Ideal Power Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Ideal Power is focused on developing and commercializing its B-TRAN solid-state switch technology. The company reported grant revenue, not product sales, and has incurred losses since inception.
Financial highlights
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Grant revenue | $84,705 | $6,515 | $326,766 | $6,515 |
| Gross profit | $0 | $0 | $0 | $0 |
| Operating expenses | $1,276,244 | $832,203 | $2,200,388 | $1,762,637 |
| Operating loss | $1,276,244 | $832,203 | $2,200,388 | $1,762,637 |
| Net loss | $1,186,693 | $833,258 | $2,110,843 | $1,763,759 |
| Net loss per share | $0.19 | $0.28 | $0.37 | $0.59 |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $(1,801,095) | $(1,497,357) |
Grant revenue was matched by equivalent grant costs, resulting in no gross profit. The company attributed the revenue to a subcontract under a $1.2 million NAVSEA development program; it expected related revenue to continue for two to three quarters, with minimal revenue thereafter.
At June 30, 2021, cash and cash equivalents were $25,716,977, versus $3,157,256 at year-end 2020; working capital was $25,242,612. Total assets were $28,438,696 and total liabilities were $1,992,171. The company reported no outstanding debt; lease liabilities totaled $335,276, and other long-term liabilities were $951,717, largely associated with patent license payment obligations. Six-month investing cash outflow was $145,019.
Changes and notable items
- Q2 operating expenses rose 53% year over year and six-month operating expenses rose 25%. R&D spending increased, including driver development, expanded testing, and semiconductor fabrication work to qualify a second domestic fabricator. Sales and marketing costs began in 2021 following the hiring of a business development vice president.
- Net losses increased year over year, partly offset by a non-cash $91,407 gain from forgiveness of the 2020 PPP loan.
- February 2021 public offering raised net proceeds of $21.2 million. Option and warrant exercises provided a further $3.3 million during the first half. Shares issued increased from 3,265,740 at December 31, 2020 to 5,873,367 at June 30, 2021.
- Intangible assets increased to $2,048,537. In March, two patents under licensing agreements were issued; the company recorded an intangible asset and corresponding liability for estimated future payments. All five patents under those agreements had been issued by March 2021.
Outlook, risks, and other disclosures
Management expected grant revenue to be the company’s only revenue source for 2021, with no gross profit expected from the DTI subcontract or other grants. It anticipated higher R&D and sales and marketing expenses for the remainder of 2021 as it accelerates B-TRAN development and engages prospective customers; G&A was expected to be flat to modestly lower than Q2. Management also expected operating cash outflows to increase as development and commercialization efforts ramped up. No quantified revenue, earnings, or cash-flow guidance was provided.
Commercialization remains uncertain. Disclosed risks include the company’s history of losses, ability to develop and commercialize B-TRAN, market acceptance, third-party fabrication and development execution, intellectual-property protection, and the ability to raise future capital. Management said COVID-19 had not materially adversely affected operations to date, but could cause delays, added costs, or make future financing more difficult. The company reported no current legal proceedings, no material changes to the risk factors in its 2020 Form 10-K, and effective disclosure controls as of June 30, 2021.
Important facts for investors to verify
- Progress, performance, fabrication qualification, and commercialization timeline for B-TRAN, including potential customer and strategic-partner engagement.
- Actual timing and amount of remaining NAVSEA subcontract revenue and whether additional government funding is secured.
- Quarterly cash burn relative to the $25.7 million cash balance as development and commercialization spending increases.
- Share-count dilution from the public offering, warrant and option exercises, and outstanding equity awards and warrants.
- Future cash obligations under patent licenses and the new office/laboratory lease.