As of ~~November 6, 2017,~~May 12, 2021, the issuer had ~~13,996,121~~5,872,046 shares of common stock, par value $.001, outstanding.

TABLE OF CONTENTS



PART I		FINANCIAL INFORMATION		3

Item 1.		Condensed Financial Statements		13

		Balance Sheets at ~~September 30, 2017~~March 31, 2021 (Unaudited) and December 31, ~~2016~~2020		13
		Statements of Operations for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2021 and ~~2016~~2020 (Unaudited)		24
		Statements of Cash Flows for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2021 and ~~2016~~2020 (Unaudited)		35
	Statements of Stockholders’ Equity for the three months ended March 31, 2021 and 2020 (Unaudited)	6
	Notes to Unaudited Financial Statements		47

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		1112

Item 3.		Quantitative and Qualitative Disclosures About Market Risk		1714

Item 4.		Controls and Procedures		1714

PART II		OTHER INFORMATION		15

Item 1.		Legal Proceedings		1815

Item 1A.		Risk Factors		1815

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		1915

Item 3.		Defaults Upon Senior Securities		1915

Item 4.		Mine Safety Disclosures		2015

Item 5.		Other Information		2015

Item 6.		Exhibits		2016

SIGNATURES			2117

PART ~~I - FINANCIAL~~I-FINANCIAL INFORMATION

ITEM 1. CONDENSED FINANCIAL STATEMENTS

IDEAL POWER INC.

Balance Sheets

September 30, 2017 December 31, 2016
(unaudited)
ASSETS

Current assets:

Cash and cash equivalents $ 11,681,887
$ 4,204,916
Accounts receivable, net 387,081
378,658
Inventories, net 327,461
1,245,147
Prepayments and other current assets 171,147
312,593
Total current assets 12,567,576
6,141,314

Property and equipment, net 647,657
936,486
Intangible assets, net 2,059,645
1,905,556
Other assets —
17,920
Total Assets $ 15,274,878
$ 9,001,276

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable $ 287,114
$ 346,767
Accrued expenses 1,250,484
1,149,129
Total current liabilities 1,537,598
1,495,896

Other long-term liabilities 493,088
265,418
Total liabilities 2,030,686
1,761,314

Commitments and contingencies (see Note 8)

Stockholders’ equity:

Preferred stock, $0.001 par value; 10,000,000 shares authorized; 1,518,430 shares issued and outstanding at September 30, 2017 1,518
—
Common stock, $0.001 par value; 50,000,000 shares authorized; 13,998,465 shares issued and 13,996,121 shares outstanding at September 30, 2017 and 9,560,896 shares issued and 9,559,213 shares outstanding at December 31, 2016, respectively 13,998
9,561
Additional paid-in capital 66,806,637
52,310,481
Treasury stock, at cost; 2,344 shares at September 30, 2017 and 1,683 shares at December 31, 2016, respectively (7,489 ) (5,915 )
Accumulated deficit (53,570,472 ) (45,074,165 )
Total stockholders’ equity 13,244,192
7,239,962
Total Liabilities and Stockholders’ Equity $ 15,274,878
$ 9,001,276

	March 31, 2021			December 31, 2020
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	26,789,017		$	3,157,256
Accounts receivable, net		125,887			170,287
Prepayments and other current assets		172,913			118,883
Total current assets		27,087,817			3,446,426

Property and equipment, net		32,770			37,125
Intangible assets, net		2,001,417			1,568,903
Right of use asset		32,215			79,719
Other assets		11,189			–
Total assets	$	29,165,408		$	5,132,173

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	107,290		$	101,984
Accrued expenses		448,029			475,487
Current portion of lease liability		33,149			82,055
Total current liabilities		588,468			659,526

Long-term debt		91,407			91,407
Other long-term liabilities		944,026			552,031
Total liabilities		1,623,901			1,302,964

Commitments and contingencies

Stockholders’ equity:
Common stock, $0.001 par value; 50,000,000 shares authorized; 5,873,367 shares issued and 5,872,046 shares outstanding at March 31, 2021 and 3,265,740 shares issued and 3,264,419 shares outstanding at December 31, 2020		5,873			3,266
Additional paid-in capital		103,608,805			78,974,964
Treasury stock, at cost, 1,321 shares at March 31, 2021 and December 31, 2020		(13,210	)		(13,210	)
Accumulated deficit		(76,059,961	)		(75,135,811	)
Total stockholders’ equity		27,541,507			3,829,209
Total liabilities and stockholders’ equity	$	29,165,408		$	5,132,173

The accompanying notes are an integral part of these condensed financial statements.

IDEAL POWER INC.

Statements of Operations

(unaudited)

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
Product revenue $ 444,640
$ 439,270
$ 973,680
$ 1,258,030
Cost of product revenue 418,529
737,937
1,894,068
1,531,628
Gross profit (loss) 26,111
(298,667 ) (920,388 ) (273,598 )

Operating expenses:

Research and development 1,075,849
1,231,024
3,374,386
3,914,188
General and administrative 899,882
907,335
2,976,260
2,709,325
Sales and marketing 271,844
496,794
1,240,713
1,321,757
Total operating expenses 2,247,575
2,635,153
7,591,359
7,945,270

Loss from operations (2,221,464 ) (2,933,820 ) (8,511,747 ) (8,218,868 )

Interest income, net 3,865
11,554
15,440
26,778

Net loss $ (2,217,599 ) $ (2,922,266 ) $ (8,496,307 ) $ (8,192,090 )

Net loss per share – basic and fully diluted $ (0.16 ) $ (0.31 ) $ (0.66 ) $ (0.86 )

Weighted average number of shares outstanding – basic and fully diluted 13,990,202
9,549,011
12,964,452
9,547,580

	Three Months Ended March 31,
	2021			2020
Grant revenue	$	242,061		$	–
Cost of grant revenue		242,061			–
Gross profit		–			–

Operating expenses:
Research and development		260,880			350,664
General and administrative		600,686			579,770
Sales and marketing		62,578			–
Total operating expenses		924,144			930,434

Loss from operations		(924,144	)		(930,434	)

Interest expense, net		6			67

Net loss	$	(924,150	)	$	(930,501	)

Net loss per share – basic and fully diluted	$	(0.17	)	$	(0.31	)

Weighted average number of shares outstanding – basic and fully diluted		5,344,025			2,968,394

The accompanying notes are an integral part of these condensed financial statements.

IDEAL POWER INC.

Statements of Cash Flows

(unaudited)

Nine Months Ended
September 30,
2017 2016
Cash flows from operating activities:

Net loss $ (8,496,307 ) $ (8,192,090 )
Adjustments to reconcile net loss to net cash used in operating activities:

Allowance for doubtful accounts 226,557
85,375
Write-down of inventory 703,220
73,521
Depreciation and amortization 339,493
290,474
Write-off of capitalized patents 268,789
71,109
Write-off of fixed assets 53,445
6,215
Stock-based compensation 833,637
1,135,008
Decrease (increase) in operating assets:

Accounts receivable (234,980 ) 337,480
Inventories 214,466
(689,854 )
Prepayments and other current assets 159,366
147,061
Increase (decrease) in operating liabilities:

Accounts payable (59,653 ) (729,435 )
Accrued expenses 67,722
(151,178 )
Net cash used in operating activities (5,924,245 ) (7,616,314 )

Cash flows from investing activities:

Purchase of property and equipment (44,819 ) (328,930 )
Acquisition of intangible assets (220,865 ) (299,140 )
Net cash used in investing activities (265,684 ) (628,070 )

Cash flows from financing activities:

Net proceeds from issuance of stock 13,657,331
—
Exercise of options and warrants 11,143
35,536
Payment of taxes related to restricted stock vesting (1,574 ) —
Net cash provided by financing activities 13,666,900
35,536

Net increase (decrease) in cash and cash equivalents 7,476,971
(8,208,848 )
Cash and cash equivalents at beginning of period 4,204,916
15,022,286
Cash and cash equivalents at end of period $ 11,681,887
$ 6,813,438

	Three Months Ended March 31,
	2021			2020
Cash flows from operating activities:
Net loss	$	(924,150	)	$	(930,501	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		29,515			28,113
Write-off of capitalized patents		–			17,344
Stock-based compensation		61,933			116,497
Stock issued for services		68,680			–
Decrease (increase) in operating assets:
Accounts receivable		44,400			–
Prepaid expenses and other assets		(17,715	)		(5,754	)
Increase (decrease) in operating liabilities:
Accounts payable		5,306			(44,036	)
Accrued expenses		(111,306	)		4,710
Net cash used in operating activities		(843,337	)		(813,627	)

Cash flows from investing activities:
Purchase of property and equipment		(1,462	)		(10,678	)
Acquisition of intangible assets		(29,275	)		(13,385	)
Net cash used in investing activities		(30,737	)		(24,063	)

Cash flows from financing activities:
Net proceeds from issuance of common stock		21,204,609			–
Exercise of options and warrants		3,301,226			–
Net cash provided by financing activities		24,505,835			–

Net increase (decrease) in cash and cash equivalents		23,631,761			(837,690	)
Cash and cash equivalents at beginning of period		3,157,256			3,057,682
Cash and cash equivalents at end of period	$	26,789,017		$	2,219,992

The accompanying notes are an integral part of these condensed financial statements.

IDEAL POWER INC.

Statement of Stockholders’ Equity

For the Three Months Ended March 31, 2021 and 2020

(unaudited)

	Common Stock				Additional Paid-In		Treasury Stock					Accumulated			Total Stockholders’
	Shares		Amount		Capital		Shares		Amount			Deficit			Equity
Balances at December 31, 2019		2,101,272	$	2,101	$	71,242,256		1,321	$	(13,210	)	$	(67,341,914	)	$	3,889,233
Stock-based compensation		—		—		116,497		—		—			—			116,497
Net loss for the three months ended March 31, 2020		—		—		—		—		—			(930,501	)		(930,501	)
Balances at March 31, 2020		2,101,272	$	2,101	$	71,358,753		1,321	$	(13,210	)	$	(68,272,415	)	$	3,075,229

Balances at December 31, 2020		3,265,740	$	3,266	$	78,974,964		1,321	$	(13,210	)	$	(75,135,811	)	$	3,829,209
Issuance of shares of common stock in public offering		1,352,975		1,353		21,203,256		—		—			—			21,204,609
Exercise of options and warrants		1,250,652		1,250		3,299,976		—		—			—			3,301,226
Stock issued for services		4,000		4		68,676		—		—			—			68,680
Stock-based compensation		—		—		61,933		—		—			—			61,933
Net loss for the three months ended March 31, 2021		—		—		—		—		—			(924,150	)		(924,150	)
Balances at March 31, 2021		5,873,367	$	5,873	$	103,608,805		1,321	$	(13,210	)	$	(76,059,961	)	$	27,541,507

The accompanying notes are an integral part of these financial statements.

