Document and Entity Information
Document and Entity Information - USD ($) | 12 Months Ended | ||
Dec. 31, 2017 | Apr. 02, 2018 | Jun. 30, 2016 | |
Document And Entity Information | |||
Entity Registrant Name | Polar Power, Inc. | ||
Entity Central Index Key | 1,622,345 | ||
Document Type | 10-K | ||
Trading Symbol | POLA | ||
Document Period End Date | Dec. 31, 2017 | ||
Amendment Flag | false | ||
Current Fiscal Year End Date | --12-31 | ||
Entity a Well-known Seasoned Issuer | No | ||
Entity a Voluntary Filer | No | ||
Entity's Reporting Status Current | Yes | ||
Entity Filer Category | Smaller Reporting Company | ||
Entity Public Float | $ 16,385,545 | ||
Entity Common Stock, Shares Outstanding | 10,143,158 | ||
Document Fiscal Period Focus | FY | ||
Document Fiscal Year Focus | 2,017 |
BALANCE SHEETS
BALANCE SHEETS - USD ($) | Dec. 31, 2017 | Dec. 31, 2016 |
Current assets | ||
Cash and cash equivalents (including restricted cash of $1,001,180 at December 31, 2017) | $ 14,201,163 | $ 16,242,158 |
Accounts receivable | 3,058,266 | 4,403,946 |
Inventories, net | 5,487,053 | 4,839,591 |
Prepaid expenses | 236,670 | 178,569 |
Refundable income taxes | 629,316 | |
Total current assets | 23,612,468 | 25,664,264 |
Other assets: | ||
Property and equipment, net | 824,076 | 737,586 |
Deposits | 87,496 | 66,796 |
Deferred tax assets | 160,637 | |
Total assets | 24,524,040 | 26,629,283 |
Current liabilities | ||
Accounts payable | 757,753 | 659,355 |
Customer deposits | 40,039 | 71,954 |
Income taxes payable | 1,227,308 | |
Accrued liabilities and other current liabilities | 586,391 | 669,889 |
Current portion of notes payable | 110,237 | 111,368 |
Total current liabilities | 1,494,420 | 2,739,874 |
Notes payable, net of current portion | 126,818 | 237,431 |
Total liabilities | 1,621,238 | 2,977,305 |
Stockholders' Equity | ||
Preferred stock, $0.0001 par value, 5,000,000 shares authorized, no shares issued and outstanding | ||
Common stock, $0.0001 par value, 50,000,000 shares authorized, 10,143,158 and, 10,143,158, shares issued and outstanding, respectively | 1,014 | 1,014 |
Additional paid-in capital | 19,250,955 | 19,242,715 |
Retained earnings | 3,650,833 | 4,408,249 |
Total stockholders' equity | 22,902,802 | 23,651,978 |
Total liabilities and stockholders' equity | $ 24,524,040 | $ 26,629,283 |
BALANCE SHEETS (Parenthetical)
BALANCE SHEETS (Parenthetical) - USD ($) | Dec. 31, 2017 | Dec. 31, 2016 |
Statement of Financial Position [Abstract] | ||
Restricted cash | $ 1,001,180 | |
Preferred stock, par value (in dollars per share) | $ 0.0001 | $ 0.0001 |
Preferred stock, authorized | 5,000,000 | 5,000,000 |
Preferred stock, issued | ||
Preferred stock, outstanding | ||
Common stock, par value (in dollars per share) | $ 0.0001 | $ 0.0001 |
Common stock, authorized | 50,000,000 | 50,000,000 |
Common stock, issued | 10,143,158 | 10,143,158 |
Common stock, outstanding | 10,143,158 | 10,143,158 |
STATEMENTS OF OPERATIONS
STATEMENTS OF OPERATIONS - USD ($) | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Income Statement [Abstract] | ||
Net sales | $ 14,418,726 | $ 22,801,494 |
Cost of sales | 9,657,558 | 12,619,837 |
Gross profit | 4,761,168 | 10,181,657 |
Operating Expenses | ||
General and administrative | 2,848,940 | 2,112,336 |
Research and development | 1,334,637 | 213,931 |
Sales and Marketing | 1,348,455 | 424,579 |
Depreciation and amortization | 31,096 | 26,888 |
Total operating expenses | 5,563,128 | 2,777,734 |
Income (loss) from operations | (801,960) | 7,403,923 |
Other income (expenses) | ||
Interest expenses | (17,822) | (112,550) |
Other income (expenses) | 62,366 | (27,516) |
Total other income (expense) | 44,544 | (140,066) |
Income (loss) before income taxes | (757,416) | 7,263,857 |
Provision for income taxes | (2,861,047) | |
Net Income (loss) | $ (757,416) | $ 4,402,810 |
Net Income (Loss) per share - basic and diluted (in dollars per share) | $ (0.07) | $ 0.58 |
Weighted average shares outstanding, basic and diluted (in shares) | 10,143,158 | 7,564,629 |
STATEMENTS OF STOCKHOLDERS' EQU
STATEMENTS OF STOCKHOLDERS' EQUITY - USD ($) | Common Stock [Member] | Additional paid-in capital [Member] | Retained Earnings [Member] | Total |
Balance at beginning at Dec. 31, 2015 | $ 736 | $ 2,248,159 | $ 5,439 | $ 2,254,334 |
Balance at beginning (in shares) at Dec. 31, 2015 | 7,365,614 | |||
Increase (Decrease) in Stockholders' Equity [Roll Forward] | ||||
Common shares issued for services | $ 2 | 37,498 | 37,500 | |
Common shares issued for services (in shares) | 17,544 | |||
Common shares issued for cash, net of offering costs | $ 276 | 16,957,058 | 16,957,334 | |
Common shares issued for cash, net of offering costs (in shares) | 2,760,000 | |||
Net loss | 4,402,810 | 4,402,810 | ||
Balance at end at Dec. 31, 2016 | $ 1,014 | 19,242,715 | 4,408,249 | 23,651,978 |
Balance at end (in shares) at Dec. 31, 2016 | 10,143,158 | |||
Increase (Decrease) in Stockholders' Equity [Roll Forward] | ||||
Common shares issued for services | 37,500 | |||
Fair value of vested stock options | 8,240 | 8,240 | ||
Net loss | (757,416) | (757,416) | ||
Balance at end at Dec. 31, 2017 | $ 1,014 | $ 19,250,955 | $ 3,650,833 | $ 22,902,802 |
Balance at end (in shares) at Dec. 31, 2017 | 10,143,158 |
STATEMENTS OF CASH FLOWS
STATEMENTS OF CASH FLOWS - USD ($) | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Cash flows from operating activities: | ||
Net Income (loss) | $ (757,416) | $ 4,402,810 |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||
Fair value of vested stock options | 8,240 | |
Depreciation and amortization | 255,631 | 207,857 |
Changes in operating assets and liabilities | ||
Accounts receivable | 1,345,680 | (2,907,292) |
Inventories | (647,462) | (2,746,492) |
Prepaid expenses | (58,101) | (85,444) |
Deposits | (20,700) | 22,148 |
Refundable income taxes | (629,316) | |
Deferred tax assets | 160,637 | 44,363 |
Accounts payable | 98,398 | 476,471 |
Income taxes payable | (1,227,308) | 931,530 |
Customer deposits | (31,915) | (157,648) |
Accrued expenses and other current liabilities | (83,498) | 438,753 |
Net cash provided by (used in) operating activities | (1,587,130) | 627,056 |
Cash flows from investing activities: | ||
Acquisition of property and equipment | (342,121) | (165,088) |
Payable for acquired technology | (131,215) | |
Net cash used in investing activities | (342,121) | (296,303) |
Cash flows from financing activities: | ||
Advances (repayment) of credit line net | (965,150) | |
Repayment of notes | (111,744) | (344,197) |
Proceeds from issuance of common stock | 16,957,334 | |
Net cash provided by (used in) financing activities | (111,744) | 15,647,987 |
Increase (decrease) in cash and cash equivalents | (2,040,995) | 15,978,740 |
Cash and cash equivalents, beginning of period | 16,242,158 | 263,418 |
Cash and cash equivalents, end of period | 14,201,163 | 16,242,158 |
Supplemental Cash Flow Information: | ||
Interest paid | 10,193 | 112,550 |
Taxes Paid | 2,424,417 | 1,885,337 |
Supplemental non-cash investing and financing activities: | ||
Assets acquired under notes payable | 237,463 | |
Fair value of common stock issued to settle wages payable | $ 37,500 |
ORGANIZATION AND SUMMARY OF SIG
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 12 Months Ended |
