ENERGY FOCUS, INC. 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 endedDecember 31, 2020 ("2020 Annual Report").
Overview
Energy Focus, Inc. engages primarily in the design, development, manufacturing, marketing and sale of energy-efficient light-emitting diode ("LED") lighting systems and controls and development of ultraviolet-C light disinfection ("UVCD") products. We develop, market and sell high quality LED lighting and controls products and UVCD products in the commercial market and military maritime market ("MMM"), and expect to expand our offerings into the consumer market in the second half of 2021. Our mission is to enable our customers to run their facilities and offices with greater energy efficiency, productivity, and human health through advanced LED retrofit and UVCD solutions. Our goal is to be the LED and human-centric lighting ("HCL") technology and market leader for the most demanding applications where performance, quality, value, environmental impact and health are considered paramount. We specialize in LED lighting retrofit by replacing fluorescent, high-intensity discharge lighting and other types of lamps and fixtures in institutional buildings for primarily indoor lighting applications with our innovative, high-quality commercial and military tubular LED ("TLED"), as well as other LED and lighting control products for commercial and consumer applications. In late 2020, we announced the launch of our UVCD product portfolio, which is being brought to market throughout the second half of 2021. Net sales decreased 34% for the six months endedJune 30, 2021 as compared to the six months endedJune 30, 2020 , primarily driven by a 37% decrease in military sales period-over-period, and a decrease in net sales of our commercial products of 29% for the six months endedJune 30, 2021 as compared to the same prior year period. The sales cycles for the MMM is dependent on many factors, including the availability of government funding, the timing and fulfillment ofU.S. Navy awards, new ship construction, diversion of funds to other government needs, and the timing of vessel maintenance schedules, and our financial results reflect volatility from fluctuations in the timing, pace and size of MMM projects. The sales cycles for our commercial target markets can range from several months to over one year and our financial results reflect volatility from the continued fluctuations in the timing, pace and size of commercial projects due to, among other reasons, the ongoing effects on our customers of the coronavirus ("COVID-19") pandemic. Operating losses increased by 107% in the first six months of 2021 over the first six months of 2020. The Company's results reflect the challenges due to long and unpredictable sales cycles, delays in customer retrofit budgets and project starts, and supply chain issues exacerbated by the continuing effects of the COVID-19 pandemic. We have been challenged by continuing and intensifying aggressive price competition in the lighting industry, particularly in our retrofit market. We continued to incur losses and we have a substantial accumulated deficit, which continues to raise substantial doubt about our ability to continue as a going concern atJune 30, 2021 . The COVID-19 pandemic in particular has, and may continue to have, a significant economic and business impact on our company. In the first half of 2021, following a slowdown throughout 2020, we have seen a continuing weakness in commercial sales as our customers in the healthcare, education, and commercial and industrial sectors delayed order placements in reaction to the ongoing impacts of the COVID-19 pandemic that caused our customers to suspend or postpone lighting retrofit projects due to budget and occupancy uncertainties. We continue to monitor the impact of the COVID-19 pandemic on our customers, suppliers and logistics providers, and to evaluate governmental actions being taken to curtail and respond to the spread of the virus. The significance and duration of the ongoing impact on us is still uncertain. Material adverse effects of the COVID-19 pandemic on market drivers, our customers, suppliers or logistics providers could significantly impact our operating results. We also plan to continue to actively follow, assess and analyze the ongoing impact of the COVID-19 pandemic and continue to adjust our organizational structure, strategies, plans and processes to respond. Because the situation continues to evolve, we cannot reasonably estimate the ultimate impact to our business, results of operations, cash flows and financial position that the COVID-19 pandemic may have. Continuation of the COVID-19 pandemic and government actions in response thereto could cause further disruptions to our operations and the operations of our customers, suppliers and logistics partners and could significantly adversely affect our near-term and long-term revenues, earnings, liquidity and cash flows. We aim to stay agile as an organization to respond to potential or continuing 31 -------------------------------------------------------------------------------- weakness in the macro environment and in the meantime expand sales channels and enter new markets, such as UVCD, that we believe will provide additional growth