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, 2023

☐ 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 14, 2023 was 12,949,550.

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, 2023			December 31, 2022
	(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	292		$	211
Accounts receivable		3,718			2,230
Inventories, net		17,689			15,460
Prepaid expenses		1,050			2,629
Employee retention credit receivable		2,000			2,000
Income taxes receivable		787			787
Total current assets		25,536			23,317

Other assets:
Operating lease right-of-use assets, net		2,178			240
Property and equipment, net		505			538
Deposits		93			93

Total assets	$	28,312		$	24,188

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	1,429		$	230
Customer deposits		1,535			2,126
Accrued liabilities and other current liabilities		1,242			1,231
Operating lease liabilities, current portion		717			268
Notes payable-related party, current portion		160			-
Notes payable, current portion		135			211
Line of credit		4,927			1,884

Total current liabilities		10,145			5,950

Notes payable, net of current portion		8			57
Operating lease liabilities, net of current portion		1,527			—

Total liabilities		11,680			6,007

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, 12,967,027 shares issued and 12,949,550 shares outstanding on June 30, 2023, and 12,967,027 shares issued and 12,949,550 shares outstanding on December 31, 2022		1			1
Additional paid-in capital		37,331			37,331
Accumulated deficit		(20,660	)		(19,111	)
Treasury Stock, at cost (17,477 shares)		(40	)		(40	)
Total stockholders’ equity		16,632			18,181

Total liabilities and stockholders’ equity	$	28,312		$	24,188

See Accompanying Notes to the Condensed Financial Statements

POLAR POWER, INC.

UNAUDITED CONDENSED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

	2023			2022			2023			2022
	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
Net Sales	$	5,587		$	4,274		$	9,777		$	7,983
Cost of Sales		4,112			3,213			7,548			6,017
Gross profit		1,475			1,061			2,229			1,966

Operating Expenses
Sales and marketing		310			400			642			805
Research and development		338			350			684			826
General and administrative		1,137			1,036			2,248			2,167
Total operating expenses		1,785			1,786			3,574			3,798

Loss from operations		(310	)		(725	)		(1,345	)		(1,832	)

Other income (expenses)
Interest expense and finance costs		(126	)		(14	)		(204	)		(27	)
Total other income (expenses), net		(126	)		(14	)		(204	)		(27	)

Net loss	$	(436	)	$	(739	)	$	(1,549	)	$	(1,859	)

Net loss per share – basic and diluted	$	(0.03	)	$	(0.06	)	$	(0.12	)	$	(0.15	)
Weighted average shares outstanding, basic and diluted		12,949,550			12,788,203			12,949,550			12,788,203

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, 2023

	Number		Amount		capital		Deficit)			Stock			Equity
	Common Stock				Additional paid-in		(Accumulated			Treasury			Total Stockholders’
	Number		Amount		capital		Deficit)			Stock			Equity
Balance, March 31, 2023 (unaudited)		12,967,027	$	1	$	37,331	$	(20,224	)	$	(40	)	$	17,068
Net loss		—		—		—		(436	)		—			(436	)
Balance, June 30, 2023 (unaudited)		12,967,027	$	1	$	37,331	$	(20,660	)	$	(40	)	$	16,632

Six months ended June 30, 2023

	Common Stock				Additional paid-in		(Accumulated			Treasury			Total Stockholders’
	Number		Amount		capital		Deficit)			Stock			Equity
Balance, December 31, 2022		12,967,027	$	1	$	37,331	$	(19,111	)	$	(40	)	$	18,181
Net loss		—		—		—		(1,549	)		—			(1,549	)
Balance, June 30, 2023 (unaudited)		12,967,027	$	1	$	37,331	$	(20,660	)	$	(40	)	$	16,632

Three months Ended June 30, 2022

	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

See Accompanying Notes to the Condensed Financial Statements

POLAR POWER, INC.

