Ideal Power Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. Ideal Power is focused on developing and commercializing its B-TRAN solid-state switch technology; it sold its power conversion systems business in September 2019 and reports that business as discontinued operations.
Financial performance and liquidity
| Metric | Q3 2020 / September 30, 2020 | Comparison |
|---|---|---|
| Revenue | $147,787 in grant revenue; cost was equal to revenue, leaving no gross profit | No continuing-operations revenue in Q3 2019 |
| Operating expenses | $1.17 million for Q3; $2.94 million for nine months | Q3 up 62%; nine-month total up 26% year over year |
| Net loss | $4.89 million for Q3; $6.66 million for nine months | Q3 2019 loss was $813,000; nine-month 2019 loss was $3.11 million |
| Loss per share | $1.28 for Q3; $2.04 for nine months, basic and diluted | Q3 2019: $0.55; nine-month 2019: $2.13 |
| Cash and cash equivalents | $3.77 million | $3.06 million at December 31, 2019 |
| Operating cash flow | $2.30 million used in the first nine months | $2.43 million used in the first nine months of 2019, including discontinued operations |
| Working capital | $3.36 million | Not stated for the comparable period |
| Debt and liabilities | $91,407 long-term debt; $1.28 million total liabilities | Total liabilities were $1.38 million at December 31, 2019 |
Material changes and unusual items
- Q3 and nine-month losses included a $3.72 million non-cash warrant inducement expense tied to the August early warrant exercise. The transaction generated $2.5 million in net proceeds and included new warrants to purchase up to 705,688 shares at $8.90 per share.
- Research and development expense rose 97% in Q3 and 44% for the nine-month period, driven by stock compensation, contract labor, fabrication costs and other development spending. General and administrative expense increased 44% in Q3 and 17% for the nine-month period.
- The company recognized $154,302 of grant revenue and matching costs during the first nine months under a $1.2 million subcontract with Diversified Technologies for a NAVSEA-supported B-TRAN circuit-breaker project. Management expects no gross profit on the subcontract.
- Nine-month financing cash inflows were $3.06 million, mainly from warrant exercises, plus $91,407 from a Paycheck Protection Program loan. The company also reported a $5,000 Economic Injury Disaster Loan advance, which it expects to repay.
- Common shares issued increased to 2,976,709 at September 30 from 2,101,272 at year-end 2019. The filing reports 2,975,388 shares outstanding at September 30 and 2,975,388 as of November 11.
Outlook, risks and contingencies
- Management expected lower R&D and G&A expense in Q4 2020 and flat to modestly higher operating cash outflows. It expected subcontract revenue to continue over the next two years, with most recognized in the first 12–15 months.
- The auditor had raised substantial doubt about the company’s ability to continue as a going concern in its 2019 report. Management stated that the August warrant transaction alleviated that doubt for at least the 12 months following issuance of these financial statements, while emphasizing the need for additional capital and successful commercialization.
- COVID-19-related market disruption could impair access to financing. The filing identifies development, performance, market acceptance and commercialization of B-TRAN, financing needs, strategic partnerships, intellectual-property protection and Nasdaq listing as key risks.
- The company intended to apply for PPP loan forgiveness in Q4 2020 but gave no assurance that any portion would be forgiven. No material legal proceedings or material changes to previously disclosed risk factors were reported.
- The Austin facility lease ends May 31, 2021; approximately 75% of the space is subleased through the same date. Management reported disclosure controls and procedures were effective and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Current cash use and funding runway, including how management’s Q4 cash-outflow expectations compare with actual results.
- Progress, technical performance, fabrication plans and prospective partners or customers for B-TRAN, and milestones toward commercialization.
- Revenue, deliverables and reimbursement timing under the DTI/NAVSEA subcontract, including whether the stated expected revenue schedule is being met.
- PPP loan forgiveness outcome and repayment obligations for the PPP loan and EIDL advance.
- Potential dilution from outstanding and newly issued warrants, shares held in abeyance, and equity compensation; the filing’s weighted-average share count differs from period-end shares outstanding.
- Whether the company can fund operations beyond the period covered by management’s going-concern assessment without additional financing.