☑ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
DELAWARE | 94-3021850 | |
(State of incorporation) | (I.R.S. Employer Identification No.) |
Large accelerated filer ☐ | Accelerated filer ☐ | |
Non-accelerated filer ☐ (Do not check if a smaller reporting company) | Smaller reporting company ☑ | |
Emerging growth company ☐ |
PART I | Page | |
ITEM 1. | BUSINESS | |
ITEM 1A. | RISK FACTORS | |
ITEM 1B. | UNRESOLVED STAFF COMMENTS | |
ITEM 2. | PROPERTIES | |
ITEM 3. | LEGAL PROCEEDINGS | |
ITEM 4. | MINE SAFETY DISCLOSURES | |
PART II | ||
ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES | |
ITEM 6. | SELECTED FINANCIAL DATA | |
ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | |
ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | |
ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES | |
ITEM 9A. | CONTROLS AND PROCEDURES | |
ITEM 9B. | OTHER INFORMATION | |
PART III | ||
ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE | |
ITEM 11. | EXECUTIVE COMPENSATION | |
ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS | |
ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE | |
ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES | |
PART IV | ||
ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES | |
ITEM 16. | FORM 10-K SUMMARY | |
SIGNATURES | ||
EXHIBIT INDEX |
• | our need for additional financing in the near term to continue our operations; |
• | our ability to continue as a going concern for a reasonable period of time; |
• | our ability to implement plans to increase sales and control expenses; |
• | our reliance on a limited number of customers for a significant portion of our revenue, and our ability to maintain or grow such sales levels; |
• | our ability to increase demand in our targeted markets and to manage sales cycles that are difficult to predict and may span several quarters; |
• | the timing of large customer orders, significant expenses and fluctuations between demand and capacity as we invest in growth opportunities; |
• | our ability to compete effectively against companies with lower cost structures or greater resources, or more rapid development efforts, and new competitors in our target markets; our ability to successfully scale our network of sales representatives, agents, and distributors to match the sales reach of larger, established competitors; |
• | market acceptance of LED lighting technology; |
• | our ability to attract and retain qualified personnel, and to do so in a timely manner; |
• | the impact of any type of legal inquiry, claim, or dispute; |
• | general economic conditions in the United States and in other markets in which we operate or secure products; |
• | our dependence on military maritime customers and on the levels of government funding available to such customers, as well as the funding resources of our other customers in the public sector and commercial markets; |
• | our reliance on a limited number of third-party suppliers, our ability to obtain critical components and finished products from such suppliers on acceptable terms, and the impact of our fluctuating demand on the stability of such suppliers; our ability to timely and efficiently transport products from our third-party suppliers to our facility by ocean marine channels; |
• | our ability to respond to new lighting technologies and market trends, and fulfill our warranty obligations with safe and reliable products; |
• | any delays we may encounter in making new products available or fulfilling customer specifications; |
• | any flaws or defects in our products or in the manner in which they are used or installed; |
• | our ability to protect our intellectual property rights and other confidential information, and manage infringement claims by others; |
• | our compliance with government contracting laws and regulations, through both direct and indirect sale channels, as well as other laws, such as those relating to the environment and health and safety; |
• | risks inherent in international markets, such as economic and political uncertainty, changing regulatory and tax requirements and currency fluctuations, including tariffs and other potential barriers to international trade; and |
• | our ability to maintain effective internal controls and otherwise comply with our obligations as a public company and under Nasdaq listing standards. |
• | Direct-wire single-ended and double-ended TLED replacements for linear fluorescent lamps; |
• | Commercial Intellitube® TLED replacement for linear fluorescent lamps; |
• | LED fixtures and panels for fluorescent replacement or HID replacement in low-bay and high-bay applications; |
• | LED down-lights; |
• | LED dock lights and wall-packs; |
• | LED vapor tight lighting fixtures; |
• | LED retrofit kits; and |
• | RedCap™ emergency battery backup TLEDs. |
• | Military Intellitube®; |
• | Military globe lights; |
• | Military berth lights; |
• | Invisitube ultra-low EMI TLED; |
• | Military LED retrofit kits; and |
• | Military fixtures. |
• | Many of our products make use of proprietary optical and electronics delivery systems that enable high efficiencies with superior lighting qualities and proven records of extremely high product reliability. |
• | Our products have exceptionally long life and are backed by a 10-year warranty. |
• | Our products have extremely low flicker. Optical flicker, or fluctuations in brightness over time, is largely invisible to the human eye, but has been proven to exert stress on the human brain, causing headaches and eye strain, which reduce occupant comfort and productivity. The Institute of Electrical and Electronics Engineers (“IEEE”) one of the world's largest technical professional society promoting the development and application of electrotechnology and allied sciences for the benefit of humanity, recommends optical flicker of five percent or less. Our 500D series TLED products are certified by Underwriters Laboratories (“UL®”) as “low optical flicker, less than 1%”. |
• | Many of our products meet the lighting efficiency standards mandated by the Energy Independence and Security Act of 2007. |
• | Many of our products qualify for federal and state tax and rebate incentives for commercial consumers available in certain states. |
• | A long research, engineering, and market developmental history, with broad and intimate understanding of lighting technologies and LED lighting applications; |
• | Concentration on developing and providing high-quality, price competitive TLED lamps to replace fluorescent and HID lamps for commercial markets; |
• | Providing high quality and high performing LED and TLED products with a proven history of reliability; and |
• | A deep understanding of the adoption dynamics and decision-making process for LED lighting products in existing commercial building markets. |
• | Given the 24/7 lighting requirements of hospital systems we believe that our LED solutions offer the quality, performance, long lifetime, return on investment and low flicker lightning that is particularly attractive to this target market. Since 2015 we have been the trusted LED lighting partner for a major northeast Ohio hospital system and as a result of our continued success, we have been able to leverage this relationship to introduce our lighting solutions and value proposition to an increasing number of hospital systems. |
• | As we advocate for the benefits of low flicker LED lighting in schools, both in terms of energy-efficiency and in creating a healthy and effective learning environment, we continue to receive orders to retrofit local school districts, colleges and universities. |
• | Low and high bay applications are generally used in commercial and industrial markets to provide light to large open areas like big-box retail stores, warehouses and manufacturing facilities. In the past few years, technological and cost improvements have allowed LED low and high bay applications to be more competitive against traditional low and high bay applications. In the industrial market in particular, due to the usage of HID lighting, the energy savings that can be achieved by switching to our LED products could be substantial and we believe we have attractive product offerings in this space. |
• | obtaining financing from traditional or non-traditional investment capital organizations or individuals; and |
• | obtaining funding from the sale of our common stock or other equity or debt instruments. |
• | 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 and control or revocation provisions, which are not acceptable to management or our Board of Directors; and |
• | the current environment in capital markets combined with our capital constraints may prevent us from being able to obtain adequate debt financing. |
• | manage organizational complexity and communication; |
• | expand the skills and capabilities of our current management team; |
• | add experienced senior level managers; |
• | attract and retain qualified employees; |
• | adequately maintain and adjust the operational and financial controls that support our business; |
• | expand research and development, sales and marketing, technical support, distribution capabilities, manufacturing planning and administrative functions; |
• | maintain or establish additional manufacturing facilities and equipment, as well as secure sufficient third-party manufacturing resources, to adequately meet customer demand; and |
• | manage an increasingly complex supply chain that has the ability to maintain a sufficient supply of materials and deliver on time to our manufacturing facilities. |
• | available funding to sustain adequate development efforts; |
• | achievement of technology breakthroughs required to make commercially viable devices; |
• | the accuracy of our predictions for market requirements; |
• | our ability to predict, influence, and/or react to evolving standards; |
• | acceptance of our new product designs; |
• | acceptance of new technologies in certain markets; |
• | the combination of other desired technological advances with lighting products, such as controls; |
• | the availability of qualified research and development personnel; |
• | our timely completion of product designs and development; |
• | our ability to develop repeatable processes to manufacture new products in sufficient quantities, with the desired specifications, and at competitive costs; |
• | our ability to effectively transfer products and technology from development to manufacturing; and |
• | market acceptance of our products. |
• | changes in aggregate capital spending, cyclicality and other economic conditions, or domestic and international demand in the industries; |
• | the timing of large customer orders to which we may have limited visibility and cannot control; |
• | competition for our products, including the entry of new competitors and significant declines in competitive pricing; |
• | our ability to effectively manage our working capital; |
• | our ability to generate increased demand in our current and targeted markets, particularly those in which we have limited experience; |
• | our ability to satisfy consumer demands in a timely and cost-effective manner; |
• | pricing and availability of labor and materials; |
• | quality testing and reliability of new products; |
• | our inability to adjust certain fixed costs and expenses for changes in demand and the timing and significance of expenditures that may be incurred to facilitate our growth; |
• | seasonal fluctuations in demand and our revenue; and |
• | disruption in component supply from foreign vendors. |
• | difficulty in enforcing agreements and collecting receivables through foreign legal systems; |
• | unexpected changes in regulatory requirements, tariffs, and other trade barriers or restrictions; |
• | potentially adverse tax consequences; |
• | the burdens of compliance with the U.S. Foreign Corrupt Practices Act, similar anti-bribery laws in other countries, and a wide variety of laws; |
• | import and export license requirements and restrictions of the United States and each other country in which we operate; |
• | exposure to different legal standards and reduced protection for intellectual property rights in some countries; |
• | currency fluctuations and restrictions; and |
• | political, social, and economic instability, including war and the threat of war, acts of terrorism, pandemics, boycotts, curtailment of trade, or other business restrictions. |
• | actual or anticipated variations in our financial condition and operating results; |
• | general economic conditions and trends; |
• | addition or loss of significant customers and the timing of significant customer purchases; |
• | our ability to effectively implement our growth plans and the significance and timing of associated expenses; |
• | unanticipated impairments and other changes that reduce our earnings; |
• | overall conditions or trends in our industry; |
• | the entry or exit of new competitors into our target markets; |
• | any litigation or legal claims; |
• | the terms and amount of any additional financing that we may obtain, if any; |
• | unfavorable publicity; |
• | additions or departures of key personnel; |
• | changes in the estimates of our operating results or changes in recommendations by any securities or industry analysts that elect to follow our common stock; |
• | market expectations following period of rapid growth; and |
• | sales of our common stock by us or our stockholders, including sales by our directors and officers. |
Name | Age | Current position and business experience | ||
Theodore L. Tewksbury III, Ph.D. | 62 | Chairman of the Board, Chief Executive Officer and President – February 2017 to present | ||
Executive Chairman of the Board – December 2016 to February 2017 | ||||
Dr. Tewksbury has been Founder and CEO of Tewksbury Partners, LLC, providing strategic consulting, advisory and board services to private and public technology companies, venture capital and private equity firms, since 2013. He had served as President and Chief Executive Officer (from November 2014) and a director (from September 2010) of Entropic Communications, a public company specializing in semiconductor solutions for the connected home, until its sale to MaxLinear, Inc., another public semiconductor company, in April 2015, and he remains a director of MaxLinear, Inc. He is also a director of Jariet Technologies, a private company specializing in digital microwave integrated circuits for wireless infrastructure, backhaul and military applications. From 2008 to 2013, Dr. Tewksbury served as President and Chief Executive Officer and a director of Integrated Device Corporation, a public semiconductor company. | ||||
Jerry Turin | 56 | Chief Financial Officer – May 2018 to present | ||
Mr. Turin has served as Energy Focus’s Chief Financial Officer and Secretary since May 2018. Mr. Turin is an experienced Chief Financial Officer with more than 20 years of strategic leadership in corporate finance, business development, turnarounds, mergers and acquisitions, capital raising and investor relations within public and privately-held companies. Most recently, Mr. Turin served as Chief Financial Officer of Intematix, a venture-owned supplier of phosphors and lighting solutions for the LED market. He helped lead the company’s turnaround through operational streamlining, manufacturing consolidation, gross margin expansion and an acquisition, culminating in its successful sale to a China-backed LED joint venture in 2017. Prior to that, Mr. Turin was the Chief Financial Officer of Oclaro, a publicly traded supplier of optical solutions for network equipment customers, from 2008 to 2013. In this role, he raised over $500 million in financing from equity, debt, divestitures and other transactions to fund revenue growth from $250 million to $600 million through a sector roll up of public and private optical companies. Before that, Mr. Turin served as Oclaro’s Vice President of Finance and was Corporate Controller from 2005 to 2008. Earlier in his career, Mr. Turin was Director of Finance at Silicon Spice and Corporate Controller at Cirrus Logic. Mr. Turin received a Bachelor of Commerce degree from the University of Alberta and began his career with 11 years at Deloitte & Touche, where he was promoted through multiple levels to Senior Manager. |
High | Low | ||||||
First quarter 2018 | $ | 3.45 | $ | 2.15 | |||
Second quarter 2018 | 2.90 | 1.78 | |||||
Third quarter 2018 | 2.40 | 1.80 | |||||
Fourth quarter 2018 | 2.18 | 0.49 | |||||
First quarter 2017 | $ | 5.18 | $ | 3.03 | |||
Second quarter 2017 | 3.52 | 2.32 | |||||
Third quarter 2017 | 3.24 | 1.51 | |||||
Fourth quarter 2017 | 3.46 | 2.00 |
Equity Compensation Plan Information | |||||||||||
Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | ||||||||
Equity compensation plans approved by security holders | 839,729 | $ | 3.78 | (2) | 1,671,299 | (1) |
(1) | Includes 401,484 shares available for issuance under the 2013 Employee Stock Purchase Plan and 1,269,815 shares available for issuance under our 2014 Stock Incentive Plan, which may be issued in the form of options, restricted stock, restricted stock units, and other equity-based awards. |
(2) | Does not include 546,858 shares that are restricted stock units and do not have an exercise price. |
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||
OPERATING SUMMARY | ||||||||||||||||||||
Net sales | $ | 18,107 | $ | 19,846 | $ | 30,998 | $ | 64,403 | $ | 22,700 | ||||||||||
Gross profit | 3,412 | 4,821 | 7,677 | 29,292 | 7,778 | |||||||||||||||
Loss on impairment | — | 185 | 857 | — | — | |||||||||||||||
Restructuring | 111 | 1,662 | — | — | — | |||||||||||||||
Net (loss) income from continuing operations | (9,111 | ) | (11,267 | ) | (16,875 | ) | 9,471 | (4,246 | ) | |||||||||||
Loss from discontinued operations | — | — | (12 | ) | (691 | ) | (1,599 | ) | ||||||||||||
Net (loss) income | (9,111 | ) | (11,267 | ) | (16,887 | ) | 8,780 | (5,845 | ) | |||||||||||
Net (loss) income per share - basic: | ||||||||||||||||||||
From continuing operations | $ | (0.76 | ) | $ | (0.95 | ) | $ | (1.45 | ) | $ | 0.91 | $ | (0.55 | ) | ||||||
From discontinued operations | — | — | — | (0.07 | ) | (0.20 | ) | |||||||||||||
Total | (0.76 | ) | (0.95 | ) | (1.45 | ) | 0.84 | (0.75 | ) | |||||||||||
Net (loss) income per share - diluted: | ||||||||||||||||||||
From continuing operations | $ | (0.76 | ) | $ | (0.95 | ) | $ | (1.45 | ) | $ | 0.88 | $ | (0.55 | ) | ||||||
From discontinued operations | — | — | — | (0.06 | ) | (0.20 | ) | |||||||||||||
Total | (0.76 | ) | (0.95 | ) | (1.45 | ) | 0.82 | (0.75 | ) | |||||||||||
Shares used in net (loss) income per share calculation: | ||||||||||||||||||||
Basic | 11,997 | 11,806 | 11,673 | 10,413 | 7,816 | |||||||||||||||
Diluted | 11,997 | 11,806 | 11,673 | 10,752 | 7,816 | |||||||||||||||
FINANCIAL POSITION SUMMARY | ||||||||||||||||||||
Total assets | $ | 18,492 | $ | 22,151 | $ | 34,978 | $ | 55,702 | $ | 19,496 | ||||||||||
Cash and cash equivalents | 6,335 | 10,761 | 16,629 | 34,640 | 7,435 | |||||||||||||||
Credit line borrowings | 2,219 | — | — | — | 453 | |||||||||||||||
Current maturities of long-term debt | — | — | — | — | — | |||||||||||||||
Long-term debt, net of current maturities | — | — | — | — | 70 | |||||||||||||||
Stockholders' equity | 11,052 | 19,292 | 29,938 | 45,320 | 9,773 | |||||||||||||||
Common shares outstanding | 12,091 | 11,869 | 11,711 | 11,649 | 9,424 |
2018 | 2017 | 2016 | |||||||
Net sales | 100.0 | % | 100.0 | % | 100.0 | % | |||
Cost of sales | 81.2 | 75.7 | 75.2 | ||||||
Gross profit | 18.8 | 24.3 | 24.8 | ||||||
Operating expenses: | |||||||||
Product development | 14.3 | 14.8 | 11.4 | ||||||
Selling, general, and administrative | 54.1 | 57.0 | 64.9 | ||||||
Loss on impairment | — | 0.9 | 2.8 | ||||||
Restructuring | 0.6 | 8.4 | — | ||||||
Total operating expenses | 69.0 | 81.1 | 79.1 | ||||||
Loss from operations | (50.2 | ) | (56.8 | ) | (54.3 | ) | |||
Other expenses: | |||||||||
Interest expense | — | — | — | ||||||
Other expenses | — | 0.4 | — | ||||||
Loss from continuing operations before income taxes | (50.2 | ) | (57.3 | ) | (54.3 | ) | |||
Provision for (Benefit from) income taxes | 0.1 | (0.5 | ) | 0.2 | |||||
Net loss from continuing operations | (50.3 | ) | (56.8 | ) | (54.5 | ) | |||
Discontinued operations: | |||||||||
Loss on sale of discontinued operations | — | — | — | ||||||
Loss from discontinued operations before income taxes | — | — | — | ||||||
Benefit from income taxes | — | — | — | ||||||
Loss from discontinued operations | — | — | — | ||||||
Net loss | (50.3 | )% | (56.8 | )% | (54.5 | )% |
2018 | 2017 | 2016 | |||||||||
Commercial | $ | 8,662 | $ | 15,217 | $ | 14,809 | |||||
Military maritime | 9,445 | 4,629 | 16,189 | ||||||||
Total net sales | $ | 18,107 | $ | 19,846 | $ | 30,998 |
For the year ended December 31, | |||||||||||
2018 | 2017 | 2016 | |||||||||
Total gross product development expenses | $ | 2,597 | $ | 2,940 | $ | 3,630 | |||||
Cost recovery and other credits | — | — | (93 | ) | |||||||
Net product development expense | $ | 2,597 | $ | 2,940 | $ | 3,537 |
• | obtaining financing from traditional or non-traditional investment capital organizations or individuals; and |
• | obtaining funding from the sale of our common stock or other equity or debt instruments. |
• | 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 and control or revocation provisions, which are not acceptable to management or our Board of Directors; and |
• | the current environment in capital markets combined with our capital constraints may prevent us from being able to obtain adequate debt financing. |
2018 | 2017 | 2016 | ||||||||||
