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 June 30, 2022

☐ 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: 001-37960

POLAR POWER, INC.

(Exact name of registrant as specified in its charter)

Delaware		33-0479020
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

249 E. Gardena Blvd., Gardena, California		90248
(Address of principal executive offices)		(Zip Code)

(310) 830-9153

(Registrant’s telephone number, including area code)

Not Applicable

(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 registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ 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 (§232.05 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

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

	Large Accelerated Filer ☐		Accelerated Filer ☐
	Non-Accelerated Filer ☒		Smaller Reporting Company ☒
			Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if 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 registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, par value $0.0001 per share		POLA		The NASDAQ Stock Market, LLC

The number of shares outstanding of the Registrant’s common stock, $0.0001 par value, as of August 15, 2022 was 12,788,203.

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION	1

ITEM 1. Condensed Financial Statements	1

ITEM 2. Management’s Discussion And Analysis Of Financial Condition And Results Of Operations	15

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk	23

ITEM 4. Controls and Procedures	23

PART II – OTHER INFORMATION	24

ITEM 1. Legal Proceedings	24

ITEM 1A. Risk Factors	24

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds	40

ITEM 3. Defaults Upon Senior Securities	40

ITEM 4. Mine Safety Disclosure	40

ITEM 5. Other Information	40

ITEM 6. Exhibits	40

FORWARD LOOKING AND CAUTIONARY STATEMENTS

All statements included or incorporated by reference in this Quarterly Report on Form 10-Q, other than statements or characterizations of historical fact, are forward-looking statements within the meaning 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. Examples of forward-looking statements include, but are not limited to, statements concerning projected net sales, costs and expenses and gross margins; our accounting estimates, assumptions and judgments; the demand for our products; the effect and consequences of the novel coronavirus, or COVID-19, pandemic on matters including U.S., local and foreign economies, wars and international conflicts including the current military actions involving the Russian Federation and Ukraine, our business operations, the ability of financing and the health and productivity of our employees; the competitive nature of and anticipated growth in our industry; production capacity and goals; our ability to consummate acquisitions and integrate their operations successfully; and our prospective needs for additional capital. These forward-looking statements are based on our current expectations, estimates, approximations and projections about our industry and business, management’s beliefs, and certain assumptions made by us, all of which are subject to change. Forward-looking statements can often be identified by words such as “anticipates,” “expects,” “intends,” “plans,” “predicts,” “believes,” “seeks,” “estimates,” “may,” “will,” “should,” “would,” “could,” “potential,” “continue,” “ongoing,” similar expressions and variations or negatives of these words. These statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, our actual results could differ materially and adversely from those expressed in any forward-looking statements as a result of various factors, some of which are listed under “Risk Factors” in Part II, Item 1A, and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I, Item 2 of this Quarterly Report on Form 10-Q. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. We undertake no obligation to revise or update publicly any forward-looking statement for any reason, except as otherwise required by law.

FINANCIAL PRESENTATION

All dollar amounts in this Quarterly Report on Form 10-Q are presented in thousands, except share and per share data and where otherwise noted.

PART I – FINANCIAL INFORMATION

ITEM 1. Condensed Financial Statements

POLAR POWER, INC.

CONDENSED BALANCE SHEETS

(in thousands, except share and per share data)


	June 30, 2022			December 31, 2021
		(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	2,656		$	5,101
Accounts receivable		3,994			4,243
Inventories		11,985			9,017
Prepaid expenses		4,386			4,006
Employee retention credit receivable		2,000			2,000
Income taxes receivable		787			787
Total current assets		25,808			25,154

Other assets:
Operating lease right-of-use assets, net		580			914
Property and equipment, net		770			1,019
Deposits		93			93

Total assets	$	27,251		$	27,180

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	135		$	328
Customer deposits		3,485			897
Accrued liabilities and other current liabilities		1,214			1,206
Current portion of operating lease liabilities		588			721
Current portion of notes payable		248			242
Total current liabilities		5,670			3,394

Notes payable, net of current portion		143			268
Operating lease liabilities, net of current portion		47			268

Total liabilities		5,860			3,930

Commitments and Contingencies		-

Stockholders’ Equity
Preferred stock, $0.0001 par value, 5,000,000 shares authorized, no shares issued and outstanding		—			—
Common stock, $0.0001 par value, 50,000,000 shares authorized, 12,805,680 shares issued and 12,788,203 shares outstanding on June 30, 2022, and December 31, 2021.		1			1
Additional paid-in capital		36,816			36,816
Accumulated deficit		(15,386	)		(13,527	)
Treasury Stock, at cost (17,477 shares)		(40	)		(40	)
Total stockholders’ equity		21,391			23,250

Total liabilities and stockholders’ equity	$	27,251		$	27,180

See Accompanying Notes to the Condensed Financial Statements

POLAR POWER, INC.

UNAUDITED CONDENSED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)


	Three Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2022			2021
Net Sales	$	4,274		$	4,847		$	7,983		$	8,137
Cost of Sales		3,213			3,880			6,017			7,228
Gross profit		1,061			967			1,966			909

Operating Expenses
Sales and marketing		400			379			805			747
Research and development		350			463			826			952
General and administrative		1,036			990			2,167			1,973
Total operating expenses		1,786			1,832			3,798			3,672

Loss from operations		(725	)		(865	)		(1,832	)		(2,763	)

Other income (expenses)
Interest expense and finance costs		(14	)		(15	)		(27	)		(31	)
Other income (expense), net		—			14			—			25
Total other income (expenses), net		(14	)		(1	)		(27	)		(6	)

Net loss	$	(739	)	$	(866	)	$	(1,859	)	$	(2,769	)

Net loss per share – basic and diluted	$	(0.06	)	$	(0.07	)	$	(0.15	)	$	(0.22	)
Weighted average shares outstanding, basic and diluted		12,788,203			12,788,203			12,788,203			12,651,672

See Accompanying Notes to the Condensed Financial Statements

POLAR POWER, INC.

UNAUDITED CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share data)

Three months Ended June 30, 2022

		Number		Amount		capital		Deficit)			Stock			Equity
	Common Stock				Additional paid-in		(Accumulated			Treasury			Total Stockholders’
	Number		Amount		capital		Deficit)			Stock			Equity
Balance, March 31, 2022 (unaudited)		12,805,680	$	1	$	36,816	$	(14,647	)	$	(40	)	$	22,130
Net loss		—		—		—		(739	)		—			(739	)
Balance, June 30, 2022 (unaudited)		12,805,680	$	1	$	36,816	$	(15,386	)		(40	)	$	21,391

Six months ended June 30, 2022

	Common Stock				Additional paid-in		(Accumulated			Treasury			Total Stockholders’
	Number		Amount		capital		Deficit)			Stock			Equity
Balance, December 31, 2021		12,805,680	$	1	$	36,816	$	(13,527	)	$	(40	)	$	23,250
Net loss		—		—		—		(1,859	)		—			(1,859	)
Balance, June 30, 2022 (unaudited)		12,805,680	$	1	$	36,816	$	(15,386	)	$	(40	)	$	21,391

Three months Ended June 30, 2021

	Common Stock				Additional paid-in		(Accumulated			Treasury			Total Stockholders’
	Number		Amount		capital		Deficit)			Stock			Equity
Balance, March 31, 2021 (unaudited)		12,805,680	$	1	$	36,816	$	(14,016	)	$	(40	)	$	22,761
Net loss		—		—		—		(866	)		—			(866	)
Balance, June 30, 2021 (unaudited)		12,805,680	$	1	$	36,816	$	(14,882	)		(40	)	$	21,895

Six months ended June 30, 2021

	Common Stock				Additional paid-in		(Accumulated			Treasury			Total Stockholders’
	Number		Amount		capital		Deficit)			Stock			Equity
Balance, December 31, 2020		11,768,158	$	1	$	23,643	$	(12,113	)	$	(40	)	$	11,491
Issuance of common stock for cash, net of offering costs		750,000		—		12,466		—			—			12,466
Common stock issued upon exercise of warrants		287,522		—		707		—			—			707
Net loss		—		—		—		(2,769	)		—			(2,769	)
Balance, June 30, 2021 (unaudited)		12,805,680	$	1	$	36,816	$	(14,882	)	$	(40	)	$	21,895

See Accompanying Notes to the Condensed Financial Statements

POLAR POWER, INC.

