	(619	)
Balance sheet classification:
Costs and estimated earnings in excess of billings on uncompleted contracts	$	129		$	145
Billings in excess of costs and estimated earnings on uncompleted contracts		(22	)		(764	)
Total	$	107		$	(619	)

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Note 8 - Debt

6 Months Ended

Jun. 30, 2014

Debt Disclosure [Abstract]

Debt Disclosure [Text Block]

NOTE 8. DEBT

Credit Facilities

On December 22, 2011, we entered into a $4.5 million revolving line of credit (“credit facility”) with Rosenthal & Rosenthal. The total loan amount available to us under the line of credit is equal to 85% of our net amount of eligible receivables, plus available inventory (the lesser of 50% of the lower of cost or market value of eligible inventory, or $250 thousand). The credit facility is secured by a lien on our domestic assets. The interest rate for borrowing on accounts receivable is 8.5%, on inventories 10.0% and on overdrafts 13.0%. Additionally, there is an annual 1% facility fee on the entire $4.5 million amount of the credit facility payable at the beginning of the year. The credit facility is a three year agreement, expiring on December 31, 2014, unless terminated sooner. There are liquidated damages of 1% if the credit facility is terminated prior to December 31, 2014. We are required to comply with certain financial covenants, measured quarterly, including, as defined in the agreement: a tangible net worth amount and a working capital amount. We were in compliance with the financial covenants at June 30, 2014. Borrowings under the revolving line of credit were $649 thousand at June 30, 2014, and are recorded in our Condensed Consolidated Balance Sheets as a current liability under the caption “Credit line borrowings.” At December 31, 2013, there was a debit/negative balance on the line of credit of $218 thousand, which is included in the Condensed Consolidated Balance Sheets under the caption “Cash and cash equivalents.” At June 30, 2014, there was approximately $706 thousand available for us to borrow under this line of credit.

Additionally, our subsidiary in the United Kingdom has an invoice discounting arrangement whereby the amount available for borrowing is based at 80% of the eligible sales ledger of the subsidiary. The interest rate for borrowing under this arrangement is 3.02%. Borrowings under this arrangement were $175 thousand at June 30, 2014 and are recorded in our Condensed Consolidated Balance Sheets as a current liability under the caption “Credit line borrowings.” There was nothing outstanding under this arrangement at December 31, 2013.

Borrowings

The components of our debt at June 30, 2014 and December 31, 2013 were as follows (in thousands):

	June 30,			December 31,
	2014			2013
Unsecured Convertible Notes	$	-		$	6,145
Cognovit Note - Keystone Ruby, LLC		194			223
Unsecured Promissory Note - Quercus Trust		70			70
Discounts on long-term debt		-			(2,368	)
Subtotal		264			4,070
Less: Current maturies of long-term debt		(62	)		(59	)
Long-term debt	$	202		$	4,011

Effective March 31, 2014, the holders of the unsecured convertible notes converted the outstanding principal amount of $6.15 million into 2,671,739 shares of our common stock. As consideration for entering into agreements to convert their notes, the note holders will receive additional interest payments at the stated rate of the notes of 5% through September 30, 2014. At June 30, 2014, $77 thousand for this charge was included as a current liability under the caption “Accrued liabilities” in our Condensed Consolidated Balance Sheets. In relation to the conversion of the outstanding notes, we incurred a one-time charge of $2.7 million, including a non-cash charge of $2.3 million to write-off the remaining unamortized discount associated with the notes, $154 thousand for the additional six months interest described above, and $293 thousand to write-off the remaining loan origination costs incurred in connection with the convertible notes. For a full description of our debt financing, reference is made to Note 9, Debt, of our 2013 Annual Report on Form 10-K.

Future maturities of remaining borrowings are (in thousands):

	Long-Term
Year ending December 31,	Debt
2014 July through December	$	30
2015		66
2016		72
2017		26
2018		-
2019 and thereafter		70
Total commitment		264
Less: portion classified as current		(62	)
Long-term debt, net	$	202

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Note 10 - Segments and Geographic Information

6 Months Ended

Jun. 30, 2014

Segment Reporting [Abstract]

Segment Reporting Disclosure [Text Block]

NOTE 10. SEGMENTS AND GEOGRAPHIC INFORMATION

We have two reportable segments: products and solutions. The products segment includes the marketing and sale of commercial, industrial, government, military and maritime lighting products, and research and development services. Our products are sold primarily in North America, Europe, and the Far East through a combination of direct sales employees, independent sales representatives and distributors. Our solutions segment provides turnkey, high-quality, energy-efficient lighting application alternatives, which are designed to enhance total value by positively impacting customers’ profitability, the environment, and the communities served. These solutions are sold through our EFLS subsidiary, and include not only our proprietary energy-efficient lighting solutions, but also sourced lighting systems, energy audits and service agreements.

