ENERGY FOCUS, INC/DE

Previous wording

Energy Focus, Inc. engages primarily in the design, development, manufacturing, marketing and sale of energy-efficient lighting systems and controls. We develop, market and sell high quality light-emitting diode (“LED”) lighting and controls products in the commercial market and military maritime market (“MMM”). In addition to our lighting portfolio, we also offer uninterruptible power supply (“UPS”) systems and other power management solutions, which have contributed meaningfully to our revenue in recent quarters and are expected to be a strategic area of continued growth.

Current wording

Energy Focus, Inc. specializes in the design, development, manufacturing, marketing and selling of energy-efficient lighting systems and controls. We develop, market and sell high quality light-emitting diode (“LED”) lighting and controls products in the commercial market and military maritime market (“MMM”). In addition to our lighting portfolio, we also offer uninterruptible power supply (“UPS”) systems and other power management solutions, which have contributed meaningfully to our revenue in recent quarters and are expected to be a strategic area of continued growth.

Previous wording

The LED lighting industry has changed dramatically over the past several years due to increasing competition and price erosion. We have been experiencing these industry forces in both our military and commercial business since 2016, when we once commanded significant price premiums for our flicker-free TLEDs with industry leading warranties. In more recent years, we have focused on redesigning our products for lower costs and consolidated our supply chain for stronger purchasing power in an effort to price our products more competitively while not impacting the performance and quality. Despite these efforts, our legacy products continue to face extreme price competition and a convergence of product functionality in the marketplace, and we have shifted to diversifying our supply chain in an effort to increase value and remain competitive. These trends are not unique to Energy Focus as evidenced by the increasing number of industry peers facing challenges, exiting LED lighting, selling assets and even going out of business.

Current wording

The LED lighting industry has changed dramatically over the past several years due to increasing competition and price erosion. In more recent years, we have focused on redesigning our products for lower costs and consolidated our supply chain for stronger purchasing power in an effort to price our products more competitively while not impacting the performance and quality. Despite these efforts, our legacy products continue to face extreme price competition and a convergence of product functionality in the marketplace, and we have shifted to diversifying our supply chain in an effort to increase value and remain competitive. These trends are not unique to Energy Focus as evidenced by the increasing number of industry peers facing challenges, exiting LED lighting, selling assets and even going out of business.

Previous wording

We have taken steps to strengthen our financial structure through capital increases and cost reduction measures. As a result, we have fully eliminated all external high-interest debt, which we believe has improved our financial position. Our business expansion plans are supported by financial strategies that we expect will provide funding for our planned growth initiatives, although there can be no assurance that such funding will be adequate. During 2024, our MMM business faced ongoing challenges due to delays in government funding and the timing of U.S. Navy awards. Several anticipated projects encountered repeated postponements, In addition, we face challenges from long sales cycles, which is typical in this sector. The timeline from bid submission to order placement often exceeds six months, and many MMM products are build-to-order, resulting in extended lead times before revenue recognition. To mitigate this volatility, we continue to actively pursue new opportunities with the U.S. Navy and other government sectors. We have undertaken efforts to reduce costs, which we believe have contributed to our competitiveness, and may have helped us secure new contracts and expand our sales pipeline in the remainder of 2025 and beyond.

Current wording

We have taken steps to strengthen our financial structure through capital increases and cost reduction measures, which we believe have improved our financial position and provided a stronger foundation for our growth initiatives. Our business expansion plans, including investments in energy storage solutions, development of advanced UPS systems for AI data center applications, and expansion into the Taiwan and Japan markets, are supported by financial strategies that we expect will provide funding for our planned growth initiatives, although there can be no assurance that such funding will be adequate. At the same time, our MMM business continues to be affected by delays in government funding, the timing of U.S. Navy awards, and long sales cycles typical of this sector, with the timeline from bid submission to order placement often exceeding six months, and many products being built-to-order, resulting in extended lead times before revenue recognition. To mitigate these factors, we continue to pursue opportunities with the U.S. Navy and other government sectors, while our cost optimization efforts have enhanced our competitiveness and may support our ability to secure new contracts and expand our sales pipeline in 2026 and beyond.

