John Davenport – President and CEO Eric Hilliard – Chief Operating Officer

Brian Tenna – Merriman Curhan Ford Robert Smith – Center for Performance Investing Phil Goldsmith – Goldsmith and Harris Walter Shenko – Titan Capital Ryan Kilstein – Marathon Partners.

Good morning, my name is Marcy and I will be your conference operator today. At this time I would like to welcome everyone to the fourth quarter and full year 2007 earnings conference call. (Operator Instructions) Thank you Mr. Davenport you may begin your conference.

Thank you very much Marcy. On the call with me is Eric Hilliard our Chief Operating Officer. I’ll start with a few comments and then we’ll have a chance to hear from Eric before we open it up to questions. We’ll try to keep the call to about an hour. But first I am required to remind you that forward looking statements made on this conference call are pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward looking statements include statements regarding our goals and outlook for 2008 and thereafter, future EFO sales, enhancements to EFO, our revenue and funding. Investors are cautioned that all forward looking statements involve risk and uncertainty. Actual results may differ materially from the results predicted. Factors that could cause actual results to materially differ from the forward looking statements in this presentation are set forth in our most recent annual report on form 10K for the year ended December 2006. We disclaim any intention or obligation to update or revise any forward looking statements. Now I’d like to address a few items briefly before turning it over to Eric. First I’ll address our overall 2007 and Q4 results and I’ll give you our forecast for the business in 2008 and finally I’ll turn it over to Eric for some specifics. First our 2007 year end and Q4 results. Total revenues for 2007 were a disappointing 23 million, a 15% decrease over 2006 due to declines in traditional product revenue and in particular poor revenue which were off 2.2 million for the year due to a continued decline in the housing market. Q4 revenues were at $5.4 million off 24% over 2006. Again due primarily to a decline in pool revenues. EFO sales for the year however increased to $7 million with EFO now representing about 30% of total sales for 2007. EFO sales in Q4 were $2 million. Cash usage for the year was held to $7.5 million, a slight reduction versus 2006 in spite of a revenue reduction of $4 million. This was the result of cost reductions during the year. Year end cash was at $8.4 million. There was also considerable progress in 2007 in developing EFO technology. Energy Focus now has 55 issued patents, six more of them this time last year with 35 applications in progress. Energy Focus was awarded a $1 million contract to develop VHESC Very High Efficiency Solar Collection with DuPont and others for the Department of Defense. Energy Focus is responsible for the optics which has allowed the team to achieve a record breaking 42.9% in efficiency. We’ve also developed four new LED product families which were introduced in January and are already generating sales. In 2008 we expect to double sales for the year—EFO sales for the year to 14 million with about 60% coming in the second half of the year. At that level EFO sales will represent more than 50% of revenues for 2008. Unfortunately we also expect traditional product sales to continue to decrease lead by a continued pool sales decline in a difficult housing market by about 15% for 2008. However with the forecast EFO sales, overall sales should increase more than 20% in 2008. This takes us back to 2006 revenue levels but with a big difference. EFO will have grown from 5% to more than 50% of the business. Increased sales together with a reduction in expenses due to changes made in 2007 are expected to limit cash usage to less than $5 million positioning the company for positive cash flow in 2009. This still allows for a significant investment in solar and other advanced HID and LED EFO technology to drive future product offerings. However, the company is very much aware, that given 8.4 million on the balance sheet as of December 31 and a forecast $5 million usage in 2008 of having to meet cash needs on a timely basis and is exploring a number of avenues to ensure that we accomplish this including equity financing, debt financing, refinancing of existing debt or a combination of those means. At the appropriate time, we’ll provide definitive information to our investors. Regarding the first half in particular of 2008, we expect to see EFO revenues to double in the first half of ’08 versus ’07 as a result of first, increased traction from our sales force. Positive results of recent reorganization. Secondly, increased sales realized due to construction delays in 2007 which we’ll get in the first half of 2008. Sales from our new product offering, the four new product families that I spoke about earlier and sales from new channels the government as well as our TCP and Echo Engineering relationships. We’ll also see reduced cash usage. We expect to reduce first half cash usage about 50% versus the first half in 2006. There will be further organizational changes in 2008. We’ve added a marketing manager and we’ll add a senior business development manager who will focus on new business activities. These adds will be offset by further reductions elsewhere. Now I’d like to turn it over to Eric.

