Polar Power, Inc. 10-K

Item 1. Business 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, marine and industrial. We are continuously diversifying our customer base and are selling our products into non-telecommunication markets and applications at an increasing rate. The changes in customer diversity are reported in the financial section. Within the various markets we service, 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 and mobile applications) or have critical power needs and cannot be without power in the event of utility grid failure (i.e., back-up power applications). We believe it’s more efficient to build power systems around the DC generator because it’s simpler to integrate with battery storage and solar photovoltaics which also operate on DC. Many applications in communications, water pumping, lighting, vehicle and vessel propulsion, security systems operate on DC power only. Many micro-grids and energy storage are DC based and use inverters to convert the DC to AC. Serving these various markets, we offer the following configurations of our DC power systems, with output power ranging from 5 kW to 50 kW: ● Base power systems . These stationary systems integrate a DC generator and automated controls with remote monitoring, which are typically contained within an environmentally regulated enclosure. ● 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 stationary systems incorporate photovoltaic and other sources of renewable energy into our DC hybrid power systems. ● Mobile power systems. These are very light weight and compact power systems used for EV charging, robotics, communications, security. Our DC power systems are available in diesel, natural gas, LPG / propane and renewable fuel formats, with diesel, natural gas and propane gas being the predominant formats. We were incorporated in 1979 in the State of Washington as Polar Products, Inc., and in 1991 we reincorporated in the State of California under the name Polar Power, Inc. In December 2016, Polar Power, Inc. reincorporated in the State of Delaware. Our internet website address is https://polarpower.com/ . Recent Developments On November 24, 2023, the Company received a deficiency letter from the Listing Qualifications Department of The Nasdaq Stock Market (“Nasdaq”) indicating that the Company’s common stock is subject to potential delisting from the Nasdaq because for a period of 30 consecutive business days, the bid price of the Company’s common stock has closed below the minimum $1.00 per share requirement for continued inclusion under Nasdaq Marketplace Rule 5550(a)(2) (the “Bid Price Rule”). The Nasdaq deficiency letter has no immediate effect on the listing of the Company’s common stock, and its common stock continues to trade on The Nasdaq Capital Market under the symbol “POLA” at this time. The Nasdaq notice indicated that, in accordance with Nasdaq Marketplace Rule 5810(c)(3)(A), the Company will be provided 180 calendar days, or until May 22, 2024, to regain compliance. If, at any time before May 22, 2024, the bid price of the Company’s common stock closes at $1.00 per share or more for a minimum of 10 consecutive business days, Nasdaq staff will provide written notification that it has achieved compliance with the Bid Price Rule. If the Company fails to regain compliance with the Bid Price Rule before May 22, 2024 but meets all of the other applicable standards for initial listing on The Nasdaq Capital Market with the exception of the minimum bid price, then the Company may be eligible to have an additional 180 calendar days, or until November 18, 2024, to regain compliance with the Bid Price Rule. If the Company does not regain compliance with the Bid Price Rule by the end of the compliance period (or the second compliance period, if applicable), the Company’s common stock will become subject to delisting. In the event that the Company receives notice that its common stock is being delisted, the Nasdaq listing rules permit the Company to appeal a delisting determination by Nasdaq to a hearings panel. On November 30, 2023, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with ThinkEquity LLC, as the representative (the “Representative”) of the several underwriters named therein (collectively, the “Underwriters”), pursuant to which the Company sold to the Underwriters an aggregate of 4,000,000 shares (the “Shares”) of the Company’s common stock, $0.0001 par value per share, at a price to the public of $0.40 per share, in a firm commitment underwritten public offering (the “Offering”). The Company also granted the Underwriters an option exercisable for 45 days from the date of the Underwriting Agreement to purchase up to an additional 600,000 shares of common stock (or pre-funded warrants in lieu thereof) solely for the purpose of covering over-allotments. The Representative exercised the over-allotment option in full on December 4, 2023, to purchase an additional 600,000 shares of common stock (the “Over-Allotment Exercise’). The Offering and closing on the Over-Allotment Exercise closed concurrently on December 5, 2023. The Offering was made pursuant to an effective registration statement on Form S-3 (Registration No. 333-252196) and a related prospectus and prospectus supplement, in each case filed with the Securities and Exchange Commission. On December 18, 2023, Peter Gross, a member of the Board of Directors of the Company, resigned as a member of the Board of Directors of the Company (the “Board”). Mr. Gross, an independent director, served as a member of the audit committee, chair of the compensation committee and chair of the nominating and corporate governance committee of the Board at the time of his resignation. On January 5, 2024, the Company received a notification letter from Nasdaq that due to Mr. Gross’ resignation, the Company is no longer in compliance with Nasdaq Listing Rule 5605. Pursuant to Nasdaq Listing Rule 5605(c)(4), the Company is entitled to a cure period to regain compliance (i) until the earlier of the Company’s next annual shareholders’ meeting or December 18, 2024; or (ii) if the next annual shareholders’ meeting is held before June 17, 2024, then the Company must evidence compliance no later than June 17, 2024. The Company intends to appoint an additional independent director to the Board and the committees prior to the end of the cure periods. 1 Recent Business Events The COVID-19 pandemic, inflation, the impacts of war and other recent geopolitical events have negatively impacted business and industries all over the world. These events have had a significant negative impact on our overall operations including revenues, productivity, gross margins, and liquidity. They have resulted in labor shortages, disruptions in the chain of supply, and higher material costs. They also resulted in unexpected challenges related to customer product or delivery requirements. During the second half of 2023, our largest telecommunications customer asked us to postpone deliveries towards the end of the year. As of December 31, 2023, approximately $2.0 million in DC power generators that were scheduled to ship in 2023 remained in our sales backlog. During 2022 and to a lesser extent in 2023, supply chain constraints affected timely delivery of raw materials required to complete our DC power systems. We believe that the aftermath of the pandemic, inflation, the impacts of war and other recent geopolitical events will be an ongoing challenge for years to come and to adapt will require us to further globalize our vendors, engineering, and customers. We continue to focus on expanding our market share into international markets as part of our diversification strategy. During 2023 and 2022, sales to customers in international markets represented 21% and 25% of our total net sales, respectively, as compared to 8% and 17% in 2021 and 2020, respectively. During 2022, we received purchase orders totaling $6.2 million from a telecommunications customer in the South Pacific Islands for our DC power generators for off-grid applications. We completed shipping this order to the South Pacific in 2023. This order is part of a growing program to develop broadband services in the South Pacific region. During 2023, 50% of our total net sales were derived from our largest customer, compared to 66% in 2022. During 2023, 3% of our total net sales were derived from customers in the military market, as compared to 1% in 2022. We believe military actions of the Russian Federation and its invasion of Ukraine and conflicts between Israel and Hamas have added considerable to our shipping costs due to diesel fuel costs. However, we believe the resulting geopolitical uncertainty should increase our military contracts. The implementation of 5G networks by Tier-1 telecommunication customers in the U.S. has also resulted in a significant increase in orders of our DC power systems. Approximately 75% of our net sales during 2023 were of our DC power systems to support 5G networks and 60% of our sales backlog as of December 31, 2023 are purchase orders of our of DC power systems to support 5G networks in the U.S. Our sales backlog as of December 31, 2023, was $3,862, with 56% of that amount being attributable to our largest U.S. telecommunications customer, 4% represented purchases from other telecommunications customers in the U.S., 31% represented purchases from telecommunications customers outside the U.S., 6% represented purchases from customers in the military markets, and 3% from marine and other markets. 