ENERGY FOCUS INCDE

Previous wording

In addition to continuously pursuing cost reductions, our strategy to combat these trends is to innovate both our technology and product offerings with differentiated products and solutions that offer greater, distinct value. Specific examples of these products we have developed include the RedCap®, our patented emergency backup battery integrated TLED, EnFocus™, our unique dimmable/color-tunable lighting and powerline control platform that we launched in 2020, and the second generation of EnFocus™ powerline control switches and circadian lighting system. The Company have enhanced the performance of our RedCap® product providing a more user- friendly experience. We continue to evaluate our sales strategy and believe our go-to-market strategy that focuses more on direct-sales marketing, selectively expanding our channel partner network to cover territories across the country, and listening to the voice of the customer, will lead to better and more impactful product development efforts that we believe will eventually translate into larger addressable markets and greater sales growth for us.

Current wording

In addition to continuously pursuing cost reductions, our strategy to combat these trends is to innovate both our technology and product offerings with differentiated products and solutions that offer greater, distinct value. Specific examples of these products we have developed include the RedCap®, our patented emergency backup battery integrated TLED, as well as our robust MMM product offering. The Company has enhanced the performance of our RedCap® product by providing a more user friendly experience. We continue to evaluate our sales strategy and believe our go-to-market strategy that focuses more on direct-sales marketing, selectively expanding our channel partner network to cover territories across the country, and listening to the voice of the customer will lead to better and more impactful product development efforts that we believe will eventually translate into larger addressable markets and greater sales growth for us.

Previous wording

Since year 2023, the Company has continued to make significant cost cutting efforts to address operational expenses while maintaining customer satisfaction and delivering goods on-time. Investments into Energy Focus have contributed to the ability of the Company to continue to not only provide quality products and services, but to both expand and rationalize product offerings.

Current wording

Since 2023, the Company has continued to make significant cost cutting efforts to address operational expenses while maintaining customer satisfaction and delivering goods on-time. Investments into Energy Focus have contributed to the ability of the Company to continue to not only provide quality products and services, but to both expand and rationalize product offerings.

Previous wording

Net sales of $1.6 million for the second quarter of 2024 increased $0.5 million, or 47%, compared to second quarter of 2023 net sales of $1.1 million, primarily driven by an increase in MMM sales of $0.6 million, or 95%, partially offset by a decrease in commercial sales of $0.1 million, or 20%. The net sales increase in the second quarter was primarily driven by our sales strategy, which led to a decrease in the proportion of commercial sales and a significant increase in the demand and shipments of MMM products for military use, along with market-adjusted pricing.

Current wording

Net sales of $1.2 million for the third quarter of 2024 decreased $0.1 million, or 11%, compared to third quarter of 2023 net sales of $1.3 million, primarily driven by a decrease in commercial sales of $0.1 million, or 30%, that was partially offset by a 1% increase in MMM sales. The net sales decrease in the third quarter was primarily driven by our sales strategy, which led to a decrease in the proportion of commercial sales.

Previous wording

Net sales of $2.4 million for the first six months of 2024 increased $0.4 million, or 20%, compared to the same period in 2023, primarily driven by a 42% increase in MMM sales, partially offset by a 14% decrease in commercial sales. The net sales increasefor the first six months of 2024 was primarily driven by our sales strategy, which led to a decrease in the proportion of commercial sales and a significant increase in the demand and shipments of MMM products for military use, along with market-adjusted pricing.

Current wording

Net sales of $3.6 million for the first nine months of 2024 increased $0.3 million, or 8%, compared to the same period in 2023, primarily driven by a 20% decrease in commercial product sales, that was partially offset by an increase in MMM product sales of 25% for the first nine months of 2024, as compared to the same period of 2023. The net sales increase for the first nine months of 2024 was primarily driven by our sales strategy, which led to a decrease in the proportion of commercial sales and a significant increase in the demand and shipments of MMM products for military use, along with market-adjusted pricing.