Thanks John. Hello everybody. I’d like to let you know where we are as of today and then I’ll talk about how we got here and most importantly where we’re headed. So far we’ve shipped in backlog approximately $5 million in the first quarter with additional backlog of $1.3 million. EFO’s shipped in backlog products for 2008 is already more than $3 million. This is why we believe we will see more than double the EFO sales in the first half of 2008 as they compared to 2007. I’d like to frame it by discussing our changes in 2007 as they relate to our organization, our strategy and our 2008 financial expectations. First I’ll frame it in our organization. Organizationally accountability is important and to establish this we had made changes in leadership positions throughout 2007. They occurred in our U.S. commercial group, our pool group and our financial group. Additionally, these three groups have seen significant reductions in total head count toward sizing the business to the volume of sales that is being generated as well as the expectations of profit necessary to move closer to a cash flow neutral business. The total reduction being recognized just in the U.S. alone is $1 million in overhead and operating expenses. Secondly, our strategy. Our strategy toward increasing the commercial growth has evolved. We have added four new commercial LED product applications with a total of nine offerings within these lines. The products are spin-offs from the military development with the United States Navy and have allowed for highly efficient optically focused LEDs that display advanced thermal properties for long life. Because these products are military developed, they offer durable design and protection in a rugged environment. These products launched in January are available not only from our internal sales people as well as our manufacturer’s reps, but now two strategic partnerships for distribution in the United States. These two new alliances formed with EFOI have allowed for greater exposure to national accounts with our products which will allow for a much faster and less expensive market introduction of the product. I’m currently working on two new alliances in Canada which will distribute our product in a similar fashion and again be extremely cost effective in rolling out our new and existing EFO products. Further, our government business unit has shown great movement toward direct sales into the military. We have three ships with products still at sea and have sold our products on to bases and into a commissary as well. With these new additions to our selling approaches, we have also continued our traction into our existing accounts. Our Whole Foods now have over 50 stores with increased sales volume for store orders. Wal-Mart Mexico continues to install our product. We now have four installations at two locations the Limited Brand Bath and Body Works has several stores since our initial installation and we have been approved for a retrofit installation with a new large U.S. retailer. We’re talking about a potential of 200 plus stores. Finally, EFO is previewed its new showroom in Solon, Ohio and we toured four groups. When they saw the EFO technology in an environment that not only displays the EFO energy savings, but it’s a great lighting quality and versatility, they were really excited. In fact the last tour had one of the fastest closes with a new account. In fact I received a purchase order yesterday. The grand opening is scheduled, it’s going to be on May 2nd. We will have founding member of the U.S. Green Building Counsel as well as a U.S. Congressman from Ohio as keynote speakers. They will be talking about the impact of the new hot bill banning the incandescent light bulb and how technologies like EFOI are poised to provide today what congress is mandating in the future. Finally the 2008 financials. All the changes just described are intended to provide the growth in 2008 for 20% overall growth in sales worldwide. Doubling of EFO over 2007 actuals 40% of which will come in the first half of 2008. Cash usage of not more than $5 million as we have cut costs but still need to invest into solar, LED and HID technologies and finally the first year that we show EFO product sales up more than 50% of the total company’s sales worldwide. And with that, I will turn the call back to John. Thank you.

Thanks Eric. And now I’d like to open it up for any questions.

At this time I would like to remind everyone in order to ask a question, press star then the number one on your telephone keypad. If you would like to withdraw your question, press star then the number two on your telephone keypad. We’ll pause for just a moment to compile the Q&A roster. And your first question comes from Brian Tenna with Merriman Curhan Ford. Brian Tenna – Merriman Curhan Ford: Good morning John and Eric.

Good morning.

Good morning. Brian Tenna – Merriman Curhan Ford: I have a couple of quick housekeeping questions and then I’ll come back and ask for some additional color. Regarding your commentary about the 5 million of products shipped to date, I guess that’s total revenue your referencing for the first quarter of ’08 coupled with the 1.3 million backlog attached to it, is that accurate?

