Good day, ladies and gentlemen, and welcome to the Ideal Power Second Quarter 2018 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Chris Tyson, Managing Director of MZ North America. Please go ahead, sir.

Thank you and good afternoon. I'd like to thank you all for taking time to join us for Ideal Power's second 2018 conference call. Your hosts today are Dr. Lon Bell, Chief Executive Officer; Dan Brdar, B-TRAN Chief Commercial Officer; as well as Tim Burns, the Company’s Chief Financial Officer. A press release detailing these results crossed the wires this afternoon at 4:00 p.m. Eastern today and is available on the Company's website, idealpower.com. Following Management's prepared comments, we will open the floor to questions for those of you who are dialing in for today's call. Before we begin the formal presentation, I'd like to remind everyone that statements made on the call and 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. At this time, I'd like to turn the call over to Ideal Power’s Chief Executive Officer, Dr. Lon Bell. Lon the floor is yours.

Thank you, Chris, and welcome everyone to our second quarter 2018 conference call and assuming the second quarter 2018 moved us ever closer to our commercialization goals for both our B-TRAN and PPSA division in conjunction with positive financial performance demonstrated during the second quarter. Over the quarter, we saw growth in our PPSA division in the solar-plus-storage market as evidenced by new wins including a 2 megawatt shipment during the second quarter to BCI and the first megawatt order from NEXTracker both were for our SunDial Plus solution. Most importantly, this quarter our BCI win represents our first large scale deployment for a solar-plus-storage solution in the Chinese market. We're encouraged to see a large international market such as China embrace solutions utilizing solar-plus-storage. Importantly, we saw a commercial interest increase in a new market EV charging for our PPSA technology. We shipped eCAMION initial system for a network of EV fast charging stations in Canada. In the same time, we have been selected by Coritech as their OEM supplier for their electric vehicles bi-directional DC charges. Tim Burns, who now oversees our PPSA business development, customer service and supply chain will provide a more granular uptick on our power conversion business later in the call. On the B-TRAN front, we made notable progress with our solid-states switch technology. In the second quarter, we qualified a new domestic semiconductor fabricator for development runs with expected delivery of the next generation ties later this year. We also designed and tested a prototype B-TRAN driver by combining a driver circuit with our B-TRAN power switch. We will make evaluation faster and easier for our early targeted customers and potential strategic partners. In summary, we will have available on intelligent B-TRAN power semiconductor module similar to function to what is available for…

Thank you, Lon. During the second quarter, we shipped our first order to a new customer for us, Brantingham & Carroll International or BCI, a global leader in mechanical steel, design, engineering and global manufacturing. BCI is the EPC or the engineering procurement and construction contractor for a 2 megawatt high profile demonstration project in China, that integrates Ideal Power's SunDial Plus inverters and an advanced solar-plus-storage solution into the first large scale deployment of its kind. As Lon mentioned earlier, this represents our first large scale deployment of the solar-plus-storage solution in the Chinese market and we are encouraged to see a large international market such as China embracing solutions utilizing solar-plus-storage. BCI is currently expecting to commission this system either way in the third quarter or early in the fourth quarter of this year. BCI is partnering with the large Chinese state-owned power station developer and the successful commissioning of its high profile demonstration project could lead to material follow on purchase orders for us for multi-megawatt scale projects in China. Also in the second quarter, we received 1.1 megawatt order from NEXTracker for a power plant at the Maharishi University of Management or MUM in Fairfield, Iowa, a state that according to the National Renewable Energy Laboratory has relatively high demand charges. This project will represent the first large scale deployment of the NX Flow integrated solar-plus-storage system by NEXTracker. The project is expected to produce enough energy to cover nearly a third of the university's annual electricity usage and we use peak shaving to significant reduce monthly electricity bill during high demand time. We expect this were to ship waste in the third quarter of 2018. Based on recent discussions with NEXTracker, we are expecting purchase orders for smaller projects for the balance of this year,…