Previous wording

Gross profit was 8% of net sales, for the second quarter of 2024. This compares with gross profit of 17% of net sales, in the second quarter of 2023. The period-over-period decrease in gross profit was driven mainly by an 8% of net sales decrease in fixed costs such as subscription fee for production, a 4% of net sales decrease in variable costs such as material cost and freight in expense, and a 20% of net sales unfavorable change in the inventory reserves.

Current wording

Gross profit was 16% of net sales, for the third quarter of 2024. This compares with gross loss of 4% of net sales, in the third quarter of 2023. The period-over-period decrease in gross profit was driven mainly by an 7% of net sales decrease in fixed costs such as employee benefit and rent expenses for production, a 78% of net sales increase in variable costs such as material cost and freight in expense, and a 4% of net sales unfavorable change in the inventory reserves.

Previous wording

Gross profit was 10% of net sales, for the first six months of 2024 compared to 9% of net sales, for the first six months of 2023. The year-over-year increase in gross profit was driven mainly by a 5% of net sales decrease in fixed costs such as subscription fee and rent expense for production, an 11% of net sales decrease in variable costs such as material cost and freight in expense, and a 16% of net sales unfavorable change in inventory reserves.

Current wording

Gross profit was 10% of net sales, for the first nine months of 2024 compared to gross loss of 4% of net sales, for the first nine months of 2023. The year-over-year increase in gross profit was driven mainly by a 6% of net sales decrease in fixed costs such as subscription fee, expenses related to SEC filing and rent expense for production, an 13% of net sales decrease in variable costs such as material cost and freight in expense, and a 11% of net sales unfavorable change in inventory reserves.

Previous wording

Product development expenses were $140 thousand for the second quarter of 2024, down 5% from the second quarter of 2023. The $7 thousand decrease primarily resulted from lower payroll-related expenses due to reduction in the headcount offset by an increase in traveling expenses and product testing fees. Product development expenses relate to customization of product offerings for key customers.

Current wording

Product development expenses were $137 thousand for the third quarter of 2024, down 4% from the third quarter of 2023. The $5 thousand decrease primarily resulted from lower payroll-related expenses due to reduction in the headcount offset by an increase in traveling expenses and product testing fees. Product development expenses relate to customization of product offerings for key customers.

Previous wording

Product development expenses were $268 thousand for the first six months of 2024, a $33 thousand decrease compared to $301 thousand for the first six months of 2023. The decrease is primarily related to payroll expense and decreased headcount, offset by an increase in traveling expense and product testing fee.

Current wording

Product development expenses were $405 thousand for the first nine months of 2024, a $38 thousand decrease compared to $443 thousand for the first nine months of 2023. The decrease is primarily related to payroll expense and decreased headcount, offset by an increase in traveling expense and product testing fee.

Previous wording

Selling, general and administrative expenses were $0.5 million for the second quarter of 2024, down 52% as compared to $1.1 million in the second quarter of 2023. The decrease is comprised of a combination of a $0.3 million decrease in payroll and payroll-related expenses, a reduction in accounting and consultants fees of $0.2 million, and a reduction of $60 thousand in director fees.

Current wording

Selling, general and administrative expenses were $0.4 million for the third quarter of 2024, down 37% as compared to $0.7 million in the third quarter of 2023. The decrease is comprised of a combination of a $0.2 million decrease in payroll and payroll-related expenses, a reduction in accounting and consultants fees of $70 thousand.

Previous wording

Selling, general and administrative expenses were $1.1 million for the first six months of 2024, compared to $2.2 million for the first six months of 2023. The decrease is primarily due to (i) decreases in payroll and payroll related expenses of $0.5 million due to reduced headcount; (ii) a reduction in accounting and consultants expenses of $0.3 million; and (iii) a reduction of $0.1 million in director fees.

Current wording

Selling, general and administrative expenses were $1.6 million for the first nine months of 2024, compared to $2.9 million for the first nine months of 2023. The decrease is primarily due to (i) decreases in payroll and payroll related expenses of $0.6 million due to reduced headcount; (ii) a reduction in accounting and consultants expenses of $0.4 million; and (iii) a reduction of $0.1 million in director fees.

Previous wording

There was no interest expense for the second quarter of 2024, compared to interest expense of $69 thousand for the second quarter of 2023. The decrease in interest expense is primarily related to early termination of the 2022 Streeterville Note. There was no actual cash interest paid in the second quarter of 2024 compared to $10 thousand in the second quarter of 2023.

Current wording

There was no interest expense for the third quarter of 2024, compared to interest expense of $34 thousand for the third quarter of 2023. The decrease in interest expense is primarily related to early termination of the 2022 Streeterville Note. There was no actual cash interest paid in the third quarter of 2024 compared to $7 thousand in the third quarter of 2023.

Previous wording

Interest expense was $5 thousand for the first six months of 2024, compared to interest expense of $192 thousand for the first six months of 2023. The decrease in interest expense is primarily related to interest attributable to the 2022 Streeterville Note. There was no actual cash interest paid for the six months ended June 30, 2024 compared to $70 thousand in the first six months of 2023.

Current wording

Interest expense was $5 thousand for the first nine months of 2024, compared to interest expense of $226 thousand for the first nine months of 2023. The decrease in interest expense is primarily related to interest attributable to the 2022 Streeterville Note. The actual cash interest paid for the nine months ended September 30, 2024 and 2023 was $5 thousand and $77 thousand, respectively.

Previous wording

We recognized $187 thousand of gain on debt extinguishment for the first six months of 2024, which was related to the early termination of the 2022 Streeterville Note. There was no such gain recognized for the first six months of 2023.

Current wording

We recognized $187 thousand of gain on debt extinguishment for the three and nine months of 2024, which was related to the early termination of the 2022 Streeterville Note. There was no such gain recognized in the same periods of 2023.

Previous wording

Other expenses were $1 thousand for the second quarter of 2024, compared to other expenses of $14 thousand for the second quarter of 2023. Other expenses were $2 thousand for the six months ended June 30, 2024, compared to other expenses of $21 thousand for the six months ended June 30, 2023. Other expenses are mainly comprised of bank and collateral management fees.

Current wording

Other expenses were $7 thousand for the third quarter of 2024, compared to other expenses of $7 thousand for the third quarter of 2023. Other expenses were $9 thousand for the nine months ended September 30, 2024, compared to other expenses of $28 thousand for the nine months ended September 30, 2023. Other expenses are mainly comprised of bank and collateral management fees.

Previous wording

Due to the operating losses incurred during the three and six months ended June 30, 2024 and 2023, and after application of the annual limitation set forth under Section 382 of the Internal Revenue Code of 1986, as amended, it was not necessary to record a provision for U.S. federal income tax or various state income taxes as income tax benefits are fully offset by a valuation allowance recorded.

Current wording

Due to the operating losses incurred during the three and nine months ended September 30, 2024 and 2023, and after application of the annual limitation set forth under Section 382 of the Internal Revenue Code of 1986, as amended, it was not necessary to record a provision for U.S. federal income tax or various state income taxes as income tax benefits are fully offset by a valuation allowance recorded.

Previous wording

For the three months ended June 30, 2024, our net loss of $0.6 million decreased 53% from the net loss for the three months ended June 30, 2023 of $1.2 million. The decrease is primarily due to a decrease in operating expenses in the second quarter of 2024 from the second quarter of 2023.

Current wording

For the three months ended September 30, 2024, our net loss of $0.3 million decreased 67% from $0.9 million net loss for the three months ended September 30, 2023. The decrease is primarily due to a decrease in operating expenses and increase in gross profit in the third quarter of 2024 from the third quarter of 2023.

Previous wording

For the six months ended June 30, 2024, our net loss of $1.0 million decreased 61% over the net loss for the six months ended June 30, 2023 of $2.5 million. The decrease is primarily due to a decrease in operating expenses in the first six months of 2024 from the first six months of 2023.

Current wording

For the nine months ended September 30, 2024, our net loss of $1.3 million decreased 63% from $3.4 million net loss for the nine months ended September 30, 2023. The decrease is primarily due to a decrease in operating expenses and increase in gross profit in the first nine months of 2024 from the first nine months of 2023.

Previous wording

At June 30, 2024, we had $1.1 million in cash and no outstanding debt. We have historically incurred substantial losses, and as of June 30, 2024, we had an accumulated deficit of $154.3 million. Additionally, our sales have been concentrated among a few major customers and for the six months ended June 30, 2024, two customers accounted for approximately 40% of net sales.

Current wording

At September 30, 2024, we had $0.8 million in cash and no outstanding debt. We have historically incurred substantial losses, and as of September 30, 2024, we had an accumulated deficit of $154.6 million. Additionally, our sales have been concentrated among a few major customers and for the nine months ended September 30, 2024, three customers accounted for approximately 39% of net sales.

Previous wording

In 2024 and 2023, we remain committed to building upon the transformation activities started during 2019 that sought to stabilize and regrow our business. These efforts include the following key developments that occurred during 2024 and 2023:

Current wording

We remain committed to building upon the transformation activities started during 2019 that sought to stabilize and regrow our business. These efforts include the following key developments:

Previous wording

•The Company has aggressively re-evaluated operating expenses, and reduced its workforce significantly throughout 2023 into 2024 to manage fixed costs.

Current wording

•The Company has aggressively re-evaluated operating expenses, and reduced its workforce significantly throughout 2023 and into 2024 to manage fixed costs.

Previous wording

During 2023 and into 2024, we closely monitored our cost control efforts to streamline our operations by closely managing all spending done throughout the Company, while carefully investing in new products and strategies that sought to reenergize sales.

Current wording

We continue to closely monitored our cost control efforts to streamline our operations by closely managing all spending done throughout the Company, while carefully investing in new products and strategies that sought to reenergize sales.

Previous wording

We will seek to remain agile as an organization to respond to potential or continuing weakness in the macroeconomic environment and in the meantime seek to expand sales channels and enter new markets that we believe will provide additional growth opportunities. We plan to achieve profitability through developing and launching new, innovative products, our Redcap® emergency battery backup tubular TLEDs, evaluating new growth opportunities such as GaN-based power supply circuitry and other energy solution products, as well as executing on our multi-channel sales strategy that targets key verticals, such as government, healthcare, education and commercial and industrial, complemented by our marketing outreach campaigns and expanding channel partnerships. We also plan to continue to develop advanced lighting and lighting control applications built upon the EnFocus TM platform that aim to serve the commercial markets. In addition, we intend to continue to apply rigorous financial discipline in our organizational structure, decision-making, business processes and policies, strategic sourcing activities and supply chain practices to help accelerate our path towards profitability.

Current wording

We will seek to remain agile as an organization to respond to potential or continuing weakness in the macroeconomic environment and in the meantime seek to expand sales channels and enter new markets that we believe will provide additional growth opportunities. We plan to achieve profitability through developing and launching new, innovative products, our Redcap® emergency battery backup tubular TLEDs, evaluating new growth opportunities such as GaN-based power supply circuitry and other energy solution products, as well as executing on our multi-channel sales strategy that targets key verticals, such as government, healthcare, education and commercial and industrial, complemented by our marketing outreach campaigns and expanding channel partnerships. In addition, we intend to continue to apply rigorous financial discipline in our organizational structure, decision-making, business processes and policies, strategic sourcing activities and supply chain practices to help accelerate our path towards profitability.

Previous wording

At June 30, 2024, our cash balance was approximately $1.1 million, compared to approximately $2.0 million at December 31, 2023.

Current wording

At September 30, 2024, our cash balance was approximately $0.8 million, compared to approximately $2.0 million at December 31, 2023.

