Polar Power(POLA) - 2025 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION This section presents the company's unaudited condensed financial statements and related disclosures ITEM 1. Condensed Financial Statements This section presents the unaudited condensed financial statements for Polar Power, Inc., including the balance sheets, statements of operations, statements of stockholders' equity, and statements of cash flow for the periods ended June 30, 2025, and December 31, 2024 (balance sheet), and June 30, 2025 and 2024 (income statement, cash flow, equity) It also includes detailed notes on the company's organization, significant accounting policies, and specific financial line items Condensed Balance Sheets This section presents the company's unaudited condensed balance sheets Condensed Balance Sheet Highlights (in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------- | :-------------- | :------------------ | | Cash and cash equivalents | $175 | $498 | | Total current assets | $15,241 | $15,597 | | Total assets | $16,546 | $17,546 | | Total current liabilities | $9,486 | $8,560 | | Total liabilities | $9,562 | $9,034 | | Total stockholders' equity | $6,984 | $8,512 | - Total assets decreased by $1,000 thousand from December 31, 2024, to June 30, 2025, primarily due to a reduction in cash and cash equivalents[13] Unaudited Condensed Statements of Operations This section presents the company's unaudited condensed statements of operations Three Months Ended June 30 (in thousands) | Metric | 2025 | 2024 | Change ($) | Change (%) | | :----------------------- | :--- | :--- | :--------- | :--------- | | Net Sales | $2,708 | $4,660 | $(1,952) | (42)% | | Gross profit | $930 | $1,832 | $(902) | (49)% | | Income (loss) from operations | $(110) | $460 | $(570) | (124)% | | Net income (loss) | $(271) | $501 | $(772) | (154)% | | Net income (loss) per share | $(0.11) | $0.20 | $(0.31) | (155)% | Six Months Ended June 30 (in thousands) | Metric | 2025 | 2024 | Change ($) | Change (%) | | :----------------------- | :--- | :--- | :--------- | :--------- | | Net Sales | $4,431 | $6,434 | $(2,003) | (31)% | | Gross profit | $1,248 | $1,429 | $(181) | (13)% | | Loss from operations | $(1,211) | $(1,520) | $309 | 20% | | Net loss | $(1,536) | $(1,641) | $105 | 6% | | Net loss per share | $(0.61) | $(0.65) | $0.04 | 6% | Unaudited Condensed Statements of Stockholders' Equity This section presents the company's unaudited condensed statements of stockholders' equity - Total stockholders' equity decreased from $8,512 thousand at December 31, 2024, to $6,984 thousand at June 30, 2025, primarily due to a net loss of $1,536 thousand for the six-month period[20] - The company issued 2,679 shares of common stock, valued at $8 thousand, to a director for accrued fees during the six months ended June 30, 2025[20][75] Unaudited Condensed Statements of Cash Flow This section presents the company's unaudited condensed statements of cash flow Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2025 | 2024 | | :----------------------------- | :--- | :--- | | Net cash provided by (used in) operating activities | $(988) | $190 | | Net cash used in investing activities | $0 | $(18) | | Net cash provided by financing activities | $665 | $398 | | Net increase (decrease) in cash | $(323) | $570 | | Cash and cash equivalents, end of period | $175 | $1,119 | - The company experienced a net decrease in cash and cash equivalents of $323 thousand for the six months ended June 30, 2025, primarily due to cash used in operating activities[26] Notes to Condensed Financial Statements This section provides detailed explanations and disclosures for the condensed financial statements Organization and Summary of Significant Accounting Policies This note details the company's business, accounting policies, and disaggregated sales information - Polar Power, Inc. designs, manufactures, and sells direct current (DC) power systems for off-grid, bad-grid, backup power, electric vehicle (EV) charging, and nano-grid applications[28] - The company's ability to continue as a going concern is in substantial doubt due to a net loss of $1,536 thousand and $988 thousand cash used in operations for the six months ended June 30, 2025[29] - Management is taking actions to address going concern issues by diversifying sales, increasing higher-margin aftermarket parts revenue, improving operational efficiency, and reducing costs[30] Disaggregated Net Sales by Product Type (in thousands) | Product Type | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :-------------------------- | :------ | :------ | :------ | :------ | | DC power systems | $1,989 | $4,475 | $3,219 | $6,041 | | Engineering & Tech Support | $135 | $38 | $134 | $125 | | Accessories | $584 | $147 | $1,078 | $268 | | Total net sales | $2,708 | $4,660 | $4,431 | $6,434 | Disaggregated Net Sales by Customer Type (in thousands) | Customer Type | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :-------------------------------- | :------ | :------ | :------ | :------ | | Telecom | $2,481 | $4,445 | $3,900 | $5,703 | | Government/Military | $154 | $163 | $448 | $622 | | Marine | $38 | $13 | $45 | $51 | | Other | $35 | $39 | $38 | $58 | | Total net sales | $2,708 | $4,660 | $4,431 | $6,434 | Disaggregated Net Sales by Geographical Region (in thousands) | Region | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :-------------------- | :------ | :------ | :------ | :------ | | United States | $2,624 | $3,490 | $4,045 | $5,164 | | Canada | $32 | $0 | $33 | $0 | | South Pacific Islands | $49 | $1,146 | $55 | $1,225 | | Indonesia | $3 | $24 | $0 | $24 | | Japan | $0 | $0 | $3 | $20 | | Europe and Middle East | $0 | $0 | $295 | $1 | | Total net sales | $2,708 | $4,660 | $4,431 | $6,434 | - International sales decreased significantly, totaling $84 thousand (3% of total) for Q2 2025 compared to $1,170 thousand (25% of total) for Q2 2024[39][52] Inventory Composition (in thousands) | Category | June 30, 2025 | December 31, 2024 | | :------------- | :------------ | :---------------- | | Raw materials | $11,755 | $11,902 | | Finished goods | $1,238 | $991 | | Total | $12,993 | $12,893 | - Sales to telecommunications customers accounted for 92% of total revenues for the three months ended June 30, 2025, and 88% for the six months ended June 30, 2025[52][53] - The largest accounts receivable account represented 85% of total accounts receivable at June 30, 2025[54] - FASB issued ASU No. 2024-03, requiring disaggregation disclosures for income statement expenses, effective for annual periods beginning January 1, 2027[58] Property and Equipment This note provides details on the company's property and equipment, net of accumulated depreciation Property and Equipment, Net (in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :---------------------- | :------------ | :------------------ | | Property and equipment, net | $160 | $196 | - Depreciation and amortization expense for the six months ended June 30, 2025, was $34 thousand, down from $121 thousand in the same period of 2024[61] Notes Payable, Related Party This note outlines the company's outstanding notes payable to a related party - The aggregate outstanding balance of notes payable to the Company's CEO, including accrued interest, was $433 thousand as of June 30, 2025[62] - An additional loan of $160 thousand was made by the CEO to the Company on March 24, 2025[62] Line of Credit This note details the company's revolving credit facility and its outstanding balance - The revolving credit facility with Pinnacle Bank was extended until September 30, 2026, with a maximum advance limit of $7,500 thousand[63][64] - As of June 30, 2025, the outstanding balance under the line of credit was $5,302 thousand, with $66 thousand available[68] - The Company's Net Tangible Worth was approximately $7.4 million as of June 30, 2025, which impacts the inventory advances limit[64] - Total interest expense, fees, and financing costs for the six months ended June 30, 2025, were $329 thousand, compared to $340 thousand in 2024[71] Operating Leases This note describes the company's operating lease agreements and related liabilities - The company has two operating lease agreements for facilities, extended to February 2026 and August 2026, with an aggregate commitment of $3,896 thousand[72] Operating Lease Liabilities (in thousands) | Metric | June 30, 2025 | June 30, 2024 | | :-------------------------- | :------------ | :------------ | | Long-term operating right-of-use assets, net | $1,037 | $2,239 | | Short-term operating lease liabilities | $1,116 | $1,260 | | Long-term operating lease liabilities | $76 | $1,193 | | Total operating lease liabilities | $1,192 | $2,453 | Maturities of Lease Liabilities (in thousands) | Year Ending | Operating Leases | | :---------- | :--------------- | | 2025 (remaining 6 months) | $742 | | 2026 | $496 | | Total lease payments | $1,238 | Stockholders' Equity This note provides information on changes in the company's stockholders' equity - In January 2025, the Company issued 2,679 shares of common stock, valued at $8 thousand, to an independent director for previously accrued fees[75] Stock Options This note details the company's outstanding stock options and their characteristics - As of June 30, 2025, there were 20,002 fully vested stock options outstanding with a weighted average exercise price of $36.56, and no intrinsic value[76][77][78] Segment Information This note explains the company's single operating segment and its performance metrics - The Company operates and manages its business as a single reportable and operating segment, focusing on DC power systems[79] - The Chief Executive Officer, Arthur D. Sams, acts as the Chief Operating Decision Maker (CODM) and reviews financial information on a consolidated basis[80] Segment Performance (in thousands) | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :-------------------------- | :------ | :------ | :------ | :------ | | Revenue | $2,708 | $4,660 | $4,431 | $6,434 | | Cost of goods sold | $(1,778) | $(2,828) | $(3,183) | $(5,005) | | Compensation | $(501) | $(622) | $(1,078) | $(1,274) | | Consulting and professional fees | $(140) | $(243) | $(490) | $(653) | | Other cost and expenses, net | $(399) | $(507) | $(891) | $(1,022) | | Other income (expenses), net | $(161) | $41 | $(325) | $(121) | | Net profit (loss) | $(271) | $501 | $(1,536) | $(1,641) | ITEM 2. Management's Discussion And Analysis Of Financial Condition And Results Of Operations This section provides an overview of Polar Power's business, a summary of its financial performance, and a detailed analysis of its results of operations for the three and six months ended June 30, 2025, compared to the same periods in 2024 It also discusses the company's liquidity, capital resources, and sales backlog, highlighting challenges such as declining sales, going concern doubts, and efforts towards market diversification Overview This section provides an overview of the company's business and market diversification strategies - Polar Power designs, manufactures, and sells DC power generators, renewable energy, and cooling systems primarily