Ideal Power(IPWR) - 2021 Q4 - Annual Report

PART I Overview of Ideal Power Inc.'s business, technology, market strategy, intellectual property, and competitive landscape, along with initial financial and operational details ITEM 1: BUSINESS Ideal Power Inc. develops and commercializes B-TRAN™ solid-state switch technology, funded by equity and grants, targeting EV and renewable energy markets with patented, efficient power solutions Our Company Ideal Power Inc. focuses on B-TRAN™ solid-state switch technology development, funded by stock sales and grants - Ideal Power Inc. is solely focused on the further development and commercialization of its Bidirectional bipolar junction TRANsistor (B-TRAN™) solid-state switch technology[17] - Operations have been funded primarily through the sale of common stock and warrants, generating $3.5 million in grant revenue for bidirectional power switch development to date[18] Grant Revenue: | Year Ended December 31, | Amount | | :---------------------- | :---------- | | 2021 | $576,399 | | 2020 | $428,129 | COVID-19 Impact The COVID-19 pandemic has caused some business disruption but no material adverse impact to date, though future risks persist - The COVID-19 pandemic has caused some disruption to the business, particularly in the first and second quarters of 2020, but has not had a material adverse impact on operations to date[20] - Future risks include potential electrical component shortages, difficulties in securing fabrication capacity, delays in critical development and commercialization activities, and/or incremental costs[20] Public Offering In February 2021, the company raised $21.2 million net from a public offering to fund B-TRAN™ commercialization and development - In February 2021, the company issued and sold 1,352,975 shares of common stock in an underwritten public offering at $17.00 per share[21] - The net proceeds from the Public Offering were $21.2 million, intended to fund commercialization and development of B-TRAN™ technology and general corporate purposes[21] Test and Evaluation Agreements Ideal Power has secured test and evaluation agreements with major automotive, solar, and EV companies for its B-TRAN™ technology - During the second half of 2021 and first quarter of 2022, Ideal Power announced several test and evaluation agreements with prospective customers[22] - These customers include a top 10 global automaker, a top 10 global provider of power conversion solutions to the solar industry, a global diverse power management market leader, a commercial electric vehicle (EV) manufacturer, and an EV charging company[22][24] - The purpose is to test and evaluate the B-TRAN™ for use in their applications, with feedback to be incorporated into future commercial products[24] Industry Background The power semiconductor market, crucial for energy conversion, is driven by demand for energy savings and electric vehicles - Power semiconductors are crucial for power conversion in various applications, driven by increasing demand for energy savings and electric vehicles[27] - The global power semiconductor market is categorized by component (e.g., MOSFETs, IGBTs), material (e.g., silicon, silicon carbide), and end-use (e.g., automotive, renewable energy, telecommunication)[29][30] - Asia Pacific, particularly China, is the leading consumer of power semiconductors, with Europe and North America also being significant markets[32][33] Our Technology Ideal Power's B-TRAN™ solid-state switch, developed with DOE grants, offers significant efficiency improvements and reduced component count - Ideal Power's core technology is the Bidirectional bipolar junction TRANsistor (B-TRAN™) solid-state power switch, developed with a U.S. Department of Energy grant[36][37] - The B-TRAN™ is designed to replace two pairs of conventional IGBTs and diodes in bidirectional circuits, offering significant improvements in electrical efficiency (50% or more reduction in power losses) and reducing component count by 75%[37][38] - Prototype testing and third-party simulations confirm significant performance and efficiency improvements, validating double-sided B-TRAN™ operation using conventional silicon fabrication[38][39] Business Strategy and Target Markets The company plans strategic partnerships to target electric vehicles, renewable energy, and data centers, aiming for the growing IGBT market - The company plans to engage potential customers and partners through a strategic partnership model after delivering engineering samples of packaged B-TRAN™ devices[44] - Target markets include electric and hybrid electric vehicles, EV charging, renewable energy and energy storage system power converters, UPS for data centers, industrial motor drives, and solid-state circuit breakers[45] - The IGBT