Welcome to the Energy Focus quarterly release conference call. Today’s conference is being recorded. [Operator Instructions] At this time, I’d like to turn the conference over to Mr. Brian Tanous.

I’d like to welcome everybody to Energy Focus’ fiscal 2012 first quarter earnings conference call. On this call, the company’s Chief Executive Officer, Joe Kaveski, will give a business update on the company’s solutions, products, and government businesses as well as provide an outlook for second quarter of fiscal 2012. The company’s Chief Financial Officer, Mark Plush, will then address the company’s fiscal 2012 first quarter financial results. We also have President John Davenport on the call with us this afternoon. Following prepared remarks we will open it up for questions for the remainder of this call. Before we get started I’m going to read a disclaimer about forward-looking statements. This conference may contain in addition to historical information, forward-looking statements within the meaning of federal securities law regarding Energy Focus. Forward-looking statements include statements about plans, objectives, goals, strategies, future events and performance, and underlying assumptions and other statements that are different than historical facts. These forward-looking statements are based on current management expectations and are subject to risks and uncertainties that may result in expectations not being realized and may cause actual outcomes to differ materially from the expectations reflected in these forward-looking statements. Potential risks and uncertainties include change in demand for the company’s products, the impact of competition and government regulations, and other risks contained in statements filed from time-to-time with the SEC. All such forward-looking statements whether written or oral made on behalf of the company are expressly qualified by these cautionary statements. Such forward-looking statements are subject to risks and uncertainties and we caution you to place undue reliance on these. With that I’d like to turn the call over to Mr. Joe Kaveski.

Thank you for joining our first quarter earnings call. Today, I would like to offer some brief comments on 2 specific areas of the company’s performance during our first quarter, specifically our financial results and our progress made within our business units. I would like to then offer you some guidance towards our second quarter of 2012. To begin, our first quarter sales ended within our previous guidance of $5 million to $6 million. While the company’s overall sales were lower in the first quarter due to the weak performance of our solutions business, we were encouraged to see significant increases in our U.S. Navy product sales. We also anticipate an improvement in our solutions business beginning in the second quarter and a further strengthening in the second half of 2012. From a financial perspective, the company generated $5.3 million in sales. Our operating expenses were cut approximately $1.4 million to $2.5 million and our overall net loss was reduced about $1 million to approximately $1.9 million when compared to the same period last year. As I mentioned during our last call, in spite of growth in our products business, clearly our performance was a direct result of lower SRC solution sales and our international sales. In the first quarter of 2012, our SRC solutions business continued to feel the impact of the 2011 overall slowdown in the U.S. energy services industry and our Crescent lighting division experienced depressed sales as a result of the current ongoing European recession. In spite of these shortcomings, the company has taken many actions across all of our lines of business which we believe will lead the company to growth and profitability. Specifically, at our SRC solutions business, we've hired new sales executives to expand our geographic coverage. This has allowed us to triple our customer base and more than double the number of sales proposals generated when compared to the same period last year. Furthermore, we have successfully made a deliberate effort to increase the content of EFOI LED products into our solutions projects. This is a major differentiator for the company as we look to enhance the company’s competitive position by delivering more customer value. Over our first quarter and to date, the company has added over $4 million in new solutions contracts to our backlog and expect to secure an additional $1.5 million in contracts this month. This represents a significant increase in bookings over last year’s pace and more information on these contracts will be provided to you in a coming press release. Within our U.S. military business, as we’ve discussed Energy Focus heavily invested into and won a critical $23 million contract to equip approximately 7% of the U.S. Navy fleet with EFOI’s IntelliTube, which is now the only no-spec qualified and made in America LED plug and play replacement lamp for linear fluorescent lamps. Today, we have filled over $2.6 million of our $23 million contract, and today I’m pleased to announce that the company has received another order under the $23 million supply contract. This order, which is worth approximately $1.5 million, will be fulfilled in our third quarter. Clearly, our Navy sales are off to a great start as the government moves to convert the fleet to LED lighting. We’ll also be issuing a press release on this order this week. In our U.S. products division, our LED products are gaining increasing interest and traction in the existing building market. In our first quarter, the company received its first sizable $1.8 million product only order for our commercial LED replacement tube lamp which is being installed in government office buildings. This order is already shipping and will be 100% fulfilled by the fourth quarter of this year. As I mentioned in our last call, this sale is very significant, as it represents early evidence of the existing building market's transition to LED. Because LED typically uses less than 50% of the power of traditional lighting and lasts twice as long, customers are beginning to realize the superior and growing economic value in switching to LED lighting. This is especially true in government buildings, which is the primary market served by the SRC solutions division and to capitalize on. Now, as we look towards our second quarter, we expect significant overall sales growth and margin improvement while we continue our overhead spending control. The company reaffirms our sales outlook for the second quarter of 2012 to be in the range of $7 million to $8 million. Because of the turnaround in our solutions business leading to sales growth and dramatic gross margin improvement and our continued sales growth and significant gross margin improvement in our products business, we expect to be EBITDA positive in the second half of 2012. As we stated in our last call, we forecast that our overall sales growth for the year will be the result of increased IntelliTube sales to the U.S. Navy, growth from our SRC solutions business, and higher commercial LED product sales. Now, I’d like to turn the call over to Mark Plush, our Chief Financial Officer, for more detail on our first quarter financial results.

