UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended SeptemberJune 30, 20222023
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ______________ to _______________
Commission File Number 001-36216
IDEAL POWER INC.
(Exact name of registrant as specified in its charter)
Delaware | 14-1999058 |
(State or other jurisdiction of | (I.R.S. Employer |
incorporation or organization) | Identification No.) |
5508 Highway 290 West, Suite 120
Austin, Texas 78735
(Address of principal executive offices)
(Zip Code)
(512) 264-1542
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
Common Stock, par value $0.001 per share |
| IPWR |
| The Nasdaq Capital Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period thanthat the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ☐ |
|
|
Non-accelerated filer ☒ | Smaller reporting company ☒ |
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| Emerging growth company ☐ |
If an emerging growth company, indicate by check mark whether the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the issuer is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of NovemberAugust 10, 2022,2023, the issuer had 5,903,7975,938,458 shares of common stock, par value $0.001, outstanding.
TABLE OF CONTENTS
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Balance Sheets at | 3 | |
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Statements of Cash Flows for the | 5 | |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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2
PART I-FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
IDEAL POWER INC.
Balance Sheets
(unaudited)
| | | | | | | | | | | | |
| | September 30, | | December 31, | | June 30, | | December 31, | ||||
|
| 2022 |
| 2021 |
| 2023 |
| 2022 | ||||
ASSETS |
| |
|
| |
|
| |
|
| |
|
Current assets: |
| |
|
| |
|
| |
|
| |
|
Cash and cash equivalents | | $ | 18,450,537 | | $ | 23,170,149 | | $ | 12,683,268 | | $ | 16,345,623 |
Accounts receivable, net | | | 49,328 | | | 233,262 | | | 203,324 | | | 65,936 |
Prepayments and other current assets | |
| 448,252 | |
| 43,900 | |
| 540,430 | |
| 491,365 |
Total current assets | |
| 18,948,117 | |
| 23,447,311 | |
| 13,427,022 | |
| 16,902,924 |
| | | | | | | | | | | | |
Property and equipment, net | |
| 151,192 | |
| 56,158 | |
| 281,109 | |
| 200,103 |
Intangible assets, net | |
| 2,032,938 | |
| 2,055,650 | |
| 2,539,422 | |
| 2,036,431 |
Right of use asset | |
| 263,667 | |
| 307,172 | |
| 218,130 | |
| 248,720 |
Other assets | |
| 11,189 | |
| 11,189 | |
| 11,189 | |
| 11,189 |
Total assets | | $ | 21,407,103 | | $ | 25,877,480 | | $ | 16,476,872 | | $ | 19,399,367 |
| | | | | | | | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | |
| | |
|
| |
| | |
|
|
Current liabilities: | |
| | |
|
| |
| | |
|
|
Accounts payable | | $ | 19,843 | | $ | 130,500 | | $ | 112,010 | | $ | 130,503 |
Accrued expenses | |
| 573,549 | |
| 353,507 | |
| 614,642 | |
| 254,218 |
Current portion of lease liability | |
| 63,131 | |
| 58,864 | |
| 67,595 | |
| 64,597 |
Total current liabilities | |
| 656,523 | |
| 542,871 | |
| 794,247 | |
| 449,318 |
| | | | | | | | | | | | |
Long-term lease liability | |
| 219,715 | |
| 267,584 | |
| 168,600 | |
| 202,987 |
Other long-term liabilities | |
| 883,118 | |
| 917,100 | |
| 1,180,005 | |
| 838,458 |
Total liabilities | |
| 1,759,356 | |
| 1,727,555 | |
| 2,142,852 | |
| 1,490,763 |
| | | | | | | | | | | | |
Commitments and contingencies (Note 6) | |
| | |
|
| ||||||
Commitments and contingencies (Note 5) | |
| | |
|
| ||||||
| | | | | | | | | | | | |
Stockholders’ equity: | |
| | |
|
| |
| | |
|
|
Common stock, $0.001 par value; 50,000,000 shares authorized; 5,905,118 shares issued and 5,903,797 shares outstanding at September 30, 2022 and 5,893,767 shares issued and 5,892,446 shares outstanding at December 31, 2021 | |
| 5,905 | |
| 5,894 | ||||||
Common stock, $0.001 par value; 50,000,000 shares authorized; 5,939,779 shares issued and 5,938,458 shares outstanding at June 30, 2023 and 5,926,001 shares issued and 5,924,680 shares outstanding at December 31, 2022 | |
| 5,940 | |
| 5,926 | ||||||
Additional paid-in capital | |
| 104,859,537 | |
| 104,063,321 | |
| 106,244,511 | |
| 105,011,318 |
Treasury stock, at cost, 1,321 shares at September 30, 2022 and December 31, 2021 | |
| (13,210) | |
| (13,210) | ||||||
Treasury stock, at cost, 1,321 shares at June 30, 2023 and December 31, 2022 | |
| (13,210) | |
| (13,210) | ||||||
Accumulated deficit | |
| (85,204,485) | |
| (79,906,080) | |
| (91,903,221) | |
| (87,095,430) |
Total stockholders’ equity | |
| 19,647,747 | |
| 24,149,925 | |
| 14,334,020 | |
| 17,908,604 |
Total liabilities and stockholders’ equity | | $ | 21,407,103 | | $ | 25,877,480 | | $ | 16,476,872 | | $ | 19,399,367 |
The accompanying notes are an integral part of these condensed financial statements.
3
IDEAL POWER INC.
