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MarketScreener Homepage  >  Equities  >  Nasdaq  >  Ideal Power Inc.    IPWR

IDEAL POWER INC.

(IPWR)
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IDEAL POWER : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

11/13/2020 | 08:03am EST

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 2019 financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2019. 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 Inc. is located in Austin, Texas. Until April 2018, we were primarily focused on the design, marketing and sale of 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 were designed to be used in both on-grid and off-grid applications with a focus on solar + storage, microgrid and stand-alone energy storage applications. The principal products of the Company were 30-kilowatt power conversion systems, including 2-port and multi-port products.

In April 2018, we realigned into two operating divisions: Power Conversion Systems, to continue the commercialization of our PPSA™ technology, and B-TRAN, to develop our Bi-directional bi-polar junction TRANsistor (B-TRAN™) solid state switch technology.

In January 2019, our Board of Directors approved a strategic shift to focus on the commercialization of our B-TRAN™ technology and a plan to suspend further power converter system, or PPSA™, development and sales while we located a buyer for our power conversion systems division and PPSA™ technology. In September 2019, we closed on the sale of our power conversion systems division and are now solely focused on the further development and commercialization of our B-TRAN™ technology. Prior to the sale of our PPSA™ business and technology in September 2019, we classified this division as held for sale. We show this division as a discontinued operation in our financial statements.

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, 2020 amounted to $15.1 million with approximately $12.4 million of that revenue from discontinued operations and the remainder from grant revenue for bi-directional power switch development. Grant revenue was $147,787 and $154,302, respectively, for the three and nine months ended September 30, 2020. We did not have revenue from continuing operations in the three and nine months ended September 30, 2019. We expect to pursue additional research and development grants, if and when available, to further develop and/or improve our technology.




COVID-19 Impact



In March 2020, the World Health Organization declared the outbreak of COVID-19 as a pandemic, which 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, governmental restrictions in response to the COVID-19 pandemic, and the overall economy, all of which are highly uncertain and cannot be predicted. The outbreak of COVID-19 has already caused significant disruptions to the global financial markets which may impact the Company's ability to raise additional capital, on acceptable terms or at all. If the financial markets and/or the overall economy are impacted for an extended period, the Company's operating results may be materially and adversely affected.



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Recent Developments - Early Warrant Exercise Transaction

On August 5, 2020, we closed the Early Warrant Exercise Transaction (as defined below), pursuant to which certain holders of our outstanding Series A warrants exercised warrants to purchase an aggregate of 1,176,137 shares of common stock, and we issued to such holders new Series C warrants to purchase up to an aggregate of 705,688 shares of common stock with an exercise price of $8.90 per share and an expiration date of August 4, 2025. We raised net proceeds of $2.5 million in the Early Warrant Exercise Transaction. See "Liquidity and Capital Resources-Early Warrant Exercise Transaction" below for additional information.



Results of Operations


Comparison of the three months ended September 30, 2020 to the three months ended September 30, 2019

Grant Revenues. Grant revenues for the three months ended September 30, 2020 were $147,787. The grant revenues relate 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 circuit breaker. We expect the grant revenue related to this subcontract to continue over the next two years with a majority of the revenue to be recognized over the first twelve to fifteen months of the subcontract.

Cost of Grant Revenues. Cost of grant revenues for the three months ended September 30, 2020 was $147,787. The cost of grant revenues relates to the subcontract discussed above and are equal to the associated grant revenues resulting in no gross profit.

Research and Development Expenses. Research and development expenses increased by $243,775, or 97%, to $494,548 in the three months ended September 30, 2020 from $250,773 in the three months ended September 30, 2019. The increase was due to higher stock compensation expense of $127,295, contract labor of $65,688, semiconductor fabrication costs of $41,319 and consulting costs of $26,469, partly offset by lower other B-TRAN™ development spending of $16,996. We expect lower research and development expenses for the fourth quarter of 2020.

General and Administrative Expenses. General and administrative expenses increased by $206,695, or 44%, to $677,967 in the three months ended September 30, 2020 from $471,272 in the three months ended September 30, 2019. The increase was due to higher bonus expense of $191,841, stock compensation expense of $64,626 and other costs of $5,047, partly offset by lower legal fees of $54,819. We expect lower general and administrative expenses for the fourth quarter of 2020.

Other Expenses. Other expenses were $3,722,224 for the three months ended September 30, 2020 compared to $2,763 for the three months ended September 30, 2019. The increase in other expenses was due to non-cash warrant inducement expense of $3,720,866 as discussed below under Liquidity and Capital Resources: Early Warrant Exercise Transaction.

Loss from Continuing Operations. Our loss from continuing operations for the three months ended September 30, 2020 was $4,894,739, or 575% higher than the $724,808 loss from continuing operations for the three months ended September 30, 2019 due to non-cash warrant inducement expense of $3,720,866 and the increases in research and development expenses and general and administrative expenses discussed above.