Net sales of $5.3 million for the first quarter of 2012 decreased $158,000 compared with the prior year’s first quarter sales of $5.5 million. The decline in sales was due primarily to $962,000 of lower sales from our SRC solutions business, partially offset by a $771,000 increase in Navy sales as we shipped IntelliTube products during the quarter. Gross margins were 14.8% of net sales versus last year’s first quarter gross margins of 21.2% of net sales, a 6.4 percentage point decline or a $374,000 decrease. The decrease in gross margins was due primarily to lower gross margins at our solutions business as a result of unfavorable cost adjustments on certain projects and lower sales. Additionally, there were a number of new projects started towards the end of the quarter when materials were shipped but no significant installation was begun. We are unable to recognize gross profit on materials until we have them installed, per GAAP, that’s generally acceptable accounting principles. This also contributed to lower gross margins. Operating expenses for the first quarter of 2012 were $2.5 million compared to the prior year’s $3.8 million, a $1.4 million improvement or 36% decrease. Costs were reduced across all functional areas. The first quarter loss before taxes was $1.9 million compared to a loss before taxes of $2.8 million of prior year’s quarter. This reflects an improvement of $944,000 even though sales decreased $158,000. The improvement was due to lower operating costs, which were partially offset by lower gross margins as a result of lower sales and higher costs of sales. Cash at March 31, 2012, was $1.7 million versus $2.1 million at December 31, 2011, a $403,000 decrease. Cash used in operations during the first quarter was $5 million as a result of $1.2 million in cash losses, a $1.6 million increase in accounts receivable and prepaid expenses, and a $2.2 million decrease in accounts payable and accrued liabilities. We also retired $800,000 of term debt during the quarter. Inventory turns at March 31, 2012, were 7.4 and DSO was approximately 70 days. DSO increased as a result of providing extended terms to our pool distributors as a result of a program that we have with them. DSO should return to normal levels in June. On March 2, 2012, we received a $4.9 million equity investment from a group of 10 investors. The capital infusion was very timely, as it provided a source of cash to retire debt and meet other obligations that were due in March. Yolanda, I’ll turn the call back to you for questions.

[Operator Instructions] And we'll take a question from Ted Brown [ph], private investor.

Just a couple of things. I’ve been crabbing on these calls for about 5 years now saying that you have such wonderful products. I get so steamed up about how good they will be and how effective they will be, and how many people will rush to buy them, but you don’t seem to have as much traction as you should have and I will reiterate that again. Would you comment a little bit on new products in the commercial area? I think it’s kind of disappointing that Stones River was such an important acquisition but it really hasn’t been paying off. I would like to have you also comment on some of your new investors and how they were secured, to the extent that you can, because there’s 30% there of the stock that we have. Also I would ask you to comment on Nexxus, that wants to give up the ghost one way or another, sell the company, sell part of it, et cetera and wonder if Nexus has got some decent products that would fit into your picture. So having said all of that thank you and I will hang on.

