Energy Focus Inc.

11/12/2025 | Press release | Distributed by Public on 11/12/2025 08:07

Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and related notes thereto included in Part I, Item 1, "Financial Statements" of this Quarterly Report, as well as Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," of our Annual Report on Form 10-K for the year ended December 31, 2024 ("2024 Annual Report").
Overview
Energy Focus, Inc. engages primarily in the design, development, manufacturing, marketing and sale of energy-efficient lighting systems and controls. We develop, market and sell high quality light-emitting diode ("LED") lighting and controls products in the commercial market and military maritime market ("MMM"). 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.
Our mission is to enable our customers to run their facilities with greater energy efficiency, productivity, and human health and wellness through advanced LED retrofit solutions. Our goal is to be a market leader for the most demanding applications where performance, quality, value, environmental impact and health are considered paramount. We specialize in energy efficient LED lighting retrofit product, replacing fluorescent, high-intensity discharge lighting and other types of lamps in institutional buildings for primarily indoor lighting applications with our innovative, high-quality commercial and military-grade tubular LED ("TLED") products, as well as other LED and lighting control products for commercial and consumer applications. We are also evaluating additional adjacent technologies, including Gallium Nitride ("GaN") based power supplies and other energy solution products that support sustainability in our existing channels.
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.
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.
It is our belief that the continued dramatic rightsizing efforts undertaken in 2024 and 2025, along with reorganization of the sales team and ongoing development of innovative, high-value products and an expanded distribution network, will over time result in improved sales and bottom-line performance for the Company.
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.
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.
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.
Despite continuing progress on cost reduction throughout 2024 and 2025, the Company's results reflect the challenges due to long and unpredictable sales cycles, unexpected delays in MMM and commercial customer retrofit budgets and project starts, and supply chain issues. There has also been continuing aggressive price competition in the lighting industry. We continue to incur losses and we have a substantial accumulated deficit, which continues to raise substantial doubt about our ability to continue as a going concern at September 30, 2025.
Our Business Strategy
Demand-oriented Approach
In order to deepen our relationships with customers, we are in the process of re-establishing our service model, aiming to provide richer and more targeted customer service. We believe that by increasing opportunities for interaction with our customers, we can better understand their needs, thereby enhancing their loyalty to our brand.
To ensure that EFOI's products, pricing, and customer service lifecycle are better aligned, we are building a comprehensive value model to ensure consistency in the products and services we provide throughout the customer journey. We have begun an in-depth analysis of our current and past top 10 customers over the last five years to identify the core factors that make them loyal customers. By analyzing this data, we hope to reveal the key elements that enhance customer stickiness, providing them with more reasons and value to stay with us. In particular, we are actively focusing on customers with high loyalty to better meet their needs. This is not only an acknowledgment of our products but also a validation of the quality of our service.
Supply-oriented Approach
EFOI is committed to adopting three main sustainable economy strategies: "Green Supply Chain", "Green Product", and "Green Manufacturing", aiming to promote sustainability throughout the entire value chain. The Company is working closely with its supply chain partners to optimize recycling mechanisms and strengthen packaging design, integrating sustainable economy principles into the core of supply chain management.
Guided by the vision of "transcending traditional corporate social responsibility and creating shared value", EFOI's team is focusing on stakeholders, aiming to achieve a "dual profit engine" effect by combining financial performance and Environmental, Social, and Governance (ESG) practices. This strategy not only aligns with the Company's responsibility and sustainability goals but is also expected to enhance overall performance and market competitiveness. EFOI's operational team's new strategy focuses on integrating environmental and economic benefits, aiming to create a win-win situation that benefits the company, society, and the environment.
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.
Financial-oriented Approach
The Company applies strategic financial management in the below perspective.
Control and Monitoring of Assets and Liabilities
•Assets: Regularly evaluate all assets, especially inventory, to ensure they remain in optimal condition in terms of value and performance. Minimize or mitigate the impact of inefficient and aging assets, focusing on assets with high efficiency and return.
•Liabilities: Ensure a robust liability structure, optimize the cost of liabilities, and seek lower interest rates and more favorable repayment terms. Regularly review the liability situation to ensure the company's level of liabilities remains within a safe range.
Structured Profitability
•Revenue Growth: Develop diversified revenue streams, reduce dependency on single business or market, continuously optimize products and services, and enhance market competitiveness.
•Cost Control: Strictly control operating costs, seek opportunities to reduce costs, and ensure the efficient use of resources to optimize operations.
