UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended ~~September~~June 30, ~~2017~~

2023


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

For the transition period from ______________ to _______________

Commission File Number 001-36216

IDEAL POWER INC.

(Exact name of registrant as specified in its charter)


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

~~4120 Freidrich Lane,~~

5508 Highway 290 West, Suite ~~100~~

120

Austin, Texas ~~78744~~

78735

(Address of principal executive offices)

(Zip Code)

~~(512)~~

(512) 264-1542

(Registrant’s telephone number, including area code)

~~(Former~~

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý ☒No ¨

☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period ~~than~~that the registrant was required to submit ~~and post~~ such files). Yes ý ☒No ¨

☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer ¨ ☐		Accelerated filer ¨ ☐

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

If an emerging growth company, indicate by check mark whether the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ý

☐

Indicate by check mark whether the issuer is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ ☐No ý

☒

As of ~~November 6, 2017,~~August 10, 2023, the issuer had ~~13,996,121~~5,938,458 shares of common stock, par value ~~$.001,~~$0.001, outstanding.

Table of Contents

TABLE OF CONTENTS


PART I	FINANCIAL INFORMATION	3

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

Item 1.		Unaudited Condensed Financial Statements		1 3

		Balance Sheets at ~~September~~June 30, ~~2017 (Unaudited)~~2023 and December 31, ~~2016~~2022		1 3
		Statements of Operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 and ~~2016 (Unaudited)~~2022		2 4
		Statements of Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 and ~~2016 (Unaudited)~~2022		3 5
	Statements of Stockholders’ Equity for the three-month periods during the six months ended June 30, 2023 and 2022	6
	Notes to ~~Unaudited~~ Financial Statements		4 7

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		11 13

Item 3.		Quantitative and Qualitative Disclosures About Market Risk		17 16

Item 4.		Controls and Procedures		17

PART II		OTHER INFORMATION		18

Item 1.		Legal Proceedings		18

Item 1A.		Risk Factors		18

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		19 18

Item 3.		Defaults Upon Senior Securities		19 18

Item 4.		Mine Safety Disclosures		20 18

Item 5.		Other Information		20 18

Item 6.	Exhibits	~~Exhibits~~		20 19

SIGNATURES			21 20

~~PART I - FINANCIAL INFORMATION~~

Table of Contents

PART 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

(unaudited)


	June 30,		December 31,
	2023		2022
ASSETS
Current assets:
Cash and cash equivalents	$	12,683,268	$	16,345,623
Accounts receivable, net		203,324		65,936
Prepayments and other current assets		540,430		491,365
Total current assets		13,427,022		16,902,924

Property and equipment, net		281,109		200,103
Intangible assets, net		2,539,422		2,036,431
Right of use asset		218,130		248,720
Other assets		11,189		11,189
Total assets	$	16,476,872	$	19,399,367

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	112,010	$	130,503
Accrued expenses		614,642		254,218
Current portion of lease liability		67,595		64,597
Total current liabilities		794,247		449,318

Long-term lease liability		168,600		202,987
Other long-term liabilities		1,180,005		838,458
Total liabilities		2,142,852		1,490,763

Commitments and contingencies (Note 5)

Stockholders’ equity:
Common stock, $0.001 par value; 50,000,000 shares authorized; 5,939,779 shares issued and 5,938,458 shares outstanding at June 30, 2023 and 5,926,001 shares issued and 5,924,680 shares outstanding at December 31, 2022		5,940		5,926
Additional paid-in capital		106,244,511		105,011,318
Treasury stock, at cost, 1,321 shares at June 30, 2023 and December 31, 2022		(13,210)		(13,210)
Accumulated deficit		(91,903,221)		(87,095,430)
Total stockholders’ equity		14,334,020		17,908,604
Total liabilities and stockholders’ equity	$	16,476,872	$	19,399,367

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

Table of Contents

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				Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
Development revenue	$	98,443	$	—	$	98,443	$	—
Grant revenue		36,724		50,978		37,388		175,986
Total revenue		135,167		50,978		135,831		175,986

Cost of development revenue		74,013		—		74,013		—
Cost of grant revenue		36,724		50,978		37,388		175,986
Total cost of revenue		110,737		50,978		111,401		175,986

Gross profit		24,430		—		24,430		—

Operating expenses:
Research and development		1,206,688		728,383		2,646,716		1,556,930
General and administrative		933,993		734,637		1,828,926		1,587,586
Sales and marketing		271,900		233,152		576,226		452,581
Total operating expenses		2,412,581		1,696,172		5,051,868		3,597,097

Loss from operations		(2,388,151)		(1,696,172)		(5,027,438)		(3,597,097)

Interest income, net		108,345		6,178		219,647		2,462

Net loss	$	(2,279,806)	$	(1,689,994)	$	(4,807,791)	$	(3,594,635)

Net loss per share – basic and diluted	$	(0.37)	$	(0.27)	$	(0.78)	$	(0.58)

