Ideal Power Inc. — Q2 2020 Form 10-Q
Business context and reporting period. The filing covers the quarter and six months ended June 30, 2020. After selling its power-conversion systems business in September 2019, Ideal Power is focused on developing and commercializing its B-TRAN solid-state switch technology. The company remains in the development stage and generates minimal revenue.
Financial results and liquidity
| Metric | Q2 2020 | Six months 2020 | Comparable 2019 |
|---|---|---|---|
| Revenue | $6,515 grant revenue | $6,515 grant revenue | No continuing-operations revenue |
| Gross profit | $0 | $0 | $0 continuing operations |
| Research and development | $316,325 | $666,989 | $335,752 Q2; $553,968 six months |
| General and administrative | $515,878 | $1,095,648 | $580,663 Q2; $1,049,053 six months |
| Net loss | $833,258 | $1,763,759 | $1,251,682 Q2; $2,292,581 six months |
| Net loss per share | $0.28 | $0.59 | $0.85 Q2; $1.58 six months |
| Cash used in operating activities | Not separately reported for the quarter | $1,502,357 | $1,764,376, including discontinued operations |
The $6,515 of revenue was recognized under a subcontract connected with a two-year NAVSEA-funded circuit-breaker development project; matching costs left no gross profit. At June 30, cash and cash equivalents were $1.79 million, working capital was $1.47 million, total assets were $3.83 million, and total liabilities were $1.25 million. Long-term debt was $96,407, including a $91,407 PPP loan and a $5,000 EIDL advance. Cash declined from $3.06 million at year-end 2019. The company reported $1.76 million of accumulated deficit.
Changes, outlook, and risks
- Q2 continuing-operations loss improved 8% year over year, mainly as R&D and G&A expenses declined. Six-month continuing-operations loss increased 10%, reflecting higher R&D and G&A spending. Six-month net loss declined versus 2019 largely because the prior period included discontinued-operations losses and impairment charges following the planned divestiture.
- Six-month R&D rose 20%, primarily due to semiconductor fabrication costs and bonuses. Management expected R&D to be flat to modestly higher and G&A to be relatively flat for the rest of 2020, excluding possible incremental executive bonuses. It expected relatively flat operating cash outflows, subject to quarterly variability. No product-sales or profitability guidance was provided.
- At June 30, the company’s cash position raised substantial doubt about its ability to continue as a going concern. An August 5, 2020 early warrant exercise raised approximately $2.5 million in estimated net proceeds; management said this alleviated the substantial doubt for at least 12 months from the filing date. The transaction involved 1,176,137 shares and issuance of replacement Series C warrants for up to 705,688 shares at $8.90 per share.
- The B-TRAN technology has not been commercialized. The company may need further financing and cautioned that funding may not be available on acceptable terms or at all. COVID-19-related market disruption could hinder fundraising and adversely affect results. Commercialization, partner access, technology performance, market acceptance, and cash management remain key risks.
- The PPP loan bears 1% interest and matures in May 2022. The company intended to apply for forgiveness, but forgiveness was not assured. The Pathion dispute was dismissed after settlement; the company received $25,442 in legal fees. Management reported no other legal proceedings expected to have a material adverse impact.
Important facts for investors to verify
- Whether B-TRAN development achieves the expected performance, fabrication milestones, partnerships, and eventual commercial demand.
- Cash burn and runway after the August 2020 warrant proceeds, and whether additional financing will be required.
- Actual grant revenue and costs under the NAVSEA-related subcontract, and progress toward the broader two-year project.
- Final PPP loan forgiveness outcome and the treatment of the EIDL advance.
- Potential dilution from outstanding warrants, options, and the post-quarter Series C warrants; reconcile these instruments with reported share counts.