Loss from Discontinued Operations. Our loss from discontinued operations for the three months ended September 30, 2019 was $78,796. As we sold our power conversion systems division in September 2019, we did not have a loss from discontinued operations for the three months ended September 30, 2020.

Loss on Sale of Discontinued Operations. Our loss on sale of discontinued operations for the three months ended September 30, 2019 was $9,107.

Net Loss. Our net loss for the three months ended September 30, 2020 was $4,894,739, or 502% higher, as compared to a net loss of $812,711 for the three months ended September 30, 2019, for the reasons discussed above.

Comparison of the nine months ended September 30, 2020 to the nine months ended September 30, 2019

Grant Revenues. Grant revenues for the nine months ended September 30, 2020 were $154,302. The grant revenues relate to a $1.2 million subcontract with DTI to supply B-TRAN™ devices as part of a two-year contract awarded to DTI by NAVSEA for the development and demonstration of a B-TRAN™ enabled high efficiency direct current circuit breaker. We expect the grant revenue related to the NAVSEA subcontract to continue over the next two years with a majority of the revenue to be recognized over the first twelve to fifteen months of the subcontract.

Cost of Grant Revenues. Cost of grant revenues for the nine months ended September 30, 2020 was $154,302. The cost of grant revenues relates to the subcontract discussed above and are equal to the associated grant revenues resulting in no gross profit. We expect no gross profit under the subcontract with DTI.



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Research and Development Expenses. Research and development expenses increased by $356,796, or 44%, to $1,161,537 in the nine months ended September 30, 2020 from $804,741 in the nine months ended September 30, 2019. The increase was due to higher semiconductor fabrication costs of $136,772, stock compensation expense of $119,414, bonus expense of $79,519 and other B-TRAN™ development spending of $21,091.

General and Administrative Expenses. General and administrative expenses increased by $253,290, or 17%, to $1,773,615 in the nine months ended September 30, 2020 from $1,520,325 in the nine months ended September 30, 2019. The increase was primarily due to higher bonus expense of $215,522, stock compensation expense of $158,484 and other costs of $14,313 as well as fees incurred in connection with the search for our new chief executive officer of $137,459, partly offset by lower legal fees of $196,269 and facilities costs of $76,219.

Other Expenses. Other expenses were $3,723,346 for the nine months ended September 30, 2020 compared to $3,072 for the nine months ended September 30, 2019. The increase in other expenses was due to non-cash warrant inducement expense of $3,720,866 as discussed below under Liquidity and Capital Resources: Early Warrant Exercise Transaction.

Loss from Continuing Operations. Our loss from continuing operations for the nine months ended September 30, 2020 was $6,658,498 or 186% higher than the $2,328,138 loss from continuing operations for the nine months ended September 30, 2019 due to non-cash warrant inducement expense of $3,720,866 and the increase in research and development expenses and general and administrative expenses discussed above.

Loss from Discontinued Operations. Our loss from discontinued operations for the nine months ended September 30, 2019 was $768,047 and included a $405,000 impairment of assets held for sale. As we sold our power conversion systems division in September 2019, we did not have a loss from discontinued operations for the nine months ended September 30, 2020.

Loss on Sale of Discontinued Operations. Our loss on sale of discontinued operations for the nine months ended September 30, 2019 was $9,107.

Net Loss. Our net loss for the nine months ended September 30, 2020 was $6,658,498, or 114% higher, as compared to a net loss of $3,105,292 for the nine months ended September 30, 2019, for the reasons discussed above.

Liquidity and Capital Resources

We currently generate grant revenue only. We have funded our operations through the sale of common stock and warrants.

At September 30, 2020, we had cash and cash equivalents of $3,769,225 and net working capital of $3,356,205.

Our long-term debt at September 30, 2020 was $91,407. As discussed below, in May 2020, we received a PPP Loan (as defined below) to temporarily subsidize our payroll and facilities costs in a business landscape impacted by the COVID-19 pandemic.

Operating activities in the nine months ended September 30, 2020 resulted in cash outflows of $2,303,639, which were due to the loss from continuing operations 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 and patent impairment charges of $18,235 and favorable balance sheet timing of $44,608. Operating activities in the nine months ended September 30, 2019 resulted in cash outflows of $2,433,236, which were due to the loss from continuing operations for the period of $2,328,138 and cash used in operating activities related to discontinued operations of $557,096 partly offset by non-cash items, including depreciation and amortization and stock-based compensation, of $239,795 and favorable balance sheet timing of $212,203. We expect flat to modestly higher cash outflows from operating activities for the fourth quarter of 2020.

Investing activities in the nine months ended September 30, 2020 and 2019 resulted in cash outflows of $48,243 and $78,595, respectively, for the acquisition of intangible assets and fixed assets. The sale of our power conversion systems division resulted in a cash inflow of $23,587 from discontinued operations in the nine months ended September 30, 2019.

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. For the nine months ended September 30, 2019, financing activities resulted in no cash inflows or outflows.