Ideal Power Inc.

Notes to Financial Statements

(unaudited)

Note 1 – Organization and Description of Business

Ideal Power Inc. (the “Company”) was incorporated in Texas on May 17, 2007 under the name Ideal Power Converters, Inc. The Company changed its name to Ideal Power Inc. on July 8, 2013 and re-incorporated in Delaware on July 15, 2013. With headquarters in Austin, Texas, ~~it develops power conversion solutions with a focus on solar + storage, microgrid and stand-alone energy storage applications. The principal products of~~ the Company ~~are power conversion systems, including 2-port~~is solely focused on the further development and ~~multi-port products.~~

commercialization of its Bi-directional bi-polar junction TRANsistor (B-TRAN™) solid state switch technology.

Since its inception, the Company ~~has generated limited revenues from the sale of products and~~ has financed its research and development efforts and operations primarily through the sale of common stock and ~~prior~~warrants. The Company’s continued operations are dependent upon, among other things, its ability to ~~its initial public offering, the issuance~~obtain adequate sources of ~~convertible debt.~~

funding through future revenues, follow-on stock offerings, issuances of warrants, debt financing, co-development agreements, government grants, sale or licensing of developed intellectual property or other alternatives.

Note 2 – Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) for Form 10-Q. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The ~~balance sheet~~Balance Sheet at December 31, ~~2016~~2020 has been derived from the Company’s audited financial ~~statements.~~

statements included in its Annual Report on Form 10-K filed with the SEC on March 26, 2021.

In the opinion of management, these financial statements reflect all normal recurring, and other adjustments, necessary for a fair presentation. These financial statements should be read in conjunction with the audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2020. Operating results for interim periods are not necessarily indicative of operating results for an entire fiscal year or any other future periods.

Earnings Per Share

In accordance with ASC 260, shares issuable for little or no cash consideration are considered outstanding common shares and included in the computation of basic earnings per share. As such, for the three months ended March 31, 2021 and 2020, the Company has included pre-funded warrants to purchase 253,828 and 868,443 shares of common stock, respectively, which were issued in November 2019 with an exercise price of $0.001, in its computation of earnings per share.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606), requiring an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The FASB has recently issued several amendments to the standard, including clarification on accounting for licenses of intellectual property and identifying performance obligations. The standard will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective and permits the use of either the retrospective or cumulative effect transition method. The updated standard becomes effective for annual and interim periods beginning after December 15, 2017 and early adoption is permitted. The Company will not early adopt and the standard is not expected to have a material effect on the Company’s financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), to increase transparency and comparability among organizations by requiring the recognition of lease assets and lease liabilities on the balance sheet. Most prominent among the amendments is the recognition of assets and liabilities by lessees for those leases classified as operating leases under previous U.S. GAAP. Under the new standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. The new standard will be effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted. While the Company is continuing to assess the potential impact of this standard, it expects its lease commitment will be subject to the updated standard and recognized as a lease liability and right-of-use asset upon adoption.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230), in order to address eight specific cash flow issues with the objective of reducing the existing diversity in practice. The updated standard is effective for financial statements issued for annual periods beginning after December 15, 2017 and interim periods within those fiscal years with early adoption permitted. The adoption of the standard will not have a significant effect on the Company’s financial statements.

In May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting. This ASU provides clarity and reduces both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 718 to a change to the terms or conditions of a share-based payment award. The amendments in this ASU

are effective for public entities for fiscal years and interim periods beginning after December 15, 2017, with early adoption permitted. The ASU should be applied prospectively on and after the effective date. The Company is evaluating the impact of this ASU.

In July 2017, the FASB issued ASU 2017-11, Accounting for Certain Financial Instruments with Down Round Features and Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. Part I of this ASU addresses the complexity of accounting for certain financial instruments with down round features. Per the ASU, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. The ASU is effective for public entities for fiscal years beginning after December 15, 2018 and early adoption is permitted. The Company has elected to early adopt the ASU and will recognize the value of the effect of the down round provision, if and/or when triggered. The provision is associated with stock warrants issued as part of the Company's 2017 definitive securities purchase agreement, or the Private Placement. For more details regarding the 2017 Private Placement, see Notes 9 and 11.

Management does not believe that any ~~other~~ recently issued, but not yet effective, accounting ~~standards,~~standard, if adopted, would have a material impact on the Company’s financial statements.

~~Note 3 – Accounts Receivable~~

~~Accounts receivable, net consisted of the following:~~

September 30, 2017 December 31,
2016
(unaudited)
Trade receivables $ 510,562
$ 430,278
Other receivables 89,586
33,755
600,148
464,033
Allowance for doubtful accounts (213,067 ) (85,375 )
$ 387,081
$ 378,658

At September 30, 2017, the allowance for doubtful accounts represents trade receivables from two customers which were fully reserved as it was determined that the probability of collection is remote. During the nine months ended September 30, 2017, the Company collected $62,645 of its previously reserved receivables and wrote-off $98,850 of its allowance for doubtful accounts. These changes in the allowance for doubtful accounts are reflected within the sales and marketing line item of the statement of operations.

~~Note 4 – Inventories~~

~~Inventories, net consisted of the following:~~

September 30, 2017 December 31,
2016
(unaudited)
Raw materials $ 251,892
$ 363,195
Finished goods 138,446
941,921
390,338
1,305,116
Reserve for obsolescence (62,877 ) (59,969 )
$ 327,461
$ 1,245,147

During the nine months ended September 30, 2017, the Company recorded a non-cash inventory charge of $703,220, of which $699,243 is related to excess finished goods inventory of its end-of-life, legacy 125kW and IBC-30 battery converters and is reflected within the cost of product revenue line item of the statement of operations.

~~Note 5 – Property and Equipment~~

~~Property and equipment, net consisted of the following:~~

September 30, 2017 December 31,
2016
(unaudited)
Machinery and equipment $ 905,072
$ 894,228
Building leasehold improvements 395,335
395,335
Furniture, fixtures, software and computers 216,653
228,011
1,517,060
1,517,574
Accumulated depreciation and amortization (869,403 ) (581,088 )
$ 647,657
$ 936,486

Note 63 – Intangible Assets

Intangible assets, net consisted of the following:

	March 31, 2021			December 31, 2020
	(unaudited)
Patents	$	970,976		$	941,701
Other intangible assets		1,391,479			964,542
		2,362,455			1,906,243
Accumulated amortization		(361,038	)		(337,340	)
	$	2,001,417		$	1,568,903

Amortization expense amounted to $23,698 and $22,298 for the three months ended March 31, 2021 and 2020, respectively. Amortization expense for the succeeding five years and thereafter is $100,732 (2021), $134,310 (2022-2025) and $1,118,267 (thereafter).

September 30, 2017 December 31,
2016
(unaudited)
Patents $ 1,507,910
$ 1,556,204
Other intangible assets 732,175
470,870
2,240,085
2,027,074
Accumulated amortization (180,440 ) (121,518 )
$ 2,059,645
$ 1,905,556

At ~~September 30, 2017~~March 31, 2021 and December 31, ~~2016,~~2020, the Company had capitalized ~~$514,524~~$245,178 and ~~$678,410,~~$270,000, respectively, for costs related to patents that have not been awarded.

Note 4 – Loans

In ~~June 2017,~~May 2020, the Company entered into a Loan Agreement and Promissory Note (collectively the “PPP Loan”) with BBVA USA pursuant to the Paycheck Protection Program (the “PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) administered by the U.S. Small Business Administration (“SBA”). The Company received total proceeds of $91,407 from the unsecured PPP Loan. The PPP Loan is scheduled to mature in May 2022 and has an interest rate of 1.00% per annum and is subject to the terms and conditions applicable to loans administered by the U.S. Small Business Administration under the CARES Act. The PPP Loan may be prepaid by the Company at any time prior to its maturity with no prepayment penalties. The first payment due date was originally in December 2020 but BBVA USA extended the first due date to August 2021 as the PPP Flexibility Act of 2020 extended the deferral period for payment of principal and interest for all PPP borrowers.

The PPP Loan contains customary events of default relating to, among other things, payment defaults and breaches of representations and warranties. Subject to certain conditions, the PPP Loan may be forgiven in whole or in part by applying for forgiveness pursuant to the CARES Act and the PPP. The amount of loan proceeds eligible for forgiveness is based on a formula based on a number of factors, including the amount of loan proceeds used by the Company during the 8-week or 24-week period after the loan origination for certain purposes, including payroll costs, rent payments on certain leases and certain qualified utility payments, provided that, among other things, at least 60% of the loan amount is used for eligible payroll costs, the employer maintaining or rehiring employees and maintaining salaries at certain level. In accordance with the requirements of the CARES Act and the PPP, the Company used the proceeds from the PPP Loan primarily for payroll costs. The Company applied for forgiveness of the PPP Loan during the first quarter of 2021. See Note 10.

In April 2020, the Company also received a $5,000 advance related to a U.S. ~~patent was issued associated with licensing agreements~~Small Business Administration Economic Injury Disaster Loan. The Company expects to repay this advance and has included it within accrued expenses.

Note 5 – Lease

The Company leases 14,782 square feet of office and laboratory space located in Austin, Texas. On April 20, 2018, the Company ~~recorded~~entered into an ~~intangible~~amendment to its existing operating lease which extended the lease term from May 31, 2018 to May 31, 2021. The annual base rent in the first year of the lease extension was $184,775 and increases by $7,391 in each succeeding year of the lease extension. In addition, the Company is required to pay its proportionate share of operating costs for the building under this triple net lease. The lease does not contain renewal or termination options.

For purposes of calculating the right of use asset and ~~corresponding long-term~~lease liability included in the Company’s financial statements, the Company estimated its incremental borrowing rate at 8% per annum.

