Polar Power, Inc.

CONDENSED BALANCE SHEETS

(in thousands, except share and per share data)

UNAUDITED CONDENSED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

UNAUDITED CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share data)

Three months Ended June 30, 2025

Six months ended June 30, 2025

Three months Ended June 30, 2024

Six months ended June 30, 2024

UNAUDITED CONDENSED STATEMENTS OF CASH FLOW

(in thousands)

NOTES TO CONDENSED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2025 AND 2024

(In thousands, except for share and per share data and where otherwise noted)

(UNAUDITED)

NOTE 1 –ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company

Polar Power, Inc. was incorporated in the State of Washington as Polar Products, Inc. and in 1991 reincorporated in the State of California under the name Polar Power, Inc. In December 2016, Polar Power, Inc. reincorporated in the State of Delaware (the “Company”, “we” or “us”). The Company designs, manufactures and sells direct current, or DC, power systems to supply reliable and low-cost energy to off-grid, bad-grid and backup power, electric vehicle (“EV”) charging, and nano-grid applications. The Company’s products integrate DC generator, proprietary electronic control systems, lithium batteries and solar photovoltaic (“PV”) technologies to provide low operating cost and emissions for telecommunications, Defense, automotive, nano-grid, EV charging and industrial markets.

Going concern

The accompanying financial statements have been prepared under the assumption that the Company will continue as a going concern. For the six months ended June 30, 2025, the Company recorded a net loss of $1,536 and used cash in operations of $988. This factor raises substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. In addition, our independent registered public accounting firm, in its audit report to the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2024, expressed substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

Our ability to continue as a going concern is dependent upon our ability to obtain additional financing, grow and diversify our revenue, improve operational efficiency, reduce overhead and fixed costs, and to create a profitable operation. 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 diversify sales to consume existing inventory, increase higher margin aftermarket parts revenue, to fund operations. 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.

Impact of inflation

The impact of inflation and changing prices during the six months ended June 30, 2025 has had modest effect on the financial condition or results of operations of the Company. In 2025, we anticipate increase in tariffs on imported products may impact our profitability. Many of the countries on which tariffs have been levied have imposed retaliatory tariffs which may impact our global sales. While we obtain most of our raw materials from domestic sources, many of our supplier’s source materials from various countries and the impact of tariff is currently unclear. In addition, some of our contracts are at a fixed price with certain provisions for price changes. Significant increases in prices may require us to negotiate new contracts. We are closely monitoring the impacts of increases and keeping our customers informed on our findings.

Basis of Presentation of Unaudited Financial Information

The unaudited condensed financial statements of the Company for the three and six months ended June 30, 2025 and 2024 have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Regulation S-K for scaled disclosures for smaller reporting companies. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. However, such information reflects all adjustments (consisting solely of normal recurring adjustments), which are, in the opinion of management, necessary for the fair presentation of the Company’s financial position and results of operations. Results shown for interim periods are not necessarily indicative of the results to be obtained for a full fiscal year. The balance sheet information as of December 31, 2024 was derived from the audited financial statements included in the Company’s financial statements as of and for the years ended December 31, 2024 and 2023 contained in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission, or the SEC, on March 31, 2025. These financial statements should be read in conjunction with that report.

Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Material estimates relate to the assumptions made in determining estimates for credit loss reserves for accounts receivable, assumptions used in valuing inventories at net realizable value, impairment testing of recorded long-term assets, the realizability of deferred tax assets and the related valuation allowance, accruals for warranty reserves, accruals for potential liabilities, assumptions made in valuing stock instruments issued for services, and assumptions used in the determination of the Company’s liquidity. Actual results may differ from those estimates.

Revenue Recognition

The Company recognizes revenue in accordance with 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.

The Company also recognizes revenues from engineering services, technical support, and sale of accessories that support the Company’s direct current, or DC, power systems. Revenue is recognized when transfer of control to the customer has been made and the Company’s performance obligation has been fulfilled. The Company’s revenue from engineering services, technical support services, and product accessories are clearly defined in each transaction with its customers and have not been significant to date.

The Company also recognizes revenues from the rental of equipment. The Company’s rental revenues have not been significant to date and were $nil for the three-month and six months ended June 30, 2025 and 2024. The Company’s rental contracts are fixed price contracts for fixed durations of time and include freight and delivery charges and are recognized on a straight-line basis over the rental period.

