Matt Hayden – President, MZ North America Tim Burns – CFO Dan Brdar – Chairman and CEO.

Philip Shen – Roth Capital Partners John Harrell – Harrell & Associates John Shaw – Wilshire Partners Don Mccune – Alandale Security Mark Brancel – Niche Capital.

Good day and welcome to the Ideal Power’s Third Quarter Earnings Call. Today’s conference is being recorded. At this time, I’d like to turn the conference over to Mr. Matt Hayden, President MZ North America. Please go ahead, sir..

Thank you. Good afternoon, everyone. Thank you very much for listening today to Ideal Power’s third quarter and year-to-date results. Your hosts are Mr. Dan Brdar, Chairman and CEO; Mr. Tim Burns, Chief Financial Officer.

Dan will provide a business update including recent commercial orders and product announcements, while Tim will discuss the financial results. A press release detailing the earnings crossed this afternoon 4 pm and is available at the company’s website idealpower.com.

Following management’s prepared comments, we’ll open the floor to your question for those dialing-in and also to those participants joining webcast.

Before we begin the formal presentation, I’d like to remind everyone that some statements made on the call and webcast including those regarding future financial results and industry prospects are forward-looking and maybe a subject to a number of risks and uncertainties that could cause actual results to differ materially then those described in the conference call.

Please refer to the company’s SEC filings for a list of all associated risk. In addition, we’d also encourage our visitors to – our investors to visit the company’s website idealpower.com for supporting investor and industry information, which will help deepen your understanding of the technology and market. So now I’d turn the call over to Dan.

Thank you Matt and thanks everyone for joining us on the call. For those of you on the call today that are new to Ideal Power, we’ve developed a unique power conversion technology called the Power Packet Switching Architecture, which we believe can significantly change the landscape of power conversion.

The power conversion markets available to us are large, but some estimates an excess $50 billion per year. Our technology allows the development of power conversion product that can have higher efficiency, one fifth the size and weight, higher reliability and lower cost than conventional power converters.

Our initial focus is on renewable energy applications and in particular for the near terms commercial and industrial energy storage applications.

Due to the rapidly declining battery cost and increasing demand charges, energy storage solutions for commercial and industrial customers now represent an economically track the solution for businesses and building owners to control the utility costs.

Our initial product incorporating our PPSA technology is a 30 kilowatt battery converter that’s used by systematic version companies to provide a storage solution for commercial and industrial customers.

Today I’m pleased to report to you on our progress and scale of sales of our first product and developing a converter product family that will further expand our growth opportunities. In the past, I’ve discussed our initial focus on the commercial energy storage market in California and other states.

We decided to target this emerging market segment since we feel it will be one of the most economic markets for our energy storage with potential customer financial paybacks of three to five years.

In many cases, our initial customers’ energy storage system integrators will provide financing for zero capital cost model to commercial and industrial building owners with guaranteed savings to the end user.

We feel that the favorable economics and performance based contracts are offered by our system integration customers will enable rapid market growth. By working with industry leaders in this market, we expect the benefit from this growth.

Our 30 kilowatt battery converter is an attractive solution that offers a compelling value proposition for this market. Our product can provide superior efficiency and significantly lower size and weight than conventional power converters.

According to independent and publically available testing, our product efficiency is 96.5% compared to 92.5% from a typical competitor. Two power conversions are required in energy storage, so our product can lower efficiency losses by 8 percentage points. This can enhance the return on investment for our customers.

But using our product versus the conventional power converter, as your power base system requires 8 percentage points less electricity when charging and discharging batteries and can enable our system to get more work of the system capital invested in average. The product size and weight is also an important factor.

Our product weight is less than 100 pounds, while conventional products weight as much as 650 pounds. This significantly reduces shipping and installation cost as our product can be delivered by UPS ground and be mounted on the wall. Competing products require a freight chart for delivery and use a little foot [ph] installed on a concrete pad.