Weighted average number of shares outstanding – basic and diluted		6,185,397		6,157,625		6,181,972		6,156,495

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

Table of Contents

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


	Six Months Ended
	June 30,
	2023		2022
Cash flows from operating activities:
Net loss	$	(4,807,791)	$	(3,594,635)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		121,423		89,051
Stock-based compensation		1,233,207		462,238
Stock issued for services		—		100,100
Decrease (increase) in operating assets:
Accounts receivable		(137,388)		86,100
Prepaid expenses and other assets		(18,475)		(189,265)
Increase (decrease) in operating liabilities:
Accounts payable		(18,493)		(112,736)
Accrued expenses and other liabilities		219,025		77,630
Net cash used in operating activities		(3,408,492)		(3,081,517)

Cash flows from investing activities:
Purchase of property and equipment		(114,025)		(12,248)
Acquisition of intangible assets		(139,838)		(55,672)
Net cash used in investing activities		(253,863)		(67,920)

Net decrease in cash and cash equivalents		(3,662,355)		(3,149,437)
Cash and cash equivalents at beginning of period		16,345,623		23,170,149
Cash and cash equivalents at end of period	$	12,683,268	$	20,020,712

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

Table of Contents

IDEAL POWER INC.

Statements of Stockholders’ Equity

For the Three-Month Periods during the Six Months Ended June 30, 2023 and 2022

(unaudited)


				Additional							Total
	Common Stock			Paid-In		Treasury Stock			Accumulated		Stockholders’
	Shares	Amount		Capital		Shares	Amount		Deficit		Equity
Balances at December 31, 2021	5,893,767	$	5,894	$	104,063,321	1,321	$	(13,210)	$	(79,906,080)	$	24,149,925
Exercise of options	1,351		1		(1)	—		—		—		—
Stock issued for services	10,000		10		100,090	—		—		—		100,100
Stock-based compensation	—		—		231,765	—		—		—		231,765
Net loss for the three months ended March 31, 2022	—		—		—	—		—		(1,904,641)		(1,904,641)
Balances at March 31, 2022	5,905,118		5,905		104,395,175	1,321		(13,210)		(81,810,721)		22,577,149
Stock-based compensation	—		—		230,473	—		—		—		230,473
Net loss for the three months ended June 30, 2022	—		—		—	—		—		(1,689,994)		(1,689,994)
Balances at June 30, 2022	5,905,118	$	5,905	$	104,625,648	1,321	$	(13,210)	$	(83,500,715)	$	21,117,628

Balances at December 31, 2022	5,926,001	$	5,926	$	105,011,318	1,321	$	(13,210)	$	(87,095,430)	$	17,908,604
Vesting of restricted stock units	6,889		7		(7)	—		—		—		—
Stock-based compensation	—		—		609,926	—		—		—		609,926
Net loss for the three months ended March 31, 2023	—		—		—	—		—		(2,527,985)		(2,527,985)
Balances at March 31, 2023	5,932,890		5,933		105,621,237	1,321		(13,210)		(89,623,415)		15,990,545
Vesting of restricted stock units	6,889		7		(7)	—		—		—		—
Stock-based compensation	—		—		623,281	—		—		—		623,281
Net loss for the three months ended June 30, 2023	—		—		—	—		—		(2,279,806)		(2,279,806)
Balances at June 30, 2023	5,939,779	$	5,940	$	106,244,511	1,321	$	(13,210)	$	(91,903,221)	$	14,334,020

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

Table of Contents

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 focused on the further development and ~~multi-port products.~~

commercialization of its Bidirectional bipolar 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. The Company’s continued operations are dependent upon, among other things, its ability to obtain adequate sources of funding through future revenues, follow-on stock ~~and, prior to its initial public offering, the issuance~~offerings, issuances of ~~convertible debt.~~

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 at December 31, ~~2016~~2022 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 30, 2023.

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.~~2022. Operating results for interim periods are not necessarily indicative of operating results for an entire fiscal year or any other future periods.

Net Loss Per Share

In accordance with Accounting Standards Codification 260, shares issuable for little or no cash consideration are considered outstanding common shares and included in the computation of basic net loss per share. As such, for the three and six months ended June 30, 2023 and 2022, the Company included pre-funded warrants to purchase 253,828 shares of common stock in its computation of net loss per share. The pre-funded warrants were issued in November 2019 with an exercise price of $0.001. See Note 7.

In periods with a net loss, no common share equivalents are included in the computation of diluted net loss per share because their effect would be anti-dilutive. At June 30, 2023 and 2022, potentially dilutive shares outstanding amounted to 1,636,006 and 1,400,368 shares, respectively, and exclude prefunded warrants to purchase shares of common stock.

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.

