UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____________ to _____________

Commission file number: 001-37960

POLAR POWER, INC.

(Exact name of registrant as specified in its charter)

Delaware		33-0479020
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

249 E. Gardena Blvd., Gardena, California		90248
(Address of principal executive offices)		(Zip Code)

(310) 830-9153

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.05 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

	Large Accelerated Filer ☐		Accelerated Filer ☐
	Non-Accelerated Filer ☒		Smaller Reporting Company ☒
			Emerging Growth Company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, par value $0.0001 per share		POLA		The NASDAQ Stock Market, LLC

The number of shares outstanding of the Registrant’s common stock, $0.0001 par value, as of November 15, 2021 was 12,788,203.

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION	1

ITEM 1. Condensed Financial Statements	1

ITEM 2. Management’s Discussion And Analysis Of Financial Condition And Results Of Operations	15

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk	25

ITEM 4. Controls and Procedures	25

PART II – OTHER INFORMATION	27

ITEM 1. Legal Proceedings	27

ITEM 1A. Risk Factors	27

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds	43

ITEM 3. Defaults Upon Senior Securities	43

ITEM 4. Mine Safety Disclosure	43

ITEM 5. Other Information	43

ITEM 6. Exhibits	43

SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, including without limitation the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors,” contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In some cases you can identify these statements by forward-looking words such as “believe,” “may,” “will,” “might,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “should,” “would,” “project,” “plan,” “outlook,” “target,” “expect,” or similar expressions, or the negative or plural of these words or expressions.

Such forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties, which could cause our actual results to differ materially from those reflected in the forward-looking statements. These statements appear throughout this Quarterly Report on Form 10-Q and are statements regarding our intent, belief, or current expectations, primarily based on our current assumptions, expectations and projections about future events and trends that may affect our business, financial conditions, operating results, cash flows or prospects, as well as related industry developments. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Quarterly Report on Form 10-Q. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including the risks faced by us and described in Part II, Item 1A, entitled “Risk Factors,” and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I, Item 2 of this Quarterly Report on Form 10-Q. We undertake no obligation to update any forward-looking statements for any reason, or to conform these statements to actual results or to changes in our expectations.

PART I – FINANCIAL INFORMATION

ITEM 1. Condensed Financial Statements

POLAR POWER, INC.

CONDENSED BALANCE SHEETS

(in thousands, except share and per share data)

	(Unaudited)
	September 30, 2021			December 31, 2020
	(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	7,706		$	1,646
Accounts receivable		3,520			1,190
Inventories, net		8,598			9,094
Prepaid expenses		4,116			358
Income tax receivable		787			2,357
Total current assets		24,727			14,645

Other assets:
Operating lease right-of-use assets, net		1,079			1,563
Property and equipment, net		1,091			1,497
Deposits		94			94
Total assets	$	26,991		$	17,799

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	209		$	311
Customer deposits		962			703
Accrued expenses and other current liabilities		1,252			1,142
Current portion of operating lease liabilities		708			670
Current portion of notes payable		240			267
Current portion of PPP loan payable		—			1,429
Total current liabilities		3,371			4,522

Notes payable, net of current portion		329			510
Operating lease liabilities, net of current portion		454			990
PPP loan payable, net of current portion		—			286

Total liabilities		4,154			6,308

Commitments and Contingencies		-

Stockholders’ Equity
Preferred stock, $0.0001 par value, 5,000,000 shares authorized, no shares issued and outstanding		—			—
Common stock, $0.0001 par value, 50,000,000 shares authorized, 12,805,680 shares issued and 12,788,203 shares outstanding on September 30, 2021 and 11,768,158 shares issued and 11,750,681 shares outstanding on December 31, 2020		1			1
Additional paid-in capital		36,816			23,643
Accumulated deficit		(13,940	)		(12,113	)
Treasury Stock, at cost (17,477 shares)		(40	)		(40	)
Total stockholders’ equity		22,837			11,491

Total liabilities and stockholders’ equity	$	26,991		$	17,799

See Accompanying Notes to the Condensed Financial Statements

POLAR POWER, INC.

UNAUDITED CONDENSED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

	2021			2020			2021			2020
	Three Months Ended September 30,						Nine months Ended September 30,
	2021			2020			2021			2020
Net Sales	$	4,136		$	2,501		$	12,273		$	6,488
Cost of Sales (includes inventory write-downs of $2,400 and $2,400 during the three and nine months ended September 30, 2020, respectively)		3,170			5,200			10,398			10,058
Gross profit (loss)		966			(2,699	)		1,875			(3,570	)

Operating Expenses
Sales and marketing		372			445			1,119			1,296
Research and development		533			489			1,485			1,309
General and administrative		823			1,080			2,796			3,154
Total operating expenses		1,728			2,014			5,400			5,759

Loss from operations		(762	)		(4,713	)		(3,525	)		(9,329	)

Other income (expenses)
Interest expense and finance costs		(14	)		(11	)		(46	)		(46	)
Gain on forgiveness of PPP loan payable		1,715			—			1,715			—
Other income (expense), net		3			1			29			14
Total other income (expenses), net		1,704			(10	)		1,698			(32	)

Income (loss) before income taxes		942			(4,723	)		(1,827	)		(9,361	)

Income tax benefit		—			—			—
Current		—			—			—			(1,484	)
Deferred		—			—			—			(655	)
Total income tax benefit		—			—			—			(2,139	)

Net income (loss)	$	942		$	(4,723	)	$	(1,827	)	$	(7,222	)

Net income (loss) per share – basic	$	0.07		$	(0.42	)	$	(0.14	)	$	(0.68	)
Net income (loss) per share – dilutive	$	0.07		$	(0.42	)	$	(0.14	)	$	(0.68	)
Weighted average shares outstanding, basic		12,788,203			11,315,984			12,697,683			10,659,308
Weighted average shares outstanding, dilutive		12,807,361			11,315,984			12,697,683			10,659,308

See Accompanying Notes to the Condensed Financial Statements

POLAR POWER, INC.

