Energy Focus Inc (EFOI) 2009 Q2 法說會逐字稿

Good day, and welcome to the Energy Focus second quarter earnings release conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Joe Kaveski, Chief Executive Officer. Please proceed, sir.

Thank you, Rica, and thanks to our shareholders and guests joining us today for our second quarter earnings call. We have a lot to share with you today but before we begin I'd like to turn over the call to Nick Berchtold, our Chief Financial Officer, for reading our Safe Harbor Statement. Nick?

Thanks, Joe. 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 financial projections or other comments relating to the Company's strategic plans, objectives, expectations or intentions. These matters 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 result to materially differ from the forward-looking statements in this presentation are set forth in our most recent annual report on Form 10-K for 2008 and our second quarter 2009 Form 10-Q. And now Joe, I'll turn it back to you.

Thanks, Nick. Today I'd just like to make a few brief comments concerning our second quarter results and then provide a brief progress update on our announcement earlier this year 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 call back over to Nick, our CFO, to provide some depth and clarity around our financial results and then we would be delighted to answer questions from our shareholders today.

So to begin, this is a challenging time for Energy Focus as I remain disappointed that this year's sales were significantly lower than this time last year. Considering that our businesses have been historically tied to the private sector in the residential housing market and the commercial construction industry, I guess this is to be expected. Recently, the chairman of Philips North American Lighting business said the Philips doesn't see any meaningful improvement until the summer of 2010 and that the new construction industry is practically gone. In general, I concur. Energy Focus has experienced project delays and some of our commercial customers continue to hold on to their dollars very tightly.

However, I do believe we saw some encouraging events that occurred during our second quarter and that are worth mentioning. Specifically, our second quarter sales increased 36% over our first quarter indicating that our businesses tied to the residential housing and construction industries appear to be stabilizing. And the market for the new lighting energy solutions business looks even better considering that the large energy services companies including Honeywell, Siemens, Johnson Controls who are focused on existing building energy retrofits are now beginning to receive contracts that were delayed due to the potential of stimulus money. And that financing is becoming available again through banks and leasing companies to fund energy efficiency projects.

Now let me say a few words on the progress to accelerate the transformation into a fully integrated lighting energy systems and solutions provider. As it relates to our existing building energy solutions focus, we continue to secure solutions projects and make progress in the refrigerated warehouse industry as we secure projects from new customers and add additional facilities from existing customers. Second, we have made progress in nurturing key alliances with partnerships with Esco the lighting retrofit company. One example is with a new lighting retrofit company we are jointly developing proposals in the public sector using Energy Focus' technologies to create a competitive advantage.

As for our progress in producing mainstream LED based versus specialty lighting products for existing buildings, with the addition of the LED garage parking fixtures family that we introduced in January-- in July, excuse me, we now have four product families in advance LED lighting solutions. These LED parking garage fixtures represent a very low cost yet very high performance alternative to two, three and four lamp fluorescent fixtures that are designed for cold and wet environments.

Our tenured dock lights continue to sell very well to the transportation industry and are now penetrating large retail chains. Our new family of LED landscape lighting is beginning to appear on private and public sector projects and buildings and are being proposed on additional public sector projects by our partners. And we are now proposing our new LED and CMH track light family that is designed to replace MR16s and 75-watt halogen bulbs. These luminars offer incredible visual performance with typically a two year simple payback in museum and retail application.

What's important here is that all of these LED fixture families are specifically designed for the existing building market and offer incredible performance with great return on investment. They also easily work in new construction applications.

As for our progress in developing and deploying advanced lighting for the military, our $1.4 million MACC contract announced two weeks ago is very different from other contracts that we have previously secured from the U.S. Government. This agreement calls for the U.S. Navy to actually buy our new LED lights. This contract is America Recovery and Reinvestment Act compliant such that it could be used as a vehicle for stimulus money to fund additional energy improvement work with the Navy.

And just this afternoon, I signed another $500,000 contract from the Department of Defense to develop and provide more advanced LED lighting for the Navy. You will see the details in a press release that we will issue early next week.

