Ideal Power Inc. — FY2020 Form 10-K
Reporting period: Year ended December 31, 2020. This is an annual report, not a standalone fourth-quarter results release.
Business context
Ideal Power is a pre-commercialization power semiconductor company focused solely on developing and commercializing its B-TRAN bidirectional solid-state switch. It sold its power conversion systems business in September 2019 and no longer develops or sells those products. Current revenue is from government-funded development work; the company reports no product revenue.
Financial performance and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Grant revenue | $428,129 | $0 |
| Cost of grant revenue / gross profit | $428,129 / $0 | $0 / $0 |
| Research and development expense | $1,720,893 | $1,050,151 |
| General and administrative expense | $2,347,089 | $2,065,112 |
| Net loss | $7,793,897 | $3,927,662 |
| Net loss per share, basic and diluted | $2.20 | $2.38 |
| Operating cash used | $3,019,032 | $3,218,657 |
| Cash and cash equivalents at year-end | $3,157,256 | $3,057,682 |
At December 31, 2020, working capital was $2,786,900, total assets were $5,132,173, total liabilities were $1,302,964, and stockholders’ equity was $3,829,209. Long-term debt was $91,407, consisting of a 1% PPP loan; the company had $552,031 in other long-term liabilities, primarily associated with a patent licensing agreement. Operating expenses exceeded grant revenue, so the company had no positive operating margin.
Financing cash inflows in 2020 included $3,094,359 of net warrant exercise proceeds and $91,407 from the PPP loan. The company recorded a $3,720,866 non-cash warrant inducement expense related to its early warrant exercise transaction.
Changes versus the prior year
- Revenue from continuing operations increased from zero to $428,129, but was fully offset by associated grant costs.
- R&D expense rose 64% and G&A expense rose 14%, reflecting increased development activity, compensation and other costs.
- Net loss nearly doubled, largely due to the non-cash warrant inducement expense and higher operating expenses. The loss per share decreased from $2.38 to $2.20, while weighted-average shares outstanding increased substantially.
- There was no discontinued-operations loss in 2020; 2019 included a $799,025 discontinued-operations loss and a $9,107 loss on sale.
Outlook, risks and unusual items
- Management expects grant revenue to likely be the company’s only revenue in 2021, with NAVSEA subcontract revenue expected to continue during 2021 and be zero or minimal in 2022. The company expects modestly higher R&D expense and operating cash outflows in 2021 as B-TRAN development and commercialization accelerate; G&A expense is expected to remain relatively flat.
- The company’s $1.2 million subcontract with Diversified Technologies, Inc. supports development and demonstration of a B-TRAN-enabled direct-current circuit breaker. The reported $428,129 of 2020 revenue is cost-reimbursement revenue, not product sales or gross profit.
- Management reports prototype testing consistent with simulations, including measured electrical losses below 40% of conventional silicon IGBTs in standard double-sided prototypes. These are development-stage results, not commercial product performance or evidence of customer adoption. Engineering samples with packaging and a driver remained a development objective.
- Key risks include technical and manufacturing scale-up, obtaining design wins and strategic partners, lengthy customer qualification cycles, competition from larger semiconductor companies, reliance on external fabrication and technical partners, uncertain grant funding, ongoing losses, and the need for future capital. COVID-19 disrupted activity in the first half of 2020; management said it had no material adverse operating impact in the second half, but future effects remained uncertain.
- The company reported substantial doubt about its ability to continue as a going concern based on its losses and cash use at year-end. The subsequent February 2021 public offering raised $21.2 million net, which management said alleviated that substantial doubt. Warrant exercises through February 28, 2021 generated an additional $3.2 million. These post-year-end proceeds materially change the liquidity picture but do not establish future profitability.
- The $91,407 PPP loan was subject to forgiveness conditions; the company applied for forgiveness in Q1 2021 but could not assure full or partial forgiveness. No material litigation was reported. The auditor issued an unqualified opinion on the financial statements; management assessed internal controls as effective, with no auditor attestation required.
Important facts for investors to verify
- Current cash, burn rate and remaining runway after the February 2021 offering and subsequent warrant exercises, including planned commercialization spending.
- Progress and timing for packaged engineering samples, driver development, fabrication scale-up, customer evaluations and any actual design wins or commercial agreements.
- The terms, eligible costs, remaining milestones and expected revenue timing for the NAVSEA subcontract, and whether additional grant funding is obtained.
- PPP loan forgiveness outcome and any continuing repayment obligation; also monitor patent-license liabilities and lease commitments.
- Potential dilution from outstanding warrants, options and shares issued after year-end; the filing reports 5,872,046 common shares outstanding as of March 24, 2021.