# Ideal Power Inc.: Form 10-Q for the period ended Sep 30, 2018

- Company: [Ideal Power Inc.](/companies/ipwr.md) (CIK 1507957)
- Form: 10-Q
- Filed: 2018-11-15
- Accepted by EDGAR: Nov 14, 2018, 17:32 ET
- Period: 2018-09-30
- Accession: 0001144204-18-060043
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1507957/000114420418060043/tv507024_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1507957/000114420418060043/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2018-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2018-07-01 to 2018-09-30 | $342.7k | us-gaap:Revenues |
| Revenue | 9 months, 2018-01-01 to 2018-09-30 | $1.1m | us-gaap:Revenues |
| Cost of revenue | 3 months, 2018-07-01 to 2018-09-30 | $552.1k | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2018-01-01 to 2018-09-30 | $1.5m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2018-07-01 to 2018-09-30 | −$209.5k | us-gaap:GrossProfit |
| Gross profit | 9 months, 2018-01-01 to 2018-09-30 | −$327.8k | us-gaap:GrossProfit |
| Research and development | 3 months, 2018-07-01 to 2018-09-30 | $854.4k | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2018-01-01 to 2018-09-30 | $2.5m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2018-07-01 to 2018-09-30 | −$2.2m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2018-01-01 to 2018-09-30 | −$6.1m | us-gaap:OperatingIncomeLoss |
| Net income | 3 months, 2018-07-01 to 2018-09-30 | −$2.2m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2018-01-01 to 2018-09-30 | −$6.0m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2018-07-01 to 2018-09-30 | −$0.16 | us-gaap:EarningsPerShareBasicAndDiluted |
| Diluted EPS | 9 months, 2018-01-01 to 2018-09-30 | −$0.43 | us-gaap:EarningsPerShareBasicAndDiluted |
| Diluted shares (weighted) | 9 months, 2018-01-01 to 2018-09-30 | 9,249,626 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2018-01-01 to 2018-09-30 | −$4.3m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2018-01-01 to 2018-09-30 | $19.6k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2018-09-30 | $5.5m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2018-09-30 | $6.0m | us-gaap:AssetsCurrent |
| Total assets | at 2018-09-30 | $8.7m | us-gaap:Assets |
| Current liabilities | at 2018-09-30 | $1.8m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2018-09-30 | $2.3m | us-gaap:Liabilities |
| Shareholders' equity | at 2018-09-30 | $6.4m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 28,437 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 2017 financial statements and related notes included in our Annual Report on Form 10-K. 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. We design, market and sell 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 are designed to be used in both on-grid and off-grid applications.

We sell our products primarily to systems integrators as part of a larger turn-key systems which enable end users to manage their electricity consumption by reducing demand charges or fossil fuel consumption, integrating renewable energy sources and forming their own microgrid. Our products are made by contract manufacturers to our specifications, enabling us to scale production to meet demand on a cost-effective basis without requiring significant expenditures on manufacturing facilities and equipment. As our products establish a foothold in key power conversion markets, we may begin to focus on licensing our proprietary PPSA™-based product designs to OEMs to reach more markets and customers. We may seek to build a portfolio of relationships that generate license fees and royalties from OEMs for sales of their products which integrate PPSA™.

On April 16, 2018, the Company realigned into two separate operating divisions: Power Conversion Systems to focus on its PPSA™ and B-TRAN to develop its bi-directional bi-polar junction transistor (B-TRAN™) solid state switch technology.

We were founded on May 17, 2007. To date, operations have been funded primarily through the sale of common stock and, prior to our initial public offering, the issuance of convertible debt. Total revenue generated from inception to date as of September 30, 2018 amounted to $14.3 million with approximately 19% of that revenue coming from government grants. We may pursue additional research and development grants, if and when available, for the purpose of developing new products and improving current products.

### Power Conversion Systems Division

### Our Technology

PPSA™ uses indirect power flow in which power flows through input switches and is temporarily stored in our proprietary AC link inductor. Our proprietary fast switching algorithms enable the transfer of quantum packets of power between ports in our system. As the AC link becomes charged, it disconnects from its input switches, resonates without being connected to either the input or output switches, and then reconnects to its output switches when it reaches the correct voltage and frequency for the application. PPSA™ is a power conversion technology that differentiates itself from traditional power conversion technology in key product metrics, such as size and weight while providing built-in isolation and bi-directional and multi-port capabilities. At September 30, 2018, we had been granted 38 US patents and five foreign patents related to PPSA™.

