Document and Entity Information - shares |
3 Months Ended | |
|---|---|---|
Mar. 31, 2018 |
May 15, 2018 |
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| Document And Entity Information | ||
| Entity Registrant Name | Polar Power, Inc. | |
| Entity Central Index Key | 0001622345 | |
| Document Type | 10-Q | |
| Trading Symbol | POLA | |
| Document Period End Date | Mar. 31, 2018 | |
| Amendment Flag | false | |
| Current Fiscal Year End Date | --12-31 | |
| Entity a Well-known Seasoned Issuer | No | |
| Entity a Voluntary Filer | No | |
| Entity's Reporting Status Current | Yes | |
| Entity Filer Category | Smaller Reporting Company | |
| Entity Common Stock, Shares Outstanding | 10,143,158 | |
| Document Fiscal Period Focus | Q1 | |
| Document Fiscal Year Focus | 2018 |
CONDENSED BALANCE SHEETS (Unaudited) (Parenthetical) - USD ($) |
Mar. 31, 2018 |
Dec. 31, 2017 |
|---|---|---|
| Statement of Financial Position [Abstract] | ||
| Restricted cash | $ 1,001,551 | $ 1,001,180 |
| Preferred stock, par value (in dollars per share) | $ 0.0001 | $ 0.0001 |
| Preferred stock, authorized | 5,000,000 | 5,000,000 |
| Preferred stock, issued | 0 | 0 |
| Preferred stock, outstanding | 0 | 0 |
| Common stock, par value (in dollars per share) | $ 0.0001 | $ 0.0001 |
| Common stock, authorized | 50,000,000 | 50,000,000 |
| Common stock, issued | 10,143,158 | 10,143,158 |
| Common stock, outstanding | 10,143,158 | 10,143,158 |
CONDENSED STATEMENTS OF OPERATIONS (Unaudited) - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2018 |
Mar. 31, 2017 |
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| Income Statement [Abstract] | ||
| Net Sales | $ 4,871,912 | $ 4,966,981 |
| Cost of Sales | 3,388,274 | 3,050,251 |
| Gross Profit | 1,483,638 | 1,916,730 |
| Operating Expenses | ||
| Sales and Marketing | 610,337 | 195,094 |
| Research and development | 464,101 | 76,003 |
| General and administrative | 727,786 | 671,425 |
| Depreciation and amortization | 8,731 | 7,734 |
| Total operating expenses | 1,810,955 | 950,256 |
| Income (Loss) from operations | (327,317) | 966,474 |
| Other (expenses) income | ||
| Interest expense | (3,010) | (4,776) |
| Other income (expense) | 11,525 | 2,462 |
| Total other (expenses) income, net | 8,515 | (2,314) |
| Income (Loss) before income taxes | (318,802) | 964,160 |
| Income tax provision | 371,280 | |
| Net Income (Loss) | $ (318,802) | $ 592,880 |
| Net Income (Loss) per share - basic and diluted (in dollars per share) | $ (0.03) | $ 0.06 |
| Weighted average shares outstanding, basic and diluted (in shares) | 10,143,158 | 10,143,158 |
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY - 3 months ended Mar. 31, 2018 - USD ($) |
Common Stock |
Additional Paid-In Capital |
Accumulated Deficit |
Total |
|---|---|---|---|---|
| Balance at beginning at Dec. 31, 2017 | $ 1,014 | $ 19,250,955 | $ 3,650,833 | $ 22,902,802 |
| Balance at beginning (in shares) at Dec. 31, 2017 | 10,143,158 | |||
| Increase (Decrease) in Stockholders' Equity [Roll Forward] | ||||
| Fair value of vested stock options | 24,719 | 24,719 | ||
| Net loss | (318,802) | (318,802) | ||
| Balance at end at Mar. 31, 2018 | $ 1,014 | $ 19,275,674 | $ 3,332,031 | $ 22,608,719 |
| Balance at end (in shares) at Mar. 31, 2018 | 10,143,158 |
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
Polar Power, Inc. was incorporated in the State of Washington as Polar Products, Inc. and in 1991 reincorporated in the State of California under the name Polar Power, Inc. In December 2016, Polar Power, Inc. reincorporated in the State of Delaware (the “Company”). The Company designs, manufactures and sells direct current, or DC, power systems to supply reliable and low-cost energy to off-grid, bad-grid and backup power applications. The Company’s products integrate DC generator and proprietary automated controls, lithium batteries and solar systems to provide low operating cost and lower emissions alternative power needs in telecommunications, defense, automotive and industrial markets.