2 For the three-year period prior to the pandemic, we experienced high double-digit sales growth which resulted in us making strategic investments to increase our production capacity to $50 million annual revenue through an increase in plant space and the addition of automation equipment. The unanticipated drop in sales during in the first three years after the pandemic caused a disproportionate distribution of fixed and semi-fixed overhead costs across much lower revenues. During 2023, our largest customer asked us to postpone deliveries of our DC power generators to 2024 resulting in a decrease in revenue and higher overhead cost. These delays in shipments, amongst others we have experienced since the pandemic, along with our addition of inventory to mitigate parts shortages on long-lead items, have resulted in elevated inventory levels. As of December 31, 2023, we have $16.5 million in inventory. We believe this inventory and our investments in state-of the-art equipment, additions to manufacturing plant space, and employee training will yield improvements in our gross margins and liquidity as sales volumes increase and as the economy normalizes from the impact of the pandemic and other known and unknown factors affecting the global economy. Going Concern The Company’s financial statements have been prepared under the assumption that the Company will continue as a going concern. For the year ended December 31, 2023, the Company recorded a net loss of $6,548 and used cash in operations of $3,430. These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year of the date that the financial statements are issued. In addition, the Company’s independent registered public accounting firm, in their report on the Company’s December 31, 2023, audited financial statements, raised substantial doubt about the Company’s ability to continue as a going concern. Our ability to continue as a going concern is dependent upon our ability to obtain additional financing, drive further operating efficiencies, reduce expenditures, and ultimately, create profitable operations Our ability to obtain additional financing in the debt and equity capital markets is subject to several factors, including market and economic conditions, our performance and investor sentiment with respect to us and our industry. The Company has taken action to improve its margins, and is continuing to build a strong back log, and expects to continue investing in product development and sales and marketing activities. In the event that the Company does not generate sufficient cash flows from operations and is unable to obtain funding, the Company will be forced to delay, reduce, or eliminate some or all of its discretionary spending, which could adversely affect the Company’s business prospects, ability to meet long-term liquidity needs or ability to continue operations. Markets We primarily operate within 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 and are selling our products into non-telecommunication markets and applications at an increasing rate. Telecommunications We provide power generation equipment for the telecommunications markets. Our equipment provides backup power to grid connected mobile tower sites during power outages resulting from severe weather like hurricanes, wildfires, and floods. Most telecommunications towers are equipped with battery backup for short term power outages. Our DC power generators are installed to address longer-term disruptions in power. We also deliver products that provide prime power for off-grid telecommunications tower sites installed in remote and rural areas where reliability of the power grid is suspect. Since 2012, the telecommunications market is our largest market segment and has contributed over 87% of our annual revenues. Since 2012, we developed products and configurations that target telecommunications applications with key features like high fuel efficiency, light weight and compact design when compared to our competitors’ products. These features allow our telecommunications customers to install equipment requiring a smaller footprint on building roof tops and compact commercial sites while also requiring less fuel storage due to the fuel efficiency of our products. In the past eight years, we have gained approval and certifications from four top Tier-1 telecommunications operators in the U.S. market. With over 90% of the world’s telecommunication towers located in non-U.S. territories, we decided to establish international sales offices in Poland, Romania, Australia, U.A.E., Dominican Republic and South Africa to provide long term growth. In 2017, we began investments into international markets and have recorded a steady increase in sales every year since. 3 In the U.S. market, over 95% of the telecommunications towers are connected to a power grid, thereby only requiring backup power generation in equipment in case of an emergency loss of power, while in the emerging markets of Africa and Asia, a significant percentage of telecommunications towers are not connected to the grid thereby requiring fuel-efficient prime power equipment to provide power by charging the batteries. Most prime power sites also require integration with solar and storage batteries to utilize renewable energy during the day while generators and batteries provide power during nights and/or on cloudy days. In the U.S., telecommunications companies have focused their efforts on adding generators to provide backup power at existing sites, while in the international market telecommunications companies are in expansion phase of adding new sites to the infrastructure to provide coverage in rural and remote areas. The advent of 5G technology has resulted in a digital revolution within both the commercial and consumer sectors leading to an exponential increase in data usage. We believe that the need for backup power equipment in the telecommunications services industry which consists of digital infrastructure (e.g., fiber, telecommunications towers, active networks and data centers), operators (e.g., mobile and fixed broadband, data centers and cloud computing) and applications (e.g., broadband connections, telephones, video streaming and e-commerce), holds promising growth opportunities as 5G use expands in the near and long term. Wireless network capabilities continue to expand far beyond smart phones and mobile devices. The 5G mobile network is converging connectivity, intelligent edge and Internet of Things (IoT) technologies resulting in an increase in telecommunications tower sites in both the U.S. and abroad. The 5G network delivers broadband-like services such as high-definition streaming video to a cell phone. Businesses benefit from using 5G for data monitoring and cloud-native 5G networks to compute and store data locally. All of these applications dramatically scale up data usage which requires an increase in infrastructure and an increase in power and backup generators. The pervasiveness of 5G, including reliance by users on, among other things, local weather, traffic conditions, self-driving vehicles, wearable health monitoring devices that automatically informs doctors, stores automatically ordering items sold on virtual carts, farmers automated irrigation system with tracking sensors, will require robust backup equipment at telecommunications sites. We believe higher data usage will require higher reliability backup systems that are fuel efficient and are located in proximity to the point of use. In urban environments, roof-top space, weight of the equipment and the amount of fuel storage are critical factors in the selection of backup equipment. As one of the leading providers of DC power generation equipment, we have demonstrated these benefits to telecommunications providers for decades and we are therefore encouraged with the prospect of infrastructure expansion in this space that requires fuel efficient and lower emission power generation equipment. Military Since 1979, we have been developing and marketing products to the U.S. military and large defense contractors in the U.S. and international markets. The need for light weight and compact DC power generation systems are vital for military operations and commonly used to charge storage batteries, provide backup emergency power, or provide startup power for aircrafts or weapon systems. During the past decade, digitization of the military accelerated exponentially to support modern information, communication, and weapon systems. The need to process information rapidly has led to digitization of command, control, communications, computers and intelligence across both combat support and service support. This expansion in data transfer and storage has led to an increase in energy needs, which requires efficient power generation equipment that can charge batteries or directly power these systems. 