Annual report pursuant to Section 13 and 15(d)

Sale of Power Conversion Systems Division

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Sale of Power Conversion Systems Division
12 Months Ended
Dec. 31, 2019
Sale of Power Conversion Systems Division  
Sale of Power Conversion Systems Division

Note 3 — Sale of Power Conversion Systems Division

On January 2, 2019, the Board approved a strategic shift to focus on the commercialization of the Company’s B-TRAN™ technology and a plan to suspend further power conversion 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 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.

On September 19, 2019, the Company closed on the sale of its 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, issued on December 11, 2019, which represented a 5% ownership interest in CE+T Energy as of the closing date. The Company did not record any value of the equity consideration obtained in the sale as there is not currently a market for such shares and the Company does 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.

As a result of the sale, the financial statements for the year ended December 31, 2019 do not include assets held for sale.

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:

 

 

 

 

 

 

 

December 31, 

 

    

2018

Accounts receivable, net

 

$

270,768

Inventories, net

 

 

131,342

Prepayments and other current assets

 

 

22,322

Property and equipment, net

 

 

329,738

Intangible assets, net

 

 

342,153

Current assets held for sale (1)

 

$

1,096,323

 

 

 

  

Accounts payable

 

$

356,113

Accrued expenses

 

 

521,642

Current liabilities held for sale

 

$

877,755


(1)

The assets of the discontinued operations classified as held for sale are classified as current on the December 31, 2018 balance sheet as it was deemed probable that the sale would occur and proceeds would be collected within one year.

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

 

 

 

 

 

 

 

 

 

 

December 31, 

 

    

2019

    

2018

Product revenue

 

$

115,000

 

$

1,624,773

Cost of product revenue

 

 

141,647

 

 

1,968,648

Research and development

 

 

228,641

 

 

2,095,138

General and administrative

 

 

79,306

 

 

59,873

Sales and marketing

 

 

59,431

 

 

774,500

Impairment (1)

 

 

405,000

 

 

360,000

Loss on discontinued operations

 

$

(799,025)

 

$

(3,633,386)


(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 were 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. For the year ended December 31, 2019, the Company recorded a loss on the sale of discontinued operations of $9,107.