Basis of Presentation of Unaudited Financial Information
The unaudited condensed financial statements of the Company for the three months ended March 31, 2018 and 2017 have been prepared in accordance with accounting principles generally accepted in the United States of America (“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, 2017 was derived from the audited financial statements included in the Company’s financial statements as of and for the years ended December 31, 2017 and 2016 contained in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on April 2, 2018. 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 and deferred tax assets, income tax accruals, accruals for potential liabilities and assumptions made in valuing the fair market value of equity transactions. Actual results may differ from those estimates.
Revenue Recognition
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), (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 our 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.
Under ASC 606, 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 our customers based on written sales terms, which is also when control is transferred. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring the products or services to a customer.
The Company adopted the guidance of ASC 606 on January 1, 2018. The implementation of ASC 606 had no impact on the condensed consolidated financial statements and no cumulative effect adjustment was recognized.
Inventories
Inventories consist of raw materials and finished goods and are stated at the lower of cost or market. Cost is determined principally on a first-in-first-out average cost basis. Inventory quantities on hand are reviewed regularly and write-downs for obsolete inventory are recorded based on an estimated forecast of the inventory item demand in the near future. As of March 31, 2018 and December 31, 2017, the Company has established inventory reserves of $330,000 for obsolete and slow-moving inventory. As of March 31, 2018 and December 31, 2017, the components of inventories were as follows:
Product Warranties
The Company provides limited warranties for parts and labor at no cost to its customers within a specified time period after the sale. The warranty terms are typically from one to five years. Provisions for estimated expenses related to product warranties are made at the time products are sold. These estimates are established using historical information about the nature, frequency and average cost of warranty claim settlements as well as product manufacturing and recovery from suppliers. Management actively studies trends of warranty claims and takes action to improve product quality and minimize warranty costs. The Company estimates the actual historical warranty claims coupled with an analysis of unfulfilled claims to record a liability for specific warranty purposes. The Company’s product warranty obligations are included in other accrued liabilities in the balance sheets. As of March 31, 2018 and December 31, 2017, the Company had accrued a liability for warranty reserve of $175,000 and $175,000, respectively. Management believes that the warranty accrual is appropriate; however, actual claims incurred could differ from original estimates, requiring adjustments to the accrual. The product warranty accrual is included in current liabilities in the accompanying balance sheets.
The following is a tabular reconciliation of the product warranty liability, excluding the deferred revenue related to the Company’s warranty coverage:
Income Taxes
The Company accounts for income taxes using the asset and liability method whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized before the Company is able to realize their benefits, or that future deductibility is uncertain.
Tax benefits from an uncertain tax position are recognized only if it more likely than not that the tax position will be sustained on examination by the taxing authorities based on technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has greater than 50 percent likelihood of being realized upon ultimate resolution. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
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 consolidated financial statements.
Concentrations
Cash. The Company maintains cash balances at three banks located in the U.S., with the majority held at one bank. 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.
Net Sales. The Company’s net sales are primarily generated from two Tier-1 wireless telecommunications carrier customers in the U.S. For the three months ended March 31, 2018 and 2017, 27% and 91.6%, respectively, of net sales were generated from our legacy customer, Verizon Wireless. Sales to our new largest Tier-1 wireless telecommunications carrier customer, AT&T, accounted for 64% and 0% of revenue for the same period in 2018 and 2017, respectively. For each of the three months ended March 31, 2018 and 2017, 92% of the Company’s net sales were generated from telecommunications wireless carrier customers. Sales for the same periods to international customers accounted for 1% and 0%, respectively. Sales to military customers accounted for 6% and 5%, of total revenue, respectively.
Accounts receivable. At March 31, 2018, 76% of the Company’s accounts receivable were from AT&T and 20% from Verizon Wireless. At December 31, 2017, 59% of the Company’s accounts receivable were from AT&T and 30% from Verizon Wireless.
Accounts payable. On March 31, 2018, accounts payable to the Company’s largest vendor represented 26% while the other two largest vendors represented 7% and 6% each. On December 31, 2017, accounts payable to the Company’s largest vendor represented 75%, while the other two largest vendors represented 3% each.