All these adds to their installation cost. Also in urban locations, fitting a conventional power converter into an existing building can be challenging due to its size and weight. Our small size and weight allows our units to be readily deployed in almost any building. Product weight also correlates to manufacturing costs.

Since our PPSA technology eliminates 90% of the power set components of conventional power converters, item such as bulk capacitors and transformers were inherently a lower cost design. As order volume increases with our contract manufacturers, this cost advantage will become evident. Another key factor for our products is their low noise.

In many locations such as office and apartment buildings and commercial businesses, storage solutions are being installed in close proximity to where people are working and living. The quite operation of our products allows their using locations where our conventional power converter will disturb the building occupancy.

Our focus on commercial and industrial storage is showing result. With today’s announcement of an additional 3 megawatts of order to our 30 kilowatt converter, we’ve received over 7.5 megawatts of orders since early September. This represents over 250 units and is a significant step change in our order flow.

While we are only at the beginning of the adoption hurdle for our technology, we believe the recent increase in orders represents several key signals for Ideal Power and the energy storage market as a whole.

First, since the majority of these units are from our previously announced system integration customers and commercial energy storage, Sharp Electronics, Green Charge Networks and Coda Energy, it indicates the customers who have using an evaluating our technology are pleased with its performance and its value proposition.

Secondly, it indicates that the education of the commercial and industrial end user customer by our system integration partners is beginning to produce meaningful order flow for their businesses.

The long promise of storage to mitigate the problems of intermittent sources of generation such as solar and wind has finally reached the point where it represents [indiscernible] attractive solution for the commercial and industrial market. Today, storage solutions are primarily driven by demand charge reductions.

However that the cost of batteries continues to decline, other markets such as utility and residential users were also become addressable markets for us. Since our PPSA technology is very scalable, we’ll be able to introduce highly competitive product offerings for those markets as well.

The units covered by our recent announcements, our schedule for delivery for mid-2015, we anticipate adding additional unit orders from our current and new customers as the market continues to ramp. The units from our recent announcements will be primarily installed in California.

California is also leader in energy and environmental policy and technology adoption. We’re now seeing other markets follow their lead as the increased demand charges and high time of these charges from utilities are creating opportunities in other part of the U.S. such as New York, New England and international opportunities as well.

We expect that our products use the commercial and industrial demand storage reduction will provide us a solid and rapidly growing revenue base in 2015. In the third quarter, our leading customers prepared for the high port cash growth in the commercial storage market securing orders from end customers and equity and project financing.

For example Green Charge Networks raised 56 million from K Road a leading utility solar scale developer. To provide them adequate customer and project equity financing are short launched its smart storage business unit in late July.

Our business – our success in capturing the business in the early commercial and industrial market leaders is also driving others to evaluate Ideal Powers PPSA technology for their businesses as well.

With the economics of energy storage becoming increasingly attractive and third party financing beginning to flow to the market, we’re increasingly approached by other potential partners due to our novel technology and compelling value proposition.

We anticipate adding average channel partners in the coming months as several successful companies and their renewable energy markets evaluate their own offering for the increasingly traffic markets being enabled by declining battery cost and novel technologies such as ours.

The other major topic that I wish to discuss is a significant progress in broadening our product family throughout our vertical markets. But first I want to turn the floor over to our CFO, Tim Burns to discuss our financial results.

Tim?.

Thank you Dan. Total revenue for the third quarter was $438,000 consisting to prior revenue of $289,000 and the balance coming from grants. Totally cost of revenue was $559,000 dollars which included $166,000 in grant research and development cost.

Operating expenses which includes $664,000 in research and development spending totaled $1.7 million yielding a net loss of $1.9 million. Total revenue for the nine months ended September 30 was $1.3 million with $842,000 from product sales and $448,000 coming from grants.

Total cost of revenue was $1.6 million which included $498,000 in grant research and development costs. The net loss was $4.9 million for the nine months of the year consistent with our expectations. At September 30, 2014 our balance sheet had $9.7 million in cash and cash equivalents and no debt.

