Energy Focus Inc (EFOI) 2009 Q1 法說會逐字稿

Good afternoon. My name is Janeka and I will be your conference operator today. At this time, I would like to welcome everyone to the Energy Focus Inc. first-quarter 2009 earnings release and conference call.

All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions)

I would now like to turn the call over to Mr. Joe Kaveski, Chief Executive Officer. Please go ahead sir.

Thank you and thank you, our shareholders, for -- and others joining us -- for our first-quarter earnings call. We have a lot to share with you and at this time I would like to turn over the call to Nick Berchtold, our Chief Financial Officer, for reading our Safe Harbor Statement.

Thanks Joe. First I would like to start by reviewing our Company's Safe Harbor Statement. Please note that today's discussion may contain some statements that may be considered forward-looking in nature.

These forward-looking statements may include comments relating to 2009 and beyond financial projections or other comments relating to the Company's strategic plans, objectives, expectations or intentions. These matters do involve risks and uncertainties and actual results may differ materially from those projected or implied in the forward-looking statements. 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 10-K.

Now I would like to turn it back over to Joe Kaveski for some opening comments.

Thank you Nick and thank you again everyone for joining us on our call today. Today I would like to just make a few brief comments concerning our first-quarter results and then provide some additional clarity and comments relative to our recent announcement to accelerate our transformation into becoming an integrated lighting energy systems and solutions provider focused keenly on the existing building market.

Following my comments, I'm going to turn the mic back over to Nick Berchtold, our CFO, to provide some depth and clarity around our financial results; followed then by fielding questions from our participants today. To begin, I will share with you that I am disappointed by our first-quarter results.

This is definitely a challenging time for most businesses and Energy Focus is not immune. Overall we saw sales decline that began in the second half of 2008 continue into 2009 and sales orders in January and February were significantly depressed over 2008 levels.

Our pool business declined over 50%. And to put this in perspective, in 2007 there were over 400,000 pools that were built across the United States. Today, industry experts are projecting that only 40,000 pools will be built this year.

Our UK operations revenue declined as well, but most of that decline was basically currency exchange rate and our German operation saw significant reduction in revenue as the German economy continues to weaken. However, on a positive note, sales did stabilize and tick up in March, not nearly to 2008 levels but nonetheless a gain.

Our US commercial businesses modestly grew about 6%. We made good progress in building a foundation for our energy systems and solutions business. As we mentioned during our last call a month ago, we are pleased to have Gary (inaudible) a seasoned energy services and green-building sales executives to lead the team. I will mention that Garrett is actually joining us on the call today if there are any questions for Garrett.

And today, this team consists of over seven experienced energy solutions sales and sales professionals, support professionals focused on selling our systems and solutions again into the existing building market. And lastly, we did make significant progress in launching new products such as our LED track and landscape lighting lines. And I've got to tell you, I'm delighted to report to you that these new products are being very well received by our more technically demanding customers.

Furthermore, these products are well positioned for growth as they address the lighting opportunities spelled out and created by the American Reinvestment and Recovery Act of 2009. An example of this is that we recently supplied our new LED landscape lights to illuminate the exterior of the Cuyahoga County coroner's office. In doing so, we replaced 175 and 400 W metal halide fixtures with our new 26 W LED landscape lights.

Our new lights significantly improved the nighttime aesthetics of the building while saving more than 85% of the energy. And furthermore, these new lights will last over 10 years.

And better yet for the county, these green lighting upgrades will likely qualify for the 100% block grant funding from the American Reinvestment and Recovery Act. And if the county decides to upgrade the exterior lighting of all of their 50 buildings, again hopefully with 100% funding from the Stimulus Act, then Energy Focus has the potential to receive an order for well over $1 million.

Now although we continue to make progress, we recognize that the severity of the economic downturn on our Q1 results dictates that we must move much faster in transforming Energy Focus into that integrated energy lighting energy systems and solutions provider; again, our focus on the existing building market. Consequently I announce today that I'm accelerating our transition to assure the sustainability and future growth of Energy Focus.

In doing so, Energy Focus has an increased sense of urgency and in the following five areas. First, we are further reducing our fixed costs by an additional 30% or greater. This is through a multiplicity of actions that include reduction in management salaries for example, rationalizing our factories and renegotiating our releases.