Purchases. The Company has established relationships with third party engine suppliers and other key suppliers from which the Company sources components for its power systems. The Company is substantially dependent on one key engine supplier, Yanmar Engines Company. Purchases from Yanmar represented 91% and 13% of the Company’s total cost of sales for the three months ended March 31, 2018 and 2017, respectively.
Net Income (Loss) Per Share
Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings per share is computed by dividing the net income applicable to common stock holders by the weighted average number of common shares outstanding plus the number of additional common shares that would have been outstanding if all dilutive potential common shares had been issued using the treasury stock method. Potential common shares are excluded from the computation when their effect is antidilutive. The dilutive effect of potentially dilutive securities is reflected in diluted net income per share if the exercise prices were lower than the average fair market value of common shares during the reporting period.
The following potentially dilutive shares were excluded from the shares used to calculate diluted earnings per share as their inclusion would be anti-dilutive:
Recent Accounting Pronouncements In February 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-02, Leases. ASU 2016-02 requires a lessee to record a right of use asset and a corresponding lease liability on the balance sheet for all leases with terms longer than 12 months. ASU 2016-02 is effective for all interim and annual reporting periods beginning after December 15, 2018. Early adoption is permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is currently evaluating the expected impact that the standard could have on its financial statements and related disclosures.
Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the SEC did not or are not believed by management to have a material impact on the Company’s present or future consolidated financial statements. |
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RESTRICTED CASH |
3 Months Ended |
|---|---|
Mar. 31, 2018 | |
| Receivables [Abstract] | |
| RESTRICTED CASH | NOTE 2 – RESTRICTED CASH
As of March 31, 2018 and December 31, 2017, the Company’s cash balance included restricted cash of $1,001,551 and $1,001,180, respectively. The restricted cash serves as a collateral to the line of credit (see Note 5) opened with a bank in March 2017. |
PROPERTY AND EQUIPMENT |
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| Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| PROPERTY AND EQUIPMENT | NOTE 3 – PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
Depreciation and amortization expense on property and equipment for the three months ended March 31, 2018 and March 31, 2017 was $76,350 and $59,174, respectively. During the three months ended March 31, 2018 and March 31, 2017, $67,619 and $51,440, respectively, of the depreciation expense was included in the balance of cost of sales. |
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NOTES PAYABLE |
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| NOTES PAYABLE | NOTE 4 – NOTES PAYABLE
Notes payable consist of the following:
The Company has entered into several financing agreements for the purchase of equipment. The terms of these financing arrangements are for a term of 2 years to 5 years, with interest rates ranging from 1.9% to 6.9% per annum, secured by the purchased equipment. Aggregate monthly payments of principal and interest of approximately $10,000 are due through 2021. |
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LINE OF CREDIT |
3 Months Ended |
|---|---|
Mar. 31, 2018 | |
| Debt Disclosure [Abstract] | |
| LINE OF CREDIT | NOTE 5 – LINE OF CREDIT
On March 21, 2017, the Company entered into a Credit Agreement and related documents with Citibank, N.A. for a revolving credit facility for an aggregate amount of up to $1,000,000. The credit facility will expire at such time the parties mutually agree to terminate the credit facility or at the election of the lender. Interest accrues on the principal amount of revolving loans outstanding under the credit facility at a rate equal to the greater of (i) the prime rate of interest as published by Citibank, or (ii) the one-month London Interbank Offered Rate plus 2%. Amounts outstanding from time to time under the credit facility are due and payable monthly in an amount equal to the greater of 2% of the outstanding principal balance or $100, plus accrued interest. Upon the termination of the credit facility, any amounts owed under the credit facility will be payable by the Company in 48 equal consecutive monthly installments of principal, together with accrued monthly interest and any other charges beginning the first calendar month after the date of cancellation. The credit facility is also subject to an annual finance charge of $2,500, which amount has been waived for the first year. The credit facility is secured by a Certificate of Deposit (restricted cash) account opened by the Company with Citibank in the amount of $1,000,000 (see Note 2).
