Polar Power, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020, compared with FY2019. This is an annual filing; the supplied filing text does not provide a separate Q4 income statement.
Business context
Polar Power designs and manufactures DC power generators and hybrid systems, primarily for telecommunications backup and off-grid power. Telecommunications generated 96% of net sales in both years. The business was heavily exposed to three telecom customers, which together accounted for 81% of 2020 sales, versus 91% in 2019.
Financial performance and liquidity
Amounts below are in millions of dollars unless noted.
| Metric | FY2020 | FY2019 |
|---|---|---|
| Net sales | $9.031 | $24.801 |
| Gross profit (loss) | ($5.623); gross margin (62.2%) | $4.919; gross margin 19.8% |
| Operating expenses | $7.341 | $8.901 |
| Operating loss | ($12.964) | ($3.982) |
| Net loss | ($10.871); $1.01 per diluted share | ($4.045); $0.40 per diluted share |
| Cash used in operating activities | ($6.548) | ($2.167) |
| Cash and cash equivalents at year-end | $1.646 | $2.840 |
| Working capital at year-end | $10.123 | $16.433 |
- Sales fell 64%. Management attributed the decline mainly to U.S. Tier-1 carriers shifting spending toward 5G deployment and COVID-related customer delays.
- Cost of sales included a $3.4 million inventory write-down, compared with $0.27 million in 2019. Lower factory utilization and sales discounts also pressured gross margin.
- International sales increased to $1.522 million from $0.230 million; over 88% of 2020 international sales were to one customer in Japan.
- Year-end inventory was $9.094 million, down from $13.912 million. Accounts receivable were $1.190 million.
- Year-end notes payable were $0.777 million and the PPP loan was $1.715 million. The revolving credit facility had no amount outstanding and $1.070 million available. Operating lease liabilities were $1.660 million.
- Financing cash flow was $5.373 million, including $1.715 million of PPP proceeds, $2.812 million net proceeds from a private placement, and $1.174 million from warrant exercises.
Outlook, commentary, and risks
- Management expected 2021 sales to improve as telecom customers resumed backup-power programs, COVID disruptions eased, and new customers and products contributed. It anticipated a return to pre-2020 historical sales levels, but this was an expectation, not a quantified forecast.
- Backlog was $4.239 million at year-end; management expected most to ship within six months, while cautioning that orders might not be fulfilled on time or recognized as revenue.
- Management stated that cash on hand and subsequent financing were expected to fund operations for at least twelve months. After year-end, the company received approximately $0.707 million from warrant exercises and approximately $12.5 million net from a February 2021 public offering.
- The company reported a $2.139 million income-tax benefit related to CARES Act NOL carrybacks; the related tax receivable included provisional amounts.
- Key risks include continued losses and negative operating cash flow, customer and telecom-market concentration, uncertain demand and lengthy sales cycles, inventory valuation, supply and component costs, and dependence on key engine suppliers. Management noted that further inventory valuation adjustments could be material.
- The company reported no material pending legal proceedings. The independent auditor issued an unqualified opinion on the financial statements; management concluded internal control over financial reporting was effective, without auditor attestation.
Important facts for investors to verify
- Whether the $4.239 million backlog converted to shipments and revenue, and whether telecom customers resumed backup-power purchasing.
- Inventory recoverability and any subsequent write-downs, given the 2020 charge and management’s ongoing evaluation.
- Cash burn, the use of 2021 offering proceeds, and the company’s ability to sustain operations without additional financing.
- Progress in reducing customer concentration and commercializing natural-gas, hybrid, solar, and non-telecom products.
- PPP loan forgiveness status and the realization and timing of the tax receivable.