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What changed in Polar Power, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Polar Power, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+232 added−197 removedSource: 10-K (2024-04-01) vs 10-K (2023-03-31)

Top changes in Polar Power, Inc.'s 2023 10-K

232 paragraphs added · 197 removed · 138 edited across 4 sections

Item 1. Business

Business — how the company describes what it does

58 edited+29 added−18 removed151 unchanged
Biggest changeAfter conclusion of the testing of this higher power DC power system, we plan to introduce a configuration of this product to the residential and commercial microgrid market in emerging markets. We believe 50 kW standalone DC power system, powered by natural gas or LPG would be ideal for rural communities in emerging markets such as Africa and Asia.
Biggest changeWe believe 50 kW standalone DC power system, powered by natural gas or LPG would be ideal for rural communities in emerging markets such as Africa and Asia. The capacity of 50 kW is sufficiently large enough to power a small rural hospital, dairy farm and a cluster of houses in a small village.
Standard oil intervals for typical generators range from 200 to 500 hours. DC Hybrid Power Systems In most off-grid or bad-grid outdoor applications where DC loads are required, such as telecommunications towers in rural or remote areas, generator fuel cost can account for more than 60% of the total operating costs.
Standard oil intervals for typical generators range from 200 to 500 hours. 10 DC Hybrid Power Systems In most off-grid or bad-grid outdoor applications where DC loads are required, such as telecommunications towers in rural or remote areas, generator fuel cost can account for more than 60% of the total operating costs.
All our products are 100% tested to customer specific application requirements prior to shipment. 13 Throughout our operations we utilize computerized ERP software that integrates all our processes from lead generation to product shipment and aftermarket support.
All our products are 100% tested to customer specific application requirements prior to shipment. Throughout our operations we utilize computerized ERP software that integrates all our processes from lead generation to product shipment and aftermarket support.
In 2017, we established sales offices near the emerging growth countries of Australia and U.A.E. setup to develop strategic alliances with distributors to promote our residential solutions to communities living in bad-grid and off-grid areas. 5 Our Competitive Strengths We have over a 40-year history and have developed a reputation as a proven supplier of reliable and advanced proprietary technology products to customers within the telecommunications, military, commercial, industrial and marine markets.
In 2017, we established sales offices near the emerging growth countries of Australia and U.A.E. setup to develop strategic alliances with distributors to promote our residential solutions to communities living in bad-grid and off-grid areas. 6 Our Competitive Strengths We have over a 40-year history and have developed a reputation as a proven supplier of reliable and advanced proprietary technology products to customers within the telecommunications, military, commercial, industrial and marine markets.
In 2017, we began investments into international markets and have recorded a steady increase in sales every year since. 2 In the U.S. market, over 95% of the telecommunications towers are connected to a power grid, thereby only requiring backup power generation in equipment in case of an emergency loss of power, while in the emerging markets of Africa and Asia, a significant percentage of telecommunications towers are not connected to the grid thereby requiring fuel-efficient prime power equipment to provide power by charging the batteries.
In 2017, we began investments into international markets and have recorded a steady increase in sales every year since. 3 In the U.S. market, over 95% of the telecommunications towers are connected to a power grid, thereby only requiring backup power generation in equipment in case of an emergency loss of power, while in the emerging markets of Africa and Asia, a significant percentage of telecommunications towers are not connected to the grid thereby requiring fuel-efficient prime power equipment to provide power by charging the batteries.
We have established sales offices in emerging markets like U.A.E., Australia, Poland and the Dominican Republic. Our sales team directly markets to Tier-1 telecommunications companies in their regions. 6 ● Experienced Management Team. Our Chief Executive Officer and key engineers combined have over 100 years of engineering and production experience in the design and manufacturing of power systems.
We have established sales offices in emerging markets like U.A.E., Australia, Poland and the Dominican Republic. Our sales team directly markets to Tier-1 telecommunications companies in their regions. 7 ● Experienced Management Team. Our Chief Executive Officer and key engineers combined have over 100 years of engineering and production experience in the design and manufacturing of power systems.
We believe that the more cost-effective option will be investing into battery storage at the utility level to manage the peak loads or flexible electricity costs for electric vehicle charging to discourage peak load charging. 4 Regardless of how the peak charging issue is resolved, most homes have not been designed to allow for fast charging of electric vehicles.
We believe that the more cost-effective option will be investing into battery storage at the utility level to manage the peak loads or flexible electricity costs for electric vehicle charging to discourage peak load charging. 5 Regardless of how the peak charging issue is resolved, most homes have not been designed to allow for fast charging of electric vehicles.
In 2013, we further expanded the integration of storage and renewable energy such as solar and wind into our Supra Controller™ software resulting in the shipment of twenty off-grid telecommunications tower power systems to Australia. 8 In 2017 and 2018, we demonstrated our DC hybrid power systems to telecommunications providers in South East Asia and Africa.
In 2013, we further expanded the integration of storage and renewable energy such as solar and wind into our Supra Controller™ software resulting in the shipment of twenty off-grid telecommunications tower power systems to Australia. 9 In 2017 and 2018, we demonstrated our DC hybrid power systems to telecommunications providers in South East Asia and Africa.
We have hired trained personnel in Australia, Romania, and South Africa to assist in regional training of technicians and also in product demonstrations. 12 Competition Within the telecommunications power generation market, we compete with a few manufacturers of AC and DC generators that offer generators with an output power of 5 kW to 50 kW.
We have hired trained personnel in Australia, Romania, and South Africa to assist in regional training of technicians and also in product demonstrations. 13 Competition Within the telecommunications power generation market, we compete with a few manufacturers of AC and DC generators that offer generators with an output power of 5 kW to 50 kW.
Our telecommunications customers request photovoltaic array structures to withstand winds of 150 mph and 200 mph exceeding the industry standard of 120 mph. ● Shelter . We provide an all-weather light-weight aluminum walk-in shelter that is easy to transport by truck or helicopter. 10 ● Lightning protection .
Our telecommunications customers request photovoltaic array structures to withstand winds of 150 mph and 200 mph exceeding the industry standard of 120 mph. ● Shelter . We provide an all-weather light-weight aluminum walk-in shelter that is easy to transport by truck or helicopter. 11 ● Lightning protection .
We may register patents and trademarks in future to protect our intellectual property rights and enhance our competitive position. 14 Suppliers We attempt to mitigate the adverse effect of component shortages in our business through detail material planning and by qualifying multiple vendor sources for key components and outside processes.
We may register patents and trademarks in future to protect our intellectual property rights and enhance our competitive position. 15 Suppliers We attempt to mitigate the adverse effect of component shortages in our business through detail material planning and by qualifying multiple vendor sources for key components and outside processes.
We believe that the integration of renewable energy and storage batteries are ideal for off-grid remote locations in rural areas worldwide. During 2023, we plan to continue our research and development efforts to further enhance these integrations for remote telecommunications towers in South East Asia and Africa.
We believe that the integration of renewable energy and storage batteries are ideal for off-grid remote locations in rural areas worldwide. During 2024, we plan to continue our research and development efforts to further enhance these integrations for remote telecommunications towers in South East Asia and Africa.
We plan to invest additional capital in software and information systems to integrate aftermarket sales and service with our ERP system to improve post sales customer experience with our products and services. 15 Government Regulations and Environmental Matters Our business operations are subject to certain federal, state, local and foreign laws and regulations.
We plan to invest additional capital in software and information systems to integrate aftermarket sales and service with our ERP system to improve post sales customer experience with our products and services. 16 Government Regulations and Environmental Matters Our business operations are subject to certain federal, state, local and foreign laws and regulations.
In addition, the heat generated while charging is captured and delivered to heat the home, heat water for laundry, or heat the pool. Our electric vehicle charger was initially designed in 2009 as a diesel-fueled mobile charger for EV manufacturers to aid in testing their vehicles in the field.
In addition, the heat generated while charging is captured and delivered to heat the home, heat water for laundry, or heat the pool. Our CHAdeMO style electric vehicle charger was initially designed in 2009 as a diesel-fueled mobile charger for EV manufacturers to aid in testing their vehicles in the field.
It’s more efficient to build power systems around the DC generator because it’s simpler to integrate with battery storage and solar photovoltaics which also operate on DC. Many applications in communications, water pumping, lighting, vehicle and vessel propulsion, security systems operate on DC power only.
We believe it’s more efficient to build power systems around the DC generator because it’s simpler to integrate with battery storage and solar photovoltaics which also operate on DC. Many applications in communications, water pumping, lighting, vehicle and vessel propulsion, security systems operate on DC power only.
During 2022, we demonstrated our products to several prospects in need of off-grid and/or bad-grid solutions which resulted in several initial orders. ● Further develop our new LPG and natural gas DC power systems.
During 2023, we demonstrated our products to several prospects in need of off-grid and/or bad-grid solutions which resulted in several initial orders. ● Further develop our new LPG and natural gas DC power systems.
We believe our investments in state-of the-art equipment, additions to manufacturing plant space, and employee training will yield improvements in our gross margins as sales volumes increase and as the economy normalizes from the impact of the pandemic and other known and unknown factors affecting the global economy.
We believe this inventory and our investments in state-of the-art equipment, additions to manufacturing plant space, and employee training will yield improvements in our gross margins and liquidity as sales volumes increase and as the economy normalizes from the impact of the pandemic and other known and unknown factors affecting the global economy.
The increase in telecommunications subscriber base in rural and remote areas in emerging countries has increased the deployment of telecommunications sites in off-grid and bad-grid areas. During 2022, approximately 72% of our DC power systems sales were to U.S. telecommunications customers, which we believe represents only 4.7% of the total global telecommunications market.
The increase in telecommunications subscriber base in rural and remote areas in emerging countries has increased the deployment of telecommunications sites in off-grid and bad-grid areas. During 2023, approximately 75% of our DC power systems sales were to U.S. telecommunications customers, which we believe represents only 4.7% of the total global telecommunications market.
We pride ourselves in the development and fair treatment of our workforce, including healthcare and benefit programs for our employees, equal employment hiring practices and policies, anti-harassment, workforce safety, and anti-retaliation policies. We welcome and celebrate our teams’ differences, experiences, and beliefs, and we are investing in a more engaged, diverse, and inclusive workforce. COVID-19 and Employee Safety and Wellness.
We pride ourselves in the development and fair treatment of our workforce, including healthcare and benefit programs for our employees, equal employment hiring practices and policies, anti-harassment, workforce safety, and anti-retaliation policies. We welcome and celebrate our teams’ differences, experiences, and beliefs, and we are investing in a more engaged, diverse, and inclusive workforce.
In 2023, we plan to expand our sales and service network for our natural gas generators, targeting residential and telecommunications customers in the U.S. while also targeting Tier-1 telecommunications customers in emerging nations with solar hybrid natural gas generators for off-grid markets. 7 ● Expand renewable solar energy product offerings .
In 2024, we plan to expand our sales and service network for our natural gas generators, targeting residential and telecommunications customers in the U.S. while also targeting Tier-1 telecommunications customers in emerging nations with solar hybrid natural gas generators for off-grid markets. 8 ● Expand renewable solar energy product offerings .
Military Since 1979, we have been developing and marketing products to the U.S. military and large defense contractors in the U.S. and international markets. The need for low voltage DC power generation systems are vital for military operations and commonly used to charge storage batteries, provide backup emergency power, or provide startup power for aircrafts or weapon systems.
Military Since 1979, we have been developing and marketing products to the U.S. military and large defense contractors in the U.S. and international markets. The need for light weight and compact DC power generation systems are vital for military operations and commonly used to charge storage batteries, provide backup emergency power, or provide startup power for aircrafts or weapon systems.
