Polar Power, Inc. 10-K

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information Shares of our common stock trade on The Nasdaq Capital Market under the symbol “POLA.” As of March 31, 2022, we had 12,788,203 shares of common stock outstanding held of record by approximately 10 stockholders. These holders of record include depositories that hold shares of stock for brokerage firms which, in turn, hold shares of stock for numerous beneficial owners. Recent Sales of Unregistered Securities None. Item 6. [RESERVED]. Item 7. Management 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 Annual Report on Form 10-K. 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 Annual Report on Form 10-K. 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. 34 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 years ended December 31, 2021 and 2020, 89% and 96%, respectively, of our total net sales were within the telecommunications market. In 2021, we had 67% of our total net sales derived from our largest customer, which is a Tier-1 telecommunications customer in the U.S. In 2020, our three largest customers represented 52%, 15%, and 14% of our total net sales, respectively, two being telecommunications customers in the U.S. and one being a telecommunications customer outside the U.S. There was no other revenue from customers in excess of 10% of total net sales in either period. During those periods, the majority of our sales were of our DC base powers systems. During 2021 and 2020, sales to international customers accounted for 8% and 17% of total revenue, respectively. Military sales are growing and adding to our customer diversification. During the years ended December 31, 2021 and 2020, military customers accounted for 6% and 1% of total net sales, respectively. 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 2021 and 2020, represented 7% and 2% of total net sales, of which 66% and 79% are included in net sales to military customers, respectively. Our backlog as of December 31, 2021 includes $3.2 million in orders for DC power systems from a single customer in United States for use to charge stored batteries within a commercial vehicle while providing energy to operate appliances installed in the vehicle. 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 markets, we offer the following three configurations of our DC power systems, with output power ranging from 5 kW to 50 kW: ● DC base power systems . These 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. 35 Critical Accounting Policies We believe that the following critical accounting policies, among others, affect our more significant judgment and estimates used in the preparation of our financial statements: Revenue Recognition. We recognize revenue in accordance with Financial Accounting Standards Board Accounting Standards Codification 606, Revenue from Contracts with Customers (“ASC 606”). ASC 606 requires entities to recognize revenue through the application of a five-step model, which includes: identification of the contract; identification of the performance obligations; determination of the transaction price; allocation of the transaction price to the performance obligations; and recognition of revenue as the entity satisfies the performance obligations. Substantially all of our revenue is derived from product sales. Product revenue is recognized when performance obligations under the terms of a contract are satisfied, which occurs for us 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. We determine 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 we place the product with the customer’s carrier or deliver the product to a customer’s location. We regularly review our customers’ financial positions to ensure that collectability is reasonably assured. Warranty Costs . We provide limited warranties for parts and labor at no cost to our customers within a specified time period after the sale. Our standard warranty on new products is two years from the date of delivery to the customer. We offer a limited extended warranty of up to five years on our certified DC power systems based on application and usage. Our warranties are of an assurance-type and come standard with all of our 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. We estimate the actual historical warranty claims coupled with an analysis of unfulfilled claims to record a liability for specific warranty purposes. Inventory . Inventories are stated at the lower of cost or net realizable value, with cost determined on a first-in, first-out (“FIFO”) basis. We record adjustments to our 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 subsequently written up. 36 Stock-Based Compensation. We periodically issue 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 we 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. Effects of Inflation The impact of inflation and changing prices during 2021 has not been significant on the financial condition or results of operations of our company. Recent geopolitical factors and rapid changes in the global economy may cause significant spikes in inflation which may have an impact in our financial condition during 2022 and beyond. Because some of our contracts are at a fixed price, we face the risk that cost overruns or inflation may exceed, erode or eliminate our expected profit margin, or cause us to record a loss on certain projects. We are taking actions to manage the potential impacts of these matters and we will continue to assess the actual and expected impacts and the need for further action. 