opportunities. It is our belief that the momentum of the efforts undertaken in 2020, as described in our 2020 Annual Report, along with our continuing efforts to date in 2021, including the development and launch of new and innovative products, in both lighting controls surrounding the EnFocusTM platform and the UVCD market, as well as our planned entry into the consumer markets with these new products, will over time result in improved sales and bottom-line performance for the Company. We launched our patented EnFocusTM platform during the second quarter of 2020 and, despite the ongoing, significant delay and slowdown in our customers' lighting projects due to the impacts of the COVID-19 pandemic, we continue to receive positive feedback from existing, new, and potential new customers. TheEnFocusTM platform offers two immediately available product lines: EnFocusTM DM, which provides a dimmable lighting solution, and EnFocusTM DCT, which provides both a dimmable and color tunable lighting solution. EnFocusTM enables buildings to have dimmable, color tunable and circadian-ready lighting using existing wiring, without requiring laying additional data cables or any wireless communication systems, through a relatively simple upgrade with EnFocusTM switches and tubular LEDs, a far more affordable and environmentally sustainable solution compared with replacing entire lighting fixtures and incorporating additional wired or wireless communication. In addition, we recently announced plans for the second generation of EnFocusTM switches and the award-winning SuncycleTM circadian lighting system, which we plan to launch in late 2021 to early 2022. In addition, in response to the COVID-19 pandemic and an anticipated increase in sanitation and hygiene demand for buildings, facilities and homes, we are developing advanced UVCD air and surface disinfection products for both consumer as well as the commercial and industrial markets. We announced the following UVCD products beginning in the fourth quarter of 2020: abUVTM circadian lighting and UVCD air disinfection integrated troffers controlled by the EnFocusTM platform technology; nUVoTM Tower portable air disinfection device for offices and homes; nUVoTM Traveler portable personal air disinfection device; and mUVeTM autonomous robot designed for surface disinfection. The nUVoTM Tower and nUVoTM Traveler are expected to be available in the third quarter of 2021, and abUVTM and mUVeTM are expected to be available in the fourth quarter of 2021. In our MMM business, significant efforts undertaken to reduce costs in our product offerings have positioned us to be more competitive along with improved production efficiencies. Such efforts allowed us to continue to win bids and proposals that helped grow our MMM sales throughout 2020, offsetting some of the weakness being experienced in our commercial business that year. In addition, during the fourth quarter of 2020, we became an approved supplier for theGeneral Services Administration ("GSA") and our products are now listed in the GSA website for all federal and military agencies to view and order our products. While we continue to aggressively seek to increase sales of our commercial products, the MMM business offers us continued sales opportunities, in addition to validating our product quality and strengthening our brand trust in the marketplace. However, due to product mix impacts resulting from the continued impact of the COVID-19 pandemic on commercial sales, our current financial results are primarily driven by, and reflect volatility in, our MMM sales. In the first half of 2021, our MMM business continued to face challenges resulting from the delayed availability of government funding and the timing ofU.S. Navy awards. We continue to aggressively monitor, respond to, develop and increase opportunities from theU.S. Navy and the government sector to minimize such volatility. Meanwhile, we continue to seek additional external funding alternatives and sources to support our growth strategies, plans and initiatives. We plan to achieve profitability through developing and launching new, innovative products, such as EnFocusTM and our UVCD products, as well as executing on our multi-channel sales strategy that targets key verticals, such as government, healthcare, education and commercial and industrial, complemented by our marketing outreach campaigns and expanding channel partnerships. We also plan to continue to develop advanced lighting and lighting control applications built upon the EnFocusTM platform such as our SuncycleTM products that aim to serve both consumer and commercial markets. In addition, we intend to continue to apply rigorous financial discipline in our organizational structure, business processes and policies, strategic sourcing activities and supply chain practices to help accelerate our path towards profitability. AtJune 30, 2021 , we had$1.3 million in cash, which excludes$0.3 million of restricted cash to be held untilSeptember 2021 , and a total of$3.1 million of debt. Total debt atJune 30, 2021 included$1.2 million outstanding under our inventory financing facility (the "Inventory Facility"),$0.4 million outstanding under our receivables financing facility (the "Receivables Facility" and, together