Disaggregation of Net Sales

The following table shows the Company’s disaggregated net sales by product type:

The following table shows the Company’s disaggregated net sales by customer type:

The following tables shows the Company’s net sales by the respective geographical regions of our customers:

For the three-months ended June 30, 2025 and 2024, international sales totaled $84 and $1,170 respectively. For the six-months ended June 30, 2025 and 2024, international sales totaled $386 and $1,269 respectively.

Inventories

Inventories are stated at the lower of cost or net realizable value, with cost determined on a first-in, first-out (“FIFO”) basis. The Company records adjustments to its 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 be subsequently written up. There wasno write downs of inventory for the three months and six months ended June 30, 2025.

As of June 30, 2025 and December 31, 2024, inventories consisted of the following:

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. As of June 30, 2025 and December 31, 2024, the Company had accrued a liability for warranty reserve of $600 and $600, respectively, which are included in other accrued liabilities in the accompanying condensed balance sheets. The following is a tabular reconciliation of the product warranty liability, excluding the deferred revenue related to the Company’s warranty coverage:

Stock-Based Compensation

The Company periodically issues 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 the Company 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.

Income Taxes

During the three months and six months ended June 30, 2025 and 2024, the Company did not record any provision for income taxes, as the Company incurred losses for income tax reporting during such periods.

The Company accounts for income taxes using the asset and liability method whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized for taxable temporary differences. The Company has recorded a full valuation allowance against its deferred tax assets as the Company currently believes it is more likely than not that the deferred tax assets will not be realized.

Financial Assets and Liabilities Measured at Fair Value

The Company uses various inputs in determining the fair value of its financial assets and liabilities. Financial assets recorded at fair value in the balance sheets are categorized by the level of objectivity associated with the inputs used to measure their fair value.

Authoritative guidance provided by the Financial Accounting Standards Board (“FASB”) defines the following levels directly related to the amount of subjectivity associated with the inputs to fair valuation of these financial assets:

The carrying amounts of certain financial assets and liabilities, such as cash and cash equivalents, accounts receivable and accounts payable, approximate their fair values because of the short maturity of these instruments. The carrying values of the line of credit and notes payable approximate their fair values since the interest rates on these obligations are based on prevailing market interest rates.

Segments

Under ASC 280,Segment Reporting, operating segments are defined as components of an enterprise where discrete financial information is available that is evaluated regularly by the chief operating decision maker (“CODM”), in deciding how to allocate resources and in assessing performance. The Company’s operating segment consists of one component, and the Company’s Chief Executive Officer, who is also the CODM, makes decisions and manages the Company’s operations as a single operating segment.

Concentrations

*Revenues.*For the three months ended June 30, 2025 and 2024, sales to telecommunications customers accounted for 92% and 95% of total revenues, respectively. Sales to international customers accounted for 3% and 25% of total revenues, respectively. The Company’s largest customers during the three months ended June 30, 2025, generated 69% of total revenues, as compared to the three largest customers during the three months ended June 30, 2024, generating 40% and 27%, and 22% of total net revenues. There was no other revenue from customers in excess of 10% of revenues in either period.

For the six months ended June 30, 2025 and 2024, sales to telecommunications customers accounted for 88% and 89% of total revenues, respectively. For the six months ended June 30, 2025 and 2024, sales to international customers accounted for 9% and 20% of total revenue, respectively. For the six months ended June 30, 2025, the Company’s three largest customers generated 70%,7%, and 5% of total revenues, as compared to the three largest customers during the same period in 2024 generating 42%,20%, and 16% of total revenues. There was no other revenue from customers in excess of 10% of revenues in either period.

Accounts receivable. At June 30, 2025, the largest accounts receivable account from the Company’s customers represented 85% of the Company’s total accounts receivable. At December 31, 2024, the Company’s largest accounts receivable represented 82% of the Company’s total accounts receivable. There was no other customer that accounted for more than 10% of the Company’s accounts receivable as of June 30, 2025 or December 31, 2024.

Accounts payable. At June 30, 2025, accounts payable to the Company’s three largest vendors represented 12%,10% and 6%, of the Company’s accounts payable. On December 31, 2024, the three largest accounts payable accounts to the Company’s vendors represented 18%,13%, and 8%, respectively.

Net Income (Loss) Per Share

Basic net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding for the period. Diluted earnings per share is computed by dividing the net income applicable to common stockholders by the weighted average number of common shares outstanding plus the number of additional common shares that would have been outstanding if all dilutive potential common shares had been issued using the treasury stock method. Potential common shares are excluded from the computation when their effect is antidilutive. The dilutive effect of potentially dilutive securities is reflected in diluted net income per share if the exercise prices were lower than the average fair market value of common shares during the reporting period.