The Company’s credit facility contains negative covenants prohibiting it from (i) creating or permitting to exist any liens, security interests or other encumbrances on the Company’s assets, (ii) engaging in any business activities substantially different than those in which the Company is presently engaged, (iii) ceasing operations, liquidating, merging, transferring, acquiring or consolidating with any other entity, changing its name, dissolving or transferring or selling collateral out of the ordinary course of business, or (iv) paying dividends on the Company’s capital stock (other than dividends payable in stock). The Company was in compliance with all covenants at March 31, 2018.
As of March 31, 2018 and December 31, 2017, the Company had not borrowed any funds under the credit facility and thus had availability of $1,000,000. |
STOCK OPTIONS |
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| STOCK OPTIONS | NOTE 6 – STOCK OPTIONS
The following table summarizes stock option activity:
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.
In December 2017, the Company granted to members of its board of directors, options to purchase an aggregate of 30,000 shares of the Company’s common stock that expire ten years from the date of grant and vesting one year from the issuance date. The fair value of each option award was estimated on the date of grant using the Black-Scholes option pricing model based on the following assumptions: (i) volatility rate of 57.71%, (ii) discount rate of 2.42%, (iii) zero expected dividend yield, and (iv) expected life of 6 years, which is the average of the term of the options and their vesting periods. The total fair value of the option grants at their grant date was approximately $98,000.
During the three months ended March 31, 2018, the Company expensed total stock-based compensation related to stock options of $24,719, and the remaining unamortized cost of the outstanding stock-based awards at March 31, 2018 was approximately $65,000. This cost will be amortized on a straight-line basis over the remaining vesting period of approximately nine months. At March 31, 2018, the 30,000 outstanding stock options had intrinsic value of approximately $5,000, and none of the options had yet vested. |
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WARRANTS |
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| Warrants | |||||||||||||||||||||||||||||||||||||||||||||||||||
| WARRANTS | NOTE 7 – WARRANTS
At March 31, 2018, warrant shares outstanding were as follows:
In connection with the Company’s underwritten initial public offering in December 2016, the Company issued warrants to the underwriters to purchase up to 115,000 shares of its common stock with an exercise price of $8.75 per share, which warrants expire five years from the date of issuance.
There was no intrinsic value of the outstanding and exercisable warrants at March 31, 2018. |
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DISTRIBUTION AGREEMENT WITH A RELATED ENTITY |
3 Months Ended |
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Mar. 31, 2018 | |
| Distribution Agreement With Related Entity | |
| DISTRIBUTION AGREEMENT WITH A RELATED ENTITY | NOTE 8 – 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 a 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 March 31, 2018 and 2017, Smartgen performed $13,100 and $70,647 in field services, respectively.
Smartgen had no purchases from the Company during the three months ended March 31, 2018. Smartgen had $960 in purchases of goods, parts and services from the Company during the three months ended March 31, 2017.
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COMMITMENT AND CONTINGENCIES |
3 Months Ended |
|---|---|
Mar. 31, 2018 | |
| Commitments and Contingencies Disclosure [Abstract] | |
| COMMITMENT AND CONTINGENCIES | NOTE 9 – COMMITMENT AND CONTINGENCIES
Leases
The Company entered into a non-cancellable operating lease of a manufacturing facility located in Gardena, CA commencing January 1, 2015 and ending on February 28, 2019. The base rent of the facility at the commencement date was $29,648 per month, which annually increases by 3%. Rent expense for the three months ended March 31, 2018 and 2017 was $127,792 and $94,361, respectively.
Legal Proceedings
From time to time, the Company may be involved in general commercial disputes arising in the ordinary course of our business. The Company is not currently involved in legal proceedings that could reasonably be expected to have material adverse effect on its business, prospects, financial condition or results of operations. |
SUBSEQUENT EVENTS |
3 Months Ended |
|---|---|
Mar. 31, 2018 | |
| Subsequent Events [Abstract] | |
| SUBSEQUENT EVENTS | NOTE 10 – SUBSEQUENT EVENTS.
