Brion Tanous - CleanTech IR, Inc., IR James Tu - Chairman and CEO Frank Lamanna - Chief Financial Officer

Mark Seehafer - Seehafer Broadcasting Richard Greene - Centerpoint Advisors Allan Snider - Oppenheimer

Please standby, we are about to begin. Good day. And welcome to the Energy Focus Third Quarter Earnings Release Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Brion Tanous. Please go ahead.

Thank you, Operator. I’d like to welcome everybody to Energy Focus’ fiscal 2013 third quarter earnings conference call. On this call, the company’s Chairman and CEO, James Tu will give a business update on the company’s commercial and military retrofit businesses, as well as provide an outlook for the fourth quarter of fiscal 2013. The company’s Chief Financial Officer, Frank Lamanna, will then address the company’s fourth quarter -- third quarter financial results. Following prepared remarks, we will then open it up for questions for the remainder of this call. Before we get started, I am going to read a disclaimer about forward-looking statements. This conference may contain, in addition to historical information, forward-looking statements within the meanings in the federal securities laws 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 the 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, and such forward looking statements are subject to risks and uncertainties and we caution you not to place undue reliance on these. With that, I’d like to turn the call over to Mr. James Tu. James?

Thanks, Brion. Good afternoon, everyone, and thank you again for your participation in our call. As most of you are aware through our past earnings call and the recent press releases, Energy Focus has been undergoing an exciting unprecedented transformation over the past six months. The changes we have implemented are critical to set the company ready to take full advantage of the emerging multibillion dollar LED lighting opportunity. Our vision again is to be a trusted leader in LED lighting retrofit. Our primary near-term focus is on the commercial and military markets. We are aiming to be a leader in replacing existing fluorescent lamps in our target markets with our industry-leading LED tubes. In the military market, fluorescent lamps account for over 90% of the lighting install-based ownership. And we believe that the total addressable market size for this market which includes both chips and spaces is well over a $1 billion. And in the commercial market based on the data from EU Energy Commission and U.S. Energy Information Agency buildings accounted for 66% of total electricity consumption attributed to lighting. Based on various research resources, total install based of fluorescent T-5, T-8 and T-12 lens amount to well over a billion in the U.S. and over $6 billion in the world, given that 20% to 30% annual efficiency gain and similar magnitude of price drop of LED lighting products. Most is not all of this lens will be replaced by LED lighting systems within the next decade. If we assume a conservative average of $10 per LED lens overtime. These market opportunities amount to well over $10 billion in the U.S. and over $60 billion throughout the world. And these are just for lamp replacements, excluding any controls or fixtures that will increase the market sizes further. So far according to the Department of Energy 2012 Solid-State Lighting report less than 0.1% of the fluorescent troffers in the U.S., have been retrofitted with LED. So we believe that our company under the new management team, we have put in place and will continue to develop. We will be addressing a very sizeable largely untapped market. And again, this is why it is strategically critical for us to have a laser focus on becoming a leader in this directly, emerging and enormous market. And therefore, you can be sure that every moment we spent and everything we do here is related to capitalizing on these market opportunities. Now with this, it’s a reiteration of our vision and strategies of the new Energy Focus. I would like to now comment briefly on third quarter operating results. Again, as we mentioned in the press release, our third quarter financial results were far from satisfactory to me as an investor and as the company’s Executive Chairman. Our revenues of $6 million were several million dollars short of the targets made by our previous management at the end of last year. Given the long-term cycle for both our military business, lighting solutions, the initiatives of the new management team over the past few months were not in place to positively impact our third quarter results. In addition, quarterly sales of our Fiberstars pool lighting business were further impacted by the cold weather, the closure of our Mexican manufacturing facility as well as the divestiture process, which was initiated in earnest in July. On bottom line, in addition to softer sales, our losses were further impacted by the restructuring, which I will describe in further details later and includes leadership repositioning and changes in our military, LED lighting solutions and LED lighting products business. And again since the margin at Fiberstars is relatively high in the 40% to 50% range, low sales level in that business also impacted our overall gross margin. In addition, the margin in our lighting solutions business continued to be low around 10% during the quarter, due to low margin contracts we signed last year. In addition, as I mentioned, we have also closed our Mexican manufacturing operation that could save us $100,000 annually directly on manufacturing costs. Also on the opposite side, the revenues from low margin contracts in the solutions business are nearing the end of their lives. And their impact on our solutions margins will start to diminished, will diminish over the next quarter and first quarter 2014. In addition, our new leadership and operating structure at the solutions business now ensures that we have minimum gross margin in the 25% range for new contracts. In addition, the solutions business will continue to help drive our LED commercial product sales as an early adopter. Lastly, the margin in our military business continues to trend higher, due to ongoing cost reduction. All-in-all, although our quarterly sales level is still modest and is subject to timing of contracts, not to mention the impact from the timing of our Fiberstars tool sales. We do expect the company's sales level to start picking up again. And our margin and bottom line performance will start improving in the fourth quarter of 2013. Lastly, I'm pleased to say that during the quarter, we have completed and closed our convertible bond financing with a total of $7.9 million raised since the end of 2012. Again, our investors continue to support the company to do what’s necessary to turnaround our operations and to maximize our potential to capture the LED lighting retrofit opportunities ahead. Now, I would like to turn the call to our CFO, Frank Lamanna for more specifics on the financials.