Table of Contents

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 6 –~~ Intangible Assets

Intangible assets, net consisted of the following:

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


	June 30,		December 31,
	2023		2022
	(unaudited)
Patents	$	1,393,141	$	1,263,930
Trademarks		10,627		—
Other intangible assets		1,843,036		1,391,479
		3,246,804		2,655,409
Accumulated amortization - patents		(240,608)		(211,078)
Accumulated amortization - other intangible assets		(466,774)		(407,900)
	$	2,539,422	$	2,036,431

At ~~September~~June 30, ~~2017~~2023 and December 31, ~~2016,~~2022, the Company had capitalized ~~$514,524~~$410,241 and ~~$678,410,~~$341,610, respectively, for costs related to patents and trademarks that have not been awarded.

~~In June 2017, a U.S.~~ Cost related to patents that have not yet been awarded are not amortized until patent ~~was issued associated with licensing agreements and~~issuance. As further discussed in Note 5, the Company ~~recorded an~~entered into a license agreement in April 2023 and capitalized $451,557 in other intangible asset and corresponding long-term liability for the estimated present value of future payments of $261,303. The Company is amortizing the capitalized costs over the remaining term of the agreements. For further discussion of the licensing agreements, see Note 8.

assets related to this agreement.

Amortization expense amounted to ~~$22,822~~$50,178 and ~~$59,291~~$88,404 for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2023, respectively, and ~~$16,720~~$37,098 and ~~$45,786~~$73,910 for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2022, respectively. Amortization expense for the succeeding five years and thereafter is ~~approximately $23,000 (2017)~~$100,625 (remaining six months of 2023), ~~$92,000 (2018-2021)~~$201,251 (2024-2027) and ~~$1,154,000~~$1,223,552 (thereafter).

Note 74 – ~~Accrued Expenses~~

~~Accrued expenses consisted of~~Lease

In March 2021, 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

~~Note 8 – Commitments and Contingencies~~

~~Lease~~

~~The~~ Company ~~has~~ entered into a lease agreement for ~~14,782~~4,070 square feet of office and laboratory space located in Austin, Texas. The ~~triple net~~commencement of the lease ~~has a term of 48 months and commenced~~occurred on June 1, ~~2014.~~2021 and the initial term of the lease was 63 months. The ~~annual~~actual base rent in the first year of the lease was ~~$154,324~~$56,471 and was 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 was $77,330 and increases by ~~$3,548~~$2,035 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,~~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 recognized a right of use asset of $339,882 and a corresponding lease liability for this lease upon lease commencement.

For purposes of calculating the ~~remaining annual base rent commitments~~right of use asset and lease liability included in the Company’s financial statements, the Company estimated its incremental borrowing rate at 6% per annum.

Future minimum payments under the lease are as follows:


For the Year Ended December 31,
2023 (remaining)	$	39,683
2024		80,552
2025		82,587
2026		56,132
Total lease payments		258,954
Less: imputed interest		(22,759)
Total lease liability		236,195
Less: current portion of lease liability		(67,595)
Long-term lease liability	$	168,600

At June 30, 2023, the remaining lease term was 38 months.

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

~~The Company incurred rent expense of $58,543~~

For the three months ended June 30, 2023 and ~~$175,617~~2022, operating cash outflows for lease payments totaled $19,502 and $18,993, respectively, and for the ~~three and nine~~six months ended ~~September~~June 30, ~~2017, respectively,~~2023 and ~~$56,492~~2022, operating cash outflows for lease payments totaled $38,835 and ~~$167,816 for~~$37,817, respectively. For both the three ~~and nine~~ months ended ~~September~~June 30, ~~2016, respectively.~~

2023 and 2022, operating lease cost, recognized on a straight-line basis, totaled $19,017, and for both the six months ended June 30, 2023 and 2022, operating lease cost, recognized on a straight-line basis, totaled $38,035.

Note 5 – Commitments and Contingencies

License Agreement

In 2015, the Company entered into a licensing ~~agreements~~agreement which ~~expire on~~expires in February 7, 2033. Per the ~~agreements,~~agreement, the Company has an exclusive royalty-free license associated with semiconductor power switches which enhances its intellectual property portfolio related to semiconductor power switches. The agreements include both fixed and variable payments. The variable payments are a function of the number of associated patent filings pending and patents issued under the agreements.portfolio. The Company ~~is required to~~will pay ~~$10,000 for each patent filing pending and $20,000 for each patent issued within 20 days of December 21, 2017 and each subsequent year of~~$100,000 annually under this agreement.

In April 2023, the Company amended a 2021 license agreement which expires in February 2034. Per the agreement, ~~up to a maximum of $100,000 per year (i.e. five issued patents).~~

~~In June 2017, a U.S. patent was issued~~the Company has an exclusive royalty-free license associated with ~~the agreements and~~semiconductor drive circuitry which enhances its intellectual property portfolio. The Company will pay $50,000 annually under this agreement. At inception, the Company recorded an intangible asset and ~~corresponding~~other long-term liability of $451,557, of which $50,000 is in accrued expenses at June 30, 2023, for the estimated present value of future payments under the licensing agreement.

