Ideal Power Inc. — Q2 2019 Form 10-Q
Business context and period: The filing covers the quarter and six months ended June 30, 2019. Ideal Power shifted its focus to commercializing its B-TRAN solid-state switch technology and suspended development and sales of its PPSA power-conversion business, which it classified as discontinued operations and held for sale. Continuing operations had no product revenue in either comparable 2019 or 2018 period.
Financial results and liquidity
| Metric | Three months ended June 30, 2019 | Six months ended June 30, 2019 | Comparable 2018 period |
|---|---|---|---|
| Continuing-operations revenue | $0 | $0 | $0 |
| R&D expense | $335,752 | $553,968 | $322,218; $416,762 |
| General and administrative expense | $580,663 | $1,049,053 | $803,312; $1,685,411 |
| Loss from continuing operations | $909,606 | $1,603,330 | $1,089,916; $2,065,244 |
| Loss from discontinued operations | $342,076 | $689,251 | $632,530; $1,713,364 |
| Net loss | $1,251,682 | $2,292,581 | $1,722,446; $3,778,608 |
| Net loss per share, basic and diluted | $0.09 | $0.16 | $0.12; $0.27 |
Margins: No continuing product revenue was reported, so a continuing-operations gross margin is not meaningful. The filing reports no gross profit for the periods shown.
- Cash flow: Six-month cash used in operating activities was $1.764 million, including $1.299 million for continuing operations and $465,328 for discontinued operations. Investing activities used $55,904; financing activities used no cash. Cash and cash equivalents declined from $3.258 million at year-end 2018 to $1.438 million at June 30, 2019.
- Balance sheet and liquidity: Total assets were $4.118 million and total liabilities were $1.737 million. Working capital was $1.140 million. The company reported no long-term debt; it had $349,316 in total operating lease liabilities, including current and long-term portions.
- Equity: Stockholders’ equity was $2.381 million, down from $4.598 million at December 31, 2018. The accumulated deficit was $65.707 million.
Material changes versus prior periods
- Q2 net loss narrowed 27% year over year; first-half net loss narrowed 39%. Management attributed much of the improvement to lower G&A costs and reduced discontinued-operation losses after suspending the PPSA business.
- First-half R&D expense rose 33%, primarily due to higher personnel costs; Q2 R&D rose 4%, reflecting higher external B-TRAN development spending, partly offset by lower personnel-related costs.
- First-half discontinued-operation loss included a $405,000 impairment charge on assets held for sale; Q2 included $265,000 of that charge. The impairment was based on estimated net proceeds from the anticipated sale.
- In February, a shareholder converted 708,430 preferred shares into common shares. At June 30, 2019, 14,722,840 common shares were outstanding.
Outlook, risks, and unusual items
- Going concern and financing: Management stated additional capital would be required to fund operations for at least the next 12 months from issuance of the financial statements. The filing says substantial doubt exists about the company’s ability to continue as a going concern; financing may be unavailable or inadequate, potentially requiring further cost reductions or cessation of operations.
- Operating outlook: Management expected flat to higher R&D expense and flat to lower G&A expense for the rest of 2019, excluding equity-award effects. It anticipated lower operating cash outflows once the discontinued business is sold, but the sale was not assured.
- B-TRAN development: The company was pursuing fabrication of a new generation of wafers and engineering samples for evaluation by potential partners. It described prior prototype results as showing electrical losses below 40% of conventional power switches, but commercialization, partner interest, manufacturing, performance, and revenue remain uncertain. Its intended commercialization model is licensing.
- Sale dispute: An April 2019 agreement with Pathion contemplated $500,000 cash, 150,000 Pathion Holdings shares, and assumption of certain liabilities for PPSA assets. Ideal Power sued Pathion, alleging nonpayment and fraudulent inducement; Pathion denied the allegations and filed counterclaims. The company could not estimate any gain or loss from the proceeding.
- Nasdaq and subsequent event: Nasdaq had granted until September 3, 2019 to regain the $1 minimum bid-price requirement. On August 14, the company announced a planned one-for-ten reverse split, expected to begin trading split-adjusted August 20, 2019. Delisting could impair access to capital.
- Other items: Adoption of lease accounting in January 2019 resulted in recognition of a right-of-use asset and lease liability. A patent issued under a licensing agreement led to a recorded $232,367 asset and corresponding liability representing the estimated present value of future payments.
Investor verification priorities
- Confirm the company’s financing runway, cash burn, and ability to raise capital on acceptable terms.
- Verify the status and terms of the Pathion asset sale, sublease, litigation, and any eventual proceeds or liability assumptions.
- Assess B-TRAN fabrication progress, independent testing, engineering-sample readiness, partner evaluations, and commercialization prospects.
- Check compliance with Nasdaq listing requirements and the effects of the reverse split on trading, share counts, options, and warrants.
- Review the held-for-sale asset valuation and impairment assumptions, including whether expected sale proceeds remain supportable.