Thank you, Tim. As Lon mentioned earlier, our B-TRAN division made notable operational progress during the second quarter highlighted the submission of our first multimillion dollar proposal for a government funded B-TRAN based demonstration, completion of our driver circuit design evaluation and release for fabrication, securing a new domestic semiconductor fabricator for faster development runs and release the two runs of our standard B-TRAN at two different fabrication sites. I'll drill down more on these items shortly, but I want to quickly provide an overview of our disruptive solid-state switch technology, B-TRAN, for those who are new to the Ideal Power story. B-TRAN is a bi-directional low-loss power switch that offers the production for reduction and conduction in switching losses of 50% to 90%, depending on the device design and configuration. To date, we produce two double sided versions of the device. The first version and the focus of our current efforts is what we refer to as a standard B-TRAN. It's a thicker, double-sided die with fewer features making it simpler and quicker to fabricate, requiring about one-third the manufacturing process steps as the full featured device. This is bigger. It also does not require the complex wafer bonding and de-bonding process steps to handle and process both sides of a very thin wafer. A standard B-TRAN has the potential to reduce switching and conduction losses by more than 50% compared to conventional power switches. This level of performance was validated on our most recent testing. The second version is the full feature B-TRAN which is better with more complex features and has the potential to reduce switching and conduction losses by more than 90%. Both B-TRAN designs have addressable markets for the respective performance levels and both versions can be made with conventional silicon manufacturing equipment. Based on…

Thank you, Dan. I will run through the second quarter 2018 financial results. Revenues for the second quarter was $0.6 million increasing 242% compared to the preceding quarter and up from $0.3 million in the second quarter 2017. Revenue in the second quarter consisted of sales of our SunDial Plus product for solar-plus-storage market as well as sales for Stabiliti series products for the standalone storage in EV charging markets. Gross margins were positive 6% in the second quarter 2018 compared to negative 202% gross margins in the second quarter of 2017. In the second quarter of 2018, we saw higher manufacturing costs as we ramp production on an expedited basis to fulfill customer orders for the quarter. Research and development expenses decreased 18% in the second quarter of 2018 to $0.9 million from $1.1 million in the second quarter of 2017. The decrease was due primarily to cost reductions implemented over the last 15 months including the impact of the simplification of our product roadmap to focus on our 30 kilowatt products. For the balance of 2018, we expect the modest increase in research and development spending on B-TRAN and flat research and development spending on our more mature PPSA technology. SG&A is increased 44% to $0.9 million in second quarter of 2018 from $1.6 million in the second quarter of last year. The decrease was primarily due to cost reductions implemented over the last 15 months as well as a favorable resolution of two legal proceedings that resulted in the partial recovery legal fees as well as recovery of $162,000 bad debt that was fully reserved in the second quarter last year. We continue to see the positive impact, the cost reduction program we began implementing in second quarter 2017 to accelerating our path to cash flow breakeven.…

Thank you, Tim. Although, we are seeing signs as a market for our PPSA products to starting to ramp, we continue to expect potentially significant quarter-to-quarter variability or lumpiness in revenue. Our revenue will be impacted by the timing of customer win, the permitting schedule associated with installation, the installing cycle itself and contract awards. We expect third quarter revenue to be roughly in line with our second quarter revenue and will continue to provide uptick on a quarterly basis until we have more disability. To conclude, both our operating divisions are showing significant progress and second half of 2018 is more promising. Our recent restructuring now allows both the PPSA and the B-TRAN divisions to operate to maximize the potential of each respective technology while our cost reduction initiatives continue to accelerate our path towards breakeven. Today's reported financial results are starting to echo the positive implications from our recent shift that encourages us as a management team and reinforces our confidence for the balance of 2018. At this time, I would like to open the call up to questions from our listeners. Operator?

Thank you, sir. [Operator Instructions] We'll take our first question from Craig Irwin with ROTH Capital Partners. Please go ahead. Please go ahead.

My first question is about the PPSA line particularly NEXTracker. Can you maybe share with us your reschedule for NEXTracker over the next few quarters? And maybe discuss with us whether or not you're participating in any advanced work with them on potential client-based traditional projects.

