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, 2024

☐ 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)

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

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:

The number of shares outstanding of the Registrant’s common stock, $0.0001 par value, as of August 14, 2024 was 17,561,612.

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	14

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk	22

ITEM 4. Controls and Procedures	22

PART II – OTHER INFORMATION	23

ITEM 1. Legal Proceedings	23

ITEM 1A. Risk Factors	23

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds	39

ITEM 3. Defaults Upon Senior Securities	39

ITEM 4. Mine Safety Disclosure	39

ITEM 5. Other Information	39

ITEM 6. Exhibits	39

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, 2024			December 31, 2023
	(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	1,119		$	549
Accounts receivable		2,310			1,676
Inventories		15,776			16,522
Prepaid expenses		387			455
Employee retention credit receivable		—			2,000
Income taxes receivable		—			787
Total current assets		19,592			21,989

Other assets:
Operating lease right-of-use assets, net		2,239			2,818
Property and equipment, net		241			344
Deposits		108			108

Total assets	$	22,180		$	25,259

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	597		$	1,762
Customer deposits		1,469			1,618
Accrued liabilities and other current liabilities		1,156			1,151
Line of credit		4,683			4,238
Notes payable-related party, current portion		258			257
Notes payable, current portion		16			64
Notes payable		16			64
Operating lease liabilities, current portion		1,260			1,124

Total current liabilities		9,439			10,214

Operating lease liabilities, net of current portion		1,193			1,856

Total liabilities		10,632			12,070

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, 17,579,089 shares issued and 17,561,612 shares outstanding on June 30, 2024, and December 31, 2023		2			2
Additional paid-in capital		38,886			38,886
Accumulated deficit		(27,300	)		(25,659	)
Treasury Stock, at cost (17,477 shares)		(40	)		(40	)
Total stockholders’ equity		11,548			13,189

Total liabilities and stockholders’ equity	$	22,180		$	25,259

See Accompanying Notes to the Condensed Financial Statements

POLAR POWER, INC.

UNAUDITED CONDENSED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

	2024			2023			2024			2023
	Three Months Ended June 30,						Six Months Ended June 30,
	2024			2023			2024			2023
Net Sales	$	4,660		$	5,587		$	6,434		$	9,777
Cost of Sales		2,828			4,112			5,005			7,548
Gross profit		1,832			1,475			1,429			2,229

Operating Expenses
Sales and marketing		264			310			494			642
Research and development		195			338			415			684
General and administrative		913			1,137			2,040			2,248
Total operating expenses		1,372			1,785			2,949			3,574

Income (loss) from operations		460			(310	)		(1,520	)		(1,345	)

Other income (expenses)
Interest expense and finance costs		(179	)		(126	)		(342	)		(204	)
Interest Income		220			—			221
Total other income (expenses), net		41			(126	)		(121	)		(204	)

Net income (loss)	$	501		$	(436	)	$	(1,641	)	$	(1,549	)

Net income (loss) per share – basic and diluted	$	0.03		$	(0.03	)	$	(0.09	)	$	(0.12	)
Weighted average shares outstanding, basic and diluted		17,561,612			12,949,550			17,561,612			12,949,550

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, 2024

	Number		Amount		capital		Deficit)			Stock			Equity
	Common Stock				Additional paid-in		(Accumulated			Treasury			Total Stockholders’
	Number		Amount		capital		Deficit)			Stock			Equity
Balance, March 31, 2024 (unaudited)		17,579,089	$	2	$	38,886	$	(27,801	)	$	(40	)	$	11,047
Net income		—		—		—		501			—			501
Balance, June 30, 2024 (unaudited)		17,579,089	$	2	$	38,886	$	(27,300	)	$	(40	)	$	11,548

Six months ended June 30, 2024

	Common Stock				Additional paid-in		(Accumulated			Treasury			Total Stockholders’
	Number		Amount		capital		Deficit)			Stock			Equity
Balance, December 31, 2023		17,579,089	$	2	$	38,886	$	(25,659	)	$	(40	)	$	13,189
Net loss		—		—		—		(1,641	)		—			(1,641	)
Balance, June 30, 2024 (unaudited)		17,579,089	$	2	$	38,886	$	(27,300	)	$	(40	)	$	11,548

Three months Ended June 30, 2023

	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
Balance		12,967,027	$	1	$	37,331	$	(19,111	)	$	(40	)	$	18,181
Net loss		—		—		—		(1,549	)		—			(1,549	)
Net income (loss)		—		—		—		(1,549	)		—			(1,549	)
Balance, June 30, 2023 (unaudited)		12,967,027	$	1	$	37,331	$	(20,660	)	$	(40	)	$	16,632
Balance		12,967,027	$	1	$	37,331	$	(20,660	)	$	(40	)	$	16,632

See Accompanying Notes to the Condensed Financial Statements

POLAR POWER, INC.