Thank you, James. Good afternoon, everyone. For the third quarter of 2013, the company had net sales of $6 million, a decrease of $1.9 million or 24% compared to the prior year's third quarter sales of $7.9 million. This decline was due to a 33% sales decrease in our product segment due to lower pool, commercial and government products sales. The net sales of our solutions segment increased to 2%, from the prior year's third quarter. Gross margins during the quarter were 23.6%, of net sales compared to last year's third quarter gross margins of 24.8%. The decrease was due to lower product segment sales, which carry higher margins as well as lower solutions segment gross margins resulting from a few lower margin projects and certain large projects where material was shipped to the project site but no significant installation had occurred. Our product segment gross margins improved by 4 points to 30.8% from 26.8% in the prior year's quarter, as we continue to see the benefits of improvements in our supply chains. The gross margins during the quarter for our solutions segment was 10.3% as compared to 19.1% for the third quarter of 2012. Operating expenses were $2.9 million in the third quarter of 2013, compared to $2.7 million in the prior year's third quarter. The current year's quarter includes $79,000 of a restructuring charge related to the closure of our contract manufacturing facility in Mexico, and the $44,000 charge of one-time severance. Excluding these charges, operating expenses were essentially flat period-over-period. The third quarter 2013 loss before taxes was $1.7 million compared to $928,000 in the prior year's third quarter. For the nine-month period ended September 30, 2013, net sales were $18.7 million compared to $20.9 million for the last year's comparable period, a $2.2 million or 10% decrease. The decrease in sales was a result of $2.3 million of lower sales from our product segment, where pool and commercial sales decreased $2.9 million, offset by our government products and R&D services sales, which increased $600,000. The solutions segment experienced the slight increase in sales year-over-year. Year-to-date September 2013 gross margins increased 24.8% from 21.3% from the prior year's comparable period. This increase in year-to-date gross margins was attributable to our product segment, due to government products sales, and improvements in our supply chain. Operating expenses for the nine-month period ended September 30, 2013 were $8.6 million compared to the prior year's comparable period of $7.7 million, excluding one-time expense adjustments of $708,000, which consisted of $292,000 in severance charges, $79,000 in restructuring charges, and non-cash charges totaling $337,000, which was primarily related to the write-down of an intangible asset. Operating expenses were $7.8 million compared to $7.7 million for the same prior-year period, an increase of, excuse me -- $200,000, which was primarily related to higher sales and marketing costs. The loss before taxes for the nine-month period ended September 30, 2013 was $3.8 million compared to $3.7 million for the prior year. The current period’s net loss includes the one-time charges I mentioned previously and was offset by an $892,000 favorable adjustment in the second quarter relating to the settlement of acquisition obligations. Cash at September 30, 2013 was $952,000 versus $1.2 million at December 31, 2012, a decrease of $229,000. The decrease from December 31, 2012 was primarily due to the net loss and the use of $5.2 million of convertible debt issued during the nine-month period for working capital purposes. Additionally, the outstanding balance on our line of credit was $836,000 at September 30, 2013 versus $1.6 million at December 31, 2012, a $754,000 reduction. Cash used in operations for the nine-month period ended September 30, 2013 was $4.3 million compared to $6.2 million from the prior year to date. The decrease was primarily attributable to a lower use of cash for working capital purposes. As James has mentioned, we are in negotiations to sell our Fiberstars brand pool product lines. This sale is subject to the successful negotiation of terms satisfactory to both parties, completion of the potential buyers due diligence review, lender consent, entry into definitive agreement and other conditions. There is no current binding obligation on either party and we cannot discuss the details of the negotiations at this point. Now I will turn the call back to James.