UNAUDITED CONDENSED STATEMENTS OF CASH FLOW

(in thousands)

	2023			2022
	Six Months Ended June 30,
	2023			2022
Cash flows from operating activities:
Net loss	$	(1,549	)	$	(1,859	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		226			264
Changes in operating assets and liabilities
Accounts receivable		(1,488	)		249
Inventories		(2,229	)		(2,968	)
Prepaid expenses		1,579			(380	)
Decrease in operating lease right-of-use asset		454			334
Accounts payable		1,199			(193	)
Customer deposits		(591	)		2,588
Accrued expenses and other current liabilities		11			8
Decrease in operating lease liability		(416	)		(354	)
Net cash used in operating activities		(2,804	)		(2,311	)

Cash flows from investing activities:
Acquisition of property and equipment		(194	)		(15	)
Net cash used in investing activities		(194	)		(15	)

Cash flows from financing activities:
Proceeds from advances from credit facility		3,044			—
Proceeds from notes payable, related party		160			—
Repayment of notes payable		(125	)		(119	)
Net cash provided by (used in) financing activities		3,079			(119	)

Increase (decrease) in cash and cash equivalents		81			(2,445	)
Cash and cash equivalents, beginning of period		211			5,101
Cash and cash equivalents, end of period	$	292		$	2,656

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, 2023 AND 2022

(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”, “we” or “us”). 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. For the six months ended June 30, 2023, the Company recorded a net loss of $1,549 and used cash in operations of $2,804. The Company’s management evaluated whether there are conditions or events considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date the financial statements are issued.

Notwithstanding the net loss for the six-month period ended June 30, 2023, management concluded that the Company will have adequate cash flow from operations and available line of credit in 2023 and 2024 so that it is probable that the Company will be able to fund its current operating plan and satisfy its liquidity requirements within one year from the date the Company’s June 30, 2023 financial statements are issued.

As of June 30, 2023, the Company had a cash balance of $292, with borrowing capacity of $71, stockholders’ equity of $16,632, and working capital of $15,391. 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 and Inflation

COVID-19. The COVID-19 pandemic has negatively impacted business and industries all over the world since March 2020. The pandemic has had a significant negative impact on our overall operations including revenues, productivity, gross margins and liquidity. The pandemic has resulted in labor shortages, disruptions in the chain of supply, and higher material costs. During the three and six months ended June 30, 2023, supply chain constraints that affected timely delivery of raw materials required to complete our DC power systems negatively affected our manufacturing productivity levels. Labor shortages resulted in excess overtime for the existing labor force and a reduction in engineering projects. We believe that Covid-19 will be an ongoing challenge for years to come and to adapt will require us to further globalize our vendors, engineering, and customers.

Inflation. The continuing impact of the COVID-19 pandemic, higher inflation, the actions by the Federal Reserve to address inflation, most notably sustained increases in interest rates, and rising energy prices create uncertainty about the future economic environment which will continue to evolve and, we believe, has impacted the Company’s business in 2022 and may continue to impact its business in 2023. The implications of higher government deficits and debt, tighter monetary policy, and potentially higher long-term interest rates may drive a higher cost of capital for the business and an increase in the Company’s operating expenses.

Basis of Presentation of Unaudited Financial Information

The unaudited condensed financial statements of the Company for the three and six months ended June 30, 2023 and 2022 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, 2022 was derived from the audited financial statements included in the Company’s financial statements as of and for the years ended December 31, 2022 and 2021 contained in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission, or the SEC, on March 31, 2023. These financial statements should be read in conjunction with that report.

In accordance with the “Segment Reporting” Topic of the Accounting Standards Codification, the Company’s chief operating decision maker (the Company’s Chief Executive Officer) determined that the Company has only one reporting unit.

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 net realizable value, impairment analysis of long-term assets, valuation allowance on deferred tax assets, accruals for potential liabilities, accruals for warranty reserves, assumptions made in valuing equity instruments issued for services, and assumptions used in the determination of the Company’s liquidity. 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. Product 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 determines whether delivery has occurred based on when title transfers and the risks and rewards of ownership have transferred to the customer, which usually occurs when the Company places the product with the customer’s carrier or delivers the product to a customer’s location. The Company regularly reviews its customers’ financial positions to ensure that collectability is reasonably assured.