These new generators have been specifically designed to run in residential applications and will provide power outputs between 5 kW to 22 kW and which incorporate a 30,000- to 90,000-hour life engine with our proprietary control system. Our natural gas generators when integrated with battery storage and solar are ideal microgrids for off-grid and bad grid residential and commercial applications.
Our solar hybrid power systems have been specifically designed to run in residential applications and provide power outputs between 5 kW to 22 kW and incorporate a 30,000- to 90,000-hour life engine with our proprietary control system. Our natural gas generators when integrated with battery storage and solar are ideal microgrids for off-grid and bad grid residential and commercial applications.
This expansion in data transfer and storage has led to an increase in energy needs, which requires efficient power generation equipment that can charge batteries or directly power these systems. 3 A digitized battlefield includes sensors, information processing, data distribution, electronic countermeasures, all requiring with few exceptions, 28 volts DC or 48 volts energy at point of use.
This expansion in data transfer and storage has led to an increase in energy needs, which requires efficient power generation equipment that can charge batteries or directly power these systems. 4 A digitized battlefield includes sensors, information processing, data distribution, electronic countermeasures, all requiring with few exceptions, DC power.
We have supplied these mobile chargers to five of the leading automakers in the USA. We are presently improving this product by replacing the diesel engine with a heavy duty 60,000-hour plus lifetime Toyota natural gas or propane engine. This product targets residential customers that own or are expected to own electric vehicles.
We have supplied these mobile chargers to five of the leading automakers in the USA. We are presently improving this product using heavy duty 60,000-hour Toyota natural gas or propane engine. This product targets residential customers that own or are expected to own electric vehicles.
Our sales backlog as of December 31, 2022, was $12,001, with 47% of that amount being attributable to our largest U.S. telecommunications customer, 16% represented purchases from other telecommunications customers in the U.S., 32 % represented purchases from telecommunications customers outside the U.S., 1 % represented purchase from customers in the marine industry, 1% represented purchases from customers in the military markets, and 3% represented purchases from customer in other markets. 1 For the three-year period prior to the pandemic, we experienced high double-digit sales growth which resulted in us making strategic investments to increase our production capacity to $50 million annual revenue through an increase in plant space and the addition of automation equipment.
Our sales backlog as of December 31, 2023, was $3,862, with 56% of that amount being attributable to our largest U.S. telecommunications customer, 4% represented purchases from other telecommunications customers in the U.S., 31% represented purchases from telecommunications customers outside the U.S., 6% represented purchases from customers in the military markets, and 3% from marine and other markets. 2 For the three-year period prior to the pandemic, we experienced high double-digit sales growth which resulted in us making strategic investments to increase our production capacity to $50 million annual revenue through an increase in plant space and the addition of automation equipment.
Our engineers have equipment design experience, as well as hands-on skills to build prototypes. A key factor demonstrating our management’s abilities and our engineering aptitude can be found in our successful track record over the last 25 years of executing research, design and engineering contracts, with an average of four projects per year.
Our engineers have equipment design experience, as well as hands-on skills to build prototypes. A key factor demonstrating our management’s abilities and our engineering aptitude can be found in our successful track record over the last 40 years of executing research, design and engineering contracts.
Human Capital Our experienced employees and management team are our most valuable resources, and we are committed to attracting, motivating, and retaining top professionals to service our customers. As of March 31, 2023, we had 113 full time employees, which includes 104 employees in the U.S. and 9 employees outside the U.S.
Human Capital Our experienced employees and management team are our most valuable resources, and we are committed to attracting, motivating, and retaining top professionals to service our customers. As of April 1, 2024, we had 87 full time employees, which includes 80 employees in the U.S. and 7 employees outside the U.S.
We use local regional sales managers in the U.S. market to demonstrate our products to Tier-1 telecommunications providers. Our products are purchased by regional centers operated by our telecommunications customers, thereby expanding our overall market into regions we may not have covered previously. We have established a sales and service infrastructure in international markets.
Our products are purchased by regional centers operated by our telecommunications customers, thereby expanding our overall market into regions we may not have covered previously. We have established a sales and service infrastructure in international markets.
The implementation of 5G networks by Tier-1 telecommunication customers in the U.S. has also resulted in a significant increase in orders of our DC power systems.
However, we believe the resulting geopolitical uncertainty should increase our military contracts. The implementation of 5G networks by Tier-1 telecommunication customers in the U.S. has also resulted in a significant increase in orders of our DC power systems.
Electric Vehicle Charging According to Precedence Research, a market research company, the global electric vehicle market size accounted for USD 205.58 billion in 2022 and is expected to reach USD 1,716.83 billion by 2032, growing at a compound annual growth rate (CAGR) of 23.1% during the forecast period 2023 to 2032.
Electric Vehicle Charging According to Precedence Research, a market research company, the global electric vehicle market size accounted for USD 255.54 billion in 2023 and is expected to reach USD 2,108.80 billion by 2033, growing at a compound annual growth rate (CAGR) of 23.4% during the forecast period 2024 to 2033.
We are actively sourcing the domestic supply chain for key components to avoid or reduce the risk of future delays or interruptions to our operations or our ability to service customers. We have also experience price increases on certain materials and freight services.
We have experienced material shortages and delays due to the pandemic; more in 2022 than in 2023. We actively sourcing the global supply chain for key components to avoid or reduce the risk of future delays or interruptions to our operations or our ability to service customers. We have also experienced price increases on certain materials and freight services.
In order to address this issue, in 2020 we completed the design of our natural gas-powered electric vehicle charger and backup generator. Our electric vehicle chargers, being independent of the grid, are designed to automatically fast charge connected electric vehicles at home on a daily basis while providing backup power during power outages.
In order to address this issue, we are in the process of upgrading our CHAdeMO chargers to CCS natural gas-powered electric vehicle charger and combined heat and power generators. Our electric vehicle chargers, being independent of the grid, are designed to fast charge connected electric vehicles at home while providing backup power during power outages.
In the near term, 5G will deliver broadband-like services such as high-definition streaming video to a cell phone. Businesses will benefit from using 5G for data monitoring and cloud-native 5G networks to compute and store data locally. All of these applications dramatically scale up data usage which requires an increase in infrastructure and an increase in power and backup generators.
Businesses benefit from using 5G for data monitoring and cloud-native 5G networks to compute and store data locally. All of these applications dramatically scale up data usage which requires an increase in infrastructure and an increase in power and backup generators.
Our regional service providers are factory trained and certified prior to being authorized to repair or service our equipment. We generally reimburse regional service providers for the warranty services they perform on our systems. Sales and Marketing Our sales strategy focuses on using our direct sales force to market our DC backup power products to telecommunications providers in the U.S.
We generally reimburse regional service providers for the warranty services they perform on our systems. 12 Sales and Marketing Our sales strategy focuses on using our direct sales force to market our DC backup power products to telecommunications providers in the U.S. We use local regional sales managers in the U.S. market to demonstrate our products to Tier-1 telecommunications providers.
We offer installation of the equipment, preliminary testing, integration of equipment with other assets located at the site and introductory maintenance and safety training. We offer various levels of fee-based services to support our products in the field.
We offer installation of the equipment, preliminary testing, integration of equipment with other assets located at the site and introductory maintenance and safety training. We offer various levels of fee-based services to support our products in the field. In addition, we have trained product and application engineers that deliver high quality, responsive lifetime technical support to all our customers worldwide.
We believe that the number one reliability issue with a generator set is the failure to start. To improve the reliability of our generators, we remove the engine’s starting battery and replace it with a super capacitor.
We believe that the number one reliability issue with a generator set is the failure to start. To improve the reliability of our generators, we remove the engine’s starting battery and replace it with a super capacitor. The super capacitor has a 15- to 20-year service life, greater cold cranking amps and withstands greater temperature extremes than conventional starting batteries.
A decade ago, we began delivering compact 3 kW – 15 kW DC auxiliary batteries to power these communication and reconnaissance systems thereby improving fuel efficiency of the combat and vehicles when deployed.
A decade ago, we began delivering compact 3 kW – 15 kW DC power systems for communication and reconnaissance systems thereby improving fuel efficiency of the combat and vehicles when deployed. During the decade we have delivered several configurations of these auxiliary power units to the military, which vary in function from battery charging to supplying power to weapon systems.
However, such methods may not afford complete protection, and there can be no assurance that others will not independently develop similar know-how or obtain access to our know-how and manufacturing concepts.
We consider our manufacturing process to be a trade secret and have non-disclosure agreements with our employees to protect the trade secrets held by us. However, such methods may not afford complete protection, and there can be no assurance that others will not independently develop similar know-how or obtain access to our know-how and manufacturing concepts.
The primary growth factors driven by significant number of government incentives such as tax rebates, subsidies, and grants. This increase will require more than 29 million additional charging stations globally to support the cumulative growth of electric vehicles. The global electric vehicle charging station market is poised to grow at a CAGR of 31.5% from 2022 to 2030.
The primary growth factors driven by significant number of government incentives such as tax rebates, subsidies, and grants. This increase will require a significant increase in charging stations globally to support the cumulative growth of electric vehicles.
The super capacitor has a 15- to 20-year service life, greater cold cranking amps and withstands greater temperature extremes than conventional starting batteries. 9 To reduce maintenance and help ensure that there is always adequate oil, we increase the engine’s oil capacity to provide for a 4,300-hour (natural gas / propane) or 1,500-hour (diesel) maintenance interval.
To reduce maintenance and help ensure that there is always adequate oil, we increase the engine’s oil capacity to provide for a 4,300-hour (natural gas / propane) or 1,500-hour (diesel) maintenance interval.
Our focus on safety, quality and on-time delivery is supported by employee training and information systems that monitor process and product quality and communicate trends and findings to senior management on a real-time basis.
Our focus on safety, quality and on-time delivery is supported by employee training and information systems that monitor process and product quality and communicate trends and findings to senior management on a real-time basis. 14 Design Engineering/Research and Development Our research and development efforts are market driven and are focused on the development of new technologies and product improvements, as well as reducing costs and improving product quality and reliability.
In 2023, we plan to gradually increase our team of engineers and continue investing into new product development as part of our strategy to diversify our product lines.
In 2024, we plan to gradually increase our team of engineers and continue investing into new product development as part of our strategy to diversify our product lines. Intellectual Property We possess a broad intellectual property portfolio comprised of electronics, software, engines, alternators, thermal systems and production techniques.
The capacity of 50 kW is sufficiently large enough to power a small rural hospital, dairy farm and a cluster of houses in a small village. The ease of connecting our DC power system with solar, battery packs or any other source of energy like wind can introduce a sustainable cost-effective solution in emerging markets.
The ease of connecting our DC power system with solar, battery packs or any other source of energy like wind can introduce a sustainable cost-effective solution in emerging markets. The 50 kW generator can also provide roadside emergency charging services for electric vehicles.
We utilize a combination of factory trained technicians and independent service providers to provide installation, maintenance, service and training at customer locations throughout the U.S. In the international markets, we utilize local service partners to perform installation and service on our equipment.
We believe expansion of our dealer network will also provide additional opportunities for our DC power systems in the U.S. and other countries. We utilize a combination of factory trained technicians and independent service providers to provide installation, maintenance, service and training at customer locations throughout the U.S.
During 2019, the telecommunications infrastructure in the U.S. and other developed nations was known to have sufficient capacity to satisfy the needs of average smart phone users. However, the advent of 5G technology has resulted in a digital revolution within both the commercial and consumer sectors leading to an exponential increase in data usage.
The advent of 5G technology has resulted in a digital revolution within both the commercial and consumer sectors leading to an exponential increase in data usage.
The next generation of wireless network capabilities offer potential revolutionary applications far beyond smart phones and mobile devices. The 5G mobile network is intended to converge connectivity, intelligent edge and Internet of Things (IoT) technologies which is expected to result in an increase in telecommunications tower sites in both the U.S. and abroad.