Thanks Frank. Now I would like to take a few moments to walk you through the changes we have implemented during the third quarter. Now we believe we’re paving the way for us to grow starting 2014, at that rate we envision which is in excess of 50% on an annual basis for the next five years. This growth plan might sound aggressive but in fact it is in line with the projected growth from the Department of Energy for the fluorescent replacement markets. As we have laid out in our past communications with you, probably within the LED retrofit market we are targeting at and its focus today operates under four business lines, military business, LED products, LED solutions and international. We believe that we have made substantial changes in progress in restructuring each of these businesses during the quarter. For us a business or company, we are better positioned for growth and profitability. First, in our military business, which in the past, has been largely operating under our R&D department without our business focus. We have built successfully up this division leadership, strategic planning, execution and sales capacities that are being led by Eric Hilliard, our President and COO. During the quarter, we created a comprehensive long-term growth plan with an aggressive and systematic periods of initiatives that aims to capture market opportunity north of $630 million that includes navy ships, the Military Sealift Command and Coast Guard ships, all of which we have clear and inherent advantages against our competitors. We just started rotating, reallocating necessary resources to execute a plan, in addition to execute to one in-house sales person we added 10 independent sales reps during the quarter. And we started to aggressively reach out to various top line, top level naval offices and executive branches that could help expedite our expansion into the military markets. The military markets also includes the U.S. military basis and facilities around the world which we believe bring our total addressable market size to well beyond $1 billion and we have already started tapping into the military base market during the quarter. Overall we expect to at least double our military business in 2014 due to our expanding sales force and our initiatives into new markets. In addition, as we have mentioned in our previous press release, we are alert and excited to have Rear Admiral Kendell Pease join us as an advisor to improve our understanding of an access to the U.S. government decision making circles. Normally, it’s difficult for smaller companies to penetrate. Our second line of business, LED lighting solutions, which mainly targets the ESCO markets has also gone through a facelift during the quarter. The solutions business has been inflicted with poor leadership, sales and margins ever since Energy Focus bought the business four years ago. During the quarter, we installed our new business unit leader, Rhonda Courtney, who has done a remarkable job turning the business around in terms of productivity, sales momentum and employee morale. We have things created a whole new leadership team to ensure that we have much better internal control and operational efficiency which directly relates to our growth in operating margins. Our LED lighting solutions business continues to be a pioneer in the ESCO industry to promote all LED solutions. And we believe that it is -- its competitive advantage in the market place will get stronger as LED lighting becomes more compelling from both environmental as well as economic standpoint for the ESCO customers. Our -- the line of business is LED lighting products which target all non-military channels that include ESCO, commercial and industrial markets. As we have announced in a recent press release, we now have the industry leading LED tube product portfolio with lamp efficiency between 100 to 130 lumens per watt. And we have since received strong interest from various channels of distribution. During the quarter, under Tom McAuliffe, our Senior Vice President of Business Development, we started rebuilding new industry sales and marketing plans that includes some active recording initiatives to build a first class sales team. We are also developing and executing a whole new set of branding, marketing and product management strategies for this business. We believe that by the end of the year we will have a strong team in place to tackle this market in full force, starting in 2014, with dramatically higher visibility of our company in the industry. Again, we are extremely excited that with the introduction of the 130 lumens per watt products that could bring simple buy back to below three years and in some cases below two years. The lighting retrofit market in the industry has been waiting for, is now finally happening. With the wind at our back, we truly expect that the combination of a coherent and consistent marketing campaign focused sales strategies, a strong sales team and an industry leading product portfolio should catapult our sales far higher in 2014. Last but not least, we are also turning Crescent, our U.K. business that traditionally sales specialty lighting product into a springboard for us to enter the LED lighting retrofit market in Europe. We believe that we posses the same product advantages from both price and performance endpoints in Europe, which is similar in size to the North American market. With the new business plan, we also build the commercial LED product portfolio for that market and started building a sales team. As we have said in the last quarter’s earnings call, the growth of LED lighting will be exponential in the coming years. In fact, as I mentioned above, this growth opportunity is now formally opened for us to capture. Energy Focus has the first mover advantage in the fluorescent replacement market and really focused to become a trusted dealer in this market. With the restructuring and new initiatives we have undertaken over the past six months and the anticipated divestures of Fiberstars, we will start going after these opportunities aggressively from the beginning of 2014. This concludes our earnings presentation for third quarter 2013. I am now turning the call back to the operator to open up for questions.