4 A digitized battlefield includes sensors, information processing, data distribution, electronic countermeasures, all requiring with few exceptions, DC power. Our DC generators designed for military applications provide: ● enhanced mobility, reliability and maintainability; ● improved fuel efficiency; ● reduced system size and weight; ● reduced infrared and acoustic signatures; ● increased survivability in rugged combat operations; and ● reduced total cost of ownership. In 2016, the military began the Advanced Medium Mobile Power Sources, or AMMPS, a U.S. Department of Defense program to develop and deliver 5 kW-50 kW output ranging generators in either a skid, trailer mounted, or microgrid configurations to replace legacy standalone AC generators. The new generation of mobile power generators combined with solar and wind power can function as sustainable sources of DC and AC power in remote areas. The new generation of AMMPS power systems are required to provide 21% higher fuel efficiency, lower noise, weight, 90% reliability and be capable of performing in extreme environments. During 2020, we directly and jointly partnered with defense contractors, provided DC hybrid power systems, with integrated controls providing higher fuel efficiency than legacy AC generators currently in use. Improvements in sensors, navigation and communication technologies have led to increased integration of situational awareness systems that allow all combat assets to communicate and coordinate both defensive and offensive efforts during combat. In earlier combat vehicle designs, these surveillance systems were powered by the main auxiliary vehicle battery, which required the vehicle’s main engine to continue operating to power auxiliary battery systems. A decade ago, we began delivering compact 3 kW – 15 kW DC power systems for communication and reconnaissance systems thereby improving fuel efficiency of the combat and vehicles when deployed. During the decade we have delivered several configurations of these auxiliary power units to the military, which vary in function from battery charging to supplying power to weapon systems. We are currently in the process of development of next-generation higher output power DC power system. After conclusion of the testing of this higher power DC power system, we plan to introduce a configuration of this product to the residential and commercial microgrid market in emerging markets. We believe 50 kW standalone DC power system, powered by natural gas or LPG would be ideal for rural communities in emerging markets such as Africa and Asia. The capacity of 50 kW is sufficiently large enough to power a small rural hospital, dairy farm and a cluster of houses in a small village. The ease of connecting our DC power system with solar, battery packs or any other source of energy like wind can introduce a sustainable cost-effective solution in emerging markets. The 50 kW generator can also provide roadside emergency charging services for electric vehicles. Electric Vehicle Charging According to Precedence Research, a market research company, the global electric vehicle market size accounted for USD 255.54 billion in 2023 and is expected to reach USD 2,108.80 billion by 2033, growing at a compound annual growth rate (CAGR) of 23.4% during the forecast period 2024 to 2033. The primary growth factors driven by significant number of government incentives such as tax rebates, subsidies, and grants. This increase will require a significant increase in charging stations globally to support the cumulative growth of electric vehicles. During 2023, the global electric vehicle charging station market size reached USD 34.59 billion and has a forecasted CAGR of 29.1% for the period of 2023 to 2032. A 2018 article by McKinsey & Company entitled “ The potential impact of electric vehicles on global energy systems ” stated that although a modest increase in electric vehicle sales of 5% will not lead to a shortage in electricity since most new capacity can be delivered by renewables like solar, wind, and gas-powered generation. This modest increase in sales may have a significant impact on peak loads, especially in concentration points of electric vehicle charging and during the evening peak times when most electric vehicle users connect their vehicles for charging. The report claims unmanaged peak load increases due to electric vehicle charging will require increases in costly sub-station upgrades. We believe that the more cost-effective option will be investing into battery storage at the utility level to manage the peak loads or flexible electricity costs for electric vehicle charging to discourage peak load charging. 5 Regardless of how the peak charging issue is resolved, most homes have not been designed to allow for fast charging of electric vehicles. In order to address this issue, we are in the process of upgrading our CHAdeMO chargers to CCS natural gas-powered electric vehicle charger and combined heat and power generators. Our electric vehicle chargers, being independent of the grid, are designed to fast charge connected electric vehicles at home while providing backup power during power outages. In addition, the heat generated while charging is captured and delivered to heat the home, heat water for laundry, or heat the pool. Our CHAdeMO style electric vehicle charger was initially designed in 2009 as a diesel-fueled mobile charger for EV manufacturers to aid in testing their vehicles in the field. We have supplied these mobile chargers to five of the leading automakers in the USA. We are presently improving this product using heavy duty 60,000-hour Toyota natural gas or propane engine. This product targets residential customers that own or are expected to own electric vehicles. With the anticipated stress on utility grids due to an increase in the number of electric vehicles that require charging, combined with the fact that most homes are unable to provide fast charging, we believe that an independent natural gas-powered electric vehicle charger would be ideal and cost effective. Currently, many electric vehicle owners exceed the base power usage at home resulting in peak hour usage penalties which diminishes anticipated cost savings of using electric vehicles. Our residential natural gas-powered EV charger eliminates these costs while also providing backup power in case of emergencies. The benefits of fast charging with a natural gas generator, as opposed to using the electric grid, includes avoids peak rate charges, a reduced carbon footprint and the opportunity to provide heating and air conditioning, through combined heat and power or CHP systems that utilize waste heat from the generator/charger which we believe is a compelling market opportunity for our new product. Residential and Commercial Power – Mini-Grid Increased use of electricity worldwide is directly related to humanity’s improvement in the quality of life. Increased global urbanization has resulted in many governments investing in power plants and providing infrastructure to satisfy the growing demand for electricity. Similar needs of the rural populations have been largely ignored worldwide due to the isolation, low density and population spread over vast areas resulting in an increased cost of infrastructure. Even in rural areas where the infrastructure was built to deliver electricity, frequent blackout and infrastructure failures are commonplace and often not repaired for long periods. According to recent World Bank data, approximately 733 million, 9%, of the world’s population still lack electricity compared to 25% in 1994. While 42% of the world’s population still lives in rural areas, about 12% of those living in rural areas lack electricity. Approximately 69% of the population living without electricity are in sub-Saharan Africa while approximately 29% are located in South Asia and 2% in other areas. During the past decade, developments in renewable energy and battery storage have provided an alternate method to resolve this energy inequity between rural and urban populations worldwide. However, due to weather and costs of such systems and technologies are still at an early stage of mass adoption. We envision a hybrid system with natural gas or LPG integrated with a solar and battery system to generate power during peaks and valleys of demand that we believe would be more cost effective and reliable than the current systems in place. These “Mini-Grid” hybrid systems would generate between 5kW – 25kW of power on 24/7 basis and provide electricity for a small housing unit, commercial facility or a school building. Our Mini-Grid system uses natural gas or LPG as primary fuel source, the same fuel as cooking fuel in rural and remote regions worldwide. For decades, many governments have been allocating resources to eliminate solid fuels like wood, solid waste as cooking fuels from rural and remote communities. Significant progress has been made by providing economic subsidies for use of natural gas or LPG as cooking fuel to reduce pollution. In 2017, we established sales offices near the emerging growth countries of Australia and U.A.E. setup to develop strategic alliances with distributors to promote our residential solutions to communities living in bad-grid and off-grid areas. 