# Ideal Power Inc.: Form 10-Q for the period ended Sep 30, 2019

- Company: [Ideal Power Inc.](/companies/ipwr.md) (CIK 1507957)
- Form: 10-Q
- Filed: 2019-11-14
- Accepted by EDGAR: Nov 14, 2019, 16:02 ET
- Period: 2019-09-30
- Accession: 0001104659-19-064153
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1507957/000110465919064153/tm1919506d1_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1507957/000110465919064153/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2019-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2019-07-01 to 2019-09-30 | $0 | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Revenue | 9 months, 2019-01-01 to 2019-09-30 | $0 | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Cost of revenue | 3 months, 2019-07-01 to 2019-09-30 | $0 | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2019-01-01 to 2019-09-30 | $0 | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2019-07-01 to 2019-09-30 | $0 | us-gaap:GrossProfit |
| Gross profit | 9 months, 2019-01-01 to 2019-09-30 | $0 | us-gaap:GrossProfit |
| Research and development | 3 months, 2019-07-01 to 2019-09-30 | $250.8k | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2019-01-01 to 2019-09-30 | $804.7k | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2019-07-01 to 2019-09-30 | −$722.0k | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2019-01-01 to 2019-09-30 | −$2.3m | us-gaap:OperatingIncomeLoss |
| Net income | 3 months, 2019-07-01 to 2019-09-30 | −$812.7k | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2019-01-01 to 2019-09-30 | −$3.1m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2019-07-01 to 2019-09-30 | −$0.55 | us-gaap:EarningsPerShareBasicAndDiluted |
| Diluted EPS | 9 months, 2019-01-01 to 2019-09-30 | −$2.13 | us-gaap:EarningsPerShareBasicAndDiluted |
| Operating cash flow | 9 months, 2019-01-01 to 2019-09-30 | −$1.9m | us-gaap:NetCashProvidedByUsedInOperatingActivitiesContinuingOperations |
| Capital expenditure | 9 months, 2019-01-01 to 2019-09-30 | $4.3k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2019-09-30 | $769.8k | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2019-09-30 | $899.2k | us-gaap:AssetsCurrent |
| Total assets | at 2019-09-30 | $2.9m | us-gaap:Assets |
| Current liabilities | at 2019-09-30 | $551.9k | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2019-09-30 | $1.3m | us-gaap:Liabilities |
| Shareholders' equity | at 2019-09-30 | $1.6m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 18,681 characters.

*The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q as well as our audited 2018 financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2018. In addition to historical information, the discussion and analysis here and throughout this Form 10-Q contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited, to those set forth under “Risk Factors” in Part II, Item 1A of this report.*

### Overview

Ideal Power is located in Austin, Texas. Prior to April 2018, we were primarily focused on the design, marketing and sale of electrical power conversion products using our proprietary technology called Power Packet Switching Architecture™, or PPSA™. PPSA™ is a power conversion technology that improves upon existing power conversion technologies in key product metrics, such as size and weight while providing built-in isolation and bi-directional and multi-port capabilities. PPSA™ utilizes standardized hardware with application specific embedded software. Our products were designed to be used in both on-grid and off-grid applications with a focus on solar + storage, microgrid and stand-alone energy storage applications. The principal products of the Company were 30-kilowatt power conversion systems, including 2-port and multi-port products.

On April 16, 2018, we realigned into two operating divisions: Power Conversion Systems, to continue the commercialization of our PPSA™ technology, and B-TRAN, to develop our Bi-directional bi-polar junction TRANsistor (B-TRAN™) solid state switch technology.

On January 2, 2019, our Board of Directors approved a strategic shift to focus on the commercialization of our B-TRAN™ technology and a plan to suspend further power converter system, or PPSA™, development and sales while we located a buyer for our power conversion systems division and PPSA™ technology. On September 19, 2019, we closed on the sale of our power conversion systems division and are now solely focused on the further development and commercialization of our B-TRAN™ technology.

To date, operations have been funded primarily through the sale of common stock. Total revenue generated from inception to date as of September 30, 2019 amounted to $14.9 million with approximately $12.4 million of that revenue from discontinued operations and the remainder from grant revenue for bi-directional power switch development. We did not have revenue from continuing operations in the nine months ended September 30, 2019 and 2018. We may pursue additional research and development grants, if and when available, to further develop and/or improve our B-TRAN™ technology.

