Good day, everyone and welcome to the Ideal Power Second Quarter 2020 Results Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Carolyn Capaccio of LHA. Please go ahead, ma’am..

Thank you, and good afternoon. Thank you for joining Ideal Power's second quarter 2020 conference call. With me on the call are Dan Brdar, President and Chief Executive Officer; and Tim Burns, Chief Financial Officer. Ideal Power’s second quarter 2020 press is available on the company's website at idealpower.com.

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

Please refer to the Company's SEC filings for a list of associated risks, and we would also refer you to the Company's website for more supporting industry information. Now I will turn the call over to Ideal Power's President and CEO, Dan Brdar.

Dan?.

Thank you, Carolyn. Good afternoon, everyone, and welcome to our second quarter 2020 conference call. I’ll begin by giving you an update on Phase two of our commercialization program, and our recently announced U.S. Navy sponsored contract and outline our priorities for the rest of the year and Tim Burns, our CFO will take you through the numbers.

Before we get started, a quick note on COVID-19. At early May, our staff returned to the office upon expiration of the Texas stay-at-home order and we are observing safety protocols and best practices including wearing masks, practicing social distancing, and following all applicable guidelines to keep our teams safe.

Additionally, our fabrication and device packaging partners and key suppliers continue to operate and are producing parts for our testing and evaluation, and to support our partnering and demonstration efforts, we are performing and enhancing our internal device packaging capabilities and continue to leverage our partners external equipment in facilities as necessary to supplement our capabilities.

Overall, the impact of the pandemic has been manageable without significant disruptions. Our supply chain remains intact and our development and commercialization timeline remains on track.

During the second quarter of 2020, we significantly advanced Phase Two of our B-TRAN commercialization plan, which is entails the fabrication of parts through delivery of samples to potential partners for evaluation with respective development. As we previewed to you on prior calls and announced earlier this week, in June, we issued our first U.S.

government funded demonstration project. We signed a $1.2 million contract to partner with diversified technologies or DTI of the development and demonstration of a B-TRAN-enabled direct current circuit breaker as part of the U.S. Navy’s strategic focus on ship electrification. .

It also allows for distributed power on ships making them less vulnerable and reduces the reliance on inefficient noisy rotating equipment such as combined engines thereby lowering the noise into the ship and enhancing its self capabilities. A key element of the program is the development of a highly efficient solid-state DC breakers.

The primary challenge of solid-state DC breakers has been the large amount of heat generated by their continuously conducting semiconductor devices such as IGBTs.

To dissipate the heat generated from conventional IGBTs, prior solid-state breaker designs have required constant cooling and fluid cooling systems that adds to their size and cost, and had several moving parts such as the pumps that reduced their reliability.

Due to greater than 50% reduction in conduction losses, the B-TRAN breaker can be air-cooled and as a result, B-TRAN becomes an enabling technology for the application.

This two year, $3 million project is funded under the Department of Defense’s Rapid Innovation Fund, the intent of which is to accelerate the commercialization of high-value, high-impact technologies for the value-enabled features – and was awarded to DTI by NAVSEA.

The project’s objective is to develop and demonstrate B-TRAN-enabled, high efficiency, 12 kilowatt medium voltage direct current circuit breaker for the U.S. Navy. We are very excited to be working with DTI who present with expertise designing and building solid-state MVDC circuit breakers.

Under previous government funded efforts, they designed and built solid-state breakers with conventional IGBT and as a result developed significant expertise in solid-state breaker designs and controls. They are also acutely aware of limitations imposed by the high conduction losses of conventional IGBTs. The U.S.

Navy selected this project because of B-TRAN’s unique low conduction loss capabilities as an enabling technology for air-cooled breaker design. Our part of the program kicks off in late June. To-date, our first fabrication run has begun and we expect to receive dies early in the fourth quarter.

We expect packaging and testing to take place in Q4, after which we plan to start the second fabrication run. As part of the progressing, we will be working with the University of Texas at Austin’s Microelectronic Research Center to develop a new packaging design for – that will also be able to used for engineering sampling program.