UNAUDITED CONDENSED STATEMENTS OF CASH FLOW

(in thousands)


	Six Months Ended June 30,
	2022			2021
Cash flows from operating activities:
Net loss	$	(1,859	)	$	(2,769	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		264			287
Changes in operating assets and liabilities
Accounts receivable		249			(3,690	)
Inventories		(2,968	)		877
Prepaid expenses		(380	)		(2,880	)
Income tax receivable		—			1,570
Decrease in operating lease right-of-use asset		334			321
Accounts payable		(193	)		61
Customer deposits		2,588			265
Accrued expenses and other current liabilities		8			157
Decrease in operating lease liability		(354	)		(330	)
Net cash used in operating activities		(2,311	)		(6,131	)

Cash flows from investing activities:
Acquisition of property and equipment		(15	)		—
Net cash used in investing activities		(15	)		—

Cash flows from financing activities:
Proceeds from sale of common stock, net of offering cost		—			12,466
Proceeds from exercise of warrants		—			707
Repayment of notes payable		(119	)		(150	)
Net cash provided by (used in) financing activities		(119	)		13,023

Increase (decrease) in cash and cash equivalents		(2,445	)		6,892
Cash and cash equivalents, beginning of period		5,101			1,646
Cash and cash equivalents, end of period	$	2,656		$	8,538

See Accompanying Notes to the Condensed Financial Statements

POLAR POWER, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021

(In thousands, except for share and per share data and where otherwise noted)

(UNAUDITED)

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company

Polar Power, Inc. was incorporated in the State of Washington as Polar Products, Inc. and in 1991 reincorporated in the State of California under the name Polar Power, Inc. In December 2016, Polar Power, Inc. reincorporated in the State of Delaware (the “Company”). The Company designs, manufactures and sells direct current, or DC, power systems to supply reliable and low-cost energy to off-grid, bad-grid and backup power, electric vehicle (EV) charging, and nano-grid applications. The Company’s products integrate DC generator, proprietary electronic control systems, lithium batteries and solar photovoltaic (PV) technologies to provide low operating cost and emissions for telecommunications, defense, automotive, nano-grid, EV charging and industrial markets.

Liquidity

The accompanying financial statements have been prepared under the assumption that the Company will continue as a going concern. Such assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business. For the six months ended June 30, 2022, the Company recorded a net loss of $1,859 and used cash in operations of $2,311. As of June 30, 2022, we had a cash balance of $2,656, with borrowing capacity of $2,806, stockholders’ equity of $21,391 and a working capital of $20,138. Notwithstanding the net loss for the six-month period ended June 30, 2022, management projects adequate cash flow from operations and available line of credit through June 30, 2023, sufficient to ensure continuation of the Company as a going concern for at least one year from the date the Company’s June 30, 2022 financial statements are issued.

Historically, we have financed our operations through public and private sales of common stock, credit lines from financial institutions, and cash generated from operations to provide the Company the liquidity and capital resources to fund its operating expenses and capital expenditure requirements. The Company expects to continue investing in product development and sales and marketing activities and has taken action to improve our margins, and are continuing to build a strong back log. The long-term continuation of the Company’s business plan is dependent upon the generation of sufficient revenues from its products to offset expenses. In the event that the Company does not generate sufficient cash flows from operations and is unable to obtain funding, the Company will be forced to delay, reduce, or eliminate some or all of its discretionary spending, which could adversely affect the Company’s business prospects, ability to meet long-term liquidity needs or ability to continue operations.

Impact of COVID-19

The Company continues to monitor the evolving COVID-19 pandemic and related guidance from international and domestic authorities, including federal, state and local public health authorities and it may need to make changes to its business based on their recommendations. COVID-19 has had, and is likely to continue to have, a material and substantial adverse impact on the Company’s results of operations including, among others, a decrease in the Company’s sales and delays in sourcing of raw materials from suppliers. The Company’s business is directly dependent upon, and correlates closely with, the marketing levels and ongoing business activities of its existing customers and suppliers. In the event of a continued widespread economic downturn caused by COVID-19, the Company could experience a further reduction in current projects, longer sales and collection cycles, deferral or delay of purchase commitments for its DC power systems, a reduction in its manufacturing functionality, higher than normal inventory levels, a reduction in the availability of qualified labor, and increased price competition, all of which could substantially adversely affect its net revenues and its ability to remain a going concern.

The extent of the impact of COVID-19 on its operational and financial performance will depend on certain developments, including the duration and potential resurgence of the outbreak, the impact on its customers and sales cycles, the impact on its customer, employee or industry events, the impact on inflation and the effect on the supply chain, all of which are uncertain and cannot be predicted. At this point, the Company is uncertain of the full magnitude that the COVID-19 pandemic may have on our financial condition, liquidity and future results of operations.

Basis of Presentation of Unaudited Financial Information

The unaudited condensed financial statements of the Company for the three and six months ended June 30, 2022 and 2021 have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Regulation S-K for scaled disclosures for smaller reporting companies. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. However, such information reflects all adjustments (consisting solely of normal recurring adjustments), which are, in the opinion of management, necessary for the fair presentation of the Company’s financial position and results of operations. Results shown for interim periods are not necessarily indicative of the results to be obtained for a full fiscal year. The balance sheet information as of December 31, 2021 was derived from the audited financial statements included in the Company’s financial statements as of and for the years ended December 31, 2021 and 2020 contained in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission, or the SEC, on March 31, 2022. These financial statements should be read in conjunction with that report.

Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Material estimates relate to the assumptions made in determining reserves for uncollectible receivables, inventory reserves and returns, impairment analysis of long-term assets, valuation allowance on deferred tax assets, income tax accruals, accruals for potential liabilities and warranty reserves and assumptions made in valuing equity instruments issued for services. Actual results may differ from those estimates.

Revenue Recognition

The Company recognizes revenue in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (“ASC 606”).

Substantially all of the Company’s revenue is derived from product sales. The Company also generates revenues from engineering, tech support, and rental services. Product or service revenue is recognized when performance obligations under the terms of a contract are satisfied, which occurs for the Company upon shipment or delivery of products or services to its customers based on written sales terms, which is also when control is transferred. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring the products or services to a customer. The Company regularly reviews its customers’ financial positions to ensure that collectability is reasonably assured.

The Company also recognizes revenues from the rental of equipment. The Company’s rental revenues have not been significant to date and have accounted for less than one percent of total revenues for the three and six-month periods ended June 30, 2022 and 2021.

Disaggregation of Net Sales

The following table shows the Company’s disaggregated net sales by product type:

SCHEDULE OF DISAGGREGATED NET SALES


	Three months ended June 30,
	2022 (Unaudited)		2021 (Unaudited)
DC power systems	$	4,199	$	4,635
Engineering & Tech Support Services		32		142
Accessories		43		70
Total net sales	$	4,274	$	4,847


	Six months ended June 30,
	2022 (Unaudited)		2021 (Unaudited)
DC power systems	$	7,816	$	7,860
Engineering & Tech Support Services		76		170
Accessories		91		107
Total net sales	$	7,983	$	8,137

The following table shows the Company’s disaggregated net sales by customer type:


	Three months ended June 30,
	2022 (Unaudited)		2021 (Unaudited)
Telecom	$	4,228	$	4,440
Government/Military		12		134
Marine		3		14
Other (backup DC power to various industries)		31		259
Total net sales	$	4,274	$	4,847


	Six months ended June 30,
	2022 (Unaudited)		2021 (Unaudited)
Telecommunications	$	7,898	$	7,492
Government/Military		29		165
Marine		17		14
Other (backup DC power to various industries)		39		466
Total net sales	$	7,983	$	8,137

Inventories

Inventories are stated at the lower of cost or net realizable value, with cost determined on a first-in, first-out (“FIFO”) basis. As of June 30, 2022 and December 31, 2021, inventory has been reduced by cumulative write-downs totaling $3,300 and $3,500, respectively. As of June 30, 2022 and December 31, 2021, inventories consisted of the following:

SCHEDULE OF INVENTORIES NET

		June 30, 2022 (unaudited)		December 31, 2021

Raw materials	$	8,863	$	6,607
Finished goods		3,122		2,410
Total Inventories	$	11,985	$	9,017

Product Warranties

The Company provides limited warranties for parts and labor at no cost to its customers within a specified time period after the sale. As of June 30, 2022 and December 31, 2021, the Company had accrued a liability for warranty reserve of $600 and $600, respectively, which are included in other accrued liabilities in the accompanying condensed balance sheets. The following is a tabular reconciliation of the product warranty liability, excluding the deferred revenue related to the Company’s warranty coverage:

Changes in estimates for warranties		June 30, 2022 (unaudited)			December 31, 2021
Balance at beginning of the period	$	600		$	600
Payments		(290	)		(658	)
Provision for warranties		290			658
Balance at end of the period	$	600		$	600

Stock-Based Compensation

The Company periodically issues stock-based compensation to officers, directors, and consultants for services rendered. Such issuances vest and expire according to terms established at the issuance date.

Stock-based payments to employees, directors, and for acquiring goods and services from nonemployees, which include grants of employee stock options, are recognized in the financial statements based on their grant date fair values in accordance with ASC 718, Compensation-Stock Compensation. Stock option grants to employees, which are generally time vested, are measured at the grant date fair value and depending on the conditions associated with the vesting of the award, compensation cost is recognized on a straight-line or graded basis over the vesting period. Recognition of compensation expense for non-employees is in the same period and manner as if the Company had paid cash for the services. The fair value of stock options granted is estimated using the Black-Scholes option-pricing model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life, and future dividends. The assumptions used in the Black-Scholes option pricing model could materially affect compensation expense recorded in future periods.