The following potentially dilutive shares were excluded from the shares used to calculate diluted earnings per share as their inclusion would be anti-dilutive:

Recent Accounting Pronouncements

In November 2024, the Financial Accounting Standards Board (FASB) issued ASU No. 2024-03,Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses which includes amendments that require disclosure in the notes to financial statements of specified information about certain costs and expenses, including purchases of inventory; employee compensation; and depreciation, amortization and depletion expenses for each caption on the income statement where such expenses are included. The amendments are effective for the Company’s annual periods beginning January 1, 2027, with early adoption permitted, and should be applied either prospectively or retrospectively. The Company is in the process of evaluating this ASU to determine its impact on the Company’s disclosures.

The Company’s management has evaluated all other recently issued, but not yet effective, accounting standards and guidance that have been issued or proposed by the FASB or other standards-setting bodies through the filing date of these financial statements and does not believe the future adoption of any such pronouncements will have a material effect on the Company’s financial position and results of operations.

NOTE 2 –PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

Depreciation and amortization expense on property and equipment for the three months ended June 30, 2025 and 2024 was $17 and $55, respectively. During the three months ended June 30, 2025 and 2024, $16 and $53, respectively, of the depreciation expense was included in cost of sales.

Depreciation and amortization expense on property and equipment for the six months ended June 30, 2025 and 2024 was $34 and $121, respectively. During the six months ended June 30, 2025 and 2024, $33 and $116, respectively, of the depreciation expense was included in cost of sales.

NOTE 3 –NOTES PAYABLE, RELATED PARTY

During 2023, the Company’s Chief Executive Officer made three loans to the Company for aggregate principal amount of $260 pursuant to terms of the note agreements. The notes have relatively similar terms, are unsecured, and accrue interest at 3.5% per annum. The outstanding balance under these loans was $266 as of December 31, 2024. On March 24, 2025, Company’s Chief Executive Officer made an additional loan to the Company in the amount $160 with similar terms as the other three loans. As of June 30, 2025, the aggregate outstanding balance of the loans including accrued interest is $433, with $240 due in August 2025, $29 due in October 2025, and $160 due March 2026.

NOTE 4 –LINE OF CREDIT

Credit Facility

Effective September 30, 2020, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with Pinnacle Bank (“Pinnacle”). Before the Loan Agreement was set to expire in September 2024, the Company and Pinnacle executed an amendment to extend the term of the Loan Agreement until September 30, 2026.

The Loan Agreement, as amended, provides for a revolving credit facility under which Pinnacle may, in its sole discretion upon our request, make advances to the Company up to $7,500, subject to certain limitations and adjustments, of up to(a) 85% of the aggregate net face amount of the Company’s accounts receivable and other contract rights and receivables, plus (b) the lesser of (i) 40% of the aggregate eligible inventory value of eligible inventory or (ii) $4.0 million, plus (c) up to $146 collateralized by certain equipment. Additionally, the inventory advances limit shall decrease as the Company’s effective Tangible Net Worth diminishes at ranges provided in the Loan Agreement. Such inventory advances limit can be as high as $2.0 million with a Net Tangible Worth of $10.0 million, to as low as $0 with a Net Tangible Worth of $6.0 million. Any such decrease in the inventory advances limit shall take effect on the first day of the month following the Borrower’s delivery of its quarterly financial statements, as required by the Affirmative Covenants of the Loan Agreement. As of June 30, 2025, the Company’s Net Tangible Worth is approximately $7.4 million.

Borrowings based on receivables bears an interest on the daily balance at a rate of 1.25% above the prime rate, but in no event less than 3.75% per annum (9.75% at June 30, 2025 and 9.75% at December 31, 2024). 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, but in no event less than 4.75% per annum (10.75% at June 30, 2025 and 10.75% at December 31, 2024).

Pursuant to the Loan Agreement, as amended, the standards of eligible accounts receivable include AT&T accounts receivable up to 120 days of invoice date, and eligible accounts receivable with other customers have up to 90 days of invoice date. Customer accounts with eligible accounts receivable cannot exceed a concentration percentage which is a customer’s total obligations to the Company as a percentage of eligible accounts receivable from all customers. The concentration percentage applicable to certain Tier-1 telecommunications customers is 75% of all eligible accounts receivable, and the concentration percentage applicable to all other customer is 25% of all eligible accounts.