In September 2019, the Company entered into a sublease with CE+T Energy pursuant to which the Company subleases approximately seventy-five (75%) percent of its Austin, Texas facility to CE+T Energy. Under the sublease, CE+T Energy is obligated to make monthly payments equal to 75% of all sums due under the master lease and 100% of any maintenance and repair costs related to the subleased premises. The sublease replaced a temporary agreement between the Company and CE+T Energy, effective in July 2019, that contained similar payment obligations by CE+T Energy for utilization of the subleased premises. Consistent with the master lease, the sublease terminates on May 31, 2021. During the three months ended March 31, 2021, CE+T Energy made payments of $53,293 to the Company related to the subleased premises. The payments included CE+T Energy’s share of rent as well as its proportionate share of operating costs for the ~~estimated present value of future payments of $261,303.~~building under the master lease. The Company ~~is amortizing~~recognized these payments as a reduction in general and administrative expenses.

Future minimum payments under the ~~capitalized costs over~~lease, as amended, are as follows:

For the Year Ended December 31,	Master Lease			Sublease Income			Net
2021		33,259			(24,944	)		8,315
Less: imputed interest		(110	)
Total lease liability	$	33,149

For the three months ended March 31, 2021 and 2020, operating cash flows for lease payments totaled $49,889 and $48,041, respectively. For both the three months ended March 31, 2021 and 2020, operating lease cost, recognized on a straight-line basis, totaled $48,488. At March 31, 2021, the remaining lease term was 2 months.

In March 2021, the Company entered into a lease agreement for 4,070 square feet of office and laboratory space located in Austin, Texas. The commencement of the lease is expected to occur on June 1, 2021 and the term of the ~~agreements. For further discussion~~lease is 63 months. The actual base rent in the first year of the ~~licensing agreements, see Note 8.~~

~~Amortization expense amounted~~lease is $56,471 and is net of $18,824 in abated rent over the first three months of the lease term. The annual base rent in the second year of the lease is $77,330 and increases by $2,035 in each succeeding year of the lease. In addition, the Company is required to ~~$22,822 and $59,291~~pay its proportionate share of operating costs for the ~~three~~building under this triple net lease. The lease contains a 5-year fair market renewal option. It does not contain a termination option. The Company will recognize a right of use asset and ~~nine months ended September 30, 2017, respectively, and $16,720 and $45,786~~lease liability for the three and nine months ended September 30, 2016, respectively. Amortization expense for the succeeding five years and thereafter is approximately $23,000 (2017), $92,000 (2018-2021) and $1,154,000 (thereafter).

~~Note 7 – Accrued Expenses~~

~~Accrued expenses consisted of the following:~~

September 30, 2017 December 31,
2016
(unaudited)
Accrued compensation $ 495,138
$ 519,485
Warranty reserve 357,901
335,893
Other 397,445
293,751
$ 1,250,484
$ 1,149,129

this lease upon lease commencement.

Note 86 – Commitments and Contingencies

~~Lease~~

The Company has entered into a lease for 14,782 square feet of office and laboratory space located in Austin, Texas. The triple net lease has a term of 48 months and commenced on June 1, 2014. The annual base rent in the first year of the lease was $154,324 and increases by $3,548 in each succeeding year of the lease. In addition, the Company is required to pay its proportionate share of operating costs for the building.

~~At September 30, 2017, the remaining annual base rent commitments under the lease are as follows:~~

Year Ended December 31, Amount
2017 $ 41,242
2018 68,736
Total $ 109,978

The Company incurred rent expense of $58,543 and $175,617 for the three and nine months ended September 30, 2017, respectively, and $56,492 and $167,816 for the three and nine months ended September 30, 2016, respectively.

License Agreement

In 2015, the Company entered into licensing agreements which expire onin February 7, 2033. Per the agreements, the Company has an exclusive royalty-free license associated with semiconductor power switches which enhances its intellectual property ~~portfolio related to semiconductor power switches.~~portfolio. The agreements include both fixed payments, all of which were paid prior to 2017, and ongoing variable payments. The variable payments are a function of the number of associated patent filings pending and patents issued under the agreements. The Company ~~is required to~~will pay $10,000 for each patent filing pending and $20,000 for each patent issued annually with one-half the annual payment due within 20 days of December 21 ~~2017~~^st of each year and one-half annual the payment due within 20 days of June 21^st of each ~~subsequent~~ year of the ~~agreement,~~agreements, up to a maximum of $100,000 per year (i.e. five issued patents).

In ~~June 2017,~~March 2021, two patents associated with these agreements were issued and the Company recorded, as a ~~U.S. patent was~~non-cash activity, an intangible asset and a corresponding other long-term liability of $426,937, representing the estimated present value of future payments under the licensing agreements for these two issued patents. Through March 31, 2021, all five patents associated with the agreements were issued. At March 31, 2021 and December 31, 2020, the ~~Company recorded an intangible asset and corresponding~~other long-term liability for the estimated present value of future payments of $261,303. This long-term liability incurred in connection with the patent issuance is a non-cash investing activity with regard to the Company’s statements of cash flows. At September 30, 2017, two patents associated with the agreements had been issued and the estimated present value of future payments under the licensing ~~agreement is $533,088, of which $40,000 is due within 20 days of December 21, 2017~~agreements was $944,026 and ~~is included in accrued expenses in the Company's balance sheet.~~$552,031, respectively. The Company is accruing interest for future payments related to the issued patents associated with these agreements.

Legal Proceedings

The Company may be subject to litigation from time to time in the ~~agreement.~~

~~Litigation~~

~~On May 17, 2017,~~ordinary course of business. The Company is not currently party to any legal proceedings.

Indemnification Obligations

In connection with the sale of its power conversion systems division in September 2019, the Company ~~provided Libra Industries, Inc. (Libra),~~entered into an Asset Purchase Agreement with CE+T Energy that contains mutual indemnification obligations for breaches of representations, warranties and covenants and for certain other matters, including indemnification by the Company for assets and liabilities excluded from the sale and by CE+T Energy for liabilities assumed in the sale.

The employment agreements of Company executives include an indemnification provision whereby the Company shall indemnify and defend, at the Company’s expense, its ~~prior contract manufacturer, notice that it was~~executives so long as an executive’s actions were taken in ~~breach~~good faith and in furtherance of Company’s business and within the scope of executive’s duties and authority.

COVID-19 Pandemic

As of the ~~Master Supply Agreement (MSA) between~~date of these financial statements, the ~~parties. On May 19, 2017,~~COVID-19 pandemic continues to spread throughout the United States and the rest of the world. The ultimate extent of the impact of COVID-19 on the financial performance of the Company ~~received notice from Libra that~~will depend on future developments, including, among other things, the ~~Company was allegedly~~duration and spread of COVID-19, the timing and efficacy of vaccination efforts, additional governmental restrictions in breach of the MSA. On June 23, 2017, the Company received a Notice of Arbitration from Libra alleging claims against the Company and demanding recovery for alleged damages. On July 13, 2017, the Company responded to Libra with a Notice of Defense and Counterclaim. On August 2, 2017, Libra provided their response to the COVID-19 pandemic and the overall economy, all of which are highly uncertain and cannot be predicted. The COVID-19 pandemic has already caused significant volatility in the global financial markets which may impact the Company’s ability to raise additional capital, if necessary, on acceptable terms or at all, though such risk has not materialized to date. If the financial markets and/or the overall economy are negatively impacted for an extended period, the Company's ~~Notice of Defense~~operating results may be materially and Counterclaim. The arbitration will be governed in accordance with the International Institute for Conflict Prevention and Resolution Rules for Non-Administered Arbitration by a sole arbiter. The parties have appointed an arbiter and discovery is in progress. The arbitration hearing is scheduled in Travis County, Texas for the first quarter of 2018. At this time,adversely affected.

Note 7 — Common Stock

February 2021 Public Offering

In February 2021, the Company ~~is unable to estimate the possible loss, if any, associated with this proceeding.~~

~~Note 9 — Equity~~

~~On March 3, 2017, the Company closed on a definitive securities purchase agreement, or the Private Placement, to sell the Company’s~~issued and sold 1,352,975 shares of its common stock, and preferred stock together with warrants to purchase shares of common stock. In the Private Placement, each share of common stock or preferred stock was sold together with a warrant to purchase one share of common stock at a collective price of $2.535. Investors purchased an aggregate of 5,220,826including 176,475 additional shares of common stock ~~and 708,430 shares~~pursuant to the exercise of ~~preferred stock together with warrants~~the underwriter’s option to purchase ~~5,929,256~~additional shares in full, in an underwritten public offering at a price of $17.00 per share (the “February 2021 Offering”). The net proceeds to the Company from the February 2021 Offering were $21.2 million. The Company intends to use the net proceeds from the February 2021 Offering to fund commercialization and development of its B-TRAN™ technology and general corporate and working capital purposes.

Stock Issuance

In February 2021, the Company issued 4,000 unregistered shares of common stock, in the Private Placement for aggregate gross proceeds of $15 million. Net cash proceeds were $13,657,331 after offering fees and expenses, including the placement agent fee of approximately $1.1 million. The Company expects to utilize net proceeds from the offering for working capital and general corporate purposes.

In February 2017, the Company's Board of Directors authorized Series A Convertible Preferred Stock consisting of 3,000,000 shares. Each share of the preferred stock has a par value of $0.001 and a stated value of $2.535 and is convertiblevalued at

~~any time~~ $68,680 at the ~~option~~time of ~~the holder into one share of common stock. The holder cannot convert the preferred stock~~issuance, to ~~the extent its beneficial ownership would exceed 4.99% of the Company's common stock outstanding, subject to adjustment~~a third-party vendor as provided in the Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock. The shares have no voting power, no liquidation preference or additional dividend entitlements. In February 2017, an investor exchanged 810,000 shares of common stockcompensation for ~~810,000 shares of preferred stock. As a result, in the nine months ended September 30, 2017, the Company issued 1,518,430 shares of the Company's Series A Convertible Preferred Stock.~~

services performed.

Note 108 — Equity Incentive Plan

On May 17, 2013, the Company adopted the 2013 Equity Incentive Plan ~~(the~~(as amended, the “Plan”) and reserved shares of common stock for issuance under the Plan. The Plan is administered by the Compensation Committee of the Company’s Board of Directors.

At ~~September 30, 2017, 708,953~~March 31, 2021, 92,140 shares of common stock were available for issuance under the Plan.

