Energy Focus, Inc. — Second Quarter 2026 Earnings Summary

Financial Performance

• Net sales reached $3.7 million in Q2 2026, a 228.0% increase year-over-year from $1.1 million in Q2 2025, driven by a $1.5 million increase in commercial sales and a $1.1 million increase in military/maritime (MMM) sales.
• Sequentially, net sales increased 295.0% from Q1 2026 ($0.9 million), with commercial sales rising $1.9 million and MMM sales rising $0.9 million.
• Gross profit margin was negative 6.8% in Q2 2026, compared to 12.9% in Q2 2025 and 23.3% in Q1 2026; the decline was primarily due to increased inventory reserves.
• Adjusted gross margin was 4.5% in Q2 2026, down from 16.7% in Q2 2025 and 31.0% in Q1 2026, attributed to a less favorable product mix and higher inventory reserves.
• Operating loss was $0.9 million in Q2 2026, an increase from $0.2 million in Q2 2025 and $0.1 million in Q1 2026, driven by higher allowance for credit losses and business travel expenses.
• Net loss was $0.9 million, or $0.14 per share, in Q2 2026, compared to a net loss of $0.2 million ($0.04 per share) in Q2 2025 and $0.1 million ($0.02 per share) in Q1 2026.
• Adjusted EBITDA was negative $0.9 million in Q2 2026, compared to negative $0.3 million in Q2 2025 and negative $0.1 million in Q1 2026.
• Net cash used in operating activities was $0.8 million for the six months ended June 30, 2026, driven by a $2.2 million increase in accounts receivable and offset by a $2.8 million increase in related party accounts payable.
• Cash balance was $1.1 million as of June 30, 2026, unchanged from December 31, 2025, and up from $0.5 million as of June 30, 2025.
• Short-term borrowings increased to $911,000 as of June 30, 2026, from zero at December 31, 2025.
• Accounts payable to related parties increased to $3.2 million as of June 30, 2026, from $386,000 at December 31, 2025.

Guidance and Future Outlook

• The press release does not provide specific forward-looking financial guidance or quantitative future growth targets.
• Management notes expectations regarding demand recovery in military and commercial markets and expansion initiatives in new geographic markets.
• The company highlights uncertainty regarding whether new product initiatives will achieve market acceptance or generate meaningful revenue.

Business Segments and Product Lines

• Commercial sales grew by approximately $1.5 million (191.6%) year-over-year, driven by initial shipments under the Energy Storage Systems (ESS) business to a new customer in Australia.
• Military Maritime Market (MMM) product sales grew by approximately $1.1 million (328.4%) year-over-year due to improved demand.
• Commercial products generated $2.25 million in sales for the six months ended June 30, 2026, compared to $976,000 in the same period in 2025.
• MMM products generated $2.12 million in sales for the six months ended June 30, 2026, compared to $761,000 in the same period in 2025.

Market and Competitive Landscape

• The company operates in the sustainable, energy-efficient lighting and control system market for commercial and military maritime sectors.
• Risks include the ability to compete against companies with greater resources and reliance on a limited number of customers, including dependence on single large projects.
• Global trade policies, including tariffs, could materially increase costs.

Risks and Challenges

• Substantial doubt exists regarding the company's ability to continue as a going concern, necessitating additional financing.
• The company faces risks associated with dependence on private placements with related parties, resulting in shareholder dilution.
• Reliance on related party suppliers and global supply chain disruptions poses a risk.
• Elevated inventory reserves and significant expense fluctuations are current challenges.
• Early-stage new customer relationships offer no assurance of long-term partnerships or material revenue.
• Ongoing federal budget uncertainties affect military maritime customers.

Management Commentary and Tone

• Management attributes the Q2 2026 sales increase to the initial ESS shipments to Australia and improved MMM demand.
• Management notes that the decline in gross margin and adjusted gross margin was primarily due to a less favorable product mix and higher inventory reserves recognized during the quarter.
• The tone reflects caution regarding future performance, citing substantial doubt about the ability to continue as a going concern and the need for additional financing.

Other Key Points

• On May 29, 2026, the Company entered into a securities purchase agreement with Euka Power Japan Co., Ltd. to issue and sell 65,789 shares of common stock at $3.80 per share, generating approximately $250,000 in gross proceeds.
• The Company advanced $0.4 million for an investment in a joint venture during the quarter.
• The Company recognized a $424,000 provision for slow-moving and obsolete inventories in Q2 2026.
• The Company recognized a $169,000 provision for credit losses and sales returns in Q2 2026.
• Total liabilities increased to $4.8 million as of June 30, 2026, from $1.0 million as of December 31, 2025.
• Total stockholders' equity decreased to $3.3 million as of June 30, 2026, from $4.1 million as of December 31, 2025.