UT’s Microelectronic Center is a Center of Excellence for advanced power semiconductor design and high-density power electronics and brings a world-class team and facility that complement our internal development efforts.

The packaging we’ve been using today is designed is a last state package and the new packaging design will provide the electrical connections, form factors and thermal management required for a commercial semiconductor package that will critically resemble conventional packaging designs to facilitate their adoption by end-users.

Our collaboration with DTI will help establish the viability of shipboard Medium Voltage DC power distribution by delivering extremely fast fault interruption, low fault currents, with low conduction losses, flexible programmable coordination, five dimensional operations, and electrical isolation, which are key factors to the reliable and safe operation of DC power systems.

As part of the program suggested, DTI’s goal to introduce a family of Medium Voltage DC circuit breaker product incorporating B-TRAN as a result of the demonstration for sales to military, utility, industrial markets.

Our goal is to further substantiate our B-TRAN power semiconductor technology performance characteristics versus conventional power switches, specifically, higher efficiency, low cooling complexity and fewer components and demonstrates B-TRAN as a potential game changer for distributed DC networks for them and outside the military supporting a wide variety of emerging applications.

B-TRAN-enabled medium voltage DC circuit breakers could potentially be used in various industrial and utility applications including medium to high voltage DC transmission and distribution systems and new electrical generation, such as solar and wind, if that are DC-based. This partnership is a potential material catalyst for Ideal Power.

Over the three year program, we have planned a total of five runs over six quarters aiming for optimized device delivery in late next year with a final demonstration of a 12KV MVDC breaker in the second half of 2022.

The program plays an important role in our commercialization efforts and breaks a wide range of barriers as a result of our involvement. First, the military is – is the first adopter and in many cases the driver for the development and validation of new technologies.

The success future foundation for B-TRANS capabilities and necessary visibility and credibility with other prospective partners and for other applications.

The program underwrites a significant development cost for us as it covers a multiple semiconductor fabrication runs and provides the new device packaging design that will also be optimal for commercial end-users as well.

The outcome also provides a direct path to unique and highly differentiated end-user products the military, utility industrial applications to support the increasing use of DC-based power distribution and transmission and micro goods systems.

It also raised Ideal Power’s visibility within the government funded research, development and demonstration community as the strategic partner and technology provider. And lastly, it enhances our opportunities for partnering and collaboration efforts with other companies for commercial and government funded programs and prospects.

During the quarter, we also made strong progress on our engineering sampling program. We completed the fabrication qualification process with Teledyne, our new semiconductor fabrication partner and will be the next-generation parts to our semiconductor partners for fabrication.

Subsequently, we completed the B-TRAN fabrication run with Teledyne and after turning dies to be packaged for internal testing and characterization.

The run allows us to expand and update our documentation and with package devices in hand we generated initial B-TRAN data sheet from the technical community laying the ground work for additional program necessary for next steps. Learnings from the run also helped to refine and optimize testing process and device supplies.

Additionally, in an effort parallel to packaging design we are collaborating with UT Austin’s Microelectronic Research Center to design a new current source driver to be used in our engineering prototype sampling program.

And we came with both the NAVSEA program and UT Austin driver development efforts, Ideal Power retains the royalty free intellectual property rights we need to widely adopt the results of these programs for our new commercialization program. The first design of new driver hardware is complete and the initial units are out for fabrication.

In the coming months, we will work closely with UT to develop and validate the driver design and programming which will be followed by an updated design focused on striking the critical cause of the driver and removing features used only for debugging purposes.

With respect to our B-TRAN IP, we probably 56 issued B-TRAN patents with 20 of those issued outside of the United States and 27 pending B-TRAN patents. Our current geographic coverage now includes North America, China, Japan and Europe with the potential to expand coverage into South Korea and India.

Ideal Power’s technology is transformational in both the bidirectional switching and its ability to solve immediate problems prevalent in power electronics applications such as solid-state circuit breakers through its simplicity, lower switching and conduction losses, lower user cost and improved and more compact thermal management.

