Polar Power(POLA) - 2024 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION ITEM 1. Condensed Financial Statements This section presents the company's unaudited condensed financial statements as of March 31, 2024 Condensed Balance Sheets Total assets decreased to $23.9 million while total liabilities increased as of March 31, 2024 | Metric (in thousands of USD) | March 31, 2024 (Unaudited) | December 31, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | 212 | 549 | | Accounts receivable | 1,282 | 1,676 | | Inventories | 16,221 | 16,522 | | Total assets | 23,862 | 25,259 | | Liabilities and Stockholders' Equity | | | | Accounts payable | 1,194 | 1,762 | | Customer deposits | 2,545 | 1,618 | | Line of credit | 4,914 | 4,238 | | Total liabilities | 12,815 | 12,070 | | Stockholders' equity | 11,047 | 13,189 | | Total liabilities and stockholders' equity | 23,862 | 25,259 | Unaudited Condensed Statements of Operations Net sales fell 58% for the three months ended March 31, 2024, leading to a gross loss and a net loss of $2.1 million | Metric (in thousands of USD) | March 31, 2024 (Unaudited) | March 31, 2023 (Unaudited) | | :--- | :--- | :--- | | Net sales | 1,775 | 4,190 | | Cost of sales | 2,177 | 3,435 | | Gross profit (loss) | (402) | 755 | | Operating expenses | 1,577 | 1,790 | | Operating loss | (1,979) | (1,035) | | Interest expense and finance costs | (163) | (78) | | Net loss | (2,142) | (1,113) | | Net loss per share, basic and diluted | (0.12) | (0.09) | | Weighted-average shares outstanding | 17,561,612 | 12,949,550 | Unaudited Condensed Statements of Stockholders' Equity Total stockholders' equity decreased from $13.2 million to $11.0 million, driven by a net loss of $2.1 million this quarter | Metric (in thousands of USD) | Balance as of Dec 31, 2023 | Net Loss | Balance as of Mar 31, 2024 (Unaudited) | | :--- | :--- | :--- | :--- | | Common stock | 2 | — | 2 | | Additional paid-in capital | 38,886 | — | 38,886 | | Accumulated deficit | (25,659) | (2,142) | (27,801) | | Treasury stock | (40) | — | (40) | | Total Stockholders' Equity | 13,189 | (2,142) | 11,047 | Unaudited Condensed Statements of Cash Flows Cash used in operations was $989 thousand, while financing activities provided $652 thousand, resulting in a net cash decrease | Source of Cash Flow (in thousands of USD) | March 31, 2024 (Unaudited) | March 31, 2023 (Unaudited) | | :--- | :--- | :--- | | Net cash from operating activities | (989) | (1,156) | | Net cash from investing activities | — | — | | Net cash from financing activities | 652 | 1,064 | | Net decrease in cash and cash equivalents | (337) | (92) | | Cash and cash equivalents at beginning of period | 549 | 211 | | Cash and cash equivalents at end of period | 212 | 119 | NOTES TO CONDENSED FINANCIAL STATEMENTS The notes detail the company's operations, accounting policies, financial condition, and recent accounting standard updates NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note outlines the company's business, accounting policies, and key estimates used in financial reporting - The company designs, manufactures, and sells DC power systems for off-grid, weak-grid, backup power, EV charging, and microgrid applications, integrating DC generators, proprietary electronics, lithium batteries, and solar PV technology[21] - As of March 31, 2024, the company incurred a net loss of $2,142 thousand and cash outflow from operating activities of $989 thousand, raising substantial doubt about its ability to continue as a going concern[22] - Inflation, Federal Reserve interest rate hikes, and rising energy prices may increase the company's cost of capital and operating expenses[24] - As of March 31, 2024, the company's largest customer (a U.S. Tier 1 wireless telecom carrier) contributed 49% of revenue, and the second-largest customer (a U.S. military market customer) contributed 25% of revenue; telecom customers accounted for 71% of total revenue, and international sales were 6%[44] - The company uses the Black-Scholes option-pricing model to estimate the fair value of stock-based awards and recognizes compensation expense over the vesting period[38] - The company operates as a single operating segment, with the CEO acting as the chief operating decision maker[43] - As of March 31, 2024, the two largest accounts receivable customers represented 70% and 10% of the company's accounts receivable, respectively[45] - As of March 31, 2024, the three largest suppliers accounted for 37%, 9%, and 5% of the company's accounts payable, respectively[46] - The company has adopted ASU 2016-13 (Credit Losses) and