Good day, ladies and gentlemen, and welcome to the Energy Focus Second Quarter Earnings Release Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Mr. Brian Tanous. Please go ahead sir.

Thank you, operator. I’d like to welcome everybody to Energy Focus’ fiscal 2013 second quarter earnings conference call. On this call, the company’s Executive Chairman, James Tu will give an update on the company’s business and its ongoing initiatives. The company’s Chief Financial Officer, Frank Lamanna, will then address the company’s fiscal 2013 second quarter financial results. Also available is the company’s President, Eric Hilliard, who will be able to answer questions after their prepared remarks. 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 included in 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?

Thanks, Brian. Good afternoon, everyone. It’s always exciting for us to communicate to you about our company’s status and the progress we have been making. I must emphasize that we are very fortunate to have an outstanding shareholder base with long-term vision and financial look forward that we have been – that has been crucial to enable us to make the necessary changes over the past year and even bigger changes over the past few months to establish a very exciting new Energy Focus. Before we review our second quarter financial and operating results, I’d like to provide you a snapshot of where Energy Focus is today in the marketplace. While we are trying to build the company into as well as our plans and initiatives, we are undertaking to reach these goals. As we mentioned in our last conference earnings call, Energy Focus now has a renewed focus to be a trusted leader in the LED lighting retrofit markets. We define our leadership by two goals. First, we must be generating leading top-line sales in the markets we choose to participate in. And second, Energy Focus must be a recognizable brand in these target markets. We plan to reach these two goals within the next three to five years as the broader LED market open up. We have a long way to go from here, but we are confident and determined to reach our goals. And I’d like to talk to you about briefly our plans to reach these goals. As many of the listeners know, Energy Focus started out its LED product development with a partnership with the U.S. Navy, which provided us more than $30 million of funding over the past 10 years. Today, Energy Focus is the only approved LED tubes provider for the U.S. Navy…

Thank you, James. Good afternoon everyone. For the second quarter of 2013, the company had net sales of $7.4 million, a decrease of $291,000, or 4% compared to the prior year second quarter sales of $7.7 million. The decline in sales was primarily due to a 6% decrease in the sales of the company’s solutions segment and a 3% decrease in the sales of our products segment. Meanwhile, government products sales increased during the second quarter of 2013 by $1.4 million over the prior year’s quarter primarily due to shipments to the U.S. Navy. Gross margins were 27.4% of net sales versus last year’s second quarter gross margins of 22.2% of net sales, a 23% improvement. This increase was due to higher gross margins in the product segment, which improved from last year’s second quarter gross margins of 22.9% to 33.6% of net sales. The solutions segment gross profit margins decreased from 20.3% in the second quarter of 2012 to 10.5% in the second quarter of 2013. Excluding a one-time severance charge of $248,000 and non-cash charges totaling $337,000 primarily related to the write-down of an intangible asset, operating expenses for the second quarter of 2013 were $2.7 million compared to the prior year’s $2.4 million, a 10% increase, or $250,000. This increase was primarily the result of an increase in R&D expenses related to lower cost of recovery credits and an increase in sales and marketing costs. These increases were partially offset by a decrease in general and administrative expenses of $89,000, excluding the one-time severance charge. The second quarter 2013 loss before taxes was $678,000 and included an $892,000 income adjustment related to the settlement of acquisition-related liabilities. Excluding this adjustment and the $585,000 one-time expense adjustments mentioned earlier, the second quarter loss before taxes was $985,000 compared…

Thanks, Frank. Before we open up for questions, I’d like to quickly review what we have done in the past three months on strengthening the four aspects of our company or what we call the four pillars of our new Energy Focus that we mentioned in the last quarter’s call. On the first pillar, organizational health, we have developed a whole new set of missions, visions, and core value assignments that will hold our organization to the same goals and standards, which we believe will make Energy Focus a strong exciting place to work in an efficient and effective enterprise that sets the stage for ready growth. You will also be see these principles and more in our events and we launched a website later this month. In addition, we have further reorganized our leadership structure to ensure that we have the right people in our team to lead and to implement strategies according to our goals and values. These changes not only enhance our capability to execute, but also reduce our operating expenses and enable us to set up the right cost structure of doing business. On the second pillar about the future focus along with the above personnel adjustments, we have established three business groups according to our three target verticals that I lay out earlier in the call. So, there are group leaders in all three of our target markets today, government, maritime, ESCO and C&I businesses. All of which will be focused on bringing our product to the market as timely and broadly as possible. Within our ESCO group, we have two separate but collaborative teams, one focusing on LED product sales and another on product LED solution sales. They have started working hand-in-hand to develop a national sales footprint and provide products and/or solutions depending…

Thank you. (Operator Instructions) We’ll go first with Allan Snider with Oppenheimer.

