THIRD LOAN MODIFICATION AND FORBEARANCE AGREEMENT

Exhibit 10.3

THIRD LOAN MODIFICATION AND FORBEARANCE AGREEMENT

     This Third Loan Modification and Forbearance Agreement (this “Loan Modification Agreement” ) is entered into as of the Third Loan Modification Effective Date, by and between SILICON VALLEY BANK , a California corporation, with its principal place of business 3003 Tasman Drive, Santa Clara, California 95054 and with a loan production office located at 380 Interlocken Crescent, Suite 600, Broomfield, Colorado 80021 ( “Bank” ) and ENERGY FOCUS, INC., a Delaware corporation, formerly known as Fiberstars, Inc., a Delaware corporation, with offices located at 32000 Aurora Road, Solon, Ohio 44139.

1. DESCRIPTION OF EXISTING INDEBTEDNESS AND OBLIGATIONS . Among other indebtedness and obligations which may be owing by Borrower to Bank. Borrower is indebted to Bank pursuant to a loan arrangement dated as of October 27, 2008, evidenced by, among other documents, a certain Second Amended and Restated Loan and Security Agreement dated as of October 27, 2008 between Borrower and Bank (the “ Original Loan Agreement” ), as amended by a certain First Modification and Forbearance Agreement dated as of January 31, 2009 between Borrower and Bank (the “ First Amendment” ), and as further modified by a certain Second Loan Modification and Forbearance Agreement, dated as of June 12, 2009 (the “Second Amendment” , and together with the First Amendment and the Original Loan Agreement, and as, may be further amended from time to time, the “ Loan Agreement ”). Capitalized terms used but not otherwise defined herein shall have the same meaning as in the Loan Agreement.

2. DESCRIPTION OF COLLATERAL . Repayment of the Obligations is secured by the Collateral as described in the Loan Agreement and as described in a certain Intellectual Property Security Agreement between borrower and Bank, as ratified and reaffirmed by a certain Reaffirmation of Intellectual Property Security Agreement dated as of October 27, 2008 between Borrower and Bank (collectively, the “IP Agreement” , and together with any other collateral security granted to Bank, the “Security Documents” ).

     Hereinafter, the Security Documents, together with all other documents evidencing or securing the Obligations shall be referred to as the “ Existing Loan Documents ”.

3. ACKNOWLEDGMENT OF DEFAULTS . Borrower acknowledges and agrees that Bank is currently forbearing from enforcing its rights and remedies pursuant to the First Amendment and the Second Amendment due to certain Defaults and Events of Default that have occurred under the Loan Agreement by virtue of Borrower’s failure to comply with the minimum Tangible Net Worth covenant contained in Section 6.9(a) of the Loan Agreement for the compliance periods ended on November 30, 2008 and December 31, 2008, January 31, 2009, February 28, 2009, March 31, 2009, April 30, 2009 (the “Prior Defaults” ). In addition, Borrower failed to comply with the minimum Tangible Net Worth covenant set forth in Section 6.9(a) for the compliance period ended May 31, 2009 (the “Additional Default” , and together with the Prior Defaults, the “Existing Defaults” ).

4. DESCRIPTION OF CHANGE IN TERMS .

“2.5 Interest on Pledged CD; Payment of Interest on Pledged CD; Termination of Pledged CD.

(a) Interest on Pledged CD . Each Pledged CD shall bear interest at the Pledged CD Rate. The initial CD Interest Period applicable to the Pledged CDs in connection with the notice of delivery of Pledged CD will be indicated on the form attached as

Schedule A hereto. Thereafter, each subsequent CD Interest Period will begin automatically in seven-day increments until the termination of the Pledged CD in accordance with Section 2.5(c) hereof.

(b) Payment of Interest on the Pledged CD . Accrued but unpaid interest on the Pledged CD shall be payable upon the termination of the Pledged CD in accordance with Section 2.5(c) hereof.

(c) Termination of Pledged CD . The Pledged CD will terminate upon the earlier to occur of (i) the occurrence of an Event of Default (other than the Existing Defaults) and (ii) the Revolving Line Maturity Date. Upon termination of the Pledged CD, the entire outstanding principal of and accrued but unpaid interest on the Pledged CD shall be applied to the Obligations pursuant to the terms of Section 9.4 hereof.

“4.1 Grant of Security Interest . Borrower herby grants Bank to secure the payment and performance in full of all of the Obligations, a continuing security interest in, and pledges to Bank, the Collateral, wherever located, whether now owned or hereafter acquired or arising, and all proceeds and products thereof. Borrower represents, warrants, and covenants that the security interest granted herein is and shall at all times continue to be a first priority perfected security interest in the Collateral (subject only to Permitted Liens that may have superior priority to Bank’s Lien under this Agreement). If Borrower shall acquire a commercial tort claim, Borrower shall promptly notify Bank in a writing signed by Borrower of the general details thereof and grant to Bank in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance reasonably satisfactory to Bank.”

and inserting in lieu thereof the following:

“4.1 Grant a Security Interest

(a) Borrower hereby grants Bank, to secure the payment and performance in full of all of the Obligations a continuing security interest in, and pledges and assigns to Bank, the Collateral, wherever located, whether now owned or hereafter acquired or arising, and all proceeds and products thereof. Borrower represents and warrants that the security interest granted herein shall be a first priority perfected security interest in the Collateral. If Borrower shall acquire a commercial tort claim, Borrower shall promptly notify Bank in a writing signed by Borrower of the general details thereof and grant to Bank in such writing a security interest therein and in the proceeds thereof, all

upon the terms of this Agreement, with such writing to be in form and substance satisfactory to Bank.

(b) Borrower hereby assigns, pledges, delivers, and transfers to Bank, and hereby grants to Bank, a continuing first priority security interest in and against all right, title and interest of the following, whether now or hereafter existing or acquired by Borrower, and Pledged CD issued from time to time and general intangibles arising therefrom or relating thereto; and all documents, instruments and agreements evidencing the same; and all extensions, renewals, modifications and replacements of the foregoing; and any interest or other amounts payable in connection therewith, including, without limitation:

(i) all proceeds of the foregoing (including whatever is receivable or received when any Pledged CD or proceeds is invested, sold, collected, exchanged, returned, substituted or otherwise disposed of, whether such disposition is voluntary or involuntary, including rights to payment and return premiums and insurance proceeds under insurance with respect to any Pledged CD, and all rights to payment with respect to any cause of action affecting or relating to the Pledged CD); and

(ii) all renewals, replacements and substitutions of items of any Pledged CD.

If this Agreement is terminated. Bank’s Lien in the Collateral shall continue until the Obligations (other than inchoate indemnity obligations) are repaid in full in cash. The parties to this Agreement do not intend that Borrower’s delivery of any Pledged CD to Bank as herein provided will constitute an advance payment of any Obligations or liquidated damages, nor do the parties intend that any Pledged CD increase the dollar amount of the Obligations.”

“Borrowing Base” is seventy-five percent (75%) of Eligible Accounts, as determined by Bank from Borrower’s most recent Borrowing Base Certificate; provided , however , that Bank may decrease the foregoing percentage in its good faith business judgment based on events, conditions, contingencies, or risks which, as determined by Bank, may adversely affect the value of the Collateral.”

and inserting in lieu thereof the following:

“Borrowing Base” is (a) seventy-five percent (75%) of Eligible Accounts, as determined by Bank from Borrower’s most recent Borrowing Base Certificate plus (b) from the Third Loan