ASU 2023-07 (Segment Reporting) with no material impact on its financial statements; ASU 2023-09 (Income Tax Disclosures) is not expected to have a material impact[49][50][51] Net Sales by Product Type (in thousands of USD) | Product Type | March 31, 2024 (Unaudited) | March 31, 2023 (Unaudited) | | :--- | :--- | :--- | | DC Power Systems | 1,567 | 4,081 | | Engineering and Technical Support Services | 86 | 24 | | Parts and Accessories | 122 | 85 | | Total Net Sales | 1,775 | 4,190 | Net Sales by Customer Type (in thousands of USD) | Customer Type | March 31, 2024 (Unaudited) | March 31, 2023 (Unaudited) | | :--- | :--- | :--- | | Telecom | 1,258 | 3,988 | | Government/Military | 460 | 193 | | Marine | 38 | — | | Other | 19 | 9 | | Total Net Sales | 1,775 | 4,190 | Net Sales by Geographic Region (in thousands of USD) | Geographic Region | March 31, 2024 (Unaudited) | March 31, 2023 (Unaudited) | | :--- | :--- | :--- | | United States | 1,675 | 3,065 | | South Pacific Islands | 79 | 1,120 | | Japan | 20 | — | | Other Asia Pacific | 1 | 5 | | Total Net Sales | 1,775 | 4,190 | Inventory Composition (in thousands of USD) | Inventory Type | March 31, 2024 (Unaudited) | December 31, 2023 | | :--- | :--- | :--- | | Raw materials | 14,205 | 14,313 | | Finished goods | 2,016 | 2,209 | | Total Inventory | 16,221 | 16,522 | Product Warranty Liability Changes (in thousands of USD) | Metric | March 31, 2024 (Unaudited) | December 31, 2023 | | :--- | :--- | :--- | | Beginning Balance | 600 | 600 | | Payments | (71) | (469) | | Warranty Provision | 71 | 469 | | Ending Balance | 600 | 600 | Anti-Dilutive Securities (shares) | Security Type | March 31, 2024 (Unaudited) | March 31, 2023 (Unaudited) | | :--- | :--- | :--- | | Options | 140,000 | 140,000 | | Warrants | — | 24,122 | | Total | 140,000 | 164,122 | NOTE 2 – PROPERTY AND EQUIPMENT Net property and equipment decreased to $278 thousand due to depreciation and amortization - For the three months ended March 31, 2024 and 2023, depreciation and amortization expense for property and equipment was $66 thousand and $116 thousand, respectively[52] | Property and Equipment (in thousands of USD) | March 31, 2024 (Unaudited) | December 31, 2023 | | :--- | :--- | :--- | | Shop equipment and machinery | 3,565 | 3,565 | | Production tools, jigs, fixtures | 71 | 71 | | Vehicles | 177 | 177 | | Leasehold improvements | 390 | 390 | | Office equipment | 185 | 185 | | Software | 106 | 106 | | Total cost of property and equipment | 4,494 | 4,494 | | Less: Accumulated depreciation and amortization | (4,216) | (4,150) | | Net property and equipment | 278 | 344 | NOTE 3 – NOTES PAYABLE, RELATED PARTY The company has an outstanding loan balance of $257 thousand from its CEO, with $180 thousand due in May 2024 - As of March 31, 2024, the company had three loans totaling $257 thousand from its CEO, which are unsecured with a 1% annual interest rate; $180 thousand is due in May 2024, and the company is processing an extension[53] NOTE 4 – NOTES PAYABLE Total notes payable amounted to $40 thousand as of March 31, 2024, all classified as current liabilities - As of March 31, 2024, the total monthly principal and interest payments on outstanding notes payable were approximately $8 thousand[56] | Notes Payable (in thousands of USD) | March 31, 2024 (Unaudited) | December 31, 2023 | | :--- | :--- | :--- | | Total equipment notes payable | 40 | 64 | | Less: Current portion | 40 | 64 | | Notes payable, non-current portion | — | — | NOTE 5 – LINE OF CREDIT The company's revolving credit facility with Pinnacle Bank matures on September 30, 2024 - The company's loan agreement with Pinnacle Bank provides a revolving line of credit up to $7,500 thousand, secured by accounts receivable and inventory[57] - As of March 31, 2024, the outstanding balance on the line of credit was $4,914 thousand, with $216 thousand available for borrowing[58] - The interest rate for accounts receivable borrowings is the prime rate plus 1.25% (not less than 3.75%), and for inventory borrowings, it is the prime rate plus 2.25% (not less than 4.75%)[59] NOTE 6 – OPERATING LEASES The company has two primary operating lease agreements for its facilities, both extended through 2026 - The company's two primary operating lease agreements have been extended through 2026, with a total commitment of $3,896 thousand[62] | Operating Lease Information (in thousands of USD) | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Net right-of-use assets, long-term | 2,530 | 2,818 | | Current portion of operating lease liabilities | 1,197 | 1,124 | | Non-current portion