Ideal Power Inc. (Form: 10-Q, Received: 05/15/2018 16:23:11)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2018

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
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

4120 Freidrich Lane, Suite 100

Austin, Texas 78744

(Address of principal executive offices)

(Zip Code)

(512) 264-1542

(Registrant’s telephone number, including area code)

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

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 x 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 the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer,” and “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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. ¨

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

As of May 11, 2018, the issuer had 13,996,121 shares of common stock, par value $.001, outstanding.

TABLE OF CONTENTS

PART I	FINANCIAL INFORMATION	3

Item 1.	Condensed Financial Statements	3

	Balance Sheets at March 31, 2018 (Unaudited) and December 31, 2017	3
	Statements of Operations for the three months ended March 31, 2018 and 2017 (Unaudited)	4
	Statements of Cash Flows for the three months ended March 31, 2018 and 2017 (Unaudited)	5
	Notes to Unaudited Financial Statements	6

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

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	18

Item 4.	Controls and Procedures	18

PART II	OTHER INFORMATION	18

Item 1.	Legal Proceedings	18

Item 1A.	Risk Factors	19

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

Item 3.	Defaults Upon Senior Securities	19

Item 4.	Mine Safety Disclosures	19

Item 5.	Other Information	19

Item 6.	Exhibits	20

SIGNATURES		21

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PART I-FINANCIAL INFORMATION

ITEM 1. CONDENSED FINANCIAL STATEMENTS

IDEAL POWER INC.

Balance Sheets

	March 31, 2018			December 31, 2017
		(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	8,153,268		$	10,022,247
Accounts receivable, net		152,716			221,084
Inventories, net		227,005			251,363
Prepayments and other current assets		251,146			283,208
Total current assets		8,784,135			10,777,902

Property and equipment, net		573,026			669,571
Intangible assets, net		2,088,428			2,082,014
Other assets		37,500			37,500
Total assets	$	11,483,089		$	13,566,987

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	299,730		$	449,475
Accrued expenses		1,008,149			1,081,155
Total current liabilities		1,307,879			1,530,630

Other long-term liabilities		459,216			456,234
Total liabilities		1,767,095			1,986,864

Commitments and contingencies

Stockholders’ equity:
Preferred stock, $0.001 par value; 10,000,000 shares authorized; 1,518,430 shares issued and outstanding at March 31, 2018 and December 31, 2017, respectively		1,518			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 March 31, 2018 and December 31, 2017, respectively		13,998			13,998
Additional paid-in capital		67,273,392			67,081,359
Treasury stock, at cost, 2,344 shares at March 31, 2018 and December 31, 2017, respectively		(7,489	)		(7,489	)
Accumulated deficit		(57,565,425	)		(55,509,263	)
Total stockholders’ equity		9,715,994			11,580,123
Total liabilities and stockholders’ equity	$	11,483,089		$	13,566,987

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

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IDEAL POWER INC.

Statements of Operations

(unaudited)

	Three Months Ended March 31,
	2018			2017
Product revenue	$	181,500		$	275,670
Cost of product revenue		334,963			710,930
Gross loss		(153,463	)		(435,260	)

Operating expenses:
Research and development		757,783			1,190,169
General and administrative		891,988			905,963
Sales and marketing		254,243			541,533
Total operating expenses		1,904,014			2,637,665

Loss from operations		(2,057,477	)		(3,072,925	)

Interest income, net		1,315			4,541

Net loss	$	(2,056,162	)	$	(3,068,384	)

Net loss per share – basic and fully diluted	$	(0.15	)	$	(0.28	)

Weighted average number of shares outstanding – basic and fully diluted		13,991,121			10,879,690

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

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IDEAL POWER INC.

Statements of Cash Flows

(unaudited)

	Three Months Ended March 31,
	2018			2017
Cash flows from operating activities:
Net loss	$	(2,056,162	)	$	(3,068,384	)
Adjustments to reconcile net loss to net cash used in operating activities:
Allowance for doubtful accounts		18,235			60,703
Write-down of inventory		(883	)		348,793
Depreciation and amortization		113,808			113,068
Write-off of capitalized patents		10,873			559
Write-off of fixed assets		7,056			10,534
Stock-based compensation		192,033			384,329
Decrease (increase) in operating assets:
Accounts receivable		50,133			(247,512	)
Inventories		25,241			44,491
Prepayments and other current assets		32,062			7,780
Increase (decrease) in operating liabilities:
Accounts payable		(149,745	)		16,566
Accrued expenses		(70,024	)		(116,648	)
Net cash used in operating activities		(1,827,373	)		(2,445,721	)

Cash flows from investing activities:
Purchase of property and equipment		–			(4,378	)
Acquisition of intangible assets		(41,606	)		(72,376	)
Net cash used in investing activities		(41,606	)		(76,754	)

Cash flows from financing activities:
Net proceeds from issuance of common stock		–			13,657,331
Exercise of options and warrants		–			11,143
Net cash provided by financing activities		–			13,668,474

Net increase (decrease) in cash and cash equivalents		(1,868,979	)		11,145,999
Cash and cash equivalents at beginning of period		10,022,247			4,204,916
Cash and cash equivalents at end of period	$	8,153,268		$	15,350,915

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

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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 an initial focus on solar + storage, microgrid and stand-alone energy storage applications. The principal products of the Company are 30-kilowatt power conversion systems, including 2-port and multi-port products.

Since its inception, the Company has generated limited revenues from the sale of products and has financed its research and development efforts and operations through the sale of common stock and, prior to its initial public offering, the issuance of convertible debt. The Company’s continued operations are dependent upon its ability to obtain adequate sources of funding through future revenues, follow-on stock offerings, debt financing, co-development agreements, 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 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, 2017 has been derived from the Company’s audited financial statements.

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, 2017. Operating results for interim periods are not necessarily indicative of operating results for an entire fiscal year or any other future periods.

Recently Adopted Standards

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 issued several amendments to the standard, including clarification on accounting for licenses of intellectual property and identifying performance obligations. The standard replaced most existing revenue recognition guidance in U.S. GAAP when it became effective on January 1, 2018. The adoption of this standard did not have a material effect on the Company’s financial statements, nor required an adjustment to the opening balance of accumulated deficit at January 1, 2018, the date of initial adoption. See Note 12 for a discussion of the Company’s revenue recognition policy.

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. The adoption of the standard did 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. The ASU is applied prospectively on and after the effective date. The standard did not have a material effect on the Company’s financial statements.

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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 Note 9 and Note 11.

Recent Accounting Pronouncements

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.

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

Note 3 – Accounts Receivable

Accounts receivable, net consisted of the following:

	March 31, 2018			December 31, 2017
		(unaudited)
Trade receivables	$	307,892		$	378,894
Other receivables		25,059			20,589
		332,951			399,483
Allowance for doubtful accounts		(180,235	)		(178,399	)
	$	152,716		$	221,084

The Company had receivable balances from four customers that accounted for 73% of net trade receivables at March 31, 2018.