Net cash used in operating activities | $ | (6,795 | ) | $ | (5,874 | ) | $ | (16,553 | ) | |||
Net cash provided by (used in) investing activities | $ | 189 | $ | (65 | ) | $ | (1,597 | ) | ||||
Proceeds from exercise of stock options and purchases through employee stock purchase plan | 28 | 130 | 455 | |||||||||
Common stock withheld in lieu of income tax withholding on vesting of restricted stock units | (62 | ) | (49 | ) | (309 | ) | ||||||
Net proceeds from credit line borrowings | 2,219 | — | — | |||||||||
Net cash provided by financing activities | $ | 2,185 | $ | 81 | $ | 146 |
Obligations Due | |||||||||||||||||||
Less Than | 1 to 3 | 3 to 5 | More Than | ||||||||||||||||
Total | 1 Year | Years | Years | 5 Years | |||||||||||||||
Operating leases (1) | $ | 3,297 | $ | 1,177 | $ | 2,104 | $ | 15 | $ | 1 | |||||||||
Capital leases (2) | 11 | 4 | 7 | — | — | ||||||||||||||
Purchase obligations (3) | 2,776 | 2,776 | — | — | — | ||||||||||||||
Total contractual obligations | $ | 6,084 | $ | 3,957 | $ | 2,111 | $ | 15 | $ | 1 |
• | revenue recognition, |
• | allowances for doubtful accounts, returns and discounts, |
• | impairment of long-lived assets, |
• | valuation of inventories, |
• | accounting for income taxes, and |
• | share-based compensation. |
• | Allowance for doubtful accounts for accounts receivable, and |
• | Allowance for sales returns and discounts. |
Page | |
Report of Independent Registered Public Accounting Firm | |
Consolidated Balance Sheets as of December 31, 2018 and 2017 | |
Consolidated Statements of Operations for the years ended December 31, 2018, 2017, and 2016 | |
Consolidated Statements of Comprehensive Loss for the years ended December 31, 2018, 2017, and 2016 | |
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2018, 2017, and 2016 | |
Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017, and 2016 | |
Notes to Consolidated Financial Statements |
2018 | 2017 | ||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 6,335 | $ | 10,761 | |||
Trade accounts receivable, less allowances of $33 and $42, respectively | 2,201 | 3,595 | |||||
Inventories, net | 8,058 | 5,718 | |||||
Prepaid and other current assets | 1,094 | 596 | |||||
Assets held for sale | — | 225 | |||||
Total current assets | 17,688 | 20,895 | |||||
Property and equipment, net | 610 | 1,097 | |||||
Other assets | 194 | 159 | |||||
Total assets | $ | 18,492 | $ | 22,151 | |||
LIABILITIES | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 3,606 | $ | 1,630 | |||
Accrued liabilities | 1,385 | 992 | |||||
Deferred revenue | 30 | 5 | |||||
Credit line borrowings | 2,219 | — | |||||
Total current liabilities | 7,240 | 2,627 | |||||
Other liabilities | 200 | 232 | |||||
Total liabilities | 7,440 | 2,859 | |||||
STOCKHOLDERS’ EQUITY | |||||||
Preferred stock, par value $0.0001 per share: | |||||||
Authorized: 2,000,000 shares in 2018 and 2017 | |||||||
Issued and outstanding: no shares in 2018 and 2017 | — | — | |||||
Common stock, par value $0.0001 per share: | |||||||
Authorized: 30,000,000 shares in 2018 and 2017 | |||||||
Issued and outstanding: 12,090,695 at December 31, 2018 and 11,868,896 at December 31, 2017 | 1 | 1 | |||||
Additional paid-in capital | 128,367 | 127,493 | |||||
Accumulated other comprehensive (loss) income | (1 | ) | 2 | ||||
Accumulated deficit | (117,315 | ) | (108,204 | ) | |||
Total stockholders' equity | 11,052 | 19,292 | |||||
Total liabilities and stockholders' equity | $ | 18,492 | $ | 22,151 |
2018 | 2017 | 2016 | |||||||||
Net sales | $ | 18,107 | $ | 19,846 | $ | 30,998 | |||||
Cost of sales | 14,695 | 15,025 | 23,321 | ||||||||
Gross profit | 3,412 | 4,821 | 7,677 | ||||||||
Operating expenses: | |||||||||||
Product development | 2,597 | 2,940 | 3,537 | ||||||||
Selling, general, and administrative | 9,789 | 11,315 | 20,113 | ||||||||
Loss on impairment | — | 185 | 857 | ||||||||
Restructuring | 111 | 1,662 | — | ||||||||
Total operating expenses | 12,497 | 16,102 | 24,507 | ||||||||
Loss from operations | (9,085 | ) | (11,281 | ) | (16,830 | ) | |||||
Other expenses: | |||||||||||
Interest expense | 8 | 2 | — | ||||||||
Other expenses | 7 | 99 | 18 | ||||||||
Loss from continuing operations before income taxes | (9,100 | ) | (11,382 | ) | (16,848 | ) | |||||
Provision for (Benefit from) income taxes | 11 | (115 | ) | 27 | |||||||
Net loss from continuing operations | $ | (9,111 | ) | $ | (11,267 | ) | $ | (16,875 | ) | ||
Discontinued operations: | |||||||||||
Loss on sale of discontinued operations | — | — | (12 | ) | |||||||
Loss from discontinued operations before income taxes | — | — | (12 | ) | |||||||
Benefit from income taxes | — | — | — | ||||||||
Loss from discontinued operations | $ | — | $ | — | $ | (12 | ) | ||||
Net loss | $ | (9,111 | ) | $ | (11,267 | ) | $ | (16,887 | ) | ||
Net loss per share - basic and diluted: | |||||||||||
Net loss from continuing operations | $ | (0.76 | ) | $ | (0.95 | ) | $ | (1.45 | ) | ||
Net loss from discontinued operations | — | — | — | ||||||||
Net loss | $ | (0.76 | ) | $ | (0.95 | ) | $ | (1.45 | ) | ||
Weighted average common shares outstanding: | |||||||||||
Basic and diluted | 11,997 | 11,806 | 11,673 |
2018 | 2017 | 2016 | |||||||||
Net loss | $ | (9,111 | ) | $ | (11,267 | ) | $ | (16,887 | ) | ||
Other comprehensive (loss) income: | |||||||||||
Foreign currency translation adjustments | (3 | ) | 3 | (1 | ) | ||||||
Comprehensive loss | $ | (9,114 | ) | $ | (11,264 | ) | $ | (16,888 | ) |
Additional Paid-in Capital | Accumulated Other Comprehensive (Loss) Income | |||||||||||||||||||||
Common Stock | Accumulated Deficit | |||||||||||||||||||||
Shares | Amount | Total | ||||||||||||||||||||
Balance at December 31, 2015 | 11,649 | $ | 1 | $ | 125,369 | $ | — | $ | (80,050 | ) | $ | 45,320 | ||||||||||
Issuance of common stock under employee stock option and stock purchase plans | 113 | $ | 455 | $ | 455 | |||||||||||||||||
Common stock withheld to satisfy exercise price and income tax withholding on option exercises | (51 | ) | $ | (309 | ) | $ | (309 | ) | ||||||||||||||
Stock-based compensation | $ | 1,360 | $ | 1,360 | ||||||||||||||||||
Foreign currency translation adjustment | $ | (1 | ) | $ | (1 | ) | ||||||||||||||||
Net loss | $ | (16,887 | ) | $ | (16,887 | ) | ||||||||||||||||
Balance at December 31, 2016 | 11,711 | $ | 1 | $ | 126,875 | $ | (1 | ) | $ | (96,937 | ) | $ | 29,938 | |||||||||
Issuance of common stock under employee stock option and stock purchase plans | 173 | $ | 130 | $ | 130 | |||||||||||||||||
Common stock withheld in lieu of income tax withholding on vesting of restricted stock units | (15 | ) | $ | (49 | ) | $ | (49 | ) | ||||||||||||||
Stock-based compensation | $ | 807 | $ | 807 | ||||||||||||||||||
Stock-based compensation reversal | $ | (270 | ) | $ | (270 | ) | ||||||||||||||||
Foreign currency translation adjustment | $ | 3 | $ | 3 | ||||||||||||||||||
Net loss | $ | (11,267 | ) | $ | (11,267 | ) | ||||||||||||||||
Balance at December 31, 2017 | 11,869 | $ | 1 | $ | 127,493 | $ | 2 | $ | (108,204 | ) | $ | 19,292 | ||||||||||
Issuance of common stock under employee stock option and stock purchase plans | 249 | $ | 28 | $ | 28 | |||||||||||||||||
Common stock withheld in lieu of income tax withholding on vesting of restricted stock units | (27 | ) | $ | (62 | ) | $ | (62 | ) | ||||||||||||||
Stock-based compensation | $ | 908 | $ | 908 | ||||||||||||||||||
Foreign currency translation adjustment | $ | (3 | ) | $ | (3 | ) | ||||||||||||||||
Net loss | $ | (9,111 | ) | $ | (9,111 | ) | ||||||||||||||||
Balance at December 31, 2018 | 12,091 | $ | 1 | $ | 128,367 | $ | (1 | ) | $ | (117,315 | ) | $ | 11,052 |
2018 | 2017 | 2016 | |||||||||
Cash flows from operating activities: | |||||||||||
Net loss | $ | (9,111 | ) | $ | (11,267 | ) | $ | (16,887 | ) | ||
Loss from discontinued operations | $ | — | $ | — | $ | (12 | ) | ||||
Loss from continuing operations | $ | (9,111 | ) | $ | (11,267 | ) | $ | (16,875 | ) | ||
Adjustments to reconcile net loss to net cash from operating activities: | |||||||||||
Loss on impairment | — | 185 | 857 | ||||||||
Depreciation | 522 | 681 | 805 | ||||||||
Stock-based compensation | 908 | 807 | 1,360 | ||||||||
Stock-based compensation reversal | — | (270 | ) | — | |||||||
Provision for doubtful accounts receivable | (9 | ) | (194 | ) | 156 | ||||||
Provision for slow-moving and obsolete inventories | 17 | (1,400 | ) | 3,281 | |||||||
Provision for warranties | 51 | 196 | 170 | ||||||||
Amortization of loan origination fees | 4 | — | — | ||||||||
Loss on dispositions of property and equipment | 2 | 203 | 38 | ||||||||
Change in operating assets and liabilities: | |||||||||||
Accounts receivable | 1,403 | 2,240 | 4,313 | ||||||||
Inventories | (2,356 | ) | 5,151 | (5,018 | ) | ||||||
Prepaid and other assets | (538 | ) | 161 | (123 | ) | ||||||
Accounts payable | 2,047 | (1,759 | ) | (4,035 | ) | ||||||
Accrued and other liabilities | 240 | (613 | ) | (1,389 | ) | ||||||
Deferred revenue | 25 | 5 | (93 | ) | |||||||
Total adjustments | 2,316 | 5,393 | 322 | ||||||||
Net cash used in operating activities | (6,795 | ) | (5,874 | ) | (16,553 | ) | |||||
Cash flows from investing activities: | |||||||||||
Acquisitions of property and equipment | (57 | ) | (162 | ) | (1,624 | ) | |||||
Proceeds from the sale of property and equipment | 246 | 97 | 27 | ||||||||
Net cash provided by (used in) investing activities | 189 | (65 | ) | (1,597 | ) | ||||||
Cash flows from financing activities: | |||||||||||
Proceeds from exercise of stock options and purchases through employee stock purchase plan | 28 | 130 | 455 | ||||||||
Common stock withheld in lieu of income tax withholding on vesting of restricted stock units | (62 | ) | (49 | ) | — | ||||||
Common stock withheld to satisfy exercise price and income tax withholding on option exercises | — | — | (309 | ) | |||||||
Net proceeds from credit line borrowings | 2,219 | — | — | ||||||||
Net cash provided by financing activities | 2,185 | 81 | 146 | ||||||||
Effect of exchange rate changes on cash and cash equivalents | (5 | ) | (10 | ) | 5 | ||||||
Net cash used in continuing operations | (4,426 | ) | (5,868 | ) | (17,999 | ) |
2018 | 2017 | 2016 | |||||||||
Cash flows of discontinued operations: | |||||||||||
Operating cash flows, net | — | — | (12 | ) | |||||||
Net cash used in discontinued operations | — | — | (12 | ) | |||||||
Net decrease in cash and cash equivalents | (4,426 | ) | (5,868 | ) | (18,011 | ) | |||||
Cash and cash equivalents, beginning of year | 10,761 | 16,629 | 34,640 | ||||||||
Cash and cash equivalents, end of year | $ | 6,335 | $ | 10,761 | $ | 16,629 | |||||
Classification of cash and cash equivalents: | |||||||||||
Cash and cash equivalents | $ | 5,993 | $ | 10,419 | $ | 16,287 | |||||
Restricted cash held | 342 | 342 | 342 | ||||||||
Cash and cash equivalents, end of year | $ | 6,335 | $ | 10,761 | $ | 16,629 | |||||
Supplemental information: | |||||||||||
Cash paid in year for interest | $ | 4 | $ | 2 | $ | 5 | |||||
Cash paid in year for income taxes | $ | 7 | $ | 14 | $ | 51 |
For the year ended December 31, | |||||||||||
2018 | 2017 | 2016 | |||||||||
Numerator: | |||||||||||
Loss from continuing operations | $ | (9,111 | ) | $ | (11,267 | ) | $ | (16,875 | ) | ||
Loss from discontinued operations | — | — | (12 | ) | |||||||
Net loss | $ | (9,111 | ) | $ | (11,267 | ) | $ | (16,887 | ) | ||
Denominator: | |||||||||||
Basic weighted average common shares outstanding | 11,997 | 11,806 | 11,673 | ||||||||
Potential common shares from options and warrants | — | — | — | ||||||||
Diluted weighted average shares | 11,997 | 11,806 | 11,673 |
At December 31, | |||||||
2018 | 2017 | ||||||
Balance at the beginning of the year | $ | 174 | $ | 331 | |||
Accruals for warranties issued | 51 | 196 | |||||
Adjustments to existing warranties | 103 | (87 | ) | ||||
Settlements made during the year (in kind) | (70 | ) | (266 | ) | |||
Accrued warranty expense | $ | 258 | $ | 174 |
Severance and Related Benefits | Facilities | Other | Total | ||||||||||||
Balance at January 1, 2017 | $ | — | $ | — | $ | — | $ | — | |||||||
Additions | $ | 770 | $ | 830 | $ | 186 | $ | 1,786 | |||||||
Accretion of lease obligations | $ | 31 | $ | — | $ | 31 | |||||||||
Adjustment of lease obligations | $ | (155 | ) | $ | — | $ | (155 | ) | |||||||
Write-offs | $ | 9 | $ | (95 | ) | $ | (86 | ) | |||||||
Payments | $ | (708 | ) | $ | (375 | ) | $ | (91 | ) | $ | (1,174 | ) | |||
Balance at December 31, 2017 | $ | 62 | $ | 340 | $ | — | $ | 402 | |||||||
Accretion of lease obligations | $ | 21 | $ | — | $ | 21 | |||||||||
Adjustment of lease obligations | $ | 90 | $ | — | $ | 90 | |||||||||
Payments | $ | (62 | ) | $ | (101 | ) | $ | — | $ | (163 | ) | ||||
Balance at December 31, 2018 | $ | — | $ | 350 | $ | — | $ | 350 |
At December 31, | |||||||
2018 | 2017 | ||||||
Raw materials | $ | 4,041 | $ | 3,316 | |||
Finished goods | 8,229 | 6,598 | |||||
Reserve for excess, obsolete, and slow moving inventories | (4,212 | ) | (4,196 | ) | |||
Inventories, net | $ | 8,058 | $ | 5,718 |
At December 31, | |||||||
2018 | 2017 | ||||||
Equipment (useful life 3 - 15 years) | $ | 1,511 | $ | 1,557 | |||
Tooling (useful life 2 - 5 years) | 371 | 371 | |||||
Vehicles (useful life 5 years) | 47 | 47 | |||||
Furniture and fixtures (useful life 5 years) | 137 | 137 | |||||
Computer software (useful life 3 years) | 1,043 | 1,043 | |||||
Leasehold improvements (the shorter of useful life or lease life) | 211 | 201 | |||||
Construction in progress | 55 | 55 | |||||
Property and equipment at cost | 3,375 | 3,411 | |||||
Less: accumulated depreciation | (2,765 | ) | (2,314 | ) | |||
Property and equipment, net | $ | 610 | $ | 1,097 |
At December 31, | |||||||
2018 | 2017 | ||||||
Prepaid insurance | $ | 100 | $ | 115 | |||
Prepaid expenses | 94 | 91 | |||||
Prepaid rent | 4 | 4 | |||||
Short-term deposits | 825 | 386 | |||||
Debt acquisition costs - short-term | 71 | — | |||||
Total prepaid and other current assets | $ | 1,094 | 596 |
At December 31, | |||||||
2018 | 2017 | ||||||
Accrued payroll and related benefits | $ | 435 | $ | 394 | |||
Accrued sales commissions and incentives | 115 | 124 | |||||
Accrued warranty expense | 258 | 174 | |||||
Accrued severance and related benefits | 188 | — | |||||
Accrued restructuring - short-term | 156 | 170 | |||||
Accrued legal and professional fees | 160 | 77 | |||||
Accrued other expenses | 73 | 53 | |||||
Total accrued liabilities | $ | 1,385 | $ | 992 |
For the year ending December 31, | Minimum Lease Commitments | Sublease Payments (1) | Net Lease Commitments | |||||||
2019 | $ | 1,177 | $ | 399 | $ | 778 | ||||
2020 | 975 | 267 | 708 | |||||||
2021 | 804 | 134 | 670 | |||||||
2022 | 325 | — | 325 | |||||||
2023 & thereafter | 16 | — | 16 | |||||||
Total contractual obligations | $ | 3,297 | $ | 800 | $ | 2,497 |
Minimum Lease | ||||
Year ending December 31, | Commitments | |||
2019 | $ | 4 | ||
2020 | 3 | |||
2021 | 3 | |||
2022 | 1 | |||
2023 & thereafter | — | |||
Total minimum lease payments | 11 | |||
Less: interest amount | (1 | ) | ||
Present value of minimum lease payments | $ | 10 |
Warrants Outstanding | Weighted Average Exercise Price During Period | |||||
Balance, December 31, 2015 | 14,250 | 4.30 | ||||
Warrants cancelled/forfeited | (7,500 | ) | 4.30 | |||
Balance, December 31, 2016 | 6,750 | $ | 4.30 | |||
Warrants cancelled/forfeited | (6,750 | ) | $ | 4.30 | ||
Balance, December 31, 2017 | — | $ | — |
For the year ended December 31, | |||||||||||
2018 | 2017 | 2016 | |||||||||
Cost of sales | $ | 37 | $ | 34 | $ | 56 | |||||
Product development | 118 | 59 | 84 | ||||||||
Selling, general, and administrative | 753 | 714 | 1,220 | ||||||||
Total stock-based compensation | $ | 908 | $ | 807 | $ | 1,360 |
2018 | 2017 | 2016 | |||||||||
Fair value of options issued | $ | 1.41 | $ | 2.66 | $ | 5.27 | |||||
Exercise price | $ | 1.97 | $ | 3.55 | $ | 7.46 | |||||
Expected life of option (in years) | 5.9 | 5.8 | 5.8 | ||||||||
Risk-free interest rate | 2.7 | % | 2.1 | % | 1.5 | % | |||||
Expected volatility | 84.2 | % | 91.9 | % | 93.7 | % | |||||
Dividend yield | 0.00 | % | 0.00 | % | 0.00 | % |
Number of Options | Weighted Average Exercise Price Per Share | |||||
Outstanding at December 31, 2015 | 602,207 | 8.58 | ||||
Granted | 167,819 | 7.31 | ||||
Cancelled | (160,126 | ) | 12.94 | |||
Exercised | (79,166 | ) | 4.48 | |||
Outstanding at December 31, 2016 | 530,734 | 7.48 | ||||
Granted | 192,984 | 3.55 | ||||
Cancelled | (377,095 | ) | 6.71 | |||
Expired | (56,111 | ) | 10.65 | |||
Exercised | (42,000 | ) | 2.30 | |||
Outstanding at December 31, 2017 | 248,512 | $ | 5.76 | |||
Granted | 100,746 | $ | 1.97 | |||
Cancelled | (46,387 | ) | $ | 6.96 | ||
Expired | (10,000 | ) | $ | 20.00 | ||
Outstanding at December 31, 2018 | 292,871 | $ | 3.78 | |||
Vested and expected to vest at December 31, 2018 | 272,247 | $ | 3.90 | |||
Exercisable at December 31, 2018 | 159,007 | $ | 4.98 |
OPTIONS OUTSTANDING | OPTIONS EXERCISABLE | |||||||||||||||||||
Range of Exercise Prices | Number of Shares Outstanding | Weighted Average Remaining Contractual Life (in years) | Weighted Average Exercise Price | Number of Shares Exercisable | Weighted Average Remaining Contractual Life (in years) | Weighted Average Exercise Price | ||||||||||||||
$1.81 | — | $2.29 | 75,711 | 9.4 | $ | 1.81 | — | 0.0 | $ | — | ||||||||||
$2.30 | — | $3.25 | 76,157 | 6.2 | 2.86 | 47,135 | 4.7 | 2.98 | ||||||||||||
$3.26 | — | $4.00 | 74,165 | 8.2 | 3.43 | 45,323 | 8.2 | 3.43 | ||||||||||||
$4.01 | — | $15.08 | 66,838 | 5.0 | 7.46 | 66,549 | 5.0 | 7.46 | ||||||||||||
292,871 | 7.3 | $ | 3.78 | 159,007 | 5.8 | $ | 4.98 |
Restricted Stock Units Outstanding | Weighted Average Grant Date Fair Value | |||||
At December 31, 2015 | 57,500 | $ | 7.31 | |||
Granted | 290,966 | 6.56 | ||||
Vested | (11,213 | ) | 14.18 | |||
Forfeited | (87,138 | ) | 6.73 | |||
At December 31, 2016 | 250,115 | $ | 6.34 | |||
Granted | 375,542 | $ | 3.18 | |||
Vested | (115,622 | ) | $ | 5.78 | ||
Forfeited | (203,893 | ) | $ | 5.30 | ||
At December 31, 2017 | 306,142 | $ | 3.37 | |||
Granted | 553,657 | $ | 2.38 | |||
Vested | (222,835 | ) | $ | 3.11 | ||
Forfeited | (90,106 | ) | $ | 2.99 | ||
At December 31, 2018 | 546,858 | $ | 2.54 |
For the year ended December 31, | |||||||||||
2018 | 2017 | 2016 | |||||||||
United States | $ | (9,100 | ) | $ | (11,382 | ) | $ | (16,848 | ) | ||
Loss from continuing operations before income taxes | $ | (9,100 | ) | $ | (11,382 | ) | $ | (16,848 | ) |
For the year ended December 31, | |||||||||||
2018 | 2017 | 2016 | |||||||||
Current: | |||||||||||
U.S. federal | $ | — | $ | — | $ | 1 | |||||
State | 11 | 10 | 26 | ||||||||
Total current | $ | 11 | $ | 10 | $ | 27 | |||||
Deferred: | |||||||||||
U.S. Federal | $ | — | $ | (125 | ) | $ | — | ||||
State | $ | — | $ | — | $ | — | |||||
Total deferred | $ | — | $ | (125 | ) | $ | — | ||||
Provision for income taxes | $ | 11 | $ | (115 | ) | $ | 27 |
For the year ended December 31, | ||||||||
2018 | 2017 | 2016 | ||||||
U.S. statutory rate | 21.0 | % | 34.0 | % | 34.0 | % | ||
State taxes (net of federal tax benefit) | 2.5 | 2.3 | 1.7 | |||||
Valuation allowance | (25.0 | ) | 17.4 | (27.5 | ) | |||
Deferred rate change due to changes in tax laws | — | (51.7 | ) | — | ||||
Other | 1.4 | (1.0 | ) | (8.4 | ) | |||
(0.1 | )% | 1.0 | % | (0.2 | )% |
At December 31, | |||||||||||
2018 | 2017 | 2016 | |||||||||
Allowance for doubtful accounts | $ | — | $ | — | $ | 18 | |||||
Accrued expenses and other reserves | 1,964 | 1,749 | 3,138 | ||||||||
Tax credits, deferred R&D, and other | 65 | 197 | 142 | ||||||||
Net operating loss | 10,793 | 8,610 | 9,239 | ||||||||
Valuation allowance | (12,822 | ) | (10,556 | ) | (12,537 | ) | |||||
Net deferred tax assets | $ | — | $ | — | $ | — |
Year ended December 31, | |||||||||||
2018 | 2017 | 2016 | |||||||||
Commercial | $ | 8,662 | $ | 15,217 | $ | 14,809 | |||||
Military maritime | 9,445 | 4,629 | 16,189 | ||||||||
Total net sales | $ | 18,107 | $ | 19,846 | $ | 30,998 |
For the year ended December 31, | |||||||||||
2018 | 2017 | 2016 | |||||||||
United States | $ | 17,736 | $ | 19,446 | $ | 29,840 | |||||
International | 371 | 400 | 1,158 | ||||||||
Total net sales | $ | 18,107 | $ | 19,846 | $ | 30,998 |
2018 | Fourth Quarter | Third Quarter | Second Quarter | First Quarter | ||||||||||||
Net sales | $ | 3,118 | $ | 5,158 | $ | 5,172 | $ | 4,659 | ||||||||
Gross profit | 19 | 1,281 | 1,296 | 816 | ||||||||||||
Net loss | (3,000 | ) | (1,920 | ) | (1,801 | ) | (2,390 | ) | ||||||||
Net loss per share (basic and diluted) | $ | (0.25 | ) | $ | (0.16 | ) | $ | (0.15 | ) | $ | (0.20 | ) |
2017 | Fourth Quarter | Third Quarter | Second Quarter | First Quarter | ||||||||||||
Net sales | $ | 4,727 | $ | 5,002 | $ | 6,011 | $ | 4,106 | ||||||||
Gross profit | 1,622 | 1,137 | 1,501 | 561 | ||||||||||||
Net loss | (1,858 | ) | (1,773 | ) | (3,114 | ) | (4,522 | ) | ||||||||
Net loss per share (basic and diluted) | $ | (0.16 | ) | $ | (0.15 | ) | $ | (0.26 | ) | $ | (0.39 | ) |
(a) | (1) Financial statements |
Description | Beginning Balance | Charges to Revenue/ Expense | Deductions | Ending Balance | ||||||||||||
Year ended December 31, 2018 | ||||||||||||||||
Allowance for doubtful accounts and returns | $ | 42 | $ | 20 | $ | 29 | $ | 33 | ||||||||
Inventory reserves | 4,196 | 1,085 | 1,069 | 4,212 | ||||||||||||
Valuation allowance for deferred tax assets | 10,556 | 2,187 | — | 12,743 | ||||||||||||
Year ended December 31, 2017 | ||||||||||||||||
Allowance for doubtful accounts and returns | $ | 236 | $ | 23 | $ | 217 | $ | 42 | ||||||||
Inventory reserves | 5,596 | 1,139 | 2,539 | 4,196 | ||||||||||||
Valuation allowance for deferred tax assets | 12,537 | 3,883 | 5,864 | 10,556 | ||||||||||||