for the telecommunications market, while actively diversifying into military, EV charging, marine, and industrial sectors[85][94] - The company launched prime power DC generators optimized for propane and natural gas, anticipating growth due to increasing installation restrictions and limited availability of small diesel engines[91] - Expansion efforts include upgrading mobile CHAdeMO EV chargers to the universal combined charging system standard and developing microgrid products for commercial and residential applications[93][95] - Telecommunications market accounted for 92% of total net sales for Q2 2025 and 88% for H1 2025[88][89] Financial Performance Summary and Outlook This section summarizes recent financial performance and outlines future strategic initiatives - Net sales decreased by 42% to $2,708 thousand for the three months ended June 30, 2025, and by 31% to $4,431 thousand for the six months ended June 30, 2025, compared to the prior year periods[101] - The decrease in revenue is attributed to excess inventory at the largest customer's warehouse and broader economic and geopolitical factors[102] - The company plans to hire sales and marketing staff and proactively manage operations to mitigate financial impacts from higher costs, supply chain issues, and geopolitical factors in the second half of 2025[103] Results of Operations - Three Months Ended June 30, 2025 Compared to the Three Months Ended June 30, 2024 This section analyzes the company's operational results for the three months ended June 30, 2025, compared to the prior year - Net sales decreased by $1,952 thousand (42%) to $2,708 thousand, primarily due to a decrease in DC generator sales to telecommunications customers[106] - Gross profit decreased by $902 thousand (49%) to $930 thousand, with gross profit as a percentage of net sales falling to 34.3% from 39.3%[111] - Operating expenses (sales and marketing, R&D, G&A) collectively decreased by $332 thousand (24%) to $1,040 thousand[112][113][114] - The company reported a net loss of $271 thousand, or $(0.11) per share, compared to a net profit of $501 thousand, or $0.20 per share, in the prior year period[116] Results of Operations - Six Months Ended June 30, 2025 Compared to the Six Months Ended June 30, 2024 This section analyzes the company's operational results for the six months ended June 30, 2025, compared to the prior year - Net sales decreased by $2,003 thousand (31%) to $4,431 thousand, primarily due to reduced DC generator sales to telecommunications customers[118] - Gross profit decreased by $181 thousand (13%) to $1,248 thousand, but gross profit as a percentage of net sales improved to 28.2% from 22.2%[122] - Total operating expenses decreased by $490 thousand (17%) to $2,459 thousand[123][124][125] - The company incurred a net loss of $1,536 thousand, or $(0.61) per share, an improvement from the net loss of $1,641 thousand, or $(0.65) per share, in the prior year period[127] Liquidity and Capital Resources This section discusses the company's financial liquidity, capital resources, and going concern considerations - The company's ability to continue as a going concern is in substantial doubt due to a net loss of $1,536 thousand and $988 thousand cash used in operations for the six months ended June 30, 2025[128] - Working capital decreased by $1,282 thousand to $5,755 thousand at June 30, 2025, from $7,037 thousand at December 31, 2024[130] - Cash and cash equivalents were $175 thousand at June 30, 2025, down from $498 thousand at December 31, 2024[132] - The revolving credit facility with Pinnacle Bank has an outstanding balance of $5,302 thousand and $66 thousand available as of June 30, 2025[138] Cash Flow Summary (Six Months Ended June 30, in thousands) | Activity | 2025 | 2024 | | :-------------------- | :--- | :--- | | Operating Activities | $(988) | $190 | | Investing Activities | $0 | $(18) | | Financing Activities | $665 | $398 | | Net increase (decrease) in cash | $(323) | $570 | Backlog This section provides details on the company's sales backlog and expected shipment timelines - The sales backlog as of June 30, 2025, was $1,203 thousand, with 95% attributed to telecommunications customers[146] - The majority of the backlog is expected to be shipped within the next three months[146] ITEM 3. Quantitative and Qualitative Disclosures About Market Risk The company states that there are no quantitative and qualitative disclosures about market risk applicable for this reporting period ITEM 4. Controls and Procedures Management, including the principal executive and financial officers, concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2025 No material changes in internal control over financial reporting were identified during the period - Disclosure controls and procedures were evaluated and deemed effective at the reasonable assurance level as of June 30, 2025[148] - No material changes in internal control over financial reporting occurred during the three and six months ended June 30, 2025[149] PART II – OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, defaults, and other required disclosures ITEM 1. Legal Proceedings The company is not currently involved in any legal proceedings that are expected to have a material adverse effect on its business, prospects, financial condition, or results of operations - The company is not currently involved in legal proceedings that could reasonably be expected to have a material adverse effect on its business[151] ITEM 1A. Risk Factors This section outlines significant risks that could materially and adversely affect