Ideal Power(IPWR) - 2022 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION This part presents the company's unaudited financial statements, management's analysis, and disclosures on controls and procedures Item 1. Unaudited Condensed Financial Statements This section presents the unaudited condensed financial statements, providing a snapshot of the company's financial position and performance Balance Sheets The company's financial position shows a decrease in total assets, primarily driven by a reduction in cash and cash equivalents - The company's total assets decreased from $25.88 million at December 31, 2021, to $22.81 million at June 30, 2022, primarily due to a reduction in cash and cash equivalents[10] Key Balance Sheet Figures | Metric | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $20,020,712 | $23,170,149 | | Total current assets | $20,429,823 | $23,447,311 | | Total assets | $22,810,077 | $25,877,480 | | Total current liabilities | $578,476 | $542,871 | | Total liabilities | $1,692,449 | $1,727,555 | | Total stockholders' equity | $21,117,628 | $24,149,925 | Statements of Operations The company reported widening net losses for the three and six-month periods due to increased operating expenses - Ideal Power Inc. reported increased net losses for both the three and six months ended June 30, 2022, compared to the same periods in 2021, driven by higher operating expenses and decreased other income[12] Key Statements of Operations Figures | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Grant revenue | $50,978 | $84,705 | $175,986 | $326,766 | | Gross profit | $— | $— | $— | $— | | Total operating expenses | $1,696,172 | $1,276,244 | $3,597,097 | $2,200,388 | | Loss from operations | $(1,696,172) | $(1,276,244) | $(3,597,097) | $(2,200,388) | | Total other income | $6,178 | $89,551 | $2,462 | $89,545 | | Net loss | $(1,689,994) | $(1,186,693) | $(3,594,635) | $(2,110,843) | | Net loss per share – basic and diluted | $(0.27) | $(0.19) | $(0.58) | $(0.37) | Statements of Cash Flows Net cash used in operations increased significantly, reflecting a higher net loss and changes in working capital - Cash used in operating activities significantly increased for the six months ended June 30, 2022, primarily due to a higher net loss and unfavorable changes in working capital, contrasting with the prior year's cash inflows from financing activities[15] Key Statements of Cash Flows Figures (Six Months Ended June 30) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Net loss | $(3,594,635) | $(2,110,843) | | Net cash used in operating activities | $(3,081,517) | $(1,801,095) | | Net cash used in investing activities | $(67,920) | $(145,019) | | Net cash provided by financing activities | $— | $24,505,835 | | Net increase (decrease) in cash and cash equivalents | $(3,149,437) | $22,559,721 | | Cash and cash equivalents at end of period | $20,020,712 | $25,716,977 | Statements of Stockholders' Equity Stockholders' equity declined due to the net loss incurred, partially offset by stock-based compensation - Stockholders' equity decreased from $24.15 million at December 31, 2021, to $21.12 million at June 30, 2022, primarily due to the net loss incurred during the period, partially offset by stock-based compensation and stock issued for services[17] - During the six months ended June 30, 2022, the company recognized $231,765 in stock-based compensation for the three months ended March 31, 2022, and $230,473 for the three months ended June 30, 2022, and issued $100,100 in stock for services[17] Key Stockholders' Equity Figures | Metric | December 31, 2021 | June 30, 2022 | | :--- | :--- | :--- | | Common Stock (Amount) | $5,894 | $5,905 | | Additional Paid-In Capital | $104,063,321 | $104,625,648 | | Accumulated Deficit | $(79,906,080) | $(83,500,715) | | Total Stockholders' Equity | $24,149,925 | $21,117,628 | Notes to Financial Statements The notes detail the company's focus on B-TRAN™ technology, intangible assets, leases, and equity-related transactions - Ideal Power Inc. is focused on the development and commercialization of its Bidirectional bipolar junction TRANsistor (B-TRAN™) solid-state switch technology, having financed operations primarily through stock and warrant sales[20][21] - Intangible assets, primarily patents, increased to $1,189,513 at June 30, 2022, from $1,133,841 at December 31, 2021, with amortization expense of $73,910 for the six months ended June 30, 2022[27] - The $91,407 PPP Loan, including accrued interest, was fully forgiven by the SBA in May 2021, recognized as a non-cash gain in the prior year[29] - The company entered a new 63-month lease for office and laboratory space in Austin, Texas, commencing June 1, 2021, with total future minimum payments of $336,454[31][33] - The company has licensing agreements expiring in February 2033, with ongoing variable payments up to a maximum of $100,000 per year for five issued patents, resulting in an estimated present value of future payments of $877,778 at June 30, 2022[35][36] - In January 2022, 10,000 unregistered shares of common stock, valued at $100,100, were issued to a third-party vendor for services[41] - At June 30, 2022, 394,979 shares were available for issuance under the 2013 Equity Incentive Plan; during the six months ended June 30, 2022, 41,062 stock options were granted, and $1,539,738 of unrecognized compensation cost related to non-vested equity awards remains[42][43][46] - As of June 30, 2022, there were 786,420 warrants outstanding with a weighted average exercise price of $5.19, and 253,828 pre-funded warrants with an exercise price of $0.001[47] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes financial results, highlighting increased net losses due to higher operating expenses for B-TRAN™ commercialization - The company is solely focused on the further development and commercialization of its Bidirectional bipolar junction TRANsistor (B-TRAN™) solid-state switch technology[56] - Operations have been funded primarily through the sale of common stock and warrants, with total revenue from inception to June 30, 2022, amounting to $16.1 million, mostly from discontinued operations and grant revenue[57] - The COVID-19 pandemic has not had a material adverse impact on operations to date, but future disruptions, including electrical component shortages, fabrication capacity difficulties, and development delays, remain potential risks[59] - The company expects to introduce its initial product for commercial sale as early as late 2022[61] - No significant changes to critical accounting estimates or material changes from trends, events, or uncertainties disclosed in the 2021 Annual Report on Form 10-K were reported[83][84] Comparison of the three months ended June 30, 2022 to the three months ended June 30, 2021 Q2 2022 results show a wider net loss driven by higher operating expenses and lower other income compared to Q2 2021 - The increase in Research and Development expenses was primarily due to higher semiconductor fabrication costs ($115,061) and wafer and driver component costs ($95,212), with almost all fabrication costs self-funded in 2022 compared to partial government funding in 2021[63] - Other income significantly decreased due to the absence of a $91,407 gain on forgiveness of long-term debt recognized in the prior year[66] - The company expects higher research and development and sales and marketing expenses, and flat to modestly lower general and administrative expenses in the remainder of 2022[63][64][65] Financial Performance (Three Months Ended June 30) | Metric | 2022 | 2021 | Change (YoY) | | :--- | :--- | :--- | :--- | | Grant Revenues | $50,978 | $84,705 | -39.8% | | Cost of Grant Revenues | $50,978 | $84,705 | -39.8% | | Research and Development Expenses | $728,383 | $560,693 | +30% | | General and Administrative Expenses | $734,637 | $603,518 | +22% | | Sales and Marketing Expenses | $233,152 | $112,033 | +108% | | Loss from Operations | $(1,696,172) | $(1,276,244) | +33% | | Other Income | $6,178 | $89,551 | -93.1% | | Net Loss | $(1,689,994) | $(1,186,693) | +42% | Comparison of the six months ended June 30, 2022 to the six months ended June 30, 2021 H1 2022 results indicate a significantly larger net loss due to increased R&D, G&A, and S&M expenses year-over-year - The significant increase in Research and Development expenses was primarily due to higher semiconductor fabrication costs ($365,598), stock-based compensation, and personnel costs, with almost all fabrication costs self-funded in 2022[71] - General and Administrative expenses increased due to higher investor relations spending, stock-based compensation, and Board search and placement fees[72] - Sales and Marketing expenses surged due to increased personnel costs from hiring the first two sales and marketing employees in 2021, along with higher stock-based compensation and travel costs[73] Financial Performance (Six