Previous wording

We are actively expanding our commercial product offerings, including our newly introduced UPS systems for data centers. We also continue to advance the expansion of product lines such as Energy Storage Systems (“ESS”) and GaN based power supplies, while leveraging the stability and opportunities within our MMM business. In 2024, we conducted a comprehensive review of our commercial pricing strategy and reassessed key partnerships within the energy-related market. These strategic adjustments have improved our market position, offering a more competitive pricing structure and a stronger value proposition for our customers. We believe that these initiatives, if successfully implemented, and if our financial position continues to improve, may contribute to growth across both our MMM and commercial business sectors, although there can be no assurance that such growth will occur.

Current wording

We are actively expanding our commercial product offerings, including our newly introduced UPS systems for data centers. We also continue to advance the expansion of product lines such as ESS and GaN based power supplies, while leveraging stability and opportunities within our MMM business. In 2025, we conducted a comprehensive review of our commercial pricing strategy and reassessed key partnerships within the energy-related market. These strategic adjustments have improved our market position, offering a more competitive pricing structure and a stronger value proposition for our customers. We believe that these initiatives, if successfully implemented, and if our financial position continues to improve, may contribute to growth across both our MMM and commercial business sectors, although there can be no assurance that such growth will occur.

Previous wording

Meanwhile, we continue to seek additional external funding alternatives and sources to support our growth strategies, plans and initiatives. The strategic investments in 2024 by Sander Electronics, Inc. (“Sander”), a shareholder of the Company, contributed meaningful external capital, as well as presented synergistic opportunities to improve and diversify our supply chain and product offerings.

Current wording

Meanwhile, we continue to seek additional external funding alternatives and sources to support our growth strategies, plans and initiatives. Strategic investments by Sander Electronics, Inc. (“Sander”), a shareholder of the Company, have contributed meaningful external capital and created synergistic opportunities to enhance and diversify our supply chain and product offerings, including through relationships with related parties such as Winner Technology International Limited.

Previous wording

Under the premise of a similar industrial environment and familiar relationships, our professional skills complement those of our supply chain partners. This foundation of cooperation enables us to more easily achieve common goals of cost reduction, profit sharing, and exploring new business opportunities. This not only strengthens our cooperative relationship but also lays a solid foundation for our joint efforts towards a better future.

Current wording

Under the premise of a similar industrial environment and familiar relationships, our professional skills complement those of our supply chain partners. We believe this foundation of cooperation may enable us to pursue common goals of cost reduction, profit sharing, and exploring new business opportunities. This not only strengthens our cooperative relationship but also lays a solid foundation for our joint efforts towards a better future.

Previous wording

The Company applies strategic financial management in the below perspective.

Current wording

The Company applies strategic financial management in the following perspective.

Previous wording

Gross profit was $0.1 million, representing 18% of net sales, for the third quarter of 2025. This compares with gross profit of $0.2 million, or 16% of net sales, in the third quarter of 2024. The period-over-period change in gross profit was driven mainly by a more favorable product mix, partially offset by higher tariff charges on imported goods, resulting in a slight decrease in gross profit dollars while improving gross margin.

Current wording

Gross profit was $0.2 million, representing 23% of net sales, for the first quarter of 2026. This compares with gross profit of $0.2 million, or 32% of net sales, for the first quarter of 2025. The period-over-period change in gross profit was driven mainly by an increase in inventory reserves and lower variable margins, such as tariff impacts.

Previous wording

Product development expenses include salaries and related benefit, testing and related cost, travel expenses, cost of supplies, as well as overhead items, such as depreciation and facility costs. Product development costs are expensed as they are incurred.

Current wording

Product development expenses include salaries and related benefits, testing and related costs, travel expenses, cost of supplies, as well as overhead items, such as depreciation and facility costs. Product development costs are expensed as they are incurred.

