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Item 9A. Controls and Procedures

2021-03-31 compared with 2020-05-14 · 1617 added, 1802 removed, 341 unchanged (91% of the section changed)

Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation

of our principal executive officer and our principal financial officer, evaluated, as of the end of the period covered by this

Annual Report on Form 10-K, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)

under the Exchange Act).

Based on that evaluation, our principal executive officer and principal financial officer have concluded

that as of December 31, 2019, our disclosure controls and procedures were effective at the reasonable assurance level.

recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of

achieving their objectives and our management necessarily applies its judgment in evaluating the cost-benefit relationship of possible

controls and procedures.

Management’s Report on Internal Control

Over Financial Reporting

Management is responsible for

establishing and maintaining adequate internal control over financial reporting as such term is defined in Rule 13a-15(f) under

the Exchange Act.

Internal control over financial reporting is a process designed under the supervision and with the participation

of our management, including our Chief Executive Officer and Chief Financial Officer, to provide reasonable assurance regarding

the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally

accepted accounting principles.

Our internal control over financial reporting includes those policies and procedures that (i) pertain

to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our

(ii) provide reasonable assurance transactions are recorded as necessary to permit preparation of financial statements

in accordance with generally accepted accounting principles, (b) our receipts and expenditures are being made only in accordance

with authorizations of our management and directors;

and (c) regarding the prevention or timely detection of the unauthorized acquisition,

use or disposition of assets that could have a material effect on our financial statements.

Because of its inherent limitations,

internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness

to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree

of compliance with the policies or procedures may deteriorate.

As of December 31, 2019, our management

conducted an evaluation of the effectiveness of our internal control over financial reporting using the criteria set forth by the

Committee of Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated Framework (2013).

Based on this

evaluation, our management concluded that, as of December 31, 2019, our internal control over financial reporting was effective.

This Annual Report on Form 10-K

does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting.

Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the Securities

and Exchange Commission that permit us to provide only management’s report in this Annual Report on Form 10-K.

Changes in Internal Control over

Financial Reporting

There were no changes in our

internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d)

of the Exchange Act that occurred during the quarter ended December 31, 2019 that have materially affected, or are reasonably likely

to materially affect, our internal control over financial reporting.

of Disclosure Controls and Procedures

management, with the participation of our principal executive officer and our principal financial officer, evaluated, as of the

end of the period covered by this Annual Report on Form 10-K, the effectiveness of our disclosure controls and procedures (as

defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act).

Based on that evaluation, our principal executive officer and

principal financial officer have concluded that as of December 31, 2020, our disclosure controls and procedures were effective

at the reasonable assurance level.

Management recognizes that any controls and procedures, no matter how well designed and operated,

can provide only reasonable assurance of achieving their objectives and our management necessarily applies its judgment in evaluating

the cost-benefit relationship of possible controls and procedures.

Management’s

Report on Internal Control Over Financial Reporting

is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in

Rule 13a-15(f) under the Exchange Act.

Internal control over financial reporting is a process designed under the supervision and

with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, to provide reasonable

assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in

accordance with generally accepted accounting principles.

Our internal control over financial reporting includes those policies

and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions

and dispositions of our assets;

(ii) provide reasonable assurance transactions are recorded as necessary to permit preparation

of financial statements in accordance with generally accepted accounting principles, (b) our receipts and expenditures are being

made only in accordance with authorizations of our management and directors;

and (c) regarding the prevention or timely detection

of the unauthorized acquisition, use or disposition of assets that could have a material effect on our financial statements.

of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections

of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes

in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

of December 31, 2020, our management conducted an evaluation of the effectiveness of our internal control over financial reporting

using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated

Framework (2013).

Based on this evaluation, our management concluded that, as of December 31, 2020, our internal control over

financial reporting was effective.

Annual Report on Form 10-K does not include an attestation report of our registered public accounting firm regarding internal

control over financial reporting.

Management’s report was not subject to attestation by our registered public accounting

firm pursuant to rules of the Securities and Exchange Commission that permit us to provide only management’s report in this

Annual Report on Form 10-K.

in Internal Control over Financial Reporting

were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule

13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended December 31, 2020 that have materially affected,

or are reasonably likely to materially affect, our internal control over financial reporting.

Other Information

Directors, Executive Officers and Corporate Governance.

Executive Officers and Directors

The following table sets forth the names,

ages and positions of our executive officer and directors as of the date of this Annual Report on Form 10-K.

Positions Held

Executive Officers

Chairman of the Board, President, Chief Executive Officer and Secretary

Rajesh Masina

Chief Operating Officer

Chief Financial Officer

Non-Employee Directors

Keith Albrecht

Matthew Goldman

Katherine Koster

Executive Officers and Employee Director

Sams has served

as our President, Chief Executive Officer and Chairman of our board of directors since August 1991 and as our Secretary since October

Under his leadership, we have grown to be a leading brand name in the design and manufacturing of DC power systems for the

telecommunications, military, automotive, marine and industrial markets.

He specializes in the design of thermodynamics and power

generation systems.

During his early career, he gained vast industry experience while working as a machinist, engineer, project

manager, chief technical officer and consultant for various Fortune 500 companies and the U.S.

Department of Defense and the U.S.

Officers and Directors

following table sets forth the names, ages and positions of our executive officer and directors as of the date of this Annual

Report on Form 10-K.

of the Board, President, Chief Executive Officer and Secretary

Operating Officer

Financial Officer

Officers and Employee Director

Sams has served as our President, Chief Executive Officer and Chairman of our board of directors since August 1991 and

as our Secretary since October 2016.

Under his leadership, we have grown to be a leading brand name in the design and manufacturing

of DC power systems for the telecommunications, military, automotive, marine and industrial markets.

He specializes in the design

of thermodynamics and power generation systems.

During his early career, he gained vast industry experience while working as a

machinist, engineer, project manager, chief technical officer and consultant for various Fortune 500 companies and the U.S.

of Defense and the U.S.

Department of Energy.

Sams studied at California State Polytechnic University Pomona and the University California at Irvine

with a dual major in biology and engineering.

In nominating Mr.

Sams, our board

of directors considered his diverse and global experience in engineering and manufacturing combined with a successful entrepreneurial

career as a key attribute in his selection.

The board of directors believes that through his experience in product development

and international operations over the past two decades he can provide our company with particular insight into global opportunities

and new markets for our current and planned future product lines.

Rajesh Masina has served

as our Chief Operating Officer since April 2018 and previously served as our Vice President Operations from August 2009 to April

Sams studied at California State Polytechnic University Pomona and the University

California at Irvine with a dual major in biology and engineering.

nominating Mr.

Sams, our board of directors considered his diverse and global experience in engineering and manufacturing combined

with a successful entrepreneurial career as a key attribute in his selection.

The board of directors believes that through his

experience in product development and international operations over the past two decades he can provide our company with particular

insight into global opportunities and new markets for our current and planned future product lines.

Masina has served as our Chief Operating Officer since April 2018 and previously served as our Vice President Operations from

August 2009 to April 2018.

Prior to joining us, Mr.

Masina served as a supply chain consultant to International Game Technology, a large gaming equipment

company in Reno, Nevada, from December 2008 to June 2009.

Masina worked as the Assistant Manager for Applied Photonics Worldwide

Inc., an engineering services company, from January 2006 to January 2008.

From July 2001 to May 2003, Mr.

Masina worked as the

Business Development Manager in his family business, which provided consulting services to a regional telecommunications provider

in India with respect to the acquisition of telecommunications sites.

Masina served as a supply chain consultant to International Game Technology,

a large gaming equipment company in Reno, Nevada, from December 2008 to June 2009.

Masina worked as the Assistant Manager

for Applied Photonics Worldwide Inc., an engineering services company, from January 2006 to January 2008.

From July 2001 to May

Masina worked as the Business Development Manager in his family business, which provided consulting services to a regional

telecommunications provider in India with respect to the acquisition of telecommunications sites.

We believe Mr.

Masina has a unique combination of technical

and business knowledge that is vital to our growth strategy.

Masina’s key strengths include business analytics, supply

chain management, make vs.

buy decision making, production scheduling, client relations, and strategic planning.

a minority investor in a startup equipment rental company, Smartgen Solutions, Inc., serving the Southern California telecommunications

equipment market.

unique combination of technical and business knowledge that is vital to our growth strategy.

Masina’s key strengths

include business analytics, supply chain management, make vs.

buy decision making, production scheduling, client relations, and

strategic planning.

Masina is a minority investor in a startup equipment rental company, Smartgen Solutions, Inc., serving

the Southern California telecommunications equipment market.

Smartgen Solutions, Inc.

provides installation and maintenance service for various telecommunications tower companies

and also is an authorized service dealer for Polar products.

Masina has a Master’s in Electrical Engineering from the

University of Nevada Reno and an MBA from the University of Nevada Reno’s Supply Chain Program.

Luis Zavala has served

as our Chief Financial Officer since April 2018 and previously served as our Vice President Finance from August 2009 to April 2018

and as our Acting Chief Financial Officer from March 2016 to March 2018.

provides installation and maintenance service

for various telecommunications tower companies and also is an authorized service dealer for Polar products.

Masina has a Master’s

in Electrical Engineering from the University of Nevada Reno and an MBA from the University of Nevada Reno’s Supply Chain

Zavala has served as our Chief Financial Officer since April 2018 and previously served as our Vice President Finance from

August 2009 to April 2018 and as our Acting Chief Financial Officer from March 2016 to March 2018.

Prior to that, Mr.

Zavala served as the President of Sky

Limited Enterprises, a general contractor, from June 2006 to August 2009.

Zavala served

as the President of Sky Limited Enterprises, a general contractor, from June 2006 to August 2009.

Prior thereto, Mr.

Zavala worked as Director of Finance

for Legacy Long Distance International, a telecommunications operator service provider company, from March 2001 to May 2006.

Zavala also has over 20 years of experience managing accounting and finance departments in various industries, including banking

and telecommunications.

Zavala has a Bachelor of Arts degree in Business Administration from the California State University,

Northridge and an MBA from the Keller Graduate School of Management, Long Beach.

Non-Employee Directors

Keith Albrecht has served

as a member of our board of directors since May 2016 and serves as a member of each of our Audit Committee, Compensation Committee

and Nominating and Corporate Governance Committee.

Albrecht has extensive experience as a commercial real estate appraiser

for commercial banks and local governments.

Albrecht was an appraiser for commercial buildings for the County of Orange, California,

from 1996 to 2007, where he was responsible for the assessment of property values of shopping malls, office buildings, hotels and

apartment buildings.

Zavala worked

as Director of Finance for Legacy Long Distance International, a telecommunications operator service provider company, from March

2001 to May 2006.

Zavala also has over 20 years of experience managing accounting and finance departments in various industries,

including banking and telecommunications.

Zavala has a Bachelor of Arts degree in Business Administration from the California

State University, Northridge and an MBA from the Keller Graduate School of Management, Long Beach.

Albrecht has served as a member of our board of directors since May 2016 and serves as a member of each of our Audit Committee,

Compensation Committee and Nominating and Corporate Governance Committee.

Albrecht has extensive experience as a commercial

real estate appraiser for commercial banks and local governments.

Albrecht was an appraiser for commercial buildings for the

County of Orange, California, from 1996 to 2007, where he was responsible for the assessment of property values of shopping malls,

office buildings, hotels and apartment buildings.

Prior thereto, Mr.

Albrecht was an appraiser for Security Pacific and Bank of America, from 1985 to 1996.

Albrecht was an appraiser for Security Pacific and Bank of

America, from 1985 to 1996.

Albrecht is currently retired and invests in startups and small cap companies.

In nominating Mr.

Albrecht, our board of directors

considered his commercial real estate appraisal experience, which our board of directors believes gives him particular insight

into analysis of income statements and balance sheets, debt analysis and audits of large commercial institutions.

Matthew Goldman has served

as a member of our board of directors since August 2014 and serves as a member of each of our Audit Committee, Compensation Committee

and Nominating and Corporate Governance Committee.

Goldman is the co-founder of High Tide Capital, a global macro hedge fund

manager in the process of launching its first investment product, and has been its Fund Manager since February 2015.

Prior thereto,

Goldman founded Polaris Capital, LLC, a private equity and investment business engaged in investing and advisory services for

startup and small cap companies in 2010.

Goldman currently serves on the board of directors and/or advisory boards of two privately-held

Polaris portfolio companies.

Goldman began his career in 2006 at Blackrock, a financial planning and investment management

firm, where he worked in the financial modeling group as a programmer, developing proprietary bond calculation engine.

holds a Bachelor of Science degree in electrical engineering and computer science, with a minor in psychology, from Massachusetts

Institute of Technology.

In nominating Mr.

Goldman, our board of directors considered his private equity and hedge fund experience,

which our board of directors believes gives him particular insight into investments in, and the development of, early stage companies,

as well as his high level of financial literacy and expertise regarding mergers, acquisitions, investments and other strategic

transactions.

Peter Gross has served

as a member of our board of directors since December 2018 and serves as a member of our Audit Committee.

Albrecht, our board of directors considered his commercial real estate appraisal experience, which our board of directors believes

gives him particular insight into analysis of income statements and balance sheets, debt analysis and audits of large commercial

institutions.

Gross has served as a member of our board of directors since December 2018 and serves as a member of our Audit Committee,

Compensation Committee and Nominating and Corporate Governance Committee.

Since 2012, Mr.

has served as the Vice President Mission Critical Systems at Bloom Energy, a fuel cell power systems company located in Sunnyvale,

Gross holds a master’s degree in Electrical Engineering from Polytechnic Institute of Bucharest and an MBA

from California State University at Dominguez Hills.

Gross is also a member of the Advisory Board of UCLA’s Institute

of Environment and Sustainability and a member of Southern Methodist University’s Data Center System Engineering Board of

Gross has served as the Vice President

Mission Critical Systems at Bloom Energy, a fuel cell power systems company located in Sunnyvale, California.

a master’s degree in Electrical Engineering from Polytechnic Institute of Bucharest and an MBA from California State University

at Dominguez Hills.

Gross is also a member of the Advisory Board of UCLA’s Institute of Environment and Sustainability

and a member of Southern Methodist University’s Data Center System Engineering Board of Advisors.

In nominating Mr.

Gross, our board of directors considered his significant engineering experience in the power systems

industry, especially for data center and telecommunications applications.

our board of directors considered his significant engineering experience in the power systems industry, especially for data center

and telecommunications applications.

Our board of directors believes that Mr.

Gross will provide

critical leadership as we expand our DC power systems within the data and military markets.

Katherine Koster has

served as a member of our board of directors since December 2019 and has served as a member of our Nominating and Corporate Governance

Committee since her election to the board of directors.

Gross will provide critical leadership as we expand

our DC power systems within the data and military markets.

Koster has served as a member of our board of directors since December 2019 and serves as a member of our Audit Committee

and Nominating and Corporate Governance Committee.

Since 2008, Ms.

2 unchanged sentences

at Piper Sandler Companies where she assists municipalities in accessing the capital markets to fund critical infrastructure.

Koster holds a Bachelor of Arts Degree in Theater/Business Administration from Pepperdine University and has completed the “Women

in Governance:

Koster holds a Bachelor of Arts Degree in Theater/Business Administration from Pepperdine University and has completed the

“Women in Governance:

Preparing for Board Membership”

corporate governance program at the UCLA Anderson School of Management.

Koster holds Series 7 and Series 24 licenses issued by the Financial Industry Regulatory Authority, Series 50 and Series 53 licenses

issued by the Municipal Securities Rulemaking Board and a Series 63 certificate issued by the North American Securities Administrators

corporate governance program at the UCLA Anderson School of

Koster holds Series 7 and Series 24 licenses issued by the Financial Industry Regulatory Authority, Series 50

and Series 53 licenses issued by the Municipal Securities Rulemaking Board and a Series 63 certificate issued by the North American

Securities Administrators Association.

Our board of directors believes that Ms.

Koster’s investment banking experience with Piper Sander Companies

and her high level of financial literacy and expertise and experience in capital raising activities will provide strategic insight

to financial decisions for future Company initiatives.

Election of Officers;

Koster’s investment banking experience with

Piper Sander Companies and her high level of financial literacy and expertise and experience in capital raising activities will

provide strategic insight to financial decisions for future Company initiatives.

Family Relationships

Our executive officers are appointed by,

and serve at the discretion of, our board of directors.

There are no family relationships among any of our directors or executive

Board Composition

Our board of directors currently consists

of five members:

Sams, Matthew Goldman, Keith Albrecht, Peter Gross, and Katherine Koster.

Our directors hold office

until their successors have been elected and qualified or until the earlier of their resignation or removal.

Our certificate of incorporation and bylaws

provide that the authorized number of directors may be changed only by resolution of the board of directors.

Our certificate of

incorporation and bylaws also provide that any vacancy on our board of directors, including a vacancy resulting from an expansion

of our board of directors, may be filled only by vote of a majority of our directors then in office, although less than a quorum

or by a sole remaining director.

We recognize the value of diversity on the

executive officers are appointed by, and serve at the discretion of, our board of directors.

There are no family relationships

among any of our directors or executive officers.

board of directors currently consists of four members:

Sams, Keith Albrecht, Peter Gross, and Katherine Koster.

directors hold office until their successors have been elected and qualified or until the earlier of their resignation or removal.

certificate of incorporation and bylaws provide that the authorized number of directors may be changed only by resolution of the

board of directors.

Currently, however, all members of the board of directors are male.

Although our priority in selection of board

members is identification of members who will further the interests of our stockholders through his or her established record of

professional accomplishment, the ability to contribute positively to the collaborative culture among board members, knowledge of

our business and understanding of the competitive landscape, we are currently focusing on female candidates in order to meet the

requirements of California SB 826.

SB 826 requires public companies headquartered in California to maintain minimum female representation

on their boards of directors as follows:

by the end of 2019, at least one woman on its board, by the end of 2020, public company

boards with five members will be required to have at least two female directors, and public company boards with six or more members

will be required to have at least three female directors.

Independence of our Board of Directors and Board Committees

Rule 5605 of the Nasdaq Listing

Rules requires a majority of a listed company’s board of directors to be comprised of “independent directors,”

Our certificate of incorporation and bylaws also provide that any vacancy on our board of directors, including

a vacancy resulting from an expansion of our board of directors, may be filled only by vote of a majority of our directors then

in office, although less than a quorum or by a sole remaining director.

of our Board of Directors and Board Committees

5605 of the Nasdaq Listing Rules requires a majority of a listed company’s board of directors to be comprised of “independent

directors,”

as defined in such rule, subject to specified exceptions.

