Ideal Power(IPWR) - 2022 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION This section presents the unaudited condensed financial statements, management's discussion and analysis, market risk disclosures, and controls and procedures for the period Item 1. Unaudited Condensed Financial Statements Q1 2022 saw a weakened financial position with decreased assets and equity, increased liabilities, and a higher net loss from increased operating expenses and reduced grant revenue Balance Sheets The balance sheet reflects a decrease in cash, total assets, and stockholders' equity, alongside an increase in total liabilities from December 2021 to March 2022 Balance Sheet Summary (March 31, 2022 vs. December 31, 2021) | Metric | March 31, 2022 | December 31, 2021 | Change | | :-------------------------- | :--------------- | :---------------- | :----- | | Cash and cash equivalents | $21,725,410 | $23,170,149 | $(1,444,739) | | Total current assets | $22,108,453 | $23,447,311 | $(1,338,858) | | Total assets | $24,507,763 | $25,877,480 | $(1,369,717) | | Total current liabilities | $756,083 | $542,871 | $213,212 | | Total liabilities | $1,930,614 | $1,727,555 | $203,059 | | Total stockholders' equity | $22,577,149 | $24,149,925 | $(1,572,776) | Statements of Operations The statements of operations show a significant increase in net loss for Q1 2022, driven by higher operating expenses and reduced grant revenue Statements of Operations Summary (Three Months Ended March 31) | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | YoY Change (%) | | :-------------------------- | :-------------------------------- | :-------------------------------- | :------------- | | Grant revenue | $125,008 | $242,061 | (48.36)% | | Cost of grant revenue | $125,008 | $242,061 | (48.36)% | | Gross profit | $— | $— | — | | Research and development | $828,547 | $260,880 | 217.59% | | General and administrative | $852,949 | $600,686 | 42.00% | | Sales and marketing | $219,429 | $62,578 | 250.65% | | Total operating expenses | $1,900,925 | $924,144 | 105.70% | | Loss from operations | $(1,900,925) | $(924,144) | 105.70% | | Net loss | $(1,904,641) | $(924,150) | 106.09% | | Net loss per share (basic and diluted) | $(0.31) | $(0.17) | 82.35% | - Net loss increased by 106% year-over-year, primarily due to a 105.7% increase in total operating expenses and a 48.36% decrease in grant revenue[13] Statements of Cash Flows Cash flow analysis reveals increased cash usage in operating activities and a cessation of financing cash inflows in Q1 2022 compared to the prior year Statements of Cash Flows Summary (Three Months Ended March 31) | Cash Flow Activity | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash used in operating activities | $(1,417,123) | $(843,337) | | Net cash used in investing activities | $(27,616) | $(30,737) | | Net cash provided by financing activities | $— | $24,505,835 | | Net increase (decrease) in cash and cash equivalents | $(1,444,739) | $23,631,761 | | Cash and cash equivalents at end of period | $21,725,410 | $26,789,017 | - Net cash used in operating activities increased by 68.04% year-over-year[16] - Financing activities provided no cash in Q1 2022, a significant decrease from $24.51 million in Q1 2021[16] Statements of Stockholders' Equity Stockholders' equity decreased due to the net loss, partially offset by stock-based compensation and stock issued for services Stockholders' Equity Summary (March 31, 2022 vs. December 31, 2021) | Metric | December 31, 2021 | March 31, 2022 | | :-------------------------- | :---------------- | :--------------- | | Common Stock (Shares) | 5,893,767 | 5,905,118 | | Common Stock (Amount) | $5,894 | $5,905 | | Additional Paid-In Capital | $104,063,321 | $104,395,175 | | Accumulated Deficit | $(79,906,080) | $(81,810,721) | | Total Stockholders' Equity | $24,149,925 | $22,577,149 | - Total stockholders' equity decreased by $1.57 million, primarily due to the net loss of $(1,904,641) for the period, partially offset by stock-based compensation and stock issued for services[19] Notes to Unaudited Financial Statements Notes detail B-TRAN™ technology, accounting policies, intangible assets, lease obligations, commitments, and equity activities including offerings and incentive plans Note 1 – Organization and Description of Business This note describes the company's focus on B-TRAN™ technology and its reliance on common stock and warrants for funding operations - The company is focused on the development and commercialization of its Bidirectional bipolar junction TRANsistor (B-TRAN™) solid-state switch technology[22] - Operations have been financed primarily through the sale of common stock and warrants, with future operations dependent on obtaining adequate funding through various sources[23] Note 2 – Summary of Significant Accounting Policies This note outlines the preparation of unaudited financial statements, treatment of pre-funded warrants, and exclusion of common share equivalents from diluted net loss per share - Unaudited financial statements are prepared in accordance with SEC Form 10-Q rules, with certain GAAP disclosures condensed or omitted[24] - Pre-funded warrants to purchase 253,828 shares of common stock are included in the computation of basic net loss per share for both periods[26] - No common share equivalents are included in diluted net loss per share due to their anti-dilutive effect in periods with a net loss[27] Note 3 – Intangible Assets This note details changes in patents and other intangible assets, including amortization expenses and capitalized patent costs Intangible Assets, Net | Metric | March 31, 2022 | December 31, 2021 | | :----------------------------------- | :--------------- | :---------------- | | Patents | $1,150,426 | $1,133,841 | | Other intangible assets | $1,391,479 | $1,391,479 | | Accumulated amortization – patents | $(171,142) | $(158,516) | | Accumulated amortization – other intangible assets | $(335,340) | $(311,154) | | Total intangible assets, net | $2,035,423 | $2,055,650 | - Amortization expense increased to $36,812 for Q1 2022 from $23,698 for Q1 2021[29] - The company capitalized $317,923 for costs related to patents not yet awarded at March 31, 2022[30] Note 4 – Lease This note describes the new office and laboratory lease, including future minimum lease payments and remaining lease term - The company entered a new 63-month lease for 4,070 square feet of office and laboratory space in Austin, Texas, commencing June 1, 2021[32] Future Minimum Lease Payments | For the Year Ended December 31, | Amount | | :------------------------------ | :----- | | 2022 (remaining) | $57,659 | | 2023 | $78,517 | | 2024 | $80,552 | | 2025 | $82,587 | | 2026 | $56,132 | | Total lease payments | $355,447 | - The remaining lease term was 53 months at March 31, 2022, with an estimated incremental borrowing rate of 6% per annum[33][34] Note 5 – Commitments and Contingencies This note covers exclusive license agreements, estimated future payments, absence of legal proceedings, and the uncertain impact of the COVID-19 pandemic - The company has an exclusive royalty-free license agreement expiring in February 2033, with ongoing variable payments of $20,000 per issued patent annually, up to a maximum of $100,000 per year (all five associated patents are issued)[36] - The estimated present value of future payments under the licensing agreements was $922,439 at March 31, 2022[37] - The company is not currently a party to any legal proceedings[38] - The COVID-19 pandemic has not had a material adverse impact on operations to date, but its future impact remains uncertain, with potential risks to capital raising and operating results[40] Note 6 — Common Stock This note details the 2021 public offering, use of proceeds, and issuance of unregistered shares for vendor services in 2022 - In February 2021, the company completed a public offering, issuing 1,352,975 shares of common stock at $17.00 per share, generating net proceeds of $21.2 million[41] - Proceeds from the public offering are intended to fund commercialization and development of B-TRAN™ technology and general corporate purposes[41] - In January 2022, 10,000 unregistered shares of common stock, valued at $100,100, were issued to a third-party vendor as compensation for services[42] Note 7 — Equity Incentive Plan This note outlines available shares under the incentive plan, stock option activity, and unrecognized compensation costs - At March 31, 2022, 412,945 shares of common stock were available for issuance under the 2013 Equity Incentive Plan[44] Stock Option Activity (Three Months Ended March 31, 2022) | Metric | Stock Options | Weighted Average Exercise Price | | :-------------------------- | :------------ | :------------------------------ | | Outstanding at Dec 31, 2021 | 492,886 | $7.35 | | Granted | 23,096 | $11.11 | | Exercised | (3,750) | $5.36 | | Forfeited | (16,250) | $9.33 | | Outstanding at Mar 31, 2022 | 495,982 | $7.48 | | Exercisable at Mar 31, 2022 | 386,828 | $6.46 | - A modification to stock option grants for a former Chairman extended the post-termination exercise period from 12 months to 5 years, resulting in $49,327 of expense in Q1 2022[46] - Unrecognized compensation cost related to non-vested equity awards was $1,650,209 at March 31, 2022, expected to be recognized over a weighted average period of 1.3 years[47] Note 8 — Warrants This note provides details on outstanding warrants, including pre-funded warrants, their exercise prices, and exercisability - At March 31, 2022, the company had 786,420 warrants outstanding with a weighted average exercise price of $5.19 per share[48] - Additionally, 253,828 pre-funded warrants were outstanding with an exercise price of $0.001 per share and no expiration date[48] - All warrants were exercisable at March 31, 2022, subject to beneficial ownership limitations[49] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section discusses financial performance, increased net loss from B-TRAN™ development and reduced grant revenue, COVID-19 impact, and liquidity Overview This overview reiterates the company's focus on B-TRAN™ technology, funding sources, grant revenue, and expected product introduction - Ideal Power Inc. is solely focused on the development and commercialization of its B-TRAN™ solid-state switch technology[56] - Operations have been funded primarily through the sale of common stock and warrants[57] - Grant revenue for Q1 2022 was $125,008, a decrease from $242,061 in Q1 2021[57] - The company expects to introduce its initial product for commercial sale in late 2022[61] COVID-19 Impact This section assesses the COVID-19 pandemic's impact on operations, potential supply chain disruptions, and future risks - The COVID-19 pandemic has not had a material adverse impact on operations to date, but future developments remain highly uncertain[59] - Potential future disruptions include electrical component shortages, difficulties in securing fabrication capacity, and delays in development and commercialization activities[59] - A significant disruption in the semiconductor supply chain, due to COVID-19 and increased demand, may materially and adversely impact the company in the future[59] Results of Operations This section analyzes changes in grant revenues, operating expenses, and the resulting increase in loss from operations and net loss Key Operating Expenses and Revenue Changes (Three Months Ended March 31) | Expense Category | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | YoY Change ($) | YoY Change (%) | | :-------------------------- | :-------------------------------- | :-------------------------------- | :------------- | :------------- | | Grant Revenues | $125,008 | $242,061 | $(117,053) | (48.36)% | | Cost of Grant Revenues | $125,008 | $242,061 | $(117,053) | (48.36)% | | Research and Development | $828,547 | $260,880 | $567,667 | 217.59% | | General and Administrative | $852,949 | $600,686 | $252,263 | 42.00% | | Sales and Marketing | $219,429 | $62,578 | $156,851 | 250.65% | | Loss from Operations | $(1,900,925) | $(924,144) | $(976,781) | 105.70% | | Net Loss | $(1,904,641) | $(924,150) | $(980,491) | 106.09% | - Research and development expenses increased by 218% due to higher self-funded semiconductor fabrication costs, personnel costs, and stock-based compensation[63] - Sales and marketing expenses increased by 251% due to the hiring of the first sales and marketing employees and commercialization efforts[65] Liquidity and Capital Resources This section details cash and working capital, future funding needs, and changes in cash flows from operating and financing activities - At March 31, 2022, cash and cash equivalents totaled $21.7 million, with net working capital of $21.4 million and no outstanding debt[70] - Management expects current cash to fund activities for at least the next twelve months, but additional funds may be required to fully implement the plan of operation[70] - Net cash used in operating activities increased to $1,417,123 in Q1 2022 from $843,337 in Q1 2021, and is expected to increase further throughout 2022[71][72] - Financing activities provided no cash in Q1 2022, compared to $24.51 million in Q1 2021 from a public offering and option/warrant exercises[73] Critical Accounting Estimates This section confirms no significant changes to critical accounting estimates from the prior annual report - There have been no significant changes to the critical accounting estimates disclosed in the Annual Report on Form 10-K for the fiscal year ended December 31, 2021[75] Trends, Events and Uncertainties This section confirms no material changes to trends, events, or uncertainties from the prior annual report - There are no material changes from trends, events, or uncertainties disclosed in the Annual Report on Form 10-K for the fiscal year ended December 31, 2021[76] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Ideal Power Inc. is not required to provide quantitative and qualitative disclosures about market risk - The company is not required to provide quantitative and qualitative disclosures about market risk as it is a smaller reporting company[77] Item 4. Controls and Procedures Management found disclosure controls effective, with no material changes to internal controls, acknowledging inherent system limitations Evaluation of Disclosure Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and procedures as of March 31, 2022 - The company's disclosure controls and procedures were evaluated and concluded to be effective as of March 31, 2022[78] Changes in Internal Control over Financial Reporting This section reports no material changes in internal controls over financial reporting during the quarter - There have been no material changes in internal controls over financial reporting during the quarter ended March 31, 2022[79] Limitations on the Effectiveness of Controls This section highlights that control systems provide reasonable, not absolute, assurance due to inherent limitations - Control systems provide only reasonable, not absolute, assurance due to inherent limitations such as resource constraints, faulty judgments, errors, circumvention, and management override[80] PART II – OTHER INFORMATION This section covers non-financial disclosures, including the absence of current legal proceedings, no material changes to risk factors, details on unregistered equity sales, and a list of exhibits filed with the report Item 1. Legal Proceedings The company is not currently a party to any legal proceedings, though it may be subject to litigation in the ordinary course of business - The company is not currently a party to any legal proceedings[83] Item 1A. Risk Factors This section states there are no material changes to the risk factors disclosed in the prior annual report - There are no material changes from the risk factors disclosed in the Annual Report on Form 10-K for the year ended December 31, 2021[84] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the issuance of unregistered common stock to a vendor for services in January 2022 under a private placement exemption - In January 2022, 10,000 unregistered shares of common stock, valued at $100,100, were issued to a third-party vendor as compensation for services performed[85] - The shares were issued in a private placement pursuant to Section 4(a)(2) of the Securities Act[85] Item 3. Defaults Upon Senior Securities This item is not applicable to the company - This item is not applicable[86] Item 4. Mine Safety Disclosures This item is not applicable to the company - This item is not applicable[87] Item 5. Other Information This section confirms no other information to report under this item - No other information to report[88] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications and XBRL documents - Exhibits include certifications (31.1, 31.2, 32.1) and Inline XBRL documents (101.INS, 101.SCH, 101.CAL, 101.DEF, 10.LAB, 101.PRE, 104)[90] SIGNATURES This section contains the signatures of the Chief Executive Officer and Chief Financial Officer, dated May 16, 2022 - The report was signed on May 16, 2022, by R. Daniel Brdar (Chief Executive Officer) and Timothy W. Burns (Chief Financial Officer)[93]