At June 30, 2023 and December 31, 2022, the 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 $1,180,005 and ~~is included in accrued expenses in the Company's balance sheet.~~$838,458, respectively. The Company is accruing interest for future payments related to these agreements.

Legal Proceedings

The Company may be subject to litigation from time to time in the ~~issued patents associated with the agreement.~~

~~Litigation~~

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

Indemnification Obligations

The employment agreements of Company executives include an indemnification provision whereby the Company ~~provided Libra Industries, Inc. (Libra),~~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 the ~~Master Supply Agreement (MSA) between~~Company’s business and within the ~~parties. On May 19, 2017, the Company received notice from Libra that the Company was allegedly in breach~~scope of ~~the MSA. On June 23, 2017, the Company received a Notice of Arbitration from Libra alleging claims against the Company~~executive’s duties 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 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.

authority.

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 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 5,220,826 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 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 convertible at

any time at the option of the holder into one share of common stock. The holder cannot convert the preferred stock to the extent its beneficial ownership would exceed 4.99% of the Company's common stock outstanding, subject to adjustment 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 stock 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.

~~Note 10~~6 — Equity Incentive Plan

In May ~~17,~~ 2013, the Company adopted the 2013 Equity Incentive Plan ~~(the~~(as amended and restated, the “Plan”) and reserved shares of common stock for issuance under the ~~Plan.~~Plan, which was last amended in June 2023. The Plan is administered by the Compensation Committee of the Company’s Board of ~~Directors.~~Directors (the “Board”). At ~~September~~June 30, ~~2017, 708,953~~2023, 524,680 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:


				Weighted
		Weighted		Average
		Average		Remaining
	Stock	Exercise		Life
	Options	Price		(in years)
Outstanding at December 31, 2022	513,948	$	7.59	6.6
Granted	12,000	$	11.96
Outstanding at June 30, 2023	525,948	$	7.69	6.2
Exercisable at June 30, 2023	459,950	$	7.04	5.8

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A summary of the Company’s restricted stock unit (RSU) and performance stock unit (PSU) activity is as follows:


	RSUs	PSUs
Outstanding at December 31, 2022	183,666	114,000
Granted	39,750	—
Vested	(13,778)	—
Outstanding at June 30, 2023	209,638	114,000

During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2023, the Company granted ~~83,625 stock options~~27,550 RSUs to Board members, 12,200 RSUs to employees and ~~84,100~~12,000 stock options to employees under the Plan. The estimated fair value of these ~~stock options,~~equity grants, calculated using the Black-Scholes option valuation model for the stock options, was ~~$296,107,~~$529,389, $169,439 of which ~~$130,952~~ was recognized during the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~

~~During the nine months ended September~~2023.

At June 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

~~At September 30, 2017,~~2023, there was ~~$1,403,775~~$2,570,012 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~~0.9 years.

Note 117 — Warrants

~~In connection~~

At June 30, 2023 and December 31, 2022, the Company had 786,420 warrants outstanding with ~~the Private Placement, investors received~~a weighted average exercise price of $5.19 per share and 253,828 pre-funded warrants ~~to purchase 5,929,256 shares of common stock. The warrants have~~outstanding with an exercise price of ~~$2.41~~$0.001 per ~~share and will expire three years from~~share. The weighted average remaining life, excluding the 253,828 pre-funded warrants with no expiration date, of ~~issuance. The placement agent also received 237,170~~the outstanding warrants is 1.7 years.

At June 30, 2023, all warrants were exercisable, although the warrants held by certain of the Company’s warrant holders 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~~then beneficially owned by such 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 recognizeholder 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:~~stock.

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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

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. These statements include, but are not limited to, statements regarding our future financial performance, business condition and results of operations, future business plans and pursuing additional government funding. 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," "expects," "anticipates," "estimates," "projects," "intends," "plans," "would," "should," "could," "may"~~“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 generate revenue;

●

our limited operating history;

●

the size and growth of markets for our technology;

●

regulatory developments that may affect our business;

●

our ability to successfully develop new technologies, particularly our bidirectional bipolar junction transistor, or B-TRAN™;

●

our expectations regarding the timing of commercial fabrication of B-TRAN™ devices;

●

our expectations regarding the performance of our B-TRAN™ and the consistency of that performance with prototypes as well as both internal and third-party simulations;

●

our ability to successfully develop new products and the expected performance of those products;

●

the performance of third-party consultants and service providers whom we have and will continue to rely on to assist us in development and commercialization of our B-TRAN™ and related drive circuitry;

●

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

●

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

●

our ability to successfully commercialize our B-TRAN™ technology;

●

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

~~our history~~

Table of ~~losses;~~Contents

~~our ability to achieve profitability;~~

●

our ability to obtain, maintain, defend and enforce intellectual property rights protecting our technology;

●

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

●

general economic conditions and events, including inflation, and the impact they may have on us and our potential partners and licensees;

●

our dependence on the global supply chain and impacts of supply chain disruptions;

●

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

●

the impact of global health pandemics 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.

