May 16, 2022, 4:37 p.m. EDT

10-Q: IDEAL POWER INC.

new
Watchlist Relevance
LEARN MORE

Want to see how this story relates to your watchlist?

Just add items to create a watchlist now:

or Cancel Already have a watchlist? Log In

(EDGAR Online via COMTEX) -- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 2021 financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2021. 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 I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021.

Overview

Ideal Power Inc. is located in Austin, Texas. The Company is solely focused on the further development and commercialization of its Bidirectional bipolar junction TRANsistor (B-TRAN(TM)) solid state switch technology.

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, 2022 amounted to $16.0 million with approximately $12.4 million of that revenue from discontinued operations and the remainder from grant revenue for bidirectional power switch development. Revenue was $125,008 and $242,061 in the three months ended March 31, 2022 and 2021, respectively. Revenue for both the three months ended March 31, 2022 and 2021 related to government grants. We may pursue additional research and development grants, if and when available, to further develop and/or improve our technology.

COVID-19 Impact

As of the date of this report, the COVID-19 pandemic continues throughout the United States and the rest of the world. The ultimate extent of the impact of COVID-19 on our financial performance will depend on future developments, including, among other things, the duration and spread of COVID-19 and its related variants, the timing, scope and efficacy of vaccination efforts, additional governmental restrictions in response to the COVID-19 pandemic, and the overall economy, all of which are highly uncertain and cannot be predicted. If the COVID-19 pandemic contributes to significant additional volatility in the global financial markets in the future, our ability to raise additional capital, if necessary, on acceptable terms or at all, may be impacted, though such risk has not materialized to date. If the financial markets and/or the overall economy are negatively impacted for an extended period, our operating results may be materially and adversely affected.

While the COVID-19 pandemic has caused some disruption to our business, it has not had a material adverse impact on our operations to date. However, the COVID-19 pandemic may disrupt our business in the future and cause electrical component shortages and unavailability, difficulties in securing fabrication capacity, delays in critical development and commercialization activities and/or result in potential incremental costs associated with mitigating the effects of the COVID-19 pandemic. There has been a significant disruption in the supply chain for semiconductors due both to the COVID-19 pandemic and increased demand for semiconductors. While this disruption has not materially impacted us to date, it may materially and adversely impact us in the future. The COVID-19 pandemic is ongoing, and its dynamic nature, including uncertainties relating to the ultimate spread of the virus and its related variants, the duration of the pandemic, the timing, scope and efficacy of vaccination efforts and additional actions that may be taken by governmental authorities in response to the pandemic, makes it difficult to forecast the effects on our business and results of operations for the remainder of 2022 and thereafter.

Table of Contents

Results of Operations

Comparison of the three months ended March 31, 2022 to the three months ended March 31, 2021

Grant Revenues. Grant revenues for the three months ended March 31, 2022 and 2021 were $125,008 and $242,061, respectively. The grant revenues relate primarily to a $1.2 million subcontract with Diversified Technologies, Inc. ("DTI") to supply B-TRAN(TM) devices as part of a two-year contract awarded to DTI by the United States Naval Sea Systems Command ("NAVSEA") for the development and demonstration of a B-TRAN(TM) enabled high efficiency direct current solid state circuit breaker ("SSCB"). The program started in late June 2020. In September 2021, we entered into and began work under a $50,000 subcontract with DTI under a Phase I Small Business Innovation Research ("SBIR") grant from the Department of Energy ("DOE") to develop a B-TRAN(TM)-driven low loss alternating current SSCB. We completed our work under this subcontract in February 2022. We expect the grant revenue related to the subcontract with DTI for the NAVSEA program to continue over the next quarter with minimal revenue recognized thereafter through completion of the NAVSEA demonstration. We also expect to pursue additional government funding that may result in additional grant revenues in the future.

We expect to introduce our initial product for commercial sale in late 2022.

Cost of Grant Revenues. Cost of grant revenues for the three months ended March 31, 2022 and 2021 was $125,008 and $242,061, respectively. The cost of grant revenues relates to the subcontracts with DTI discussed above and are equal to the associated grant revenues resulting in no gross profit. We expect no gross profit under the remaining subcontract with DTI or from other grants that we are pursuing or may pursue in the remainder of 2022.

Research and Development Expenses. Research and development expenses increased by $567,667, or 218%, to $828,547 in the three months ended March 31, 2022 from $260,880 in the three months ended March 31, 2021. The increase was due to higher semiconductor fabrication costs of $250,537, personnel costs of $99,917, stock-based compensation expense of $82,177, professional fees of $52,722, contract labor of $39,608, engineering services of $36,360 and other B-TRAN(TM) development spending of $6,346. In the three months ended March 31, 2021, all of our semiconductor fabrication costs were funded by government grants. In the three months ended March 31, 2022, a majority of our semiconductor fabrication costs were not funded by government grants. We expect higher research and development expenses in the remainder of 2022 as we continue to accelerate development of our B-TRAN(TM) technology and self-fund, at least in the short term, semiconductor fabrication costs and other development previously funded through government grants. Research and development expenses will be subject to quarterly variability due primarily to the number, size and timing of semiconductor fabrication runs and their associated cost.