A summary of the Company’s stock option activity and related information is as follows:

	Stock Options			Weighted Average Exercise Price		Weighted Average Remaining Life (in years)
Outstanding at December 31, 2020		391,650		$	5.70		8.1
Granted		56,821		$	12.09
Exercised		(17,534	)	$	3.79
Outstanding at March 31, 2021		430,937		$	6.62		8.0
Exercisable at March 31, 2021		355,739		$	6.05		7.7

During the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2021, the Company granted ~~83,625~~31,821 stock options to Board members and ~~84,100~~25,000 stock options to employees under the Plan. The estimated fair value of these stock options, calculated using the Black-Scholes option valuation model, was ~~$296,107,~~$497,461, $55,708 of which ~~$130,952~~ was recognized during the ~~nine~~three months ended ~~September 30, 2017.~~

During the nine months ended September 30, 2017, 96,000 performance stock units (“PSUs”) were forfeited by an employee as the continued service conditions were not achieved at the time of the employee's termination. The PSUs were initially granted in 2015 and, due to the forfeiture, the Company reversed $174,804 of stock-based compensation expense in the second quarter of 2017.

~~During the nine months ended September 30, 2017, 26,743 options to purchase shares of the Company’s common stock were exercised resulting in net proceeds of $11,143.~~

~~A summary of the Company’s stock option activity and related information is as follows:~~

Stock
Options

Weighted
Average
Exercise
Price

Weighted
Average
Remaining
Life
(in years)
Outstanding at December 31, 2016 1,385,204
$ 6.89
7.5
Granted 167,725
$ 2.99

Exercised (26,743 ) $ 0.42

Forfeited/Expired/Exchanged (125,551 ) $ 7.39

Outstanding at September 30, 2017 1,400,635
$ 6.50
7.1
Exercisable at September 30, 2017 984,554
$ 6.64
6.8

March 31, 2021.

At ~~September 30, 2017,~~March 31, 2021, there was ~~$1,403,775~~$482,900 of unrecognized compensation cost related to non-vested equity awards granted under the Plan. That cost is expected to be recognized over a weighted average period of ~~1.8~~1.1 years.

Note 119 — Warrants

~~In connection~~

The Company had 1,040,248 warrants outstanding at March 31, 2021 with ~~the Private Placement, investors received warrants to purchase 5,929,256 shares of common stock. The warrants have an~~a weighted average exercise price of ~~$2.41~~$3.92 per share, ~~and will expire three years~~down from 2,273,369 warrants outstanding at December 31, 2020.

At March 31, 2021, all warrants are exercisable, although the ~~date~~warrants held by each of ~~issuance. The placement agent also received 237,170 warrants~~the Company’s four largest beneficial owners may be exercised only to ~~purchase~~the extent that the total number of shares of common stock as part of its placement agent fee. The placement agent warrant has an exercise price of $2.89 per share, is non-exercisable for 12 months and has a three-year term. The warrants contain a provision to protect investors from potential future dilutive events, or a down-round provision. The Company elected to early adopt ASU 2017-11 and will recognizethen beneficially owned by such shareholder does not exceed 4.99% (or, at the ~~value~~investor’s election, 9.99%) of the ~~effect of the down round provision, if and/or when triggered.~~

~~A summary~~outstanding shares of the Company’s common ~~stock warrant activity and related information is as follows:~~

Warrants
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Life
(in years)
Outstanding at December 31, 2016 1,398,653
$ 4.57
2.5
Granted 6,166,426
$ 2.43

Forfeited/Expired/Exchanged (84,000 ) $ 6.25

Outstanding at September 30, 2017 7,481,079
$ 2.79
2.3

stock.

Note 10 — Subsequent Events

In May 2021, the SBA approved forgiveness of the Company’s PPP Loan in the principal amount $91,407, including accrued interest.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND OTHER INFORMATION

CONTAINED IN THIS REPORT

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the provisions of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as ~~amended.~~amended, or the Exchange Act. Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. You can find many (but not all) of these statements by looking for words such as "approximates," "believes," "hopes," "expects," "anticipates," "estimates," "projects," "intends," "plans," "would," "should," "could," "may" or other similar expressions in this report. In particular, these include statements relating to future actions, prospective products, applications, customers, technologies, future performance or results of anticipated products, expenses, and financial results. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations or projections. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to:

our history of losses;

our ability to ~~achieve profitability;~~generate revenue;

our limited operating history;

~~our ability to successfully market and sell our products;~~

the size and growth of markets for our ~~current and future products;~~technology;

~~our expectations regarding the growth and expansion of our customer base;~~

regulatory developments that may affect our business;

our ability to successfully develop new technologies, ~~including~~particularly our bi-directional bipolar junction transistor, or B-TRAN™;

our expectations regarding the ~~completion~~timing of ~~testing~~prototype and commercial fabrication of ~~new products under development~~B-TRAN™ devices;

our expectations regarding the performance of our B-TRAN™ and the ~~timing~~consistency of ~~the introduction of those new products;~~that performance with both internal and third-party simulations;

the expected performance of ~~new and existing products, including~~ future products incorporating our B-TRAN™;

the performance of third-party ~~manufacturers who supply~~consultants and ~~manufacture our products;~~

~~our expectations of the reliability~~service providers whom we have and will continue to rely on to assist us in development of our ~~products over the applicable warranty term~~B-TRAN™ and ~~the future costs associated with warranty claims;~~related drive circuitry;

~~our ability to cost effectively manage product life cycles, inclusive of product launches and end of product life situations;~~

~~the rate and degree of market acceptance for our current and future products;~~

	•	the rate and degree of market acceptance for our B-TRAN™;

	•	the time required for third parties to redesign, test and certify their products incorporating our B-TRAN™;

our ability to successfully ~~obtain certification for~~commercialize our ~~products, including in new markets, and the timing of the receipt of any necessary certifications;~~B-TRAN™ technology;

our ability to ~~successfully license~~secure strategic partnerships with semiconductor fabricators and others related to our B-TRAN™ technology;

our ability to obtain, maintain, defend and enforce intellectual property rights protecting our ~~current and future products;~~technology;

~~our expectations regarding the decline in prices of battery energy storage systems;~~

the success of our ~~cost reduction plan;~~efforts to manage cash spending, particularly prior to the commercialization of our B-TRAN™ technology;

general economic conditions and events and the impact they may have on us and our potential ~~customers;~~

~~our ability to obtain adequate financing in the future, as~~partners and ~~when we need it;~~licensees;

	•	our ability to obtain adequate financing in the future, if and when we need it;

	•	the impact of the novel coronavirus (COVID-19) on our business, financial condition and results of operations;

our success at managing the risks involved in the foregoing items; and

other factors discussed in this report.

The forward-looking statements are based upon management’s beliefs and assumptions and are made as of the date of this report. We undertake no obligation to publicly update or revise any forward-looking statements included in this report. You should not place undue reliance on these forward-looking statements.

Unless otherwise stated or the context otherwise requires, the terms ~~"Ideal~~“Ideal Power,~~" "we," "us," "our"~~” “we,” “us,” “our” and the ~~"Company"~~“Company” refer to Ideal Power Inc.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q as well as our audited ~~2016~~2020 financial statements and related notes included in our Annual Report on Form ~~10-K.~~10-K for the year ended December 31, 2020. In addition to historical information, the discussion and analysis here and throughout this Form 10-Q contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited, to those set forth under “Risk Factors” in Part ~~II,~~I, Item 1A of ~~this report.~~

~~OVERVIEW~~

our Annual Report on Form 10-K for the year ended December 31, 2020.

Overview

Ideal Power Inc. is located in Austin, Texas. ~~We design, market and sell electrical power conversion products using our proprietary technology called Power Packet Switching Architecture™, or PPSA™. PPSA™~~With headquarters in Austin, Texas, the Company is a power conversion technology that improves upon existing power conversion technologies in key product metrics, such as size and weight while providing built-in isolation and bi-directional and multi-port capabilities. PPSA™ utilizes standardized hardware with application specific embedded software. Our products are designed to be used in both on-grid and off-grid applications. Our advanced technology is important to our business and we make significant investments in research andsolely focused on the further development and ~~protection~~commercialization of ~~our intellectual property. Our PPSA™ and bi-directional~~its Bi-directional bi-polar junction TRANsistor (B-TRAN™) solid state switch ~~technologies are protected by a patent portfolio of 60 US and 12 foreign issued patents at September 30, 2017.~~

We sell our products primarily to systems integrators as part of larger turn-key systems which enable end users to manage their electricity consumption by reducing demand charges or fossil fuel consumption, integrating renewable energy sources and forming their own microgrid. Our products are made by contract manufacturers to our specifications, enabling us to scale production to meet demand on a cost-effective basis without requiring significant expenditures on manufacturing facilities and equipment. As our products establish a foothold in key power conversion markets, we may begin to focus on licensing our proprietary PPSA™-based product designs to OEMs to reach more markets and customers. We may seek to build a portfolio of relationships that generate license fees and royalties from OEMs for sales of their products which integrate PPSA™.

~~We were founded on May 17, 2007.~~ technology.

To date, operations have been funded primarily through the sale of common stock and ~~prior to our initial public offering, the issuance of convertible debt.~~warrants. Total revenue generated from inception to date as of ~~September 30, 2017~~March 31, 2021 amounted to ~~$12,939,525~~$15.6 million with approximately ~~20%~~$12.4 million of that revenue ~~coming~~ from discontinued operations and the remainder from grant revenue for bi-directional power switch development. Revenue was $242,061 and $0 in the three months ended March 31, 2021 and 2020, respectively, and the revenue for the three months ended March 31, 2021 was related to a government ~~grants.~~grant. We may pursue additional research and development grants, if and when available, to further develop and/or improve our technology.

COVID-19 Impact

As of the date of this report, the COVID-19 pandemic continues to spread throughout the United States and the rest of the world. The ultimate extent of the impact of COVID-19 on the financial performance of the Company will depend on future developments, including, among other things, the duration and spread of COVID-19, the timing and efficacy of vaccination efforts, additional governmental restrictions in response to the COVID-19 pandemic, and the overall economy, all of which are highly uncertain and cannot be predicted. The COVID-19 pandemic has caused significant volatility in the global financial markets, which may impact the Company’s ability to raise additional capital, if necessary, on acceptable terms or at all, though such risk has not materialized to date. If the financial markets and/or the overall economy are negatively impacted for an extended period, the Company's operating results may be materially and adversely affected.

While the outbreak of COVID-19 initially caused some disruption to our business in the first and second quarters of 2020, the COVID-19 pandemic has not had a material adverse impact on our operations to date. However, the COVID-19 pandemic may disrupt our business in the future and cause delays in critical development and commercialization activities and/or result in potential incremental costs associated with mitigating the effects of the COVID-19 pandemic. The COVID-19 pandemic is ongoing, and its dynamic nature, including uncertainties relating to the ultimate spread of the virus, the severity of the disease, the duration of the outbreak, the timing and efficacy of vaccination efforts and additional actions that may be taken by governmental authorities to contain the outbreak or to treat its impact, makes it difficult to forecast the effects on our business and results of operations for the ~~purpose~~remainder of ~~developing new products~~2021 and ~~improving current products.~~

~~Our Technology~~

~~PPSA™ uses indirect power flow~~thereafter.

February 2021 Offering

In February 2021, we issued and sold 1,352,975 shares of our common stock, including 176,475 additional shares of common stock pursuant to the exercise of the underwriter’s option to purchase additional shares in ~~which power flows through input switches~~full, in an underwritten public offering at a price of $17.00 per share (the “February 2021 Offering”). The net proceeds to us from the February 2021 Offering were $21.2 million. We intend to use the net proceeds from the February 2021 Offering to fund commercialization and ~~is temporarily stored in~~development of our ~~proprietary AC link inductor. Our proprietary fast switching algorithms enable~~B-TRAN™ technology and general corporate and working capital purposes.

Results of Operations

Comparison of the ~~transfer of quantum packets of power between ports in our system. As~~three months ended March 31, 2021 to the AC link becomes charged, it disconnects from its input switches, resonates without being connected to either the input or output switches, and then reconnects to its output switches when it reaches the correct voltage and frequencythree months ended March 31, 2020

Grant Revenues. Grant revenues for the ~~application. PPSA™ is~~three months ended March 31, 2021 were $242,061. The grant revenues relate to a ~~power conversion technology that differentiates itself from traditional power conversion technology in key product metrics, such~~$1.2 million subcontract with Diversified Technologies, Inc. (“DTI”) to supply B-TRAN™ devices as ~~size~~part of a two-year contract awarded to DTI by the United States Naval Sea Systems Command (“NAVSEA”) for the development and ~~weight while providing built-in isolation and bi-directional and multi-port capabilities. At September 30, 2017, we had been granted 36 US patents and five foreign patents~~demonstration of a B-TRAN™ enabled high efficiency direct current circuit breaker. We expect the grant revenue related to ~~PPSA™.~~

~~Products~~

the NAVSEA subcontract to continue throughout 2021 with minimal revenue recognized in 2022. We ~~currently sell several power conversion systems, or PCS, utilizing our patented PPSA™ technology. These products are described as follows:~~

also expect to pursue additional government funding that may result in additional grant revenues in the future.

Cost of Grant Revenues. Cost of grant revenues for the three months ended March 31, 2021 was $242,061. The ~~30kW SunDial™ and~~cost of grant revenues relates to the ~~30kW SunDial™ Plus, which are UL-1741 certified~~subcontract discussed above and are ~~intended~~equal to the associated grant revenues resulting in no gross profit. We expect no gross profit under the subcontract with DTI or from other grants that we are pursuing or may pursue in the remainder of 2021.

Research and Development Expenses. Research and development expenses decreased by $89,784, or 26%, to $260,880 in the three months ended March 31, 2021 from $350,664 in the three months ended March 31, 2020. The decrease was due to lower semiconductor fabrication costs of $121,022 and lower stock compensation expense of $52,020, partly offset by an initial license fee of $50,000 for the right to certain semiconductor technology and higher other B-TRAN™ development spending of $33,258. For the three months ended March 31, 2021, our semiconductor fabrication run was funded under the NAVSEA grant. We expect higher quarterly research and development expenses, as compared to the three months ended March 31, 2021, for the remainder of 2021 as we accelerate development of our B-TRAN™ technology. Research and development expenses will be subject to quarterly variability due to timing of semiconductor fabrication costs.

General and Administrative Expenses. General and administrative expenses increased by $20,916, or 4%, to $600,686 in the three months ended March 31, 2021 from $579,770 in the three months ended March 31, 2020. The increase was due to a $109,464 higher bonus accrual, primarily related to bonuses approved by the Board for successful completion of the February 2021 Offering, and professional services paid in stock of $68,680, partly offset by CEO search fees in the first quarter of 2020 of $133,078 and moderately lower other costs of $24,150. We expect general and administrative expenses to be ~~used~~relatively flat, as compared to the three months ended March 31, 2021, for the ~~commercial~~remaining quarters of 2021.

Sales and ~~industrial grid-tied solar~~Marketing Expenses. Sales and solar + storage market. The SunDial™ is a photovoltaic (PV) string inverter which is field upgradable through the addition of a drop-in second DC port to connect batteries to a solar PV array. The SunDial™ Plus includes the PV inverter and the second DC battery port in one package. The products operate in both 50Hz and 60Hz environments and include a built-in 6 string PV combiner and DC disconnects and are grid-tied, AC export only.

~~The 30kW Stabiliti™ series has two product offerings, two-port (AC-DC) and multi-port (AC-DC-DC) models, which are both UL-1741 certified. These products are intended to be used~~marketing expenses were $62,578 in the ~~stand-alone storage~~three months ended March 31, 2021. We did not have sales and microgrid markets, including the solar + storage market. They are bi-directional and operate in both grid-tied and grid-forming modes with near seamless transfer between operating modes. Grid-forming mode provides customers the ability to form and manage a microgrid. The products operate in both 50Hz and 60Hz environments.

~~Future Innovations~~

~~Bi-Directional Switches~~

~~Our existing products incorporate multiple insulated gate bipolar transistors, or IGBTs, which are power switches used~~marketing expenses in the process to convert power from one current form to another. IGBTs switch power in only one direction (DC to AC or AC to DC) and require the use of a blocking diode to prevent power from flowing back through the system. To enable our existing products to perform bi-directional power conversion, for each IGBT and diode used in our products, we must include a second IGBT and diode. These additional components have slight voltage drops that affect the electrical efficiency of our products and generate excess heat that must be dissipated. We have patented and are developing a new, highly efficient silicon switch called a bi-directional bipolar transistor, or B-TRAN™, that we believe will allow us to substitute one B-TRAN™ for two pairs of IGBTs and diodes used in our current products and is also a potential replacement for conventional power switches in certain segments of the broader power semiconductor market.

Based on third party device software simulations, we believe that the B-TRAN™ may significantly improve electrical efficiency in our power converters and that higher efficiency would substantially reduce the heat generated by the operation of our products. As a result, products incorporating our B-TRAN™ would require less space for heat dissipation which would allow us tothree months ended March 31, 2020. The increase ~~power density, or power per pound, and reduce material costs.~~

In 2016, one of our semiconductor fabricators successfully tested single-sided B-TRAN™ silicon dies and the results were consistent with third party simulations that predict significant performance and efficiency improvements over conventional power switches such as SCRs, IGBTs and MOSFETs. Our current focus has shifted to de-risking the proof of concept phase of the B-TRAN development timeline, as this phase of development is taking longer than anticipatedwas due to the ~~complexity~~hiring of ~~manufacturing complicated, two-sided power semiconductor devices. To facilitate this,~~a Vice President of Business Development and related expenses. We expect higher sales and marketing expenses, as compared to the three months ended March 31, 2021, for the remaining quarters of 2021 as we have now engaged a second semiconductor fabricator, on a parallel path, to produce a simplified, easier to manufacture B-TRAN™ on an accelerated schedule for proof of concept and initial testing. The testing is intended to show key qualities of the B-TRAN™ over IGBTs including reduced losses, both switching and conduction losses, and increased speed. The next major milestone towards commercialization will be to complete, package and test prototype B-TRAN™ devices. We are currently workingengage with ~~two packaging houses to develop the necessary device packaging~~prospective customers in advance of ~~having manufactured, two-sided~~the commercialization of our B-TRAN™ ~~prototypes.~~ technology.

Loss from Operations. Our loss from operations for the three months ended March 31, 2021 was $924,144 or 1% lower than the $930,434 loss from operations for the three months ended March 31, 2020 for the reasons discussed above.

Net Loss. Our net loss for the three months ended March 31, 2021 was $924,150, or 1% lower, as compared to a net loss of $930,501 for the three months ended March 31, 2020, for the reasons discussed above.

Liquidity and Capital Resources

We currently generate grant revenue only and expect ~~packaging from at least one~~grant revenue to likely be our only source of revenue for 2021. We have incurred losses since inception. We have funded our operations to date through the ~~packaging houses to be complete this year. The results~~sale of ~~the testing~~common stock and characterization of these prototype B-TRAN™ devices will be utilized to guide our further development and optimization efforts including potential changes in how the devices are manufactured or driven in an actual circuit.

We plan to first utilize the B-TRAN™ in our own power conversion products and then introduce it into the rapidly growing power semiconductor market, estimated to be $19 billion in 2017 according to research firm IHS Technology, or IHS, utilizing a licensing model. We believe our new B-TRAN™ technology may potentially address a significant portion of the power semiconductor market that currently relies on power semiconductor devices such as IGBTs. Potential addressable markets for B-TRAN™-based products include very low loss solid-state DC and AC contactors, electric vehicle drivetrains, variable frequency drives, solar PV inverters, bi-directional energy storage and microgrid power conversion systems, matrix converters and other power conversion products. warrants.

At ~~September 30, 2017,~~March 31, 2021, we had ~~24 US~~cash and ~~seven foreign issued patents covering the operation, control~~cash equivalents of $26,789,017. Our net working capital and ~~manufacturing of the B-TRAN™ device.~~

~~Business Strategy~~

~~Our business strategy is to promote~~long-term debt at March 31, 2021 were $26,499,349 and expand the uses of PPSA™ initially through product development and product sales. To bring our products to market, we will seek out best-in-class partners who will distribute, white-label or integrate our innovative products into higher value systems resulting in multiple strategic sales channels for our PPSA™-based products and product designs. Although our primary market is the United States, we expect to begin targeting markets outside the United States as early as 2018. As our products gain broader acceptance$91,407, respectively.

Operating activities in the ~~power conversion market, we intend to license our proprietary PPSA™-based product designs to OEMs within our target markets, as well as license our technologies for other markets~~three months ended March 31, 2021 resulted in cash outflows of $843,337, which we do not plan to enter directly. The basis for this approach is the belief that OEMs may achieve higher product margins and gain more market share by providing PPSA™-based products, which are differentiated from the traditional

product offerings in the industry, to their customers. We believe such strategic relationships with key OEM licensees would enable us to reap the benefits of PPSA™ and gain market share more quickly than by strictly manufacturing and distributing our products.

~~Target Markets~~

Currently, our primary markets are solar + storage and, to a lesser extent, microgrids. We also intend to be opportunistic with regards to the stand-alone storage market. Until recently, our primary market was the stand-alone storage market but we have shifted our strategic focus to solar + storage as that market leverages the mature and global solar market and the stand-alone storage market has been slow to develop.