The following summarizes our reportable segment data for periods indicated (in thousands):

	Three months ended						Six months ended
	June 30,						June 30,
	2014			2013			2014			2013
Solutions:
Net sales	$	1,133		$	1,983		$	3,321		$	3,790
Cost of sales		948			1,775			2,513			3,298
Gross profit		185			208			808			492
Operating expenses:
Selling, general, and administrative		352			476			783			948
Loss on impairment		-			325			-			325
Total operating expenses		352			801			783			1,273
Segment (loss) income	$	(167	)	$	(593	)	$	25		$	(781	)
Products:
Net sales	$	5,566		$	3,670		$	8,297		$	6,321
Cost of sales		3,577			2,640			5,509			4,692
Gross profit		1,989			1,030			2,788			1,629
Operating expenses:
Research and development		55			172			118			209
Selling, general, and administrative		1,223			1,025			2,018			1,609
Total operating expenses		1,278			1,197			2,136			1,818
Segment income (loss)	$	711		$	(167	)	$	652		$	(189	)
Reconciliation of segment income (loss) to net loss:
Segment income (loss):
Solutions	$	(167	)	$	(593	)	$	25		$	(781	)
Products		711			(167	)		652			(189	)
Total segment income (loss)		544			(760	)		677			(970	)
Operating expenses:
Research and development		148			-			276			-
Selling, general, and administrative		958			970			2,036			1,996
Change in estimate of contingent liabilities		-			12			-			12
Total operating expenses		1,106			982			2,312			2,008
Other (expense) income		(61	)		580			(3,039	)		360
Loss from continuing operations before income taxes		(623	)		(1,162	)		(4,674	)		(2,618	)
Benefit (provision) for income taxes		1			-			2			-
Net loss from continuing operations	$	(622	)	$	(1,162	)	$	(4,672	)	$	(2,618	)

The following table provides additional business unit gross profitability detail for our products segment for the periods indicated (in thousands):

	Three months ended					Six months ended
	June 30,					June 30,
	2014			2013		2014		2013
Products segment net sales:
Commercial	$	1,929		$	1,647	$	3,095	$	3,288
Government		3,620			1,603		5,162		1,856
R&D services		17			420		40		1,177
Total products segment net sales		5,566			3,670		8,297		6,321
Products segment cost of sales:
Commercial		1,194			1,168		1,965		2,321
Government		2,387			1,060		3,525		1,301
R&D services		(4	)		412		19		1,070
Total products segment cost of sales		3,577			2,640		5,509		4,692
Products segment gross profit:
Commercial		735			479		1,130		967
Government		1,233			543		1,637		555
R&D services		21			8		21		107
Total products segment gross profit	$	1,989		$	1,030	$	2,788	$	1,629

A geographic summary of net sales is as follows (in thousands):

	Three months ended				Six months ended
	June 30,				June 30,
	2014		2013		2014		2013
United States	$	5,590	$	4,885	$	9,873	$	8,770
International		1,109		768		1,745		1,341
Net sales	$	6,699	$	5,653	$	11,618	$	10,111

A geographic summary of long-lived assets, which consists of fixed assets and intangible assets, is as follows (in thousands):

	June 30,		December 31,
	2014		2013
United States	$	527	$	582
International		31		9
Long-lived assets, net	$	558	$	591

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Note 2 - Basis of Presentation and Summary of Significant Accounting Policies (Details) - Summary of Stock-based Compensation (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Allocated Stock-based Compensation	$ 135	$ 51	$ 258	$ 96
Cost of Sales [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Allocated Stock-based Compensation	4	1	6	1
Research and Development Expense [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Allocated Stock-based Compensation	3	8	2	15
Selling, General and Administrative Expenses [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Allocated Stock-based Compensation	$ 128	$ 42	$ 250	$ 80