Tim, go ahead please.

So, Craig, part of the challenge and this isn't just true, NEXTracker is true with a lot of our customers in the store side, as we typically only have visibility of roughly into quarter depending on whether we're getting timely forecast, which I would say does not often happen. We have more visibility than that, but right now NEXTracker we have visibilities in small projects over the balance of this year and actually recently placed order for smaller project with us that we didn't publicly announce just because of the size. But we're expecting some smaller projects this year. Our understanding of their pipeline of what they're shared us is they have significant size projects in their pipeline they would show up in the first quarter or second quarter of 2019. But we don't see any of those being accelerated into the balance of this year.

So then as far as Sharp is concerned. Sharp is a customer that many of us following you company have been optimistic could scale very rapidly once they determine that they want to be all in. They obviously have a pretty good base experience from taking the first product from couple years ago. Can you maybe describe the breadth of the effort that Sharp, the thoroughness for their diligence that they’ve done with the early applications that they yielded? And what you feel the potential is for the portfolio flow through Sharp over the next couple quarters?

I would say first off sharp is probably our leading customer right now for the standalone story segment. Our relationship with Sharp started actually even before we went public, when they took us through roughly a 2-year evaluation process before they selected our obviously through first generation 30 kilowatt at the time for standalone storage. Sharp over the years I would say has been pretty consciousness in its approach to storage. But starting last here with their first solar-plus-storage just over 1 megawatt project on the solar-plus-storage side and particularly recently over the last, I would say one to two quarters, they’ve significantly increased the pace of standalone storage implication -- excuse me, applications and project. So, what we’ve seen is that translates into revenue for us here. In the second quarter, we expect actually to have higher revenue in the third quarter with Sharp than we will in the second quarter. And we expect then we continue to have a pretty consistent flow of sales thereafter. So we’re pretty excited about the relationships with Sharp actually starting to gain some serious momentum.

Next thing I wanted to ask about is disbursement of California SGIP money. So this looks like a really interesting part with subsidy funding that could help storage market gain a little bit more traction. What are you hearing about the potential for external rated disbursements of SGIP funding? Is this something that can directly benefit projects where you participate? Is there anything we should be monitoring from a regulatory side there that my point to improve disbursements to those funds?

Yes, I would say our challenge with the SGIP and there has been some fairly sizable awards in the past, they really haven’t translated into the level of activity in the market that we would expect. So this is something where we made the intentional decision to deemphasize standalone storage would be more opportunistic as well as standalone storage, but not really count on that has been our primary source of revenue and that was shown as our shift solar-plus-storage. We do have some of our partners Sharp for one is actually actively involved in the SGIP program or has been in the past. JLM before their difficulties were involved in the SGIP process. Any I would say increased should in theory positively impact Ideal Power, but we’re taking more wait and see approach to see if there’s any changes to the SGIP actually translate into revenue for our Company.

And then, I know you’ve done quite a lot of work working with customers sort of building the right bridges before B-TRAN commercially launched. Some of those have said very distinct about their expectations for the product. Can you maybe update us on the approximate number of customers you’re talking to on the B-TRAN side? Whether or not you see the potential for maybe a licensing deal there or some type of potential third-party support for the continued development activities on B-TRAN?

Let me ask Dan to cover first part of it and I’ll talk a little bit after Dan finishes.

Yes, we've actually talked to the whole variety of customers including from potential customers, including players that are in the automotive sector, people that are suppliers to the utility industry, people that are doing conventional powerful conversion because we're really looking for a diversity of people that we can partner with because each have different needs and I'll give you an example. One of the major automotive manufacturers that we were in discussions with that are interesting in learning more about our technology shared with us for a hybrid electric vehicles 20% of the losses today come from semiconductors. So improvements of switching conduction losses are a big deal for them in terms of the impact on fuel economy. While, you start thinking about the B-TRAN it becomes potentially enabling technology for them. We see similar things with some of the utility partners that we talked to that our suppliers to utility segment where they're looking for, low conduction losses for, things like high voltage DC breakers and power control equipment. So we're going to be continually touching a whole variety of different customers to find out where to think the best opportunity is. And then start to see who we need to partner with strategically or partner with to secure demonstration funding, because there is all part of bringing everybody up learning curve on what can be done with B-TRAN and really targeted those things that B-TRAN become an enabler where which is not good technology out there with conventional power semiconductors switches.