Financial Assets and Liabilities Measured at Fair Value

The Company uses various inputs in determining the fair value of its investments and measures these assets on a recurring basis. Financial assets recorded at fair value in the balance sheets are categorized by the level of objectivity associated with the inputs used to measure their fair value.

Authoritative guidance provided by the Financial Accounting Standards Board (“FASB”) defines the following levels directly related to the amount of subjectivity associated with the inputs to fair valuation of these financial assets:

	Level 1	Quoted prices in active markets for identical assets or liabilities.

	Level 2	Inputs, other than the quoted prices in active markets, that is observable either directly or indirectly.

	Level 3	Unobservable inputs based on the Company’s assumptions.

The carrying amounts of financial assets and liabilities, such as cash and cash equivalents, accounts receivable and accounts payable, approximate their fair values because of the short maturity of these instruments. The carrying values of the line of credit, notes payable approximate their fair values due to the fact that the interest rates on these obligations are based on prevailing market interest rates.

Segments

The Company operates in one segment for the manufacture and distribution of its products. In accordance with the “Segment Reporting” Topic of the ASC, the Company’s chief operating decision maker has been identified as the Chief Executive Officer and President, who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company. Existing guidance, which is based on a management approach to segment reporting, establishes requirements to report selected segment information quarterly and to report annually entity-wide disclosures about products and services, major customers, and the countries in which the entity holds material assets and reports revenue. All material operating units qualify for aggregation under “Segment Reporting” due to their similar customer base and similarities in: economic characteristics; nature of products and services; and procurement, manufacturing and distribution processes. Since the Company operates in one segment, all financial information required by “Segment Reporting” can be found in the accompanying financial statements.

Concentrations

Cash. The Company maintains cash balances at four banks, with the majority held at one bank located in the U.S. At times, the amount on deposit exceeds the federally insured limits. Management believes that the financial institutions that hold the Company’s cash are financially sound and, accordingly, minimal credit risk exists.

Cash denominated in Australian Dollars with a U.S. Dollar equivalent of $13 and $9 at June 30, 2022 and December 31, 2021, respectively, was held in an account at a financial institution located in Australia. Cash denominated in Romanian Leu with a U.S. Dollar equivalent of $18 and $23 at June 30, 2022 and December 31, 2021, respectively, was held in an account at a financial institution located in Romania.

Revenues. For the three months ended June 30, 2022, 88% of revenues were generated from the Company’s largest customer, a Tier-1 telecommunications wireless carrier in the U.S. For the three months ended June 30, 2021, 77% of revenues were generated from the Company’s largest customer, a Tier-1 telecommunications wireless carrier in the U.S. There was no other revenue from customers in excess of 10% of revenues in either period. For the three months ended June 30, 2022 and June 30, 2021, sales to telecommunications customers accounted for 99% and 92% of total revenues, respectively. For the three months ended June 30, 2022 and June 30, 2021, sales to international customers accounted for 2% and 2%, of total revenue, respectively.

For the six months ended June 30, 2022, sales to the Company’s largest customer, a Tier-1 telecommunications wireless carrier in the U.S., accounted for 89% of total revenues. For the same period in 2021, sales to the Company’s largest customer, a Tier-1 telecommunications wireless carriers in the U.S., accounted for 70%. There was no other revenue from customers in excess of 10% of revenues in either period. For the six months ended June 30, 2022 and June 30, 2021, sales to telecommunications customers accounted for 99% and 92% of total revenues, respectively. For the six months ended June 30, 2022 and June 30, 2021, sales to international customers accounted for 1% and 12%, of total revenue, respectively.

Accounts receivable. At June 30, 2022, 94% of the Company’s accounts receivable were from the Company’s largest customer. At December 31, 2021, the Company’s two largest receivable accounts represented 74% and 15% of the Company’s total accounts receivable. There was no other customer that accounted for more than 10% of the Company’s accounts receivable as of June 30, 2022 or December 31, 2021.

Accounts payable. At June 30, 2022, accounts payable to the Company’s three largest vendors represented 16%, 8% and 8%, of the Company’s accounts payable. On December 31, 2021, the three largest accounts payable accounts to the Company’s vendors represented 16%, 9%, and 9%.

Net Loss Per Share

Basic net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding for the period. Diluted earnings per share is computed by dividing the net income applicable to common stockholders by the weighted average number of common shares outstanding plus the number of additional common shares that would have been outstanding if all dilutive potential common shares had been issued using the treasury stock method. Potential common shares are excluded from the computation when their effect is antidilutive. The dilutive effect of potentially dilutive securities is reflected in diluted net income per share if the exercise prices were lower than the average fair market value of common shares during the reporting period.

The following potentially dilutive shares were excluded from the shares used to calculate diluted earnings per share as their inclusion would be anti-dilutive:

SCHEDULE OF DILUTED EARNINGS PER SHARE

	June 30, 2022 (Unaudited)	June 30, 2021 (Unaudited)
Options	140,000	140,000
Warrants	24,122	24,122
Total	164,122	164,122

Recent Accounting Pronouncements

In September 2016, the FASB issued ASU No. 2016-13, Credit Losses - Measurement of Credit Losses on Financial Instruments (“ASC 326”). The standard significantly changes how entities will measure credit losses for most financial assets, including accounts and notes receivables. The standard will replace today’s “incurred loss” approach with an “expected loss” model, under which companies will recognize allowances based on expected rather than incurred losses. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. ASU 2016-13 is effective for the Company beginning January 1, 2023, and early adoption is permitted. The adoption of ASU 2016-13 is not expected to have a material impact on the Company’s financial position, results of operations, and cash flows.

In August 2020, the FASB issued ASU No. 2020-06 (“ASU 2020-06”) “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40).” ASU 2020-06 reduces the number of accounting models for convertible debt instruments by eliminating the cash conversion and beneficial conversion models. As a result, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost as long as no other features require bifurcation and recognition as derivatives. By removing those separation models, the effective interest rate of convertible debt instruments will be closer to the coupon interest rate. Further, the diluted net income per share calculation for convertible instruments will require the Company to use the if-converted method. For contracts in an entity’s own equity, the type of contracts primarily affected by this update are freestanding and embedded features that are accounted for as derivatives under the current guidance due to a failure to meet the settlement conditions of the derivative scope exception. This update simplifies the related settlement assessment by removing the requirements to (i) consider whether the contract would be settled in registered shares, (ii) consider whether collateral is required to be posted, and (iii) assess shareholder rights. ASU 2020-06 is effective January 1, 2024, for the Company and the provisions of this update can be adopted using either the modified retrospective method or a fully retrospective method. Early adoption is permitted, but no earlier than January 1, 2021, including interim periods within that year. Effective January 1, 2021, the Company early adopted ASU 2020-06 and that adoption did not have an impact on its financial statements and the related disclosures.

In May 2021, the FASB issued ASU 2021-04 “Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation— Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815- 40) Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options” (“ASU 2021-04”). ASU 2021-04 provides guidance as to how an issuer should account for a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option (i.e., a warrant) that remains classified after modification or exchange as an exchange of the original instrument for a new instrument. An issuer should measure the effect of a modification or exchange as the difference between the fair value of the modified or exchanged warrant and the fair value of that warrant immediately before modification or exchange and then apply a recognition model that comprises four categories of transactions and the corresponding accounting treatment for each category (equity issuance, debt origination, debt modification, and modifications unrelated to equity issuance and debt origination or modification). ASU 2021-04 is effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the guidance provided in ASU 2021-04 prospectively to modifications or exchanges occurring on or after the effective date. The Company adopted ASU 2021-04 effective January 1, 2022. The adoption of ASU 2021-04 did not have any impact on the Company’s financial statement presentation or disclosures.

The Company’s management does not believe that there are other recently issued but not yet effective authoritative guidance, if currently adopted, would have a material impact on the Company’s financial statement presentation or disclosures.

NOTE 2 – PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

SCHEDULE OF PROPERTY AND EQUIPMENT

		June 30, 2022 (Unaudited)			December 31, 2021
Production tooling, jigs, fixtures	$	71		$	71
Shop equipment and machinery		3,364			3,350
Vehicles		181			180
Leasehold improvements		390			390
Office equipment		181			181
Software		106			106
Total property and equipment, cost		4,293			4,278
Less: accumulated depreciation and amortization		(3,523	)		(3,259	)
Property and equipment, net	$	770		$	1,019

Depreciation and amortization expense on property and equipment for the three months ended June 30, 2022 and 2021 was $129 and $157, respectively. During the three months ended June 30, 2022 and 2021, $125 and $129, respectively, of the depreciation expense was included in the balance of cost of sales.