Second, we are intensifying our efforts towards our energy systems and solutions business. We're doing this by reallocating resources and beefing up and increasing our strategic partnerships.

For example, in the first quarter we added a major value added reseller serving the transportation industry and we received a sizable initial order which we expect to fulfill in the second quarter. Today our sales pipeline is the largest that I have ever seen it since I have been associated with Energy Focus.

And included in that pipeline is a $3 million plus opportunity for our new LED track light with one of our largest existing customers. We fully anticipate receiving that order within the second quarter.

Third, we are looking to reorganize and divest of our legacy products and nonstrategic businesses. We believe that divesting ourselves from these endeavors will allow us to sustain operations, provide increased focus for the organization and generate funds for investing into the future growth of our new systems and solutions business.

Fourth, we continue to explore external financing alternatives that will allow us increased flexibility in our borrowings as well as support our transition to being a pure play lighting energy systems and solutions provider. And fifth and finally, the Company is redirecting all product development resources towards developing products and technologies that support our energy systems and solutions business for the existing building market.

This means that the Company is developing LED technologies for general illumination applications now, rather than specialty, which would include outdoor illumination and office lighting. For example, we just released a new LED parking garage fixture and it's listed on the GSA schedule. This is very timely as the head of the GSA just recently announced that the GSA will be replacing all parking garage lights in GSA facilities with LEDs.

Again, all of these initiatives are designed to ensure the sustainability of the Company and provide a foundation for explosive growth in our emerging lighting energy systems and solutions business especially given the recently enacted stimulus legislation that emphasizes greening existing buildings with energy-efficient lighting and solar technologies. So in conclusion, while this has been a difficult period for Energy Focus thus far, I believe it will be one in which the Company will emerge as a strong player in the lighting energy systems and solutions space and I continue to be optimistic about the bright future for Energy Focus.

So at this time, I would like to turn over the call to Nick Berchtold, our CFO, to discuss with you our detailed financials.

Thanks Joe. Specifically, I'll be reviewing the following financial information for us. We'll be discussing quarterly revenues, quarterly gross profits, quarterly operating expenses, selected balance sheet items, and lastly earnings per share for the quarter. So let's first discuss revenues.

From a revenue standpoint, the first quarter was as Joe mentioned a very significant disappointment brought about by the ongoing global economic crisis. First-quarter revenues were $2.8 million which was a 42% decline over revenues from the first quarter of 2008 of $4.8 million.

With the exception of commercial lighting, all business units did experience decreases. However, the first quarter of 2009 showed that energy-efficient lighting revenues or EFO were $1.5 million or a total of 55% of consolidated 2009 revenues versus only 40% of consolidated first-quarter 2008 revenues.

And as we mentioned, first-quarter commercial lighting revenues exceeded 2008 levels by a modest 6%. Next let's talk about gross profit.

Gross profit was $318,000 for the quarter or 11.4% of revenues versus $1.2 million or almost 26% of revenues from the first quarter of 2008. This deterioration in gross profit was a direct result of reduced revenues contributing towards the coverage of the Company's fixed overhead.

And as stated in today's earnings release, the Company is continuing to aggressively reduce costs in an effort to offset those reduced revenues. These cost reductions include the rationalization of manufacturing as well as the renegotiation of existing fixed leases.

We did make notable strides in the first quarter, however, by relocating the Company's German affiliate located in (inaudible) Germany to accommodations more suitable to meet its future and ongoing role as a dedicated sales office. The reorganization of this business unit commenced in January and was completed by the end of March.

Further, we expect to complete the sale of selected fixed assets from this affiliate including the facility itself by the end of the second quarter. During the quarter, we did record total charges associated with this reorganization of approximately EUR147,000 or $200,000.

Let's talk next operating expenses. The first-quarter 2009 operating expenses decreased 28% versus the first quarter of 2008. Specifically first-quarter 2009 operating expenses or SG&A were $3.3 million versus comparable 2008 period of $4.7 million.

