| ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 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”).
The Company designs, manufactures and sells direct current, or DC, power systems to supply reliable and low-cost energy to off-grid,
bad-grid and backup power, electric vehicle (EV) charging, and nano-grid applications. The Company’s products integrate DC generator,
proprietary electronic control systems, lithium batteries and solar photovoltaic (PV) technologies to provide low operating cost and
emissions for telecommunications, defense, automotive, nano-grid, EV charging and industrial markets. Liquidity
The
accompanying financial statements have been prepared under the assumption that the Company will continue as a going concern. Such assumption
contemplates the realization of assets and satisfaction of liabilities in the normal course of business. For the six months ended June
30, 2022, the Company recorded a net loss of $1,859 2,311 2,656 2,806 21,391 20,138 Historically,
we have financed our operations through public and private sales of common stock, credit lines from financial institutions, and cash
generated from operations to provide the Company the liquidity and capital resources to fund its operating expenses and capital expenditure
requirements. The Company expects to continue investing in product development and sales and marketing activities and has taken action
to improve our margins, and are continuing to build a strong back log. The long-term continuation of the Company’s business plan
is dependent upon the generation of sufficient revenues from its products to offset expenses. In the event that the Company does not
generate sufficient cash flows from operations and is unable to obtain funding, the Company will be forced to delay, reduce, or eliminate
some or all of its discretionary spending, which could adversely affect the Company’s business prospects, ability to meet long-term
liquidity needs or ability to continue operations. Impact
of COVID-19 The
Company continues to monitor the evolving COVID-19 pandemic and related guidance from international and domestic authorities, including
federal, state and local public health authorities and it may need to make changes to its business based on their recommendations. COVID-19
has had, and is likely to continue to have, a material and substantial adverse impact on the Company’s results of operations including,
among others, a decrease in the Company’s sales and delays in sourcing of raw materials from suppliers. The Company’s business
is directly dependent upon, and correlates closely with, the marketing levels and ongoing business activities of its existing customers
and suppliers. In the event of a continued widespread economic downturn caused by COVID-19, the Company could experience a further reduction
in current projects, longer sales and collection cycles, deferral or delay of purchase commitments for its DC power systems, a reduction
in its manufacturing functionality, higher than normal inventory levels, a reduction in the availability of qualified labor, and increased
price competition, all of which could substantially adversely affect its net revenues and its ability to remain a going concern. The
extent of the impact of COVID-19 on its operational and financial performance will depend on certain developments, including the duration
and potential resurgence of the outbreak, the impact on its customers and sales cycles, the impact on its customer, employee or industry
events, the impact on inflation and the effect on the supply chain, all of which are uncertain and cannot be predicted. At this point,
the Company is uncertain of the full magnitude that the COVID-19 pandemic may have on our financial condition, liquidity and future results
of operations. Basis
of Presentation of Unaudited Financial Information The
unaudited condensed financial statements of the Company for the three and six months ended June 30, 2022 and 2021 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, 2021 was derived from
the audited financial statements included in the Company’s financial statements as of and for the years ended December 31, 2021
and 2020 contained in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission, or the SEC, on
March 31, 2022. 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
reserves for uncollectible receivables, inventory reserves and returns, impairment analysis of long-term assets, valuation allowance
on deferred tax assets, income tax accruals, accruals for potential liabilities and warranty reserves and assumptions made in valuing
equity instruments issued for services. 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. The Company also generates revenues from engineering, tech support,
and rental services. Product or service 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 regularly reviews its customers’ financial positions to ensure that collectability
is reasonably assured. 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 and six-month periods ended June 30, 2022 and 2021. 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
2022 (Unaudited) 2021 (Unaudited)
DC power systems $ 4,199 $ 4,635
Engineering & Tech Support Services 32 142
Accessories 43 70
Total net sales $ 4,274 $ 4,847
Six months ended
2022 (Unaudited) 2021 (Unaudited)
DC power systems $ 7,816 $ 7,860
Engineering & Tech Support Services 76 170
Accessories 91 107
Total net sales $ 7,983 $ 8,137 The
following table shows the Company’s disaggregated net sales by customer type:
Three months ended
2022 (Unaudited) 2021 (Unaudited)
Telecom $ 4,228 $ 4,440
Government/Military 12 134
Marine 3 14
Other (backup DC power to various industries ) 31 259
Total net sales $ 4,274 $ 4,847
Six months ended
2022 (Unaudited) 2021 (Unaudited)
Telecommunications $ 7,898 $ 7,492
Government/Military 29 165
Marine 17 14
Other (backup DC power to various industries ) 39 466
Total net sales $ 7,983 $ 8,137 Inventories Inventories
are stated at the lower of cost or net realizable value, with cost determined on a first-in, first-out (“FIFO”) basis. As
of June 30, 2022 and December 31, 2021, inventory has been reduced by cumulative write-downs totaling $ 3,300 3,500 SCHEDULE OF INVENTORIES NET
June 30, 2022 (unaudited) December 31, 2021
Raw materials $ 8,863 $ 6,607
Finished goods 3,122 2,410
Total Inventories $ 11,985 $ 9,017 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, 2022 and December 31, 2021, the Company had accrued a liability for warranty reserve of $ 600 600 SCHEDULE OF RECONCILIATION OF THE PRODUCT WARRANTY LIABILITY
Changes in estimates for warranties June 30, 2022 (unaudited) December 31, 2021
Balance at beginning of the period $ 600 $ 600
Payments (290 ) (658 )
Provision for warranties 290 658
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 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 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, notes payable approximate
their fair values due to the fact that the interest rates on these obligations are based on prevailing market interest rates. Segments The
Company operates in one segment for the manufacture and distribution of its products. In accordance with the “Segment Reporting”
Topic of the ASC, the Company’s chief operating decision maker has been identified as the Chief Executive Officer and President,
who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company. Existing
guidance, which is based on a management approach to segment reporting, establishes requirements to report selected segment information
quarterly and to report annually entity-wide disclosures about products and services, major customers, and the countries in which the
entity holds material assets and reports revenue. All material operating units qualify for aggregation under “Segment Reporting”
due to their similar customer base and similarities in: economic characteristics; nature of products and services; and procurement, manufacturing
and distribution processes. Since the Company operates in one segment, all financial information required by “Segment Reporting”
can be found in the accompanying financial statements. Concentrations Cash Cash
denominated in Australian Dollars with a U.S. Dollar equivalent of $ 13 9 18 23 Revenues.