with the Inventory Facility, the "Credit Facilities") and$1.5 million outstanding on the Streeterville Note (as defined below). AtJune 30, 2021 , we had additional availability of$2.2 million under the Inventory Facility and$0.6 million under the Receivables Facility, for a total of$2.8 million of additional availability. OnApril 20, 2021 , we entered into an amendment to the Loan and Security Agreement governing the Inventory Facility (the "Inventory 32 -------------------------------------------------------------------------------- Loan Agreement") to increase the maximum amount that may be available to the Company from$3.0 million previously to$3.5 million , subject to the borrowing base as set forth in the Inventory Loan Agreement. InJune 2021 , we completed a registered direct offering of 990,100 shares of our common stock to certain institutional investors, at a purchase price of$5.05 per share (the "June 2021 Equity Offering"). We paid the placement agent commissions of$400 thousand , plus$51 thousand in expenses, in connection with theJune 2021 Equity Offering and we also paid legal and other fees of$18 thousand related to the offering. Total offering costs of$469 thousand have been presented as a reduction of additional paid-in capital and have been netted within equity in the Condensed Consolidated Balance Sheet as ofJune 30, 2021 . Net proceeds to us from theJune 2021 Equity Offering were approximately$4.5 million . OnApril 27, 2021 , we entered into a note purchase agreement (the "Streeterville Note Purchase Agreement") withStreeterville Capital, LLC ("Streeterville") pursuant to which the Company sold and issued to Streeterville a promissory note in the principal amount of approximately$1.7 million (the "Streeterville Note"). The Streeterville Note was issued with an original issue discount of$194 thousand and Streeterville paid a purchase price of$1.5 million for the Streeterville Note, after deduction of$15 thousand of Streeterville's transaction expenses. The Streeterville Note has a maturity date ofApril 27, 2023 , and accrues interest at 8% per annum, compounded daily, on the outstanding balance. The Company may prepay the amounts outstanding under the Note at a premium, which is 5% during the first three months and 10% thereafter. Prepayments at the reduced rate in the first three months are limited to 50% of the outstanding balance. Beginning on the first day of the calendar month following the date that is six months after the date of purchase, Streeterville may require the Company to redeem up to$205 thousand of the Streeterville Note in any calendar month. The Company has the right on three occasions to defer all redemptions that Streeterville could otherwise require the Company to make during any calendar month. Each exercise of this deferral right by the Company will increase the amount outstanding under the Streeterville Note by 1.5%.
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 Six months ended
June 30, June 30,
2021 2020 2021 2020
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales 81.1 59.7 79.9 66.6
Gross profit 18.9 40.3 20.1 33.4
Operating expenses:
Product development 17.8 9.4 21.7 8.4
Selling, general, and administrative 109.4 59.2 95.2 56.2
Restructuring (0.1) (0.4) (0.5) (0.4)
Total operating expenses 127.1 68.2 116.4 64.2
Loss from operations (108.2) (27.9) (96.3) (30.8)
Other expenses (income):
Interest expense 10.4 2.6 7.3 3.1
Gain on forgiveness of PPP loan - - (17.0) -
Loss from change in fair value of warrants - 99.0 - 34.1
Other expenses 0.7 0.7 0.7 0.6
Net loss (119.3) % (130.2) % (87.3) % (68.6) %
33--------------------------------------------------------------------------------
Net sales
A further breakdown of our net sales is presented in the following table (in
thousands):
Three months ended Six months ended
June 30, June 30,
2021 2020 2021 2020
Commercial $ 1,078 $ 1,058 $ 1,991 $ 2,794
MMM products 996 2,277 2,720 4,324
Total net sales $ 2,074 $ 3,335 $ 4,711 $ 7,118
Net sales of $2.1 million for the second quarter of 2021 decreased 38% compared
to second quarter net sales of $3.3 million , primarily driven by a decrease in
MMM product sales. Net MMM product sales decreased in the second quarter of 2021
compared to the same period in 2020, mainly due to availability of government
funding and the delayed timing of expected orders.
Net sales of $4.7 million for the first six months of 2021 decreased 34%
compared to the same period in 2020, primarily driven by a decrease in MMM
product sales and somewhat by reduced commercial sales. Net sales of our MMM
products decreased mainly due to availability of government funding and the
delayed timing of expected orders in the first six months of 2021. Net sales of
our commercial products decreased in the first six months of 2021 compared to
the same period of 2020, reflecting (i) a decrease in sales, caused by delayed
orders that have occurred mainly in the healthcare, education, commercial and
industrial sectors because of the macroeconomic slowdown and purchasing
decisions being put on hold due to the COVID-19 pandemic, (ii) lower sales from
our agency network, which was also impacted by the COVID-19 pandemic, and (iii)
fluctuations in the timing, pace and size of commercial projects.
Gross profit
Gross profit was$0.4 million , or 18.9% of net sales, for the second quarter of 2021, compared to$1.3 million , or 40.3% of net sales, for the second quarter of 2020. Gross margin for the second quarter of 2021 included favorable price and usage variances for material and labor of$0.4 million , or 18.7% of net sales. Gross margin for the second quarter of 2020 included favorable warranty and inventory reserves of$0.3 million , or 8.4% of net sales. Gross profit was$0.9 million , or 20.1% of net sales, for the first six months of 2021 compared to$2.4 million or 33.4% of net sales, for the first six months of 2020. The decrease was primarily related to relatively lower profit margin of sold product and included favorable price and usage variances for material and labor of$0.6 million , or 12.1% of net sales, and unfavorable inventory and warranty reserves recorded of$0.1 million , or 2.4% of net sales. The gross margin for the first six months of 2020 was primarily related to higher profit margin of sold product, favorable price and usage variances for material and labor of$0.3 million , or 4.0% of net sales, and favorable inventory reserves recorded of$0.4 million , or 5.5% of net sales.
Operating expenses
Product development
Product development expenses include salaries and related expenses, contractor and consulting fees, legal fees, supplies and materials, as well as overhead, such as depreciation and facility costs. Product development costs are expensed as they are incurred. Product development expenses were$0.4 million for the second quarter of 2021, a$0.1 million increase compared to the second quarter of 2020. The increase is mainly related to payroll expense associated with the development and launch of our UVCD product portfolio. Product development expenses were$1.0 million for the first six months of 2021, a$0.4 million increase compared to$0.6 million for the first six months of 2020. The increase is primarily related to payroll expense and product testing associated with the development and launch of our UVCD product portfolio. 34 --------------------------------------------------------------------------------
Selling, general and administrative
Selling, general and administrative expenses were$2.3 million for the second quarter of 2021, compared to$2.0 million for the second quarter of 2020. The primary drivers of the increase in selling, general and administrative expenses were increases in payroll and payroll related expenses (approximately$0.1 million due to our growth initiatives, which expanded our staff) as well as increases in stock expense of$0.2 million (mainly due to expense related to the annual board of directors grant), and$0.2 million in travel related expenses, dues and fees, software contracts and commissions. These increases were partially offset by savings of$0.3 million in overall professional and legal fees. Selling, general and administrative expenses were$4.5 million for the first six months of 2021, compared to$4.0 million for the first six months of 2020. The increase is primarily due to increases in payroll of$0.5 million , stock compensation expense of$0.3 million , and marketing, advertising and related expenses of$0.1 million as well as a total of$0.3 million for dues and fees, supplies, utilities and rent, software contracts, commissions and miscellaneous taxes. These increases were partially offset by decreases of$0.5 million in professional service fees,$0.1 million in employee bonuses and$0.1 million in external reporting fees. Restructuring For the three months endedJune 30, 2021 and 2020, we recorded restructuring credits totaling approximately$3 thousand and$14 thousand , respectively, and for the six months endedJune 30, 2021 and 2020, we recorded restructuring credits totaling approximately$22 thousand and$28 thousand , respectively. All restructuring costs are related to the cost and offsetting sub-lease income for the lease obligations for the formerNew York, New York office, which ended as ofJune 30, 2021 . Interest expense Interest expense was$0.2 million for the second quarter of 2021, compared to interest expense of$0.1 million for the second quarter of 2020. The increase in interest expense of$0.1 million is primarily related to fees associated with the increase in the borrowing capacity on the Inventory Facility during the second quarter of 2021. The actual cash interest paid in the second quarter of 2021 was$0.1 million compared to$18 thousand in the second quarter of 2020. Interest expense was$0.3 million for the first six months of 2021, compared to interest expense of$0.2 million for the first six months of 2020. The increase in interest expense of$0.1 million was primarily related to fees associated with the increase in the borrowing capacity on the Inventory Facility during the second quarter of 2021. The actual cash interest paid for the six months endedJune 30, 2021 was$0.2 million compared to$85 thousand for the six months endedJune 30, 2020 .