UNAUDITED CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share data)

Three months ended September 30, 2021

	Number		Amount		capital		Deficit)			Stock			Equity
	Common Stock				Additional paid-in		(Accumulated			Treasury			Total Stockholders’
	Number		Amount		capital		Deficit)			Stock			Equity
Balance, June 30, 2021 (unaudited)		12,805,680	$	1	$	36,816	$	(14,882	)	$	(40	)	$	21,895
Issuance of common stock for cash, net of offering costs
Issuance of common stock for cash, net of offering costs, shares
Common stock issued upon exercise of warrants
Common stock issued upon exercise of warrants, shares
Shares of common stock issued with warrants for cash
Shares of common stock issued with warrants for cash, shares
Shares of common stock issued upon exercise of warrants
Shares of common stock issued upon exercise of warrants, shares
Net income		—		—		—		942			—			942
Balance, September 30, 2021 (unaudited)		12,805,680	$	1	$	36,816	$	(13,940	)		(40	)	$	22,837

Nine months ended September 30, 2021

	Common Stock				Additional paid-in		(Accumulated			Treasury			Total Stockholders’
	Number		Amount		capital		Deficit)			Stock			Equity
Balance, December 31, 2020		11,768,158	$	1	$	23,643	$	(12,113	)	$	(40	)	$	11,491
Issuance of common stock for cash, net of offering costs		750,000		—		12,466		—			—			12,466
Common stock issued upon exercise of warrants		287,522		—		707		—			—			707
Net loss		—		—		—		(1,827	)		—			(1,827	)
Balance, September 30, 2021 (unaudited)		12,805,680	$	1	$	36,816	$	(13,940	)	$	(40	)	$	22,837

Three months ended September 30, 2020

	Common Stock				Additional paid-in		(Accumulated			Treasury			Total Stockholders’
	Number		Amount		capital		Deficit)			Stock			Equity
Balance, June 30, 2020 (unaudited)		10,143,158	$	1	$	19,657	$	(3,741	)	$	(40	)	$	15,877
Shares of common stock issued with warrants for cash		1,250,000		—		2,812		—			—			2,812
Shares of common stock issued upon exercise of warrants		275,000		—		861		—			—			861
Net loss		—		—		—		(4,723	)		—			(4,723	)
Balance, September 30, 2020 (unaudited)		11,668,158	$	1	$	23,330	$	(8,464	)	$	(40	)	$	14,827

Nine months ended September 30, 2020

	Common Stock				Additional paid-in		(Accumulated			Treasury			Total Stockholders’
	Number		Amount		capital		Deficit)			Stock			Equity
Balance, December 31, 2019		10,143,158	$	1	$	19,657	$	(1,242	)	$	(40	)	$	18,376
Shares of common stock issued with warrants for cash		1,250,000		—		2,812		—			—			2,812
Shares of common stock issued upon exercise of warrants		275,000		—		861		—			—			861
Net loss		—		—		—		(7,222	)		—			(7,222	)
Net income (loss)		—		—		—		(7,222	)		—			(7,222	)
Balance, September 30, 2020 (unaudited)		11,668,158	$	1	$	23,330	$	(8,464	)	$	(40	)	$	14,827

See Accompanying Notes to the Condensed Financial Statements

POLAR POWER, INC.

UNAUDITED CONDENSED STATEMENTS OF CASH FLOW

(in thousands)

	2021			2020
	Nine months Ended September 30,
	2021			2020
Cash flows from operating activities:
Net loss	$	(1,827	)	$	(7,222	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		420			469
Inventory write-down		—			2,400
Amortization of operating lease right-of-use asset		484			466
Gain from forgiveness of PPP loan payable		(1,715	)		—
Deferred tax assets		—			(655	)
Changes in operating assets and liabilities:
Accounts receivable		(2,330	)		(842	)
Inventories		496			132
Prepaid expenses		(3,758	)		930
Deposits		—			(4	)
Income tax receivable		1,570			(1,484	)
Accounts payable		(102	)		(255	)
Customer deposits		260			491
Accrued expenses and other current liabilities		110			(120	)
Decrease in lease liability		(498	)		(458	)
Net cash used in operating activities		(6,890	)		(6,152	)

Cash flows from investing activities:
Acquisition of property and equipment		(14	)		—
Proceeds from sales of property and equipment, including insurance proceeds		—			(3	)
Net cash used in investing activities		(14	)		(3	)

Cash flows from financing activities:
Proceeds from sale of common stock, net of offering costs		12,466			—
Proceeds from sale of common stock and warrants		—			2,812
Proceeds from exercise of warrants		707			861
Advance from line of credit		—			245
Proceeds from PPP Loan		—			1,715
Repayment of notes payable		(209	)		(247	)
Net cash provided by financing activities		12,964			5,386