of operating lease liabilities | 1,537 | 1,856 | | Total operating lease liabilities | 2,734 | 2,980 | | Lease Liability Maturities (in thousands of USD) | | :--- | :--- | | Year Ending | Operating Leases | | 2024 (remaining 9 months) | 968 | | 2025 | 1,446 | | 2026 | 496 | | Total lease payments | 2,910 | | Less: Imputed interest/present value discount | (176) | | Present value of lease liabilities | 2,734 | NOTE 7 – STOCK OPTIONS As of March 31, 2024, the company had 140,000 fully vested stock options outstanding - As of March 31, 2024, all 140,000 options were fully vested with exercise prices ranging from $4.84 to $5.60; 30,000 options expire in December 2027, and the remaining 110,000 expire in April 2028[66] | Stock Option Activity | Number of Options | Weighted-Average Exercise Price | | :--- | :--- | :--- | | Outstanding at December 31, 2023 | 140,000 | $5.22 | | Granted | — | — | | Exercised | — | — | | Outstanding at March 31, 2024 (Unaudited) | 140,000 | $5.22 | | Exercisable at March 31, 2024 (Unaudited) | 140,000 | $5.22 | NOTE 8 – STOCK WARRANTS The company had no outstanding stock warrants as of March 31, 2024 - As of December 31, 2023, and March 31, 2024, the company had no outstanding stock warrants, as they were previously exchanged for 12,062 shares of common stock on a cashless basis on November 9, 2023[68] NOTE 9 - EMPLOYEE RETENTION CREDITS The company expects to receive approximately $2.0 million in Employee Retention Credits for 2021 - The company earned approximately $2,000 thousand in Employee Retention Credits (ERC) in 2021, which remains as a receivable as of March 31, 2024, though $700 thousand was received subsequent to the reporting period[69] ITEM 2. Management's Discussion And Analysis Of Financial Condition And Results Of Operations This section analyzes the company's financial condition and results of operations for the period ended March 31, 2024 Overview The company designs and sells DC power systems and is diversifying into non-telecom markets with new product launches - The company primarily provides DC power systems for the telecom market and is actively diversifying into the military, EV charging, marine, and industrial markets[73] - In the first quarter of 2024, the telecom market accounted for 71% of total net sales, down from 95% in the same period of 2023, indicating market diversification[76] - The company is promoting DC generators powered by optimized propane, natural gas, and ultra-long-life Toyota 1KS engines to address diesel engine restrictions and environmental regulations[77] - The company plans to launch an upgraded mobile CHAdeMO EV charger in the second half of 2024 and promote its DC generators to the military, advanced mobility, and marine markets[81][82] Effects of Inflation Inflation did not materially impact operations for the three months ended March 31, 2024 - For the three months ended March 31, 2024, inflation did not have a material impact on the company's operations, but future rapid changes in the global economy could cause inflation to spike and affect the company's financial condition[84] Recent Business Events The company experienced four consecutive months of sales growth in Q1 2024 and received a $2 million order in April - In the first quarter of 2024, the company experienced four consecutive months of sales growth[85] - In April 2024, the company received a $2 million order from a telecom customer[85] - The company plans to hire additional staff to shorten product delivery lead times and has already increased sales and marketing personnel to expand its customer base[91] Critical Accounting Policies and Estimates The company's financial statements rely on significant management estimates, with no major policy changes this quarter - The preparation of the company's financial statements depends on significant management estimates and assumptions, such as allowances for doubtful accounts, inventory valuation, impairment of long-lived assets, deferred tax asset realizability, and warranty reserves[87] - There were no material changes to critical accounting policies this quarter, which are consistent with those described in the annual report for the year ended December 31, 2023[87] Impact of New Accounting Pronouncements The adoption of new accounting standards did not have a material impact on the company's financial statements - The company has adopted ASU 2016-13 (Credit Losses) and ASU 2023-07 (Segment Reporting) with no material impact on its financial statements[88] - ASU 2023-09 (Income Tax Disclosures), effective after December 15, 2024, is not expected