Depreciation and amortization expense on property and equipment for the six months ended June 30, 2022 and 2021 was $264 and $287, respectively. During the six months ended June 30, 2022 and 2021, $255 and $273, respectively, of the depreciation expense was included in the balance of cost of sales.

NOTE 3 – NOTES PAYABLE

Notes payable consist of the following:

SCHEDULE OF NOTES PAYABLE

		June 30, 2022		December 31,
	(Unaudited)		2021
Total Notes Payable for purchase of Equipment	$	391	$	510
Less Current Portion		248		242
Notes Payable, long term	$	143	$	268

The Company has entered into several financing agreements for the purchase of equipment in prior years. The terms of these financing arrangements are from 2 years to 5 years, with interest rates ranging from 1.9% to 6.9% per annum, secured by the purchased equipment. The aggregate monthly payments of principal and interest of the outstanding notes payable as of June 30, 2022 is approximately $22 and are due through 2024.

NOTE 4 – LINE OF CREDIT

Credit Facility

Effective September 30, 2020, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with Pinnacle Bank (“Pinnacle”). During 2022, the Company did not draw any advances from the revolving credit facility. At June 30, 2022, there was no balance outstanding under the line of credit and the Company had availability under the line of credit in the amount of $2,806.

The loan agreement provides for a revolving credit facility under which Pinnacle may make advances to the Company, subject to certain limitations and adjustments, of up to (a) 85% of the aggregate net face amount of the Company’s accounts receivable and other contract rights and receivables, plus (b) the lesser of (i) 35% of the lower of cost or wholesale market value of certain inventory of the Company or (ii) $2,500. In no event shall the aggregate amount of the outstanding advances under the revolving credit facility be greater than $4,000. Interest accrues on the daily balance at a rate of 1.25% above the prime rate, but in no event less than 3.75% per annum. Interest on the portion of the daily balance consisting of advances against inventory accrues interest at a rate of 2.25% above the prime rate, but in no event less than 4.75% per annum.

The loan agreement’s initial term ends on September 30, 2022 and is renewable thereafter for additional one-year term. In addition, Pinnacle may terminate the Loan Agreement at any time upon sixty days prior written notice and immediately upon the occurrence of an event of default. Under the loan agreement, the Company granted Pinnacle a security interest in all presently existing and thereafter acquired or arising assets of the Company. The Loan Agreement also contains a financial covenant requiring the Company to attain an effective tangible net worth, as defined, which the Company attained as of June 30, 2022.

The loan agreement obligates the Company to pay Pinnacle a yearly facility fee in an amount equal to 1.125% of the sum of the advance limit.

NOTE 5 – STOCK OPTIONS

The following table summarizes stock options:

SCHEDULE OF STOCK OPTION ACTIVITY

	Number of		Weighted Average
	Options		Exercise Price
Outstanding, December 31, 2021		140,000	$	5.22
Granted		—		—
Exercised/Forfeited/Expired		—		—
Outstanding, June 30, 2022 (unaudited)		140,000	$	5.22
Exercisable, June 30, 2022 (unaudited)		140,000	$	5.22

Effective July 8, 2016 the Company’s board of directors approved the Polar Power 2016 Omnibus Incentive Plan (the “2016 Plan”), authorizing the issuance of up to 1,754,385 shares of common stock as incentives to employees and consultants to the Company with awards limited to a maximum of 350,877 shares to any one participant in any calendar year.

At June 30, 2022 and December 31, 2021, the Company had total outstanding options exercisable into 140,000 shares of the Company’s common stock. These options are fully vested, with exercise prices ranging from $4.84 to $5.60. Options exercisable into 30,000 shares expire in December 2027 and the remaining options exercisable into 110,000 shares expire in April 2028.

The outstanding options had no intrinsic value at June 30, 2022.

NOTE 6 – STOCK WARRANTS

The following table summarizes warrants:

SCHEDULE OF WARRANTS OUTSTANDING

	Number of Warrants		Weighted Average Exercise Price
Outstanding December 31, 2021		24,122	$	3.13
Issued		—		—
Exercised/Forfeited/Expired		—		—
Outstanding, June 30, 2022 (unaudited)		24,122	$	3.13
Exercisable, June 30, 2022 (unaudited)		24,122	$	3.13

At June 30, 2022 and December 31, 2021, the Company had outstanding warrants exercisable into 24,122 shares of the Company’s common stock. The warrants were issued in connection with a July 2020 private placement of shares of the Company’s common stock. The warrants have an exercise price of $3.13 per share and expire in July 2025.

The outstanding and exercisable warrants had no intrinsic value at June 30, 2022.

NOTE 7 – DISTRIBUTION AGREEMENT WITH A RELATED ENTITY

On March 1, 2014, the Company entered into a subcontractor installer agreement with Smartgen Solutions, Inc. (“Smartgen”), a related entity. During the three months ended June 30, 2022 and 2021, Smartgen performed nil and $22 in field services, respectively. Smartgen performed nil and $51 in field services for the six months ended June 30, 2022 and 2021, respectively. The agreement with Smartgen will be terminated effective January 31, 2022.

NOTE 8 – OPERATING LEASES

The Company has two operating lease agreements for its warehouse and office spaces both with a weighted average remaining lease terms at June 30, 2022 of approximately one year.

The components of rent expense and supplemental cash flow information related to leases for the period are as follows:

	Six Months Ended June 30, 2022			Six Months Ended June 30, 2021
Lease Cost
Operating lease cost (of which $49 is included in general and administration and $301 is included in cost of sales in the Company’s statement of operations for the six months ended June 30, 2022, and for the same period in 2021, respectively)	$	350		$	350

Other Information
Weighted average remaining lease term – operating leases (in years)		0.9			1.9
Average discount rate – operating leases		3.75	%		3.75	%

The supplemental balance sheet information related to leases for the period is as follows:

		At June 30, 2022		At June 30, 2021
Operating leases
Long-term right-of-use assets, net of accumulated amortization of $2,237 and $1,586, respectively	$	580	$	1,242

Short-term operating lease liabilities	$	588	$	695
Long-term operating lease liabilities		47		635
Total operating lease liabilities	$	635	$	1,330

Maturities of the Company’s lease liabilities are as follows (in thousands):

Year Ending	Operating Leases
2022 (remaining 6 months)		376
2023		280
Total lease payments		656
Less: Imputed interest/present value discount		(21	)
Present value of lease liabilities	$	635

Rent expense for the six months ended June 30, 2022 and 2021 was $476 and $452, respectively.

NOTE 9 - EMPLOYEE RETENTION CREDITS

The Consolidated Appropriations Act, passed in December 2020, expanded the employee retention credit (“ERC”) program through December 2021. The credits cover 70% of qualified wages, plus the cost to continue providing health benefits to our employees, subject to a $7 cap per employee per quarter. During the year ended December 31, 2021, the Company qualified for approximately $2,000 of ERC. As of June 30, 2022 and December 31, 2021, the balance of $2,000 is presented as employee retention credit receivable in the accompanying condensed balance sheets.

ITEM 2. Management’s Discussion And Analysis Of Financial Condition And Results Of Operations

You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” and elsewhere in this report. Our historical results are not necessarily indicative of the results to be expected for any future period, and results for any interim period are not necessarily indicative of the results to be expected for the full year.

References to the “Company,” “Polar,” “our,” “us” or “we” refer to Polar Power, Inc. All dollar amounts are presented in thousands, except share and per-share data and where otherwise noted.

Overview

We design, manufacture, and sell DC power generators, renewable energy and cooling systems for applications primarily in the telecommunications market and, to a lesser extent, in other markets, including military, electric vehicle, marine and industrial. We are continuously diversifying our customer base and are selling our products into non-telecommunication markets and applications at an increasing rate.

Within the various markets we service, our DC power systems provide reliable and low-cost DC power to service applications that do not have access to the utility grid (i.e., prime power and mobile applications) or have critical power needs and cannot be without power in the event of utility grid failure (i.e., back-up power applications).

We believe it’s more efficient to build power systems around the DC generator because it’s simpler to integrate with battery storage and solar photovoltaics which also operate on DC. Many applications in communications, water pumping, lighting, vehicle and vessel propulsion, security systems operate on DC power only. Many micro-grids and energy storage are DC based and use inverters to convert the DC to AC.

Serving these various markets, we offer the following configurations of our DC power systems, with output power ranging from 5 kW to 50 kW:

	●	Base power systems. These stationary systems integrate a DC generator and automated controls with remote monitoring, which are typically contained within an environmentally regulated enclosure.

	●	Hybrid power systems. These systems incorporate lithium-ion batteries (or other advanced battery chemistries) with our proprietary battery management system into our standard DC power systems.

	●	DC solar hybrid power systems. These stationary systems incorporate photovoltaic and other sources of renewable energy into our DC hybrid power systems.