#### Sale of Power Conversion Systems Division

On September 19, 2019, we closed on the sale of our power conversion systems division to CE+T Energy Solutions, Inc. (“CE+T Energy”) The consideration consisted of $200,000 in cash, received at closing, and 50 shares of CE+T Energy’s common stock, to be issued within 90 days of closing, which represented a 5% ownership interest in CE+T Energy as of the closing date. We did not record any value of the equity consideration obtained in the sale as there is not currently a market for such shares and we do not have access to current financial information and future financial projections of CE+T Energy. CE+T Energy also assumed certain liabilities of the power conversion systems division in connection with the sale. The net cash proceeds from the sale were $23,587.

On September 19, 2019, we entered into a sublease with CE+T Energy pursuant to which we sublease approximately seventy-five (75%) percent of our Austin, Texas facility to CE+T Energy. Under the sublease, CE+T Energy is obligated to make monthly payments equal to 75% of all sums due under the master lease and 100% of any maintenance and repair costs related to the subleased premises. The sublease replaced a temporary agreement between us and CE+T Energy, effective July 22, 2019, that contained similar payment obligations by CE+T Energy for utilization of the subleased premises. Consistent with the master lease, the sublease terminates on May 31, 2021.

#### Private Placement of Common Stock and Warrants

On November 7, 2019, we entered into a securities purchase agreement with certain institutional and accredited investors, including Dr. Lon E. Bell, our Chief Executive Officer and Chairman of the Board, for a private placement of our common stock and warrants to purchase common stock for aggregate gross proceeds of $3.5 million and estimated net proceeds of $3.1 million (the “Offering”). The Offering closed on November 13, 2019. In the Offering, we issued an aggregate of (i) 544,950 shares of common stock and (ii) pre-funded warrants to purchase 868,443 shares of common stock that are immediately exercisable and have no expiration date, in each case at a price of $2.4763 per share (or pre-funded warrant). We also issued to the investors warrants to purchase up to an aggregate of 1,766,751 shares of common stock at an exercise price of $2.32 per share that are immediately exercisable and will expire five years from the issuance date. As compensation to the placement agent in the Offering, in addition to a cash fee for its services, we also issued to the placement agent a warrant to purchase up to 70,670 shares of common stock, with an exercise price of $2.9716 per share. The other terms of the placement agent warrant are substantially the same as the investor warrants. We intend to use the net proceeds from this Offering for working capital and general corporate purposes.

#### Reverse Stock Split

On August 15, 2019, we effected a reverse stock split of the outstanding shares of our common stock by a ratio of one-for-ten, and our common stock began trading on the Nasdaq Capital Market on a split-adjusted basis on August 20, 2019. The par value of our common stock remained unchanged at $0.001 per share after the reverse stock split. All share amounts, per share data, share prices, exercise prices and conversion rates have, where applicable, been adjusted retroactively to reflect the reverse stock split.

#### Nasdaq Listing Compliance

On August 21, 2019, we were notified by the Nasdaq Listing Qualifications Department that we were not in compliance with the minimum stockholders’ equity requirement under Nasdaq Listing Rule 5550(b)(1) for continued listing on the Nasdaq Capital Market because our stockholders’ equity was below the required minimum of $2.5 million, and, as of the date of the notification, we did not meet the alternatives of market value of listed securities or net income from continuing operations. In accordance with Nasdaq Listing Rules, we had 45 calendar days, or until October 3, 2019, to submit a plan to regain compliance. We submitted a plan of compliance on October 3, 2019 addressing how we intended to regain compliance with Nasdaq Listing Rule 5550(b). On October 31, 2019, Nasdaq notified us of approval of the compliance plan, and Nasdaq granted us an extension through November 30, 2019 to take action to evidence compliance with Nasdaq Listing Rule 5550(b), which will require, among other things, that we demonstrate compliance within our periodic report for the fiscal year ending December 31, 2019. As a result of the Offering, we believe we now satisfy the minimum $2.5 million stockholders’ equity requirement for continued listing on the Nasdaq Capital Market. If we do not regain compliance, we may be subject to delisting.

### Critical Accounting Policies

On January 1, 2019, we adopted ASC 842 utilizing a modified retrospective approach with a date of initial application at the beginning of the period of adoption. At adoption, we recognized a right of use asset of $422,819 and lease liability of $427,131. As the discount rate implicit in the lease was not readily determinable and we did not have any outstanding indebtedness, we utilized market data, giving consideration to remaining term of the lease, to estimate our incremental borrowing rate at 8% per annum for purposes of calculating the right of use asset and lease liability.

There have been no other significant changes during the nine months ended September 30, 2019 to the critical accounting policies disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.

