Ideal Power Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019. Ideal Power shifted its strategy to focus on commercializing its B-TRAN semiconductor switch technology and suspend power-conversion-system development and sales. The power-conversion business was classified as discontinued operations and held for sale.
Financial results and liquidity
| Metric | Q1 2019 | Q1 2018 / comparison |
|---|---|---|
| Continuing-operations revenue | $0 | $0 |
| Research and development expense | $218,216 | $94,544; up 131% |
| General and administrative expense | $468,390 | $882,099; down 47% |
| Loss from continuing operations | $693,724 | $975,328 |
| Loss from discontinued operations | $347,175 | $1,080,834 |
| Net loss | $1,040,899 | $2,056,162; down 49% |
| Net loss per share | $0.07 | $0.15 |
| Cash used in operating activities, continuing and discontinued | $996,896 | $1,827,372 |
Discontinued operations generated $113,500 of product revenue in Q1 2019, versus $181,500 in Q1 2018. The filing reports no continuing-operations revenue, so a continuing-operations gross margin is not meaningful.
At March 31, 2019, cash and cash equivalents were $2.23 million, working capital was $2.31 million, total assets were $5.16 million, and total liabilities were $1.63 million. The company reported no long-term debt. Lease liabilities were $388,918 in total, including current and long-term portions. Cash declined by about $1.03 million during the quarter.
Material changes and business developments
- Q1 net loss and operating cash use were substantially lower than a year earlier, mainly reflecting reduced costs and the suspension of the power-conversion division. The discontinued-operations loss included a $140,000 impairment charge; the filing cites $500,000 in total impairment against assets held for sale, of which $140,000 was recognized in Q1 2019.
- R&D expense increased due to higher personnel costs. Management expected R&D expense to be flat to higher for the remainder of 2019; G&A expense was expected to be flat to lower, excluding equity-award effects.
- After quarter-end, on April 11, the company agreed to sell certain PPSA/power-conversion assets to Pathion for $500,000 cash and 150,000 shares of Pathion common stock; the buyer would assume certain related liabilities. Closing was contingent on customary conditions and a sublease, and was expected in May 2019. The agreement also provides a limited three-year exclusive option relating to B-TRAN for specified applications, subject to minimum purchase obligations, and a $200,000 break-up fee in certain termination circumstances.
- Management reported successful proof of concept for double-sided B-TRAN prototypes in 2018, with measured electrical losses below 40% of conventional switches. Engineering samples and commercialization through licensing and partnerships remained development objectives; no commercial revenue or specific commercialization timetable was provided in this filing.
Outlook, risks, and contingencies
- Going concern: The company stated it would need additional third-party capital to meet operating requirements for at least the next 12 months from issuance. Management warned financing might not be available on acceptable terms or at all; absent adequate funding, it may need to cut costs or cease operations. The filing says these conditions raise substantial doubt about its ability to continue as a going concern.
- Cash outlook: Management expected operating cash outflows to decline after completion of the planned power-conversion business sale, but said additional capital would still be required within the next 12 months.
- Nasdaq listing: The company had not met the $1 minimum bid-price requirement. Nasdaq granted an additional compliance period through September 3, 2019; failure to regain compliance could result in delisting and impair capital-raising ability.
- Key risks: B-TRAN development, fabrication, testing and market acceptance; ability to secure semiconductor partners or licensees; intellectual-property protection; continued cash management and financing; and the ability to generate sustainable revenue.
- The filing reported no legal proceedings, no off-balance-sheet transactions, and no material changes to the risk factors disclosed in the 2018 Form 10-K. Disclosure controls were assessed as effective.
Important facts for investors to verify
- Whether the Pathion transaction closed, its final consideration and liabilities assumed, and the status of the proposed premises sublease and B-TRAN option.
- Cash runway, actual subsequent financing, and whether the going-concern uncertainty has changed.
- Progress and costs for B-TRAN fabrication, engineering samples, customer evaluation, partnerships, and potential licensing.
- Whether Ideal Power regained Nasdaq’s minimum bid-price compliance by September 3, 2019.
- Final proceeds and any further impairment or other costs associated with disposing of the power-conversion business.