•Cash Flow Management: Establish a sound accounts receivable and payable management system to ensure timely collection of receivables and reasonable arrangement of payments. Maintain sufficient cash reserves to cope with potential funding shortages.
Results of operations
The following table sets forth items in our Condensed Consolidated Statements of Operations as a percentage of net sales for the periods indicated:
Three months ended
September 30, 		Nine months ended
September 30,
2025 2024 2025 2024
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales 82.2 84.3 81.1 87.9
Gross profit 17.8 15.7 18.9 12.1
Operating expenses:
Product development 9.9 11.5 8.0 11.3
Selling, general, and administrative 29.1 37.5 36.7 44.2
Total operating expenses 39.0 49.0 44.7 55.5
Loss from operations (21.2) (33.3) (25.8) (43.4)
Other expenses (income):
Interest expense - - - 0.1
Gain on debt extinguishment - - - (5.2)
Gain on partial lease termination - (5.3) - (1.8)
Gain on disposal of fixed assets (0.4) - (0.1) -
Other income - (2.2) - (0.8)
Other expenses - 0.6 0.3 0.3
Net loss (20.8) % (26.4) % (26.0) % (36.0) %
Net sales
A further breakdown of our net sales is presented in the following table (in thousands):
Three months ended
September 30, 		Nine months ended
September 30,
2025 2024 2025 2024
Commercial products $ 202 $ 350 $ 1,178 $ 1,004
MMM products 621 846 1,382 2,578
Setup Service 3 - 25 -
Total net sales $ 826 $ 1,196 $ 2,585 $ 3,582
Net sales of $0.8 million for the third quarter of 2025 decreased $0.4 million, or 31%, compared to third quarter of 2024 net sales of $1.2 million, primarily driven by a 27% decrease in MMM sales and a 42% decrease in commercial sales. The net sales decrease of MMM products sales in the third quarter was primarily due to a significant reduction in military demand, driven by ongoing federal budget uncertainties. The decrease in commercial sales was primarily driven by the effects of weakened economy and high inflation, which reflected the weakened market demand and the market trend of fluctuations.
Net sales of $2.6 million for the first nine months of 2025 decreased $1.0 million, or 28%, compared to the same period in 2024, primarily driven by a 46% decrease in MMM sales, partially offset by a 17% increase in commercial sales. The net sales decrease for the first nine months of 2025 was primarily due to a significant reduction in military demand, driven by ongoing federal budget uncertainties.
Gross Profit
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.
Gross profit was $0.5 million, representing 19% of net sales, for the first nine months of 2025 compared to $0.4 million, or 12% of net sales, for the first nine months of 2024. The year-over-year improvement in gross profit was driven mainly by a reduced use of temporary outside labor and decrease in fixed costs such as subscription fee and rent expense for production.
Operating expenses
Product development
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.
Product development expenses were $0.1 million for the third quarter of 2025, down 40% from the third quarter of 2024. The $0.1 million decrease is primarily due to lower payroll-related expenses resulting from structure optimization, as well as lower product testing and R&D supplies expenses.
Product development expenses were $0.2 million for the first nine months of 2025, a $0.2 million decrease compared to $0.4 million for the first nine months of 2024. The decrease primarily resulted from lower payroll-related expenses due to reduction in headcount and product testing fees.
Selling, general and administrative
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.
Selling, general and administrative expenses were $0.9 million for the first nine months of 2025, compared to $1.6 million for the first nine months of 2024. The decrease is primarily due to reductions in consultant fees of $0.3 million, reduction of $0.1 million in insurance fees, reduction of $0.1 million in software fees, and reduction of $0.1 million in director fees.
Other Expense (Income)
Interest expense (income)
There was no interest expense for the third quarter of 2025 and 2024.
There was no interest expense for the first nine months of 2025, compared to interest expense of $5 thousand for the first nine months of 2024. The decrease is primarily related to interest attributable to the 2022 Streeterville Note. There was no actual cash interest paid for nine months ended September 30, 2025 compared to $5 thousand in the first nine months of 2024.
Gain on debt extinguishment
We recognized a $187 thousand gain on debt extinguishment for the first quarter of 2024, which was related to the early termination of the 2022 Streeterville Note. There was no such gain recognized for the first nine months of 2025.
Gain on partial lease termination
We recognized $63 thousand of gain on partial lease termination for the three and nine months of 2024, which was related to the partial termination of the office lease. There was no such gain recognized for the first nine months of 2025.
Gain on disposal of fixed assets
We recognized $3 thousand of gain on sales of fixed assets for the three and nine months of 2025, which was related to a one-time resale of a software license package to a related party customer as part of a specific project. There was no such gain recognized for the first nine months of 2024. See Note 11 "Related Party Transactions".
Other income and expenses
Other expenses were less than a thousand for the third quarter of 2025, compared to other expenses of $7 thousand for the third quarter of 2024. Other expenses were $8 thousand for the nine months ended September 30, 2025, compared to other expenses of $9 thousand for the nine months ended September 30, 2024. Other expenses are mainly composed of bank and collateral management fees. We recognized a non-cash loss of approximately $8 thousand on the settlement of returning inventory, cancelling prepayments made to the vendor, and settlement of outstanding accounts payables in the second quarter of 2025.
Other income was less than a thousand for the third quarter and first nine months of 2025, compared to other income of $26 thousand and $30 thousand for the third quarter and the first nine months of 2024. Such other income is related to receipts of unclaimed property from vendors for previous payments.
Provision for income taxes
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.
Net loss
For the three months ended September 30, 2025, our net loss of $0.2 million decreased 46% from $0.3 million net loss for the three months ended September 30, 2024. The decrease is primarily due to a decrease in operating expenses in the third quarter of 2025 from the third quarter of 2024.
For the nine months ended September 30, 2025, our net loss of $0.7 million decreased 48% from $1.3 million net loss for the nine months ended September 30, 2024. The decrease is primarily due to a decrease in operating expenses in the first nine months of 2025 from the first nine months of 2024.
Financial condition
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.
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:
•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.
•We re-evaluated operating expenses and reduced its workforce significantly throughout 2024 into 2025 to manage fixed costs.
•We continued to seek additional external funding alternatives and sources to support our growth strategies, plans and initiatives.
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.
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.
Liquidity and capital resources
Cash
At September 30, 2025, our cash balance was approximately $0.9 million, compared to approximately $0.6 million at December 31, 2024.
•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.
•The ability to access this cash for general corporate purposes in the United States may be subject to foreign exchange controls, local banking regulations, or unfavorable tax consequences. While there are currently no formal restrictions on the transfer of funds from Taiwan to the United States, repatriation of these funds may result in foreign withholding taxes or other costs, which could impact our overall liquidity. As such, our ability to deploy foreign cash for domestic use may be limited or delayed.
•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.
The following summarizes cash flows from operating, investing, and financing activities, as reflected in the Condensed Consolidated Statements of Cash Flows included in Part I, Item 1, "Financial Statements," of this Quarterly Report (in thousands):
Nine months ended
September 30,
2025 2024
Net cash used in operating activities $ (542) $ (1,043)
Net cash used in investing activities $ (41) $ (19)
Net cash provided by (used in) financing activities $ 900 $ (149)
Net cash used in operating activities
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.
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.
Net cash used in investing activities
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.
Net cash provided by (used in) financing activities
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.
Net cash used in financing activities was $0.1 million during the nine months ended September 30, 2024, primarily related to $0.9 million of net proceeds from the issuance of common stock, offset by $1.0 million related to net payments of the 2022 Streeterville Note.
Contractual and other obligations
Please refer to Note 9 "Purchase Commitments" included under Part I, Item 1, "Financial Statements," of this Quarterly Report.
Foreign Currency Exchange Risk
Because we maintain operations and cash balances in Taiwan, we are exposed to fluctuations in the New Taiwan dollar (NTD) exchange rate relative to the U.S. dollar. Changes in exchange rates can affect the reported value of our foreign cash balances, revenues, and expenses, as well as result in transaction gains or losses on intercompany and third-party balances.
Our business operations in Taiwan expose us to foreign currency risk from fluctuations in the New Taiwan dollars (NTD) exchange rate relative to the U.S. dollar. As of September 30, 2025, we had a net NTD exposure of approximately $527 thousand, consisting primarily of NTD-denominated accounts receivable of $130 thousand, partially offset by NTD cash of $499 thousand and accounts payable of $102 thousand.
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.
Critical accounting policies
There have been no material changes to our critical accounting policies as compared to those included in our 2024 Annual Report.
Certain risks and concentrations
We have certain customers whose net sales individually represented 10% or more of our total net sales, or whose net trade accounts receivable balance individually represented 10% or more of our total net trade accounts receivable; 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.
Recent accounting pronouncements
For information on recent accounting pronouncements, please refer to Note 2, "Basis of Presentation and Summary of Significant Accounting Policies," included under Part I, Item 1, "Financial Statements," of this Quarterly Report.
Energy Focus Inc. published this content on November 12, 2025, and is solely responsible for the information contained herein. Distributed via Edgar on November 12, 2025 at 14:08 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]