Pinnacle may terminate the Loan Agreement at any time upon ninety days prior written notice and immediately upon the occurrence of an event of default. Under the Loan Agreement, the Company granted Pinnacle a security interest in all presently existing and thereafter acquired or arising assets of the Company.

At December 31, 2024, the outstanding balance under the line of credit was $4,797 and the Company had availability under the line of credit in the amount of $654. During the six months ended June 30, 2025, the Company advanced an aggregate of $505 under the credit facility. At June 30, 2025, the outstanding balance under the line of credit was $5,302 and the Company had an amount of $66 available under the line of credit.

The Loan Agreement obligates the Company to pay Pinnacle a yearly facility fee in an amount equal to 1.125% of the sum of the advance limit. The Loan Agreement contains certain affirmative and negative covenants, all of which the Company was in compliance with at June 30, 2025.

The total interest expense, fees, and financing costs incurred under the Loan Agreement for the three-month periods ended June 30, 2025 and 2024 were $168 and $179, respectively. Of these amounts, $1 in 2025 and $1 in 2024 were recorded under general and administrative expenses, while $167 in 2025 and $177 in 2024 were recorded under interest expense and finance costs in the accompanying statements of operations.

The total interest expense, fees, and financing costs incurred under the Loan Agreement for the six-month periods ended June 30, 2025 and 2024 were $329 and $340, respectively. Of these amounts, $1 in 2025 and $2 in 2024 were recorded under general and administrative expenses, while $327 in 2025 and $338 in 2024 were recorded under interest expense and finance costs in the accompanying statements of operations.

NOTE 5 –OPERATING LEASES

The Company has two operating lease agreements for its warehouse and office facilities. The first lease expired February 28, 2024, and was extended beginning March 1, 2024 to February 28, 2026. The second lease expired August 31, 2024, and was extended beginning September 1, 2024 to August 31, 2026. The aggregate monthly lease payments range from $89 (year one), to $111 (year two), to $125 (year three), with an aggregate commitment of $3,896. The lease amendments to the two operating leases were considered new lease agreements and as a result, the Company recognized operating lease right-of-use assets and related operating lease liabilities of approximately $3,578 upon commencement of the new terms in 2024.

The Company also has a third lease on a month-to-month basis and is charged $25 per month.

The components of rent expense and supplemental cash flow information related to leases for the period are as follows:

The supplemental balance sheet information related to leases for the period is as follows:

Maturities of the Company’s lease liabilities are as follows (in thousands):

Rent expense for the three months ended June 30, 2025 and 2024 was $325 and $399, respectively. Rent expense for the six months ended June 30, 2025 and 2024 was $649 and $799, respectively.

NOTE 6 –STOCKHOLDERS’ EQUITY

Common Stock

In January 2025, the Company issued 2,679 shares of common stock valued at $8 to Michael Field, the Company’s independent director, as settlement for previously accrued fees for services.

NOTE 7 –STOCK OPTIONS

The following table summarizes stock options:

Effective July 8, 2016, the Company’s board of directors approved the Polar Power 2016 Omnibus Incentive Plan (the “2016 Plan”), authorizing the issuance of up to 250,627 shares of common stock as incentives to employees and consultants to the Company with awards limited to a maximum of 50,125 shares to any one participant in any calendar year.

At June 30, 2025, and December 31, 2024, the Company had total outstanding options exercisable into 20,002 shares of the Company’s common stock. The options are fully vested, with exercise prices ranging from $33.88 to $39.20, and with 4,287 option shares set to expire in December 2027 and the remaining 15,715 option shares set to expire in April 2028.

The outstanding options hadno intrinsic value at June 30, 2025.

NOTE 8. SEGMENT INFORMATION

The Company operates and manages its business asone reportable and operating segment. The Company designs, manufactures, and sells DC power systems for 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). The measure of segment assets is reported on the balance sheet as total assets. In addition, the Company generates revenue primarily from the sale of its DC power systems, and to a lesser extent from the sale of parts and services to support its DC power systems. The Company manages the business activities on a consolidated basis.

The Company’s chief operating decision maker (“CODM”), Arthur D. Sams, reviews financial information presented on a consolidated basis and decides how to allocate resources based on net income (loss). Consolidated net income (loss) is used for evaluating financial performance and in establishing management’s compensation.

Significant segment expenses include research and development, salaries, insurance, and stock-based compensation. Operating expenses include all remaining costs necessary to operate our business, which primarily include external professional services and other administrative expenses. The following table presents the significant segment expenses and other segment items regularly reviewed by our CODM: