Note 8 — Equity

All shares of common stock have a par value of $0.001. Each holder of common stock is entitled to one vote per share outstanding.

Private Placement

On November 7, 2019, the Company entered into a securities purchase agreement with certain institutional and accredited investors, including Dr. Lon E. Bell, Chief Executive Officer and Chairman of the Board, for a private placement of the Company’s common stock and warrants to purchase common stock for aggregate gross proceeds of $3.5 million and net proceeds of $3.1 million (the “Offering”). The Offering closed on November 13, 2019. In the Offering, the Company issued an aggregate of (i) 544,950 shares of common stock at $2.4763 per share and (ii) pre-funded warrants to purchase 868,443 shares of common stock that are immediately exercisable and have no expiration date, at a price of $2.4763 less a nominal exercise price of $0.001 per pre-funded warrant. The Company also issued to the investors warrants to purchase up to an aggregate of 1,766,751 shares of common stock at an exercise price of $2.32 per share that are immediately exercisable and will expire five years from the issuance date. As compensation to the placement agent in the Offering, in addition to a cash fee for its services, the Company also issued to the placement agent a warrant to purchase up to 70,670 shares of common stock, with an exercise price of $2.9716 per share. The other terms of the placement agent warrant are substantially the same as the investor warrants. For his investment of $500,000, Dr. Bell received 201,914 shares of common stock and 252,393 warrants in the Offering. Pursuant to a registration rights agreement, the Company filed a registration statement with the SEC (which was declared effective on December 20, 2019) to register the resale of the shares of common stock and the shares of common stock issuable upon exercise of the warrants issued in the Offering.

Reverse Stock Split

On August 15, 2019, after receipt of stockholder and Board approval, the Company filed a Certificate of Amendment to the Certificate of Incorporation of Ideal Power Inc. to effect a one-for-ten (1:10) reverse stock split of all issued and outstanding shares of the Company’s common stock. The Company’s common stock began trading on the Nasdaq Capital Market on a split-adjusted basis when the market opened on August 20, 2019. The par value of the Company’s common stock remained unchanged at $0.001 per share after the reverse stock split.

The reverse stock split reduced the number of shares of the Company’s common stock outstanding from 14,722,840 to 1,474,001, inclusive of full shares received for fractional interests. The number of shares of the Company’s common stock issuable upon conversion of the outstanding shares of the Company’s preferred stock was reduced from 810,000 shares to 81,000 shares. The number of authorized shares of the Company’s common stock was not changed by the reverse stock split.

The reverse stock split proportionately affected the number of shares of the Company’s common stock available for issuance under the Company’s equity incentive plans. The number of shares of the Company’s common stock subject to all options, warrants and stock awards of the Company outstanding immediately prior to the reverse stock split were proportionately adjusted in accordance with their terms.

Preferred Stock

In February 2017, the Company’s Board of Directors authorized Series A Convertible Preferred Stock consisting of 3,000,000 shares. Each share of the preferred stock has a par value of $0.001 and is convertible at any time at the option of the holder into one-tenth shares of common stock. The holder cannot convert the preferred stock to the extent its beneficial ownership would exceed 4.99% of the Company’s common stock outstanding, subject to adjustment as provided in the Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock. The shares have no voting power, no liquidation preference or additional dividend entitlements.

On February  21, 2019, a shareholder converted 708,430 shares of preferred stock to 70,843 shares of common stock. On December 12, 2019, a shareholder converted  810,000 shares of preferred stock to 81,000 shares of common stock. At December 31, 2019, there was no preferred stock outstanding.

Nasdaq Compliance

On March 7, 2019 and following an initial notice of non-compliance from Nasdaq on September 7, 2018, the Company received a notice letter from Nasdaq indicating that it had not regained compliance with the minimum bid price requirement of $1 per share, as set forth in Nasdaq Listing Rule 5550(a)(2). However, Nasdaq determined that the Company was eligible for an additional 180-day period, or until September 3, 2019, to regain compliance based on the fact that it met the continued listing requirement for market value of publicly held shares and all other initial listing standards for the Nasdaq Capital Market, with the exception of the minimum bid price requirement, and it had provided written notice to Nasdaq of its intent to cure the deficiency during this second compliance period, by effecting a reverse stock split, if necessary. 

On September 4, 2019, the Company received a notice letter from Nasdaq that the Company had regained compliance with the minimum bid price requirement and the matter was closed.

On August 21, 2019, the Company was notified by the Nasdaq Listing Qualifications Department that the Company was not in compliance with the minimum stockholders’ equity requirement under Nasdaq Listing Rule 5550(b)(1) for continued listing on the Nasdaq Capital Market because the Company’s stockholders’ equity was below the required minimum of $2.5 million, and, as of the date of the notification, the Company did not meet the alternatives of market value of listed securities or net income from continuing operations. In accordance with Nasdaq Listing Rules, the Company had 45 calendar days, or until October 3, 2019, to submit a plan to regain compliance. The Company submitted a plan of compliance on October 3, 2019 addressing how it intended to regain compliance with Nasdaq Listing Rule 5550(b). On October 31, 2019, Nasdaq notified the Company of approval of the compliance plan, and Nasdaq granted the Company an extension through November 30, 2019 to take action to evidence compliance with Nasdaq Listing Rule 5550(b), which would require, among other things, that the Company demonstrate compliance within its periodic report for the fiscal year ending December 31, 2019.

On November 13, 2019, the Company closed on the Offering and filed a related Form 8-K with the SEC for the Offering.  On November 25, 2019, the Company received written confirmation from Nasdaq notifying the Company that it had regained compliance with the minimum stockholder’s equity requirement under Nasdaq Listing Rule 5550(b)(1) based on the Company’s Form 8-K filed with the SEC on November 13, 2019. In this annual report for the fiscal year ending December 31, 2019 of which these audited financial statements form a part, the Company demonstrated compliance with Nasdaq Listing Rule 5550(b)(1) as the Company reported stockholders’ equity of $3.9 million. As such, at December 31, 2019, the Company was in compliance with the continued listing requirements of the Nasdaq Capital Market.