Year ended December 31, 2016 | ||||||||||||||||
Allowance for doubtful accounts and returns | $ | 155 | $ | 156 | $ | 75 | $ | 236 | ||||||||
Inventory reserves | 2,315 | 6,110 | 2,829 | 5,596 | ||||||||||||
Valuation allowance for deferred tax assets | 7,768 | 4,769 | — | 12,537 |
ENERGY FOCUS, INC. | ||||
By: | /s/ Theodore L. Tewksbury III | |||
Theodore L. Tewksbury III | ||||
Chairman, Chief Executive Officer and President Date: April 1, 2019 |
Signature | Title | |||||
/s/ Theodore L. Tewksbury III | Chairman, Chief Executive Officer, President and Director | |||||
Theodore L. Tewksbury III | (Principal Executive Officer) | |||||
/s/ Jerry Turin | Chief Financial Officer | |||||
Jerry Turin | (Principal Financial and Accounting Officer) | |||||
*Ronald D. Black | Director | |||||
*Jennifer Y. Cheng | Director | |||||
*Marc J. Eisenberg | Director | |||||
*Geraldine F. McManus | Director | |||||
*Michael R. Ramelot | Director | |||||
*Satish Rishi | Director | |||||
*By: | /s/ Theodore L. Tewksbury III | |||||
Theodore L. Tewksbury III (Attorney-in-fact) | ||||||
Date: April 1, 2019 |
Exhibit Number | Description of Documents |
Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q filed on November 13, 2013). | |
Amendment to Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on July 16, 2014). | |
Amendment to Certificate of Incorporation of the Registration (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on July 27, 2015). | |
Certificate of Designation of Series A Participating Preferred Stock of the Registrant (incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed on November 27, 2006). | |
Bylaws of the Registrant (incorporated by reference to Exhibit 3.5 to the Registrant’s Annual Report on Form 10-K filed on March 10, 2016). | |
Certificate of Ownership and Merger, Merging Energy Focus, Inc., a Delaware corporation, into Fiberstars, Inc., a Delaware corporation (incorporated by reference to Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q filed on May 10, 2007). | |
Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 of the Registrant’s Annual Report on Form 10-K filed on March 27, 2014). | |
2013 Employee Stock Purchase Plan (incorporated by reference to Appendix A to the Registrant’s Definitive Proxy Statement on Form DEF14A filed on August 16, 2013). | |
2004 Stock Incentive Plan (incorporated by reference to Exhibit 99.1 to the Registrant’s Registration Statement on Form S-8 (Commission File No. 333-122-686) filed on February 10, 2005). | |
2008 Incentive Stock Plan, as amended (incorporated by reference from Appendix B to the Registrant’s Preliminary Proxy Statement on Form PRER14A filed on June 8, 2012). | |
2014 Stock Incentive Plan, as amended (incorporated by reference to Exhibit 10.4 to the Registrant’s Annual Report on Form 10-K filed on February 22, 2018). | |
Form of Nonqualified Stock Option Grant Agreement to Non-Employee Directors (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on July 16, 2014). | |
Form of Nonqualified Stock Option Grant Agreement to Employees (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on July 16, 2014). | |
Form of Restricted Stock Unit Grant Agreement to Employees (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on July 16, 2014). | |
Form of Restricted Stock Unit Grant Agreement to Non-Employee Directors (incorporated by reference to Exhibit 10.8 to the Registrant’s Annual Report on Form 10-K filed on February 22, 2018). | |
Form of Incentive Stock Option Grant Agreement to Employees (incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K filed on July 16, 2014). | |
Separation Agreement and Release dated February 18, 2017 between James Tu and Energy Focus, Inc. (incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K filed February 21, 2017). | |
Chairman, Chief Executive Officer and President Offer Letter and Change in Control Participation Agreement dated February 19, 2017 between Theodore L. Tewksbury III and Energy Focus, Inc. (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed February 21, 2017). | |
Change in Control Benefit Plan Participation Agreement dated March 21, 2017 between Michael H. Port and Energy Focus, Inc. (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed May 4, 2017). | |
Energy Focus, Inc. Executive Bonus Plan (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on April 17, 2017). | |
Change in Control Plan and Form of Participation Agreement (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed February 21, 2017). | |
Chief Financial Officer Offer Letter dated May 18, 2018 between Jerry Turin and Energy Focus, Inc. (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed on August 8, 2018). | |
Separation Agreement and Release dated May 22, 2018 between Michael H. Port and Energy Focus, Inc. (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed on August 8, 2018). |
Form of Notice of Stock Option Grant for 2008 Stock Incentive Plan (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed on November 13, 2013). | |
Form of Notice of Stock Option Grant for 2008 Stock Incentive Plan (incorporated by reference to Exhibit 99.2 to the Registrant’s Registration Statement on Form S-8 filed on September 8, 2010). | |
Lease agreement by and between Aurora Development Center LLC and Energy Focus, Inc. dated April 19, 2016 (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed on May 11, 2016). | |
Loan and Security Agreement dated December 11, 2018 by and between the Company and Austin Financial Services, Inc. (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K/A filed on December 14, 2018). | |
Subsidiaries of the Registrant (filed with this Report). | |
Consent of Plante & Moran, PLLC, Independent Registered Public Accounting Firm (filed with this Report). | |
Powers of Attorney (filed with this Report). | |
Rule 13a-14(a) Certification by Chief Executive Officer (filed with this Report). | |
Rule 13a-14(a) Certification by Chief Financial Officer (filed with this Report). | |
Section 1350 Certification of Chief Executive Officer and Chief Financial Officer (filed with this Report). | |
101 | The following financial information from Energy Focus, Inc. Annual Report on Form 10-K for the year ended December 31, 2018, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income (Loss), (iv) Consolidated Statements of Shareholders’ Equity, (v) Consolidated Statements of Cash Flows, (vi) the Notes to Consolidated Financial Statements. |
* | Management contract or compensatory plan or arrangement. |
/s/ Ronald D. Black |
Ronald D. Black |
/s/ Jennifer Y. Cheng |
Jennifer Y. Cheng |
/s/ Marc J. Eisenberg |
Marc J. Eisenberg |
/s/ Geraldine F. McManus |
Geraldine F. McManus |
/s/ Michael R. Ramelot |
Michael R. Ramelot |
/s/ Satish Rishi |
Satish Rishi |
1. | I have reviewed this Annual Report on Form 10-K of Energy Focus, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have; |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
1. | I have reviewed this Annual Report on Form 10-K of Energy Focus, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have; |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
/s/ Theodore L. Tewksbury III | ||
Theodore L. Tewksbury III Chairman, Chief Executive Officer and President | ||
Date: April 1, 2019 | ||
/s/ Jerry Turin | ||
Jerry Turin Chief Financial Officer | ||
Date: April 1, 2019 |
Document And Entity Information - USD ($) $ in Millions |
12 Months Ended | ||
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Dec. 31, 2018 |
Mar. 28, 2019 |
Jun. 30, 2018 |
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Document and Entity Information [Abstract] | |||
Entity Registrant Name | ENERGY FOCUS, INC/DE | ||
Entity Central Index Key | 0000924168 | ||
Current Fiscal Year End Date | --12-31 | ||
Entity Filer Category | Non-accelerated Filer | ||
Entity Emerging Growth Company | false | ||
Entity Small Business | true | ||
Document Type | 10-K | ||
Document Period End Date | Dec. 31, 2018 | ||
Document Fiscal Year Focus | 2018 | ||
Document Fiscal Period Focus | FY | ||
Amendment Flag | false | ||
Entity Well-known Seasoned Issuer | No | ||
Entity Voluntary Filers | No | ||
Entity Shell Company | false | ||
Entity Current Reporting Status | Yes | ||
Entity Common Stock, Shares Outstanding | 12,191,120 | ||
Entity Public Float | $ 22.5 |
Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands |
Dec. 31, 2018 |
Dec. 31, 2017 |
---|---|---|
Statement of Financial Position [Abstract] | ||
Trade accounts receivable, allowances | $ 33 | $ 42 |
Preferred stock, par value (in dollars per share) | $ 0.0001 | $ 0.0001 |
Preferred stock, shares authorized (in shares) | 2,000,000 | 2,000,000 |
Preferred stock, shares issued | 0 | 0 |
Preferred stock, shares outstanding | 0 | 0 |
Common stock, par value (in dollars per share) | $ 0.0001 | $ 0.0001 |
Common stock, number of shares authorized | 30,000,000 | 30,000,000 |
Common stock, number of shares issued | 12,090,695 | 11,868,896 |
Common stock, number of shares outstanding | 12,090,695 | 11,868,896 |
Consolidated Statements of Comprehensive (Loss) Income - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2018 |
Dec. 31, 2017 |
Dec. 31, 2016 |
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Statement of Comprehensive Income [Abstract] | |||
Net loss | $ (9,111) | $ (11,267) | $ (16,887) |
Other comprehensive (loss) income: | |||
Foreign currency translation adjustments | (3) | 3 | (1) |
Comprehensive loss | $ (9,114) | $ (11,264) | $ (16,888) |
Nature of Operations |
12 Months Ended |
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Dec. 31, 2018 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Nature of Operations | NATURE OF OPERATIONS Energy Focus, Inc. and its subsidiary engage in the design, development, manufacturing, marketing, and sale of energy-efficient lighting systems. We operate in a single industry segment, developing and selling our energy-efficient light-emitting diode (“LED”) lighting products into the general commercial, industrial and military maritime markets. Our goal is to become a trusted leader in the LED lighting retrofit market by replacing fluorescent lamps in institutional buildings and high-intensity discharge (“HID”) lighting in low-bay and high-bay applications with our innovative, high-quality commercial and military tubular LED (“TLED”) products. The LED lighting industry has changed dramatically over the past several years due to increasing commoditization and price erosion. We experienced this in our Navy business in late 2016 and early 2017 and in our commercial segment, where we once enjoyed significant price premiums for our flicker-free TLEDs with 10-year warranties, we now have a number of competitors offering similar capabilities at much lower prices. During the year, we reduced the costs of eight legacy product families in order to price our products more competitively. Despite these efforts, the pricing of our legacy products remains at the high end of the competitive range and we expect aggressive price erosion and commoditization to continue to be a headwind until our more innovative and differentiated new products ramp in volume. 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 continuous, scheduled cost reductions, our strategy to combat these trends it to move up the value chain, with more differentiated products and solutions, such as our smart lighting roadmap, that offer greater value to our customers. In light of these factors, over this period we have evaluated the continued value of equipment and inventory and implemented restructuring and product development initiatives to reduce costs and streamline operations while continuing to pursue our new product pipeline and revenue growth. During 2016, the slowdown in demand from U.S. Navy resulted in a year-over-year decrease in military maritime sales of $33.9 million from 2015 to 2016. As a result, we re-evaluated the economics of manufacturing components versus purchasing them for the manufacture of our military Intellitube® product and recorded an impairment loss at year-end for the related equipment and software, and in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”), we evaluated our 2016 year-end inventory quantities for excess levels and potential obsolescence and charged $3.3 million to cost of sales from continuing operations for excess and obsolete inventories. The restructuring initiative implemented in the first quarter of 2017 included a new management team, an organizational consolidation of management functions and a hybrid sales model, combining our existing historical direct sales model with sales agencies to expand our market presence throughout the U.S. We closed our New York, New York, Arlington, Virginia and Rochester, Minnesota offices, reduced full-time equivalent headcount by 51 percent and significantly decreased operating expenses from 2016 levels (a net reduction of $8.4 million, which includes $1.8 million in offsetting restructuring and impairment charges). As of December 31, 2018, we expanded our sales coverage to the entire U.S. through six geographic regions and now have 50 sales agencies, each of which has, on average, 10 agents representing Energy Focus products. During 2017, we also implemented a strategic sales initiative to sell certain excess inventory that had previously been written-down, as required by U.S. GAAP. This initiative resulted in a net reduction of our excess inventory reserves of $1.4 million in 2017. During 2018, we recorded restructuring charges totaling approximately $0.1 million, related to the revision of our initial estimates of the costs and offsetting sublease income and accretion expense for the remaining lease obligation for our former New York, New York and Arlington, Virginia offices. As a result of our continued cost control initiatives in 2018, we achieved an additional net decrease in operating expenses of $3.6 million, which includes the $0.1 million recorded in facility restructuring charges. Please refer to Note 3, “Restructuring,” for more information on our restructuring charges. Despite progress in reducing overall costs and the costs of our products, expanding and diversifying our new product portfolio and growing sales of our new products and legacy luminaire product line, among other areas, our 2018 results reflect continued challenges due to long and unpredictable sales cycles, delays in customer retrofit budgets and project starts, continuing aggressive price competition and a lower priced legacy product portfolio that was not available until the end of 2018 and impacted the development timeline for our next generation smart lighting products. The substantial doubt about our ability to continue as a going concern continued to exist as of December 31, 2018. Over the past several months, we have evaluated and pursed, and we expect that we will continue to assess the Company’s strategic options, as we seek additional external funding sources and to achieve a profitable business model and maximize value for our stockholders. Our ongoing plans to achieve profitability include continuing to develop new technologies into sustainable product lines that allow us to effectively compete to expand our customer base, execute our marketing and sales plans, and continue to improve our supply chain and organizational structure. |
Summary of Significant Accounting Policies |
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Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Significant Accounting Policies | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies of our Company, which are summarized below, are consistent with U.S. GAAP and reflect practices appropriate to the business in which we operate. Use of estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods presented. Estimates include, but are not limited to, the establishment of reserves for accounts receivable, sales returns, inventory obsolescence and warranty claims; the useful lives for property, equipment, and intangible assets; and stock-based compensation. In addition, estimates and assumptions associated with the determination of the fair value of financial instruments and evaluation of long-lived assets for impairment requires considerable judgment. Actual results could differ from those estimates and such differences could be material. Reclassifications Certain prior year amounts have been reclassified within the Consolidated Financial Statements and related notes thereto, to be consistent with current year presentation. Basis of presentation The Consolidated Financial Statements include the accounts of the Company and, until the 2013 disposition of our pool products business and the 2015 dispositions of its subsidiaries EFLS in Solon, Ohio, and CLL in the United Kingdom. All significant inter-company balances and transactions have been eliminated. Therefore, the results of operations and financial position of EFLS, CLL, and the pool products business are included in the Consolidated Financial Statements as Discontinued operations and previously reported financial information for the current and prior years have been adjusted. Unless indicated otherwise, the information in the Notes to Consolidated Financial Statements relates to our continuing operations. Revenue recognition On January 1, 2018, we adopted Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), as amended by subsequently issued additional guidance (together, “ASC 606”) using the modified retrospective method. The adoption of ASC 606 did not have a material impact on our consolidated financial position or results of operations, as our revenue arrangements generally consist of a single performance obligation to transfer promised goods at a fixed price. Net sales include revenues from sales of products and shipping and handling charges, net of estimates for product returns. Revenue is measured at the amount of consideration we expect to receive in exchange for the transferred products. We recognize revenue at the point in time when we transfer the promised products to the customer and the customer obtains control over the products. Distributors’ obligations to us are not contingent upon the resale of our products. We recognize revenue for shipping and handling charges at the time the goods are shipped to the customer, and the costs of outbound freight are included in cost of sales, as we have elected the practical expedient included in ASC 606. We provide for product returns based on historical return rates. While we incur costs for sales commissions to our sales employees and outside agents, we recognize commission costs concurrent with the related revenue, as the amortization period is less than one year and we have elected the practical expedient included in ASC 606. We do not incur any other incremental costs to obtain contracts with our customers. Our product warranties are assurance-type warranties, which promise the customer that the products are as specified in the contract. therefore, the product warranties are not a separate performance obligation and are accounted for as described below. Sales taxes assessed by governmental authorities are accounted for on a net basis and are excluded from net sales. A disaggregation of product net sales is presented in Note 13, “Product and Geographic Information.” Cash and cash equivalents We consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. At December 31, 2018 and 2017, we had $6.3 million and $10.8 million, respectively, in cash on deposit with financial institutions located in the United States. At December 31, 2018 and 2017, $0.3 million of the cash balance amount was designated as restricted cash and relates to a standby letter of credit agreement for the lease of our former New York, New York office. Please refer to Note 3, “Restructuring,” for additional information. Inventories We state inventories at the lower of standard cost (which approximates actual cost determined using the first-in-first-out method) or net realizable value. We establish provisions for excess and obsolete inventories after evaluation of historical sales, current economic trends, forecasted sales, product lifecycles, and current inventory levels. During 2017, we implemented a strategic sales initiative to sell certain excess inventory that had previously been written-down in conjunction with our excess inventory reserve analysis in prior years, as required by U.S. GAAP. This initiative resulted in a net reduction of our excess inventory reserves of $1.4 million in 2017. During 2018 and 2016, due to the introduction of new products and technological advancements, we charged $17 thousand and $3.3 million, respectively, to cost of sales from continuing operations for excess and obsolete inventories. Adjustments to our estimates, such as forecasted sales and expected product lifecycles, could harm our operating results and financial position. Please refer to Note 5, “Inventories,” for additional information. Accounts receivable Our trade accounts receivable consists of amounts billed to and currently due from customers. Our customers are concentrated in the United States. In the normal course of business, we extend unsecured credit to our customers related to the sale of our products. Credit is extended to customers based on an evaluation of the customer’s financial condition and the amounts due are stated at their estimated net realizable value. We evaluate and monitor the creditworthiness of each customer on a case-by-case basis. We maintain allowances for sales returns and doubtful accounts receivable to provide for the estimated amount of receivables that will not be collected. The allowance is based on an assessment of customer