### Products

We currently sell three power conversion systems, or PCS, utilizing our patented PPSA™ technology. These products are described as follows:

- The 30kW Stabiliti™ series has two product offerings, two-port (AC-DC) and multi-port (AC-DC-DC) models, which are both UL1741 Supplement A, or UL1741 SA, certified. These products are intended to be used for the commercial and industrial stand-alone energy storage, electric vehicle fast charging and microgrid markets, including solar plus storage microgrids. They are bi-directional and operate in both grid-tied and grid-forming modes with near seamless transfer between operating modes. Grid-forming mode provides customers the ability to form and manage a microgrid. The products operate in both 50Hz and 60Hz environments.
- The 30kW SunDial Plus™, which is also UL1741 SA certified, is intended to be used for the commercial and industrial grid-tied solar plus storage market. The SunDial™ Plus is a PV string inverter with a second DC port to connect batteries to a solar PV array. This product includes a built-in 6 string PV combiner and DC disconnects and is grid-tied, AC export only. The product operates in both 50Hz and 60Hz environments.

### Business Strategy

Our business strategy is to promote and expand the uses of PPSA™ initially through product development and product sales. To bring our products to market, we plan to seek out best-in-class partners who will distribute, white-label or integrate our innovative products into higher value systems resulting in multiple strategic sales channels for our PPSA™-based products and product designs. As our products gain broader acceptance in the power conversion market, we intend to license our proprietary PPSA™-based product designs to OEMs within our target markets, as well as license our technologies for other markets which we do not plan to enter directly. The basis for this approach is the belief that OEMs may achieve higher product margins and gain more market share by providing PPSA™-based products, which are differentiated from the traditional product offerings in the industry, to their customers. We believe such strategic relationships with key OEM licensees would enable us to reap the benefits of PPSA™ and gain market share more quickly than by strictly manufacturing and distributing our products.

### Target Markets

Currently, our primary target markets are solar + storage and, to a lesser extent, microgrids. We also intend to be opportunistic with regard to other markets, including the stand-alone energy storage and electric vehicle fast charging markets.

Solar + Storage and Microgrid Markets

Solar PV has one of the lowest levelized costs of energy for new electrical generation capacity and we expect this to remain true in the near term. We expect distributed PV to continue to be a high growth business as system costs have fallen dramatically over the past several years. Accordingly, we expect the economics of generating PV for local consumption to remain strong for several more years, especially given the investment tax credit, or ITC, extension passed by Congress and signed into law in 2015 for solar energy production. Our SunDial™ Plus product was launched to directly address this market. One shortcoming of distributed, behind-the-meter PV systems is that they require connection to the utility power grid in order to operate. For example, a business with PV on its roof will not, in most cases, benefit from the ability to generate power should the utility power grid go down. Another shortcoming of distributed PV systems is the instability they cause on the local power lines. Utility power grids were not designed to manage power inflow from the end of the lines. As a result, distributed generation sources can lead to wide swings in line voltages when clouds pass and power output falls off, requiring the utility to ramp up its power generation to make up for the shortfall in solar. We believe the proliferation of PV, its intermittency and the elimination of net metering in many states may drive growth in the solar + storage market.

Whether for emergency backup power or for baseload generation in remote locations with weak or no electric grids, microgrids are an emerging business case for solar paired with energy storage. A distributed PV system connected to a battery energy storage system, or BESS that includes one of our Stabiliti™ multi-port PCS enable a business to benefit from the ability to form and manage a local microgrid powered by the PV system and BESS even when the utility power grid is down. This capability is attractive to electricity consumers who need to power critical loads even in a blackout. In remote locations where there is no reliable electric grid or a dependence on diesel generators, which may be as diverse as a military battlefield or remote tropical island resort, or in locations where local electric rates are high due to aging and inefficient generation technology, a trend towards self-generation microgrids is developing. These sites can use solar, batteries and other forms of generation all brought together by one or more of our Stabiliti™ PCS to form and manage a microgrid using maximum solar generation for lowest cost. As such, we believe our products may become increasingly attractive to co-locate BESS with distributed PV.