Now let me take a moment to discuss what we are doing to allow Energy Focus' orderly transition to becoming a solutions business. We are divesting one or more of our legacy businesses. We are very serious about this and we've engaged a seasoned business broker to assist in the marketing and sale of these businesses. We also continue to evaluate additional financing. This includes loans from traditional and non-traditional financial institutions and/or possibly a modest capital raise via rights offering.

And of course we continued to make good progress towards our 30% year-over-year cost reduction target. Today our costs have been reduced by 24% compared to last year and we-- and will continue to decline further. Since our last call, we have implemented numerous cost reduction actions including transferred additional products to our Mexican facility, reduce management salaries, consolidated our European operations to the UK, which allowed us to sell a building in Germany, partnered with the leading offshore company to provide the manufacturing of some of our LED products and further reduced administrative and support personnel.

So before I turn the call over to Nick, I'd like to summarize by comments by saying again that this is a very difficult business environment for Energy Focus. We are seeing improvements, especially in the existing building market, which is exactly where our focus is. We continue to aggressively reduce cost and that personally I remain optimistic about our ability to ride through the economic downturn and grow in 2010. So at this time I'd like to turn over the call to Nick Berchtold, our CFO, to discuss our financials in more detail. Nick?

Thanks, Joe. Again I'd like to thank you again for joining our conference call today. Now I'd like to provide you with an overview of results obtained during the second quarter for 2009. Specifically I'll be reviewing consolidated second quarter revenues, gross profits, operating expenses, net income and earnings per share and lastly we'll focus on selected working capital items.

So first let's discuss second quarter revenues. As Joe has already discussed in his overview, the second quarter financial results continue to reflect a challenging environment which confronts both our Company as well as the entire global economy. Second quarter revenues were $3.8 million, which represented unfortunately a 49.9% decline in revenues from the second quarter 2008 revenues of $7.6 million. Second quarter 2008 revenues were however favorably impacted by over $0.5 million in VHESC related solar consortium revenues as well as over $1.1 million in Middle East destined revenues generated by our European affiliates. While second quarter 2009 revenues were disappointing on a year-over-year basis, again the revenues for second quarter did improve 36% over the first quarter 2009 revenues of $2.8 million, despite continued softness in the U.S. pool and European lighting markets. Our sales leadership led by Steve Gasperson, Michael Morrison and Gerrit Reinders as well as fully supported by the entire organization are laser focused in providing our directors, our shareholders and our Company quarter-over-quarter revenue growth and recovery.

Further, I believe it important to also advise you that during the second quarter of 2009, revenues were adversely impact by the Company's completion of the reorganization of it's German subsidiary. While second quarter revenues for this subsidiary declined $457,000 or 400, excuse me, or 48% from 2008 levels, this reorganization has most importantly reestablished the overhead cost footprint necessary to achieve cash flow neutrality while also providing the definable path to business profitability in the near-term future. Currently reported financial results from this subsidiaries supports that this reorganization has in fact worked and was absolutely vital to sustaining the ongoing solvency of this business unit.

So now I'd like to discuss gross profit. Second quarter gross profit was $799,000 or 20.9% of revenues versus $2.4 million or 32.1% of revenues for the second quarter 2008 period. The second quarter 2009 gross profit result does include a noncash inventory impairment charge of $223,000 resulting from the revaluation of inventory at our German subsidiary created by the previously discussed reorganization. Excluding this noncash charge, the second quarter 2009 gross profit increased to 26.8%. As has been previously stated by Joe and myself, the Company continues to aggressively reduce its fixed overhead footprint as it aligns the structure of the business to reflect the current global economic climate. These efforts include again materials resourcing, manufacturing relocation and consolidation, part number rationalization and numerous additional fixed overhead cost reductions.