Activity in the allowance for doubtful accounts was as follows:

Balance at December 31, 2017	$	(178,399	)
Write offs		16,399
Provisions		(18,235	)
Balance at March 31, 2018	$	(180,235	)

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Note 4 – Inventories

Inventories, net consisted of the following:

	March 31, 2018			December 31, 2017
	(unaudited)
Raw materials	$	193,445		$	222,436
Finished goods		153,120			149,370
		346,565			371,806
Reserve for obsolescence		(119,560	)		(120,443	)
	$	227,005		$	251,363

Note 5 – Property and Equipment

Property and equipment, net consisted of the following:

	March 31, 2018			December 31, 2017
	(unaudited)
Machinery and equipment	$	1,005,621		$	1,013,133
Building leasehold improvements		395,335			395,335
Furniture, fixtures, software and computers		218,571			218,571
		1,619,527			1,627,039
Accumulated depreciation and amortization		(1,046,501	)		(957,468	)
	$	573,026		$	669,571

Note 6 – Intangible Assets

Intangible assets, net consisted of the following:

	March 31, 2018			December 31, 2017
	(unaudited)
Patents	$	1,585,001		$	1,554,268
Other intangible assets		732,175			732,175
		2,317,176			2,286,443
Accumulated amortization		(228,748	)		(204,429	)
	$	2,088,428		$	2,082,014

Amortization expense amounted to $24,319 and $17,875 for the three months ended March 31, 2018 and 2017, respectively. Amortization expense for the succeeding five years and thereafter is $74,140 (2018), $98,853 (2019-2022) and $1,162,567 (thereafter).

At March 31, 2018 and December 31, 2017, the Company had capitalized $456,309 and $472,928, respectively, for costs related to patents that have not been awarded.

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Note 7 – Accrued Expenses

Accrued expenses consisted of the following:

	March 31, 2018		December 31, 2017
	(unaudited)
Accrued compensation	$	268,768	$	247,343
Warranty reserve		478,521		426,115
Other		260,860		407,697
	$	1,008,149	$	1,081,155

Note 8 – Commitments and Contingencies

Lease

The Company has entered into a lease for 14,782 square feet of office and laboratory space located in Austin, Texas. The triple net lease has a term of 48 months and commenced on June 1, 2014. The annual base rent in the first year of the lease was $154,324 and increases by $3,548 in each succeeding year of the lease. In addition, the Company is required to pay its proportionate share of operating costs for the building. At March 31, 2018, the remaining annual base rent commitments under the lease are $27,495. The Company incurred rent expense of $57,802 and $57,656 for the three months ended March 31, 2018 and 2017, respectively.

License Agreement

In 2015, the Company entered into licensing agreements which expire on February 7, 2033. Per the agreements, the Company has an exclusive royalty-free license 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. The Company 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 the agreement, up to a maximum of $100,000 per year (i.e. five issued patents). At March 31, 2018, two patents associated with the agreements had been issued and the corresponding long-term liability for the estimated present value of future payments under the licensing agreement is $459,216. The Company is accruing interest for future payments related to the issued patent associated with the agreement.

Legal Proceedings

The Company is in arbitration with Libra Industries, Inc.(Libra), its prior contract manufacturer, with both parties asserting claims against the other party. The arbitration hearing is April 23, 2018 to April 25, 2018 in Travis County, Texas. At this time, the Company is unable to estimate the possible loss, if any, associated with this proceeding. At March 31, 2018 and December 31, 2017, the Company recorded a $100,000 accrual based on an expired settlement offer made by the Company to Libra.

Note 9 — Common Stock

On March 3, 2017, the Company closed on a definitive securities purchase agreement, or 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 $13.7 million after offering fees and expenses, including the placement agent fee of $1.1 million.

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Note 10 — Equity Incentive Plan

On May 17, 2013, the Company adopted the 2013 Equity Incentive Plan (the “Plan”) and reserved shares of common stock for issuance under the Plan. The Plan is administered by the Compensation Committee of the Company’s Board of Directors. At March 31, 2018, 860,544 shares of common stock were available for issuance under the Plan.

During the three months ended March 31, 2018, the Company granted 95,358 stock options to Board members under the Plan. The estimated fair value of these stock options, calculated using the Black-Scholes option valuation model, was $90,000, of which $22,500 was recognized during the three months ended March 31, 2018.

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, 2017		1,232,236		$	6.44		6.8
Granted		95,358		$	1.56
Forfeited/Expired/Exchanged		(104,128	)	$	5.20
Outstanding at March 31, 2018		1,223,466		$	6.16		6.9
Exercisable at March 31, 2018		928,196		$	6.53		6.6

At March 31, 2018, there was $764,494 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 0.7 years.

Note 11 — Warrants

In connection with the Private Placement, investors received warrants to purchase 5,929,256 shares of common stock. The warrants have an exercise price of $2.41 per share and will expire three years from the date of issuance. 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 and also 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 recognize the value of the effect of the down-round provision if and/or when triggered. The Company had 7,481,079 warrants outstanding at both March 31, 2018 and December 31, 2017 with a weighted average exercise price of $2.79 per share. At March 31, 2018 all warrants are exercisable, although for the Company’s two largest beneficial owners their warrants may be exercised only to the extent that the total number of shares of common stock then beneficially owned by these shareholders does not exceed 9.99% of the outstanding shares of the Company’s common stock.

Note 12 — Revenue

Revenue Recognition

Revenue is recognized in accordance with ASC Topic 606 upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. We enter into contracts that typically are for products only although contracts could include various combinations of products and services, which are generally distinct and accounted for as separate performance obligations. Revenue is recognized net of taxes collected from customers, which are subsequently remitted to governmental authorities. The Company generally sells its products FOB shipping and recognizes revenue when products are shipped. Revenue from services, which consist of commissioning services, if any, is recognized as services are performed.

The Company had revenue from three customers which accounted for 31%, 19% and 15% of net revenue for the three months ended March 31, 2018 and revenue from three customers which accounted for 25%, 19% and 16% of net revenue for the three months ended March 31, 2017.

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Deferred Revenues

We record deferred revenues when cash payments are received in advance of our performance. Based on our review of customer credit, we may require full or partial payment before the products or services are delivered to the customer.

Activity in the deferred revenue account was as follows:

Balance at December 31, 2017	$	-
Deferral of revenue		17,350
Recognition of revenue		(17,350	)
Balance at March 31, 2018	$	-

Note 13 — Subsequent Events

Lease

On April 20, 2018, the Company entered into an amendment to the operating lease agreement for its current facilities which extended the lease term from May 31, 2018 to May 31, 2021. Future minimum payments under the lease, as amended, are as follows:

Year Ended December 31,	Amount
2018	$	107,785
2019		189,086
2020		196,477
2021		83,149
	$	576,497

Legal Proceedings

On April 11, 2018, the Company received $203,121 pursuant to a Judgment of Garnishment dated March 23, 2018 and related to the non-payment of an overdue accounts receivable balance by a former customer of the Company. The judgment included the past due balance of $162,000 plus late fees and recovery of legal costs. At March 31, 2018, the Company had fully reserved the $162,000 balance in its allowance for doubtful accounts. The Company did not reverse the allowance for doubtful accounts at March 31, 2018 as the funds could be subject to clawback during the quarter ending June 30, 2018 if the former customer files for bankruptcy.

Realignment

On April 16, 2018, the Company realigned into two separate operating divisions: Power Conversion Systems to focus on its PPSA™ and B-TRAN to develop its Bi-directional bi-polar junction TRANsistor (B-TRAN™) solid state switch technology.

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

•

our history of losses;

•

our ability to achieve profitability;

•

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. You should not place undue reliance on these forward-looking statements.

Unless otherwise stated or the context otherwise requires, the terms “Ideal Power,” “we,” “us,” “our” and the “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 2017 financial statements and related notes included in our Annual Report on Form 10-K. 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, Item 1A of this report.

OVERVIEW

Ideal Power 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.

We sell our products primarily to systems integrators as part of a 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™.