creditworthiness and historical payment experience, the age of outstanding receivables, and performance guarantees to the extent applicable. Past due amounts are written off when our internal collection efforts have been unsuccessful and payments subsequently received on such receivables are credited to the allowance for doubtful accounts. We do not generally require collateral from our customers. Our standard payment terms with customers are net 30 days from the date of shipment, and we do not generally offer extended payment terms to our customers, but exceptions are made in some cases to major customers or with particular orders. Accordingly, we do not adjust trade accounts receivable for the effects of financing, as we expect the period between the transfer of product to the customer and the receipt of payment from the customer to be in line with our standard payment terms. Income taxes As part of the process of preparing the Consolidated Financial Statements, we are required to estimate our income tax liability in each of the jurisdictions in which we do business. This process involves estimating our actual current tax expense together with assessing temporary differences resulting from differing treatment of items, such as deferred revenues, for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included in our Consolidated Balance Sheet. We then assess the likelihood that these deferred tax assets will be recovered from future taxable income and, to the extent that we believe that it is more likely than not that the deferred tax assets will not be recovered, or is unknown, we establish a valuation allowance. Significant management judgment is required in determining our provision for income taxes, deferred tax assets and liabilities, and any valuation allowance recorded against our deferred tax assets. At December 31, 2018 and 2017, we had a full valuation allowance recorded against our deferred tax assets in the United States due to uncertainties related to our ability to utilize our deferred tax assets, primarily consisting of certain net operating losses carried forward. The valuation allowance is based upon our estimates of taxable income by jurisdiction and the period over which our deferred tax assets will be recoverable. At December 31, 2018, we had net operating loss carry-forwards of approximately $100.5 million for federal, state, and local income tax purposes. However, due to changes in our capital structure, approximately $46.0 million of this amount is available after the application of IRC Section 382 limitations. In 2019, we expect to have approximately $46.0 million of the net operating loss carry-forward available for use. If not utilized, $37.3 million of these carry-forwards will begin to expire in 2021 for federal purposes, and have begun to expire for state and local purposes. Please refer to Note 12, “Income Taxes,” for additional information. Fair value measurements Fair value is defined as the price that would be received to sell an asset or would be paid to transfer a liability in an orderly transaction between market participants on the measurement date. The fair value of financial assets and liabilities are measured on a recurring or non-recurring basis. Financial assets and liabilities measured on a recurring basis are those that are adjusted to fair value each time a financial statement is prepared. Financial assets and liabilities measured on a non-recurring basis are those that are adjusted to fair value when a significant event occurs. We utilize valuation techniques that maximize the use of available market information and generally accepted valuation methodologies. We assess the inputs used to measure fair value using a three-tier hierarchy. The hierarchy indicates the extent to which pricing inputs used in measuring fair value are observable in the market. Level 1 inputs include unadjusted quoted prices for identical assets or liabilities and are the most observable. Level 2 inputs include unadjusted quoted prices for similar assets and liabilities that are either directly or indirectly observable, or other observable inputs such as interest rates, foreign currency exchange rates, commodity rates, and yield curves. Level 3 inputs are not observable in the market and include our own judgments about the assumptions market participants would use in pricing the asset or liability. The carrying amounts of certain financial instruments including cash and equivalents, accounts receivable, accounts payable, and accrued liabilities approximate fair value due to their short maturities. Based on borrowing rates currently available to us for loans with similar terms, the carrying value of borrowings under our revolving credit facility also approximates fair value. Long-lived assets Property and equipment are stated at cost and include expenditures for additions and major improvements. Expenditures for repairs and maintenance are charged to operations as incurred. We use the straight-line method of depreciation over the estimated useful lives of the related assets (generally 2 to 15 years) for financial reporting purposes. Accelerated methods of depreciation are used for federal income tax purposes. When assets are sold or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the Consolidated Statement of Operations. Refer to Note 6, “Property and Equipment,” for additional information. Long-lived assets are reviewed for impairment whenever events or circumstances indicate the carrying amount may not be recoverable. Events or circumstances that would result in an impairment review primarily include operations reporting losses, a significant change in the use of an asset, or the planned disposal or sale of the asset. The asset would be considered impaired when the future net undiscounted cash flows generated by the asset are less than its carrying value. An impairment loss would be recognized based on the amount by which the carrying value of the asset exceeds its fair value, as determined by quoted market prices (if available) or the present value of expected future cash flows. At December 31, 2016, we recorded an impairment loss of $0.9 million related to our surface mount technology equipment. Due to the specialized nature of this equipment we were not able to find a buyer for this equipment in 2017. As a result, we re-evaluated the carrying value of the equipment and software compared to its fair value and recorded an additional impairment loss of $0.2 million as of December 31, 2017. We completed the sale of this equipment in the first quarter of 2018. Refer to Note 6, “Property and Equipment,” for additional information. Certain risks and concentrations Historically our products were sold through a direct sales model, which included a combination of direct sales employees, electrical and lighting contractors, and distributors. The 2017 restructuring initiative included the transition to an agency driven sales channel strategy in order to expand our market presence throughout the U.S. We perform ongoing credit evaluations of our customers and generally do not require collateral. Although we maintain allowances for potential credit losses that we believe to be adequate, a payment default on a significant sale could materially and adversely affect our operating results and financial condition. We have certain customers whose net sales individually represented 10 percent or more of our total net sales, or whose net trade accounts receivable balance individually represented 10 percent or more of our total net trade accounts receivable, as follows: In 2018, one customer, a distributor to the U.S. Navy accounted for 41.9 percent, of net sales and total sales to distributors to the U.S. Navy represented 46.2 percent of net sales. In 2017, three customers accounted for 48.4 percent of net sales. In 2017, two commercial customers, a major northeastern Ohio hospital system and a large regional retrofit company located in Texas accounted for 18.3 percent, and 12.8 percent of net sales, respectively, while sales to a distributor to the U.S. Navy accounted for 17.3 percent of net sales. Total sales to distributors to the U.S. Navy represented 22.0 percent of net sales in 2017. In 2016, two customers, a distributor to the U.S. Navy and a major Northeast Ohio hospital, accounted for 36.5 percent and 10.9 percent of our net sales, respectively. Including sales pursuant to an indefinite duration, indefinite quantity (“IDIQ”) supply contract we were awarded in 2011, total sales of products for the U.S. Navy accounted for 43.1 percent of net sales. This IDIQ contract expired on August 1, 2016. At December 31, 2018, a distributor to the U.S. Navy accounted for 40.4 percent of our net trade accounts receivable. At December 31, 2017, two commercial customers, a major Northeast Ohio hospital system and a large regional retrofit company located in Texas, accounted for 21.0 percent and 17.4 percent of our net trade accounts receivable, respectively. In addition, a distributor to the U.S. Navy accounted for 39.0 percent of our net trade accounts receivable at December 31, 2017. We require substantial amounts of purchased materials from selected vendors. With specific materials, all of our purchases are from a single vendor. Substantially all of the materials we require are in adequate supply. However, the availability and costs of materials may be subject to change due to, among other things, new laws or regulations, suppliers’ allocation to other purchasers, interruptions in production by suppliers, and changes in exchange rates and worldwide price and demand levels. Our inability to obtain adequate supplies of materials for our products at favorable prices could have a material adverse effect on our business, financial position, or results of operations by decreasing our profit margins and by hindering our ability to deliver products to our customers on a timely basis. Product development Product development expenses include salaries, contractor and consulting fees, supplies and materials, as well as costs related to other overhead items such as depreciation and facilities costs. Research and development costs are expensed as they are incurred. Net loss per share Basic loss per share is computed by dividing the net loss available to common stockholders by the weighted average number of common shares outstanding for the period, excluding the effects of any potentially dilutive securities. Diluted loss per share gives effect to all dilutive potential common shares outstanding during the period. Dilutive potential common shares consist of incremental shares upon exercise of stock options and warrants, unless the effect would be anti-dilutive. The following table presents a reconciliation of basic and diluted loss per share computations (in thousands, except per share amounts):
As a result of the net loss we incurred for the years ended December 31, 2018, 2017, and 2016, options, warrants and convertible securities representing approximately 59,180, 60,434, and 139,595 shares of common stock were excluded from the loss per share calculation, respectively, because their inclusion would have been anti-dilutive. Stock-based compensation We recognize compensation expense based on the estimated grant date fair value under the authoritative guidance. Management applies the Black-Scholes option pricing model to value stock options issued to employees and directors, and applies judgment in estimating key assumptions that are important elements of the model in expense recognition. These elements include the expected life of the option, the expected stock-price volatility, and expected forfeiture rates. Compensation expense is generally amortized on a straight-line basis over the requisite service period, which is generally the vesting period. See Note 11, “Stockholders’ Equity,” for additional information. Common stock, stock options, and warrants issued to non-employees that are not part of an equity offering are accounted for under the applicable guidance under ASC 505-50, “Equity-Based Payments to Non-Employees,” and are generally re-measured at each reporting date until the awards vest. Foreign currency translation Our product development center in Taiwan uses local currency as its functional currency. Included within “Accumulated other comprehensive income” within the Consolidated Statements of Stockholders’ Equity is the effect of foreign currency translation related to our Taiwan operations. Advertising expenses Advertising expenses are charged to operations in the period incurred. They consist of costs for the placement of our advertisements in various media and the costs of demos provided to potential distributors of our products. Advertising expenses from continuing operations were $0.3 million, $0.5 million, and $1.4 million for the years ended December 31, 2018, 2017, and 2016, respectively. Shipping and handling costs We include shipping and handling revenues in net sales, and shipping and handling costs in cost of sales. Product warranties We warrant finished goods against defects in material and workmanship under normal use and service for periods generally between one and ten years. Settlement costs consist of actual amounts expensed for warranty coverage, which are largely a result of the cost of replacement products. A liability for the estimated future costs under product warranties is maintained for products outstanding under warranty and is included in “Accrued liabilities” in our Consolidated Balance Sheets. The warranty activity for the respective years is as follows (in thousands):
Recent accounting standards and pronouncements In August 2018, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2018-15, Intangibles--Goodwill and Other--Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which aligns the requirements for capitalizing implementation costs in a cloud computing service contract with the requirements for capitalizing implementation costs incurred for an internal-use software license. This standard will be effective for interim and annual periods beginning after December 15, 2019. We do not expect the adoption of this guidance to have a significant impact on our financial position, results of operations, or cash flows. In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which significantly changes the accounting for credit losses on instruments within its scope. The new guidance introduces an approach based on expected losses to estimate credit losses on certain financial instruments, including trade receivables, and requires an entity to recognize an allowance based on its estimate of expected credit losses rather than incurred losses. This standard will be effective for interim and annual periods beginning after December 15, 2019, and will generally require adoption on a modified retrospective basis. We are in the process of evaluating the impact of the standard. In February 2016, the FASB issued ASU No. 2016-02, Leases, which supersedes the current lease accounting requirements. This standard requires a lessee to record on the balance sheet the assets and liabilities for the rights and obligations created by leases with lease terms of more than 12 months. In addition, this standard requires lessees to disclose certain key information about lease transactions. Upon implementation, an entity’s lease payment obligations will be recognized at their estimated present value along with a corresponding right-of-use asset. Lease expense recognition will be generally consistent with current practice. In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, which simplifies adoption of the new lease accounting requirements by allowing an additional transition method that will not require restatement of prior periods and providing a new practical expedient for lessors to avoid separating lease and non-lease components within a contract if certain requirements are met. The provisions of this guidance must be elected upon adoption of the new lease accounting requirements, which will be effective for interim and annual periods beginning after December 15, 2018. We will adopt the standard as required on January 1, 2019 and use that date as our date of initial application of the guidance. Consequently, we will not update previously reported financial information and the disclosures under the new standard will not be provided for dates and periods prior to January 1, 2019. We will elect all of the practical expedients available under the transition guidance. The new standard also provides practical expedients for ongoing accounting. We will elect the short-term lease recognition exemption for all leases that qualify. This means we will not recognize right of use assets or lease liabilities for those leases. We will also elect the practical expedient to not separate lease and non-lease components for all of our leases. We expect that this standard will have a material impact on our financial statements. While we continue to assess all of the effects of adoption, we currently believe the most significant effects relate to the recognition of new right of use assets and lease liabilities on our balance sheet for our real estate and equipment operating leases, and the significant new required disclosures regarding our leasing activities. We do not expect a significant change in our leasing activities between now and adoption. On adoption, we expect to recognize additional operating lease liabilities of approximately $2.2 million, with corresponding right of use assets for the same amount based on the present value of the remaining minimum rental payments under current leasing standards for existing operating leases. |
Restructuring |
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Restructuring and Related Activities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restructuring | RESTRUCTURING Due to our financial performance in 2016, 2017, and 2018, including net losses of $16.9 million, $11.3 million, and $9.1 million, respectively, and total cash used of $18.0 million, $5.9 million, and $4.4 million, respectively, we believe that substantial doubt about our ability to continue as a going concern existed at December 31, 2016, 2017, and 2018. As a result of such determination as of December 31, 2016, we evaluated actions to mitigate the substantial doubt about our ability to continue as a going concern. Our evaluation considered both quantitative and qualitative information, including our current financial position and liquid resources, and obligations due or anticipated within the next year. With $16.6 million in cash and no debt obligations as of December 31, 2016, we focused our efforts on reducing our overall operating expenses in an effort to return to profitability. Consequently, in February 2017, we announced a corporate restructuring initiative with a goal of significantly reducing annual operating costs from 2016 levels. The initiative included an organizational consolidation of management and oversight functions in order to streamline and better align the organization into more focused, efficient, and cost-effective reporting relationships, and involved closing our offices in Rochester, Minnesota, New York, New York, and Arlington, Virginia and reducing our staff by 20 employees, primarily located in these offices. During the second quarter of 2017, we fully exited the New York and Arlington facilities and took additional actions to improve our operating efficiencies. These actions reduced our staff by an additional 17 production and administrative employees in our Solon location. These restructuring actions resulted in a net decrease in operating expenses through December 31, 2017 of $8.4 million, including restructuring and asset impairment charges of $1.8 million, consisting of approximately $0.8 million for severance and related benefits, approximately $0.7 million related to the facility closings, approximately $0.1 million primarily related to fixed asset and prepaid expenses write-offs and approximately $0.2 million in asset impairment charges, as well as asset impairment charges of $0.9 million in 2016. During the year ended December 31, 2018, we recorded restructuring charges totaling approximately $0.1 million, related to the revision of our initial estimates of the costs and offsetting sublease income and accretion expense for the remaining lease obligation for our former New York, New York and Arlington, Virginia offices. Our continued cost control initiatives in 2018 resulted in an additional net decrease in operating expenses of $3.6 million, which includes restructuring and asset impairment charges of $0.1 million. Our restructuring liabilities consist of one-time termination costs for severance and benefits to former employees and estimated ongoing costs related to long-term operating lease obligations. The recorded value of the termination severance and benefits to employees approximates fair value, as the remaining obligation is based on the arrangements made with the former employees, and these obligations will be completely satisfied in less than 12 months. The recorded value of the ongoing lease obligations is based on the remaining lease term and payment amount, net of estimated sublease income, discounted to present value. Changes in subsequent periods resulting from a revision to either the timing or the amount of estimated cash flows over the future period are measured using the credit adjusted, risk-free rate that was used to measure the restructuring liabilities initially. The current portion of the ongoing lease obligations is included within the caption, “Accrued liabilities” and the long-term portion of the ongoing lease obligations is included within the caption, “Other liabilities” in the Consolidated Balance Sheets as of December 31, 2018 and 2017. As of December 31, 2018, we estimated that we would receive a total of approximately $0.7 million in sublease payments to offset our remaining lease obligations, which extend until June 2021, of approximately $1.1 million. We expect to incur insignificant additional costs over the remaining life of our lease obligations. The following is a reconciliation of the beginning and ending balances of our restructuring liability:
At December 31, 2018, we had $6.3 million in cash, including $2.2 million outstanding on the revolving credit facility we entered into on December 11, 2018. As a result of the restructuring actions and initiatives described above, we have reduced our operating expenses to be more commensurate with our sales volumes, however, we continue to incur losses and have a substantial accumulated deficit, raising substantial doubt about our ability to continue as a going concern at December 31, 2018. Considering both quantitative and qualitative information, we continue to believe that the combination of our plans to obtain additional financing, restructuring actions, current financial position, liquid resources, obligations due or anticipated within the next year, executive reorganization, and implementation of our product development and sales channel strategy, if adequately executed, will provide us with an ability to finance our operations through 2019 and will mitigate the substantial doubt about our ability to continue as a going concern. Please refer to Note 16, “Subsequent Events,” for more information on the additional financing we received on March 26, 2019 to fund our near-term operations. |
Discontinued Operations |
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Dec. 31, 2018 | |
Discontinued Operations and Disposal Groups [Abstract] | |
Discontinued Operations | DISCONTINUED OPERATIONS Pool Products Business On November 26, 2013, we announced the sale of our pool products business for a cash purchase price of $5.2 million. Under the terms of the Purchase Agreement, we sold substantially all of the assets associated with the pool products business and the buyer assumed certain related liabilities. In connection with the sale, we and the buyer entered into a transition services agreement that continued until April 30, 2014, under which we provided services to transition the pool products business to the buyer. In addition, the Purchase Agreement contains representations, warranties and covenants of us and the buyer and prohibits us from competing with the buyer in the pool business for a period of five years following the closing. The Purchase Agreement also provided for an escrow of $500 thousand of the purchase price to secure customary indemnification obligations with respect to our representations, warranties, covenants and other obligations under the Purchase Agreement. Under the terms of the Purchase Agreement, the first of five $100 thousand scheduled escrow releases commenced on March 25, 2014, and was to continue on the 25th day of each of the next four subsequent months. As of December 31, 2015 and 2014, $200 thousand of the cash held in escrow had been released to us and $300 thousand remained in escrow subject to the resolution of outstanding buyer claims that were the subject of an arbitration claim filed by the buyer in February 2015. At December 31, 2015, we offset the full escrow amount by the expected costs to settle this claim, as we had reached an agreement in principle with the buyer. On March 18, 2016, a settlement agreement was executed for this claim and the funds in the escrow account, plus the interest earned on the account, were released to the buyer. The legal fees incurred for the arbitration are included in the Consolidated Statements of Operations under the caption, “Loss on sale of discontinued operations.” for 2016. For additional information on the status of the remaining cash in escrow, please refer to Note 14, “Legal Matters.” |
Inventories |
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Inventory Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Inventories | INVENTORIES Inventories are stated at the lower of standard cost (which approximates actual cost determined using the first-in, first-out cost method) or net realizable value and consists of the following (in thousands):
During 2018, we initiated an aggressive inventory procurement plan in order to meet increasing shipment lead times and expected demand for commercial sales. While we did not achieve this level of demand, we had already committed to inventory purchases. As a result, our gross inventory levels increased $2.4 million in 2018 as compared to 2017. During 2017, we implemented a strategic sales initiative to sell certain excess inventory that had previously been written-down in conjunction with our excess inventory reserve analysis in prior years, as required by U.S. GAAP. This initiative resulted in a net reduction of our gross inventory levels and excess inventory reserves of $5.2 million and $1.4 million, respectively, in 2017 as compared to 2016. |
Property and Equipment |
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Property and Equipment | PROPERTY AND EQUIPMENT Property and equipment are stated at cost and depreciated using the straight-line method over the estimated useful lives of the related assets and consist of the following (in thousands):
Depreciation expense was $0.5 million, $0.7 million, and $0.8 million for the years ended December 31, 2018, 2017 and 2016, respectively. During 2015 and early 2016, the Company invested in certain equipment and software to be used to increase our capabilities and reduce the cost of components used in our domestic manufacturing processes, as many of our sales opportunities were with respect to products made in the U.S. or meeting “Buy American” standards. These opportunities included our military maritime product line, as well as products for use in government-funded facilities, such as military bases, which must comply with certain domestic preference standards. As a result of the decline in 2016 sales as well as our expectation of limited sales of our military Intellitube® product going forward due to new competition for retrofit products for the U.S. Navy, coupled with the current cost of procuring components from our suppliers for such products, versus manufacturing them at a low volume, at December 31, 2016, we re-evaluated the economics of manufacturing versus purchasing such components from our suppliers. We concluded that we would no longer use the equipment and software previously purchased to conduct this manufacturing and evaluated the carrying value of the equipment and software compared to its fair value and determined that the equipment and software were impaired. Accordingly, we recorded an impairment loss of $0.9 million, to adjust the carrying value of the equipment and software to its net realizable value as of December 31, 2016. Due to the specialized nature of this equipment we were not able to find a buyer for this equipment in 2017. As a result, we re-evaluated the carrying of the equipment and software compared to its fair value and recorded an additional impairment loss of $0.2 million as of December 31, 2017. We classified the net carrying value of this equipment as “Assets held for sale” in the accompanying Consolidated Balance Sheets as of December 31, 2017. We completed the sale of this equipment in the first quarter of 2018, recognizing net proceeds of approximately $0.2 million and a gain of approximately $15 thousand on the sale. The gain on the sale is classified on our Consolidated Statements of Operations under the caption, “Other expenses.” |
Prepaid Expenses and Other Current Assets |
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Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Prepaid and Other Current Assets | PREPAID AND OTHER CURRENT ASSETS Prepaid and other current assets consisted of the following (in thousands):
Short-term deposits represent down payment amounts paid to suppliers for material purchases. Certain Asian suppliers require us to pay a deposit prior to manufacturing and/or shipping products to us. The short-term debt acquisition costs consist of the balance of the annual facility fee and the short-term portion of the legal and professional fees we incurred in connection with the revolving credit facility we entered into on December 11, 2018. The annual facility fee of $50 thousand was paid on the date the credit facility was signed and is being amortized on a straight-line basis over one year. The debt acquisition costs are being amortized on a straight-line basis over three years, which is the length of the credit facility. The long-term portion of the debt acquisition costs are included in the Consolidated Balance Sheets under the caption, “Other assets.” For additional information on the revolving credit facility, please refer to Note 9, “Debt.” |
Accrued Liabilities |
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Accrued Liabilities | ACCRUED LIABILITIES Accrued current liabilities consisted of the following (in thousands):
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Debt |
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Debt Disclosure [Abstract] | |
Debt | DEBT Credit facilities On December 11, 2018, we entered into a three-year $5.0 million revolving line of credit (“Credit Facility”) with Austin Financial Services (“Austin”). The total loan amount available to us under the Credit Facility from time to time is based on the amount of our (i) qualified accounts receivable, which is equal to 85 percent of our net eligible receivables, plus (ii) available inventory, which is the lesser of 50 percent of the net realizable value of eligible inventory, or $500 thousand. The Credit Facility has a minimum borrowing requirement of $1.0 million. The Credit Facility is secured by a lien on our assets. Interest on advances under the line is due monthly at the “Prime Rate,” as published by the Wall Street Journal from time to time, plus a margin of 2 percent. The borrowing rate as of December 31, 2018 was 7.75 percent. Overdrafts are subject to a 2 percent fee. Additionally, an annual facility fee of 1 percent on the entire $5.0 million amount of the Credit Facility is due at the beginning of each of the three years and a 0.50 percent collateral management fee on the average outstanding loan balance is payable monthly. We paid Austin the first year’s fee when the Credit Facility was signed. The repayment of outstanding advances and interest under the Credit Facility may be accelerated upon an event of default including, but not limited to, failure to make timely payments or breach of any terms set forth in the Credit Facility. The Credit Facility has no financial covenants, but is subject to customary affirmative and negative operating covenants and defaults and restricting indebtedness, liens, corporate transactions, dividends, and affiliate transactions, among others. The Credit Facility may be terminated by us or by Austin with 90 days written notice. We have not provided such notice to Austin or received such notice from Austin. There are liquidated damages if the Credit Facility is terminated prior to December 10, 2021, as follows: 3 percent in the first year, 2 percent in the second year, and 1 percent in the third year. Borrowings under the revolving line of credit were $2.2 million at December 31, 2018 and are recorded in the Consolidated Balance Sheets as a current liability under the caption, “Credit line borrowings.” At December 31, 2018, we had borrowed the maximum available for us to borrow under this line of credit. |
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Commitments and Contingencies | COMMITMENTS AND CONTINGENCIES Operating Leases We lease certain equipment, manufacturing, warehouse and office space under non-cancellable operating leases expiring through 2023 under which we are responsible for related maintenance, taxes, and insurance. Future minimum non-cancellable lease commitments are as follows (in thousands):
(1) Represents the amount of income expected from sublease agreements executed in 2017 for our former New York, New York and Arlington, Virginia offices. Certain leases included above contain escalation clauses and, as such, rent expense was recorded on a straight-line basis over the term of the lease. Net rent expense from continuing operations was $0.8 million, $1.2 million, and $1.2 million for the years ended December 31, 2018, 2017, and 2016, respectively. Capital Leases We lease certain equipment under a capital lease expiring in 2021. The assets and liabilities under capital leases are recorded at the lower of the present value of the minimum lease payments or the fair value of the asset. The assets are depreciated over the shorter of the related lease term or their estimated useful lives. At December 31, 2018, assets recorded under capital leases were $20 thousand and accumulated depreciation related to assets recorded under capital leases was $4 thousand. Depreciation of assets under capital leases is included in depreciation expense. The current portion of the capital lease obligation is included within the caption, “Accrued liabilities” and the long-term portion of the capital lease obligations is included within the caption, “Other liabilities” in the Consolidated Balance Sheets as of December 31, 2018. Minimum future lease payments under capital leases as of December 31, 2018 are as follows (dollars in thousands):
Purchase Commitments As of December 31, 2018, we had approximately $2.8 million in outstanding purchase commitments for inventory, of which $1.5 million is expected to ship in the first quarter of 2019 and $0.8 million is expected to ship in the second quarter of 2019, with the remaining $0.5 million expected to ship in the second half of 2019. |
Stockholders' Equity |
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Stockholders' Equity Note [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stockholders' Equity | STOCKHOLDERS’ EQUITY Common stock follow-on offering On September 11, 2015, we announced the pricing of a registered underwritten follow-on offering of shares of our common stock by us and certain of our stockholders (the “Selling Stockholders”). We sold 1,500,000 shares of our common stock at a purchase price to the public of $17.00 per share and the Selling Stockholders sold an additional 1,500,000 shares of our common stock on the same terms and conditions. The offering closed on September 16, 2015 and we received $23.6 million in net proceeds from the transaction, after giving effect to underwriting discounts and commissions and estimated expenses. We expect to use the remaining net proceeds from the offering for working capital and other general corporate purposes. Warrants In the past, we have issued warrants in conjunction with various equity issuances, debt financing arrangements, and sales incentives. A summary of warrant activity was as follows:
Stock-based compensation On May 6, 2014, our Board of Directors approved the Energy Focus, Inc. 2014 Stock Incentive Plan (the “2014 Plan”). The 2014 Plan was approved by the stockholders at our annual meeting on July 15, 2014, after which no further awards could be issued under the Energy Focus, Inc. 2008 Incentive Stock Plan (the “2008 Plan”). The 2014 Plan initially allowed for awards up to 600,000 shares of common stock and expires on July 15, 2024. On July 22, 2015, the stockholders approved an amendment to the 2014 Plan to increase the shares available for issuance under the 2014 Plan by an additional 600,000 shares. On June 21, 2017, the stockholders approved an amendment to the 2014 Plan to increase the shares available for issuance under the 2014 Plan by an additional 1,300,000. We have two other equity-based compensation plans under which options are currently outstanding; however, no new awards may be granted under these plans. Generally, stock options are granted at fair market value and expire ten years from the grant date. Employee grants generally vest in three or four years, while grants to non-employee directors generally vest in one year. The specific terms of each grant are determined by our Board of Directors. At December 31, 2018, 1,269,815 shares remain available to grant under the 2014 Plan. Stock-based compensation expense is attributed to the granting of stock options, restricted stock, and restricted stock unit awards. For all stock-based awards, we recognize compensation expense using a straight-line amortization method. The impact on our results for stock-based compensation was as follows (in thousands):
At December 31, 2018 and 2017, we had unearned stock compensation expense of $0.9 million and $0.7 million, respectively. These costs will be charged to expense and amortized on a straight-line basis in subsequent periods. The remaining weighted average period over which the unearned compensation is expected to be amortized was approximately 1.8 years as of both December 31, 2018 and 2017. Stock options The fair value of each stock option is estimated on the date of grant using the Black-Scholes option pricing model. Estimates utilized in the calculation include the expected life of the option, risk-free interest rate, and expected volatility, and are further comparatively detailed as follows:
We utilize the simplified method as provided by ASC 718-10 to calculate the expected stock option life. Under ASC 718-10, the expected stock option life is based on the midpoint between the vesting date and the end of the contractual term of the stock option award. The use of this simplified method in place of using the actual historical exercise data is allowed when a stock option award meets all of the following criteria: the exercise price of the stock option equals the stock price on the date of grant; the exercisability of the stock option is only conditional upon completing the service requirement through the vesting date; employees who terminate their service prior to the vesting date forfeit their stock options; employees who terminate their service after vesting are granted a limited time period to exercise their stock options; and the stock options are nontransferable and nonhedgeable. We believe that our stock option awards meet all of these criteria. The estimated expected life of the option is calculated based on contractual life of the option, the vesting life of the option, and historical exercise patterns of vested options. The risk-free interest rate is based on U.S. treasury zero-coupon yield curve on the grant date for a maturity similar to the expected life of the option. The volatility estimates are calculated using historical volatility of our stock price calculated over a period of time representative of the expected life of the option. We have not paid dividends in the past, and do not expect to pay dividends over the corresponding expected term as of the grant date. Options outstanding under all plans at December 31, 2018 have a contractual life of ten years, and vesting periods between one and four years. A summary of option activity under all plans was as follows:
The “Expected to Vest” options are the unvested options that remain after applying the pre-vesting forfeiture rate assumption to total unvested options. No options were exercised during 2018. The total intrinsic value of options outstanding and options exercisable at December 31, 2018 was zero dollars each, which was calculated using the closing stock price at the end of the year of $0.62 per share less the option price of the in-the-money grants. The options outstanding at December 31, 2018 have been segregated into ranges for additional disclosure as follows:
Restricted stock and restricted stock units Prior to 2011, we issued restricted stock to Executive Officers and Directors in lieu of paying a portion of their cash compensation or Directors’ fees. In 2015, we began issuing restricted stock units to employees and non-employee Directors under the 2014 Plan with vesting periods ranging from 1 to 3 years from the grant date. The following table shows a summary of restricted stock and restricted stock unit activity:
Employee stock purchase plans In September 2013, our stockholders approved the 2013 Employee Stock Purchase Plan (the “2013 Plan”) to replace the 1994 prior purchase plan. A total of 500,000 shares of common stock were provided for issuance under the 2013 Plan. The 2013 Plan permits eligible employees to purchase common stock through payroll deductions at a price equal to the lower of 85 percent of the fair market value of our common stock at the beginning or end of the offering period. Employees may end their participation at any time during the offering period, and participation ends automatically upon termination of employment with us. During 2018, 2017, and 2016, employees purchased 25,953, 16,004, and 22,094, respectively. At December 31, 2018, 401,484 shares remained available for purchase under the 2014 Plan. |
Income Taxes |
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Income Tax Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Taxes | INCOME TAXES We file income tax returns in the U.S. federal jurisdiction, as well as in various state and local jurisdictions. With few exceptions, we are no longer subject to U.S. federal, state, and local, or non-United States income tax examinations by tax authorities for years before 2015. Our practice is to recognize interest and penalties related to income tax matters in income tax expense when and if they become applicable. At December 31, 2018 and 2017, respectively, there were no accrued interest and penalties related to uncertain tax positions. The following table shows the components of loss from continuing operations before income taxes (in thousands):