On April 2, 2018, the Company granted to its executive officers incentive options to purchase an aggregate of 330,000 shares of the Company’s common stock that expire ten years from the date of grant and vest as to one-third of the shares on the first, second and third anniversaries of the date of grant. Options covering 90,000 shares of the Company’s common stock were granted to each of Rajesh Masina and Luis Zavala with an exercise price per share of $4.97, which exercise price equals the closing sale price of one share of the Company’s common stock on April 2, 2018. With respect to the option covering 150,000 shares of the Company’s common stock granted to Arthur D. Sams, the exercise price per share of such option was set at $5.47, which exercise price is equal to 110% of the closing sale price of one share of the Company’s common stock on April 2, 2018. |
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) |
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| Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Basis of Presentation of Unaudited Financial Information | Basis of Presentation of Unaudited Financial Information
The unaudited condensed financial statements of the Company for the three months ended March 31, 2018 and 2017 have been prepared in accordance with accounting principles generally accepted in the United States of America (“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, 2017 was derived from the audited financial statements included in the Company’s financial statements as of and for the years ended December 31, 2017 and 2016 contained in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on April 2, 2018. These financial statements should be read in conjunction with that report. |
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| Estimates | Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Material estimates relate to the assumptions made in determining reserves for uncollectible receivables, inventory reserves and returns, impairment analysis of long term assets and deferred tax assets, income tax accruals, accruals for potential liabilities and assumptions made in valuing the fair market value of equity transactions. Actual results may differ from those estimates. |
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| Revenue Recognition | Revenue Recognition
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), (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 our 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.
Under ASC 606, 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 our customers based on written sales terms, which is also when control is transferred. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring the products or services to a customer.
The Company adopted the guidance of ASC 606 on January 1, 2018. The implementation of ASC 606 had no impact on the condensed consolidated financial statements and no cumulative effect adjustment was recognized. |
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| Inventories | Inventories
Inventories consist of raw materials and finished goods and are stated at the lower of cost or market. Cost is determined principally on a first-in-first-out average cost basis. Inventory quantities on hand are reviewed regularly and write-downs for obsolete inventory are recorded based on an estimated forecast of the inventory item demand in the near future. As of March 31, 2018 and December 31, 2017, the Company has established inventory reserves of $330,000 for obsolete and slow-moving inventory. As of March 31, 2018 and December 31, 2017, the components of inventories were as follows:
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| Product Warranties | Product Warranties
The Company provides limited warranties for parts and labor at no cost to its customers within a specified time period after the sale. The warranty terms are typically from one to five years. Provisions for estimated expenses related to product warranties are made at the time products are sold. These estimates are established using historical information about the nature, frequency and average cost of warranty claim settlements as well as product manufacturing and recovery from suppliers. Management actively studies trends of warranty claims and takes action to improve product quality and minimize warranty costs. The Company estimates the actual historical warranty claims coupled with an analysis of unfulfilled claims to record a liability for specific warranty purposes. The Company’s product warranty obligations are included in other accrued liabilities in the balance sheets. As of March 31, 2018 and December 31, 2017, the Company had accrued a liability for warranty reserve of $175,000 and $175,000, respectively. Management believes that the warranty accrual is appropriate; however, actual claims incurred could differ from original estimates, requiring adjustments to the accrual. The product warranty accrual is included in current liabilities in the accompanying balance sheets.
The following is a tabular reconciliation of the product warranty liability, excluding the deferred revenue related to the Company’s warranty coverage:
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| Income Taxes | Income Taxes
The Company accounts for income taxes using the asset and liability method whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized before the Company is able to realize their benefits, or that future deductibility is uncertain.
Tax benefits from an uncertain tax position are recognized only if it more likely than not that the tax position will be sustained on examination by the taxing authorities based on technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has greater than 50 percent likelihood of being realized upon ultimate resolution. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. |
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| Segments | 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 consolidated financial statements. |
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| Concentrations | Concentrations
Cash. The Company maintains cash balances at three banks located in the U.S., with the majority held at one bank. 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.
Net Sales. The Company’s net sales are primarily generated from two Tier-1 wireless telecommunications carrier customers in the U.S. For the three months ended March 31, 2018 and 2017, 27% and 91.6%, respectively, of net sales were generated from our legacy customer, Verizon Wireless. Sales to our new largest Tier-1 wireless telecommunications carrier customer, AT&T, accounted for 64% and 0% of revenue for the same period in 2018 and 2017, respectively. For each of the three months ended March 31, 2018 and 2017, 92% of the Company’s net sales were generated from telecommunications wireless carrier customers. Sales for the same periods to international customers accounted for 1% and 0%, respectively. Sales to military customers accounted for 6% and 5%, of total revenue, respectively.