Increase (decrease) in cash and cash equivalents		6,060			(769	)
Cash and cash equivalents, beginning of period		1,646			2,840
Cash and cash equivalents, end of period	$	7,706		$	2,071

See Accompanying Notes to the Condensed Financial Statements

POLAR POWER, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

(In thousands, except for share and per share data and where otherwise noted)

(UNAUDITED)

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company

Polar Power, Inc. was incorporated in the State of Washington as Polar Products, Inc. and in 1991 reincorporated in the State of California under the name Polar Power, Inc. In December 2016, Polar Power, Inc. reincorporated in the State of Delaware (the “Company”). The Company designs, manufactures and sells direct current, or DC, power systems to supply reliable and low-cost energy to off-grid, bad-grid and backup power, electric vehicle (EV) charging, and nano-grid applications. The Company’s products integrate DC generator, proprietary electronic control systems, lithium batteries and solar photovoltaic (PV) technologies to provide low operating cost and emissions for telecommunications, defense, automotive, nano-grid, EV charging and industrial markets.

Impact of COVID-19

The Company continues to monitor the evolving COVID-19 pandemic and related guidance from international and domestic authorities, including federal, state and local public health authorities and it may need to make changes to its business based on their recommendations. COVID-19 has had, and is likely to continue to have, a material and substantial adverse impact on the Company’s results of operations including, among others, a decrease in the Company’s sales and delays in sourcing of raw materials from suppliers. The Company’s business is directly dependent upon, and correlates closely with, the marketing levels and ongoing business activities of its existing customers and suppliers. In the event of a continued widespread economic downturn caused by COVID-19, the Company could experience a further reduction in current projects, longer sales and collection cycles, deferral or delay of purchase commitments for its DC power systems, a reduction in its manufacturing functionality, higher than normal inventory levels, a reduction in the availability of qualified labor, and increased price competition, all of which could substantially adversely affect its net revenues and its ability to remain a going concern.

The extent of the impact of COVID-19 on its operational and financial performance will depend on certain developments, including the duration and potential resurgence of the outbreak, the impact on its customers and sales cycles, the impact on its customer, employee or industry events, and the effect on its vendors, all of which are uncertain and cannot be predicted. At this point, the Company is uncertain of the full magnitude that the COVID-19 pandemic may have on our financial condition, liquidity and future results of operations.

Basis of Presentation of Unaudited Financial Information

The unaudited condensed financial statements of the Company for the three and nine months ended September 30, 2021 and 2020 have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Regulation S-K for scaled disclosures for smaller reporting companies. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. However, such information reflects all adjustments (consisting solely of normal recurring adjustments), which are, in the opinion of management, necessary for the fair presentation of the Company’s financial position and results of operations. Results shown for interim periods are not necessarily indicative of the results to be obtained for a full fiscal year. The balance sheet information as of December 31, 2020 was derived from the audited financial statements included in the Company’s financial statements as of and for the years ended December 31, 2020 and 2019 contained in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission, or the SEC, on March 31, 2021. These financial statements should be read in conjunction with that report.

Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Material estimates relate to the assumptions made in determining reserves for uncollectible receivables, inventory reserves and returns, impairment analysis of long-term assets, valuation allowance on deferred tax assets, income tax accruals, accruals for potential liabilities and warrant reserves and assumptions made in valuing equity instruments issued for services. Actual results may differ from those estimates.

Revenue Recognition

The Company recognizes revenue in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (“ASC 606”). The underlying principle of ASC 606 is to recognize revenue to depict the transfer of goods or services to customers at the amount expected to be collected. ASC 606 creates a five-step model that requires entities to exercise judgment when considering the terms of contract(s), which includes (1) identifying the contract(s) or agreement(s) with a customer, (2) identifying the Company’s performance obligations in the contract or agreement, (3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations, and (5) recognizing revenue as each performance obligation is satisfied.

Substantially all of the Company’s revenue is derived from product sales. Product revenue is recognized when performance obligations under the terms of a contract are satisfied, which occurs for the Company upon shipment or delivery of products or services to its customers based on written sales terms, which is also when control is transferred. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring the products or services to a customer. The Company determines whether delivery has occurred based on when title transfers and the risks and rewards of ownership have transferred to the customer, which usually occurs when the Company places the product with the customer’s carrier or delivers the product to a customer’s location. The Company regularly reviews its customers’ financial positions to ensure that collectability is reasonably assured.

The Company also recognizes revenues from engineering services, technical support, and sale of accessories that support the Company’s direct current, or DC, power systems. Revenue is recognized when transfer of control to the customer has been made and the Company’s performance obligation has been fulfilled. The Company’s revenue from engineering services, technical support services, and product accessories are clearly defined in each transaction with its customers and have not been significant to date.

The Company also recognizes revenues from the rental of equipment. The Company’s rental revenues have not been significant to date and have accounted for less than one percent of total revenues for the three- and nine-month periods ended September 30, 2021 and 2020. The Company’s rental contracts are fixed price contracts for fixed durations of time and include freight and delivery charges and are recognized on a straight-line basis over the rental period.