The following table shows the components of the provision for income taxes from continuing operations (in thousands):
The principal items accounting for the difference between income taxes computed at the U.S. statutory rate and the provision for income taxes from continuing operations reflected in our Consolidated Statements of Operations are as follows:
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets are as follows (in thousands):
In 2018, our effective tax rate was lower than the statutory rate due to an increase in the valuation allowance as a result of the $8.7 million additional federal net operating loss we recognized for the year. In 2017, our effective tax rate was lower than the statutory rate due to the remeasurement of our deferred tax assets resulting from the Tax Cuts and Jobs Act of 2017 (the “Act”) and a decrease in the valuation allowance. In 2016, our effective tax rate was lower than the statutory rate due to an increase in the valuation allowance as a result of the $10.6 million additional federal net operating loss we recognized for the year. On December 22, 2017, the Act was signed into law making significant changes to the Internal Revenue Code (“IRC”). Changes include, but are not limited to, a corporate tax rate decrease from 35 percent to 21 percent effective for tax years beginning after December 31, 2017, repeal of the corporate Alternative Minimum Tax, elimination of certain deductions, and changes to the carryforward period and utilization of Net Operating Losses generated after December 31, 2017. We have calculated the impact of the Act in our year end income tax provision in accordance with our understanding of the Act and guidance available as of the date of this filing. As a result of the Act, we have recorded $0.1 million as additional income tax benefit in the fourth quarter of 2017, the period in which the legislation was enacted. The amount related to the release of the valuation allowance on the Alternative Minimum Tax Credit carry-forward which is expected to be fully refunded by 2021. We remeasured the deferred tax assets and liabilities, based on the rates at which they are expected to reverse in the future. The impact of the remeasurement was $5.9 million of additional tax expense which was offset by a $5.9 million reduction of the valuation allowance resulting in a net zero impact to the financial statements. The U.S. Treasury Department, the Internal Revenue Service, and other standard-setting bodies could interpret or issue guidance on how provisions of the Act will be applied or otherwise administered that is different from our interpretation. We may make adjustments to amounts that we have recorded that may materially impact our provision for income taxes in the period in which the adjustments are made. Since we believe it is more likely than not that the benefit from net operating loss carry-forwards will not be realized, we have provided a full valuation allowance against our deferred tax assets at December 31, 2018 and 2017, respectively. We had no net deferred tax liabilities at December 31, 2018 or 2017, respectively. In 2018, we recognized various states tax expense as a result of the adjustment from the 2017 provision to the actual tax on the 2017 returns that were filed in 2018. In 2017, we recognized U.S. federal and various states income tax benefit of $0.1 million as a result of the reduction of the valuation allowance on the portion of Alternative Minimum Tax Credits that are expected to be refunded. In 2016, we recognized U.S. federal and various states income tax expense as a result of the adjustment from the 2015 provision to the actual tax on the 2015 returns that were filed in 2016. Deferred income tax assets are reduced by a valuation allowance when it is more likely than not that some portion of the deferred income tax assets will not be realized. In considering the need for a valuation allowance, we assess all evidence, both positive and negative, available to determine whether all or some portion of the deferred tax assets will not be realized. Such evidence includes, but is not limited to, recent earnings history, projections of future income or loss, reversal patterns of existing taxable and deductible temporary differences, and tax planning strategies. We will continue to evaluate the need for a valuation allowance on a quarterly basis. At December 31, 2018, we had net operating loss carry-forwards of approximately $100.5 million for U.S. federal, state, and local income tax purposes. However, due to changes in our capital structure, approximately $46.0 million of this amount is available to offset future taxable income after the application of the limitations found under Section 382 of the IRC. As a result of this limitation, in 2019, we expect to have approximately $46.0 million of the net operating loss carry-forward available for use. As a result of the Act, net operating loss carry-forwards generated in tax years beginning after December 31, 2017 can only offset 80 percent of taxable income. These net operating loss carry-forwards can no longer be carried back, but they can be carried forward indefinitely. The $8.7 million in net operating losses generated in 2018 will be subject to the new limitations under the Act. If not utilized, the carry-forwards generated prior to December 31, 2017 of $37.3 million will begin to expire in 2021 for federal purposes and have begun to expire for state and local purposes. Additionally, the changes to our capital structure have subjected, and will continue to subject our net operating loss carry-forward to an annual limitation as discussed further below. This limitation will significantly restrict our ability to utilize the carry-forward to offset taxable income in future periods. The IRC imposes restrictions on the utilization of various carry-forward tax attributes in the event of a change in ownership, as defined by IRC Section 382. During 2015, we completed an IRC Section 382 review and the results of this review indicate ownership changes have occurred which would cause a limitation on the utilization of carry-forward attributes. Our net operating loss carry-forwards and research and development credits are all subject to limitation. Under these tax provisions, the limitation is applied first to any capital losses, next to any net operating losses, and then to any general business credits. The Section 382 limitation is currently estimated to result in the expiration of $54.2 million of net operating loss carry-forwards and $0.3 million of research and development credits. A valuation allowance has been established to reserve for the potential benefits of the remaining net operating loss carry-forwards in the consolidated financial statements to reflect the uncertainty of future taxable income required to utilize available tax loss carry-forwards. |
Product and Geographic Information |
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Product and Geographic Information | PRODUCT AND GEOGRAPHIC INFORMATION During 2013, we sold our pool products business. During 2014, we shifted our focus away from the turnkey solutions business to align our resources with developing and selling our LED products and completed our exit of that business in September 2015. With the exit from EFLS and sale of CLL, we have aligned our resources and focused our efforts on the sale of LED lighting products, in particular our military and commercial tubular LED (“TLED”) lines of products, into targeted vertical markets. Our products are sold primarily in the United States through a combination of direct sales employees, independent sales representatives and distributors. We currently operate in a single industry segment, developing and selling our energy-efficient light-emitting diode (“LED”) lighting products into the military maritime and commercial markets. The following table provides a breakdown of product net sales from continuing operations for the years indicated (in thousands):
A geographic summary of net sales from continuing operations is as follows (in thousands):
At December 31, 2018 and 2017, approximately 98 percent of our long-lived assets, which consist of property and equipment, were located in the United States. |
Related Party Transactions |
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Dec. 31, 2018 | |
Related Party Transactions [Abstract] | |
Related Party Transactions | RELATED PARTY TRANSACTIONS On December 12, 2012, our Board of Directors appointed James Tu to serve as our non-executive Chairman. On April 30, 2013, Mr. Tu became the Executive Chairman assuming the duties of the Principal Executive Officer. On October 30, 2013 Mr. Tu was appointed Executive Chairman and Chief Executive Officer by the Board of Directors. On May 9, 2016, Mr. Tu also assumed the role of President. On August 11, 2016, our Board of Directors appointed a separate Executive Chairman of the Board, and Mr. Tu continued to serve in the role of Chief Executive Officer and President, until February 19, 2017. Mr. Tu is also the Founder, Chief Executive Officer and Chief Investment Officer of 5 Elements Global Advisors, an investment advisory and management company managing the holdings of 5 Elements Global Fund LP, which was a beneficial owner of more than 5 percent of our common stock prior to the August 2014 registered offering. As of December 31, 2018, 5 Elements Global Fund LP holds approximately 2.5 percent of our common stock. 5 Elements Global Advisors focuses on investing in clean energy companies with breakthrough, commercialized technologies, and near-term profitability potential. Mr. Tu is also Co-Founder of Communal International Ltd. (“Communal”), a British Virgin Islands company dedicated to assisting clean energy, solutions-based companies, maximizing technology and product potential and gaining them access to global marketing, distribution licensing, manufacturing and financing resources. Communal has a 50 percent ownership interest in 5 Elements Energy Efficiencies (BVI) Ltd., a beneficial owner of approximately 2.4 percent of our common stock. Yeh-Mei Cheng controls 5 Elements Energy Efficiencies (BVI) Ltd. and owns the other 50 percent. She is Co-Founder of Communal International Ltd. with Mr. Tu and the mother of Simon Cheng, a member of our Board of Directors through February 19, 2017 and an employee of the Company through June 30, 2018. Please refer to Note 16, “Subsequent Events,” for more information on our related party transactions. |
Legal Matters |
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Dec. 31, 2018 | |
Commitments and Contingencies Disclosure [Abstract] | |
Legal Matters | LEGAL MATTERS We may be the subject of threatened or pending legal actions and contingencies in the normal course of conducting our business. We provide for costs related to these matters when a loss is probable and the amount can be reasonably estimated. The effect of the outcome of these matters on our future results of operations and liquidity cannot be predicted because any such effect depends on future results of operations and the amount or timing of the resolution of such matters. While it is not possible to predict the future outcome of such matters, we believe that the ultimate resolution of such individual or aggregated matters will not have a material adverse effect on our consolidated financial position, results of operations, or cash flows. For certain types of claims, we maintain insurance coverage for personal injury and property damage, product liability and other liability coverages in amounts and with deductibles that we believe are prudent, but there can be no assurance that these coverages will be applicable or adequate to cover adverse outcomes of claims or legal proceedings against us. On November 26, 2013, we announced the sale of our pool products business for a cash purchase price of $5.2 million. Under the terms of the Purchase Agreement, we sold substantially all of the assets associated with the pool products business and the buyer assumed certain related liabilities. The Purchase Agreement provided for an escrow of $500 thousand of the purchase price to secure customary indemnification obligations with respect to our representations, warranties, covenants and other obligations under the Purchase Agreement. Under the terms of the Purchase Agreement, the first of five $100 thousand scheduled escrow releases commenced on March 25, 2014, and was to continue on the 25th day of each of the next four subsequent months. As of December 31, 2015 and 2014, $200 thousand of the cash held in escrow had been released to us and $300 thousand remained in escrow subject to the resolution of outstanding buyer claims. The Purchase Agreement provides that all disputes related to the sale must be resolved through binding arbitration. On February 18, 2015, the buyer filed a claim with the American Arbitration Association (“AAA”) asserting claims for damages of $780 thousand under the Purchase Agreement and relating to product development, which was amended on September 1, 2015 to assert damages of $1.6 million. We believed the claims were without merit and asserted a counterclaim in the arbitration for the $300 thousand that remained in escrow. On March 18, 2016, a settlement agreement was executed for this claim and the funds in the escrow account, plus the interest earned on the account, were released to the buyer. |
Subsequent Events |
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Dec. 31, 2018 | |
Subsequent Events [Abstract] | |
Subsequent Events | SUBSEQUENT EVENTS On March 29, 2019, we raised approximately $1.7 million from the issuance of subordinated convertible promissory notes to certain investors (the “Convertible Notes”). The Convertible Notes will automatically convert into shares of our Series A Convertible Preferred Stock (the “Series A Preferred Stock”) on April 17, 2019 to the extent permitted without receiving stockholder approval under the equity issuance rules of the NASDAQ Capital Market (the “NASDAQ Cap”) and to the extent sufficient shares of Series A Preferred Stock are authorized under our certificate of incorporation (the “Charter”), based on a conversion price equal to the greater of (a) the volume-weighted average price of our common stock measured over the ten trading day period ending on April 16, 2019 or (b) $0.20 (the “Conversion Rate”). If the Notes cannot fully convert on April 17, 2019 due to the NASDAQ Cap, then no portion of the Notes will convert into Series A Preferred Stock until our stockholders have approved the transaction in accordance with the Nasdaq rules. If the Series A Preferred Stock can be issued under the NASDAQ Cap, but insufficient shares are available under the Charter, then the Convertible Notes will convert in part to the extent of the authorized shares and the remainder will convert upon approval by our stockholders of an amendment to the Charter to increase the authorized number of shares. The Convertible Notes mature on December 31, 2021 and bear interest at a rate of five percent per annum until June 30, 2019 and at a rate of ten percent thereafter. The Series A Preferred Stock was created by the filing of a Certificate of Designation with the Secretary of State of the state of Delaware for 2,000,000 authorized shares. The Series A Preferred Stock (a) has one vote per share (voting together with holders of our common stock as a single class, except as provided by law), (b) has a preference upon liquidation equal to the Conversion Rate per share and then participates on an as-converted basis with the common stock with respect to any additional distributions, (c) shall receive any dividends declared and payable on the common stock on an as-converted basis, and (d) is convertible at the option of the holder into shares of common stock on a one-for-one basis. We also filed a Certificate of Elimination with respect to its authorized, but unissued, Series A Participating Preferred Stock, to return such shares to the status of preferred stock available for designation as the Series A Preferred Stock. The purchase agreement related to the Convertible Notes contains customary representations and warranties and provides for resale registration rights with respect to the shares of our common stock issuable upon conversion of the Series A Preferred Stock, as well as for the resignation of four members of the Board of Directors. Two of the Investors, James Tu (through Fusion Park LLC) and Brilliant Start Enterprise, Inc., which invested $580 thousand and $500 thousand, respectively, were among the parties to the Schedule 13D filed with the Securities and Exchange Commission (“SEC”) on November 30, 2018, as amended on February 26, 2019, reporting that the filing group (the “13D Group”) held a collective 17.6 percent ownership position in the Company. On February 21, 2019, the 13D Group entered into a settlement with the Company providing for the appointment of two directors and their nomination for election at the Company’s 2019 annual meeting of stockholders. Mr. Tu was appointed as a director in connection with the offering and is expected to be appointed as Chairman, Chief Executive Officer and President and will serve as interim Chief Financial Officer effective April 2, 2019. The Company is expected to conduct a search for a permanent or alternative interim Chief Financial Officer candidate. |
Supplementary Financial Information to Item 8. |
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Quarterly Financial Information Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Supplementary Financial Information to Item 8. | SUPPLEMENTARY FINANCIAL INFORMATION TO ITEM 8. The following table sets forth our selected unaudited financial information for the four quarters in the periods ended December 31, 2018 and 2017, respectively. This information has been prepared on the same basis as the audited financial statements and, in the opinion of management, contains all adjustments necessary for a fair presentation thereof. QUARTERLY FINANCIAL DATA (UNAUDITED) (amounts in thousands, except per share amounts)
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Schedule II - Schedule of Valuation and Qualifying Accounts |
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SEC Schedule, 12-09, Valuation and Qualifying Accounts [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule II - Schedule of Valuation and Qualifying Accounts | SCHEDULE II ENERGY FOCUS, INC. SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS (amounts in thousands)
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Summary of Significant Accounting Policies (Policies) |
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Dec. 31, 2018 | |
Accounting Policies [Abstract] | |
Use of estimates | Use of estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods presented. Estimates include, but are not limited to, the establishment of reserves for accounts receivable, sales returns, inventory obsolescence and warranty claims; the useful lives for property, equipment, and intangible assets; and stock-based compensation. In addition, estimates and assumptions associated with the determination of the fair value of financial instruments and evaluation of long-lived assets for impairment requires considerable judgment. Actual results could differ from those estimates and such differences could be material. |
Reclassifications | Reclassifications Certain prior year amounts have been reclassified within the Consolidated Financial Statements and related notes thereto, to be consistent with current year presentation. |
Basis of presentation | Basis of presentation The Consolidated Financial Statements include the accounts of the Company and, until the 2013 disposition of our pool products business and the 2015 dispositions of its subsidiaries EFLS in Solon, Ohio, and CLL in the United Kingdom. All significant inter-company balances and transactions have been eliminated. Therefore, the results of operations and financial position of EFLS, CLL, and the pool products business are included in the Consolidated Financial Statements as Discontinued operations and previously reported financial information for the current and prior years have been adjusted. Unless indicated otherwise, the information in the Notes to Consolidated Financial Statements relates to our continuing operations. |
Revenue recognition | Revenue recognition On January 1, 2018, we adopted Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), as amended by subsequently issued additional guidance (together, “ASC 606”) using the modified retrospective method. The adoption of ASC 606 did not have a material impact on our consolidated financial position or results of operations, as our revenue arrangements generally consist of a single performance obligation to transfer promised goods at a fixed price. Net sales include revenues from sales of products and shipping and handling charges, net of estimates for product returns. Revenue is measured at the amount of consideration we expect to receive in exchange for the transferred products. We recognize revenue at the point in time when we transfer the promised products to the customer and the customer obtains control over the products. Distributors’ obligations to us are not contingent upon the resale of our products. We recognize revenue for shipping and handling charges at the time the goods are shipped to the customer, and the costs of outbound freight are included in cost of sales, as we have elected the practical expedient included in ASC 606. We provide for product returns based on historical return rates. While we incur costs for sales commissions to our sales employees and outside agents, we recognize commission costs concurrent with the related revenue, as the amortization period is less than one year and we have elected the practical expedient included in ASC 606. We do not incur any other incremental costs to obtain contracts with our customers. Our product warranties are assurance-type warranties, which promise the customer that the products are as specified in the contract. therefore, the product warranties are not a separate performance obligation and are accounted for as described below. Sales taxes assessed by governmental authorities are accounted for on a net basis and are excluded from net sales. A disaggregation of product net sales is presented in Note 13, “Product and Geographic Information.” |
