Ideal Power Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Discontinued Operations

Discontinued Operations

6 Months Ended

Jun. 30, 2019

Note 3 – Discontinued Operations

On January 2, 2019, the Board approved a strategic shift to focus on the commercialization of its B-TRAN™ technology and a plan to suspend further power converter system development and sales while the Company located a buyer for its power conversion systems division. On January 4, 2019, the Company implemented a reduction-in-force in connection with this exit activity and recognized an expense of $92,600 in involuntary termination benefits.

The Company’s power conversion system division, a component supplier to energy storage system integrators, had not achieved the necessary scale to generate positive cash flows. As the division was dependent on the ability of its customers to scale in the small commercial and industrial segment of the energy storage market and based on the sales forecasts and commitments provided by these customers, the Company did not expect its power conversion systems division to scale sufficiently in the short term, requiring an inflow of additional capital for the business. As such, the decision was made to exit the power conversion systems business and sell the division and the Company’s PPSA™ technology and focus on the Company’s B-TRAN™ technology.

As a result, the assets held for sale and discontinued operations criteria were met and the Company’s financial statements are presented in accordance with ASC 205. Under ASC 205‑20‑45‑10, during the period in which a component meets the assets held for sale and discontinued operations criteria, an entity must present the assets and liabilities of the discontinued operation separately in the asset and liability sections of the balance sheet for the comparative reporting periods. The prior period balance sheet should be reclassified for the held for sale items. For income statements, the current and prior periods should report the results of operations of the component in discontinued operations when comparative income statements are presented.

The following is a reconciliation of the carrying amounts of major classes of assets and liabilities of the discontinued operations to assets and liabilities held for sale:


	June 30,		December 31,
	2019		2018
Accounts receivable, net	$	2,500	$	270,768
Inventories, net		129,017		131,342
Prepayments and other current assets		6,182		22,322
Property and equipment, net (1)		255,709		329,738
Intangible assets, net (1)		—		342,153
Current assets held for sale (2)	$	393,408	$	1,096,323

Accounts payable	$	8,199	$	356,113
Accrued expenses		465,487		521,642
Current liabilities held for sale	$	473,686	$	877,755

(1)

Includes an impairment charge of $765,000 of which $405,000 was recognized during the six months ended June 30, 2019, calculated as the net book value of assets held for sale prior to the impairment less the expected net proceeds from the planned sale. The expected net proceeds are based on the estimated fair value of the net assets held for sale less the estimated cost to sell the net assets held for sale.

(2)

The assets of the discontinued operations classified as held for sale are classified as current on the June 30, 2019 and December 31, 2018 balance sheets because it is probable that the sale will occur and proceeds will be collected within one year.

The following is a reconciliation of the major classes of line items constituting loss from discontinued operations to loss from discontinued operations shown in the Statement of Operations:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
Revenue	$	1,500	$	619,942	$	115,000	$	801,442
Cost of revenue		41,542		584,800		140,310		919,763
Research and development		24,766		583,323		185,050		1,246,562
General and administrative		13,468		14,360		38,974		24,249
Sales and marketing		(1,200)		69,989		34,917		324,232
Impairment (1)		265,000		—		405,000		—
Loss from discontinued operations	$	(342,076)	$	(632,530)	$	(689,251)	$	(1,713,364)

(1)

Impairment charge was calculated as the net book value of assets held for sale prior to the impairment less the expected net proceeds from the planned sale. The expected net proceeds are based on the estimated fair value of the net assets held for sale less the estimated cost to sell the net assets held for sale.