Ideal Power Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Ideal Power is focused on developing and commercializing its B-TRAN solid-state switch technology. Revenue to date came primarily from discontinued operations and government grants; the company reported only grant revenue in the periods presented.
Key financial results
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Grant revenue | $121,028 | $147,787 | $447,794 | $154,302 |
| Gross profit / margin | $0 / 0% | $0 / 0% | $0 / 0% | $0 / 0% |
| Operating expenses | $1.234 million | $1.173 million | $3.434 million | $2.935 million |
| Operating loss | $(1.234) million | $(1.173) million | $(3.434) million | $(2.935) million |
| Net loss | $(1.239) million | $(4.895) million | $(3.350) million | $(6.658) million |
| Net loss per share | $(0.20) | $(1.28) | $(0.57) | $(2.04) |
Cash and cash equivalents were $24.49 million at September 30, 2021, versus $3.16 million at December 31, 2020. Net working capital was $24.1 million. The company had no outstanding debt; current liabilities were $741,000. For the first nine months, operating cash outflow was $2.99 million and investing outflow was $183,000, offset by $24.51 million of financing inflows. Financing included $21.20 million net proceeds from a February public offering and $3.30 million from option and warrant exercises.
Changes and notable items
- Nine-month grant revenue increased to $448,000 from $154,000, while Q3 revenue declined to $121,000 from $148,000. Grant costs equaled grant revenue in each period, leaving no gross profit.
- Operating loss worsened 17% for the first nine months, as higher research and development and sales and marketing costs more than offset slightly lower general and administrative expenses. Q3 operating loss increased 5% year over year.
- Net loss narrowed substantially year over year in both comparisons, mainly because 2020 included a $3.72 million non-cash warrant-inducement expense. The 2021 nine-month results also included a $91,407 gain from forgiveness of the PPP loan.
- The February 2021 offering issued 1,352,975 shares at $17 per share. Shares issued and outstanding were 5,872,046 at quarter-end; the filing reports 5,892,046 outstanding as of November 9, 2021.
- Other long-term liabilities included $959,408 for estimated future payments under patent licensing agreements. A new Austin office/lab lease commenced in June 2021, with a reported lease liability of approximately $340,000.
Outlook, risks and contingencies
Management expected 2021 revenue to consist only of grants. Revenue from the DTI government-funded subcontracts was expected to continue for the next two quarters, with minimal revenue thereafter; the company may pursue additional grants. Management expected research and development spending to increase in Q4 2021 and throughout 2022 as B-TRAN development accelerates, with higher sales and marketing spending as it engages prospective customers. General and administrative expense was expected to be modestly higher over the next few quarters. No formal revenue, earnings, or profitability guidance was provided.
The company has incurred losses since inception and depends on financing and other potential funding sources while it develops and commercializes B-TRAN. Key risks include successful product development, fabrication and commercialization, customer adoption and certification timelines, securing partners, protecting intellectual property, and obtaining future funding. Management said COVID-19 had not materially adversely affected operations to date, but future effects remained uncertain. The filing reported no current legal proceedings, no off-balance-sheet transactions, and no material change in risk factors from the 2020 Form 10-K. Disclosure controls were assessed as effective.
Important facts for investors to verify
- Whether B-TRAN development achieves the performance, fabrication, customer testing, and commercialization milestones needed to generate recurring commercial revenue.
- Cash use and operating-expense growth against the $24.49 million cash balance, particularly as planned R&D and sales activity ramps.
- The timing and amount of grant revenue after the disclosed DTI subcontracts, and whether additional government funding is secured.
- Potential dilution from outstanding warrants, options, and other equity awards; the filing reported 1,040,248 warrants outstanding at a weighted-average exercise price of $3.92.
- The timing and amount of future payments under the patent licensing agreements and the new lease.