Statements of Operations
(unaudited)
| | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | ||||||||
| | September 30, | | September 30, | ||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
Grant revenue | | $ | 10,675 | | $ | 121,028 | | $ | 186,661 | | $ | 447,794 |
Cost of grant revenue | |
| 10,675 | |
| 121,028 | |
| 186,661 | |
| 447,794 |
Gross profit | |
| — | |
| — | |
| — | |
| — |
| | | | | | | | | | | | |
Operating expenses: | |
| | |
| | |
| | |
| |
Research and development | |
| 780,151 | |
| 604,476 | |
| 2,337,081 | |
| 1,426,049 |
General and administrative | |
| 768,957 | |
| 500,942 | |
| 2,356,543 | |
| 1,705,146 |
Sales and marketing | | | 207,443 | | | 128,248 | | | 660,024 | | | 302,859 |
Total operating expenses | |
| 1,756,551 | |
| 1,233,666 | |
| 5,353,648 | |
| 3,434,054 |
| | | | | | | | | | | | |
Loss from operations | |
| (1,756,551) | |
| (1,233,666) | |
| (5,353,648) | |
| (3,434,054) |
| | | | | | | | | | | | |
Other income (expense): | | | | | | | | | | | | |
Interest income (expense), net | |
| 52,781 | |
| (5,012) | |
| 55,243 | |
| (6,874) |
Gain on forgiveness of long-term debt | | | — | | | — | | | — | | | 91,407 |
Total other income (expense) | | | 52,781 | | | (5,012) | | | 55,243 | | | 84,533 |
| | | | | | | | | | | | |
Net loss | | $ | (1,703,770) | | $ | (1,238,678) | | $ | (5,298,405) | | $ | (3,349,521) |
| | | | | | | | | | | | |
Net loss per share – basic and diluted | | $ | (0.28) | | $ | (0.20) | | $ | (0.86) | | $ | (0.57) |
| | | | | | | | | | | | |
Weighted average number of shares outstanding – basic and diluted | |
| 6,157,625 | |
| 6,125,874 | |
| 6,156,876 | |
| 5,868,122 |
| | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | ||||||||
| | June 30, | | June 30, | ||||||||
|
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
Development revenue | | $ | 98,443 | | $ | — | | $ | 98,443 | | $ | — |
Grant revenue | | | 36,724 | | | 50,978 | | | 37,388 | | | 175,986 |
Total revenue | | | 135,167 | | | 50,978 | | | 135,831 | | | 175,986 |
| | | | | | | | | | | | |
Cost of development revenue | | | 74,013 | | | — | | | 74,013 | | | — |
Cost of grant revenue | | | 36,724 | | | 50,978 | | | 37,388 | | | 175,986 |
Total cost of revenue | | | 110,737 | | | 50,978 | | | 111,401 | | | 175,986 |
| | | | | | | | | | | | |
Gross profit | | | 24,430 | | | — | | | 24,430 | | | — |
| | | | | | | | | | | | |
Operating expenses: | |
| | |
| | |
| | |
| |
Research and development | |
| 1,206,688 | |
| 728,383 | |
| 2,646,716 | |
| 1,556,930 |
General and administrative | |
| 933,993 | |
| 734,637 | |
| 1,828,926 | |
| 1,587,586 |
Sales and marketing | | | 271,900 | | | 233,152 | | | 576,226 | | | 452,581 |
Total operating expenses | |
| 2,412,581 | |
| 1,696,172 | |
| 5,051,868 | |
| 3,597,097 |
| | | | | | | | | | | | |
Loss from operations | | | (2,388,151) | | | (1,696,172) | | | (5,027,438) | | | (3,597,097) |
| | | | | | | | | | | | |
Interest income, net | | | 108,345 | | | 6,178 | | | 219,647 | | | 2,462 |
| | | | | | | | | | | | |
Net loss | | $ | (2,279,806) | | $ | (1,689,994) | | $ | (4,807,791) | | $ | (3,594,635) |
| | | | | | | | | | | | |
Net loss per share – basic and diluted | | $ | (0.37) | | $ | (0.27) | | $ | (0.78) | | $ | (0.58) |
| | | | | | | | | | | | |
Weighted average number of shares outstanding – basic and diluted | | | 6,185,397 | | | 6,157,625 | | | 6,181,972 | | | 6,156,495 |
The accompanying notes are an integral part of these condensed financial statements.
4
IDEAL POWER INC.
Statements of Cash Flows
(unaudited)
| | | | | | | | | | | | |
| | Nine Months Ended | | Six Months Ended | ||||||||
| | September 30, | | June 30, | ||||||||
|
| 2022 |
| 2021 |
| 2023 |
| 2022 | ||||
Cash flows from operating activities: | | |
| | |
| | |
| | |
|
Net loss | | $ | (5,298,405) | | $ | (3,349,521) | | $ | (4,807,791) | | $ | (3,594,635) |
Adjustments to reconcile net loss to net cash used in operating activities: | |
| | |
| | |
| | |
| |
Depreciation and amortization | |
| 134,557 | |
| 113,607 | |
| 121,423 | |
| 89,051 |
Write-off of capitalized patents | |
| — | |
| 528 | ||||||
Stock-based compensation | |
| 696,127 | |
| 247,512 | |
| 1,233,207 | |
| 462,238 |
Stock issued for services | | | 100,100 | | | 68,680 | | | — | | | 100,100 |
Gain on forgiveness of long-term debt | | | — | | | (91,407) | ||||||
Decrease (increase) in operating assets: | |
| | |
| | |
| | |
| |
Accounts receivable | | | 183,934 | | | (92,240) | | | (137,388) | | | 86,100 |
Prepaid expenses and other assets | |
| (360,847) | |
| 105,687 | |
| (18,475) | |
| (189,265) |
Increase (decrease) in operating liabilities: | |
| | |
| | |
| | |
| |
Accounts payable | |
| (110,657) | |
| (44,629) | |
| (18,493) | |
| (112,736) |
Accrued expenses and other liabilities | |
| 142,458 | |
| 49,040 | |
| 219,025 | |
| 77,630 |
Net cash used in operating activities | |
| (4,512,733) | |
| (2,992,743) | |
| (3,408,492) | |
| (3,081,517) |
| | | | | | | | | | | | |
Cash flows from investing activities: | |
| | |
| | |
| | |
| |
Purchase of property and equipment | |
| (118,239) | |
| (43,685) | |
| (114,025) | |
| (12,248) |
Acquisition of intangible assets | |
| (88,640) | |
| (139,116) | |
| (139,838) | |
| (55,672) |
Net cash used in investing activities | |
| (206,879) | |
| (182,801) | |
| (253,863) | |
| (67,920) |
| | | | | | | | | | | | |
Cash flows from financing activities: | | | | | | | ||||||
Net proceeds from issuance of common stock | | | — | | | 21,204,609 | ||||||
Exercise of options and warrants | | | — | | | 3,301,226 | ||||||
Net cash provided by financing activities | | | — | | | 24,505,835 | ||||||
| | | | | | | ||||||
Net increase (decrease) in cash and cash equivalents | |
| (4,719,612) | |
| 21,330,291 | ||||||
Net decrease in cash and cash equivalents | |
| (3,662,355) | |
| (3,149,437) | ||||||
Cash and cash equivalents at beginning of period | |
| 23,170,149 | |
| 3,157,256 | |
| 16,345,623 | |
| 23,170,149 |
Cash and cash equivalents at end of period | | $ | 18,450,537 | | $ | 24,487,547 | | $ | 12,683,268 | | $ | 20,020,712 |
The accompanying notes are an integral part of these condensed financial statements.
5
IDEAL POWER INC.