Great, it is also, when we look at this market sectors and we ask the question, who might strategic partners to be for us? There are quite a few fabrication houses that fabricated devices that are called bi-polar devices. And these generally are not proprietary technologies, generally are older products that have very little proprietary content. So when we approach fab houses of store, they're quite interested in the prospect for partnering because we offer a proprietary content that they simply have no other pathway to right now. And so this gives us the ability to have early conversation and to begin to develop a pathway for ourselves to one group of strategic partners. Now, this is a fab partner as opposed to a user partner and certainly will be talking to both and yet other types of partners. But in this case, it is the unique ability to partner and it has given us some advantage in the early stages of our development to control costs while they are evaluating the technology both from a performance perspective and from a manufacturing perspective. And this combination has tended to help us quite a bit in the early stages of our development of the product.

We'll take our next question from Colin Rusch with Oppenheimer. Please go ahead.

Could you talk a little bit about this government funding, the potential timing for that and the magnitude of what that asked might end up being ultimately?

Well, there's one that we've already submitted but we see several other opportunities. What we responded to was an opportunity that is [indiscernible] Energy has out there will be put together a team that can bring all the pieces that we need to show B-TRAN use in a real world application work significantly enable a solution. It was able to become a multi-million effort because it would include us doing some development fabrication runs, it would include our partners doing designs of the demonstration equipment and operation of it as well. But as we look at what's out there, there is pools of money that are available and the fact is that those are money available to our research lab, DARPA. So, navy, Office of Naval Research in fact partner we worked on DoE, we want to work with to do something for the Office of Naval Research because they already have an active relationship there. So we're finding that there is a lot of pools of money that are out there and it's really putting the right players together that can bring the government funding agencies something that is really interesting, enabling in line with their goals. And what we're finding is we start to engage with these players and they start to understand B-TRAN, we were finding that not only do they want to partner us to pursue the funding dollars, but they are also that people are likely channels to market growth for those particular segments as well.

Okay, that’s very helpful. And then on the management story side, can you talk a little bit about the competitive dynamics. Obviously, it's taking a while for this market to develop, but where we're seeing battery prices at this point. There is very compelling return in any number of geographies, but as you guys look at your products and having gone through a couple of redesigns. How do you feel like here your set over the next call it 24 to 36 months from a product competitiveness standpoint?

So, I think from starting with our product and sales. We did go through cash about three years of cost reduction activities to try stay ahead of that curve. We have seen recently some price pressure potentially expecting some price pressure. And when I say price pressure it's really the cost of components. Potentially tariffs could have an impact. We know at least one of our vendors is imposed proactive increase in the price of the closure actions that we built our product in due to potential aluminum tariffs. And we've seen and received actually letters of warning that there may be some impact through certain electrical component particularly in China obviously. So, we potentially will see some cost pressure. I would say for our products on the Stabiliti side with the microgrid capabilities that overall because of that additional functional on capabilities is a typically little bit higher margin project product and some of that will plus just because the PV market in general has different price expectations than storage market itself. But we'll manage through that and we'll continue to evaluate how we can take further cost out of our product to make sure maintain its competiveness. And I think we did have leg up as I said because we started that process a few years ago. So that is not a challenge that we see in the business development side in terms of where too high price to be competitive with the other options that are out there which to be frank or typically compilation of solutions that are patched together to try to replicate what we do in a single box.