The Company's independent registered public accounting firm, in its report on the Company's 2019 financial statements, raised substantial doubt about the Company's ability to continue as a going concern. On August 5, 2020 the Company completed the Early Warrant Exercise Transaction raising net proceeds of $2.5 million, thereby alleviating the substantial doubt about the Company's ability to continue as a going concern for at least the next twelve months from the date of issuance of this report.



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As our B-TRAN™ technology is in the development stage and has not yet been commercialized, we may be required to obtain additional financing to continue our operations and execute our business plan. We may not be able to obtain such financing on commercially reasonable terms or at all, especially in light of the market volatility and uncertainty as a result of the COVID-19 outbreak. If we are unable to obtain such financing if and when needed, we will be required to reduce operating costs, which could jeopardize future strategic initiatives and business plans, or cease operations. In addition, there can be no assurances that we will be able to successfully commercialize our technology and develop profitable operations.



PPP Loan


On May 4, 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 recently enacted Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") administered by the U.S. Small Business Administration. We received total proceeds of $91,407 from the unsecured PPP Loan. The PPP Loan is scheduled to mature on May 4, 2022 and has an interest rate of 1.00% per annum and is subject to the terms and conditions applicable to loans administered by the U.S. Small Business Administration under the CARES Act. The PPP Loan may be prepaid by us at any time prior to its maturity with no prepayment penalties.

The PPP Loan contains customary events of default relating to, among other things, payment defaults and breaches of representations and warranties. Subject to certain conditions, the PPP Loan may be forgiven in whole or in part by applying for forgiveness pursuant to the CARES Act and the PPP. The amount of loan proceeds eligible for forgiveness is based on a formula based on a number of factors, including the amount of loan proceeds used by us during the 24-week period after the loan origination for certain purposes, including payroll costs, rent payments on certain leases, and certain qualified utility payments, provided that, among other things, at least 60% of the loan amount is used for eligible payroll costs, the employer maintaining or rehiring employees and maintaining salaries at certain level. 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 intend to apply for forgiveness of the PPL Loan during the fourth quarter of 2020. It is our expectation that the PPP Loan will be forgiven but no assurance can be given that we will be granted forgiveness of the PPP Loan in whole or in part.



Private Placement


On November 13, 2019, we closed on a private placement of our common stock and warrants to purchase common stock for aggregate gross proceeds of $3.5 million and net proceeds of $3.1 million. We have been utilizing, and expect to continue to utilize, the net proceeds from this private placement to fund commercialization and development of our B-TRAN™ semiconductor technology and for working capital and general corporate purposes.

Early Warrant Exercise Transaction

On July 31, 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 pursuant to that certain securities purchase agreement between us and the other parties thereto, dated as of November 7, 2019. 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 on August 5, 2020. We raised net proceeds of $2.5 million in the Early Warrant Exercise Transaction. We intend to utilize the net proceeds from the Early Warrant Exercise Transaction to fund commercialization and development of our B-TRAN™ semiconductor 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 expenses in our statement of operations.




Critical Accounting Policies



Revenue Recognition


We recognize revenue and related cost of revenue in accordance with FASB ASC 606, Revenue from Contracts with Customers (ASC 606) and, as applicable, with the guidance issued by the FASB in June 2018 for the recipients of grants.



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Currently, we recognize grant revenue and cost of grant revenue only. Government contracts, including grants, are agreements that generally provide us with cost reimbursement for certain types of development activities over a contractually defined period. Grant revenue is recognized in the period during which we incur the related costs, provided that we have incurred the cost in accordance with the specifications and work plans determined between us and the government entity.

For the nine months ended September 30, 2020, we recognized $154,302 of grant revenue and cost of grant revenue. The grant revenue relates to a $1.2 million subcontract with Diversified Technologies, Inc. (DTI), signed in June 2020, 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 circuit breaker. We account for this subcontract as an exchange transaction under applicable guidance. No grant revenue was recognized in the nine months ended September 30, 2019. Unbilled grant receivables were $28,623 at September 30, 2020 and were included in accounts receivable, net on our balance sheet.

There have been no other significant changes during the nine months ended September 30, 2020 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, 2019.

Off-Balance Sheet Transactions

As of September 30, 2020, we did not have any off-balance sheet transactions.

© Edgar Online, source Glimpses

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Financials (USD)
Sales 2019 - - -
Net income 2019 -3,93 M - -
Net cash 2019 2,79 M - -
P/E ratio 2019 -0,97x
Yield 2019 -
Capitalization 39,2 M 39,2 M -
EV / Sales 2018 -
EV / Sales 2019 -
Nbr of Employees 5
Free-Float 80,1%
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NameTitle
R. Daniel Brdar President. Chief Executive Officer & Director
David B. Eisenhaure Chairman
Timothy W. Burns Chief Financial Officer, Secretary & Treasurer
Michael Conard Turmelle Independent Director
Ted Lesster Independent Director
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