The Company also recognizes revenues from engineering services, technical support, and sale of accessories that support the Company’s direct current, or DC, power systems, and from the rental of equipment. Revenue is recognized when transfer of control to the customer has been made and the Company’s performance obligation has been fulfilled. The Company’s revenue from engineering services, technical support services, and product accessories are clearly defined in each transaction with its customers and have not been significant to date.

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,
	2023 (Unaudited)		2022 (Unaudited)
DC power systems	$	5,439	$	4,199
Engineering & Tech Support Services		31		32
Accessories		117		43
Total net sales	$	5,587	$	4,274


	Six months ended June 30,
	2023 (Unaudited)		2022 (Unaudited)
DC power systems	$	9,520	$	7,816
Engineering & Tech Support Services		54		76
Accessories		203		91
Total net sales	$	9,777	$	7,983

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


	Three months ended June 30,
	2023 (Unaudited)		2022 (Unaudited)
Telecom	$	5,408	$	4,228
Government/Military		131		12
Marine		27		3
Other (backup DC power to various industries)		21		31
Total net sales	$	5,587	$	4,274


	Six months ended June 30,
	2023 (Unaudited)		2022 (Unaudited)
Telecommunications	$	9,400	$	7,898
Government/Military		324		29
Marine		28		17
Other (backup DC power to various industries)		25		39
Total net sales	$	9,777	$	7,983

The following tables shows the Company’s net sales by the respective geographical regions of our customers:


	Three months ended
	June 30,
	2023		2022
	(Unaudited)		(Unaudited)
United States	$	3,947	$	4,200
Canada		161		—
South Pacific Islands		1,453		49
Japan		—		9
Europe and Middle East		—		16
Africa		26		—
Total net sales	$	5,587	$	4,274


	Six months ended
	June 30,
	2023		2022
	(Unaudited)		(Unaudited)
United States	$	7,011	$	7,870
Canada		162		14
South Pacific Islands		2,578		49
Japan		—		10
Other Asia Pacific		—		24
Europe and Middle East		—		16
Africa		26		—
Total net sales	$	9,777	$	7,983

For the three-months ended June 30, 2023 and 2022, international sales totaled $1,641 and $74 respectively. For the six-months ended June 30, 2023 and 2022, international sales totaled $2,766 and $112 respectively.

Inventories

As of June 30, 2023 and December 31, 2022, inventories consisted of the following:

SCHEDULE OF INVENTORIES NET

	June 30, 2023 (unaudited)		December 31, 2022

Raw materials	$	14,404	$	12,277
Finished goods		3,285		3,183
Total Inventories	$	17,689	$	15,460

Inventories are stated at the lower of cost or net realizable value, with cost determined on a first-in, first-out (“FIFO”) basis. For the six-months ended June 30, 2023 and 2022, there were no write-downs of inventory.

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, 2023 and December 31, 2022, 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, 2023 (unaudited)			December 31, 2022
Balance at beginning of the period	$	600		$	600
Payments		(242	)		(508	)
Provision for warranties		242			508
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 certain 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 and notes payable approximate their fair values since the interest rates on these obligations are based on prevailing market interest rates.

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 $6 and $8 at June 30, 2023 and December 31, 2022, 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, 2023 and December 31, 2022, respectively, was held in an account at a financial institution located in Romania.

Revenues. For the three months ended June 30, 2023, 49% of revenues were generated from the Company’s largest customer, a Tier-1 telecommunications wireless carrier in the U.S, and 26% of revenue was generated from the Company’s second largest customer, a telecommunications customer outside the U.S. 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. There was no other revenue from customers in excess of 10% of revenues in either period. For the three months ended June 30, 2023 and June 30, 2022, sales to telecommunications customers accounted for 97% and 99% of total revenues, respectively. For the three months ended June 30, 2023 and June 30, 2022, sales to international customers accounted for 29% and 2%, of total revenue, respectively.