	●	*Mobile power systems.* These are very light weight and compact power systems used for EV charging, robotics, communications, security.

Our DC power systems are available in diesel, natural gas, LPG / propane and renewable fuel formats, with diesel, natural gas and propane gas being the predominant formats.

During the three months ended June 30, 2022 and 2021, 99% and 92%, respectively, of our total net sales were within the telecommunications market. For the three months ended June 30, 2022, 88% of our total net sales were derived from our largest telecommunications customer. For the same period in 2021, 77% of our total net sales were derived from our largest telecommunications customer. There was no other revenue from customers in excess of 10% of total net sales in either period.

During the six months ended June 30, 2022 and 2021, 99% and 92%, respectively, of our total net sales were within the telecommunications market. For the six months ended June 30, 2022, 89% of our total net sales were derived from our largest telecommunications customer. For the same period in 2021, 70% of our total net sales were derived from our largest telecommunications customer. There was no other revenue from customers in excess of 10% of total net sales in either period.

Overseas sales to telecommunications customers are showing growth after long marketing investments. During the three months ended June 30, 2022, we received purchase orders from a telecommunications customer in the South Pacific Islands in the amount of $6,279 for our DC power generators for off-grid applications to supply rural areas with broadband services. This order is part of a growing program to develop the telecommunications infrastructure in this region. We expect to begin shipments during the second half of 2022.

We continue to work on diversifying our customer base and are selling into non-telecommunication markets and applications at an increasing rate and are focused on new markets for our DC power platform. As part of this diversification effort, we have been expanding the power range of our portfolio and in March 2022, we received EPA certification on our 4Y Toyota engine project aimed at expanding the power range to 35 kW on natural gas and LPG. Our EPA certification of 1KS and 4Y Toyota engines brings to the market clean fuel (non-diesel) engines with very low maintenance and lower operating costs. In many regions throughout the world, the cost of propane and LPG is much lower than the cost of diesel fuel so there is an economic incentive to lower carbon emissions.

The Toyota 1KS and 4Y engines were designed for 24/7 operation for heating, air-conditioning, and CHP applications in Japan. During the 1970s and 1980s Japan faced a problem with their electric grid supporting the rapid increase in HVAC usage. So instead of the electric grid providing the energy for the HVAC needs, these loads were moved over to the natural gas grid. To meet this application requirement, Toyota engines had to have long life (60,000+ hours) with very low maintenance. With the global increasing need for EV charging and HVAC, we see the need to shift some of this increasing energy demand to natural gas and propane/LPG. According to the US EIA, natural gas, coal, coke, fuel oil, provides 60.8% of the energy used by electric utilities in the US. Using natural gas and propane/LPG fuels for HVAC and EV charging shifts energy usage away from coal, coke, and fuel oil; thereby reducing emissions. Generating power locally reduces energy transmission losses, further reducing emissions.

Solar combined with the Toyota 1KS and 4Y engines along with our alternators and controls will offer clean and renewable energy for applications including HVAC, refrigeration, EV charging, peak power shaving, off grid power, and backing up the grid for home and business. We are actively pursuing these applications which we believe form the foundation for micro-grids.

We also continue to market our DC generators for the military, advanced mobility and marine markets as part of our ongoing customer diversification strategy. The military’s increasing use of robotics, drones, and computerization in the field is driving the demand for battery charging with DC generators. Military sales are advantageous because of their long-term contracts and they tend to cover the cost of product development. Marine sales interest have increased significantly both domestically and overseas due to the increased performance in comfort and fuel economy. Also, there are increasing restrictions on the use of diesel and gasoline engines in many lakes and waterways making way for our natural gas and propane operated generators. Using natural gas and propane for home and office charging for electric vehicle and forklifts is still a market under development. Same is true for diesel mobile chargers for emergency roadside assistance.

The geopolitical uncertainty is driving nations and business to secure or harden their energy needs driving a more rapid pace toward energy efficiency and solar energy.

Impact of COVID-19

The COVID-19 pandemic has negatively impacted business and industries all over the world since March 2020. The pandemic continues to have a significant negative impact on our overall operations including revenues, productivity, gross margins and liquidity.

We continue to monitor the rapidly evolving COVID-19 pandemic and related guidance from international and domestic authorities, including federal, state and local public health authorities and may need to make changes to our business based on their recommendations. Covid-19 has caused significant disruptions in the supply chain including increasing cost and expenses of materials and services. Our business is directly dependent upon, and correlates closely with, the marketing levels and ongoing business activities of our existing customers and suppliers. In the event of a continued widespread economic downturn caused by COVID-19, we will likely experience a further reduction in current projects, longer sales and collection cycles, deferral or delay of purchase commitments for our DC power systems, a reduction in our manufacturing functionality, higher than normal inventory levels, a reduction in the availability of qualified labor, and increased price competition, all of which could substantially adversely affect our net revenues and our ability to remain a going concern.

The impacts of COVID-19 on our business, sources of revenues and the general economy, are currently not fully known. We will continue to actively monitor the situation and may take further actions that may alter our business operations as may be required by federal, state or local authorities or that we determine are in the best interests of our employees, customers, partners, suppliers and stockholders. It is not clear what the potential effects any such alterations or modifications may have on our business, including the effects on our customers and prospects, although we do anticipate it to negatively impact our financial results during fiscal year 2022 and perhaps beyond.

Market Trends and Uncertainties

The global economy, including the financial and credit markets, has recently experienced extreme volatility and disruptions, including increases in inflation rates, rising interest rates, severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, and uncertainty about economic stability. We anticipate these factors to continue for the remainder of fiscal 2022 potentially resulting in a negative impact on our overall operations including revenues, productivity, gross margins and liquidity.

We believe recent special military actions of the Russian Federation and its invasion of Ukraine have added considerable to our shipping costs due to diesel fuel costs. However, we believe the resulting geopolitical uncertainty should increase our military contracts.

We cannot reasonably estimate the financial impact of increased inflation or supply chain disruptions on our financial condition, results of operations or cash flows in the future.

Effects of Inflation

The impact of inflation and changing prices during the three and six months ended June 30, 2022 has not been significant on the financial condition or results of operations of our company. Rapid changes in the global economy may cause significant spikes in inflation which may have an impact in our financial condition during 2022 and beyond. Because some of our contracts are at a fixed price, we face the risk that cost overruns or inflation may exceed, erode or eliminate our expected profit margin, or cause us to record a loss on certain projects. We are taking actions to manage the potential impacts of these matters and we will continue to assess the actual and expected impacts and the need for further action.

Recent Business Events

We continue to see growth in sales of our DC power generators. During the three months ended June 30, 2022, we received new purchase orders for our DC power generators totaling $9,916, of which 34% are from telecommunications customers in the U.S. and 63% from a new telecommunications customer in the South Pacific Islands. Our total backlog on June 30, 2022 was $14,087, of which our largest U.S. telecommunications customer represents 44%.

Supply change constraints augmented by the COVID-19 pandemic and Russia’s invasion of Ukraine extended delays in receiving parts and components to complete our DC generators during the quarter ended June 30, 2022. Approximately 12% of expected shipments for the quarter had to be postponed to the second half of 2022. We experienced extended lead times and delays securing items such as diesel engines and small electronic components used in our products.

We also continue to work on diversifying our customer base and are selling into non-telecommunication markets and applications at an increasing rate. In March 2022, we received EPA certification on our 4Y Toyota engine project aimed at expanding the power range to 35 kW on natural gas and LPG. Polar’s EPA certification of 1KS and 4Y Toyota engines brings to the market (non-diesel) engines with very low maintenance and high fuel efficiency. In addition to meeting the telecommunications need for larger and more compact generators our larger models have high interest from micro-grids, peak power shaving, and EV charging.

Our solar hybrid power systems, which integrate solar energy storage with natural gas/LPG (propane) powered generators, are ideal for off-grid (i.e., areas where wireless towers are not connected to an electrical grid) and bad-grid (i.e., areas where wireless towers are connected to an electrical grid that loses power more than eight hours) applications.

Our growing backlog and shipments have demonstrated that our customers are viable and moving forward with orders. The headwind to a more rapid sales growth is a labor and supply chain issue. We anticipate that our component suppliers will normalize their backlogs sometime during the 4^th quarter in 2023. In the meantime, our strategy will be to maintain large inventories of engines and electronic components to offset disruptions.

Critical Accounting Policies and Estimates

The preparation of the Company’s financial statements in conformity with generally accepted accounting principles in the United States (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Some of those judgments can be subjective and complex, and therefore, actual results could differ materially from those estimates under different assumptions or conditions. Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable in relation to the financial statements taken as a whole under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Management regularly evaluates the key factors and assumptions used to develop the estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such evaluations, if deemed appropriate, those estimates are adjusted accordingly. Actual results could differ from those estimates. Significant estimates include those related to assumptions used in reserves for uncollectible receivables, inventory reserves and returns, impairment analysis of long-term assets, valuation allowance on deferred tax assets, income tax accruals, accruals for potential liabilities and warrant reserves and assumptions made in valuing equity instruments issued for services. There were no changes to our critical accounting policies described in the financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, that impacted our condensed financial statements and related notes included herein.