The expense reductions occurred as a result of lower commission expense based upon the reduce sales volume as well as USA and German headcount reductions. We further reduced costs by consolidating the customer service organization into a single location and we also achieved significant reductions in administrative and general administrative related expenses and outside professional fees.

Again as we stated earlier in today's earnings release as well as earlier in the call, the Company will continue to aggressively reduce costs in the second quarter as well as the remainder of 2009. And now I would like to focus on the balance sheet for a few minutes.

As we've already discussed and as we will continue, the Company continues to intensely focus on cash and working capital management. Cash and cash equivalents did decrease $3.8 million during the quarter to a total of $6.8 million as of March 31, 2009 which compares to a $3.2 million utilization of cash in the first quarter of 2008.

That number is after the removal of the impact of proceeds received from the March 2008 private equity transaction. This increase in cash utilization equates to 19.1% year-over-year increase in cash utilization despite a 42% decrease in year-over-year revenues.

From an accounts receivable standpoint, the Company continues to focus on asset management and continued to improve accounts receivable collections versus the first quarter of 2008. In this regard, accounts receivables collections improved to 70 days at the end of the the first-quarter 2009 versus 73 days at the end of the first-quarter 2008. All business units recorded improvements in accounts receivable working capital velocity versus the prior year as the focus on our cash management permeated throughout the global operations.

From an inventory standpoint, our inventory on hand net of reserves decreased to $5.3 million at the end of March 2009 versus $7.2 million at the end of March 31, 2008. Excluding the $1 million inventory write-down announced with the year-end 2008 financials, the reduction above that write-off was an additional $108,000 or an additional 11.1%. In this regard, the entire Company continues to intently focus and manage on inventory purchases at all levels.

Now let me talk about accounts payable. During the first quarter 2009, the Company reduced its trade accounts payable by $1.2 million or 45% from its December 31, 2008 level. Total trade payables as of March 31, 2009 was $1.5 million. Compared to March 31, 2008 the Company reduced its trade accounts payable by $1.3 million or more than 47%.

External debt. Despite a difficult economy, the Company reduced its third-party debt by an additional $132,000 from its December 31, 2008 levels resulting in total outstanding third-party debts at $2,048,000. Compared to March 31, 2008 the Company has reduced its third-party debt by a total of over $1 million or 33%.

Currently the Company is in discussions with its primary lender to restructure bank agreements to develop a more flexible financing strategy which will facilitate the Company's ability to remain viable during its transition. And lastly for EPS, again despite a 42% reduction in revenues versus prior year, the Company's net loss was $3.041 million or $0.21 per share loss compared to first-quarter 2008 of $3.449 million or $0.28 per share.

The reduced level of loss compared to 2008 shows that the cost reductions enacted are continuing to have a positive impact on the business despite a terrible economy. In conclusion, I'd like to thank you for the opportunity to speak to you and I will now turn the conference call back to Joe Kaveski.

Thank you very much Nick. Now before I open up the lines for our participants, I would just like to address a couple of other areas here. I've gotten some questions from some of our investors over the last week or so and I thought I would just take the opportunity to comment on a few of these.

The first one is relative to our second quarter burn. How do we see it? And at this particular point in time, we believe that it will be comparable or less than our second-quarter 2008 burn but at considerably less [sales and run rate].

The second question that has been asked of me is one relative to our solar endeavors and I've got to tell you. This is very exciting for us and I think that there are two things there.

Some of you may not know that we are involved with the US government through a DARPA project to create the next generation, very high efficiency solar cell. We are part of a consortium. We believe we are the secret sauce in the optics that make it work and this team has developed a prototype under Phase 2 which (technical difficulty) system efficiency record of around 40%.

The next phase of this project which is a game changer and why the US government continues to fund it to such substantial amounts is actually commercialization of those technologies. Currently we are awaiting our Phase 3 contract.

We expect it to be received at the end of June, early July. And basically that will move us into this third phase. We have had some very encouraging developments as there are kickoff teams -- kickoff meetings for this next phase that have been scheduled. And again, we believe we are an integral part of that.

So we're looking forward to moving Phase 3 ahead in our for sure third and fourth quarter. And then there's also a development in house where we put a priority on a proof-of-concept project which in essence would utilize our IP and our knowledge relative to coatings that could be applied to traditional solar cell technology that holds the promise of significantly increasing the yield of solar as well as doing it at a reduced cost.