Dec. 31, 2017 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Company Polar Power, Inc. was incorporated in 1979 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 applications. The Company’s products integrate DC generator and proprietary automated controls, lithium batteries and solar systems to provide low operating cost and lower emissions alternative power needs in telecommunications, defense, automotive and industrial markets. On November 14, 2016, the Company effected a 1-for-2.85 reverse split of its common shares. All share and per share amounts have been retroactively restated to reflect the split as if it had occurred as of the earliest period presented. 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 and deferred tax assets, income tax accruals, accruals for potential liabilities and assumptions made in valuing the fair market value of equity transactions. Actual results may differ from those estimates. Revenue The Company recognizes revenue from the sale of completed production units and parts when there is persuasive evidence that an arrangement exists, delivery of the product has occurred and title has passed, the selling price is both fixed and determinable, and collectability is reasonably assured, all of which occurs upon shipment of the Company’s product or delivery of the product to the destination specified by the customer. Once a product is delivered, the Company does not have a post-delivery obligation to provide additional services to the customer. The Company determines whether delivery has occurred based on when title transfers and the risks and rewards of ownership have transferred to the buyer, which usually occurs when the Company places the product with the buyer’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. Except for warranties, the Company has no post-sales obligations. Inventories Inventories consist of raw materials and finished goods and are stated at the lower of cost or market. Cost is determined principally on a first-in-first-out average cost basis. Inventory quantities on hand are reviewed regularly and write-downs for obsolete inventory is recorded based on an estimated forecast of the inventory item demand in the near future. As of December 31, 2017 and 2016, the Company has established inventory reserves of $330,000 and $250,000, respectively, for obsolete and slow-moving inventory. As of December 31, 2017 and 2016, the components of inventories were as follows: Years End December 31, 2017 2016 Raw materials $ 2,716,392 $ 3,302,818 Finished goods 3,100,661 1,786,773 5,817,053 5,089,591 Less: Inventory reserve (330,000 ) (250,000 ) Total Inventories, net $ 5,487,053 $ 4,839,591 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 warranty terms are typically from one to five years. 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. The Company’s product warranty obligations are included in other accrued liabilities in the balance sheets. As of December 31, 2017 and 2016, the Company had accrued a liability for warranty reserve of $175,000 and $175,000, respectively. Management believes that the warranty accrual is appropriate; however, actual claims incurred could differ from original estimates, requiring adjustments to the accrual. The product warranty accrual is included in current liabilities in the accompanying balance sheets. The following is a tabular reconciliation of the product warranty liability, excluding the deferred revenue related to the Company’s warranty coverage: Years End December 31, Changes in estimates for warranties 2017 2016 Balance at beginning of the period $ 175,000 $ 25,000 Payments (364,163 ) (135,457 ) Provision for warranties 364,163 285,457 Balance at end of the period $ 175,000 $ 175,000 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. The carrying amounts reported in the Balance Sheets for cash and cash equivalents are valued at cost, which approximates their fair value. Accounts Receivable Trade receivables are recorded at net realizable value consisting of the carrying amount less an allowance for uncollectible accounts, as needed. The Company uses the allowance method to account for uncollectible trade receivable balances. Under the allowance method, if needed, an estimate of uncollectible customer balances is made based upon specific account balances that are considered uncollectible. Factors used to establish an allowance include the credit quality and payment history of the customer. The Company did not deem it necessary to provide an allowance for doubtful accounts as of as of December 31, 2017 and 2016. Property and Equipment Property and equipment are stated at historical cost less accumulated depreciation and amortization. Depreciation and amortization of property and equipment is computed using the straight-line method over the estimated useful life. Maintenance and repairs that do not improve or extend the useful life of the respective assets are expensed. Estimated useful lives of the principal classes of assets are as follows: Estimated life Production tooling, jigs, fixtures 3-5 years Shop equipment and machinery 5 years Vehicles 3-5 years Leasehold improvements Shorter of the lease term or estimated useful life Office equipment 5 years Software 5 years 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, 2017 or December 31, 2016. 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. 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 and long-term financing obligations 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 our 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 consolidated financial statements Concentrations Cash. Revenues Accounts receivable Accounts payable Purchases Net Income (Loss) Per Share Basic net income (loss) per share is computed by dividing net income (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 stock holders 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: December 31, 2017 2016 Options 30,000 — Warrants 115,000 115,000 Total 145,000 115,000 Recent Accounting Pronouncements In May 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers In February 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-02, Leases Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the SEC did not or are not believed by management to have a material impact on the Company’s present or future consolidated financial statements. |
RESTRICTED CASH
RESTRICTED CASH | 12 Months Ended |
Dec. 31, 2017 | |
Receivables [Abstract] | |
RESTRICTED CASH | NOTE 2 – RESTRICTED CASH As of December 31, 2017, the Company’s cash balance of $14,201,163 included restricted cash of $1,001,180. The restricted cash serves as a collateral to the line of credit (see Note 5) opened with a bank in March 2017. |
PROPERTY AND EQUIPMENT
PROPERTY AND EQUIPMENT | 12 Months Ended |
Dec. 31, 2017 | |
Property, Plant and Equipment [Abstract] | |
PROPERTY AND EQUIPMENT | NOTE 3 – PROPERTY AND EQUIPMENT Property and equipment consist of the following: December 31, December 31, Production tooling, jigs, fixtures $ 70,749 $ 70,749 Shop equipment and machinery 1,451,423 1,193,892 Vehicles 122,264 51,883 Leasehold improvements 42,173 42,173 Office equipment 114,454 100,245 Software 97,533 97,533 Total property and equipment, cost 1,898,596 1,556,475 Less: accumulated depreciation and amortization (1,074,520 ) (818,889 ) Property and equipment, net $ 824,076 $ 737,586 Depreciation and amortization expense on property and equipment for the years ended December 31, 2017 and 2016 was $255,631 and $207,857, respectively. During the years ended December 31, 2017 and 2016, $224,535 and $180,969, respectively, of the depreciation expense were included in the balance of cost of sales for the years then ended. |