One thing that we are looking now is taking a fresh look at the integration of our product with products that enable the customer a solution, a comprehensive solution. And asking quite a few questions related to the positioning of our production and the verticals that our product might satisfy. And so, this is an ongoing effort though that we have just initiated recently. And from it I expect to see changes and how we approach certain markets. And I expect to see some better visibility for us as to how certain markets will unfold and what that means in terms of what --how our product offering should evolve.

We’ll take our next question from Eric Stine with Craig-Hallum. Please go ahead.

I was wondering if we get a start with BCI, you mentioned potentially or the expectation you could see orders next year. Just curious, if you’re able to talk about kind of the magnitude you’re seeing and indications about the size of their pipeline as well?

Yes. So that something and this is actually discussions we had even as early as before we received the initial purchase order. But BCI and BCI as global, so there they operate, they do have headquarters here in the U.S., but they also headquarters in Asia as well. And they are partnering with a Chinese data and developer. It’s a highly active and both hydropower in the renewable space. And that is for this demonstration project, which is at in a field, just an enormous field of solar panels to be honest. I think one of the largest in the world. And the demonstration project if it goes well, BCI fully expect to receive additional multi megawatt scale orders from this Chinese data and developer. So, it’s something where we don’t have direct visibility into their pipeline other than we know that they’ll talk with us about having additional projects that for us would be extremely meaningful and larger than the project, the demonstrate project is going on today. And they’re extremely excited about the opportunity and that BCI global company being excited about the opportunity to put this in China, not just a company as small as Ideal Power. So for us, this could be potentially huge impact if things go well with the demonstration and it’s rolled out and more locales in China.

And follow up to that I mean, maybe it’s too early to answer this given that the deployment is coming later in the year. But any sense of what this is or what this has done or what this will do to your visibility in China with other potential partners customers?

So, I think it’s too early to tell for this, yes, the project itself. I think the original goal of the project was to get it installed here in mid-year. Unfortunately, this has nothing to do with our power conversions, which were shipped and delivered on time. They had some infrastructure issues that they needed to deal with the side issues and get in the concrete board, et cetera, which delay the project. But guys, I say close to 3 months at this point. So we think the installation will happen, potentially is early in September for full commissioning. It wouldn’t be totally shocking it pushes into early Q4. But the conversation all along is this demonstration has to be up and running before really. We expect to make any significant progress on future commercial discussions.

That is okay.

This is a situation where for a product in China, which is obviously known for its power converter technology with companies like Huawei. I think it’s important to note that they elected to use the Ideal Power, power converter and obviously could have sourced it with other alternatives that may not have been as strong as our offerings, they were built in China.

Yes, absolutely. Maybe just turning to backlog, I know in the release you said, it was solid. And I know you don't give that number anymore. But maybe just some thoughts on that, whether it's versus last year, some trends there? And then just curious, a follow on to that one would just be, are you assuming that JLM does move forward? Or is that one where, you're taken out of backlog and kind of a wait and see?

Yes, so we obviously we took it out of revenue for the second quarter and we took JLM at a backlog the balance of the year as well. I think that's a conservative approach. I mean, we're still in regular, a regular discussions with JLM, we know that they're seeking additional funding. And we know they're actively working to secure that funding now. So, but to be conservative, yes, we did remove it from our backlog. What we're seeing, and I mentioned this before, but we typically have pretty good visibility one quarter of much less visibility further as demand. And we're seeing customers asking for 60 to 90 days, three times on orders, which don't provide us with the greatest amount of visibility. So when we look at it and look at our backlog, we know we have a backlog, we get comfortable that, Q3 revenue will be roughly at least is a level of Q2 revenue. And, but in short like our Q4 for instance, our backlog is not particularly significant for future quarters. It's really heavily weighted right now is the third quarter, which is the same thing we saw a quarter ago when we had to call and we were comfortable, giving some form of guidance for Q2 but not thereafter. So, unfortunately, we're still in a predicament.

We'll take our next question from Carter Driscoll with B. Riley FBR. Please go ahead.