I guess the third question that I would like to address is one that frequently comes up which is relative to guidance. And I must share with you that's a very, very difficult question to answer to provide long-term guidance and I'm not prepared nor do I think it would be proper for the Company to basically provide this at this time.

However, I would like to share with you though that there are some things that we can provide you in the short term. For instance, as it relates to the question of our intention to basically do an equity raise, it's not our intention.

We are currently divesting -- our plan to divest of the nonstrategic business and products of the Company and we will do that (inaudible) haste. We are absolutely committed to furthering our cost reduction initiatives which didn't just start. They have played out over the last year and reduced an additional 30% out of our SG&A OpEx. So at this particular time, I'd like to thank you again and open up the call for questions.

(Operator Instructions) Robert Smith.

So my goodness, this is quite disappointing. So, I mean, the housing situation is not particularly new. Wasn't there any way for you to get your arms around this earlier as far as cutting costs?

Again, Robert, we just didn't start today. We started well back in the July timeframe. We had significant cost reduction initiatives that occurred through the November-December timeframe as well as the January timeframe.

I think our Q basically indicates that we cut about 28% or more already and we are talking additional -- well additional beyond that. So we did anticipate a worsening economy. I don't think anyone could have -- I certainly didn't have the crystal ball to be able to understand how dramatic it would be.

Having said that though, when we did announce that the positioning of the Company back last July, it was very much in line with anticipating a construction slowdown and an increasing need for energy-efficient technologies in buildings. We just need to make that transition happen a lot quicker and that's where we're keenly focused right now.

In the past, you've been a little more candid with breaking out the numbers for EFO. So I guess just listening to the commentary, I believe you said that EFO was 40% of the fiscal '08 number. So that's about $1.9 million (multiple speakers)

Let me clarify that. Our EFO for the first quarter was $1.5 million or 55% of total first-quarter sales.

I heard that. But the comparable number was what, 1.9?

That's correct.

That's what I didn't hear. I had to figure that out for myself.

So what happened there? So people aren't spending to reduce their energy costs even in an economic framework that we are seeing now? They're just not spending the money?

Robert, that is part of what clearly we saw in the second half of 2008 and at least the first half of Q1 of 2009. I mean this global financial crisis has more or less shut down construction and retail-related spending.

And again, it just really solidified even further the need for us to basically go where we're well-positioned to create value and where the opportunity is and that is in the existing building market where there is now massive stimulus for public facilities. And now we hope we're beginning to see that as it relates to the private sector that they are beginning to open their wallets.

Just as an example, Whole Foods recently had a press release that was dated April 21 which spoke of their what I would call an acceleration to energy conservation in their core stores. And so they touched upon LED certified grocery stores which they have now four units. Do you have a role in these four units or in their ongoing program to conform to the LED specifications?

We have a very strategic relationship with Whole Foods. It's one of our most valued customers and we recognize that clearly they are spending -- historically if I could just add a little clarity, when they built a new store, that's when Energy Focus technologies were applied. It was geared toward a new construction buildout.

Clearly now they're looking within their existing facilities and we are currently in dialogue with them in terms of applying our technologies to helping them. And an example of that -- if you look at a typical grocery store of that quality like a Whole Foods, it's not unheard of that they will have 200 or more track lights per store that are MR 16 based.

This new track light that we just brought out of which they are piloting right now, that track light roughly it's 15 W versus again 55 W; significant energy savings. They'll never change a bulb for all practical purposes. That track light will last well beyond five years, maybe closer to 10 years and it has tremendous lighting quality. So again, we're focused on helping them green their existing stores to our new LED-based, energy-efficient technologies.

In this entire fixture, Joe, what is the role of EFO as opposed to LED?

We believe LED is an exciting new light source and in no way does it displace our inroads and our IP relative to fiber optic lighting. It is just a lamp source which today now is comparable in terms of lumen output and efficacy to that of HID. So on a go-forward basis, we believe that [if] efficacy will continue to improve and that there will always be a place for remote lighting versus fiber optics, but we also believe that LED-based fixtures themselves will emerge in a big way.