Our aim in the Phase two of our commercialization plan is to – ourselves the improvement package solid-state engineering device prototypes, coupled with a device driver that put into prospective partners’ hands for additional testing or their engineering teams in the product.

This would be a crucial step in gather real world performance data if that enables us to develop commercially ready devices for production. In the second half of the year, we will pursue two parallel paths as part of Phase two commercialization.

Our demonstration project with NAVSEA to provide full scale demonstration of an application for B-TRAN with the enabling technologies and our engineering sampling program.

Now that the NAVSEA program has been announced, we will look to leverage that program to create and develop additional collaboration with public companies to secure further opportunities for demonstration and market development. Overall, we are on schedule for Phase two of our commercialization plan.

Our two main objectives for the remainder of 2020 are to complete the first fabrication run and packaging design under the NAVSEA project and complete the new current source driver to support making package engineering prototype samples and drivers available for potential customers and partners.

Phase three will then aim to establish raw partnerships and other strategic relationships in our initial target range in the $4.9 billion IGBT market, mainly with the U.S. Department of Defense and the datacenter and UPS markets opening up these segments for initial commercial sales of B-TRAN power switches.

Before I turn the call over to Tim, I want to thank our warrant holders for their continued support. Last week, we completed an early warrant exercise transaction, the proceeds of which provide us additional resources to devote to our commercialization plan, following the need to access the capital markets in the current volatile environment.

Ideal Power is advancing our development and commercialization goals and we [Indiscernible] to continue given our technology’s strong performance within building the technology is gaining and the positive strong reception by our partners.

We are on our way towards beginning our operational execution and realizing our B-TRAN technology’s tremendous commercial potential and large addressable markets. Now, I would like to hand the call over to our Chief Financial Officer, Tim Burns, to review our second quarter 2020 financial results.

Tim?.

Thank you, Dan. I will read second quarter 2020 financial results. In the second quarter, we recorded a small amount of grant revenue with offsetting cost of grant revenue as we signed and began work on the DTI contract in late June. Second quarter 2020 operating expenses were $0.8 million, compared to $0.9 million in the second quarter of 2019.

The decrease in operating expenses was due to lower general and administrative expenses, including lower legal fees, and lower facilities costs, due to the sublease we entered in during the third quarter of last year. Second quarter 2020 net loss was $0.8 million, compared to $1.3 million in the second quarter of 2019.

The decrease in net loss is primarily due to a $0.3 million loss from discontinued operations in the second quarter of 2019 associated with the PPSA business that we divested in September of 2019. We also had a lower loss from continuing operations due to reduction in our operating expenses.

Second quarter 2020 cash used in operating activities was $0.7 million, slightly lower than cash used in operating activities in the second quarter of 2019. Cash and cash equivalents totaled $1.8 million as of June 30, 2020.

During the second quarter, we receive a $0.1 million Paycheck Protection Program loan to temporarily subsidize payroll and facilities costs in a business landscape impacted by the COVID-19 pandemic. We expect the loan will be forgiven, but do not provide assurance that will be granted forgiveness of the loan in total or in parts.

And as a note, long-term debt outstanding at June 30, 2020 was $0.1 million. As a reminder, as we are singularly focused on development and commercialization of our B-TRAN technology, we are well-positioned with the strengthened balance sheet and an asset light operating model.

Our burn rate remains approximately $0.7 million to $0.7 million in cash per quarter, subject to both the timing of and variability in expenditures and refinement to the B-TRAN development and commercialization plan.

As Dan mentioned, on August 5, we completed an early warrant exercise transaction with certain of the company’s Series A warrant holders. The transaction raised approximately $2.5 million of net proceeds strengthening our cash position by enabling the orderly exercise of the warrants.

We intend to use the net proceeds to fund B-TRAN commercialization and development and for working capital and other corporate purposes.