For the six months ended June 30, 2023, sales to the Company’s largest customer, a Tier-1 telecommunications wireless carrier in the U.S., accounted for 49% of total revenues, and 26% of revenue was generated from the Company’s second largest customer, a telecommunications customer outside the U.S. For the same period in 2022, sales to the Company’s largest customer, a Tier-1 telecommunications wireless carrier in the U.S., accounted for 89%. There was no other revenue from customers in excess of 10% of revenues in either period. For the six months ended June 30, 2023 and June 30, 2022, sales to telecommunications customers accounted for 96% and 99% of total revenues, respectively. For the six months ended June 30, 2023 and June 30, 2022, sales to international customers accounted for 28% and 1%, of total revenue, respectively.

Accounts receivable. At June 30, 2023, the three largest accounts receivable from the Company’s customers represented 73%, 12% and 10%, of the Company’s total accounts receivable. At December 31, 2022, 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, 2023 or December 31, 2022.

Accounts payable. At June 30, 2023, accounts payable to the Company’s three largest vendors represented 19%, 11% and 5%, of the Company’s accounts payable. On December 31, 2022, the three largest accounts payable accounts to the Company’s vendors represented 51%, 3%, and 3%, respectively.

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, 2023 (Unaudited)		June 30, 2022 (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. The standard is effective for the Company for interim and annual reporting periods beginning after December 15, 2022. Effective January 1, 2023, the Company adopted ASU 2016-13 and that adoption did not have a material impact on the Company’s financial position, results of operations, and cash flows.

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, 2023 (Unaudited)			December 31, 2022
Production tooling, jigs, fixtures	$	71		$	71
Shop equipment and machinery		3,565			3,371
Vehicles		177			177
Leasehold improvements		390			390
Office equipment		185			185
Software		106			106
Total property and equipment, cost		4,494			4,300
Less: accumulated depreciation and amortization		(3,989	)		(3,762	)
Property and equipment, net	$	505		$	538

Depreciation and amortization expense on property and equipment for the three months ended June 30, 2023 and 2022 was $110 and $129, respectively. During the three months ended June 30, 2023 and 2022, $125 and $125, respectively, of the depreciation expense was included in cost of sales.

Depreciation and amortization expense on property and equipment for the six months ended June 30, 2023 and 2022 was $226 and $264, respectively. During the six months ended June 30, 2023 and 2022, $220 and $255, respectively, of the depreciation expense was included in cost of sales.

NOTE 3 – NOTES PAYABLE, RELATED PARTY

In May 2023, the Company issued a note payable to its Chief Executive Officer for $160,000. The note is unsecured, due April 25, 2024, and bears interest at 1% per annum.

NOTE 4 – NOTES PAYABLE

Notes payable consist of the following:

SCHEDULE OF NOTES PAYABLE

	June 30, 2023 (Unaudited)			December 31, 2022
Notes payable	$	143		$	268
Less current portion		(135	)		(211	)
Notes payable, long term	$	8		$	57

In 2018 and 2019, the Company entered into five financing agreements for the purchase of equipment. The financing arrangements are for a term of 2 years to 5 years, with interest rates ranging from 3.4% to 5.0% per annum, and secured by the purchased equipment. The aggregate monthly payments of principal and interest of the outstanding notes payable as of June 30, 2023 is approximately $20 and are due through December 2023.

NOTE 5 – LINE OF CREDIT

Credit Facility

Effective September 30, 2020, the Company entered into a Loan and Security Agreement (as amended from time to time, the “Loan Agreement”) with Pinnacle Bank (“Pinnacle”). At June 30, 2023, the outstanding balance under the line of credit was $4,927 and the Company had availability under the line of credit of $71. The Loan Agreement initially expired on September 30, 2022, and on November 3, 2022, the Loan Agreement was amended to expire on September 30, 2024.