In addition, the Nasdaq Listing Rules require that, subject to specified

each member of a listed company’s audit, compensation and nominating committees be independent as defined under

the Nasdaq Listing Rules;

audit committee members also satisfy independence criteria set forth in Rule 10A-3 under the Exchange

and compensation committee members also satisfy an additional independence test for compensation committee members under the

Nasdaq Listing Rules.

Our board of directors has evaluated

the independence of its members based upon the rules of the Nasdaq Stock Market and the SEC.

Applying these standards, our board

of directors determined that none of the directors, other than Mr.

Sams, have a relationship that would interfere with the exercise

of independent judgment in carrying out the responsibilities of a director and that each of those directors is “independent”

In addition, the Nasdaq Listing Rules require that,

subject to specified exceptions:

each member of a listed company’s audit, compensation and nominating committees be independent

as defined under the Nasdaq Listing Rules;

audit committee members also satisfy independence criteria set forth in Rule 10A-3

under the Exchange Act;

and compensation committee members also satisfy an additional independence test for compensation committee

members under the Nasdaq Listing Rules.

board of directors has evaluated the independence of its members based upon the rules of the Nasdaq Stock Market and the SEC.

Applying these standards, our board of directors determined that none of the directors, other than Mr.

Sams, have a relationship

that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each

of those directors is “independent”

as that term is defined under Rule 5605(a)(2) of the Nasdaq Listing Rules.

Sams is not considered independent because he is

an officer of Polar.

As such, a majority of our board of directors is comprised of “independent directors”

under the Nasdaq Listing Rules.

Controlled Company Exemption

Sams, our Chairman, President

and Chief Executive Officer, controls a majority of our common stock.

As a result, we are a “controlled company”

the meaning of the Nasdaq Listing Rules.

Under these rules, a company of which more than 50% of the voting power for the election

of directors is held by an individual, a group or another company is a “controlled company”

and may elect not to comply

with certain Nasdaq corporate governance requirements.

We do not currently intend to rely on those exemptions afforded to a “controlled

company;”

nonetheless, we could potentially seek to rely on certain of those exemptions afforded to a “controlled company”

in the future.

See “Risk Factors–We are a “controlled company”

within the meaning of the Nasdaq Listing

Although we do not currently intend to rely on the exemptions from certain corporate governance requirements afforded to

a “controlled company”

under the Nasdaq Listing Rules, we could potentially seek to rely on such exemptions in the

future.”

Board Committees

Our board of directors has established

standing committees in connection with the discharge of its responsibilities.

These committees include an Audit Committee, a Compensation

Committee and a Nominating and Corporate Governance Committee.

The composition and responsibilities of each committee are described

Members serve on committees until their resignation or until otherwise determined by our board of directors.

Each of these

committees has adopted a written charter that satisfies the applicable standards of the SEC and the Nasdaq Listing Rules, which

we have posted on the investor relations section of our website.

Audit Committee

The members of our Audit Committee

Goldman, Albrecht and Gross.

Sams is not considered independent because he is an officer of Polar.

As such, a majority of our board of directors is comprised

of “independent directors”

as defined under the Nasdaq Listing Rules.

board of directors has established standing committees in connection with the discharge of its responsibilities.

These committees

include an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee.

The composition and

responsibilities of each committee are described below.

Members serve on committees until their resignation or until otherwise

determined by our board of directors.

Each of these committees has adopted a written charter that satisfies the applicable standards

of the SEC and the Nasdaq Listing Rules, which we have posted on the investor relations section of our website.

members of our Audit Committee are Messrs.

Albrecht and Gross and Ms.

Albrecht is the chair of the Audit Committee.

Each member of the Audit Committee satisfies

the heightened audit committee independence requirements under the Nasdaq Listing Rules and Rule 10A-3 of the Exchange Act.

addition, our board of directors has determined that Mr.

Albrecht qualifies as an audit committee financial expert, as that term

is defined under SEC rules, and possesses the requisite financial sophistication, as defined under the Nasdaq Listing Rules.

Audit Committee assists our board of directors in its oversight of our accounting and financial reporting process and the audits

of our financial statements.

Under its charter, our Audit Committee is responsible for, among other things:

overseeing accounting and financial reporting process;

selecting, retaining and replacing independent auditors and evaluating their qualifications, independence and performance;

reviewing and approving scope of the annual audit and audit fees;

discussing with management and independent auditors the results of annual audit and review of quarterly financial statements;

reviewing adequacy and effectiveness of internal control policies and procedures;

approving retention of independent auditors to perform any proposed permissible non-audit services;

overseeing internal audit functions and annually reviewing audit committee charter and committee performance;

preparing the audit committee report that the SEC requires in our annual proxy statement;

reviewing and evaluating the performance of the Audit Committee, including compliance with its charter.

Compensation Committee

The members of our Compensation

Committee are Messrs.

Goldman and Mr.

Goldman is the chair of the Compensation Committee.

Each member of our Compensation

Committee is independent as defined under the Nasdaq Listing Rules and satisfies Nasdaq’s additional independence standards

for compensation committee members.

Goldman and Albrecht are non-employee directors within the meaning of Rule 16b-3 under

the Exchange Act and outside directors as defined by Section 162(m) of the Internal Revenue Code.

Our Compensation Committee assists

our board of directors in the discharge of its responsibilities relating to the compensation of our executive officers.

charter, our Compensation Committee is responsible for, among other things:

developing and maintaining an executive compensation policy and monitor the results of that policy;

recommending to our board of directors for approval compensation and benefit plans;

reviewing and approving annually corporate and personal goals and objectives to serve as the basis for the CEO’s compensation, evaluating the CEO’s performance in light of those goals and objectives and determining the CEO’s compensation based on that evaluation;

determining and approving the annual compensation for other executive officers;

retaining or obtaining the advice of a compensation consultant, outside legal counsel or other advisor;

approving any grants of stock options, restricted stock, performance shares, stock appreciation rights, and other equity-based incentives to the extent provided under our equity compensation plans;

reviewing and making recommendations to our board of directors regarding the compensation of non-employee directors;

reviewing and evaluating the performance of the Compensation Committee, including compliance with its charter.

Nominating and Corporate

Governance Committee

The members of our Nominating

and Corporate Governance Committee are Messrs.

Goldman and Albrecht and Ms.

Goldman is the chair of the Nominating

Each member of the Audit Committee satisfies the heightened audit committee independence requirements under the Nasdaq Listing

Rules and Rule 10A-3 of the Exchange Act.

In addition, our board of directors has determined that Mr.

Albrecht qualifies as an

audit committee financial expert, as that term is defined under SEC rules, and possesses the requisite financial sophistication,

as defined under the Nasdaq Listing Rules.

Our Audit Committee assists our board of directors in its oversight of our accounting

and financial reporting process and the audits of our financial statements.

Under its charter, our Audit Committee is responsible

for, among other things:

accounting and financial reporting process;

retaining and replacing independent auditors and evaluating their qualifications, independence and performance;

and approving scope of the annual audit and audit fees;

with management and independent auditors the results of annual audit and review of quarterly financial statements;

adequacy and effectiveness of internal control policies and procedures;

retention of independent auditors to perform any proposed permissible non-audit services;

internal audit functions and annually reviewing audit committee charter and committee performance;

the audit committee report that the SEC requires in our annual proxy statement;

and evaluating the performance of the Audit Committee, including compliance with its charter.

members of our Compensation Committee are Messrs.

Gross and Albrecht.

Gross is the chair of the Compensation Committee.

member of our Compensation Committee is independent as defined under the Nasdaq Listing Rules and satisfies Nasdaq’s additional

independence standards for compensation committee members.

Gross and Albrecht are non-employee directors within the meaning

of Rule 16b-3 under the Exchange Act and outside directors as defined by Section 162(m) of the Internal Revenue Code.

Our Compensation

Committee assists our board of directors in the discharge of its responsibilities relating to the compensation of our executive

Under its charter, our Compensation Committee is responsible for, among other things:

and maintaining an executive compensation policy and monitor the results of that policy;

to our board of directors for approval compensation and benefit plans;

and approving annually corporate and personal goals and objectives to serve as the basis for the CEO’s compensation,

evaluating the CEO’s performance in light of those goals and objectives and determining the CEO’s compensation

based on that evaluation;

and approving the annual compensation for other executive officers;

or obtaining the advice of a compensation consultant, outside legal counsel or other advisor;

any grants of stock options, restricted stock, performance shares, stock appreciation rights, and other equity-based incentives

to the extent provided under our equity compensation plans;

and making recommendations to our board of directors regarding the compensation of non-employee directors;

and evaluating the performance of the Compensation Committee, including compliance with its charter.

and Corporate Governance Committee

Each member of our Nominating and Corporate Governance Committee is independent as defined

under the Nasdaq Listing Rules.

Under its charter, our Nominating and Corporate Governance Committee is responsible for, among

other things:

considering and reviewing periodically the desired composition of our board of directors;

establishing any qualifications and standards for individual directors;

identifying, evaluating and nominating candidates for election to our board of directors;

ensuring that the members of our board of directors satisfy SEC and Nasdaq independence and other requirements relating to membership on our board of directors and committees;

making recommendations to our board of directors regarding the size of the board of directors, the tenure and classifications of directors, and the composition of the committees of the board of directors;

considering other corporate governance and related matters as requested by our board of directors;

reviewing and evaluating the performance of the Nominating and Corporate Governance Committee, including compliance with its charter.

Compensation Committee Interlocks and Insider Participation

Since July 2016, all officer

compensation and bonuses for executive officers has been determined by our Compensation Committee which is comprised of two independent

None of our executive officers

serves, or in the past has served, as a member of the board of directors or Compensation Committee, or other committee serving

an equivalent function, of any entity that has one or more executive officers serving as members of our board of directors or our

Compensation Committee.

None of the members of our Compensation Committee is or has been an officer or employee of Polar.

Code of Business Conduct and Ethics

We have adopted a written code

of business conduct and ethics that applies to our directors, officers and employees, including our principal executive officer,

principal financial officer, principal accounting officer or controller, or persons performing similar functions.

A copy of the

code is available on the investor relations section of our website, which is located at https://polarpower.com/.

If we make any

substantive amendments to, or grant any waivers from, the code of business conduct and ethics for any officer or director, we will

disclose the nature of such amendment or waiver on our website or in a current report on Form 8-K.

Delinquent Section 16(a) Reports

Section 16(a) of the Exchange

Act requires our executive officers and directors, and persons who beneficially own more than 10% of a registered class of our

common stock, to file initial reports of ownership and reports of changes in ownership with the Securities and Exchange Commission.

These officers, directors and stockholders are required by Securities and Exchange Commission regulations to furnish us with copies

of all reports that they file.

Based solely upon a review of

copies of the reports furnished to us during the year ended December 31, 2019 and thereafter, or any written representations received

by us from directors, officers and beneficial owners of more than 10% of our common stock (“reporting persons”) that

no other reports were required, except as set forth below, we believe that all reporting persons filed on a timely basis all reports

required by Section 16(a) of the Exchange Act during the year ended December 31, 2019 or prior fiscal years.

Sams did not timely

file one Form 4 to report the cancellation of unvested stock options to purchase 100,000 shares of our common stock.

Rajesh Masina

did not timely file one Form 4 to report the cancellation of unvested stock options to purchase 60,000 shares of our common stock.

Luis Zavala did not timely file one Form 4 to report the cancellation of unvested stock options to purchase 60,000 shares of our

common stock.

Sams, Masina and Zavala have prepared and subsequently filed their required Forms 5 to report their transactions

that should have been previously reported on Forms 4 during the year ended December 31, 2019 but were not.

The Forms 5 were not

timely filed.

members of our Nominating and Corporate Governance Committee are Messrs.

Gross and Albrecht and Ms.

Gross is the chair

of the Nominating and Corporate Governance Committee.

Each member of our Nominating and Corporate Governance Committee is independent

as defined under the Nasdaq Listing Rules.

Under its charter, our Nominating and Corporate Governance Committee is responsible

for, among other things:

and reviewing periodically the desired composition of our board of directors;

any qualifications and standards for individual directors;

evaluating and nominating candidates for election to our board of directors;

that the members of our board of directors satisfy SEC and Nasdaq independence and other requirements relating to membership

on our board of directors and committees;

recommendations to our board of directors regarding the size of the board of directors, the tenure and classifications of

directors, and the composition of the committees of the board of directors;

other corporate governance and related matters as requested by our board of directors;

and evaluating the performance of the Nominating and Corporate Governance Committee, including compliance with its charter.

Committee Interlocks and Insider Participation

July 2016, all officer compensation and bonuses for executive officers has been determined by our Compensation Committee which

is comprised of three independent directors.

of our executive officers serves, or in the past has served, as a member of the board of directors or Compensation Committee,

or other committee serving an equivalent function, of any entity that has one or more executive officers serving as members of

our board of directors or our Compensation Committee.

None of the members of our Compensation Committee is or has been an officer

or employee of Polar.

of Business Conduct and Ethics

have adopted a written code of business conduct and ethics that applies to our directors, officers and employees, including our

principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar

A copy of the code is available on the investor relations section of our website, which is located at https://polarpower.com/.

If we make any substantive amendments to, or grant any waivers from, the code of business conduct and ethics for any officer or

director, we will disclose the nature of such amendment or waiver on our website or in a current report on Form 8-K.

Executive Compensation.

For 2019, compensation of our

executive officers was comprised of base salary, non-equity incentives in the form of cash bonuses, and long-term equity incentives.

2020, our Compensation Committee established an executive compensation plan for our President and Chief Executive Officer, Chief

Financial Officer and Chief Operating Officer, whom we refer to collectively as our “executive officers,”

following objectives:

retain, motivate and reward our executive officers who are responsible for our success;

and strengthen the mutual interests of our executive officers, our company and our stockholders;

compensation that reflects our financial and operational performance, while at the same time providing the opportunity for

our executive officers to earn above-targeted total compensation for exceptional individual and company performance;

total compensation to each executive officer that is internally equitable, competitive and influenced by company and individual

2020, compensation of our executive officers was comprised of base salary, non-equity incentives in the form of cash bonuses,

and long-term equity incentives.

The cash bonus amounts paid to our executive officers during 2020, as set forth below in “–

Summary Compensation Table,”

were approved by our Compensation Committee and were based on a variety of factors regarding our performance during 2019.

For 2019, our Compensation Committee

established an executive compensation plan for our President and Chief Executive Officer, Chief Financial Officer and Chief Operating

Officer, whom we refer to collectively as our “executive officers,”

that is intended to achieve the following objectives:

● attract, retain, motivate and reward our executive officers who are responsible for our success;

● align and strengthen the mutual interests of our executive officers, our company and our stockholders;

● deliver compensation that reflects our financial and operational performance, while at the same time providing the opportunity

for our executive officers to earn above-targeted total compensation for exceptional individual and company performance;

● provide total compensation to each executive officer that is internally equitable, competitive and influenced by company and

individual performance.

Compensation Philosophy

Our compensation philosophy and objectives

are as follows:

● to align the interests of our executive officers with those of our stockholders and incent our executive officers to attain

our short- and long-term financial and business goals;

● to ensure that our executive compensation structure and total compensation is fair, reasonable and competitive in the marketplace

were approved by our Compensation Committee and were based on a variety of factors regarding

our performance during 2020.

compensation philosophy and objectives are as follows:

align the interests of our executive officers with those of our stockholders and incent our executive officers to attain our

short- and long-term financial and business goals;

ensure that our executive compensation structure and total compensation is fair, reasonable and competitive in the marketplace

so that we can attract and retain highly qualified personnel in key positions;

● to provide an executive compensation structure and total compensation that are internally equitable based upon each executive

provide an executive compensation structure and total compensation that are internally equitable based upon each executive

officer’s role and responsibilities.

Our Compensation Committee seeks

to make executive compensation decisions that embody this philosophy and that are directed towards attaining these objectives.

In implementing our compensation

philosophy and objectives, our Compensation Committee reviews and analyzes each executive position, including the importance and

scope of the role and how the position compares to other Polar Power executive officers.

With respect to setting base salaries,

our Compensation Committee also compares these positions to similar positions at a number of publicly traded companies listed on

the New York Stock Exchange and Nasdaq that are engaged in the power manufacturing and design industry.

We believe that structuring

our executive officer compensation program to align the interests of our executive officers with our interests and those of our

stockholders, and properly incenting our executive officers to attain our short- and long-term business goals, best serves the

interests of our stockholders and creates stockholder value.

We believe this occurs through motivating our executive officers

to attain our short- and long-term business goals and retaining these executive officers by providing compensation opportunities

that are competitive in the marketplace.

Compensation Governance Practices

Listed below are some key examples

of our compensation governance practices that are intended to align the interests of our executive officers with our stockholders,

incent the attainment of short- and long-term business objectives and retain highly qualified executive officers:

● Pay for performance.

A substantial portion of our compensation is tied to meeting specified

company and individual objectives.

We structure total compensation with significant annual cash incentives and a long-term equity

component, thereby making a substantial portion of each executive officer’s targeted total compensation dependent upon company

and individual performance as well as the performance of our stock price.

● Retention through long-term equity awards .

We employ long-term equity awards through grants

of options that vest in the future.

These equity awards are designed to aid in our retention of key personnel in important positions

and align the interests of our executive officers with those of our stockholders.

● Long vesting periods .

Our equity awards to our executive officers generally vest in annual installments over a three-year

● Linkage of annual cash incentive compensation plan to our performance .

Our annual cash

incentive compensation plan links a majority of targeted and potential payouts to our financial performance.

● Prohibition on hedging and pledging common stock Our executive officers, together with

all our employees, are prohibited from engaging in hedging, pledging or similar transactions with respect to our common stock.

● No perquisites.

Our executive officers are not provided with any perquisites or special

benefits other than benefits such as healthcare, vacation and sick days available to other full-time employees of Polar Power.

● Change in control.

Compensation Committee seeks to make executive compensation decisions that embody this philosophy and that are directed towards

attaining these objectives.

implementing our compensation philosophy and objectives, our Compensation Committee reviews and analyzes each executive position,

including the importance and scope of the role and how the position compares to other Polar Power executive officers.

to setting base salaries, our Compensation Committee also compares these positions to similar positions at a number of publicly

traded companies listed on the New York Stock Exchange and Nasdaq that are engaged in the power manufacturing and design industry.

believe that structuring our executive officer compensation program to align the interests of our executive officers with our

interests and those of our stockholders, and properly incenting our executive officers to attain our short- and long-term business

goals, best serves the interests of our stockholders and creates stockholder value.

