Ideal Power Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. The Austin-based company is developing and commercializing its B-TRAN solid-state switch technology. Revenue to date is primarily from government grants; operations have historically been funded mainly through equity offerings.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Grant revenue | $10,675 | $121,028 | $186,661 | $447,794 |
| Gross profit | $0 | $0 | $0 | $0 |
| Operating expenses | $1,756,551 | $1,233,666 | $5,353,648 | $3,434,054 |
| Operating loss | $(1,756,551) | $(1,233,666) | $(5,353,648) | $(3,434,054) |
| 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) |
- Grant revenue is offset by equal grant costs, so the company reported no gross profit in either comparable period.
- At September 30, cash and cash equivalents were $18.45 million, versus $23.17 million at December 31, 2021. Net working capital was $18.3 million.
- Cash used in operations was $4.51 million for the first nine months of 2022, compared with $2.99 million in 2021. Investing activities used $206,879; financing activities had no cash flow.
- Total liabilities were $1.76 million, including lease liabilities and an $883,118 long-term licensing liability. The company reported no outstanding debt.
- Gross margin was 0% because grant costs equaled grant revenue. The filing does not report a separate operating or net margin.
Material changes and notable items
- Nine-month operating expenses rose 56% year over year. Research and development increased 64% to $2.34 million, general and administrative expense increased 38% to $2.36 million, and sales and marketing increased 118% to $660,024.
- The company attributed higher research and development costs to semiconductor fabrication, components, and stock-based compensation; 2022 fabrication costs were almost entirely self-funded rather than grant-funded. General and administrative increases included investor relations, stock compensation, board search costs, and a compensation benchmarking study.
- Net loss increased 58% for the first nine months. 2021 included a $91,407 non-cash gain from forgiveness of a PPP loan; no comparable gain occurred in 2022. Higher interest income partly offset operating losses in 2022.
- Cash declined by $4.72 million during the first nine months of 2022. The comparable 2021 period included $24.51 million of financing inflows from a public offering and exercises of options and warrants.
Outlook, risks, and other matters
- Management said existing cash was expected to fund activities for at least 12 months from the filing date, but additional funds may be needed to fully implement its plans.
- The company expected higher fourth-quarter 2022 research and development spending and operating cash outflows as it accelerated B-TRAN development and self-funded more fabrication costs. It expected higher sales and marketing expense as it engaged prospective customers.
- Management said it expected to introduce an initial commercial product as early as late 2022. This is a forward-looking expectation, not a guarantee; the company was generating grant revenue only at the time of the report and potential commercial revenue depended on development agreements.
- The DTI subcontract related to a NAVSEA solid-state circuit-breaker program was extended six months in June 2022, with possible further extension. The company expected to recognize the remaining $53,996 of related grant revenue in the balance of 2022 and 2023; grants are expected to yield no gross profit.
- Key risks include the company’s history of losses and need for future funding; successful development, fabrication, customer testing, certification, and commercialization of B-TRAN; securing strategic partners; intellectual-property protection; and semiconductor supply constraints. COVID-related component shortages and shipping delays had not materially affected operations to date, but could do so in the future.
- No current legal proceedings were reported. Management concluded disclosure controls were effective as of September 30, 2022; no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Whether B-TRAN development, fabrication, customer qualification, and any commercial launch progress on the expected timeline.
- Whether cash burn accelerates as government-grant support declines, and how long current cash can support operations.
- Whether new grants, development agreements, strategic partnerships, or other financing are secured—and on what terms.
- Whether semiconductor supply and fabrication capacity affect development costs or schedules.
- How grant revenue and the DTI/NAVSEA program evolve, including the timing and collectability of remaining grant revenue.