Months Ended June 30) | Metric | 2022 | 2021 | Change (YoY) | | :--- | :--- | :--- | :--- | | Grant Revenues | $175,986 | $326,766 | -46.2% | | Cost of Grant Revenues | $175,986 | $326,766 | -46.2% | | Research and Development Expenses | $1,556,930 | $821,573 | +90% | | General and Administrative Expenses | $1,587,586 | $1,204,204 | +32% | | Sales and Marketing Expenses | $452,581 | $174,611 | +159% | | Loss from Operations | $(3,597,097) | $(2,200,388) | +63% | | Other Income | $2,462 | $89,545 | -97.2% | | Net Loss | $(3,594,635) | $(2,110,843) | +70% | Liquidity and Capital Resources The company maintains sufficient liquidity for near-term operations but anticipates increased cash burn for B-TRAN™ commercialization - As of June 30, 2022, the company had cash and cash equivalents of $20.0 million and net working capital of $19.9 million, with no outstanding debt[77] - Management expects current cash to be sufficient to fund activities for at least the next twelve months, but additional funds may be required to fully implement the business strategy[77] - Net cash used in operating activities for the six months ended June 30, 2022, was $3.08 million, an increase from the prior year, and further increases are expected due to accelerated B-TRAN™ development and commercialization[78][79] - Investing activities resulted in $67,920 in cash outflows for H1 2022, with an anticipated increase in H2 2022 for equipment acquisition[80] - There were no cash inflows or outflows from financing activities in H1 2022, contrasting with $24.5 million in inflows from a public offering and option exercises in H1 2021[81] - The $21.2 million net proceeds from the February 2021 public offering are being utilized to fund commercialization and development of B-TRAN™ technology and for general corporate and working capital purposes[82] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Ideal Power Inc is not required to provide these disclosures - The company is exempt from providing quantitative and qualitative disclosures about market risk as it qualifies as a smaller reporting company[85] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes in internal controls - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of June 30, 2022[87] - There have been no material changes in internal controls over financial reporting during the quarter ended June 30, 2022[88] - The report highlights that control systems provide only reasonable, not absolute, assurance due to inherent limitations such as resource constraints, human error, circumvention by individual acts or collusion, and management override[89] PART II - OTHER INFORMATION This part covers other required disclosures, including legal proceedings, risk factors, and exhibits Item 1. Legal Proceedings Ideal Power Inc is not currently involved in any legal proceedings - The company is not currently party to any legal proceedings[92] Item 1A. Risk Factors There are no material changes to the risk factors previously disclosed in the company's Annual Report - No material changes from the risk factors disclosed in the Annual Report on Form 10-K for the year ended December 31, 2021[93] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or use of proceeds for this period - No unregistered sales of equity securities and use of proceeds were reported[94] Item 3. Defaults Upon Senior Securities This item is not applicable to Ideal Power Inc for the reporting period - This item is not applicable[95] Item 4. Mine Safety Disclosures This item is not applicable to Ideal Power Inc for the reporting period - This item is not applicable[96] Item 5. Other Information No other information was reported under this item for the reporting period - No other information was reported[97] Item 6. Exhibits This section lists all exhibits filed as part of the Form 10-Q, including various certifications and Inline XBRL documents - The exhibits include certifications from the Principal Executive Officer (31.1) and Principal Financial Officer (31.2) pursuant to the Exchange Act, a certification pursuant to 18 U.S.C. 1350 (32.1), and various Inline XBRL documents (101.INS, 101.SCH, 101.CAL, 101.DEF, 10.LAB, 101.PRE, 104)[99] SIGNATURES This section contains the official signatures of the company's executive officers, dated August 15, 2022 - The report was signed on August 15, 2022, by R. Daniel Brdar, Chief Executive Officer, and Timothy W. Burns, Chief Financial Officer, on behalf of Ideal Power Inc[102]