Wireless network capabilities continue to expand far beyond smart phones and mobile devices. The 5G mobile network is converging connectivity, intelligent edge and Internet of Things (IoT) technologies resulting in an increase in telecommunications tower sites in both the U.S. and abroad. The 5G network delivers broadband-like services such as high-definition streaming video to a cell phone.
Approximately 72% of our net sales during 2022 were of our DC power systems to support 5G networks and 47% of our backlog as of December 31, 2022 are purchase orders of our of DC power systems to support 5G networks. Our growing backlog and shipments have demonstrated that our customers are viable and moving forward with orders.
Approximately 75% of our net sales during 2023 were of our DC power systems to support 5G networks and 60% of our sales backlog as of December 31, 2023 are purchase orders of our of DC power systems to support 5G networks in the U.S.
The unanticipated drop in sales during in the first three years after the pandemic caused a disproportionate distribution of fixed and semi-fixed overhead costs across much lower revenues. During 2022, labor shortages and supply chain constrains caused a decrease in product shipments resulting in an increase in our cost of sales as a percentage of total net sales.
The unanticipated drop in sales during in the first three years after the pandemic caused a disproportionate distribution of fixed and semi-fixed overhead costs across much lower revenues. During 2023, our largest customer asked us to postpone deliveries of our DC power generators to 2024 resulting in a decrease in revenue and higher overhead cost.
The promotion of our natural gas powered Mini-Grid product, targeting off-grid and bad grid rural areas, will be undertaken by certified independent dealers. We believe expansion of our dealer network will also provide additional opportunities for our DC power systems in the U.S. and other countries.
Distribution and Service We service our products through various service partners that provide initial product installation and maintenance services. The promotion of our natural gas powered Mini-Grid product, targeting off-grid and bad grid rural areas, will be undertaken by certified independent dealers.
The pandemic has resulted in labor shortages, disruptions in the chain of supply, and higher material costs. During 2022, supply chain constraints that affected timely delivery of raw materials required to complete our DC power systems and labor shortages resulted in approximately $3,500 of expected shipments to be postponed to the first half of 2023.
During 2022 and to a lesser extent in 2023, supply chain constraints affected timely delivery of raw materials required to complete our DC power systems.
We protect our trade secrets and other proprietary information by requiring confidentiality agreements from our employees, consultants and third parties that have access to such information. Despite these efforts, there can be no assurance that others will not gain access to our trade secrets, or that we can meaningfully protect our technology.
Despite these efforts, there can be no assurance that others will not gain access to our trade secrets, or that we can meaningfully protect our technology. In addition, effective trademark, copyright and trade secret protection may be unavailable or limited in certain foreign countries.
In addition, we have trained product and application engineers that deliver high quality, responsive lifetime technical support to all our customers worldwide. 11 We further support our customers by using qualified regional independent service providers to perform warranty and aftermarket service and repair on our products.
We further support our customers by using qualified regional independent service providers to perform warranty and aftermarket service and repair on our products. Our regional service providers are factory trained and certified prior to being authorized to repair or service our equipment.
We believe military actions of the Russian Federation and its invasion of Ukraine have added considerable to our shipping costs due to diesel fuel costs. However, we believe the resulting geopolitical uncertainty should increase our military contracts.
During 2023, 3% of our total net sales were derived from customers in the military market, as compared to 1% in 2022. We believe military actions of the Russian Federation and its invasion of Ukraine and conflicts between Israel and Hamas have added considerable to our shipping costs due to diesel fuel 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. In April and May of 2022, we received purchase orders totaling $6.2 million from a telecommunications customer in the South Pacific Islands for our DC power generators for off-grid applications.
During 2023 and 2022, sales to customers in international markets represented 21% and 25% of our total net sales, respectively, as compared to 8% and 17% in 2021 and 2020, respectively. During 2022, we received purchase orders totaling $6.2 million from a telecommunications customer in the South Pacific Islands for our DC power generators for off-grid applications.
Intellectual Property We possess a broad intellectual property portfolio comprised of electronics, software, engines, alternators, thermal systems and production techniques. We rely on trademark, copyright and trade secret laws to protect our intellectual property. Currently, we rely on common law rights to protect our “Polar Power, Inc.” trade name.
We rely on trademark, copyright and trade secret laws to protect our intellectual property. Currently, we rely on common law rights to protect our “Polar Power, Inc.” trade name. We protect our trade secrets and other proprietary information by requiring confidentiality agreements from our employees, consultants and third parties that have access to such information.
During 2019, we developed an environmentally friendly solar hybrid power system based on a combination of solar with LPG and propane power sources which we believe lowers both capital expenditures and operating expenditures.
Our environmentally friendly solar hybrid power systems based on a combination of solar with LPG and propane power sources offer significant cost savings in capital expenditures and operating expenditures when compared to similar products offered by our competitors.
This order is part of a growing program to develop broadband services in the South Pacific region. During 2022, 59% of the order was shipped and included in net sales in the statements of operation in this Annual Report on Form 10-K. The remaining 41% is expected to ship in the first half of 2023.
We completed shipping this order to the South Pacific in 2023. This order is part of a growing program to develop broadband services in the South Pacific region. During 2023, 50% of our total net sales were derived from our largest customer, compared to 66% in 2022.
In December 2016, Polar Power, Inc. reincorporated in the State of Delaware. Our internet website address is https://polarpower.com/. Recent Business Events The COVID-19 pandemic has negatively impacted business and industries all over the world since March 2020. The pandemic has had a significant negative impact on our overall operations including revenues, productivity, gross margins and liquidity.
In December 2016, Polar Power, Inc. reincorporated in the State of Delaware. Our internet website address is https://polarpower.com/ .
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In September 2022, we renewed our master service agreement with our largest customer. The agreement included price adjustments to our products which we believe will help offset the effects of inflation and improve our gross margins. During 2022, 66% of our total net sales were derived from our largest customer, compared to 67% in 2021.
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Recent Developments On November 24, 2023, the Company received a deficiency letter from the Listing Qualifications Department of The Nasdaq Stock Market (“Nasdaq”) indicating that the Company’s common stock is subject to potential delisting from the Nasdaq because for a period of 30 consecutive business days, the bid price of the Company’s common stock has closed below the minimum $1.00 per share requirement for continued inclusion under Nasdaq Marketplace Rule 5550(a)(2) (the “Bid Price Rule”).
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In November 2022, we received purchase orders from another customer in the South Pacific region totaling $1.1 million for our solar hybrid power systems.
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The Nasdaq deficiency letter has no immediate effect on the listing of the Company’s common stock, and its common stock continues to trade on The Nasdaq Capital Market under the symbol “POLA” at this time.
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Our solar hybrid power systems, which integrate solar energy storage with natural gas/LPG (propane) powered generators, are ideal for off-grid (i.e., areas where wireless towers are not connected to an electrical grid) and bad-grid (i.e., areas where wireless towers are connected to an electrical grid that loses power for more than eight hours) applications.
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The Nasdaq notice indicated that, in accordance with Nasdaq Marketplace Rule 5810(c)(3)(A), the Company will be provided 180 calendar days, or until May 22, 2024, to regain compliance.
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We also continue to work on diversifying our customer base and are selling into non-telecommunication markets and applications at an increasing rate. In March 2022, we received EPA certification on our 4Y Toyota engine project aimed at expanding the power range to 35 kW on natural gas and LPG.
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If, at any time before May 22, 2024, the bid price of the Company’s common stock closes at $1.00 per share or more for a minimum of 10 consecutive business days, Nasdaq staff will provide written notification that it has achieved compliance with the Bid Price Rule.
Removed
Polar’s EPA certification of 1KS and 4Y Toyota engines brings to the market (non-diesel) engines with very low maintenance and high fuel efficiency. In addition to meeting the telecommunications need for larger and more compact generators our larger models have high interest from micro-grids, peak power shaving, and EV charging.
Added
If the Company fails to regain compliance with the Bid Price Rule before May 22, 2024 but meets all of the other applicable standards for initial listing on The Nasdaq Capital Market with the exception of the minimum bid price, then the Company may be eligible to have an additional 180 calendar days, or until November 18, 2024, to regain compliance with the Bid Price Rule.
Removed
The headwind to a more rapid sales growth is a labor and supply chain issue. We anticipate that our component suppliers will normalize their backlogs sometime during the 4 th quarter in 2023. In the meantime, our strategy will be to maintain large inventories of engines and electronic components to offset disruptions.
Added
If the Company does not regain compliance with the Bid Price Rule by the end of the compliance period (or the second compliance period, if applicable), the Company’s common stock will become subject to delisting.
Removed
This was primarily because of decreased labor efficiencies and decreased absorption of manufacturing overhead resulting from lower volume in net sales.
Added
In the event that the Company receives notice that its common stock is being delisted, the Nasdaq listing rules permit the Company to appeal a delisting determination by Nasdaq to a hearings panel.
Removed
During the decade we have delivered several configurations of these auxiliary power units to the military, which vary in function from battery charging to supplying power to weapon systems. We are currently in the process of development of next-generation higher output power DC power system.
Added
On November 30, 2023, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with ThinkEquity LLC, as the representative (the “Representative”) of the several underwriters named therein (collectively, the “Underwriters”), pursuant to which the Company sold to the Underwriters an aggregate of 4,000,000 shares (the “Shares”) of the Company’s common stock, $0.0001 par value per share, at a price to the public of $0.40 per share, in a firm commitment underwritten public offering (the “Offering”).
Removed
The 50 kW generator can also provide roadside emergency charging services for electric vehicles.
Added
The Company also granted the Underwriters an option exercisable for 45 days from the date of the Underwriting Agreement to purchase up to an additional 600,000 shares of common stock (or pre-funded warrants in lieu thereof) solely for the purpose of covering over-allotments.
Removed
We market our products to a large global customer base through actual product demonstrations. In 2020, the spread of COVID-19 led to various government travel restrictions which resulted in the inability of our sales team to meet with existing or new customers to demonstrate our products.
Added
The Representative exercised the over-allotment option in full on December 4, 2023, to purchase an additional 600,000 shares of common stock (the “Over-Allotment Exercise’). The Offering and closing on the Over-Allotment Exercise closed concurrently on December 5, 2023.
Removed
In addition, our service staff and engineers have generally been unable to travel to customer locations to setup demonstrations and assist in the integration and optimization of our products to specific customer application needs. During 2021 and 2022, we experienced a modest resumption of sales activity with our U.S. Tier-1 telecommunications customers as their construction activities resume.
Added
The Offering was made pursuant to an effective registration statement on Form S-3 (Registration No. 333-252196) and a related prospectus and prospectus supplement, in each case filed with the Securities and Exchange Commission.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

34 edited+31 added−13 removed193 unchanged
Biggest changeOur certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, our certificate of incorporation or our bylaws, or (iv) any action asserting a claim against us governed by the internal affairs doctrine. 30 For the avoidance of doubt, the exclusive forum provision described above does not apply to any claims arising under the Securities Act of 1933, as amended, or the Securities Act, or the Securities Exchange Act of 1934, as amended, or the Exchange Act.
Biggest changeOur certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, our certificate of incorporation or our bylaws, or (iv) any action asserting a claim against us governed by the internal affairs doctrine.
In response to the Russian military actions, many businesses headquartered in the Eurozone and the United States stopped doing business with Russia, which may negatively affect the profitability of those companies. The international turmoil has already had and may continue to have a negative impact on the stock market generally and, in turn, on our stock price.
In response to the Russian military actions, many businesses headquartered in the Eurozone and the United States have stopped doing business with Russia, which may negatively affect the profitability of those companies. The international turmoil has already had and may continue to have a negative impact on the stock market generally and, in turn, on our stock price.
An increase in global economic outlook may result in significant price increases in the cost of our raw materials. In addition, we use Neodymium permanent magnets in our alternators, for which there are a limited number of global suppliers that can meet our standards.