UNAUDITED CONDENSED STATEMENTS OF CASH FLOW

(in thousands)

	2024			2023
	Six Months Ended June 30,
	2024			2023
Cash flows from operating activities:
Net loss	$	(1,641	)	$	(1,549	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		121			226
Changes in operating assets and liabilities
Accounts receivable		(634	)		(1,488	)
Employee retention credit		2,000			—
Inventories		746			(2,229	)
Prepaid expenses		68			1,579
Income tax receivable		787			—
Operating lease right-of-use asset		579			454
Accounts payable		(1,165	)		1,199
Customer deposits		(149	)		(591	)
Accrued expenses and other current liabilities		5			11
Operating lease liability		(527	)		(416	)
Net cash provided by (used in) operating activities		190			(2,804	)

Cash flows from investing activities:
Acquisition of property and equipment		(18	)		(194	)
Net cash used in investing activities		(18	)		(194	)

Cash flows from financing activities:
Proceeds from advances from credit facility		445			3,044
Proceeds from notes payable, related party		—			160
Repayment of notes payable		(47	)		(125	)
Net cash provided by financing activities		398			3,079

Increase in cash and cash equivalents		570			81
Cash and cash equivalents, beginning of period		549			211
Cash and cash equivalents, end of period	$	1,119		$	292

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, 2024 AND 2023

(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.

Going concern

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, 2024, the Company recorded a net loss of $1,641. This factor raises substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. In addition, our independent registered public accounting firm, in its audit report to the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2023, expressed substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

As of June 30, 2024, the Company had a cash balance of $1,119, with borrowing capacity of $643, stockholders’ equity of $11,548, and working capital of $10,153. 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 inflation

The continuing impact of the 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 2023 and may continue to impact business in 2024. 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, 2024 and 2023 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, 2023 was derived from the audited financial statements included in the Company’s financial statements as of and for the years ended December 31, 2023 and 2022 contained in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission, or the SEC, on April 1, 2024. 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 estimates for credit loss reserves for accounts receivable, assumptions used in valuing inventories at net realizable value, impairment testing of recorded long-term assets, the realizability of deferred tax assets and the related valuation allowance, accruals for warranty reserves, accruals for potential liabilities, assumptions made in valuing stock 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. 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.

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-month and six months ended June 30, 2024 and 2023. The Company’s rental contracts are fixed price contracts for fixed durations of time and include freight and delivery charges and are recognized on a straight-line basis over the rental period.

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,
	2024 (Unaudited)		2023 (Unaudited)
DC power systems	$	4,475	$	5,439
Engineering & Tech Support Services		38		31
Accessories		147		117
Total net sales	$	4,660	$	5,587


	Six months ended June 30,
	2024 (Unaudited)		2023 (Unaudited)
DC power systems	$	6,041	$	9,520
Engineering & Tech Support Services		125		54
Accessories		268		203
Total net sales	$	6,434	$	9,777

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


	Three months ended June 30,
	2024 (Unaudited)		2023 (Unaudited)
Telecom	$	4,445	$	5,408
Government/Military		163		131
Marine		13		27
Other (backup DC power to various industries)		39		21
Total net sales	$	4,660	$	5,587


	Six months ended June 30,
	2024 (Unaudited)		2023 (Unaudited)
Telecommunications	$	5,703	$	9,400
Government/Military		622		324
Marine		51		28
Other (backup DC power to various industries)		58		25
Total net sales	$	6,434	$	9,777

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

	2024		2023
	Three months ended
	June 30,
	2024		2023
	(Unaudited)		(Unaudited)
United States	$	3,490	$	3,947
Canada		-		161
South Pacific Islands		1,146		1,453
Indonesia		24		—
Africa		—		26
Total net sales	$	4,660	$	5,587

	2024		2023
	Six months ended
	June 30,
	2024		2023
	(Unaudited)		(Unaudited)
United States	$	5,164	$	7,011
Canada		—		162
South Pacific Islands		1,225		2,578
Indonesia		24		-
Japan		20		—
Europe and Middle East		1		—
Africa		—		26
Total net sales	$	6,434	$	9,777

For the three-months ended June 30, 2024 and 2023, international sales totaled $1,170 and $1,641 respectively. For the six-months ended June 30, 2024 and 2023, international sales totaled $1,269 and $2,766 respectively.