NOTES PAYABLE
NOTES PAYABLE | 12 Months Ended |
Dec. 31, 2017 | |
Payables and Accruals [Abstract] | |
NOTES PAYABLE | NOTE 4 – NOTES PAYABLE Notes payable consist of the following: December 31, December 31, Total Equipment Notes Payable 237,055 348,799 Current Portion 110,237 111,368 Notes Payable, Long term $ 126,818 $ 237,431 The Company has entered into several financing agreements for the purchase of equipment. The terms of these financing arrangements are for a term of 2 years to 5 years, with interest rates ranging from 1.9% to 6.9% per annum, secured by the purchased equipment. Aggregate monthly payments of principal and interest of approximately $10,000 are due through 2021. Annual future principal payments under the outstanding note agreements as of December 31, 2017 are as follows: Years ending December 31: 2018 110,237 2019 73,728 2020 41,128 2021 11,962 Total $ 237,055 |
LINE OF CREDIT
LINE OF CREDIT | 12 Months Ended |
Dec. 31, 2017 | |
Debt Disclosure [Abstract] | |
LINE OF CREDIT | NOTE 5 – LINE OF CREDIT In August 2015, the Company entered into a Loan and Security Agreement with Gibraltar Business Capital to secure a revolving credit facility for an aggregate amount of up to $2.0 million. In December 2016, the Company repaid all outstanding balances and closed the credit facility On March 21, 2017, the Company entered into a Credit Agreement and related documents with Citibank, N.A. for a revolving credit facility for an aggregate amount of up to $1,000,000. The credit facility will expire at such time the parties mutually agree to terminate the credit facility or at the election of the lender. Interest accrues on the principal amount of revolving loans outstanding under the credit facility at a rate equal to the greater of (i) the prime rate of interest as published by Citibank, or (ii) the one-month London Interbank Offered Rate plus 2%. Amounts outstanding from time to time under the credit facility are due and payable monthly in an amount equal to the greater of 2% of the outstanding principal balance or $100, plus accrued interest. Upon the termination of the credit facility, any amounts owed under the credit facility will be payable by the Company in 48 equal consecutive monthly installments of principal, together with accrued monthly interest and any other charges beginning the first calendar month after the date of cancellation. The credit facility is also subject to an annual finance charge of $2,500, which amount has been waived for the first year. The credit facility is secured by a Certificate of Deposit (restricted cash) account opened by the Company with Citibank in the amount of $1,000,000 (see Note 2). The Company’s credit facility contains negative covenants prohibiting it from (i) creating or permitting to exist any liens, security interests or other encumbrances on the Company’s assets, (ii) engaging in any business activities substantially different than those in which the Company is presently engaged, (iii) ceasing operations, liquidating, merging, transferring, acquiring or consolidating with any other entity, changing its name, dissolving or transferring or selling collateral out of the ordinary course of business, or (iv) paying dividends on the Company’s capital stock (other than dividends payable in stock). As of December 31, 2017, the Company had not borrowed any funds under the credit facility and had borrowing availability of $1,000,000. |
STOCKHOLDERS' EQUITY
STOCKHOLDERS' EQUITY | 12 Months Ended |
Dec. 31, 2017 | |
Stockholders' Equity Note [Abstract] | |
STOCKHOLDERS' EQUITY | NOTE 6 – STOCKHOLDERS’ EQUITY Common Stock The Company is authorized to issue up to a total of 50,000,000 shares of common stock, $0.0001 par value per share. Holders of common stock are entitled to one vote for each share held on all matters submitted to a vote of shareholders. Holders of common stock do not have cumulative voting rights. Further, holders of common stock have no preemptive, conversion, redemption or subscription rights and there are no sinking fund provisions applicable to the Company’s common stock. Upon the liquidation, dissolution or winding-up of the Company, holders of common stock are entitled to share ratably in all assets remaining after payment of all liabilities and the liquidation preferences of any outstanding shares of preferred stock. Subject to preferences that may be applicable to any outstanding shares of preferred stock, holders of common stock are entitled to receive dividends, if any, as may be declared from time to time by the Company’s board of directors, out of the Company’s assets which are legally available. Preferred Stock The Company’s board of directors is authorized to issue up to 5,000,000 shares of preferred stock in one or more series and to fix the rights, preferences, privileges, qualifications, limitations and restrictions thereof, including dividend rights and rates, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences and the number of shares constituting any series or the designation of such series, without any vote or action by the Company’s stockholders. Any preferred stock to be issued could rank prior to the Company’s common stock with respect to dividend rights and rights on liquidation. The Company’s board of directors, without stockholders approval, may issue preferred stock with voting and conversion rights which could adversely affect the voting power of holders of common stock and discourage, delay or prevent a change in control of the Company. Shares issued for services In February 2016, the Company issued 17,544 shares of its common stock valued at $37,500 ($2.14 per share) to an employee in exchange for $37,500 in wages payables due to the employee. The Company’s estimate of the fair value of the shares of $2.14 per share was based on the cash price per-share paid by outside investors in a private placement conducted between July 2014 and September 2014. Shares issues for cash, net offering costs In December 2016, the Company completed an underwritten initial public offering of 2,400,000 shares of its common stock at a price of $7.00 per share. In addition, the offering provided the underwriters a 45-day option to purchase up to an additional 360,000 shares of common stock from the Company at the same price of $7.00 per share. The underwriters exercised the foregoing option to purchase additional shares in full. The net proceeds to the Company from the offering were $16,957,334, after deducting underwriting discounts and commissions and offering expenses payable by the Company. The offering was made pursuant to a registration statement on Form S-1, which was filed with the SEC on September 9, 2016 and declared effective on December 6, 2016. In connection with the offering, the Company also issued warrants to the underwriters to purchase up to 115,000 shares of its common stock with an exercise price of $8.75 per share, which warrants expire five years from the date of issuance. |
STOCK OPTIONS
STOCK OPTIONS | 12 Months Ended |
Dec. 31, 2017 | |
Stock Options | |
STOCK OPTIONS | NOTE 7 – STOCK OPTIONS Number of Weighted Average Outstanding, December 31, 2015 — — Issued - $ - Exercised — — Outstanding, December 31, 2016 - $ - Issued 30,000 4.84 Exercised — — Outstanding, December 31, 2017 30,000 $ 4.84 Effective July 8, 2016 the Company’s board of directors approved the Polar Power 2016 Omnibus Incentive Plan (the “2016 Plan”), authorizing the issuance of up to 1,754,385 shares of common stock as incentives to employees and consultants to the Company with awards limited to a maximum of 350,877 shares in a given calendar year. In December 2017, the Company granted to members of its board of directors, options to purchase an aggregate of 30,000 shares of the Company’s common stock that expire ten years from the date of grant, and vesting 1 year from issuance date. The fair value of each option award was estimated on the date of grant using the Black-Scholes option pricing model based on the following assumptions: (i) volatility rate of 57.71%, (ii) discount rate of 2.42%, (iii) zero expected dividend yield, and (iv) expected life of 6 years, which is the average of the term of the options and their vesting periods. The total fair value of the option grants at their grant date was approximately $98,000. During the year ended December 31, 2017, the Company expensed total stock-based compensation related to stock options of $8,240, and the remaining unamortized cost of the outstanding stock-based awards at December 31, 2017 was approximately $90,000. This cost will be amortized on a straight line basis over the remaining vesting period of approximately nine months. At December 31, 2017, the 30,000 outstanding stock options had no intrinsic value, and none of the options had yet vested. |
WARRANTS
WARRANTS | 12 Months Ended |
Dec. 31, 2017 | |
Warrants | |
WARRANTS | NOTE 8 – WARRANTS The following table summarizes warrant activity: Number of Weighted Average Outstanding, December 31, 2015 — — Issued 115,000 $ 8.75 Exercised — — Outstanding, December 31, 2016 115,000 $ 8.75 Issued — — Exercised — — Outstanding, December 31, 2017 115,000 $ 8.75 In connection with the offering (see Note 6), the Company also issued warrants to the underwriters to purchase up to 115,000 shares of its common stock with an exercise price of $8.75 per share, which warrants expire five years from the date of issuance. There was no intrinsic value of the outstanding and exercisable warrants at December 31, 2017. |
DISTRIBUTION AGREEMENT WITH A R
DISTRIBUTION AGREEMENT WITH A RELATED ENTITY | 12 Months Ended |
Dec. 31, 2017 | |
Distribution Agreement With Related Entity | |
DISTRIBUTION AGREEMENT WITH A RELATED ENTITY | NOTE 9 – DISTRIBUTION AGREEMENT WITH A RELATED ENTITY On March 1, 2014, the Company entered into a subcontractor installer agreement with Smartgen, a related entity that is engaged in business of equipment rental and provider of maintenance, repair and installation services to mobile telecommunications towers in California. Under the terms of the agreement, Smartgen has been appointed as a non-exclusive, authorized service provider for the installation, repair and service of the Company’s products in Southern California. The agreement has a term of three years from the date of execution and automatically renews for additional one-year periods if not terminated. During the years ended December 31, 2017 and 2016, Smartgen performed $186,392 and $111,684, respectfully, in field services. During the year ended December 31, 2016, Smartgen purchased $0 in goods, parts and services from the Company and $1,136 in goods, parts and services during the year ended December 31, 2017. |
INCOME TAXES
INCOME TAXES | 12 Months Ended |
Dec. 31, 2017 | |
Income Tax Disclosure [Abstract] | |
INCOME TAXES | NOTE 10 – INCOME TAXES The Company has no provision for income taxes during the year ended December 31, 2017 due to net loss incurred, and full valuation allowance on the net deferred tax assets. The provision for income taxes consists of the following for the year ended December 31, 2016: Years Ended December 31, 2017 2016 Current Federal $ — $ (2,242,984 ) State — (573,700 ) Deferred Federal — (35,913 ) State — (8,450 ) Provision for income tax expense $ — $ (2,861,047 ) The reconciliation of the effective income tax rate to the federal statutory rate is as follows: Years Ended December 31, 2017 2016 Federal income tax rate (34 )% 34 % State tax, net of federal benefit (8 )% 8 % Change in accrued liabilities (9 )% 6 % Change in valuation allowances 33 % (9 )% Effective income tax rate — % 39 % Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial statement purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities at December 31, 2017 and 2016 are as follows: December 31, December 31, Deferred tax assets: Inventory reserves $ 221,053 $ 105,000 Accrued liabilities 138,160 209,084 Deferred tax liability Accumulated depreciation (145,935 ) (153,447 ) Net deferred tax assets 213,278 160,637 Valuation allowance (213,278 ) — Net deferred tax assets, net of valuation allowances $ — $ 160,637 Effective January 1, 2007, the Company adopted FASB guidelines that address the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under this guidance, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. This guidance also provides guidance on derecognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. At the date of adoption, and as of December 31, 2017 and 2016, the Company did not have a liability for unrecognized tax benefits, and no adjustment was required at adoption. The Company files income tax returns in the U.S. federal jurisdiction and various states. The Company is subject to U.S. federal or state income tax examinations by tax authorities for tax years after 2010. The Company’s policy is to record interest and penalties on uncertain tax provisions as income tax expense. As of December 31, 2017 and 2016, the Company had no accrued interest or penalties related to uncertain tax positions. Additionally, tax years 2010 through 2017 remain open to examination by the major taxing jurisdictions to which the Company is subject. Authoritative guidance issued by the ASC Topic 740 – Income Taxes requires that a valuation allowance be established when it is more likely than not that all or a portion of deferred tax assets will not be realized. The Company considers all evidence available when determining whether deferred tax assets are more likely-than-not to be realized, including projected future taxable income, scheduled reversals of deferred tax liabilities, prudent tax planning strategies, and recent financial operations. The evaluation of this evidence requires significant judgement about the forecast of future taxable income is consistent with the plans and estimates we are using to manage the underlying business. Based on their evaluation, the Company determined that the net deferred tax assets of approximately $213,000 during 2017, do not meet the requirements to be realized, and as such, the Company has provided a full valuation allowance against them. At December 31, 2017, the Company had a refundable income taxes of $629,316 in the accompanying balance sheet. This amount consisted of refunds of income taxes paid during the first half of 2017, and carry back claims of income taxes in two consecutive prior years. At December 31, 2017, the Company had no federal net operating loss carry forwards, as carry back claims of income taxes paid from two consecutive prior years were applied to the Company’s net operating loss for the year ended December 31, 2017. |