6 Our Competitive Strengths We have over a 40-year history and have developed a reputation as a proven supplier of reliable and advanced proprietary technology products to customers within the telecommunications, military, commercial, industrial and marine markets. We have invested significant capital and engineering expertise to develop power generation systems that are environmentally friendly and fuel-efficient. We further believe our success will be based on the following key competitive strengths: ● Proprietary Technologies. Our decades of research and development has led to the development of DC power systems with output ranging from 5 kW – 50 kW. Our DC power systems integrates our proprietary DC alternator with electronic controls to monitor and control the power being outputted to the equipment, which is then coupled to an engine assembly and cooling systems. Our DC power system output voltage can be configured between 12 V – 800 VDC to match the precise application needs (e.g., telecom equipment, robotic propulsion drives, electric drives for marine vessels, electric vehicle chargers, etc.). Over the past decades we have developed proprietary charge algorithms for most commercially available batteries and match charge algorithms to battery model or chemistry prior to initiating a charge cycle. Unlike AC power systems, our DC power systems are directly connected to the battery source and therefore optimized for efficiently and safely charging a particular battery chemistry. AC power systems are indirectly connected to commercially available battery chargers that convert the AC output to DC voltage making it less efficient, higher in cost, and require considerably more space. ● Engineering Expertise. Over the past four decades we have strategically constructed a product portfolio that focuses on improving energy efficiency by developing DC power output-based equipment where all major components and technologies are developed in-house, and proprietary manufacturing processes created in-house to ensure product reliability and long life. Our leading competitors approached the need for DC equipment in the telecom, military, and industrial markets by modifying legacy AC generators with conversion equipment resulting in significantly lower efficiency when compared to DC power systems. Being one of the first companies to develop DC generators for telecommunications, we developed proprietary components ranging from alternators, control systems and charging algorithms for various battery chemistries. We have focused on providing the lowest cost of ownership with demonstrated long life of our equipment during the past thirty years. Lowest cost of ownership is complemented with the best fuel economy, best in class weather resistance provided by aluminum enclosures and customized algorithms matching battery chemistries and operational profiles. ● Manufacturing Competitiveness. We believe that our vertical integration approach to manufacturing lowers our production costs and improves our overall operational efficiency. In addition, vertically integrated manufacturing of our proprietary technologies such as DC alternators, charge controls and battery management systems, provides us with a greater control and protection over our intellectual property. We believe our modular approach to manufacturing provides us with the lowest manufacturing costs for our proprietary technologies while giving us the ability to deliver customized solutions to our Tier-1 wireless telecommunications customers. ● Strong Customer Base. Our customer base consists of large telecommunications companies, military sub-contractors and industrial companies. Tier-1 telecommunications customers have represented 62% to 91% of our aggregated sales for the past five years. Initial demand of our products by telecommunications customers was primarily based on the need to provide backup power during electricity outages and for off grid remote locations. While our competitors provided and continue to provide legacy AC generators with DC conversion devices, we elected to invest significant time and capital in the research and development of products with a lowest cost of ownership. Certification of our products by Tier-1 telecommunications customers was time intensive and takes upwards of three years of field trials to receive final product acceptance. This thorough approach to vendor selection reduces the number of vendors selected by our telecommunications customers and has dramatically reduced the number of competitors in the U.S. markets. Currently, a significant percentage of our U.S. sales are to national Tier-1 telecommunications providers with multiple facilities. Since 2021, we increased our efforts to diversify our sales efforts to include Tier-2 telecommunications customers, off-grid remote area products and residential charging. In the international markets, our customers are regional Tier-1 telecommunications providers. We have established sales offices in emerging markets like U.A.E., Australia, Poland and the Dominican Republic. Our sales team directly markets to Tier-1 telecommunications companies in their regions. 7 ● Experienced Management Team. Our Chief Executive Officer and key engineers combined have over 100 years of engineering and production experience in the design and manufacturing of power systems. Our engineers have equipment design experience, as well as hands-on skills to build prototypes. A key factor demonstrating our management’s abilities and our engineering aptitude can be found in our successful track record over the last 40 years of executing research, design and engineering contracts. Business Strategy For the past three decades we have been promoting the use of DC power systems where DC power is the primary power in use. The telecommunications tower application is the largest user of DC power, in both grid and off-grid connected sites. Furthermore, we believe that the growth in wireless telecommunications infrastructure in the U.S. and international markets has led to a rapid rise in the need for DC backup power systems. With over 40 years of experience and reputation within the DC power systems market, we are working to increase awareness, availability and affordability of more efficient DC-based products as a backup power and charging sources within the telecommunications industry. Because of the increased power outages during emergencies and natural disasters, existing and new wireless installations need to be upgraded to provide reliable operations during times of emergency. The primary elements of our business strategy include: ● Further develop U.S. mobile telecommunications market. We continue to invest capital into our sales and marketing efforts to demonstrate our DC power systems to the top Tier-1 wireless telecommunications providers and more than 500 small wireless and cable operators in the U.S. Our goal is to further diversify our customer base. We believe the rapid transition towards 5G will result in an increase in demand for back-up power generators and that our new LPG / natural gas DC power systems will allow us to better compete on an economic basis with our competitors that provide AC power systems. ● Expand global sales to bad-grid or off-grid markets. The increase in telecommunications subscriber base in rural and remote areas in emerging countries has increased the deployment of telecommunications sites in off-grid and bad-grid areas. During 2023, approximately 75% of our DC power systems sales were to U.S. telecommunications customers, which we believe represents only 4.7% of the total global telecommunications market. We believe that the lack of a stable electric infrastructure in rural regions of many developing nations provides significant opportunity for our products in both off-grid and bad-grid location. During 2023, we demonstrated our products to several prospects in need of off-grid and/or bad-grid solutions which resulted in several initial orders. ● Further develop our new LPG and natural gas DC power systems. With the increased growth in off-grid and bad-grid telecommunications sites, emissions generated by telecommunications towers is beginning to be a major contributor of pollution and greenhouse gases. Since 2019, we have developed lower emission LPG and natural gas DC power generators for use in rural off-grid and bad-grid sites. We initiated this development by partnering with world’s largest natural gas engine manufacturer, Toyota Engines, located in Japan. Subsequently, we integrated engine control systems utilizing control technology from Bosch, located in Germany, and concluded by receiving certification from the EPA in December 2019 to sell our new product in all 50 states in the U.S. Upon certification, we began marketing this low emission natural gas solution to telecommunications customers worldwide and in the midst of the COVID-19 pandemic we secured several orders for natural gas configured backup and prime power applications. During 2020, we began shipments of our DC natural gas generators to several domestic and international Tier-1 telecommunications customers. In 2024, we plan to expand our sales and service network for our natural gas generators, targeting residential and telecommunications customers in the U.S. while also targeting Tier-1 telecommunications customers in emerging nations with solar hybrid natural gas generators for off-grid markets. 