We have a federal interval which will shield us from income taxes profitable. At September 30, 2014, we had 7 million share of common stock outstanding and 10 million shares in fully diluted bases which includes approximately 1.6 million acoustic outstanding. I will not turn it back over to Dan.

Dan?.

Thanks Tim. We discussed out initial vertical market in commercial industrial storage and how remaining in this high growth emerging market. We are leveraging our early success in standalone storage applications to capture other adjacent vertical markets. Our technology allows us to use a standard hardware design and support multiple applications.

You can think that is a software defined computer platform that can address multiple vertical markets. This flexibility allows our products to be used in a wide verity of applications. It also allows us to scale our product offerings quickly since our technology platform is very flexible.

Two trends that we see in the market drove our two most recent product and introductions. First, a macro driver we see in the renewable energy markets is what we see was the inevitable convergence of solar and storage. As a penetration of solar continues, equates a verity a problems for the utility grid due to its intermittent nature.

As more and more solar is deployed, the grid solar can become unstable since our electric utility systems were never designed to have any significant amount of intermittent generation. Storage with solar solved the problems of intermittency and grid instability were also mitigating demand charges for users.

Today, solutions that put storage and solar together had been cumbersome and expensive. In response to the coming convergence of solar and storage, we introduced our award winning 30 kilowatt highbred converter which puts the functionality of a solar inverter and a battery converter into one compact, cost effective, efficient unit.

It’s our view the conventional solar inverters will become obsolete in an increasing number of location where they required to install solar and storage together. Secondly, our 30 kilowatt product serves as an excellent module building block that enables our customers to address a wide verity of project sized.

As commercial and industrial customers have become increasingly well and comfortable storage to address their demand charge issues, we’ve seen projects growing larger in size. Based on the market feedback, we’ve received, we call them as time to leverage our existing 30 kilowatt development efforts and introduce our 125 kilowatt product.

The 125 kilowatt hybrid and battery converter products not only allow us to provide an even cost effected answer for large and industrial installations, but also give us a building block to capture opportunities being developed for small utility scale storage project.

125 kilowatt PMA products offers similar efficiency, size and weight advantages as our 30 kilowatt unit.

Using multiple 125 kilowatt units provides an attractive building block for megawatt scale applications particularly for the increasingly popular shipping container base solutions being developed by several companies looking for provide industrial and utility scale storage solutions.

We already announced the sales of our first 125 kilowatt unit to our long-term customer energy. We’ll be announcing additional sales of the larger unit in the coming months since initial feedback would indicate it will be a successful vision to our product offerings.

The product was part of our do that solar power international in generating great interest by both potential end users and a new set of potential customers and channel partners who are focused on larger industrial and utility applications, they are announcements in the coming months about new relationships that are the results of our larger product offering.

The right verity of generator, storage and large required by the industry are serve today by different product from different vendor with different control systems.

We believe the industry something need a building block set of power converter solutions that will allow system integrators to easily configure and install integrated systems that combine these systems with greater value, lower cost and improved liability.

Another vertical market we see being enabled by both out technologies and the declining cost of batteries or micro grids for Island, defense inflations, hospitals and location served by diesel fuel for power generation. In the third quarter, we announced our first strategic partnership and customer agreement in hybrid systems.

EnerDel announced with us that they are developing a new generation of mobile hybrid power systems by integrating 30 kilowatt hybrid converter with a lithium-ion batteries, control systems and conventional diesel generator. This system is expected to produce diesel fuel consumption for remote off-grid applications by over 70%.

Their mobile platform can also incorporate solar to make batteries and engines and provide improved power quality and greater reliability. We ended our plans to sell a family of trigger [ph] and skid metal solutions world-wide with our hybrid power converter.

Their skid metal microgrid solution will be available for sale later this year and we anticipate microgrid applications contribution meaningfully to our 2015 revenue. We estimate that there are 1 billion people globally without access to a power grid and another billion depended on expensive diesel generators for electricity.

So a large market exist for providing superior off-grid solutions integrating storage, solar and diesel generators. For many applications, we believe these systems can have two year financial payback by dramatically reducing the amount of diesel fuel used for power generation.