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Note 10 - Segments and Geographic Information (Details) - Summary of Reportable Segment Data (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Segment Reporting, Reconciling Item for Operating Profit (Loss) from Segment to Consolidated [Line Items]
Net sales	$ 6,699	$ 5,653	$ 11,618	$ 10,111
Cost of sales	4,525	4,415	8,022	7,990
Gross profit	2,174	1,238	3,596	2,121
Operating expenses:
Research and development	203	172	394	209
Selling, genereal, and administrative	2,533	2,471	4,837	4,553
Loss on impairment		325		325
Total operating expenses	2,736	2,980	5,231	5,099
Reconciliation of segment income (loss) to net loss:
Change in estimate of contingent liabilities		12		12
Other (expense) income	(61)	580	(3,039)	360
Income (loss) before income taxes	(623)	(1,162)	(4,674)	(2,618)
Benefit (provision) for income taxes	1		2
Net loss from continuing operations	(622)	(1,162)	(4,672)	(2,618)
Solutions Segment [Member]
Segment Reporting, Reconciling Item for Operating Profit (Loss) from Segment to Consolidated [Line Items]
Net sales	1,133	1,983	3,321	3,790
Cost of sales	948	1,775	2,513	3,298
Gross profit	185	208	808	492
Operating expenses:
Selling, genereal, and administrative	352	476	783	948
Loss on impairment		325		325
Total operating expenses	352	801	783	1,273
Reconciliation of segment income (loss) to net loss:
Income (loss) before income taxes	(167)	(593)	25	(781)
Products Segment [Member]
Segment Reporting, Reconciling Item for Operating Profit (Loss) from Segment to Consolidated [Line Items]
Net sales	5,566	3,670	8,297	6,321
Cost of sales	3,577	2,640	5,509	4,692
Gross profit	1,989	1,030	2,788	1,629
Operating expenses:
Research and development	55	172	118	209
Selling, genereal, and administrative	1,223	1,025	2,018	1,609
Total operating expenses	1,278	1,197	2,136	1,818
Reconciliation of segment income (loss) to net loss:
Income (loss) before income taxes	711	(167)	652	(189)
Segements Total [Member]
Reconciliation of segment income (loss) to net loss:
Income (loss) before income taxes	544	(760)	677	(970)
Overhead [Member]
Operating expenses:
Research and development	148		276
Selling, genereal, and administrative	958	970	2,036	1,996
Total operating expenses	1,106	982	2,312	2,008
Reconciliation of segment income (loss) to net loss:
Change in estimate of contingent liabilities		$ 12		$ 12

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Note 15 - Subsequent Events

6 Months Ended

Jun. 30, 2014

Subsequent Events [Abstract]

Subsequent Events [Text Block]

NOTE 15. SUBSEQUENT EVENTS

On August 6, 2014, the Company announced the pricing of a public offering to sell 1.175 million shares of its common stock at a price of $4.50 per share. The underwriters were given an option to buy up to an additional 176,250 shares at $4.50 per share to cover over allotments. The offering closed on August 11, 2014. On August 8, 2014, the underwriters notified the Company that it was exercising its option to purchase an additional 176,250 shares of common stock from the Company. We estimate the net proceeds from the offering, after deducting the underwriting discount and estimated offering expenses payable by us, will be approximately $5.3 million including the underwriters exercise of the overallotment. As part of the underwriting agreement, the Company issued a warrant for 47,000 shares to the underwriter representing 4% of number of shares of common stock sold in the offering at an issue price of $5.40 per share representing 120% of the public offering price of the shares of common stock. In conjunction with the registered offering, the Company’s common stock began trading on The NASDAQ Capital Market (“NASDAQ”) under the symbol EFOI on August 7, 2014. For a complete description of the details of the registered offering, reference is made to the registration statement on Form S-1 filed with the SEC on May 21, 2014 and amended on July 22, 2014, July 25, 2014 and August 4, 2014 and the final prospectus contained therein filed on August 6, 2014.

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Note 6 - Intangible Assets (Tables)

6 Months Ended

Jun. 30, 2014

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of Finite-Lived Intangible Assets [Table Text Block]

	Amortization		June 30,		December 31,
	Life (in years)		2014		2013
Customer relationships		5	$	27	$	55

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Note 9 - Settlement of Acquisition Obligations (Details) - Classification in Consolidated Statement of Operations (USD $) In Thousands, unless otherwise specified	3 Months Ended	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2013
Change in estimate of contingent liabilities:
Change in estimate of contingent liabilities	$ 12	$ 12
Settlement of acquisition obligations:
Settlement of acquisition obligations	892	892
Forgiveness of Net Receivable Due the Company [Member]
Change in estimate of contingent liabilities:
Change in estimate of contingent liabilities		78
Adjustment to Performance Related Contingent Obligation [Member]
Change in estimate of contingent liabilities:
Change in estimate of contingent liabilities		(66)
Special Fee [Member]
Settlement of acquisition obligations:
Settlement of acquisition obligations		500
Convertible Promissory Note TLC Investments LLC [Member]
Settlement of acquisition obligations:
Settlement of acquisition obligations		592
Cash Payment by the Company [Member]
Settlement of acquisition obligations:
Settlement of acquisition obligations		$ (200)

