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 2020 financial statements and related notes included in our
Annual Report on Form 10-K for the year ended December 31, 2020. 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, 2020.
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™) 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 September 30,
2021 amounted to $15.8 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 $121,028 and $447,794 in the
three months and nine months ended September 30, 2021, respectively, and
$147,787 and $154,302 in the three and nine months ended September 30, 2020,
respectively. Revenue for the three and nine months ended September 30, 2021 and
2020 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 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, including 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 volatility in
the global financial markets in the future, the Company's 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, the Company's operating results may be materially and adversely
affected.
While the outbreak of COVID-19 has caused some disruption to our business,
particularly in the first and second quarters of 2020, the COVID-19 pandemic 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 delays in
critical development and commercialization activities and/or result in potential
incremental costs associated with mitigating the effects of the COVID-19
pandemic. The COVID-19 pandemic is ongoing, and its dynamic nature, including
uncertainties relating to the ultimate spread of the virus, the severity of the
disease, the duration of the outbreak, the timing, scope and efficacy of
vaccination efforts and additional actions that may be taken by governmental
authorities to contain the outbreak or to treat its impact, makes it difficult
to forecast the effects on our business and results of operations for the
remainder of 2021 and thereafter.
14
Table of Contents
Results of Operations
Comparison of the three months ended September 30, 2021 to the three months
ended September 30, 2020
Grant Revenues. Grant revenues for the three months ended September 30, 2021 and
2020 were $121,028 and $147,787, respectively. The grant revenues relate
primarily to a $1.2 million subcontract with Diversified Technologies, Inc.
("DTI") to supply B-TRAN™ 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™ 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™-driven low loss alternating
current SSCB. We expect the grant revenue related to these subcontracts to
continue over the next two quarters with minimal revenue recognized thereafter.
We also expect to pursue additional government funding that may result in
additional grant revenues in the future.
Cost of Grant Revenues. Cost of grant revenues for the three months ended
September 30, 2021 and 2020 was $121,028 and $147,787, respectively. The cost of
grant revenues relates primarily 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 subcontracts with DTI or from other grants that
we are pursuing or may pursue in the remainder of 2021.
Research and Development Expenses. Research and development expenses increased
by $109,928, or 22%, to $604,476 in the three months ended September 30, 2021
from $494,548 in the three months ended September 30, 2020. The increase was due
to higher contract labor for device and driver development and the expansion of
internal test capabilities of $104,418 and higher personnel costs of $102,705
and other B-TRAN™ development spending of $10,166, partly offset by lower
stock-based compensation expense of $107,361. We expect quarterly research and
development expenses to ramp higher, as compared to the three months ended
September 30, 2021, during the fourth quarter of this year and throughout 2022
as we accelerate development of our B-TRAN™ technology. Research and development
expenses will be subject to quarterly variability due primarily to the timing of
semiconductor fabrication costs.
General and Administrative Expenses. General and administrative expenses
decreased by $157,025, or 24%, to $500,942 in the three months ended September
30, 2021 from $657,967 in the three months ended September 30, 2020. The
decrease was due to lower bonus expense of $185,253, partly offset by higher
other costs of $28,228. We expect general and administrative expenses to be
modestly higher, as compared to the three months ended September 30, 2021, for
the next few quarters.
Sales and Marketing Expenses. Sales and marketing expenses increased by $108,248
to $128,248 in the three months ended September 30, 2021 from $20,000 in the
three months ended September 30, 2020. The increase was due primarily to the
hiring of a Vice President of Business Development in the first quarter of 2021
and subsequent spending to work towards commercializing our B-TRAN™ technology.
We expect higher sales and marketing expenses, as compared to the three months
ended September 30, 2021, going forward as we engage with prospective customers
and continue to work towards commercializing our B-TRAN™ technology.
Loss from Operations. Our loss from operations for the three months ended
September 30, 2021 was $1,233,666 or 5% higher than the $1,172,515 loss from
operations for the three months ended September 30, 2020 for the reasons
discussed above.
Other Expenses. Other expenses were $5,012 for the three months ended September
30, 2021 compared to other expenses of $3,722,224 for the three months ended
September 30, 2020. The other expenses in the three months ended September 30,
2020 related primarily to warrant inducement expense of $3,720,866. See "Early
Warrant Exercise Transaction" below.