Accounts receivable. At March 31, 2018, 76% of the Company’s accounts receivable were from AT&T and 20% from Verizon Wireless. At December 31, 2017, 59% of the Company’s accounts receivable were from AT&T and 30% from Verizon Wireless.
Accounts payable. On March 31, 2018, accounts payable to the Company’s largest vendor represented 26% while the other two largest vendors represented 7% and 6% each. On December 31, 2017, accounts payable to the Company’s largest vendor represented 75%, while the other two largest vendors represented 3% each.
Purchases. The Company has established relationships with third party engine suppliers and other key suppliers from which the Company sources components for its power systems. The Company is substantially dependent on one key engine supplier, Yanmar Engines Company. Purchases from Yanmar represented 91% and 13% of the Company’s total cost of sales for the three months ended March 31, 2018 and 2017, respectively. |
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| Net Income (Loss) Per Share | Net Income (Loss) Per Share
Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings per share is computed by dividing the net income applicable to common stock holders by the weighted average number of common shares outstanding plus the number of additional common shares that would have been outstanding if all dilutive potential common shares had been issued using the treasury stock method. Potential common shares are excluded from the computation when their effect is antidilutive. The dilutive effect of potentially dilutive securities is reflected in diluted net income per share if the exercise prices were lower than the average fair market value of common shares during the reporting period.
The following potentially dilutive shares were excluded from the shares used to calculate diluted earnings per share as their inclusion would be anti-dilutive:
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| Recent Accounting Pronouncements | Recent Accounting Pronouncements In February 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-02, Leases. ASU 2016-02 requires a lessee to record a right of use asset and a corresponding lease liability on the balance sheet for all leases with terms longer than 12 months. ASU 2016-02 is effective for all interim and annual reporting periods beginning after December 15, 2018. Early adoption is permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is currently evaluating the expected impact that the standard could have on its financial statements and related disclosures.
Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the SEC did not or are not believed by management to have a material impact on the Company’s present or future consolidated financial statements. |
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ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of components of inventory | As of March 31, 2018 and December 31, 2017, the components of inventories were as follows:
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| Schedule of reconciliation of the product warranty liability | The following is a tabular reconciliation of the product warranty liability, excluding the deferred revenue related to the Company’s warranty coverage:
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| Schedule of anti-dilutive | The following potentially dilutive shares were excluded from the shares used to calculate diluted earnings per share as their inclusion would be anti-dilutive:
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PROPERTY AND EQUIPMENT (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of property and equipment | Property and equipment consist of the following:
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NOTES PAYABLE (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||
| Payables and Accruals [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of notes payable | Notes payable consist of the following:
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STOCK OPTIONS (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock Options | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of stock option | The following table summarizes stock option activity:
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WARRANTS (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Warrants | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of warrant activity | At March 31, 2018, warrant shares outstanding were as follows:
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ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - USD ($) |
Mar. 31, 2018 |
Dec. 31, 2017 |
|---|---|---|
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||
| Raw materials | $ 3,711,497 | $ 2,716,392 |
| Finished goods | 2,048,250 | 3,100,661 |
| Total Inventories, gross | 5,759,747 | 5,817,053 |
| Less: Inventory reserve | (330,000) | (330,000) |
| Total Inventories, net | $ 5,429,747 | $ 5,487,053 |
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 1) - USD ($) |
3 Months Ended | 12 Months Ended |
|---|---|---|
Mar. 31, 2018 |
Dec. 31, 2017 |
|
| Movement in Standard Product Warranty Accrual [Roll Forward] | ||
| Balance at beginning of the period | $ 175,000 | $ 175,000 |
| Payments | (33,484) | (364,163) |
| Provision for warranties | 33,484 | 364,163 |
| Balance at end of the period | $ 175,000 | $ 175,000 |
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 2) - shares |
Mar. 31, 2018 |
Dec. 31, 2017 |
Dec. 31, 2016 |
|---|---|---|---|
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||
| Options | 30,000 | ||
| Warrants | 115,000 | 115,000 | 115,000 |
| Total | 145,000 | 115,000 |
RESTRICTED CASH (Details Narrative) - USD ($) |
Mar. 31, 2018 |
Dec. 31, 2017 |
Mar. 31, 2017 |
Dec. 31, 2016 |
|---|---|---|---|---|
| Receivables [Abstract] | ||||
| Cash and cash equivalents | $ 11,711,172 | $ 14,201,163 | $ 17,750,733 | $ 16,242,158 |
| Restricted cash | $ 1,001,551 | $ 1,001,180 |
PROPERTY AND EQUIPMENT (Details) - USD ($) |
Mar. 31, 2018 |
Dec. 31, 2017 |
|---|---|---|
| Total property and equipment, cost | $ 1,953,659 | $ 1,898,596 |
| Less: accumulated depreciation and amortization | (1,150,870) | (1,074,520) |
| Property and equipment, net | 802,789 | 824,076 |
| Production Tooling, Jigs, Fixtures [Member] | ||
| Total property and equipment, cost | 70,749 | 70,749 |
| Shop Equipment And Machinery [Member] | ||
| Total property and equipment, cost | 1,495,633 | 1,451,423 |
| Vehicles [Member] | ||
| Total property and equipment, cost | 122,264 | 122,264 |
| Leasehold Improvements [Member] | ||
| Total property and equipment, cost | 42,173 | 42,173 |
| Office Equipment [Member] | ||
| Total property and equipment, cost | 121,399 | 114,454 |
| Software [Member] | ||
| Total property and equipment, cost | $ 101,441 | $ 97,533 |
PROPERTY AND EQUIPMENT (Details Narrative) - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2018 |
Mar. 31, 2017 |
|
| Depreciation and amortization expense | $ 76,350 | $ 59,174 |
| Cost of Sales [Member] | ||
| Depreciation expense | $ 67,619 | $ 51,440 |
NOTES PAYABLE (Details) - USD ($) |
Mar. 31, 2018 |
Dec. 31, 2017 |
|---|---|---|
| Payables and Accruals [Abstract] | ||
| Total Equipment Notes Payable | $ 209,821 | $ 237,055 |
| Less Current Portion | (102,483) | (110,237) |
| Notes Payable, Long term | $ 107,338 | $ 126,818 |
NOTES PAYABLE (Details Narrative) - Equipment [Member] - Several Financing Agreements [Member] |
3 Months Ended |
|---|---|
|
Mar. 31, 2018
USD ($)
| |
| Description of collateral | Secured by the purchased equipment. |
| Monthly payments of principal and interest | $ 10,000 |
| Frequency of payment | Monthly |
| Maximum [Member] | |
| Debt term | 5 years |
| Interest rate | 6.90% |
| Minimum [Member] | |
| Debt term | 2 years |
| Interest rate | 1.90% |
LINE OF CREDIT (Details Narrative) - Citibank, N.A. [Member] - Revolving Credit Facility [Member] - Credit Agreement [Member] - USD ($) |
Mar. 21, 2017 |
Mar. 31, 2018 |
Dec. 31, 2017 |
|---|---|---|---|
| Maximum borrowing capacity | $ 1,000,000 | ||
| Description of expiration | Expire at such time the parties mutually agree to terminate the credit facility or at the election of the lender. |
||
| Description of interest rate | Interest accrues on the principal amount of revolving loans outstanding under the credit facility at a rate equal to the greater of (i) the prime rate of interest as published by Citibank, or (ii) the one-month London Interbank Offered Rate plus 2%. |
||
| Description of payments | Amounts outstanding from time to time under the credit facility are due and payable monthly in an amount equal to the greater of 2% of the outstanding principal balance or $100, plus accrued interest. |
||
| Annual finance charge | $ 2,500 | ||
| Description of collateral | Certificate of Deposit (restricted cash) account opened by the Company with Citibank in the amount of $1,000,000. |
||