We believe this occurs through motivating

our executive officers to attain our short- and long-term business goals and retaining these executive officers by providing compensation

opportunities that are competitive in the marketplace.

Governance Practices

below are some key examples of our compensation governance practices that are intended to align the interests of our executive

officers with our stockholders, incent the attainment of short- and long-term business objectives and retain highly qualified

executive officers:

for performance.

A substantial portion of our compensation is tied to meeting specified company and individual objectives.

We structure total compensation with significant annual cash incentives and a long-term equity component, thereby making a

substantial portion of each executive officer’s targeted total compensation dependent upon company and individual performance

as well as the performance of our stock price.

through long-term equity awards .

We employ long-term equity awards through grants of options that vest in the future.

These equity awards are designed to aid in our retention of key personnel in important positions and align the interests of

our executive officers with those of our stockholders.

vesting periods .

Our equity awards to our executive officers generally vest in annual installments over a three-year period.

of annual cash incentive compensation plan to our performance .

Our annual cash incentive compensation plan links a majority

of targeted and potential payouts to our financial performance.

on hedging and pledging common stock Our executive officers, together with all our employees, are prohibited from engaging

in hedging, pledging or similar transactions with respect to our common stock.

Our executive officers are not provided with any perquisites or special benefits other than benefits such

as healthcare, vacation and sick days available to other full-time employees of Polar Power.

All executive officers’

unvested equity grants accelerate upon any change in control of Polar

● No option re-pricing .

Our 2016 Plan does not permit options or stock appreciation rights

to be repriced to a lower exercise price without the approval of our stockholders, except in connection with certain changes to

our capital structure.

● Clawback policy If we are required as the result of misconduct to restate our financial

results due to our material noncompliance with any financial reporting requirements under the federal securities laws, our Chief

Executive Officer and Chief Financial Officer may be legally required to reimburse us for any bonus or incentive-based or equity-based

compensation they receive.

Role of our Compensation Committee

Our Compensation Committee, with

input from our management and one or more independent compensation consultants, establishes, updates and administers our executive

compensation program.

unvested equity grants accelerate upon any change in control of Polar Power.

option re-pricing .

Our 2016 Plan does not permit options or stock appreciation rights to be repriced to a lower exercise

price without the approval of our stockholders, except in connection with certain changes to our capital structure.

policy If we are required as the result of misconduct to restate our financial results due to our material noncompliance

with any financial reporting requirements under the federal securities laws, our Chief Executive Officer and Chief Financial

Officer may be legally required to reimburse us for any bonus or incentive-based or equity-based compensation they receive.

of our Compensation Committee

Compensation Committee, with input from our management and one or more independent consultants, establishes, updates and administers

our executive compensation program.

Our Compensation Committee establishes our compensation philosophy and objectives;

oversees the design and

administration of our executive compensation program;

the design and administration of our executive compensation program;

establishes the elements and mix of total compensation;

sets the parameters

and specific target metrics of our performance-based incentive compensation plan;

and determines the target compensation of our

executive officers.

Our Compensation Committee has the authority to retain independent counsel, advisors and other experts to assist

it in the compensation-setting process and receives adequate funding to engage those service providers.

Role of Management

Our Chief Executive Officer and

other executive officers attend Compensation Committee meetings as requested by the Compensation Committee.

These individuals are

not present during executive sessions of Compensation Committee meetings except at the invitation of the Compensation Committee.

Comparable Company Analysis

Our Compensation Committee sets

base salary compensation of our executive officers using compensation market data as a reference to assist it in understanding

the competitive pay positioning of total compensation and each element of compensation.

For 2019, the target for base salary compensation

for our executive officers was based on data collected from our peer group of companies.

The peer group of companies selected and

used for compensation comparisons is comprised of Nasdaq or NYSE traded power manufacturing and design companies with revenues

below $100 million.

The overall composition of the peer group reflects companies of similar complexity and size to us.

we believe that these peer group of companies are reflective of our market for executive talent.

Set forth below is the list of

the peer group of companies for 2019:

Espey Manufacturing –

Power electronics design and manufacturing company, products include power supplies, power converters, power distribution equipment.

Wireless Telecommunications–

Designs and manufactures radio frequency and microwave based products for wireless and advance telecommunications industry

Ballard Power Systems –

BLDP (Nasdaq)

Developer and manufacturer of fuel cell products for material handling and portable power applications

Plug Power –

PLUG (Nasdaq)

Design and manufactures hydrogen fuel cell systems for mobile and stationary power applications

Fuel Cell Energy –

Designs and manufactures power generation systems for mobile and stationary power applications.

The Compensation Committee reviews

the appropriateness of the comparison group used for assessing the compensation of our executive officers on an annual basis.

data used from our peer group was collected directly from filings made by the peer group of companies with the SEC.

Elements of Total Compensation

During 2019, our executive officers’

the parameters and specific target metrics of our performance-based incentive compensation plan;

and determines the target compensation

of our executive officers.

Our Compensation Committee has the authority to retain independent counsel, advisors and other experts

to assist it in the compensation-setting process and receives adequate funding to engage those service providers.

of Management

Chief Executive Officer and other executive officers attend Compensation Committee meetings as requested by the Compensation Committee.

These individuals are not present during executive sessions of Compensation Committee meetings except at the invitation of the

Compensation Committee.

Company Analysis

Compensation Committee sets base salary compensation of our executive officers using compensation market data as a reference to

assist it in understanding the competitive pay positioning of total compensation and each element of compensation.

For 2020, the

target for base salary compensation for our executive officers remained the same as in 2019 and was based on data collected from

our peer group of companies.

The peer group of companies selected and used for compensation comparisons is comprised of Nasdaq

or NYSE traded power manufacturing and design companies with revenues below $100 million.

The overall composition of the peer

group reflects companies of similar complexity and size to us.

As such, we believe that these peer group of companies are reflective

of our market for executive talent.

Set forth below is the list of the peer group of companies for 2020:

Manufacturing –

electronics design and manufacturing company, products include power supplies, power converters, power distribution equipment.

Telecommunications–

and manufactures radio frequency and microwave based products for wireless and advance telecommunications industry

Cell Energy –

and manufactures power generation systems for mobile and stationary power applications.

Compensation Committee reviews the appropriateness of the comparison group used for assessing the compensation of our executive

officers on an annual basis.

The data used from our peer group was collected directly from filings made by the peer group of companies

with the SEC.

of Total Compensation

2020, our executive officers’

compensation program included three major elements:

● Base Salary

● Non-Equity Incentives

● Long-term Equity Incentives

Our Compensation Committee reviews

the base salary levels for our executive officers annually and makes such adjustments as it deems appropriate after taking into

account the officer’s level and scope of responsibility and experience, company and individual performance, competitive market

data, and internal pay equity considerations.

Outlined below is the base salary

data of the peer group of companies outlined above.

For 2019, the Compensation Committee eliminated the highest and lowest base

salary data to avoid skewing the results (e.g., in one case, the subject company paid a very low base salary while awarding very

high equity awards).

The remaining amounts were then tabulated to provide the average base salary for the executive officers in

the peer group of companies.

In reviewing the personal performance of each of our executive officers during 2018 and the average

base salaries paid by our peer group of companies, the Compensation Committee concluded that the base salaries of our executive

officers during 2019 remain same as base salaries in 2018, however, the Compensation Committee concluded that a pay for performance

incentive program be used to reward executive officers performance.

The Compensation Committee determined

on April 2, 2018 that, commencing April 1, 2018, the base salary of our President and Chief Executive officer be set at approximately

70% of the average base salaries of the peer group of companies and that the base salaries for our Chief Financial Officer and

the Chief Operating Officer be set at approximately 60% of the average base salaries of the peer group of companies, all of which

is reflected in the table set forth below:

Equity Incentives.

Compensation Committee reviews the base salary levels for our executive officers annually and makes such adjustments as it deems

appropriate after taking into account the officer’s level and scope of responsibility and experience, company and individual

performance, competitive market data, and internal pay equity considerations.

below is the base salary data of the peer group of companies outlined above.

For 2020, the Compensation Committee kept the same

base salary structure as in 2019.

In determining base salary, the Compensation Committee tabulated the average base salary for

the executive officers in the peer group of companies.

Compensation Committee determined on April 2, 2018 that, commencing April 1, 2018, the base salary of our President and Chief

Executive officer be set at approximately 70% of the average base salaries of the peer group of companies and that the base salaries

for our Chief Financial Officer and the Chief Operating Officer be set at approximately 60% of the average base salaries of the

peer group of companies, all of which is reflected in the table set forth below:

CEO (in $,000)

Non-Equity Incentives

Annual non-equity incentive compensation

for our executive officers consists of cash awards.

Participants are eligible for annual cash incentive compensation based upon

our attainment of pre-established financial and business performance goals.

The Compensation Committee believes that these goals

will best incent our executive officers to attain our short- and long-term financial and other business goals.

For 2019, the Compensation Committee determined

that each executive officer could earn up to 100% of such executive officer’s base salary based upon the attainment by the

Company of the seven financial and other business performance goals set forth below.

The minimum and maximum payout for each performance

goal (measured as a percentage of base salary) are set forth immediately below.

The specific pre-established performance goals

are set forth in the table following the table set forth immediately below.

Participants are eligible to receive awards at each

level of participation (i.e., Minimum Level, Target Level and Maximum Level) to the extent Polar Power achieves such level.

the event our performance falls short of a specific performance level, participants will not be eligible to receive an award at

In addition, executive officers had to achieve a minimum of two performance elements in order to qualify for an award

in the level.

For example, if at conclusion of the year the total revenues are $36 million and none of the additional elements

qualified, then executive officer would not be eligible for a performance award of 25% as outlined in the table below.

CFO/COO (in$,000)

non-equity incentive compensation for our executive officers consists of cash awards.

Participants are eligible for annual cash

incentive compensation based upon our attainment of pre-established financial and business performance goals.

The Compensation

Committee believes that these goals will best incent our executive officers to attain our short- and long-term financial and other

business goals.

For 2020, the Compensation

Committee determined that each executive officer could earn up to 100% of such executive officer’s base salary based upon

the attainment by us of the five financial and other business performance goals set forth below.

The minimum and maximum

payout for each performance goal (measured as a percentage of base salary) are set forth immediately below.

The specific pre-established

performance goals are set forth in the table following the table set forth immediately below.

Participants are eligible to receive

awards at each level of participation (i.e., Minimum Level, Target Level and Maximum Level) to the extent Polar Power achieves

In the event our performance falls short of a specific performance level, participants will not be eligible to receive

an award at that level.

In addition, executive officers had to achieve a minimum of two performance elements in order to qualify

for an award in the level.

For example, if at conclusion of 2020 the total revenues were $36 million and none of the additional

elements qualified, then the executive officer would not be eligible for a performance award of 25% of base salary as outlined

in the table below.

Company Performance Element

7 unchanged sentences

International Sales (% of total sales)

Long-term Equity Incentives

Long-term equity incentive compensation

for our executive officers, generally consists of awards of stock options under our 2016 Plan.

We believe that these equity awards

offer a balanced and competitive equity compensation arrangement for our executive officers.

The Compensation Committee approves equity

awards for our executive officers in connection with the annual review of their individual performance and overall compensation.

The annual awards are typically made near the end of the first quarter of the following year.

Each award is designed primarily

as a retention tool, typically requiring the executive to remain with Polar Power for at least one year to receive the benefit

of one-third of the award on partial vesting and at least three years to receive the full benefit of the award on full vesting.

We believe our equity incentive compensation aligns the interests of our executive officers with those of our stockholders and

provides each executive officer with a significant incentive to manage Polar Power from the perspective of an owner with an equity

stake in the business by tying significant portions of the recipients’

compensation to the market price of our common stock.

In making long-term equity incentive awards,

our Compensation Committee sets a target value for the award for each executive officer based on its judgment about the factors

used in setting executive officer total compensation described under “

Equity Incentives

equity incentive compensation for our executive officers, generally consists of awards of stock options under our 2016 Plan.

believe that these equity awards offer a balanced and competitive equity compensation arrangement for our executive officers.

Compensation Committee approves equity awards for our executive officers in connection with the annual review of their individual

performance and overall compensation.

The annual awards are typically made near the end of the first quarter of the following

Each award is designed primarily as a retention tool, typically requiring the executive to remain with Polar Power for at

least one year to receive the benefit of one-third of the award on partial vesting and at least three years to receive the full

benefit of the award on full vesting.

We believe our equity incentive compensation aligns the interests of our executive officers

with those of our stockholders and provides each executive officer with a significant incentive to manage Polar Power from the

perspective of an owner with an equity stake in the business by tying significant portions of the recipients’

to the market price of our common stock.

making long-term equity incentive awards, our Compensation Committee sets a target value for the award for each executive officer

based on its judgment about the factors used in setting executive officer total compensation described under “Compensation

Philosophy”

4 unchanged sentences

stockholders.

On October 1, 2019, Messrs.

and Zavala cancelled unvested stock options to purchase up to 100,000, 60,000 and 60,000 shares of our common stock, respectively.

Summary Compensation Table

The table and discussion below present compensation

information for our following executive officers, which we refer to as our “named executive officers”:

Compensation Table

table and discussion below present compensation information for our following executive officers, which we refer to as our “named

executive officers”:

Sams, our President, Chief Executive Officer, Secretary and Chairman of the Board;

Rajesh Masina, our Chief Operating Officer;

Luis Zavala, our Chief Financial Officer.

Name and Principal

Masina, our Chief Operating Officer;

Zavala, our Chief Financial Officer.

and Principal

Sams, President,

Chief Executive Officer and

Chief Executive Officer and Secretary

Rajesh Masina,

1 unchanged sentence

Chief Financial Officer

Employment Agreements

Our Amended and Restated Executive

Employment Agreement with Arthur D.

Sams, dated as of July 8, 2016, provides for at-will employment of Mr.

Sams as our President

and Chief Executive Officer, at an annual base salary of $200,000.

On April 2, 2018, we increased Mr.

annual base salary

to $275,000 effective as of April 1, 2018.

Sams is eligible to receive an annual discretionary cash bonus to be paid based

upon performance criteria set by our Compensation Committee, as more fully described above, and is eligible to participate in all

of our employee benefit programs including our 2016 Plan.

Upon termination by Polar without

cause or resignation by Mr.

Amended and Restated Executive Employment Agreement with Arthur D.

Sams, dated as of July 8, 2016, provides for at-will employment

Sams as our President and Chief Executive Officer, at an annual base salary of $200,000.

On April 2, 2018, we increased

annual base salary to $275,000 effective as of April 1, 2018.

Sams is eligible to receive an annual discretionary

cash bonus to be paid based upon performance criteria set by our Compensation Committee, as more fully described above, and is

eligible to participate in all of our employee benefit programs including our 2016 Plan.

termination by Polar without cause or resignation by Mr.

Sams for good reason, Mr.

Sams is entitled to receive (i) a lump sum cash payment equal to 200% of

his then-current base salary, (ii) a lump sum cash payment equal to 200% of the amount of average incentive bonus paid to Mr.

during the two calendar years preceding the termination, and (iii) continued health insurance coverage for eighteen months.

Sams is terminated without cause or resigns for good reason within three months before or twelve months after a change in control,

Sams is entitled to (a) a lump sum cash payment equal to 200% of his then-current base salary, (b) a lump sum cash payment

equal to 200% of the amount of average incentive bonus paid to Mr.

Sams during the two calendar years preceding the termination,

and (c) continued health insurance coverage for eighteen months.

Sams becomes disabled, Mr.

Sams is entitled to receive

a lump sum cash payment equal to 100% of his then-current base salary and continued health coverage for twelve months.

The term “for good reason”

is defined in the Amended and Restated Executive Employment Agreement as (i) the assignment to Mr.

Sams of any duties or responsibilities

that result in the material diminution of Mr.

authority, duties or responsibility, (ii) a material reduction by Polar

annual base salary, except to the extent the base salaries of all other executive officers of Polar are accordingly

reduced, (iii) a relocation of Mr.

place of work, or Polar’s principal executive offices if Mr.

office is at these offices, to a location that increases Mr.

daily one-way commute by more than fifty miles, or (iv)

any material breach by Polar of any material provision of the Amended and Restated Executive Employment Agreement.

The term “cause”

Sams is entitled to receive (i) a lump sum

cash payment equal to 200% of his then-current base salary, (ii) a lump sum cash payment equal to 200% of the amount of average

incentive bonus paid to Mr.

Sams during the two calendar years preceding the termination, and (iii) continued health insurance

coverage for eighteen months.

Sams is terminated without cause or resigns for good reason within three months before or

twelve months after a change in control, Mr.

Sams is entitled to (a) a lump sum cash payment equal to 200% of his then-current

base salary, (b) a lump sum cash payment equal to 200% of the amount of average incentive bonus paid to Mr.

Sams during the two

calendar years preceding the termination, and (c) continued health insurance coverage for eighteen months.

disabled, Mr.

Sams is entitled to receive a lump sum cash payment equal to 100% of his then-current base salary and continued

health coverage for twelve months.

term “for good reason”

is defined in the Amended and Restated Executive Employment Agreement as (i) the assignment

Sams of any duties or responsibilities that result in the material diminution of Mr.

authority, duties or responsibility,

(ii) a material reduction by Polar in Mr.

annual base salary, except to the extent the base salaries of all other

executive officers of Polar are accordingly reduced, (iii) a relocation of Mr.

place of work, or Polar’s principal

executive offices if Mr.

principal office is at these offices, to a location that increases Mr.

one-way commute by more than fifty miles, or (iv) any material breach by Polar of any material provision of the Amended and Restated

Executive Employment Agreement.

term “cause”

is defined in the Amended and Restated Executive Employment Agreement as (i) Mr.

indictment or conviction of any felony

or of any crime involving dishonesty, (ii) Mr.

participation in any fraud or other act of willful misconduct against

Polar, (iii) Mr.

or conviction of any felony or of any crime involving dishonesty, (ii) Mr.

participation in any fraud or other act

of willful misconduct against Polar, (iii) Mr.

refusal to comply with any lawful directive of Polar, (iv) Mr.

material breach of his

fiduciary, statutory, contractual, or common law duties to Polar, or (v) conduct by Mr.

Sams which, in the good faith and reasonable

determination of our board of directors, demonstrates gross unfitness to serve;

provided, however, that in the event that any of

the foregoing events is reasonably capable of being cured, Polar shall, within twenty days after the discovery of the event, provide

written notice to Mr.

material breach of his fiduciary, statutory, contractual, or common law duties to Polar, or (v) conduct by Mr.