I think I caught 3 questions in there and do appreciate each and every one of them. I think the first question I heard was relative to new products and potentially new channels for the company right now. We are working diligently right now to basically bring a commercial version of IntelliTube to market and our target is this year. We’re very excited about that possibility, because we now believe the performance of the LED chips themselves, the cost of light coming out of those chips basically begins to offer superior value over best in class linear fluorescent alternatives. So that’s a major development effort within the company right now. Having said that, we do have some new products that we recently brought to market. One of them is a LED retrofit kit, and I’ll tell you that that, that actual product is actually selling much better than what we had anticipated. In fact, we have a pretty significant backlog for the product right now. And one of the channels that the company explored late and has opened up itself up to now is in terms of selling through Internet resellers and that has gone very, very well. And at least at this moment in time, based upon the sales that we’ve seen it appears to be a very viable and potentially great market channel for the company to move its products into commercial building. We have focused basically on commercializing for the U.S. Navy our IntelliTube. Our strategy was actually pretty simple, and that was in the early stages of LED where the cost of those chips is relatively high and a new technology we focused on securing the U.S. Navy that would pay more for these lamps at least initially because of the tremendous impact that it creates due to the high cost of fuel. So we were, as I mentioned in our script, successful in securing a very important piece of business, that $23 million seed contract, and what we are experiencing right now is that the Navy is actually pushing us to deliver faster than we had anticipated and what’s in our contract. So that’s delightful. And we expect that to continue. As it relates to our new investors, I think what the new investors saw is probably exactly what you saw, Ted, and that was the uniqueness and the value add of the IntelliTube technology and the value of the military strategy to basically bridge us to the broader commercial markets. Having said that, one of the markets right now that we are beginning to pursue is that of the Asian Pacific rim and specifically Japan. Japan is a difficult market, but there’s 2 things about Japan that are of tremendous value. Number one, first and foremost is uniqueness in aesthetics, and clearly IntelliTube offers the best quality of light and at the highest performance. The second thing that they value right now is energy savings. I was quite honestly a bit caught off guard over the last weekend where I read in the paper that Japan has actually turned off its last nuclear reactor. Nuclear represented about 30% of the supply before the tsunami. Energy efficiency is obviously a high priority. That market is moving forward very quickly to convert over to LED technologies and so we’re looking to play a part of that with a commercial version of IntelliTube here in the near future. The last thing that I’d mention. I thought your third question dealt with Nexxus. I don’t know if we can really comment very deeply on Nexxus other than to say they were a traditional competitor but the companies have pursued different markets. Nexxus appeared to go after the retail market, the retail consumer, where we fundamentally believe that the early adopters of LED technology would be the U.S. Navy because of the on average 1.7 years simple payback in ships as well as existing government facilities because of the government mandates, financing vehicles that are available for the products, and their desire to be green. So we’ll see where things end up, but we feel very good about our strategy in the long run. I don’t know if we can really comment any further on Nexxus or its technology. It’s radically different from their technology and their markets they’re pursuing than Energy Focus. I hope that’s helpful to you.

[Operator Instructions] And we'll take our next question from Joseph Stillman [ph], private investor.

I’ve got a question about the CRICKET technology, what is the status on that and will it be available with the introduction of the 48-inch IntelliTube through the commercial market later this year?

I’m closer to the CRICKET project so I’ll try and answer it. First of all, CRICKET is a 2-year program and we’re completing the first year this year so it’s going to go on in 2013. It won’t be ready until the end of that year so it won’t go in with the introduction of IntelliTube, but it is planned to complement that technology and be available with it when it's ready end of 2013.

Would you be able to retrofit existing systems?

No, you need to have the transceiver in the IntelliTube and in the initial version of the IntelliTube we will have smart electronics but it won’t be the control electronics. That system will cost a little more and it will be directed at customers in the lighting retrofit market who can really take advantage of that value.

The IntelliTube is going to be supplied with its own IP so it can be controlled individually, is that correct?

Not in the first version. The first version will act as a lighting retrofit product, but future iterations of IntelliTube will have the controllability feature so you’ll be able to through a wireless protocol be able to turn the tubes on and off in a wireless mesh network. But that will be a separate version because adding that electronics will cost a little more and every customer doesn’t need it.

