Ideal Power Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. The company is an Austin-based development-stage business now focused solely on developing and commercializing its B-TRAN solid-state switch technology. It sold its power-conversion systems division in September 2019. The filing was signed May 14, 2020.
Financial performance and position
| Metric | Q1 2020 | Q1 2019 / comparison |
|---|---|---|
| Continuing-operations revenue | $0 | $0 |
| Research and development | $350,664 | $218,216; up 61% |
| General and administrative | $579,770 | $468,390; up 24% |
| Loss from continuing operations | $930,501 | $693,724 |
| Loss from discontinued operations | $0 | $347,175 |
| Net loss | $930,501 | $1,040,899 |
| Net loss per share, basic and diluted | $0.31 | $0.73 |
| Cash used in continuing operating activities | $813,627 | $587,029 |
| Cash and cash equivalents at period end | $2,219,992 | $3,057,682 at Dec. 31, 2019 |
No product revenue or gross profit was reported in either quarter, so a product gross margin is not applicable. Q1 2019 included $113,500 of discontinued-operations product revenue and a $140,000 impairment charge. Cash used in investing activities was $24,063 in Q1 2020, principally for fixed and intangible assets; financing activities had no cash flows. Cash declined by $837,690 during the quarter.
At March 31, 2020, total assets were $4.37 million, total liabilities $1.29 million, stockholders’ equity $3.08 million, and working capital $1.83 million. The company reported no long-term debt; liabilities included lease obligations and a $613,300 other long-term liability related to a patent license agreement.
Material changes and management commentary
- Continuing-operations loss increased 34% year over year, mainly from the CEO search, higher semiconductor fabrication costs, and higher stock-based compensation. Net loss was lower year over year because Q1 2019 included discontinued-operations losses.
- R&D expense increased by $132,448, primarily from higher semiconductor fabrication and stock-compensation costs. Management expected R&D expense to be relatively flat for the rest of 2020, with quarterly variability from fabrication timing.
- G&A expense increased by $111,380, primarily due to CEO-search fees and stock compensation. Management expected lower G&A expense for the remainder of 2020.
- Management expected a modest reduction in operating cash outflows for the rest of 2020, subject to variability in R&D spending.
- The company said it had generated no current revenue and would need additional financing within 12 months to fund planned operations. Existing working capital was not sufficient to fund operations through one year after issuance of the statements without additional capital.
Outlook, risks, contingencies, and unusual items
- Going concern: Management stated that substantial doubt exists about the company’s ability to continue as a going concern. Continued operations depend on raising capital and developing profitable operations; financing may not be available on acceptable terms or at all. Failure to obtain funding could require cost reductions or cessation of operations. The financial statements contain no adjustments for a failure to continue as a going concern.
- COVID-19: Disruption to financial markets could impair access to capital, and prolonged economic effects could materially adversely affect results. The ultimate impact was uncertain.
- PPP loan after quarter-end: On May 4, 2020, the company received an unsecured $91,407 loan at 1% interest, due May 4, 2022. Forgiveness is conditional and not assured; management intended to use the proceeds primarily for payroll.
- Legal matter after quarter-end: A dispute with Pathion was settled and dismissed in April 2020. The company received $25,442 of previously awarded legal fees plus interest on April 23; the settlement itself involved no cash consideration.
- Equity compensation and dilution: The company had 2,714,858 warrants outstanding at March 31, 2020 and granted 112,791 options during the quarter. As of May 12, 2020, 2,126,267 common shares were outstanding. Q1 weighted-average shares used for EPS were 2,968,394, including pre-funded warrants.
- Other subsequent event: On April 29, 2020, the company issued 26,316 unregistered shares valued at $50,000 to a vendor for services; the amount had been accrued at quarter-end.
Important facts for investors to verify
- Whether and on what terms the company can raise the additional capital needed to fund operations, and its resulting cash runway.
- Progress toward B-TRAN prototypes, commercial fabrication, partnerships, customer qualification, and revenue generation; this filing provides no specific commercial timetable or revenue guidance.
- Actual cash spending relative to management’s expectations for R&D, G&A, and operating cash outflows.
- Whether the PPP loan qualifies for full or partial forgiveness, and the effect if it does not.
- Potential dilution from outstanding warrants, options, and other equity awards, and the reconciliation of weighted-average EPS shares to reported common shares outstanding.
- Any developments in COVID-19’s effect on financing access and the company’s operations.