COMMITMENT AND CONTINGENCIES
COMMITMENT AND CONTINGENCIES | 12 Months Ended |
Dec. 31, 2017 | |
Commitments and Contingencies Disclosure [Abstract] | |
COMMITMENT AND CONTINGENCIES | NOTE 11 – COMMITMENT AND CONTINGENCIES Leases The Company entered into a non-cancellable operating lease of a manufacturing facility located in Gardena, CA commencing January 1, 2015 and ending on February 28, 2019. The base rent of the facility at the commencement date was $29,648 per month, which annually increases by 3%. Rent expense for the years ended December 31, 2017 and 2016 was $377,443 and $321,598, respectively. On July 20, 2017, the Company entered into a three-month lease agreement of a warehouse facility located in Gardena, CA with a monthly rent of $10,200. The agreement renews on a month-to-month basis and may be terminated upon providing 30-day written notice. Commencing in October 2017, the Company is under a month-to-month lease term under this lease agreement. The future minimum annual rental payments required under the non-cancelable operating leases described above as of January 1, 2018 are as follows: Years ending December 31 2018 388,766 2019 66,738 Total $ 455,504 Legal Proceedings From time to time, the Company may be involved in general commercial disputes arising in the ordinary course of our business. The Company is not currently involved in legal proceedings that could reasonably be expected to have material adverse effect on its business, prospects, financial condition or results of operations. |
SUBSEQUENT EVENTS
SUBSEQUENT EVENTS | 12 Months Ended |
Dec. 31, 2017 | |
Subsequent Events [Abstract] | |
SUBSEQUENT EVENTS | NOTE 17 – SUBSEQUENT EVENTS. On April 2, 2018, the Company granted to its executive officers incentive options to purchase an aggregate of 330,000 shares of the Company’s common stock that expire ten years from the date of grant and vest as to one-third of the shares on the first, second and third annual anniversaries of the date of grant. Options covering 90,000 shares of the Company’s common stock were granted to each of Rajesh Masina and Luis Zavala with an exercise price per share of $4.97, which exercise price equals the closing sale price of one share of the Company’s common stock on April 2, 2018. With respect to the option covering 150,000 shares of the Company’s common stock granted to Arthur D. Sams, the exercise price per share of such option was set at $5.47, which exercise price equals 110% of the closing sale price of one share of the Company’s common stock on April 2, 2018. |
ORGANIZATION AND SUMMARY OF S19
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 12 Months Ended |
Dec. 31, 2017 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
The Company | The Company Polar Power, Inc. was incorporated in 1979 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 applications. The Company’s products integrate DC generator and proprietary automated controls, lithium batteries and solar systems to provide low operating cost and lower emissions alternative power needs in telecommunications, defense, automotive and industrial markets. On November 14, 2016, the Company effected a 1-for-2.85 reverse split of its common shares. All share and per share amounts have been retroactively restated to reflect the split as if it had occurred as of the earliest period presented. |
Estimates | 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 and deferred tax assets, income tax accruals, accruals for potential liabilities and assumptions made in valuing the fair market value of equity transactions. Actual results may differ from those estimates. |
Revenue | Revenue The Company recognizes revenue from the sale of completed production units and parts when there is persuasive evidence that an arrangement exists, delivery of the product has occurred and title has passed, the selling price is both fixed and determinable, and collectability is reasonably assured, all of which occurs upon shipment of the Company’s product or delivery of the product to the destination specified by the customer. Once a product is delivered, the Company does not have a post-delivery obligation to provide additional services to the customer. The Company determines whether delivery has occurred based on when title transfers and the risks and rewards of ownership have transferred to the buyer, which usually occurs when the Company places the product with the buyer’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. Except for warranties, the Company has no post-sales obligations. |
Inventories | Inventories Inventories consist of raw materials and finished goods and are stated at the lower of cost or market. Cost is determined principally on a first-in-first-out average cost basis. Inventory quantities on hand are reviewed regularly and write-downs for obsolete inventory is recorded based on an estimated forecast of the inventory item demand in the near future. As of December 31, 2017 and 2016, the Company has established inventory reserves of $330,000 and $250,000, respectively, for obsolete and slow-moving inventory. As of December 31, 2017 and 2016, the components of inventories were as follows: Years End December 31, 2017 2016 Raw materials $ 2,716,392 $ 3,302,818 Finished goods 3,100,661 1,786,773 5,817,053 5,089,591 Less: Inventory reserve (330,000 ) (250,000 ) Total Inventories, net $ 5,487,053 $ 4,839,591 |
Product Warranties | 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 warranty terms are typically from one to five years. 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. The Company’s product warranty obligations are included in other accrued liabilities in the balance sheets. As of December 31, 2017 and 2016, the Company had accrued a liability for warranty reserve of $175,000 and $175,000, respectively. Management believes that the warranty accrual is appropriate; however, actual claims incurred could differ from original estimates, requiring adjustments to the accrual. The product warranty accrual is included in current liabilities in the accompanying balance sheets. The following is a tabular reconciliation of the product warranty liability, excluding the deferred revenue related to the Company’s warranty coverage: Years End December 31, Changes in estimates for warranties 2017 2016 Balance at beginning of the period $ 175,000 $ 25,000 Payments (364,163 ) (135,457 ) Provision for warranties 364,163 285,457 Balance at end of the period $ 175,000 $ 175,000 |
Cash and cash equivalents | 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. The carrying amounts reported in the Balance Sheets for cash and cash equivalents are valued at cost, which approximates their fair value. |
