Good day, and welcome to the Energy Focus First Quarter 2013 Earnings Release. Just a reminder, today’s call is being recorded. At this time, I would like to turn the call over to Mr. Brian Tanous. Please go ahead sir.

Thank you, operator. I’d like to welcome everybody to Energy Focus’ 2013 first quarter earnings conference call. On this call, the company’s Executive Chairman, James Tu will give an update and outlook on the company’s business as well as the company’s new initiatives under the new leadership. The company’s Chief Financial Officer, Mark Plush, will then address the company’s fiscal 2013 first quarter financial results. The company’s President, Eric Hilliard, will also provide a quick introduction and update on the company’s individual business units. Following prepared remarks, we will open it up for questions for the remainder of this call. During the course of this call, the company may discuss our business outlook and make forward-looking statements. Such statements are predictions based on management’s current expectations. Actual results or events could differ materially due to a number of risks and uncertainties including those mentioned in our most recent 10-K filed with the SEC. With that, I’d like to turn the call over to Mr. James Tu. James?

Thank you, Brian, and good afternoon to everybody attending the call. I am very glad to have this opportunity to talk to you our view for the first time through our conference call since we made the leadership change two weeks ago. Needless to say, I am excited about the opportunities here in Energy Focus for us to build a sizable and profitable company in the face of the most explosive revolution in the lighting industry since Thomas Edison invented the first light bulb in 1879. Many of you have been long-time investors in Energy Focus and have probably witnessed the evolution of the company over the past years, only to be disappointed and lamented at the company’s constant inability to realize its promised potential. First of all, on behalf of our employees and Board of Directors, I like to thank you for sticking with us through these tough years. Secondly, I like to tell you that I am in your shoes. Our recent investors and myself have invested more than $9 million since March 2012. And we want to see Energy Focus reach wild success as much as you do. Thirdly, I can assure you that all our employees at Energy Focus many of which also have dedicated themselves to the company over the years when we were planting the seeds for the LED opportunities we are planning to enter into now. I am excited about the future of Energy Focus after we made leadership change the energy level in our company is that the highest level I have seen since I got involved more than a year ago. So, I believe that the company is well positioned and even better positioned for significant growth as we realign our operational of focus and as LED markets opens up. In…

Thank you, James. Good afternoon everyone. Net sales of $5.3 million for the first quarter of 2013 were essentially flat compared to the prior year’s first quarter sales of $5.3 million. Sales decreased 4% in the product segment primarily due to lower sales in the U.S. Navy as a result of delays from the sequester. Sales increased 10% in our solutions segment as we are experiencing growth in this business segment. As James mentioned gross margins were 22.5% of net sales versus last year’s first quarter gross margins of 14.8% of net sales a 7.7 percentage point improvement or $416,000 increase. The increase in gross margins was due to higher gross margins at all of our businesses. Gross margins in the product segment improved from last year’s first quarter of 19.3% of net sales to 26%. And the solution segment improved from 4.8% of net sales to 15.7% of net sales this year. Operating expenses for the first quarter of 2013 were $2.4 million compared to the prior year’s $2.5 million, a 3% decrease. Costs were reduced primarily in G&A. The first quarter loss before taxes was $1.4 million compared to a loss before taxes of $1.9 million in the prior year’s first quarter. This reflects improvement of $439,000 on essentially flat sales. The improvement was due primarily to higher gross margins and slightly lower operating expenses. Cash at March 31, 2013 was $452,000 versus $1.2 million at December 31, 2012, a $729,000 decrease. Cash used in our operations during the first quarter was $2 million as a result of $1.1 million of cash losses and $800,000 used due to changes in assets and liabilities affecting operating cash flow. Inventory turns at March 31, 2013 were 5.3 turns and DSO was approximately 77 days. DSO always increases in the first quarter as a result of providing extended terms to our full distributors. DSO will return to normal levels in the June quarter. Inventory turns decreased as we build inventory in anticipation of receiving orders from the U.S. Navy. On March 12, 2013, we announced that we embarked on a program to rise up to approximately $3.8 million in convertible debt, of which, $1.7 million was received in the first quarter of 2013. We expect to receive the remaining $2 million within the near future and in fact $800,000 has been recently received. The proceeds from financing will be used for operations during 2013. Now, I’ll turn the call back to James.