Thank you. (Operator Instructions) We will go first to Mark Seehafer with Seehafer Broadcasting. Mark Seehafer - Seehafer Broadcasting: Yeah. My question is, why do you think the volume is so low and what can we do to get more volume on back?

Sure. And I think we have explained that, Frank, also has gone through, the fact that Fiberstars was a factor but also we are doing -- we were doing a pretty comprehensive restructuring. All the leaders today in the officer level there is only one that’s -- that in the R&D side that’s still the same person, every other person has now been either repositioned or being replaced over the past few months. So there is a pretty widespread change on the leadership side in this company. And I think, we also talked about the backlog, the pipeline that we have build in the past six to 12 months were just not there to deliver and it was unfortunate. But we are building a lot of these initiatives into our business plan and that’s why we said that from fourth quarter and we do see the improvements starting to pick up and we should be seeing strong growth in 2014. Does that answer your question? Mark Seehafer - Seehafer Broadcasting: I guess my question is more on the stock volume versus your material? What do you think volume of the stock is so low and what do you think it’s going to take to get more volume on the stock?

Well, I think, I hinted in the previous call that, we were trying to simply transform this company first, before we talk to more investors. It was just not necessary to talk to new investors where we do not have a coherent story together we think that we are getting there pretty soon in the next two months. I think we will start going out to the street and talk about our story, well, we have one and I think we are very close to having a very coherent strong exciting story. And I think when you -- when we start doing that you will see the volume picking up and that at least our -- that’s our plan. Mark Seehafer - Seehafer Broadcasting: Okay. Thank you.

Sure.

We will go next to Richard Greene with Centerpoint Advisors. Richard Greene - Centerpoint Advisors: Thank you, gentlemen. Good afternoon. My question was in the course of the quarter, we saw that you had signed an exclusive distribution agreement with an energy consultant company. I believe it was based out of Atlanta. I assume that there were ongoing efforts to create more these types of partnerships of course, but how do you view that in the context of only a solutions company and your own, as well as trying to develop, distribution channels with firms that maybe in competition with what you are trying to do and deliver the end results?

Yes. The third-party distributors are one of the channels that we are looking at for sure. We -- by the way that company NextGen is based in Maryland, not Atlanta. Richard Greene - Centerpoint Advisors: Okay.

And we are making exciting progress there. But to your point, third-party distribution will be one of the distributions that we are looking at. If you look at the whole market that we are going after for the commercial -- on the commercial side, there are the ESCOs. In the ESCOs you have the federal ESCOs and state ESCOs, which what we called the niche market, municipality, university, hospital and the schools. And then you have the national accounts where the large accounts that we can deal with the end customer which has -- who has huge volumes that we can directly deal with. And then we get the distributors where they can sale, resale our products. And then you have got this third-party energy consulting and solutions companies that could also use our product to -- in their designs for their customers. So marketing plan that we are working on right now we are starting to push right now, all these channels will be tackled because they were selling the same products in all these channels and there no reason for us not to go after all these channels. Obviously, we have to plan carefully how we -- allocate our resources, but our goal is to be out there -- once we break out the gates to get there as soon as possible. So we are pursuing maximum growth and that was one of the channels. Richard Greene - Centerpoint Advisors: Okay. So you say that these channels sort of compliment with your existing solutions….