So now let me talk a few minutes about operating expenses. The second quarter 2009 operating expenses decreased 20% versus the comparable period prior year. Specifically second quarter 2009 operating expenses decreased to $3.3 million versus the second quarter 2008 operating expense figure of $4 million. 2009 results do include an additional $165,000 noncash impairment charge recorded on the sale of German, excuse me, of certain German subsidiary fixed assets. Excluding this noncash impairment charge, operating expenses improved 24% versus prior year. Further, second quarter 2009 operating expenses decreased an additional 2% versus first quarter of 2009 operating expense of $3.3 million.

Net operating expense reductions were the result of significant reductions and sales and marketing expenses including reduced commissions expense associated with lower volumes, combined with the reorganization of our German subsidiary. Total cost reductions from these activities approximate $1.1 million. And secondly the Company did unfortunately have to incur additional headcount reductions that resulted in approximately $540,000 worth of savings. As Joe mentioned, the Company also enacted a voluntary payroll reduction program for it's Senior Officers and selected key Executives for the remainder of 2009, which when complete, will provide approximately $200,000 of additional cash flow savings. In summary regarding operating expenses, the Company continues to aggressively manage all operating expenses as it executes it's transition into a turnkey lighting energy solutions Company.

And now I'd like to review net income and earnings per share. For the three months ended June 30, 2009, the net loss was $2.3 million which equates to $0.16 per share loss. The comparable period 2008 loss was $1.6 million which equates to an $0.11 per share loss. However, I think the important thing to note is on the six-month numbers, on a revenue stream of $6.6 million for the first six months of 2009, the net loss was $5.3 million which equates to a $0.36 per share loss, compared to first half 2008 revenue stream of $12.4 million, so almost double, resulting in a net loss of $5 million or $0.38 per share. So these numbers reflect the fact that the Company cost reduction efforts are in fact making a difference in this very difficult and challenging economy.

So now let's review selected working capital items as reflected on the balance sheet. I am pleased to report that the Company continues to make progress in its cash position from it's intense focus on cash and working capital management. First cash and cash equivalents held or decreased to $5.6 million, however second quarter usage of cash was decreased to $1.2 million. This represents a 48%, excuse me, this represents 48% of the second quarter 2008 usage of $2.5 million and 32% of the first quarter 2009 usage of $3.8 billion.

So next let's discuss accounts receivable. The Company continued to improve accounts receivable velocity versus both second quarter 2008 and first quarter 2009 results. Accounts receivable velocity improved 16.3% to 44.9 days at the end of the second quarter 2009 versus 53.7 days at the end of the second quarter 2008. Similarly, accounts receivable velocity improved 35.8% versus first quarter 2009 accounts receivable velocity as a result of the Company's historical pool and spa early buy programs coming to a seasonal end. Contrary to what typically happens in a very difficult economic environment, all of our operating units recorded improvements in accounts receivable velocity versus second quarter 2008 as a result of the focus on cash management and its emphasis continued to permeates throughout our entire organization.

So next I'd like to talk to you about inventory. Inventory on hand net of reserves decreased to $4.9 million in the June 30th, 2009 versus $6.5 million at the end of June 2008. Excluding various inventory impairment charges recorded in December 2008 and June 2009, the reduction in gross inventory was still $288,000 or 4.4% from June 30th, 2008 levels. It's important to note that while this decrease is small, inventory levels in LED dock lights and landscape lights among other product lines did remain stable or increased as the Company continues to receive increased sales orders for these parts which were deliverable in the second half of the year. Most importantly, the Company continues to intensely manage inventory purchases at all levels and I continue to be-- I expect to be able to continue to report further improvements in inventory velocity as we proceed throughout the remainder of 2009.

From an accounts receivable perspective, our trade payables declined by $1.5 million or 55% from December 31st, 2008 levels and by $268,000 or 18% from March 31st, 2009 levels. Total trade payables as of June 30th, 2009 was $1.2 million.

Next I'd like to talk briefly about external debts. During the second quarter of 2009, the Company reduced it's third party debt by an additional $202,000 from its March 31st levels and a total of $357,000 from its December 31st, 2008 levels. Total outstanding third party debt as of June 30th was $1.8 million. The primary contribution to this reduction was the Company's 100% repayment of the remaining outstanding loan balance on the German subsidiary facility mortgage which was paid using the proceeds from the sale of that facility.