8 ● Expand renewable solar energy product offerings . Developing regions like Africa, South East Asia and Latin America lack an electric utility infrastructure to support the installation of grid connected telecommunications towers in remote areas. Due to these challenges, telecommunications companies are installing hybrid power generation systems that consist of solar panels, batteries and fossil fuel powered generators. Installing fuel inefficient generators combined with solar and batteries without any integration is proving to be cost prohibitive. Several local government programs to subsidize the adoption of solar and battery storage along with generators in off-grid telecommunications towers have failed due to lack of quality components and integration. We believe our hybrid systems using natural gas fuel powered generators integrated with solar and battery storage offer an ideal solution for this market. Our Technologies Starting in 1979, Polar began manufacturing and exporting solar PV vaccine refrigerator/freezers as part of the WHO Cold Chain projects. We developed solar refrigeration and air conditioning systems that operated directly with DC batteries, along with solar photovoltaic charge controls. Our DC power and refrigeration technologies drew the attention of various military projects. We manufactured packaged remote home power systems for Arizona Public Service who in turn provided them to remote customers. The use of remote home power systems drew our attention to the need for DC generator sets. In the early 1990’s, we began introducing DC generators to provide backup and prime power for off-grid and bad-grid applications. Our initial products were predominantly designed for military applications and used as auxiliary power for vehicles, battlefield tanks and radar sites. In the late 1990s, we introduced our DC power systems for commercial applications like mobile telecommunications towers, solar refrigerators and oil field applications. We introduced our 6200 PMHH alternator, which combines the attributes of homopolar alternator technology with a permanent magnet. When mounted on an engine and operated at either a fixed or variable speed, the model 6200 PMHH generates a precise amount of regulated voltage and current. The DC output can then be used to power electronics or charge batteries. We developed our own proprietary DC alternator to improve system efficiency, reduce costs and lower weight. Our design replaced a conventional 4-pole, three-phase designs with a light weight, low cost 12-pole incorporating either 6 or 3 phases. Another unique aspect of the design of our DC alternators is the elimination of bearings, internal wiring connections, and an exciter (i.e., a device which supplies the magnetizing current to generate working flux) to provide a longer life cycle than conventional motor designs in the marketplace. In 2006, we introduced our next generation 8000 Series alternators designed for higher power and voltage applications, which features our proprietary 32-pole permanent magnet alternator technology. The 8000 Series offers high efficiency at a lower cost while integrating our proprietary digital control system, Supra Controller™, that manages and optimizes alternator output. Our Supra Controller™ networks all components via CAN bus communications and software and has the ability to control, analyze, monitor, record and communicate all key system parameters to ensure efficiency, safety and reliability of the overall system. The ability to remotely monitor and calibrate each system parameter, receive system alarms and auto-reset the system when a fault is corrected are the key differentiating factors of our DC power systems. In telecommunications tower backup applications, backup generators are used to provide power during grid outages or to charge batteries to provide longer run times during emergencies. Due to battery costs and availability issues, many telecommunications providers are known to use various types of chemistries or capacities as storage sources. During the past decade, we have successfully integrated various battery chemistry charge algorithms into our Supra Controller™ software. In 2011, we added charge algorithms for various lithium battery chemistries and integrated our proprietary battery management system, or BMS, with our Supra Controller™ software. In 2013, we further expanded the integration of storage and renewable energy such as solar and wind into our Supra Controller™ software resulting in the shipment of twenty off-grid telecommunications tower power systems to Australia. 9 In 2017 and 2018, we demonstrated our DC hybrid power systems to telecommunications providers in South East Asia and Africa. We believe that the integration of renewable energy and storage batteries are ideal for off-grid remote locations in rural areas worldwide. During 2024, we plan to continue our research and development efforts to further enhance these integrations for remote telecommunications towers in South East Asia and Africa. In 2018, we developed our next generation BMS that enhances our current technology to more accurately measure, monitor, control and integrate battery performance data with our Supra Controller™. In addition, we enhanced the user interface to allow us the ability to update or develop new charging algorithms in the field which can be remotely programmed or uploaded. In 2018, we introduced our Toyota natural gas / propane engine across our product line. The Toyota product is a more advanced engine used in heat pump applications. We have negotiated a supply agreement with Toyota for the engine and with Bosch for the ignition control. In December 2019, we received our certificate of conformity from the EPA. These new generators provide power outputs between 5 kW to 15 kW and incorporate a 60,000- to 90,000-hour life engine with our proprietary control system. We are presently marketing these stationary generators within the telecommunications, commercial and residential markets. In 2021, we began development of a higher power natural gas-powered DC backup power system utilizing larger engines and improved emission control systems. The implementation of 5G networks by Tier-1 telecommunication customers currently have significantly higher power requirements at cell sites than the previous 4G networks. In addition, use of 5G technology in IoT, video streaming, and data analytics applications requires cell sites to be operational 100% of the time which, in turn, increases the demand for reliable and fuel-efficient power generation backup systems. We believe increased power usage of 5G networks and higher fuel prices enhances market opportunities for our fuel-efficient DC power systems as compared to lower efficiency AC power systems. In March 2022, we received our EPA certification on our 4Y Toyota engine, which is a larger engine model for used on our 20 to 30 kW DC power systems. We believe being an approved supplier for the three largest Tier-1 telecommunication providers in the U.S. provides us with additional growth opportunities during the current rapid 5G expansion in the largest urban centers in the U.S. Products and Services DC Base Power Systems Our DC base power systems are designed for use in prime power and backup power applications. All of our DC power systems are designed to last 20 years or more in backup applications and meet all UL2200 standards. To maximize operational life, we incorporate (over and above our competition) the following: ● all aluminum, powder coated, enclosure with stainless hardware, which is lightweight and corrosion resistant; ● 105 C rated signal wire, tinned copper strands; ● stainless steel braided covering hoses for fuel and coolant lines; ● Class 220 C magnet wire for alternator windings; ● watertight connectors in place of terminal strips and other non-sealed connectors; and ● our proprietary Supra Controller™ modules that are environmentally sealed. We believe that the number one reliability issue with a generator set is the failure to start. To improve the reliability of our generators, we remove the engine’s starting battery and replace it with a super capacitor. The super capacitor has a 15- to 20-year service life, greater cold cranking amps and withstands greater temperature extremes than conventional starting batteries. To reduce maintenance and help ensure that there is always adequate oil, we increase the engine’s oil capacity to provide for a 4,300-hour (natural gas / propane) or 1,500-hour (diesel) maintenance interval. Standard oil intervals for typical generators range from 200 to 500 hours. 