Gain on forgiveness of PPP loan
Forgiveness income of
Income from change in fair value of warrants
A loss of$2.4 million was recognized during the six months endedJune 30, 2020 for the market value change in our warrant liabilities. The loss recognized in the first six months of 2020 was a result of the revaluation of the warrant liability using the market price of the Company's common stock atJune 30, 2020 versus the market price of the Company's common stock at the time of initial issuance of the warrants (January 13, 2020 ). The terms of the warrants were amended inDecember 2020 such that they were reclassified as equity, and no warrant liability exists atJune 30, 2021 . As such, there is no related gain or loss recorded for the six months endedJune 30, 2021 .
Other expenses
Other expenses were$15 thousand for the second quarter of 2021, compared to other expenses of$24 thousand for the second quarter of 2020. Other expenses were$32 thousand for the six months endedJune 30, 2020 compared to other expenses of$42 thousand for the six months endedJune 30, 2020 . Other expenses are mainly comprised of bank and collateral management fees. 35 --------------------------------------------------------------------------------
Provision for income taxes
Due to the operating losses incurred during the three and six months endedJune 30, 2021 and 2020, 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 forU.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 endedJune 30, 2021 , our net loss was$2.5 million , compared to a net loss of$4.3 million for the three months endedJune 30, 2020 . The decrease is mainly due to a decrease in net sales of$1.3 million , and increases in product development costs of$0.1 million and selling, general and administrative costs of$0.3 million , all of which were partially offset by a decrease in cost of sales of$0.3 million and do not reflect the impact of the$3.3 million loss from the fair value of warrants, which occurred during the three months endedJune 30, 2020 . These factors are discussed in detail above. For the six months endedJune 30, 2021 , our net loss was$4.1 million compared to$4.9 million for the six months endedJune 30, 2020 . The decrease in the net loss was primarily driven by$2.4 million in lower sales, increases in product development costs of$0.4 million , selling, general and administrative costs of$0.5 million and interest costs of$0.1 million . These cost increases were offset by a decrease in overall cost of sales of$1.0 million and the gain on the forgiveness of the PPP loan of$0.8 million and do not reflect the impact of the$2.4 million loss from the fair value of warrants, which occurred during the six months endedJune 30, 2020 .
Financial condition
AtJune 30, 2021 , we had$1.3 million in cash, which excludes$0.3 million of restricted cash to be held untilSeptember 2021 , and a total of$3.1 million of debt, including$1.2 million outstanding under our Inventory Facility and$0.4 million outstanding under our Receivables Facility, as well as$1.5 million outstanding on the Streeterville Note. AtJune 30, 2021 , we had additional availability of$2.2 million under the Inventory Facility and$0.6 million under the Receivables Facility, for a total of$2.8 million of additional availability. We have historically incurred substantial losses, and as ofJune 30, 2021 , we had an accumulated deficit of$135.0 million . Additionally, our sales have been concentrated among a few major customers and for the six months endedJune 30, 2021 , two customers accounted for approximately 52% of net sales. As a result of the restructuring actions and initiatives described above, we have previously reduced our operating expenses to be more commensurate with our expected sales volumes. However, we continue to incur losses and have a substantial accumulated deficit, and substantial doubt about our ability to continue as a going concern continues to exist atJune 30, 2021 . Throughout 2020 and the first six months of 2021, we have continued to evaluate and assess strategic options as we seek to achieve profitability. We plan to continue to develop advanced lighting and lighting control technologies and introduce impactful new products surrounding EnFocusTM, a breakthrough lighting control platform we officially launched during the second quarter of 2020, and our recently announced SuncycleTM circadian lighting system, which we plan to launch in late 2021 to early 2022. In addition, during the last quarter of 2020, we announced newly developed UVCD products for both consumer, as well as commercial and industrial markets, of which two products are expected to be available in the third quarter of 2021, and two products are expected to be available in the fourth quarter of 2021. We plan to achieve profitability through growing our sales, through existing lighting and new lighting control and UVCD products, and by continuing to refine and execute 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, as well as our new consumer market focus. As described in Note 9, "Stockholders' Equity," included under Part I, Item 1, "Financial Statements," of this Quarterly Report, we raised approximately$4.5 million of net proceeds from theJune 2021 Equity Offering and, inJanuary 2020 , we raised approximately$2.3 million of net proceeds upon the issuance common stock and warrants (the "January 2020 Equity Offering"). InApril 2021 , we obtained approximately$1.5 million net proceeds from bridge financing increased the capacity of the Inventory Facility, which allows for expanded borrowing capacity under the Credit Facilities entered into inAugust 2020 as described in Note 7, "Debt," included under Part I, Item 1, "Financial Statements," of this Quarterly Report. The restructuring and cost cutting initiatives implemented during 2020 and continued into 2021, as well as theJune 2021 Equity Offering andJanuary 2020 Equity Offering that significantly strengthened our balance sheet, the PPP loan we obtained inApril 2020 , our enhanced debt capacity due to the debt refinancing inAugust 2020 and increased borrowing capacity as a result of the amendment to the Inventory Loan Agreement inApril 2021 , and bridge financing achieved 36 -------------------------------------------------------------------------------- pursuant to the Streeterville Note Purchase Agreement inApril 2021 , were designed to allow us to effectively execute these strategies. However, our efforts may not occur as quickly as we envision or be successful due to the long sales cycle in our industry, the corresponding time required to ramp up sales from new products, markets, and customers into this sales cycle, the timing of introductions of additional new products, significant competition, potential sales volatility given our customer concentration, and the ongoing and lingering economic impact from the COVID-19 pandemic that had significantly diminished the interest and activities for our customers' lighting retrofit projects until occupancy returns to more normal levels, among other factors. Additionally, global supply chain challenges are impacting our inventory purchasing strategy, leading to a buildup of inventory and components in an effort to manage both shortages of available components and longer lead times in obtaining components. As a result, we will continue to review and pursue selected external funding sources to ensure adequate financial resources to execute across the timelines required to achieve these objectives including, but not limited to, the following: •obtaining financing from traditional or non-traditional investment capital organizations or individuals; •obtaining funding from the sale of our common stock or other equity or debt instruments; and •obtaining debt financing with lending terms that more closely match our business model and capital needs.
There can be no assurance that we will obtain funding on acceptable terms, in a timely fashion, or at all. Obtaining additional funding contains risks, including:
•additional equity financing may not be available to us on satisfactory terms, and any equity we are able to issue could lead to dilution for current stockholders and have rights, preferences and privileges senior to our common stock; •loans or other debt instruments may have terms and/or conditions, such as interest rate, restrictive covenants, conversion features, refinancing demands, and control or revocation provisions, which are not acceptable to management or our board of directors; and •the current environment in the capital markets combined with our capital constraints may prevent us from being able to obtain adequate debt financing. If we fail to obtain the required additional financing to sustain our business before we are able to produce levels of revenue to meet our financial needs, we will need to delay, scale back or eliminate our growth plans and further reduce our operating costs and headcount, each of which would have a material adverse effect on our business, future prospects, and financial condition. A lack of additional funding could also result in our inability to continue as a going concern and force us to sell certain assets or discontinue or curtail our operations and, as a result, investors in the Company could lose their entire investment. Considering both quantitative and qualitative information, we continue to believe that the combination of our plans to obtain additional external funding, timely re-organizational actions, current financial position, liquid resources, obligations due or anticipated within the next year, development and implementation of an excess inventory reduction plan, plans and initiatives in our research and development, product development and sales and marketing, and development of potential channel partnerships, if adequately executed, will provide us with an ability to finance our operations through the next twelve months and will mitigate the substantial doubt about our ability to continue as a going concern. OnAugust 17, 2020 , we received a letter from the Listing Qualifications staff (the "Staff") ofThe Nasdaq Stock Market ("Nasdaq") notifying us that we are no longer in compliance with Nasdaq Listing Rule 5550(b)(1), which requires listed companies to maintain stockholders' equity of at least$2,500,000 if they do not meet the alternative compliance standards relating to the market value of listed securities or net income from continuing operations (the "Minimum Stockholders' Equity Rule"). Our Quarterly Report on Form 10-Q for the quarterly period endedJune 30, 2020 , filed onAugust 13, 2020 , reflected that our stockholders' equity as ofJune 30, 2020 was$1,714,000 . In addition, as ofAugust 13, 2020 , we did not