Ideal Power Inc. — FY2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019; filed March 30, 2020. This is an annual report, not a standalone fourth-quarter report. Comparative figures are for FY2018.
Business context
Ideal Power shifted its strategy in January 2019 to focus solely on developing and commercializing its B-TRAN bidirectional solid-state power switch. It sold its power-conversion systems and PPSA business to CE+T Energy on September 19, 2019; that business is reported as a discontinued operation. B-TRAN remains in development, with packaged prototypes undergoing laboratory testing. The company reported no revenue from continuing operations in either 2019 or 2018.
Financial results and liquidity
| Metric | FY2019 | FY2018 |
|---|---|---|
| Continuing-operations revenue | $0 | $0 |
| Research and development expense | $1.05 million | $0.87 million |
| General and administrative expense | $2.07 million | $3.44 million |
| Loss from continuing operations | $3.12 million | $4.27 million |
| Loss from discontinued operations | $0.80 million | $3.63 million |
| Net loss | $3.93 million | $7.90 million |
| Net loss per share | $2.38 | $5.64 |
| Cash used in operating activities | $3.22 million | $6.55 million |
Net loss improved 50% year over year, primarily as discontinued-operations losses and G&A expense declined. R&D expense rose 20%, mainly due to personnel costs. Product gross margin is not meaningful for continuing operations because there were no continuing product sales.
At December 31, 2019, cash and cash equivalents were $3.06 million, net working capital was $2.62 million, total assets were $5.27 million, and stockholders’ equity was $3.89 million. The company reported no long-term debt; it had $265,174 of lease liabilities and $609,242 of other long-term liabilities, including the estimated future payments under a patent license agreement. Cash was down from $3.26 million at year-end 2018.
Material changes and financing
- The PPSA division generated $115,000 of revenue before its sale in 2019, compared with $1.62 million in 2018; its reported losses included impairment charges of $405,000 and $360,000, respectively.
- The CE+T sale consideration included $200,000 cash and a 5% equity interest in CE+T, for which Ideal Power recorded no value. Net cash proceeds reported from the sale were $23,587; CE+T also assumed certain liabilities.
- A November private placement raised $3.5 million gross and $3.1 million net. It included common shares, immediately exercisable pre-funded warrants, and warrants exercisable at $2.32 per share. The financing improved year-end equity and helped restore Nasdaq stockholders’ equity compliance, but carries potential dilution.
- The company effected a one-for-ten reverse stock split in August 2019. It reported 2,099,951 common shares outstanding at December 31, 2019 and 2,099,951 as of March 25, 2020.
Outlook, risks and unusual items
Management expects modestly higher R&D expense in 2020 as B-TRAN development accelerates, and expects lower G&A expense from continued cost reductions. It also expects lower operating cash outflows following the sale of the discontinued business. These plans remain dependent on successful development, partner and customer interest, and access to financing; the company gave no revenue or profitability guidance.
The auditor included a going-concern explanatory paragraph. Management stated that year-end working capital was insufficient to fund planned operations for one year after issuance of the financial statements without additional capital. The company expected to seek financing within 12–15 months and warned that unavailable or inadequate funding could require cost reductions or cessation of operations. It has incurred approximately $67.3 million of cumulative net losses.
Key execution risks include prototype performance and packaging, semiconductor fabrication capability and costs, long customer design and qualification cycles, dependence on third parties, competition, and protection of intellectual property. The filing said COVID-19 could delay development and disrupt suppliers and financing; management did not expect a significant adverse effect on 2020 results as of the report date, while acknowledging substantial uncertainty. A Pathion dispute related to the earlier proposed PPSA asset sale remained ongoing; the court had ruled Pathion had no rights to the assets and awarded $24,800 in legal fees, but remaining claims were unresolved. The company reported effective disclosure controls and internal control over financial reporting; the auditor did not attest to internal-control effectiveness.
Most important facts for investors to verify
- Whether Ideal Power secured sufficient financing after the filing to fund operations and address the going-concern uncertainty.
- Progress, test results, manufacturability, packaging, and customer or partner evaluation of B-TRAN engineering samples.
- Cash use and the timing and cost of development, including any COVID-related supply-chain or commercialization delays.
- Potential dilution from outstanding pre-funded and other warrants, options, and any later financing.
- Resolution and financial consequences of the remaining Pathion litigation, and the realizable value, if any, of the CE+T equity interest.
- Continued compliance with Nasdaq listing requirements.