Good afternoon everyone and congratulations on what I think there is some wonderful progress.

Thank you, Allan.

You’re welcome. Just I don’t want to dominate the show but I have a couple of questions that I think are important and I do want to congratulate you on the financing and the oversubscription to it and the enthusiasm of those people obviously events by doing so. You recently hosted a visit by U.S. house representative I believe his name is David Joyce. He is a member of the house appropriations committee and you folks put out a press release to that effect. I would like to know is – is there any feedback from his visit and what you might anticipate from his presence at your facility?

Hey, Allan, I am going to have Eric answer that question.

Allan, hi, Eric here.

How are you doing?

I am good. Thanks for the question. We were very excited to get the congressmen in our district to visit us. It is fortunate he also does get on the Appropriations Committee as you know he has replaced congressmen (indiscernible) who was on the Appropriations Committee as well. And his visit and the feedback we got during his visit was exciting in and of itself, because like probably most congressmen, they don’t know you exist and then they come in and they are very excited about being a dicker, right and to see that we are providing a product here locally in the United States and in his district in Ohio that will support the fleet readiness, the green fleet was very exciting, where he did take that back to Washington DC, and we did get the very exciting feedback from him, a promising feedback. His office is open to us, I have been in communication with his staff, and we are working with him.

Great.

That’s we can.

Okay, thank you for answering. Another question was related to a few months ago you were awarded a grant I believe from the National Shipbuilding Research Program, I was unfamiliar with that. So, I did my religious Google and I found out a lot about it, I actually reached out and spoke to some folks there. It’s a consortium I understand between the major shipbuilding companies of the United States as well as the U.S. Navy. And if I’ve got that right there they said their mission was to reduced costs of building and maintaining the United States Navy warships. So, and I believe that was quite an honor for you guys and I wonder if you could expand on what that could ultimately mean to the company in both the military and possibly commercial areas because we all know you have this current relationship with the Navy that’s been ongoing for many years.

Okay. Well, I’ll continue to fill that question as well and Allan that the MSRP was and is a very exciting opportunity for us and we are working to release a press release very soon about that award and so get some very detail behind it. What it really allows for us is to get better known at those shipyards, those shipbuilders as they go forward to win contracts for building ships for our fleets. They look to drive out cost. They look to improve the fuel efficiency of those ships as they move out to defend the country and a part of that is reducing weight, reducing energy usages, along with many other things that they do outside of what we do, which is lighting and for us to be recognized and be awarded to help that effort allows us to be in great position as they go forward to build ships, so that we are a leader along with them in those ship builds. And again, we are going to have a press release coming, forthcoming on that.

I am glad I asked. Thank you. Another question at the moment is that, am I incorrect in stating that you have appointed some new Board of Directors recently?

Yes, it’s – the only thing proposed in the proxy will still…

Okay. Well can I?

Yes.

I am sorry. Could I mention the name, I mean, I read the proxy?

Sure. But the final proxy has not been filed yet.

Okay.

So, there will still be updated versions. I would think that within the next two weeks, you will see a final preliminary, final proxy.

Okay, I guess I read it online, so (indiscernible), but I think one of the gentlemen had a background at the Cleveland Electric Illuminating, that sounds quite promising in terms of what he would be bringing to the company in terms of his contacts and his efforts, so if I were voting on both ways?

Actually, that gentleman, actually we have repositioned that gentleman to be the advisor of the company.

Great, okay.

To help us directly of getting new, that’s why finally.

Okay, fine. And my last question, this is kind of simplistic and I will let other folks get in quick, but there is a small lighting company that is doing a lot of PR whose start has gone up dramatically and it will remain nameless, but I found it curious that they recently came out with an earnings statement and they themselves did not have a conference call that would answer questions freely just as you are doing here, and so I will just leave it at that. Anyway, I appreciate your time answering my questions, and I wish you the best of luck, and let’s be in touch.

Thanks Allan for your support.

You’re welcome. Thank you, guys.

We will take our next question from (Ted Brown). Please go ahead.