No, let me restate that you might have not got what I said there. I’m saying that we have shipped and backlogged approximately $5 million in the first quarter and we have an additional backlog of a million three. Brian Tenna – Merriman Curhan Ford: Okay, excellent thank you. The—and I believe I heard you say 3 million of EFO shipped in ’08 to date correct?

No what I said was we have EFO shipped and backlogged in 2008 of $3 million so far. Brian Tenna – Merriman Curhan Ford: Okay so the same, all right. So that’s very good. Finally regarding your commentary on the operating expense reduction for ’08 did I hear you correctly in saying that you expect it to be reduced to 1 million for the fiscal year?

In the U.S. that is correct. We worked hard in the United States to reduce our operating expenses and it does total 1 million for the year. Brian Tenna – Merriman Curhan Ford: And that’s 2008 correct?

That’s correct. Brian Tenna – Merriman Curhan Ford: Okay great, I’ll get back in the queue for some additional questions. Thank you.

Thank you Brian.

Your next question comes from Robert Smith with Center for Performance Investing. Robert Smith – Center for Performance Investing: Good morning.

Good morning Bob. Robert Smith – Center for Performance Investing: So this comment about the 200 store possibility, my question before I heard that is when are we going to move away from the isolated order because the breakthrough order that validates the technology so, would you call this kind of a beginning or when are we going to see this kind of breakthrough?

I think we’re beginning to see that, we’re seeing multiple stores, we also talked about we’re seeing multiple stores now also from the Limited. So we’re beginning to penetrate into locations where there is significant opportunity. And that’s going to support in large part this doubling of sales that we’re forecasting for EFO in 2008. Robert Smith – Center for Performance Investing: Back east, here in New York, I hear on the radio a commercial that’s run by United Technologies Carrier Division which says that they’ve achieved a 30% increased efficiency in refrigerator cases over the last two years and I know you guys really have done quite a bit better than that and I’m wondering what’s taking so long in this respect to really penetrate that market?

Into the freezer case market, I think that the penetration, there’s a multitude of landscape there and we are working with the freezer case manufacturer still we actually have sold more of our product into the regional supermarket and I think we’re finding that’s really where we’re getting the better traction at the regional level of these freezer case opportunities because they’re really in need of that margin improvement where the national chain, they still follow a lot of the distribution channel for quite a long time and we recognize to break through that it’s a little bit more than just the energy story that needs to be provided, there’s still some other competitive landscape there as well. Robert Smith – Center for Performance Investing: I can’t believe that the bottom line would not be a very powerful sales tool in this kind of an economic environment.

Well I don’t disagree, I think the bottom line is always a powerful tool. I’m saying there’s more to that competitive landscape then just offering the energy story in these major chains in this landscape. Robert Smith – Center for Performance Investing: What is it, what are the elements of the story then?

We found out that we do best when we are solving a problem. For example in Whole Foods, we solved the problem, the seafood problem we’re overheating the seafood, that coupled with the energy savings is a compelling story for them and we’re making progress. Robert Smith – Center for Performance Investing: But gentlemen, I’m specifically speaking about the refrigerator cases, the freezer cases.

Yes, the freezer cases, the energy story is important the fluorescent freezer cases have an energy star rating. There have been progress made with fluorescent although we’re one third the energy, you still, those are still more energy efficient than the older freezer cases and that story has been playing, its’ continuing to play out. We are making progress, in particular with those freezer case, folks using freezer cases who are really sensitive to the bottom line and these regional folks are very, very sensitive and we’re making [inaudible]. Robert Smith – Center for Performance Investing: And finally, what are your expectations with the TCP alliance?

Our expectations with this alliance are obviously to grow sales. But my expectations when we began this partnership and the strategy behind it is that it allows us access to more national accounts by utilizing their ability to reach the accounts they currently have without having to continue to add to the fixed overhead of our business and have a more cost effective role out of our products into the market, it helps expand the market, so my expectations are to allow our commercial growth to grow without having to continue to further the investment into our own operating expenses as it has been done in the past.

And we’ve making sales through that outlet. Some of the sales that you’ve heard Eric talk about EFO sales are in fact through TCP. And this also will help expedite I think the ability to bring the product in a much reduced time to the market recognizing the sale—the first sales recognized with our—this new distribution approach actually occurred as we were in the process of finishing the development and coming through the UL we actually presold getting the UL actually out, have the orders to move out the door, its working the way we expect it to work. Robert Smith – Center for Performance Investing: What is the contractual relationship with you say or can you say?