In the transaction, Series A warrant holders were issued new Series C warrants to purchase up to an aggregate of 705,688 shares of the Company’s common stock at an exercise price of $8.90 per share, through a private placement, as an incentive for them to exercise their Series A warrants early.

At this time, I would like to open up the call for questions.

Operator?.

[Operator Instructions] We’ll take our first question from Don Slowinski with Winslow Asset Group..

Good afternoon. Thanks for taking my questions. Dan, in your June presentation, you had a 5x proven conduction loss improvement and I assume that since this NAVSEA contract is a 12KV system that you can’t get that type of improvement.

Can you talk about the different types of improvements that B-TRAN offers in the different markets that you are addressing? And then, just looking to your pipeline and talk about what you think the low hanging fruit is and how you could plug that in?.

Sure. The 5x is looking at a true bidirectional switch. What we are doing and you think about the military and what their needs are in terms of applications and robustness, we have been conservative in partnership with DTI in terms of how we want to rate these devices. We want to make sure that we have a good demonstration.

So, we are actually going to be rating them pretty conservatively. We had a review with the navy as recently as yesterday and it’s pretty close to them that the potential for the technology is much more than the 50% that we are saying here. But we don’t want to set expectations that we can’t meet.

The driver for them and for anybody who is going to use DC systems or these conduction loss issues, so, for the navy it’s a little bit unique and that they actually want a bidirectional system.

Because they want to be able to have zones on the ship where they can redirect power and they may not necessarily where – know where the load is coming from if the ship is damaged for some reason or have to take part of the infrastructure out to repair. So bidirectionality actually is what their unique requirements.

But it’s even for a one directional device for DC breakers, there is a lot of opportunity because they are showing that DC distribution and transmission systems are actually cheaper. And there is besides the infrastructure that is DC based there is a real market that is they are looking for a solution. We look at companies like ABB and others.

We made some very big complicated IGBT based solid state breakers which have hadn’t been commercially successful largely because of all the heat that they generate and the efficiency impact that comes from that. So, we think that this market in general is good early target market.

We think the UPS market is another good one, simply because of the fact that, if you look at datacenters all power has to flow through the UPS system.

So the semiconductor switches are continuously conducting generating heat and a low loss switch like the B-TRAN can actually significant impact of that performance, particularly if we look at datacenter where the electricity cost is the biggest operating component for most of these facilities. .

Great. And just one follow-up.

Are you aware if NAVSEA or diversified is testing other solutions and when do you feel timeframe-wise the validation of B-TRAN will occur through your current effort with them?.

Well, I think we’ll see validation next year. This is going to be something we are going to do several ones. They are going deliberately break the devices to make sure they understand what the margin is in the design. Then maybe the next is look at and funded IGBT versions of this kind of breaker previously.

In fact, DTI was one of the largest – on the network but unfortunately as I mentioned earlier, it resulted in too much heat which meant a little cooling system which the navy just wasn’t a part of. .

Fair enough. Thanks for taking my questions. .

Sure. .

[Operator Instructions] We’ll next go to Orin Hirschman with AFS and Partners. .

Hi. AIGH. Thanks very much.

On – let me just go with the timeframe and when you actually are hoping to have sampling done in the next Q1 of 2021 and are the customers already expecting something and you won’t buffer – for customers and those customers primarily in one area for sample in power back up systems for example?.

We start to start sampling earlier this year. The sampling progress have been an ongoing thing, simply because we want to have the opportunity to start discussions with a variety of segments. Our focus is going to be on the UPS sector, because of the impact that the technology it has. We’ve identified the customers that we want to target.

We’ve already had some discussion with some of them. But we’ll also be putting some other samples now with some of the market segments that just typically take a long time. The example I’ll give you is electric cables.

We’ve been approached by one of the major auto manufacturers when they heard about our technology, we don’t expect to see business from the automotive sector for quite some time. Because it’s very slow to adopt new technology. They have long design cycles.

But you have to start those discussions and you can get close to the technology at some point in time.

