Ideal Power Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Equity Incentive Plan

Equity Incentive Plan

12 Months Ended

Dec. 31, 2017

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

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 December 31, 2017, there were 877,352 shares of common stock available for issuance under the Plan.

During the year ended December 31, 2017, the Company granted 83,625 stock options to Board members and 84,100 stock options to employees under the Plan. The estimated fair value of these stock options, calculated using the Black-Scholes option valuation model, was $296,107, of which $172,962 was recognized during the year ended December 31, 2017.

During the year ended December 31, 2017, 96,000 performance stock units (“PSUs”) were forfeited by an employee as the continued service conditions were not achieved at the time of the employee's termination. The PSUs were initially granted in 2015 and, due to the forfeiture, the Company reversed $174,804 of stock-based compensation expense in 2017.

During the year ended December 31, 2017, 26,743 options to purchase shares of the Company’s common stock were exercised resulting in net cash proceeds of $11,143. These options were not granted under the Plan.

As permitted by SAB 107, management utilizes the simplified approach to estimate the expected term of stock options, which represents the period of time that options granted are expected to be outstanding. The riskfree interest rate for periods within the contractual life of the option is based on the U.S. treasury yield in effect at the time of grant. The volatility is estimated based on the historical volatilities of comparable companies. The Company has never declared or paid dividends and has no plans to do so in the foreseeable future.

The assumptions used in the Black-Scholes model are as follows:

	For the year ended December 31,
	2017			2016
Average risk-free interest rate		2.16	%		1.55	%
Expected dividend yield		—	%		—	%
Expected life		5.31 to 6.25 years			5.31 to 6.25 years
Expected volatility		65	%		55	%

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

	2017						2016
	Stock Options		Weighted Average Exercise Price		Weighted Average Remaining Life (in years)		Stock Options		Weighted Average Exercise Price		Weighted Average Remaining Life (in years)
Outstanding at January 1		1,385,204	$	6.89		7.5		1,332,323	$	6.94		8.4
Granted		167,725	$	2.99				96,138	$	5.95
Exercised		(26,743)	$	0.42				(4,607)	$	5.00
Forfeited/Expired/Exchanged		(293,950)	$	7.14				(38,650)	$	6.68
Outstanding at December 31		1,232,236	$	6.44		6.8		1,385,204	$	6.89		7.5
Exercisable at December 31		910,436	$	6.52		6.6		862,354	$	6.56		7.2

The following table sets forth additional information about stock options outstanding at December 31, 2017:

Range of Exercise Prices	Options Outstanding		Weighted Average Remaining Life (in years)		Weighted Average Exercise Price		Options Exercisable
$2.23 – $5.00		318,170		7.2	$	3.65		226,495
$5.01 – $7.50		453,528		6.5	$	6.96		340,078
$7.51 – $8.27		460,538		6.9	$	7.86		343,863
		1,232,236						910,436

The estimated aggregate pretax intrinsic value (the difference between the Company’s stock price on the last day of the year ended December 31, 2017 and the exercises price, multiplied by the number of vested in-the-money options) is $0. This amount changes based on the fair value of the Company’s stock.

As of December 31, 2017, there was $933,492 of unrecognized compensation cost related to non-vested share-based compensation arrangements. That cost is expected to be recognized over a weighted average period of 0.9 years.