I don’t really want to talk about that on the call but the relationship is that we have an alliance, we’re a true partner in this to distribute product and our technology through their tremendous channels. Robert Smith – Center for Performance Investing: Okay I’ll get back in the queue. Thank you.

Your next question comes from Phil Goldsmith with Goldsmith and Harris. Phil Goldsmith – Goldsmith and Harris: Good morning. Just looking at the cash which is down to 8 million and you’re going to burn another 5, and you have no significant debt at this point, what is your expectation in terms of are you going to use bank lines to give you some safety net here? Can you get through the tunnel without additional equity, what are your plans there?

I did make a statement earlier and I said that in fact we are exploring a number of avenues so that there won’t be an issue in 2008. And those avenues include debt financing we just talked about, refinancing existing debt and equity financing or a combination of the above. When we’ve got something definite to report, we’ll report on that. We fully expect in 2008 to be able to meet our obligations. Phil Goldsmith – Goldsmith and Harris: All right, with the expectation that you’ll either do a debt or equity financing or a combination of both, what about bank lines where do you stand there?

The bank lines, we have a line of credit revolver which we use and in fact it’s a $5 million line of credit. It is tied to receivables so we only are allowed a certain portion of that to be able to be used. So we are trying to expand that. Phil Goldsmith – Goldsmith and Harris: Okay. All right, just to—in so far as your legacy business is concerned, how do you see that playing out over the next 12 months or so?

We said that we would see a further—we’re forecasting a 15% decline in the legacy business. We are obviously trying to avoid that. We had some new products that we are introducing into that business. We have not abandoned it by any means. We have—it is contributing to our overall business, so I’m going to ask Eric to add a little bit more flavor, more specifics to that.

Thanks John. What we’re trying to do here is come back at the channel that really you know kept that traditional business going strong and really reinvigorated. We’ve done that by we now have three sales people who are actively you know engaging our manufacturer’s reps. But with EFO and traditional product lines to make sure that we’re meeting the needs of the consumer, okay as well as the full business and we are moving the EFO product line because we said we expected to finally take this percent of the total sales in 2008 but we don’t also want to turn away our customer who has a need and we can fulfill that need because we currently have the technology. So we’re working very aggressively back into those channels to continue to sell those products.

Yes, we have a very—we have a new leader in our pool business who is aggressively pursuing sales so we are forecasting a continued decline mainly because of the forecast that we’ve heard in the housing market in 2008. Phil Goldsmith – Goldsmith and Harris: Will your margins—do you expect the margins to decline as well on this segment?

No. We have actually resized that business so that the margins will increase and that’s an important element. We wouldn’t—we’re very, very much aware of that in fact Eric has worked very hard in 2007 on this.

Right we had [inaudible] 2007 preparing for this year and one time restructuring costs associated with that unfortunately but we had to prepare last year as we knew the market trend was going to continue in these traditional lines.

We’ve taken it’s a number like half a million dollars out of that business already. Phil Goldsmith – Goldsmith and Harris: So you’re doing it through cost reduction, what about pricing?

Yes, not to openly talk about our pricing strategy on the phone but yes we have engaged our pricing strategy to help improve that as well. Phil Goldsmith – Goldsmith and Harris: Okay, thanks very much.

Thank you very much.

And once again if you would like to ask a question, press star then the number one on your telephone keypad at this time. You have a follow up question from Brian Tenna with Merriman Curhan Ford. Brian Tenna – Merriman Curhan Ford: Could you discuss the gross margin for the fourth quarter of ’07 and why they were down to those levels?

Eric?

Yes, the fourth quarter in ’07 saw a lot of as we were coming through 2007 we had incurred some expenses as we were coming through on some restructuring that we thought were going to be restructuring expense and then we put those back into operating expenses it was unforeseen as we were coming through the year and it helped these one time efforts that we were coming and one time charges were pushed through in the fourth quarter and it caused the fourth quarter to be skewed.

But we also had significant reduction in sales and of course, in the fourth quarter year over year and that lower sales leads to lower margins.

And finally we were launching a new LED product line and we brought in some inventory and that took some hits as well as we were expecting some things coming through during the product launch and unfortunately again it was like a one time, but if you look at the gross profits over the year, we have really moved about one and a half percent off of where we were last year and with such a reduction in sales volume, we had significant improvements in our overall yearly cost structure to allow us to maintain those percent of gross profit in the phase of such volume.

We’re expecting to see significant improvement in gross margin in the first quarter. But the work for 2007 helped us end the year with a volume drop in sales of just a slight reduced gross profit, so there was a lot work done there, I’m sure we can do that. Brian Tenna – Merriman Curhan Ford: Okay there’s a lot of moving carts here on this gross margin issue an overhead absorption and the one time charges in the fourth quarter and the increasing mix here on EFO in ’08 declining pool sales, can you qualify at all for us, how we should think about gross margins as they move through fiscal ’08.

In 2008 as we come through this year and each quarter by quarter we are going to see much improved gross profit. And it’s because we’ve again sized it, we’ve done a lot of good things in reducing cost and gaining good efficiencies. We recognize some of these one time hits that occurred in 2007 and we do not foresee those things coming for 2008. So when you look at running the business, we are seeing that and actually we are seeing that as we review our numbers today as we come through this quarter that this much improved. Brian Tenna – Merriman Curhan Ford: Okay, excellent. Can you talk a little bit about the solar cell activity with DOD? Can you qualitatively describe what exactly you’re doing there and then also could you comment on the one million dollar contract, how far through that are you and where does that show up is it an off set to R&D or is that in the revenue line?

Let me start out by saying a little bit about the solar work. Okay we are playing a very significant role in the program. We’re responsible for the optical development and we’re leading that effort. The optics really are what makes the approach different from all the others. We are actually splitting the light spectrum into three or more elements where we have a low energy, a medium energy and a high energy portion of spectrum. To do that efficiently, and those optical elements that are directed toward devices that are more efficient in those regions of the spectrum. And in fact there are device technologies for example one of them that is more efficient. Its high energy and there are other materials that are more efficient then the other regions. To take advantage of that, we have to have a very efficient optics and in fact our target optical efficiencies are well over 90%. That’s nothing like what’s been achieved for example in the concentrator technology. So that’s the role that we’re playing. We’re also responsible for developing an ongoing series of prototypes that take us through this program. The goal of the program is to create a manufacturability system with a target efficiency of 50% which is terrific. We expect to participate in developing a series of product probably tied to our efficient lighting which will take advantage of this so EFO optical technology makes this approach, I’ll call it EFO solar, really exciting for us. Now from the point of view of how we’re booking that and I’m going to let Eric talk a little bit about that.

Okay John thanks. Yes Brian, what we’re looking at as the total solar contract being able to recognize somewhere in the neighborhood of 35% in the coming year. Brian Tenna – Merriman Curhan Ford: And was some of it recognized in ’07?

No.

We had a separate contract in ’07 in the first quarter with phase one. The million dollars you’re talking about is the phase two program. Brian Tenna – Merriman Curhan Ford: Okay, so just to paraphrase real quickly, you are essentially developing the optics portion to enhance the conversion of light energy into electrical energy on for example solar cell or other type of triple junction solar cell so your actually not working on the solar cell itself but enhancing the light feeding that.

Right the device technology belongs to other partners. The actual chip technology. The optical technology is our role. Brian Tenna – Merriman Curhan Ford: Okay. Fantastic. Just a couple more quick questions. Can you elaborate a little bit more on the developments with the military and have you gotten some feedback from the three ships that are at sea and what’s the optimistic scenario that could play out in terms of some recurring revenue streams coming from these systems you’ve put on the ship.

Yes, we’re getting very positive feedback from the systems on board ships and in fact we are forecasting sales, I think a portion of the sales that we’re forecasting for EFO will be military sales, actual military sales on board ships. We are also interestingly enough, being asked by the military, the government to place EFO in other locations. We’ve got a commissary for example recently that’s a supermarket for the military if you will, and there are other locations on bases where we’re placing products so we expect to see a real military business emerging in 2008. Brian Tenna – Merriman Curhan Ford: Okay and then the last question regarding the new large U.S. retailer that your targeting with 200 plus stores, can you give us the status of that now and have you demonstrated a system for them, are you bidding and quoting on various stores?

