Polar Power, Inc. — 2018 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2018. This is an annual report; the supplied filing text does not provide separate fourth-quarter results.
Business context
Polar Power designs and manufactures direct-current power systems, primarily for telecommunications backup and off-grid applications, with additional military and other markets. Sales are concentrated in DC base power systems and a small group of U.S. Tier-1 wireless carriers. The company began shipping to T-Mobile in 2018 and opened a second 29,000-square-foot manufacturing facility.
Financial performance and liquidity
| Metric | 2018 | 2017 |
|---|---|---|
| Net sales | $24.05 million | $14.42 million |
| Gross profit / margin | $7.43 million / 30.9% | $4.76 million / 33.0% |
| Operating loss | $1.10 million | $0.80 million |
| Net loss | $848,252 | $757,416 |
| Net loss per share | $0.08 | $0.07 |
| Cash used in operating activities | $7.85 million | $1.59 million |
| Cash used in investing activities | $575,000 | $342,000 |
Revenue increased 67%, while the net loss widened by approximately $91,000. Gross margin declined as volume discounts and production ramp-up inefficiencies offset higher sales; management also cited tariff-related material costs. Operating expenses rose 53%, including increased sales and marketing, R&D, and administrative costs.
At year-end, cash and cash equivalents were $5.64 million, including $1.00 million of restricted cash; working capital was $21.09 million. Trade receivables were $7.73 million and inventory was $8.47 million. Equipment notes payable totaled $1.21 million, with approximately $29,000 in monthly principal and interest payments due through 2023. A $1.00 million revolving facility was undrawn and secured by restricted cash. The filing says management believed available resources would fund operations and capital needs for at least 12 months.
Material changes and notable items
- Telecommunications generated 90% of 2018 sales, compared with 88% in 2017. The three largest customers accounted for 85%: AT&T 53%, T-Mobile 22%, and Verizon Wireless 10%.
- International sales increased to 6% of revenue from 2%. Military sales were about 6% of revenue.
- Operating cash use increased substantially, mainly due to a $4.67 million increase in receivables and a $2.98 million increase in inventory as sales expanded.
- Backlog was approximately $15.97 million at year-end, 92% telecommunications, 4% military, and 4% other; management expected most to ship within six months, without assuring fulfillment or revenue recognition.
- The company recorded a $215,000 income tax benefit. It received approximately $500,000 of refundable federal taxes in March 2019.
- R&D expense rose to $1.91 million. 2018 development included a 20 kW gas generator, a next-generation battery management system, and a lightweight military system for the SMET program. Stock-based compensation expense was $327,471.
Outlook, risks and contingencies
Management planned to continue expanding U.S. and international telecommunications sales, diversify its customer base, and develop natural-gas/LPG and solar-hybrid offerings. It expected to launch a new gas product line in the third quarter of 2019 and anticipated possible SMET production orders following field tests. These are forward-looking plans, not assured outcomes. Management also planned to seek a larger revolving credit facility.
Key risks include dependence on a few carrier customers and purchase orders without long-term volume commitments; concentrated receivables; cash consumption to support working capital and growth; production ramp-up and margin execution; supplier and component availability and cost; and competition. Management reported effective disclosure controls and internal control over financial reporting as of year-end. The independent auditor issued an unqualified opinion on the financial statements but did not attest to internal control effectiveness. No material legal proceedings were reported.
Important facts for investors to verify
- Whether the $15.97 million backlog shipped on schedule and converted to recognized revenue and cash.
- Whether receivables and inventory growth moderated and operating cash outflow improved.
- Whether production efficiencies and gross margins recovered after the 2018 ramp-up.
- Whether carrier concentration declined and international, military, and hybrid-system sales scaled successfully.
- Whether the company obtained additional financing and maintained adequate liquidity while meeting debt and capital needs.