An example of that is the combination of fiber and LED is our new e-Luminator line which is basically a light engine that lights up our proprietary patented TT fiber and it's best applied in coves for decorative type of application there. In that particular case, it competes against the color kinetics LED strips, color-change strips, that are basically laced around a cove of a facility but the advantage that we have with the LED light engine is multiple-fold.

It basically can be computer controlled. It can produce over 64,000 colors on demand and it's about one-third the cost of the competitive again RGB LED strip solution. So we're very, very excited about that particular product and in fact we believe it's because of that is why we were selected to relight the New York, New York Chrysler building in Las Vegas recently.

So you feel the strides made in LED efficiency do not impact the promise of EFO?

On the contrary. You can actually take it to the next level. Because this Company is all about energy-efficient lighting and there will always be applications where a remote LED high-efficiency light engine coupled into a very efficient fiber into fixtures that actually are designed to have no waste in the fixture and get the light out, absolutely. That is our sweet spot. That's what we are really good at.

And how about the IP? Do you essentially have to pay for LED IP?

No, we don't pay for the LED IP. Actually we enhance it. We buy the chips and the dyes from companies like Lumileds, Philips, (inaudible) for example like (inaudible). And so there's really nothing to license there. We buy their product.

But on top of that though, we couple our IP to that LED such as our CPC technology which is a non-imaging reflector optic where we can get more light out of that LED or not waste as much light is probably a better way to put it than what the competition could do. That is a core fundamental technology that Energy Focus has developed.

So could you just say something briefly about the LED platinum standard and how you address that?

I'm sorry, could you clarify that a little bit further?

Well I think the platinum standard is a 50% reduction in energy use over the standards (multiple speakers)

Are you talking about the LED rating system?

Yes.

Okay, very good. Actually in that regard, we believe that we can do as well if not better than other LED manufacturers. Again, we don't manufacture the LED.

Well no, I was speaking about the LEED, the government --

I was getting there. I'm sorry. But what we do do is we coach if you will more light out to LED chip which makes our products more efficient, LED products more efficient than other manufacturers (multiple speakers) and suitable fort the LEED US Green Building Council rating system.

That's what I was addressing there. I don't know if there are other people on the call. I'll get back in the queue and if not, I will reappear.

Thank you very much.

Theodore Brown.

Listen, this is the most unrecognized, wonderful Company I have ever heard of. Now, Barack Obama has been twice to Ohio to talk about wind turbines.

Can't you get some attention from these people who are so interested in economy and efficiency? Nobody seems to really know about you and yet you have wonderful ties with the Defense Department and all that kind of thing. Would you comment on that? How can you get some more recognition for us because we're all starving out here? Thank you.

Thank you. That's a great question and in fact that's one we're keenly interested in addressing. We have applied for funding for several local grants which in fact are fed by the Obama and government stimulus bill, the one that was just passed.

We just -- Joe just talked about in fact our local government not realizing the project we just did (technical difficulty) would be fully funded by that stimulus money. And in fact, we think as we light up for example Cuyahoga County building, we will be able to attract that attention.

We also are introducing that exterior lighting in the commercial world as well and one of our large contractors has it in their headquarters and loves it and is going to use it in his buildings throughout the United States. So we think that the time for that is coming.

The second area is solar and my goal for solar is to get us to actually selling solar jobs with our efficient lighting in 2009. It won't be with the (inaudible) technology yet but it may have a glimmer or two of it that Joe hinted at. That combination is -- there's a lot of interest in that in Ohio and we absolutely -- if you've got any other ideas, we would absolutely love to entertain them.

(Operator Instructions) Robert Smith.

Hi, just wondering (multiple speakers) I heard John enter the conversation. So, John, what are you up to these days?

Well, if I told you I would have to kill you. I'm sorry, Robert. (multiple speakers) tremendously well.

We are working on some breakthrough new products. And in fact, we are getting dangerously close to LED technology. You heard that we have a new coating technology we're applying to silicon devices themselves.

That kind of technology has a bearing also on LEDs. So we are -- we have entered kind of the general illumination market now that we can get enough light out of these products for a parking garage. That is our latest new product and we are going to be doing indoor fixtures.