An increase in global economic outlook may result in significant price increases in the cost of our raw materials. In addition, we use Neodymium permanent magnets in our alternators, for which there are a limited number of global suppliers that can meet our standards.
Increase in manufacturing of electric vehicles worldwide can have an adverse effect on the cost or supply of these magnets. At our current production volumes, we are unable to secure large quantities of these commodities at fixed prices; however, we do have multiple sources of supply for our raw materials to meet our near term forecasted needs.
Increase in manufacturing of electric vehicles worldwide can have an adverse effect on the cost or supply of these magnets. At our current production volumes, we are unable to secure large quantities of these commodities at fixed prices; however, we do have multiple sources of supply for our raw materials to meet our near term forecasted needs.
The ultimate impact of the COVID-19 pandemic on our business and results of operations remains unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration and potential resurgence of the COVID-19 pandemic, repeat or cyclical outbreaks and any additional preventative and protective actions that governments, or we or our customers, may direct, which may result in an extended period of continued business disruption and reduced operations.
The ultimate impact of the COVID-19 pandemic on our business and results of operations remains unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration and potential resurgence of COVID-19, repeat or cyclical outbreaks and any additional preventative and protective actions that governments, or we, or our customers, or our suppliers may direct, which may result in an extended period of continued business disruption and reduced operations.
Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common stock. 31 We are required to disclose changes made in our internal controls and procedures on a quarterly basis and our management is required to assess the effectiveness of these controls annually.
Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common stock. We are required to disclose changes made in our internal controls and procedures on a quarterly basis and our management is required to assess the effectiveness of these controls annually.
Undetected material weaknesses in our internal controls could lead to financial statement restatements and require us to incur the expense of remediation. We incur significant costs as a result of operating as a public company and our management expects to devote substantial time to public company compliance programs.
Undetected material weaknesses in our internal controls could lead to financial statement restatements and require us to incur the expense of remediation. 31 We incur significant costs as a result of operating as a public company and our management expects to devote substantial time to public company compliance programs.
Some of the risks and challenges of conducting business internationally include: ● the impact of COVID-19 on the global markets and the power generation market within the international telecommunications markets; ● requirements or preferences for domestic products or solutions, which could reduce demand for our products; ● unexpected changes in regulatory requirements; ● imposition of tariffs and other barriers and restrictions; ● restrictions on the import or export of critical technology; 24 ● management communication and integration problems resulting from cultural and geographic dispersion; ● the burden of complying with a variety of laws and regulations in various countries; ● difficulties in enforcing contracts; ● the uncertainty of protection for intellectual property rights in some countries; ● application of the income tax laws and regulations of multiple jurisdictions, including relatively low-rate and relatively high-rate jurisdictions, to our sales and other transactions, which results in additional complexity and uncertainty; ● tariffs and trade barriers, export regulations and other regulatory and contractual limitations on our ability to sell products; ● greater risk of a failure of foreign employees to comply with both U.S. and foreign laws, including export and antitrust regulations, the FCPA and any trade regulations ensuring fair trade practices; ● heightened risk of unfair or corrupt business practices in certain geographies and of improper or fraudulent sales arrangements that may impact financial results and result in restatements of, or irregularities in, financial statements; ● potentially adverse tax consequences, including multiple and possibly overlapping tax structures; ● general economic and geopolitical conditions, including war and acts of terrorism; ● lack of the availability of qualified third-party financing; and ● currency exchange controls.
Some of the risks and challenges of conducting business internationally include: ● the impact of a global crisis such as a pandemic;/ on the global markets and the power generation market within the international telecommunications markets; ● requirements or preferences for domestic products or solutions, which could reduce demand for our products; ● unexpected changes in regulatory requirements; ● imposition of tariffs and other barriers and restrictions; ● restrictions on the import or export of critical technology; 24 ● management communication and integration problems resulting from cultural and geographic dispersion; ● the burden of complying with a variety of laws and regulations in various countries; ● difficulties in enforcing contracts; ● the uncertainty of protection for intellectual property rights in some countries; ● application of the income tax laws and regulations of multiple jurisdictions, including relatively low-rate and relatively high-rate jurisdictions, to our sales and other transactions, which results in additional complexity and uncertainty; ● tariffs and trade barriers, export regulations and other regulatory and contractual limitations on our ability to sell products; ● greater risk of a failure of foreign employees to comply with both U.S. and foreign laws, including export and antitrust regulations, the FCPA and any trade regulations ensuring fair trade practices; ● heightened risk of unfair or corrupt business practices in certain geographies and of improper or fraudulent sales arrangements that may impact financial results and result in restatements of, or irregularities in, financial statements; ● potentially adverse tax consequences, including multiple and possibly overlapping tax structures; ● general economic and geopolitical conditions, including war and acts of terrorism; ● lack of the availability of qualified third-party financing; and ● currency exchange controls.
Our decision not to be subject to Section 203 will allow, for example, Arthur D. Sams, our Chairman, President, Chief Executive Officer and Secretary (who beneficially owns approximately 44% of our common stock) to transfer shares in excess of 15% of our voting stock to a third-party free of the restrictions imposed by Section 203.
Our decision not to be subject to Section 203 will allow, for example, Arthur D. Sams, our Chairman, President, Chief Executive Officer and Secretary (who beneficially owns approximately 32% of our common stock) to transfer shares in excess of 15% of our voting stock to a third-party free of the restrictions imposed by Section 203.
The successful development and market acceptance of our products and services depends on a number of factors, including: ● the impact of the COVID-19 pandemic on the global markets; ● the changing requirements and preferences of the potential customers in our markets; ● the accurate prediction of market requirements, including regulatory issues; ● the timely completion and introduction of new products and services to avoid obsolescence; ● the quality, price and performance of new products and services; ● the availability, quality, price and performance of competing products and services; 20 ● our customer service and support capabilities and responsiveness; ● the successful development of our relationships with existing and potential customers; and ● changes in industry standards.
The successful development and market acceptance of our products and services depends on a number of factors, including: ● the impact of a global crisis such as the COVID-19 pandemic on the global markets; ● the changing requirements and preferences of the potential customers in our markets; ● the accurate prediction of market requirements, including regulatory issues; ● the timely completion and introduction of new products and services to avoid obsolescence; ● the quality, price and performance of new products and services; ● the availability, quality, price and performance of competing products and services; 20 ● our customer service and support capabilities and responsiveness; ● the successful development of our relationships with existing and potential customers; and ● changes in industry standards.
Delayed sales or lost customers resulting from these disruptions could adversely affect our financial results, stock price and reputation. 25 The State of California enacted the California Consumer Privacy Act of 2018, or CCPA, effective on January 1, 2021.
Delayed sales or lost customers resulting from these disruptions could adversely affect our financial results, stock price and reputation. 25 The State of California enacted the California Consumer Privacy Act of 2018, or CCPA, effective on January 1, 2020.
Additionally, the United States and European nations have imposed very significant financial sanctions on the Russian Republic, including targeted sanctions on Russian banks and wealthy individuals as well as halting certification of the Nord Stream 2 gas pipeline.
Additionally, the United States and European nations have imposed very significant financial sanctions on the Russian Federation, including targeted sanctions on Russian banks and wealthy individuals as well as halting certification of the Nord Stream 2 gas pipeline.
As of December 31, 2022, we had granted options to purchase an aggregate of 140,000 shares of common stock and issued 161,347 shares of common stock as stock-based compensation to officers, employees and consultants under the 2016 Plan.
As of December 31, 2023, we had granted options to purchase an aggregate of 140,000 shares of common stock and issued 161,347 shares of common stock as stock-based compensation to officers, employees and consultants under the 2016 Plan.
Our Chairman, President, Chief Executive Officer and Secretary, Arthur D. Sams, beneficially owns approximately 44% of our outstanding shares of common stock. Mr.
Our Chairman, President, Chief Executive Officer and Secretary, Arthur D. Sams, beneficially owns approximately 32% of our outstanding shares of common stock. Mr.
For example, as a result of the COVID-19 pandemic, we are currently experiencing both delays in sourcing, and price increases of, certain key components. As a result of these delays, our standard eight-week delivery time has increased to fourteen weeks.
For example, as a result of the COVID-19 pandemic, we are experienced both delays in sourcing, and price increases of, certain key components. As a result of these delays, our standard eight-week delivery time increased to fourteen weeks.
During 2022, and 2021, our sales to international customers accounted for 25% and 8%, respectively, of total revenue. We continue to expect that a significant portion of our future revenues will be from international sales to customers in less developed or developing countries.
During 2023, and 2022, our sales to international customers accounted for 21% and 25%, respectively, of total revenue. We continue to expect that a significant portion of our future revenues will be from international sales to customers in less developed or developing countries.
The repercussions of the COVID-19 global pandemic has had and is likely to continue to have, a material and substantial adverse impact on our results of operations, including a decrease in our sales and delays in sourcing raw materials from suppliers.
The repercussions of COVID-19 is likely to continue to have, a material and substantial adverse impact on our results of operations, including a decrease in our sales and delays in sourcing raw materials from suppliers.
The length of this process, combined with unanticipated delays in the development cycles and the effects of COVID-19 on our ability to demonstrate our products to current and potential customers could materially affect our results of operations and financial conditions.
The length of this process, combined with unanticipated delays in the development cycles or delays in our ability to demonstrate our products to current and potential customers could materially affect our results of operations and financial conditions.
We have incurred significant losses in the past. For the years ended December 31, 2022 and 2021, we incurred net losses of approximately $5.6 million and $1.4 million, respectively.
We have incurred significant losses in the past. For the years ended December 31, 2023 and 2022, we incurred net losses of approximately $6.5 million and $5.6 million, respectively.
The full impact of the actions by the Russian Federation regarding Ukraine are not known at this time, but they could have a material adverse impact on our business, financial condition, results of operations, and stock price. 17 We have incurred significant losses in the past and we may incur losses in the future, which may hamper our operations and impede us from expanding our business.
The full impact of the such events are not known at this time, but they could have a material adverse impact on our business, financial condition, results of operations, and stock price. 18 We have incurred significant losses in the past and we may incur losses in the future, which may hamper our operations and impede us from expanding our business.
Engines from Yanmar, Perkins, and Toyota represented approximately 54%, 37%, less than 1% of our total engines sold as a component of our DC power systems during 2022, respectively, and represented approximately 84%, 3%, and 6% of our total engines sold as components of our DC power systems during the same period in 2021, respectively.
Engines from Yanmar, Perkins, and Toyota represented approximately 62%,26%, less than 2% of our total engines sold as a component of our DC power systems during 2023, respectively, and represented approximately 54%, 37%, and 1% of our total engines sold as components of our DC power systems during the same period in 2022, respectively.
For the year ended December 31, 2022, we incurred a gross profit of approximately $2.3 million, and for the year ended December 31, 2021, we incurred a gross profit of approximately $3.4 million. We may incur net and gross losses in the future.
For the year ended December 31, 2023, we incurred a gross profit of approximately $0.7 million, and for the year ended December 31, 2022, we incurred a gross profit of approximately $2.1 million. We may incur net and gross losses in the future.
The special military actions of the Russian Federation and its invasion of Ukraine and the resulting geopolitical uncertainty are likely to continue to have a significant impact on the European Union, the United Kingdom and other countries, including the U.S. The threat that these military operations may expand beyond Ukraine may have a negative impact as well.
The resulting geopolitical uncertainty are likely to have a significant impact on the European Union, the United Kingdom and other countries, including the U.S. The threat that these military operations may expand beyond Ukraine, Israel, and the Gaza Strip may have a negative impact as well.
In addition, we may incur material costs or liabilities in complying with any such regulations. Furthermore, some of our customers must comply with numerous laws and regulations, which may affect their willingness and ability to purchase our products, services and technologies. Additionally, we are subject to laws, regulations and other governmental actions instituted in response to the COVID-19 pandemic.