Statements of Stockholders’ Equity
For the Three-Month Periods during the NineSix Months Ended SeptemberJune 30, 20222023 and 20212022
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Additional | | | | | | | | | Total | | | | | | | Additional | | | | | | | | | Total | ||||||
| | Common Stock | | Paid-In | | Treasury Stock | | Accumulated | | Stockholders’ | | Common Stock | | Paid-In | | Treasury Stock | | Accumulated | | Stockholders’ | ||||||||||||||||||
|
| Shares |
| Amount |
| Capital |
| Shares |
| Amount |
| Deficit |
| Equity | ||||||||||||||||||||||||
Balances at December 31, 2020 | | 3,265,740 | | $ | 3,266 | | $ | 78,974,964 | | 1,321 | | $ | (13,210) | | $ | (75,135,811) | | $ | 3,829,209 | |||||||||||||||||||
Issuance of shares of common stock in public offering | | 1,352,975 | | | 1,353 | | | 21,203,256 | | — | | | — | | | — | | | 21,204,609 | |||||||||||||||||||
Exercise of options and warrants | | 1,250,652 | | | 1,250 | | | 3,299,976 | | — | | | — | | | — | | | 3,301,226 | |||||||||||||||||||
Stock issued for services | | 4,000 | | | 4 | | | 68,676 | | — | | | — | | | — | | | 68,680 | |||||||||||||||||||
Stock-based compensation |
| — | | | — |
| | 61,933 |
| — | | | — | | | — | | | 61,933 | |||||||||||||||||||
Net loss for the three months ended March 31, 2021 | | — | | | — | | | — | | — | | | — | | | (924,150) | | | (924,150) | |||||||||||||||||||
Balances at March 31, 2021 | | 5,873,367 | | | 5,873 | | | 103,608,805 | | 1,321 | | | (13,210) | | | (76,059,961) | | | 27,541,507 | |||||||||||||||||||
Stock-based compensation | | — | | | — | | | 91,711 | | — | | | — | | | — | | | 91,711 | |||||||||||||||||||
Net loss for the three months ended June 30, 2021 | | — | | | — | | | — | | — | | | — | | | (1,186,693) | | | (1,186,693) | |||||||||||||||||||
Balances at June 30, 2021 | | 5,873,367 | | | 5,873 | | | 103,700,516 | | 1,321 | | | (13,210) | | | (77,246,654) | | | 26,446,525 | |||||||||||||||||||
Stock-based compensation | | — | | | — | | | 93,868 | | — | | | — | | | — | | | 93,868 | |||||||||||||||||||
Net loss for the three months ended September 30, 2021 | | — | | | — | | | — | | — | | | — | | | (1,238,678) | | | (1,238,678) | |||||||||||||||||||
Balances at September 30, 2021 |
| 5,873,367 | | $ | 5,873 |
| $ | 103,794,384 |
| 1,321 | | $ | (13,210) | | $ | (78,485,332) | | $ | 25,301,715 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | |
| Shares |
| Amount |
| Capital |
| Shares |
| Amount |
| Deficit |
| Equity | |||||
Balances at December 31, 2021 | | 5,893,767 | | $ | 5,894 | | $ | 104,063,321 | | 1,321 | | $ | (13,210) | | $ | (79,906,080) | | $ | 24,149,925 | | 5,893,767 | | $ | 5,894 | | $ | 104,063,321 | | 1,321 | | $ | (13,210) | | $ | (79,906,080) | | $ | 24,149,925 |
Exercise of options | | 1,351 | | | 1 | | | (1) | | — | | | — | | | — | | | — | | 1,351 | | | 1 | | | (1) | | — | | | — | | | — | | | — |
Stock issued for services | | 10,000 | | | 10 | | | 100,090 | | — | | | — | | | — | | | 100,100 | | 10,000 | | | 10 | | | 100,090 | | — | | | — | | | — | | | 100,100 |
Stock-based compensation | | — | | | — | | | 231,765 | | — | | | — | | | — | | | 231,765 | | — | | | — | | | 231,765 | | — | | | — | | | — | | | 231,765 |
Net loss for the three months ended March 31, 2022 | | — | | | — | | | — | | — | | | — | | | (1,904,641) | | | (1,904,641) | | — | | | — | | | — | | — | | | — | | | (1,904,641) | | | (1,904,641) |
Balances at March 31, 2022 | | 5,905,118 | | | 5,905 | | | 104,395,175 | | 1,321 | | | (13,210) | | | (81,810,721) | | | 22,577,149 | | 5,905,118 | | | 5,905 | | | 104,395,175 | | 1,321 | | | (13,210) | | | (81,810,721) | | | 22,577,149 |
Stock-based compensation | | — | | | — | | | 230,473 | | — | | | — | | | — | | | 230,473 | | — | | | — | | | 230,473 | | — | | | — | | | — | | | 230,473 |
Net loss for the three months ended June 30, 2022 | | — | | | — | | | — | | — | | | — | | | (1,689,994) | | | (1,689,994) | | — | | | — | | | — | | — | | | — | | | (1,689,994) | | | (1,689,994) |
Balances at June 30, 2022 | | 5,905,118 | | | 5,905 | | | 104,625,648 | | 1,321 | | | (13,210) | | | (83,500,715) | | | 21,117,628 | | 5,905,118 | | $ | 5,905 | | $ | 104,625,648 | | 1,321 | | $ | (13,210) | | $ | (83,500,715) | | $ | 21,117,628 |
| | | | | | | | | | | | | | | | | | | | |||||||||||||||||||
Balances at December 31, 2022 | | 5,926,001 | | $ | 5,926 | | $ | 105,011,318 | | 1,321 | | $ | (13,210) | | $ | (87,095,430) | | $ | 17,908,604 | |||||||||||||||||||
Vesting of restricted stock units | | 6,889 | | | 7 | | | (7) | | — | | | — | | | — | | | — | |||||||||||||||||||
Stock-based compensation | | — | | | — | | | 233,889 | | — | | | — | | | — | | | 233,889 | | — | | | — | | | 609,926 | | — | | | — | | | — | | | 609,926 |
Net loss for the three months ended September 30, 2022 | | — | | | — | | | — | | — | | | — | | | (1,703,770) | | | (1,703,770) | |||||||||||||||||||
Balances at September 30, 2022 | | 5,905,118 | | $ | 5,905 | | $ | 104,859,537 | | 1,321 | | $ | (13,210) | | $ | (85,204,485) | | $ | 19,647,747 | |||||||||||||||||||
Net loss for the three months ended March 31, 2023 | | — | | | — | | | — | | — | | | — | | | (2,527,985) | | | (2,527,985) | |||||||||||||||||||
Balances at March 31, 2023 | | 5,932,890 | | | 5,933 | | | 105,621,237 | | 1,321 | | | (13,210) | | | (89,623,415) | | | 15,990,545 | |||||||||||||||||||
Vesting of restricted stock units | | 6,889 | | | 7 | | | (7) | | — | | | — | | | — | | | — | |||||||||||||||||||
Stock-based compensation | | — | | | — | | | 623,281 | | — | | | — | | | — | | | 623,281 | |||||||||||||||||||
Net loss for the three months ended June 30, 2023 | | — | | | — | | | — | | — | | | — | | | (2,279,806) | | | (2,279,806) | |||||||||||||||||||
Balances at June 30, 2023 | | 5,939,779 | | $ | 5,940 | | $ | 106,244,511 | | 1,321 | | $ | (13,210) | | $ | (91,903,221) | | $ | 14,334,020 |
The accompanying notes are an integral part of these condensed financial statements.
6
Ideal Power Inc.
Notes to Financial Statements
(unaudited)
Note 1 – Organization and Description of Business
Ideal Power Inc. (the “Company”) was incorporated in Texas on May 17, 2007 under the name Ideal Power Converters, Inc. The Company changed its name to Ideal Power Inc. on July 8, 2013 and re-incorporated in Delaware on July 15, 2013. With headquarters in Austin, Texas, the Company is focused on the further development and commercialization of its Bidirectional bipolar junction TRANsistor (B-TRAN™) solid statesolid-state switch technology.
Since its inception, the Company has financed its research and development efforts and operations primarily through the sale of common stock and warrants.stock. The Company’s continued operations are dependent upon, among other things, its ability to obtain adequate sources of funding through future revenues, securitiesfollow-on stock offerings, issuances of warrants, debt financing, co-development agreements, government grants, sale or licensing of developed intellectual property or other alternatives.
Note 2 – Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) for Form 10-Q. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The balance sheet at December 31, 20212022 has been derived from the Company’s audited financial statements included in its Annual Report on Form 10-K filed with the SEC on March 25, 2022.30, 2023.
In the opinion of management, these financial statements reflect all normal recurring, and other adjustments, necessary for a fair presentation. These financial statements should be read in conjunction with the audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.2022. Operating results for interim periods are not necessarily indicative of operating results for an entire fiscal year or any other future periods.