Inventories

Inventories are stated at the lower of cost or net realizable value, with cost determined on a first-in, first-out (“FIFO”) basis. The Company records adjustments to its inventory based on an estimated forecast of the inventory demand, taking into consideration, among others, inventory turnover, inventory quantities on hand, unfilled customer order quantities, forecasted demand, current prices, competitive pricing, and trends and performance of similar products. If the estimated net realizable value is determined to be less than the recorded cost of the inventory, the difference is recognized as a loss in the period in which it occurs. Once inventory has been written down, it creates a new cost basis for inventory that may not be subsequently written up. For the three months and six months ended June 30, 2024, and the year ended December 31, 2023, there were no write-downs of inventory.

As of June 30, 2024 and December 31, 2023, inventories consisted of the following:

SCHEDULE OF INVENTORIES NET

	June 30, 2024 (unaudited)		December 31, 2023

Raw materials	$	13,769	$	14,313
Finished goods		2,007		2,209
Total Inventories	$	15,776	$	16,522

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, 2024 and December 31, 2023, 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, 2024 (unaudited)			December 31, 2023
Balance at beginning of the period	$	600		$	600
Payments		(138	)		(469	)
Provision for warranties		138			469
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.

Income Taxes

During the three months and six months ended June 30, 2024 and 2023, the Company did not record any provision for income taxes, as the Company incurred losses for income tax reporting during such periods.

The Company accounts for income taxes using the asset and liability method whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized for taxable temporary differences. The Company has recorded a full valuation allowance against its deferred tax assets as the Company currently believes it is more likely than not that the deferred tax assets will not be realized.

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

Revenues. For the three months ended June 30, 2024, and June 30, 2022, sales to telecommunications customers accounted for 95% and 97% of total revenues, respectively. Sales to international customers accounted for 25% and 29% of total revenues, respectively. The Company’s three largest customers during the three months ended June 30, 2024, generated 40%, 27%, and 22% of total revenues, as compared to the two largest customers during the three months ended June 30, 2023, generating 49% and 26% of total net revenues. There was no other revenue from customers in excess of 10% of revenues in either period.

For the six months ended June 30, 2024, and June 30, 2023, sales to telecommunications customers accounted for 89% and 96% of total revenues, respectively. For the six months ended June 30, 2024, and June 30, 2023, sales to international customers accounted for 20% and 28% of total revenue, respectively. For the six months ended June 30, 2024, the Company’s three largest customers generated 42%, 20%, and 16% of total revenues, as compared to the two largest customers during the same period in 2023 generating 49% and 26% of total revenues. There was no other revenue from customers in excess of 10% of revenues in either period.

Accounts receivable. At June 30, 2024, the two largest accounts receivable accounts from the Company’s customers represented 80% and 12%, of the Company’s total accounts receivable. At December 31, 2023, the Company’s two largest receivable accounts represented 69% and 16% 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, 2024 or December 31, 2023.

Accounts payable. At June 30, 2024, accounts payable to the Company’s three largest vendors represented 48%, 7% and 5%, of the Company’s accounts payable. On December 31, 2023, the three largest accounts payable accounts to the Company’s vendors represented 30%, 10%, and 5%, respectively.

Net Income (Loss) Per Share

Basic net income (loss) per share is computed by dividing net income (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, 2024		June 30, 2023
	(Unaudited)		(Unaudited)
Options		140,000		140,000
Warrants		—		24,122
Total		140,000		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. As a smaller reporting company, ASU 2016-13 was effective for the Company on January 1, 2023. The adoption of ASU 2016-03 did not have a material impact on the Company’s results of operations, financial position, or cash flows.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosure, which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expense categories that are regularly provided to the chief operating decision maker and included in each reported measure of a segment’s profit or loss. The update also requires all annual disclosures about a reportable segment’s profit or loss and assets to be provided in interim periods and for entities with a single reportable segment to provide all the disclosures required by ASC 280, Segment Reporting, including the significant segment expense disclosures. This standard was effective for the Company on January 1, 2024. The adoption of ASU 2023-07 did not have a material impact on the Company’s results of operations, financial position or cash flows.

In December 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. ASU 2023-09 requires that public business entities on an annual basis (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than 5 percent of the amount computed by multiplying pretax income or loss by the applicable statutory income tax rate). ASU 2023-99 is effective for annual reporting periods beginning after December 15, 2024, with early adoption permitted. The Company does not expect that the guidance will have a material impact on our financial statements or notes to our financial statements.

NOTE 2 – PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

SCHEDULE OF PROPERTY AND EQUIPMENT

	June 30, 2024 (Unaudited)			December 31, 2023
Production tooling, jigs, fixtures	$	71		$	71
Shop equipment and machinery		3,583			3,565
Vehicles		177			177
Leasehold improvements		390			390
Office equipment		185			185
Software		106			106
Total property and equipment, cost		4,512			4,494
Less: accumulated depreciation and amortization		(4,271	)		(4,150	)
Property and equipment, net	$	241		$	344

Depreciation and amortization expense on property and equipment for the three months ended June 30, 2024 and 2023 was $55 and $110, respectively. During the three months ended June 30, 2024 and 2023, $53 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, 2024 and 2023 was $121 and $226, respectively. During the six months ended June 30, 2024 and 2023, $116 and $220, respectively, of the depreciation expense was included in cost of sales.