According to its research, IHS Markit Technology believes that systems will be deployed in two principal configurations. One configuration is to have separate BESS and PV systems tied together through the AC wiring, which is supported by our legacy products. A second, emerging configuration is to place the BESS and the PV system behind a single PCS with two DC inputs. Our Stabiliti™ and SunDial™ Plus were designed specifically to enable this configuration which we believe is the lower cost and more efficient configuration. By tying the solar and batteries together as a DC-coupled system, the batteries become eligible for ITC and accelerated depreciation further enhancing the project economics.

#### Stand-Alone Storage Market

The stand-alone energy storage market is served by BESS. BESS are racks of batteries coupled with a system controller and a power conversion system, such as those manufactured by us, to enable electric power to be captured, stored, and used in conjunction with electric power grids. These systems can be large, megawatt-scale systems operated by utilities to better manage their system resources, or smaller kilowatt-scale systems used by businesses and designed to enable these businesses to manage their power use and mitigate utility imposed "peak demand charges", which are charges utilities levy on their business customers for delivery of power at peak usage times of the day, such as mid-afternoons in the summer. The growth of peak demand charges has been substantial over the past decade and now can make up 50% or more of a commercial utility bill in certain markets. This is a trend that is likely to continue as more intermittent resources are added to the utility power grid causing grid instability. Utilities and aggregators of distributed generation resources are also expected to adopt BESS due to the proliferation of renewables and to take advantage of additional value streams such as energy arbitrage, frequency regulation and ancillary services, infrastructure upgrade deferral and locational capacity.

There are strong economic incentives available to commercial and industrial consumers in major US markets such as California and New York in the form of reduced time-of-use and/or demand charges for installing a BESS and managing when power is drawn from the grid or reducing peak consumption. There is also strong regulatory support for such systems. For example, California has issued a mandate for over 1,800 megawatts of new energy storage to be installed by 2020. Other states, including New York and Massachusetts, have also issued mandates for energy storage and we expect this trend to continue.

We expect the cost of commercial and industrial BESS to continue to decline due primarily to lower battery costs and, as a result, expect significant expansion in the addressable market for these systems. We also believe the combination of lower BESS costs, third-party financing, increases in utility demand charges, and the entrance of large, established companies to the BESS space may contribute to accelerating market growth for stand-alone energy storage.

### Other Markets

In addition to the markets discussed above, we may also have opportunities for market expansion into electric vehicle fast chargers in certain applications where our products’ compact size and multi-port capabilities can unlock value for the system integrator particularly in locations where battery storage is coupled with the charging system to eliminate demand charges or expand the charging systems response capabilities. Earlier this year, one of our customers received certification for an electric vehicle fast charger utilizing our two-port Stabiliti™ product and has plans to utilize our multi-port Stabiliti™ product in an electric vehicle fast charger with buffer storage. Another customer is developing an electric vehicle fast charger utilizing our multi-port Stabiliti™ product for an electric vehicle fast charger with buffer storage. We may have additional opportunities for growth in this market in the future.

Although our technology may be suitable for other vertical markets within the global power conversion market landscape, we do not currently offer products for sale directly to other power conversion markets such as the variable-frequency drive, uninterruptible power supply, rail, wind or electric vehicle traction drive markets.

We plan to continue to monitor all power conversion markets for opportunities to create solutions for customers and unlock the broader value of our patented technology.

### Future Innovations

Our existing products incorporate multiple insulated gate bipolar transistors, or IGBTs, which are power switches used in the process to convert power from one current form to another. IGBTs switch power in only one direction (DC to AC or AC to DC) and require the use of a blocking diode to prevent power from flowing back through the system. To enable our existing products to perform bi-directional power conversion, for each IGBT and diode used in our products, we must include a second IGBT and diode. These additional components have slight voltage drops that affect the electrical efficiency of our products and generate heat that must be dissipated. We have patented and are developing a new, highly efficient power switch called a B-TRAN™ that we believe will allow us to substitute one B-TRAN™ for two pairs of IGBTs and diodes used in our current products. Based on third party device software simulations and initial prototype testing, we believe that the B-TRANs™ can significantly improve electrical efficiency in our power converters. The higher efficiency would substantially reduce the heat generated by the operation of our products. As a result, products incorporating B-TRANs™ will require less space for heat dissipation which would allow us to increase power density, or power per pound, and reduce material costs.