Can you just maybe elaborate a little bit on, what you think happened with Bosch? You seem a little bit less positive on the microgrid opportunity, something you at least looked at or had discussions with other people that are targeting that space and maybe just? And how that particular relationship, it didn't seem to progress as you thought and then so far? Thank you.

Yes, on the microgrid space in general, our Stabiliti product is actually extremely well suited for the microgrid space. And we've had some very successful microgrid projects. And we announced some of those even as early as last year on some of those projects and provided for specific. The challenge we see with microgrids is, no one at least aware, aware of in the particularly in the small scene is space and power levels has come up with repeat solution, cookie cutter type solution that they can, they standardized on and they can roll out and scale. So while we think our technology is actually an extremely good fit for microgrid, it's not something that we see scaling extremely quickly here in the near term, until some people come out the business model, that they have a scalable solution. So that's the challenge with Bosch and particular, as far as Bosch has not made that exit public. We didn't get permission of press a little bit of information which you're trying to provide in the script. But overall, I mean, if I had to guess, they had a business unit that was focused on really building DC microgrids for buildings. And it was a situation where they were probably about a year behind rely expected them to be and we're probably really expecting to be based on where we had our initial discussions with Bosch. And I think there is just a strategic decision made at the parent level to close down that business. So it came I think this is surprise to the team there who learned about it very recently and it's actually going to be done pretty quickly, and we believe it will be shut down by the end of this quarter.

It's more that each of microgrids are fairly customized and which meant difficult to scale these for eagerly days.

That was the challenge because actually the features of our product work extremely well for microgrids. And we believe we actually have a product particularly at or near our power level that's far more advanced than other offerings that we seen in the market for microgrids.

If this trying to find the right partner. I mean one that has standardized solution because.

Exactly, right.

To be an evolution in the market where one or two or three potential partners for us finds a very attractive business model. And then it starts to scale. I think at this level we saw we sharp earlier. I think it's what we'll see with others. They're learning about the business model. I think part of the answer will be some form of communication, probably not from us to end user but maybe of us to potential partners giving them guidance, giving them our thoughts on what that structure might be, what parts of the business model that we can see from our perspective might be that allows them to have more standardized solution. So the market is the nature of the market and the sales price does not so large that a lot of custom engineering can be done on each project. What is needed is that standardized solution.

Okay. And then just another one for me, if I may. So talk about self generation California and some funding buckets through federal. Other states that you think could really start to drive towards spending whether it's New York or Massachusetts or maybe some others that don't immediately come to mind like potentially galvanize whether it's storage or solar product?

So, there has been I mean if you follow GTM article, I mean there has been a lot of Greentech Media articles recently about what's going on at the state level. Massachusetts I know is looking at increasing their mandate. That's someone that's they've actually had some form of mandate in place for a while now, but that mandate -- one of the challenges, those are targets for future years. There are few years out there typically, right. It's not a mandate in terms of limitation in 2020. It's using like 2025 or something like that. But I know Arizona has put mandates in place. I think New Jersey has put mandates in place as well. So, we definitely see that activity, but I'm just not sure how quickly we'll drive growth in the market. I'm sure overtime it will, but we haven't seen the impact in terms of our revenue in those markets where we still see a lot of our standalone storage revenue particular still be in focused on California.

Yes, we saw a very poor correlation between incentive put in California and the business creation. So, hopefully as new states enter, they will have business models that can translate into more programmatic and planned activities.

We'll take our next question from Sameer Joshi with H.C. Wainwright. Please go ahead.

Thanks guys for taking my questions. Most of the questions have been answered. But -- and there’s been a lot of discussing about backlog, but in terms of the pipeline and customer or development and sales activity. Can you give us some insight into how long your engagement with Coritech and BCI have been deploy yet to ended up getting orders from them?