On April 16, 2018, the Company realigned into two separate operating divisions: Power Conversion Systems to focus on its PPSA™ and B-TRAN to develop its bi-directional bi-polar junction transistor (B-TRAN™) solid state switch technology.

We were founded on May 17, 2007. To date, operations have been funded primarily through the sale of common stock and, prior to our initial public offering, the issuance of convertible debt. Total revenue generated from inception to date as of March 31, 2018 amounted to $13.4 million with approximately 20% of that revenue coming from government grants. We may pursue additional research and development grants, if and when available, for the purpose of developing new products and improving current products.

Power Conversion Systems Division

Our Technology

PPSA™ uses indirect power flow in which power flows through input switches and is temporarily stored in 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 March 31, 2018, we had been granted 38 US patents and five foreign patents related to PPSA™.

Products

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

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The 30kW Stabiliti™ series has two product offerings, two-port (AC-DC) and multi-port (AC-DC-DC) models, which are both UL1741 Supplement A, or UL1741 SA, certified. These products are intended to be used for the commercial and industrial stand-alone energy storage and microgrid markets, including solar plus storage microgrids. 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.

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•

The 30kW SunDial™ and the 30kW SunDial Plus™, which are also UL1741 SA certified, are intended to be used for the commercial and industrial grid-tied solar and solar plus storage markets. The SunDial™ is a 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. These products both include a built-in 6 string PV combiner and DC disconnects and are grid-tied, AC export only. The products operate in both 50Hz and 60Hz environments.

Business Strategy

Our business strategy is to promote and expand the uses of PPSA™ initially through product development and product sales. To bring our products to market, we plan to 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 intend to increasingly target markets outside the United States beginning in 2018. As our products gain broader acceptance in the power conversion market, we intend to license our proprietary PPSA™-based product designs to OEMs within our target markets, as well as license our technologies for other markets which we do not plan to enter directly. The basis for this approach is the belief that OEMs may achieve higher product margins and gain more market share by providing PPSA™-based products, which are differentiated from the traditional product offerings in the industry, to their customers. We believe such strategic relationships with key OEM licensees would enable us to reap the benefits of PPSA™ and gain market share more quickly than by strictly manufacturing and distributing our products.

Target Markets

Currently, our primary markets are solar + storage and, to a lesser extent, microgrids. We also intend to be opportunistic with regard to the stand-alone energy storage market.

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. Accordingly, we expect the economics of generating PV for local consumption to remain strong for several more years, especially given the investment tax credit, or ITC, extension passed by Congress and signed into law in 2015 for solar energy production. Our SunDial™ products were launched to directly address this market. One shortcoming of distributed, behind-the-meter PV systems is that they require connection to the utility power grid in order to operate. For example, a business with PV on its roof will not, in most cases, benefit from the ability to generate power should the utility power grid go down. Another shortcoming of distributed PV systems is the instability they cause on the local power lines. Utility power grids were not designed to manage power inflow from the end of the lines. As a result, 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 power generation 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 energy storage. A distributed PV system connected to a battery energy storage system, or BESS that includes one of our Stabiliti™ multi-port PCS 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.

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According to its research, IHS Markit Technology believes that systems will be deployed in two principal configurations. One configuration is to have separate BESS and PV systems tied together through the AC wiring, which is supported by our legacy products. A second, emerging configuration is 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. By tying the solar and batteries together as a DC-coupled system, the batteries become eligible for ITC and accelerated depreciation further enhancing the project economics. 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 energy 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 energy storage in one inverter.

Stand-Alone Storage Market

The stand-alone energy storage market is served by 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 "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 is likely to 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 of renewables and to take advantage of additional value streams such as energy arbitrage, frequency regulation 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 in the form of reduced time-of-use and/or demand charges for installing a BESS and managing when power is drawn from the grid or reducing peak consumption. There is also strong regulatory support for such systems. For example, California has issued a mandate for over 1,800 megawatts of new energy storage to be installed by 2020. Other states, including New York and Massachusetts, have also recently issued mandates for energy storage and we expect this trend to continue.

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 in the addressable market for these systems. We also believe the combination of lower BESS costs, third-party financing, increases in utility demand charges, and the entrance of large, established companies to the BESS space may contribute to accelerating market growth for stand-alone energy storage.

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 variable-frequency drive, uninterruptible power supply, rail, wind or electric vehicle, or EV, traction drive markets.

In addition to the markets discussed above, we may also have opportunities for market expansion into fast EV chargers in certain applications where our products’ compact size 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.

Future Innovations

Our existing products incorporate multiple insulated gate bipolar transistors, or IGBTs, which are power switches used in the process to convert power from one current form to another. IGBTs switch power in only one direction (DC to AC or AC to DC) and require the use of a blocking diode to prevent power from flowing back through the system. To enable our existing products to perform bi-directional power conversion, for each IGBT and diode used in our products, we must include a second IGBT and diode. These additional components have slight voltage drops that affect the electrical efficiency of our products and generate heat that must be dissipated. We have patented and are developing a new, highly efficient power switch called a B-TRAN™ that we believe will allow us to substitute one B-TRAN™ for two pairs of IGBTs and diodes used in our current products. Based on third party device software simulations and initial prototype testing, we believe that the B-TRANs™ can significantly improve electrical efficiency in our power converters. The higher efficiency would substantially reduce the heat generated by the operation of our products. As a result, products incorporating B-TRANs™ will require less space for heat dissipation which would allow us to increase power density, or power per pound, and reduce material costs.

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B-TRAN Division

Our Technology

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. In the second half of 2017, we shifted our focus to de-risking the proof of concept phase of the B-TRAN™ development timeline, as this phase of development was taking longer than anticipated due to the complexity of manufacturing complicated, two-sided power semiconductor devices. To facilitate this, we engaged a second semiconductor fabricator, on a parallel path, to produce, on an accelerated schedule, a B-TRAN™ that is less complex to manufacture for proof of concept and initial testing. In the first quarter of 2018, we successfully completed proof of concept testing of double-sided B-TRAN™ prototypes, validating the ability to make B-TRAN™ semiconductor power switches using conventional silicon semiconductor fabrication equipment and processes. Test results on the standard double-sided prototypes measured B-TRAN™ electrical losses at less than 40% that of conventional power switches such as silicon IGBTs. The results of this testing will be incorporated into the B-TRAN™ design and their manufacturing process. With the double-sided transistor behavior and low conduction losses confirmed, the next step is to incorporate planned corrections and improvements in the manufacturing process followed by the fabrication of prototype engineering samples for potential customers and partners.

At March 31, 2018, we have 31 US and eight foreign issued patents covering the operation, control and manufacturing of the B-TRAN™ device.

Products

As our B-TRAN™ technology is currently under development, we do not yet offer commercial B-TRAN™ products.

Business Strategy and Target Markets

We plan to first utilize the B-TRAN™ in our own power conversion products and then introduce it into the multi-billion dollar power semiconductor market utilizing a licensing model. We believe our new B-TRAN™ technology can 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 solar photovoltaic inverters, microgrid power conversion systems, electric vehicle drivetrains, bi-directional energy storage, solid-state DC and AC contactors and breakers, variable frequency drives and other power conversion and control applications that could benefit from B-TRAN™’s enhanced switching performance.

Critical Accounting Policies

There have been no significant changes during the three months ended March 31, 2018 to the critical accounting policies disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017.