Previous wording

Selling, general and administrative expenses were $0.2 million for the third quarter of 2025, down 47% from $0.4 million in the third quarter of 2024. The decrease is primarily due to a reduction in consultant fees of $0.1 million.

Current wording

Selling, general and administrative expenses were $0.3 million for the first quarter of 2026, down 31% from $0.4 million in the first quarter of 2025. The decrease is primarily due to a reduction in insurance fees of $0.1 million.

Previous wording

Due to the operating losses incurred during the three and nine months ended September 30, 2025 and 2024, 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 months ended March 31, 2026 and 2025, 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

At September 30, 2025, we had $0.9 million in cash and no outstanding debt. We have historically incurred substantial losses, and as of September 30, 2025, we had an accumulated deficit of $155.6 million. Additionally, our sales have been concentrated among a few major customers and for the nine months ended September 30, 2025, with three customers accounted for approximately 53% of net sales.

Current wording

As of March 31, 2026, we had $1.1 million in cash and no outstanding debt. We have historically incurred substantial losses, and, as of March 31, 2026, we had an accumulated deficit of $156.1 million. Additionally, our sales have been concentrated among a few major customers and, for the three months ended March 31, 2026, four customers accounted for approximately 63% of net sales.

Previous wording

In 2025 and 2024, we remain committed to building upon the initiatives started during 2019 that sought to stabilize and regrow our business. These efforts include the following key developments that occurred during 2025 and 2024:

Current wording

In 2026 and 2025, we remained committed to building upon the initiatives to stabilize and regrow our business. These efforts include the following key developments that occurred during 2026 and 2025:

Previous wording

•We reinvested in our MMM sales channel and are pursuing existing and new sales opportunities, though the sales cycles for what are frequently made-to-order products are longer than commercial offerings.

Current wording

•We have reinvested in our MMM sales channel and are pursuing existing and new sales opportunities, though the sales cycles for what are frequently made-to-order products are longer than commercial offerings.

Previous wording

•We re-evaluated operating expenses and reduced its workforce significantly throughout 2024 into 2025 to manage fixed costs.

Current wording

•We have re-evaluated operating expenses and reduced our workforce significantly throughout 2025 and into 2026 to manage fixed costs.

Previous wording

•We continued to seek additional external funding alternatives and sources to support our growth strategies, plans and initiatives.

Current wording

•We continue to seek additional external funding alternatives and sources to support our growth strategies, plans and initiatives.

Previous wording

We continue to closely monitor 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 monitor our cost control efforts to streamline our operations by closely managing all spending 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 improve profitability through developing and launching new, innovative products, UPS systems, our Redcap® emergency battery backup tubular TLEDs, evaluating new growth opportunities such as GaN-based power supply circuitry and other energy solution products, as well as executing on our multi-channel sales strategy that targets key verticals, such as government, healthcare, education and commercial and industrial, complemented by our marketing outreach campaigns and expanding channel partnerships. 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, including expansion into the Japan market through our joint venture investment initiatives. We plan to achieve profitability through developing and launching new, innovative products, UPS systems, our Redcap® emergency battery backup 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

•As of September 30, 2025, we held total cash of $0.9 million, of which approximately $0.5 million was maintained in a bank account in Taiwan. These funds support the operations of our wholly owned Taiwanese subsidiary and are denominated in NTD.

Current wording

•As of March 31, 2026, we held total cash of $1.1 million, of which approximately $0.3 million was maintained in a bank account in Taiwan, with the remaining $0.8 million in bank accounts in the United States. These funds support the operations of our wholly owned Taiwanese branch and are denominated in NTD.

Previous wording

•Management believes our current cash position and operating cash flows are sufficient to meet near-term working capital needs in both domestic and foreign jurisdictions.

Current wording

•Management continues to monitor its cash position, operating cash flows, and funding needs in both domestic and foreign jurisdictions.