The answer is yes. We have not only demonstrated but more importantly, we’ve been approved. Our product meets the spec. That is, I can’t tell you how important that is. That we are now in the you know point of moving this toward a commercial opportunity but getting to be on the spec for this retailer was the big, big hurdle. Brian Tenna – Merriman Curhan Ford: Has the retailer discussed a large renovation project so that you really have a good number of stores in the pipeline potentially or?

This is the plan, the retailer plans to renovate these stores and has a definite objective and is going to put someone’s product in those stores. Brian Tenna – Merriman Curhan Ford: Great. Thank you very much.

Your next question comes from Walter Shenko with Titan Capital. Walter Shenko – Titan Capital: Thank you. Having listened to conference calls I guess now for about five years, it’s still unclear whether the problem is the technology is no good or the organization is having problems penetrating accounts. I mean are we yet in all the regions at Whole Foods?

I’ll answer the first question or second question first and the answer is we are not yet in all of the regions, we just picked up a new region so we are continuing to expand. Lets talk about these five years, what has its been about. The first phase and you asked does the technology work. The first phase, the thing that was really important is the EFO concept viable from a technological point of view. We have demonstrated that in the first year or so really that was what it was all about, does this thing work, is it energy efficient does it make light comparable to a light people would use. The second phase which has been the last couple of years is will anybody actually buy this material, is there a viable market out there for this product. We have now multiple customers, they’re repeat customers if you interview these customers they say they love this product, so I believe that there is a significant market for this product and we talked in the past about how sizable that is and it is very sizeable. This phase, what we’re trying to do now is to achieve scalability to actually get this product into channels and that’s why we’ve been talking, that’s why we’ve been trying to expand our efforts. Going in and just going for say large plays, that’s a good thing to do and we’ve got some great people working on it but it takes time to get those to work, we are multiplying these efforts without multiplying the dollars by creating new channels for example the TCP channel and the Echo Engineering channel that we’ve opened up as well as the military, those we can do very cost effectively and we are working yet on another channel opportunity. That’s really the challenge for 2008 and beyond. We have now crossed 50% of the EFO business. We’ve gone in those five years from basically a pool and specialty lighting business with an energy efficient idea. Okay, concept to a business in 2008 which is principally an energy efficient lighting business. So there has been things happening and I believe we’re going to see significant growth in EFO as we said in 2008 and it’s going to continue to grow significantly beyond that. Walter Shenko – Titan Capital: Aren’t we, I mean I guess obviously have a lot of frustration the market has frustration you people probably have some of the frustration, but we’re in supermarkets who are using it which have tens of thousands of units in total again Albertson’s and everybody else, we are in, we did a couple of buildings with Gensler, is that a correct statement?

A couple of inspirations yes. We have actually done two I think maybe the buildings you’re thinking about are the W which is part of the Starwood chain, that’s a big deal and we are pursuing Starwood. Starwood is interested in what we are doing. Walter Shenko – Titan Capital: But if in fact, the supermarkets which have it in like it, if Starwood likes it, as opposed to—if Limited likes it, if people who have very large numbers of units like it, if we had in fact not just the down light but the loading docks, the freezer cases and all of the newer products, its hard to understand why the opportunity is adding 200 which is nice, a renovation which might have 200 stores, instead of adding another 1,000 stores at Albertson’s.

Well we’re giving you an example that’s concrete that we can give you. It isn’t that we are not working on other things if we are not, we don’t really want to disclose. Walter Shenko – Titan Capital: And lastly, just the last frustration which is the achievement of getting EFO to more than 50% is as much a function of collapsing maybe not our fault, the traditional business which has managed to loose much more money than anyone I think ever thought two, three years ago as it is to grow EFO, I mean if the pool business was back where it was three, four years ago, we wouldn’t be 50% of it.

But nevertheless we’ve gone in those five years, we’ve gone from a half a million in sales to seven million in sales and we’re predicting that number will double in 2008 so even if you strip away, sometimes I feel exactly the same way you do. Sometimes I think maybe the best way to have done this as a green field and then we wouldn’t be talking about the traditional business. I have a frustration because of the collapse of the housing market for example and basically the erosion of that business. But it is what it is. And this kernel is emerging from our traditional business and in 2008, our business is an energy efficient lighting business by all the measures. Walter Shenko – Titan Capital: Yet with $14 million of EFO business and with reduced costs and shrunk expenses on the traditional pool business, the company still anticipates it’s going to burn through $5 million of cash so we are still a long way from being profitable or cash flow positive on an annual basis I realize you may come out the year in a different way.