### B-TRAN Division

### Our Technology

In 2016, one of our semiconductor fabricators successfully tested single-sided B-TRAN™ silicon dies and the results were consistent with third party simulations that predict significant performance and efficiency improvements over conventional power switches such as SCRs, IGBTs and MOSFETs. In the second half of 2017, we shifted our focus to de-risking the proof of concept phase of the B-TRAN™ development timeline, as this phase of development was taking longer than anticipated due to the complexity of manufacturing complicated, two-sided power semiconductor devices. To facilitate this, we engaged a second semiconductor fabricator, on a parallel path, to produce, on an accelerated schedule, a B-TRAN™ that is less complex to manufacture for proof of concept and initial testing. In the first quarter of 2018, we successfully completed proof of concept testing of double-sided B-TRAN™ prototypes, validating the ability to make B-TRAN™ semiconductor power switches using conventional silicon semiconductor fabrication equipment and processes. Test results on the standard double-sided prototypes measured B-TRAN™ electrical losses at less than 40% that of conventional power switches such as silicon IGBTs.

In the second quarter of 2018, a domestic semiconductor fabricator was qualified and engaged for development runs on the standard version of the B-TRAN™. As a result, we now have the next run of devices with two fabricators in process. These runs incorporate the results of prior runs and testing into the B-TRAN™ design and their manufacturing process. With the double-sided transistor behavior and low conduction losses confirmed and corrections and improvements in the manufacturing process implemented, the next goal is the completion of the fabrication of prototype engineering samples for engineering evaluation and evaluation by potential customers and partners. These samples will include a packaging design based on our previous work and a driver. We have completed the first design for the driver with a prototype driver already built and tested for basic functionality. The coupling of device samples with a driver will form the basis of an intelligent module required for potential customer and partner evaluation.

At September 30, 2018, we had 32 US and nine foreign issued patents covering the operation, control and manufacturing of the B-TRAN™ device.

### Products

As our B-TRAN™ technology is currently under development, we do not yet offer commercial B-TRAN™ products.

### Business Strategy and Target Markets

We plan to first utilize the B-TRAN™ in our own power conversion products and then introduce it into the multi-billion dollar power semiconductor market utilizing a licensing model. We believe our new B-TRAN™ technology can potentially address a significant portion of the power semiconductor market that currently relies on power semiconductor devices such as IGBTs. Potential addressable markets for B-TRAN™-based products include solar photovoltaic inverters, microgrid power conversion systems, electric vehicle drivetrains, bi-directional energy storage, solid-state DC and AC contactors and breakers, variable frequency drives and other power conversion and control applications that could benefit from B-TRAN™’s enhanced switching performance.

### Critical Accounting Policies

There have been no significant changes during the nine months ended September 30, 2018 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, 2017.

### Results of Operations

### Comparison of the three months ended September 30, 2018 to the three months ended September 30, 2017

*Revenues.* Revenues for the three months ended September 30, 2018 of $342,661 were $101,979, or 23%, lower than the $444,640 we earned in revenues for the three months ended September 30, 2017 due to lower sales of our Stabilti™ product and a customer rescheduling, with our approval, a SunDial™ Plus shipment to October.

*Cost of Revenues.* Cost of revenues increased for the three months ended September 30, 2018 to $552,127 compared to $418,529 for the three months ended September 30, 2017. Cost of revenues for the three months ended September 30, 2018 was impacted by an unfavorable adjustment to the Company’s product warranty accrual of $165,000, an unfavorable purchase price variance (PPV) on sales of the SunDial™ Plus of $43,593 and a write-off of legacy product finished goods of $41,600, partially off-set by lower volumes.

*Gross Profit (Loss).* Gross loss for the three months ended September 30, 2018 was $209,466 compared to a gross profit of $26,111 for the three months ended September 30, 2017.

*Research and Development Expenses.* Research and development expenses decreased by $221,485, or 21%, to $854,364 in the three months ended September 30, 2018 from $1,075,849 in the three months ended September 30, 2017. The decrease was due primarily to the impact of cost reduction activities including lower personnel, development and certification costs and the timing of semiconductor fabrication expenditures.

*General and Administrative Expenses.* General and administrative expenses increased by $21,394, or 2%, to $921,276 in the three months ended September 30, 2018 from $899,882 in the three months ended September 30, 2017.

*Sales and Marketing Expenses.* Sales and marketing expenses decreased by $7,139, or 3%, to $264,705 in the three months ended September 30, 2018 from $271,844 in the three months ended September 30, 2017.

*Loss from Operations.* Our loss from operations for the three months ended September 30, 2018 was $2,249,811 compared to loss from operations of $2,221,464 for the three months ended September 30, 2017.

*Interest Income (Expense), Net.* Net interest expense was $112 for the three months ended September 30, 2018 compared to net interest income of $3,865 for the three months ended September 30, 2017.

*Net Loss.* Our net loss for the three months ended September 30, 2018 was $2,249,923 as compared to a net loss of $2,217,599 for the three months ended September 30, 2017.

### Comparison of the nine months ended September 30, 2018 to the nine months ended September 30, 2017

*Revenues.* Revenues for the nine months ended September 30, 2018 of $1,144,103 were $170,423, or 18%, higher than the $973,680 we earned in revenues for the nine months ended September 30, 2017 due to higher sales of our Sun Dial™ Plus product.

*Cost of Revenues.* Cost of revenues decreased by $422,178, or 22%, to $1,471,890 for the nine months ended September 30, 2018 compared to $1,894,068 for the nine months ended September 30, 2017. The decrease was due primarily to a non-cash write-down of legacy product inventory in the nine months ended September 30, 2017 of $703,220 partially offset by a net unfavorable adjustment to the Company’s warranty accrual of $150,000 and the impact of higher sales volumes.

*Gross Loss.* Gross loss for the nine months ended September 30, 2018 was $327,787 compared to a gross loss of $920,388 for the nine months ended September 30, 2017 due to the decline in cost of revenues.

*Research and Development Expenses.* Research and development expenses decreased by $856,698, or 25%, to $2,517,688 in the nine months ended September 30, 2018 from $3,374,386 in the nine months ended September 30, 2017. The decrease was due primarily to the impact of cost reduction activities including lower personnel, development and certification costs.

*General and Administrative Expenses.* General and administrative expenses decreased by $345,324, or 12%, to $2,630,936 in the nine months ended September 30, 2018 from $2,976,260 in the nine months ended September 30, 2017. The decrease was primarily due to lower non-cash charges for patent abandonments and stock-based compensation and the favorable impact of cost reduction activities, including lower personnel costs, partly offset by higher legal fees.

*Sales and Marketing Expenses.* Sales and marketing expenses decreased by $651,776, or 53%, to $588,937 in the nine months ended September 30, 2018 from $1,240,713 in the nine months ended September 30, 2017. The decrease was due to a $325,235 decline in bad debt expense, including a $162,000 recovery in the nine months ended September 30, 2018, and the impact of costs reduction activities including lower professional fees of $221,871 and personnel costs of $175,095, partially offset by higher stock-based compensation costs of $167,429 due to significant forfeitures in 2017.

*Loss from Operations.* Our loss from operations for the nine months ended September 30, 2018 was $6,065,348 compared to loss from operations of $8,511,747 for the nine months ended September 30, 2017.

*Interest Income, net.* Net interest income was $36,817 for the nine months ended September 30, 2018 compared to $15,440 for the nine months ended September 30, 2017. The increase was the result of late fees associated with the recovery of a delinquent customer receivable.

*Net Loss.* Our net loss for the nine months ended September 30, 2018 was $6,028,531 as compared to a net loss of $8,496,307 for the nine months ended September 30, 2017. The decrease is attributable to reduced operating expenses as the result of cost reduction activities, the favorable resolution of legal proceedings and higher non-cash charges associated with inventory write-downs, patent impairments and bad debt expense in 2017.

### Liquidity and Capital Resources

We do not currently generate enough revenue to sustain our operations. We have funded our operations through the sale of common stock and, prior to our initial public offering, the issuance of convertible debt.

At September 30, 2018, we had cash and cash equivalents of $5,538,765. Our net working capital and long-term debt at September 30, 2018 were $4,227,710 and $0, respectively.