10 DC Hybrid Power Systems In most off-grid or bad-grid outdoor applications where DC loads are required, such as telecommunications towers in rural or remote areas, generator fuel cost can account for more than 60% of the total operating costs. In most backup applications, such as telecommunications and uninterruptable power supply systems, lead acid batteries are used for providing transitional power prior to the backup generator start-up. In most of our prime power applications (including telecommunications) the goal is to reduce maintenance and fuel costs. Our Supra Controller™ automatically cycles the generator off when the loads are small and cycles it on again when the load increases or the battery charge is depleted. This cycling reduces engine maintenance and saves significant quantities of fuel. Additional fuel savings are realized by using lithium-ion batteries in place of lead acid batteries. Lead acid batteries, when compared with lithium-ion batteries, have high internal resistance, are inherently inefficient during charging or discharging in cyclic load applications and therefore require longer to charge, resulting in higher fuel costs. In 2011, we completed the design and testing of a hybrid power system, where our DC power system was integrated with lithium-ion batteries to provide a longer life and higher fuel efficiency for cyclic DC power applications such as telecommunications towers. In 2019, we implemented our next generation BMS for our lithium battery storage system. This next generation BMS enhances battery charging accuracy, integrates with engine controls and provides additional protection for the lithium batteries. Our DC hybrid power systems can monitor the charge/discharge cycle of various battery chemistries, including lithium-ion and lead acid batteries. Our Supra Controller™ system incorporates a CAN bus communications capability that provides communication and control between the battery and the DC hybrid power system. Each cell in the battery pack is individually monitored for voltage and temperature, ensuring the safety and longevity of the battery bank. These power systems include enclosures, a lithium-ion battery pack, our proprietary BMS and our proprietary Supra Controller™ system that controls engine output, battery charging algorithms, cooling system and power control circuits that optimize DC load outputs. DC Solar Hybrid Power Systems Our DC solar hybrid power system combines our DC hybrid power system with solar photovoltaic modules and a custom engineered multi power point tracking charge controller. In most off-grid or bad-grid outdoor applications, such as telecommunications towers in rural or suburban areas, the fuel costs of operating a generator can account for more than half of the total operating costs. We believe that incorporating renewable energy sources, such as solar, with our DC hybrid power systems is ideal solution for numerous off-grid and bad-grid applications worldwide. Our DC solar hybrid power systems incorporate the following features: ● Hybrid power panel . We produce distribution panel assemblies that make use of punched and plated buss bars to make the heavy current connections between appliances. The industry standard is using labor intensive hand crimped wires and lugs which are accomplished in the field. ● Photovoltaic Arrays . Our telecommunications customers request photovoltaic array structures to withstand winds of 150 mph and 200 mph exceeding the industry standard of 120 mph. ● Shelter . We provide an all-weather light-weight aluminum walk-in shelter that is easy to transport by truck or helicopter. 11 ● Lightning protection . We provide the highest degree of lightning protection through the use of air-coil type inductors designed by us. ● Air-Conditioning . We provide DC air-conditioning if required in very hot weather environments. We also provide cooling systems using ambient air. Our environmentally friendly solar hybrid power systems based on a combination of solar with LPG and propane power sources offer significant cost savings in capital expenditures and operating expenditures when compared to similar products offered by our competitors. Our solar hybrid power systems have been specifically designed to run in residential applications and provide power outputs between 5 kW to 22 kW and incorporate a 30,000- to 90,000-hour life engine with our proprietary control system. Our natural gas generators when integrated with battery storage and solar are ideal microgrids for off-grid and bad grid residential and commercial applications. Service and Support Global Network Management Tools We offer global network management services through our telematics tool, which consists of our Supra Controller™ technology integrated with monitoring software. This hardware is integrated into each DC power system and collects critical data from the equipment and transmits this data back to the customer and our service department. This capability allows us and our customers to monitor system performance remotely and to remotely update the equipment with new revision software in the field. Our telematics capabilities and services include: ● automated and continuous remote monitoring with auto alerts and notifications that can be transmitted via email or text messaging; ● maintenance management, which provides ability to schedule preventative maintenance based on actual equipment usage; and ● real-time, bi-directional communication capability for remote upgrades, testing and troubleshooting. Our telematics tools also provide information to our customers on specific equipment utilization that provides the abilities to determine the functional status of the equipment and proactively schedule maintenance. We believe these tools assist in reducing equipment downtime, thereby reducing the overall cost of ownership. In addition, we plan to use these tools to monitor and provide accurate billing for our rental equipment deployed at customer facilities. Aftermarket and Service Parts We offer extensive aftermarket and service parts programs. We maintain an extensive inventory of aftermarket parts and sell parts directly to customers or through our qualified network of service providers. In addition, we require our regional service providers to maintain sufficient quantities of aftermarket parts in their inventory to ensure minimum downtime upon product failure. We maintain accurate records of bill of materials for each serial number shipped and service our products well beyond their recommended lives. In the marketplace, our products are known for their long life and durability. Product and Warranty Support We utilize a nationwide network of dealers and service providers to perform installation and warranty services for our customers. Through our dealers we offer product commissioning as an added service to all our customers and require the purchase of such services as a condition for acceptance of any warranty claims in the future. We offer installation of the equipment, preliminary testing, integration of equipment with other assets located at the site and introductory maintenance and safety training. We offer various levels of fee-based services to support our products in the field. In addition, we have trained product and application engineers that deliver high quality, responsive lifetime technical support to all our customers worldwide. We further support our customers by using qualified regional independent service providers to perform warranty and aftermarket service and repair on our products. Our regional service providers are factory trained and certified prior to being authorized to repair or service our equipment. We generally reimburse regional service providers for the warranty services they perform on our systems. 12 Sales and Marketing Our sales strategy focuses on using our direct sales force to market our DC backup power products to telecommunications providers in the U.S. We use local regional sales managers in the U.S. market to demonstrate our products to Tier-1 telecommunications providers. Our products are purchased by regional centers operated by our telecommunications customers, thereby expanding our overall market into regions we may not have covered previously. We have established a sales and service infrastructure in international markets. We established regional sales offices in Australia, U.A.E., Poland and Dominican Republic and established sales and aftermarket service locations in Australia and Romania to manage the South East Asia and EMEA regions, respectively. Due to a general lack of a reliable power grid, many emerging markets continue to expand their telecommunications infrastructures at a high rate. We believe that this lack of a reliable power grid, together with our knowledge of integrating renewables with generators, provides us with an opportunity to enter these emerging markets with our hybrid storage and renewable energy solutions. We also market our products through our web site and by exhibiting our products at industry trade shows globally. Our primary sales are generated through product demonstrations and short-term rentals to demonstrate the capabilities of our products and value proposition to large mobile network providers worldwide. We believe this strategy of demonstrating our products and technologies to prospective customers expedites the sales process for our DC power systems. Distribution and Service We service our products through various service partners that provide initial product installation and maintenance services. The promotion of our natural gas powered Mini-Grid product, targeting off-grid and bad grid rural areas, will be undertaken by certified independent dealers. We believe expansion of our dealer network will also provide additional opportunities for our DC power systems in the U.S. and other countries. We utilize a combination of factory trained technicians and independent service providers to provide installation, maintenance, service and training at customer locations throughout the U.S. In the international markets, we utilize local service partners to perform installation and service on our equipment. We have hired trained personnel in Australia, Romania, and South Africa to assist in regional training of technicians and also in product demonstrations. 