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.

Borrowings based on receivables bears an interest on the daily balance at a rate of 1.25% above the prime rate, but in no event less than 3.75% per annum (9.50% at June 30, 2023 and 8.75% at December 31, 2022). 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 (10.5% at June 30, 2023 and 9.75% at December 31, 2022).

On April 13, 2023, the Company entered into a Third Modification to the Loan Agreement under which the Company and Pinnacle agreed to add a new section which provides for Pinnacle to lend the Company up to $146 collateralized by certain equipment. At June 30, 2023, the outstanding balance under this section of the Loan Agreement was $136 and is included in the total outstanding balance of $4,927.

On May 25, 2023, the Company entered into a Fourth Modification to the Loan Agreement under which the parties (a) agreed to amend the amount of available advances under the Loan Agreement such that the aggregate amount of the outstanding advances under the revolving credit facility may not be greater than $6 million, and (b) raised the concentration percentage applicable to certain Tier-1 telecommunication customers from 50% to 75% in the definition of eligible accounts.

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, 2023.

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 6 – STOCK OPTIONS

The following table summarizes stock options:

SCHEDULE OF STOCK OPTION ACTIVITY

	Number of		Weighted Average
	Options		Exercise Price
Outstanding, December 31, 2022		140,000	$	5.22
Granted		—		—
Exercised/Forfeited/Expired		—		—
Outstanding, June 30, 2023 (unaudited)		140,000	$	5.22
Exercisable, June 30, 2023 (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, 2023, and December 31, 2022, the Company had total outstanding options exercisable into 140,000 shares of the Company’s common stock. The options are fully vested, with exercise prices ranging from $4.84 to $5.60. 30,000 options expire in December 2027 and the remaining 110,000 options expire in April 2028.

The outstanding options had no intrinsic value at June 30, 2023.

NOTE 7 – STOCK WARRANTS

At June 30, 2023, warrant shares outstanding were as follows:

SCHEDULE OF WARRANTS OUTSTANDING

	Number of Warrants		Weighted Average Exercise Price
Outstanding December 31, 2022		24,122	$	3.13
Issued		—		—
Exercised/Forfeited/Expired		—		—
Outstanding, June 30, 2023 (unaudited)		24,122	$	3.13
Exercisable, June 30, 2023 (unaudited)		24,122	$	3.13

At June 30, 2023, and December 31, 2022, 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.

There was no intrinsic value of the outstanding and exercisable warrants at June 30, 2023.

NOTE 8 – OPERATING LEASES

The Company has two operating lease agreements for its warehouse and office facilities. An amendment dated January 31, 2023, to one of its operating leases that expired on February 28, 2023, extends that lease term for three years commencing March 1, 2023 through February 28, 2026. Lease payments total $2,596, with monthly lease payments ranging from $58 beginning in March 2023, to $74 beginning in March 2024, to $84 from March 2025 to February 2026. The lease amendment was considered a new lease agreement and as a result, the Company recognized an operating lease right-of-use asset and related operating lease liability of $2,392.

The Company’s second operating lease expires in August 2023. In May 2023, the Company signed an amendment to the second lease extending the term to August 2026. Lease payments will total $1,304, with monthly lease payments ranging from $31 beginning in September 2023, to $37 beginning in September 2024, to $41 from September 2025 to August 2026. The lease amendment to the Company’s second operating lease is also considered a new lease agreement and as a result, the Company will recognize an operating lease right-of-use asset and related operating lease liability of approximately $1,184 upon commencement of the new term.

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

	Six Months Ended June 30, 2023		Six Months Ended June 30, 2022
Lease Cost
Operating lease cost	$	499	$	350
Operating lease cost (of which $64 is included in general and administration and $435 is included in cost of sales in the Company’s statement of operations for the six months ended June 30, 2023, and $49 and $301 for the same period in 2022, respectively)	$	499	$	350

Other Information

SEC Form 10-Q filed by Polar Power Inc.