We'll take our next question comes from David Pierce with Geneva Investment Management.

I was just wondering if you guys could comment a little bit more on the backlog and talk about the dollar amounts in the backlog and what the challenges are getting the product through that pipeline.

In terms of the backlog we have disparate businesses, but let’s start with the U.S. Navy. For instance, right now under backlog we currently have a $23 million contract that we are being asked to fulfill incrementally theoretically up to the next 4 years to play it out although, as I previously mentioned, we basically are being pushed to deliver faster because of the economic payback of the IntelliTube itself. In terms of the SRC backlog, the sales proposal pipeline which is work yet to be secured but proposed that we feel very good about is nearly double that of it was last year. The majority of that $4 million that I quoted during my preamble for the most part has been secured during the later part of the first quarter and you couple that with projects that crossed plus the ones that we expect to receive would, I believe, probably put our backlog somewhere in the neighborhood probably north or in the bracket of $3 million to $5 million right off hand. We currently do have the very large LED tube order that was worth $1.8 million. We mentioned that that would be fulfilled prior to the beginning of the fourth quarter. To date I would tell you that probably less than 25% or so of that order has been fulfilled, so you can expect to see that revenue out through the second and third quarter. So it gives you a little flavor of the different businesses that we have. Of course, I guess the last one is we still do have our legacy pool business and I think this is an important point that I would like to mention. Historically, if you go back and look at the financials of the company, the first quarter has always been a relatively slower quarter for the company and primarily because during the January, February, and March months there’s really not a whole lot of buying of pool products. Having said that, our pool division really kicks in hard in the second and the third quarters especially and so we anticipate that this year will be no different than the historical performance of the company relative to the pool business.

I guess as a follow-up, you don’t have capacity constraints in any regard if you continue to ramp up sales? Is that correct?

In terms of manufacturing capability I don’t see it. In terms of the IntelliTube sales we have plenty of room in capacity here within the Solon facility to basically produce more tubes, significantly more tubes. We have plenty of capacity within our Mexican manufacturing facility which is a maquiladora as well as out in our divisional headquarters in Pleasanton and we do utilize some contract manufacturers that are truly best in class and they’re quite sizable. I don’t see any issues in their being able to help us for significant growth.

It sounds like the same recurring theme from my perspective over the last decade and I think, Joe, you summed it up when you came on board, it’s clearly here just driving the revenue number sounds like the success formula here.

It really is a critical component here and we are right here, basically at that line right now.

[Operator Instructions]

We had an investor who wrote into us and asked the company to comment on kind of our strategy towards exhibiting and where we could exhibit and why, so I’d kind of like to just take the opportunity to answer that investor. The company does exhibit at a number of shows and participates in almost all the major conferences. Our strategy towards exhibiting is to actually invest the company’s resources and dollars where we believe that there is a high density of customers or investors, not necessarily competitors. So having said that, the company exhibits at almost all of the sales and engineering conferences that major energy services companies put on for their own development staff and engineers. We exhibit at the National Pool & Spa Show were most of the larger pool builders go and this year that will be in Las Vegas, I believe, in November. We also exhibit at the Department of Defense, a very critical show for instance called the Fleet Maintenance & Modernization Symposium which this year is scheduled to be in Virginia Beach September 18th and 19th. Of course, we’re delighted to speak and do speak at the majority of the major clean tech investor conferences such as MDB Capital historically, Roth, Jefferies, Kaufmann and the like. We are very sensitive to where we spend our marketing and sales dollars and they’re devoted really at the shows and the conferences where we know our customers and our targeted markets are going to be. With that, thank you very much for the questions from our investors.

Gentlemen, seeing no further questions in our queue at this time, I’ll turn the call back over to you, Mr. Kaveski, for any additional or closing comments.

With that I’d like to thank everyone for participating on our call today and a special thanks to our investors, our customers and our employees. I really look forward to visiting with you in August to discuss our second quarter results. Thank you again and have a nice evening.

That does conclude today’s conference. Thank you all once again for your participation and have a wonderful day.