meet the alternative compliance standards relating to the market value of listed securities or net income from continuing operations. OnOctober 5, 2020 , based on our timely submission of our plan to regain compliance, Nasdaq granted us an extension throughFebruary 15, 2021 to regain compliance with the Minimum Stockholders' Equity Rule, subject to our compliance with certain terms of the extension. In accordance with one part of the plan submitted to the Staff, we have successfully modified our outstanding warrants and are able to now classify the warrants within equity. AtDecember 31, 2020 , our stockholders' equity was$4,255,000 . OnJanuary 20, 2021 , we received a letter from the Staff notifying us that, on a conditional basis, Nasdaq has determined that we have regained compliance with the Minimum Stockholders' Equity Rule. AtJune 30, 2021 our stockholders' equity was$5,603,000 . 37 --------------------------------------------------------------------------------
Liquidity and capital resources
Cash
AtJune 30, 2021 , our cash balance was approximately$1.3 million , compared to approximately$1.8 million atDecember 31, 2020 . The balance at each ofJune 30, 2021 andDecember 31, 2020 excluded restricted cash of$0.3 million for a letter of credit requirement under a lease obligation. 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): Six months endedJune 30, 2021 2020
Net cash used in operating activities
Net cash used in investing activities
Net cash provided by financing activities
Net cash used in operating activities
Net cash used in operating activities was$6.1 million for the six months endedJune 30, 2021 . The net loss was$4.1 million and was adjusted for non-cash items, including depreciation and amortization, stock-based compensation, provisions for inventory, warranty, gain on forgiveness of the PPP loan and accounts receivable reserves and working capital changes. During the six months endedJune 30, 2021 , we generated$0.9 million through the timing of collection of accounts receivable and$0.1 million through the timing of the receipt of inventory against short-term deposits. We used$2.5 million for inventory primarily due to global supply chain challenges we are experiencing, which are impacting our inventory purchasing strategy, leading to a buildup of inventory and inventory components in an effort to manage both shortages of available components and longer lead times in obtaining components. We used$0.4 million due to changes in accrued and other liabilities (primarily due to a reduction of$0.1 million in accrued accounting and legal fees and$0.3 million in accrued bonuses). Net cash used in operating activities was$0.7 million for the six months endedJune 30, 2020 . The net loss incurred of$4.9 million was adjusted for non-cash items, including depreciation and amortization, stock-based compensation, change in fair value of warrant liabilities, provisions for inventory, warranty reserves and working capital changes. During the six months endedJune 30, 2020 , we generated$1.3 million in cash for accounts payable due to the timing of inventory receipts and payments, and$0.6 million for inventories primarily due to the timing of inventory receipts and we used$0.2 million of short term deposits due to prepaid deposits to our contract manufacturers for inventory for the EnFocusTM platform. We used cash of$0.2 million through the timing of collection of accounts receivable and generated$0.3 million cash through an increase of other accrued liabilities, primarily related to accrued payroll and benefits and commissions
Net cash used in investing activities
Net cash used in investing activities was$211 thousand for the six months endedJune 30, 2021 and resulted primarily from the purchase of software and a vehicle to support production operations, as well as development of an e-commerce platform.
For the six months ended
Net cash provided by financing activities
Net cash provided by financing activities during the six months endedJune 30, 2021 was$5.8 million , primarily related to$4.5 million of net proceeds from theJune 2021 Equity Offering,$1.5 million of net proceeds from the Streeterville Note, and proceeds from the exercise of 156,446 warrants of$0.5 million . These sources of cash were partially offset by net payments on the Credit Facilities of$0.8 million . Investors in theJanuary 2020 Equity Offering received warrants to purchase shares of our common stock, of which warrants to purchase an aggregate of 310,860 shares remain outstanding at 38 --------------------------------------------------------------------------------June 30, 2021 with a weighted average exercise price of$3.59 per share. The exercise of the outstanding warrants could provide us with cash proceeds of up to$1.1 million in the aggregate. Net cash provided by financing activities during the six months endedJune 30, 2020 was$3.2 million , primarily resulting from the$2.8 million in proceeds received from theJanuary 2020 Equity Offering, partially offset by$0.5 million in offering costs for the issuance.
Contractual obligations
As ofJune 30, 2021 , we had approximately$3.3 million in outstanding purchase commitments for inventory. Of this amount, approximately$2.6 million is expected to ship in the third quarter of 2021, with the balance expected to ship in the fourth quarter of 2021 and thereafter.
