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, 2018

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

Note 9 — 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, 2018, there were 517,563 shares of common stock available for issuance under the Plan.

During the year ended December 31, 2018, the Company granted 122,039 stock options to Board members and 300,000 immediately vested stock options to an executive under the Plan. The estimated fair value of these stock options, calculated using the Black-Scholes option valuation model, was $330,713, all of which was recognized during the year ended December 31, 2018.

During the year ended December 31, 2018, the Company granted 117,500 restricted stock units (“RSUs”) and 12,000 performance stock units (“PSUs”) to employees. The estimated fair value of these awards, calculated based on the closing stock price on the dates of grant, was $158,110, of which $37,880 was forfeited and $45,467, net of a reversal of $6,481, was recognized during the year ended December 31, 2018. The RSUs vest in four equal installments over a two-year vesting period.

For the year ended December 31, 2018, 6,000 PSUs vested and 6,000 PSUs were canceled as the related performance condition was not met.

A summary of the Company’s RSU activity is as follows:

	Restricted Stock Units
Outstanding at January 1, 2018		—
Granted		117,500
Vested		(23,125	)
Forfeited		(25,000	)
Outstanding at December 31, 2018		69,375

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 risk-free 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,
	2018			2017
Average risk-free interest rate		2.76	%		2.16	%
Expected dividend yield		—	%		—	%
Expected life		3.25 to 5.63 years			5.31 to 6.25 years
Expected volatility		70	%		65	%

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

	2018							2017
	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		1,232,236		$	6.44		6.8		1,385,204		$	6.89		7.5
Granted		422,039		$	1.31				167,725		$	2.99
Exercised		—							(26,743	)	$	0.42
Forfeited		(183,828	)	$	5.54				(293,950	)	$	7.14
Outstanding at December 31		1,470,447		$	5.08		6.8		1,232,236		$	6.44		6.8
Exercisable at December 31		1,401,522		$	5.11		6.8		910,436		$	6.52		6.6

The following table sets forth additional information about stock options outstanding at December 31, 2018:

Range of Exercise Prices	Options Outstanding		Weighted Average Remaining Life (in years)		Weighted Average Exercise Price		Options Exercisable
$1.22 – $2.50		451,139		9.2	$	1.37		429,314
$2.51 – $5.00		190,942		6.4	$	3.72		168,942
$5.01 – $7.50		385,828		5.3	$	6.91		371,753
$7.51 – $8.27		442,538		5.9	$	7.86		431,513
		1,470,447						1,401,522

The Company recognized a charge of $28,009 related to modification of a 2018 stock option grant to an executive. Under the original grant, the executive had up to 90 days after the termination of service to exercise the stock options. Pursuant to the amendment, the executive now has up to 5 years after the termination of service to exercise the stock options.

Stock options granted under the Plan have ten-year terms and generally vest annually over a four-year vesting period except for option grants to independent directors that generally vest quarterly over a one-year vesting period.

The estimated aggregate pretax intrinsic value (the difference between the Company’s stock price on the last day of the year ended December 31, 2018 and the exercise prices, 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, 2018, there was $302,207 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 0.7 years.