37 Impact of Recent Accounting Pronouncements See “Note 1 – Organization and Summary of Significant Accounting Policies – Recent Accounting Pronouncements” of the Notes to Financial Statements commencing on page F-7 of this Annual Report on Form 10-K for management’s discussion as to the impact of recent accounting pronouncements. Financial Performance Summary – Year Ended December 31, 2021 Our net sales for the year ended December 31, 2021, were $16,896, as compared to $9,031 for the year ended December 31, 2020. We reported a net loss of $1,414 for 2021, as compared to net loss of $10,871 for 2020. We believe this increase in revenues is primarily due to our Tier-1 telecommunications customers increasing their investments in back-up power generators primarily to support expansion of their 5G network infrastructure. We also believe a reduction of COVID-19 safety restrictions and increasing vaccinations have improved our customers’ ability to deploy new systems. During 2021, our international sales were $1,278, as compared to $1,522 during 2020. Our sales backlog as of December 31, 2021, was $11,807, with 72% of that amount being attributable to our largest U.S. telecommunications customer, 27 % represented purchase orders for advanced mobility applications, and 1 % represented purchase orders to customer in other markets. The recent increase in our backlog is as a result of U.S. Tier-1 wireless carriers increasing their orders of our DC backup power systems. In September 2021, we received notice from Citibank that our request for forgiveness of the Paycheck Protection Program (PPP) loan was approved. Our PPP loan was forgiven and we recognized a non-cash gain of $1.7 million within Other income (expense) on the statement of operations for the year ended December 31, 2021. We plan to continue to expand our customer base in all market segments. We also anticipate that our sales will increase as the global economy recovers from the impact of the COVID-19 pandemic. However, the full impact on our financial and operating performance of the COVID-19 pandemic along with recent geopolitical factors and increasing inflation concerns will depend significantly on the duration and severity of these factors, the actions taken to mitigate their impact, disruption to our supply chain, and the pace with which our clients return to more normalized purchasing behavior, among others factors beyond our knowledge or control. See “Risk Factors” commencing on page 16 of this Annual Report on Form 10-K for additional considerations. 38 Results of Operations The tables presented below, which compare our results of operations from one period to another, present the results for each period, the change in those results from one period to another in both dollars and percentage change, and the results for each period as a percentage of net revenues. The columns present the following: ● The first two data columns in each table show the absolute results for each period presented. ● The columns entitled “Dollar Variance” and “Percentage Variance” shows the change in results, both in dollars and percentages. These two columns show favorable changes as a positive and unfavorable changes as negative. For example, when our net revenues increase from one period to the next, that change is shown as a positive number in both columns. Conversely, when expenses increase from one period to the next, that change is shown as a negative in both columns. ● The last two columns in each table show the results for each period as a percentage of net revenues. Comparison of the Years Ended December 31, 2021 and 2020 (in thousands) Year Ended December 31, Dollar Variance Percentage Variance Results as a Percentage of Net Revenues for the Year Ended December 31, Favorable Favorable 2021 2020 (Unfavorable) (Unfavorable) 2021 2020 Net sales $ 16,896 $ 9,031 $ 7,865 87 % 100.0 % 100.0 % Cost of sales 13,451 14,654 1,203 8 % 79.6 % 162.2 % Gross profit (loss) 3,445 (5,623 ) 9,068 161 % 20.4 % (62.2 )% Sales and marketing expenses 1,488 1,556 68 4 % 8.8 % 17.2 % Research and development expenses 1,986 1,723 (263 ) (15 )% 11.8 % 19.1 % General and administrative expenses 3,069 4,062 993 24 % 18.2 % 45.0 % Total operating expenses 6,543 7,341 798 11 % 38.7 % 81.3 % Loss from operations (3,098 ) (12,964 ) 9,866 76 % (18.3 )% (143.5 )% Interest and finance costs (60 ) (60 ) — — % (0.4 )% (0.7 )% Gain from PPP loan forgiveness 1,715 — 1,715 — 10.1 % — Other income (expense), net 29 14 15 107 % 0.2 % 0.2 % Loss before income taxes (1,414 ) (13,010 ) 11,596 89 % (8.4 )% (144.1 )% Income tax benefit — (2,139 ) (2,139 ) (100 )% — (23.7 )% Net loss $ (1,414 ) $ (10,871 ) $ 9,457 87 % (8.4 )% (120.4 )% 39 Net Sales. Net sales increased by $7,865, or 87%, to $16,896 for the year ended December 31, 2021, as compared to $9,031 for the year ended December 31, 2020. The increase was primarily due to an increase in sales of our DC power systems to U.S. Tier-1 telecommunications customers. U.S. Tier-1 telecommunications customers accounted for 70% of our total net sales during 2021, as compared to 62% of total net sales in 2020. Our revenue from telecommunications customers, U.S. and international, accounted for 89% of total net sales during 2021 and 96% of total net sales during 2020. Our largest customer during 2021 is in the telecommunications industry and accounted for 67% of total net sales for 2021, as compared to our three largest customers in 2020, also customers in the telecommunications industry, each accounting for 52%, 15%, and 14 of total net sales. There was no other revenue from customers in excess of 10% of total net sales in either period. Net sales to international customers in 2021 and 2020, represented 8% and 17% of total net sales, respectively. We believe the increase in revenues during 2021 is primarily due to our Tier-1 telecommunications customers increasing their investments in back-up power generators primarily to support expansion of their 5G network infrastructure. We also believe a reduction of COVID-19 safety restrictions and increasing vaccinations have improved our customers’ ability to deploy new systems. Cost of Sales . Cost of sales decreased by $1,203, or 8%, to $13,451 during 2021, compared to $14,654 during 2020. Cost of sales as a percentage of net sales decreased from 162.2% in 2020 to 79.6% in 2021 as a result of improved labor efficiencies and increased absorption of manufacturing overhead resulting from higher volume in net sales in 2021. We were able to capitalize on inherent manufacturing efficiencies resulting from larger production volumes to meet delivery commitments. In 2020, an inventory reserve of $3,400 has been recorded in cost of sales. Our cost of sales for 2021 includes a $1,300 credit to salaries and benefits expense related to the Employee Retention Credit (“ERC”), a refundable tax credit recorded in accounts receivable. The ERC assisted business owners and their employees by providing an incentive to keep workers on the payroll and eligible businesses received a tax credit for a percentage of each eligible employee’s wage. Gross Profit (Loss) . We recognized a gross profit of $3,445 during 2021, as compared to a gross loss of $5,623 during 2020, which represents an increase in gross profit of $9,068 or 161%. Gross profit as a percentage of net sales increased to 20.4% in 2021, as compared to (62.2)% in 2020. The increase in gross profit as a percentage of net sales during 2021 was primarily due an 87% increase in net sales in 2021 while keeping cost of sales relatively flat to 2020 levels resulting from improved labor efficiencies and increased absorption of manufacturing overhead. In addition, gross profit includes a $1,300 credit to salaries and benefits expense related to the ERC as explained in cost of sales. Sales and Marketing Expenses. Sales and marketing expenses decreased $68 to $1,488 during 2021, as compared to $1,556 during 2020. The decrease was attributable to a slight decrease in fringe benefits expense during 2021 as compared the same period in 2020. The reduction in fringe benefits provided for an increase in marketing and tradeshow activities for our DC power systems as part of our ongoing strategy to expand our customer base. 40 Research and Development Expenses. During 2021, research and development expenses increased by $263 to $1,986, as compared to $1,723 during 2020. The increase in 2021 is attributed to an increase in engineering staff and increased investments in several research and development projects, including customized designs for advanced mobility power applications and for our natural gas/LPG product lines of generators and hybrid power systems which included our new 20 to 30 kW generator based on a larger Toyota engine. General and Administrative Expenses . Our general and administrative expenses decreased by $993 to $3,069 during 2021, as compared to $4,062 during 2020. The decrease was primarily due to a decrease in in legal and consulting fees in 2021 when compared to 2020. In 2020, we incurred $248 in legal and brokerage fees related to a private placement equity raise and $77 in loan origination expenses related to our credit facility with Pinnacle Bank. Our general and administrative expenses for 2021 includes a $700 credit to salaries and benefits expense related to the ERC, a refundable tax credit recorded in accounts receivable. The ERC assisted business owners and their employees by providing an incentive to keep workers on the payroll and eligible businesses received a tax credit for a percentage of each eligible employee’s wage. Interest and Finance Costs. Our interest expense was $60 in 2021, as compared to $60 in 2020. In 2021, our equipment financing expense decreased by $14, bank fees related to our line of credit with Pinnacle Bank increased by $25, and bank fees from the Citibank Supplier Agreement decreased by $11 in 2021 as a result of closing this account mid-year. Gain from PPP Loan Forgiveness . In September 2021, we recognized a non-cash gain of $1,715 within Other income (expense) on the consolidated statement of operations on the forgiveness of our PPP loan. Other Income (Expense), Net. During 2021, other income was $29, as compared to $14 during 2020, an increase of $15. The increase was primarily attributable to refunds of general liability insurance paid during 2020. Income Tax Benefit . During 2021, we did not recognize any benefit from income taxes. In 2020, we recognized a benefit from income taxes of $2,139 attributable to refundable federal and state income taxes. Net Loss. As a result of the factors identified above, we generated a net loss of $1,414 for 2021, as compared to net loss of $10,871 for 2020, a decrease loss of $9,457. The decrease in net loss is primarily attributed to an increase in net sales of our of DC power systems to US telecommunications customers and lower cost of sales as a percentage of total net sales resulting from improved labor efficiencies and increased absorption of manufacturing overhead in 2021. Liquidity and Capital Resources Sources of Liquidity During the year ended December 31, 2021, we funded our operations primarily from cash on hand. These funds were also used to increase our engineering staff and inventory to support research and development projects and the launch of our new line of LPG / natural gas generators. As of December 31, 2021, we had working capital of $21,760, as compared to working capital of $10,123 at December 31, 2020. This $11,637 increase in working capital is primarily attributable to a $3,455 increase in cash and cash equivalents resulting from net cash of $9,380 used in operating activities, net cash used in investing activities of $71 from the acquisition of new property and equipment, and net cash from financing activities of $12,906 which includes net proceeds of $12,466 from closing an underwritten public offering of 750,000 shares of common stock in February 2021. In addition, we received net proceeds of $707 from the exercise of certain of our common stock warrants. On December 31, 2021, and December 31, 2020, our net trade receivables totaled $4,243 and $1,190, respectively. On December 31, 2021, $3,131 (74%) and $624 (15%) represented the two largest open customer account balances, while $1,041 (87%) and $53 (5%) represented the two largest open customer account balances on December 31, 2020. At December 31, 2021, we recognized $2,000 related to the ERC for salaries and benefits expenses incurred during 2021 resulting in a refundable tax credit. The ERC assist business owners and their employees by providing an incentive to keep workers on the payroll and eligible businesses received a tax credit for a percentage of each eligible employee’s wage. Our available capital resources on December 31, 2021, consisted primarily of $5,101 in cash and cash equivalents, as compared to $1,646 as of December 31, 2020. We expect our future capital resources will consist primarily of cash on hand, cash generated by operations, if any, drawdowns on our credit facility with Pinnacle Bank and future debt or equity financings, if any. 41 Credit Facility Effective September 30, 2020, we entered into a Loan and Security Agreement, or Loan Agreement, with Pinnacle. The Loan Agreement provides for a revolving credit facility under which Pinnacle may, in its sole discretion upon our request, make advances to us in an amount, subject to certain limitations and adjustments, of up to (a) 85% of the aggregate net face amount of our accounts receivable and other contract rights and receivables, plus (b) the lesser of (i) 35% of the lower of cost or wholesale market value of certain of our inventory or (ii) $2,500. In no event will the aggregate amount of the outstanding advances under the revolving credit facility be greater than $4,000. Interest accrues on the daily balance at a rate of 1.25% above the prime rate, or the Standard Interest Rate, but in no event will the Standard Interest Rate be less than 3.75% per annum. Interest on the portion of the daily balance consisting of advances against inventory accrues interest at a rate of 2.25% above the prime rate per annum, or the Inventory Interest Rate, but in no event will the Inventory Interest Rate be less than 4.75% per annum. The Loan Agreement also contains a financial covenant requiring us to attain an effective tangible net worth, defined as our total assets, excluding all intangible assets, less our total liabilities plus loans to us from our officers, stockholders or employees that have been subordinated to our obligations to Pinnacle, greater than $6,000 as determined by Pinnacle as of the end of each fiscal quarter. We did not have an outstanding balance under the Loan Agreement at December 31, 2021, and 2020. As of December 31, 2021, we had availability under the Loan Agreement of $2,943 and we believe that we are in compliance with the terms and conditions of the Loan Agreement. Paycheck Protection Program Loan On May 4, 2020, we entered into a loan with Citibank, N.A. in an aggregate principal amount of $1,715, or the PPP Loan, pursuant to the Paycheck Protection Program, or the PPP, under the Coronavirus Aid, Relief and Economic Security Act, or the 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. We filed our application for a full loan forgiveness to Citibank on July 30, 2021 and the application is under the bank’s review. Interest accrues during the time between the disbursement of the PPP Loan and SBA remittance of the forgiveness amount. We are 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 us at any time prior to maturity with no prepayment penalties. We 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 loan forgiveness in the amount of $1,715. As a result, we recognized a non-cash gain of $1,715 within Other income (expense) on the statement of operations. 42 Cash Flow The following table sets forth the significant sources and uses of cash for the periods set forth below (in thousands): Year Ended December 31, 2021 2020 Net Cash Provided By (Used In): Operating Activities $ (9,380 ) $ (6,548 ) Investing Activities $ (71 ) $ (19 ) Financing Activities $ 12,906 $ 5,373 Net increase (decrease) in cash $ 3,455 $ (1,194 ) Operating Activities Net cash used in operating activities for 2021 was $9,380, as compared to $6,458 for the same period in 2020. This increase in net cash used in 2021 was primarily due to a net loss of $1,414, an increase in accounts receivable of $3,053, recognition of employee retention credit receivable of $2,000, an increase in prepaid expenses of $3,648 primarily for Toyota engines, a gain on the forgiveness of PPP loan payable of $1,715, offset with a decrease in income tax receivable of $1,570. At December 31, 2021, we recognized $2.0 million related to the ERC for salaries and benefits expenses incurred during 2021 resulting in a refundable tax credit. Of this amount, cost of sales was reduced by $1.3 million as a result of the ERC, and general & administrative expenses was reduced by $0.7 million as a result of the ERC. The ERC assist business owners and their employees by providing an incentive to keep workers on the payroll and eligible businesses received a tax credit for a percentage of each eligible employee’s wage. Investing Activities Net cash used in investing activities for 2021 totaled $71, as compared to $19 for 2020, an increase of $52. The net cash used in investing activities in 2020 was attributable to a slight increase in new manufacturing equipment. Financing Activities Net cash provided by financing activities totaled $12,906 for 2021, as compared to $5,373 provided by financing activities during 2020, an increase of $7,533. This increase was primarily due to the issuance and sale of 750,000 shares of our common stock in a firm commitment underwritten public offering on February 10, 2021. We received net proceeds of approximately $12,466 from the sale of the shares after deducting underwriting discounts and commissions and other offering expenses payable by us. In addition, we received net proceeds of $707 from the exercise of common stock warrants issued in our July 2020 private placement. 43 Backlog As of December 31, 2021, we had a backlog of $11,800. The amount of backlog represents revenue that we anticipate recognizing in the future, as evidenced by purchase orders and other purchase commitments received from customers, but on which work has not yet been initiated or with respect to which work is currently in progress. Backlog at December 31, 2021, was comprised of the following elements: 72% in purchases of DC power systems by telecommunications customers in the U.S., 27% in purchases by our advanced mobility customer for commercial vehicles, and 1% in purchases customers in other markets. Due to overall shortage of commodities worldwide caused by COVID, our largest customers have placed orders with delivery dates up to nine months in the future. We believe this provides us better control on operational efficiencies and inventory management. We believe the majority of our backlog will be shipped within the next twelve months. However, there can be no assurance that we will be successful in fulfilling such orders and commitments in a timely manner or that we will ultimately recognize as revenue the amounts reflected in our backlog. Item 7A. Quantitative and Qualitative Disclosures About Market Risk. Not applicable. Item 8. Financial Statements and Supplementary Data. Reference is made to the financial statements, which begin at page F-1 of this Annual Report on Form 10-K. Item 9. Changes in and Disagreements with Accountants on Accounting and Finance Disclosure. None.