General and Administrative Expenses. General and administrative expenses increased by $252,263, or 42%, to $852,949 in the three months ended March 31, 2022 from $600,686 in the three months ended March 31, 2021. The increase was due to higher investor relations spending, inclusive of services paid in stock, of $107,128, board of directors' search and placement fees and expenses of $85,941, stock-based compensation expense of $55,301 and other general and administrative spending of $3,893. We expect relatively flat to slightly lower general and administrative expenses in the remainder of 2022.

Sales and Marketing Expenses. Sales and marketing expenses increased by $156,851, or 251%, to $219,429 in the three months ended March 31, 2022 from $62,578 in the three months ended March 31, 2021. The increase was due to higher personnel costs of $93,956 as we hired our first two sales and marketing employees in 2021, stock-based compensation expense of $32,355 and other spending as we work towards commercializing our B-TRAN(TM) technology of $30,540. We expect higher sales and marketing expenses in the remainder of 2022 as we engage more broadly with prospective customers and commercialize our B-TRAN(TM) technology.

Loss from Operations. Our loss from operations for the three months ended March 31, 2022 was $1,900,925, or 106% higher, as compared to the $924,144 loss from operations for the three months ended March 31, 2021, for the reasons discussed above.

Interest Expense, Net. Interest expense, net was $3,716 for the three months ended March 31, 2022 compared to $6 for the three months ended March 31, 2021.

Net Loss. Our net loss for the three months ended March 31, 2022 was $1,904,641, or 106% higher, as compared to a net loss of $924,150 for the three months ended March 31, 2021, for the reasons discussed above.

Table of Contents

Liquidity and Capital Resources

We currently generate grant revenue only. We expect to generate grant revenue and potentially commercial revenue in 2022, depending on the ultimate date that our initial product is introduced for commercial sale. We have incurred losses since inception. We have funded our operations to date through the sale of common stock and warrants.

At March 31, 2022, we had cash and cash equivalents of $21.7 million. Our net working capital at March 31, 2022 was $21.4 million. We had no outstanding debt at March 31, 2022. Accordingly, management expects that our cash and cash equivalents will be sufficient to fund our activities for at least the next twelve months from the date of filing this Quarterly Report on Form 10-Q; however, we may require additional funds to fully implement our plan of operation.

Operating activities in the three months ended March 31, 2022 resulted in cash outflows of $1,417,123, which were due to the net loss for the period of $1,904,641, partly offset by stock-based compensation of $231,765, favorable balance sheet timing of $111,463, stock issued for services of $100,100 and depreciation and amortization of $44,190. Operating activities in the three months ended March 31, 2021 resulted in cash outflows of $843,337, which were due to the net loss for the period of $924,150 and unfavorable balance sheet timing $79,315, partly offset by stock issued for services of $68,680, stock-based compensation of $61,933 and depreciation and amortization of $29,515.

We expect an increase in cash outflows from operating activities throughout 2022 as we continue to accelerate development and commercialization of our B-TRAN(TM) technology.

Investing activities in the three months ended March 31, 2022 and 2021 resulted in cash outflows of $27,616 and $30,737, respectively, for the acquisition of intangible assets and fixed assets.

Financing activities in the three months ended March 31, 2022 did not result in any cash inflows or outflows. Financing activities in the three months ended March 31, 2021 resulted in cash inflows of $21,204,609 from the net proceeds from our Public Offering (as defined below) in February 2021 and $3,301,226 from the exercise of warrants and stock options.

Public Offering

In February 2021, we issued and sold 1,352,975 shares of our common stock, including 176,475 additional shares of common stock pursuant to the exercise of the underwriter's option to purchase additional shares in full, in an underwritten public offering at a price of $17.00 per share (the "Public Offering"). The net proceeds to us from the Public Offering were $21.2 million. We intend to use the net proceeds from the Public Offering to fund commercialization and development of our B-TRAN(TM) technology and general corporate and working capital purposes.

Critical Accounting Estimates

There have been no significant changes during the three months ended March 31, 2022 to the critical accounting estimates 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, 2021.

Trends, Events and Uncertainties

There are no material changes from trends, events or uncertainties disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

May 16, 2022

COMTEX_407287079/2041/2022-05-16T16:36:55

Is there a problem with this press release? Contact the source provider Comtex at editorial@comtex.com. You can also contact MarketWatch Customer Service via our Customer Center.

(c) 1995-2022 Cybernet Data Systems, Inc. All Rights Reserved

This Story has 0 Comments
Be the first to comment

Story Conversation

Commenting FAQs »

Partner Center

Link to MarketWatch's Slice.