NOTE 3 – NOTES PAYABLE, RELATED PARTY

During 2023, the Company’s Chief Executive Officer extended three loans to the Company for aggregate principal amount of $260 pursuant to terms of the note agreements. The notes have relatively similar terms, are unsecured, accrue interest at 1% per annum, are due over a period of 12 months with payments becoming due between 5 to 7 months after issuances of the notes, and no prepayment penalties. As of June 30, 2024, the first note was renewed for another twelve months and the aggregate outstanding balance of the loans is $258, with $72 due in August 2024, $28 due in October 2024, and $160 due in April 2025.

NOTE 4 – NOTES PAYABLE

Notes payable consist of the following:

SCHEDULE OF NOTES PAYABLE

	June 30, 2024 (Unaudited)			December 31, 2023
Total Equipment Notes Payable	$	16		$	64
Less current portion		(16	)		(64	)
Notes Payable, Noncurrent portion	$	—		$	—

The Company has entered into several financing agreements for the purchase of equipment in prior years. The terms of these financing arrangements are for a term of 2 years to 5 years, with interest rates ranging from 1.9% to 6.9% per annum, secured by the purchased equipment, and mature between September 2023 and July 2024. The aggregate monthly payments of principal and interest of the outstanding notes payable as of June 30, 2024 is approximately $8.

NOTE 5 – 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”). The Loan Agreement, as amended, provides for a revolving credit facility under which Pinnacle may make advances to the Company up to $7,500, 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) 40% of the aggregate eligible inventory value of eligible inventory or (ii) $4.0 million, plus (c) up to $146 collateralized by certain equipment. The Loan Agreement expires on September 30, 2024.

At December 31, 2023, the outstanding balance under the line of credit was $4,238. During the six months ended June 30, 2024, the Company advanced an aggregate of $445 under the facility. At June 30, 2024, the outstanding balance under the line of credit was $4,683 and the Company had an amount of $643 available under the line of credit.

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 (9.75% at June 30, 2024 and 9.75% at December 31, 2023). 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 (10.75% at June 30, 2024 and 10.75% at December 31, 2023).

Pinnacle may terminate the Loan Agreement at any time upon ninety 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, 2024.

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, 2023		140,000	$	5.22
Granted		—		—
Exercised/Forfeited/Expired		—		—
Outstanding, June 30, 2024 (unaudited)		140,000	$	5.22
Exercisable, June 30, 2024 (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, 2024, and December 31, 2023, 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, 2024.

NOTE 7 – STOCK WARRANTS

At March 31, 2023, the Company had warrants to purchase an aggregate of 24,122 shares of the Company’s common stock, originally issued July 7, 2020, outstanding. On November 9, 2023, the warrants were exchanged on a cashless basis for 12,062 shares of Common Stock in accordance to a warrant exchange agreement. Upon issuance of such shares and cancellation of the warrants, the Company no longer has any warrants outstanding as of December 31, 2023, or June 30, 2024.

NOTE 8 – OPERATING LEASES

The Company has two operating lease agreements for its warehouse and office facilities. The first lease expired February 28, 2023, and was extended beginning March 1, 2023 to February 28, 2026. The second lease expired August 31, 2023, and was extended beginning September 1, 2023 to August 31, 2026. The aggregate monthly lease payments range from $89 (year one), to $111 (year two), to $125 (year three), with an aggregate commitment of $3,896. The lease amendments to the two operating leases were considered new lease agreements and as a result, the Company recognized operating lease right-of-use assets and related operating lease liabilities of approximately $3,578 upon commencement of the new terms in 2023.

The Company also has a third lease on a month-to-month basis and is charged $25 per month.

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

	Six Months Ended June 30, 2024			Six Months Ended June 30, 2023
Lease Cost
Operating lease cost	$	597		$	499

Operating lease cost (of which $78 is included in general and administration and $519 is included in cost of sales in the Company’s statement of operations for the six months ended June 30, 2024, and $64 and $435 for the same period in 2023, respectively)	$	597		$	499

Other Information
Weighted average remaining lease term – operating leases (in years)		1.9			1.4
Average discount rate – operating leases		6.13	%		6.13	%

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

	At June 30, 2024		At June 30, 2023
Operating leases
Long-term operating right-of-use assets, net of accumulated amortization of $1,338 and $2,510, respectively	$	2,239	$	2,178

Short-term operating lease liabilities	$	1,260	$	717
Long-term operating lease liabilities

SEC Form 10-Q filed by Polar Power Inc.