~~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;~~

~~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 our bi-directional bipolar junction transistor, or B-TRAN™;~~

~~our expectations regarding the completion of testing of new products under development and the timing of the introduction of those new products;~~

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

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

~~our expectations of the reliability of our products over the applicable warranty term and the future costs associated with warranty claims;~~

~~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;~~

~~our ability to successfully obtain certification for our products, including in new markets, and the timing of the receipt of any necessary certifications;~~

~~our ability to successfully license our technology;~~

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

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

~~the success of our cost reduction plan;~~

~~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 and when we need it;~~

~~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.~~report, except as required by applicable law. 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.

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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~~2022 financial statements and related notes included in our Annual Report on Form ~~10-K.~~10-K for the year ended December 31, 2022. 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, 2022.

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™ 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 and~~solely focused on the further development and ~~protection~~commercialization of our ~~intellectual property. Our PPSA™ and bi-directional~~Bidirectional bipolar 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~~we have generated $3.7 million in grant revenue and $98,443 in development revenue for bidirectional power switch development. Revenue was $135,167 and $135,831 in the three and six months ended June 30, 2023, respectively, and $50,978 and $175,986 in the three and six months ended June 30, 2022, respectively. Revenue for the three and six months ended June 30, 2023 related to ~~our initial public offering,~~a development agreement and a government grant. Revenue for the ~~issuance of convertible debt. Total revenue generated from inception~~three and six months ended June 30, 2022 related to ~~date as of September 30, 2017 amounted to $12,939,525 with approximately 20% of that revenue coming from~~ government grants. We may pursue additional ~~research~~development agreements and ~~development~~government grants, if and when available, ~~for the purpose of developing new products and improving current products.~~

~~Our Technology~~

~~PPSA™ uses indirect power flow in which power flows through input switches and is temporarily stored in~~to further develop, improve and/or commercialize our proprietary AC link inductor. Our proprietary fast switching algorithms enable the transfer of quantum packets of power between ports in our system. As 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 frequency for the application. PPSA™ is a power conversion technology that differentiates itself from traditional power conversion technology in key product metrics, such as size 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 related to PPSA™.

~~Products~~

technology. We ~~currently sell several power conversion systems, or PCS, utilizing our patented PPSA™ technology. These products~~ are ~~described as follows:~~

The 30kW SunDial™ and the 30kW SunDial™ Plus, which are UL-1741 certified and are intended to be used for the commercial and industrial grid-tied solar 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 in the stand-alone storage 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~~ in the process of commercializing our B-TRAN™ technology.

Product Launch

In January 2023, we launched our first commercial product, the SymCool™ Power Module. This multi-die B-TRAN™ module is designed to ~~convert power from one current form to another. IGBTs switch power~~meet the very low conduction loss needs of the solid-state circuit breaker (SSCB) market. We expect fabrication and initial sales of this product later in ~~only one direction (DC to AC or AC to DC)~~2023.

Development Agreement

During the fourth quarter of 2022, we announced, and ~~require the use~~began Phase 1 of, a ~~blocking diode~~product development agreement with a top 10 global automaker for a custom B-TRAN™ power module for use in the automaker’s electric vehicle (EV) drivetrain inverters in its next generation EV platform. In Phase 1 of the program, we provided packaged B-TRAN™ devices, test kits and technical data to ~~prevent~~the top 10 global automaker for their evaluation. Our expectation is that a successful Phase 1 will lead to us securing Phase 2 of the program. Assuming we secure Phase 2 of the program, we will collaborate with a packaging company selected by the automaker that will fabricate the custom B-TRAN™ modules. In Phase 3, the final development phase under the program, the custom B-TRAN™ power ~~from flowing back through~~module is expected to be tested and certified in accordance with automotive codes and standards. The delivery of production-ready B-TRAN™-based modules is targeted for 2025. We recorded almost all of the ~~system. To enable our existing products to perform bi-directional~~revenue under Phase 1 of this agreement in the three months ended June 30, 2023.

Test and Evaluation Agreements

Since the middle of 2021, we announced several test and evaluation agreements with prospective customers, including a second top 10 global automaker, a top 10 global provider of power conversion ~~for each IGBT~~solutions to the solar industry, two global diverse power management market leaders, a tier 1 automotive supplier, and ~~diode used~~an EV charging company. These companies, along with other current and future participants in our ~~products,~~test and evaluation program, intend to test and evaluate the B-TRAN™ for use in their applications. We expect to incorporate the feedback from these customers into our future commercial products. We began B-TRAN™ customer shipments to program participants in June 2023.

