# Ideal Power Inc.: Form 10-Q for the period ended Mar 31, 2020

- Company: [Ideal Power Inc.](/companies/ipwr.md) (CIK 1507957)
- Form: 10-Q
- Filed: 2020-05-14
- Accepted by EDGAR: May 14, 2020, 16:06 ET
- Period: 2020-03-31
- Accession: 0001104659-20-061589
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1507957/000110465920061589/tm2014559d1_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1507957/000110465920061589/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2020-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2020-01-01 to 2020-03-31 | $0 | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Cost of revenue | 3 months, 2020-01-01 to 2020-03-31 | $0 | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2020-01-01 to 2020-03-31 | $0 | us-gaap:GrossProfit |
| Research and development | 3 months, 2020-01-01 to 2020-03-31 | $350.7k | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2020-01-01 to 2020-03-31 | −$930.4k | us-gaap:OperatingIncomeLoss |
| Net income | 3 months, 2020-01-01 to 2020-03-31 | −$930.5k | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2020-01-01 to 2020-03-31 | −$0.31 | us-gaap:EarningsPerShareBasicAndDiluted |
| Operating cash flow | 3 months, 2020-01-01 to 2020-03-31 | −$800.0k | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2020-01-01 to 2020-03-31 | $10.7k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2020-03-31 | $2.2m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2020-03-31 | $2.5m | us-gaap:AssetsCurrent |
| Total assets | at 2020-03-31 | $4.4m | us-gaap:Assets |
| Current liabilities | at 2020-03-31 | $646.9k | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2020-03-31 | $1.3m | us-gaap:Liabilities |
| Shareholders' equity | at 2020-03-31 | $3.1m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 12,864 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 2019 financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2019. 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 Inc. is located in Austin, Texas. Until 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.

In April 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.

In January 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. Prior to the sale of our PPSA™ business and technology in September 2019, we classified this division as held for sale. We show this division as a discontinued operation in our financial statements.

To date, operations have been funded primarily through the sale of common stock and warrants. Total revenue generated from inception to date as of March 31, 2020 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 three months ended March 31, 2020 or 2019. We may pursue additional research and development grants, if and when available, to further develop and/or improve our technology.

#### COVID-19 Impact

In March 2020, the World Health Organization declared the outbreak of COVID-19 as a pandemic, which continues to spread throughout the United States and the rest of the world. The ultimate extent of the impact of COVID-19 on the financial performance of the Company will depend on future developments, including, among other things, the duration and spread of COVID-19, and the overall economy, all of which are highly uncertain and cannot be predicted. The outbreak of COVID-19 has already caused significant disruptions to the global financial markets which may impact the Company’s ability to raise additional capital, on acceptable terms or at all. If the financial markets and/or the overall economy are impacted for an extended period, the Company's operating results may be materially and adversely affected.

### Results of Operations

### Comparison of the three months ended March 31, 2020 to the three months ended March 31, 2019

*Research and Development Expenses.* Research and development expenses increased by $132,448, or 61%, to $350,664 in the three months ended March 31, 2020 from $218,216 in the three months ended March 31, 2019. The increase was due to higher semiconductor fabrication costs of $110,833 and higher stock compensation expense of $39,042, partly offset by lower facilities costs of $14,893. We expect relatively flat research and development expenses for the balance of 2020, although these expenses will be subject to quarterly variability due to timing of semiconductor fabrication costs.

*General and Administrative Expenses.* General and administrative expenses increased by $111,380, or 24%, to $579,770 in the three months ended March 31, 2020 from $468,390 in the three months ended March 31, 2019. The increase was due to fees incurred in connection with the search for our new chief executive officer of $133,078 and higher stock compensation expense of $50,833, partly offset by lower facilities costs of $22,339, legal fees of $21,215 and insurance costs of $20,063. We expect lower general and administrative expenses, as compared to the three months ended March 31, 2020, for the remainder of 2020.

*Interest Expense, Net.* Net interest expense was $67 for the three months ended March 31, 2020 compared to $7,118 for the three months ended March 31, 2019.

*Loss from Continuing Operations.* Our loss from continuing operations for the three months ended March 31, 2020 was $930,501 or 34% higher than the $693,724 loss from continuing operations for the three months ended March 31, 2019 due to fees incurred in connection with the search for our new chief executive officer, the timing of semiconductor fabrication costs and higher stock compensation expense, partly offset by other cost savings.

*Loss from Discontinued Operations.* Our loss from discontinued operations for the three months ended March 31, 2019 was $347,175 and included a $140,000 impairment of assets held for sale. As we sold our power conversion systems division in September 2019, we did not have a loss from discontinued operations for the three months ended March 31, 2020.

*Net Loss.* Our net loss for the three months ended March 31, 2020 was $930,501, or 11% lower, as compared to a net loss of $1,040,899 for the three months ended March 31, 2019, for the reasons discussed above.

### Liquidity and Capital Resources

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

At March 31, 2020, we had cash and cash equivalents of $2,219,992. Our net working capital and long-term debt at March 31, 2020 were $1,826,954 and $0, respectively. As discussed below, in May 2020, we received a PPP Loan (as defined below) of $91,407 to temporarily subsidize our payroll and facilities costs in a business landscape impacted by the COVID-19 pandemic.