Net Loss. Our net loss for the three months ended September 30, 2021 was
$1,238,678, or 75% lower, as compared to a net loss of $4,894,739 for the three
months ended September 30, 2020, for the reasons discussed above.
Comparison of the nine months ended September 30, 2021 to the nine months ended
September 30, 2020
Grant Revenues. Grant revenues for the nine months ended September 30, 2021 and
2020 were $447,794 and $154,302, respectively. The grant revenues relate
primarily to a $1.2 million subcontract with DTI discussed above. We expect the
grant revenue related to the NAVSEA and DOE subcontracts to continue over the
next two quarters with minimal revenue recognized thereafter. We also expect to
pursue additional government funding that may result in additional grant
revenues in the future.
15
Table of Contents
Cost of Grant Revenues. Cost of grant revenues for the nine months ended
September 30, 2021 and 2020 was $447,794 and $154,302, respectively. The cost of
grant revenues relates primarily 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 subcontracts with DTI or from other grants that
we are pursuing or may pursue in the remainder of 2021.
Research and Development Expenses. Research and development expenses increased
by $264,512, or 23%, to $1,426,049 in the nine months ended September 30, 2021
from $1,161,537 in the nine months ended September 30, 2020. The increase was
due to higher contract labor for device and driver development and the expansion
of internal test capabilities of $230,317 and personnel costs of $88,733, an
initial license fee of $50,000 for the right to certain semiconductor technology
and higher other B-TRAN™ spending of $40,813, partly offset by lower stock-based
compensation expense of $145,351. We expect quarterly research and development
expenses to ramp higher, as compared to the three months ended September 30,
2021,during the fourth quarter of this year and throughout 2022 as we accelerate
development of our B-TRAN™ technology. Research and development expenses will be
subject to quarterly variability due primarily to the timing of semiconductor
fabrication costs.
General and Administrative Expenses. General and administrative expenses
decreased by $48,469, or 3%, to $1,705,146 in the nine months ended September
30, 2021 from $1,753,615 in the nine months ended September 30, 2020. The
decrease was due to one-time CEO search fees in 2020 of $137,968, lower
stock-based compensation expense of $105,538 and lower other costs of $29,746,
partly offset by higher investor relations spending of $156,103 and professional
services paid in stock of $68,680. We expect general and administrative expenses
to be modestly higher, as compared to the three months ended September 30, 2021,
for the next few quarters.
Sales and Marketing Expenses. Sales and marketing expenses were $302,859 in the
nine months ended September 30, 2021 compared to $20,000 in the nine months
ended September 30, 2020. The increase was due primarily to the hiring of a Vice
President of Business Development in the first quarter of 2021 and subsequent
spending to work towards commercializing our B-TRAN™ technology. We expect
higher sales and marketing expenses, as compared to the three months ended
September 30, 2021, in the future as we engage with prospective customers and
commercialize our B-TRAN™ technology.
Loss from Operations. Our loss from operations for the nine months ended
September 30, 2021 was $3,434,054 or 17% higher than the $2,935,152 loss from
operations for the nine months ended September 30, 2020 for the reasons
discussed above.
Other Income (Expenses). Other income was $84,533 for the nine months ended
September 30, 2021 compared to other expenses of $3,723,346 for the nine months
ended September 30, 2020. The other income in the nine months ended September
30, 2021 related primarily to a gain on forgiveness of long-term debt of
$91,407. See "PPP Loan" below. The other expenses in the nine months ended
September 30, 2020 related primarily to warrant inducement expense of
$3,720,866. See "Early Warrant Exercise Transaction" below.
Net Loss. Our net loss for the nine months ended September 30, 2021 was
$3,349,521, or 50% lower, as compared to a net loss of $6,658,498 for the nine
months ended September 30, 2020, for the reasons discussed above.
Liquidity and Capital Resources
We currently generate grant revenue only and expect grant revenue to be our only
source of revenue for 2021. We have incurred losses since inception. We have
funded our operations to date through the sale of common stock and warrants.
At September 30, 2021, we had cash and cash equivalents of $24.5 million. Our
net working capital at September 30, 2021 was $24.1 million. We had no
outstanding debt at September 30, 2021.