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Results of Operations

Comparison of the three months ended June 30, 2023 to the three months ended June 30, 2022

Revenue. Revenue for the three months ended June 30, 2023 and 2022 was $135,167 and $50,978, respectively. Revenue for the three months ended June 30, 2023 included development revenue (see Development Agreement above) of $98,443 and grant revenue of $36,724. Revenue for the three months ended June 30, 2022 consisted of grant revenue.

The grant revenue for the three months ended June 30, 2023 and 2022 relates to a $1.2 million subcontract with Diversified Technologies, Inc. (“DTI”) to supply B-TRAN™ devices as part of a contract awarded to DTI by the United States Naval Sea Systems Command (“NAVSEA”) for the development and demonstration of a B-TRAN™ enabled high efficiency direct current solid-state circuit breaker (“SSCB”). We completed our work under the subcontract in June 2023.

We launched our first commercial product in January 2023 and expect initial sales of this product later this year. We also expect to pursue additional development agreements, including Phase 2 of the development agreement discussed above, as well as government funding opportunities that may result in additional development and/or grant revenue in the future.

Cost of Revenue. Cost of revenue for the three months ended June 30, 2023 and 2022 was $110,737 and $50,978, respectively. The cost of revenue relates to the development agreement and subcontract with DTI discussed above for the three months ended June 30, 2023 and the subcontract with DTI for the three months ended June 30, 2022. For the subcontract with DTI, cost of grant revenue is equal to the associated grant revenue resulting in no gross profit.

Gross Profit. Gross profit for the three months ended June 30, 2023 and 2022 was $24,430 and $0, respectively. The gross profit in the three months ended June 30, 2023 relates to the development agreement. We recorded no gross profit for the DTI subcontract in the three months ended June 30, 2023 and 2022 and expect no gross profit from government grants that we ~~must include~~are pursuing or may pursue in the remainder of 2023.

Research and Development Expenses. Research and development expenses increased by $478,305, or 66%, to $1,206,688 in the three months ended June 30, 2023 from $728,383 in the three months ended June 30, 2022. The increase was due to higher stock-based compensation expense of $285,565, engineering services, primarily device packaging costs, of $173,190, personnel costs of $104,893 and other B-TRAN™ development spending of $8,252, partly offset by lower semiconductor fabrication costs of $93,595. In the three months ended June 30, 2023, stock-based compensation expense included $207,776 related to performance stock units granted in December 2022 with a ~~second IGBT~~derived service period of 0.89 years. We expect higher research and ~~diode. These additional components have slight voltage drops that affect~~development expenses in the ~~electrical efficiency~~remainder of 2023 as we continue the development of our ~~products~~B-TRAN™. Research and ~~generate excess heat that must~~development expenses will be ~~dissipated.~~subject to quarterly variability due primarily to the number, size and timing of semiconductor fabrication runs and their associated cost as well as the timing and cost of other major development activities.

General and Administrative Expenses. General and administrative expenses increased by $199,356, or 27%, to $933,993 in the three months ended June 30, 2023 from $734,637 in the three months ended June 30, 2022. The increase was due to higher stock-based compensation expense of $93,470, investor relations spending of $61,968 and personnel costs of $46,121, partly offset by lower other net costs of $2,203. In the three months ended June 30, 2023, stock-based compensation expense included $66,056 related to performance stock units granted in December 2022 with a derived service period of 0.89 years. We ~~have patented~~expect relatively flat to modestly lower general and ~~are developing a new, highly efficient silicon switch called a bi-directional bipolar transistor,~~administrative expenses, exclusive of stock-based compensation, in the remainder of 2023 as compared to 2022.

Sales and Marketing Expenses. Sales and marketing expenses increased by $38,748, or ~~B-TRAN™~~17%, ~~that~~to $271,900 in the three months ended June 30, 2023 from $233,152 in the three months ended June 30, 2022. The increase was due to higher personnel costs of $50,442 and stock-based compensation expense of $13,772, partly offset by lower travel costs of $11,273, search and placement fees of $10,000 and other net spending of $4,193. We expect higher sales and marketing expenses in the remainder of 2023 as compared to 2022 as we ~~believe will allow us~~engage more broadly with prospective customers and launch our second commercial product in the second half of 2023.

Loss from Operations. Our loss from operations for the three months ended June 30, 2023 was $2,388,151, or 41% higher, than the $1,696,172 loss from operations for the three months ended June 30, 2022 for the reasons discussed above.

Interest Income, Net. Net interest income was $108,345 for the three months ended June 30, 2023 compared to ~~substitute one B-TRAN™~~$6,178 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 to 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 anticipatedthree months ended June 30, 2022 due to the ~~complexity~~impact of ~~manufacturing complicated, two-sided power semiconductor devices. To facilitate~~higher interest rates on our money market account.

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Net Loss. Our net loss for the three months ended June 30, 2023 was $2,279,806, or 35% higher, as compared to a net loss of $1,689,994 for the three months ended June 30, 2022, for the reasons discussed above.