13 Competition Within the telecommunications power generation market, we compete with a few manufacturers of AC and DC generators that offer generators with an output power of 5 kW to 50 kW. In the U.S. market, our competitors are global manufacturers of AC generators designed primarily for the residential and industrial off-grid power markets. Internationally, our competitors include regional manufacturers of both AC and DC generators. In the U.S. market, our competitors are large volume manufacturers of AC generators with a primary focus on emergency power backup generation for the residential marketplace. These AC generators are constructed using steel enclosures and are therefore heavier and can rust more easily in outdoor applications as compared to our products which generally have a smaller footprint and are constructed using aluminum enclosures. Due to the inherent design of AC motors, their units are approximately 40% larger in size than our DC generators. In order to monetize on our positives, we targeted telecommunications markets where generators are used to provide backup power during power outages. Due to the lighter weight and smaller size of our products as compared to AC products, we specifically target customers with the telecommunications towers located on roof-tops in urban areas. We believe that the smaller size, lighter weight and higher fuel efficiency of our products are performance parameters that offset the lower price alternative of AC generators. In addition, we believe that our recently introduced long-life (90,000 hours), natural gas-powered DC generator product line significantly increases our competitive advantage in densely populated urban markets. Increased digitization of our lives has resulted in the need for more power usage in both residential and commercial applications. In the telecommunications tower market, the majority of the outdoor power needs are DC power since most components are DC powered. Historically, AC generator companies have utilized conversion technologies to convert AC output to DC output. This conversion results in an approximately 40% loss in energy. Meanwhile, our DC generators supply DC power directly to the telecommunications tower systems increasing the system’s overall efficiency. These efficiencies are further enhanced in off-grid and bad-grid applications where more power is being used from the generators due to the lack of grid power. Below are our primary competitors across these applications: DC Power : 3Tech Corporate Limited, Ascot Industrial srl, Ausonia srl, and Controllis. AC Power : Generac Power Systems, Inc., Kohler Co., Onan, FG Wilson and many other companies. Manufacturing and Assembly A significant percentage of our business comes from multinational global corporations seeking configured product solutions ready to be field deployed with a minimum installation time. Our manufacturing process begins with our direct sales force and engineering team defining customer application needs and concludes with the production of a custom configured product solution. We believe our ability to have total control over the sales and manufacturing process is a key competitive differentiator in the markets we serve. By implementing vertical integration throughout our manufacturing process, we believe that we reduce overall manufacturing costs, thereby increasing profitability and market competitiveness. Our production processes encompass all aspects of production of our DC power systems, which includes alternators, aluminum enclosures, engine configurations, control electronics, cooling systems, wiring harnesses, exhaust systems and final assembly. Manufacturing of our proprietary technologies requires proprietary automated equipment that ensures total control and agility in our production processes. Over the past decade, we have made significant investments in highly specialized manufacturing tooling, jigs and fixtures that allow us to manufacture products at lower cost while maintaining the highest quality. Our production assembly lines are designed to be flexible, and we utilize advanced manufacturing planning software to predict, monitor and control demand levels and product mix to provide the shortest delivery time to our customers. We utilize 3-D CAD software to product design and document assembly instructions throughout our production process. All our products are 100% tested to customer specific application requirements prior to shipment. Throughout our operations we utilize computerized ERP software that integrates all our processes from lead generation to product shipment and aftermarket support. Our focus on safety, quality and on-time delivery is supported by employee training and information systems that monitor process and product quality and communicate trends and findings to senior management on a real-time basis. 14 Design Engineering/Research and Development Our research and development efforts are market driven and are focused on the development of new technologies and product improvements, as well as reducing costs and improving product quality and reliability. The primary focus of our research and development activities is the development of lighter-weight, more compact and lower cost DC power generation systems for our Tier-1 wireless provider customers in the U.S. and international markets. Over the years, we have expended significant resources in enhancing our system controls like our Supra Controller™ and BMS. A significant part of our research and development effort has focused on the development of control software that integrates engine controls, power management and battery algorithms to fully optimize fuel consumption in both prime power and backup power generation applications. We use a high level of integration with a single control and communication module, our Supra Controller™, rather than competitive system designs with a number of independent control modules controlling a single function. Our integrated approach ensures software compatibility, reduces complexity in wiring, increases reliability and reduces cost. We maintain an in-house design, prototyping, testing and application engineering capabilities including expertise in 3-D solid modeling and finite element analysis, computer-based modeling and testing, rapid prototyping, design verification testing and document publication, which includes manufacturing assembly instructions, supplier drawings and product manuals. In addition, we utilize third party testing laboratories to certify our products’ compliance with current applicable UL standards. Our research and development efforts are key to meeting customer demand and ever-changing power requirements. In 2024, we plan to gradually increase our team of engineers and continue investing into new product development as part of our strategy to diversify our product lines. Intellectual Property We possess a broad intellectual property portfolio comprised of electronics, software, engines, alternators, thermal systems and production techniques. We rely on trademark, copyright and trade secret laws to protect our intellectual property. Currently, we rely on common law rights to protect our “Polar Power, Inc.” trade name. We protect our trade secrets and other proprietary information by requiring confidentiality agreements from our employees, consultants and third parties that have access to such information. Despite these efforts, there can be no assurance that others will not gain access to our trade secrets, or that we can meaningfully protect our technology. In addition, effective trademark, copyright and trade secret protection may be unavailable or limited in certain foreign countries. We consider our manufacturing process to be a trade secret and have non-disclosure agreements with our employees to protect the trade secrets held by us. However, such methods may not afford complete protection, and there can be no assurance that others will not independently develop similar know-how or obtain access to our know-how and manufacturing concepts. We may register patents and trademarks in future to protect our intellectual property rights and enhance our competitive position. 