Alright, here is Ted and I am very happy that you are making some progress.

How are you Ted?

Hi, who is that?

James.

Yes, listen, I have been an investor for about 4, 5 years and I have been between hope and quiet desperation. A couple of things, the four foot tube has been about a year now and promising, but not producing, would you comment on that? The other thing is that, I’ll just, okay go ahead.

Yes, Ted, you are talking about the IntelliTube I presume, right?

Yes, four-footer.

Okay.

Supposed to be a very key.

Yes, again, we have mentioned that in the last earnings call and I just mentioned in the call that we don’t want to talk too much about IntelliTube at this point in terms of details, but what I can say is that we have a definitive developmental plans and we go weekly by weekly to check up on the progress . And we so far we have been doing well. And the commercial launch or the two-foot IntelliTube will be first half of next year and will be followed by the four-foot. And the reason and I have mentioned this in the last earnings calls as well that we launched a two-foot first, because the cost advantage is superior to the existing operators in the market and inefficient to being a better tube. So, the four-foot IntelliTube will take a while before the second that the two-foot IntelliTube is launched next year. In the meantime I say that, I am sorry.

Can you guess what a while means?

I would say later part of next year or 2015.

Okay. Can we stay alive until then?

We are alive we are talking we are talking, so that the point is that if you look at our business plans today and our niches in the navy, the government maritime and the ESCO businesses, none of that is contingent about IntelliTube. IntelliTube is a great technology and you will have an impact on the company’s future for sure when it comes. But today, we have a great opportunity, the pipeline growth, the prospects we are looking at today, none of them are coming on IntelliTube. And the reason is that where I go to without technical expertise and our sourcing network, we are able to develop design specify and for few of these products without manufacturing commenced to be extremely competitive in the market. And the price point has dropped to the point where a lot of existing buildings can be our markets today, and this doesn’t have to be IntelliTube, it’s simply great quality, affordable four-foot tubes that we are selling. So, we’ll continue to build upon the advantage and that we’ll continue to launch exciting products, which actually you will see in the next few months that we are launching even more exciting, more competitive products for this full category then we will fortify the IntelliTube product.

Okay, well thank you for those comments. And the past I wonder as just mentioned this, the former caller said something about the Mystery Company that so and so and I would be more specific that the Revolution Lighting is selling for by some metrics 16 times Energy Focus, is Revolution widening 16 times better, just to know, but I’d like to have you just comment I’m sure you have a good idea about what their products line is and what is worth?

No, yeah, Pat our policy and I think you understand not to comment on any other foreign company’s performance or evaluation. I do have to say that the market is never rationale on a short-term basis, but its very rationale over the long-term. So, what we want to do is to build a solid – fundamentally solid company, so that the relation will be affected over time. Does that answer your question, I’m sorry.

Yeah, I’ve got them, you go get them.

With your support. Thank you, Pat.

We’ll take our next question from (Bill Hardy). Please go ahead.

Yes, hi guys, I am now on Long Beach Island, New Jersey you’d recall from Dallas, Texas, but it’s kind of warm down here so anyway but you agree.

Yes and the weather it sounds better than here and so…

Well, we had about three inches of in an hour here, so with kind of flood that is out this afternoon, but we know what’s happening in the rest of the country. But I sympathized with some of the questions that Ted Brown asked and one was on the forefoot IntelliTube, our most interest is in trying to understand what is the problem with producing that, I mean, is it one finding a supplier or is it two finding a supplier who can produce a yield or is it finding a supplier that can meet the financial objectives of that price that you are looking for, so I just like your views on that?

Sure. Bill, I want to say that there are definitely challenges in developing a new product. But as of today, we don’t know any problem that will prohibit us in launching these products when the time is right. So, because we’ve overcome the majority over the major technical issues and we are really in the engineering phase right now. We have developed a mass producible product. So, what do I mean by the timing is right, we launch a product, we know it definitely will have a strong appeal, so the markets will address. Today, we are able to sell the four-foot LED tubes at a very competitive price, very low price, and the reason is that you are looking at thousands of manufacturers in Asia competing for this market. So, you have the scale that we won’t have initially with IntelliTube. We will have an edge on two-foot side, because the two-foot is a smaller market, it’s still very substantial. You are talking about markets in the billions right?

Sure.