In addition, we may incur material costs or liabilities in complying with any such regulations. Furthermore, some of our customers must comply with numerous laws and regulations, which may affect their willingness and ability to purchase our products, services and technologies.
If no securities or industry analysts undertake coverage of our company, the trading price for our shares of common stock may be negatively impacted.
We do not have any control over these analysts. If no securities or industry analysts undertake coverage of our company, the trading price for our shares of common stock may be negatively impacted.
Our certificate of incorporation designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or other employees.
Any delay or prevention of a change of control transaction or changes in our board of directors could cause the market price of our common stock to decline. 30 Our certificate of incorporation designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or other employees.
Any resulting financial impact cannot be reasonably estimated at this time, but we expect it will continue to have a material impact on our business, financial condition and results of operations.
Any resulting financial impact cannot be reasonably estimated at this time, but we expect it will continue to have a material impact on our business, financial condition and results of operations. Rising inflation in the economies in which we operate may adversely affect our operating margins and our results of operation.
They have denied Russian banks access the Society for Worldwide Interbank Financial Telecommunications or SWIFT which has slowed international trade and made such transactions costlier to accomplish which could also negatively affect us and our customers.
They have denied Russian banks access the Society for Worldwide Interbank Financial Telecommunications or SWIFT which is expected to slow international trade and make such transactions costlier to accomplish which could also negatively affect banks in the U.S. and their customers.
The trading market for our shares of common stock depends, in part, on the research and reports that securities or industry analysts publish about us or our business. We do not have any control over these analysts.
If securities or industry analysts do not publish research or reports or publish inaccurate or unfavorable research or reports about our business, our share price and trading volume could decline. The trading market for our shares of common stock depends, in part, on the research and reports that securities or industry analysts publish about us or our business.
We cannot provide any assurance that we will be able to obtain additional sources of financing or liquidity on acceptable terms, or at all.
Such disruptions may impact the broader capital markets, and in turn, may impact our ability to access those markets. We cannot provide any assurance that we will be able to obtain additional sources of financing or liquidity on acceptable terms, or at all.
Any factor adversely affecting sales of these power systems to this customer or to other customers within this market, including market acceptance, product competition, performance and reliability, reputation, price competition and economic and market conditions, could adversely affect our business and results of operations. 18 In addition, any unfavorable change in our business relationship with our Tier-1 telecommunications wireless carrier customers, or delays in customer implementation and deployment of our products, could have a material adverse effect on our results of operation and financial condition.
Any factor adversely affecting sales of these power systems to this customer or to other customers within this market, including market acceptance, product competition, performance and reliability, reputation, price competition and economic and market conditions, could adversely affect our business and results of operations.
It is expected that interest rate hikes already announced by the FRB will occur in 2023, but the amount, timing, and frequency of such increases are not fully known at this time. The Russian Federation has also threatened increased cyberattacks as part of its actions which could affect us and our customers.
It is possible that interest rate hikes by the FRB will continue to occur in 2024, but the amount, timing, and frequency of such increases are not fully known at this time. As a result of these conflicts, the threat of cyberattacks has increased which could affect banks in the U.S. and their customers.
In that event, the market price for our common stock will likely decline, and you may lose all or part of your investment. 16 Risks Related to Our Business and Industry The COVID-19 pandemic has had, and will likely continue to have, a significant negative impact on our business, sales, results of operations and financial condition.
In that event, the market price for our common stock will likely decline, and you may lose all or part of your investment. 17 Risks Related to Our Business and Industry Going Concern The Company’s financial statements have been prepared under the assumption that the Company will continue as a going concern.
Terrorist attacks and threats of war may impact all aspects of our operations, revenues, costs and stock price in unpredictable ways.
Terrorist attacks and threats of war may impact all aspects of our operations, revenues, costs and stock price in unpredictable ways. The impacts of war and other geopolitical events, including but not limited to Russia’s invasion of Ukraine and the Hamas-Israel conflict and the resulting war, are difficult to predict.
Removed
The COVID-19 pandemic has had a widespread and detrimental effect on the global economy, particularly in the U.S., and actions over the past three years by public health and governmental authorities, businesses, other organizations and individuals to address the outbreak, including travel bans and restrictions, quarantines, shelter in place, stay at home or total lock-down orders and business limitations and shutdowns have materially negatively impacted, and could further materially adversely affect, our business, financial condition, results of operations and cash flows.
Added
For the year ended December 31, 2023, the Company recorded a net loss of $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.
Removed
Our business is directly dependent upon, and correlates closely with, the marketing levels and ongoing business activities of our existing customers and suppliers.
Added
In addition, the Company’s independent registered public accounting firm, in their report on the Company’s December 31, 2023, audited financial statements, raised substantial doubt about the Company’s ability to continue as a going concern.
Removed
In the event of a continued economic downturn caused by the COVID-19 pandemic, we will likely experience a reduction in current projects, longer sales and collection cycles, deferral or delay of purchase commitments for our DC power systems, a reduction in our manufacturing productivity, higher than normal inventory levels, delay in receipt of raw materials, a reduction in the availability of qualified labor and increased price competition, all of which could substantially adversely affect our results of operations including our earnings and cash flows.
Added
Our ability to continue as a going concern is dependent upon our ability to obtain additional financing, drive further operating efficiencies, reduce expenditures, and ultimately, create profitable operations Our ability to obtain additional financing in the debt and equity capital markets is subject to several factors, including market and economic conditions, our performance and investor sentiment with respect to us and our industry.
Removed
In response to uncertainties associated with the COVID-19 pandemic, we have made certain modifications to our business, including modifications to employee work locations, cancellation of certain marketing events and the implementation of a cost reduction program to reduce overhead.
Added
The Company has taken action to improve its margins, and is continuing to build a strong back log, and expects to continue investing in product development and sales and marketing activities.
Removed
During 2022, we kept following limited remote work policies for many employees, and the resources available to such employees may not enable them to maintain the same level of productivity and efficiency. Our increased reliance on remote access to our information systems also increases our exposures to potential cybersecurity breaches.
Added
In the event that the Company does not generate sufficient cash flows from operations and is unable to obtain funding, the Company will be forced to delay, reduce, or eliminate some or all of its discretionary spending, which could adversely affect the Company’s business prospects, ability to meet long-term liquidity needs or ability to continue operations.
Removed
We cannot provide any assurance that these actions, or any other mitigating actions we may take, will help mitigate the impact of the COVID-19 pandemic on us.
Added
The COVID-19 pandemic has had, and will likely continue to have, a significant negative impact on our business, sales, results of operations and financial condition. The COVID-19 pandemic has had a widespread and detrimental effect on the global economy, particularly in the U.S. since 2020, but to a lesser extent in 2023.
Removed
Furthermore, we cannot provide any assurance that our assumptions used to estimate our liquidity requirements will remain accurate due to the unprecedented nature of the disruption to our operations and the unpredictability of the COVID-19 global pandemic.
Added
In addition, COVID-19 adversely affected the economies and financial markets of many countries, which may affect our level of indebtedness, our need to generate sufficient cash flows to service our indebtedness and our ability to comply with the covenants contained in the agreements that govern our indebtedness.
Removed
As a consequence, our estimates of the duration of the pandemic and the severity of the impact on our future earnings and cash flows could change and have a material impact on our results of operations and financial condition. In the event of a sustained market deterioration and continued declines in net sales, we may need additional liquidity.
Added
In the event of a sustained market deterioration and continued declines in net sales, and other repercussions of COVID-19, we may need additional liquidity. The need for additional liquidity may also be affected by the federal government’s potential failure to raise the debt ceiling or correct a prolonged banking or financial crisis.
Removed
The ultimate duration and impact of the COVID-19 pandemic on our business, results of operations, financial condition and cash flows is dependent on future developments, the duration of the COVID-19 pandemic, including repeat or cyclical outbreaks, additional “waves” or the spread of “variant” viruses and the related length of its impact on the global economy, which are uncertain and cannot be predicted at this time.
Added
In general, we believe that our results of operations are not dependent on moderate changes in the inflation rate. Historically, we have been able to manage the impacts of more significant changes in inflation rates through our customer relationships, customer agreements that may provide for price increases and continued focus on improvements of operational productivity.
Removed
Furthermore, the extent to which our mitigation efforts are successful, if at all, is not presently ascertainable.
Added
However, the current inflationary environment has, we believe, has impacted the Company’s business in 2022 and 2023 and may continue to impact its business in 2024, including as a result of increased energy costs, as well as increasing wages in the labor markets in which we compete. Inflation could continue to pressure our margins in future periods.
Removed
However, we expect that our results of operations, including revenues, in future periods will continue to be adversely impacted by the COVID-19 pandemic and its negative effects on global economic conditions and that, as a result of such effects, we may continue to be adversely affected even after the COVID-19 pandemic has materially subsided.
Added
In addition, in response to the concerns over inflation risk in the broader U.S. economy, the U.S. Federal Reserve has been steadily increasing its benchmark interest rate since March 2022 and has signaled that additional rate increases will continue in 2024.
Removed
As a result, only appreciation of the price of our common stock, which may never occur, will provide a return to stockholders. If securities or industry analysts do not publish research or reports or publish inaccurate or unfavorable research or reports about our business, our share price and trading volume could decline.
Added
It is possible that increases in interest rates may ultimately result in an economic recession, which could have a material adverse impact on our business. Adverse economic conditions resulting from inflationary pressures, U.S. Federal Reserve actions, geopolitical issues or otherwise are difficult to predict and may have a material adverse impact on our business, results of operations and financial condition.
Removed
Any delay or prevention of a change of control transaction or changes in our board of directors could cause the market price of our common stock to decline.
Added
The continuation or escalation of events like the war in Russia-Ukraine war or the Hamas-Israel conflict may also disrupt business operations of our suppliers and/or customers, causing supply chain constraints or delayed spending by our customers.
Added
In addition, any unfavorable change in our business relationship with our Tier-1 telecommunications wireless carrier customers, or delays in customer implementation and deployment of our products, could have a material adverse effect on our results of operation and financial condition.
Added
As a result, only appreciation of the price of our common stock, which may never occur, will provide a return to stockholders. Our failure to satisfy certain listing requirements may result in our common stock being delisted from the Nasdaq Capital Market, which may make it more difficult for our shareholders to sell shares of our common stock.
Added
Our common stock is listed on Nasdaq. Nasdaq has several quantitative and qualitative requirements companies must comply with to maintain this listing, including a $1.00 minimum bid price per share (the “Bid Price Rule”).
Added
On November 24, 2023, we received a deficiency letter from the Listing Qualifications Department of The Nasdaq Stock Market (“Nasdaq”) indicating that our common stock is subject to potential delisting from the Nasdaq because for a period of 30 consecutive business days, the bid price of our common stock has closed below the minimum $1.00 per share requirement for continued inclusion under Nasdaq Marketplace Rule 5550(a)(2) (the “Bid Price Rule”).
Added
The Nasdaq deficiency letter has no immediate effect on the listing of our common stock, and our common stock continues to trade on The Nasdaq Capital Market under the symbol “POLA” at this time.
Added
The Nasdaq notice indicated that, in accordance with Nasdaq Marketplace Rule 5810(c)(3)(A), we will be provided 180 calendar days, or until May 22, 2024, to regain compliance.
Added
If, at any time before May 22, 2024, the bid price of our common stock closes at $1.00 per share or more for a minimum of 10 consecutive business days, Nasdaq staff will provide written notification that we have achieved compliance with the Bid Price Rule.
Added
If we fail to regain compliance with the Bid Price Rule before May 22, 2024 but meet all of the other applicable standards for initial listing on The Nasdaq Capital Market with the exception of the minimum bid price, then we may be eligible to have an additional 180 calendar days, or until November 18, 2024, to regain compliance with the Bid Price Rule.