Comparison of the six months ended June 30, 2023 to the six months ended June 30, 2022

Revenue. Revenue for the six months ended June 30, 2023 and 2022 was $135,831 and $175,986, respectively. Revenue for the six months ended June 30, 2023 included development revenue of $98,443 and grant revenue of $37,388. Revenue for the six months ended June 30, 2022 consisted of grant revenue.

The grant revenue for the six months ended June 30, 2023 and 2022 related primarily to the $1.2 million subcontract with DTI discussed above. We completed our work under this ~~we have now engaged~~subcontract in June 2023. For the six months ended June 30, 2022, grant revenue also included revenue related to a second ~~semiconductor fabricator, on~~subcontract with DTI. In September 2021, we entered into and began work under a ~~parallel path, to produce~~$50,000 subcontract with DTI under a ~~simplified, easier to manufacture B-TRAN™ on an accelerated schedule for proof~~Phase I Small Business Innovation Research grant from the U.S. Department 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 working with two packaging housesEnergy to develop a B-TRAN™-driven low loss alternating current SSCB. We completed our work under this subcontract in the ~~necessary~~first quarter of 2022.

Cost of Revenue. Cost of revenue for the six months ended June 30, 2023 and 2022 was $111,401 and $175,986, respectively. The cost of revenue relates to the development agreement and the NAVSEA subcontract with DTI for the six months ended June 30, 2023 and the subcontracts with DTI for the six months ended June 30, 2022. For the subcontracts with DTI, cost of grant revenue is equal to the associated grant revenue resulting in no gross profit.

Gross Profit. Gross profit for the six months ended June 30, 2023 and 2022 was $24,430 and $0, respectively. The gross profit in the six months ended June 30, 2023 related to the development agreement. We recorded no gross profit for the DTI subcontracts in the six months ended June 30, 2023 and 2022 and expect no gross profit from government grants that we are pursuing or may pursue in the remainder of 2023.

Research and Development Expenses. Research and development expenses increased by $1,089,786, or 70%, to $2,646,716 in the six months ended June 30, 2023 from $1,556,930 in the six months ended June 30, 2022. The increase was due to higher stock-based compensation expense of $566,394, personnel costs of $226,097, engineering services, primarily device packaging costs, of $187,433 and semiconductor fabrication costs of $121,376, slightly offset by lower other B-TRAN™ spending of $11,514. In the six months ended June 30, 2023, stock-based compensation expense included $415,553 related to performance stock units granted in ~~advance~~December 2022 with a derived service period of ~~having manufactured, two-sided B-TRAN™ prototypes.~~0.89 years.

General and Administrative Expenses. General and administrative expenses increased by $241,340, or 15%, to $1,828,926 in the six months ended June 30, 2023 from $1,587,586 in the six months ended June 30, 2022. The increase was due to higher stock-based compensation expense of $177,613, personnel costs of $106,291 and other net costs of $6,302, partly offset by lower Board fees and expenses of $48,866. In the six months ended June 30, 2023, stock-based compensation expense included $132,112 related to performance stock units granted in December 2022 with a derived service period of 0.89 years.

Sales and Marketing Expenses. Sales and marketing expenses increased by $123,645, or 27%, to $576,226 in the six months ended June 30, 2023 from $452,581 in the six months ended June 30, 2022. The increase was due to higher personnel costs of $72,172, search and placement fees of $33,750 and stock-based compensation of $26,961, slightly offset by lower other net spending of $9,238.

Loss from Operations. Our loss from operations for the six months ended June 30, 2023 was $5,027,438, or 40% higher, than the $3,597,097 loss from operations for the six months ended June 30, 2022 for the reasons discussed above.

Interest Income, Net. Net interest income was $219,647 for the six months ended June 30, 2023 compared to $2,462 for the six months ended June 30, 2022 due to the impact of higher interest rates on our money market account.

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Net Loss. Our net loss for the six months ended June 30, 2023 was $4,807,791, or 34% higher, as compared to a net loss of $3,594,635 for the six months ended June 30, 2022, for the reasons discussed above.

Liquidity and Capital Resources

We currently generate development and grant revenue only. We expect packaging from at least one of the packaging houses to be complete this year. The results of the testing 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. At September 30, 2017, we had 24 US and seven foreign issued patents covering the operation, control and manufacturing of the B-TRAN™ device.

~~Business Strategy~~

~~Our business strategy is to promote and expand the uses of PPSA™ initially through~~initial 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~~late 2023, depending on the ultimate date that our ~~products gain broader acceptance~~initial product is fabricated and available for commercial sale. We have incurred losses since inception. We have funded our operations to date through the sale of common stock.

At June 30, 2023, we had cash and cash equivalents of $12.7 million. Our net working capital at June 30, 2023 was $12.6 million. We had no outstanding debt at June 30, 2023.