to have a material impact[88] Financial Performance Summary and Outlook Q1 2024 net sales fell 58% to $1.8 million, but the company secured $5.7 million in new orders, boosting its backlog - The decrease in net sales was primarily due to shipping delays for a large international customer, but sales improved toward the end of the quarter[89] - The company received $5,700 thousand in new orders in Q1 2024, with 54% from U.S. telecom customers, 34% from international telecom markets, and 11% from the military market[90] - As of March 31, 2024, the total order backlog was $7,700 thousand, with most shipments expected within the next six to twelve months[90][121] Q1 2024 Financial Performance Summary (in thousands of USD) | Metric | March 31, 2024 | March 31, 2023 | Change (%) | | :--- | :--- | :--- | :--- | | Net Sales | 1,775 | 4,190 | -58% | | Net Loss | (2,142) | (1,113) | -92% | Results of Operations This section analyzes the changes in operating results for Q1 2024 compared to the same period in 2023 Q1 2024 vs Q1 2023 Results of Operations (in thousands of USD) | Metric | March 31, 2024 | March 31, 2023 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net sales | 1,775 | 4,190 | (2,415) | (58)% | | Cost of sales | 2,177 | 3,435 | 1,258 | 37% | | Gross profit (loss) | (402) | 755 | (1,157) | (153)% | | Sales and marketing expenses | 231 | 333 | 102 | 31% | | Research and development expenses | 220 | 346 | 126 | 36% | | General and administrative expenses | 1,126 | 1,111 | (15) | (1)% | | Operating loss | (1,979) | (1,035) | (944) | (91)% | | Interest and finance costs | (163) | (78) | (85) | (109)% | | Net loss | (2,142) | (1,113) | (1,029) | (92)% | Net Sales Q1 2024 net sales decreased by 58% year-over-year to $1.8 million due to shipping delays for a large international customer - Net sales decreased by $2,415 thousand (58%) to $1,775 thousand, primarily due to shipping delays for a large international customer[96] - In Q1 2024, sales to U.S. telecom customers accounted for 65% of total sales, while international sales accounted for 6%[97] Cost of Sales Cost of sales decreased by 37% in Q1 2024, but increased as a percentage of net sales due to lower production volumes - Cost of sales decreased by $1,258 thousand (37%) to $2,177 thousand, primarily due to lower production volumes[98] - As a percentage of net sales, the cost of sales increased from 82.0% to 122.6% year-over-year, mainly due to under-absorption of factory overhead[98][99] Gross Profit (Loss) The company recorded a gross loss of $402 thousand in Q1 2024, a 153% decline from the prior year's gross profit - In Q1 2024, the company recorded a gross loss of $402 thousand, a decrease of $1,157 thousand (153%) from a gross profit of $755 thousand in the prior-year period[101] - The gross loss represented 22.6% of net sales, compared to a gross profit of 18.0% in the prior-year period, primarily due to excess overhead from lower sales[101][102] Sales and Marketing Expenses Sales and marketing expenses decreased by 31% in Q1 2024 due to a slight reduction in sales support staff - Sales and marketing expenses decreased by $102 thousand (31%) to $231 thousand, mainly due to a slight reduction in sales support staff[103] - The company plans to increase sales staff and marketing activities in 2024 to support its diversification strategy and expand its customer base[103] Research and Development Expenses R&D expenses decreased by 36% in Q1 2024 due to a reduction in engineering staff - R&D expenses decreased by $126 thousand (36%) to $220 thousand, primarily due to a reduction in engineering staff[104] - The company plans to hire more engineers in 2024 to support new product development and customer diversification[104] General and Administrative Expenses General and administrative expenses remained relatively flat year-over-year at $1.1 million - General and administrative expenses were $1,126 thousand in Q1 2024, remaining relatively flat compared to $1,111 thousand in the same period of 2023[105] Interest and Finance Costs Interest expense increased by $85 thousand in Q1 2024 due to higher borrowings on the line of credit - Interest expense increased by $85 thousand to $163 thousand, primarily due to increased borrowings on the Pinnacle Bank line of credit[105] Net Loss The net loss for Q1 2024 widened to $2.1 million, or $0.12 per share - The net loss for Q1 2024 was $2,142 thousand, or $0.12 per basic and diluted share, compared to a net loss of $1,113 thousand, or $0.09 per share, in the same period of 2023[106] Liquidity and Capital Resources The company funds its