Sams which, in

the good faith and reasonable determination of our board of directors, demonstrates gross unfitness to serve;

provided, however,

that in the event that any of the foregoing events is reasonably capable of being cured, Polar shall, within twenty days after

the discovery of the event, provide written notice to Mr.

Sams describing the nature of the event and Mr.

Sams shall thereafter have ten business days to cure the

A “change in control”

of Polar is deemed to have occurred if, in a single transaction or series of related transactions (i) any person (as the term is

used in Section 13(d) and 14(d) of the Exchange Act), or persons acting as a group, other than a trustee or fiduciary holding securities

under an employee benefit program, is or becomes a “beneficial owner”

(as defined in Rule 13-3 under the Exchange Act),

directly or indirectly of securities of Polar representing a majority of the combined voting power of Polar, (ii) there is a merger,

consolidation or other business combination transaction of Polar with or into another corporation, entity or person, other than

a transaction in which the holders of at least a majority of the shares of voting capital stock of Polar outstanding immediately

prior to the transaction continue to hold (either by the shares remaining outstanding or by their being converted into shares of

voting capital stock of the surviving entity) a majority of the total voting power represented by the shares of voting capital

stock of Polar (or the surviving entity) outstanding immediately after the transaction, or (iii) all or substantially all of our

assets are sold.

Rajesh Masina

Our Executive Employment Agreement

with Rajesh Masina, dated as of July 8, 2016, provides for at-will employment as our Vice President Operations at an annual base

salary is $120,000.

Sams shall thereafter

have ten business days to cure the event.

“change in control”

of Polar is deemed to have occurred if, in a single transaction or series of related transactions

(i) any person (as the term is used in Section 13(d) and 14(d) of the Exchange Act), or persons acting as a group, other than

a trustee or fiduciary holding securities under an employee benefit program, is or becomes a “beneficial owner”

defined in Rule 13-3 under the Exchange Act), directly or indirectly of securities of Polar representing a majority of the combined

voting power of Polar, (ii) there is a merger, consolidation or other business combination transaction of Polar with or into another

corporation, entity or person, other than a transaction in which the holders of at least a majority of the shares of voting capital

stock of Polar outstanding immediately prior to the transaction continue to hold (either by the shares remaining outstanding or

by their being converted into shares of voting capital stock of the surviving entity) a majority of the total voting power represented

by the shares of voting capital stock of Polar (or the surviving entity) outstanding immediately after the transaction, or (iii)

all or substantially all of our assets are sold.

Executive Employment Agreement with Rajesh Masina, dated as of July 8, 2016, provides for at-will employment as our Vice President

Operations at an annual base salary is $120,000.

On April 2, 2018, we appointed Mr.

Masina as our Chief Operating Officer and increased his annual base salary

to $175,000 effective as of April 1, 2018.

Masina is eligible to receive an annual discretionary cash bonus to be paid based

upon performance criteria set by our Compensation Committee, as more fully described above, and is eligible to participate in all

of our employee benefit programs including our 2016 Plan.

Upon termination by Polar without

cause, resignation by Mr.

Masina as our Chief Operating Officer and

increased his annual base salary to $175,000 effective as of April 1, 2018.

Masina is eligible to receive an annual discretionary

cash bonus to be paid based upon performance criteria set by our Compensation Committee, as more fully described above, and is

eligible to participate in all of our employee benefit programs including our 2016 Plan.

termination by Polar without cause, resignation by Mr.

Masina for good reason or upon Mr.

Masina’s disability, Mr.

Masina is entitled to receive (i) a

lump sum cash payment equal to 50% of his then-current base salary, and (ii) continued health insurance coverage for six months.

Masina is terminated without cause or resigns for good reason within three months before or twelve months after a change

in control, Mr.

Masina is entitled to (a) a lump sum cash payment equal to 50% of his then-current base salary, and (b) continued

health insurance coverage for six months.

The terms “for good reason,”

is entitled to receive (i) a lump sum cash payment equal to 50% of his then-current base salary, and (ii) continued health insurance

coverage for six months.

Masina is terminated without cause or resigns for good reason within three months before or twelve

months after a change in control, Mr.

Masina is entitled to (a) a lump sum cash payment equal to 50% of his then-current base

salary, and (b) continued health insurance coverage for six months.

terms “for good reason,”

“cause”

and “change in control in Mr.

Masina’s Executive Employment Agreement are identical to the definitions

contained in Mr.

Masina’s Executive Employment

Agreement are identical to the definitions contained in Mr.

Amended and Restated Executive Employment Agreement.

Our Executive Employment Agreement

with Luis Zavala, dated as of July 8, 2016, provides for at-will employment as our Vice President Finance at an annual base salary

Executive Employment Agreement with Luis Zavala, dated as of July 8, 2016, provides for at-will employment as our Vice President

Finance at an annual base salary of $120,000.

On April 2, 2018, we appointed Mr.

Zavala as our Chief Financial Officer and increased his annual base salary to $175,000

effective as of April 1, 2018.

Zavala is eligible to receive an annual discretionary cash bonus to be paid based upon performance

criteria set by our Compensation Committee, as more fully described above, and is eligible to participate in all of our employee

benefit programs including our 2016 Plan.

Zavala as our Chief Financial Officer and increased

his annual base salary to $175,000 effective as of April 1, 2018.

Zavala is eligible to receive an annual discretionary cash

bonus to be paid based upon performance criteria set by our Compensation Committee, as more fully described above, and is eligible

to participate in all of our employee benefit programs including our 2016 Plan.

The general terms of Mr.

Zavala’s Executive Employment Agreement are identical

to the terms of Mr.

Zavala’s Executive

Employment Agreement are identical to the terms of Mr.

Masina’s Executive Employment Agreement.

Omnibus Incentive Plan

On July 8, 2016 our board of directors and

stockholders adopted the 2016 Plan.

The material terms of the 2016 Plan, as amended, are summarized below.

Summary of the Material

Terms of the 2016 Plan

We established

the 2016 Plan to attract, retain and motivate our employees, officers and directors, to promote the success of our business by

linking the personal interests of our employees, officers, consultants, advisors and directors to those of our stockholders and

to encourage stock ownership on the part of management.

The 2016 Plan is intended to permit the grant of stock options (both incentive

stock options, or ISOs and non-qualified stock options, or NQSOs or, collectively, Options), stock appreciation rights, or SARS,

restricted stock awards, or Restricted Stock Awards, restricted stock units, or RSUs, incentive awards, or Incentive Awards, other

stock-based awards, or Stock Based Awards, dividend equivalents, or Dividend Equivalents, and cash awards, or Cash Awards.

July 8, 2016 our board of directors and stockholders adopted the 2016 Plan.

The material terms of the 2016 Plan, as amended, are

summarized below.

of the Material Terms of the 2016 Plan

We established the 2016 Plan to attract, retain and motivate our employees, officers and directors, to promote the success of

our business by linking the personal interests of our employees, officers, consultants, advisors and directors to those of our

stockholders and to encourage stock ownership on the part of management.

The 2016 Plan is intended to permit the grant of stock

options (both incentive stock options, or ISOs and non-qualified stock options, or NQSOs or, collectively, Options), stock appreciation

rights, or SARS, restricted stock awards, or Restricted Stock Awards, restricted stock units, or RSUs, incentive awards, or Incentive

Awards, other stock-based awards, or Stock Based Awards, dividend equivalents, or Dividend Equivalents, and cash awards, or Cash

Administration .

Plan is administered by our Compensation Committee.

Our Compensation Committee may act through subcommittees or, with respect to

awards granted to individuals who are not subject to the reporting and other provisions of Section 16 of the Exchange Act and who

are not members of our board of directors or the board of directors of our Affiliates (as defined by the 2016 Plan), delegate to

one or more officers all or part of its duties with respect to such awards.

Our Compensation Committee may, at its discretion,

accelerate the time at which any award may be exercised, become transferable or nonforfeitable or become earned and settled including

without limitation (i) in the event of the participant’s death, disability, retirement or involuntary termination of employment

or service (including a voluntary termination of employment or service for good reason) or (ii) in connection with a Change in

Control (as defined in the 2016 Plan).

Authorized Shares .

the 2016 Plan, we may issue a maximum aggregate of 1,754,385 shares of common stock, all of which may be issued pursuant to Options,

SARs, Restricted Stock Awards, RSUs, Incentive Awards, Stock-Based Awards or Dividend Equivalents.

Each share issued in connection

with an award will reduce the number of shares available under the 2016 Plan by one, and each share covered under a SAR will reduce

the number of shares available under the 2016 Plan by one, even though the share is not actually issued upon settlement of the

Shares relating to awards that are terminated by expiration, forfeiture, cancellation or otherwise without issuance of shares

of common stock, settled in cash in lieu of shares, or exchanged prior to the issuance of shares for awards not involving shares,

will again be available for issuance under the 2016 Plan.

Shares not issued as a result of net settlement of an award, tendered

or withheld to pay the exercise price, purchase price or withholding taxes of an award or shares purchased on the open market with

the proceeds of the exercise price of an award will not again be available for issuance under the 2016 Plan.

Award Limits .

In any calendar year, no participant may

be granted awards that relate to more than 500,000 shares of our common stock.

For these purposes, an Option and its corresponding

SAR will be counted as a single award.

For any Cash Awards that are intended to constitute annual incentive awards, the maximum

amount payable to any one participant with respect to any 12-month period is $5,000,000.

Award limits that are expressed as a number

of shares are subject to the adjustment provisions of the 2016 Plan as described below.

A non-employee director may not be granted awards during any

single calendar year that, taken together with any cash fees paid to such non-employee director during such calendar year in respect

of the non-employee director’s service as a member of the board during such year, exceeds $750,000 in total value (calculating

the value of any such awards based on the grant date fair value of such awards for financial accounting purposes).

Notwithstanding

the foregoing, the board may make exceptions to the foregoing limit (up to twice such limit) for a non-executive chair of the board

or, in extraordinary circumstances, for other individual non-employee directors, as the board may determine, provided that the

non-employee director, receiving such awards may not participate in the decision to make such awards.

Written Agreements .

awards granted under the 2016 Plan will be governed by separate written agreements between the participants and us.

agreements will specify the terms of the particular awards.

The 2016 Plan is administered by our Compensation Committee.

Our Compensation Committee may act through subcommittees or, with

respect to awards granted to individuals who are not subject to the reporting and other provisions of Section 16 of the Exchange

Act and who are not members of our board of directors or the board of directors of our Affiliates (as defined by the 2016 Plan),

delegate to one or more officers all or part of its duties with respect to such awards.

Our Compensation Committee may, at its

discretion, accelerate the time at which any award may be exercised, become transferable or nonforfeitable or become earned and

settled including without limitation (i) in the event of the participant’s death, disability, retirement or involuntary

termination of employment or service (including a voluntary termination of employment or service for good reason) or (ii) in connection

with a Change in Control (as defined in the 2016 Plan).

Under the 2016 Plan, we may issue a maximum aggregate of 1,754,385 shares of common stock, all of which may be issued

pursuant to Options, SARs, Restricted Stock Awards, RSUs, Incentive Awards, Stock-Based Awards or Dividend Equivalents.

issued in connection with an award will reduce the number of shares available under the 2016 Plan by one, and each share covered

under a SAR will reduce the number of shares available under the 2016 Plan by one, even though the share is not actually issued

upon settlement of the SAR.

Shares relating to awards that are terminated by expiration, forfeiture, cancellation or otherwise

without issuance of shares of common stock, settled in cash in lieu of shares, or exchanged prior to the issuance of shares for

awards not involving shares, will again be available for issuance under the 2016 Plan.

Shares not issued as a result of net settlement

of an award, tendered or withheld to pay the exercise price, purchase price or withholding taxes of an award or shares purchased

on the open market with the proceeds of the exercise price of an award will not again be available for issuance under the 2016

In any calendar year, no participant may be granted awards that relate to more than 350,877 shares of our common stock.

For these purposes, an Option and its corresponding SAR will be counted as a single award.

For any Cash Awards that are intended

to constitute annual incentive awards, the maximum amount payable to any one participant with respect to any 12-month period is

Award limits that are expressed as a number of shares are subject to the adjustment provisions of the 2016 Plan as described

non-employee director may not be granted awards during any single calendar year that, taken together with any cash fees paid to

such non-employee director during such calendar year in respect of the non-employee director’s service as a member of the

board during such year, exceeds $500 in total value (calculating the value of any such awards based on the grant date fair value

of such awards for financial accounting purposes).

Notwithstanding the foregoing, the board may make exceptions to the foregoing

limit (up to twice such limit) for a non-executive chair of the board or, in extraordinary circumstances, for other individual

non-employee directors, as the board may determine, provided that the non-employee director, receiving such awards may not participate

in the decision to make such awards.

All awards granted under the 2016 Plan will be governed by separate written agreements between the participants

The written agreements will specify the terms of the particular awards.

Transferability.

an award is non-transferable except by will or the laws of descent and distribution, and during the lifetime of the participant

to whom the award is granted, the award may only be exercised by, or payable to, the participant.

However, the Compensation Committee

may provide that awards, other than ISOs or a Corresponding SAR that is related to an ISO, may be transferred by a participant

to immediate family members or trust or other entities on behalf of the Participant and/or family members for charitable donations.

Any such transfer will be permitted only if (i) the participant does not receive any consideration for the transfer and (ii) the

Compensation Committee expressly approves the transfer.

The holder of the transferred award will be bound by the same terms and

conditions that governed the award during the period that it was held by the participant, except that such transferee may only

transfer the award by will or the laws of descent and distribution.

Maximum Award Period.

shall be exercisable or become vested or payable more than ten years after the date of grant.

Generally, an award is non-transferable except by will or the laws of descent and distribution, and during the lifetime of

the participant to whom the award is granted, the award may only be exercised by, or payable to, the participant.

Compensation Committee may provide that awards, other than ISOs or a Corresponding SAR (as defined in the 2016 Plan) that is related

to an ISO, may be transferred by a participant to immediate family members or trust or other entities on behalf of the Participant

and/or family members for charitable donations.

Any such transfer will be permitted only if (i) the participant does not receive

any consideration for the transfer and (ii) the Compensation Committee expressly approves the transfer.

The holder of the transferred

award will be bound by the same terms and conditions that governed the award during the period that it was held by the participant,

except that such transferee may only transfer the award by will or the laws of descent and distribution.

Award Period.

No award shall be exercisable or become vested or payable more than ten years after the date of grant.

With Applicable Law.

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to which we are a party, and the rules of all domestic stock exchanges on which our shares may be listed.

The exercise or

purchase price of an award, and any taxes required to be withheld with respect to an award, may be paid in cash or, if the written

agreement so provides, the Compensation Committee may allow a participant to pay all or part of the exercise or purchase price,

and any required withholding taxes, by tendering shares of common stock, through a broker-assisted cashless exercise, by means

of “net exercise”

The exercise or purchase price of an award, and any taxes required to be withheld with respect to an award, may be paid in

cash or, if the written agreement so provides, the Compensation Committee may allow a participant to pay all or part of the exercise

or purchase price, and any required withholding taxes, by tendering shares of common stock, through a broker-assisted cashless

exercise, by means of “net exercise”

procedure, or any other specified medium of payment.

Stockholder Rights.

participant shall have any rights as our stockholder as a result of issuance of an award until the award is settled by the issuance

of common stock (other than a Restricted Stock Award or RSUs for which certain stockholder rights may be granted).

Forfeiture Provisions.

not confer upon any individual any right to continue in our employ or service or in the employ or service of our Affiliates.

rights to any award that a participant has will be immediately forfeited if the participant is discharged from employment or service

for “Cause”

No participant shall have any rights as our stockholder as a result of issuance of an award until the award is settled

by the issuance of common stock (other than a Restricted Stock Award or RSUs for which certain stockholder rights may be granted).

Awards do not confer upon any individual any right to continue in our employ or service or in the employ or service

of our Affiliates.

All rights to any award that a participant has will be immediately forfeited if the participant is discharged

from employment or service for “Cause”

(as defined in the 2016 Plan).

Types of awards

Both ISOs and

NQSOs may be granted under the 2016 Plan.

Our Compensation Committee will determine the eligible individuals to whom grants of

Options will be made, the number of shares subject to each option, the exercise price per share, the time or times at which the

option may be exercised, whether any performance or other conditions must be satisfied before a participant may exercise an option,

the method of payment by the participant, the method of delivery of shares to a participant, whether the Option is an ISO or a

NQSO, and all other terms and conditions of the award.

However, the exercise price of an Option may not be less than the fair

market value of a share of common stock on the date the Option is granted.

No participant may be granted ISOs that are first exercisable

in any calendar year for shares of common stock having an aggregate fair value (determined on the date of grant) that exceeds

With respect to an ISO granted to a participant who is a Ten Percent Shareholder (as defined in the 2016 Plan), the

exercise price per share may not be less than 110% of the fair market value of the common stock on the date the Option is granted.

At the Compensation Committee’s discretion, an Option may be granted with or without a Corresponding SAR (as defined below).

Both ISOs and NQSOs may be granted under the 2016 Plan.

Our Compensation Committee will determine the eligible individuals to

whom grants of Options will be made, the number of shares subject to each option, the exercise price per share, the time or times

at which the option may be exercised, whether any performance or other conditions must be satisfied before a participant may exercise

an option, the method of payment by the participant, the method of delivery of shares to a participant, whether the Option is

an ISO or a NQSO, and all other terms and conditions of the award.

However, the exercise price of an Option may not be less than

the fair market value of a share of common stock on the date the Option is granted.

No participant may be granted ISOs that are

first exercisable in any calendar year for shares of common stock having an aggregate fair value (determined on the date of grant)

that exceeds $100,000.

With respect to an ISO granted to a participant who is a Ten Percent Shareholder (as defined in the 2016

Plan), the exercise price per share may not be less than 110% of the fair market value of the common stock on the date the Option

At the Compensation Committee’s discretion, an Option may be granted with or without a Corresponding SAR (as

defined below).

A SAR entitles the participant to receive, upon exercise, the excess of the fair market value on that date of each share of common

10 unchanged sentences

on the date of grant) that exceeds $100,000.

Restricted Stock Awards and RSUs .

A Restricted Stock Award is the grant or sale of shares of common stock, which may be subject to forfeiture for a period of time

or subject to certain conditions.

A RSU entitles the participant to receive, upon vesting, shares of our common stock.

deliver to the participant one share of common stock for each RSU that becomes earned and payable.