Thank you, Mark. Now I’d like to talk about the four major initiatives like all the four pillars of the new Energy Focus. We are undertaking under the new leadership in place to lack our company potential and create potential with shareholder value. Our first pillar is strengthening organizational health. We have a wonderful team of past by this professional and dedicated. What we could do better as the company is to build the culture of trust, transparency, and accountability from top to bottom of our organization. There is so much more potential for us to offer better solutions and services, improve our margins, and expertise product development by sending the communications and collaborations among our best in various departments and locations. As an example, we have started implementing strategy that lets employees of all levels set their own weekly, monthly, and annual goals, so we can be sure that our whole company is moving towards accomplishing our collective wildly important goal, which is to become a leader in the LED lighting retrofit market. And last but not least that we are working on new incentive programs that focus on increasing employee stock ownership through broader options and share purchase programs. So, our employees don’t have interest in line with those of our shareholders. The second pillar of a new Energy Focus is realigning our businesses to significantly enhance our strategic focus. Energy Focus has several product lines, which position us to be a leader in the lighting retrofit market in the government, commercial, and industrial sectors. One grand market value total is to explode in the coming years. Globally, that an estimated 8.1 billion live sockets just in the commercial and industrial sectors and all of these sockets will be replaced with LED lamps within the next 5 to…

Thank you, James. I would like to take this opportunity to share with our investors a brief overview of the businesses that Energy Focus owns and controls in various geographic locations and lighting markets we serve. First, Energy Focus Incorporated has two legacy product lines Crescent Lighting in the United Kingdom and the other residential pool lighting in the United States known as Fiberstars. These brands have held strong positions in their markets since their inception in the 80s. Energy Focus has been able to transform both Crescent and Fiberstars from fiber optics to LED products over the past four years, and in the meantime holding their market share and increasing the gross profit margins amid very difficult economic landscapes. These product lines are bolstered when the building and the home markets are doing well and new pool constructions are up. Furthermore, Fiberstars has developed new products that can now allow for retrofitting existing pools and even upgrade the pool from a fiber system to LED systems. These new products allowed Fiberstars to continue holding their market share and generating growth. Second, Energy Focus brand LED products for lighting retrofit market has evolved each year since 2007 when Energy Focus first introduced them for the United States Navy and reached other milestones last year when we started shipping significant volumes of LED tubes in the commercial market. We believe that Energy Focus now offers to the lighting retrofit communities, one of the most energy efficient LED TA retrofit tools at the lowest total ownership cost. Moreover, we expect our military tube sales to pickup significantly in the second quarter as the government sequester begins to relax and orders begin to be released. Finally, Energy Focus’s SRC Solutions business located in Nashville, Tennessee serves as energy service performance contracting market. This company was acquired late 2009 and now has been with Energy Focus for 3.5 years. SRC Solutions is currently experiencing a growth period as we have signed nearly $5 million in contracts to-date this year and expect more each quarter towards further growth over 2012 results. Energy Focus has continued to invest in this business with new sales people, and last year a new General Manager to drive growth and profitability as Energy Focus sees this channel as a delivery mechanism for new technologies as well as LED product. Now, let me turn the call back to the operator and we can take questions from the group. Justin?

Thank you. (Operator Instructions) Your first question will come from (Indiscernible) Private Investor.

Hi, good afternoon.

Good afternoon.

I am one of those long-term shareholders who is not entirely happy with the (bad) performance of this share value, but now I have some questions. First of all, what is status of the large maybe contract of $2.5 million – $23.5 million you have signed few years ago, it seems like should be well underway now on delivering at a pretty rapid rate, do you have any further comments about it?