88 77 99 92 2 2 For
the six months ended June 30, 2022, sales to the Company’s largest customer, a Tier-1 telecommunications wireless carrier in the
U.S., accounted for 89 70 99 92 1 12 Accounts
receivable 94 At
December 31, 2021, the Company’s two largest receivable accounts represented 74 15 Accounts
payable 16 8 8 On December 31, 2021, the three largest accounts payable accounts to the Company’s
vendors represented 16 9 9 Net
Loss Per Share Basic
net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding for the period. Diluted
earnings per share is computed by dividing the net income applicable to common stockholders by the weighted average number of common
shares outstanding plus the number of additional common shares that would have been outstanding if all dilutive potential common shares
had been issued using the treasury stock method. Potential common shares are excluded from the computation when their effect is antidilutive.
The dilutive effect of potentially dilutive securities is reflected in diluted net income per share if the exercise prices were lower
than the average fair market value of common shares during the reporting period. The
following potentially dilutive shares were excluded from the shares used to calculate diluted earnings per share as their inclusion would
be anti-dilutive: SCHEDULE OF DILUTED EARNINGS PER SHARE
June 30, 2022 (Unaudited) June 30, 2021
Options 140,000 140,000
Warrants 24,122 24,122
Total 164,122 164,122 Recent
Accounting Pronouncements In
September 2016, the FASB issued ASU No. 2016-13, Credit Losses - Measurement of Credit Losses on Financial Instruments (“ASC 326”).
The standard significantly changes how entities will measure credit losses for most financial assets, including accounts and notes receivables.
The standard will replace today’s “incurred loss” approach with an “expected loss” model, under which companies
will recognize allowances based on expected rather than incurred losses. Entities will apply the standard’s provisions as a cumulative-effect
adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. ASU 2016-13 is
effective for the Company beginning January 1, 2023, and early adoption is permitted. The adoption of ASU 2016-13 is not expected to
have a material impact on the Company’s financial position, results of operations, and cash flows. In
August 2020, the FASB issued ASU No. 2020-06 (“ASU 2020-06”) “Debt—Debt with Conversion and Other Options (Subtopic
470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40).” ASU 2020-06 reduces the number
of accounting models for convertible debt instruments by eliminating the cash conversion and beneficial conversion models. As a result,
a convertible debt instrument will be accounted for as a single liability measured at its amortized cost as long as no other features
require bifurcation and recognition as derivatives. By removing those separation models, the effective interest rate of convertible debt
instruments will be closer to the coupon interest rate. Further, the diluted net income per share calculation for convertible instruments
will require the Company to use the if-converted method. For contracts in an entity’s own equity, the type of contracts primarily
affected by this update are freestanding and embedded features that are accounted for as derivatives under the current guidance due to
a failure to meet the settlement conditions of the derivative scope exception. This update simplifies the related settlement assessment
by removing the requirements to (i) consider whether the contract would be settled in registered shares, (ii) consider whether collateral
is required to be posted, and (iii) assess shareholder rights. ASU 2020-06 is effective January 1, 2024, for the Company and the provisions
of this update can be adopted using either the modified retrospective method or a fully retrospective method. Early adoption is permitted,
but no earlier than January 1, 2021, including interim periods within that year. Effective January 1, 2021, the Company early adopted
ASU 2020-06 and that adoption did not have an impact on its financial statements and the related disclosures. In
May 2021, the FASB issued ASU 2021-04 “Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50),
Compensation— Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic
815- 40) Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options”
(“ASU 2021-04”). ASU 2021-04 provides guidance as to how an issuer should account for a modification of the terms or conditions
or an exchange of a freestanding equity-classified written call option (i.e., a warrant) that remains classified after modification or
exchange as an exchange of the original instrument for a new instrument. An issuer should measure the effect of a modification or exchange
as the difference between the fair value of the modified or exchanged warrant and the fair value of that warrant immediately before modification
or exchange and then apply a recognition model that comprises four categories of transactions and the corresponding accounting treatment
for each category (equity issuance, debt origination, debt modification, and modifications unrelated to equity issuance and debt origination
or modification). ASU 2021-04 is effective for all entities for fiscal years beginning after December 15, 2021, including interim periods
within those fiscal years. An entity should apply the guidance provided in ASU 2021-04 prospectively to modifications or exchanges occurring
on or after the effective date. The Company adopted ASU 2021-04 effective January 1, 2022. The adoption of ASU 2021-04 did not have any
impact on the Company’s financial statement presentation or disclosures. The
Company’s management does not believe that there are other recently issued but not yet effective authoritative guidance, if currently
adopted, would have a material impact on the Company’s financial statement presentation or disclosures. |