With regard to Restricted Stock

Awards, the Compensation Committee is authorized to determine the eligible individuals to whom grants will be made, the number

of shares subject to such grants, the purchase price, if any, to be paid for each share subject to the award of restricted stock,

the time or times at which the restrictions will terminate, and all other terms and conditions of the restricted stock.

to RSUs, the Compensation Committee is authorized to determine the eligible individuals to whom grants will be made, the number

of shares subject to such grants and the vesting conditions entitling a participant to settlement of the RSUs.

Incentive Awards .

Award entitles the participant to receive cash or common stock when certain conditions are met.

The Compensation Committee has

the authority to determine the eligible individuals to whom grants will be made and all other terms and conditions of the Incentive

Stock-Based Awards .

Awards may be denominated or payable in, valued by reference to or otherwise based on shares of common stock, including awards

convertible or exchangeable into shares of common stock (or the cash value thereof) and common stock purchase rights and awards

valued by reference to the fair market value of the common stock.

The Compensation Committee has the authority to determine the

eligible individuals to whom grants will be made and all other terms and conditions of Stock-Based Awards.

However, the purchase

price for the common stock under any Stock-Based Award in the nature of a purchase right may not be less than the fair market value

of a share of common stock as of the date the award is granted.

Cash awards, as an element of or supplement to any other award

under the 2016 Plan, may also be granted.

Our Compensation Committee is

authorized under the 2016 Plan to grant shares of common stock as a bonus, or to grant shares of common stock or other awards in

lieu of any of our obligations or of our affiliates to pay cash or to deliver other property under the 2016 Plan or under any other

of our plans or compensatory arrangements or any of our affiliates.

Dividend Equivalents .

Stock Awards and RSUs .

A Restricted Stock Award is the grant or sale of shares of common stock, which may be subject to forfeiture

for a period of time or subject to certain conditions.

A RSU entitles the participant to receive, upon vesting, shares of our

common stock.

We will deliver to the participant one share of common stock for each RSU that becomes earned and payable.

regard to Restricted Stock Awards, the Compensation Committee is authorized to determine the eligible individuals to whom grants

will be made, the number of shares subject to such grants, the purchase price, if any, to be paid for each share subject to the

award of restricted stock, the time or times at which the restrictions will terminate, and all other terms and conditions of the

restricted stock.

With regard to RSUs, the Compensation Committee is authorized to determine the eligible individuals to whom

grants will be made, the number of shares subject to such grants and the vesting conditions entitling a participant to settlement

An Incentive Award entitles the participant to receive cash or common stock when certain conditions are met.

The Compensation

Committee has the authority to determine the eligible individuals to whom grants will be made and all other terms and conditions

of the Incentive Award.

Stock-Based Awards may be denominated or payable in, valued by reference to or otherwise based on shares of common

stock, including awards convertible or exchangeable into shares of common stock (or the cash value thereof) and common stock purchase

rights and awards valued by reference to the fair market value of the common stock.

The Compensation Committee has the authority

to determine the eligible individuals to whom grants will be made and all other terms and conditions of Stock-Based Awards.

the purchase price for the common stock under any Stock-Based Award in the nature of a purchase right may not be less than the

fair market value of a share of common stock as of the date the award is granted.

Cash awards, as an element of or supplement

to any other award under the 2016 Plan, may also be granted.

Compensation Committee is authorized under the 2016 Plan to grant shares of common stock as a bonus, or to grant shares of common

stock or other awards in lieu of any of our obligations or of our affiliates to pay cash or to deliver other property under the

2016 Plan or under any other of our plans or compensatory arrangements or any of our affiliates.

Equivalents .

Our Compensation Committee may also grant Dividend Equivalents under the 2016 Plan.

A Dividend Equivalent is an award that entitles

the participant to receive cash, shares of common stock, other awards or other property equal in value to all or a specified portion

of dividends paid with respect to shares of our common stock.

The Compensation Committee is authorized to determine the eligible

individuals to whom grants will be made and all other terms and conditions of the Dividend Equivalents.

However, no Dividend Equivalents

may be awarded with an Option, SAR or Stock-Based Award in the nature of purchase rights.

Cash Awards will also

be authorized under the 2016 Plan.

Cash Awards may be granted as an element of or a supplement to any other award under the 2016

Plan or as a stand-alone Cash Award.

The Compensation Committee will determine the terms and conditions of any such Cash Awards.

Performance Criteria .

Our Compensation Committee has the discretion to establish objectively determinable performance conditions for when awards will

become vested, exercisable and payable.

These performance conditions may be based on one or any combination of metrics related

to our financial, market or business performance.

The form of the performance conditions also may be measured on a company, affiliate,

division, business unit or geographic basis, individually, alternatively or in any combination, subset or component thereof.

goals may reflect absolute entity performance or a relative comparison of entity performance to the performance of a peer group

of entities or other external measure of the selected performance conditions.

Profits, earnings and revenues used for any performance

condition measurement may exclude any extraordinary or nonrecurring items.

The performance conditions may, but need not, be based

upon an increase or positive result under the aforementioned business criteria and could include, for example and not by way of

limitation, maintaining the status quo or limiting the economic losses (measured, in each case, by reference to the specific business

An award that is intended to become exercisable, vested or payable on the achievement of performance conditions means

that the award will not become exercisable, vested or payable solely on mere continued employment or service.

However, such an

award, in addition to performance conditions, may be subject to continued employment or service by the participant.

The performance

conditions may include any or any combination of the following:

(a) revenue, (b) earnings before interest, taxes, depreciation

and amortization, or EBITDA, (c) cash earnings (earnings before amortization of intangibles), (d) operating income, (e) pre-or

after-tax income, (f) earnings per share, (g) net cash flow, (h) net cash flow per share, (i) net earnings, (j) return on equity,

(k) return on total capital, (l) return on sales, (m) return on net assets employed, (n) return on assets or net assets, (o) share

price performance, (p) total stockholder return, (q) improvement in or attainment of expense levels, (r) improvement in or attainment

of working capital levels, (s) net sales, (t) revenue growth or product revenue growth, (u) operating

income (before or after taxes), (v) pre-or after-tax income (before or after allocation of corporate overhead and bonus), (w) earnings

A Dividend Equivalent is

an award that entitles the participant to receive cash, shares of common stock, other awards or other property equal in value

to all or a specified portion of dividends paid with respect to shares of our common stock.

The Compensation Committee is authorized

to determine the eligible individuals to whom grants will be made and all other terms and conditions of the Dividend Equivalents.

However, no Dividend Equivalents may be awarded with an Option, SAR or Stock-Based Award in the nature of purchase rights.

Cash Awards will also be authorized under the 2016 Plan.

Cash Awards may be granted as an element of or a supplement

to any other award under the 2016 Plan or as a stand-alone Cash Award.

The Compensation Committee will determine the terms and

conditions of any such Cash Awards.

Our Compensation Committee has the discretion to establish objectively determinable performance conditions for when

awards will become vested, exercisable and payable.

These performance conditions may be based on one or any combination of metrics

related to our financial, market or business performance.

The form of the performance conditions also may be measured on a company,

affiliate, division, business unit or geographic basis, individually, alternatively or in any combination, subset or component

Performance goals may reflect absolute entity performance or a relative comparison of entity performance to the performance

of a peer group of entities or other external measure of the selected performance conditions.

Profits, earnings and revenues used

for any performance condition measurement may exclude any extraordinary or nonrecurring items.

The performance conditions may,

but need not, be based upon an increase or positive result under the aforementioned business criteria and could include, for example

and not by way of limitation, maintaining the status quo or limiting the economic losses (measured, in each case, by reference

to the specific business criteria).

An award that is intended to become exercisable, vested or payable on the achievement of performance

conditions means that the award will not become exercisable, vested or payable solely on mere continued employment or service.

However, such an award, in addition to performance conditions, may be subject to continued employment or service by the participant.

The performance conditions may include any or any combination of the following:

(a) revenue, (b) earnings before interest, taxes,

depreciation and amortization, or EBITDA, (c) cash earnings (earnings before amortization of intangibles), (d) operating income,

(e) pre-or after-tax income, (f) earnings per share, (g) net cash flow, (h) net cash flow per share, (i) net earnings, (j) return

on equity, (k) return on total capital, (l) return on sales, (m) return on net assets employed, (n) return on assets or net assets,

(o) share price performance, (p) total stockholder return, (q) improvement in or attainment of expense levels, (r) improvement

in or attainment of working capital levels, (s) net sales, (t) revenue growth or product revenue growth, (u) operating income

(before or after taxes), (v) pre-or after-tax income (before or after allocation of corporate overhead and bonus), (w) earnings

(x) return on equity, (y) appreciation in and/or maintenance of the price of the shares of common stock, (z) market

5 unchanged sentences

equity and/or (ii) other criteria selected by the Compensation Committee.

Our Compensation Committee has

the discretion to select one or more periods of time over which the attainment of one or more of the foregoing performance conditions

will be measured for the purpose of determining when an award will become vested, exercisable or payable.

The Compensation Committee

has the authority to adjust goals and awards in the manner set forth in the 2016 Plan.

Change in Control .

the event of a “Change in Control”

(as defined in the 2016 Plan) and, with respect to awards that are subject to Section

409A of the Internal Revenue Code of 1986, as amended, or the Code, and such awards, 409A Awards, only to the extent permitted

by Section 409A of the Code, our Compensation Committee in its discretion may, on a participant-by-participant basis (a) accelerate

the vesting of all unvested and unexercised Options, SARs or Stock-Based Awards in the nature of purchase rights and/or terminate

such awards, without any payment therefore, immediately prior to the date of any such transaction after giving the participant

at least seven days written notice of such actions;

(b) fully vest and/or accelerate settlement of any awards;

outstanding Options, SARs or Stock-Based Awards in the nature of purchase rights after giving the participant notice and a chance

to exercise such awards (to the extent then exercisable or exercisable upon the change in control);

(d) cancel any portion of an

outstanding award that remains unexercised or is subject to restriction or forfeiture in exchange for a cash payment to the participant

of the value of the award;

or (e) require that the award be assumed by the successor corporation or replaced with interests of

an equal value in the successor corporation.

Amendment and Termination .

Compensation Committee has the discretion to select one or more periods of time over which the attainment of one or more of the

foregoing performance conditions will be measured for the purpose of determining when an award will become vested, exercisable

The Compensation Committee has the authority to adjust goals and awards in the manner set forth in the 2016 Plan.

In the event of a “Change in Control”

(as defined in the 2016 Plan) and, with respect to awards that

are subject to Section 409A of the Internal Revenue Code of 1986, as amended, or the Code, and such awards, 409A Awards, only

to the extent permitted by Section 409A of the Code, our Compensation Committee in its discretion may, on a participant-by-participant

basis (a) accelerate the vesting of all unvested and unexercised Options, SARs or Stock-Based Awards in the nature of purchase

rights and/or terminate such awards, without any payment therefore, immediately prior to the date of any such transaction after

giving the participant at least seven days written notice of such actions;

(b) fully vest and/or accelerate settlement of any

(c) terminate any outstanding Options, SARs or Stock-Based Awards in the nature of purchase rights after giving the participant

notice and a chance to exercise such awards (to the extent then exercisable or exercisable upon the change in control);

any portion of an outstanding award that remains unexercised or is subject to restriction or forfeiture in exchange for a cash

payment to the participant of the value of the award;

or (e) require that the award be assumed by the successor corporation or

replaced with interests of an equal value in the successor corporation.

and Termination .

The 2016 Plan will expire 10 years after its effective date, unless terminated earlier by our board of directors.

Any award that

is outstanding as of the date the 2016 Plan expires will continue in force according to the terms set out in the award agreement.

Any award that is outstanding as of the date the 2016 Plan expires will continue in force according to the terms set out in the

award agreement.

Our board of directors may terminate, amend or modify the 2016 Plan at any time.

However, stockholder approval may be required

for certain types of amendments under applicable law or regulatory authority.

Except as may be provided in an award agreement or

the 2016 Plan, no amendment to the 2016 Plan may adversely affect the terms and conditions of any existing award in any material

way without the participant’s consent.

An amendment will be contingent

on approval of our stockholders, to the extent required by law, by the rules of any stock exchange on which our securities are

then traded or if the amendment would (i) increase the benefits accruing to participants under the 2016 Plan, including without

limitation, any amendment to the 2016 Plan or any agreement to permit a re-pricing or decrease in the exercise price of any outstanding

awards, (ii) increase the aggregate number of shares of common stock that may be issued under the 2016 Plan, or (iii) modify the

requirements as to eligibility for participation in the 2016 Plan.

Material U.S.

income tax consequences of awards under the 2016 Plan

The following discussion summarizes

the principal federal income tax consequences associated with awards under the 2016 Plan.

The discussion is based on laws, regulations,

rulings and court decisions currently in effect, all of which are subject to change.

A participant will

not recognize taxable income on the grant or exercise of an ISO (although the excess of the fair market value of the common stock

over the exercise price will be included for alternative minimum tax purposes).

A participant will recognize taxable income when

he or she disposes of the shares of common stock acquired under the ISO.

If the disposition occurs more than two years after the

grant of the ISO and more than one year after its exercise, the participant will recognize long-term capital gain (or loss) to

the extent the amount realized from the disposition exceeds (or is less than) the participant’s tax basis in the shares of

common stock.

A participant’s tax basis in the common stock generally will be the amount the participant paid for the stock.

If common stock acquired under an ISO is disposed of before the expiration of the ISO holding period described above, the participant

will recognize as ordinary income in the year of the disposition the excess of the fair market value of the common stock on the

date of exercise of the ISO over the exercise price.

Any additional gain will be treated as long-term or short-term capital gain,

depending on the length of time the participant held the shares.

Special rules apply if a participant pays the exercise price by

delivery of common stock.

We will not be entitled to a federal income tax deduction with respect to the grant or exercise of an

However, in the event a participant disposes of common stock acquired under an ISO before the expiration of the ISO holding

period described above, we generally will be entitled to a federal income tax deduction equal to the amount of ordinary income

the participant recognizes.

A participant will

not recognize any taxable income on the grant of a NQSO.

On the exercise of a NQSO, the participant will recognize as ordinary

income the excess of the fair market value of the common stock acquired over the exercise price.

A participant’s tax basis

in the common stock is the amount paid plus any amounts included in income on exercise.

Special rules apply if a participant pays

the exercise price by delivery of common stock.

The exercise of a NQSO generally will entitle us to claim a federal income tax

deduction equal to the amount of ordinary income the participant recognizes.

A participant will

not recognize any taxable income at the time SARs are granted.

The participant at the time of receipt will recognize as ordinary

income the amount of cash and the fair market value of the common stock that he or she receives.

We generally will be entitled

to a federal income tax deduction equal to the amount of ordinary income the participant recognizes.

However, stockholder approval

may be required for certain types of amendments under applicable law or regulatory authority.

Except as may be provided in an

award agreement or the 2016 Plan, no amendment to the 2016 Plan may adversely affect the terms and conditions of any existing

award in any material way without the participant’s consent.

amendment will be contingent on approval of our stockholders, to the extent required by law, by the rules of any stock exchange

on which our securities are then traded or if the amendment would (i) increase the benefits accruing to participants under the

2016 Plan, including without limitation, any amendment to the 2016 Plan or any agreement to permit a re-pricing or decrease in

the exercise price of any outstanding awards, (ii) increase the aggregate number of shares of common stock that may be issued

under the 2016 Plan, or (iii) modify the requirements as to eligibility for participation in the 2016 Plan.

federal income tax consequences of awards under the 2016 Plan

following discussion summarizes the principal federal income tax consequences associated with awards under the 2016 Plan.

discussion is based on laws, regulations, rulings and court decisions currently in effect, all of which are subject to change.

A participant will not recognize taxable income on the grant or exercise of an ISO (although the excess of the fair market value

of the common stock over the exercise price will be included for alternative minimum tax purposes).

A participant will recognize

taxable income when he or she disposes of the shares of common stock acquired under the ISO.

If the disposition occurs more than

two years after the grant of the ISO and more than one year after its exercise, the participant will recognize long-term capital

gain (or loss) to the extent the amount realized from the disposition exceeds (or is less than) the participant’s tax basis

in the shares of common stock.

A participant’s tax basis in the common stock generally will be the amount the participant

paid for the stock.

If common stock acquired under an ISO is disposed of before the expiration of the ISO holding period described

above, the participant will recognize as ordinary income in the year of the disposition the excess of the fair market value of

the common stock on the date of exercise of the ISO over the exercise price.

Any additional gain will be treated as long-term

or short-term capital gain, depending on the length of time the participant held the shares.

Special rules apply if a participant

pays the exercise price by delivery of common stock.

We will not be entitled to a federal income tax deduction with respect to

the grant or exercise of an ISO.

However, in the event a participant disposes of common stock acquired under an ISO before the

expiration of the ISO holding period described above, we generally will be entitled to a federal income tax deduction equal to

the amount of ordinary income the participant recognizes.

A participant will not recognize any taxable income on the grant of a NQSO.

On the exercise of a NQSO, the participant will recognize

as ordinary income the excess of the fair market value of the common stock acquired over the exercise price.

A participant’s

tax basis in the common stock is the amount paid plus any amounts included in income on exercise.

Special rules apply if a participant

pays the exercise price by delivery of common stock.

The exercise of a NQSO generally will entitle us to claim a federal income

tax deduction equal to the amount of ordinary income the participant recognizes.

A participant will not recognize any taxable income at the time SARs are granted.

The participant at the time of receipt will

recognize as ordinary income the amount of cash and the fair market value of the common stock that he or she receives.

will be entitled to a federal income tax deduction equal to the amount of ordinary income the participant recognizes.

Stock Awards and RSUs .

With regard to Restricted Stock Awards, a participant will recognize ordinary income on account of a

Restricted Stock Award on the first day that the shares are either transferable or not subject to a substantial risk of forfeiture.

With regard to Restricted Stock Awards, a participant will recognize ordinary income on account of

a Restricted Stock Award on the first day that the shares are either transferable or not subject to a substantial risk of forfeiture.

The ordinary income recognized will equal the excess of the fair market value of the common stock on such date over the price,

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When the terms and conditions to which the

RSUs are subject have been satisfied and the RSUs are paid, the participant will recognize as ordinary income the fair market value

of the common stock he or she receives.

We generally will be entitled to a federal income tax deduction equal to the ordinary income

the participant recognizes.

Incentive Awards .

A participant

will not recognize any taxable income at the time an Incentive Award is granted.

When the terms and conditions to which an Incentive

Award is subject have been satisfied and the award is paid, the participant will recognize as ordinary income the amount of cash

and the fair market value of the common stock he or she receives.

We generally will be entitled to a federal income tax deduction

equal to the amount of ordinary income the participant recognizes.