There have been no other material changes to our contractual obligations as compared to those included in our 2020 Annual Report.
Critical accounting policies
Fair value of warrant liabilities
Due to a potential cash settlement upon occurrence of a fundamental transaction within the warrant agreement, the warrants were initially classified as liabilities, as opposed to equity, and were recorded at their fair values at each balance sheet date for the first three quarters of 2020. We used the Black-Scholes valuation model to value the warrant liabilities at fair value. The fair value is estimated using the expected volatility based on our historical volatility and is determined using probability weighted average assumptions, when appropriate. DuringDecember 2020 , the warrant holders agreed to a modification of the terms of their warrants which removed the potential cash settlement option upon the occurrence of a fundamental transaction. As such, during the fourth quarter of 2020, the warrant liability was reclassified into equity and the warrants are no longer subject to re-measurement at each balance sheet date.
There have been no other material changes to our critical accounting policies as compared to those included in our 2020 Annual Report.
Certain risks and concentrations
We have certain customers whose net sales individually represented 10% or more of our total net sales, or whose net trade accounts receivable balance individually represented 10% or more of our total net trade accounts receivable; we have certain suppliers, which individually represent 10% or more of our total purchases, or whose trade accounts payable balance individually represented 10% or more of our total trade accounts payable balance, as follows: For the three months endedJune 30, 2021 , sales to our primary distributor for theU.S. Navy and a regional commercial lighting retrofit company accounted for approximately 30% and 10% of net sales, respectively. When sales to our primary distributor for theU.S. Navy are combined with sales to shipbuilders for theU.S. Navy , total net sales of products for theU.S. Navy comprised approximately 35% of net sales for the same period. For the three months endedJune 30, 2020 , sales to our primary distributor for theU.S. Navy , a regional commercial lighting retrofit company and a primary shipbuilder for theU.S. Navy , accounted for approximately 40%, 15% and 11% of net sales, respectively. When sales to our primary distributor for theU.S. Navy are combined with sales to shipbuilders for theU.S. Navy , total net sales of products for theU.S. Navy comprised approximately 60% of net sales for the same period. For the six months endedJune 30, 2021 , sales to our primary distributor for theU.S. Navy and a regional commercial lighting retrofit company accounted for approximately 41% and 11% of net sales, respectively. When sales to our primary distributor for theU.S. Navy are combined with sales to shipbuilders for theU.S. Navy , total net sales of products for theU.S. Navy comprised approximately 47% of net sales for the same period. For the six months endedJune 30, 2020 , sales to our primary distributor for theU.S. Navy and a regional commercial lighting retrofit company accounted for approximately 39% and 15% of net sales, respectively. When sales to our primary distributor for theU.S. Navy are combined with sales to shipbuilders for theU.S. Navy , total net sales of products for theU.S. Navy comprised approximately 53% of net sales for the same period. 39 -------------------------------------------------------------------------------- Our primary distributor for theU.S. Navy accounted for approximately 43% of net trade accounts receivable atJune 30, 2021 . A regional commercial lighting retrofit company and a national distributor to southern school districts each accounted for approximately 10% of net trade accounts receivable atJune 30, 2021 . AtDecember 31, 2020 , our primary distributor to theU.S. Navy accounted for 28% of our net trade accounts receivable and a shipbuilder for theU.S. Navy accounted for 21% of our net trade accounts receivable. One offshore supplier accounted for approximately 39% and 32%, respectively, of our total expenditures for the three and six months endedJune 30, 2021 . For the three months endedJune 30, 2020 , this offshore supplier accounted for approximately 12% of total expenditures and one domestic supplier accounted for 13.7% of total expenditures. For the six months endedJune 30, 2020 , one offshore supplier accounted for approximately 15.5% of total expenditures. AtJune 30, 2021 , this offshore supplier accounted for approximately 68% of our trade accounts payable balance. AtDecember 31, 2020 , this offshore supplier accounted for approximately 44% of our trade accounts payable balance.
Recent accounting pronouncements
For information on recent accounting pronouncements, please refer to Note 2,
"Basis of Presentation and Summary of Significant Accounting Policies," included
under Part I, Item 1, "Financial Statements," of this Quarterly Report.
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