| Description covenant terms | (i) creating or permitting to exist any liens, security interests or other encumbrances on the Company’s assets, (ii) engaging in any business activities substantially different than those in which the Company is presently engaged, (iii) ceasing operations, liquidating, merging, transferring, acquiring or consolidating with any other entity, changing its name, dissolving or transferring or selling collateral out of the ordinary course of business, or (iv) paying dividends on the Company’s capital stock (other than dividends payable in stock). The Company was in compliance with all covenants at March 31, 2018. |
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| Remaining borrowing capacity | $ 1,000,000 | $ 1,000,000 |
STOCK OPTIONS (Details) - $ / shares |
1 Months Ended | 3 Months Ended |
|---|---|---|
Dec. 31, 2017 |
Mar. 31, 2018 |
|
| Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding [Roll Forward] | ||
| Beginning balance | 30,000 | |
| End balance | 30,000 | |
| Polar Power 2016 Omnibus Incentive Plan [Member] | ||
| Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding [Roll Forward] | ||
| Beginning balance | 30,000 | |
| Issued | 30,000 | |
| Exercised | ||
| End balance | 30,000 | 30,000 |
| Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price [Roll Forward] | ||
| Beginning balance | $ 4.84 | |
| Issued | ||
| Exercised | ||
| End balance | $ 4.84 | $ 4.84 |
STOCK OPTIONS (Details Narrative) - Polar Power 2016 Omnibus Incentive Plan [Member] - USD ($) |
1 Months Ended | 3 Months Ended | |
|---|---|---|---|
Dec. 31, 2017 |
Mar. 31, 2018 |
Jul. 08, 2016 |
|
| Number of shares authorized | 1,754,385 | ||
| Maximum number of shares available for issuance | 350,877 | ||
| Number of shares granted | 30,000 | ||
| Expiration period | 10 years | ||
| Vesting period | 1 year | ||
| Volatility rate | 57.71% | ||
| Discount rate | 2.42% | ||
| Expected dividend yield | 0.00% | ||
| Expected life | 6 years | ||
| Total fair value of the option grants | $ 98,000 | ||
| Total stock-based compensation | $ 24,719 | ||
| Unamortized compensation cost | 65,000 | ||
| Unamortized compensation cost period | 9 months | ||
| Intrinsic value outstanding stock options | $ 5,000 | ||
| Option outstanding | 30,000 |
WARRANTS (Details) |
3 Months Ended |
|---|---|
|
Mar. 31, 2018
$ / shares
shares
| |
| Number of Warrants [Roll Forward] | |
| Outstanding at beginning | shares | 115,000 |
| Issued | shares | |
| Exercised | shares | |
| Outstanding at end | shares | 115,000 |
| Weighted Average Exercise Price [Roll Forward] | |
| Outstanding at beginning | $ / shares | $ 8.75 |
| Issued | $ / shares | |
| Exercised | $ / shares | |
| Outstanding at end | $ / shares | $ 8.75 |
WARRANTS (Details Narrative) - Warrant [Member] |
1 Months Ended |
|---|---|
|
Dec. 31, 2016
$ / shares
shares
| |
| Common stock purchases | shares | 115,000 |
| Exercise price | $ / shares | $ 8.75 |
| Warrant term | 5 years |
DISTRIBUTION AGREEMENT WITH A RELATED ENTITY (Details Narrative) - Smartgen Solutions, Inc. ("Smartgen") [Member] - Subcontractor Installer Agreement [Member] - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2018 |
Mar. 31, 2017 |
|
| Due to related party | $ 13,100 | $ 70,647 |
| Due from related party | $ 960 | |
COMMITMENT AND CONTINGENCIES (Details Narrative) - Non-Cancellable Operating Lease [Member] - Manufacturing Facility (Gardena, CA) [Member] - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2018 |
Mar. 31, 2017 |
|
| Lease expiration date | Feb. 28, 2019 | |
| Monthly base rent | $ 29,648 | |
| Percentage of annula increase in base rent | 3.00% | |
| Rent expense | $ 127,792 | $ 94,361 |
SUBSEQUENT EVENTS (Details Narrative) - Subsequent Event [Member] |
Apr. 02, 2018
$ / shares
shares
|
|---|---|
| Mr. Rajesh Masina [Member] | |
| Subsequent Event [Line Items] | |
| Number of shares granted | 90,000 |
| Exercise price per share (in dollars per share) | $ / shares | $ 4.97 |
| Mr. Luis Zavala [Member] | |
| Subsequent Event [Line Items] | |
| Number of shares granted | 90,000 |
| Exercise price per share (in dollars per share) | $ / shares | $ 4.97 |
| Mr. Arthur D. Sams [Member] | |
| Subsequent Event [Line Items] | |
| Number of shares granted | 150,000 |
| Exercise price per share (in dollars per share) | $ / shares | $ 5.47 |
| Executive Officer [Member] | |
| Subsequent Event [Line Items] | |
| Number of shares granted | 330,000 |
| Expiration period | 10 years |
| Description vesting rights | Vest as to one-third of the shares as the first, second and third annual anniversaries of the date of grant. |