Operating activities in the nine months ended September 30, 2018 resulted in cash outflows of $4,344,001, which were due primarily to the net loss for the period of $6,028,531, partly offset by non-cash items of $1,126,261, related primarily to stock-based compensation of $837,810 and depreciation and amortization of $297,007, and favorable balance sheet timing of $558,269. Operating activities in the nine months ended September 30, 2017 resulted in cash outflows of $5,924,245, which were due primarily to the net loss for the period of $8,496,307, partly offset by non-cash items of $2,425,141, related primarily to stock-based compensation of $833,637, inventory write-downs of $703,220, depreciation and amortization of $339,493, patent impairments of $268,789 and bad debt expense of $226,557 as well as favorable balance sheet timing of $146,921.

Investing activities in the nine months ended September 30, 2018 and 2017 resulted in cash outflows of $136,865 and $265,684, respectively, for the acquisition of fixed assets and intangible assets.

In the second quarter of 2017, we began implementing a cost reduction plan with the goal of reducing our cash outflows for operating and investing activities. This plan included the simplification of our product roadmap to focus on our 30kW SunDial™ Plus and Stabilti™ products for the solar plus storage and microgrid markets and eliminate activities that did not present significant near-term revenue opportunities. In addition, we discontinued our legacy products, including our 125kW product, and postponed our development and certification efforts related to other applications and international markets.

Financing activities in the nine months ended September 30, 2018 resulted in cash outflows of $2,616 related to the payment of taxes associated with the vesting of stock awards. Financing activities in the nine months ended September 30, 2017 resulted in cash inflows of $13,666,900 related primarily to our Private Placement net proceeds of $13,657,331. In the Private Placement, each share of common stock or preferred stock was sold together with a warrant to purchase one share of common stock at a collective price of $2.535. Investors purchased an aggregate of 5,220,826 shares of common stock and 708,430 shares of preferred stock together with warrants to purchase 5,929,256 shares of common stock in the Private Placement for aggregate gross proceeds of $15.0 million. Net cash proceeds are after offering fees and expenses, including the placement agent fee of $1.1 million.

In order to meet our operating requirements, we will need to obtain additional financing from third parties. There can be no assurance that we will be successful in obtaining third party financing with commercially reasonable terms or at all. If we are unable to obtain such financing or it is inadequate to fund our operations, we will be required to reduce operating costs, which could jeopardize future strategic initiatives and business plans.

### Off-Balance Sheet Transactions

We do not have any off-balance sheet transactions.

### Trends, Events and Uncertainties

There are no material changes from trends, events or uncertainties disclosed in our 2017 Annual Report on Form 10-K.

## Controls and procedures

As filed, 2,483 characters.

### Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our management, with the participation of our Chief Executive Officer (principal executive officer) and our Chief Financial Officer (principal financial and accounting officer), has concluded that, as of September 30, 2018, our disclosure controls and procedures are effective.

### Changes in Internal Control over Financial Reporting

There have been no other material changes in our internal controls over financial reporting that occurred during the quarter ended September 30, 2018 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, 7,399 characters.

There are no material changes from the risk factors disclosed in our 2017 Annual Report on Form 10-K except as follows:

***Our actions to separate our business into two divisions may result in additional costs.***

As discussed above in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview,” we realigned our business into two separate operating divisions. Our Power Conversion Systems division focuses on our PPSA™ technology, while our B-TRAN division focuses on our B-TRAN solid state switch technology. We took several corporate actions in connection with the creation of these two operating divisions, including reassigning our former president and chief executive officer, R. Daniel Brdar, to the position of B-TRAN Chief Commercial Officer and hiring Dr. Lon E. Bell as our president and chief executive officer in addition to his role as chairman of our board of directors. This separation may result in additional costs and expenses and may cause logistical and operational complexities that will divert management’s attention both during and after separation. We cannot assure you that the separation of our business into two divisions will not have a material adverse impact on our results of operations.

***We must raise additional funds to finance our operations and remain a going concern.***

We had a net loss of $6.0 million and used $4.3 million of cash in operating activities for the nine months ended September 30, 2018. At September 30, 2018, we had net working capital of $4.2 million and our principal source of liquidity consisted of $5.5 million of cash and cash equivalents. We expect that our net losses will continue for at least the next several quarters in order to meet our operating requirements. Such losses may fluctuate, the fluctuations may be substantial, and we may never become profitable. We will need to raise additional capital through financings from third parties to successfully execute our current operating plan. There can be no assurance that we will be able to raise capital when needed or on terms favorable to us and our stockholders. If external financing sources are not available or are inadequate to fund operations, or forecasted revenue growth does not materialize, we will be required to reduce operating costs, which could jeopardize future strategic initiatives and business plans.