Impact of New Accounting Pronouncements

See “Note 1 – Organization and Summary of Significant Accounting Policies – Recent Accounting Pronouncements” of the Notes to our condensed financial statements.

Financial Performance Summary and Outlook

Our net sales for the three months ended June 30, 2022 were $4,274, which represents a 12% decrease in net sales as compared to $4,847 for the three months ended June 30, 2021. Our net sales for the six months ended June 30, 2022 were $7,983, which represents a 2% decrease in net sales as compared to $8,137 for the same period in 2021. Supply chain constraints affected timely delivery of raw materials required to complete our DC power systems. Approximately 12% of expected shipments for the quarter ended June 30, 2022 had to be postponed to the second half of 2022.

During the three months ended June 30, 2022, we received $9,916 in new orders for our DC power generators bringing our sales backlog to $14,087. These new orders included $3,420 from our U.S. telecommunications customers primarily to develop their 5G infrastructure and use our DC generators as primary backup power. Our international telecommunications customer in the South Pacific Islands added $6,279 to our backlog. These units will be used for off-grid applications to supply rural areas with broadband services as part of a growing program to develop the telecommunications infrastructure in this region.

We plan to continue to expand our customer base in all market segments. We also anticipate that our sales will increase as we overcome supply chain and labor issues. We will continue to take proactive steps to manage our operations and mitigate the financial impacts of higher costs and supply chain issues; however, some of the factors are not within our control, and the duration and severity of supply chain issues in unknown and unpredictable.

See “Risk Factors” commencing on page 24 of this Quarterly Report on Form 10-Q for additional considerations.

Results of Operations

The tables presented below, which compare our results of operations from one period to another, present the results for each period, the change in those results from one period to another in both dollars and percentage change, and the results for each period as a percentage of net revenues. The columns present the following:

	●	The first two data columns in each table show the absolute results for each period presented.

	●	The columns entitled “Dollar Variance” and “Percentage Variance” shows the change in results, both in dollars and percentages. These two columns show favorable changes as a positive and unfavorable changes as negative. For example, when our net revenues increase from one period to the next, that change is shown as a positive number in both columns. Conversely, when expenses increase from one period to the next, that change is shown as a negative in both columns.

	●	The last two columns in each table show the results for each period as a percentage of net revenues.

Three Months Ended June 30, 2022 Compared to the Three Months Ended June 30, 2021

	Three Months Ended June 30,						Dollar Variance			Percentage Variance			Results as a Percentage of Net Sales for the Period Ended June 30,
	2022 (unaudited)			2021 (unaudited)			Favorable (Unfavorable)			Favorable (Unfavorable)			2022			2021
Net sales	$	4,274		$	4,847		$	(573	)		(12	)%		100.0	%		100.0	%
Cost of sales		3,213			3,880			667			17	%		75.2	%		80.1	%
Gross profit		1,061			967			94			10	%		24.8	%		19.9	%
Sales and marketing expenses		400			379			(21	)		(6	)%		9.4	%		7.8	%
Research and development expenses		350			463			113			24	%		8.2	%		9.6	%
General and Administrative expenses		1,036			990			(46	)		(5	)%		24.2	%		20.4	%
Total operating expenses		1,786			1,832			46			3	%		41.8	%		37.8	%
Loss from operations		(725	)		(865	)		140			16	%		(17.0	)%		(17.9	)%
Interest and finance costs		(14	)		(15	)		1			19	%		(0.4	)%		(0.3	)%
Other income (expense), net		—			14			(14	)		(100	)%		—	%		0.3	%
Net loss	$	(739	)	$	(866	)	$	127			15	%		(17.3	)%		(17.9	)%

Net Sales. Net sales decreased $573, or 12%, to $4,274 for the three months ended June 30, 2022, as compared to $4,847 for the same period in 2021. The decrease in sales was primarily due to supply chain constraints which postponed product shipment to the second half of 2022. Sales to our largest telecommunication customer in the U.S. accounted for 88% of our total net sales during the three months ended June 30, 2022. For the same period in 2021, 77% of our total net sales were generated from our largest telecommunications customer. There was no other revenue from customers in excess of 10% of total net sales in either period.

Net sales to telecommunications customers in the U.S. accounted for 97% of our total net sales for the three months ended June 30, 2022, as compared to 90% for the same period in 2021. Our international sales represented 2% of our net sales for the three months ended June 30, 2022, as compared to 2% in international sales in the same period in 2021.

Cost of Sales. Cost of sales during the three months ended June 30, 2022 decreased by $667, or 17%, to $3,213, as compared to $3,880 during the same period in 2021. Cost of sales as a percentage of net sales during the three months ended June 30, 2022 decreased to 75.2% as compared to 80.1% in the same period in 2021. The decrease in cost of sales as a percentage of net sales was primarily a result of improved manufacturing productivity and utilization of $139 of previously written off in 2020 as obsolete inventory.

Gross Profit. We had a gross profit of $1,061 for the three months ended June 30, 2022, which is an improvement of $94, or 10%, as compared to gross profit of $967 during the same period in 2021. The increase in gross profit for the three months ended June 30, 2022 was primarily a result of improved labor efficiencies in manufacturing and utilization of $139 of previously written off obsolete inventory. Our gross profit as a percentage of net sales was 24.8% for the quarter ended June 30, 2022, as compared to a gross profit as a percentage of net sales of 19.9% in the same period in 2021.

Sales and Marketing Expenses. During the three months ended June 30, 2022, sales and marketing expenses increased by $21, or 6%, to $400, as compared to $379 during the same period in 2021. The increase was attributable to an increase in tradeshow expense due to a decrease in travel restrictions and other measures aimed to reducing the spread of COVID-19.

Research and Development Expenses. During the three months ended June 30, 2022, research and development expenses decreased by $113, or 24%, to $350, as compared to $463 during the same period in 2021. The decrease was primarily due to a decrease in R&D support staff during the three months ended June 30, 2022 as compared to the same period in 2021. Our research and development efforts during the second quarter of 2022 primarily focused on product design and customization for our international customers. We plan to recruit additional engineers during the second half of 2022 to support our customer diversification efforts.

General and Administrative Expenses. General and administrative expenses increased by $46, or 5%, to $1,036 during the three months ended June 30, 2022, as compared to $990 during same period in 2021. The increase in general and administrative expenses during the three months ended June 30, 2022 was primarily due to an increase in general and administrative staff.

Interest and Finance Costs. Interest expense for the three months ended June 30, 2022 was $14, as compared to $15 during the same period in 2021. Our interest expense for the current period is primarily from interest expense paid on equipment financing and the minimum interest expense on our line of credit.

For the three months ended June 30, 2021, we received a $14 refund from our general liability insurance carrier which was recorded as other income and included in the Total other income (expense) section in our condensed statements of operations. We did not have other income during the three months ended June 30, 2022.

Net Loss. As a result of the factors identified above, we reported net loss of $739, or $(0.06) per basic and diluted share, for the three months ended June 30, 2022, as compared to net loss of $866, or $(0.07) per basic and diluted share, for the same period in 2021.

Six Months Ended June 30, 2022 Compared to the Six Months Ended June 30, 2021

	Six Months Ended June 30,						Dollar Variance			Percentage Variance			Results as a Percentage of Net Sales for the Period Ended June 30,
	2022 (unaudited)			2021 (unaudited)			Favorable (Unfavorable)			Favorable (Unfavorable)			2022			2021
Net sales	$	7,983		$	8,137		$	(154	)		(2	)%		100.0	%		100.0	%
Cost of sales		6,017			7,228			1,211			17	%		75.4	%		88.8	%
Gross profit		1,966			909			1,057			116	%		24.6	%		11.2	%
Sales and marketing expenses		805			747			(58	)		(8	)%		10.1	%		9.2	%
Research and development expenses		826			952			126			13	%		10.3	%		11.7	%
General and Administrative expenses		2,167			1,973			(194	)		(10	)%		27.1	%		24.2	%
Total operating expenses		3,798			3,672			(126	)		(3	)%		47.6	%		45.1	%
Loss from operations		(1,832	)		(2,763	)		931			34	%		(22.9	)%		(34.0	)%
Interest and finance costs		(27	)		(31	)		4			13	%		(0.3	)%		(0.4	)%
Other income (expense), net		—			25			(25	)		(100	)%		0.0	%		0.3	%
Net loss	$	(1,859	)	$	(2,769	)	$	910			33	%		(23.3	)%		(34.0	)%

Net Sales. Net sales decreased $154, or 2%, to $7,983 for the six months ended June 30, 2022, as compared to $8,137 for the same period in 2021. The decrease in net sales was primarily due to labor shortages caused by COVID-19 and delays in receiving key components as a result of supply chain constraints.