Well the solutions business… Richard Greene - Centerpoint Advisors: I’ve not complete…

Well, remember, our solutions business is only operates in the Southeast part of the United States and it’s a very small part of the whole solutions business. And historically that business has been instrumental in helping us understand the markets and use those markets and as I think I’ve mentioned after ESCO market is a first adaptor because of their longer financing payback requirements. So it does help us correct our product portfolio and it remains a very, very small part of the whole market. So we don’t see that as a competition -- as a competition to hold emissions market. Richard Greene - Centerpoint Advisors: I see. Okay. Thank you.

Sure.

We’ll take our next question from Ted Brown, a private investor.

James, Hi. Ted Brown, I have been a long…

Hi, Tim. How are you?

….I’ve been a long suffering investor here. Three questions come to mind. Lot of us been told that Mexico is a great place, very economic to build the stuff and you’re dumping Mexico, and I wonder why and where you are going to replace it? Number two, we’ve told -- we’ve been told for a long time that it’s just a small time away that will have the four inch -- I think the four-foot IntelliTube and you didn’t even mentioned this and its importance and therefore, we wonder what's happen to it? Number three, the market usually over a period of time has a pretty good idea what things are worth. And the market says, now, I don’t know if this is right or not, but the market says that Revolution Lighting is worth $278 million and that good old, Energy Focus is worth a $40 million. And that makes us kind of wonder and worry if Revolution is not going to well -- take the whole market away and leave us in the cold. So three little things I’d like to have you talk about?

Thank you, Ted. Yeah, well, they are bigger questions obviously. In terms of Mexico, obviously we did our analysis in terms of cost and remember also that we have been managing that place from Solon offices. And so we look at that as a distraction of what we could do. We also have an in-house operating capacity, manufacturing capacity for the navy product and we think we can use that space, add extra capacity to make the products we’re making there. So, the other reason is that we are also approaching this government product, we are growing natural product, government product business and a lot of the product need to be made in the U.S., so that's another reason for us to move back to consolidate. I mean, we are part of this whole engineering and restructuring that we are working on to consolidate our resources to consolidate, to eliminate at the accesses, so that’s about Mexico. On the four-foot IntelliTube, as I’ve said in the last earnings call, we are developing the two-foot first. And I've also said that we have developed a timeline and I can tell you that we're following the timeline right now, week-by-week. There might be a few days where we are ahead, few days we are behind but we are on track at this point and so. But that’s the two-foot IntelliTube and we will launch that product then we will start selling that product first in the military market and then in the commercial markets. Then at that time, we will be evaluating when we should launched the four-foot. I’ve said that in the last call as well, that you have to look at the market economics. The four-foot manufacturers are in multitudes. You can go to China today and 5,000 of the companies are making four-foot tubes. And a lot of them are selling under economic cost and that’s not the market you want to compete with. You want to leverage that kind of manufacturing capacities instead of competing with them right away. Our two-foot IntelliTube has the advantage of having less competition, but also our inherent captive market -- military markets are ready for this kind of products. So we believe that we cover the cost of the investments more rapidly in the two-foot tube product than the four-foot. And as I’ve said in the last call, we’ll update you once we are ready to launch it, which we are still looking at the middle of next year. The third question about Revolution Lighting, again, we don’t comment on top of company’s operation. We only want -- trying to be the best we can and we have literally said that we want to be the trusted leader in the Lighting Retrofit market for the commercial and military markets. That’s where we are going after. There are always competitions. There are big companies, there are small companies but we know what customers want. We’re trying to supply them with the best price performance ratio you can find in the market. And now we are very dedicated to it. And we believe that our revenues profits over that grows well. We reflect this through our aggressive plan -- the execution of their aggressive plans and that will reflect to the stock. But obviously you also have to tell your story and I have answered that question earlier that we’ll start communicating our story. Our story is becoming a very, very exciting one, not a scatter one. Now that we are still in the middle of restructuring, we are all done with that and we’ll start communicating the story to investors. And I think at a time people will start looking at Energy Focus as a very simple but powerful story and I think at that time, you will see the stock price reflect the true reality, incomes out of these stock of our company, it’s not our business. Ted, does that answer your question. I know if you let me to explain more about it but I can’t.

