Ideal Power Inc.

IDEAL POWER INC.

Notes to Financial Statements

Note 1 –** Organization and Description of Business**

Ideal Power Inc. (the “Company”) was incorporated in Texas in May 2007 under the name Ideal Power Converters, Inc. The Company changed its name to Ideal Power Inc. and re-incorporated in Delaware in July 2013. With headquarters in Austin, Texas, the Company is focused on the further development and commercialization of its Bidirectional bipolar junction TRANsistor (B-TRAN®) solid-state switch technology.

Since its inception, the Company has financed its research and development efforts and operations primarily through the sale of common stock and pre-funded warrants. The Company’s continued operations are dependent upon, among other things, its ability to obtain adequate sources of funding through future revenues, follow-on stock offerings, issuances of warrants, debt financing, co-development agreements, government grants, sale or licensing of developed intellectual property or other alternatives.

Note 2 –** Summary of Significant Accounting Policies**

Basis of Presentation

The accompanying unaudited condensed financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) for Form 10-Q. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The balance sheet at December 31, 2024 has been derived from the Company’s audited financial statements included in its Annual Report on Form 10-K filed with the SEC on March 28, 2025.

In the opinion of management, these financial statements reflect all normal recurring 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, 2024. Operating results for interim periods are not necessarily indicative of operating results for an entire fiscal year or any other future periods.

Liquidity and Going Concern

These consolidated financial statements have been prepared on a going concern basis, which assumes the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities in the ordinary course of business. The Company’s operations have resulted in a net loss of $8.7 million for the nine months ended September 30, 2025 and an accumulated deficit of $116.1 million at September 30, 2025. The Company’s existing sources of liquidity at September 30, 2025 include cash and cash equivalents of $8.4 million. The Company has historically funded operations primarily through the sale of common stock and prefunded warrants. The Company is dependent on additional capital in order to sustain its ongoing operations as it currently generates minimal revenue with negative cash flows from operations since inception. The current cash balance and negative cash flow raise substantial doubt about the Company’s ability to continue as a going concern for a period of twelve months from the issuance of this Quarterly Report on Form 10-Q.

These consolidated financial statements do not reflect adjustments that would be necessary if the going concern assumption was not appropriate because management believes that the Company will be able to raise additional capital to fund operations. Although the Company believes it has access to adequate sources of capital to fund its operations, it can provide no assurance that it will be able to secure additional equity or debt financing on terms acceptable to the Company or at all.

Segment Information

Operating segments are defined as components of an entity for which separate financial information is available and that is regularly reviewed by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources to an individual segment and in assessing performance. The Company’s Chief Executive Officer is the Company’s CODM. The CODM reviews financial information presented on a company-wide basis for purposes of making operating decisions, allocating resources, and evaluating financial performance. As such, the Company has determined that it operates as one operating segment. The Company has concluded that net income (loss) is the measure of segment profitability. The CODM assesses performance for the Company, monitors budget versus actual results and determines how to allocate resources based on net income (loss) as reported in the statements of operations. There are no other expense categories regularly provided to the CODM that are not already included in the financial statements herein.

During the nine months ended September 30, 2025 and 2024, the Company did not generate material international revenues and as of September 30, 2025 and December 31, 2024, the Company did not have material assets located outside of the United States.

Net Loss Per Share

In accordance with Accounting Standards Codification (“ASC”) 260, shares issuable for little or no cash consideration are considered outstanding common shares and included in the computation of basic net loss per share. As such, for the three and nine months ended September 30, 2025 and 2024, the Company included pre-funded warrants to purchase shares of common stock in its computation of net loss per share. The pre-funded warrants were issued in March 2024 and November 2019 with an exercise price of $0.001. See Note 7.

In periods with a net loss, no common share equivalents are included in the computation of diluted net loss per share because their effect would be anti-dilutive. At September 30, 2025 and 2024, potentially dilutive shares outstanding amounted to 824,760 and 1,322,819 shares, respectively, and exclude pre-funded warrants to purchase shares of common stock.

Recent Accounting Pronouncements

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

Note 3 –** Intangible Assets**

Intangible assets, net consisted of the following:

At September 30, 2025 and December 31, 2024, the Company capitalized $699,373 and $541,081, respectively, for costs related to patents that have not been awarded. Cost related to patents that have not yet been awarded are not amortized until patent issuance.

At September 30, 2025 and December 31, 2024, the Company capitalized $26,529 and $22,767, respectively, for costs related to trademarks. Costs related to indefinite life trademarks are not amortized but are subject to evaluation for potential impairment.

Amortization expense amounted to $55,253 and $164,652 for the three and nine months ended September 30, 2025, respectively, and $54,205 and $160,807 for the three and nine months ended September 30, 2024, respectively. Amortization expense for the succeeding five years and thereafter is $55,530 (remaining three months of 2025), $222,120 (2026-2029) and $1,008,475 (thereafter).

Note 4 –** Lease**

In March 2021, the Company entered into a lease agreement (the “Original Lease”) for 4,070 square feet of office and laboratory space located in Austin, Texas (“the Original Suite”). The commencement of the lease occurred on June 1, 2021 and the initial term of the lease was 63 months. The actual base rent in the first year of the lease was $56,471 and was net of $18,824 in abated rent over the first three months of the lease term. The annual base rent in the second year of the lease was $77,330 and increased by $2,035 in each succeeding year of the lease. In addition, the Company was required to pay its proportionate share of operating costs for the building under this triple net lease.