Added
If we do not regain compliance with the Bid Price Rule by the end of the compliance period (or the second compliance period, if applicable), our common stock will become subject to delisting.
Added
In the event that we receive notice that our common stock is being delisted, the Nasdaq listing rules permit us to appeal a delisting determination by Nasdaq to a hearings panel.
Added
We intend to monitor the closing bid price of our common stock and may, if appropriate, consider available options to regain compliance with the Bid Price Rule, such as reverse stock split.
Added
However, there can be no assurance that we will be able to regain compliance with the Bid Price Rule or will otherwise be in compliance with other Nasdaq listing rules. On December 18, 2023, Peter Gross, a member of the Board of Directors of the Company, resigned as a member of the Board of Directors of the Company. Mr.
Added
Gross, an independent director, served as a member of the audit committee, chair of the compensation committee and chair of the nominating and corporate governance committee of the Board at the time of his resignation. On January 5, 2024, the Company received a notification letter from Nasdaq that due to Mr.
Added
Gross’ resignation, the Company is no longer in compliance with Nasdaq Listing Rule 5605.
Added
Pursuant to Nasdaq Listing Rule 5605(c)(4), the Company is entitled to a cure period to regain compliance (i) until the earlier of the Company’s next annual shareholders’ meeting or December 18, 2024; or (ii) if the next annual shareholders’ meeting is held before June 17, 2024, then the Company must evidence compliance no later than June 17, 2024.
Added
The Company intends to appoint an additional independent director to the Board and the committees prior to the end of the cure periods. However, there can be no assurance that we will be able to regain compliance with Nasdaq Listing Rule 5605 or will otherwise be in compliance with other Nasdaq listing rules.
Added
If the stock is delisted, we may trade on the over-the-counter market, or even in the pink sheets, which would significantly decrease the liquidity of an investment in our common stock.
Added
For the avoidance of doubt, the exclusive forum provision described above does not apply to any claims arising under the Securities Act of 1933, as amended, or the Securities Act, or the Securities Exchange Act of 1934, as amended, or the Exchange Act.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeItem 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information Shares of our common stock trade on The Nasdaq Capital Market under the symbol “POLA.” As of March 31, 2023, we had 12,949,550 shares of common stock outstanding held of record by approximately 21 stockholders.
Biggest changeItem 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information Shares of our common stock trade on The Nasdaq Capital Market under the symbol “POLA.” As of April 1, 2024, we had 17,561,612 shares of common stock outstanding held of record by approximately 21 stockholders.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeComparison of the Years Ended December 31, 2022 and 2021 (in thousands) Year Ended December 31, Dollar Variance Percentage Variance Results as a Percentage of Net Revenues for the Year Ended December 31, Favorable Favorable 2022 2021 (Unfavorable) (Unfavorable) 2022 2021 Net sales $ 16,056 $ 16,896 $ (840 ) (5 )% 100.0 % 100.0 % Cost of sales 13,931 13,451 (480 ) (4 )% 86.8 % 79.6 % Gross profit 2,125 3,445 (1,320 ) (38 )% 13.2 % 20.4 % Sales and marketing expenses 1,471 1,488 17 1 % 9.2 % 8.8 % Research and development expenses 1,460 1,986 526 26 % 9.1 % 11.8 % General and administrative expenses 4,727 3,069 (1,658 ) (54 )% 29.4 % 18.2 % Total operating expenses 7,658 6,543 (1,115 ) (17 )% 47.7 % 38.7 % Loss from operations (5,533 ) (3,098 ) (2,435 ) (79 )% (34.5 )% (18.3 )% Interest and finance costs (58 ) (60 ) 2 3 % (0.4 )% (0.4 )% Gain from PPP loan forgiveness — 1,715 (1,715 ) — % — % — % Other income (expense), net 7 29 (22 ) (76 )% 0.0 % 0.2 % Loss before income taxes (5,584 ) (1,414 ) (4,170 ) (295 )% (34.8 )% (8.4 )% Income tax — — — — % — — % Net loss $ (5,584 ) $ (1,414 ) $ (4,170 ) (295 )% (34.8 )% (8.4 )% 39 Net Sales.
Biggest changeComparison of the Years Ended December 31, 2023 and 2022 (in thousands) Year Ended December 31, Dollar Variance Percentage Variance Results as a Percentage of Net Revenues for the Year Ended December 31, Favorable Favorable 2023 2022 (Unfavorable) (Unfavorable) 2023 2022 Net sales $ 15,293 $ 16,056 $ (763 ) (5 )% 100.0 % 100.0 % Cost of sales (includes inventory write-downs of $450 and $nil, respectively) 14,598 13,931 (667 ) (5 )% 95.5 % 86.8 % Gross profit 695 2,125 (1,430 ) (67 )% 4.5 % 13.2 % Sales and marketing expenses 1,172 1,471 299 20 % 7.7 % 9.2 % Research and development expenses 1,222 1,460 238 16 % 8.0 % 9.1 % General and administrative expenses 4,291 4,727 436 9 % 28.1 % 29.4 % Total operating expenses 6,685 7,658 973 13 % 43.7 % 47.7 % Loss from operations (5,990 ) (5,533 ) (457 ) (8 )% (39.2 )% (34.5 )% Interest and finance costs (559 ) (58 ) (501 ) (864 )% (3.7 )% (0.4 )% Other income (expense), net 1 7 (6 ) (86 )% 0.0 % 0.0 % Loss before income taxes (6,548 ) (5,584 ) (964 ) (17 )% (42.8 )% (34.8 )% Income tax — — — — — — Net loss $ (6,548 ) $ (5,584 ) $ (964 ) (17 )% (42.8 )% (34.8 )% 38 Net Sales.
We are continuously diversifying our customer base. We are selling our products into non-telecommunication markets and applications at an increasing rate.
We are continuously diversifying our customer base and are selling our products into non-telecommunication markets and applications at an increasing rate.
The Loan Agreement, as amended, provides for a revolving credit facility under which Pinnacle may, in its sole discretion upon our request, make advances to us in an amount, subject to certain limitations and adjustments, of up to (a) 85% of the aggregate net face amount of our accounts receivable and other contract rights and receivables, plus (b) the lesser of (i) 35% of the lower of cost or wholesale market value of certain of our inventory or (ii) $2,500.
The Loan Agreement, provides for a revolving credit facility under which Pinnacle may, in its sole discretion upon our request, make advances to us in an amount, subject to certain limitations and adjustments, of up to (a) 85% of the aggregate net face amount of our accounts receivable and other contract rights and receivables, plus (b) the lesser of (i) 35% of the lower of cost or wholesale market value of certain of our inventory or (ii) $2,500.
See “Risk Factors” commencing on page 16 of this Annual Report on Form 10-K for additional considerations. 38 Results of Operations The tables presented below, which compare our results of operations from one period to another, present the results for each period, the change in those results from one period to another in both dollars and percentage change, and the results for each period as a percentage of net revenues.
See “Risk Factors” commencing on page 16 of this Annual Report on Form 10-K for additional considerations. 37 Results of Operations The tables presented below, which compare our results of operations from one period to another, present the results for each period, the change in those results from one period to another in both dollars and percentage change, and the results for each period as a percentage of net revenues.
We expect our future capital resources will consist primarily of cash on hand, cash generated by operations, drawdowns on our credit facility with Pinnacle Bank, funds from the ERC, and future debt or equity financings, if any. 41 Credit Facility Effective September 30, 2020, we entered into a Loan and Security Agreement, or Loan Agreement, with Pinnacle.
We expect our future capital resources will consist primarily of cash on hand, cash generated by operations, drawdowns on our credit facility with Pinnacle Bank, funds from the ERC, and future debt or equity financings, if any. 40 Credit Facility Effective September 30, 2020, we entered into a Loan and Security Agreement, or Loan Agreement, with Pinnacle.
The assumptions used in the Black-Scholes option pricing model could materially affect compensation expense recorded in future periods. Effects of Inflation The impact of inflation and changing prices during 2022 has not been significant on the financial condition or results of operations of our company.
The assumptions used in the Black-Scholes option pricing model could materially affect compensation expense recorded in future periods. Effects of Inflation The impact of inflation and changing prices during 2023 has not been significant on the financial condition or results of operations of our company.
We also recognize revenue from the rental of equipment. Our 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, 2022 and 2021. Warranty Costs .
We also recognize revenue from the rental of equipment. Our 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. Warranty Costs .
Rapid changes in the global economy may cause significant spikes in inflation which may have an impact in our financial condition during 2023 and beyond.
Rapid changes in the global economy may cause significant spikes in inflation which may have an impact in our financial condition during 2024 and beyond.
As of December 31, 2022, the ERC is still being processed by the IRS. Our available capital resources on December 31, 2022, consisted primarily of $211 in cash and cash equivalents, as compared to $5,101 as of December 31, 2021.
As of December 31, 2023, the ERC is still being processed by the IRS. Our available capital resources on December 31, 2023, consisted primarily of $549 in cash and cash equivalents, as compared to $211 as of December 31, 2022.
We plan to continue to expand our customer base in all market segments. We also anticipate that our sales will increase as we overcome supply chain and labor issues. We plan to continue to take proactive steps to manage our operations and mitigate the financial impacts of higher costs and supply chain issues.
We also anticipate that our sales will increase as we overcome supply chain and labor issues. We plan to continue to take proactive steps to manage our operations and mitigate the financial impacts of higher costs and supply chain issues.
During the years ended December 31, 2022 and 2021, 96% and 89%, respectively, of our total net sales were within the telecommunications market. In 2022, our two largest customers represented 66% and 23% of our total net sales, respectively, one being a Tier-1 telecommunications customer in the U.S. and one being a telecommunications customer outside the U.S.
During the years ended December 31, 2023 and 2022, 95% and 96%, respectively, of our total net sales were within the telecommunications market. In 2023, our two largest customers represented 50% and 18% of our total net sales, respectively, one being a Tier-1 telecommunications customer in the U.S. and one being a telecommunications customer outside the U.S.
Backlog at December 31, 2022, was comprised of the following elements: 63% in purchases of DC power systems by telecommunications customers in the U.S., 32% in purchases by telecommunications customers outside the U.S., 1% in purchases by customers in the marine industry, 1% in purchases in military markets, and 3% in purchases by customers in other markets.
Backlog at December 31, 2023, was comprised of the following elements: 60% in purchases of DC power systems by telecommunications customers in the U.S., 31% in purchases by telecommunications customers outside the U.S., 6% in purchases in military markets, and 3% in purchases by customers in the marine industry.
Financial Performance Summary – Year Ended December 31, 2022 Our net sales for the year ended December 31, 2022, were $16,056, as compared to $16,896 for the year ended December 31, 2021. We reported a net loss of $5,584 for 2022, as compared to net loss of $1,414 for 2021.
Financial Performance Summary – Year Ended December 31, 2023 Our net sales for the year ended December 31, 2023, were $15,293, as compared to $16,056 for the year ended December 31, 2022. We reported a net loss of $6,548 for 2023, as compared to net loss of $5,584 for 2022.
As a result of the factors identified above, we generated a net loss of $5,584, or ($0.43) per basic and diluted share, for 2022, as compared to net loss of $1,414, or ($0.11) per basic and diluted share, for 2021, an increase loss of $4,170.
As a result of the factors identified above, we generated a net loss of $6,548, or ($0.49) per basic and diluted share, for 2023, as compared to net loss of $5,584, or ($0.43) per basic and diluted share, for 2022, an increase loss of $964.
In no event will the aggregate amount of the outstanding advances under the revolving credit facility be greater than $4,000. Interest accrues on the daily balance at a rate of 1.25% above the prime rate, or the Standard Interest Rate, but in no event will the Standard Interest Rate be less than 3.75% per annum.