operations through cash on hand and its credit facility, with working capital of $9.7 million - As of March 31, 2024, the company's working capital was $9,668 thousand, a decrease of $2,107 thousand from December 31, 2023[108] - As of March 31, 2024, cash and cash equivalents were $212 thousand, a decrease from $549 thousand at December 31, 2023[111] - The company anticipates that future capital sources will primarily include cash on hand, cash from operations (if any), borrowings from the Pinnacle Bank credit facility, and future debt or equity financings (if any)[111] Sources of Liquidity The company's primary sources of liquidity are cash on hand and a $2.0 million receivable for Employee Retention Credits - As of March 31, 2024, the company had working capital of $9,668 thousand and cash and cash equivalents of $212 thousand[108][111] - As of March 31, 2024, the company held a $2,000 thousand receivable for Employee Retention Credits, which is still being processed by the IRS[110] Credit Facility The company's revolving credit facility provides up to $7.5 million and matures in September 2024 - The company's revolving credit facility with Pinnacle Bank provides up to $7,500 thousand, is secured by accounts receivable and inventory, and matures on September 30, 2024[114] - As of March 31, 2024, the outstanding balance on the credit facility was $4,914 thousand, with $216 thousand available for borrowing[116] - The loan agreement includes a financial covenant requiring the company to maintain an effective tangible net worth greater than $6,000 thousand, a requirement the company met as of March 31, 2024[115][60] Cash Flow In Q1 2024, cash decreased by $337 thousand, driven by cash used in operations and partially offset by financing activities | Cash Flow Summary (in thousands of USD) | | :--- | :--- | :--- | | Source of Cash Flow | March 31, 2024 (Unaudited) | March 31, 2023 (Unaudited) | | Net cash from operating activities | (989) | (1,156) | | Net cash from investing activities | — | — | | Net cash from financing activities | 652 | 1,064 | | Net decrease in cash | (337) | (92) | Operating Activities Cash used in operating activities decreased to $989 thousand in Q1 2024 from $1.2 million in the prior-year period - In Q1 2024, cash used in operating activities was $989 thousand, a decrease from $1,156 thousand in the same period of 2023[118] - The decrease in cash used was primarily due to a $927 thousand increase in customer deposits, a $394 thousand decrease in accounts receivable, and a $301 thousand decrease in inventory, partially offset by a $2,142 thousand net loss and a $583 thousand decrease in accounts payable[118] Investing Activities The company had no investing activities in the first quarters of 2024 and 2023 - The company had no investing activities in the first quarters of 2024 and 2023[119] Financing Activities Financing activities provided $652 thousand in cash during Q1 2024, primarily from credit facility borrowings - In Q1 2024, financing activities provided $652 thousand in cash, primarily from borrowings on the Pinnacle Bank line of credit[120] Backlog As of March 31, 2024, the company's order backlog totaled $7.7 million, with most shipments expected within 6-12 months - As of March 31, 2024, the company's order backlog totaled $7,700 thousand[121] - The backlog consists of 40% from U.S. telecom customers, 50% from international telecom customers, 8% from the military market, and 2% from other markets[121] - The company expects to ship the majority of its backlog within the next six to twelve months[121] ITEM 3. Quantitative and Qualitative Disclosures About Market Risk This section is not applicable as the company has not provided quantitative and qualitative disclosures about market risk - This section is not applicable[122] ITEM 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2024 Evaluation of Disclosure Controls and Procedures Management concluded that disclosure controls and procedures were effective at a reasonable assurance level - As of March 31, 2024, the company's management concluded that its disclosure controls and procedures were effective at a reasonable assurance level[123] Changes in Internal Control over Financial Reporting No material changes to internal control over financial reporting occurred during the quarter - During the three months ended March 31, 2024, there were no changes in internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, such controls[124] PART II – OTHER INFORMATION ITEM 1. Legal Proceedings The company is not currently involved in any material legal proceedings - The company is not currently involved in any legal proceedings that could have a material adverse effect on its business, prospects, financial condition, or results of operations[126] ITEM 1A. Risk Factors This section details various risks that could materially and adversely affect the company's business and stock price Risks Related to Our Business and Industry The company faces numerous business risks, including geopolitical uncertainty, customer concentration, and supply chain disruptions - The COVID-19 pandemic and its recovery have had and will continue to have a significant negative impact on the company's business, sales, operating results, and financial condition[129][131] - Geopolitical events like the Russia-Ukraine war and the Hamas-Israel conflict could cause supply chain disruptions, delayed customer spending, and adversely affect the company's business, financial condition, and stock price[132][133] - The company has a history of significant losses and may continue to incur losses in the future, which could hinder its operations and business expansion[134] - The company's revenue is heavily dependent on sales of DC base power systems to a single customer in the U.S. telecom market, and failure to diversify its customer base or markets could reduce revenue growth[135][136] - The design and sales cycle for DC power systems is long (3 to 24 months), which may cause the company to incur significant sales, service, engineering, and R&D expenses before receiving an order[137][139] - The company generally lacks long-term volume purchase commitments from customers, making revenue dependent on future new purchase orders, and failure to maintain and expand customer relationships could have a material adverse effect[140] - The company faces inventory risk and may need to record additional inventory write-downs if estimates of net realizable value are inaccurate or customer demand changes unexpectedly[142][143] - Shortages, cost increases, or extended lead times for raw materials (such as aluminum, copper, engines, electronic components, and permanent magnets) could adversely affect the company's sales and profitability[144][161] - The company operates in a highly competitive market, and many competitors have greater financial and other resources, which could adversely affect the company through price reductions or market share competition[145][146] - Rapid technological changes could render existing products, services, and technologies obsolete, and the company's failure to respond effectively and in a timely manner could materially harm its business[147][148] - The company depends on key material suppliers (such as Yanmar, Toyota, and Perkins for engines), and the loss of any supplier or failure to find timely replacements could adversely affect its business[157] - Price increases for key components could lead to higher production costs, and due to competitive market conditions, the company may not be able to pass all costs on to customers, thereby affecting profit margins[159] - Some key components are sourced from overseas (primarily in Asia), and international procurement faces additional risks such as inflation, changes in political and economic conditions, tariffs, trade restrictions, and currency fluctuations[160][161] - Any prolonged disruption at the company's two production facilities in Gardena could lead to a decline in sales and profitability[162] - The company's business operations are subject to strict federal, state, local, and foreign laws and regulations, and failure to comply could result in significant fines or restrictions[163][164] - The company's products are used in critical communications networks, and it could face significant liability claims if its products fail[165] - The company faces risks associated with international sales, including challenges in complying with the U.S. Foreign Corrupt Practices Act and other anti-bribery laws, and failure to manage these risks could harm its business[166][167][168][169] - Cyber-attacks and security breaches could lead to business interruptions, reduced revenue, increased costs, liability claims, or damage to the company's reputation and competitive position[171][172][173][174] Risks Related to Our Intellectual Property The company's success depends on protecting its proprietary technology, and it faces risks of infringement claims - The company's failure to adequately protect its intellectual property could result in the loss of important proprietary technology, which would have a material adverse effect on its business[176][178][179] - The company may face