The market for commercial solar and energy storage and the market for off-grid microgrids using solar and energy storage are both under early stage but are forecast for roughly double annually for the next several year creating a new power converted market of almost a billion dollars for 2018.

We believe our products are significantly better for these applications that knows from any other company and we are well positioned to benefit from these growing markets. Lastly, I want to mention that we are continuing to invest in the development of our next generation bidirectional collar switches.

This effort started with support and funding from the U.S. Department of Energy’s ARPA-E program and continues to make good technical progress. First switches are now in fabrication and once they are evaluated by our technical team, we’ll make our first prototype using the new switch design.

Our performance expectations for the technology have been confirmed by third party stimulations and we’ve remained excited about the potential this next generation of our technology. The bidirectional switch development is expected to have a significant impact on our already unique products.

As a result of the bidirectional switch development, the efficiency of our products is expected to increase to 98% or greater. The effect of this improvement will enable us to potentially double the power density of our collar converted designs.

For example, the box that today makes 30 kilowatts couldn’t produce close to 60 kilowatts in roughly the same design and weight devise. Obviously this would have a significant impact on our unit cost. We’ll be making announcements in the coming months to update you on our progress and highlight key accomplishments and our development efforts.

Before we turn to questions, I want to cover a couple of other items. This quarter we made a new additional to our team by adding Ryan O’Keefe, Senior VP of Business Development. Ryan is an industry graduate, who’s held senior positions at Start-Ups and Fortune 100 companies alike in the energy storage and renewable energy industry.

These include companies such as General Electric and NextEra Energy. As evidenced by our recent order announcements, [indiscernible] and we look forward to his continued contribution to our sales and partner development efforts.

Also during the past three months, I’ve attended investor meetings in New York City, California and Las Vegas at the Solar Power International Conference. We frequently host visitors to our new facility located 10 minutes from the airport and will participate in the IBS Conference in Dallas, which is held on November 19th and 20th.

If you have interest in ranging in person meeting or schedule of the call or visit to our facilities, please contact Matt Hayden from MZ Group. At this time, I’d like now forecast the call for questions.

Operator?.

Thank you sir. (Operator Instructions) And we’ll take our first question from Philip Shen, Roth Capital Partners..

Hi guys congrats on the progress you are making..

Thank you very much..

It looks like your business is developing nicely through mid-16.

I was wondering if we can talk about the revenue mix, it sounds like commercial might be taken off as well as the hybrid converter, so when I think about revenue mix for 2015 and the three opportunities you have, what might it look like?.

I think what you are going to see is certainly for the first half of ‘15 revenue is going to be dominated by the 30 kilowatt battery converter and it’s really driven by the fact that sort of pipeline projects it’s been developed by Sharp, Coda and Green Charge is based on that product and those are now actually going to closure with the system integrators.

Also while we broaden out the hybrid converter, it can be used in off-grid applications as an uncertified product but the commercial applications where certification is required by UL that’s going to pace the order flow there and that verification isn’t planned until we get into beginning of next year.

So I think you are going to see as we get into the back half of ‘15, the 30 kilowatt hybrid converters going to take an increasingly bigger share of the revenue mix and in the same thing with the 125 kilowatt.

Since its new product, we need to go through a little bit of evaluation stage with the customers but you’ll see that’s all in the comments due to revenue mix in the second half of ‘15 as well..

Great, so in general margins now, how would you expect margins trend, you guys were negative gross margin in the quarter, obviously given the low volumes but what do you see for ‘15, can we start to see some positive gross margins and low market?.

Yeah, so on gross margins, it’s actually very small volumes over as to get the positive gross margins, we’re starting with few units maybe as a couple of 100 units.

And we’ve already announced here recently volumes that were already hit that target number for us to get positive on gross margins, so we would expect it run relatively early in the year potentially as early as Q1 but definitely the Q2, we would expect that..

Great, thanks Tim. In terms of licensing strategy, I know in the past you’d alluded to the potential sharing licensing over the longer term, even broad driven markets, your technology can target.