market was valued at $6 billion in 2020 and is projected to reach $11 billion by 2026, representing a significant opportunity for B-TRAN™ due to its higher efficiency and inherent bidirectionality[45] Intellectual Property Ideal Power protects its B-TRAN™ technology through a robust patent portfolio and trade secrets - Ideal Power protects its intellectual property through patents, trade secrets, and confidentiality procedures[46] Patent Portfolio (as of December 31, 2021): | Category | Count | | :---------------------------------------- | :---- | | U.S. Issued Patents | 38 | | Foreign Issued Patents | 27 | | Pending U.S. and International Applications | 26 | - Patents generally have a 20-year life from the date of initial filing[46] License Agreements The company holds exclusive, royalty-free licensing agreements for semiconductor power switches, with ongoing variable payments - The company has exclusive royalty-free licensing agreements for semiconductor power switches, expiring in February 2033[47] - Payments include fixed amounts (paid prior to 2017) and ongoing variable payments of $10,000 per pending patent filing and $20,000 per issued patent, up to a maximum of $100,000 annually[47] Long-Term Liability for Licensing Agreements: | Date | Amount | | :------------- | :--------- | | Dec 31, 2021 | $917,100 | | Dec 31, 2020 | $552,031 | Competition Ideal Power competes with established power semiconductor suppliers, offering a unique high-efficiency bidirectional switch - Ideal Power competes with well-established incumbent power semiconductor device suppliers, many of whom have greater financial resources, broader market presence, and longer operating histories[49][50] - Competitors primarily focus on single-sided (uni-directional) power switches like IGBTs and MOSFETs[49] - The company is not aware of any other true high-efficiency bidirectional design available in the market besides potential products based on its B-TRAN™ technology[50] Government Approval and Regulation No government approval is required for B-TRAN™ licensing or sales, but government support for target markets could be beneficial - Government approval is not required for Ideal Power to license its B-TRAN™ technology or sell B-TRAN™ devices[52] - Government support for target markets, such as electric vehicles and renewable energy (e.g., $5 billion for EV charging infrastructure), could have a material positive impact on the business if B-TRAN™ is successfully commercialized[52] Employees As of February 28, 2022, Ideal Power had 7 full-time employees, none under collective bargaining - As of February 28, 2022, Ideal Power had 7 full-time employees, none covered by a collective bargaining agreement[53] Available Information SEC filings and corporate governance documents are available on the company's investor relations website - The company makes its SEC filings (10-K, 10-Q, 8-K) and corporate governance documents available free of charge on its investor relations website (ir.idealpower.com) and the SEC website (www.sec.gov)[54](index=54&type=chunk) ITEM 1A: RISK FACTORS Ideal Power faces significant risks from its limited operating history, ongoing losses, uncertain B-TRAN™ commercialization, supply chain dependencies, and stock price volatility Risks Related to the Company The company faces risks from its limited operating history, sustained losses, uncertain product development, supply chain issues, and reliance on third-party partners - Ideal Power has a limited operating history, has sustained approximately $79.9 million in net losses since inception, and expects to incur future losses, currently generating no product revenue[57][58] - Product development for B-TRAN™ and its driver is inherently uncertain, with risks of unanticipated delays, expenses, and technical problems, and no guarantee of achieving planned milestones or consistent performance with simulations[60] - The company faces heightened risks in semiconductor fabrication due to two-sided wafer processing, limited fabrication facilities, and ongoing supply chain shortages, which could delay development and increase costs[62][63] - Achieving 'design wins' from potential customers is critical for revenue generation, but is time-consuming, expensive, and not guaranteed, with long product design cycles potentially delaying sales[64][65][66] - The U.S. government may obtain title to or exercise 'march-in-rights' over inventions developed with grant funds, potentially requiring the company to license its own technology[69][70][71] - The company relies heavily on third-party resources for semiconductor expertise and manufacturing; the loss or underperformance of these partners could materially affect development and operations[78] - The COVID-19 pandemic continues to pose risks of