Results of Operations

Comparison of the three months ended March 31, 2018 to the three months ended March 31, 2017

Revenues. Revenues for the three months ended March 31, 2018 of $181,500 were $94,170, or 34%, lower than the $275,670 we earned in revenues for the three months ended March 31, 2017. The decrease was the result of lower sales into the stand-alone energy storage market. We have shifted our focus primarily to solar + storage as, based on our backlog for the second quarter, we believe this market is beginning to transact and meaningful revenue growth may be achievable for us in this market in the future.

Cost of Revenues. Cost of revenues decreased for the three months ended March 31, 2018 to $334,963 compared to $710,930 for the three months ended March 31, 2017. The decrease was due primarily to lower non-cash charges in the three months ended March 31, 2018 compared to the three months ended March 31, 2017. In the three months ended March 31, 2017, we recorded a non-cash write-down of inventory of $349,216 primarily associated with our 125kW battery converter and a $15,000 adjustment to the Company's warranty accrual related to its end-of-life IBC-30 battery converter. In the three months ended March 31, 2018, we recorded a $150,000 adjustment to the Company’s warranty accrual related primarily to the IBC-30 battery converters. Our cost of revenues was also impacted by lower sales volumes in the three months ended March 31, 2018 and one-time costs in the three months ended March 31, 2017 related to the initial launch of our third generation 30kW power conversion systems.

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Gross Profit (Loss). Gross loss for the three months ended March 31, 2018 was $153,463 compared to a gross loss of $435,260 for the three months ended March 31, 2017 due primarily to the non-cash write-down of 125kW battery converter inventory in the three months ended March 31, 2017.

Research and Development Expenses. Research and development expenses decreased by $432,386, or 36%, to $757,783 in the three months ended March 31, 2018 from $1,190,169 in the three months ended March 31, 2017. The decrease was due primarily to lower personnel and other costs in connection with a cost reduction plan initiated in April 2017.

General and Administrative Expenses. General and administrative expenses decreased by $13,975, or 2%, to $891,988 in the three months ended March 31, 2018 from $905,963 in the three months ended March 31, 2017. The decrease was due primarily to lower stock compensation costs partially offset by higher legal expenses due to the ongoing arbitration with our former contract manufacturer.

Sales and Marketing Expenses. Sales and marketing expenses decreased by $287,290, or 53%, to $254,243 in the three months ended March 31, 2018 from $541,533 in the three months ended March 31, 2017. The decrease was due primarily to lower professional services cost of $143,343, lower personnel costs, including lower stock compensation costs, of $78,435, and lower bad debt expense of $42,468.

Loss from Operations. Due to the decrease in cost of revenue and operating expenses, our loss from operations for the three months ended March 31, 2018 was $2,057,477 compared to a $3,072,925 loss from operations for the three months ended March 31, 2017.

Interest Income, net. Net interest income was $1,315 for the three months ended March 31, 2018 compared to $4,541 for the three months ended March 31, 2017.

Net Loss. Our net loss for the three months ended March 31, 2018 was $2,056,162 as compared to a net loss of $3,068,384 for the three months ended March 31, 2017.

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 March 31, 2018, we had cash and cash equivalents of $8,153,268. Our net working capital and long-term debt at March 31, 2018 were $7,476,256 and $0, respectively.

Operating activities in the three months ended March 31, 2018 resulted in cash outflows of $1,827,373, which were due primarily to the net loss for the period of $2,056,162 and negative working capital changes of $112,333, partly offset by non-cash items of $341,122, related primarily to stock-based compensation of $192,033 and depreciation and amortization of $113,808. Operating activities in the three months ended March 31, 2017 resulted in cash outflows of $2,445,721, which were due primarily to the net loss for the period of $3,068,384 and negative working capital changes of $295,323, partly offset by non-cash items of $917,986, related primarily to stock-based compensation, write-down of inventory, depreciation and amortization and allowance for doubtful accounts.

Investing activities in the three months ended March 31, 2018 and 2017 resulted in cash outflows of $41,606 and $76,754, respectively, for the acquisition of fixed assets and intangible assets.

Financing activities in the three months ended March 31, 2018 resulted in no cash inflows or outflows. Financing activities in the three months ended March 31, 2017 resulted in cash inflows of $13,668,474 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 after offering fees and expenses, including the placement agent fee of $1.1 million.

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Off-Balance Sheet Transactions

We do not have any off-balance sheet transactions.

Trends, Events and Uncertainties

There are no material changes from trends, events or uncertainties disclosed in our 2017 Annual Report on Form 10-K.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our management, with the participation of our Chief Executive Officer (principal executive officer) and our Chief Financial Officer (principal financial and accounting officer), has concluded that, as of March 31, 2018, our disclosure controls and procedures are effective.

Changes in Internal Control over Financial Reporting

There have been no material changes in our internal controls over financial reporting that occurred during the quarter ended March 31, 2018 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

ITEM 1. LEGAL PROCEEDINGS

There are no material changes from the legal proceedings disclosed in our 2017 Annual Report on Form 10-K except as follows:

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ITEM 1A. RISK FACTORS

There are no material changes from the risk factors disclosed in our 2017 Annual Report on Form 10-K except as follows:

Our actions to separate our business into two divisions may result in additional costs.

As discussed above in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview,” we realigned our business into two separate operating divisions. Our Power Conversion Systems division focuses on our PPSA™ technology, while our B-TRAN division focuses on our B-TRAN™ solid state switch technology. We took several corporate actions in connection with the creation of these two operating divisions, including reassigning our former president and chief executive officer, R. Daniel Brdar, to the position of B-TRAN Chief Commercial Officer and hiring Dr. Lon E. Bell as our president and chief executive officer in addition to his role as chairman of our board of directors. This separation may result in additional costs and expenses and may cause logistical and operational complexities that will divert management’s attention both during and after separation. We cannot assure you that the separation of our business into two divisions will not have a material adverse impact on our results of operations.

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 shares of our common stock and preferred stock together with warrants to purchase shares of common stock, or the Private Placement. We filed with the SEC a Registration Statement on Form S-3 (Registration No. 333-217088) covering the resale of the registrable securities on March 31, 2017, and it was declared effective on April 21, 2017.

Net cash proceeds were $13.7 million after offering fees and expenses We have utilized, and expect to continue to utilize, net proceeds from the offering for working capital and general corporate purposes.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

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ITEM 6. EXHIBITS

Exhibit Number		Document

10.1 *†		Employment Agreement between the Company and Lon Bell dated April 27, 2018

10.2		Amendment No. 1 to Lease, effective April 17, 2018, by and between Ideal Power Inc. and Agellan Commercial REIT US L.P. (incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K dated April 20, filed with the Commission on April 26, 2018)

10.3 *†		Revised and Restated Employment Agreement between the Company and R. Daniel Brdar dated April 16, 2018

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

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

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

101.INS*		XBRL Instant Document

101.SCH*		XBRL Taxonomy Extension Schema Document

101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document

10.LAB*		XBRL Taxonomy Extension Label Linkbase Document

101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document

*	Filed herewith
**	Furnished herewith
†	Management contract or compensatory 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 May 15, 2018	IDEAL POWER INC.

	By:	/s/ Lon E. Bell
		Lon E. Bell
		Chief Executive Officer

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

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Exhibit 10.1

EMPLOYMENT AGREEMENT

This EMPLOYMENT AGREEMENT (“Agreement”), which is made effective as of April 16, 2018 (the “Effective Date”), is made by and between Ideal Power Inc., a Delaware corporation, with headquarters located at 4120 Freidrich Lane, Ste. 100, Austin, Texas 78744, hereinafter referred to as “Company”, and Lon Bell, residing at 1819 N. Grand Oaks Avenue, Altadena, CA 91001, hereinafter referred to as “Executive.” The purpose of this Agreement is to confirm the terms of the employment relationship between Company and Executive.