Previous wording

Net cash provided by (used in) financing activities

Current wording

Net cash provided by (used in) operating activities

Previous wording

Net cash used in operating activities was $0.5 million for the nine months ended September 30, 2025. The net loss for the nine months ended September 30, 2025 was $0.7 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, 2025, minor adjustments included a $0.1 million change in accounts receivable caused by specific timing of collecting accounts receivable and a $0.2 million change in inventory.

Current wording

Net cash provided by operating activities was $0.1 million for the three months ended March 31, 2026. The net loss for the period was $0.1 million, adjusted for non-cash items, including depreciation and amortization, stock-based compensation, provisions for inventory, warranty, accounts receivable reserves and working capital changes. During the three months ended March 31, 2026, major changes included $0.1 million in cash generated from collections of accounts receivable and a $0.9 million change in related party accounts payable due to timing of inventory receipts and payments, which was partially offset by $0.8 million change in inventory.

Previous 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, major adjustments included cash generated from $1.1 million from collection of accounts receivable, and $0.4 million from inventory and $0.2 million from accounts payable. which is offset by a $1.2 million change in related party accounts payable due to timing of inventory receipts and payments.

Current wording

Net cash used in operating activities was $0.3 million for the three months ended March 31, 2025. The net loss for the three months ended March 31, 2025 was $0.3 million and was adjusted for non-cash items, including depreciation and amortization, stock-based compensation, provisions for inventory, warranty, accounts receivable reserves and working capital changes. During the three months ended March 31, 2025, changes included cash generated of $0.2 million from collection of accounts receivable, which was partially offset by $0.2 million changes in prepayment for vendors, and $0.1 million change in accounts payable due to timing inventory receipts and payments.

Previous wording

Net cash used in investing activities was $41 thousand and $19 thousand for the nine months ended September 30, 2025 and 2024, respectively, primarily from the acquisition of property and equipment partially offset by proceeds from the sale of property and equipment.

Current wording

Net cash used in investing activities was $5 thousand for the three months ended March 31, 2025, primarily from the acquisition of property and equipment.

Previous wording

Net cash provided by financing activities was $0.9 million during the nine months ended September 30, 2025, related to proceeds from the private placements of common stock.

Current wording

Net cash provided by financing activities was $0.2 million for the three months ended March 31, 2025, primarily reflecting net proceeds from the issuance of common stock.

Previous wording

For the nine months ended September 30, 2025, we recognized a net foreign currency transaction gain of approximately $43 thousand. We do not currently employ financial instruments to hedge our foreign currency exposure. We continue to monitor our NTD exposure and may consider hedging strategies in the future if our foreign currency risk increases materially.

Current wording

For the three months ended March 31, 2026, we recognized net foreign currency transaction losses of approximately $8 thousand. We do not currently employ financial instruments to hedge our foreign currency exposure. We continue to monitor our exposure to NTD and JPY and may consider hedging strategies in the future if our foreign currency risk increases materially.

Previous wording

We have certain customers whose net sales individually represented 10% or more of our total net sales, or whose net trade accounts receivable balance individually represented 10% or more of our total net trade accounts receivable; and we have certain suppliers, which individually represent 10% or more of our total purchases, or whose trade accounts payable balance individually represented 10% or more of our total trade accounts payable balance. Please refer to Note 2, “Basis of Presentation and Summary of Significant Accounting Policies,” included under Part I, Item 1, “Financial Statements,” of this Quarterly Report.

Current wording

We have certain customers whose net sales individually represented 10% or more of our total net sales, or whose net trade accounts receivable balance individually represented 10% or more of our total net trade accounts receivable; we have certain suppliers, which individually represent 10% or more of our total purchases, or whose trade accounts payable balance individually represented 10% or more of our total trade accounts payable balance. Please refer to Note 2, “Basis of Presentation and Summary of Significant Accounting Policies,” included under Part I, Item 1, “Financial Statements,” of this Quarterly Report.