We're looking towards fluorescent light replacement and that is really a big huge market. All you have to do is look up. As long as you're indoors, you see one of them. You see more than one usually. So we think we may not only be able to serve that market, but also generate some new IP as well there. So that's what I'm working on.

Another question -- the work that you did for the W Hotel, is that going to lead to additional business with that chain?

We sure hope so, Robert. Again, it's been a situation that last half and the week -- the first half of Q1, there just didn't seem to be a whole lot of spending.

Is that up and running now, Joe?

It sure is, absolutely. They love it. I think -- that's an existing building of course. I think that getting that stimulus money into the economy and getting folks realizing what they can get out of the existing building -- that's really what's going to happen.

Folks are going to notice a drop in their utility bills and realize the kind of impact that can have. I think it really will be a stimulus. Building owners just don't pay attention to these things, to what they can actually do. And there will be an awful lot of folks trying to help them and we will of course be right in the forefront of that.

What's going to happen to the book value of the legacy business this year, attempting to exit it at the bottom of the cycle?

We are very closely taking a look at the business assets and the value of the business. We believe that each of the businesses that we're looking at and focusing on has value.

It's not just in the hard assets. You have to take a look at the entire distribution channel and we believe that there is tremendous value to be had.

So we are continuing to explore that and continuing to analyze it. So I'm not in agreement respectfully that it's at a trough, if you will, because of the businesses have value in a wide variety of areas despite the global economic conditions.

Who is your lead bank?

We don't have a lead bank at this point. We're doing internal analysis and we've got finance organizations and companies that we're talking to but we've not yet identified who that would be at this point.

Okay, so you said that you were in discussions with your (multiple speakers)

Those are bankers rather than -- are you talking about investment banks or are you talking about banks that hold money?

Referred to earlier, Robert, was we are talking with our lead bank, operating bank, Silicon Valley Bank which is our commercial bank lender. That is not an investment banker.

I understand that. That's what I was after. Are you in any way in jeopardy with any covenants with them?

As we stated in our 10-K, we did violate covenants. We did receive a forbearance certificate from Silicon Valley Bank that forgave if you will the covenant violations. We are currently in discussions with Silicon Valley Bank now to restructure our entire debt instrument.

When do you think you have a resolution of that?

We really hoped that it would be by the end of April. Unfortunately that did not come to fruition. So by the end of this month, we should have a clear definition as to what we can do mutually beneficially.

Looking at your technology, I mean in trying to bring your technology to industry, is the fact that the Company has shrunk to such a degree -- is this a real detriment to try and make some headway with -- in business?

Robert, on the contrary. We are much more focused right now and we're focused on where the opportunity is and that is the existing building market, national accounts. Large multi-site customers continue to be a great sales channel for us and we are intensifying our efforts there and they are looking for new technology.

You brought out Whole Foods yourself. If we look to go beyond that, then really the lighting energy solutions business is a very, very important viable channel and actually there we can align ourselves with major energy services companies with significant sales bandwith in doing lighting project in those federal facilities or public facilities move a whole heck of a lot of a product than we ever could before. So as it stands today, the marketing and sales organization of Energy Focus is actually larger and more focused than it has ever been and we will continue to beef up that organization even as we reduced overall cost.

Can you just give me some more color on the areas that the Company seemed to be much in evidence in the past question, with such promise which is EFO-ICE and the work you were doing with Albertson I guess on a test basis and you are attempting to try and strike a relationship with Wal-Mart. What happened? Is there some technology that essentially beat you to the punch in what you had?

You know, if I were to think through your question there, I think when EFO was initially conceived HID, no one including our own federal government envisioned how quickly LED would advance in terms of its performance and efficacy. Today it's approaching the level where it can compete with general illumination technologies although it's at a price point that is probably somewhere in the neighborhood of at least 10 times as much if not more.

Of course that will come down as basically LED scales. To that end though, we are employing LED technologies where they make economic sense for our customers and that is in the supermarket space, that is in the retail space. That is in parking garage space, cold storage space, for instance.

Why wasn't the promise realized in say the freezer cases? I mean that's --

That was a little bit before Joe. I can't answer that one for you as to why it was not widely adopted.