Net Loss Per Share
In accordance with Accounting Standards Codification 260, shares issuable for little or no cash consideration are considered outstanding common shares and included in the computation of basic net loss per share. As such, for the three and ninesix months ended SeptemberJune 30, 20222023 and 2021,2022, the Company included pre-funded warrants to purchase 253,828 shares of common stock in its computation of net loss per share. The pre-funded warrants were issued in November 2019 with an exercise price of $0.001. See Note 7.
In periods with a net loss, no common share equivalents are included in the computation of diluted net loss per share because their effect would be anti-dilutive. At SeptemberJune 30, 2023 and 2022, potentially dilutive shares outstanding amounted to 1,412,3681,636,006 and 1,400,368 shares, respectively, and exclude prefunded warrants to purchase shares of common stock.
Recent Accounting Pronouncements
Management does not believe that any recently issued, but not yet effective, accounting standard, if adopted, would have a material impact on the Company’s financial statements.
7
Note 3 – Intangible Assets
Intangible assets, net consisted of the following:
| | | | | | | | | | | | |
| | September 30, | | December 31, | | June 30, | | December 31, | ||||
|
| 2022 |
| 2021 |
| 2023 |
| 2022 | ||||
| | | | | | | (unaudited) | | | | ||
Patents | | $ | 1,222,481 | | $ | 1,133,841 | | $ | 1,393,141 | | $ | 1,263,930 |
Trademarks | | | 10,627 | | | — | ||||||
Other intangible assets | |
| 1,391,479 | |
| 1,391,479 | |
| 1,843,036 | |
| 1,391,479 |
| |
| 2,613,960 | |
| 2,525,320 | |
| 3,246,804 | |
| 2,655,409 |
Accumulated amortization – patents | | | (197,309) | | | (158,516) | ||||||
Accumulated amortization – other intangible assets | |
| (383,713) | |
| (311,154) | ||||||
Accumulated amortization - patents | | | (240,608) | | | (211,078) | ||||||
Accumulated amortization - other intangible assets | |
| (466,774) | |
| (407,900) | ||||||
| | $ | 2,032,938 | | $ | 2,055,650 | | $ | 2,539,422 | | $ | 2,036,431 |
At June 30, 2023 and December 31, 2022, the Company had capitalized $410,241 and $341,610, respectively, for costs related to patents and trademarks that have not been awarded. Cost related to patents that have not yet been awarded are not amortized until patent issuance. As further discussed in Note 5, the Company entered into a license agreement in April 2023 and capitalized $451,557 in other intangible assets related to this agreement.
Amortization expense amounted to $37,442$50,178 and $111,352$88,404 for the three and ninesix months ended SeptemberJune 30, 2022,2023, respectively, and $36,642$37,098 and $95,517$73,910 for the three and ninesix months ended SeptemberJune 30, 2021,2022, respectively. Amortization expense for the succeeding five years and thereafter is $37,700$100,625 (remaining six (remaining three months of 2022)2023), $150,802$201,251 (20232024-20262027) and $1,052,321$1,223,552 (thereafter).
At September 30, 2022 and December 31, 2021, the Company had capitalized $339,709 and $306,640, respectively, for costs related to patents that have not been awarded.
Note 4 – Loans
In May 2020, the Company 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"). The Company 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, the Company used the proceeds from the PPP Loan primarily for payroll costs. The Company applied for forgiveness of the PPP Loan during the first quarter of 2021. In May 2021, the SBA approved forgiveness of the Company's PPP Loan in the principal amount of $91,407, including accrued interest. The $91,407 gain on forgiveness of the PPP Loan is shown in other income (expenses) in the financial statements for the nine months ended September 30, 2021 and represents a non-cash financing activity.
Note 5 – Lease
The Company previously leased 14,782 square feet of office and laboratory space located in Austin, Texas and subleased approximately seventy-five percent (75%) of this space to a third party. This lease and sublease expired concurrently on May 31, 2021.
In March 2021, the Company entered into a lease agreement for 4,070 square feet of office and laboratory space located in Austin, Texas. The commencement of the lease occurred on June 1, 2021 and the initial term of the lease iswas 63 months. The actual base rent in the first year of the lease was $56,471 and was net of $18,824 in abated rent over the first three months of the lease term. The annual base rent in the second year of the lease iswas $77,330 and increases by $2,035 in each succeeding year of the lease. In addition, the Company is required to pay its proportionate share of operating costs for the building under this triple net lease. The lease contains a 5-year fair market renewal option. It does not contain a termination option. The Company recognized a right of use asset of $339,882 and a corresponding lease liability for this lease upon lease commencement.
For purposes of calculating the right of use asset and lease liability included in the Company’s financial statements, the Company estimated its incremental borrowing rate at 6% per annum.
Future minimum payments under the lease are as follows:
| | | |
For the Year Ended December 31, |
| | |
2023 (remaining) | | $ | 39,683 |
2024 | |
| 80,552 |
2025 | |
| 82,587 |
2026 | |
| 56,132 |
Total lease payments | | | 258,954 |
Less: imputed interest | |
| (22,759) |
Total lease liability | | | 236,195 |
Less: current portion of lease liability | | | (67,595) |
Long-term lease liability | | $ | 168,600 |
At June 30, 2023, the remaining lease term was 38 months.
8
Future minimum payments under the lease are as follows:
| | | |
For the Year Ended December 31, |
| | |
2022 (remaining) | | $ | 19,333 |
2023 | |
| 78,517 |
2024 | |
| 80,552 |
2025 | |
| 82,587 |
2026 | |
| 56,132 |
Total lease payments | | | 317,121 |
Less: imputed interest | |
| (34,275) |
Total lease liability | | $ | 282,846 |
At September 30, 2022, the remaining lease term was 47 months.
For the three months ended SeptemberJune 30, 20222023 and 2021, operating cash flows for lease payments totaled $19,333 and $0, respectively, and for the nine months ended September 30, 2022, and 2021, operating cash outflows for lease payments totaled $57,150$19,502 and $89,423,$18,993, respectively, and for the six months ended June 30, 2023 and 2022, operating cash outflows for lease payments totaled $38,835 and $37,817, respectively. For both the three months ended SeptemberJune 30, 20222023 and 2021,2022, operating lease cost, recognized on a straight-line basis, totaled $19,018 and $19,017, respectively, and for both the ninesix months ended SeptemberJune 30, 20222023 and 2021,2022, operating lease cost, recognized on a straight-line basis, totaled $57,053 and $106,169, respectively.$38,035.
Note 65 – Commitments and Contingencies
License Agreement
In 2015, the Company entered into a licensing agreementsagreement which expireexpires in February 2033. Pursuant to these agreements,Per the agreement, the Company has an exclusive royalty-free license associated with semiconductor power switches which enhances its intellectual property portfolio. The agreements include both fixed payments, all ofCompany will pay $100,000 annually under this agreement.
In April 2023, the Company amended a 2021 license agreement which were paid prior to 2017, and ongoing variable payments. The variable payments are a function ofexpires in February 2034. Per the number ofagreement, the Company has an exclusive royalty-free license associated patent filings pending and patents issued under the agreements.with semiconductor drive circuitry which enhances its intellectual property portfolio. The Company will pay $10,000$50,000 annually under this agreement. At inception, the Company recorded an intangible asset and other long-term liability of $451,557, of which $50,000 is in accrued expenses at June 30, 2023, for each patent filing pending and $20,000 for each patent issued annually with one-half the annual payment due within 20 daysestimated present value of December 21st of each year and one-half annualfuture payments under the payment due within 20 days of June 21st of each year of the agreements, up to a maximum of $100,000 per year (i.e. five issued patents). All five patents associated with the agreements are issued.licensing agreement.