Disaggregation of Net Sales

The following table shows the Company’s disaggregated net sales by product type:

SCHEDULE OF DISAGGREGATED NET SALES

	2021 (Unaudited)		2020 (Unaudited)
	Three months ended September 30,
	2021 (Unaudited)		2020 (Unaudited)
DC power systems	$	4,023	$	2,414
Engineering & Tech Support Services		52		—
Accessories		61		87
Total net sales	$	4,136	$	2,501

	2021 (Unaudited)		2020 (Unaudited)
	Nine months ended September 30,
	2021 (Unaudited)		2020 (Unaudited)
DC power systems	$	11,884	$	6,200
Engineering & Tech Support Services		222		—
Accessories		167		288
Total net sales	$	12,273	$	6,488

The following table shows the Company’s disaggregated net sales by customer type:

	2021 (Unaudited)		2020 (Unaudited)
	Three months ended September 30,
	2021 (Unaudited)		2020 (Unaudited)
Telecommunications	$	3,524	$	2,491
Government/Military		373		2
Marine		30		1
Other (backup DC power to various industries)		209		7
Total net sales	$	4,136	$	2,501

	2021 (Unaudited)		2020 (Unaudited)
	Nine months ended September 30,
	2021 (Unaudited)		2020 (Unaudited)
Telecommunications	$	11,017	$	6,294
Government/Military		538		9
Marine		44		5
Other (backup DC power to various industries)		674		180
Total net sales	$	12,273	$	6,488

Inventories

Inventories are stated at the lower of cost or net realizable value, with cost determined on a first-in, first-out (“FIFO”) basis. The Company records adjustments to its inventory based on an estimated forecast of the inventory demand, taking into consideration, among others, inventory turnover, inventory quantities on hand, unfilled customer order quantities, forecasted demand, current prices, competitive pricing, and trends and performance of similar products. If the estimated net realizable value is determined to be less than the recorded cost of the inventory, the difference is recognized as a loss in the period in which it occurs. Once inventory has been written down, it creates a new cost basis for inventory that may not be subsequently written up. For the three- and nine-month period ended September 30, 2021, there were no write-downs of inventory. For the three- and nine-month periods ended September 30, 2020, the Company recorded a write-down of inventory of $2,400.

As of September 30, 2021, and December 31, 2020, inventories consisted of the following:

SCHEDULE OF COMPONENTS OF INVENTORIES

	September 30, 2021		December 31, 2020
	(unaudited)
Raw materials	$	5,494	$	5,527
Finished goods		3,104		3,567
Total Inventories, net	$	8,598	$	9,094

Product Warranties

The Company provides limited warranties for parts and labor at no cost to its customers within a specified time period after the sale. The Company’s standard warranty on new products is two years from the date of delivery to the customer. The Company offers a limited extended warranty of up to five years on its certified DC power systems based on application and usage. The Company’s warranties are of an assurance-type and come standard with all Company products to cover repair or replacement should product not perform as expected. Provisions for estimated expenses related to product warranties are made at the time products are sold. These estimates are established using historical information about the nature, frequency and average cost of warranty claim settlements as well as product manufacturing and recovery from suppliers. Management actively studies trends of warranty claims and takes action to improve product quality and minimize warranty costs. The Company estimates the actual historical warranty claims coupled with an analysis of unfulfilled claims to record a liability for specific warranty purposes, which are included in accrued expenses and other current liabilities in the accompanying balance sheets. Management believes that the warranty accrual is appropriate; however, actual claims incurred could differ from original estimates, requiring adjustments to the accrual.

The following is a tabular reconciliation of the product warranty liability, excluding the deferred revenue related to the Company’s warranty coverage:

Changes in estimates for warranties	September 30, 2021			December 31, 2020
	(unaudited)
Balance at beginning of the period	$	600		$	375
Payments		(496	)		(634	)
Provision for warranties		496			859
Balance at end of the period	$	600		$	600

Stock-Based Compensation

The Company periodically issues stock-based compensation to officers, directors, and consultants for services rendered. Such issuances vest and expire according to terms established at the issuance date.

Stock-based payments to employees, directors, and for acquiring goods and services from nonemployees, which include grants of employee stock options, are recognized in the financial statements based on their grant date fair values in accordance with ASC 718, Compensation-Stock Compensation. Stock option grants to employees, which are generally time vested, are measured at the grant date fair value and depending on the conditions associated with the vesting of the award, compensation cost is recognized on a straight-line or graded basis over the vesting period. Recognition of compensation expense for non-employees is in the same period and manner as if the Company had paid cash for the services. The fair value of stock options granted is estimated using the Black-Scholes option-pricing model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life, and future dividends. The assumptions used in the Black-Scholes option pricing model could materially affect compensation expense recorded in future periods.

Financial Assets and Liabilities Measured at Fair Value

The Company uses various inputs in determining the fair value of its financial assets and liabilities. Financial assets recorded at fair value in the balance sheets are categorized by the level of objectivity associated with the inputs used to measure their fair value.

Authoritative guidance provided by the Financial Accounting Standards Board (“FASB”) defines the following levels directly related to the amount of subjectivity associated with the inputs to fair valuation of these financial assets:

	Level 1	Quoted prices in active markets for identical assets or liabilities.

	Level 2	Inputs, other than the quoted prices in active markets, that is observable either directly or indirectly.

	Level 3	Unobservable inputs based on the Company’s assumptions.

The carrying amounts of financial assets and liabilities, such as cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, approximate their fair values because of the short maturity of these instruments. The carrying values of notes and loans payable approximate their fair values due to the fact that the interest rates on these obligations are based on prevailing market interest rates.