~~Solar + Storage and Microgrid Markets~~

Solar PV has one of the lowest levelized costs of energy for new electrical generation capacity and we expect this to remain true in the near term. We expect distributed PV to continue to be a high growth business as system costs have fallen dramatically over the past several years. As such, the economics of generating PV for local consumption is expected to remain strong for several more years, especially given the investment tax credit, or ITC, extension passed by Congress and signed into law in 2015 for solar energy production. Our SunDial™ products were ~~launched to directly address this market.~~

One shortcoming of distributed, behind-the-meter PV systems is that they require connection to the utility power grid in order to operate. For example, a business with PV on its roof will not, in most cases, benefit from the ability to generate power should the utility power grid go down. Another shortcoming of distributed PV systems is the instability they cause on the local power lines. Utility power grids were not designed to manage power inflow from the end of the lines. As such, distributed generation sources can lead to wide swings in line voltages when clouds pass and power output falls off, requiring the utility to ramp up its central power stations to make up for the shortfall in solar. We believe the proliferation of PV, its intermittency and the elimination of net metering in many states may drive growth in the solar + storage market.

Whether for emergency backup power or for baseload generation in remote locations with weak or no electric grids, microgrids are an emerging business case for solar paired with storage. A distributed PV system connected to a BESS that includes one of our Stabiliti™ multi-port PCS may enable a business to benefit from the ability to form and manage a local microgrid powered by the PV system and BESS even when the utility power grid is down. This capability is attractive to electricity consumers who need to power critical loads even in a blackout. Our Stabiliti™ PCS are also equipped to meet evolving utility requirements for low voltage ride-through and other key operating parameters, which may enable the PV and BESS it connects to the grid to help stabilize the utility power grid when voltage or frequency fluctuates due to imbalances in load and supply. In remote locations where there is no reliable electric grid or a dependence on diesel generators, which may be as diverse as a military battlefield or remote tropical island resort, or in locations where local electric rates are high due to aging and inefficient generation technology, a trend towards self-generation microgrids is developing. These sites can use solar, batteries and other forms of generation all brought together by one or more of our Stabiliti™ PCS to form and manage a microgrid using maximum solar generation for lowest cost. As such, we believe our products may become increasingly attractive to co-locate BESS with distributed PV.

According to their research, IHS believes that systems will be deployed in two principal configurations. The present configuration is to have separate BESS and PV systems tied together through the AC wiring, which is supported by all of our current products. A second, emerging configuration will be to place the BESS and the PV system behind a single PCS with two DC inputs. Our Stabiliti™ and SunDial™ Plus were designed specifically to enable this configuration which we believe is the lower cost and more efficient configuration. A key unique feature of the SunDial™’s patented technology is its ability to be deployed first as a standard commercial PV inverter and later be upgraded in the field to bring storage into the PV system using the same inverter. We believe this is the only product in the market today to have this unique field-upgrade capability for pairing solar with storage in one inverter.

According to IHS, the global commercial PV industry is projected to grow to over 33GW annually by 2020. IHS further forecasts that these commercial systems will have a 2% storage attachment rate by 2020, providing for a nearly 700MW annual commercial solar + storage market. These new solar + storage markets include providing backup power during blackouts, improving grid stability in high penetration PV areas and reducing fossil fuel consumption in remote and off-grid microgrids.

~~Stand-Alone Storage Market~~

The stand-alone storage market is served by battery energy storage systems, or BESS. BESS are racks of batteries coupled with a system controller and a power conversion system, such as those manufactured by us, to enable electric power to be

captured, stored, and used in conjunction with electric power grids. These systems can be large, megawatt-scale systems operated by utilities to better manage their system resources, or smaller kilowatt-scale systems used by businesses and designed to enable these businesses to manage their power use and mitigate utility imposed time-of-use and/or "peak demand charges", which are charges utilities levy on their business customers for delivery of power at peak usage times of the day, such as mid-afternoons in the summer. The growth of peak demand charges has been substantial over the past decade and now can make up 50% or more of a commercial utility bill in certain markets. This is a trend that may continue as more intermittent resources are added to the utility power grid causing grid instability. Utilities and aggregators of distributed generation resources are also expected to adopt BESS due to the ~~proliferation~~net loss for the period of ~~renewables~~$924,150 and ~~to take advantage~~unfavorable balance sheet timing $79,315, partly offset by stock issued for services of ~~additional value streams such as energy arbitrage, frequency regulation~~$68,680, stock-based compensation of $61,933 and ~~ancillary services, infrastructure upgrade deferral~~depreciation and ~~locational capacity.~~

~~There are strong economic incentives available to commercial and industrial consumers in major US markets such as California and New York~~amortization of $29,515. Operating activities in the ~~form~~three months ended March 31, 2020 resulted in cash outflows of ~~reduced time-of-use and/or demand~~$813,627, which were due to the loss from continuing operations for the period of $930,501 and unfavorable balance sheet timing of $45,080 partly offset by stock-based compensation of $116,497, depreciation and amortization of $28,113 and patent impairment charges of $17,344. We expect a modest ramp up in cash outflows from operating activities for ~~installing a BESS~~the remainder of 2021 as we accelerate development and ~~managing when power is drawn~~commercialization of our B-TRAN™ technology. We expect cash outflows from operating activities to trend upward in 2021.

Investing activities in the three months ended March 31, 2021 and 2020 resulted in cash outflows of $30,737 and $24,063, respectively, for the acquisition of intangible assets and fixed assets.

Financing activities in the three months ended March 31, 2021 resulted in cash inflows of $21,204,609 from the ~~grid or reducing peak consumption. There is also strong regulatory support for such systems. For example, California has issued a mandate for over 1,800 megawatts~~net proceeds from our February 2021 Offering and $3,301,226 from the exercise of ~~new energy storage to be installed by 2020. Although we believe the economic incentives~~warrants and ~~regulatory support are expected to accelerate growth in this market over coming years, to date the slow pace of realization of these economic incentives has actually hindered market growth.~~

~~We expect the cost of commercial and industrial BESS to continue to decline due primarily to lower battery costs and, as a result, expect significant expansion~~stock options. Financing activities in the ~~addressable market~~three months ended March 31, 2020 resulted in no cash inflows or outflows.

PPP Loan

In May 2020, we entered into a Loan Agreement and Promissory Note (collectively the “PPP Loan”) with BBVA USA pursuant to the Paycheck Protection Program (the “PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) administered by the U.S. Small Business Administration (“SBA”). We received total proceeds of $91,407 from the unsecured PPP Loan. The PPP Loan is scheduled to mature in May 2022 and has an interest rate of 1.00% per annum and is subject to the terms and conditions applicable to loans administered by the U.S. Small Business Administration under the CARES Act. The PPP Loan may be prepaid by us at any time prior to its maturity with no prepayment penalties. The first payment due date was originally in December 2020 but BBVA USA extended the first due date to August 2021 as the PPP Flexibility Act of 2020 extended the deferral period for ~~these systems. We also believe~~payment of principal and interest for all PPP borrowers.

The PPP Loan contains customary events of default relating to, among other things, payment defaults and breaches of representations and warranties. Subject to certain conditions, the ~~combination of lower BESS costs, third-party financing, increases~~PPP Loan may be forgiven in ~~utility demand charges,~~whole or in part by applying for forgiveness pursuant to the CARES Act and the ~~entrance~~PPP. The amount of ~~large, established companies~~loan proceeds eligible for forgiveness is based on a formula based on a number of factors, including the amount of loan proceeds used by us during the 8-week or 24-week period after the loan origination for certain purposes, including payroll costs, rent payments on certain leases and certain qualified utility payments, provided that, among other things, at least 60% of the loan amount is used for eligible payroll costs, the employer maintaining or rehiring employees and maintaining salaries at certain level. In accordance with the requirements of the CARES Act and the PPP, we used the proceeds from the PPP Loan primarily for payroll costs. We applied for forgiveness of the PPP Loan during the first quarter of 2021. In May 2021, the SBA approved forgiveness of our PPP Loan.

February 2021 Offering

In February 2021, we issued and sold 1,352,975 shares of our common stock, including 176,475 additional shares of common stock pursuant to the ~~BESS space may contribute~~exercise of the underwriter’s option to ~~accelerating market growth for~~purchase additional shares in full, in an underwritten public offering at a price of $17.00 per share. The net proceeds to us from the ~~nascent stand-alone storage market.~~

~~Other Markets~~

~~Although our technology may be suitable for other vertical markets within~~February 2021 Offering were $21.2 million. We intend to use the ~~global power conversion market landscape, we do not currently offer products for sale directly~~net proceeds from the February 2021 Offering to ~~other power conversion markets such as the VFD, uninterruptible power supply, rail, wind or electric vehicle traction drive markets.~~

~~In addition to the markets discussed above, we may also have opportunities for market expansion into fast electric vehicle chargers in certain applications where our products’ compact size~~fund commercialization and multi-port capabilities can unlock value for the system integrator particularly in locations where battery storage is coupled with the charging system to eliminate demand charges or expand the charging systems response capabilities.

~~We plan to continue to monitor all power conversion markets for opportunities to create solutions for customers and unlock the broader value~~development of our ~~patented technology.~~

B-TRAN™ technology and general corporate and working capital purposes.

Critical Accounting Policies

There have been no significant changes during the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2021 to the critical accounting policies disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016.~~

~~Trends, Events and Uncertainties~~

The early market for stand-alone storage has been, and continues to be, heavily dependent on California’s Self Generation Incentive Program, or SGIP. The pace and deployment of the SGIP has been slow and, despite in excess of 800 projects being submitted in the first two program stages in 2016 and the first quarter of 2017, few projects have reached the reservation stage where funding has been approved for the specific projects.

Historically, most of our backlog has related to orders for the stand-alone storage market and this backlog has not translated into revenue at the pace we have expected due to the stagnation in stand-alone storage deployments in California. There is significant uncertainty around the pace and timing of growth in this market and the customer representing a majority of our backlog in 2015 and 2016 exited the system integration business for commercial and industrial stand-alone storage. This customer exit has had a material adverse impact on our backlog and we are currently evaluating whether we have any recourse against this customer for unfulfilled orders.

In addition, funding has been difficult to secure for many system integration companies in the stand-alone storage market. We are monitoring the financial health and payment history of our customers but a bankruptcy or market exit by any one or more of our customers could further materially and adversely impact our backlog and revenue in this market.