Cash and cash equivalents | Cash and cash equivalents We consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. At December 31, 2018 and 2017, we had $6.3 million and $10.8 million, respectively, in cash on deposit with financial institutions located in the United States. At December 31, 2018 and 2017, $0.3 million of the cash balance amount was designated as restricted cash and relates to a standby letter of credit agreement for the lease of our former New York, New York office. Please refer to Note 3, “Restructuring,” for additional information. |
Inventories | Inventories We state inventories at the lower of standard cost (which approximates actual cost determined using the first-in-first-out method) or net realizable value. We establish provisions for excess and obsolete inventories after evaluation of historical sales, current economic trends, forecasted sales, product lifecycles, and current inventory levels. During 2017, we implemented a strategic sales initiative to sell certain excess inventory that had previously been written-down in conjunction with our excess inventory reserve analysis in prior years, as required by U.S. GAAP. This initiative resulted in a net reduction of our excess inventory reserves of $1.4 million in 2017. During 2018 and 2016, due to the introduction of new products and technological advancements, we charged $17 thousand and $3.3 million, respectively, to cost of sales from continuing operations for excess and obsolete inventories. Adjustments to our estimates, such as forecasted sales and expected product lifecycles, could harm our operating results and financial position. Please refer to Note 5, “Inventories,” for additional information. |
Accounts receivables | Accounts receivable Our trade accounts receivable consists of amounts billed to and currently due from customers. Our customers are concentrated in the United States. In the normal course of business, we extend unsecured credit to our customers related to the sale of our products. Credit is extended to customers based on an evaluation of the customer’s financial condition and the amounts due are stated at their estimated net realizable value. We evaluate and monitor the creditworthiness of each customer on a case-by-case basis. We maintain allowances for sales returns and doubtful accounts receivable to provide for the estimated amount of receivables that will not be collected. The allowance is based on an assessment of customer creditworthiness and historical payment experience, the age of outstanding receivables, and performance guarantees to the extent applicable. Past due amounts are written off when our internal collection efforts have been unsuccessful and payments subsequently received on such receivables are credited to the allowance for doubtful accounts. We do not generally require collateral from our customers. Our standard payment terms with customers are net 30 days from the date of shipment, and we do not generally offer extended payment terms to our customers, but exceptions are made in some cases to major customers or with particular orders. Accordingly, we do not adjust trade accounts receivable for the effects of financing, as we expect the period between the transfer of product to the customer and the receipt of payment from the customer to be in line with our standard payment terms. |
Income taxes | Income taxes As part of the process of preparing the Consolidated Financial Statements, we are required to estimate our income tax liability in each of the jurisdictions in which we do business. This process involves estimating our actual current tax expense together with assessing temporary differences resulting from differing treatment of items, such as deferred revenues, for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included in our Consolidated Balance Sheet. We then assess the likelihood that these deferred tax assets will be recovered from future taxable income and, to the extent that we believe that it is more likely than not that the deferred tax assets will not be recovered, or is unknown, we establish a valuation allowance. Significant management judgment is required in determining our provision for income taxes, deferred tax assets and liabilities, and any valuation allowance recorded against our deferred tax assets. At December 31, 2018 and 2017, we had a full valuation allowance recorded against our deferred tax assets in the United States due to uncertainties related to our ability to utilize our deferred tax assets, primarily consisting of certain net operating losses carried forward. The valuation allowance is based upon our estimates of taxable income by jurisdiction and the period over which our deferred tax assets will be recoverable. At December 31, 2018, we had net operating loss carry-forwards of approximately $100.5 million for federal, state, and local income tax purposes. However, due to changes in our capital structure, approximately $46.0 million of this amount is available after the application of IRC Section 382 limitations. In 2019, we expect to have approximately $46.0 million of the net operating loss carry-forward available for use. If not utilized, $37.3 million of these carry-forwards will begin to expire in 2021 for federal purposes, and have begun to expire for state and local purposes. |
Fair value measurements | Fair value measurements Fair value is defined as the price that would be received to sell an asset or would be paid to transfer a liability in an orderly transaction between market participants on the measurement date. The fair value of financial assets and liabilities are measured on a recurring or non-recurring basis. Financial assets and liabilities measured on a recurring basis are those that are adjusted to fair value each time a financial statement is prepared. Financial assets and liabilities measured on a non-recurring basis are those that are adjusted to fair value when a significant event occurs. We utilize valuation techniques that maximize the use of available market information and generally accepted valuation methodologies. We assess the inputs used to measure fair value using a three-tier hierarchy. The hierarchy indicates the extent to which pricing inputs used in measuring fair value are observable in the market. Level 1 inputs include unadjusted quoted prices for identical assets or liabilities and are the most observable. Level 2 inputs include unadjusted quoted prices for similar assets and liabilities that are either directly or indirectly observable, or other observable inputs such as interest rates, foreign currency exchange rates, commodity rates, and yield curves. Level 3 inputs are not observable in the market and include our own judgments about the assumptions market participants would use in pricing the asset or liability. The carrying amounts of certain financial instruments including cash and equivalents, accounts receivable, accounts payable, and accrued liabilities approximate fair value due to their short maturities. Based on borrowing rates currently available to us for loans with similar terms, the carrying value of borrowings under our revolving credit facility also approximates fair value. |
Long-lived assets | Long-lived assets Property and equipment are stated at cost and include expenditures for additions and major improvements. Expenditures for repairs and maintenance are charged to operations as incurred. We use the straight-line method of depreciation over the estimated useful lives of the related assets (generally 2 to 15 years) for financial reporting purposes. Accelerated methods of depreciation are used for federal income tax purposes. When assets are sold or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the Consolidated Statement of Operations. Refer to Note 6, “Property and Equipment,” for additional information. Long-lived assets are reviewed for impairment whenever events or circumstances indicate the carrying amount may not be recoverable. Events or circumstances that would result in an impairment review primarily include operations reporting losses, a significant change in the use of an asset, or the planned disposal or sale of the asset. The asset would be considered impaired when the future net undiscounted cash flows generated by the asset are less than its carrying value. An impairment loss would be recognized based on the amount by which the carrying value of the asset exceeds its fair value, as determined by quoted market prices (if available) or the present value of expected future cash flows. At December 31, 2016, we recorded an impairment loss of $0.9 million related to our surface mount technology equipment. Due to the specialized nature of this equipment we were not able to find a buyer for this equipment in 2017. As a result, we re-evaluated the carrying value of the equipment and software compared to its fair value and recorded an additional impairment loss of $0.2 million as of December 31, 2017. We completed the sale of this equipment in the first quarter of 2018. |
Certain risks and concentrations | Certain risks and concentrations Historically our products were sold through a direct sales model, which included a combination of direct sales employees, electrical and lighting contractors, and distributors. The 2017 restructuring initiative included the transition to an agency driven sales channel strategy in order to expand our market presence throughout the U.S. We perform ongoing credit evaluations of our customers and generally do not require collateral. Although we maintain allowances for potential credit losses that we believe to be adequate, a payment default on a significant sale could materially and adversely affect our operating results and financial condition. We have certain customers whose net sales individually represented 10 percent or more of our total net sales, or whose net trade accounts receivable balance individually represented 10 percent or more of our total net trade accounts receivable, as follows: In 2018, one customer, a distributor to the U.S. Navy accounted for 41.9 percent, of net sales and total sales to distributors to the U.S. Navy represented 46.2 percent of net sales. In 2017, three customers accounted for 48.4 percent of net sales. In 2017, two commercial customers, a major northeastern Ohio hospital system and a large regional retrofit company located in Texas accounted for 18.3 percent, and 12.8 percent of net sales, respectively, while sales to a distributor to the U.S. Navy accounted for 17.3 percent of net sales. Total sales to distributors to the U.S. Navy represented 22.0 percent of net sales in 2017. In 2016, two customers, a distributor to the U.S. Navy and a major Northeast Ohio hospital, accounted for 36.5 percent and 10.9 percent of our net sales, respectively. Including sales pursuant to an indefinite duration, indefinite quantity (“IDIQ”) supply contract we were awarded in 2011, total sales of products for the U.S. Navy accounted for 43.1 percent of net sales. This IDIQ contract expired on August 1, 2016. At December 31, 2018, a distributor to the U.S. Navy accounted for 40.4 percent of our net trade accounts receivable. At December 31, 2017, two commercial customers, a major Northeast Ohio hospital system and a large regional retrofit company located in Texas, accounted for 21.0 percent and 17.4 percent of our net trade accounts receivable, respectively. In addition, a distributor to the U.S. Navy accounted for 39.0 percent of our net trade accounts receivable at December 31, 2017. We require substantial amounts of purchased materials from selected vendors. With specific materials, all of our purchases are from a single vendor. Substantially all of the materials we require are in adequate supply. However, the availability and costs of materials may be subject to change due to, among other things, new laws or regulations, suppliers’ allocation to other purchasers, interruptions in production by suppliers, and changes in exchange rates and worldwide price and demand levels. Our inability to obtain adequate supplies of materials for our products at favorable prices could have a material adverse effect on our business, financial position, or results of operations by decreasing our profit margins and by hindering our ability to deliver products to our customers on a timely basis. |
Product development | Product development Product development expenses include salaries, contractor and consulting fees, supplies and materials, as well as costs related to other overhead items such as depreciation and facilities costs. Research and development costs are expensed as they are incurred. |
Net income (loss) per share | Net loss per share Basic loss per share is computed by dividing the net loss available to common stockholders by the weighted average number of common shares outstanding for the period, excluding the effects of any potentially dilutive securities. Diluted loss per share gives effect to all dilutive potential common shares outstanding during the period. Dilutive potential common shares consist of incremental shares upon exercise of stock options and warrants, unless the effect would be anti-dilutive. |
Stock-based compensation | Stock-based compensation We recognize compensation expense based on the estimated grant date fair value under the authoritative guidance. Management applies the Black-Scholes option pricing model to value stock options issued to employees and directors, and applies judgment in estimating key assumptions that are important elements of the model in expense recognition. These elements include the expected life of the option, the expected stock-price volatility, and expected forfeiture rates. Compensation expense is generally amortized on a straight-line basis over the requisite service period, which is generally the vesting period. See Note 11, “Stockholders’ Equity,” for additional information. Common stock, stock options, and warrants issued to non-employees that are not part of an equity offering are accounted for under the applicable guidance under ASC 505-50, “Equity-Based Payments to Non-Employees,” and are generally re-measured at each reporting date until the awards vest. |
Foreign currency translation | Foreign currency translation Our product development center in Taiwan uses local currency as its functional currency. Included within “Accumulated other comprehensive income” within the Consolidated Statements of Stockholders’ Equity is the effect of foreign currency translation related to our Taiwan operations. |
Advertising expenses | Advertising expenses Advertising expenses are charged to operations in the period incurred. They consist of costs for the placement of our advertisements in various media and the costs of demos provided to potential distributors of our products. |
Shipping and handling costs | Shipping and handling costs We include shipping and handling revenues in net sales, and shipping and handling costs in cost of sales. |
Product warranties | Product warranties We warrant finished goods against defects in material and workmanship under normal use and service for periods generally between one and ten years. Settlement costs consist of actual amounts expensed for warranty coverage, which are largely a result of the cost of replacement products. A liability for the estimated future costs under product warranties is maintained for products outstanding under warranty and is included in “Accrued liabilities” in our Consolidated Balance Sheets. |
Recent accounting standards and pronouncements | Recent accounting standards and pronouncements In August 2018, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2018-15, Intangibles--Goodwill and Other--Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which aligns the requirements for capitalizing implementation costs in a cloud computing service contract with the requirements for capitalizing implementation costs incurred for an internal-use software license. This standard will be effective for interim and annual periods beginning after December 15, 2019. We do not expect the adoption of this guidance to have a significant impact on our financial position, results of operations, or cash flows. In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which significantly changes the accounting for credit losses on instruments within its scope. The new guidance introduces an approach based on expected losses to estimate credit losses on certain financial instruments, including trade receivables, and requires an entity to recognize an allowance based on its estimate of expected credit losses rather than incurred losses. This standard will be effective for interim and annual periods beginning after December 15, 2019, and will generally require adoption on a modified retrospective basis. We are in the process of evaluating the impact of the standard. In February 2016, the FASB issued ASU No. 2016-02, Leases, which supersedes the current lease accounting requirements. This standard requires a lessee to record on the balance sheet the assets and liabilities for the rights and obligations created by leases with lease terms of more than 12 months. In addition, this standard requires lessees to disclose certain key information about lease transactions. Upon implementation, an entity’s lease payment obligations will be recognized at their estimated present value along with a corresponding right-of-use asset. Lease expense recognition will be generally consistent with current practice. In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, which simplifies adoption of the new lease accounting requirements by allowing an additional transition method that will not require restatement of prior periods and providing a new practical expedient for lessors to avoid separating lease and non-lease components within a contract if certain requirements are met. The provisions of this guidance must be elected upon adoption of the new lease accounting requirements, which will be effective for interim and annual periods beginning after December 15, 2018. We will adopt the standard as required on January 1, 2019 and use that date as our date of initial application of the guidance. Consequently, we will not update previously reported financial information and the disclosures under the new standard will not be provided for dates and periods prior to January 1, 2019. We will elect all of the practical expedients available under the transition guidance. The new standard also provides practical expedients for ongoing accounting. We will elect the short-term lease recognition exemption for all leases that qualify. This means we will not recognize right of use assets or lease liabilities for those leases. We will also elect the practical expedient to not separate lease and non-lease components for all of our leases. We expect that this standard will have a material impact on our financial statements. While we continue to assess all of the effects of adoption, we currently believe the most significant effects relate to the recognition of new right of use assets and lease liabilities on our balance sheet for our real estate and equipment operating leases, and the significant new required disclosures regarding our leasing activities. We do not expect a significant change in our leasing activities between now and adoption. On adoption, we expect to recognize additional operating lease liabilities of approximately $2.2 million, with corresponding right of use assets for the same amount based on the present value of the remaining minimum rental payments under current leasing standards for existing operating leases. |
Summary of Significant Accounting Policies (Tables) |
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Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Earnings Per Share, Basic and Diluted | The following table presents a reconciliation of basic and diluted loss per share computations (in thousands, except per share amounts):
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Schedule of Warranty Activity | The warranty activity for the respective years is as follows (in thousands):
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Restructuring (Tables) |
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Restructuring and Related Activities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Restructuring Reserve by Type of Cost | The following is a reconciliation of the beginning and ending balances of our restructuring liability:
|
Inventories (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Inventory Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Inventory | Inventories are stated at the lower of standard cost (which approximates actual cost determined using the first-in, first-out cost method) or net realizable value and consists of the following (in thousands):