Hi, Joe Eric here. Let me fill that question, the contracts we received is absolutely still in place and we are receiving orders off of that contract. I believe through this call you may have heard that we expect more orders to the second quarter and we are waiting somewhat on that to sequester to relax a little bit that did cause a brief disruption in receiving orders. We feel that the landscape changed now we expect that contract to start yield at a better pace. The Navy and the pace at which we’re going to deliver this if you go back in read releases it was five year release we still have much time left on this to fulfill this opportunity that the Navy has presented for us. So, it’s still going along and become – I would love it go along at a faster rate as well, but we are (indiscernible) of the Navy’s process.

What percentage of the products have you delivered over the entire contract – on the entire contract?

Let me do math in my head real the percentage is about 5% that will be – okay, let me do the math real quickly about $5 million of the $23 million Joe will that be lowest at 20% Navy.

About 20%?

Okay.

Okay. And as far as IntelliTube is concerned the last earnings call a few months ago we were told that introduction was going to be before the end of the second quarter which was next month, now it’s delayed to 2014. I don’t know what the problems are we’ve been talking about this for three years now. What has been the problem in getting through the production phase, are there technical problems or?

Yeah, Joe, this is James. Yeah I understand your question because I ask the questions all day along. That’s the reason why we changed our leadership, right. So, this platform there what has been wrong before was that there were a lot of initiatives that were not focused enough in bringing this product to the market. But also understand that this is a complicated product, not in terms of the final product, but it’s a complicated process. We have multiple notable patents around this technology. So, they are – this is a somewhat revolutionary product now we’re bringing to the market. So, I wouldn’t be surprised that it’s taking longer. On the other hand I am sure you’ll confirm that we have the right technology set to bring this to the market and we need do that. And the timeframe I shared with you earlier was based on our clear timetable that we have laid out. And as I mentioned we are finished the so-called invention part of the development and we are going to prototyping which means that we will be working with manufactures, contra manufacturers to develop this product and then we will send out the samples by the end of the year and start taking orders early next year. I am personally very excited about the prospect of it. Yes, we have taken longer than people expect, but finally I think we are comfortable with the timeline that we have we – based on my understanding and based on very truthful reflection of our abilities. So, this is the timeline I will stick to and we have the whole team behind it to make this into a reality. Did that answer you question, I’m sorry…

Pretty much I was wondering if you’re going to be introducing the tube with all of the technical or all the features that were discussed before such as dimming and color control IP addresses and even quicker technology.

Yeah.

We implemented and all of the models you will be introducing or is it just going to be a staged development.

Yes, it will be a stage development, you don’t get the iPhone 5 the first time, get the iPhone 1 first, and so don’t get the tube out to the market, it will be a different tube, it will be a different product. We’ll have its premium market. I share with you how big that market is, there are 8.1 billion sockets just in the commercial and the industrial sector and we build those sectors just the fluorescent, there are 5.1 billion sockets. You are talking about a market in the tens of billion dollars and if we can address one of the sections, which is the two-foot IntelliTube products. We are talking about marketing the billions and we are talking about a market that we can initially have an advantage over and we have tested this product. It’s not the first time we are – it’s not like we are coming out with a simple product and we start selling. Finally, we have taken this product to some very large distributors to look at the characteristics and they loved the product. So, we believe that the page launch of this product and extending the capabilities are so called the intelligence of this tube is our path – is a multiyear path and we hope this could be felt into a very important part of any building.

Well, I look forward to it, well, I get one more – just one more question I say that you’re looking in the $10 range for the 1.2 meters too.

No, that’s – it’s an average path we are taking just a very long-term average of the price. Right now you are looking at tube in the $15 to $20 range and that’s not a very the quality tube.

(indiscernible).

So, yeah we are not going to obviously talk about the price right now because we have about launch is part of our full marketing campaign behind it. All I can tell you is that you will have unique advantages such as free of instillations, column mix capabilities, and all that is different from the tube we are seeing today and we are excited about it.

Well, I’m looking forward to it and anyway best of luck with it, and I will let other people talk now.

Thank you, Joe.

Thank you very much.

And next will be Bill Hardy, Private Investor.