And lastly, I'd like to talk briefly about long-term banking relationships. The Company is actively engaged in discussions with alternative potential financing sources to replace the existing line of credit with Silicon Valley Bank, who is the Company's current commercial lender, and we are currently reviewing various credit agreement proposals that we have received from these various financial institutions.

So in closing, the second quarter results showed consistent quarter-over-quarter improvements in both working capital and operating expense performance despite significant re-organizational charges and very sluggish global economic condition. I am confident that we will continue to experience improvements in these areas. The laser focus on cash management at all levels of the organization continues and remains the cornerstone to the successful transition of our Company into a high-technology turnkey lighting energy solutions business.

So in closing, I'd like to thank you for the opportunity to speak with you today and I would like to turn the conference call back to our operator so that we can have our question-and-answer period.

Thank you, sir. (Operator Instructions) And we'll take our first question from Robert Smith with the Center for Performance Investing.

Hi, good afternoon.

Good afternoon, Robert.

So, guys what-- are you seeing anything from the, any government programs about the economy stimulus program?

They are beginning to take hold in the marketplace and that was my comments relative to the energy services company. It appears as though many of the public sector state, local and federal agencies that had energy projects that were being queued up for latter part of last year and earlier this year, basically went on pause for the moment to see if they couldn't benefit from applying stimulus funding to those projects. It took a little bit, although it was relatively swift for government, that kind of the rules of engagement and tapping into that stimulus money was made known to those agencies and now basically those projects are beginning to be let, Here close to home we just recently received the contract for the MACC, where one of the important requirements was that America Recovering and Reinvestment Act compliant. And although I don't know the specific hoops that the contract administrators had to go through to be able to make it that way, their standard Navy contract was very important to them because it does allow for additional work to be performed utilizing additional stimulus money. So it's just an example how project perhaps got slowdown in award because they wanted to be able to tap into that stimulus money.

Joe, would you say that there's been any change of note since I last saw you in Life Fair in New York I mean you kind of laid out with the possibilities were for the next year or two and your very, let's say, optimistic? So--

I remain optimistic. Where we are headed, clearly is where the market is. It is an existing buildings, it is in providing energy solutions, lighting is one of the greatest opportunities that exist for energy-efficiency and so we have the technologies right now that we are developing and retooling towards that existing building market. And we placed a great emphasis on developing partnerships, too with the energy services companies and the lighting retrofit companies that are really the ones that are the vehicle to a lot of that government energy efficiency project and so, yes I remain optimistic.

Do you have a big enough footprint to participate in the bigger projects?

Well therein lies again the strategy of our strategic alliances with those lighting retrofit companies and energy services companies, they do have the sales bandwidth and the footprint. In terms of our ability to provide products to them, we have excess capacity that clearly we just turn on that engine to be able to support that. So I'm not concerned from that perspective.

How could the latest-- how big could the latest government development contract and energy for the ships be?

Well the one that we were just awarded was $500,000.

That's this afternoon.

That's this afternoon.

Yes, okay the prior I guess was 1.4 million?

Right.

How big can these guys become I mean?

I have with us Roger Buelow, our Chief Technology Officer, who interfaces very heavily with the government. And Roger, maybe you can offer some comments on that?

Yes, so-- hi, Bob. The--

Hi.

The MACC contract for $1.4 million, Joe mentioned that included both development and also sells of product right down to submarine. A lot of those products, in addition to the use on submarines, or one in particular is also very useful throughout the fleet. So as an example, going on to one aircraft carrier, it would be about $1.5 million in sales. And across the fleet for just that one product, it got the full market size and on the order of $40 million. And of course that's one product we're developing a total of four under the MACC contract and we have several others from previous contracts and also this new one Joe just mentioned that we signed today.

And what would have to happen I mean as far as the different phases and the timelines?