If we can position ourselves uniquely and favorably in that market, we believe that as very substantial market for a company our size today. And we know we have distinctive advantages. So, when we can sub-manufacture the two-foot and the markets continue to evolve, we believe that at some point within next one to two years, there will be a time for us to launch the four-foot. I was going to remind you that at our sales level today, a billion dollar market is huge, and if we can address them, we can focus our resources addressing these markets that we select, which I have emphasized is the Navy, the government maritime markets, the Military Sealift Command, the Coast Guard, the ESCO markets, and the commercial industrial market. These are huge market for us to address. We believe that at the right time with the scale we can launch four-foot IntelliTube very competitively. And I want to remind you two of that the IntelliTube is developed with such a structure that more intelligence could be built in. And that is also in our developmental pipeline and it will come out when the right time comes. Today, as I mentioned the call, you are talking about a market, that is only point 0.1% penetrated by the LED. This market is a long way to go. And we want to make sure that we have the most competitive product leveraging manufacturing capacities today globally and launch the product, the most competitive product at the right time. So, I can only assure you that we are looking at every piece of our IP and see how we can leverage them in the right time. In the meantime, I have to say that we are focusing on building our distribution, because we need the distribution, we need the sales force to generate the sales. I can tell you that we have extremely competitive product today and we are spending our efforts on building up the sales teams. And you will see the sales force in the next year, two years, three years, not from IntelliTube, but from the fact that we have very uniquely competitive products. And at some point, the IntelliTube will come out as I mentioned.

Okay. One other question and this is actually do with Comuro, I guess which is in Taiwan which was a former company that your partners on or associated with, and that was when I talked to you the last time, you indicated that they would only accept IntelliTube product for sales. And I am just wondering if that has changed change or it’s still the same?

Well, the Comuro is helping the company, not just on selling the product to the market, but also on financing, distribution, sourcing OFX of the operations, where that we could from the Asian point of view. So, the focus for Comuro at this point, it stores the right products and have the right terms with manufacturers. Today, we one of the – I guess the limit for us is the working capital issues. We have a lot of growth opportunities to ahead. We did raise money and that could help us get to where we need to be, but if we have more better terms, we are able to – we will be able to scale the sales much faster. And those are the things that the Comuro is helping. In terms of product distribution, Comuro is helping on the IntelliTube development side finding the countermeasures and structuring potential sales distribution there. Again, IntelliTube is not far away. I don’t want to make an impression that we are not interested and that we are postponing that, we are developing it ferociously. We are still allocating pretty significant R&D BioPower to IntelliTube. So, we will see that next year and the market for LED today actually is a lot bigger and major attempt in the United States. So, we will see as a point that distribution opportunity.

Okay.

Has that answered your question?

Well, as I say, you are not just – Comuro is not just limiting their sale of products in Asia to IntelliTube, are they going to expand that search for sales?

Well, today the products we offer are mainly for the products – promote the market in the United States. When we have a more unique product line, of course, we can sell in Asia, but don’t forget that the products that we are buying today are being made in Asia and then the competition there is a lot more. The United States, however, provide us a great market opportunity that we can leverage our Asian resources to sell here, not the Aloe Vera. Obviously, we are healthy with launch, but then we can sell back to Asia with this unique attribute.

Okay, thank you for your time and your consideration.

Sure, thank you.

Ladies and gentlemen, for a final question, we will go to Robert Smith with Center for Performance Investing. Please go ahead.

Good afternoon. Thanks for taking my call.

Hi Robert.

I also am a long-term investor in the company perhaps more years that I had with METU, and it’s at least to this point it’s been as I would say almost disastrous in anyway, you have a legacy tool is down to, by my hope is that with new leadership, the company can begin to grow. I hope you will begin to also meet your guidance and perhaps you can think of putting your presentations at the annual meeting online. So, we can all see what you are going to be speaking to as far as the shareholders at the meeting for us who cannot attend. So, once again, I wish you well and I hope for the best.

Thank you, Robert. We will have an updated corporate presentation at our shareholder meeting on our website for sure. And I want to tell you that the new leadership team is pretty committed and we are – our interest is aligned fully with the investors. We are doing our best. Operator, so?

Yes. Ladies and gentlemen, this does conclude today’s question-and-answer session. For closing remarks, I’d like to turn the conference back to your speakers. Please go ahead.

Thank you very much for your participation. We look forward to talking to you in the next earnings calls. Thank you.

Thank you. Ladies and gentlemen, this concludes today’s conference. We appreciate your participation.