We believe that our cash and cash equivalents on hand will be sufficient to meet our ongoing liquidity needs for at least the next twelve months from the date of filing this Quarterly Report on Form 10-Q; however, we may require additional funds in the ~~power conversion market,~~future to fully implement our plan of operation and there can be no assurance that, if needed, we ~~intend~~will be able to ~~license~~secure additional debt or equity financing on terms acceptable to us or at all. Although we believe we have adequate sources of liquidity over the long term, the success of our ~~proprietary PPSA™-based product designs to OEMs within~~operations, the global economic outlook, and the pace of sustainable growth in our ~~target~~ markets ~~as well as license~~could each impact our ~~technologies for other markets which we do not plan to enter directly. The basis for this approach is the belief that OEMs may achieve higher product margins~~business and ~~gain more market share by providing PPSA™-based products, which are differentiated from the traditional~~

~~product offerings~~liquidity.

Operating activities in the ~~industry, to their customers. We believe such strategic relationships with key OEM licensees would enable us to reap the benefits~~six months ended June 30, 2023 resulted in cash outflows 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$3,408,492, which 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~~$4,807,791, partly offset by stock-based compensation of $1,233,207, depreciation and ~~to take advantage~~amortization of ~~additional value streams such as energy arbitrage, frequency regulation~~$121,423 and ~~ancillary services, infrastructure upgrade deferral and locational capacity.~~

~~There are strong economic incentives available to commercial and industrial consumers in major US markets such as California and New York~~favorable balance sheet timing of $44,669.

Operating activities in the ~~form~~six months ended June 30, 2022 resulted in cash outflows of ~~reduced time-of-use and/or demand charges~~$3,081,517, which were due to the net loss for ~~installing a BESS~~the period of $3,594,635 and ~~managing when power is drawn from the grid or reducing peak consumption. There is also strong regulatory support~~unfavorable changes in net working capital of $138,271, partly offset by stock-based compensation of $462,238, stock issued for ~~such systems. For example, California has issued a mandate for over 1,800 megawatts~~services of ~~new energy storage to be installed by 2020. Although we believe the economic incentives~~$100,100 and ~~regulatory support are expected to accelerate growth in this market over coming years, to date the slow pace~~depreciation and amortization of ~~realization of these economic incentives has actually hindered market growth.~~

$89,051.

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~~an increase in cash outflows from operating activities in the ~~addressable market for these systems. We also believe~~remainder of 2023 as we commercialize our B-TRAN™ technology, including the ~~combination~~launch of ~~lower BESS costs, third-party financing, increases~~our second commercial product.

Investing activities in ~~utility demand charges,~~the six months ended June 30, 2023 and ~~the entrance~~2022 resulted in cash outflows of ~~large, established companies to the BESS space may contribute to accelerating market growth~~$253,863 and $67,920, respectively, for the ~~nascent stand-alone storage market.~~

~~Other Markets~~

Although our technology may be suitable for other vertical markets within the global power conversion market landscape, we do not currently offer products for sale directly 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~~acquisition of intangible assets 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 of our patented technology.~~

fixed assets.

Critical Accounting ~~Policies~~

Estimates

There have been no significant changes during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 to the critical accounting ~~policies~~estimates 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.~~

2022.

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 aare no 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~~changes from trends, events or uncertainties ~~that are likely to have a material effect~~disclosed in our Annual Report 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~~Form 10-K for the ~~three months~~fiscal year 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.

December 31, 2022.

~~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.

~~Off-Balance Sheet Transactions~~

~~We do not have any off-balance sheet transactions.~~

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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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 June 30, 2023 and has concluded that, as of ~~September~~June 30, ~~2017, our~~2023, 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~~June 30, ~~2017~~2023 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 INFORMATION~~

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PART 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~~ 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~~for 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.

year ended December 31, 2022.

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

On March 3, 2017, 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 shares of common stock, or the Private Placement. 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. 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 resale 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.

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

~~Not applicable.~~

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ITEM 6. EXHIBITS


Exhibit Number		Document

~~Exhibit~~ ~~Number~~ 10.1+		~~Document~~ Amended and Restated Ideal Power Inc. 2013 Equity Incentive Plan (incorporated by reference to our Current Report on Form 8-K, filed on June 16, 2023)

~~10.1†~~ 31.1		~~Amendment No. 1 to Employment Agreement between the Company and William C. Alexander dated August 18, 2017~~

~~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*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*2002

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

~~101.INS~~ 101.INS*		Inline XBRL ~~Instant~~Instance Document *– the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

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

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

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

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

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



* 104		Cover Page Interactive Data File (embedded within the Inline XBRL document and contained in Exhibit 101)

*	Filed herewith

**Furnished herewith

** +	~~Furnished herewith~~
†	~~Management~~ Indicates a management contract or compensatory ~~agreement~~agreement.

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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 August 11, 2023
~~Dated November 9, 2017~~	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-~~