***If we are unable to regain compliance with the listing requirements of The NASDAQ Stock Market, our common stock may be delisted from Nasdaq which could have a material adverse effect on our financial condition and could make it more difficult for you to sell your shares.***

Our common stock is listed on The NASDAQ Stock Market, and we are therefore subject to its continued listing requirements, including requirements with respect to the market value of publicly-held shares, market value of listed shares, minimum bid price per share, and minimum stockholder's equity, among others, and requirements relating to board and committee independence. If we fail to satisfy one or more of the requirements, we may be delisted from the Nasdaq.

On September 7, we received notice, or the Minimum Bid Price Notice, from Nasdaq that we are not currently in compliance with the $1.00 minimum closing bid price requirement of Nasdaq Listing Rule 5550(a)(2). The Minimum Bid Price Notice indicated that, consistent with Nasdaq Listing Rule 5810(c)(3)(A), we have until March 6, 2019 to regain compliance with the minimum bid price requirement by having the closing bid price of our common stock meet or exceed $1.00 per share for at least ten consecutive business days. If we do not regain compliance with the minimum bid price requirement by March 6, 2019, we may be eligible to transfer the listing of our common stock from The NASDAQ Stock Market to the Nasdaq Capital Market if, at the time of such transfer, we meet the initial listing requirement for market value of publicly held shares ($1 million) and all other initial listing standards for the Nasdaq Capital Market (except for the minimum bid price requirement) and provide Nasdaq with written notice of our intention to cure the minimum bid price requirement deficiency. In response, Nasdaq may provide us an additional 180 day period to satisfy the minimum bid price requirement. However, if it appears to the Nasdaq staff that we will not be able to cure the deficiency, or if we are not eligible, Nasdaq will provide notice to us that our common stock will be subject to delisting as described below. The Minimum Bid Price Notice had no immediate effect on the listing of our common stock and our common stock will continue to trade on the Nasdaq Stock Market under the symbol “IPWR” at this time.

If we fail to regain compliance with the minimum bid price requirement during the applicable compliance period, we will receive notification from Nasdaq that our common stock is subject to delisting. At that time we may then appeal the delisting determination to a Hearings Panel. Such notification will have no immediate effect on our listing on The NASDAQ Stock Market, nor will it have an immediate effect on the trading of our common stock pending such hearing. There can be no assurance, however, that we will be able to regain compliance with Nasdaq's minimum bid price requirement. If we regain compliance with the Nasdaq's minimum bid price requirement, there can be no assurance that we will be able to maintain compliance with the continued listing requirements for The NASDAQ Stock Market, or that our common stock will not be delisted from The NASDAQ Stock Market in the future. In addition, we may be unable to meet other applicable listing requirements of The NASDAQ Stock Market, in which case our common stock could be delisted notwithstanding our ability to demonstrate compliance with the minimum bid price requirements.

Delisting from The NASDAQ Stock Market may adversely affect our ability to raise additional financing through the public or private sale of equity securities, may significantly affect the ability of investors to trade our securities and may negatively affect the value and liquidity of our common stock. Delisting also could have other negative results, including the potential loss of employee confidence, the loss of institutional investors or interest in business development opportunities. If we are delisted from The NASDAQ Stock Market and we are not able to list our common stock on another exchange, our common stock could be quoted on the OTC Bulletin Board or in the "pink sheets." As a result, we could face significant adverse consequences including, among others:

- a limited availability of market quotations for our securities;
- a determination that our common stock is a "penny stock" which will require brokers trading in our common stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities;
- a limited amount of news and little or no analyst coverage for us;
- we would no longer qualify for exemptions from state securities registration requirements, which may require us to comply with applicable state securities laws; and
- a decreased ability to issue additional securities (including pursuant to short-form registration statements on Form S-3) or obtain additional financing in the future.

Filed Nov 15, 2018.
Source: SEC EDGAR, the filing index for accession 0001144204-18-060043. Last ingested by Listed: Nov 5, 2026, 19:31 ET. No prices; not investment advice.