Operating activities in the nine months ended September 30, 2021 resulted in
cash outflows of $2,992,743, which were due to the net loss for the period of
$3,349,521 and a non-cash gain on loan forgiveness of $91,407, partly offset by
stock-based compensation of $247,512, depreciation and amortization of $113,607,
stock issued for services of $68,680, favorable balance sheet timing of $17,858
and patent impairment charges of $528. Operating activities in the nine months
ended September 30, 2020 resulted in cash outflows of $2,303,639, which were due
to the net loss for the period of $6,658,498, partly offset by warrant
inducement expense of $3,720,866, stock-based compensation of $434,782,
depreciation and amortization of $86,368, stock issued for services of $50,000,
patent impairment charges of $18,235 and favorable balance sheet timing of
$44,608. We expect a modest ramp up in cash outflows from operating activities
during the fourth quarter of this year and throughout 2022 as we accelerate
development and commercialization of our B-TRAN™ technology.
16
Table of Contents
Investing activities in the nine months ended September 30, 2021 and 2020
resulted in cash outflows of $182,801 and $48,243, respectively, for the
acquisition of intangible assets and fixed assets.
Financing activities in the nine months ended September 30, 2021 resulted in
cash inflows of $21,204,609 from the net proceeds from our February 2021
Offering and $3,301,226 from the exercise of warrants and stock options.
Financing activities in the nine months ended September 30, 2020 resulted in
cash inflows of $3,063,425 and included net proceeds from the exercise of
warrants of $2,972,018 and proceeds from loans of $91,407.
PPP Loan
In May 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 Coronavirus Aid, Relief, and Economic Security Act ("CARES
Act") administered by the U.S. Small Business Administration ("SBA"). We
received total proceeds of $91,407 from the unsecured PPP Loan. The PPP Loan was
scheduled to mature in May 2022 and had an interest rate of 1.00% per annum and
was subject to the terms and conditions applicable to loans administered by the
U.S. Small Business Administration under the CARES Act. In accordance with the
requirements of the CARES Act and the PPP, we used the proceeds from the PPP
Loan primarily for payroll costs. We applied for forgiveness of the PPP Loan
during the first quarter of 2021. In May 2021, the SBA approved forgiveness of
our PPP Loan.
Early Warrant Exercise Transaction
In July 2020, we entered into letter agreements (the "Letter Agreements") with
certain of our Series A warrant holders (the "Series A Warrant Holders"), who
were previously issued warrants (the "Original Warrants") to purchase shares of
our common stock. The Series A Warrant Holders agreed to the early exercise of
their Original Warrants pursuant to the Letter Agreements (the "Early Warrant
Exercise Transaction"). The transaction closed in August 2020. We raised net
proceeds of $2.5 million in the Early Warrant Exercise Transaction. We utilized
the net proceeds from the Early Warrant Exercise Transaction to fund
commercialization and development of our B-TRAN™ technology and general
corporate and working capital purposes.
Pursuant to the Letter Agreements, in consideration of the Series A Warrant
Holders exercising Original Warrants to purchase an aggregate of 1,176,137
shares of common stock, we issued to the Series A Warrant Holders new Series C
warrants (the "New Warrants") to purchase up to an aggregate of 705,688 shares
of common stock, which is equal to 60% of the shares underlying the Original
Warrants included in the Transaction. The New Warrants have an exercise price of
$8.90 per share and an expiration date of August 4, 2025. The estimated fair
value of the New Warrants was $3.7 million on the date of issuance and was
recognized as a non-cash warrant inducement expense within other income
(expenses) in our statement of operations.
February 2021 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 net proceeds to
us from the February 2021 Offering were $21.2 million. We intend to use the net
proceeds from the February 2021 Offering to fund commercialization and
development of our B-TRAN™ technology and general corporate and working capital
purposes.
Critical Accounting Policies
There have been no significant changes during the nine months ended September
30, 2021 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, 2020.
Off-Balance Sheet Transactions
As of September 30, 2021, 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 2020 Annual Report on Form 10-K.
17
Table of Contents
© Edgar Online, source Glimpses
IDEAL POWER INC. 