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Note 5 - Property and Equipment (Details) - Property and Equipment (Parentheticals)	6 Months Ended	12 Months Ended
	Jun. 30, 2014	Dec. 31, 2013
Equipment [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Property and equipment, useful life	3 years	3 years
Equipment [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Property and equipment, useful life	15 years	15 years
Tooling [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Property and equipment, useful life	2 years	2 years
Tooling [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Property and equipment, useful life	5 years	5 years
Furniture and Fixtures [Member]
Property, Plant and Equipment [Line Items]
Property and equipment, useful life	5 years	5 years
Software and Software Development Costs [Member]
Property, Plant and Equipment [Line Items]
Property and equipment, useful life	3 years	3 years

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Condensed Consolidated Statements of Comprehensive Loss (Unaudited) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Net loss	$ (622)	$ (679)	$ (4,692)	$ (2,107)
Foreign currency translation adjustments	5	(1)	7	(39)
Comprehensive loss	$ (617)	$ (680)	$ (4,685)	$ (2,146)

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Note 4 - Inventories

6 Months Ended

Jun. 30, 2014

Inventory Disclosure [Abstract]

Inventory Disclosure [Text Block]

NOTE 4. INVENTORIES

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

	June 30,		December 31,
	2014		2013
Raw materials	$	1,130	$	1,611
Finished goods		1,459		899
Inventories, net	$	2,589	$	2,510

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Note 14 - Separation Accrual (Details) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Dec. 31, 2013	Jun. 30, 2014
Disclosure Text Block Supplement [Abstract]
Severance Costs	$ 448
Supplemental Unemployment Benefits, Severance Benefits	$ 247	$ 50

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Note 7 - Contracts in Progress (Tables)

6 Months Ended

Jun. 30, 2014

Contracts In Progress [Abstract]

Schedule of Contracts in Progress [Table Text Block]

	June 30,			December 31,
	2014			2013
Costs incurred on uncompleted contracts	$	7,733		$	7,347
Estimated earnings		1,772			1,603
Total revenues		9,505			8,950
Less: billings to date		9,398			9,569
Total	$	107		$	(619	)
Balance sheet classification:
Costs and estimated earnings in excess of billings on uncompleted contracts	$	129		$	145
Billings in excess of costs and estimated earnings on uncompleted contracts		(22	)		(764	)
Total	$	107		$	(619	)

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Note 3 - Discontinued Operations (Details) (USD $)	3 Months Ended	6 Months Ended		1 Months Ended			3 Months Ended		6 Months Ended		327 Months Ended	330 Months Ended
	Jun. 30, 2013	Jun. 30, 2013	Jun. 30, 2014	Apr. 25, 2014 Released from Escrow [Member] Pool and Commercial Products [Member]	Mar. 25, 2014 Released from Escrow [Member] Pool and Commercial Products [Member]	Jun. 30, 2014 Uncertainty on the Collection of Escrow [Member] Pool and Commercial Products [Member]	Jun. 30, 2014 Pool and Commercial Products [Member]	Jun. 30, 2013 Pool and Commercial Products [Member]	Jun. 30, 2014 Pool and Commercial Products [Member]	Jun. 30, 2013 Pool and Commercial Products [Member]	Jun. 30, 2041 Pool and Commercial Products [Member]	Jun. 30, 2041 Pool and Commercial Products [Member]	Nov. 26, 2013 Pool and Commercial Products [Member]
Note 3 - Discontinued Operations (Details) [Line Items]
Significant Acquisitions and Disposals, Acquisition Costs or Sale Proceeds													$ 5,200,000
Escrow Deposit			300,000			300,000							500,000
Proceeds from Divestiture of Businesses				100,000	100,000
Disposal Group, Including Discontinued Operation, Revenue								1,700,000		2,600,000	0	0
Disposal Group, Including Discontinued Operation, Operating Expense	$ 1,200,000	$ 2,100,000					$ 0		$ 20,000

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Note 14 - Separation Accrual

6 Months Ended

Jun. 30, 2014

Disclosure Text Block Supplement [Abstract]

Restructuring, Impairment, and Other Activities Disclosure [Text Block]

NOTE 14. SEPARATION ACCRUAL

During the second through fourth quarters of 2013, we incurred charges of $448 thousand for salary continuation and COBRA payments related to separation agreements with our former Chief Executive Officer, our former Chief Financial Officer, and our former Chief Technology Officer. At June 30, 2014 and December 31, 2013, we had a remaining accrual of $50 thousand and $247 thousand, respectively, for these charges included in the caption “Accrued liabilities” in the Condensed Consolidated Balance Sheets.