At SeptemberJune 30, 20222023 and December 31, 2021,2022, the other long-term liability for the estimated present value of future payments under the licensing agreements was $883,118$1,180,005 and $917,100,$838,458, respectively. The Company is accruing interest for future payments related to the issued patents associated with these agreements.
Legal Proceedings
The Company may be subject to litigation from time to time in the ordinary course of business. The Company is not currently party to any legal proceedings.
Indemnification Obligations
The employment agreements of Company executives include an indemnification provision whereby the Company shall indemnify and defend, at the Company’s expense, its executives so long as an executive’s actions were taken in good faith and in furtherance of the Company’s business and within the scope of executive’s duties and authority.
9
COVID-19 Pandemic
As of the date of these financial statements, 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 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 continues to contribute to significant additional 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 COVID-19 pandemic has caused some disruption to the Company’s business, it has not had a material adverse impact on the Company’s operations to date.
Note 7 — Common Stock
Public Offering
In February 2021, the Company issued and sold 1,352,975 shares of its 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 the Company from the Public Offering were $21.2 million. The Company is utilizing, and expects to continue to utilize, the net proceeds from the Public Offering to fund commercialization and development of its B-TRAN™ technology and general corporate and working capital purposes.
Stock Issuances
In January 2022, the Company issued 10,000 unregistered shares of common stock, valued at $100,100 at the time of issuance, to a third-party vendor as compensation for services performed. In February 2021, the Company issued 4,000 unregistered shares of common stock, valued at $68,680 at the time of issuance, to a third-party vendor as compensation for services performed.
Note 86 — Equity Incentive Plan
In May 2013, the Company adopted the 2013 Equity Incentive Plan (as amended and restated, the “Plan”) and reserved shares of common stock for issuance under the Plan, which was last amended in June 2021.2023. The Plan is administered by the Compensation Committee of the Company’s Board of Directors (the “Board”). At SeptemberJune 30, 2022, 382,9792023, 524,680 shares of common stock were available for issuance under the Plan.
A summary of the Company’s stock option activity and related information is as follows:
| | | | | | | | | | | | | | |
| | | | | | | Weighted | | | | | | | Weighted |
| | | | Weighted | | Average | | | | Weighted | | Average | ||
| | | | Average | | Remaining | | | | Average | | Remaining | ||
| | Stock | | Exercise | | Life | | Stock | | Exercise | | Life | ||
|
| Options |
| Price |
| (in years) |
| Options |
| Price |
| (in years) | ||
Outstanding at December 31, 2021 |
| 492,886 | | $ | 7.35 |
| 7.6 | |||||||
Outstanding at December 31, 2022 |
| 513,948 | | $ | 7.59 |
| 6.6 | |||||||
Granted |
| 53,062 | | $ | 11.06 |
| |
| 12,000 | | $ | 11.96 |
| |
Exercised |
| (3,750) | | $ | 5.36 |
| | |||||||
Forfeited | | (16,250) | | $ | 9.33 | | | |||||||
Outstanding at September 30, 2022 |
| 525,948 | | $ | 7.68 |
| 6.9 | |||||||
Exercisable at September 30, 2022 |
| 413,688 | | $ | 6.73 |
| 6.3 | |||||||
Outstanding at June 30, 2023 |
| 525,948 | | $ | 7.69 |
| 6.2 | |||||||
Exercisable at June 30, 2023 |
| 459,950 | | $ | 7.04 |
| 5.8 |
9
A summary of the Company’s restricted stock unit (RSU) and performance stock unit (PSU) activity is as follows:
| | | | |
|
| RSUs |
| PSUs |
Outstanding at December 31, 2022 | | 183,666 | | 114,000 |
Granted |
| 39,750 | | — |
Vested |
| (13,778) |
| — |
Outstanding at June 30, 2023 |
| 209,638 |
| 114,000 |
During the ninesix months ended SeptemberJune 30, 2022,2023, the Company granted 31,062 stock options27,550 RSUs to Board members, 12,200 RSUs to employees and 22,00012,000 stock options to employees under the Plan. The estimated fair value of these stock options,equity grants, calculated using the Black-Scholes option valuation model for the stock options, was $428,871,$529,389, $169,439 of which $184,395 was recognized during the ninesix months ended SeptemberJune 30, 2022.
10
In January 2022, the Compensation Committee of the Board approved a modification of stock option grants to David Eisenhaure, the Company’s former Chairman of the Board, who passed away in October 2021. The modification extended the post-termination exercise period of his vested stock option grants from 12 months to 5 years. During the nine months ended September 30, 2022, the Company recognized $49,327 of expense related to this modification.2023.
At SeptemberJune 30, 2022 and December 31, 2021, there were 100,000 unvested restricted stock units (“RSUs”) outstanding. No RSUs were granted, vested or forfeited during the nine months ended September 30, 2022.
At September 30, 2022,2023, there was $1,428,830$2,570,012 of unrecognized compensation cost related to non-vested equity awards granted under the Plan. That cost is expected to be recognized over a weighted average period of 1.10.9 years.
Note 97 — Warrants
At SeptemberJune 30, 20222023 and December 31, 2021,2022, the Company had 786,420 warrants outstanding atwith a weighted average exercise price of $5.19 per share and 253,828 pre-funded warrants outstanding with an exercise price of $0.001 per share. The weighted average remaining life, excluding the 253,828 pre-funded warrants with no expiration date, of the outstanding warrants is 2.51.7 years.
At SeptemberJune 30, 2022,2023, all warrants arewere exercisable, although the warrants held by certain of the Company’s warrant holders may be exercised only to the extent that the total number of shares of common stock then beneficially owned by such warrant holder does not exceed 4.99% (or, at the investor’s election, 9.99%) of the outstanding shares of the Company’s common stock.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND OTHER INFORMATION CONTAINED IN THIS REPORT
This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the provisions of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These statements include, but are not limited to, statements regarding our future financial performance, business condition and results of operations, future business plans and pursuing additional government funding. Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. You can find many (but not all) of these statements by looking for words such as “approximates,” “believes,” “hopes,” “expects,” “anticipates,” “estimates,” “projects,” “intends,” “plans,” “would,” “should,” “could,” “may” or other similar expressions in this report. In particular, these include statements relating to future actions, prospective products, applications, customers, technologies, future performance or results of anticipated products, expenses, and financial results. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations or projections. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to:
● | our history of losses; |
● | our ability to generate revenue; |
● | our limited operating history; |
● | the size and growth of markets for our technology; |
● | regulatory developments that may affect our business; |
● | our ability to successfully develop new technologies, particularly our bidirectional bipolar junction transistor, or B-TRAN™; |
● | our expectations regarding the timing of |
● | our expectations regarding the performance of our B-TRAN™ and the consistency of that performance with |
● | our ability to successfully develop new products and the expected performance of |
● | the performance of third-party consultants and service providers whom we have and will continue to rely on to assist us in development and commercialization of our B-TRAN™ and related drive circuitry; |
● | the rate and degree of market acceptance for our B-TRAN™ |
● | the time required for third parties to redesign, test and certify their products incorporating our B-TRAN™; |
● | our ability to successfully commercialize our B-TRAN™ technology; |
● | our ability to secure strategic partnerships with semiconductor fabricators and others related to our B-TRAN™ technology; |
1211
● | our ability to obtain, maintain, defend and enforce intellectual property rights protecting our technology; |
● | the success of our efforts to manage cash spending, particularly prior to the commercialization of our B-TRAN™ technology; |
● | general economic conditions and events, including inflation, and the impact they may have on us and our potential partners and licensees; |
● | our dependence on the global supply chain and impacts of supply chain disruptions; |
● | our ability to obtain adequate financing in the future, if and when we need it; |
● | the impact of |
● | our success at managing the risks involved in the foregoing items; and |
● | other factors discussed in this report. |
The forward-looking statements are based upon management’s beliefs and assumptions and are made as of the date of this report. We undertake no obligation to publicly update or revise any forward-looking statements included in this report.report, except as required by applicable law. You should not place undue reliance on these forward-looking statements.