As our technology is in the development stage and has not yet been commercialized, we will be required to obtain additional financing to continue our operations and execute our business plan. We will need to raise additional capital within the next twelve months from the date of issuance of this report to fund our future operations. We may not be able to obtain such financing on commercially reasonable terms or at all, especially in light of the market volatility and uncertainty as a result of the COVID-19 outbreak. If we are unable to obtain such financing when needed, we will be required to reduce operating costs, which could jeopardize current and future strategic initiatives and business plans, or cease operations. Based on our current operating plan, existing working capital at March 31, 2020 is not sufficient to meet the cash requirements to fund planned operations through the period that is one year after the date our financial statements for the period ended March 31, 2020 are issued unless we are able to raise additional capital to fund operations. Our financial statements for the three months ended March 31, 2020, were prepared under the assumption that we would continue our operations as a going concern. Our independent registered public accounting firm, in its report on our 2019 financial statements, raised substantial doubt about our ability to continue as a going concern.

Operating activities in the three months ended March 31, 2020 resulted in cash outflows of $813,627, which were due to the loss from continuing operations for the period of $930,501 and unfavorable balance sheet timing of $45,080 partly offset by stock-based compensation of $116,497, depreciation and amortization of $28,113 and patent impairment charges of $17,344. Operating activities in the three months ended March 31, 2019 resulted in cash outflows of $996,896, which were due to the loss from continuing operations for the period of $693,724 and cash used in operating activities related to discontinued operations of $409,867 partly offset by non-cash items, including depreciation and amortization and stock-based compensation, of $54,216 and favorable balance sheet timing of $52,479. We expect a modest reduction in cash outflows from operating activities for the remainder of 2020, although these outflows will be subject to quarterly variability due to timing of research and development expenditures.

Investing activities in the three months ended March 31, 2020 and 2019 resulted in cash outflows of $24,063 and $32,517, respectively, for the acquisition of intangible assets and fixed assets.

Financing activities in the three months ended March 31, 2020 and 2019 resulted in no cash inflows or outflows.

#### PPP Loan

On May 4, 2020, we entered into a Loan Agreement and Promissory Note (collectively the “PPP Loan”) with BBVA USA pursuant to the Paycheck Protection Program (the “PPP”) under the recently enacted Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) administered by the U.S. Small Business Administration. We received total proceeds of $91,407 from the unsecured PPP Loan. The PPP Loan is scheduled to mature on May 4, 2022 and has an interest rate of 1.00% per annum and is subject to the terms and conditions applicable to loans administered by the U.S. Small Business Administration under the CARES Act. The PPP Loan may be prepaid by us at any time prior to its maturity with no prepayment penalties.

The PPP Loan contains customary events of default relating to, among other things, payment defaults and breaches of representations and warranties. Subject to certain conditions, the PPP Loan may be forgiven in whole or in part by applying for forgiveness pursuant to the CARES Act and the PPP. The amount of loan proceeds eligible for forgiveness is based on a formula based on a number of factors, including the amount of loan proceeds used by us during the eight-week period after the loan origination for certain purposes, including payroll costs, rent payments on certain leases, and certain qualified utility payments, provided that, among other things, at least 75% of the loan amount is used for eligible payroll costs, the employer maintaining or rehiring employees and maintaining salaries at certain level. In accordance with the requirements of the CARES Act and the PPP, we intend to use the proceeds from the PPP Loan primarily for payroll costs. It is our expectation that the PPP Loan will be forgiven but no assurance can be given that we will be granted forgiveness of the PPP Loan in whole or in part. Assuming the principal amount is not forgiven, the payment schedule would consist of 18 monthly consecutive payments of $5,145 each, beginning December 4, 2020 with a final payment due on May 4, 2022 for all principal and accrued interest not yet paid.

#### Private Placement

On November 13, 2019, we closed on a private placement of our common stock and warrants to purchase common stock for aggregate gross proceeds of $3.5 million and net proceeds of $3.1 million (the “Offering”). We have been utilizing, and expect to continue to utilize, the net proceeds from the Offering for working capital and general corporate purposes.

### Critical Accounting Policies

There have been no significant changes during the three months ended March 31, 2020 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, 2019.

### Off-Balance Sheet Transactions

As of March 31, 2020, we did not have any off-balance sheet transactions.

### Trends, Events and Uncertainties

There are no material changes from trends, events or uncertainties disclosed in our 2019 Annual Report on Form 10-K.

## Controls and procedures

As filed, 2,964 characters.

### Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the Company’s reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. The Company’s disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that this information is accumulated and communicated to management, including the principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. The Company conducted an evaluation (pursuant to Rule 13a-15(b) of the Exchange Act), under the supervision and with the participation of its Chief Executive Officer (principal executive officer) and its Chief Financial Officer (principal financial and accounting officer) of the effectiveness of the Company’s disclosure controls and procedures as of March 31, 2020 and has concluded that, as of March 31, 2020, the Company’s 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 March 31, 2020 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.

Filed May 14, 2020.
Source: SEC EDGAR, the filing index for accession 0001104659-20-061589. Last ingested by Listed: Nov 5, 2026, 19:31 ET. No prices; not investment advice.