Polar Power's business, financial condition, and stock price Key risks include the impact of inflation and geopolitical events, a history of operating losses, high customer concentration in the telecommunications market, long sales cycles, supply chain vulnerabilities, intense competition, and the need for continuous technological adaptation Additional risks relate to intellectual property protection, stock price volatility, corporate governance, and compliance with public company regulations Risks Related to Our Business and Industry This section outlines key risks associated with the company's operations, market, and supply chain - Rising inflation and geopolitical events (e.g., Russia-Ukraine, Iran-Israel conflicts) may adversely affect operating margins, disrupt supply chains, and increase costs[154][155][156] - The company has incurred significant net losses in recent periods, including $1,536 thousand for the six months ended June 30, 2025, raising concerns about future profitability[157] - Substantially all revenue is derived from sales of DC base power systems to one Tier-1 customer within the U.S. telecommunications market, posing a significant concentration risk[158] - Long design and sales cycles (3 to 24 months) for DC power systems require substantial upfront investment without guaranteed purchases, impacting financial performance[160][161] - The company faces inventory risk, and potential write-offs if estimates of net realizable value are inaccurate or customer demand changes unexpectedly[164][165] - Dependence on key raw materials (aluminum, copper, Neodymium permanent magnets) and engine suppliers (Yanmar, Toyota, Ford) without long-term contracts exposes the company to price volatility, shortages, and supply chain disruptions[166][178][182] - The markets are highly competitive, with larger competitors possessing greater financial resources, potentially leading to market share loss[167][168] - Rapid technological changes necessitate continuous product development and adaptation; failure to do so in a timely and cost-effective manner could harm competitive position and operating results[169][170][171][176] - International sourcing of key components and increasing international sales expose the company to risks such as political instability, tariffs, currency fluctuations, and compliance with foreign laws (e.g., FCPA)[181][183][188][189][190][191][193][194][195] - Cyberattacks and security vulnerabilities could lead to business disruption, data loss, liability claims, and reputational harm[196][197][198][199] Risks Related to Our Intellectual Property This section discusses risks concerning the protection and potential infringement of the company's intellectual property - The company relies on trademarks, copyrights, and trade secrets to protect its proprietary technology; inadequate protection or independent development by competitors could harm the business[201][202][203] - Claims of intellectual property infringement by third parties could lead to expensive litigation, significant damages, or restrictions on the ability to sell products and services[205][206] Risks Related to Our Common Stock This section details risks related to the company's common stock, including volatility and corporate governance - Operating results can fluctuate significantly due to the size and timing of customer orders and projects, making them difficult to predict and potentially leading to operating losses[208][211][212] - The Chairman, President, and CEO, Arthur D. Sams, beneficially owns approximately 32% of common stock, giving him significant influence over corporate matters[213] - The price of the common stock is volatile, and a prolonged decline could hinder the ability to raise further working capital, potentially impacting operations[214][215][216] - The company does not anticipate paying cash dividends, meaning stockholders must rely on stock appreciation for any return on investment[217][219] - The company faced Nasdaq delisting concerns due to the Bid Price Rule, which was resolved by a 1:7 reverse stock split on November 18, 2024, and subsequent regaining of compliance[220][222][223][224][227] - Failure to maintain an effective system of internal control over financial reporting could lead to inaccurate financial results, fraud, and a decline in stock price[236][241] - Raising additional capital through equity or convertible debt offerings could result in substantial dilution of existing stockholders' ownership[243][244] - The board of directors' authority to issue preferred stock could adversely affect the market value of common stock, dilute voting power, and delay or prevent a change of control[245][246][247] ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or use of proceeds during the period covered by this report - No unregistered sales of equity securities or use of proceeds were reported[248] ITEM 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities for the period - No defaults upon senior securities were reported[249] ITEM 4. Mine Safety Disclosure The company states that this item is not applicable for its operations - Mine Safety Disclosure is not applicable to the company[250] ITEM 5. Other Information The company reported no other information for the period - No other information was reported[251] ITEM 6. Exhibits This section lists all exhibits filed as part of the Quarterly Report on Form 10-Q, including various certifications and Inline XBRL documents - Exhibits include certifications required by Rule 13a-14(a) and 18 U.S.C. Section 1350, as well as Inline XBRL documents[254]