So we are going to be focused on things that are really benefit from the low reduction loss for UPS systems and we’ll also be sampling some of the – from a low loss switch things like motor drives where you can use a matrix type converter or some of the renewable energy applications where the ones bidirectionality for things like energy storage coupled with solar.

.

So, two parallel questions, one is, on the energy storage side, I think where utilities are beginning to move to net energy storage and this is something that could be helpful in handling a specific bidirectional aspect but also a loss aspect – is it a loss aspect or important and not peer or is just a – what this is more an up to date with the existing IGBT is there other solutions integrated type of solutions where the loss reduction is such an issue and is this important for the large lithium ion battery farms or flow battery farms?.

The losses are important for - pretty much for any of these applications. The challenge is, at the end of the day, electricity is the commodity and the two things that drive it are, the first cost of your source of generation, the reliability of it and the efficiency of it. And efficiency can have a pretty big impact.

So if there is an opportunity to significantly impact the efficiency, particularly something on energy storage where – charging and discharging, so you are getting hit with an impact in both directions. They could actually make a meaningful difference in terms of what the economics look like for those projects.

Plus, the ability to actually have power control with things like batteries and micro grids, you need bidirectional switching and control for those kinds of applications as well. So, we think there is going be plenty of opportunities to incorporate the B-TRAN technology and into some of these energy storage applications both. .

Okay.

And just going back for a minute to the – and do you think those amongst the first customer – potential customers to sample? Or is there any one customer in that area that’s already thinking about this?.

We actually already have an agreement with one that we’ve already signed that will be one of our earlier sample customers that are in that space. .

That’s great. And just going back to the – what you call, stability fear, I would say, if I may humbly say, that the key here is that proving out what the efficiencies can make a difference in an actual electric car in an actual real car on the road.

And I have heard of one – not – competing technology - going to complementary technology whether that actually been able to prove out a small percentage savings which you continue be hung on in a driver chip, a modulation chip.

I guess, my question is, now that you’ve been approached which is obviously means everybody you are going to approach by one car manufacturer if the car manufacturer – I guess, the question is, there are lot of small guys and there is lot of big guys.

Can you say that the big guy or a small guy, because obviously the big guy can afford to do a lot more than a small guy or the small guy could be more nimble.

But do you think you could progress this to an actual road test at some point over the coming year or so? And if so, can you do it with a original release of the product in terms of the voltage? Or do you need to have a much higher voltage?.

Over the coming years, no, I don’t think so. Simply because the automotive manufacturers just don’t move that quickly. I think for them it’s really understanding what the potential for the technology is, start to do some evaluation themselves.

They typically actually play an interesting role in that they actually can be a strategic partner where they fund development activities, particularly things that maybe suited for their needs.

So you can actually have strategic partners with these folks that make don’t – so they get much further along in their technology valuation and adoption process. But they can still play an important role in helping advance if they do the technology..

Okay.

Well they will be taking chip probably within the lab from you do you think?.

I think so. Yes. .

And again, a big guy or a small guy, both have advantages and disadvantages?.

Well, we’ve been approached by one bigger guy. This should go out – but I think it’s going to be some of the smaller guys that are actually going to be probably more innovative, simply because they can be more nimble and will be more aggressive.

The challenge in the automotive sector for the big guys is, when they make products they are in the millions. And any kind of a technology issue that results in potentially recall for them can cause enormous amounts of money. So, they – if you look at their adoption of the silicon carbide MOSFETs it’s been a very slow process.

But it’s been important in terms of the development initiatives that that’s been put in the power semiconductor industry through and some of the money that have gone into the development of the technology. .

Okay, great. Thanks so much. .

Sure. .

Alright. And it looks like at this time, we have no further questions. I would like to turn it back over to Mr. Brdar for any additional or closing remarks. .

Okay. Well, thank you, everyone for joining our call today. We will be presenting at LD Micro’s the LD 500 Online Conference on September 2nd. So we invite you to tune into the webcast. And we had - have a great some summer. Stay safe and we will speak to you again while we report on the third quarter. Thank you. .

And that does conclude today’s conference. We thank everyone again for their participation..