| 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. Going Concern The
accompanying financial statements have been prepared under the assumption that the Company will continue as a going concern. In accordance
with Accounting Standards Codification (“ASC”) 205-40, Going Concern 6,548
and used cash in operations of $ 3,430 .
These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year of the date that
the financial statements are issued. The financial statements do not include any adjustments that might be necessary if the Company is
unable to continue as a going concern. As
of December 31, 2023, the Company had a cash balance of $ 549 ,
with borrowing capacity of $ 376 ,
11,775 COVID-19 The
aftermath of the pandemic has had a significant negative impact on our overall operations including revenues, productivity, gross margins
and liquidity. The pandemic has resulted in labor shortages, disruptions in the chain of supply, and higher material costs. We believe
that Covid-19 will be an ongoing challenge for years to come and to adapt will require us to further globalize our vendors, engineering,
and customers. 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. The extent to which COVID-19 may impact the Company’s business activities
and capital raising efforts will depend on future developments, which are uncertain and cannot be predicted. Inflation The
continuing impact of 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 its 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. 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”). The underlying principle of ASC 606 is to recognize revenue to depict the transfer of goods or services
to customers at the amount expected to be collected. ASC 606 creates a five-step model that requires entities to exercise judgment when
considering the terms of contract(s), which includes (1) identifying the contract(s) or agreement(s) with a customer, (2) identifying
the Company’s performance obligations in the contract or agreement, (3) determining the transaction price, (4) allocating the transaction
price to the separate performance obligations, and (5) recognizing revenue as each performance obligation is satisfied. 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 years ended December 31, 2023 and 2022. 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 (in thousands): SCHEDULE
OF DISAGGREGATED NET SALES
2023 2022
Years Ended December 31,
2023 2022
DC power systems $ 14,408 $ 15,219
Engineering & Tech Support Services 347 589
Accessories 538 248
Total net sales $ 15,293 $ 16,056 The
following table shows the Company’s disaggregated net sales by customer type (in thousands):
2023 2022
Years Ended December 31,
2023 2022
Telecom $ 14,516 $ 15,357
Government/Military 475 38
Marine 206 205
Other (backup DC power to various industries ) 96 456
Total net sales $ 15,293 $ 16,056 The
following tables shows the Company’s net sales by the respective geographical regions of our customers (in thousands): SCHEDULE
OF NET SALES BY GEOGRAPHICAL REGIONS
2023 2022
Years Ended
December 31,
2023 2022
United States $ 12,078 $ 12,073
Canada 267 87
Other N. America 8 —
Australia and South Pacific Islands 2,822 3,678
Asia 9 90
Europe and Middle East 85 128
S. Africa 24 —
Total net sales $ 15,293 $ 16,056 For
the years ended December 31, 2023 and 2022, international sales totaled $ 3,215 3,983 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. The
Company’s standard warranty on new products is two years from the date of delivery to the customer. The Company offers a limited
extended warranty of up to five years on its certified DC power systems based on application and usage. The Company’s warranties
are of an assurance-type and come standard with all Company products to cover repair or replacement should the product not perform as
expected. Provisions for estimated expenses related to product warranties are made at the time products are sold. These estimates are
established using historical information about the nature, frequency and average cost of warranty claim settlements as well as product
manufacturing and recovery from suppliers. Management actively studies trends of warranty claims and takes action to improve product
quality and minimize warranty costs. The Company estimates the actual historical warranty claims coupled with an analysis of unfulfilled
claims to record a liability for specific warranty purposes, which are included in accrued liabilities and other current liabilities
in the accompanying balance sheets. As of December 31, 2023 and 2022, the Company had accrued a liability for warranty reserve of $ 600 600 The
following is a tabular reconciliation of the product warranty liability, excluding the deferred revenue related to the Company’s
warranty coverage (in thousands): SCHEDULE
OF RECONCILIATION OF THE PRODUCT WARRANT LIABILITY
2023 2022
Years End December 31,
2023 2022
Changes in estimates for warranties
Balance at beginning of the period $ 600 $ 600
Payments (469 ) (508 )
Provision for warranties 469 508
Balance at end of the period $ 600 $ 600 Shipping
Costs Amounts
billed to a customer in a sales transaction related to shipping and handling are reported as revenue. Costs incurred by the Company for