The timeline for getting additional sales with the military?

Yes, for this specific shipboard, well when you say $40 million I mean what kind of phase development would have to have-- would have to be seen and what kind of timeline?

Yes, this is a very different deal, Bob. These are actually products. So when these products are delivered to the Virginia class submarine, they will be orderable by somebody who's ordering products for example for that aircraft carrier that Roger was talking about. This is very different from anything we've done before. It is going from R&D for this to the product state. We've been working towards this for several years. And this is-- a lot of credit goes to the R&D team for bringing this home. So it's a big deal for us.

And so one of the things in particular, the-- Joe mentioned that the, that one contract is ARRA compliant. So what that means is the Navy can use stimulus money to, to-- as soon as they get stimulus money in one day, they can augment that contract the next day to get more lights on the ships. And so like I said, there's that one product being [paid] for the sailors [births] representing tens of millions-- the total US market for US Navy for all the LED fixtures approaches $1 billion. It's a huge market, and these ships go through retrofits once every five years. So that's kind of your opportunity for getting on board the ships. We've also had contact from even foreign navies. So as you know when ships retire from the US Navy, they go to our allies often. And so we've been-- we've gotten calls from foreign navies in terms of how can they upgrade their older ships with these same lights and getting a lot of strong interest there too.

Have you made any further progress in the SOLAR area?

Absolutely. We are beginning to quote SOLAR jobs in our solutions business. So yes, we are making progress. And it's our goal to actually sell SOLAR this year with SOLAR on the books within our solutions project. We are also moving, of course, ahead on the R&D front and maybe Roger you want to mention a little bit about that?

Right, so we've-- on the R&D front, both under DARPAs VHESC project and also independently, we have been working with high efficiency and also lower cost ways to make SOLAR cells. And we've had good breakthroughs. We are not ready to write up the papers on them or to report them yet, but we can leave it at that, is that we've got significant progress in the lab.

Well would you-- can you give us some guidance I mean on that?

No, I really can't. The-- anything that comes out of the DARPA programs have to be published and cleared ahead of time by DARPA and for the things that we've internally funded it would be unwise for us to disclose (inaudible).

Yes, okay so if it's acceptable for DARPA when would the next phase begin?

We are, we're very eager to hear that answer ourselves. We're very hopeful that it can-- would start very very soon.

Okay, well characterize these very very soon, is by year end?

You know Robert, --

I don't know what to say about a phrase like very very soon. I mean it--

Robert what we can tell you is we are in constant contact with the partners of VHESC and our shareholders will know as soon as we have information that we can provide that we can share. But to surmise at this point when the government will execute this, is not advisable at this point.

Okay but you guys have supplied the data?

Supplied the data?

Absolutely. We have a--

Okay.

Proposal on the books and we are fully expecting to participate when the government funds this program.

Okay. Thanks. Good luck going forward, Joe.

Appreciated it very much. Pleasure in speaking. Okay.

All right we'll take our next question from [Larry Sultan] with [My Broker LLC].

Good afternoon. I'm new to the situation, I'd seen the name earlier and hadn't had a chance to see or to hear your presentation. Could you give me a better feel for just how your product line breaks out these days in terms of markets?

Sure, Larry. I mean and I'll characterize it as a current and future and against a historical.

Right.

Historically we were a specialty lighting manufacturer that really served, let's call it, four or five primary markets. One of them being the residential pool market where we remain the industry leader there for pools. The other market is what I would characterize as the food services supermarket industry. Where we have many customers like Whole Foods and Supervalu Robertsons and Giant Eagle, Redner's to name a few.

We also are in some very prominent museums because of the nature of our historical technologies meaning no UV. And so we don't destroy art work for instance. And so market or historical museums that you might recognize are for instance the Clinton Museum, the Appleton Museum, the Winston Churchill Museum. Of course the military market has been a historical market for us. And was just delighted to be able to make the announcement today. And then lastly, we have been in the retail, so customers such as The Limited, Tiffany's, Bath & Body Works, Victoria's Secret, those have where awe've historically played and we've historically played with technologies that I would call specialty.