That’s correct and it’s only because we are continuing the primary reason for that is we are continuing to invest in this technology. We’re seeing the first of that this year, we spent more in 2007 than we did in 2006 on R&D. The fruits of that were a whole series of new products that are doing well. We see a need to continue to fill that product strain in 2008. We could say, we could close our eyes and say no we’re not going to do that and turn this thing back but we’re a technology company at this point and we need to have the growth engine which is really the technology turned into products working for us. That’s really the thinking.

Yes Walter, if I could add something to what John was saying, I think too I’ve been here over a year now and I think too watching and understanding a little bit of the history and living through the last year that this company has come a long year and learning more and more about coming to market with these technologies and we have gotten even more customer feedback and it’s enabling us to continue to traction and further and one of these two alliances, we now have alliances that open up further distribution channels and further customer bases with us and partnered with us to help get the product out there to help educate the people out there about this technology so that it does further itself through this year. This showroom coming on line is certainly do that for architects and designers and specifiers being able to see these applications and see how aesthetically pleasing it is and really understand the true energy significance of it and I think that as we have learned how to bring these products to market, we have gotten better at it and we will continue to get better at it and it will help grow it. Walter Shenko – Titan Capital: If your emphatic, you had me done and now one more, I promise this is the last one. If in fact we are a technology company, why aren’t we in fact a technology company who develops technology and then licenses it to people who have in place Philips, GE, pick your name, the distribution, the marketing clout, the ability to go to markets across the full spectrum of crown the world to then try and take this technology and create a very large revenue stream from it and even if we only get royalties of it which is what many technology companies do, why isn’t that a more appropriate way to go to market?

Let me just try this. I used to work for GE as many of you know and in fact I used to evaluate some of these opportunities. And what got GE’s attention were sales levels that started to make into markets they were interested in. Technology that actually had shown had demonstrated market viability. Not only a technical idea, but market viability. That’s kind of phase two. I believe that we are at that level and I believe that we have attracted some attention. And in fact there may be opportunity in 2008 and beyond in pursuing exactly that kind of things that we’re talking about. Our TCP for example, is a great example, why is TCP interested in us, because we are a technology company and we can offer them solutions for their customers that they can’t really get by themselves or elsewhere. That’s why they’re interested in us. They’re the world leader in compact fluorescent lights. Why on earth are they interested in us? Because CFL’s while they’re great products for them now, aren’t’ going to last forever. They need to form alliances with companies that can provide products for the future. So that’s an example, its’ not the only example that we’re working on. But that example is real and we’re beginning to get revenues from it. Walter Shenko – Titan Capital: Thank you.

Thank you.

And now a follow up question from Robert Smith with Center for Performance Investing. Robert Smith – Center for Performance Investing: You made a comment during the introductory remarks about cash flow positive, what was that?

We’re talking about positioning ourselves in 2009 to be cash flow positive. Robert Smith – Center for Performance Investing: In 2009 got you. And that’s for the year as a whole?

That’s for the year as a whole. Robert Smith – Center for Performance Investing: So, again, I just want to go over this landscape again with the national accounts. What is the difficulty in not approaching but getting a national account more interested, I mean for example say Whole Foods, the question about the regional … Yeah go ahead.

Whole Food you have to think of them as 12 different companies is clearly the best way to think of them … Robert Smith – Center for Performance Investing: I understand that John.