Stock-Based Awards .

participant will recognize ordinary income on receipt of cash or shares of common stock paid with respect to a Stock-Based Award.

RSUs are subject have been satisfied and the RSUs are paid, the participant will recognize as ordinary income the fair market

value of the common stock he or she receives.

We generally will be entitled to a federal income tax deduction equal to the ordinary

income the participant recognizes.

A participant will not recognize any taxable income at the time an Incentive Award is granted.

When the terms and

conditions to which an Incentive Award is subject have been satisfied and the award is paid, the participant will recognize as

ordinary income the amount of cash and the fair market value of the common stock he or she receives.

We generally will be entitled

to a federal income tax deduction equal to the amount of ordinary income the participant recognizes.

A participant will recognize ordinary income on receipt of cash or shares of common stock paid with respect to a Stock-Based

We generally will be entitled to a federal tax deduction equal to the amount of ordinary income the participant recognizes.

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awards, the participant will recognize income as otherwise described herein.

Limitation on Deductions.

on Deductions.

The deduction for a publicly-held corporation for otherwise deductible compensation to a “covered employee”

is limited to $1,000,000 per year.

An individual is a covered employee if he or she is the chief executive officer or one of the

three highest compensated officers for the year (other than the chief executive officer or chief financial officer) or was a covered

employee for any preceding year beginning after December 31, 2016.

Other Tax Rules .

Plan is designed to enable our Compensation Committee to structure awards that will not be subject to Section 409A of the Code,

which imposes certain restrictions and requirements on deferred compensation.

However, our Compensation Committee may grant awards

that are subject to Section 409A of the Code.

In that case, the terms of such 409A Award will be (a) subject to the deferral election

requirements of Section 409A of the Code;

and (b) may only be paid upon a separation from service, a set time, death, disability,

a change in control or an unforeseeable emergency, each within the meanings of Section 409A of the Code.

Our Compensation Committee

shall not have the authority to accelerate or defer a 409A Award other than as permitted by Section 409A of the Code.

any payment on a separation from service of a “Specified Employee”

(as defined in the 2016 Plan) will not be made until

six months following the participant’s separation from service (or upon the participant’s death, if earlier) as required

generally is limited to $1,000,000 per year.

An individual is a covered employee if he or she is the chief executive officer or

one of the three highest compensated officers for the year (other than the chief executive officer or chief financial officer)

or was a covered employee for any preceding year beginning after December 31, 2016.

The 2016 Plan is designed to enable our Compensation Committee to structure awards that will not be subject to

Section 409A of the Code, which imposes certain restrictions and requirements on deferred compensation.

However, our Compensation

Committee may grant awards that are subject to Section 409A of the Code.

In that case, the terms of such 409A Award will be (a)

subject to the deferral election requirements of Section 409A of the Code;

and (b) may only be paid upon a separation from service,

a set time, death, disability, a change in control or an unforeseeable emergency, each within the meanings of Section 409A of

Our Compensation Committee shall not have the authority to accelerate or defer a 409A Award other than as permitted

by Section 409A of the Code.

Non-Employee Director Compensation

Our non-employee directors received

a quarterly cash retainer of $7,500 during 2019.

In addition, we reimburse all non-employee directors for travel and other necessary

business expenses incurred in the performance of director services and extend coverage to them under our directors’

Moreover, any payment on a separation from service of a “Specified Employee”

in the 2016 Plan) will not be made until six months following the participant’s separation from service (or upon the participant’s

death, if earlier) as required by Section 409A of the Code.

Director Compensation

non-employee directors received a quarterly cash retainer of $7,500 during 2020.

In addition, we reimburse all non-employee directors

for travel and other necessary business expenses incurred in the performance of director services and extend coverage to them

under our directors’

and officers’

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During 2020, each of Messrs.

Goldman, Albrecht and Gross received total compensation in the amount

of $30,000 and Ms.

Koster received total compensation in the amount of $500 based upon her appointment to the board of directors

in December 2019.

Indemnification of Directors and Officers

Section 145 of the Delaware General

Corporation Law, or the DGCL, provides that a corporation may indemnify directors and officers as well as other employees and individuals

against expenses (including attorneys’

fees), judgments, fines and amounts paid in settlement actually and reasonably incurred

by such person in connection with any threatened, pending or completed actions, suits or proceedings in which such person is made

a party by reason of such person being or having been a director, officer, employee or agent to the corporation.

The DGCL provides

that Section 145 is not exclusive of other rights to which those seeking indemnification may be entitled under any bylaw, agreement,

vote of stockholders or disinterested directors or otherwise.

Sections of our certificate of incorporation and our bylaws provide

for indemnification by us of our directors, officers, employees and agents to the fullest extent permitted by the DGCL.

Article X of our certification

of incorporation eliminates the liability of a director or stockholder for monetary damages for breach of fiduciary duty as a director,

except to the extent such exemption from liability or limitation thereof is not permitted under Delaware law.

Under Section 102(b)(7)

of the DGCL, a director shall not be exempt from liability for monetary damages for any liabilities arising (i) from any breach

of the director’s duty of loyalty to the corporation or its stockholders, (ii) from acts or omissions not in good faith or

which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL, or (iv) for any transaction

from which the director derived an improper personal benefit.

We have entered into agreements

to indemnify our directors and officers as determined by our board of directors.

These agreements provide for indemnification of

related expenses including attorneys’

fees, judgments, fines and settlement amounts incurred by any of these individuals

in any action or proceeding.

We believe that these indemnification agreements are necessary to attract and retain qualified persons

as directors and officers.

Albrecht and Gross and

Koster received total compensation in the amount of $30,000.

Indemnification

of Directors and Officers

145 of the Delaware General Corporation Law, or the DGCL, provides that a corporation may indemnify directors and officers as

well as other employees and individuals against expenses (including attorneys’

fees), judgments, fines and amounts paid

in settlement actually and reasonably incurred by such person in connection with any threatened, pending or completed actions,

suits or proceedings in which such person is made a party by reason of such person being or having been a director, officer, employee

or agent to the corporation.

The DGCL provides that Section 145 is not exclusive of other rights to which those seeking indemnification

may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise.

Sections of our certificate

of incorporation and our bylaws provide for indemnification by us of our directors, officers, employees and agents to the fullest

extent permitted by the DGCL.

X of our certification of incorporation eliminates the liability of a director or stockholder for monetary damages for breach

of fiduciary duty as a director, except to the extent such exemption from liability or limitation thereof is not permitted under

Delaware law.

Under Section 102(b)(7) of the DGCL, a director shall not be exempt from liability for monetary damages for any

liabilities arising (i) from any breach of the director’s duty of loyalty to the corporation or its stockholders, (ii) from

acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section

174 of the DGCL, or (iv) for any transaction from which the director derived an improper personal benefit.

have entered into agreements to indemnify our directors and officers as determined by our board of directors.

These agreements

provide for indemnification of related expenses including attorneys’

fees, judgments, fines and settlement amounts incurred

by any of these individuals in any action or proceeding.

We believe that these indemnification agreements are necessary to attract

and retain qualified persons as directors and officers.

We also maintain directors’

1 unchanged sentence

liability insurance.

The limitation of liability and

indemnification provisions in our certificate of incorporation and our bylaws may discourage stockholders from bringing a lawsuit

against our directors for breach of their fiduciary duty.

They may also reduce the likelihood of derivative litigation against

our directors and officers, even though an action, if successful, might benefit us and other stockholders.

Furthermore, a stockholder’s

investment may be adversely affected to the extent that we pay the costs of settlement and damage awards against directors and

officers as required by these indemnification provisions.

Insofar as indemnification for

liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons under the foregoing

provisions of our certificate of incorporation or our bylaws, or otherwise, we have been informed that in the opinion of the SEC,

this indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

limitation of liability and indemnification provisions in our certificate of incorporation and our bylaws may discourage stockholders

from bringing a lawsuit against our directors for breach of their fiduciary duty.

They may also reduce the likelihood of derivative

litigation against our directors and officers, even though an action, if successful, might benefit us and other stockholders.

Furthermore, a stockholder’s investment may be adversely affected to the extent that we pay the costs of settlement and

damage awards against directors and officers as required by these indemnification provisions.

as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling

persons under the foregoing provisions of our certificate of incorporation or our bylaws, or otherwise, we have been informed

that in the opinion of the SEC, this indemnification is against public policy as expressed in the Securities Act and is therefore

unenforceable.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The following table sets forth

information regarding beneficial ownership of our common stock as of May 14, 2020 by:

each person, or group of affiliated persons, known by us to beneficially own more than 5% of our shares of common stock;

each of our directors;

each of our named executive officers;

all of our directors and executive officers as a group.

The table is based on information

provided to us by our directors, executive officers and principal stockholders.

Beneficial ownership is determined in accordance

with the rules of the SEC, and generally means that a person has beneficial ownership of a security if he, she or it possesses

sole or shared voting or investment power of that security, including stock options and warrants that are exercisable within 60

days of May 14, 2020.

To our knowledge, except as indicated by footnote, and subject to community property laws where applicable,

the persons named in the table below have sole voting and investment power with respect to all shares of common stock shown as

beneficially owned by them.

Shares of common stock underlying derivative securities, if any, that are currently exercisable or

exercisable within 60 days after May 14, 2020 are deemed to be outstanding in calculating the percentage ownership of the applicable

person or group, but are not deemed to be outstanding as to any other person or group.

Percentage of beneficial ownership is based

on 10,125,681 shares of common stock outstanding as of the date of the table.

Unless otherwise indicated, the

address of each beneficial owner listed in the table below is c/o Polar Power, Inc., 249 E.

Gardena Boulevard, Gardena, California

following table sets forth information regarding beneficial ownership of our common stock as of March 31, 2021 by:

person, or group of affiliated persons, known by us to beneficially own more than 5% of our shares of common stock;

of our directors;

of our named executive officers;

of our directors and executive officers as a group.

table is based on information provided to us by our directors, executive officers and principal stockholders.

Beneficial ownership

is determined in accordance with the rules of the SEC, and generally means that a person has beneficial ownership of a security

if he, she or it possesses sole or shared voting or investment power of that security, including stock options and warrants that

are exercisable within 60 days of March 31, 2021.

To our knowledge, except as indicated by footnote, and subject to community

property laws where applicable, the persons named in the table below have sole voting and investment power with respect to all

shares of common stock shown as beneficially owned by them.

Shares of common stock underlying derivative securities, if any, that

are currently exercisable or exercisable within 60 days after March 31, 2021 are deemed to be outstanding in calculating the percentage

ownership of the applicable person or group but are not deemed to be outstanding as to any other person or group.

Percentage of

beneficial ownership is based on 12,788,203 shares of common stock outstanding as of the date of the table.

otherwise indicated, the address of each beneficial owner listed in the table below is c/o Polar Power, Inc., 249 E.

Gardena Boulevard,

Gardena, California 90248.

Name and Address of Beneficial Owner (1)

5 unchanged sentences

Keith Albrecht (5)

Matthew Goldman (6)

Peter Gross (6)

Katherine Koster

Smartgen Solutions, Inc.

Polaris Capital, LLC (9)

All directors and executive officers as a group (6 persons)(7)

* Less than 1%.

Sams, Albrecht, Goldman, Gross, and Ms.

are directors of Polar.

Sams, Masina and Zavala are named executive officers of Polar.

(2) Includes 50,000 shares of common stock issuable upon exercise

(3) Includes 30,000 shares of common stock issuable upon exercise

(4) Includes 30,000 shares of common stock issuable upon exercise

(5) Includes 10,000 shares of common stock issuable upon exercise

(6) Includes 10,000 shares of common stock issuable to Mr.

Goldman upon exercise of options and 466,667 shares of common stock held by Polaris Capital, LLC.

Goldman, the managing member

and sole beneficial owner of Polaris Capital, LLC, has voting and investment power over such shares of common stock.

(7) Amount represents 10,000 shares of common stock issuable

upon exercise of options.

Sams Albrecht and Gross, and Ms.

Koster are directors of Polar.

Sams, Masina and Zavala are named executive officers

50,000 shares of common stock issuable upon exercise of options.

30,000 shares of common stock issuable upon exercise of options.

Masina owns 40% of the share capital of Smartgen Solutions,

3 unchanged sentences

10324 Chestnut Ridge Rd., Austin, TX.

(9) Excludes 10,000 shares of common stock issuable to Mr.

Goldman upon exercise of options.

(10) Includes 140,000 shares issuable upon exercise of options.

Equity Compensation Plan Information

The following table provides information

about our common stock that may be issued upon the exercise of options, warrants and rights under all our existing equity compensation

plans as of December 31, 2019.

30,000 shares of common stock issuable upon exercise of options.

10,000 shares of common stock issuable upon exercise of options.

represents 10,000 shares of common stock issuable upon exercise of options.

130,000 shares issuable upon exercise of options.

Compensation Plan Information

following table provides information about our common stock that may be issued upon the exercise of options, warrants and rights

under all our existing equity compensation plans as of December 31, 2020.

Plan Category

Securities to be

Securities to

Issued Upon Exercise

2 unchanged sentences

Weighted-Average

Exercise Price of

Remaining Available

for Future Issuance

Compensation Plans

Future Issuance

Equity Compensation Plans Approved by Security Holders:

Certain Relationships and Related Transactions, and Director Independence.

The following is a summary of

transactions since January 1, 2018 to which we have been a participant, in which:

the amount involved exceeded or will exceed $120,000;

any of our directors (and director nominees), executive officers, or holders of more than 5% of our voting securities, or immediate family member or affiliate of such persons, had or will have a direct or indirect material interest, other than compensation and other arrangements that are described under “Executive Compensation”

above, or that were approved by our Compensation Committee.

All of the related person transactions

described below have been approved by a majority of the independent and disinterested members of our board of directors.

that each of the transactions described below were on terms no less favorable to us than terms we would have obtained from unaffiliated

following is a summary of transactions since January 1, 2018 to which we have been a participant, in which:

amount involved exceeded or will exceed $120,000;

of our directors (and director nominees), executive officers, or holders of more than 5% of our voting securities, or immediate

family member or affiliate of such persons, had or will have a direct or indirect material interest, other than compensation

and other arrangements that are described under “Executive Compensation”

above, or that were approved by our Compensation

of the related person transactions described below have been approved by a majority of the independent and disinterested members

of our board of directors.

We believe that each of the transactions described below were on terms no less favorable to us than

terms we would have obtained from unaffiliated third parties.

is our intention to ensure that all future transactions, if any, between us and related persons are approved by our audit committee

or a majority of the independent and disinterested members of our board of directors (except for compensation arrangements, which

are approved by our compensation committee), and are on terms no less favorable to us than those that we could obtain from unaffiliated

third parties.

It is our intention to ensure that

all future transactions, if any, between us and related persons are approved by our audit committee or a majority of the independent

and disinterested members of our board of directors (except for compensation arrangements, which are approved by our compensation

committee), and are on terms no less favorable to us than those that we could obtain from unaffiliated third parties.

See “Policies

and Procedures for Related Person Transactions”

Transactions with Stockholders, Officers and Directors

On March 1, 2014, we entered into

a Subcontractor Installer Agreement with Smartgen Solutions, Inc., or Smartgen, a company engaged in business of equipment rental

and providing maintenance, repair and installation services to mobile telecommunications towers in California.

Rajesh Masina, our

Vice President of Operations, owns 40% of the share capital of Smartgen and 30% is owned by his brother.

On July 8, 2016, our board

of directors reviewed the terms and conditions of, and ratified, the Subcontractor Installer Agreement.

Under the terms of the agreement,

Smartgen has been appointed as a non-exclusive, authorized service provider for the installation, repair and service of Polar products

in Southern California.

The agreement has a term of three years from the date of execution and automatically renews for additional

one-year periods if not terminated.

Once we have completed this offering and established an audit committee, all transactions involving

this agreement will be monitored by our audit committee.

During 2019 and 2018, Smartgen

performed $288,910 and $174,290 in field services, respectively, the cost of which is included in cost of goods sold.

Employment Agreements

We have entered into amended employment

agreement with each of Arthur D.

See “Policies and Procedures for Related Person Transactions”

with Stockholders, Officers and Directors

March 1, 2014, we entered into a Subcontractor Installer Agreement with Smartgen Solutions, Inc., or Smartgen, a company engaged

in business of equipment rental and providing maintenance, repair and installation services to mobile telecommunications towers

in California.

Rajesh Masina, our Vice President of Operations, owns 40% of the share capital of Smartgen and 30% is owned by

On July 8, 2016, our board of directors reviewed the terms and conditions of, and ratified, the Subcontractor Installer

the terms of the agreement, Smartgen has been appointed as a non-exclusive, authorized service provider for the installation,

repair and service of Polar products in Southern California.

The agreement has a term of three years from the date of execution

and automatically renews for additional one-year periods if not terminated.

Once we have completed this offering and established

an audit committee, all transactions involving this agreement will be monitored by our audit committee.

2020 and 2019, Smartgen performed $129 and $289 in field services, respectively, the cost of which is included in cost of goods

have entered into amended employment agreement with each of Arthur D.

Sams, our President, Chief Executive Officer and Secretary;

Rajesh Masina, our Chief Operating

Rajesh Masina, our Chief Operating Officer;

and Luis Zavala, our Chief Financial Officer;

providing for, without limitation, certain payments upon termination and

change in control.

See “Executive and Director Compensation–Employment Agreements”

in this Annual Report on Form

10-K for a further discussion of these agreements.

Indemnification of Officers and Directors

Our certificate of incorporation

and our bylaws provide that we will indemnify our directors and officers with respect to certain liabilities, expenses and other

accounts imposed upon them because of having been a director or officer, except in the case of willful misconduct or a knowing

violation of criminal law.

Policies and Procedures for Related Person Transactions

Our board of directors has adopted

a written policy with respect to related person transactions.

This policy governs the review, approval or ratification of covered

related person transactions.

providing for, without limitation, certain

payments upon termination and change in control.

See “Executive Compensation–Employment Agreements”

Annual Report on Form 10-K for a further discussion of these agreements.

Indemnification

of Officers and Directors

certificate of incorporation and our bylaws provide that we will indemnify our directors and officers with respect to certain

liabilities, expenses and other accounts imposed upon them because of having been a director or officer, except in the case of

willful misconduct or a knowing violation of criminal law.

In addition, we have entered into indemnification agreements with each

of our directors and executive officers.

and Procedures for Related Person Transactions

board of directors has adopted a written policy with respect to related person transactions.

This policy governs the review, approval

or ratification of covered related person transactions.