delays in development and commercialization activities, supply chain disruptions, and increased costs, with uncertain future impacts on financial results[82][84] - The company may need additional financing to fund operations, which may not be available on commercially reasonable terms, potentially forcing curtailment or cessation of operations[86] - The ability to utilize net operating loss carryforwards to offset future income may be limited by expiration dates (for pre-2018 losses) and 'ownership change' rules under Sections 382 and 383 of the Internal Revenue Code[94][95] Risks Related to Owning Our Common Stock Common stock ownership risks include market volatility, potential dilution from future equity issuances, and no anticipated dividends - The public market for Ideal Power's common stock may be volatile, with its price significantly affected by various factors including operating results, industry trends, competition, and corporate announcements[96][101] - The company is authorized to issue 'blank check' preferred stock, which could dilute the voting rights and liquidation preferences of common stockholders or be used to deter a change in control[100] - Ideal Power has not paid dividends in the past and has no immediate plans to do so, meaning stockholders will rely solely on stock price appreciation for returns[101] - Future sales of common stock, including the exercise of warrants and options (1,392,402 potentially dilutive shares outstanding as of Feb 28, 2022), could cause dilution and adversely affect the market price[104] - Raising additional capital through equity, debt, or licensing arrangements may cause further dilution, restrict operations, or require relinquishing rights to technologies[105] - The company's public float being less than $75 million limits its ability to raise capital through primary public offerings on Form S-3 to one-third of its public float in any 12-month period[106] ITEM 1B: UNRESOLVED STAFF COMMENTS There are no unresolved staff comments from the SEC ITEM 2: PROPERTIES Ideal Power leases 4,070 square feet of office and laboratory space in Austin, Texas, under a lease that commenced on June 1, 2021, with a remaining term of 56 months as of December 31, 2021 - Principal office located at 5508 Highway 290 West, Suite 120, Austin, Texas 78735[3][112] - Leases 4,070 square feet of office and laboratory space[112] - The lease commenced on June 1, 2021, with a remaining term of 56 months as of December 31, 2021[112] ITEM 3: LEGAL PROCEEDINGS Ideal Power is not currently involved in any legal proceedings that are expected to have a material adverse impact on its business, financial results, or cash flows - The company is not currently party to any legal proceedings that it believes would reasonably have a material adverse impact on its business, financial results, and cash flows[113] ITEM 4: MINE SAFETY DISCLOSURES This item is not applicable to Ideal Power Inc PART II Detailed financial information, management's discussion and analysis, market for common equity, and disclosures on internal controls ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Ideal Power's common stock is listed on the Nasdaq Capital Market under the symbol 'IPWR', with 31 shareholders of record as of March 23, 2022. The company has not paid cash dividends since its inception and does not anticipate doing so in the foreseeable future, opting to reinvest earnings for business expansion. There were no purchases of equity securities by the issuer Market Information Ideal Power's common stock trades on Nasdaq under 'IPWR', with 31 shareholders of record as of March 23, 2022 - Ideal Power's common stock is listed on the Nasdaq Capital Market under the symbol 'IPWR'[3][115] - As of March 23, 2022, the company had 31 shareholders of record[115] Dividends The company has never paid cash dividends and plans to reinvest future earnings for business expansion - The company has not paid any cash dividends on its common stock since inception and does not anticipate paying any in the foreseeable future[116] - Earnings, if any, will be reinvested to market products and cover operating costs for business expansion[116] Purchases of Equity Securities by the Issuer The company did not purchase any of its equity securities during the reported period - The company made no purchases of its equity securities during the reported period[118] ITEM 6: [RESERVED] This item is reserved and contains no information ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Ideal Power funds B-TRAN™ development through equity and grants, facing R&D uncertainties and future financing needs, with a reduced net loss in 2021 and increased cash from a public offering Overview Ideal Power focuses on B-TRAN™ solid-state switch technology, funded