Accounts Receivable | Accounts Receivable Trade receivables are recorded at net realizable value consisting of the carrying amount less an allowance for uncollectible accounts, as needed. The Company uses the allowance method to account for uncollectible trade receivable balances. Under the allowance method, if needed, an estimate of uncollectible customer balances is made based upon specific account balances that are considered uncollectible. Factors used to establish an allowance include the credit quality and payment history of the customer. The Company did not deem it necessary to provide an allowance for doubtful accounts as of as of December 31, 2017 and 2016. |
Property and Equipment | Property and Equipment Property and equipment are stated at historical cost less accumulated depreciation and amortization. Depreciation and amortization of property and equipment is computed using the straight-line method over the estimated useful life. Maintenance and repairs that do not improve or extend the useful life of the respective assets are expensed. Estimated useful lives of the principal classes of assets are as follows: Estimated life Production tooling, jigs, fixtures 3-5 years Shop equipment and machinery 5 years Vehicles 3-5 years Leasehold improvements Shorter of the lease term or estimated useful life Office equipment 5 years Software 5 years 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, 2017 or December 31, 2016. |
Income Taxes | 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. |
Financial Assets and Liabilities Measured at Fair Value | 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 and long-term financing obligations approximate their fair values due to the fact that the interest rates on these obligations are based on prevailing market interest rates. |
Segments | Segments The Company operates in one segment for the manufacture and distribution of our 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 consolidated financial statements |
Concentrations | Concentrations Cash. Revenues Accounts receivable Accounts payable Purchases |
Net Income (Loss) Per Share | Net Income (Loss) Per Share Basic net income (loss) per share is computed by dividing net income (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 stock holders 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: December 31, 2017 2016 Options 30,000 — Warrants 115,000 115,000 Total 145,000 115,000 |
Recent Accounting Pronouncements | Recent Accounting Pronouncements In May 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers In February 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-02, Leases Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the SEC did not or are not believed by management to have a material impact on the Company’s present or future consolidated financial statements. |
ORGANIZATION AND SUMMARY OF S20
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Schedule of components of inventory | As of December 31, 2017 and 2016, the components of inventories were as follows: Years End December 31, 2017 2016 Raw materials $ 2,716,392 $ 3,302,818 Finished goods 3,100,661 1,786,773 5,817,053 5,089,591 Less: Inventory reserve (330,000 ) (250,000 ) Total Inventories, net $ 5,487,053 $ 4,839,591 |
Schedule of reconciliation of the product warranty liability | The following is a tabular reconciliation of the product warranty liability, excluding the deferred revenue related to the Company’s warranty coverage: Years End December 31, Changes in estimates for warranties 2017 2016 Balance at beginning of the period $ 175,000 $ 25,000 Payments (364,163 ) (135,457 ) Provision for warranties 364,163 285,457 Balance at end of the period $ 175,000 $ 175,000 |
Schedule of estimated life | Estimated useful lives of the principal classes of assets are as follows: Estimated life Production tooling, jigs, fixtures 3-5 years Shop equipment and machinery 5 years Vehicles 3-5 years Leasehold improvements Shorter of the lease term or estimated useful life Office equipment 5 years Software 5 years |
Schedule of anti-dilutive | The following potentially dilutive shares were excluded from the shares used to calculate diluted earnings per share as their inclusion would be anti-dilutive: December 31, 2017 2016 Options 30,000 — Warrants 115,000 115,000 Total 145,000 115,000 |
PROPERTY AND EQUIPMENT (Tables)
PROPERTY AND EQUIPMENT (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
Property, Plant and Equipment [Abstract] | |
Schedule of property and equipment | Property and equipment consist of the following: December 31, December 31, Production tooling, jigs, fixtures $ 70,749 $ 70,749 Shop equipment and machinery 1,451,423 1,193,892 Vehicles 122,264 51,883 Leasehold improvements 42,173 42,173 Office equipment 114,454 100,245 Software 97,533 97,533 Total property and equipment, cost 1,898,596 1,556,475 Less: accumulated depreciation and amortization (1,074,520 ) (818,889 ) Property and equipment, net $ 824,076 $ 737,586 |
NOTES PAYABLE (Tables)
NOTES PAYABLE (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
Payables and Accruals [Abstract] | |
Schedule of notes payable | Notes payable consist of the following: December 31, December 31, Total Equipment Notes Payable 237,055 348,799 Current Portion 110,237 111,368 Notes Payable, Long term $ 126,818 $ 237,431 |
Schedule of annual future principal payments | Annual future principal payments under the outstanding note agreements as of December 31, 2017 are as follows: Years ending December 31: 2018 110,237 2019 73,728 2020 41,128 2021 11,962 Total $ 237,055 |
STOCK OPTIONS (Tables)
STOCK OPTIONS (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
Stock Options | |
Schedule of stock option | The following table summarizes stock option activity: Number of Weighted Average Outstanding, December 31, 2015 — — Issued - $ - Exercised — — Outstanding, December 31, 2016 - $ - Issued 30,000 4.84 Exercised — — Outstanding, December 31, 2017 30,000 $ 4.84 |
WARRANTS (Tables)
WARRANTS (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
Warrants | |
Schedule of warrant activity | The following table summarizes warrant activity: Number of Weighted Average Outstanding, December 31, 2015 — — Issued 115,000 $ 8.75 Exercised — — Outstanding, December 31, 2016 115,000 $ 8.75 Issued — — Exercised — — Outstanding, December 31, 2017 115,000 $ 8.75 |
INCOME TAXES (Tables)
INCOME TAXES (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
Income Tax Disclosure [Abstract] | |
Schedule of provision for income taxes | The provision for income taxes consists of the following for the year ended December 31, 2016: Years Ended December 31, 2017 2016 Current Federal $ — $ (2,242,984 ) State — (573,700 ) Deferred Federal — (35,913 ) State — (8,450 ) Provision for income tax expense $ — $ (2,861,047 ) |
Schedule of effective income tax rate | The reconciliation of the effective income tax rate to the federal statutory rate is as follows: Years Ended December 31, 2017 2016 Federal income tax rate (34 )% 34 % State tax, net of federal benefit (8 )% 8 % Change in accrued liabilities (9 )% 6 % Change in valuation allowances 33; % (9 )% Effective income tax rate — % 39 % |
Schedule of deferred tax assets and liabilities | Significant components of the Company’s deferred tax assets and liabilities at December 31, 2017 and 2016 are as follows: December 31, December 31, Deferred tax assets: Inventory reserves $ 221,053 $ 105,000 Accrued liabilities 138,160 209,084 Deferred tax liability Accumulated depreciation (145,935 ) (153,447 ) Net deferred tax assets 213,278 160,637 Valuation allowance (213,278 ) — Net deferred tax assets, net of valuation allowances $ — $ 160,637 |