It totally depends on the customer. I mean, those are actually kind of opposites when you look at it. So, BCI, we began discussions with BCI probably. And in less than a month, we add the purchase order for the project. So they were aware of our technology to one of their partners. So they leverage some of the knowledge that partner had in terms of deciding on our technology. But in terms of our relationship, our introduction of BCI to purchase order was a very short process. Someone like core tech, I would say is a lot different. So core tech actually is utilized our products from time-to-time some of the work that they’ve done for the department defense, I think it is. So they have been involved an EV charging technology and had done some small projects over the years, going back even to our first generation products. The change with core tech is they’re moving into the commercial market. And they recently actually, for the first time going to certify EV charging that actually incorporate our Stabiliti product. So they’re changing their business model a little bit, they’re still very interested in the military side, and still have those strong relationships. But they’re also looking at during the commercial market for EV charging. So that’s something, we’re pretty excited about, because that, I think it took about 2 months from start to finish to get that charging would certified with our Stabiliti product in it. So that was a pretty big effort that they made earlier this year and we’re pretty excited about that opportunity. But it totally depends. Sharp was another one that I mean, we’ve had relationship for years, and they’re really starting to scale now it looks like next Sharp or is going to like, for instance, when we expect. But it can be anywhere from a few months depending on what’s involved to you multiple years in the case of Sharp and Coritech in some regards maybe not for this specific product offering which is in terms of how long we've had relationship with them some level.

One thing we would expect having said all of that is that, as models develop, it will be much quicker I would think going forward in part because others will use similar models and more rapid success. And those took time should see the proof of that. And we are seeing quite a bit of organic growth in some of our customers. And so as we look at it, I think that we will see acceleration in our customers as and new customers coming on, they see our product and the marketplace and choose to use for both security and because of its flexibility.

So is it fair to say that apart from the already named customers on this call and previously, there are a bunch of customers that are looking and evaluating and are sitting on the sidelines waiting for you to show some success?

I didn't catch the very end of that, but I would say, so there’s -- we don’t announced obviously all of our, all of the orders for our product and it’s very common actually for prospective customers to order 1 to 2 units for initial evaluation. I know we see that right now with the customer that we had in here over the last month, it's a significant player in the energy space. And they're looking to place an order right now for our 30C3, which is our Stabiliti unit, the multiport Stabiliti unit for evaluation. So that activity is always happening as behind scenes because we're not announcing orders for evaluation. We won't announce a partnership so there's some real teeth behind it in terms either we signed the purchase agreement or secured a sizable order. But that's not something that we are looking it. New players are coming into the space, some of the people that come in here during the prospective customer trying to figure out where they want to play in the space. But that's something that we are working and those discussions happen frequently.

A couple of bookkeeping question. The $1.2 million in cash burn, does it include the $0.2 million recording? Or is it exclusive of that?

So when we say cash burn, this is going to change our cash balance, right. It was about $1.2 million, but that would include it. Right now based on our spend, our ignoring the impacts of timing and things like that recovery, our quarterly cash burns roughly $1.4 million a quarter. So that will fluctuate due to timing and fluctuated due to positive and negative event such as recovery for bad debt is a positive impact. But right now it's close to $1.4 million maybe close you are.

And then the last one on the balance sheet, there is a fee paid expense item which is slightly higher than the previous worker, can you give us some impact into that?

Yes, so that actually also relates to a legal matter. And so we worked at an arbitration proceeding with our former contract manufacturer, there were claims in both directions, so there were claims and counter claims involved. That arbitration award happened here early this quarter and the arbitrator denied their claims and awarded us what turns out to be about $328,000. So that award is sitting in that other asset line.

Okay.

It was changed in August. So, it will be -- it will not be there from Q3 since it's a spend time subsequent to quarter.

Ladies and gentlemen, this concludes today's question and answer session. At this time, I will turn the call back over to CEO, Lon Bell for closing remarks.

Thank you very much. We've had a very good quarter. We've had a lot of effort underway to improve our operations and to focus our attentions where we think will make the greatest difference. That focus and our efforts that are currently underway we expect will result and several newsworthy items over the next 6 months. So, we think that we are going to see more and more fruits from the transitions that we have been making. Thank you very much.

Ladies and gentlemen, this does conclude today's conference. We appreciate your participation.