RECITALS

WHEREAS, Company and Executive wish to state the terms of employment with Executive through entering into this Agreement;

THEREFORE, in consideration of the foregoing and of the mutual promises contained in this Agreement, Company and Executive (who are sometimes individually referred to as a “Party” and collectively referred to as the “Parties”) agree as follows:

AGREEMENT

1. POSITION; LOCATION; AT-WILL EMPLOYMENT .

Company hereby employs Executive as Company’s Chief Executive Officer and President, and Executive hereby accepts employment with Company pursuant to the terms of this Agreement. Company shall permit Executive to work remotely from his home office in California. Notwithstanding the foregoing, Executive understands and agrees that he will travel, as requested or required to perform his duties as CEO. Executive shall be employed by the Company on an “at will” basis, meaning either the Company or Executive may terminate Executive’s employment at any time, with or without cause or advanced notice. Any contrary representations that may have been made to Executive shall be superseded by this Agreement. This Agreement shall constitute the full and complete agreement between Executive and the Company on the “at will” nature of Executive’s employment with the Company, which may be changed only in an express written agreement signed by Executive and a duly authorized officer of the Board of Directors.

2. GENERAL DUTIES .

Executive shall devote his productive time, ability, and attention to Company’s business during Executive’s employment. Executive shall report to Company’s Board of Directors and agrees to keep the Board fully informed with regard to critical issues affecting the value and reputation of Company. Executive shall do and perform all services, acts, or things necessary or advisable to discharge his duties under this Agreement, and such other duties as are commonly performed by an employee of his rank in a publicly traded corporation or which may, from time to time, be prescribed by the Board of Directors. Executive agrees to cooperate with and work to the best of his ability with Company’s management team, which includes the Board and the officers and other employees, to continually improve Company’s reputation in its industry for quality products and performance.

3. NONSOLICITATION AND PROPRIETARY PROPERTY AND CONFIDENTIAL INFORMATION PROVISIONS .

Concurrently with this Agreement, Executive has executed a Proprietary Information and Inventions Agreement (“PIIA”), the terms of which are included by reference into this Agreement. Executive agrees to abide by the PIIA.

4. COMPLIANCE WITH SECURITIES LAWS .

Executive acknowledges that he is subject to the provisions of Sections 10 and 16 of the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder. Executive acknowledges that Sections 10 and 16 and the rules and regulations promulgated thereunder may prohibit Executive from selling or transferring his securities in Company. Executive agrees that he will comply with Company’s policies, as stated from time to time, relating to selling or transferring Company’s securities.

5. COMPENSATION .

(a) Base Salary . Executive will receive a base salary in the amount of $45,760/year ($3,813.33 per month). The salary paid during Executive’s employment shall be referred to in this Agreement as the “Base Salary”. The Base Salary shall be subject to any tax withholdings and/or employee deductions that are applicable. The Base Salary shall be paid to Executive in equal installments in accordance with the periodic payroll practices of the Company for its employees. The Base Salary will be subject to review and adjustment at the discretion of the Board no less frequently than annually.

(b) Eligibility for Bonus Equity Awards . At least annually, Executive, in consultation with, and concurrence of, the Compensation Committee of the Board of Directors shall meet to establish (i) performance standards and goals to be met by Executive and (ii) bonus targets based on the performance standards and goals that are achieved. The standards and goals will support an annual award of stock options and/or other equity in the Company, as set forth in separate award agreements to Executive (“Bonus Equity”). The standards and goals and the bonus targets shall be established by the Compensation Committee, in consultation with the Executive. The Bonus Equity, if earned, shall be awarded on or before March 15 ^th of the following calendar year. Given the retention aspects of the Bonus Equity, the Bonus Equity shall not be earned unless Executive is employed on the day of pay-out and is subject to all applicable equity incentive plan documents and award agreements.

(c) Participation In Employee Benefit Plans . Executive shall have the same rights, privileges, benefits and opportunities to participate in any of Company’s employee benefit plans which may now or hereafter be in effect on a general basis for its employees. Irrespective of the foregoing, Company may change any benefits contractor, or discontinue any benefit without replacement, in its sole discretion, and any such change or discontinuance will not be a breach of this Agreement.

6. EQUITY COMPENSATION .

During Executive’s employment and subject always to the discretion of the Compensation Committee of the Board, Executive may be eligible to receive additional awards from the 2013 Equity Incentive Plan (or any other equity incentive plan adopted by the Board).

Subject to approval by the Compensation Committee of the Board, the Company would grant you an initial incentive stock option grant of 300,000 stock options. The terms of your equity grants will be more fully evidenced in the documents provided to you under the 2013 Equity Incentive Plan upon approval of your equity grants by the Compensation Committee of the Board.

7. REIMBURSEMENT OF BUSINESS EXPENSES .

Company shall promptly reimburse Executive for all reasonable business expenses incurred by Executive in connection with the business of Company. However, each such expenditure shall be reimbursable only if Executive furnishes to Company adequate records and other documentary evidence required by federal and state statutes and regulations issued by the appropriate taxing authorities for the substantiation of each such expenditure as an income tax deduction. Such reimbursements shall include reasonable travel expenses related to Executive’s travel to Austin, Texas, and other locations as requested or required by the Company for Executive to perform his duties hereunder, including reasonable airfare, hotel, and/or other accommodations. Company also agrees to provide Executive with resources necessary to meet Executive’s administrative needs to perform this position, which shall be determined by Executive and Company by further mutual agreement.

8. PAID TIME OFF .

Executive shall accrue four weeks (160 hours) of paid time off each year, accrued at the rate of 13.33 hours/month; provided, however, that such paid time off benefits shall cease accruing if Executive reaches the 240 hour paid time off cap. Accrued, but unused paid time off shall be paid at termination and may be used for all purposes under the law, including all applicable paid sick leave statutes or ordinances that may apply to Executive’s employment.

9. INDEMNIFICATION OF LOSSES .

So long as Executive’s actions were taken in good faith and in furtherance of Company’s business and within the scope of Executive’s duties and authority, Company shall indemnify and hold Executive harmless to the full extent of the law from any and all claims, losses and expenses sustained by Executive as a result of any action taken by him to discharge his duties under this Agreement, and Company shall defend Executive, at Company’s expense, in connection with any and all claims by stockholders or third parties.

10. PERSONAL CONDUCT .

Executive agrees promptly and faithfully to comply with all present and future policies, requirements, directions, requests and rules and regulations of Company in connection with Company’s business. Executive further agrees to conform to all laws and regulations and not at any time to commit any act or become involved in any situation or occurrence tending to bring Company into public scandal, ridicule or which will reflect unfavorably on the reputation of Company.

11. MISCELLANEOUS .

(a) Preparation of Agreement . It is acknowledged by each Party that such Party either had separate and independent advice of counsel or the opportunity to avail itself or himself of same. In light of these facts it is acknowledged that no Party shall be construed to be solely responsible for the drafting hereof, and therefore any ambiguity shall not be construed against any Party as the alleged draftsman of this Agreement.

(b) Cooperation . Each Party agrees, without further consideration, to cooperate and diligently perform any further acts, deeds and things and to execute and deliver any documents that may from time to time be reasonably necessary or otherwise reasonably required to consummate, evidence, confirm and/or carry out the intent and provisions of this Agreement, all without undue delay or expense.