Segments

The Company operates in one segment for the manufacture and distribution of its products. In accordance with the “Segment Reporting” Topic of the ASC, the Company’s chief operating decision maker has been identified as the Chief Executive Officer and President, who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company. Existing guidance, which is based on a management approach to segment reporting, establishes requirements to report selected segment information quarterly and to report annually entity-wide disclosures about products and services, major customers, and the countries in which the entity holds material assets and reports revenue. All material operating units qualify for aggregation under “Segment Reporting” due to their similar customer base and similarities in: economic characteristics; nature of products and services; and procurement, manufacturing and distribution processes. Since the Company operates in one segment, all financial information required by “Segment Reporting” can be found in the accompanying financial statements.

Concentrations

Cash. The Company maintains cash balances at four banks, with the majority held at one bank located in the U.S. At times, the amount on deposit exceeds the federally insured limits. Management believes that the financial institutions that hold the Company’s cash are financially sound and, accordingly, minimal credit risk exists.

Cash denominated in Australian Dollars with a U.S. Dollar equivalent of $12 and $10 at September 30, 2021 and December 31, 2020, respectively, was held in an account at a financial institution located in Australia. Cash denominated in Romanian Leu with a U.S. Dollar equivalent of $20 and $28 at September 30, 2021 and December 31, 2020, respectively, was held in an account at a financial institution located in Romania.

Revenues. For the three months ended September 30, 2021, 62% of revenues were generated from the Company’s largest customer, a Tier-1 telecommunications wireless carrier in the U.S. For the same period in 2020, 41%, 27%, and 23% of revenues were generated from the Company’s three largest customers, one of which is a telecommunications wireless carrier in the U.S. There was no other revenue from customers in excess of 10% of revenues in either period. For the three months ended September 30, 2021 and September 30, 2020, sales to telecommunications customers accounted for 85% and 99% of total revenues, respectively. For the three months ended September 30, 2021 and September 30, 2020, sales to international customers accounted for 7% and 23%, of total revenue, respectively.

For the nine months ended September 30, 2021, sales to the Company’s largest customer, a Tier-1 telecommunications wireless carrier in the U.S., accounted for 67% of total revenues. For the same period in 2020, sales to the Company’s four largest customers, two of which are Tier-1 telecommunications wireless carriers in the U.S., accounted for 57%, 13%, 12%, and 11% of total revenues, respectively. There was no other revenue from customers in excess of 10% of revenues in either period. For the nine months ended September 30, 2021 and September 30, 2020, sales to telecommunications customers accounted for 90% and 96% of total revenues, respectively. For the nine months ended September 30, 2021 and September 30, 2020, sales to international customers accounted for 10% and 13%, of total revenue, respectively.

Accounts receivable. At September 30, 2021, 73% and 10% of the Company’s accounts receivable were from the Company’s two largest customer receivable accounts. At December 31, 2020, 87% of the Company’s accounts receivable were from the Company’s largest customer. There was no other customer that accounted for more than 10% of the Company’s accounts receivable as of September 30, 2021 or December 31, 2020.

Accounts payable. At September 30, 2021, accounts payable to the Company’s largest vendors represented 13%, 10%, and 8%, respectively, of the Company’s accounts payable. At December 31, 2020, the three largest accounts payable accounts to the Company’s vendors represented 10%, 9%, and 8%, respectively, of the Company’s accounts payable.

Net Income (Loss) Per Share

Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding for the period. Diluted earnings per share is computed by dividing the net income applicable to common stockholders by the weighted average number of shares of common stock outstanding plus the number of additional shares of common stock that would have been outstanding if all dilutive potential shares of common stock had been issued using the treasury stock method. Potential shares of common stock are excluded from the computation when their effect is antidilutive. The dilutive effect of potentially dilutive securities is reflected in diluted net income per share if the exercise prices were lower than the average fair market value of shares of common stock during the reporting period.

The following potentially dilutive shares were excluded from the shares used to calculate diluted earnings per share as their inclusion would be anti-dilutive:

SCHEDULE OF DILUTED EARNINGS PER SHARE

	September 30, 2021		September 30, 2020
	(Unaudited)		(Unaudited)
Options		140,000		140,000
Warrants		24,122		465,000
Total		164,122		605,000

Recent Accounting Pronouncements

In September 2016, the FASB issued ASU No. 2016-13, Credit Losses - Measurement of Credit Losses on Financial Instruments (“ASC 326”). The standard significantly changes how entities will measure credit losses for most financial assets, including accounts and notes receivables. The standard will replace today’s “incurred loss” approach with an “expected loss” model, under which companies will recognize allowances based on expected rather than incurred losses. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The standard is effective for interim and annual reporting periods beginning after December 15, 2022. The adoption of ASU 2016-13 is not expected to have a material impact on the Company’s financial position, results of operations, and cash flows.

In August 2020, the FASB issued ASU No. 2020-06 (“ASU 2020-06”) “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40).” ASU 2020-06 reduces the number of accounting models for convertible debt instruments by eliminating the cash conversion and beneficial conversion models. As a result, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost as long as no other features require bifurcation and recognition as derivatives. By removing those separation models, the effective interest rate of convertible debt instruments will be closer to the coupon interest rate. Further, the diluted net income per share calculation for convertible instruments will require the Company to use the if-converted method. For contracts in an entity’s own equity, the type of contracts primarily affected by this update are freestanding and embedded features that are accounted for as derivatives under the current guidance due to a failure to meet the settlement conditions of the derivative scope exception. This update simplifies the related settlement assessment by removing the requirements to (i) consider whether the contract would be settled in registered shares, (ii) consider whether collateral is required to be posted, and (iii) assess shareholder rights. ASU 2020-06 is effective January 1, 2024, for the Company and the provisions of this update can be adopted using either the modified retrospective method or a fully retrospective method. Early adoption is permitted, but no earlier than January 1, 2021, including interim periods within that year. Effective January 1, 2021, the Company early adopted ASU 2020-06 and that adoption did not have an impact on its financial statements and the related disclosures.