Interest accrues on the daily balance at a rate of 1.25% above the prime rate, or the Standard Interest Rate, but in no event will the Standard Interest Rate be less than 3.75% per annum.
Our sales backlog as of December 31, 2022, was $12,001, with 47% of that amount being attributable to our largest U.S. telecommunications customer, 16% represented purchases from other telecommunications customers in the U.S., 32 % represented purchases from telecommunications customers outside the U.S., 1 % represented purchase from customers in the marine industry, 1% represented purchases from customers in the military markets, and 3% represented purchases from customer in other markets.
Our sales backlog as of December 31, 2023, was $3,862, with 56% of that amount being attributable to our largest U.S. telecommunications customer, 4% represented purchases from other telecommunications customers in the U.S., 31% represented purchases from telecommunications customers outside the U.S., 6% represented purchases from customers in the military markets, and 3% represented purchases from customer in the marine industry.
During 2022 and 2021, sales to international customers accounted for 25% and 8% of total revenue, respectively. Sales to military customers during 2022 and 2021 accounted for 1% and 6% of total revenues, respectively. During 2022 and 2021, sales to other markets accounted for 3% and 5% of total revenue, respectively.
During 2023 and 2022, sales to international customers accounted for 21% and 25% of total revenue, respectively. Sales to military customers during 2023 and 2022 accounted for 3% and 1% of total revenues, respectively. Sales to marine and other markets during 2023 and 2022 accounted for 2% and 3% of total revenue, respectively.
We recognized a gross profit of $2,125 during 2022, as compared to a gross profit of $3,445 during 2021, which represents a decrease in gross profit of $1,320 or 38%. Gross profit as a percentage of net sales decreased to 13.2% in 2022, as compared to 20.4% in 2021.
We recognized a gross profit of $695 during 2023, as compared to a gross profit of $2,125 during 2022, which represents a decrease in gross profit of $1,430 or 67%. Gross profit as a percentage of net sales decreased to 4.5% in 2023, as compared to 13.2% in 2022.
In 2021, our largest customer, a Tier-1 telecommunications customer in the U.S., represented 67% of our total net sales. There was no other revenue from customers in excess of 10% of total net sales in either period. During 2022 and 2021, sales to international customers accounted for 25% and 8% of total revenue, respectively.
In 2022, our two largest customers represented 66% and 23% of our total net sales, respectively, one being a Tier-1 telecommunications customer in the U.S. and one being a telecommunications customer outside the U.S. There was no other revenue from customers in excess of 10% of total net sales in either period.
This increase in net cash used in 2022 was primarily due to a net loss of $5,584, a decrease in accounts receivable of $2,013, a decrease in prepaid expenses of $1,377, an increase in inventories of $6,443, and an increase in customer deposits of $1,229.
This increase in net cash used in 2023 was primarily due to a net loss of $6,548, a decrease in accounts receivable of $554, a decrease in prepaid expenses of $2,174, a decrease in customer deposits of $508, and an increase in inventories of $1,062.
We are taking actions to manage the potential impacts of these matters and we will continue to assess the actual and expected impacts and the need for further action. 37 Impact of Recent Accounting Pronouncements See “Note 1 – Organization and Summary of Significant Accounting Policies – Recent Accounting Pronouncements” of the Notes to Financial Statements commencing on page F-7 of this Annual Report on Form 10-K for management’s discussion as to the impact of recent accounting pronouncements.
Impact of Recent Accounting Pronouncements See “Note 1 – Organization and Summary of Significant Accounting Policies – Recent Accounting Pronouncements” of the Notes to Financial Statements commencing on page F-7 of this Annual Report on Form 10-K for management’s discussion as to the impact of recent accounting pronouncements.
During 2022, we received $1,884 in proceeds from advances from our credit facility at Pinnacle Bank and repaid $242 on our equipment financing notes payable.. 43 Backlog As of December 31, 2022, we had a backlog of $12,001.
During 2023, we received $2,354 in net proceeds from advances from our credit facility at Pinnacle Bank and repaid $205 on our equipment financing notes payable. 42 Backlog As of December 31, 2023, we had a backlog of $3,862.
On December 31, 2022, and December 31, 2021, our net trade receivables totaled $2,230 and $4,243, respectively. On December 31, 2022, $2,006 (90%) represented the largest open customer account balance, while $3,131 (74%) and $624 (15%) represented the two largest open customer account balances on December 31, 2021.
On December 31, 2023, and December 31, 2022, our net trade receivables totaled $1,676 and $2,230, respectively. On December 31, 2023, $1,156 (69%) and $264 (16%) represented the two largest open customer account balances, while $2,006 (90%) represented the largest open customer account balance on December 31, 2022.
However, there can be no assurance that we will be successful in fulfilling such orders and commitments in a timely manner or that we will ultimately recognize as revenue the amounts reflected in our backlog. Item 7A. Quantitative and Qualitative Disclosures About Market Risk. Not applicable.
We believe the majority of our backlog will be shipped within the next twelve months. However, there can be no assurance that we will be successful in fulfilling such orders and commitments in a timely manner or that we will ultimately recognize as revenue the amounts reflected in our backlog.
The decrease was attributable to a slight decrease in sales support staff during 2022 as compared the same period in 2021. We plan to increase our sales force and increase our marketing and tradeshow activities in 2023 to support our diversification strategy and expand our customer base in all market segments. 40 Research and Development Expenses.
We plan to increase our sales force and increase our marketing and tradeshow activities in 2024 to support our diversification strategy and expand our customer base in all market segments. 39 Research and Development Expenses. During 2023, research and development expenses decreased by $238 to $1,222, as compared to $1,460 during 2022.
These stationary systems incorporate photovoltaic and other sources of renewable energy into our DC hybrid power system. ● Mobile power systems . These stationary systems incorporate photovoltaic and other sources of renewable energy into our DC hybrid power system.
These systems incorporate lithium-ion batteries (or other advanced battery chemistries) with our proprietary battery management system into our standard DC power systems. ● DC solar hybrid power systems . These stationary systems incorporate photovoltaic and other sources of renewable energy into our DC hybrid power system. ● Mobile power systems .
Sales to military customers during 2022 and 2021 accounted for 1% and 6% of total revenues, respectively. Sales to other markets during 2022 and 2021 accounted for 3% and 5% of total revenue, respectively. Most of our sales were of our DC base powers systems during the two years. Cost of Sales .
During those periods, the majority of our sales were of our DC base powers systems. During 2023 and 2022, sales to international customers accounted for 21% and 25% of total revenue, respectively. Sales to military customers during 2023 and 2022 accounted for 3% and 1% of total revenues, respectively.
Our revenues during these periods are primarily due to our telecommunications customers increasing their investments in back-up power generators primarily to support expansion of their network infrastructure.
Our revenues during these periods are primarily due to our telecommunications customers increasing their investments in back-up power generators primarily to support expansion of their network infrastructure. During the second half of 2023, we experienced a decrease in revenue due to unanticipated rescheduling of approximately $2.0 million in deliveries to our largest telecommunications customers.
This $4,393 decrease in working capital is primarily attributable to a $4,890 decrease in cash and cash equivalents resulting from net cash of $6,507 used in operating activities, net cash used in investing activities of $25 for the acquisition of new property and equipment, and net cash from financing activities of $1,642 which includes net proceeds of $1,884 from our credit facility and $242 in repayments of equipment financing.
This $5,592 decrease in working capital is primarily attributable to a $338 increase in cash and cash equivalents resulting from net cash of $3,430 used in operating activities, net cash used in investing activities of $194 for the acquisition of new property and equipment, and net cash from financing activities of $3,962 which includes net proceeds of $1,556 from sales of 4,600,000 shares of common stock in December 2023 and net proceeds of $2,354 from our credit facility.
In 2021, we had 67% of our total net sales derived from our largest customer, which is a Tier-1 telecommunications customer in the U.S There was no other revenue from customers in excess of 10% of total net sales in either period. During those periods, the majority of our sales were of our DC base powers systems.
Our largest customer in each year was a Tier-1 telecommunications customer in the U.S., and our second largest customer in each year was a telecommunications customer outside the U.S. There was no other revenue from customers in excess of 10% of total net sales in either period.
As a result, we recognized a non-cash gain of $1,715 within Other income (expense) on the statement of operations. 42 Cash Flow The following table sets forth the significant sources and uses of cash for the periods set forth below (in thousands): Year Ended December 31, 2022 2021 Net Cash Provided By (Used In): Operating Activities $ (6,507 ) $ (9,380 ) Investing Activities $ (25 ) $ (71 ) Financing Activities $ 1,642 $ 12,906 Net increase (decrease) in cash $ (4,890 ) $ 3,455 Operating Activities Net cash used in operating activities for 2022 was $6,507, as compared to $9,380 for the same period in 2021.
As of December 31, 2023, we had availability under the Loan Agreement of $376 and we believe that we are in compliance with the terms and conditions of the Loan Agreement. 41 Cash Flow The following table sets forth the significant sources and uses of cash for the periods set forth below (in thousands): Year Ended December 31, 2023 2022 Net Cash Provided By (Used In): Operating Activities $ (3,430 ) $ (6,507 ) Investing Activities $ (194 ) $ (25 ) Financing Activities $ 3,962 $ 1,642 Net increase (decrease) in cash $ 338 $ (4,890 ) Operating Activities Net cash used in operating activities for 2023 was $3,430, as compared to $6,507 for the same period in 2022.
The decrease in gross profit during 2022 was primarily attributable to a decrease in factory overhead absorption resulting from lower sales primarily during the third quarter of 2022. Sales and Marketing Expenses. Sales and marketing expenses decreased $17 to $1,471 during 2022, as compared to $1,488 during 2021.
The decrease in gross profit during 2023 was primarily attributable to a decrease in factory overhead absorption resulting from lower sales primarily during the second half of 2023 and an inventory write-down of $450 included in the cost of sales during 2023. Sales and Marketing Expenses.
Our DC power systems are available in diesel, natural gas, LPG / propane and renewable formats, with diesel, natural gas and propane gas being the predominate formats. 35 Critical Accounting Policies We believe that the following critical accounting policies, among others, affect our more significant judgment and estimates used in the preparation of our financial statements: Revenue Recognition.
We plan to develop new configurations of DC power system, battery storage and solar products to optimize the match between our solutions and various application needs. 35 Critical Accounting Policies We believe that the following critical accounting policies, among others, affect our more significant judgment and estimates used in the preparation of our financial statements: Revenue Recognition.
Liquidity and Capital Resources Sources of Liquidity During the year ended December 31, 2022, we funded our operations primarily from cash on hand. These funds were also used to increase our engineering and production staff and inventory to support higher production.
Sources of Liquidity During the year ended December 31, 2023, we funded our operations primarily from cash on hand. As of December 31, 2023, we had working capital of $11,775, as compared to working capital of $17,367 at December 31, 2022.
Our revenue from telecommunications customers, accounted for 96% of total net sales during 2022 and 89% of total net sales during 2021. Our largest customers during 2022 represented 66% and 23% of our total net sales, respectively, one being a U.S. Tier-1 telecommunications customer and one being a telecommunications customer outside the U.S.
During 2023, revenue from telecommunications customers accounted for 95% of total net sales, as compared to 96% of total net sales during 2022. Our two largest customers represented 50% and 18% of our total net sales in 2023, as compared to 66% and 23% in 2022.
This decrease was primarily due to the issuance and sale of 750,000 shares of our common stock in a firm commitment underwritten public offering on February 10, 2021. We received net proceeds of approximately $12,466 from the sale of the shares after deducting underwriting discounts and commissions and other offering expenses payable by us.
We received net proceeds of approximately $1,556 from the sale of the shares after deducting underwriting discounts and commissions and other offering expenses payable by us.