Thank you very much. I just would love to see it start to take off the way it has promise to them before but I’m certain there. Okay, thank you very much.

Thank you, Ted.

We will go next to Allan Snider with Oppenheimer. Allan Snider - Oppenheimer: Gentlemen, I do want to offer congratulations in what I think to me that you’ve established a very solid infrastructure and ….

Thank you Allan Snider - Oppenheimer: …and you -- you are welcome, I really think that…

Thank you, Allan. Allan Snider - Oppenheimer: … having read all the press releases, I’m very much in your camp and I think the next step is to establish a dominant position in your field and achieve profitability. But I just have been reading something the other day and I was curious, the city of Chicago I believe has a major retrofit program that they are trying to initiate. And I was curious to know if you guys will be positioned to shortly to seek out that type of so-called big-ticket business. And if that’s the case, when do think we might expect to hear from you about that type of business?

Thanks Allan, for your encouragement. That’s a very valid question. I can tell you that everyday it pins me that we don't have the sales channel, the sales team to go after these customers. We have the products today. I can show you that and that's why it’s so critical to appeal the first class sales team with the first class marketing and sales campaign. It’s so much about going to the right customers with the whole package and at a very compelling product and economics of the product and get the business. And we didn't have that. We didn’t have the team, we actually have to rebuild the whole sales team again during the quarter. And we are still in the process of doing that. But I think by the end of the year, we show the pretty good start team to go with a lot of these markets. And we are seeing a lot of opportunities, that’s for sure. And this is just -- not just Chicago, New York and all the major cities, they are everywhere and these opportunity just -- yes these opportunities just started to opened up this year. And really, I think next year you will see that this is probably the first year LED will start becoming a story of the town I would say. It’s… Allan Snider - Oppenheimer: Sure.

It’s still now a lot of distributors, even some ESCO -- it goes up, companies are now embracing it. Allan Snider - Oppenheimer: Right.

Because it’s -- people have habit of animal habits, right. So you look at the past five years, it was never economical and suddenly it turns economical this year. But it’s still very early and people are still hesitant. But I think it’s economic that’s we are compelling that you’ll see that breaking out. I mean, this whole market will start moving very soon. So we want to be ready for that and that’s why it takes a little bit time to build the whole team together. Unfortunately we have the product portfolio, we have product portfolio. We have really -- I would say, being the only approved LED provider for the U.S. Navy, lend us a lot of credibility in front of the customers. And that’s very critical and I think if you look at the dynamics of the market, how people, how customers will be praising products quality is very important. Economics were there, I think the next thing is qualities and we’re bringing both the quality and price to the table. And I think it's a very -- is a winning formula. And we just need to get our sales out. Allan Snider - Oppenheimer: Well, I’m with you, right. I have no doubts about you open to success. I just hope that there is something I can do to speed it up. But let me know if there’s anything that I can do for you and I look forward to hearing you again, okay.

Well, you know the Chicago Mayor, Rahm Emanuel. Allan Snider - Oppenheimer: Rahm Emanuel.

But seriously there are lots of opportunities that we just have to have a strong team and we have to keep extending, investing in order to secure a leading position. That’s very, very important in the next two years and that’s why we are positive, yeah. Allan Snider - Oppenheimer: Again, I’m looking forward to hearing about the progress as we move along. So you take care. We’ll talk soon. Okay. Thanks.

Thank you, Allan. Allan Snider - Oppenheimer: You are welcome.

This does conclude our question-and-answer session. I will turn the call back over to Brion Tanous for any additional or closing remarks.

Thank you, Jessica. Thank you everyone again for your participation. And we look forward to talking to you again in our fourth quarter 2013 earnings call. Good night.

This does conclude today’s conference. Thank you for your participation.