The Company’s management does not believe that there are other recently issued but not yet effective authoritative guidance, if currently adopted, would have a material impact on the Company’s financial statement presentation or disclosures.

NOTE 2 – PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

SCHEDULE OF PROPERTY AND EQUIPMENT

	September 30, 2021			December 31, 2020
	(Unaudited)
Production tooling, jigs, fixtures	$	71		$	71
Shop equipment and machinery		3,293			3,286
Vehicles		180			180
Leasehold improvements		390			390
Office equipment		181			177
Software		106			103
Total property and equipment, cost		4,221			4,207
Less: accumulated depreciation and amortization		(3,130	)		(2,710	)
Property and equipment, net	$	1,091		$	1,497

Depreciation and amortization expense on property and equipment for the three months ended September 30, 2021 and 2020 was $134 and $156, respectively. During the three months ended September 30, 2021 and 2020, $129 and $148, respectively, of the depreciation expense was included in the balance of cost of sales.

Depreciation and amortization expense on property and equipment for the nine months ended September 30, 2021 and 2020 was $420 and $469, respectively. During the nine months ended September 30, 2021 and 2020, $402 and $450, respectively, of the depreciation expense was included in the balance of cost of sales.

NOTE 3 – NOTES PAYABLE

Notes payable consist of the following:

SCHEDULE OF NOTES PAYABLE

	September 30, 2021		December 31, 2020
	(Unaudited)
Total Equipment Notes Payable	$	569	$	777
Less Current Portion		240		267
Notes Payable, long term	$	329	$	510

The Company has entered into several financing agreements for the purchase of equipment in prior years. The terms of these financing arrangements are for a term of 2 years to 5 years, with interest rates ranging from 1.9% to 6.9% per annum, secured by the purchased equipment, and mature between September 2023 and December 2023. The aggregate monthly payments of principal and interest of the outstanding notes payable as of September 30, 2021 is approximately $22.

Future principal payments through the maturity dates of the notes payable as of September 30, 2021, consist of the following:

Year Ending	Notes Payable
2021 (remaining 3 months)		59
2022		242
2023		203
2024		65
Principal payments of the notes payable	$	569

NOTE 4 – LINE OF CREDIT

Effective September 30, 2020, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with Pinnacle Bank (“Pinnacle”). During the nine months ended September 30, 2021, the Company did not take any advances from the revolving credit facility. At September 30, 2021, there was no balance outstanding under the line of credit and the Company had availability under the line of credit in the amount of $2,612.

The Loan Agreement provides for a revolving credit facility under which Pinnacle may make advances to the Company, subject to certain limitations and adjustments, of up to (a) 85% of the aggregate net face amount of the Company’s 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 inventory of the Company or (ii) $2,500. In no event shall 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, but in no event less than 3.75% per annum. Interest on the portion of the daily balance consisting of advances against inventory accrues interest at a rate of 2.25% above the prime rate, but in no event less than 4.75% per annum.

The Loan Agreement’s initial term ends on September 30, 2022, and is renewed thereafter for additional one-year terms. In addition, Pinnacle may terminate the Loan Agreement at any time upon sixty days prior written notice and immediately upon the occurrence of an event of default. Under the Loan Agreement, the Company granted Pinnacle a security interest in all presently existing and thereafter acquired or arising assets of the Company. The Loan Agreement also contains a financial covenant requiring the Company to attain an effective tangible net worth, as defined.

The Loan Agreement obligates the Company to pay Pinnacle a yearly facility fee in an amount equal to 1.125% of the sum of the advance limit.

NOTE 5- PPP LOAN PAYABLE

On May 4, 2020, the Company entered into a loan (the “PPP Loan”) with Citibank, N.A. in an aggregate principal amount of $1,715, pursuant to the Paycheck Protection Program (the “PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”).

The PPP Loan is evidenced by a promissory note dated May 4, 2020. The PPP Loan matures two years from the disbursement date and bears interest at a rate of 1% per annum. Interest accrues during the time between the disbursement of the loan and SBA remittance of the forgiveness amount. The Company is responsible for paying the accrued interest on any amount of the loan that is not forgiven. Principal and interest are payable monthly commencing on loan amounts not forgiven and may be prepaid by the Company at any time prior to maturity with no prepayment penalties. The Company applied ASC 470, Debt, to account for the PPP Loan.

Under the terms of the CARES Act, recipients of PPP loans can apply for and be granted forgiveness for all or a portion of loans granted under the PPP. The Company filed its application for a full loan forgiveness to Citibank in July 2021. On September 28, 2021, the Company received noticed from Citibank indicating that the SBA rendered final decision approving forgiveness of the PPP loan payable in the amount of $1,714. As such, during the three- and nine-month periods ended September 30, 2021, the Company recognized the reversal of the debt liability upon forgiveness of the PPP loan as “Gain on forgiveness of PPP loan payable” in the accompanying unaudited condensed statements of operations.