by stock sales and grants - Ideal Power is solely focused on the further development and commercialization of its B-TRAN™ solid-state switch technology[120] - Operations have been funded primarily through the sale of common stock and warrants, generating $3.5 million in grant revenue to date[121] Trends, Events and Uncertainties R&D success is unpredictable, COVID-19 impacts are uncertain, and the company raised $21.2 million from a public offering in 2021 - Research and development of new technologies is unpredictable, with no assurance of success, adoption, or profitability, and no committed source of financing[122] - The COVID-19 pandemic continues to create uncertainty regarding its future impact on financial performance, ability to raise additional capital, and operating results, despite not having a material adverse impact to date[123][125][126] - In February 2021, the company received net proceeds of $21.2 million from its Public Offering[127] - In August 2020, the company closed an Early Warrant Exercise Transaction, raising net proceeds of $2.5 million[128] Critical Accounting Estimates Key accounting estimates include stock-based compensation, intangible asset amortization, long-lived asset impairment, and income tax valuation allowances - Stock-based compensation is estimated using the Black-Scholes option valuation model, with assumptions for grant price, risk-free interest rate, expected lives, expected volatility, and zero expected dividend yield[130][131][132] - Intangible assets (patents and other) are recorded at cost, with legal and filing fees capitalized, and amortized over the shorter of legal life (20 years) or estimated economic life[133] - Long-lived assets are reviewed for impairment annually, with impairments of $528 and $20,660 recorded in 2021 and 2020, respectively[134] - Income taxes are accounted for using an asset and liability approach, with a full valuation allowance established for deferred tax assets due to the unlikelihood of realizing tax benefits[135][136] Results of Operations Grant revenues increased in 2021, while R&D and sales expenses rose, leading to a reduced net loss primarily due to non-operating gains Grant Revenues: | Year Ended December 31, | Amount | Change YoY | | :---------------------- | :-------- | :--------- | | 2021 | $576,399 | +$148,270 | | 2020 | $428,129 | | - Cost of grant revenues increased by $148,270 to $576,399 in 2021, resulting in no gross profit, and is expected to continue with no gross profit under current subcontracts[139] Research and Development Expenses: | Year Ended December 31, | Amount | Change YoY | | :---------------------- | :---------- | :--------- | | 2021 | $1,927,743 | +$206,850 | | 2020 | $1,720,893 | | - The increase in R&D expenses was primarily due to higher contract labor for device and driver development, expansion of internal test capabilities, and personnel costs, partly offset by lower stock-based compensation[140] General and Administrative Expenses: | Year Ended December 31, | Amount | Change YoY | | :---------------------- | :---------- | :--------- | | 2021 | $2,408,425 | +$101,336 | | 2020 | $2,307,089 | | Sales and Marketing Expenses: | Year Ended December 31, | Amount | Change YoY | | :---------------------- | :------- | :--------- | | 2021 | $512,807 | +$472,807 | | 2020 | $40,000 | | Net Loss: | Year Ended December 31, | Amount | Change YoY | | :---------------------- | :------------ | :--------- | | 2021 | $(4,770,269) | +$3,023,628| | 2020 | $(7,793,897) | | - The decrease in net loss was primarily due to a $91,407 gain on forgiveness of the PPP Loan in 2021 and the absence of a $3,720,866 non-cash warrant inducement expense incurred in 2020[144][145] Liquidity and Capital Resources Ideal Power funds operations through equity sales, with cash and equivalents significantly increasing in 2021, providing liquidity for the next 12 months - The company currently generates only grant revenue and has funded operations through the sale of common stock and warrants[146] Cash and Cash Equivalents: | Date | Amount | | :------------- | :---------- | | Dec 31, 2021 | $23,170,149 | | Dec 31, 2020 | $3,157,256 | - The company believes its cash and cash equivalents on hand will be sufficient to meet ongoing liquidity needs for at least the next 12 months, but additional future financing may be necessary[147] Net Cash Used in Operating Activities: | Year Ended December 31, | Amount | | :---------------------- | :------------ | | 2021 | $(4,280,864) | | 2020 | $(3,019,032) | Net Cash Provided by Financing Activities: | Year Ended December 31, | Amount | | :---------------------- | :----------- | | 2021 | $24,530,692 | | 2020 | $3,185,766 | - Financing activities in 2021 included $21.2 million from the Public Offering and $3.3 million from the exercise of warrants and stock options[153] PPP Loan The company received a $91,407 PPP Loan in May 2020, which was fully forgiven by the SBA in May 2021 - In May 2020, Ideal Power received a $91,407 PPP Loan, primarily used for payroll costs[154] - The PPP Loan, including accrued interest, was approved for forgiveness by the SBA in May 2021[154] Early Warrant Exercise Transaction An August 2020 early warrant exercise transaction raised $2.5 million and resulted in a $3.7 million non-cash inducement expense - In August 2020, the company closed an Early Warrant Exercise Transaction, raising net proceeds of $2.5 million[155] - This transaction involved the exercise of 1,176,137 Original Warrants and the issuance of 705,688 new Series C warrants, resulting in a $3.7 million non-cash warrant inducement expense[156] Public Offering_2 In February 2021, a public offering of 1,352,975 shares generated $21.2 million in net proceeds for B-TRAN™ development and corporate purposes - In February 2021, the company issued and sold 1,352,975 shares of common stock at $17.00 per share[157] - The net proceeds to the company from the Public Offering were $21.2 million, intended for B-TRAN™ technology commercialization and development, and general corporate purposes[157] Contractual Obligations and Commitments The company has a 63-month lease for office and lab space and a long-term liability for licensing agreements - The company entered into a 63-month lease for 4,070 square feet of office and laboratory space in Austin, Texas, commencing June 1, 2021[158] Future Minimum Lease Payments: | For the Year Ended December 31, | Amount | | :------------------------------ | :------- | | 2022 | $76,482 | | 2023 | $78,517 | | 2024 | $80,552 | | 2025 | $82,587 | | 2026 | $56,132 | | Total Lease Payments | $374,270 | - The long-term liability for licensing agreements was $917,100 at December 31, 2021, reflecting annual payments of $100,000 for five issued patents[161] ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As a smaller reporting company, Ideal Power is not required to provide quantitative and qualitative disclosures about market risk ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA This section presents Ideal Power's audited financial statements for 2021 and 2020, including balance sheets, statements of operations, stockholders' equity, and cash flows, along with detailed notes. The financial statements received unqualified opinions from independent auditors. Key financial highlights include a significant increase in cash and equity due to a public offering, a reduced net loss in 2021, and detailed breakdowns of assets, liabilities, and accounting policies Report of Independent Registered Public Accounting Firm (BPM LLP) BPM LLP issued an unqualified opinion on the 2021 financial statements, highlighting intangible asset valuation as a critical audit matter - BPM LLP issued an unqualified opinion on Ideal Power Inc.'s financial statements for the year ended December 31, 2021, stating they present fairly the financial position and cash flows in conformity with GAAP[165] - A critical audit matter identified was the carrying value of intangible assets, due to significant management judgment in developing assumptions of future economic benefit in impairment analysis[170][171] Report of Independent Registered Public Accounting Firm (Gumbiner Savett Inc.) Gumbiner Savett Inc. issued an unqualified opinion on the 2020 financial statements, affirming fair presentation in conformity with GAAP - Gumbiner Savett Inc. issued an unqualified opinion on Ideal Power Inc.'s financial statements for the year ended December 31, 2020, stating they present fairly the financial position and cash flows in conformity with GAAP[175] Balance Sheets The balance sheets show significant increases in cash, total assets, and stockholders' equity from 2020 to 2021 Balance Sheet Highlights (as of December 31): | Metric | 2021 | 2020 | | :------------------------ | :------------ | :------------ | | Cash and cash equivalents | $23,170,149 | $3,157,256 | | Total current assets | $23,447,311 | $3,446,426 | | Total assets | $25,877,480 | $5,132,173 | | Total current liabilities | $542,871 | $659,526 | | Total liabilities | $1,727,555 | $1,302,964 | | Total stockholders' equity| $24,149,925 | $3,829,209 | Statements of Operations The statements of operations reflect increased grant revenue, higher operating expenses, and a reduced net loss in 2021 Statements of Operations Highlights (Year Ended December 31): | Metric | 2021 | 2020 | | :-------------------------- | :------------ | :------------ | | Grant revenue | $576,399 | $428,129 | | Gross profit | $0 | $0 | | Total operating expenses | $4,848,975 | $4,067,982 | | Loss from operations | $(4,848,975) | $(4,067,982) | | Other income (expenses) | $78,706 | $(3,725,915) | | Net loss | $(4,770,269) | $(7,793,897) | | Net loss per share (basic & diluted) | $(0.80) | $(2.20) | | Weighted average shares outstanding | 5,937,520 | 3,539,217 | Statement of Stockholders' Equity Stockholders' equity significantly increased in 2021, primarily due to proceeds from a public offering and warrant/option exercises Total Stockholders' Equity (as of December 31): | Date | Amount | | :------------- | :---------- | | 2021 | $24,149,925 | | 2020 | $3,829,209 | - The increase in stockholders' equity in 2021 was primarily driven by $21.2 million from the issuance of common stock in a public offering and $3.3 million from the exercise of options and warrants[186] Statements of Cash Flows Cash flows show increased operating cash usage, minimal investing activities, and substantial cash provided by financing in 2021 Cash Flow Highlights (Year Ended December 31): | Metric | 2021 | 2020 | | :------------------------------ | :------------ | :------------ | | Net cash used in operating activities | $(4,280,864) | $(3,019,032) | | Net cash used in investing activities | $(236,935) | $(67,160) | | Net cash provided by financing activities | $24,530,692 | $3,185,766 | | Net increase in cash and cash equivalents | $20,012,893 | $99,574 | | Cash and cash equivalents at end of year | $23,170,149 | $3,157,256 | - The significant increase in cash from financing activities in 2021 was primarily due to $21.2 million from the public offering and $3.3 million from the exercise of options and warrants[153][189] Note 1 — Organization and Description of Business Ideal Power Inc. focuses on B-TRAN™ technology development, with continued operations dependent on securing future funding sources - Ideal Power Inc. is focused on the development and commercialization of its Bidirectional bipolar junction TRANsistor (B-TRAN™) solid-state switch technology[192] - The company's continued operations are dependent upon obtaining adequate sources of funding through future revenues, stock offerings, debt financing, co-development agreements, or government grants[193] Note 2 — Summary of Significant Accounting Policies Financial statements adhere to GAAP, with key policies covering grant revenue, R&D costs, deferred taxes, and potentially dilutive shares - Financial statements are prepared in conformity with GAAP, requiring management estimates and assumptions[194] - Grant revenue is recognized on a cost reimbursement basis, with $576,399 and $428,129 recognized in 2021 and 2020, respectively[208][209] - Research and development costs are expensed as incurred, including engineering personnel, wafer fabrication, and testing[210] - A full valuation allowance has been established for deferred tax assets due to the unlikelihood of realizing tax benefits[211][212] - Potentially dilutive shares outstanding amounted to 1,379,306 in 2021 and 1,541,518 in 2020, excluding pre-funded warrants and excess warrant shares[215] Note 3 — Property and Equipment Property and equipment, net, increased in 2021, with details on machinery, leasehold improvements, and depreciation expenses Property and Equipment, Net (as of December 31): | Category | 2021 | 2020 | | :------------------------ | :---------- | :---------- | | Machinery and equipment | $93,811 | $89,559 | | Building leasehold improvements | $10,245 | $25,090 | | Furniture, fixtures, software and IT equipment | $62,884 | $45,517 | | Accumulated depreciation and amortization | $(110,782) | $(123,041) | | Total | $56,158 | $37,125 | Depreciation Expenses: | Year Ended December 31, | Amount | | :---------------------- | :------- | | 2021 | $25,234 | | 2020 | $24,117 | Note 4 — Intangible Assets Intangible assets, primarily patents, increased in 2021, with associated amortization expenses detailed Intangible Assets, Net (as of December 31): | Category | 2021 | 2020 | | :------------------------ | :------------ | :------------ | | Patents | $1,133,841 | $941,701 | | Other intangible assets | $1,391,479 | $964,542 | | Accumulated amortization | $(469,670) | $(337,340) | | Total | $2,055,650| $1,568,903| Amortization Expense: | Year Ended December 31, | Amount | | :---------------------- | :------- | | 2021 | $132,330 | | 2020 | $98,035 | - The company capitalized $306,640 for costs related to patents not yet awarded in 2021 and wrote off $528 in previously capitalized patent costs[221] Note 5 — Accrued Expenses Accrued expenses increased in 2021, driven by higher compensation, licensing fees, and semiconductor fabrication costs Accrued Expenses (as of December 31): | Category | 2021 | 2020 | | :-------------------------------- | :--------- | :--------- | | Accrued professional fees | $44,000 | $32,500 | | Accrued compensation | $191,556 | $147,756 | | Accrued licensing fees | $60,000 | $50,000 | | Accrued Board fees | $45,000 | $30,000 | | Accrued taxes | $0 | $75,200 | | Accrued semiconductor fabrication costs | $92,600 | $0 | | Other | $53,831 | $6,551 | | Total | $475,487 | $353,507 | Note 6 – Loans The $91,407 PPP Loan received in May 2020 was fully forgiven by the SBA in May 2021 - In May 2020, Ideal Power received a $91,407 PPP Loan, which was primarily used for payroll costs[154][224] - The PPP Loan, including accrued interest, was fully forgiven by the SBA in May 2021, resulting in a non-cash gain on forgiveness[154][224] Note 7 — Lease The company commenced a new 63-month lease for 4,070 square feet of office and laboratory space in June 2021, recognizing a right-of-use asset and lease liability - The company entered into a new 63-month lease for 4,070 square feet of office and laboratory space in Austin, Texas, commencing June 1, 2021[226] - A right-of-use asset of $339,882 and a corresponding lease liability were recognized upon lease commencement[226] Future Minimum Lease Payments: | For the Year Ended December 31, | Amount | | :------------------------------ | :------- | | 2022 | $76,482 | | 2023 | $78,517 | | 2024 | $80,552 | | 2025 | $82,587 | | 2026 | $56,132 | | Total Lease Payments | $374,270 | Note 8 — Commitments and Contingencies Commitments include licensing agreements with annual payments and ongoing uncertainties related to the COVID-19 pandemic - Licensing agreements, expiring in February 2033, involve annual variable payments up to $100,000 for five issued patents, resulting in a long-term liability of $917,100 at December 31, 2021[230][231] - The company is not currently party to any legal proceedings that it believes would reasonably have a material adverse impact on its business[232] - The COVID-19 pandemic continues to spread, posing uncertain risks to the company's financial performance and operations[234] Note 9 — Equity A February 2021 public offering generated $21.2 million in net proceeds for B-TRAN™ development and corporate purposes - In February 2021, the company issued 1,352,975 shares of common stock at $17.00 per share in a public offering, generating $21.2 million in net proceeds[236][237] - The net proceeds are intended to fund commercialization and development of B-TRAN™ technology and general corporate purposes[237] - The company issued unregistered common stock to third-party vendors for services: 10,000 shares ($139,300) in October 2021, 4,000 shares ($68,680) in February 2021, and 26,316 shares ($50,000) in April 2020[238] Note 10 — Equity Incentive Plan The 2013 Equity Incentive Plan was amended in June 2021, increasing authorized shares and extending its termination date - The 2013 Equity Incentive Plan was last amended in June 2021, increasing authorized shares by 500,000 and extending the termination date to June 2031[239] - As of December 31, 2021, 419,791 shares of common stock were available for issuance under the Plan[239] Equity Grants and Recognized Expense: | Year | Grants (Stock Options/Restricted Units) | Estimated Fair Value | Recognized Expense | | :--- | :-------------------------------------- | :------------------- | :----------------- | | 2021 | 231,821 | $2,078,872 | $327,414 | | 2020 | 226,691 | $758,214 | $754,369 | - As of December 31, 2021, there was $1,758,931 of unrecognized compensation cost related to non-vested share-based compensation, expected to be recognized over a weighted average period of 1.4 years[247] Note 11 — Warrants Warrant activity in 2020 included an early exercise transaction that raised $2.5 million and resulted in a $3.7 million inducement expense - The Early Warrant Exercise Transaction in August 2020 raised $2.5 million in net proceeds and resulted in the issuance of 705,688 new Series C warrants[248][249] - A $3.7 million non-cash warrant inducement expense was recognized in connection with the Early Warrant Exercise Transaction[249] Warrant Activity (Outstanding at December 31): | Metric | Warrants (2021) | Warrants (2020) | Pre-Funded Warrants (2021) | Pre-Funded Warrants (2020) | | :---------------------- | :-------------- | :-------------- | :------------------------- | :------------------------- | | Outstanding at Jan 1 | 1,149,868 | 2,463,063 | 320,201 | 868,443 | | Issued | 0 | 705,688 | 0 | 0 | | Exercised | (363,448) | (589,941) | (66,373) | (548,242) | | Held in abeyance | 0 | (803,300) | 0 | 0 | | Expired | 0 | (625,642) | 0 | 0 | | Outstanding at Dec 31 | 786,420 | 1,149,868 | 253,828 | 320,201 | - The estimated aggregate pre-tax intrinsic value of outstanding warrants was $8.5 million at December 31, 2021[252] Note 12 — Income Taxes The company has approximately $62 million in federal NOL carryforwards, with a full valuation