Previous wording

Net cash used in operating activities was $0.8 million for the six months ended June 30, 2024. The net loss for the six months ended June 30, 2024 was $1.0 million and was adjusted for non-cash items, including depreciation and amortization, stock-based compensation, provisions for inventory, warranty, and accounts receivable reserves and working capital changes. During the six months ended June 30, 2024, we generated $1.2 million from collection of accounts receivable, $0.4 million from inventory and $0.1 million from accounts payable. We used $1.4 million from accounts payable to related party due to timing of inventory receipts and payments.

Current wording

Net cash used in operating activities was $1.0 million for the nine months ended September 30, 2024. The net loss for the nine months ended September 30, 2024 was $1.3 million and was adjusted for non-cash items, including depreciation and amortization, stock-based compensation, provisions for inventory, warranty, and accounts receivable reserves and working capital changes. During the nine months ended September 30, 2024, we generated cash inflow by reduction of accounts receivable in the amount of $1.1 million through collection, and better inventory management in reduction of inventory amounting $0.4 million and $0.2 million from accounts payable. We paid off approximately $1.2 million in accounts payable to related party.

Previous wording

Net cash used in operating activities was $1.3 million for the six months ended June 30, 2023. The net loss for the six months ended June 30, 2023 was $2.5 million and was adjusted for non-cash items, including depreciation and amortization, stock-based compensation, provisions for inventory, warranty, and accounts receivable reserves and working capital changes. During the six months ended June 30, 2023, we generated $0.3 million from inventory, and $0.5 million from changes in prepaid and other assets, mainly from the receipt of $445 thousand in Employee Retention Tax Credit funds, and $0.9 million from accounts payable due to the timing of inventory receipts and payments. During the six months ended June 30, 2023, we used $0.4 million through the timing of collection of accounts receivable.

Current wording

Net cash used in operating activities was $2.4 million for the nine months ended September 30, 2023. The net loss for the nine months ended September 30, 2023 was $3.4 million and was adjusted for non-cash items, including depreciation and amortization, stock-based compensation, provisions for inventory, warranty, and accounts receivable reserves and working capital changes. During the nine months ended September 30, 2023, we generated $0.6 million from inventory, $0.5 million from changes in prepaid and other assets, mainly from the receipt of $445 thousand in Employee Retention Tax Credit funds, and $0.4 million from accounts payable due to the timing of inventory receipts and payments. During the nine months ended September 30, 2023, we used $0.4 million through the timing of collection of accounts receivable.

Previous wording

Net cash used in financing activities during the six months ended June 30, 2024 was $0.1 million, primarily related to $0.9 million of net proceeds from the issuance of common stock, offset by $1.0 million related to net payments on the 2022 Streeterville Note.

Current wording

Net cash provided by financing activities during the nine months ended September 30, 2024 was $0.1 million, primarily related to $0.9 million of net proceeds from the issuance of common stock, offset by $1.0 million related to net payments on the 2022 Streeterville Note.

Previous wording

Net cash provided by financing activities during the six months ended June 30, 2023 was $2.6 million, primarily related to $4.3 million of net proceeds from the issuance of common stock, offset by net payments on the Credit Facilities of $1.2 million and the 2022 Streeterville Note of $0.5 million.

Current wording

Net cash provided by financing activities during the nine months ended September 30, 2023 was $4.0 million, primarily related to $6.1 million of net proceeds from the issuance of common stock, offset by net payments on the Credit Facilities of $1.4 million and the 2022 Streeterville Note of $625 thousand.

Previous wording

As of June 30, 2024, we had approximately $1.1 million in outstanding purchase commitments for inventory, $1.1 million of which is expected to ship in the third quarter of 2024 and $35 thousand of which is expected to ship in the fourth quarter of 2024. We have 32% of the outstanding purchase commitments with a related party.

Current wording

As of September 30, 2024, we had approximately $0.2 million in outstanding purchase commitments for inventory, which is expected to ship in the fourth quarter of 2024 and $28 thousand of which is expected to ship in the fourth quarter of 2024. We have 30% of the outstanding purchase commitments with a related party.