NOTE 6 – STOCKHOLDERS’ EQUITY

Underwritten Public Offering of Common Stock

On February 10, 2021, and the Company issued and sold 750,000 shares of common stock in an underwritten public offering. The Company received at the closing of the offering net proceeds of approximately $12.5 million after deducting underwriting discounts and commissions and other offering expenses payable by the Company. The Company expects to use the net proceeds from the Offering for general corporate purposes.

Issuance of common stock upon exercise of warrants

During the nine months ended September 30, 2021, warrants to purchase an aggregate of 225,878 shares of common stock were exercised, and the Company received net proceeds of $707 upon such exercise. In addition, warrants exercisable into 120,000 shares of common stock were converted under a cashless exercise option into 61,644 shares of the Company’s common stock.

NOTE 7 – STOCK OPTIONS

The following table summarizes stock option activity:

SCHEDULE OF STOCK OPTION ACTIVITY

	Number of		Weighted Average Exercise
	Options		Price
Outstanding, December 31, 2020		140,000	$	5.22
Granted		—		—
Exercised		—		—
Outstanding, September 30, 2021 (unaudited)		140,000	$	5.22
Exercisable, September 30, 2021 (unaudited)		140,000	$	5.22

Effective July 8, 2016 the Company’s board of directors approved the Polar Power 2016 Omnibus Incentive Plan (the “2016 Plan”), authorizing the issuance of up to 1,754,385 shares of common stock as incentives to employees and consultants to the Company with awards limited to a maximum of 350,877 shares in any calendar year.

At September 30, 2021, the Company had total outstanding options of 140,000, which are fully vested, with exercise prices ranging from $4.84 to $5.60 per share. Option exercisable into 30,000 shares expire in December 2027 and the remaining options exercisable into 110,000 shares expire in April 2028.

The intrinsic value of the outstanding options at September 30, 2021 was approximately $45.

NOTE 8 – STOCK WARRANTS

At September 30, 2021, warrant shares outstanding were as follows:

SCHEDULE OF WARRANTS OUTSTANDING

	Number of Warrants			Weighted Average Exercise Price
Outstanding December 31, 2020		370,000		$	8.75
Issued		—			—
Exercised		(345,878	)		(4.07	)
Outstanding, September 30, 2021 (unaudited)		24,122		$	3.13
Exercisable, September 30, 2021 (unaudited)		24,122		$	3.13

At December 31, 2020, the Company had outstanding warrants exercisable into 370,000 shares of the Company’s common stock, of which 250,000 warrants were issued in connection with a July 2020 private placement of the Company’s common stock, and the remaining 120,000 warrants were issued to underwriters in a December 2016 offering.

During the nine months ended September 30, 2021, warrants to purchase 225,878 shares of common stock were exercised at $3.13 exercise price per share or total net proceeds to the Company of $707 upon exercise. Also during the nine months ended September 30, 2021, warrants exercisable into 120,000 shares of the Company’s common stock were exercised under a cashless exercise option into 61,644 shares of the Company’s common stock.

The intrinsic value of the outstanding and exercisable warrants at September 30, 2021 was $58.

NOTE 9 – DISTRIBUTION AGREEMENT WITH A RELATED ENTITY

On March 1, 2014, the Company entered into a subcontractor installer agreement with Smartgen Solutions, Inc. (“Smartgen”), a related entity that is engaged in business of equipment rental and provider of maintenance, repair and installation services to mobile telecommunications towers in California. Under the terms of the agreement, Smartgen has been appointed as a non-exclusive, authorized service provider for the installation, repair and service of the Company’s products in Southern California. The agreement has an initial term of three years from the date of execution and automatically renews for additional one-year periods if not terminated.

During the three months ended September 30, 2021 and 2020, Smartgen performed $15 and $33 in field services, respectively. Smartgen performed $66 and $193 in field services for the nine months ended September 30, 2021 and 2020, respectively.

Smartgen had $1 and nil purchases from the Company during the three and nine months ended September 30, 2021 and 2020, respectively.

NOTE 10 – OPERATING LEASES

The Company has two operating lease agreements for its warehouse and office spaces both with remaining lease terms at September 30, 2021, of 1.7 years. Leases with an initial term of 12 months or less are not recorded on the balance sheet. The Company accounts for the lease and non-lease components of its leases as a single lease component. Rent expense is recognized on a straight-line basis over the lease term. The Company also has another storage facility on a twelve-month lease term. Leases with an initial term of 12 months or less are not recorded on the balance sheet.

Operating lease right-of-use (“ROU”) assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Generally, the implicit rate of interest in arrangements is not readily determinable and the Company utilizes its incremental borrowing rate in determining the present value of lease payments. The Company’s incremental borrowing rate is a hypothetical collateralized borrowing rate based on its understanding of what its credit rating would be. The operating lease ROU asset includes any lease payments made and excludes lease incentives.