COMMITMENT AND CONTINGENCIES (T
COMMITMENT AND CONTINGENCIES (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
Commitments and Contingencies Disclosure [Abstract] | |
Schedule of future minimum annual rental payments of operating leases | The future minimum annual rental payments required under the non-cancelable operating leases described above as of January 1, 2018 are as follows: Years ending December 31 2018 388,766 2019 66,738 Total $ 455,504 |
ORGANIZATION AND SUMMARY OF S27
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - USD ($) | Dec. 31, 2017 | Dec. 31, 2016 |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||
Raw materials | $ 2,716,392 | $ 3,302,818 |
Finished goods | 3,100,661 | 1,786,773 |
Total Inventories, gross | 5,817,053 | 5,089,591 |
Less: Inventory reserve | (330,000) | (250,000) |
Total Inventories, net | $ 5,487,053 | $ 4,839,591 |
ORGANIZATION AND SUMMARY OF S28
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 1) - USD ($) | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Movement in Standard Product Warranty Accrual [Roll Forward] | ||
Balance at beginning of the period | $ 175,000 | $ 25,000 |
Payments | (364,163) | (135,457) |
Provision for warranties | 364,163 | 285,457 |
Balance at end of the period | $ 175,000 | $ 175,000 |
ORGANIZATION AND SUMMARY OF S29
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 2) | 12 Months Ended |
Dec. 31, 2017 | |
Production tooling, jigs, fixtures [Member] | Minimum [Member] | |
Estimated life | 3 years |
Production tooling, jigs, fixtures [Member] | Maximum [Member] | |
Estimated life | 5 years |
Vehicles [Member] | Minimum [Member] | |
Estimated life | 3 years |
Vehicles [Member] | Maximum [Member] | |
Estimated life | 5 years |
Office Equipment [Member] | |
Estimated life | 5 years |
Software [Member] | |
Estimated life | 5 years |
Shop equipment and machinery [Member] | |
Estimated life | 5 years |
ORGANIZATION AND SUMMARY OF S30
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 3) - shares | Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2015 |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||
Options | 30,000 | ||
Warrants | 115,000 | 115,000 | |
Total | 145,000 | 115,000 |
ORGANIZATION AND SUMMARY OF S31
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($) | Nov. 14, 2016 | Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2015 |
Reverse split | 1-for-2.85 | |||
Inventory reserves | $ 330,000 | $ 250,000 | ||
Warranty reserve | $ 175,000 | $ 175,000 | $ 25,000 | |
Cash equivalents of maturity date | 90 days | |||
Largest Vendors One [Member] | Accounts Payable [Member] | ||||
Concentration risk | 75.00% | 29.00% | ||
Largest Vendors Two [Member] | Accounts Payable [Member] | ||||
Concentration risk | 3.00% | 9.00% | ||
Largest Vendors Three [Member] | Accounts Payable [Member] | ||||
Concentration risk | 5.00% | |||
Accounts Receivable [Member] | Verizon Wireless [Member] | ||||
Concentration risk | 94.00% | |||
Revenue[Member] | Verizon Wireless [Member] | ||||
Concentration risk | 71.00% | 91.00% | ||
Sales Backlog [Member] | Customer One [Member] | ||||
Concentration risk | 15.00% | 0.00% | ||
Sales Backlog [Member] | Customer Two [Member] | ||||
Concentration risk | 88.00% | 97.00% | ||
Sales Backlog [Member] | Customer Three [Member] | ||||
Concentration risk | 2.00% | 0.00% | ||
Minimum [Member] | ||||
Warrant term | 1 year | |||
Minimum [Member] | Yanmar Engines Company [Member] | Cost of Sales [Member] | ||||
Concentration risk | 16.00% | 18.00% | ||
Minimum [Member] | Accounts Receivable [Member] | Verizon Wireless [Member] | ||||
Concentration risk | 30.00% | |||
Maximum [Member] | ||||
Warrant term | 5 years | |||
Maximum [Member] | Yanmar Engines Company [Member] | Cost of Sales [Member] | ||||
Concentration risk | 37.00% | 19.00% | ||
Maximum [Member] | Accounts Receivable [Member] | Verizon Wireless [Member] | ||||
Concentration risk | 59.00% |
RESTRICTED CASH (Details Narrat
RESTRICTED CASH (Details Narrative) - USD ($) | Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2015 |
Receivables [Abstract] | |||
Cash and cash equivalents | $ 14,201,163 | $ 16,242,158 | $ 263,418 |
Restricted cash | $ 1,001,180 |
PROPERTY AND EQUIPMENT (Details
PROPERTY AND EQUIPMENT (Details) - USD ($) | Dec. 31, 2017 | Dec. 31, 2016 |
Total property and equipment, cost | $ 1,898,596 | $ 1,556,475 |
Less: accumulated depreciation and amortization | (1,074,520) | (818,889) |
Property and equipment, net | 824,076 | 737,586 |
Production Tooling, Jigs, Fixtures [Member] | ||
Total property and equipment, cost | 70,749 | 70,749 |
Shop Equipment And Machinery [Member] | ||
Total property and equipment, cost | 1,451,423 | 1,193,892 |
Vehicles [Member] | ||
Total property and equipment, cost | 122,264 | 51,883 |
Leasehold Improvements [Member] | ||
Total property and equipment, cost | 42,173 | 42,173 |
Office Equipment [Member] | ||
Total property and equipment, cost | 114,454 | 100,245 |
Software [Member] | ||
Total property and equipment, cost | $ 97,533 | $ 97,533 |
PROPERTY AND EQUIPMENT (Detai34
PROPERTY AND EQUIPMENT (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Depreciation and amortization expense | $ 255,631 | $ 207,857 |
Cost of Sales [Member] | ||
Depreciation expense | $ 224,535 | $ 180,969 |
NOTES PAYABLE (Details)
NOTES PAYABLE (Details) - USD ($) | Dec. 31, 2017 | Dec. 31, 2016 |
Payables and Accruals [Abstract] | ||
Total Equipment Notes Payable | $ 237,055 | $ 348,799 |
Less Current Portion | (110,237) | (111,368) |
Notes Payable, Long term | $ 126,818 | $ 237,431 |
NOTES PAYABLE (Details 1)
NOTES PAYABLE (Details 1) | Dec. 31, 2017USD ($) |
Years ending December 31: | |
2,018 | $ 110,237 |
2,019 | 73,728 |
2,020 | 41,128 |
2,021 | 11,962 |
Total | $ 237,055 |
NOTES PAYABLE (Details Narrativ
NOTES PAYABLE (Details Narrative) - Several Financing Agreements [Member] - Equipment [Member] | 12 Months Ended |
Dec. 31, 2017USD ($) | |
Description of collateral | Secured by the purchased equipment. |
Monthly payments of principal and interest | $ 10,000 |
Frequency of payment | Monthly |
Minimum [Member] | |
Debt term | 2 years |
Interest rate | 1.90% |
Maximum [Member] | |
Debt term | 5 years |
Interest rate | 6.90% |
LINE OF CREDIT (Details Narrati
LINE OF CREDIT (Details Narrative) - Revolving Credit Facility [Member] - USD ($) | Mar. 21, 2017 | Dec. 31, 2017 | Aug. 31, 2015 |
Credit Agreement [Member] | Citibank, N.A. [Member] | |||
Maximum borrowing capacity | $ 1,000,000 | ||
Description of expiration | Expire at such time the parties mutually agree to terminate the credit facility or at the election of the lender. | ||
Description of interest rate | Interest accrues on the principal amount of revolving loans outstanding under the credit facility at a rate equal to the greater of (i) the prime rate of interest as published by Citibank, or (ii) the one-month London Interbank Offered Rate plus 2%. | ||
Description of payments | Amounts outstanding from time to time under the credit facility are due and payable monthly in an amount equal to the greater of 2% of the outstanding principal balance or $100, plus accrued interest. | ||
Annual finance charge | $ 2,500 | ||
