Energy Focus (EFOI) Reports Q4 Loss of $0.25/Share; Announces Strategic Financing, Board & Management Changes and Cost Reduction Actions

Energy Focus (NASDAQ: EFOI) reported Q4 EPS of ($0.25), versus ($0.16) reported last year. Revenue for the quarter came in at $3.1 million, versus $4.7 million reported last year.

Strategic Financing

On March 29, 2019, the Company closed a strategic financing from a group of investors (including certain investors that had filed a Schedule 13Dwith the Securities and Exchange Commission on November 30, 2018). The financing provided gross proceeds to the Company of approximately $1.7 million in exchange for subordinated convertible promissory notes that will convert into shares of the Company’s Series A Convertible Preferred Stock on either April 17, 2019 or the day following the Company’s annual meeting of stockholders, if stockholder approval is needed to allow full conversion of the notes under the Nasdaq market rules. In connection with the financing, the Board of Directors has appointed James Tu and Robert Farkas to join the Board, effective following the Company’s filing of its Annual Report on Form 10-K. Mr. Tu will also return to the position of Chairman, Chief Executive Officer and President and serve as its interim Chief Financial Officer effective April 2, 2019 and the Company is conducting a search for a permanent or alternative interim Chief Financial Officer candidate.

Mr. Tu was one of the parties that participated in the Schedule 13D filing and financing and served as the Company’s Executive Chairman of the Board, non-Executive Chairman of the Board, Chief Executive Officer and President from 2013 through 2017. Mr. Farkas has served in key financial and operations management roles in emerging companies and has experience in lighting controls, communications, biotech, electrical and software industries. Mr. Farkas most recently offered a variety of consulting services at Crestview Associates, LLC, and his other past roles include serving as Vice President, Finance & Operations of The Watt Stopper, Inc., which develops and supplies lighting control products and Operations Controller of Legrand North America, Vice President and Chief Financial Officer of NetExpress, Inc., and Vice President and Chief Financial Officer of North Star Computers, Inc. Mr. Farkas currently serves on the board of directors of Finis Inc. and Convo Communications. He is also the chair of the Menlo College’s Finance Advisory Board.

Strategic Alternatives Review

Prior to, and in parallel with, the discussions with the investor group, the Company’s Board of Directors retained Craig-Hallum Capital Group to act as its financial advisor to assist in conducting a thorough process to evaluate its strategic alternatives aimed at maximizing shareholder value, including the possible sale of some or all of the Company. In connection with this process, the Board of Directors determined that the strategic financing was the most favorable option for the Company and its stockholders at this time.

In connection with the completion of this strategic process, the Company’s Chairman of the Board, Chief Executive Officer and President, Ted Tewksbury, and Jerry Turin, the Company’s Chief Financial Officer since May 2018, resigned from all positions, in each case, effective following the Company’s filing of its Annual Report on Form 10-K. Also, in connection with the completion of this process, and under the terms of the financing, current Board members, Ron Black, Marc Eisenberg and Satish Rishi resigned at the same time.

Cost Reduction Actions

During the first quarter of fiscal 2019, the Company implemented phased actions to reduce costs in order to minimize cash usage while continuing to pursue strategic alternatives as described above. Reductions have been limited to an initial phase in order to not diminish from the potential value of divestitures under the strategic review, or conflict with potential strategies subsequent to the financing.

The Company’s initial actions included the elimination of 12 positions, restructuring of the sales organization and incentive plan, flattening of the senior management team, additional operational streamlining, management compensation reductions, and outsourcing of certain functions including warehousing and marketing. When fully realized, these reductions will reduce expenses by approximately $1.6 million per year. In connection with these actions, the Company expects to incur one-time cash costs of approximately $0.1 million, including anticipated employee severance in the first and second quarters of 2019, in addition to approximately $0.5 million in non-cash charges in the fourth quarter of 2018 for excess and obsolete, and related inventory reserves triggered by the decline in market conditions referred to above

For earnings history and earnings-related data on Energy Focus (EFOI) click here.

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