Unless otherwise stated or the context otherwise requires, the terms “Ideal Power,” “we,” “us,” “our” and the “Company” refer to Ideal Power Inc.
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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 20212022 financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2021.2022. 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, 2021.2022.
Overview
Ideal Power Inc. is located in Austin, Texas. The Company isWe are solely focused on the further development and commercialization of itsour Bidirectional bipolar junction TRANsistor (B-TRAN™) solid statesolid-state switch technology.
To date, operations have been funded primarily through the sale of common stock and warrants. Totalwe have generated $3.7 million in grant revenue generated from inception to date as of September 30, 2022 amounted to $16.1 million with approximately $12.4 million of that revenue from discontinued operations and the remainder from grant$98,443 in development revenue for bidirectional power switch development. Revenue was $10,675$135,167 and $186,661 in the three months and nine months ended September 30, 2022, respectively, and $121,028 and $447,794$135,831 in the three and ninesix months ended SeptemberJune 30, 2021,2023, respectively, and $50,978 and $175,986 in the three and six months ended June 30, 2022, respectively. Revenue for the three and ninesix months ended SeptemberJune 30, 20222023 related to a development agreement and 2021a government grant. Revenue for the three and six months ended June 30, 2022 related to government grants. We may pursue additional researchdevelopment agreements and developmentgovernment grants, if and when available, to further develop, improve and/or improvecommercialize our technology. We are in the process of commercializing our B-TRAN™ technology.
COVID-19 ImpactProduct Launch
AsIn January 2023, we launched our first commercial product, the SymCool™ Power Module. This multi-die B-TRAN™ module is designed to meet the very low conduction loss needs of the datesolid-state circuit breaker (SSCB) market. We expect fabrication and initial sales of this report,product later in 2023.
Development Agreement
During the COVID-19 pandemic continues to spread throughoutfourth quarter of 2022, we announced, and began Phase 1 of, a product development agreement with a top 10 global automaker for a custom B-TRAN™ power module for use in the United States and the restautomaker’s electric vehicle (EV) drivetrain inverters in its next generation EV platform. In Phase 1 of the world. The ultimate extentprogram, we provided packaged B-TRAN™ devices, test kits and technical data to the top 10 global automaker for their evaluation. Our expectation is that a successful Phase 1 will lead to us securing Phase 2 of the impactprogram. Assuming we secure Phase 2 of COVID-19 on our financial performancethe program, we will depend on future developments,collaborate with a packaging company selected by the automaker that will fabricate the custom B-TRAN™ modules. In Phase 3, the final development phase under the program, the custom B-TRAN™ power module is expected to be tested and certified in accordance with automotive codes and standards. The delivery of production-ready B-TRAN™-based modules is targeted for 2025. We recorded almost all of the revenue under Phase 1 of this agreement in the three months ended June 30, 2023.
Test and Evaluation Agreements
Since the middle of 2021, we announced several test and evaluation agreements with prospective customers, including among other things, the duration and spreada second top 10 global automaker, a top 10 global provider of COVID-19 and its related variants, the timing, scope and efficacy of vaccination efforts, additional governmental restrictions in responsepower conversion solutions to the COVID-19 pandemic,solar industry, two global diverse power management market leaders, a tier 1 automotive supplier, and an EV charging company. These companies, along with other current and future participants in our test and evaluation program, intend to test and evaluate the overall economy, all of which are highly uncertain and cannot be predicted. IfB-TRAN™ for use in their applications. We expect to incorporate the COVID-19 pandemic contributesfeedback from these customers into our future commercial products. We began B-TRAN™ customer shipments to significant additional volatilityprogram participants 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, including electrical component unavailability and infrequent shipping delays, 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 additional 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.June 2023.
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Results of Operations
Comparison of the three months ended SeptemberJune 30, 20222023 to the three months ended SeptemberJune 30, 20212022
Grant Revenues.Revenue. Grant revenuesRevenue for the three months ended SeptemberJune 30, 2023 and 2022 was $135,167 and $50,978, respectively. Revenue for the three months ended June 30, 2023 included development revenue (see Development Agreement above) of $98,443 and grant revenue of $36,724. Revenue for the three months ended June 30, 2022 and 2021 were $10,675 and $121,028, respectively. consisted of grant revenue.
The grant revenues relate primarilyrevenue for the three months ended June 30, 2023 and 2022 relates 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 statesolid-state circuit breaker (“SSCB”). InWe completed our work under the subcontract in June 2022, NAVSEA approved a 6-month extension to the program2023.
We launched our first commercial product in January 2023 and the program may be extended further through the demonstrationexpect initial sales of the SSCB. We expect the remaining grant revenue of $53,996 related to this subcontract to be recognized in the balance of 2022 and 2023.product later this year. We also expect to pursue additional development agreements, including Phase 2 of the development agreement discussed above, as well as government funding opportunities that may result in additional development and/or grant revenuesrevenue in the future.
We expect to introduce our initial product for commercial sale as early as late 2022.
Cost of Grant Revenues.Revenue. Cost of grant revenuesrevenue for the three months ended SeptemberJune 30, 2023 and 2022 was $110,737 and 2021 was $10,675 and $121,028,$50,978, respectively. The cost of grant revenuesrevenue relates to the development agreement and subcontract with DTI discussed above for the three months ended June 30, 2023 and arethe subcontract with DTI for the three months ended June 30, 2022. For the subcontract with DTI, cost of grant revenue is equal to the associated grant revenuesrevenue resulting in no gross profit.
Gross Profit. Gross profit for the three months ended June 30, 2023 and 2022 was $24,430 and $0, respectively. The gross profit in the three months ended June 30, 2023 relates to the development agreement. We recorded no gross profit for the DTI subcontract in the three months ended June 30, 2023 and 2022 and expect no gross profit under the subcontract with DTI or from othergovernment grants that we are pursuing or may pursue in the remainder of 2022.2023.
Research and Development Expenses. Research and development expenses increased by $175,675,$478,305, or 29%66%, to $780,151$1,206,688 in the three months ended SeptemberJune 30, 20222023 from $604,476$728,383 in the three months ended SeptemberJune 30, 2021.2022. The increase was due to higher component costs, primarily wafers, of $115,449, stock-based compensation expense of $71,946, search and placement fees$285,565, engineering services, primarily device packaging costs, of $56,933,$173,190, personnel costs of $32,116$104,893 and other B-TRAN™ development spending of $31,817,$8,252, partly offset by lower contract laborsemiconductor fabrication costs of $132,586.$93,595. In the three months ended June 30, 2023, stock-based compensation expense included $207,776 related to performance stock units granted in December 2022 with a derived service period of 0.89 years. We expect higher research and development expenses in the fourth quarterremainder of 20222023 as we continue to acceleratethe development of our B-TRAN™ 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 as well as the timing and cost of other major development activities.