As we are moving forward in the existing building market place, we will continue and we will continue in those markets, but our technologies have changed and are changing rapidly more toward solid-state type of luminars. But probably one of the fundamental differences is is you would characterize our technologies before as maybe specialty applications. We did a great job of lighting up a hallway or putting light on a piece of artwork and now our technology are basically going mainstream towards general limitation with application towards all markets. So in essence we go from a market size that's probably about a $5 billion historically to now a market size that's probably well over $100 billion. So--

Okay so are-

And the emphasis is clearly towards the existing building.

All right. Okay on some of-- and so some of the new products you're developing, you expect to-- instead of being a customized type application, you're expecting to be able to have this as a border line-- a broader application catalog item?

Absolutely.

And how do you then get that sold for a competitive--?

That sold through a variety of channels, we have our own direct selling force. We do go through value added resellers and partners and we do go through energy services companies. But I think the fundamental thing that I'd like to leave our guest with and our shareholders today is that technology supplied, lighting technologies for the existing building market, they are and must be by design a technology that provides same or better performance with a great return on investment.

Okay.

And that's why our LED based product technologies that offer great performance and with typically two year simple payback, it's a perfect match. And so that's where we're headed. We're keenly focused on being able to get that return up and to have technologies that plug and play into the existing building market place.

Okay, now in the LED, I presume you're buying the tips and are basically assembling fixtures?

You are correct. We basically by the highest quality chips from the major manufacturers like Cree, like Philips Lumiled, like [Netia]. And so we, we do a great job of trying to identify what those chips but then from that point, really then the secret spot that we bring to bear is the superior ability to get the thermals right within those luminars. The ability to actually capture the light that's coming out of that chip, that is no trivial task.

Right.

And that's where we really shine relative to our optics technology and our optics IT and our coatings IT. And quite honestly that is why I think the US Government, one of the reasons why we think of ourselves and I think that they kind of look at it too as maybe a poster child for DARPA in the military because our technologies are second to none.

Okay, and then following up on the military side, the $1.4 million initial contract, which I gather is development of fours-- for fixtures but then installation supplying them to these submarines. What is the timing on that, when should revenues-- over what periods would revenues appear?

The-- you're right, part of that is for development of the fixtures and part of is for delivery of the fixtures. We have not disclosed that rate down, but I can give you that the timing period is about one year in which the development work will take place and then we'll be supplying-- scheduled for supplying lights to ships over four years.

Okay. Okay. Very good. Thank you.

Well thank you again for your call.

(Operator Instructions)

All right.

All right and we do have another question from Robert Smith with the Center For Performing Investing.

Welcome back, Robert.

Yes, you don't think I am going to let you go so quickly. So has there been anything further for us from the work that you did for the W Hotel chain?

No. Then we continue to have a happy customer, that we continue to utilize as a showcase there.

But they're not retrofitting any of the other units, or--?

At-- no we have not done additional hotels for the W.

I guess it's partially because of what's happening in the general economy. I mean I assume they're pleased with what you did for them.

I have not received any word otherwise. So and when I went out to the W and visited it personally, they seem to be very happy with it and clearly we're saving them a ton of money.

With the kind of structuring that you've been going through and cutbacks and everything, what can you say about the R&D effort here?

Delighted. It's becoming more focused than ever on being able to commercialize technologies. We are seeing some great results and some great performance and I'm looking for bigger and better things as we go forward. And I will share with the you that I was recently conveyed to me that under $150 million, let call it, stimulus funded program through DARPA's new subagency, I believe it's AR or their AR-- Department of Energy, excuse me, that they solicited proposals for leading edge ideas to improve energy efficiency in existing buildings. From industry, they've received 3500 proposals. As I understand it, 150 proposals were asked and encouraged to be expanded upon and we were a part of, I believe Roger, it was four of them, and that's a pretty good hit rate if you ask me.

I agree with you. Congratulations.

Excuse me, I misstated that, it was one in particular. One in particular.