The Audit Committee of our board of directors manages this policy.

For purposes of the policy,

a “related person transaction”

is a transaction, arrangement or relationship (or any series of similar transactions,

arrangements or relationships) in which we were, are or will be a participant, and the amount involved exceeds the applicable dollar

threshold set forth under Item 404 of Regulation S-K and in which any related person had, has or will have a direct or indirect

material interest.

purposes of the policy, a “related person transaction”

is a transaction, arrangement or relationship (or any series

of similar transactions, arrangements or relationships) in which we were, are or will be a participant, and the amount involved

exceeds the applicable dollar threshold set forth under Item 404 of Regulation S-K and in which any related person had, has or

will have a direct or indirect material interest.

As defined in Item 404 of Regulation S-K, “related person”

generally includes our directors (and

director nominees), executive officers, holders of more than 5% of our voting securities, and immediate family members or affiliates

of such persons.

The policy generally provides that we may

enter into a related person transaction only if:

the Audit Committee pre-approves such transaction in accordance with the guidelines set forth in the policy,

the transaction is on terms comparable to those that could be obtained in arm’s length dealings with an unrelated third party and the Audit Committee (or the chairperson of the Audit Committee) approves or ratifies such transaction in accordance with the guidelines set forth in the policy,

the transaction is approved by the disinterested members of the board of directors, or

the transaction involves compensation approved by the Compensation Committee of the board of directors.

In the event a related person

transaction is not pre-approved by the Audit Committee and our management determines to recommend such related person transaction

to the Audit Committee, such transaction must be reviewed by the Audit Committee.

After review, the Audit Committee will approve

or disapprove such transaction.

If our Chief Executive Officer, in consultation with our Audit Committee, determines that it is

not practicable or desirable for us to wait until the next Audit Committee meeting, the chairperson of the Audit Committee will

possess delegated authority to act on behalf of the Audit Committee.

The Audit Committee (or the chairperson of the Audit Committee)

may approve only those related person transactions that are in, or not inconsistent with, our best interests and the best interests

of our stockholders, as the Audit Committee (or the chairperson of the Audit Committee) determines in good faith.

All approvals

made by chairperson of the Audit Committee will be ratified by the full Audit Committee at the next regularly scheduled meeting

or within 120 days from approval by chairperson.

Our Audit Committee has determined

that the following transactions, even if the amount exceeds the applicable dollar threshold set forth under Item 404 of Regulation

S-K in the aggregate, will be deemed to be pre-approved by the Audit Committee:

any employment of certain named executive officers that would be publicly disclosed;

director compensation that would be publicly disclosed;

transactions with other companies where the related person’s only relationship is as a director or owner of less than ten percent of such company (other than a general partnership), if the aggregate amount involved does not exceed the greater of $200,000 or five percent of that company’s consolidated gross revenues

transactions where all stockholders receive proportional benefits;

transactions involving competitive bids;

transactions with a related person involving the rendering of services at rates or charges fixed in conformity with law or governmental authority;

transactions with a related person involving services as a bank depositary of funds, transfer agent, registrar, trustee under a trust indenture or similar services.

In addition, the Audit Committee will review

the policy at least annually and recommend amendments to the policy to the board of directors from time to time.

The policy provides that all related

person transactions will be disclosed to the Audit Committee, and all material related person transactions will be disclosed to

the board of directors.

Additionally, all related person transactions requiring public disclosure will be properly disclosed, as

applicable, on our various public filings.

The Audit Committee will review

all relevant information available to it about the related person transaction.

The policy will provide that the Audit Committee

may approve or ratify the related person transaction only if the Audit Committee determines that, under all of the circumstances,

the transaction is in, or is not inconsistent with, our best interests and the best interests of our stockholders.

The policy will

also provide that the Audit Committee may, in its sole discretion, impose such conditions as it deems appropriate on us or the

related person in connection with approval of the related person transaction.

includes our directors (and director nominees), executive officers, holders of more than 5% of our voting securities, and immediate

family members or affiliates of such persons.

policy generally provides that we may enter into a related person transaction only if:

Audit Committee pre-approves such transaction in accordance with the guidelines set forth in the policy,

transaction is on terms comparable to those that could be obtained in arm’s length dealings with an unrelated third

party and the Audit Committee (or the chairperson of the Audit Committee) approves or ratifies such transaction in accordance

with the guidelines set forth in the policy,

transaction is approved by the disinterested members of the board of directors, or

transaction involves compensation approved by the Compensation Committee of the board of directors.

the event a related person transaction is not pre-approved by the Audit Committee and our management determines to recommend such

related person transaction to the Audit Committee, such transaction must be reviewed by the Audit Committee.

After review, the

Audit Committee will approve or disapprove such transaction.

If our Chief Executive Officer, in consultation with our Audit Committee,

determines that it is not practicable or desirable for us to wait until the next Audit Committee meeting, the chairperson of the

Audit Committee will possess delegated authority to act on behalf of the Audit Committee.

The Audit Committee (or the chairperson

of the Audit Committee) may approve only those related person transactions that are in, or not inconsistent with, our best interests

and the best interests of our stockholders, as the Audit Committee (or the chairperson of the Audit Committee) determines in good

All approvals made by chairperson of the Audit Committee will be ratified by the full Audit Committee at the next regularly

scheduled meeting or within 120 days from approval by chairperson.

Audit Committee has determined that the following transactions, even if the amount exceeds the applicable dollar threshold set

forth under Item 404 of Regulation S-K in the aggregate, will be deemed to be pre-approved by the Audit Committee:

employment of certain named executive officers that would be publicly disclosed;

compensation that would be publicly disclosed;

with other companies where the related person’s only relationship is as a director or owner of less than ten percent

of such company (other than a general partnership), if the aggregate amount involved does not exceed the greater of $200,000

or five percent of that company’s consolidated gross revenues

where all stockholders receive proportional benefits;

involving competitive bids;

with a related person involving the rendering of services at rates or charges fixed in conformity with law or governmental

with a related person involving services as a bank depositary of funds, transfer agent, registrar, trustee under a trust indenture

or similar services.

addition, the Audit Committee will review the policy at least annually and recommend amendments to the policy to the board of

directors from time to time.

policy provides that all related person transactions will be disclosed to the Audit Committee, and all material related person

transactions will be disclosed to the board of directors.

Additionally, all related person transactions requiring public disclosure

will be properly disclosed, as applicable, on our various public filings.

Audit Committee will review all relevant information available to it about the related person transaction.

The policy will provide

that the Audit Committee may approve or ratify the related person transaction only if the Audit Committee determines that, under

all of the circumstances, the transaction is in, or is not inconsistent with, our best interests and the best interests of our

stockholders.

The policy will also provide that the Audit Committee may, in its sole discretion, impose such conditions as it

deems appropriate on us or the related person in connection with approval of the related person transaction.

Principal Accounting Fees and Expenses.

The following table presents fees for professional

audit services rendered by Weinberg & Company, P.A.

following table presents fees for professional audit services rendered by Weinberg & Company, P.A.

for 2020 and 2019.

Audit-Related Fees

Consist of amounts billed

for professional services rendered for the audit of our annual consolidated financial statements included in this Annual Report

on Form 10-K.

Audit-Related Fees .

Consist of amounts billed for professional services rendered for the audit of our annual consolidated financial statements

included in this Annual Report on Form 10-K.

Audit-Related

Fees consist of fees billed for professional services that are reasonably related to the performance of the audit or review of

our consolidated financial statements but are not reported under “Audit Fees.”

Tax Fees consist of fees

for professional services for tax compliance activities, including the preparation of federal and state tax returns and related

compliance matters.

All Other Fees .

Consists of amounts

billed for services other than those noted above.

Our Audit Committee considered all non-audit

services provided by Weinberg & Company, P.A.

and determined that the provision of such services was compatible with maintaining

such firm’s audit independence.

Audit Committee Pre-Approval Policy

Our Audit Committee is responsible

for approving all audit, audit-related, tax and other services.

The Audit Committee pre-approves all auditing services and permitted

non-audit services, including all fees and terms to be performed for us by our independent auditor at the beginning of the fiscal

Non-audit services are reviewed and pre-approved by project at the beginning of the fiscal year.

Any additional non-audit

services contemplated by us after the beginning of the fiscal year are submitted to the Chairman of our Audit Committee for pre-

approval prior to engaging our independent auditor for such services.

These interim pre-approvals are reviewed with the full Audit

Committee at its next meeting for ratification.

Audit-Related Fees consist of fees billed for professional services that are reasonably related to the performance of

the audit or review of our consolidated financial statements but are not reported under “Audit Fees.”

Tax Fees consist of fees for professional services for tax compliance activities, including the preparation of federal

and state tax returns and related compliance matters.

Consists of amounts billed for services other than those noted above.

Audit Committee considered all non-audit services provided by Weinberg & Company, P.A.

and determined that the provision of

such services was compatible with maintaining such firm’s audit independence.

Committee Pre-Approval Policy

Audit Committee is responsible for approving all audit, audit-related, tax and other services.

The Audit Committee pre-approves

all auditing services and permitted non-audit services, including all fees and terms to be performed for us by our independent

auditor at the beginning of the fiscal year.

Non-audit services are reviewed and pre-approved by project at the beginning of the

Any additional non-audit services contemplated by us after the beginning of the fiscal year are submitted to the

Chairman of our Audit Committee for pre- approval prior to engaging our independent auditor for such services.

These interim pre-approvals

are reviewed with the full Audit Committee at its next meeting for ratification.

Exhibits, Financial Statement Schedules.

(a)(1) Financial Statements

Reference is made to the financial statements

listed on and attached following the Index to Financial Statements contained on page F-1 of this report.

(a)(2) Financial Statement Schedules

(a)(3) Exhibits

Reference is made to the exhibits listed on the Index

to Exhibits immediately preceding the signature page of this report.

Financial Statements

is made to the financial statements listed on and attached following the Index to Financial Statements contained on page F-1 of

Financial Statement Schedules

is made to the exhibits listed on the Index to Exhibits immediately preceding the signature page of this report.

Form 10-K Summary.

INDEX TO FINANCIAL STATEMENTS

TO FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

5 unchanged sentences

Notes to Financial Statements

REPORT OF INDEPENDENT REGISTERED ACCOUNTING

To the Stockholders and the Board of Directors

Polar Power, Inc.

Gardena, California

Opinion on the Financial Statements

We have audited the accompanying balance

sheets of Polar Power, Inc.

(the “Company”) as of December 31, 2019 and 2018, the related statements of operations, stockholders’

equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of

December 31, 2019 and 2018, and the results of its operations and its cash flows for the years then ended, in conformity with accounting

principles generally accepted in the United States of America.

Going Concern

The accompanying financial statements

have been prepared assuming that the Company will continue as a going concern.

As discussed in Note 1 to the financial statements,

the Company incurred a net loss and used cash in operations during the year ended December 31, 2019.

These factors raise substantial

doubt about the Company’s ability to continue as a going concern.

Management’s plans in regard to these matters are

also described in Note 1.

The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

the Stockholders and the Board of Directors of Polar Power, Inc.

on the Financial Statements

have audited the accompanying balance sheets of Polar Power, Inc.

(the “Company”) as of December 31, 2020 and 2019,

the related statements of operations, stockholders’

equity, and cash flows for the years then ended, and the related notes

(collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly,

in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations

and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States

financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s

financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight

Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance

with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about

whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required

to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are

required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion

on the effectiveness of the Company’s internal control over financial reporting.

Our responsibility is to express an opinion on

the Company’s financial statements based on our audits.

We are a public accounting firm registered with the Public Company

Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company

in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission

and the PCAOB.

conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit

to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not

for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing

procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing

procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and

disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates

made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide

a reasonable basis for our opinion.

We have served as the Company’s auditor since 2016.

/s/ Weinberg & Company, P.A.

Los Angeles, California

POLAR POWER, INC.

audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to

error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence

regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles

used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

have served as the Company’s auditor since 2016.

Weinberg & Company, P.A.

Angeles, California

BALANCE SHEETS

thousands, except share and per share data)

Current assets

Cash and cash equivalents (including restricted cash of $1,002,683 at December 31, 2018)

Cash and cash equivalents

Accounts receivable

Inventories, net

Prepaid expenses

Refundable income taxes

Income taxes receivable

Total current assets

9 unchanged sentences

Current portion of notes payable

portion of loan payable

Total current liabilities

1 unchanged sentence

Operating lease liabilities, net of current portion

Loan payable, net of current

Total liabilities

1 unchanged sentence

Stockholders’

Preferred stock, $0.0001 par value, 5,000,000 shares authorized, no shares issued and outstanding

Common stock, $0.0001 par value, 50,000,000 shares authorized, 10,143,158 shares issued and 10,125,681 shares outstanding at December 31, 2019, and 10,143,158 issued and outstanding at December 31, 2018

Preferred stock, $0.0001 par value, 5,000,000 shares authorized,

no shares issued and outstanding

Common stock, $0.0001 par value, 50,000,000 shares authorized, 11,768,158

shares issued and 11,750,681 shares outstanding on December 31, 2020 and 10,143,158 shares issued and 10,125,681 shares outstanding

on December 31, 2019

Additional paid-in capital

Retained earnings (Accumulated deficit)

Treasury Stock, at cost (17,477 shares)

Accumulated deficit

Treasury Stock, at cost (17,477

Total stockholders’

Total liabilities and stockholders’

The accompanying notes are an integral part

of these financial statements.

POLAR POWER, INC.

accompanying notes are an integral part of these financial statements.

STATEMENTS OF OPERATIONS

Cost of sales

thousands, except share and per share data)

Cost of Sales (includes inventory

write-downs of $3,400 and $270, respectively)

Gross profit (loss)

Operating Expenses

5 unchanged sentences

Other income (expenses)

Interest and finance costs

Other income (expense), net

Total other income (expense)

Interest expense and finance costs

Total other income (expenses)

Loss before income taxes

Income tax benefit

$ (4,044,751 )

Benefit from income taxes

Net loss per share, basic and diluted

Weighted average shares outstanding, basic and diluted

The accompanying notes are an integral part

of these financial statements.

POLAR POWER, INC.

accompanying notes are an integral part of these financial statements.

STATEMENTS OF STOCKHOLDERS’

thousands, except share data)

Common Stock,

4 unchanged sentences

Fair value of vested stock options

Balances, December 31, 2018

Fair value of vested stock options

Treasury Stock

Balances, December 31, 2019

$ (1,242,170 )

The accompanying notes are an integral part

of these financial statements.

POLAR POWER, INC.

Common stock and warrants issued for cash

Common stock issued upon exercise of warrants

Balances, December 31, 2020

accompanying notes are an integral part of these financial statements.

STATEMENTS OF CASH FLOWS

Cash flows from operating activities:

$ (4,044,751 )

Adjustments to reconcile net loss to net cash used in operating activities:

Adjustments to reconcile net loss to net cash used in operating

Fair value of vested stock options

1 unchanged sentence

Amortization of operating lease right-of-use assets

Inventory reserve

Inventory write-down

Changes in operating assets and liabilities

1 unchanged sentence

Prepaid expenses

Refundable income taxes

Income taxes receivable

Accounts payable

1 unchanged sentence

Accrued expenses and other current liabilities

Decrease in lease liability

Decrease in lease liabilities

Net cash used in operating activities

3 unchanged sentences

Cash flows from financing activities:

Proceeds from sale of common stock and warrants

Proceeds from exercise of warrants

Proceeds from loan payable

Repayment of notes payable

Proceeds from advances from credit facility

Repayment of advances from credit facility

Purchase of treasury stock

Repayment of notes

Net cash used in financing activities

Net cash provided by (used in) financing

Decrease in cash and cash equivalents

Cash and cash equivalents, beginning of period

Cash and cash equivalents, end of period

Cash and cash equivalents, beginning

Cash and cash

equivalents, end of period

Supplemental Cash Flow Information:

Interest paid

Supplemental non-cash investing and financing activities:

Property and equipment acquired under notes payable

Initial recognition of operating lease right-of-use assets and operating lease obligations upon adoption of ASC Topic 842

Reclassification of prepaid expenses to property and equipment

The accompanying notes are an integral part

of these financial statements.

POLAR POWER, INC.

NOTES TO FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2019 AND

NOTE 1 –

ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING

Polar Power, Inc.

was incorporated in 1979 in the State of Washington as Polar Products Inc., and in 1991 reincorporated in the State of California

under the name Polar Power, Inc.

Supplemental non-cash investing and

financing activities:

Property and equipment acquired

under notes payable

Recording of lease right-of-use

assets and lease liabilities

Reclassification of prepaid expenses

to property and equipment

accompanying notes are an integral part of these financial statements.

TO FINANCIAL STATEMENTS

THE YEARS ENDED DECEMBER 31, 2020 AND 2019

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

ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

was incorporated in 1979 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”).

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 applications.

The Company’s products integrate DC generator and proprietary automated controls,

lithium batteries and solar systems to provide low operating cost and lower emissions alternative power needs in telecommunications,

defense, automotive and industrial markets.

Going Concern

The Company’s consolidated financial statements have

been prepared on the going concern basis, which presumes the Company will continue realization of its assets and settlement of

its liabilities in the normal course of operations.

The application of the going concern basis is dependent upon the Company

achieving profitable operations to generate sufficient cash flows to fund continued operations, or, in the absence of adequate

cash flows from operations, obtaining additional financing.

The Company has reported losses from operations for the years

ended December 31, 2019 and 2018 and used cash in operations during the year ended as of December 31, 2019.

telecommunications

customers, which represented 95% of the Company’s net sales as of December 31, 2019, have postponed shipments and orders

to prioritize expansion of 5G and cell site edge computing networks.

In March 2020 the World Health Organization declared coronavirus

COVID-19 a global pandemic.

This contagious disease outbreak, which has continued to spread, and any related adverse public health

developments, has adversely affected workforces, economies, and financial markets globally, potentially leading to an economic

It is not possible for the Company to predict the duration or magnitude of the adverse results of the outbreak and its

effects on the Company’s business or ability to raise funds.

These factors raise substantial doubt regarding the Company’s

ability to continue as a going concern.

The financial statements

do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification

of liabilities that might be necessary should the Company be unable to continue in existence.

At December 31,

2019, the Company had cash on hand in the amount of $2,840,117.

On May 4, 2020, the Company entered into a loan with

Citibank, N.A.

in an aggregate principal amount of $1,714,989 pursuant to the Paycheck Protection Program (See Note 12).