Description of collateral | Certificate of Deposit (restricted cash) account opened by the Company with Citibank in the amount of $1,000,000. | ||
Description covenant terms | (i) creating or permitting to exist any liens, security interests or other encumbrances on the Company’s assets, (ii) engaging in any business activities substantially different than those in which the Company is presently engaged, (iii) ceasing operations, liquidating, merging, transferring, acquiring or consolidating with any other entity, changing its name, dissolving or transferring or selling collateral out of the ordinary course of business, or (iv) paying dividends on the Company’s capital stock (other than dividends payable in stock). | ||
Remaining borrowing capacity | $ 1,000,000 | ||
Loan and Security Agreement [Member] | Gibraltar Business Capital [Member] | |||
Maximum borrowing capacity | $ 2,000,000 |
STOCKHOLDERS' EQUITY (Details N
STOCKHOLDERS' EQUITY (Details Narrative) - USD ($) | 1 Months Ended | 12 Months Ended | |||
Dec. 31, 2016 | Feb. 29, 2016 | Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2015 | |
Common stock, par value (in dollars per share) | $ 0.0001 | $ 0.0001 | $ 0.0001 | ||
Common stock, authorized | 50,000,000 | 50,000,000 | 50,000,000 | ||
Preferred stock, authorized | 5,000,000 | 5,000,000 | 5,000,000 | ||
Number of shares issued upon services | 17,544 | ||||
Number of shares issued upon services,value | $ 37,500 | $ 37,500 | $ 37,500 | ||
Share price (in dollars per shares) | $ 2.14 | $ 2.14 | |||
Proceeds from issuance of common stock | $ 16,957,334 | ||||
Warrant exercise price (in dollars per share) | $ 8.75 | $ 8.75 | $ 8.75 | ||
IPO [Member] | |||||
Number of shares issued for cash, net offering costs | 2,400,000 | ||||
Proceeds from issuance of common stock | $ 16,957,334 | ||||
Share price (in dollars per shares) | $ 7 | 7 | |||
45-Day Underwriters Option [Member] | |||||
Number of shares issued for cash, net offering costs | 360,000 | ||||
Share price (in dollars per shares) | $ 7 | $ 7 | |||
Number of warrants issued | 115,000 | 115,000 | |||
Warrant exercise price (in dollars per share) | $ 8.75 | $ 8.75 | |||
Warrant term | 5 years |
STOCK OPTIONS (Details)
STOCK OPTIONS (Details) - $ / shares | 1 Months Ended | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2017 | Dec. 31, 2016 | |
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding [Roll Forward] | |||
Beginning balance | |||
End balance | 30,000 | 30,000 | |
Polar Power 2016 Omnibus Incentive Plan [Member] | |||
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding [Roll Forward] | |||
Beginning balance | |||
Issued | 30,000 | 30,000 | |
Exercised | |||
End balance | 30,000 | 30,000 | |
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price [Roll Forward] | |||
Beginning balance | |||
Issued | 4.84 | ||
Exercised | |||
End balance | $ 4.84 | $ 4.84 |
STOCK OPTIONS (Details Narrativ
STOCK OPTIONS (Details Narrative) - USD ($) | 1 Months Ended | 12 Months Ended | ||
Dec. 31, 2017 | Dec. 31, 2017 | Dec. 31, 2016 | Jul. 08, 2016 | |
Total stock-based compensation | $ 8,240 | |||
Polar Power 2016 Omnibus Incentive Plan [Member] | ||||
Number of shares authorized | 1,754,385 | |||
Maximum number of shares available for issuance | 350,877 | |||
Number of shares granted | 30,000 | 30,000 | ||
Expiration period | 10 years | |||
Vesting period | 1 year | |||
Volatility rate | 57.71% | |||
Discount rate | 2.42% | |||
Expected dividend yield | 0.00% | |||
Expected life | 6 years | |||
Total fair value of the option grants | $ 98,000 | |||
Unamortized compensation cost | $ 90,000 | $ 90,000 | ||
Unamortized compensation cost period | 9 months | |||
Intrinsic value outstanding stock options | $ 30,000 | $ 30,000 |
WARRANTS (Details)
WARRANTS (Details) - $ / shares | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Number of Warrants [Roll Forward] | ||
Outstanding at beginning | 115,000 | |
Issued | 115,000 | |
Exercised | ||
Outstanding at end | 115,000 | 115,000 |
Weighted Average Exercise Price [Roll Forward] | ||
Outstanding at beginning | $ 8.75 | |
Issued | 8.75 | |
Exercised | ||
Outstanding at end | $ 8.75 | $ 8.75 |
DISTRIBUTION AGREEMENT WITH A43
DISTRIBUTION AGREEMENT WITH A RELATED ENTITY (Details Narrative) - Subcontractor Installer Agreement [Member] - Smartgen Solutions, Inc. ("Smartgen") [Member] - USD ($) | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Due to related party | $ 186,392 | $ 111,684 |
Due from related party | $ 1,136 | $ 0 |
INCOME TAXES (Details)
INCOME TAXES (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Current | ||
Federal | $ (2,242,984) | |
State | (573,700) | |
Deferred | ||
Federal | (35,913) | |
State | (8,450) | |
Provision for income tax expense | $ 2,861,047 |
INCOME TAXES (Details 1)
INCOME TAXES (Details 1) | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Income Tax Disclosure [Abstract] | ||
Federal income tax rate | (34.00%) | 34.00% |
State tax, net of federal benefit | (8.00%) | 8.00% |
Change in accrued liabilities | (9.00%) | 6.00% |
Change in valuation allowances | 33.00% | (9.00%) |
Effective income tax rate | 39.00% |
INCOME TAXES (Details 2)
INCOME TAXES (Details 2) - USD ($) | Dec. 31, 2017 | Dec. 31, 2016 |
Deferred tax assets: | ||
Inventory reserves | $ 221,053 | $ 105,000 |
Accrued liabilities | 138,160 | 209,084 |
Deferred tax liability | ||
Accumulated depreciation | (145,935) | (153,447) |
Net deferred tax assets | 213,278 | 160,637 |
Valuation allowance | (213,278) | |
Net deferred tax assets, net of valuation allowances | $ 160,637 |
INCOME TAXES (Details Narrative
INCOME TAXES (Details Narrative) - USD ($) | Dec. 31, 2017 | Dec. 31, 2016 |
Income Tax Disclosure [Abstract] | ||
Refundable income taxes | $ 629,316 |
COMMITMENT AND CONTINGENCIES (D
COMMITMENT AND CONTINGENCIES (Details) | Dec. 31, 2017USD ($) |
Years ending December 31 | |
2,018 | $ 388,766 |
2,019 | 66,738 |
Total | $ 455,504 |
COMMITMENT AND CONTINGENCIES 49
COMMITMENT AND CONTINGENCIES (Details Narrative) - USD ($) | Jul. 20, 2017 | Dec. 31, 2017 | Dec. 31, 2016 |
Non-Cancellable Operating Lease [Member] | Manufacturing Facility (Gardena, CA) [Member] | |||
Lease expiration date | Feb. 28, 2019 | ||
Monthly base rent | $ 29,648 | ||
Percentage of annula increase in base rent | 3.00% | ||
Rent expense | $ 377,443 | $ 321,598 | |
Three-Month Lease Agreement [Member] | Warehouse Facility (Gardena, CA) [Member] | |||
Monthly base rent | $ 10,200 |
SUBSEQUENT EVENTS (Details Narr
SUBSEQUENT EVENTS (Details Narrative) - Subsequent Event [Member] | Apr. 02, 2018$ / sharesshares |
Executive Officer [Member] | |
Subsequent Event [Line Items] | |
Number of shares granted | 330,000 |
Expiration period | 10 years |
Description vesting rights | Vest as to one-third of the shares as the first, second and third annual anniversaries of the date of grant. |
Mr. Rajesh Masina [Member] | |
Subsequent Event [Line Items] | |
Number of shares granted | 90,000 |
Exercise price per share (in dollars per share) | $ / shares | $ 4.97 |
Mr. Luis Zavala [Member] | |
Subsequent Event [Line Items] | |
Number of shares granted | 90,000 |
Exercise price per share (in dollars per share) | $ / shares | $ 4.97 |
Mr. Arthur D. Sams [Member] | |
Subsequent Event [Line Items] | |
Number of shares granted | 150,000 |
Exercise price per share (in dollars per share) | $ / shares | $ 5.47 |