General and Administrative Expenses. General and administrative expenses increased by $268,015,$199,356, or 54%27%, to $768,957$933,993 in the three months ended SeptemberJune 30, 20222023 from $500,942$734,637 in the three months ended SeptemberJune 30, 2021.2022. The increase was due to higher stock-based compensation expense of $93,470, investor relations spending of $76,137, a compensation benchmarking study costing $69,550, higher stock-based compensation expense of $45,974,$61,968 and personnel costs of $32,904, Board fees and expenses of $20,741 and$46,121, partly offset by lower other net costs of $22,709.$2,203. In the three months ended June 30, 2023, stock-based compensation expense included $66,056 related to performance stock units granted in December 2022 with a derived service period of 0.89 years. We expect relatively flat to modestly lower general and administrative expenses, in the fourth quarter of 2022 excluding the impactexclusive of stock-based compensation, expense which will vary depending onin the timing, vesting provisions and sizeremainder of equity grants.2023 as compared to 2022.
Sales and Marketing Expenses. Sales and marketing expenses increased by $79,195,$38,748, or 62%17%, to $207,443$271,900 in the three months ended SeptemberJune 30, 20222023 from $128,248$233,152 in the three months ended SeptemberJune 30, 2021.2022. The increase was due to higher personnel costs of $45,827, as we hired our second sales$50,442 and marketing employee in October 2021, stock-based compensation expense of $22,100$13,772, partly offset by lower travel costs of $11,273, search and placement fees of $10,000 and other net spending of $11,268.$4,193. We expect higher sales and marketing expenses in the fourth quarterremainder of 2023 as compared to 2022 somewhat dependent on the pace of hiring, as we engage more broadly with prospective customers and continuelaunch our second commercial product in the commercializationsecond half of our B-TRAN™ technology.2023.
Loss from Operations. Our loss from operations for the three months ended SeptemberJune 30, 20222023 was $1,756,551,$2,388,151, or 42%41% higher, than the $1,233,666$1,696,172 loss from operations for the three months ended SeptemberJune 30, 20212022 for the reasons discussed above.
OtherInterest Income, (Expense).Net. OtherNet interest income was $52,781$108,345 for the three months ended SeptemberJune 30, 20222023 compared to other expense of $5,012$6,178 for the three months ended SeptemberJune 30, 2021. The increase in other income was2022 due to the impact of higher interest rates on our money market account.
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Net Loss. Our net loss for the three months ended SeptemberJune 30, 20222023 was $1,703,770,$2,279,806, or 38%35% higher, as compared to a net loss of $1,238,678$1,689,994 for the three months ended SeptemberJune 30, 2021,2022, for the reasons discussed above.
Comparison of the six months ended June 30, 2023 to the six months ended June 30, 2022
Revenue. Revenue for the six months ended June 30, 2023 and 2022 was $135,831 and $175,986, respectively. Revenue for the six months ended June 30, 2023 included development revenue of $98,443 and grant revenue of $37,388. Revenue for the six months ended June 30, 2022 consisted of grant revenue.
The grant revenue for the six months ended June 30, 2023 and 2022 related primarily to the $1.2 million subcontract with DTI discussed above. We completed our work under this subcontract in June 2023. For the six months ended June 30, 2022, grant revenue also included revenue related to a second subcontract with DTI. In September 2021, we entered into and began work under a $50,000 subcontract with DTI under a Phase I Small Business Innovation Research grant from the U.S. Department of Energy to develop a B-TRAN™-driven low loss alternating current SSCB. We completed our work under this subcontract in the first quarter of 2022.
Cost of Revenue. Cost of revenue for the six months ended June 30, 2023 and 2022 was $111,401 and $175,986, respectively. The cost of revenue relates to the development agreement and the NAVSEA subcontract with DTI for the six months ended June 30, 2023 and the subcontracts with DTI for the six months ended June 30, 2022. For the subcontracts with DTI, cost of grant revenue is equal to the associated grant revenue resulting in no gross profit.
Gross Profit. Gross profit for the six months ended June 30, 2023 and 2022 was $24,430 and $0, respectively. The gross profit in the six months ended June 30, 2023 related to the development agreement. We recorded no gross profit for the DTI subcontracts in the six months ended June 30, 2023 and 2022 and expect no gross profit from government grants that we are pursuing or may pursue in the remainder of 2023.
Research and Development Expenses. Research and development expenses increased by $1,089,786, or 70%, to $2,646,716 in the six months ended June 30, 2023 from $1,556,930 in the six months ended June 30, 2022. The increase was due to higher stock-based compensation expense of $566,394, personnel costs of $226,097, engineering services, primarily device packaging costs, of $187,433 and semiconductor fabrication costs of $121,376, slightly offset by lower other B-TRAN™ spending of $11,514. In the six months ended June 30, 2023, stock-based compensation expense included $415,553 related to performance stock units granted in December 2022 with a derived service period of 0.89 years.
General and Administrative Expenses. General and administrative expenses increased by $241,340, or 15%, to $1,828,926 in the six months ended June 30, 2023 from $1,587,586 in the six months ended June 30, 2022. The increase was due to higher stock-based compensation expense of $177,613, personnel costs of $106,291 and other net costs of $6,302, partly offset by lower Board fees and expenses of $48,866. In the six months ended June 30, 2023, stock-based compensation expense included $132,112 related to performance stock units granted in December 2022 with a derived service period of 0.89 years.
Sales and Marketing Expenses. Sales and marketing expenses increased by $123,645, or 27%, to $576,226 in the six months ended June 30, 2023 from $452,581 in the six months ended June 30, 2022. The increase was due to higher personnel costs of $72,172, search and placement fees of $33,750 and stock-based compensation of $26,961, slightly offset by lower other net spending of $9,238.
Loss from Operations. Our loss from operations for the six months ended June 30, 2023 was $5,027,438, or 40% higher, than the $3,597,097 loss from operations for the six months ended June 30, 2022 for the reasons discussed above.
Interest Income, Net. Net interest income was $219,647 for the six months ended June 30, 2023 compared to $2,462 for the six months ended June 30, 2022 due to the impact of higher interest rates on our money market account.
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Comparison of the nine months ended September 30, 2022 to the nine months ended September 30, 2021
Grant Revenues. Grant revenues for the nine months ended September 30, 2022 and 2021 were $186,661 and $447,794, respectively. The grant revenues relate primarily to a $1.2 million subcontract with DTI discussed above.
Cost of Grant Revenues. Cost of grant revenues for the nine months ended September 30, 2022 and 2021 was $186,661 and $447,794, respectively. The cost of grant revenues relates primarily to the subcontract with DTI discussed above and is equal to the associated grant revenues resulting in no gross profit.
