Ideal Power Inc. — Form 10-Q Summary
Reporting period: Three and nine months ended September 30, 2018. Ideal Power develops power-conversion products using its PPSA technology and is also developing B-TRAN semiconductor switches. In April 2018, it organized these activities into separate Power Conversion Systems and B-TRAN divisions.
Financial performance and position
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Revenue | $343,000 | $445,000 | $1,144,000 | $974,000 |
| Gross profit (loss) | $(209,000) | $26,000 | $(328,000) | $(920,000) |
| Gross margin | (61.1%) | 5.9% | (28.7%) | (94.5%) |
| Operating expenses | $2,040,000 | $2,248,000 | $5,738,000 | $7,591,000 |
| Operating loss | $(2,250,000) | $(2,221,000) | $(6,065,000) | $(8,512,000) |
| Net loss | $(2,250,000) | $(2,218,000) | $(6,029,000) | $(8,496,000) |
| Basic and diluted loss per share | $(0.16) | $(0.16) | $(0.43) | $(0.66) |
At September 30, 2018, cash and cash equivalents were $5.54 million, down from $10.02 million at December 31, 2017. Current assets were $6.03 million and current liabilities $1.81 million; reported working capital was $4.23 million. The company reported no long-term debt. Operating cash outflow was $4.34 million for the first nine months, compared with $5.92 million a year earlier; investing outflow was $137,000. There was no material financing inflow in 2018, versus $13.66 million in 2017, primarily from a private placement.
Changes and notable items
- Nine-month revenue rose 18%, driven by higher SunDial Plus sales; third-quarter revenue fell 23% year over year because of lower Stabiliti sales and a customer-rescheduled SunDial Plus shipment.
- Nine-month operating expenses declined 24%, reflecting cost reductions. The net loss narrowed 29%, also reflecting favorable legal outcomes and higher prior-year inventory write-downs, patent impairments, and bad-debt expense.
- Third-quarter gross results deteriorated to a loss, including a $165,000 unfavorable warranty-accrual adjustment, a $43,593 unfavorable SunDial Plus purchase-price variance, and a $41,600 legacy finished-goods write-off.
- The company received $328,451 from an arbitration award against former contract manufacturer Libra and $203,121 related to a former customer’s overdue receivable. These recoveries affected nine-month results and cash; the filing says neither legal matter affected third-quarter results.
- B-TRAN development remained pre-commercial. Management reported prototype testing with electrical losses below 40% of conventional switches in the tested configuration and said further device runs and engineering/customer evaluation samples were planned.
Outlook, risks, and contingencies
The filing provides no quantified revenue or earnings guidance. Management stated that revenue was insufficient to sustain operations and that additional third-party financing would be needed. It warned that financing may not be available on acceptable terms or at all; without adequate funding or expected revenue growth, cost reductions could jeopardize strategic initiatives. The financial statements are prepared on a going-concern basis, and the company cautioned that its ability to continue depends on raising capital and developing profitable operations.
Key risks include continued losses, commercialization and customer adoption of PPSA products, successful development and manufacture of B-TRAN, customer and supplier concentration, product warranty costs, and access to capital. Nasdaq notified the company on September 7, 2018 that it did not meet the $1.00 minimum bid-price requirement; the stated deadline to regain compliance was March 6, 2019, with possible extension or delisting consequences. The company also disclosed a lease extension through May 2021 with $514,906 in future minimum payments and a $465,181 long-term liability associated with a patent license agreement.
Investor verification points
- Assess cash burn, financing needs, available funding alternatives, and the going-concern risk.
- Check subsequent revenue, gross margins, warranty claims, and customer shipment timing, particularly given the third-quarter gross loss.
- Track B-TRAN fabrication, prototype evaluation, customer interest, and the timing and cost of commercialization; it had no commercial products at the reporting date.
- Verify progress toward Nasdaq bid-price compliance and the potential effect of any listing change on financing and share liquidity.
- Review customer concentration: two customers represented 35% and 11% of nine-month 2018 revenue; three customers represented 44% of net trade receivables at quarter-end.
- Reconcile share counts: the filing reports 13,999,756 common shares outstanding on the September 30 balance sheet, while its cover reports 13,997,256 as of November 9, 2018.