(multiple speakers) but I can share with you right now that retailers including supermarkets are very -- definitely looking to reduce their costs and you read about Whole Foods where they may have a preference for LED-based technologies now. If you read an Albertson's Supervalu annual report, they will share with you that they very definitely have a preference for LED-based technologies and we are right there. We are right there at the forefront with those products for them.

And in fact, we have been talking even today with Wal-Mart.

John, what happened to the promise of the freezer case technology? It just didn't happen.

Well to be honest, the LED solution at Wal-Mart -- I think I talked about this before. GE got in there. GE has a tremendous presence at Wal-Mart and leveraged it and that solution was adopted by Wal-Mart for freezer cases in the US.

Is that true with the other supermarket chains that you (multiple speakers)

No, we are continuing to sell EFO-ICE but on a modest level in smaller regional chains. We are moving to the next generation for EFO-ICE.

One can imagine instead of a metal halide light engine driving fibers, an LED light engine driving fibers with essentially the same results. That kind of technology we think will be the ultimate winner in this space.

So the study that was done by Southern Cal Edison really had no great impact you guys?

It helped us. We have used it in terms of being able to prove to customers that we were able to reduce energy and in fact we have made some sales as a result of it. But we were not able to get for example Wal-Mart and the large chains like Albertson to go with that. That's just the way it played out. Some of the smaller chains have used it especially in retrofit applications.

And the why behind that is what again? Why weren't you able to execute that?

It's new construction. Where we have been during retrofits is where we have been successful, where small chains have looked at every penny affecting the bottom line and energy has a big impact on it. We have been able to show its enhanced energy efficiency.

LEDs are now viewed as -- whether they are or not. LEDs are viewed as solutions. You have to use those three letters to get somebody's attention. But we do have energy-efficient solutions that are both LED and fiber-based.

Okay, well can you just give me some comments about where you see the long-term future and size of the Company. Can this Company really grow to any multiples of what you're doing now? The promise was there before. The question is with all the advances that are made being made in the industry, are you going to be there to be an important player or do you have a shot at that?

Thanks for that question Robert. This is Joe again. I want to answer that one in a very affirmative. Our transition to a lighting energy solutions provider will basically allow us to be north of $150 million in three years; no doubt about it. Comparison (multiple speakers)

From your lips to God's ears. That seems like an enormous task.

But it's embedded into the DNA of what it means to be a lighting energy solutions provider. Let me explain.

Historically we sold lighting for seafood counters or fish counters or produce counters and an average order might've been somewhere in the neighborhood of 15,000, $20,000, maybe a little more. When we were able to go in and upgrade the entire lighting within a grocery store, that's about a $150,000 sale, a multiple of 10.

And again, we are talking about a sale that is based on return on investment, how it's going to positively impact the bottom line of organizations and it's made with the business leaders. It's made that the executives who value that and not technical buyers if you will that really don't see the bigger picture.

And this is all playing out now in a marketplace that in essence has had just gas thrown onto to the fire, created through the economic stimulus act. So it is absolutely conceivable. There other companies that are doing it today. The market is just perfect for Energy Focus to spread its wings and fly.

I sure hope you have the talent to execute this because I wouldn't mind seeing a business that can grow tenfold really in three years. That seems enormous.

That's where we are headed.

Good luck.

I think we have time for maybe one additional call.

There are no further questions.

Well at this time, I would like to just conclude our call today by reaffirming a couple of things that I mentioned earlier during the call. That is that number one, it is an extremely challenging business environment right now and we are hoping that we have seen the last of it.

You know, we are guardedly optimistic that Q1 of 2009 was clearly the worst of it and we will be going uphill or moving forward. Having said that, we still have to get through Q2 and at the end of Q2, we will revisit the question of guidance further.

We do anticipate again that we will have some cash burn there at or less than what we did on 2008 but on significantly less revenues. We've committed to you that we're going to substantially reduce our costs further than the objectives that we've already put in place of 30%, that we are focusing this organization clearly and quickly to be that turnkey lighting energy systems and solutions provider and we are going to emerge out of all this in my opinion a very strong leader in the energy efficiency field.

So with that, thank you again and I look forward to our next call reviewing our Q2 financial results. Thank you.

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