third-party intellectual property infringement claims, which could result in costly litigation, significant damages, or restrictions on product sales[180][181] Risks Related to Our Common Stock The company's common stock is subject to risks including price volatility, potential delisting, and shareholder dilution - The company's operating results are highly volatile and difficult to predict, which could cause quarterly results to fall below expectations and impact the stock price[183][184][186][187] - The company's Chairman, President, and CEO, Arthur D. Sams, holds approximately 32% of the common stock, giving him significant influence over matters requiring shareholder approval[188] - The price of the company's common stock is highly volatile and may fluctuate significantly due to various factors, including limited trading volume, competition, customer loss, performance volatility, and financing announcements[189][190][193] - A prolonged decline in the common stock price could result in reduced liquidity and affect the company's ability to raise additional working capital, thereby adversely impacting business operations[191] - The company does not intend to pay cash dividends, and shareholders' return on investment will depend on stock price appreciation[192][194] - The company's failure to meet Nasdaq listing requirements (such as minimum stock price and independent director requirements) could result in the delisting of its common stock from the Nasdaq Capital Market[195][196][197][199][200] - If securities or industry analysts do not publish research or issue inaccurate or unfavorable reports, the company's stock price and trading volume could decline[202] - The company has opted out of Section 203 of the Delaware General Corporation Law, which may make it more vulnerable to takeovers not approved by the board[203] - Certain provisions in the company's charter documents and Delaware law may have an anti-takeover effect, potentially preventing or increasing the cost of an acquisition even if it is beneficial to shareholders[204][205][206] - The company's charter designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of lawsuits, which may limit a stockholder's ability to choose a favorable judicial forum[207][209] - Failure to maintain effective internal control over financial reporting could result in inaccurate financial reporting or fraud, harming investor confidence and the stock price[210][211][214][216] - As a public company, the company incurs significant legal, accounting, and other compliance costs, and management must devote substantial time to compliance initiatives[212][213] - Future capital raising through equity offerings or debt financing could result in significant dilution to existing shareholders and may impose restrictions on the company's operations[217][218] - The issuance of preferred stock could adversely affect the market value of the common stock, dilute the voting power of common stockholders, and delay or prevent a change in control[219][220][221] ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities or use of proceeds during the quarter - There were no unregistered sales of equity securities or use of proceeds during the quarter[222] ITEM 3. Defaults Upon Senior Securities This section is not applicable - This section is not applicable[223] ITEM 4. Mine Safety Disclosure This section is not applicable - This section is not applicable[224] ITEM 5. Other Information There is no other information to disclose for the quarter - There is no other information to disclose for the quarter[225] ITEM 6. Exhibits This section lists the exhibits filed with this quarterly report, including certifications and XBRL data files Exhibit List | Exhibit No. | Description | | :--- | :--- | | 31.1 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended | | 31.2 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended | | 32.1 | Certification of CEO and CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | | 101.INS | Inline XBRL Instance Document | | 101.SCH | Inline XBRL Taxonomy Extension Schema | | 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase | | 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase | | 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase | | 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase | | 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) | SIGNATURES The report was signed on May 15, 2024, by Arthur D. Sams, President, CEO, and Secretary - This report was signed on May 15, 2024, by Arthur D. Sams, President, Chief Executive Officer, and Secretary[232]