Net Sales to our largest customer accounted for 89% of our total net sales during the six months ended June 30, 2022. Sales to our largest customer for the six months ended June 30, 2021, accounted for 70% of total net sales. There were no other customer with revenue in excess of 10% of our total net sales in either period.

For the six months ended June 30, 2022 and June 30, 2021, net sales to international customers accounted for 1% and 12%, of total revenue, respectively.

Cost of Sales. Cost of sales during the six months ended June 30, 2022 decreased by $1,211, or 17%, to $6,017, as compared to $7,228 during the same period in 2021. Cost of sales as a percentage of net sales during the six months ended June 30, 2022 improved to 75.4%, as compared to 88.8% in the same period in 2021 as a result of improvements in overhead absorption and labor efficiencies. During the six-month period ended June 30, 2022, we utilized $195 in inventories previously written-down in 2020 to zero net realizable value.

Gross Profit. Gross profit during the six months ended June 30, 2022 increased by $1,057, or 116%, to gross profit of $1,966, as compared to gross profit of $909 during the same period in 2021. Our gross profit as a percentage of net sales was 24.6% for the six months ended June 30, 2022, as compared to 11.2% in the same period in 2021. The increase in gross profit margin was attributable to an increase in factory overhead absorption resulting from improved utilization of our production facilities. Our gross profit was also positively affected by the usage of $195 in inventories previously written-down to complete products shipped during this six-month period.

Sales and Marketing Expenses. During the six months ended June 30, 2022, sales and marketing expenses increased by $58, or 8%, to $805, as compared to $747 during the same period in 2021. The increase was attributable to an increase in tradeshow expense due to a decrease in travel restrictions and other measures aimed to reducing the spread of COVID-19. We plan to expand our marketing efforts to support our diversification strategy and expand our customer base in all market segments.

Research and Development Expenses. During the six months ended June 30, 2022, research and development expenses decreased by $126, or 13%, to $826, as compared to $952 during the same period in 2021. The decrease was primarily due to a decrease in R&D support staff during the six months ended June 30, 2022, as compared to the same period in 2021. Our research and development efforts during 2022 focused on developing our new 27 kW power system, new software for our new 4Y Toyota engine control system., and on product design and customization for our international customers. We plan to recruit additional engineers during the second half of 2022 to support growth and our customer diversification efforts.

General and Administrative Expenses. General and administrative expenses increased by $194, or 10%, to $2,167 during the six months ended June 30, 2022, as compared to $1,973 during same period in 2021. The increase in general and administrative expenses was as a result of an increase in general and administrative staff and a slight increase in legal and consulting fees.

Interest and Finance Costs. Interest and finance costs for the six months ended June 30, 2022 was $27, as compared to $31 during the same period in 2021, an decrease of $4. Our interest expense for the current period is primarily from interest expense paid on equipment financing and the minimum interest expense on our line of credit.

For the six months ended June 30, 2021, we received refunds of $25 from our general liability insurance carrier which was recorded as other income and included in the total other income (expense) section in our condensed statements of operations. We did not have other income during the six months ended June 30, 2022.

Net Loss. For the six months ended June 30, 2022, we incurred net loss of $1,859, or $(0.15) per basic and diluted share, as compared to net loss of $2,769, or $(0.22) per basic and diluted share for the six months ended June 30, 2021.

Liquidity and Capital Resources

Sources of Liquidity

For the six months ended June 30, 2022, the Company recorded a net loss of $1,859 and used cash in operations of $2,311. As of June 30, 2022, we had a cash balance of $2,656, with borrowing capacity of $2,806, stockholders’ equity of $21,391 and a working capital of $20,138. Notwithstanding the net loss for the six-month period ended June 30, 2022, management projects adequate cash flow from operations and available line of credit through June 30, 2023, sufficient to ensure continuation of the Company as a going concern for at least one year from the date the Company’s June 30, 2022 financial statements are issued.

During the six months ended June 30, 2022, we funded our operations primarily from cash on hand. As of June 30, 2022, we had working capital of $20,138, as compared to working capital of $21,760 at December 31, 2021. This $1,622 decrease in working capital is primarily attributable to a $2,445 decrease in cash and cash equivalents resulting from net cash of $2,311 used in operating activities, net cash of $15 used in investing activities, and net cash of $119 used in financing activities.

On June 30, 2022 and December 31, 2021, our net trade receivables totaled $3,994 and $4,243, respectively. On June 30, 2022, $3,743 (94%) represented the largest open customer account balances, while $3,131 (74%) and $624 (15%) represented the two largest open customer account balances on December 31, 2021.

At December 31, 2021, we recognized $2,000 related to the employee retention credit (“ERC”) for salaries and benefits expenses incurred during 2021 resulting in a refundable tax credit. The ERC assist business owners and their employees by providing an incentive to keep workers on the payroll and eligible businesses received a tax credit for a percentage of each eligible employee’s wage.

Our available capital resources on June 30, 2022 consisted primarily of $2,656 in cash and cash equivalents, as compared to $5,101 as of December 31, 2021. We expect our future capital resources will consist primarily of cash on hand, cash generated by operations, if any, drawdowns on our credit facility with Pinnacle Bank and future debt or equity financings, if any.

Credit Facility

Effective September 30, 2020, we entered into a Loan and Security Agreement, or Loan Agreement, with Pinnacle. The Loan Agreement provides for a revolving credit facility under which Pinnacle may, in its sole discretion upon our request, make advances to us in an amount, subject to certain limitations and adjustments, of up to (a) 85% of the aggregate net face amount of our accounts receivable and other contract rights and receivables, plus (b) the lesser of (i) 35% of the lower of cost or wholesale market value of certain of our inventory or (ii) $2,500. In no event will the aggregate amount of the outstanding advances under the revolving credit facility be greater than $4,000.

Interest accrues on the daily balance at a rate of 1.25% above the prime rate, or the Standard Interest Rate, but in no event will the Standard Interest Rate be less than 3.75% per annum. Interest on the portion of the daily balance consisting of advances against inventory accrues interest at a rate of 2.25% above the prime rate per annum, or the Inventory Interest Rate, but in no event will the Inventory Interest Rate be less than 4.75% per annum. The Loan Agreement also contains a financial covenant requiring us to attain an effective tangible net worth, defined as our total assets, excluding all intangible assets, less our total liabilities plus loans to us from our officers, stockholders or employees that have been subordinated to our obligations to Pinnacle, greater than $6,000 as determined by Pinnacle as of the end of each fiscal quarter.

We did not have an outstanding balance under the Loan Agreement at June 30, 2022, and December 31, 2021. As of June 30, 2022, we had availability under the Loan Agreement of $2,806 and we believe that we are in compliance with the terms and conditions of the Loan Agreement.

Cash Flow

The following table sets forth the significant sources and uses of cash for the six-month periods set forth below:

	June 30, 2022			June 30, 2021
	(Unaudited)			(Unaudited)
Net Cash Provided By (Used In)
Operating Activities	$	(2,311	)	$	(6,131	)
Investing Activities		(15	)		—
Financing Activities		(119	)		13,023
Net increase (decrease) in cash	$	(2,445	)	$	6,892

Operating Activities

Net cash used in operating activities for the six months ended June 30, 2022 was $2,311, as compared to net cash used in operating activities of $6,131 for the same period in 2021. This decrease in net cash used in 2022 was primarily due to a net loss of $1,859, an increase in inventory of $2,968, an increase in prepaid expenses of $380, a decrease in accounts receivable of $249, an increase in accounts payable of $193, and an increase in customer deposits of $2,588.

Investing Activities

Net cash in investing activities for the six months ended June 30, 2022 was $15, primarily due to acquisitions of property and equipment. We did not have any investing activities for the six months ended June 30, 2021.

Financing Activities

Net cash used in financing activities totaled $119 for the six months ended June 30, 2022, as compared to $13,023 provided by financing activities during the same period in 2021. This use of cash was primarily repayment of equipment financing accounts. The decrease in cash provided by financing activities was due to proceeds received from the sale of 750,000 shares of our common stock in an underwritten public offering on February 10, 2021. We received net proceeds of approximately $12.5 million from the sale of the shares after deducting underwriting discounts and commissions and other offering expenses payable by us. In addition, we received net proceeds of $707 from the exercise of common stock warrants.