We plan to develop new configurations of DC power system, battery storage and solar products to optimize the match between our solutions and various application needs. Serving these various markets, we offer the following three configurations of our DC power systems, with output power ranging from 5 kW to 50 kW: ● DC base power systems .
Serving these various markets, we offer the following three configurations of our DC power systems, with output power ranging from 5 kW to 50 kW: ● DC base power systems . These stationary systems integrate a DC generator and automated controls with remote monitoring, which are typically contained within an environmentally regulated enclosure. ● DC hybrid power systems .
Our general and administrative expenses increased by $1,658 to $4,727 during 2022, as compared to $3,069 during 2021. The increase was primarily due to $515 in stock-based compensation to officers, employees and consultants, an increase of $168 in legal and consulting fees, and smaller increases to insurance, rent, and utilities.
The decrease in general and administrative expenses during 2023 was primarily due to not having stock-based compensation during 2023, as compared to stock-based compensation expense of $515 during 2022, coupled with a slight increase in consulting services, rent, and bank fees during 2023. Interest and Finance Costs. Our interest expense was $559 in 2023, as compared to $58 in 2022.
We have an outstanding balance of $1,884 under the Loan Agreement at December 31, 2022. As of December 31, 2022, we had availability under the Loan Agreement of $1,137 and we believe that we are in compliance with the terms and conditions of the Loan Agreement.
We have an outstanding balance of $4,238 under the Loan Agreement at December 31, 2023.
During 2022, research and development expenses decreased by $526 to $1,460, as compared to $1,986 during 2021. The decrease in 2022 is attributed to a decrease in engineering staff during 2022 as compared to 2021.
Sales and marketing expenses decreased $299 to $1,172 during 2023, as compared to $1,471 during 2022. The decrease was attributable to a slight decrease in sales support staff during 2023 as compared the same period in 2022.
In 2022, our equipment financing expense decreased by $11, bank fees related to our line of credit with Pinnacle Bank increased by $9. Gain from PPP Loan Forgiveness . In September 2021, we recognized a non-cash gain of $1,715 within Other income (expense) on the consolidated statement of operations on the forgiveness of our PPP loan. Other Income (Expense), Net.
In 2023, our equipment financing expense decreased by $10, bank fees related to our line of credit with Pinnacle Bank increased by $508. Net Loss.
The net cash used in investing activities in 2022 was attributable to in new manufacturing equipment. Financing Activities Net cash provided by financing activities totaled $1,642 for 2022, as compared to $12,906 provided by financing activities during 2021, a decrease of $11,264.
Investing Activities Net cash used in investing activities for 2023 totaled $194, as compared to $25 for 2022, an increase of $169. The net cash used in investing activities in 2023 was attributable to the purchase of two robotic welders to help improve efficiencies in manufacturing.
Labor shortages caused by COVID-19 and supply chain constraints that affected timely delivery of raw materials required to complete our DC power systems resulted in approximately $3,500 of expected shipments to be postponed from 2022 to the first half of 2023. During 2022, our international sales increased 211% to $3,983, as compared to $1,279 during 2021.
These orders remain part of our backlog as of December 31, 2023, and are expected to be delivered to customers within the following two quarters. During 2022 and to a lesser extent in 2023, supply chain constraints affected timely delivery of raw materials required to complete our DC power systems.
Our research and development efforts during 2022 focused on developing our new 27 kW D.C. power system, our new 4Y Toyota engine control system, and on product design and customization for our international customers. We plan to recruit additional engineers during 2023 to support new product developments and our customer diversification efforts. General and Administrative Expenses .
The decrease in 2023 is attributed to a decrease in engineering staff during 2023 as compared to 2022. Our research and development efforts during 2023 primarily focused on developing our new 27 kW power system, new software for our new 4Y Toyota engine control system, mobile EV chargers, and solar hybrid power systems.
Net sales decreased by $840, or 5%, to $16,056 for the year ended December 31, 2022, as compared to $16,896 for the year ended December 31, 2021. During 2022 we experienced labor shortages caused by COVID-19 and delays in receiving key components as a result of supply chain constraints.
Net sales decreased by $763, or 5%, to $15,293 for the year ended December 31, 2023, as compared to $16,056 for the year ended December 31, 2022. The decrease in net sales is attributable to a decrease in deliveries of our DC power generator to our largest telecommunications customer in the U.S.
Removed
Advance Mobility applications require power to charge batteries and appliances within a vehicle. Our DC power systems are smaller in size, lighter in weight, and operate with greater efficiency than AC power systems, making our product ideal for these applications. We have supplied our DC generators to many automotive manufactures in support of their remote field testing of electric vehicles.
Added
These stationary systems incorporate photovoltaic and other sources of renewable energy into our DC hybrid power system. Our DC power systems are available in diesel, natural gas, LPG / propane and renewable formats, with diesel, natural gas and propane gas being the predominate formats.
Removed
We are presently in development of natural gas CHP home chargers as a solution to many homes that are not able to support fast charging using the electric grid.
Added
During 2023 and 2022, sales to the marine and other markets accounted for 2% and 3% of total revenue, respectively. We launched our prime power DC generators incorporating the Toyota 1KS engines optimized for propane, natural gas, and extremely long operational life.
Removed
We believe we can compete with the electric utility rates for home and office charging by using natural gas and making use of surplus heat from the generator in certain bad grid and remote area applications.
Added
We believe that with the increasing installation restrictions on small diesel engines along with their limited availability due to stringent EPA regulations will force a change to natural gas and propane (LPG) generators. LPG and natural gas are lower in cost than diesel fuel in many areas throughout the world.
Removed
Our DC mobile EV charging systems can operate with diesel or propane and are ideal for emergency road service to rapid charge EV’s stranded without a charge. Our DC mobile EV charging systems offer convenience, faster charging, and lower cost than towing an EV on a flatbed to a charging station.
Added
Our new LPG and natural gas generators will provide strong opportunities for growth and diversification in line with our long-term plan. We also started deliveries of our Summit Series, 27 kW diesel fuel DC generators to the U.S. 5G telecommunications market.
Removed
We have shipped DC mobile EV charging systems used to extend range for specialty vehicles used in applications requiring low emissions. Our DC mobile EV charging systems provide direct charging to an electric vehicle’s battery.
Added
Our US Tier-1 telecommunications customers are in the process of upgrading 15 kW and 20 kW generators to the 27 kW to meet the increased power requirements for 5G. At the international level, we have several telecommunications customers in the south pacific region purchasing our DC generators to develop the telecommunications infrastructure in this region.
Removed
We also developed DC power systems for medium to large solar PV applications to provide energy service for irrigation, refrigerated storage of meat and produce, and micro grid. By combining the energy of solar PV and propane or natural gas, our DC power systems can provide constant energy 24 hours a day without using expensive energy storage.
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We believe the implementation and ongoing development of 5G networks along with programs to develop the telecommunications infrastructure in rural and underdeveloped countries will continue to fuel our growth in the telecommunications market over the next five to ten years.
Removed
Propane or natural gas fueled DC power systems are connected in parallel with the solar array (also a DC energy source) greatly simplifying the means of combining multiple energy sources. This process is more efficient and lowers both the CAPEX and OPEX of the Solar systems by eliminating battery storage and / or connection to the grid.
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In May 2023, we announced plans to expand our mobile offerings by upgrading our mobile CHAdeMO EV chargers to the universal combined charging system standard to reach the mobile EV charging market. Mobile EV chargers are used for emergency roadside service providing a fast-charging solution for EVs that have run out of charge before reaching a stationary charging facility.
Removed
Currently, the most popular technologies used in these applications are either grid power, diesel only, or a combination of grid and solar with a large battery bank. Our proposed technology is more environmentally friendly and lowers the cost of food processing. Currently, we have sold a limited number of our DC power systems that are undergoing field trials.
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We also continue to market our DC generators for the military, advanced mobility and marine markets as part of our ongoing customer diversification strategy. The military’s increasing use of robotics, drones, and computerization in the field is driving the demand for battery charging with DC generators.
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These stationary systems integrate a DC generator and automated controls with remote monitoring, which are typically contained within an environmentally regulated enclosure. ● DC hybrid power systems . These systems incorporate lithium-ion batteries (or other advanced battery chemistries) with our proprietary battery management system into our standard DC power systems. ● DC solar hybrid power systems .
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Military sales are advantageous because of their long-term contracts and they tend to cover the cost of product development. Marine sales interest have increased significantly both domestically and overseas due to the increased performance in comfort and fuel economy.
Removed
The increase in international sales is primarily due to a new telecommunications customer in the South Pacific Islands.
Added
Also, there are increasing restrictions on the use of diesel and gasoline engines in many lakes and waterways making way for our natural gas and propane operated generators. Using natural gas and propane for home and office charging for electric vehicle and forklifts is still a market under development. Same is true for diesel mobile chargers for emergency roadside assistance.
Removed
Cost of sales increased by $480, or 4%, to $13,931 during 2022, compared to $13,451 during 2021.
Added
We are taking actions to manage the potential impacts of these matters and we will continue to assess the actual and expected impacts and the need for further action.
Removed
Cost of sales as a percentage of net sales increased from 79.6% in 2021 to 86.8% in 2022 as a result of a decrease in factory overhead absorption due to under-utilization of the production capacity as a result of labor shortages and supply chain constraints.
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We believe that the aftermath of the pandemic, inflation, the impacts of war and other recent geopolitical events will be an ongoing challenge for years to come and to adapt will require us to further globalize our vendors, engineering, and customers During 2023, our international sales were $3,216, or 21% of total net sales, as compared to $3,983, or 25%, during 2022.
Removed
We believe we will achieve significant reductions in the cost of sales as a percentage of net sales as supply chain constraints decrease and production increases to normal levels. Our cost of sales for 2021 includes a $1,300 credit to salaries and benefits expense related to the Employee Retention Credit (“ERC”), a refundable tax credit recorded in accounts receivable.
Added
During the first quarter of 2024, the Company received $5,400 in new purchase orders from customers for its DC power systems.
Removed
The ERC assisted business owners and their employees by providing an incentive to keep workers on the payroll and eligible businesses received a tax credit for a percentage of each eligible employee’s wage. Gross Profit .
Added
Combined with open orders as of April 1, 2024, the Company has a total sales backlog of $7,700, which 40% of the orders are from its largest telecommunications customer in the U.S., 50% from other telecommunications customers, 8% from customers in military markets, and 2% from Marine, EV and other markets.
Removed
Our general and administrative expenses for 2021 include a $700 credit to salaries and benefits expense related to the ERC, a refundable tax credit recorded in accounts receivable.
Added
Of the $7,700 in the sales backlog, 36% of the orders are from customers in international markets. The Company expects to complete shipment of these orders within the next six to twelve months. We plan to continue to expand our customer base in all market segments.
Removed
The ERC assisted business owners and their employees by providing an incentive to keep workers on the payroll and eligible businesses received a tax credit for a percentage of each eligible employee’s wage. Interest and Finance Costs. Our interest expense was $58 in 2022, as compared to $60 in 2021.
Added
During the second half of 2023, our largest telecommunications customer asked us to postpone deliveries towards the end of the year. As of December 31, 2023, approximately $2.0 million in DC power generators that were scheduled to ship in 2023 remained in our sales backlog.
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During 2022, other income was $7, as compared to $29 during 2021, an decrease of $22. The decrease was primarily attributable to refunds of general liability insurance paid during 2021. Net Loss.
Added
Most of our sales were of our DC base powers systems during the two years. Cost of Sales . Cost of sales increased by $667, or 5%, to $14,598 during 2023, compared to $13,931 during 2022. Cost of sales as a percentage of net sales increased from 86.8% in 2022 to 95.5% in 2023.
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The increase in net loss is primarily attributed to a decrease in net sales of $840 due to labor shortages and supply chain constraints during 2022, an increase in operating expenses of $1,115, coupled with the gain from forgiveness of the PPP loan in 2021.

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