Has there been changed all in terms of the timing at all with the strategy and so provide us generally on how you are thinking about licensing, I know initially you’d spent on focus – being focused on development and product manufacturing with your partners, just a clarification on that target would be helpful..

Yeah, our strategy there hasn’t changed licensing is going to be a significant part of our business strategy serving for the long term. Part of the challenge early on is we have a very novel technology, so we have to reduce that technology to working product that people feel comfortable with.

But the way we see this unfolding is, as we have customers like Sharp and others that they gain volume, the first step in licensing would be to enable them to actually I would call purchasing license where they could buy directly from our contract manufacturer.

So if they are stealing comments that are reflect your balance sheet would allow like Sharp is huge company, they wouldn’t have to worry about our finances to working capital, it really becomes the working capital of our contract manufacturers who are actually much bigger than us.

And then as we think about going into other international markets for us to compete as Ideal Power doesn’t make a lot of sense, we have no brand recognition, no installed customer base, we would actually give our partners the ability to actually license the product design, so they could even make it as contract manufacturers that we would guide them towards or in a wrong facilities that they have that capability.

So still very much part of our strategy and it’s really just getting everybody comfortable with the product and then business to point where our transitioning to the license..

Great. One more question, I’ll jump back in queue. In terms of your next part of offering, I was wondering if you could give us some color on that, I know you talked about the bidirectional IGBT but would that be the next part or you are going to have another part based on the gen-one technology that you can – you have..

Well, fortunately because our platform is very scalable and flexible, we think there are other products so we can come out with the really leverage a lot of them develop more, if it’s already been done, before we even get through implementing the bidirectional the new bidirectional switches. So you are going to see us leverage the existing platform.

I am not to say specifically what it is because we got several opportunity throughout there and for those who know me, I’d like to under promise on how to deliver.

So I think we have some complex surprising for people when we get into ‘15 with some of new product announcements that is in our plan and we’ll just leverage all of those existing products as we get to the point where we can commercialize the bidirectional switch development activity, because they’ll move all the existing product designs to just another whole level in terms of the efficiencies and its cost point..

Great. Thank you and thank you Tim as well. I’ll turn back in queue..

Thanks Philip..

And we’ll take our next question from [indiscernible] Northland Capital Market..

Hi guys.

Can you talk a little bit about the development of the sales organization obviously you gave some additions there, but if you look at the application further the microgrid product and reaching out into develop economies in more and more area, can you talk about how you are expecting to reach those potential customers and make it that much passion?.

To our other applications like microgrid, it’s really an extension of what we’re doing on stand-alone storage. It’s really find the partners where they already have the investment and the upfront piece of the business to go on projects, capturing units, capture customers.

In our technology, just gives them the ability to have a more track of offering because of the value proposition of our power converter. I don’t see as ever in the point where we’re going to be out trying that, actually capture then customers they would put us in competition with our current customer base.

And it’s up where he said and it takes a lot of cash to do that, because development cycles can be warm, it takes a lot of travel, a lot of people in the specific market. And you also have to start doing things like bringing a project financing another thing.

So we’re going to focus on the core technology and really leverage the model of finding a channel partners who are really committed to some various market segments and we’re closely with them to enable our products and to really bring them a more competitive offering as a result working with it..

Okay, over the competitive landscape, you had a unique IP positioned for some time, some of those efforts to catch up on product that you guys have done, a little bit of that what you are seeing out there and what sort of competitive particular perspective you are just trying to account on at this point?.

We’re not seeing a lot in term of price pressure yet, I think it is coming because the storage business from many respect is going to look like. So worked so many years now we’re particularly the battery piece of this is going to get commoditized pretty quickly.

The challenge is if you look at the likely competitors who can come into the space, they are large seller in manufacturers today. They identical position and most of them had found that digital is very profitable for them now has declining margins are maybe negative margins.

So the ability to invest a lot in the storage market which is still very small compared to solar, it’s a little bit constrained.