(c) Interpretation .

(i) Entire Agreement/No Collateral Representations . Each Party expressly acknowledges and agrees that this Agreement, including the PIIA, which is expressly incorporated herein by reference: (1) is the final, complete and exclusive statement of the agreement of the Parties with respect to the subject matter hereof; (2) supersedes any prior or contemporaneous agreements, promises, assurances, guarantees, representations, understandings, conduct, proposals, conditions, commitments, acts, course of dealing, warranties, interpretations or terms of any kind, oral or written (collectively and severally, the “Prior Agreements”), and that any such prior agreements are of no force or effect except as expressly set forth herein; and (3) may not be varied, supplemented or contradicted by evidence of Prior Agreements, or by evidence of subsequent oral agreements. Any agreement hereafter made shall be ineffective to modify, supplement or discharge the terms of this Agreement, in whole or in part, unless such agreement is in writing and signed by the Party against whom enforcement of the modification or supplement is sought.

(ii) Waiver . No breach of any agreement or provision herein contained, or of any obligation under this Agreement, may be waived, nor shall any extension of time for performance of any obligations or acts be deemed an extension of time for performance of any other obligations or acts contained herein, except by written instrument signed by the Party to be charged or as otherwise expressly authorized herein. No waiver of any breach of any agreement or provision herein contained shall be deemed a waiver of any preceding or succeeding breach thereof, or a waiver or relinquishment of any other agreement or provision or right or power herein contained.

(iii) Remedies Cumulative . The remedies of each Party under this Agreement are cumulative and shall not exclude any other remedies to which such Party may be lawfully entitled.

(iv) Severability . If any term or provision of this Agreement or the application thereof to any person or circumstance shall, to any extent, be determined to be invalid, illegal or unenforceable under present or future laws effective during the term of this Agreement, then and, in that event: (A) the performance of the offending term or provision (but only to the extent its application is invalid, illegal or unenforceable) shall be excused as if it had never been incorporated into this Agreement, and, in lieu of such excused provision, there shall be added a provision as similar in terms and amount to such excused provision as may be possible and be legal, valid and enforceable, and (B) the remaining part of this Agreement (including the application of the offending term or provision to persons or circumstances other than those as to which it is held invalid, illegal or unenforceable) shall not be affected thereby and shall continue in full force and effect to the fullest extent provided by law.

(v) No Third Party Beneficiary . Notwithstanding anything else herein to the contrary, the parties specifically disavow any desire or intention to create any third party beneficiary obligations, and specifically declare that no person or entity, other than as set forth in this Agreement, shall have any rights hereunder or any right of enforcement hereof.

(vi) Headings; References; Incorporation; Gender . The headings used in this Agreement are for convenience and reference purposes only, and shall not be used in construing or interpreting the scope or intent of this Agreement or any provision hereof. References to this Agreement shall include all amendments or renewals thereof. Any exhibit referenced in this Agreement shall be construed to be incorporated in this Agreement. As used in this Agreement, each gender shall be deemed to include the other gender, including neutral genders or genders appropriate for entities, if applicable, and the singular shall be deemed to include the plural, and vice versa, as the context requires.

(d) Attorneys’ Fees . If court proceedings are required to enforce any provision of this Agreement, the substantially prevailing or successful Party shall be entitled to an award of the reasonable and necessary expenses of litigation, including reasonable attorneys’ fees.

(e) No Assignment of Rights or Delegation of Duties by Executive . Executive’s rights and benefits under this Agreement are personal to him and therefore (i) no such right or benefit shall be subject to voluntary or involuntary alienation, assignment or transfer; and (ii) Executive may not delegate his duties or obligations hereunder.

(f) Notices . Unless otherwise specifically provided in this Agreement, all notices, demands, requests, consents, approvals or other communications (collectively and severally called “Notices”) required or permitted to be given hereunder, or which are given with respect to this Agreement, shall be in writing, and shall be given by: (A) personal delivery (which form of Notice shall be deemed to have been given upon delivery), (B) by private overnight delivery service (which forms of Notice shall be deemed to have been given upon confirmed delivery by the delivery agency), or (C) by mailing in the United States mail by registered or certified mail, return receipt requested, postage prepaid (which forms of Notice shall be deemed to have been given upon the 5th business day following the date mailed). Notices shall be addressed to the address hereinabove set forth in the introductory paragraph of this Agreement, or to such other address as the receiving Party shall have specified most recently by like Notice, with a copy to the other Parties hereto. Any Notice given to the estate of a Party shall be sufficient if addressed to the party as provided in this subparagraph.

(g) Counterparts . This Agreement may be executed in counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument, binding on all parties hereto. Any signature page of this Agreement may be detached from any counterpart of this Agreement and reattached to any other counterpart of this Agreement identical in form hereto by having attached to it one or more additional signature pages.

(h) Execution by All Parties Required to be Binding; Electronically Transmitted Documents . This Agreement shall not be construed to be an offer and shall have no force and effect until this Agreement is fully executed by all Parties hereto. If a copy or counterpart of this Agreement is originally executed and such copy or counterpart is thereafter transmitted electronically by facsimile, DocuSign, or similar device or software, such electronic-signed document shall for all purposes be treated as if manually signed by the Party whose electronic or facsimile signature appears.

IN WITNESS WHEREOF , the parties have executed this Agreement.

	Company:
	IDEAL POWER INC.

	By:	/s/ Tim Burns

	Its:	Chief Financial Officer

	Executive :

	/s/ Lon Bell
	Lon Bell

Exhibit 10.3

REVISED AND RESTATED EMPLOYMENT AGREEMENT

This REVISED AND RESTATED EMPLOYMENT AGREEMENT (“Agreement”), which is made effective as of the date Executive signs this Agreement (the “Effective Date”), is made by and between Ideal Power Inc., a Delaware corporation, with headquarters located at 4120 Freidrich Lane, Ste. 100, Austin, Texas 78744, hereinafter referred to as “Company”, and R. Daniel Brdar, residing at 202 Malbec Court, Austin, TX 78738, hereinafter referred to as “Executive.” The purpose of this Agreement is to confirm the revised and restated terms of the employment relationship between Company and Executive.

RECITALS

WHEREAS, Company and Executive wish to revise and restate the terms of employment with Executive through entering into this Agreement, which replaces, in its entirety, that certain Employment Agreement, dated January 8, 2014, as amended, by and between Company and Executive (the “Former Agreement”);

AGREEMENT

TERM; POSITION .

Company hereby employs Executive as Company’s BTRAN Chief Commercial Officer, and Executive hereby accepts employment with Company pursuant to the terms of this Agreement, which will continue until terminated pursuant to Section 11 or 12 below. Executive understands and agrees that, upon signing this Agreement, he shall no longer serve as Company’s Chief Executive Officer. Executive further agrees that he shall sign all documents legally necessary to effectuate his departure as CEO that may be required by the Company or its Board of Directors (“Board”). For the sake of clarity, the Parties understand and agree that Executive’s agreed change in position does not entitle Executive to any further benefits or compensation under the Former Agreement.

GENERAL DUTIES .

Executive shall devote his entire productive time, ability, and attention to Company’s business during Executive’s employment. Executive shall report to Company’s Chief Executive Officer and agrees to keep the Board fully informed with regard to critical issues affecting the value and reputation of Company. Executive shall do and perform all services, acts, or things necessary or advisable to discharge his duties under this Agreement, and such other duties as are commonly performed by an employee of his rank in a publicly traded corporation or which may, from time to time, be prescribed by the Company. Executive agrees to cooperate with and work to the best of his ability with Company’s management team, which includes the Board and the officers and other employees, to continually improve Company’s reputation in its industry for quality products and performance.