allowance against deferred tax assets - As of December 31, 2021, the company has federal net operating loss (NOL) carryforwards of approximately $62 million[253] - Pre-2018 federal NOLs expire from 2031 through 2038, while federal NOLs for 2018 and thereafter do not expire[253] - A full valuation allowance has been established to reduce net deferred tax assets to zero at December 31, 2021 and 2020, due to the unlikelihood of realizing tax benefits[255][256] Reconciliation of Statutory to Effective Tax Rate (Year Ended December 31): | Metric | 2021 | 2020 | | :-------------------------- | :---- | :---- | | Statutory federal income tax rate | (21)% | (21)% | | Warrant inducement | — | 10 | | Valuation allowance | 21 | 11 | | Effective tax rate | — % | — % | ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE This item is not applicable to Ideal Power Inc ITEM 9A: CONTROLS AND PROCEDURES Ideal Power's management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of December 31, 2021. Management also assessed and determined that internal control over financial reporting was effective as of the same date, based on the COSO framework. No material changes in internal control over financial reporting were identified during the fourth quarter of 2021 - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of December 31, 2021[262] - Management assessed and concluded that internal control over financial reporting was effective as of December 31, 2021, based on the COSO framework[263] - No changes in internal control over financial reporting were identified during the three months ended December 31, 2021, that materially affected or are reasonably likely to materially affect internal control over financial reporting[265] ITEM 9B: OTHER INFORMATION This item is not applicable to Ideal Power Inc ITEM 9C: DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS. There are no disclosures regarding foreign jurisdictions that prevent inspections PART III Information on directors, executive officers, corporate governance, executive compensation, security ownership, related transactions, and principal accountant fees ITEM 10: DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Information for this item is incorporated by reference from the company's definitive proxy statement relating to the 2022 annual meeting of stockholders ITEM 11: EXECUTIVE COMPENSATION Information for this item is incorporated by reference from the company's definitive proxy statement relating to the 2022 annual meeting of stockholders ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS Information for this item is incorporated by reference from the company's definitive proxy statement relating to the 2022 annual meeting of stockholders ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Information for this item is incorporated by reference from the company's definitive proxy statement relating to the 2022 annual meeting of stockholders ITEM 14: PRINCIPAL ACCOUNTANT FEES AND SERVICES Information for this item is incorporated by reference from the company's definitive proxy statement relating to the 2022 annual meeting of stockholders PART IV Listing of exhibits, financial statement schedules, and Form 10-K summary disclosure ITEM 15: EXHIBITS, FINANCIAL STATEMENT SCHEDULES This section lists the financial statements and supplementary data included in the report, along with a comprehensive index of exhibits. All financial statement schedules have been omitted as they are not required or are included elsewhere in the financial statements Documents Filed with Report The report includes audited financial statements for 2021 and 2020, along with independent auditor reports - The report includes audited financial statements: Balance Sheets, Statements of Operations, Statement of Stockholders' Equity, and Statements of Cash Flows for the years ended December 31, 2021 and 2020[275] - Reports of Independent Registered Public Accounting Firms (BPM LLP and Gumbiner Savett Inc.) are also filed[275] Schedules All financial statement schedules are omitted as they are not required or are presented within the financial statements - All financial statement schedules have been omitted because they are not required, not applicable, or the information is included in the consolidated financial statements or related notes[276] Exhibits The exhibit index details various documents filed with the Annual Report on Form 10-K, including corporate and governance documents - The exhibit index lists various documents filed as part of the Annual Report on Form 10-K, including organizational documents, stock and warrant forms, equity incentive plans, employment agreements, and certifications[280] ITEM 16: FORM 10-K SUMMARY This item indicates that no Form 10-K summary is provided