Hi, welcome from Dallas. Unfortunately I can’t say it’s sunny, because it’s raining down here tonight, but anyway I’d like to ask a question that regards organization and what I see in the organization of Energy Focus is that you have actually covered the functions of design development and finance and control and manufacturing and administration. But one area it doesn’t seem to be covered is that of sales and marketing and I asked the question, because you can develop the best mousetrap in the world, but if you can’t sell it, you are not going to succeed, so what are your plans of strengthening this important area?

Bill, I am glad you raised that question, because yes it is a very important part of what we are establishing right now in the organization. We have – we are creating a campaign around our marketing strategy that ranges from marketing from website – our website and the marketing literatures and also messages on the branding part of it. And so this will be one major initiative of what we are taking this year and definitely I think by the end of the year, you will be seeing a very positive marketing campaign behind Energy Focus brand. I – so, I have to echo with you about your concern and this is one part of the organization that we are. We’ll be aggressively building and…

Excuse me, are you going to announce or promote a picture ahead of this organization, I mean, somebody in your – with your organizational charge this is as, I’m responsible for sales and marketing and I will see that it goes done or is that…

So, Bill, hi, Eric Hilliard here so, let me I’ll talk about dynamically about the organization and our expectations for fulfilling that need. So, currently right now we are adding individuals to the organization for selling. Both in our solutions business and in our products business and we are also cross functionally marrying those groups together to take advantage of the marketplace and the relationships we hold in those markets. In addition to that we are pursuing for whatever tell you want to choose a business development leader that will control the market for us and then their selling efforts, so to make sure that the execution of all of our opportunities is very high. And we are filling those roles now, so the answer is yes to your question. And in this landscape I think it’s not that it’s difficult to find people. If you wanted right people and we’re taking the time to get the right people on this bus. Not expeditiously putting people on this bus because we find that when we get that right person who is a dynamic seller, who understands a bit of business (document) and engineering behind what we’re trying to achieve then our execution is higher, our success is going to be higher and that’s going make this company a better company, so we are doing that.

It sounds good. Second question is that in the March of 2012 you signed an agreement with your right now CEO’s Comuro International Limited to act as the Asian sales representative for our company. And to-date has there been any significant sales realized or if not what might be done to promote future sales in Asia?

Yes. That’s just one of the functions that Comuro is providing. By the way if you look at the filing it provides a lot of our capacities. But for your question about Asian sales, it was around the intellective development. Obviously, we are developing a unique product and there is a market for it. And as I said – as I have mentioned earlier we have taken the product to a few major Asian distributors and they love it. And now the question is when can we launch this? So, I think the moment we are able to launch IntelliTube you’ll be seeing first sales perhaps from Asia not the U.S.

Okay. I understood.

Does that answer your question, okay.

Okay. One final question is competitive revolutionary, Revolution Lighting Technology announced their first quarter earnings yesterday. And the significant note was they achieved gross margin of 40% and they kind of are involved with the same products that we are, of course, that 40% was based on revenue about $6.8 million to $80 million. So, I’m just wondering and you had mentioned it or touched on it that you are definitely interested in increasing gross margins to about 30% level. But at 40% they must be doing some pretty good, so you might want to comment on maybe what we can do to get somewhat similar to those guys?

Yeah, we don’t really want to comment on what other people do, we want to be the best in what we do. That’s just that straight. And at the second thing is that if you look our product margins some of our products has margins in the 50% to 60%. You don’t see that because we don’t break that out. And the reason you’ll see lower margins because we have a service business especially last year we suffered from low – very low margin last year. And you’ll see margin improvement this year gradually and you are always seeing that by the way 22% last quarter. And you will see that probably now and but remember we have a service vision that has brought the margin target between 25% to 30% the most, that’s the fact of that installation services. On the other hand we do expect our product margins to continue to improve. Actually I’m very excited about this opportunity to further reduce our purchasing costs and increase our margins and 40% is not really a barrier for us. Again I want you to look at the full company branded margin and then look at our ability to improve margin over time. And for our product margin if you look at our – also on the military side the margin is also very high. We just don’t provide breakdown numbers because these are our businesses that we have competitive reasons not to provide the margin, so that’s my quick answer to that. But we do expect for example in the future when IntelliTube is launched that product line should have a pretty good profit margin as well.

