Polar Power(POLA) - 2021 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION Condensed Financial Statements For Q1 2021, Polar Power, Inc. reported net sales of $3.29 million, a 15% increase year-over-year, but a net loss of $1.9 million, while cash and equity significantly increased due to a $12.5 million equity offering Condensed Statements of Operations (in thousands) | Financial Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Net Sales | $3,290 | $2,860 | | Gross loss | $(58) | $(160) | | Loss from operations | $(1,898) | $(2,320) | | Net loss | $(1,903) | $(201) | | Net loss per share | $(0.15) | $(0.02) | Condensed Balance Sheets (in thousands) | Account | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $11,358 | $1,646 | | Total current assets | $25,755 | $14,645 | | Total assets | $28,598 | $17,799 | | Total current liabilities | $4,500 | $4,522 | | Total liabilities | $5,837 | $6,308 | | Total stockholders' equity | $22,761 | $11,491 | Condensed Statements of Cash Flow (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | $(3,381) | $(1,867) | | Net cash provided by investing activities | $0 | $8 | | Net cash provided by (used in) financing activities | $13,093 | $(82) | | Increase (decrease) in cash | $9,712 | $(1,941) | - In February 2021, the company completed an underwritten public offering of 750,000 shares of common stock, receiving net proceeds of approximately $12.5 million[70] - For Q1 2021, sales to the telecommunications sector accounted for 93% of total net sales. The company's three largest customers generated 59%, 15%, and 11% of revenues, respectively[34][50] Management's Discussion And Analysis Of Financial Condition And Results Of Operations Management attributes Q1 2021 revenue growth to telecom demand, despite a gross loss, with liquidity significantly enhanced by a $12.5 million equity offering and increased backlog Overview and COVID-19 Impact The company, primarily serving the telecommunications market, experienced adverse impacts from COVID-19, leading to cost reductions and progress in international sales and military backlog diversification - The company designs and manufactures DC power systems, primarily for the telecommunications market, which accounted for 93% of net sales in Q1 2021[86][89] - The COVID-19 pandemic has had a material adverse impact, causing decreased sales and delays in sourcing raw materials, leading management to implement a cost reduction program[94][97] - International sales grew to 26% of total net sales for Q1 2021, up from 6% in Q1 2020, indicating progress in market diversification[90] - Backlog orders from military customers represented 19% of the total backlog as of March 31, 2021, highlighting growth in customer diversification[91] Results of Operations Net sales increased by 15% due to higher telecom demand, gross loss improved despite under-utilized facilities, and operating expenses decreased due to cost reduction efforts Comparison of Operations for Three Months Ended March 31 (in thousands) | Line Item | 2021 | 2020 | $ Variance | % Variance | | :--- | :--- | :--- | :--- | :--- | | Net sales | $3,290 | $2,860 | $430 | 15% | | Gross loss | $(58) | $(160) | $102 | 64% | | Total operating expenses | $1,840 | $2,160 | $320 | 15% | | Loss from operations | $(1,898) | $(2,320) | $422 | 18% | | Net loss | $(1,903) | $(201) | $(1,702) | (847)% | - The 15% increase in net sales was primarily driven by higher sales of DC power systems to Tier-1 telecommunications customers[120] - Gross loss improved due to increased shipments and better labor efficiencies, though manufacturing facilities remain under-utilized, negatively affecting margins[123] - Operating expenses decreased primarily due to a 32% reduction in sales and marketing expenses from COVID-19 travel restrictions and a 16% decrease in G&A expenses from staff reductions[124][126] Liquidity, Capital Resources, and Backlog Working capital significantly increased to $21.3 million due to a $12.5 million public stock offering, with a $5.6 million sales backlog primarily from telecom and military customers - Working capital increased to $21.3 million at March 31, 2021, from $10.1 million at year-end 2020, mainly due to net proceeds of approximately $12.5 million from a public stock offering in February 2021[130][132] - The company has a revolving credit facility of up to $4.0 million, with $2.5 million available as of March 31, 2021, and no outstanding balance[133][135] - The company holds a $1.7 million PPP loan from May 2020 and expects the full amount to be forgiven[137][139] - As of March 31, 2021, the company had a sales backlog of $5.6 million, comprised of 71% from telecommunications customers and 19% from military contractors[145] Quantitative and Qualitative Disclosures About Market Risk This section is not applicable to the company as a smaller reporting company - Not applicable[146] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2021, with no material changes to internal control over financial reporting - Based on an evaluation as of the end of the period, the principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective[147] - There were no changes in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[148] PART II – OTHER INFORMATION Legal Proceedings The company is not currently involved in any legal proceedings expected to have a material adverse effect on its business or financial condition - The company is not currently involved in any material legal proceedings[150] Risk Factors Key risks include the ongoing negative impact of COVID-19, heavy dependence on a few large telecom customers, inventory risk, reliance on key engine suppliers, and potential stock price volatility Business and Industry Risks The company faces significant risks from the COVID-19 pandemic, high customer concentration in U.S. telecommunications, substantial inventory risk, and dependence on key engine suppliers without long-term contracts - The COVID-19 pandemic has had, and is expected to continue to have, a significant negative impact on sales, operations, and the supply chain[153] - The company is highly dependent on three main customers in the U.S. telecommunications market (AT&T, T-Mobile, Verizon), and the loss or reduction of business from them could adversely affect results[160] - The company faces significant inventory risk, having recorded a $3.4 million inventory write-down in 2020 due to lower-than-expected demand[168] - There is a substantial dependence on key engine suppliers, primarily Yanmar and Toyota, without long-term supply contracts[180] Intellectual Property Risks The company's success relies on protecting proprietary technology primarily through trade secrets and confidentiality agreements, which offer limited protection compared to patents - The company's success depends on protecting its proprietary technology, primarily through trade secret laws and confidentiality agreements rather than patents, which offers limited protection[199][200] Common Stock Risks Risks include the significant influence of the CEO due to his 44% ownership, reduced reporting requirements as an "emerging growth company," and the absence of cash dividends - The company's Chairman, President, and CEO, Arthur D. Sams, beneficially owns approximately 44% of the outstanding common stock, giving him significant influence over corporate matters[211] - The company is an "emerging growth company" under the JOBS Act, which allows for reduced public company reporting requirements that may make its stock less attractive to some investors[226] - The company does not anticipate paying cash dividends, so stockholders must rely on stock appreciation for any return on investment[216] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - None[239] Defaults Upon Senior Securities This section is not applicable - Not applicable[240] Mine Safety Disclosure This section is not applicable - Not applicable[241] Other Information The company reported no other information for the period - None[242] Exhibits This section lists the exhibits filed with the Form 10-Q, which include officer certifications required by the Sarbanes-Oxley Act and interactive data files - The exhibits filed with this report include CEO/CFO certifications pursuant to Sarbanes-Oxley Act Sections 302 and 906, as well as XBRL Instance Documents[246]