In April 2024, the Company entered into a first amendment and relocation agreement (the “Amended Lease”) with its landlord. Under the Amended Lease, the Company relocated to another, larger suite in the same office building. The Amended Lease is for 5,775 square feet of office and laboratory space (the “New Suite”) and, upon occupancy, replaced the 4,070 square feet of office and laboratory space previously leased by the Company. The term of the Amended Lease expires sixty-two (62) months from July 1, 2024, the commencement date. The annual base rent for the first year of the Amended Lease was $118,388 and the annual base rent increases approximately 2.75% each year during the lease term. The Company is required to pay its proportionate share of operating costs for the building under this triple net lease.

In accordance with ASC 842, the Company accounted for the modification of the lease contract as a separate lease contract. The lease for the Original Suite terminated on June 30, 2024 and the Company recorded a gain on the termination of the lease for the Original Suite of $15,319 in general and administrative expenses. The Company recognized a right of use asset and a corresponding liability for the Amended Lease on the commencement date. For purposes of calculating the right of use asset and lease liability, the Company estimated its incremental borrowing rate at 8.5% per annum.

Future minimum payments under the Amended Lease are as follows:

At September 30, 2025, the remaining lease term was 47 months.

For the three months ended September 30, 2025 and 2024, operating cash flows for lease payments totaled $30,405 and $29,597, respectively, and for the nine months ended September 30, 2025 and 2024, operating cash outflows for lease payments totaled $89,599 and $69,449, respectively. For the three months ended September 30, 2025 and 2024, operating lease cost, recognized on a straight-line basis, totaled $30,856 and $30,856, respectively, and for the nine months ended September 30, 2025 and 2024, operating lease cost, recognized on a straight-line basis, totaled $92,568 and $69,610, respectively.

Note 5 –** Commitments and Contingencies**

License Agreements

In 2015, the Company entered into a licensing agreement which expires in February 2033. Per the agreement, the Company has an exclusive royalty-free license, included in intangible assets, associated with semiconductor power switches which enhances its intellectual property portfolio. The Company pays $100,000 annually under this agreement.

In 2023, the Company amended a 2021 license agreement which expires in February 2034. Per the agreement, the Company has an exclusive royalty-free license, included in intangible assets, associated with semiconductor drive circuitry which enhances its intellectual property portfolio. The Company pays $50,000 annually under this agreement.

At September 30, 2025, the estimated present value of future payments under the licensing agreements was $1,079,247 with $150,000 due and payable in the next twelve months. The Company is accruing interest for future payments related to these agreements.

Legal Proceedings

The Company may be subject to litigation from time to time in the ordinary course of business. The Company is not currently party to any legal proceedings.

Indemnification Obligations

The employment agreements of Company executives include an indemnification provision whereby the Company shall indemnify and defend, at the Company’s expense, its executives so long as an executive’s actions were taken in good faith and in furtherance of the Company’s business and within the scope of the executive’s duties and authority.

Note 6 —** Equity Incentive Plan**

In May 2013, the Company adopted the 2013 Equity Incentive Plan (as amended and restated, the “Plan”) and reserved shares of common stock for issuance under the Plan, which was last amended in June 2023. The Plan is administered by the Compensation Committee of the Company’s Board of Directors. At September 30, 2025,320,724 shares of common stock were available for issuance under the Plan.

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

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

During the nine months ended September 30, 2025, the Company granted 38,660 RSUs to Board members,80,000 PSUs and 40,000 RSUs to executives and 52,761 RSUs to employees under the Plan. The estimated fair value of these equity grants was $1,042,282, of which $380,023 was recognized in stock-based compensation expense totaling $997,840 for the nine months ended September 30, 2025.

At September 30, 2025, there was $1,574,069 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 0.9 years.

Note 7 —** Warrants**

At September 30, 2025, the Company hadno warrants outstanding. At December 31, 2024, the Company had 342,240 warrants outstanding with a weighted average exercise price of $8.90 per share. At September 30, 2025 and December 31, 2024, the Company had 653,827 and 763,827 pre-funded warrants outstanding, respectively, with an exercise price of $0.001 per share. During the nine months ended September 30, 2025, a warrant holder exercised 110,000 prefunded warrants for exercise proceeds of $110.

At September 30, 2025, all warrants were exercisable, although the warrants held by certain of the Company’s warrant holders may be exercised only to the extent that the total number of shares of common stock then beneficially owned by such warrant holder does not exceed 4.99% (or, at the investor’s election,9.99%) of the outstanding shares of the Company’s common stock.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND OTHER INFORMATION CONTAINED IN THIS REPORT

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the provisions of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These statements include, but are not limited to, statements regarding our future financial performance, liquidity, business condition and results of operations, expectations regarding future expenses and gross margins, future business plans, and expectations regarding design wins and other business developments. 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:

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, except as required by applicable law. You should not place undue reliance on these forward-looking statements.

Unless otherwise stated or the context otherwise requires, the terms “Ideal Power,” “we,” “us,” “our” and the “Company” refer to Ideal Power Inc.