We think it actually presents an opportunity for us through where we actually may work with some of them to actually help them bring a product based on our technology rather than trying to launch in the development cycle themselves.

Licensing is obviously part of our model and if we enable some big players out there to get the differentiated offering quicker, it certainly works. We can’t do because we view the storage space just one of many markets we want to go into. We think in just a matter when we see some of the larger players coming to the space.

But so far we don’t anything that’s really directly competitive with us, but we have to worry about. But it shows like solar power international and others we are always beginning to see what are the products people have then what announcement they are taking up to get the market interested. And so far out competitive position looks to be pretty good.

Our pattern base for this continues to grow. And as we start to ramp volume, I think is there source to significant price structure because when I am share only lower cost, we are going to be at pretty good position to actually be a little cost if that’s a direction we need to go..

Alright and can you just talk about into the non-storage product that on that – but it come to you to [indiscernible] it’s little bit of – in terms of another question in storage devices and then new customers are in the non-storage applications.

Could you help us understand kind of where we are at in terms of real potential or else they wouldn’t buy those deals in next four months in those non-storage applications..

Okay, the orders that we have been announcing here over last couple of months as really there was a largely with the existing three primary customers that we see out there leading the space, that Sharpe Electronics, Green Charge Networks and Coda Energy.

The success that we’ve had with them and the visibility that we’ve gotten from the technology is introduce the whole suite of new folks that are going to review evaluation process with us. So we think have the potential to add the same or more volume than any of them.

What’s nice is lot of them are already very logic the space and that learning cycle gets to be shorter as people finding the projects and understanding the economics around them.

So I think as you look at the ‘15, you are going to see the first half of ‘15 three existing customers are probably going dominate what are revenue mix look like, but in the second half of ‘15 as we get through the evaluation were some new partners, you are going to see some other device that are going to be a pretty meaningful part of our revenue.

We will take it still larger going to be dominated by the standalone storage business, but we think the microgrid applications are going to start to grow as well but in April, May would end, we think it’s going to start to deliver row revenue in ‘15. But it also was drawing new potential partners for us that are focused on microgrid applications.

So all these things kind of give credibility to the next player wants to come in because the challenges are always nobody wants to be first. But now we have multiple customers in these segments and they are ramping their volumes.

It makes others fell into – pay attention to us but it gives them comfort that they are not trying to do something that no one’s done before..

Perfect, thanks so much, guys. I’ll jump back in queue..

Thanks..

Thank you and we’ll take our next question from [indiscernible]..

Hi there, I am a shareholder living in Hawaii and I am following the company for a while.

Interested in some color on the ramp up of cash flow, I kind of get that the 30 kw, it’s a bread and butter revenue generator and it’s by the way the system’s integrators you mentioned, but how is the flow of business to them going if they install a demand charge mitigation unit, one operation are still on a drug store on 7, 11 or whatever, they are seeing follow-on orders as the success of those things has proven out and how many of those 30 kw units do you figure in your lean push out in 2015 to turn the cash flow positive?.

Thanks Alan. We’re fortunate that the agreements that we have where at the system integrator that we are working with, have it and those are provision for them to provide a forecast.

So we even pretty good look at what Sharp and Green Charge and others are doing and what their business ramps little quietly because they want to make sure that we have visibility to product demand since there is a long way associated with building hardware.

And what we’ve seen from – business is ramping very nicely to the point where one of things that we did in preparation for what we thought coming was to bring out a new contract manufacturer that had significantly higher volume along we’ve been working with.

So think the orders that we’ve announcing while the schedule for the leverage through 2015, we know that all of them are likely to play significant orders before those deliveries are finished just based on way their own businesses are ramping.

So we take the ramping you are seeing is then continue certain point to 15 based on the forecast we have with just existing customer base. And as add others to that, that will just continue to add to it. I’ll let Tim talk a little bit about volume and profitability..

So if you need a total cash flow breakeven, we’re probably looking at 2,000 units and that’s currently our 30 kilowatt battery converting units which are most price point. We haven’t given a specific guidance where that’s going to be 2,000 units or 4,000 units. But it’s that rough range from an annual volume perspective..