To address the uncertainty surrounding the stand-alone storage market, we have transitioned our focus to the solar + storage market. This market leverages the far larger, and more mature, global solar market and we believe our products solve key customer problems in this market such as demand management, backup power and critical load support that solar only solutions are not capable of addressing. In the next several quarters we expect our revenue growth to be driven by growth in the solar + storage market and, to a lesser extent, the microgrid market.

~~Other than as discussed above and elsewhere in this report, we are not aware of any trends, events or uncertainties that are likely to have a material effect on our financial condition.~~

~~Results of Operations~~

~~Comparison of the three months ended September 30, 2017 to the three months ended September 30, 2016~~

~~Revenues.~~ ~~Revenues for the three months ended September 30, 2017 of $444,640 were $5,370, or 1%, higher than the $439,270 we earned in revenues for the three months ended September 30, 2016.~~

~~Cost of Revenues.~~ Cost of revenues decreased for the three months ended September 30, 2017 to $418,529 compared to $737,937 for the three months ended September 30, 2016. The decrease was primarily due to a charge of $328,537 associated with excess and obsolete ("E&O") inventory in connection with the end-of-life of our IBC-30 battery converter in the three months ended September 30, 2016. We have completed the transition from our legacy products, including both our first and second generation products, to our third generation SunDial™ and Stabiliti™ products.

~~Gross Profit (Loss).~~ ~~Gross profit for the three months ended September 30, 2017 was $26,111 compared to a gross loss of $298,667 for the three months ended September 30, 2016.~~

~~Research and Development Expenses.~~ Research and development expenses decreased by $155,175, or 13%, to $1,075,849 in the three months ended September 30, 2017 from $1,231,024 in the three months ended September 30, 2016. The decrease was due primarily to lower personnel costs. For the balance of the year, our PPSA™ research and development efforts will be focused on our SunDial™ and Stabiliti™ products including firmware development for, and certification to, the new UL-1741SA standard, and a more efficient version of our SunDial™ and Stabiliti™ products with an improved form factor.

~~General and Administrative Expenses.~~ ~~General and administrative expenses decreased by $7,453, or 1%, to $899,882 in the three months ended September 30, 2017 from $907,335 in the three months ended September 30, 2016.~~

~~Sales and Marketing Expenses.~~ Sales and marketing expenses decreased by $224,950, or 45%, to $271,844 in the three months ended September 30, 2017 from $496,794 in the three months ended September 30, 2016. The decease was primarily due to lower bad debt expense of $117,070 due partly to a bad debt recovery in the three months ended September 30, 2017, stock-based compensation costs of $37,794 and personnel costs of $25,996 as well as lower placement, consulting and trade show costs.

~~Loss from Operations.~~ ~~Our loss from operations for the three months ended September 30, 2017 was $2,221,464 compared to $2,933,820 loss from operations for the three months ended September 30, 2016.~~

~~Interest Income, net.~~ ~~Net interest income was $3,865 for the three months ended September 30, 2017 compared to $11,554 for the three months ended September 30, 2016.~~

~~Net Loss.~~ Our net loss for the three months ended September 30, 2017 was $2,217,599 as compared to a net loss of $2,922,266 for the three months ended September 30, 2016. The decrease was attributable to the E&O charge associated with our legacy products in the three months ended September 30, 2016 and our reduced operating expenses due partly to the cost reduction activities implemented in the second quarter of 2017.

~~Comparison of the nine months ended September 30, 2017 to the nine months ended September 30, 2016~~

~~Revenues.~~ Revenues for the nine months ended September 30, 2017 of $973,680 were $284,350, or 23%, lower than the $1,258,030 we earned in revenues for the nine months ended September 30, 2016. The decrease was the result of lower sales into our initial target market of stand-alone storage. We have shifted our focus primarily to solar + storage as we believe this market is beginning to transact and meaningful revenue growth is achievable for us in this market in the short term.

~~Cost of Revenues.~~ Cost of revenues increased by $362,440, or 24%, to $1,894,068 for the nine months ended September 30, 2017 compared to $1,531,628 for the nine months ended September 30, 2016. The increase was due to higher E&O charges of $361,150 and adjustments to the Company's warranty accrual of $77,010, both related to legacy products, partially offset by lower sales volumes.

~~Gross Loss.~~ ~~Gross loss for the nine months ended September 30, 2017 was $920,388 compared to a gross loss of $273,598 for the nine months ended September 30, 2016.~~

~~Research and Development Expenses.~~ Research and development expenses decreased by $539,802, or 14%, to $3,374,386 in the nine months ended September 30, 2017 from $3,914,188 in the nine months ended September 30, 2016. The decrease was due primarily to lower costs associated with bi-directional power switch development.

~~General and Administrative Expenses.~~ General and administrative expenses increased by $266,935, or 10%, to $2,976,260 in the nine months ended September 30, 2017 from $2,709,325 in the nine months ended September 30, 2016. The increase was primarily due to higher non-cash patent impairments of $197,680, as we abandoned certain patent filings to focus on filings with the highest strategic value, and higher legal and consulting costs.

~~Sales and Marketing Expenses.~~ Sales and marketing expenses decreased by $81,044, or 6%, to $1,240,713 in the nine months ended September 30, 2017 from $1,321,757 in the nine months ended September 30, 2016. The decrease was due primarily to lower stock-based compensation costs of $284,011, due to forfeitures, offset by higher bad debt expense of $141,183 and consulting costs of $51,301. We have seen an increase in both our bad debt expense and days sales outstanding as many companies, including certain of our customers, are having difficulty securing financing or generating sufficient working capital due to the lack of growth in the stand-alone storage market.

~~Loss from Operations.~~ ~~Our loss from operations for the nine months ended September 30, 2017 was $8,511,747 compared to a $8,218,868 loss from operations for the nine months ended September 30, 2016.~~

~~Interest Income, net.~~ ~~Net interest income was $15,440 for the nine months ended September 30, 2017 compared to $26,778 for the nine months ended September 30, 2016.~~

~~Net Loss.~~ Our net loss for the nine months ended September 30, 2017 was $8,496,307 as compared to a net loss of $8,192,090 for the nine months ended September 30, 2016. The increase was attributable to higher non-cash charges associated with inventory write-downs, patent impairments and bad debt expense.

~~Liquidity and Capital Resources~~

We do not currently generate enough revenue to sustain our operations. We have funded our operations through the sale of common stock and, prior to our initial public offering, the issuance of convertible debt.

~~At September 30, 2017, we had cash and cash equivalents of $11,681,887. Our net working capital and long-term debt at September 30, 2017 were $11,029,978 and $0, respectively.~~

Operating activities in the nine months ended September 30, 2017 resulted in cash outflows of $5,924,245, which were due primarily to the net loss for the period of $8,496,307, partly offset by non-cash items of $2,425,141, related primarily to stock-based compensation of $833,637, inventory write-downs of $703,220, depreciation and amortization of $339,493, patent impairments of $268,789 and bad debt expense of $226,557. Operating activities in the nine months ended September 30, 2016 resulted in cash outflows of $7,616,314, which were due primarily to the net loss for the period of $8,192,090 and negative working capital changes of $1,085,926, partly offset by non-cash items of $1,661,702, related primarily to stock-based compensation of $1,135,008 and depreciation and amortization of $290,474. Negative working capital changes included a $520,730, or 99%, increase in finished goods inventory due to lower than expected product sales in the nine months ended September 30, 2016.

~~Investing activities in the nine months ended September 30, 2017 and 2016 resulted in cash outflows of $265,684 and $628,070, respectively, for the acquisition of fixed assets and intangible assets.~~

In the second quarter of 2017, we implemented a cost reduction plan with the goal of reducing our cash outflows for operating and investing activities. This plan included the simplification of our product roadmap for the balance of 2017 to focus on our 30kW SunDial™ and Stabiliti™ products for the solar + storage and microgrid markets and elimination of activities that did not present significant near-term revenue opportunities. In addition, we discontinued our legacy products, including our

125kW product, and postponed our development and certification efforts related to international markets and electric vehicle fast charging. These changes have resulted and we believe will continue to result in a reduced cash burn in advance of our expected revenue growth.

Financing activities in the nine months ended September 30, 2017 resulted in cash inflows of $13,666,900 related primarily to our Private Placement net proceeds of $13,657,331. In the Private Placement, each share of common stock or preferred stock was sold together with a warrant to purchase one share of common stock at a collective price of $2.535. Investors purchased an aggregate of 5,220,826 shares of common stock and 708,430 shares of preferred stock together with warrants to purchase 5,929,256 shares of common stock in the Private Placement for aggregate gross proceeds of $15.0 million. Net cash proceeds are $13.7 million after offering fees and expenses, including the placement agent fee of $1.1 million. Other financing activities in the nine months ended September 30, 2017 and 2016 resulted in cash inflows of $9,569 and $35,536, respectively, relating primarily to the exercise of stock options and warrants.

On December 1, 2014, we filed a Form S-3 shelf registration statement with the Securities and Exchange Commission. The registration statement allows us to offer up to an aggregate $75 million of common stock, preferred stock, warrants to purchase common stock or preferred stock or any combination thereof and provides us with the flexibility over three years to potentially raise additional equity in public or private offerings on commercial terms. At September 30, 2017, our availability under this registration statement is $58 million.

2020.

Off-Balance Sheet Transactions

~~We do~~

As of March 31, 2021, we did not have any off-balance sheet transactions.

Trends, Events and Uncertainties

There are no material changes from trends, events or uncertainties disclosed in our 2020 Annual Report on Form 10-K.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a smaller reporting company, we are not required to provide this information.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) include, without limitation, controls and procedures designed to ensure that information required to be disclosed ~~by an issuer~~ in the Company’s reports that it files or submits under the ~~Securities~~ Exchange Act ~~of 1934, as amended,~~is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. The Company’s disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that this information is accumulated and communicated to ~~the issuer’s~~ management, including ~~its~~the principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. ~~Our management,~~The Company conducted an evaluation (pursuant to Rule 13a-15(b) of the Exchange Act), under the supervision and with the participation of ~~our~~its Chief Executive Officer (principal executive officer) and ~~our~~its Chief Financial Officer (principal financial and accounting officer), of the effectiveness of the Company’s disclosure controls and procedures as of March 31, 2021 and has concluded that, as of ~~September 30, 2017, our~~March 31, 2021, the Company’s disclosure controls and procedures are effective.