The components of rent expense and supplemental cash flow information related to leases for the period are as follows:

	Nine months Ended September 30, 2021			Nine months Ended September 30, 2020
Lease Cost
Operating lease cost (of which $74 is included in general and administration and $451 is included in cost of sales in the Company’s statement of operations for the nine months ended September 30, 2021, and for the same period in 2020, respectively)	$	525		$	525
Operating lease cost (of which $74 is included in general and administration and $451 is included in cost of sales in the Company’s statement of operations for the nine months ended September 30, 2021, and for the same period in 2020, respectively)	$	525		$	525

Other Information
Weighted average remaining lease term – operating leases (in years)		1.7			2.7
Average discount rate – operating leases		3.75	%		3.75	%

The supplemental balance sheet information related to leases for the period is as follows:

	At September 30, 2021		At December 31, 2020
Operating leases
Long-term right-of-use assets, net of accumulated amortization of $1,749 and $1,265, respectively	$	1,079	$	1,563

Short-term operating lease liabilities	$	708	$	670
Long-term operating lease liabilities		454		990
Total operating lease liabilities	$	1,162	$	1,660

Maturities of the Company’s lease liabilities are as follows (in thousands):

Year Ending	Operating Leases
2021 (remaining 3 months)		182
2022		747
2023		280
Total lease payments		1,209
Less: Imputed interest/present value discount		(47	)
Present value of lease liabilities	$	1,162

Rent expense for the nine months ended September 30, 2021 and 2020 was $678 and $678, respectively.

ITEM 2. Management’s Discussion And Analysis Of Financial Condition And Results Of Operations

You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” and elsewhere in this report. Our historical results are not necessarily indicative of the results to be expected for any future period, and results for any interim period are not necessarily indicative of the results to be expected for the full year.

All dollar amounts are presented in thousands, except share and per-share data and where otherwise noted.

Overview

We design, manufacture, and sell DC power generators, renewable energy and cooling systems for applications primarily in the telecommunications market and, to a lesser extent, in other markets, including military, electric vehicle charging, marine and industrial. We are continuously diversifying our customer base. We are selling our products into non-telecommunication markets and applications at an increasing rate.

Within the telecommunications market, our DC power systems provide reliable and low-cost DC power to service applications that do not have access to the utility grid (i.e., prime power applications) or have critical power needs and cannot be without power in the event of utility grid failure (i.e., back-up power applications).

During the three months ended September 30, 2021 and 2020, 85% and 99%, respectively, of our total net sales were within the telecommunications market. For the three months ended September 30, 2021, 62% of our total net sales was derived from our largest customer, which is a Tier-1 telecommunications customer in the U.S. For the same period in 2020, our three largest customers represented 41%, 27%, and 23% of our total net sales, respectively, two being telecommunications customers in the U.S. with one of those two being a Tier-1 telecommunications customer. There was no other revenue from customers in excess of 10% of revenues in either period. During those periods, the majority of our sales were of our DC base powers systems. For the three months ended September 30, 2021 and September 30, 2020, sales to international customers accounted for 7% and 23% of total revenue, respectively.

During the nine months ended September 30, 2021 and 2020, 90% and 96%, respectively, of our total net sales were within the telecommunications market. In the nine months ended September 30, 2021, 67% of our total net sales was derived from our largest customer, which is a Tier-1 telecommunications customer in the U.S. In 2020, our four largest customers represented 57%, 13%, 12%, and 11% of our total net sales, respectively, two being Tier-1 telecommunications customers in the U.S. There was no other revenue from customers in excess of 10% of revenues in either period. During those periods, the majority of our sales were of our DC base powers systems. For the nine months ended September 30, 2021 and September 30, 2020, sales to international customers accounted for 10% and 13%, of total revenue, respectively.

Military sales are growing and adding to our customer diversification. Backlog orders from military customers represented 4% of our backlog for the period ended September 30, 2021. The military’s increasing use of robotics, drones, and digitization in the field is driving the demand for battery charging with DC generators. We believe increased sales to military customers provides us long-term visibility on product demand while helping us understand future commercial uses of our technologies. Historically we have always worked closely with military to jointly develop next generation of technologies and product configurations which later result in commercial uses. Military sales are advantageous because of their long-term contracts, and they provide funding to cover the cost of product development.

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. Our advance mobility sales for this year to date is $4,209, which includes product shipped and orders that have been received from customers and included in our backlog. In June 2021, we received a $3.0 million order for DC power systems from a single customer in United States for use to charge stored batteries within a vehicle while providing energy to operate appliances installed in the vehicle. We anticipate our systems to be initially used in over 300 vehicles for test and evaluation.

We have supplied our DC generators to many automotive manufactures in support of their remote field testing of electric vehicles. 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. 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. 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. 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.

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. 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. 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.

We expect that opportunities in the bad-grid (i.e., areas where wireless towers are connected to an electrical grid that loses power more than eight hours), and off-grid (i.e., areas where wireless towers are not connected to an electrical grid) applications, which include telecommunications towers, commercial and residential backup power, electric vehicle charging, “mini-grid” and various other power applications, will help to expand the market for our natural gas/LPG (propane) product lines domestically and internationally. 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 market, 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 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*. These 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.

Impact of COVID-19

We continue to monitor the rapidly evolving COVID-19 pandemic and related guidance from international and domestic authorities, including federal, state and local public health authorities and may need to make changes to our business based on their recommendations. COVID-19, has had and is likely to continue to have, a material and substantial adverse impact on our results of operations including, among others, a decrease in our sales, and delays in sourcing of raw materials from suppliers. Our business is directly dependent upon, and correlates closely with, the marketing levels and ongoing business activities of our existing customers and suppliers. In the event of a continued widespread economic downturn caused by COVID-19, we will likely experience a further 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 functionality, higher than normal inventory levels, a reduction in the availability of qualified labor, and increased price competition, all of which could substantially adversely affect our net revenues.

SEC Form 10-Q filed by Polar Power, Inc.