|
Property and Equipment (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Property and Equipment | Property and equipment are stated at cost and depreciated using the straight-line method over the estimated useful lives of the related assets and consist of the following (in thousands):
|
Prepaid Expenses and Other Current Assets (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Prepaid and Other Current Assets |
|
Accrued Liabilities (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Payables and Accruals [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Accrued Current Liabilities | Accrued current liabilities consisted of the following (in thousands):
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Commitments and Contingencies (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commitments and Contingencies Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Future Minimum Lease Payments for Capital Leases [Table Text Block] | Minimum future lease payments under capital leases as of December 31, 2018 are as follows (dollars in thousands):
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Schedule of Future Minimum Lease Commitments | Future minimum non-cancellable lease commitments are as follows (in thousands):
(1) Represents the amount of income expected from sublease agreements executed in 2017 for our former New York, New York and Arlington, Virginia offices. |
Stockholders' Equity (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stockholders' Equity Note [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Warrants |
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Summary of Impact of Results of Stock-Based Compensation | The impact on our results for stock-based compensation was as follows (in thousands):
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Schedule of Share-Based Payment Award, Stock Options, Valuation Assumptions | Estimates utilized in the calculation include the expected life of the option, risk-free interest rate, and expected volatility, and are further comparatively detailed as follows:
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Summary of Option Activity | A summary of option activity under all plans was as follows:
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Schedule of Options Outstanding | The options outstanding at December 31, 2018 have been segregated into ranges for additional disclosure as follows:
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Summary of Restricted Stock Activity | The following table shows a summary of restricted stock and restricted stock unit activity:
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Income Taxes (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Tax Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Components of Income (Loss) from Continuing Operations Before Income Taxes | The following table shows the components of loss from continuing operations before income taxes (in thousands):
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Schedule of Components of Benefits from Income Taxes | The following table shows the components of the provision for income taxes from continuing operations (in thousands):
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Schedule of Effective Income Tax Rate Reconciliation | The principal items accounting for the difference between income taxes computed at the U.S. statutory rate and the provision for income taxes from continuing operations reflected in our Consolidated Statements of Operations are as follows:
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Schedule of Deferred Tax Assets | The tax effects of temporary differences that give rise to significant portions of the deferred tax assets are as follows (in thousands):
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Product and Geographic Information (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Breakdown of Product Net Sales | The following table provides a breakdown of product net sales from continuing operations for the years indicated (in thousands):
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Geographic Summary of Net Sales | A geographic summary of net sales from continuing operations is as follows (in thousands):
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Supplementary Financial Information to Item 8. (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Quarterly Financial Information Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Quarterly Financial Data |
|
Nature of Operations - Narrative (Details) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2018
USD ($)
sales_agency
region
sales_agent
|
Dec. 31, 2017
USD ($)
|
Dec. 31, 2016
USD ($)
|
|
Restructuring Cost and Reserve [Line Items] | |||
Inventory adjustments | $ 0 | $ 3,300 | |
Reduction of full-time equivalent headcount, percent | 51.00% | ||
Decrease in operating expense | $ 3,600 | $ 8,400 | |
Restructuring costs and asset impairment charges | 1,800 | ||
Number of geographic regions | region | 6 | ||
Sales Coverage, Number Of Sales Agencies | sales_agency | 50 | ||
Number of sales agents | sales_agent | 10 | ||
Provision for slow-moving and obsolete inventories | $ (17) | 1,400 | (3,281) |
Restructuring | 111 | 1,662 | 0 |
Facilities | |||
Restructuring Cost and Reserve [Line Items] | |||
Restructuring | $ 100 | $ 700 | |
Military maritime | |||
Restructuring Cost and Reserve [Line Items] | |||
Increase (decrease) in revenue | $ (33,900) |
Summary of Significant Accounting Policies - Reconciliation of Basic and Diluted Income (Loss) per Share (Details) - USD ($) shares in Thousands, $ in Thousands |
3 Months Ended | 12 Months Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2018 |
Sep. 30, 2018 |
Jun. 30, 2018 |
Mar. 31, 2018 |
Dec. 31, 2017 |
Sep. 30, 2017 |
Jun. 30, 2017 |
Mar. 31, 2017 |
Dec. 31, 2018 |
Dec. 31, 2017 |
Dec. 31, 2016 |
|
Numerator: | |||||||||||
Loss from continuing operations | $ (9,111) | $ (11,267) | $ (16,875) | ||||||||
Loss from discontinued operations | 0 | 0 | (12) | ||||||||
Net loss | $ (3,000) | $ (1,920) | $ (1,801) | $ (2,390) | $ (1,858) | $ (1,773) | $ (3,114) | $ (4,522) | $ (9,111) | $ (11,267) | $ (16,887) |
Denominator: | |||||||||||
Basic weighted average common shares outstanding (in shares) | 11,997 | 11,806 | 11,673 | ||||||||
Potential common shares from options and warrants (in shares) | 0 | 0 | 0 | ||||||||
Diluted weighted average shares (in shares) | 11,997 | 11,806 | 11,673 |
Summary of Significant Accounting Policies - Schedule of Warranty Activity (Details) - USD ($) $ in Thousands |
12 Months Ended | |
---|---|---|
Dec. 31, 2018 |
Dec. 31, 2017 |
|
Movement in Standard Product Warranty Accrual [Roll Forward] | ||
Balance at the beginning of the year | $ 174 | $ 331 |
Accruals for warranties issued | 51 | 196 |
Adjustments to existing warranties | 103 | (87) |
Settlements made during the year (in kind) | (70) | (266) |
Accrued warranty expense | $ 258 | $ 174 |
Restructuring - Narrative (Details) $ in Thousands |
3 Months Ended | 9 Months Ended | 12 Months Ended | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2018
USD ($)
|
Sep. 30, 2018
USD ($)
|
Jun. 30, 2018
USD ($)
|
Mar. 31, 2018
USD ($)
|
Dec. 31, 2017
USD ($)
|
Sep. 30, 2017
USD ($)
|
Jun. 30, 2017
USD ($)
employee
|
Mar. 31, 2017
USD ($)
employee
|
Dec. 31, 2016
USD ($)
|
Sep. 30, 2017 |
Dec. 31, 2018
USD ($)
|
Dec. 31, 2017
USD ($)
|
Dec. 31, 2016
USD ($)
|
Dec. 31, 2015
USD ($)
|
|
Restructuring Cost and Reserve [Line Items] | ||||||||||||||
Net loss | $ (3,000) | $ (1,920) | $ (1,801) | $ (2,390) | $ (1,858) | $ (1,773) | $ (3,114) | $ (4,522) | $ (9,111) | $ (11,267) | $ (16,887) | |||
Net cash (used in) provided by continuing operations | (4,426) | (5,868) | (17,999) | |||||||||||
Cash and cash equivalents | 6,335 | 10,761 | $ 16,629 | 6,335 | 10,761 | 16,629 | $ 34,640 | |||||||
Number of positions eliminated | employee | 17 | 20 | ||||||||||||
Restructuring charges | 1,786 | |||||||||||||
Decrease in operating expense | 3,600 | 8,400 | ||||||||||||
Restructuring costs and asset impairment charges | 1,800 | |||||||||||||
Restructuring | 111 | 1,662 | 0 | |||||||||||
Loss on impairment | $ 900 | 0 | 185 | $ 857 | ||||||||||
Obligations to be satisfied, term | 12 months | |||||||||||||
Estimate of sublease payments to be received | 700 | |||||||||||||
Operating lease, liability | 1,100 | 1,100 | ||||||||||||
Borrowings | 2,219 | $ 0 | 2,219 | 0 | ||||||||||
Severance and Related Benefits | ||||||||||||||
Restructuring Cost and Reserve [Line Items] | ||||||||||||||
Restructuring charges | 770 | |||||||||||||
Restructuring | 800 | |||||||||||||
Facilities | ||||||||||||||
Restructuring Cost and Reserve [Line Items] | ||||||||||||||
Restructuring charges | 830 | |||||||||||||
Restructuring | 100 | 700 | ||||||||||||
Other | ||||||||||||||
Restructuring Cost and Reserve [Line Items] | ||||||||||||||
Restructuring charges | 186 | |||||||||||||
Restructuring | $ 100 | |||||||||||||
Revolving Credit Facility | ||||||||||||||
Restructuring Cost and Reserve [Line Items] | ||||||||||||||
Borrowings | $ 2,200 | $ 2,200 |
Restructuring - Restructuring Reserve (Details) - USD ($) $ in Thousands |
12 Months Ended | |
---|---|---|
Dec. 31, 2018 |
Dec. 31, 2017 |
|
Restructuring Reserve [Roll Forward] | ||
Balance at January 1, 2017 | $ 402 | $ 0 |
Additions | 1,786 | |
Accretion of lease obligations | 21 | 31 |
Adjustment of lease obligations | 90 | (155) |
Write-offs | (86) | |
Payments | (163) | (1,174) |
Balance at December 31, 2017 | 350 | 402 |
Severance and Related Benefits | ||
Restructuring Reserve [Roll Forward] | ||
Balance at January 1, 2017 | 62 | 0 |
Additions | 770 | |
Payments | (62) | (708) |
Balance at December 31, 2017 | 0 | 62 |
Facilities | ||
Restructuring Reserve [Roll Forward] | ||
Balance at January 1, 2017 | 340 | 0 |
Additions | 830 | |
Accretion of lease obligations | 21 | 31 |
Adjustment of lease obligations | 90 | (155) |
Write-offs | 9 | |
Payments | (101) | (375) |
Balance at December 31, 2017 | 350 | 340 |
Other | ||
Restructuring Reserve [Roll Forward] | ||
Balance at January 1, 2017 | 0 | 0 |
Additions | 186 | |
Accretion of lease obligations | 0 | |
Adjustment of lease obligations | 0 | 0 |
Write-offs | (95) | |
Payments | 0 | (91) |
Balance at December 31, 2017 | $ 0 | $ 0 |
Discontinued Operations - Narrative (Details) - Pool products - USD ($) $ in Thousands |
9 Months Ended | 21 Months Ended | ||
---|---|---|---|---|
Mar. 25, 2014 |
Dec. 31, 2014 |
Dec. 31, 2015 |
Nov. 26, 2013 |
|
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | ||||
Proceeds from sale | $ 5,200 | |||
Non-compete period | 5 years | |||
Cash held in escrow | $ 300 | $ 300 | $ 500 | |
Escrow releases | $ 100 | $ 200 | $ 200 | |
Number of additional months to receive payments | 4 months |
Inventories - Schedule of Inventory (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2018 |
Dec. 31, 2017 |
Dec. 31, 2016 |
|
Inventory Disclosure [Abstract] | |||
Raw materials | $ 4,041 | $ 3,316 | |
Finished goods | 8,229 | 6,598 | |
Reserve for excess, obsolete, and slow moving inventories | (4,212) | (4,196) | |
Inventories, net | 8,058 | 5,718 | |
Increase in gross inventory levels | 2,400 | (5,200) | |
Provision for slow-moving and obsolete inventories | $ 17 | $ (1,400) | $ 3,281 |
Prepaid Expenses and Other Current Assets (Details) - USD ($) $ in Thousands |
12 Months Ended | |
---|---|---|
Dec. 31, 2018 |
Dec. 31, 2017 |
|
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | ||
Prepaid insurance | $ 100 | $ 115 |
Prepaid expenses | 94 | 91 |
Prepaid rent | 4 | 4 |
Short-term deposits | 825 | 386 |
Debt acquisition costs - short-term | 71 | 0 |
Total prepaid and other current assets | 1,094 | $ 596 |
Annual facility fee | $ 50 | |
Facility fee, amortization period | 1 year | |
Debt acquisition costs, amortization period | 3 years |
Accrued Liabilities (Details) - USD ($) $ in Thousands |
Dec. 31, 2018 |
Dec. 31, 2017 |
Dec. 31, 2016 |
---|---|---|---|
Payables and Accruals [Abstract] | |||
Accrued payroll and related benefits | $ 435 | $ 394 | |
Accrued sales commissions and incentives | 115 | 124 | |
Accrued warranty expense | 258 | 174 | $ 331 |
Accrued severance and related benefits | 188 | 0 | |
Accrued restructuring - short-term | 156 | 170 | |
Accrued legal and professional fees | 160 | 77 | |
Accrued other expenses | 73 | 53 | |
Total accrued liabilities | $ 1,385 | $ 992 |
Commitments and Contingencies - Future Minimum Operating Lease Payments (Details) $ in Thousands |
Dec. 31, 2018
USD ($)
|
---|---|
Minimum Lease Commitments | |
2019 | $ 1,177 |
2020 | 975 |
2021 | 804 |
2022 | 325 |
2023 & thereafter | 16 |
Total contractual obligations | 3,297 |
Sublease Payments | |
2019 | 399 |
2020 | 267 |
2021 | 134 |
2022 | 0 |
2023 & thereafter | 0 |
Total contractual obligations | 800 |
Operating Leases, Future Minimum Payments Due, Fiscal Year Maturity, Net [Abstract] | |
2019 | 778 |
2020 | 708 |
2021 | 670 |
2022 | 325 |
2023 & thereafter | 16 |
Total contractual obligations | $ 2,497 |
Commitments and Contingencies - Narrative (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | 12 Months Ended | |||
---|---|---|---|---|---|---|
Jun. 30, 2019 |
Mar. 31, 2019 |
Dec. 31, 2019 |
Dec. 31, 2018 |
Dec. 31, 2017 |
Dec. 31, 2016 |
|
Business Acquisition, Contingent Consideration [Line Items] | ||||||
Net rent expense | $ 800 | $ 1,200 | $ 1,200 | |||
Capital leases | 20 | |||||
Capital leases, accumulated depreciation | 4 | |||||
Outstanding purchase commitment | $ 2,800 | |||||
Scenario, forecast | ||||||
Business Acquisition, Contingent Consideration [Line Items] | ||||||
Purchase commitment | $ 800 | $ 1,500 | $ 500 |
Commitments and Contingencies - Future Minimum Capital Lease Payments (Details) $ in Thousands |
Dec. 31, 2018
USD ($)
|
---|---|
Commitments and Contingencies Disclosure [Abstract] | |
2019 | $ 4 |
2020 | 3 |
2021 | 3 |
2022 | 1 |
2023 & thereafter | 0 |
Total minimum lease payments | 11 |
Less: interest amount | (1) |
Present value of minimum lease payments | $ 10 |
Stockholders' Equity - Summary of Warrant Activity (Details) |
12 Months Ended | |
---|---|---|
Dec. 31, 2017
$ / shares
shares
|
Dec. 31, 2016
$ / shares
shares
|
|
Warrants Outstanding | ||
Beginning balance (in shares) | shares | 6,750 | 14,250 |
Warrants canceled/forfeited (in shares) | shares | (6,750) | (7,500) |
Ending balance (in shares) | shares | 0 | 6,750 |
Weighted Average Exercise Price During Period | ||
Beginning balance (in dollars per share) | $ / shares | 4.30 | 4.30 |
Warrants canceled/forfeited (in dollars per share) | $ / shares | 4.30 | 4.30 |
Ending balance (in dollars per share) | $ / shares | 0.00 | 4.30 |
Stockholders' Equity - Impact of Results for Stock-Based Compensation (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2018 |
Dec. 31, 2017 |
Dec. 31, 2016 |
|
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items] | |||
Total stock-based compensation | $ 908 | $ 807 | $ 1,360 |
Cost of sales | |||
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items] | |||
Total stock-based compensation | 37 | 34 | 56 |
Product development | |||
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items] | |||
Total stock-based compensation | 118 | 59 | 84 |
Selling, general, and administrative | |||
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items] | |||
Total stock-based compensation | $ 753 | $ 714 | $ 1,220 |
Stockholders' Equity - Estimates Utilized (Details) - $ / shares |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2018 |
Dec. 31, 2017 |
Dec. 31, 2016 |
|
Stockholders' Equity Note [Abstract] | |||
Fair value of options issued (in dollars per share) | $ 1.41 | $ 2.66 | $ 5.27 |
Exercise price (in dollars per share) | $ 1.97 | $ 3.55 | $ 7.46 |
Expected life of option (in years) | 5 years 10 months 24 days | 5 years 9 months 18 days | 5 years 9 months 18 days |
Risk-free interest rate | 2.70% | 2.10% | 1.50% |
Expected volatility | 84.20% | 91.90% | 93.70% |
Dividend yield | 0.00% | 0.00% | 0.00% |
Stockholders' Equity - Summary of Restricted Stock Activity (Details) - $ / shares |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2018 |
Dec. 31, 2017 |
Dec. 31, 2016 |
|
Restricted Stock Outstanding | |||
Beginning balance (in shares) | 0 | 6,750 | 14,250 |
Ending balance (in shares) | 0 | 6,750 | |
Weighted Average Grant Date Fair Value | |||
Outstanding at beginning of period (in dollars per share) | $ 3.37 | $ 6.34 | $ 7.31 |
Granted (in dollars per share) | 2.38 | 3.18 | 6.56 |
Vested (in dollars per share) | 3.11 | 5.78 | 14.18 |
Canceled (in dollars per share) | 2.99 | 5.30 | 6.73 |
Outstanding at end of period (in dollars per share) | $ 2.54 | $ 3.37 | $ 6.34 |
Restricted Stock Units (RSUs) | |||
Restricted Stock Outstanding | |||
Beginning balance (in shares) | 306,142 | 250,115 | 57,500 |
Granted (in shares) | 553,657 | 375,542 | 290,966 |
Vested (in shares) | (222,835) | (115,622) | (11,213) |
Canceled (in shares) | (90,106) | (203,893) | (87,138) |
Ending balance (in shares) | 546,858 | 306,142 | 250,115 |
Income Taxes - Components of Income (Loss) from Continuing Operations Before Income Tax (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2018 |
Dec. 31, 2017 |
Dec. 31, 2016 |
|
Income Tax Disclosure [Abstract] | |||
United States | $ (9,100) | $ (11,382) | $ (16,848) |
Loss from continuing operations before income taxes | $ (9,100) | $ (11,382) | $ (16,848) |
Income Taxes - Components (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2018 |
Dec. 31, 2017 |
Dec. 31, 2016 |
|
Current: | |||
U.S. federal | $ 0 | $ 0 | $ 1 |
State | 11 | 10 | 26 |
Total current | 11 | 10 | 27 |
Deferred: | |||
U.S. Federal | 0 | (125) | 0 |
State | 0 | 0 | 0 |
Total deferred | 0 | (125) | 0 |
Provision for income taxes | $ 11 | $ (115) | $ 27 |
Income Taxes - Reconciliation (Details) |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2018 |
Dec. 31, 2017 |
Dec. 31, 2016 |
|
Income Tax Disclosure [Abstract] | |||
U.S. statutory rate | 21.00% | 34.00% | 34.00% |
State taxes (net of federal tax benefit) | 2.50% | 2.30% | 1.70% |
Valuation allowance | (25.00%) | 17.40% | (27.50%) |
Deferred rate change due to changes in tax laws | 0.00% | (51.70%) | 0.00% |
Other | 1.40% | (1.00%) | (8.40%) |
Effective income tax rate reconciliation | (0.10%) | 1.00% | (0.20%) |
Income Taxes - Temporary Differences (Details) - USD ($) $ in Thousands |
Dec. 31, 2018 |
Dec. 31, 2017 |
Dec. 31, 2016 |
---|---|---|---|
Income Tax Disclosure [Abstract] | |||
Allowance for doubtful accounts | $ 0 | $ 0 | $ 18 |
Accrued expenses and other reserves | 1,964 | 1,749 | 3,138 |
Tax credits, deferred R&D, and other | 65 | 197 | 142 |
Net operating loss | 10,793 | 8,610 | 9,239 |
Valuation allowance | (12,822) | (10,556) | (12,537) |
Net deferred tax assets | $ 0 | $ 0 | $ 0 |
Legal Matters (Details) - Pool products - USD ($) $ in Thousands |
9 Months Ended | 21 Months Ended | ||||
---|---|---|---|---|---|---|
Sep. 01, 2015 |
Feb. 18, 2015 |
Mar. 25, 2014 |
Dec. 31, 2014 |
Dec. 31, 2015 |
Nov. 26, 2013 |
|
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | ||||||
Proceeds from sale | $ 5,200 | |||||
Cash held in escrow | $ 300 | $ 300 | $ 500 | |||
Escrow releases | $ 100 | $ 200 | $ 200 | |||
Number of additional months to receive payments | 4 months | |||||
Pending litigation | ||||||
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | ||||||
Damages sought | $ 1,600 | $ 780 |
Supplementary Financial Information to Item 8. (Details) - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | 12 Months Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2018 |
Sep. 30, 2018 |
Jun. 30, 2018 |
Mar. 31, 2018 |
Dec. 31, 2017 |
Sep. 30, 2017 |
Jun. 30, 2017 |
Mar. 31, 2017 |
Dec. 31, 2018 |
Dec. 31, 2017 |
Dec. 31, 2016 |
|
Quarterly Financial Information Disclosure [Abstract] | |||||||||||
Net sales | $ 3,118 | $ 5,158 | $ 5,172 | $ 4,659 | $ 4,727 | $ 5,002 | $ 6,011 | $ 4,106 | $ 18,107 | $ 19,846 | $ 30,998 |
Gross profit | 19 | 1,281 | 1,296 | 816 | 1,622 | 1,137 | 1,501 | 561 | 3,412 | 4,821 | 7,677 |
Net loss | $ (3,000) | $ (1,920) | $ (1,801) | $ (2,390) | $ (1,858) | $ (1,773) | $ (3,114) | $ (4,522) | $ (9,111) | $ (11,267) | $ (16,887) |
Net loss per share (basic and diluted) (in dollars per share) | $ (0.25) | $ (0.16) | $ (0.15) | $ (0.20) | $ (0.16) | $ (0.15) | $ (0.26) | $ (0.39) | $ (0.76) | $ (0.95) | $ (1.45) |
Schedule II - Schedule of Valuation and Qualifying Accounts (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2018 |
Dec. 31, 2017 |
Dec. 31, 2016 |
|
Allowance for doubtful accounts and returns | |||
SEC Schedule, 12-09, Movement in Valuation Allowances and Reserves [Roll Forward] | |||
Beginning Balance | $ 42 | $ 236 | $ 155 |
Charges to Revenue/ Expense | 20 | 23 | 156 |
Deductions | 29 | 217 | 75 |
Ending Balance | 33 | 42 | 236 |
Reserve for excess, obsolete, and slow moving inventories | |||
SEC Schedule, 12-09, Movement in Valuation Allowances and Reserves [Roll Forward] | |||
Beginning Balance | 4,196 | 5,596 | 2,315 |
Charges to Revenue/ Expense | 1,085 | 1,139 | 6,110 |
Deductions | 1,069 | 2,539 | 2,829 |
Ending Balance | 4,212 | 4,196 | 5,596 |
Valuation allowance for deferred tax assets | |||
SEC Schedule, 12-09, Movement in Valuation Allowances and Reserves [Roll Forward] | |||
Beginning Balance | 10,556 | 12,537 | 7,768 |
Charges to Revenue/ Expense | 2,187 | 3,883 | 4,769 |
Deductions | 0 | 5,864 | 0 |
Ending Balance | $ 12,743 | $ 10,556 | $ 12,537 |
Label | Element | Value |
---|---|---|
Cash | us-gaap_Cash | $ 16,287,000 |
Cash | us-gaap_Cash | 10,419,000 |
Cash | us-gaap_Cash | $ 5,993,000 |
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