Changes in Internal Control over Financial Reporting

There have been no ~~other~~ material changes in our internal controls over financial reporting that occurred during the quarter ended ~~September 30, 2017~~March 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

Limitations on the Effectiveness of Controls

Control systems, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control systems’ objectives are being met. Further, the design of any system of controls must reflect the fact that there are resource constraints, and the benefits of all controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of error or mistake. Control systems can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

PART ~~II - OTHER~~II-OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

~~On May 17, 2017,~~

We may be subject to litigation from time to time in the ~~Company provided Libra Industries, Inc. (Libra), its prior contract manufacturer, notice that it was in breach~~ordinary course of the Master Supply Agreement (MSA) between the parties. On May 19, 2017, the Company received notice from Libra that the Company was allegedly in breach of the MSA. On June 23, 2017, the Company received a Notice of Arbitration from Libra alleging claims against the Company and demanding recovery for alleged damages. On July 13, 2017, the Company respondedbusiness. We are not currently party to Libra with a Notice of Defense and Counterclaim. On August 2, 2017, Libra provided their response to the Company's Notice of Defense and Counterclaim. The arbitration will be governed in accordance with the International Institute for Conflict Prevention and Resolution Rules for Non-Administered Arbitration by a sole arbiter. The parties have appointed an arbiter and discovery is in progress. The arbitration hearing is scheduled in Travis County, Texas for the first quarter of 2018. At this time, the Company is unable to estimate the possible loss, if any ~~associated with this proceeding.~~

legal proceedings.

ITEM 1A. RISK FACTORS

There are no material changes from the risk factors disclosed in our ~~2016~~2020 Annual Report on Form ~~10-K except as noted below.~~

A material part of our success depends on our ability to manage our suppliers and contract manufacturers. Our failure to manage our suppliers and contract manufacturers could materially and adversely affect our results of operations and relations with our customers.

We rely upon suppliers to provide the components necessary to build our products and on contract manufacturers to procure components and assemble our products. There can be no assurance that key suppliers and contract manufacturers will provide components or products in a timely and cost-efficient manner, provide quality components or manufacturing and assembly services or otherwise meet our needs and expectations. Our ability to manage such relationships and timely replace suppliers and contract manufacturers, if necessary, is critical to our success. Our failure to timely replace our contract manufacturers and suppliers, should that become necessary, could materially and adversely affect our results of operations and relations with our customers.

We are currently in arbitration with our former contract manufacturer due, in part, to workmanship quality issues we have identified in the assembly of our legacy products by this contract manufacturer. The failure of our contract manufacturers to provide quality manufacturing and assembly services, as well as the resources that may be required to address any such issues on products shipped to customers with any such quality issues, could materially and adversely affect our reputation, results of operations and relations with our customers.

We are highly dependent on the services of key members of our management team. Our inability to retain these individuals could impede our business plan and growth strategies, which could have a negative impact on our business and the value of your investment.

Our ability to implement our business plan depends, to a critical extent, on the continued efforts and services of key members of our management team. If we lose the services of any of these persons during this important time in our development, the loss may result in a delay in the implementation of our business plan and plan of operations. We can give no assurance that we could find satisfactory replacements for these individuals on terms that would not be unduly expensive or burdensome to us. We do not currently carry a key-man life insurance policy that would assist us in recouping our costs in the event of the death or disability of any of these persons.

~~Backlog may not result in revenue.~~

We define backlog as consisting of accepted orders from customers for which an expected product delivery schedule has been specified. The purchase orders comprising backlog are not cancelable in most cases and such orders generally do not provide price protection. Nevertheless, deliveries against received purchase orders may be rescheduled within negotiated parameters or canceled in certain limited instances and our backlog may, therefore, not be indicative of revenues in any given period. Our backlog is highly concentrated with a limited number of customers. If any of these customers exited the energy storage market, particularly if their purchase orders with us are subject to cancellation provisions, or declared bankruptcy, our backlog would be materially adversely impacted.

In particular, there is significant uncertainty around the pace and timing of growth in the stand-alone storage market and the customer representing a majority of our backlog in 2015 and 2016 exited the system integration business for commercial and industrial stand-alone storage. This customer exit has had a material adverse impact on our backlog and we are currently evaluating whether we have any recourse against this customer for unfulfilled orders.

10-K.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On ~~March 3, 2017,~~February 26, 2021, we ~~closed on a definitive securities purchase agreement to sell to certain accredited investors our common stock and preferred stock together with warrants to purchase~~issued 4,000 unregistered shares of common stock, orvalued at $68,680 at the ~~Private Placement. In the Private Placement, each share~~time of ~~common stock or preferred stock was sold together with~~issuance, to a ~~warrant to purchase one share of common stock at a collective price of $2.535. Investors purchased an aggregate of 5,220,826~~third-party vendor as compensation for services performed. The shares of common stock ~~and 708,430 shares of preferred stock together with warrants~~were issued in a private placement pursuant to purchase 5,929,256 shares of common stock in the Private Placement for aggregate gross proceeds of $15.0 million. The warrants have an exercise price of $2.41 per share and will expire three years from the date of issuance. We filed a Registration Statement on Form S-3 covering the resaleSection 4(a)(2) of the ~~registrable securities on March 31, 2017 with the Commission which was declared effective on April 21, 2017.~~

Net cash proceeds were $13.7 million after offering fees and expenses, including the placement agent fee of $1.1 million. The placement agent also received 237,170 warrants to purchase shares of common stock as part of its placement agent fee. The placement agent warrant has an exercise price of $2.89 per share, is non-exercisable for 12 months and has a three-year term. We expect to utilize net proceeds from the offering for working capital and general corporate purposes.

Securities Act.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

~~Not applicable.~~

ITEM 6. EXHIBITS



Exhibit Number		Document

~~10.1†~~4.1		~~Amendment No. 1 to Employment Agreement between the Company and William C. Alexander dated August 18, 2017~~Specimen Common Stock Certificate

31.1		Certification of Principal Executive Officer pursuant to Exchange Act Rule, 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*

31.2		Certification of Principal Financial Officer pursuant to Exchange Act Rule, 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*

32.1		Certification pursuant to 18 U.S.C. 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**

~~101.INS~~101.INS*		XBRL Instant Document *

~~101.SCH~~101.SCH*		XBRL Taxonomy Extension Schema Document *

~~101.CAL~~101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document *

~~101.DEF~~101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document *

~~10.LAB~~10.LAB*		XBRL Taxonomy Extension Label Linkbase Document *

~~101.PRE~~101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document *



*	Filed herewith
**	Furnished herewith
†	~~Management contract or compensatory agreement~~

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant, has duly, caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



Dated ~~November 9, 2017~~May 14, 2021	IDEAL POWER INC.

	By:	/s/ R. Daniel Brdar
		R. Daniel Brdar
		Chief Executive Officer

	By:	/s/ Timothy W. Burns
		Timothy W. Burns
		Chief Financial Officer

~~-21-~~


Delaware
~~Delaware~~		14-1999058
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, par value $0.001 per share		IPWR		The Nasdaq Capital Market



Large accelerated filer ¨		Accelerated filer ¨

Non-accelerated filer ¨x		Smaller reporting company x
~~(Do not check if a smaller reporting company)~~
~~(Do not check if a smaller reporting company)~~		Emerging growth company x¨


x
ý		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


¨
¨		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



	September 30, 2017			December 31, 2016
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	11,681,887		$	4,204,916
Accounts receivable, net	387,081			378,658
Inventories, net	327,461			1,245,147
Prepayments and other current assets	171,147			312,593
Total current assets	12,567,576			6,141,314

Property and equipment, net	647,657			936,486
Intangible assets, net	2,059,645			1,905,556
Other assets	—			17,920
Total Assets	$	15,274,878		$	9,001,276

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	287,114		$	346,767
Accrued expenses	1,250,484			1,149,129
Total current liabilities	1,537,598			1,495,896

Other long-term liabilities	493,088			265,418
Total liabilities	2,030,686			1,761,314

Commitments and contingencies (see Note 8)

Stockholders’ equity:
Preferred stock, $0.001 par value; 10,000,000 shares authorized; 1,518,430 shares issued and outstanding at September 30, 2017	1,518			—
Common stock, $0.001 par value; 50,000,000 shares authorized; 13,998,465 shares issued and 13,996,121 shares outstanding at September 30, 2017 and 9,560,896 shares issued and 9,559,213 shares outstanding at December 31, 2016, respectively	13,998			9,561
Additional paid-in capital	66,806,637			52,310,481
Treasury stock, at cost; 2,344 shares at September 30, 2017 and 1,683 shares at December 31, 2016, respectively	(7,489		)	(5,915		)
Accumulated deficit	(53,570,472		)	(45,074,165		)
Total stockholders’ equity	13,244,192			7,239,962
Total Liabilities and Stockholders’ Equity	$	15,274,878		$	9,001,276



	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Product revenue	$	444,640		$	439,270		$	973,680		$	1,258,030
Cost of product revenue	418,529			737,937			1,894,068			1,531,628
Gross profit (loss)	26,111			(298,667		)	(920,388		)	(273,598		)

Operating expenses:
Research and development	1,075,849			1,231,024			3,374,386			3,914,188
General and administrative	899,882			907,335			2,976,260			2,709,325
Sales and marketing	271,844			496,794			1,240,713			1,321,757
Total operating expenses	2,247,575			2,635,153			7,591,359			7,945,270

Loss from operations	(2,221,464		)	(2,933,820		)	(8,511,747		)	(8,218,868		)

Interest income, net	3,865			11,554			15,440			26,778

Net loss	$	(2,217,599	)	$	(2,922,266	)	$	(8,496,307	)	$	(8,192,090	)

Net loss per share – basic and fully diluted	$	(0.16	)	$	(0.31	)	$	(0.66	)	$	(0.86	)

Weighted average number of shares outstanding – basic and fully diluted	13,990,202			9,549,011			12,964,452			9,547,580



	September 30, 2017			December 31, 2016
	(unaudited)
Trade receivables	$	510,562		$	430,278
Other receivables	89,586			33,755
	600,148			464,033
Allowance for doubtful accounts	(213,067		)	(85,375		)
	$	387,081		$	378,658



Year Ended December 31,	Amount
2017	$	41,242
2018	68,736
Total	$	109,978



	Warrants		Weighted Average Exercise Price		Weighted Average Remaining Life (in years)
Outstanding at December 31, 2016	1,398,653		$	4.57	2.5
Granted	6,166,426		$	2.43
Forfeited/Expired/Exchanged	(84,000	)	$	6.25
Outstanding at September 30, 2017	7,481,079		$	2.79	2.3