Okay. Thank you very much for answering my questions and I wish you guys the best success in the future. Okay.

Thank you very much, Bill.

(Operator Instructions) And the next question comes from Peter Field with Merryfield Investment Management.

Good afternoon, gentlemen, thanks for taking my call.

How are you, Peter?

Fine, thank you. I think I’m speaking probably for a lot of folks and that we believe that the potential as you have laid it out is tremendous. We believe that you probably have the best-in-class technology as evidenced by the Navy contract certification standards, but the greatest concern to me is can you hold on long enough to reach that cash flow positive state. And in looking at the balance sheet of course that’s our greatest concern, tt is stockholders’ equity back in 2006 was at $30 million – little over $30 million, it has steadily declined until now sadly I see what has turned negative. So, I know you are doing some capital raising initiatives, but of course convertible debt will only help that if it’s converted to stock, so I presume I should assume that stockholders positions are going to be future diluted by such conversations and could you please be a little bit specific in terms of what are we doing now that stockholder equity has turned negative and specifically what dangers, what risks that presents and your plan for addressing that.

Thanks, Peter for the questions. Let me answer in few different points. First, we do expect to reach breakeven cash flow wise, EBITDA breakeven in the second half of the year. So, we are not that far from it. It is true that the company has been losing money for many, many years and but that I cannot speak for the past. I can say that based on where we stand, we are just at the cost of turning breakeven and we are confident about getting there. The second part of your question is about the capital sufficiency. We have been raising capital obviously as the company needed to fund the losses up to now and going forward for the working capital growth. Theoretically, we can raise a lot more, but we want to do that, I mean to your point for dilution, I think the company stock my personal perspective is while its undervalue in many, many aspects and if you look at the whole LED space that’s always the landscape and you will find that it’s we are well behind the value especially if you consider our technologies and the product, the revenues the suggestions we have. So, at this point, we want to have enough capital so we can get by sufficiently that’s what we try to do. And our shareholders as I have mentioned many of our especially our new investors are still ready to support us when we need it, but we have to strike that balance off what we need and how much we raise. So, I’m not sure if I answered your questions sufficiently.

Well, I appreciate the attempt, I mean, you can’t probably say for sure what’s going to happen with the convertible debt and how much more you’re going to have to ask for before we get the breakeven. I just as you can appreciate that is the number one concern is someone like me and…

Sure.

And also I’m sure you appreciate that back in August on August 14th when previous management was talking about the second quarter results for 2012, a similar statement was made. It said that the company believes and forecast to be EBITDA positive in the second half of 2012. Well, we all know that, that was a far cry from the truth and so I certainly hope that your statement that we are going to be EBITDA positive in the second half of 2013 comes to fruition, but you have to understand that there is many of us that are going to be quite cynical about that particular projection.

Sure. Again, I understand where you are coming from Peter, and again there is a reason why there is a leadership change. And I laid out those four pillars for us going forward to make this company successful. And we believe we have those elements. We need to execute and we have the elements for success, but we need to execute and we realized that. And if you look at the numbers that we were going to be doing between 8 to say $8.5 million and $9 million in the second quarter, where we are already very close to EBITDA breakeven at our level, and we still have additional growth in the second half of the year. So, going back to your question, we believe that we are sufficiently capitalized and believe me we are also equity shareholders, right. So, we don’t want further dilution. We also need to make sure that the company divide and prosper, and we believe that we are doing that, doing our best to get us to where we need to be.

Well, thank you for that. And best of luck to you gentlemen.

Thank you, Peter.

And that does conclude the question-and-answer session. I would now turn the conference back over to you for any additional or closing remarks.

Thank you all for participating in the call this afternoon. Again, I am very excited to be here and generally view our perspectives, strategies, and initiatives about the new Energy Focus. And we look forward to talking to you in our second quarter earnings call. Have a good evening.

Thank you. That does conclude today’s conference. We do thank you for your participation today.