Ideal Power Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2019. The filing was signed November 14, 2019. Ideal Power completed its exit from power conversion systems in September and is now focused on developing and commercializing its B-TRAN solid-state switch technology.
Key financial results
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Continuing-operations product revenue | $0 | $0 | $0 | $0 |
| Research and development | $250,773 | $326,733 | $804,741 | $743,495 |
| General and administrative | $471,272 | $911,763 | $1,520,325 | $2,597,174 |
| Loss from continuing operations | $(724,808) | $(1,238,608) | $(2,328,138) | $(3,303,852) |
| Loss from discontinued operations | $(78,796) | $(1,011,315) | $(768,047) | $(2,724,679) |
| Net loss | $(812,711) | $(2,249,923) | $(3,105,292) | $(6,028,531) |
Gross profit and gross margin were zero because there was no continuing-operations product revenue. Net loss per share was $(0.55) in Q3 2019 and $(2.13) for the nine months, versus $(1.61) and $(4.30), respectively, in 2018. The company reported no long-term debt; lease liabilities totaled $307,664 at September 30, 2019.
- Cash and liquidity: Cash and cash equivalents were $769,833, down from $3.26 million at December 31, 2018. Working capital was $347,251; total assets were $2.92 million and total liabilities were $1.33 million.
- Cash flow: Operating cash use, including discontinued operations, was $2.43 million in the first nine months of 2019, compared with $4.34 million in 2018. Investing cash use was $55,008 and financing cash flow was zero. The cash flow statement reports period-end cash of $769,833.
Material changes and unusual items
- Management approved a strategic shift in January 2019, suspended power-converter development and sales, and sold the division to CE+T Energy on September 19. Consideration included $200,000 cash and 50 CE+T Energy shares representing a stated 5% interest; the company assigned no value to the shares. Net cash proceeds were $23,587, and CE+T assumed certain liabilities. The discontinued business recorded a $405,000 impairment for the nine months and a $9,107 loss on sale.
- Net losses declined year over year, mainly reflecting lower costs and reduced activity in discontinued operations. Q3 R&D fell 23%, while nine-month R&D rose 8%, primarily due to personnel costs. Nine-month G&A fell 41%, including lower stock compensation, personnel and legal costs.
- A one-for-ten reverse stock split took effect in August 2019. The company regained Nasdaq minimum-bid-price compliance in September but received a separate stockholders’ equity deficiency notice. Nasdaq approved a compliance plan and granted an extension through November 30, 2019.
- After quarter-end, a November 13 private placement raised $3.5 million gross and an estimated $3.1 million net through common stock and warrants. Management said the proceeds alleviated substantial doubt about the company’s ability to continue as a going concern for at least twelve months from issuance of the financial statements and believed the raise addressed the Nasdaq equity requirement.
Outlook, risks and contingencies
- Management expected higher Q4 2019 R&D expenses for fabrication of B-TRAN prototype engineering samples for potential-partner evaluation, and relatively flat Q4 G&A before any equity-award effects. It expected operating cash outflows to decline after the power-conversion division sale.
- B-TRAN remains under development and is not commercialized. The company cautioned that further financing may be needed and that it may be unable to obtain financing on acceptable terms or successfully commercialize the technology. Risks also include partner and market adoption, product testing and certification, intellectual-property protection, cash management and Nasdaq listing compliance.
- The company is pursuing claims against Pathion concerning an earlier proposed sale of PPSA assets. A court ruled that Pathion has no rights to those assets and awarded $24,800 in legal fees; other claims and counterclaims remained pending, with trial scheduled for August 2020. The company said it could not estimate the proceeding’s possible gain or loss.
- The Austin facility lease runs through May 2021; CE+T subleases approximately 75% of the premises and is responsible for its allocated rent and specified costs. The filing reports no material off-balance-sheet arrangements.
Important facts for investors to verify
- Whether the post-quarter financing provides sufficient operating runway, and whether additional capital will be required.
- Progress, timing, costs and partner interest for B-TRAN prototypes and commercialization.
- Nasdaq stockholders’ equity compliance, including confirmation in subsequent periodic filings.
- Actual value and issuance of the CE+T equity consideration, and performance of the facility sublease.
- Developments and potential financial effects of the Pathion litigation.
- Share and warrant dilution from the November financing and other outstanding equity awards and warrants.