Research and Development Expenses. Research and development expenses increased by $911,032, or 64%, to $2,337,081 in the nine months ended September 30, 2022 from $1,426,049 in the nine months ended September 30, 2021. The increase was due to higher semiconductor fabrication costs of $349,537, stock-based compensation expense of $224,812, component costs, primarily wafers, of $212,043, professional fees of $118,181 and other B-TRAN™ spending of $6,459. In the nine months ended September 30, 2021, our semiconductor fabrication costs were partially funded by government grants. In the nine months ended September 30, 2022, almost all of our semiconductor fabrication costs were not funded by government grants.
General and Administrative Expenses. General and administrative expenses increased by $651,397, or 38%, to $2,356,543 in the nine months ended September 30, 2022 from $1,705,146 in the nine months ended September 30, 2021. The increase was due to higher investor relations spending, inclusive of services paid in stock, of $185,908, stock-based compensation expense of $147,249, Board search and placement fees and expenses of $85,942, a compensation benchmarking study costing $69,550, higher insurance of $35,518, audit fees of $28,047, Board fees and expenses of $26,295 and other costs of $72,888.
Sales and Marketing Expenses. Sales and marketing expenses increased by $357,165, or 118%, to $660,024 in the nine months ended September 30, 2022 from $302,859 in the nine months ended September 30, 2021. The increase was due to higher personnel costs of $184,361, as we hired our first two sales and marketing employees in 2021, stock-based compensation of $76,554, travel costs of $35,732, professional fees of $22,977 and other spending of $37,541.
Loss from Operations. Our loss from operations for the nine months ended September 30, 2022 was $5,353,648, or 56% higher, than the $3,434,054 loss from operations for the nine months ended September 30, 2021 for the reasons discussed above.
Other Income. Other income was $55,243 for the nine months ended September 30, 2022 compared to $84,533 for the nine months ended September 30, 2021. Other income in the nine months ended September 30, 2022 related to higher interest income, due to the impact of higher interest rates, on our money market account. Other income in the nine months ended September 30, 2021 related primarily to a gain on forgiveness of long-term debt of $91,407.
Net Loss. Our net loss for the ninesix months ended SeptemberJune 30, 20222023 was $5,298,405,$4,807,791, or 58%34% higher, as compared to a net loss of $3,349,521$3,594,635 for the ninesix months ended SeptemberJune 30, 2021,2022, for the reasons discussed above.
Liquidity and Capital Resources
We currently generate development and grant revenue only. We expect to generate grant revenue and potentially commercial revenue ininitial product sales as early as late 2022,2023, depending on the timing of any development agreementsultimate date that we may enter into with potential customers.our initial product is fabricated and available for commercial sale. We have incurred losses since inception. We have funded our operations to date through the sale of common stock and warrants.stock.
At SeptemberJune 30, 2022,2023, we had cash and cash equivalents of $18.5$12.7 million. Our net working capital at SeptemberJune 30, 20222023 was $18.3$12.6 million. We had no outstanding debt at SeptemberJune 30, 2022. Accordingly, we expect2023.
We believe that our cash and cash equivalents on hand will be sufficient to fundmeet our activitiesongoing liquidity needs 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 in the future to fully implement our plan of operation and there can be no assurance that, if needed, we will be able to secure additional debt or equity financing on terms acceptable to us or at all. Although we believe we have adequate sources of liquidity over the long term, the success of our operations, the global economic outlook, and the pace of sustainable growth in our markets could each impact our business strategy.and liquidity.
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Operating activities in the ninesix months ended SeptemberJune 30, 20222023 resulted in cash outflows of $4,512,733,$3,408,492, which were due to the net loss for the period of $5,298,405 and unfavorable changes in net working capital of $145,112,$4,807,791, partly offset by non-cash items including stock-based compensation of $696,127,$1,233,207, depreciation and amortization of $134,557$121,423 and stock issued for servicesfavorable balance sheet timing of $100,100. $44,669.
Operating activities in the ninesix months ended SeptemberJune 30, 20212022 resulted in cash outflows of $2,992,743,$3,081,517, which were due to the net loss for the period of $3,349,521$3,594,635 and a non-cash gain on forgivenessunfavorable changes in net working capital of long-term debt of $91,407,$138,271, partly offset by stock-based compensation of $247,512, depreciation and amortization of $113,607,$462,238, stock issued for services of $68,680, favorable balance sheet timing$100,100 and depreciation and amortization of $17,858 and patent impairment charges of $528.$89,051.
We expect an increase in cash outflows from operating activities in the fourth quarterremainder of 20222023 as we continue to accelerate development and commercializationcommercialize our B-TRAN™ technology, including the launch of our B-TRAN™ technology.second commercial product.
Investing activities in the ninesix months ended SeptemberJune 30, 20222023 and 20212022 resulted in cash outflows of $206,879$253,863 and $182,801,$67,920, respectively, for the acquisition of intangible assets and fixed assets. The increase was due to purchases of testing equipment in the nine months ended September 30, 2022. We expect cash outflows from investing activities to remain modest although there may be quarter-over-quarter variability in these cash outflows due to the timing of purchases of testing equipment.
Financing activities in the nine months ended September 30, 2022 did not result in any cash inflows or outflows. Financing activities in the nine months ended September 30, 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 are utilizing, and continue to expect to utilize, the net proceeds from the Public Offering to fund commercialization and development of our B-TRAN™ technology and general corporate and working capital purposes.
Critical Accounting Estimates
There have been no significant changes during the ninesix months ended SeptemberJune 30, 20222023 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, 2021.2022.
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, 2021.2022.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, we are not required to provide this information.
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ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the Company’s reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. The Company’s disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that this information is accumulated and communicated to management, including the principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. The Company conducted an evaluation (pursuant to Rule 13a-15(b) of the Exchange Act), under the supervision and with the participation of its Chief Executive Officer (principal executive officer) and its Chief Financial Officer (principal financial and accounting officer) of the effectiveness of the Company’s disclosure controls and procedures as of SeptemberJune 30, 20222023 and has concluded that, as of SeptemberJune 30, 2022,2023, the Company’s disclosure controls and procedures wereare effective.
Changes in Internal Control over Financial Reporting
There have been no material changes in our internal controls over financial reporting that occurred during the quarter ended SeptemberJune 30, 20222023 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
Limitations on the Effectiveness of Controls
Control systems, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control systems’ objectives are being met. Further, the design of any system of controls must reflect the fact that there are resource constraints, and the benefits of all controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of error or mistake. Control systems can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
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PART II-OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We may be subject to litigation from time to time in the ordinary course of business. We are not currently party to any legal proceedings.
ITEM 1A. RISK FACTORS
There are no material changes from the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021.2022.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
1918
ITEM 6. EXHIBITS
Exhibit |
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10.1+ | | |
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31.1* | | |
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31.2* | | |
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32.1** | | |
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101.INS* | | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL |
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101.SCH* | | Inline XBRL Taxonomy Extension Schema Document |
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101.CAL* | | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF* | | Inline XBRL Taxonomy Extension Definition Linkbase Document |
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10.LAB* | | Inline XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE* | | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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104 | | Cover Page Interactive Data File (embedded within the Inline XBRL document and contained in Exhibit 101) |
* | Filed herewith |
**Furnished herewith
+ | Indicates a management contract or compensatory agreement. |
2019
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated | IDEAL POWER INC. | |
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| By: | /s/ R. Daniel Brdar |
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| R. Daniel Brdar |
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| Chief Executive Officer |
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| By: | /s/ Timothy W. Burns |
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| Timothy W. Burns |
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| Chief Financial Officer |
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