15 Suppliers We attempt to mitigate the adverse effect of component shortages in our business through detail material planning and by qualifying multiple vendor sources for key components and outside processes. We conduct supplier audits of all major suppliers for initial qualification and to ensure reliability, quality, and sustainability of critical components. To meet our customer demands, we forecast the supply of our long lead time items such as engines, castings and electronic components through use of sales forecasting tools and ERP system. Our suppliers are extensively surveyed and audited; and field or process generated non-conformities communicated with our Suppliers to continuously improve quality. To improve our costs and deliveries, our ERP system invites for all qualified suppliers to participate in relevant bids to ensure best proposals are selected. We have experienced material shortages and delays due to the pandemic; more in 2022 than in 2023. We actively sourcing the global supply chain for key components to avoid or reduce the risk of future delays or interruptions to our operations or our ability to service customers. We have also experienced price increases on certain materials and freight services. Although we believe we can mitigate a portion of material price increases by passing through some cost increases to our customers, we believe a fair portion can be mitigated through increases in efficiency. Quality Control Our quality control is established to maintain the highest level of quality in the manufacturing of our DC power systems, spare parts, and services. The foundation of our quality control was initially set in the early 1980s, much of which was required by our customers at the time, including NASA and Hughes Aircraft. In the late 1980s, we implemented the MIL-I-45208A quality control system monitored by U.S. Department of Defense, to meet prime source requirements for a contract we received from the U.S. Army Picatinny Arsenal to design and manufacture an advanced battery and monitoring system for a security device used in nuclear munitions depots around the world. We are currently in the process of obtaining an ISO 9000 certification. Certifications Our DC generator systems comply with UL2200 safety standards. Our products also comply with applicable regulatory emission standards of the Environmental Protection Agency, and the California Air Quality Management District. 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. 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 a product not perform as expected. Under our standard warranty, 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. Information Systems We utilize integrated information systems (i.e., ERP) that link our lead management, sales planning, order entry, purchasing, engineering, production control, manufacturing, inventory and accounting systems. During the past five years we have made significant investments to upgrade and customize our information systems to improve productivity and our ability to accurately forecast inventory and manpower requirements. We plan to invest additional capital in software and information systems to integrate aftermarket sales and service with our ERP system to improve post sales customer experience with our products and services. 16 Government Regulations and Environmental Matters Our business operations are subject to certain federal, state, local and foreign laws and regulations. For example, our products, services and technologies are subject to regulations relating to building codes, public safety, electrical connections, security protocols, and local and state licensing requirements. The regulations to which we are subject may change, additional regulations may be imposed, or existing regulations may be applied in a manner that creates special requirements for the implementation and operation of our products or services that may significantly impact or even eliminate some of our revenues or markets. In addition, we may incur material costs or liabilities in complying with any such regulations. Furthermore, some of our customers must comply with numerous laws and regulations, which may affect their willingness and ability to purchase our products, services and technologies. Additionally, we are subject to laws, regulations and other governmental actions instituted in response to the COVID-19 outbreak. The modification of existing laws and regulations or interpretations thereof or the adoption of future laws and regulations could adversely affect our business, cause us to modify or alter our methods of operations and increase our costs and the price of our products, services and technology. In addition, we cannot provide any assurance that we will be able, for financial or other reasons, to comply with all applicable laws and regulations. If we fail to comply with these laws and regulations, we could become subject to substantial penalties or restrictions that could materially and adversely affect our business. Human Capital Our experienced employees and management team are our most valuable resources, and we are committed to attracting, motivating, and retaining top professionals to service our customers. As of April 1, 2024, we had 87 full time employees, which includes 80 employees in the U.S. and 7 employees outside the U.S. None of our employees are represented by labor unions. We consider our relationships with our employees to be generally satisfactory. In addition, from time to time, we utilize outside consultants or contractors for specific assignments. We believe our success is directly related to the satisfaction, growth, and development of our employees. We strive to offer a work environment where employee unique characteristics and opinions are valued and one that provides our employees the opportunities to use and augment their professional skills. To achieve our human capital goals, we intend to remain focused on providing our personnel with career development opportunities to expand our business within their areas of expertise and continue to provide our personnel with personal and professional growth. In addition to salaries, we also provide a 401(k)-retirement plan, healthcare and insurance benefits, health savings accounts, paid time off, and various services and tools to support our employees’ health and wellness. Our leaders, managers, and eligible employees are provided an opportunity to participate in our stock option plans. We emphasize a number of measures and objectives in managing our human capital assets, including, among others, employee safety and wellness, talent acquisition and retention, employee engagement, development, and training, diversity and inclusion, and compensation and pay equity. Employee Engagement, Development, and Training. We provide all employees with the opportunity to share their opinions and feedback on our culture which helps enhance the employee experience, promote employee retention, drive change, and leverage the overall success of our organization. We provide all employees a wide range of professional development experiences, both formal and informal, at all stages in their careers. Diversity and Inclusion and Ethical Business Practices. We are committed to fostering work environments that value and promote diversity and inclusion, including our Diversity and Inclusion Program which focuses on initiatives to increase the diversity of our workforce and promote an environment of trust where employees feel safe to express their opinions and perspectives without fear of repercussion. This commitment includes providing equal access to, and participation in, equal employment opportunities, programs, and services without regard to race, religion, color, national origin, disability, sex, sexual orientation, gender identity, stereotypes or assumptions based thereon. We pride ourselves in the development and fair treatment of our workforce, including healthcare and benefit programs for our employees, equal employment hiring practices and policies, anti-harassment, workforce safety, and anti-retaliation policies. We welcome and celebrate our teams’ differences, experiences, and beliefs, and we are investing in a more engaged, diverse, and inclusive workforce. We foster a strong corporate culture that promotes high standards of ethics and compliance for our businesses, including policies that set forth principles to guide employee, officer, director, and vendor conduct, such as our Code of Business Conduct and Ethics. We maintain a whistleblower policy and anonymous hotline for the confidential reporting of any suspected policy violations or unethical business conduct on the part of our businesses, employees, officers, directors, or vendors and provide training and education to our global workforce with respect to our Code of Business Conduct and Ethics and anti-corruption and anti-bribery policies. Facilities Our principal offices are located in Gardena, California, where we lease a 40,000 square foot facility that includes our corporate staff offices, our manufacturing facility, and our research and development center. We also lease a 29,000 square foot facility as our second manufacturing facility and a 20,000 square foot warehouse facility across the street from our corporate offices. We believe that our current facilities are sufficient to accommodate our anticipated production volumes for the next twelve months. If required, additional office and manufacturing space is available within less than three miles from our present location.