3. NONSOLICITATION AND PROPRIETARY PROPERTY AND CONFIDENTIAL INFORMATION PROVISIONS .

Executive previously executed a Proprietary Information and Inventions Agreement (“PIIA”), the terms of which are included by reference into this Agreement. Executive agrees to continue to abide by the PIIA.

COMPLIANCE WITH SECURITIES LAWS .

COMPENSATION .

(a) Base Salary . Executive will receive a base salary in the amount of $330,500/year ($27,541.67 per month). The salary paid during Executive’s employment shall be referred to in this Agreement as the “Base Salary”. The Base Salary shall be subject to any tax withholdings and/or employee deductions that are applicable. The Base Salary shall be paid to Executive in equal installments in accordance with the periodic payroll practices of the Company for its employees. The Base Salary will be subject to review and adjustment at the discretion of the Board no less frequently than annually.

(b) Bonus . At least annually, Executive and the Company’s CEO, in consultation with, and concurrence of, the Compensation Committee of the Board of Directors shall meet to establish (i) performance standards and goals to be met by Executive and (ii) cash bonus targets based on the performance standards and goals that are achieved (the “Bonus”). The standards and goals will support a cash bonus of up to 50% of Executive’s Base Salary. The standards and goals and the bonus targets shall be established by the Compensation Committee, in consultation with the CEO and the Executive. The Bonus shall be subject to any applicable tax withholdings and/or employee deductions, and shall be paid on or before March 15 ^th of the following calendar year. Given the retention aspects of the Bonus, the Bonus shall not be earned unless Executive is employed on the day of pay-out.

(c) Cost of Living Adjustment . Commencing on each January 1st after signing this Agreement, the then effective Base Salary shall be increased (but not decreased) by an amount which shall reflect the increase, if any, in the cost of living during the previous 12 months by adding to the Base Salary an amount computed by multiplying the Base Salary by the percentage by which the level of the Consumer Price Index for the Austin Metropolitan Area, as reported on January 1st of the new year by the Bureau of Labor Statistics of the United States Department of Labor has increased over its level as of January 1st of the prior year.

(d) Participation In Employee Benefit Plans . Executive shall have the same rights, privileges, benefits and opportunities to participate in any of Company’s employee benefit plans which may now or hereafter be in effect on a general basis for executive officers or employees. During Executive’s employment, the Company shall provide, at Company’s sole expense, medical and dental benefits for Executive, his spouse and children under the same policy or policies generally available to other executive officer of the Company. At the discretion of the Board, Company may also provide, at its sole expense (i) disability insurance which, in the event of Executive’s disability, will replace no less than 60% of the Base Salary being paid to Executive at the time the disability occurred and (ii) life insurance in an amount to be agreed upon by the Board and Executive. Irrespective of the foregoing, Company may change any benefits contractor, or discontinue any benefit without replacement, in its sole discretion, and any such change or discontinuance will not be a breach of this Agreement. In the event Executive receives payments from the disability insurer, Company shall have the right to offset such payments against the Base Salary otherwise payable to Executive during the period for which such payments are made.

EQUITY COMPENSATION .

REIMBURSEMENT OF BUSINESS EXPENSES .

PAID TIME OFF .

Executive shall be entitled to four weeks of paid time off each year; provided, however, failure to use paid time off by the end of the year in which it is earned will prevent the accumulation of additional paid time off in excess of four weeks.

INDEMNIFICATION OF LOSSES .

10.

PERSONAL CONDUCT .

11.

TERMINATION FOR CAUSE .

The Company may terminate Executive for cause immediately, without notice, if Company reasonably concludes that Executive has committed fraud, theft, embezzlement, misappropriation of Company funds or other property, or any felony. The Company may also terminate Executive for cause for any of the following:

(a) Breach by Executive of any material provision of this Agreement;

(b) Violation by Executive of any statutory or common law duty of loyalty to Company; or

(d) Commission of such acts of dishonesty, gross negligence, or willful misconduct as would prevent the effective performance of Executive’s duties or which result in material harm to Company or its business.

The Company may terminate this Agreement for cause by giving written notice of termination to Executive, provided, however, if the Company determines Executive to be in default of this Agreement under subsection (a) above because Executive fails to substantially perform his material duties and responsibilities under this Agreement, the Company shall deliver a written demand for substantial performance of such duties and responsibilities to Executive. Such demand must identify the manner in which the Company believes that Executive has not substantially performed his duties, and Executive shall have a period of 30 days to correct the deficient performance. Upon termination for cause, the obligations of Executive and Company under this Agreement shall immediately cease. Such termination shall be without prejudice to any other remedy to which Company may be entitled either at law, in equity, or under this Agreement. If Executive’s employment is terminated pursuant to this paragraph, Company shall pay to Executive (i) Executive’s accrued but unpaid Base Salary and the value of unused paid time off through the effective date of the termination; (ii) Executive’s accrued but unpaid Bonus, if any; and (iii) business expenses incurred prior to the effective date of termination. Executive shall not be entitled to continue to participate in any employee benefit plans except to the extent provided in such plans for terminated participants, or as may be required by applicable law.

12.

OTHER TERMINATIONS .

(a) Death . Executive’s employment shall terminate upon the death of Executive. Upon such termination, the obligations of Executive and Company under this Agreement shall immediately cease.

(b) Disability . The Company reserves the right to terminate Executive’s employment upon 30 days written notice if, for a period of 90 days, Executive is prevented from discharging his substantial or material duties due to any physical or mental disability, except otherwise required by law.

(c) Election By Executive . Executive’s employment may be terminated at any time by Executive for any reason upon not less than 30 days written notice by Executive to the Board.

(d) Election By Company . Executive’s employment may be terminated at any time by Company without cause upon not less than 30 days written notice by the Company to Executive.

(e) Termination Due to a Change in Control . Executive’s employment may be terminated upon a Change in Control. For purposes of this Agreement, the term “Change in Control” shall mean the sale or disposition by Company to an unrelated third party of substantially all of its business or assets, or the sale of the capital stock of Company in connection with the sale or transfer of a Controlling Interest in Company to an unrelated third party, or the merger or consolidation of Company with another corporation as part of a sale or transfer of a Controlling Interest in Company to an unrelated third party. For purposes of this definition, the term “Controlling Interest” means the sale or transfer of Company’s securities representing at least 50.1% of the voting power. It will be presumed that a termination is a termination under this subsection (e) rather than a termination under subsection (d) (Election by Company) if Executive’s employment is terminated during the period that begins when negotiations for the Change in Control begin and ends on the six month anniversary of the closing of the Change in Control transaction and such termination is not a termination for cause pursuant to Section 11 or a termination resulting from Executive’s death, disability or election pursuant to subsections (a), (b) or (c) of this Section 12.

(f) Effect of Various Terminations; Severance.

If Executive’s employment is terminated pursuant to subsections (a), (b), or (c) of this paragraph, Company shall pay to Executive (i) Executive’s accrued but unpaid Base Salary and the value of unused paid time off through the effective date of the termination; and (ii) business expenses incurred prior to the effective date of termination. Executive shall not be entitled to continue to participate in any employee benefit plans except to the extent provided in such plans for terminated participants, or as may be required by applicable law.