shipping and handling are considered fulfillment costs and reported as cost of sales. Cash
and cash equivalents The
Company considers all highly liquid investments with an original maturity of 90 days or less when purchased to be cash equivalents. Cash
primarily consists of bank demand deposits maintained by a major financial institution. The Company’s policy is to maintain its
cash balances with financial institutions with high credit ratings and in accounts insured by the Federal Deposit Insurance Corporation
(the “FDIC”). The Company may periodically have cash balances in financial institutions in excess of the FDIC insurance limit
of $ 250,000 At
December 31, 2023 and 2022, cash denominated in Australian Dollar with a U.S. Dollar equivalent of $ 7 8 16 23 Accounts
Receivable 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 year
ended December 31, 2023, the Company recorded a write down of inventory of $ 450 As
of December 31, 2023 and 2022, inventories consisted of the following (in thousands): SCHEDULE
OF INVENTORIES NET
2023 2022
Years Ended December 31,
2023 2022
Raw materials $ 14,313 $ 12,277
Finished goods 2,209 3,183
Inventories $ 16,522 $ 15,460 Property
and Equipment Property
and equipment are recorded at cost less accumulated depreciation and amortization. Additions, improvements, and major renewals or replacements
that substantially extend the useful life of an asset are capitalized. Repairs and maintenance expenditures are expensed as incurred.
Depreciation and amortization of property and equipment is computed using the straight-line method over the estimated useful life. Estimated
useful lives of the principal classes of assets are as follows: SCHEDULE
OF ESTIMATED USEFUL LIFE OF PROPERTY PLANT AND EQUIPMENT
Estimated
life
Production
tooling, jigs, fixtures 3 5
Shop
equipment and machinery 5
Vehicles 3 5
Leasehold
improvements Shorter
of the lease term or estimated useful life
Office
equipment 5
Software 5 Management
regularly reviews property, equipment and other long-lived assets for possible impairment. This review occurs annually or more frequently
if events or changes in circumstances indicate the carrying amount of the asset may not be recoverable. Based upon management’s
annual assessment, there were no indicators of impairment of the Company’s property and equipment and other long-lived assets as
of December 31, 2023, or December 31, 2022. Leases The
Company accounts for its leases in accordance with ASC 842, Leases 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 Income
Taxes 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. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized
before the Company is able to realize their benefits, or that future deductibility is uncertain. Tax
benefits from an uncertain tax position are recognized only if it more likely than not that the tax position will be sustained on examination
by the taxing authorities based on technical merits of the position. The tax benefits recognized in the financial statements from such
a position are measured based on the largest benefit that has greater than 50 percent likelihood of being realized upon ultimate resolution.
Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. Research
and Development Costs Research
and development costs are expensed as incurred and consist primarily of salaries and other expenses relating to the design, development,
and testing of the Company’s products. For the years ended December 31, 2023 and 2022, research and development expenditures totaled
$ 1,222 1,460 Net
Loss Per Share Basic
net income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock 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 shares of common stock outstanding plus the number of additional shares of common stock that would have been outstanding if
all dilutive potential shares of common stock had been issued using the treasury stock method. Potential shares of common stock 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 shares of common stock 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
2023 2022
December 31,
2023 2022
Options 140,000 140,000
Warrants — 24,122
Total 140,000 164,122 Financial
Assets and Liabilities Measured at Fair Value The
Company uses various inputs in determining the fair value of its financial assets and liabilities. 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 are 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, accounts payable and accrued
expenses, approximate their fair values because of the short maturity of these instruments. The carrying values of notes and loans payable
approximate their fair values due to the fact that the interest rates on these obligations are based on prevailing market interest rates. Segments Under
ASC 280, Segment Reporting Concentrations Revenues 50 18 66 23 95 96 21 25 Accounts
receivable 69 16 90 Accounts
payable 30 10 5 51 3 3 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 became effective for the Company beginning January 1, 2023. The Company adopted ASU 2016-03 effective January 1, 2023, and there was no material impact on the Company’s financial position, results of operations and cash flows. In
November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosure Segment Reporting 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. |