Backlog

As of June 30, 2022, we had a sales backlog of $14,087. The amount of backlog represents revenue that we anticipate recognizing in the future, as evidenced by purchase orders and other purchase commitments received from customers, but on which work has not yet been initiated or with respect to which work is currently in progress. Backlog at June 30, 2022 was comprised of the following elements: 97% in purchases of DC power systems by telecommunications customers and 3% in purchases by customers from other markets. We believe the majority of our backlog will be shipped within the next six to nine months. However, there can be no assurance that we will be successful in fulfilling such orders and commitments in a timely manner or that we will ultimately recognize as revenue the amounts reflected in our backlog.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

ITEM 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and our principal financial officer, evaluated, as of the end of the period covered by this Quarterly Report on Form 10-Q, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on that evaluation, our principal executive officer and principal financial officer have concluded that as of June 30, 2022, our disclosure controls and procedures were effective at the reasonable assurance level. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and our management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the three and six months ended June 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. Legal Proceedings

From time to time, we may be involved in general commercial disputes arising in the ordinary course of our business. We are not currently involved in legal proceedings that could reasonably be expected to have material adverse effect on our business, prospects, financial condition or results of our operation.

ITEM 1A. Risk Factors

Before deciding to purchase, hold or sell our common stock, you should carefully consider the risks described below in addition to the other information contained in this Quarterly Report on Form 10-Q and in our other filings with the SEC, including subsequent reports on Forms 10-Q and 8-K. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business. If any of these known or unknown risks or uncertainties actually occurs with material adverse effects on Polar Power, our business, financial condition, results of operations and/or liquidity could be seriously harmed. In that event, the market price for our common stock will likely decline, and you may lose all or part of your investment.

Risks Related to Our Business and Industry

The COVID-19 pandemic has had, and will likely continue to have, a significant negative impact on our business, sales, results of operations and financial condition.

The COVID-19 pandemic has had a widespread and detrimental effect on the global economy, particularly in the U.S., and actions over the past twelve months by public health and governmental authorities, businesses, other organizations and individuals to address the outbreak, including travel bans and restrictions, quarantines, shelter in place, stay at home or total lock-down orders and business limitations and shutdowns have materially negatively impacted, and could further materially adversely affect, our business, financial condition, results of operations and cash flows. The ultimate impact of the COVID-19 pandemic on our business and results of operations remains unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration and potential resurgence of the COVID-19 pandemic, repeat or cyclical outbreaks and any additional preventative and protective actions that governments, or we or our customers, may direct, which may result in an extended period of continued business disruption and reduced operations. Any resulting financial impact cannot be reasonably estimated at this time, but we expect it will continue to have a material impact on our business, financial condition and results of operations.

The repercussions of the COVID-19 global pandemic has had and is likely to continue to have, a material and substantial adverse impact on our results of operations, including a decrease in our sales and delays in sourcing raw materials from suppliers. Our business is directly dependent upon, and correlates closely with, the marketing levels and ongoing business activities of our existing customers and suppliers. In the event of a continued economic downturn caused by the COVID-19 pandemic, we will likely experience a reduction in current projects, longer sales and collection cycles, deferral or delay of purchase commitments for our DC power systems, a reduction in our manufacturing productivity, higher than normal inventory levels, delay in receipt of raw materials, a reduction in the availability of qualified labor, cancellation of customer orders in our sales backlog and increased price competition, all of which could substantially adversely affect our results of operations including our earnings and cash flows.

In response to uncertainties associated with the COVID-19 pandemic, we have made certain modifications to our business, including modifications to employee work locations, cancellation of certain marketing events and the implementation of a cost reduction program to reduce overhead. During portions of 2022 we also implemented limited remote work policies for many employees, and the resources available to such employees may not enable them to maintain the same level of productivity and efficiency. Our increased reliance on remote access to our information systems also increases our exposures to potential cybersecurity breaches. We cannot provide any assurance that these actions, or any other mitigating actions we may take, will help mitigate the impact of the COVID-19 pandemic on us.

Furthermore, we cannot provide any assurance that our assumptions used to estimate our liquidity requirements will remain accurate due to the unprecedented nature of the disruption to our operations and the unpredictability of the COVID-19 global pandemic. As a consequence, our estimates of the duration of the pandemic and the severity of the impact on our future earnings and cash flows could change and have a material impact on our results of operations and financial condition. In the event of a sustained market deterioration and continued declines in net sales, we may need additional liquidity. We cannot provide any assurance that we will be able to obtain additional sources of financing or liquidity on acceptable terms, or at all.

The ultimate duration and impact of the COVID-19 pandemic on our business, results of operations, financial condition and cash flows is dependent on future developments, the duration of the COVID-19 pandemic, including repeat or cyclical outbreaks, additional “waves” or the spread of “variant” viruses and the related length of its impact on the global economy, which are uncertain and cannot be predicted at this time. Furthermore, the extent to which our mitigation efforts are successful, if at all, is not presently ascertainable. However, we expect that our results of operations, including revenues, in future periods will continue to be adversely impacted by the COVID-19 pandemic and its negative effects on global economic conditions and that, as a result of such effects, we may continue to be adversely affected even after the COVID-19 pandemic has materially subsided.

Terrorist attacks and threats of war may impact all aspects of our operations, revenues, costs and stock price in unpredictable ways.

The recent special military actions of the Russian Federation and its invasion of Ukraine and the resulting geopolitical uncertainty are likely to have a significant impact on the European Union, the United Kingdom and other countries, including the U.S. The threat that these military operations may expand beyond Ukraine may have a negative impact as well. Significant increases in the price of oil and natural gas have occurred and are likely to continue putting additional inflationary pressures on central banks, including Federal Reserve System (the “FRB”). It is expected that interest rate hikes already announced by the FRB will occur in 2022, but the amount, timing, and frequency of such increases are not fully known at this time. The Russian Federation has also threatened increased cyberattacks as part of its recent actions which could affect the Bank and its customers. Additionally, the United States and European nations have imposed very significant financial sanctions on the Russian Republic, including targeted sanctions on Russian banks and wealthy individuals as well as halting certification of the Nord Stream 2 gas pipeline. They have denied Russian banks access the Society for Worldwide Interbank Financial Telecommunications or SWIFT which is expected to slow international trade and make such transactions costlier to accomplish which could also negatively affect the Bank and its customers. In response to the Russian military actions, many businesses headquartered in the Eurozone and the United States have stopped doing business with Russia, which may negatively affect the profitability of those companies. The international turmoil has already had and may continue to have a negative impact on the stock market generally and, in turn, on our stock price. The full impact of the recent actions by the Russian Federation regarding Ukraine are not known at this time, but they could have a material adverse impact on our business, financial condition, results of operations, and stock price.

We have incurred significant losses in the past and we may incur losses in the future, which may hamper our operations and impede us from expanding our business.

We have incurred significant losses in the past. For the quarter ended June 30, 2022, we incurred net loss of approximately $1.1 million. For the years ended December 31, 2021 and 2020, we incurred consolidated net losses of approximately $1.4 million and $10.8 million, respectively. We may incur net and gross losses in the future. We expect to rely on cash on hand, cash, if any, generated from our operations, borrowing availability under our line of credit and proceeds from our future financing activities, if any, to fund all of the cash requirements of our business. Additional losses may hamper our operations and impede us from expanding our business.

We are dependent on, and derive substantially all of our revenue from, sales of our DC base power systems to one customer within the U.S. telecommunications market. Our efforts to expand our customer base, our product portfolio or markets within which we operate may not succeed and may reduce our revenue growth rate.

We derive substantially all our revenues from sales of our DC base power systems to one customer within the telecommunications market, AT&T. The volume of sales to them may vary significantly from year to year. Any factor adversely affecting sales of these power systems to this customer or to other customers within this market, including market acceptance, product competition, performance and reliability, reputation, price competition and economic and market conditions, could adversely affect our business and results of operations.

In addition, any unfavorable change in our business relationship with our Tier-1 telecommunications wireless carrier customers, or delays in customer implementation and deployment of our products, could have a material adverse effect on our results of operation and financial condition. Our plans to invest in the development of electric vehicle chargers, residential and commercial power products and higher capacity DC hybrid solar systems may not result in an anticipated growth in sales and may reduce our revenue growth rate.

Many of our DC power systems involve long design and sales cycles, which could have an adverse impact on our results of operations and financial performance.

The design and sales cycle for our DC power systems, from initial contact with our potential customer to the shipments of our product, may be lengthy. Customers generally consider a wide range of factors before making a purchase decision. Prior to purchasing our products, many of our customers often require a significant technical review, tests and evaluations over long periods of time (i.e., three to twenty-four months), assessments of competitive products and approval at a number of management levels within their organization. During the time our customers are evaluating our products, we may incur substantial sales and service, engineering and research and development expenses to customize our products to meet customer’s application needs. We may also expend significant management efforts, increase manufacturing capacity, order long-lead-time components or purchase significant amounts of components and other inventory prior to receiving an order. Even after this evaluation process, a potential customer may not purchase our products.

The product development time before a customer agrees to purchase our DC power systems can be considerable. Our process for developing an integrated solution may require use of significant engineering resources, including design, prototyping, modeling, testing and application engineering. The length of this cycle is influenced by many factors, including the difficulty of the technical specification and complexity of the desig

SEC Form 10-Q filed by Polar Power Inc.