So--

Still a heck of a hit rate.

The Silicon Valley, are you in-- what are you trying to do there? I mean are you in-- you trying to rewrite some of the covenants or--? Are you trying to-- you're trying to replace it or--?

Yes, Robert, this is Nick Berchtold. Silicon Valley Bank has, as you're aware, has been a long-term commercial bank lender for us. For a variety of reasons, we are working with Silicon Valley Bank in partnership to seek and obtain alternative financing. And I'm not going to go into more detail beyond that. But we are working to replace, we've got a variety of different proposals that we are looking at right now from commercial banks as well as non-commercial banks and other mechanisms. But for a variety of reasons, we are seeking to replace the Silicon Valley Bank line.

Are you in compliance with the-- now?

We have not been in compliance with our covenant, you'll see that noted in our Q. But again we've been receiving forbearance and forgiveness certificates as we restructure our organization. And again Silicon Valley Bank is working with us to continue operating, lets put it that way.

Okay and do you have any idea when you might be able to report something to that effect? I mean the resolution of it?

Yes, we're working on it diligently. So before the end of the year, obviously, we will be moving forward and hopefully sooner that we can report something to you in that regard. So again, similar to the government discussion, as soon as we have something that we can report, we certainly will.

Okay. All right, thank you.

Thanks, Robert.

And we'll take over next question from [Joe Gilmety] who is a private investor.

Hi, Joe.

Hi, Joe.

Hi, Joe. Hey, very interesting conversations here. I'm listening to you describe the naval systems and I'm just wondering the development work you're doing for the Navy, will this be applicable in the non-military markets in the later years? Or maybe in the near future (inaudible) maybe aircraft cabin lighting or--?

Yes Joe, Roger is holding me back right now because I've got a big old smile on my face. The answer to that is absolutely, yes. And in fact this contract for MACC is to replace existing T5 fluorescent fixtures on the Navy's nuclear fleet with the new lighting technology. That will lighting technology is fundamental to us, we call it our optical rod technology. It is one that is that has application well outside of the Navy and maybe ships and to just mainstream bread-and-butter fluorescent fixture replacement. And so the ability to perfect that technology to the nth degree for the US Navy and then be able to take those perfections out into broader industry is a tremendous market as we see it.

Well it sounds like old times again because that was being done many years ago, we would use the government research to apply to other markets. So I congratulate you on that.

Thank you.

Other than that, what are you doing to advertise and promote your new products onto the marketplaces? Do you advertise in magazines or at tent shows, trade shows?

We certainly do in trade shows and right now we're working towards being able to get some of our new products into, I call it, industry specific magazines. You probably wouldn't see for instance our track light in Business Week, but you sure well might it in for instance food at the FMI publication itself for food services because obviously that's what retailers look at in the food services industry. Beyond that we have a tremendous emphasis right now again on basically educating partner organizations, alliances like Energy Services, like Escos and like architect, the architectural community on some of our new LED based illuminators in the construction industry so that basically they know and are well aware of our products. So--

Yes, good. I'm doing some experimenting with your track light on-- at work and it's really got a great light quality. It's-- I think it's got a great future, it's nothing I've ever seen on the market.

Thank you, Joe. We're excited.

So anyway, great. Okay I'll talk to you later and I'll sign off and leave room for the next caller.

Okay. Well I think at this time, we'd just would like to thank everyone for participating on Energy Focus' second quarter earnings call. I would also be remiss if I did not thank our associate employees around the world who I know are working tirelessly to exceed yours and our customer's expectations. Clearly, they're the cornerstone of our ability to rise above this current global economic crisis. And I see it firsthand that they represent the secret sauce that is really how we're able to provide those superior lighting solutions to the coming existing building market. So thank everyone again and thank you for participating in the call and we look forward to visiting with you in our third quarter-- or on our third quarter call here coming shortly. Thank you again. Okay back to Rica.

And that concludes today's conference. We thank you for your participation and hope that you have a wonderful day. You may now disconnect .