If Executive’s employment is terminated pursuant to subsection (d) of this paragraph, Company shall pay to Executive (i) Executive’s accrued but unpaid Base Salary and the value of unused paid time off through the effective date of the termination ; (ii) business expenses incurred prior to the effective date of termination; and (iii) a severance payment (“Severance”), as set forth below, contingent upon Executive first signing and not revoking a general release of claims in a form provided to Executive by Company within thirty days of Executive’s termination of employment and otherwise complying with all other provisions of this Agreement, including the PIIA (the “Prerequisites”). The Severance shall be paid over time in equal installments, with the first payment made on the thirtieth day following Executive’s termination and subsequent payments made on Company paydays during the applicable Severance Period (defined below), provided Executive has satisfied his obligations under this Agreement.

The amount of Severance shall vary, depending on when Executive is terminated pursuant to subsection (d), as set forth in this chart below during the applicable Severance Period, defined below:

Subsection (d) Without Cause Termination Date	Severance Amount	Severance Period
Termination without cause 1-30 days following the Effective Date	12 months of Executive’s former Base Salary	12 months
Termination without cause 31-60 days following the Effective Date	11 months of Executive’s former Base Salary	11 months
Termination without cause 61-90 days following the Effective Date	10 months of Executive’s former Base Salary	10 months
Termination without cause 91-120 days following the Effective Date	9 months of Executive’s former Base Salary	9 months
Termination without cause 121-150 days following the Effective Date	8 months of Executive’s former Base Salary	8 months
Termination without cause 151-180 days following the Effective Date	7 months of Executive’s former Base Salary	7 months
Termination without cause 181 days or more following the Effective Date	6 months of Executive’s former Base Salary	6 months

In addition to the above, “Severance Amount” shall also include the amount of annual Bonus that the Executive would have otherwise received due to meeting some or all of the bonus goals and objectives, but did not receive due to his termination without cause before the Bonus payment date, provided that (1) Executive met some/all of the standards and goals outlined by the Compensation Committee for the applicable Bonus, with the determination of meeting any subjective portion of the Bonus standards and goals to be determined by the Company in its sole discretion; and (2) Executive was terminated without cause prior to the Bonus payment date.

In addition, in the event of a subsection (d) without cause termination, provided Executive timely elects to continue his health insurance through the applicable provisions of COBRA and remains eligible for such benefits, Company agrees to pay the cost for the COBRA premiums during the Severance Period set forth above that applies to Executive (“COBRA Premiums”), contingent upon Executive first satisfying the Prerequisites (i.e. if Executive is terminated without Cause 31 days following the Effective Date, Executive is eligible to receive 11 months of COBRA premium payments by Company, paid over the applicable 11 month Severance Period in equal installments, if Executive is terminated without Cause 151 days following the Effective Date, Executive is eligible to receive 7 months of COBRA premium payments by Company, paid over the applicable 7 month Severance Period in equal installments, etc.)

If Executive’s employment is terminated pursuant to subsection (e) of this Section 12, Executive shall receive (i) Executive’s accrued but unpaid Base Salary and the value of unused paid time off through the effective date of the termination; and (ii) business expenses incurred prior to the effective date of termination; and the Severance and COBRA Premiums (as defined above) he would receive under a termination pursuant to subsection (d) of this Section 12, provided the Prerequisites have been satisfied. In addition, any equity award that is scheduled to vest any time after the termination of Executive’s employment will vest immediately upon the termination of Executive’s employment pursuant to subsection (e).

All other rights Executive has under any benefit or stock option plans and programs shall be determined in accordance with the terms and conditions of such plans and programs.

With the exception of the terms of this paragraph 12 and any obligations, duties and responsibilities Executive has under the PIIA, upon termination of Executive’s employment the obligations of Executive and Company under this Agreement shall immediately cease.

13.

MISCELLANEOUS .

(c) Interpretation .

(i) Entire Agreement/No Collateral Representations . Each Party expressly acknowledges and agrees that this Agreement, including all exhibits attached hereto and the PIIA Executive previously signed, which is expressly incorporated herein by reference: (1) is the final, complete and exclusive statement of the agreement of the Parties with respect to the subject matter hereof; (2) supersedes any prior or contemporaneous agreements, promises, assurances, guarantees, representations, understandings, conduct, proposals, conditions, commitments, acts, course of dealing, warranties, interpretations or terms of any kind, oral or written, including but not limited to the Former Agreement (collectively and severally, the “Prior Agreements”), and that any such prior agreements are of no force or effect except as expressly set forth herein; and (3) may not be varied, supplemented or contradicted by evidence of Prior Agreements, or by evidence of subsequent oral agreements. Any agreement hereafter made shall be ineffective to modify, supplement or discharge the terms of this Agreement, in whole or in part, unless such agreement is in writing and signed by the Party against whom enforcement of the modification or supplement is sought.

(iii) Remedies Cumulative . The remedies of each Party under this Agreement are cumulative and shall not exclude any other remedies to which such Party may be lawfully entitled.

(d) Enforcement .

(i) Applicable Law . This Agreement and the rights and remedies of each Party arising out of or relating to this Agreement (including, without limitation, equitable remedies) shall be solely governed by, interpreted under, and construed and enforced in accordance with the laws (without regard to the conflicts of law principles thereof) of the State of Texas, as if this agreement were made, and as if its obligations are to be performed, wholly within the State of Texas.

(ii) Consent to Jurisdiction and Venue . Any action or proceeding arising out of or relating to this Agreement shall be filed in and heard and litigated solely before the state courts of Texas within Travis County.

(iii) Attorneys’ Fees . If court proceedings are required to enforce any provision of this Agreement, the substantially prevailing or successful Party shall be entitled to an award of the reasonable and necessary expenses of litigation, including reasonable attorneys’ fees.

(h) Execution by All Parties Required to be Binding; Electronically Transmitted Documents . This Agreement shall not be construed to be an offer and shall have no force and effect until this Agreement is fully executed by all Parties hereto. If a copy or counterpart of this Agreement is originally executed and such copy or counterpart is thereafter transmitted electronically by facsimile or similar device, such facsimile document shall for all purposes be treated as if manually signed by the Party whose facsimile signature appears.

IN WITNESS WHEREOF , the parties have executed this Agreement.

Company:
IDEAL POWER INC.

By:	/s/ Lon E. Bell

Its:	CEO	4/14/2018

Executive :

/s/ R. Daniel Brdar		4/16/2018
R. Daniel Brdar

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002

I, Lon E. Bell, certify that:

I have reviewed this quarterly report on Form 10-Q of Ideal Power Inc.;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15-d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 15, 2018

/s/ Lon E. Bell
Lon E. Bell
Chief Executive Officer (Principal Executive Officer)

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

PURSUANT TO SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002

I, Timothy W. Burns, certify that:

I have reviewed this quarterly report on Form 10-Q of Ideal Power Inc.;

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 15, 2018

/s/ Timothy W. Burns
Timothy W. Burns
Chief Financial Officer (Principal Financial and
Accounting Officer)

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the periodic report of Ideal Power Inc. (the “Company”) on Form 10-Q for the quarter ended March 31, 2018 as filed with the Securities and Exchange Commission (the “Report”), we, Lon E. Bell, Chief Executive Officer (Principal Executive Officer) and Timothy W. Burns, Chief Financial Officer (Principal Financial and Accounting Officer) of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of our knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.

Date: May 15, 2018

/s/ Lon E. Bell
Lon E. Bell
Chief Executive Officer (Principal Executive Officer)

/s/ Timothy W. Burns
Timothy W. Burns
Chief Financial Officer (Principal Financial and
Accounting Officer)