Thank you. I’ll jump back..

And we’ll take our next question from John Harrell at Harrell & Associates..

Yes I see the company’s cash burn and I ask myself it’s even possible to company turns profitable because it’s finalized capital again, is it possible?.

Like – just how good the storage market themselves develop since we control that and we’re supplier to that chain. I think that the issue really now is just saying that the customers who are working with they continue to ramp well, they express well, so the good one, so they are comfortable placing significant orders and advance of they are needing.

So I think it’s right now it’s really function of the timing of these storage market.

The fact that, that our partners that we are working with are ramping a little bit quickly in weeks pattern and they seem to be very enthusiastic about their business, so the signs but the timing in that is yet to declined what certainly no better coming into the beginning of ‘15 what is that continue to ramp for the storage market look like..

And our cash burn is at or even slight better than our expectations and that’s with today would have been very limited volume. So as we scale the business, they will help reduce those cash burn numbers as we go into 2015..

Alright, thanks..

And we’ll take our next question from John Shaw at Wilshire Partners..

Hi there, thanks for taking my questions.

Sort of following-up on the gross margin and maybe the size into your breakeven cash flow model or what do you see as a gross margin reaching, I know there is curve that will start to bend at some point but what are you using or what should we expect for gross margins? And would you consider a healthy volume where there is not too much more to be achieved with high volumes? And I had a second question about your announcements of the orders over the past quarter, I read were they are installed or be incorporated in energy system is targeting with just big player.

But to understand now that you are selling to systems integrators and not to the end user which I know he is going to put a lot of – I would think you put pressure on gross margins because the system integrators do they not typically want to mark up the hardware and in services that they are buying?.

Yeah, let me just to the second part of your question and I’ll let Tim take to gross margins.

We’re staying in a market is that the system integrators who we sell to are in increasing number of cases, they are actually owning the asset themselves, so what we’re fining is a lot – with large case what they are doing and what they bringing in project, they actually only answered and not guaranteed savings to the commercial customer enables them to get the decision process really accelerated where the commercial customer doesn’t have to worry about are they buying the right product, is it the right kind of battery, is it enough storage, because the typical commercial segment that’s not there any of expertise.

What we’re also finding is the fact that there are both some incentives that are out there and the fact that for example give a better performance factor, those are enhanced returns that I think to some degree the system integrators won’t keep them themselves. So that actually mitigates all assets and not reselling them.

We don’t see that price structure, as other players come into the space they might have a business model, we might start to see that. But it’s really all about the return to that end customer by eliminating the demand charges that give you three to give year payback.

And that battery cost being what they are today that already works and as battery’s cost continue to decline, we think those margins are just going get enhanced with the system integrators..

And as relates to gross margin, it’s obviously impacted by a product mix and where we are in term of scaling. But if you exclude any benefit licensing revenue that we potentially have in the future, we’re looking target margin of roughly 30% to 40%..

Okay, thank you..

And we’ll take our next question Don Mccune at Alandale Securities..

Thank you. Hi Dan, hi Tim. So I’d an update on the electric vehicle opportunity, electric vehicle charging, I think you’ve had some exposure in that space through energy and maybe some other companies where you see any traction on progress there..

Yeah energy is actually we gotten there and approval done and they’ve actually moved forward and purchased their units for the construction. We’re going to be shipping this year and they will get installed, so we actually have a working model out there with them, they hopefully be able to use to drive for additional sales.

But we’re seeing some market is developing certainly more slowly than the standalone storage application, but we think the long term potential is still there, but it’s really been paced by since we’re looking through energy, getting them done with our demonstration.

So we’re just trying to see a kicked off and hopefully the hardware on the ground with them here surely and we’ll able to able to report that some progress in terms of how the unit is operating and then where we are going next with our relationship..

In the electric vehicle market trying to continue to grow rapidly and I am assuming you probably an agreement with that couple of that process?.

Yeah, we are, it’s a little bit of a chicken and egg because we’re finding if that people don’t want to invest a lot of money in the infrastructure, control and see the sales they wanted.

So I think it had a little bit of fit and starts in terms of seeing some other charging spaces particularly those that include that the storage deploy, but I think it’s every long..

And then on the microgrid opportunity, you mentioned that’s about a billion dollar addressable market, is that right?.

Yes..

Could you give us an idea of what the addressable market would be your bidirectional switch that define?.

So with relates to the bidirectional switch that is something that we would incorporate into our products, so it’s not really tie to a specific market, it is part – the part of ore core technology in power conversion platform. So we would expect incorporate that switch into all of our products.

And as Dan I think he mentioned in some of his prepared comments, if you go to power conversion market in total, all applications you are talking a $50 million market. So it’s a very addressable opportunity for us..

Yeah, well great, you guys are doing fantastic, continue with success. Thank you..

Thank you for that..

And we’ll take our final question from Mark Brancel at Niche Capital..

Hi guys. Two questions for you Tim.

One is, did you announce who the contract manufacturer is that you are going to work with of course the outsourcing?.

No, we will have to look at additional contract manufacturing resource in potentially as we scale we didn’t basically we can change to make sure that we would have adequate capacity with contract manufacturing to get through when we expect rapid growth in this market..

So you’ll be using more than one?.

Yeah, so we actually don’t want to be capita to any one supplier just because there are business risk there, is it revival for anybody and see something what happen. And ones you start to get volume it will actually get multiple contract manufacturers and still get competitive pricing from them, it gets lot easier..

And then the second question. I am looking at your revenues for the quarter is about 438,000 and expected was 190,000, so it’s about 130% more than expected and can do – Dan talked about the instruction in the orders especially sense September.

When I look at the 2015, the projects are for revenues at 1.72 which is normally little over 20% versus growth over 2014, so without you given these specific number because I am what to do that at this point, but is it safe to say that those number seen extremely conservative not that your orders are ramping?.

So I am trying to filling up a little bit there. We have that product revenue about just around $400,000 this quarter and really on a year-to-date revenue, it’s just a fraction on the announced orders that we’ve announced over the last couple of month.

You know we obviously expect rapid revenue growth, we’ve announced 250 plus units of orders in the first half of the year and that’s we expect more in addition to that in the first half of the year. If you look at our units today are 30 to a lot better, our units cost roughly $10,000 a unit.

We do have significant potential and we expect things to continue to ramp in the back half of the year. So you will get the first half numbers that will continue to point here in the second half of ‘15.

So I am not going to comment specifically on, I assume you will find your analyst estimate on Q3 earnings but we can have a chance to have a very strong 2015..

Okay, thanks..

And there are no more questions in the queue. That does conclude our question-and-answer session today..

We did receive two questions to read out that we just to – we address whether everybody else all the questions answered. Tim, could you address one that came in..

The first question that it has been asked to me on the call which was related when we expect to turn the gross loss into gross profit which just refresh I guess in the first half of 2015.

The second question, if the company is not able to achieve licensing interest in OEM to make their product is envisioned, does management proceed a company but still be able to thrive in prosper if production remains with the contract manufacturer, while production have to be brought in house to achieve liability i.e. long term profitability.

So overtime the company expects manufacturing license requires relationships with certain large customers in international markets, we do not proceed bringing manufacturing in house, even licensee interest we believe that the characteristics of our capital efficient business model and the cost advantages constrain to our technology will allow us to try and process with fully outsources manufacturing, so we have no intend regardless to bring manufacturing, it is not consist with our model, nothing is the best, there are all the people are specialized manufacturing and have that skill set we are largely develop the organization floor, what is a novel technology.

And that concludes the question – it was like we did not receive any questions via web link..

Okay, well this time, I would like to thank everybody for joining us on the call. We are looking forward to continuing to keep some exciting announcements coming on there and update on our next call. Thank you for joining us..

And that does conclude today’s conference, so we thank you for your participation..