Ideal Power Inc. — Q2 2016 Form 10-Q
Reporting period: Three and six months ended June 30, 2016; filed August 12, 2016. Ideal Power develops and sells power-conversion products based on its Power Packet Switching Architecture, focused on commercial and industrial energy storage, solar-plus-storage, and microgrids. The company reported limited revenues since inception and continued to fund operations primarily through equity financing.
Financial results
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Product revenue | $322,116 | $1,199,037 | $818,760 | $2,397,028 |
| Gross profit | $23,179 | $142,899 | $25,069 | $321,389 |
| Gross margin | 7.2% | 11.9% | 3.1% | 13.4% |
| Operating expenses | $2,497,271 | $2,439,940 | $5,310,117 | $4,815,901 |
| Operating loss | $(2,474,092) | $(2,297,041) | $(5,285,048) | $(4,494,512) |
| Net loss | $(2,467,477) | $(2,292,390) | $(5,269,824) | $(4,485,388) |
| Basic and diluted loss per share | $(0.26) | $(0.28) | $(0.55) | $(0.59) |
At June 30, 2016, cash and cash equivalents were $9.55 million, working capital was $9.53 million, total assets were $14.40 million, and stockholders’ equity was $12.20 million. Current liabilities were $1.94 million. The balance sheet also showed $261,853 of long-term liabilities, recorded for future patent-license payments; management stated long-term debt was zero.
For the first six months, operating cash outflow was $5.01 million, investing cash outflow was $0.50 million, and financing cash inflow was $35,536. Cash fell by $5.47 million from year-end 2015. The company had no off-balance-sheet transactions. In 2015, financing cash flow included $15.92 million of net proceeds from a public stock offering; no comparable offering proceeds were received in 2016.
Changes and operating developments
- Revenue declined 73% in Q2 and 66% in the first half year over year. Management attributed the decline to variable early-stage storage-market demand and delays in California’s Self-Generation Incentive Program (SGIP), which delayed customer orders. In July 2016, the CPUC resolved the delay, allowing approximately $70 million of storage-project funding to proceed.
- Lower sales drove gross profit down and gross margin contracted. First-half operating expenses increased 10%, primarily reflecting higher research and development costs, including personnel and development of the B-TRAN power switch.
- Finished-goods inventory increased $597,855, or 113%, during the first half, which management linked to sales below expectations.
- The company announced its SunDial solar inverter in May 2016 and signed its first licensing agreement, with a Fortune Global 500 company, for SunDial. It expected first SunDial shipments in September 2016, subject to product certification.
Outlook, risks and other items
- No quantified revenue, earnings, or cash-flow guidance was provided. Management said existing working capital might not be sufficient to fund development through commercialization and acknowledged the company does not generate enough revenue to sustain operations.
- Management may consider additional equity or debt financing, co-development, reduced or suspended operations, or sale or licensing of intellectual property if needed. The company stated it had no committed source of future financing and could be required to curtail or cease operations if it cannot raise funds.
- Key risks include continuing losses, uncertain customer adoption and market growth, dependence on incentives and policy, competition and technology change, manufacturing and product-life-cycle execution, intellectual-property protection, and access to financing. Management reported no material changes to the risk factors in its 2015 Form 10-K.
- Product and technology milestones remain execution risks: SunDial certification and launch; commercialization of a VFD product, for which plans were expected later in 2016; and testing a fully packaged B-TRAN device. The filing described efficiency improvements from B-TRAN as potential, based on simulations, rather than established commercial performance.
- Revenue and receivables were concentrated: two customers represented 59% and 22% of Q2 revenue; three customers accounted for 87% of trade receivables at quarter-end.
- Management concluded disclosure controls were effective as of June 30, 2016; it reported no material change in internal control over financial reporting and no applicable legal proceedings.
Investor verification priorities
- Check whether SGIP funding translated into customer orders and a revenue recovery after the reported program delays.
- Verify SunDial certification, shipment timing, and commercial demand, as well as progress and economics under the licensing agreement.
- Monitor cash burn, inventory levels, and financing needs against the $9.55 million cash balance; the filing gives no definitive cash-runway estimate.
- Assess customer concentration, product margins, and the company’s ability to increase sales enough to cover operating costs.
- Track VFD and B-TRAN development milestones and distinguish reported test results or projections from validated, marketable products.