So they don’t take the word of the other guys. You have to go through pretty much the same process. Let’s talk a little bit about the Limited where we had a real competitor. Several real competitors. And in fact, that process I think is illustrated of what you have to go to secure a national account. Now here the decision for the Limited are made in one location its not regional. And so it really is—it’s probably a better example. The—here we had to first of all they were interested in solving a problem. We had a lot of great technology. They were interested in our great technology because they’re interested in solving their issues and they had a very specific problem where they were having their fluorescent lighting just burning out on them and they had I think it was a maintenance nightmare for these guys and they needed a solution. So now that solution also had to save energy and so forth. So we demonstrated that solution. We were very, very responsive. We developed a actually a product version that was specific for these folks so we did some tooling and so forth, we put it into a store, we demonstrated the actual performance, they brought in all of their design, all of this takes time. All their designers and so forth and we are basically spec’d into that application. That’s the process you go through. The thing that’s different is that we are not naive. We have great product but we’re not sitting here thinking the world is going to beat a path to get this product from us. These folks have had problems they’ve got to solve during the day. Robert Smith – Center for Performance Investing: Yeah, that was more directing this to the supermarket field and we were waiting for these …

Why don’t you talk a little about supermarkets Eric in 2008 and their growth?

Okay we’ll speak to the Whole Foods I know you’d mentioned. So we continue, continue, continue to sell into Whole Foods, in fact we sold in some more this month and we got a new agreement in the United States for Whole Foods and we expect to continue our process of Whole Foods. Robert Smith – Center for Performance Investing: But Eric, its hard to believe that the tipping point wont’ be reached in the Whole Foods organization where everyone who has not been participating just sits up and says hey this is the way to go.

You’re referring to the corporate headquarters. Robert Smith – Center for Performance Investing: Well whatever.

What we’re saying is that it’s regionalized by, its regionalized decision making. It isn’t target at those levels and those people sit up and may talk about best practices with those things with this kind of organization, its still these people having to manage their own capital, their own capital investments and weighing those out with the returns on those investments as well as we have to work through winning the business at each region every time. Its not centralized and I think that’s what John’s point was in some segments it is a centralized decision and others it is not. And what I was referring to about the landscape of these grocery stores and we refer to and you mentioned freezer cases earlier is that once you get to the energy story and a return on that you look at the landscape of a freezer case and there are integrated modules systems so when you step back and look at the approach to that there are two ways you can go through the OEM which brings the integrated system together or the regional supermarkets which have a significant still about of storage regionally but will still have to go through the same Whole Foods concept of winning each region because of the landscape of it this competitive distribution channel. So that’s what I’m saying. I think that we’re at the right level. I think that we’re at the right strategy in the regional base and winning them as we are winning them because it does continue once you’re in that region and if they expand you’re with them and that’s a great win for us because once you’re there, you’re there and once you’ve proven that which we have, they keep buying that technology and better they allow us to expand within those stores with our new product introduction and our existing products where those applications show. So Whole Foods is another great example where we started with one, we’ve expanded another in other departments and of course their order has grown considerably since we went down this path which allowed us to go back in that channel into each of those regions and widen the sale. Robert Smith – Center for Performance Investing: How about in Safeway so to speak?

Well let me give you Wal-Mart we talked about Wal-Mart Mexico. That’s a great example. We are now into four we have four installations in Mexico and Wal-Mart is planning on building a number like 24 such locations I think maybe there are two installations per location. That’s a real opportunity for us, I don’t see why we’re not going to wind up in all of those. That’s our goal. So far when they’re building these things, winding up spec into those things. Robert Smith – Center for Performance Investing: Are you still alive in the Wal-Mart domestic run off so to speak, you said you…?

We are still alive. Robert Smith – Center for Performance Investing: Right. Thank you good luck.

Thank you very much.

Your next question comes from Ryan Kilstein with Marathon Partners.

Hi Ryan, this will be the last question. We are now headed into the hour. Ryan Kilstein – Marathon Partners: Just a quick one so it’s perfect. I think you mentioned in the beginning I dialed in a bit late, did you give a fourth quarter EFO singles number and what’s the year over year growth in that with the reclassification?

Yes we did in fact give a fourth quarter EFO number for Q4 was $2 million it was $7 million for the year versus 5.3 with the reclassification or 32% improvement with the reclassification over 2006. Ryan Kilstein – Marathon Partners: And that’s what was it for fourth quarter ’06 what was the growth year over year for the quarter?

Fourth quarter ’06 was about 150 thousand or some number like that with the classification. Ryan Kilstein – Marathon Partners: Okay, all right, thanks a lot.

Thank you. I wanted to thank everyone for their participation in the call and I look forward to discussing Q1 with you in April.

And this concludes today’s conference call. You may now disconnect.