### Results of Operations

### Comparison of the three months ended September 30, 2019 to the three months ended September 30, 2018

*Research and Development Expenses.* Research and development expenses decreased by $75,960, or 23%, to $250,773 in the three months ended September 30, 2019 from $326,733 in the three months ended September 30, 2018. The decrease was due primarily to lower stock compensation expense. We expect higher research and development expenses in the fourth quarter of 2019 due to the timing of B-TRAN™ development spending related to the fabrication of prototype engineering samples for evaluation by potential partners.

*General and Administrative Expenses.* General and administrative expenses decreased by $440,491, or 48%, to $471,272 in the three months ended September 30, 2019 from $911,763 in the three months ended September 30, 2018. The decrease was due primarily to lower legal fees of $294,171, stock compensation expense of $54,100, sublease income of $38,949 and other net cost savings. General and administrative expenses were impacted by our cost reduction plan, inclusive of reduced headcount, and the sale of our power conversion systems division. We expect relatively flat general and administrative expenses in the fourth quarter of 2019 exclusive of the impact of any equity award grants.

*Interest (Income) Expense, Net.* Net interest expense was $2,763 for the three months ended September 30, 2019 compared to net interest expense of $112 for the three months ended September 30, 2018.

*Loss from Continuing Operations.* Our loss from continuing operations for the three months ended September 30, 2019 was $724,808 or 41% lower than the $1,238,608 loss from continuing operations for the three months ended September 30, 2018, for the reasons discussed above.

*Loss from Discontinued Operations.* Our loss from discontinued operations for the three months ended September 30, 2019 was $78,796, or 92% lower than the $1,011,315 loss from discontinued operations for the three months ended September 30, 2018. The loss from discontinued operations was significantly lower than the comparative prior year period as we suspended operations of our power conversion system division on January 4, 2019, including the implementation of a significant reduction-in-force, and closed on the sale of these operations on September 19, 2019.

*Loss on Sale of Discontinued Operations.* Our loss on sale of discontinued operation for the three months ended September 30, 2019 was $9,107.

*Net Loss.* Our net loss for the three months ended September 30, 2019 was $812,711, or 64% lower, as compared to a net loss of $2,249,923 for the three months ended September 30, 2018, as a result of the reasons discussed above.

### Comparison of the nine months ended September 30, 2019 to the nine months ended September 30, 2018

*Research and Development Expenses.* Research and development expenses increased by $61,246, or 8%, to $804,741 in the nine months ended September 30, 2019 from $743,495 in the nine months ended September 30, 2018. The increase was due primarily to higher personnel costs as we hired a Senior Development Engineer in early 2019.

*General and Administrative Expenses.* General and administrative expenses decreased by $1,076,849, or 41%, to $1,520,325 in the nine months ended September 30, 2019 from $2,597,174 in the nine months ended September 30, 2018. The decrease was due primarily to lower stock compensation expense of $418,491, lower personnel costs of $350,680, lower legal fees of $138,425, lower contract labor costs of $104,060 and other net cost savings. General and administrative expenses were impacted by our cost reduction plan, inclusive of reduced headcount, and an absence of annual grants in recent years to tenured executives.

*Interest (Income) Expense, Net.* Net interest expense was $3,072 for the nine months ended September 30, 2019 compared to net interest income of $36,817 for the nine months ended September 30, 2018. Net interest income in the nine months ended September 30, 2018 included late fees awarded and paid to us upon the conclusion of a legal proceeding.

*Loss from Continuing Operations.* Our loss from continuing operations for the nine months ended September 30, 2019 was $2,328,138 or 30% lower than the $3,303,852 loss from continuing operations for the nine months ended September 30, 2018, for the reasons discussed above.

*Loss from Discontinued Operations.* Our loss from discontinued operations for the nine months ended September 30, 2019 was $768,047, or 72% lower than the $2,724,679 loss from discontinued operations for the nine months ended September 30, 2018. The loss from discontinued operations was significantly lower than the comparative prior year period as we suspended operations of our power conversion system division on January 4, 2019, including the implementation of a significant reduction-in-force, and closed on the sale of these operations on September 19, 2019. Loss from discontinued operations for the nine months ended September 30, 2019 includes a $405,000 impairment of assets held for sale to write-down these assets to the expected net proceeds from the anticipated sale.

*Loss on Sale of Discontinued Operations.* Our loss on sale of discontinued operation for the nine months ended September 30, 2019 was $9,107.

*Net Loss.* Our net loss for the nine months ended September 30, 2019 was $3,105,292, or 48% lower, as compared to a net loss of $6,028,531 for the nine months ended September 30, 2018, as a result of the reasons discussed above.

### Liquidity and Capital Resources

We currently do not generate revenue. We have funded our operations primarily through the sale of common stock.

At September 30, 2019, we had cash and cash equivalents of $769,833. Our net working capital and long-term debt at September 30, 2019 were $347,251 and $0, respectively.

Operating activities in the nine months ended September 30, 2019 resulted in cash outflows of $2,433,236, which were due to the loss from continuing operations for the period of $2,328,138 and cash used in operating activities related to discontinued operations of $557,096 partly offset by non-cash items, including depreciation and amortization and stock-based compensation, of $239,795 and favorable balance sheet timing of $212,203. Operating activities in the nine months ended September 30, 2018 resulted in cash outflows of $4,344,000, which were due to the loss from continuing operations for the period of $3,303,852, cash used in operating activities related to discontinued operations of $2,076,842, partly offset by stock-based compensation of $645,349, favorable balance sheet timing of $270,627, depreciation and amortization of $109,845 and patent impairment charges of $10,873. We expect a further reduction in cash outflows from operating activities due to the elimination of cash flows from discontinued operations now that a sale of these operations has been completed.

Investing activities in the nine months ended September 30, 2019 and 2018 resulted in cash outflows of $55,008 and $136,866, respectively, primarily for the acquisition of intangible assets. In the nine months ended September 30, 2019, cash outflows from investing activities included a cash inflow of $23,587 related to discontinued operations for the net proceeds from the sale of our power conversion systems business. In the nine months ended September 30, 2018, cash outflows from investing activities included $49,865 in cash outflows related to discontinued operations.

Financing activities in the nine months ended September 30, 2019 and 2018 resulted in cash outflows of $0 and $2,616, respectively.

On November 7, 2019, we entered into a securities purchase agreement with certain institutional and accredited investors, including Dr. Lon E. Bell, our Chief Executive Officer and Chairman of the Board, for a private placement of our common stock and warrants to purchase common stock for aggregate gross proceeds of $3.5 million and estimated net proceeds of $3.1 million. The Offering closed on November 13, 2019. In the Offering, we issued an aggregate of (i) 544,950 shares of common stock and (ii) pre-funded warrants to purchase 868,443 shares of common stock that are immediately exercisable and have no expiration date, in each case at a price of $2.4763 per share (or pre-funded warrant). We also issued to the investors warrants to purchase up to an aggregate of 1,766,751 shares of common stock at an exercise price of $2.32 per share that are immediately exercisable and will expire five years from the issuance date. As compensation to the placement agent in the Offering, in addition to a cash fee for its services, we also issued to the placement agent a warrant to purchase up to 70,670 shares of common stock, with an exercise price of $2.9716 per share. The other terms of the placement agent warrant are substantially the same as the investor warrants.

As our B-TRAN™ technology is in the development stage and has not yet been commercialized, we may be required to obtain additional financing in the future to continue our operations and execute our business plan. We may not be able to obtain such financing on commercially reasonable terms or at all. If we are unable to obtain such financing if or when needed, we will be required to reduce operating costs, which could jeopardize future strategic initiatives and business plans, or cease operations. In addition, there can be no assurances that the Company will be able to successfully commercialize its technology and develop profitable operations.

### Off-Balance Sheet Arrangements

As of September 30, 2019, we did not have any material off-balance sheet arrangements.

### Trends, Events and Uncertainties

There are no material changes from trends, events or uncertainties disclosed in our 2018 Annual Report on Form 10-K.

## Controls and procedures

As filed, 2,984 characters.

### Evaluation of Disclosure Controls and Procedures

We conducted an evaluation (pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), under the supervision and with the participation of management, including our Chief Executive Officer (principal executive officer) and our Chief Financial Officer (principal financial and accounting officer), of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e)) as of September 30, 2019.

These disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports that are filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Our disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that this information is accumulated and communicated to management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Based on the evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2019, our disclosure controls and procedures are effective.

### Changes in Internal Control over Financial Reporting

There have been no material changes in our internal controls over financial reporting that occurred during the quarter ended September 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

### Limitations on the Effectiveness of Controls

Control systems, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control systems’ objectives are being met. Further, the design of any system of controls must reflect the fact that there are resource constraints, and the benefits of all controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of error or mistake. Control systems can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

## Risk factors

As filed, 741 characters.

You should carefully consider the risk factors discussed in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018, which could materially affect our business, financial condition, cash flows or future results. There have been no material changes in our risk factors included in our Annual Report on Form 10-K for the year ended December 31, 2018. The risk factors described herein and in our Annual Report on Form 10-K for the year ended December 31, 2018 are not the only risks facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results.

Filed Nov 14, 2019.
Source: SEC EDGAR, the filing index for accession 0001104659-19-064153. Last ingested by Listed: Nov 5, 2026, 19:31 ET. No prices; not investment advice.