Management estimates that the current funds on hand will be sufficient to continue operations through September 30, 2020.

continuation of the Company as a going concern is dependent upon its ability to obtain necessary debt or equity financing to

continue operations until it begins generating positive cash flow.

No assurance can be given that any future financing will

be available or, if available, that it will be on terms that are satisfactory to the Company.

Even if the Company is able to

obtain additional financing, it may contain undue restrictions on its operations, in the case of debt financing or cause

substantial dilution for its stockholders, in case or equity financing.

Management continues to review operations in order to

identify additional strategies designed to generate cash flow, improve the Company’s financial position, and enable the

timely discharge of the Company’s obligations.

If management is unable to identify sources of additional cash

flow in the short term, it may be required to further reduce or limit operations.

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 reserves for uncollectible receivables, inventory reserves and returns, impairment analysis of long term assets and

deferred tax assets, income tax accruals, accruals for potential liabilities and warrant reserves and assumptions made in valuing

the fair market value of equity transactions.

reincorporated in the State of Delaware (the

“Company”).

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 applications.

The Company’s products integrate DC generator and proprietary

automated controls, lithium batteries and solar systems to provide low operating cost and lower emissions alternative power needs

in telecommunications, defense, automotive and industrial markets.

Company’s financial statements have been prepared on the going concern basis, which contemplates the realization of assets

and the settlement of liabilities and commitments in the normal course of business.

For the year ended December 31, 2020, the

Company incurred a net loss of $10,871 and used cash in operating activities of $6,547.

At December 31, 2020, the Company had

cash on hand of $1,646 and working capital of $10,123.

Subsequent to December 31, 2020, the Company sold an aggregate of 750,000

shares of its common stock for net proceeds of approximately $12,500 in an offering completed in January 2021.

In addition, in

January 2021, the Company issued an aggregate of 225,878 shares of common stock upon the exercise of warrants and received cash

proceeds of $707.

Notwithstanding the net loss for 2020, management believes that its current cash balance, plus net proceeds

from issuance of common stock and exercise of warrants in January 2021, is sufficient to fund operations for at least one year

from the date the Company’s 2020 financial statements are issued.

Company expects to continue to incur net losses and negative operating cash flows in the near-term.

The Company may seek to raise

additional debt and/or equity capital to fund future operations.

No assurance can be given that any future financing will be available

or, if available, that it will be on terms that are satisfactory to the Company.

Even if the Company is able to obtain additional

financing, it may contain undue restrictions on its operations, in the case of debt financing or cause substantial dilution for

its stockholders, in case or equity financing.

Management continues to review operations in order to identify additional strategies

designed to generate cash flow, improve the Company’s financial position, and enable the timely discharge of the Company’s

If management is unable to identify sources of additional cash flow in the short term, it may be required to further

reduce or limit operations.

Company is subject to risks and uncertainties of the COVID-19 pandemic that could adversely impact its business, including its

sales, raw materials supply chain, liquidity and access to capital markets and business development activities.

The Company has

implemented additional health and safety precautions and protocols in response to the pandemic and government guidelines.

2020, sales to the Company’s U.S.

telecommunications customers, which represented 95% of the Company’s net sales for

2020, decreased 63% from 2019 as its customers postponed shipments and orders to prioritize expansion of 5G and cell site edge

computing networks and as a result of the effects of COVID-19 pandemic on the business of the Company’s customers.

result of the Company’s declining revenues during the COVID-19 pandemic, management implemented cost reduction programs

to reduce overhead and lower operating expenses, while still keeping the business operational and ready to expand when needed.

During 2020, the Company’s supply chain was not placed in jeopardy due to the COVID-19 outbreak.

extent of the impact of the COVID-19 pandemic has had and will continue to have on the Company’s business is highly uncertain

and difficult to predict and quantify.

The full extent to which the COVID-19 pandemic will directly or indirectly impact the Company’s

business, results of operations and financial condition, will depend on future developments that are highly uncertain, including

as a result of new information that may emerge concerning COVID-19 and the actions taken to contain or treat it, as well as the

economic impact on local, regional, national and international markets.

preparation of financial statements in conformity with accounting principles generally accepted in the United States of America

(“GAAP”) requires management to make certain estimates and assumptions that affect the reported amounts of assets,

liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities.

On an ongoing basis, management reviews

its estimates and if deemed appropriate, those estimates are adjusted.

Significant estimates include those related to assumptions

used in determining reserves for uncollectible receivables, assumptions used in valuing inventories at net realizable value, impairment

analysis of long term assets, estimates of useful lives of property and equipment, assumptions used in valuing stock-based compensation,

the valuation allowance for deferred tax assets, accruals for product warranties, accruals for potential liabilities, and assumptions

used in the determination of the Company’s liquidity.

Actual results may differ from those estimates.

The Company recognizes

revenue in accordance with ASU 2014-09, Revenue from Contracts with Customers (Topic 606), (ASC 606).

The underlying principle

of ASC 606 is to recognize revenue to depict the transfer of goods or services to customers at the amount expected to be collected.

ASC 606 creates a five-step model that requires entities to exercise judgment when considering the terms of contract(s), which

includes (1) identifying the contract(s) or agreement(s) with a customer, (2) identifying our performance obligations in the contract

or agreement, (3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations,

and (5) recognizing revenue as each performance obligation is satisfied.

Under ASC 606, 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’

Company recognizes revenue in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts

with Customers (“ASC 606”).

The underlying principle of ASC 606 is to recognize revenue to depict the transfer

of goods or services to customers at the amount expected to be collected.

ASC 606 creates a five-step model that requires entities

to exercise judgment when considering the terms of contract(s), which includes (1) identifying the contract(s) or agreement(s)

with a customer, (2) identifying our performance obligations in the contract or agreement, (3) determining the transaction price,

(4) allocating the transaction price to the separate performance obligations, and (5) recognizing revenue as each performance

obligation is satisfied.

Under ASC 606, 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.

Substantially

all of the Company’s revenue is derived from product sales.

Product revenue is recognized when performance obligations under

the terms of a contract are satisfied, which occurs for the Company upon shipment or delivery of products or services to its customers

based on written sales terms, which is also when control is transferred.

Revenue is measured as the amount of consideration the

Company expects to receive in exchange for transferring the products or services to a customer.

The Company determines 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 the Company places the product with the customer’s carrier or deliver the product to a customer’s

The Company regularly reviews its customers’

financial positions to ensure that collectability is reasonably assured.

We recognize revenues from rental equipment

The Company also recognizes

revenues from engineering services, technical support, and sale of accessories that support the Company’s 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.

Company also recognizes revenues from the rental of equipment.

The Company’s rental revenues have not been significant to

date and have accounted for less than one percent of total revenues for the years ended December 31, 2020 and 2019.

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.

Our rental contracts are fixed price contracts for fixed durations of time and

include freight and delivery charges.

Our rental revenues have not been significant to date and accounted for less than one percent

of our total revenues for the twelve months ended December 31, 2019 and 2018.

Disaggregation of Net Sales

The following table shows the Company’s

disaggregated net sales by product type:

Years End December 31,

Disaggregation

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

Years Ended December 31,

DC power systems

1 unchanged sentence

Total net sales

The following table shows the Company’s

disaggregated net sales by customer type:

Years End December 31,

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

Ended December 31,

Government/Military

Other (backup DC power to various industries )

Total net sales

Cash and cash equivalents

considers all highly liquid investments with an original maturity of 90 days or less when purchased to be cash equivalents.

carrying amounts reported in the Balance Sheets for cash and cash equivalents are valued at cost, which approximates their fair

Accounts Receivable

Trade receivables are recorded

at net realizable value consisting of the carrying amount less an allowance for uncollectible accounts, as needed.

uses the allowance method to account for uncollectible trade receivable balances.

Under the allowance method, if needed, an estimate

of uncollectible customer balances is made based upon specific account balances that are considered uncollectible.

to establish an allowance include the credit quality and payment history of the customer.

The Company did not deem it necessary

to provide an allowance for doubtful accounts as of December 31, 2019 and 2018.

consist of raw materials and finished goods and are stated at the lower of cost or market.

Cost is determined principally on a

first-in-first-out average cost basis.

Inventory quantities on hand are reviewed regularly and write-downs for obsolete inventory

is recorded based on an estimated forecast of the inventory item demand in the near future.

(backup DC power to various industries )

For the years ended December

31, 2020 and 2019, international sales totaled $1,522 and $230, respectively.

For the year ended December 31, 2020, over

88% of our international sales were made to one customer in Japan.

There were no sales made to this customer during 2019.

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.

The Company’s warranties are

of an assurance-type and come standard with all Company products to cover repair or replacement should product not perform as

Provisions for estimated expenses related to product warranties are made at the time products are sold.

These estimates

are established using historical information about the nature, frequency and average cost of warranty claim settlements as well

as product manufacturing and recovery from suppliers.

Management actively studies trends of warranty claims and takes action to

improve product quality and minimize warranty costs.

The Company estimates the actual historical warranty claims coupled with

an analysis of unfulfilled claims to record a liability for specific warranty purposes.

As of December 31, 2020 and 2019, the

Company has established inventory reserves of $600,000 and $330,000, respectively, for obsolete and slow-moving inventory.

December 31, 2019 and 2018, the components of inventories were as follows:

Years End December 31,

Raw materials

Finished goods

Inventory reserve

Total Inventories, net

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.

terms are typically from one to five years.

The Company’s warranties are of an assurance-type and come standard with all

Company products to cover repair or replacement should product not perform as expected.

Provisions for estimated expenses related

to product warranties are made at the time products are sold.

These estimates are established using historical information about

the nature, frequency and average cost of warranty claim settlements as well as product manufacturing and recovery from suppliers.

Management actively studies trends of warranty claims and takes action to improve product quality and minimize warranty costs.

The Company estimates the actual historical warranty claims coupled with an analysis of unfulfilled claims to record a liability

for specific warranty purposes.

The Company’s product warranty obligations are included in other accrued liabilities in the

balance sheets.

As of December 31, 2019 and 2018, the Company had accrued a liability for warranty reserve of $375,000 and $175,000,

respectively.

Company had accrued a liability for warranty reserve of $600 and $375, respectively, which are included in other accrued liabilities

in the accompanying balance sheets.

Management believes that the warranty accrual is appropriate;

however, actual claims incurred could differ from original

estimates, requiring adjustments to the accrual.

The product warranty accrual is included in current liabilities in the accompanying

balance sheets.

The following

is a tabular reconciliation of the product warranty liability, excluding the deferred revenue related to the Company’s warranty

however, actual claims incurred

could differ from original estimates, requiring adjustments to the accrual.

following is a tabular reconciliation of the product warranty liability, excluding the deferred revenue related to the Company’s

warranty coverage:

Years End December 31,

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Balance at end of the period

Accounting Policy on Shipping Costs

Amounts billed to a customer

in a sales transaction related to shipping and handling are reported as revenue.

Costs incurred by the Company for shipping and

handling are reported as cost of sales.

Property and Equipment

and equipment are stated at historical cost less accumulated depreciation and amortization.

Depreciation and amortization of property

and equipment is computed using the straight-line method over the estimated useful life.

Maintenance and repairs that do not improve

or extend the useful life of the respective assets are expensed.

Estimated useful lives of the principal classes of assets are

billed to a customer in a sales transaction related to shipping and handling are reported as revenue.

Costs incurred by the Company

for shipping and handling are considered fulfillment costs and reported as cost of sales.

and cash equivalents

Company considers all highly liquid investments with an original maturity of 90 days or less when purchased to be cash equivalents.

The carrying amounts reported in the Balance Sheets for cash and cash equivalents are valued at cost, which approximates their

receivables are recorded at net realizable value consisting of the carrying amount less an allowance for uncollectible accounts,

The Company uses the allowance method to account for uncollectible trade receivable balances.

Under the allowance method,

if needed, an estimate of uncollectible customer balances is made based upon specific account balances that are considered uncollectible.

Factors used to establish an allowance include the credit quality and payment history of the customer.

The Company did not deem

it necessary to provide an allowance for doubtful accounts as of December 31, 2020 and 2019.

Inventories are stated

at the lower of cost or net realizable value, with cost determined on a first-in, first-out (“FIFO”) basis.

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.

inventory has been written down, it creates a new cost basis for inventory that may not subsequently written up.

At December 31,

2020, as a result of the deterioration of the forecasted marketability of certain of the Company’s inventory, management

determined that the inventory’s revenue-generating ability was diminished, and the net realizable value of this inventory

had fallen below its historical carrying cost.

Accordingly, for the year ended December 31, 2020, the Company recorded a write

down of inventory of $3,400, which is included in cost of goods sold.

At December 31, 2020, the balance of inventory reflects

its new cost basis after the write down.

For the year ended December 31, 2019, the Company recorded a write down of inventory

of $270, which is included in cost of goods sold.

At December 31, 2020 and 2019, inventory has been reduced by cumulative write-downs

totaling $4,000 and $600, respectively.

of December 31, 2020 and 2019, inventories consisted of the following:

Years Ended December 31,

Raw materials

Finished goods

and Equipment

and equipment are recorded at cost less accumulated depreciation and amortization.

Additions, improvements, and major renewals

or replacements that substantially extend the useful life of an asset are capitalized.

Repairs and maintenance expenditures are

expensed as incurred.

Depreciation and amortization of property and equipment is computed using the straight-line method over

the estimated useful life.

Estimated useful lives of the principal classes of assets are as follows:

Estimated life

4 unchanged sentences

Office equipment

Management regularly reviews

property, equipment and other long-lived assets for possible impairment.

This review occurs annually or more frequently if events

or changes in circumstances indicate the carrying amount of the asset may not be recoverable.

Based upon management’s annual

assessment, there were no indicators of impairment of the Company’s property and equipment and other long-lived assets as

of December 31, 2019 or December 31, 2018.

Prior to January 1, 2019, the Company accounted

for leases under ASC 840, Accounting for Leases .

Effective January 1, 2019, the Company adopted the guidance of ASC

842, Leases, which requires an entity to recognize a right-of-use asset and a lease liability for virtually all

The Company adopted ASC 842 using a modified retrospective approach.

As a result, the comparative financial information

has not been updated and the required disclosures prior to the date of adoption have not been updated and continue to be reported

under the accounting standards in effect for those periods.

The adoption of ASC 842 on January 1, 2019 resulted in the recognition

of operating lease right-of-use assets and lease liabilities for operating leases of $2,847,495.

There was no cumulative-effect

adjustment to accumulated deficit.

See Note 11 for further information regarding the adoption of ASC 842.

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.

Temporary differences are the differences between

the reported amounts of assets and liabilities and their tax bases.

Deferred tax assets are reduced by a valuation allowance when,

in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized

before the Company is able to realize their benefits, or that future deductibility is uncertain.

Tax benefits from

an uncertain tax position are recognized only if it more likely than not that the tax position will be sustained on examination

by the taxing authorities based on technical merits of the position.

The tax benefits recognized in the financial statements from

such a position are measured based on the largest benefit that has greater than 50 percent likelihood of being realized upon ultimate

Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

Financial Assets and Liabilities Measured

at Fair Value

The Company uses

various inputs in determining the fair value of its investments and measures these assets on a recurring basis.

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:

Quoted prices in active markets for identical assets or liabilities.

Inputs, other than the quoted prices in active markets, that is observable either directly or indirectly.

Unobservable inputs based on the Company’s assumptions.

The carrying amounts

of 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, notes payable approximate

regularly reviews property, equipment and other long-lived assets for possible impairment.

This review occurs annually or more

frequently if events or changes in circumstances indicate the carrying amount of the asset may not be recoverable.

management’s annual assessment, there were no indicators of impairment of the Company’s property and equipment and

other long-lived assets as of December 31, 2020 or December 31, 2019.

Company accounts for its leases in accordance with the guidance of ASC 842, Leases .

The Company determines whether a contract

is, or contains, a lease at inception.

Right-of-use assets represent the Company’s right to use an underlying asset during

the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease.

Right-of-use assets and lease liabilities are recognized at lease commencement based upon the estimated present value of unpaid

lease payments over the lease term.

The Company uses its incremental borrowing rate based on the information available at lease

commencement in determining the present value of unpaid lease payments The Company adopted ASC 842 on January 1, 2019.

no cumulative-effect adjustment to accumulated deficit.

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.

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, 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.

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.

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.

Temporary differences are

the differences between the reported amounts of assets and liabilities and their tax bases.

Deferred tax assets are reduced by

a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred

tax assets will not be realized before the Company is able to realize their benefits, or that future deductibility is uncertain.

benefits from an uncertain tax position are recognized only if it more likely than not that the tax position will be sustained

on examination by the taxing authorities based on technical merits of the position.

The tax benefits recognized in the financial

statements from such a position are measured based on the largest benefit that has greater than 50 percent likelihood of being

realized upon ultimate resolution.

Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and

rates on the date of enactment.

and Development Costs

and development costs are expensed as incurred and consist primarily of salaries and other expenses relating to the design, development,

and testing of the Company’s products.

For the years ended December 31, 2020 and 2019, research and development expenditures

totaled $1,723 and $2,276, respectively.

Loss Per Share

loss per share is computed by dividing net loss by the weighted average number of common shares outstanding for the period.

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.

Dilutive potential common shares include shares from unexercised

warrants and options.

Potential common share equivalents have been excluded where their inclusion would be anti-dilutive.

Company’s basic and diluted net loss per share is the same for all periods presented because all shares issuable upon exercise

of warrants and options are anti-dilutive.

following potentially dilutive shares were excluded from the shares used to calculate diluted earnings per share as their inclusion

would be anti-dilutive:

Assets and Liabilities Measured at Fair Value

standards require certain assets and liabilities be reported at fair value in the financial statements and provide a framework

for establishing that fair value.

Fair value is defined as the price that would be received upon sale of an asset or paid to transfer

a liability in an orderly transaction between market participants at the measurement date.

When determining fair value, the Company

considers the principal or most advantageous market in which it transacts, and considers assumptions that market participants

would use when pricing the asset or liability.

The framework for determining fair value is based on a hierarchy that prioritizes

the inputs and valuation techniques used to measure fair value:

prices in active markets for identical assets or liabilities.

other than the quoted prices in active markets, that is observable either directly or indirectly.

inputs based on the Company’s assumptions.

carrying amounts of financial assets and liabilities, such as cash and cash equivalents, accounts receivable and accounts payable,

approximate their fair values because of the short-term nature of these instruments.

The carrying values of notes payable approximate

their fair values due to the fact that the interest rates on these obligations are based on prevailing market interest rates.

The Company operates

in one segment for the manufacture and distribution of its products.

Company operates in one segment for the manufacture and distribution of its products.

In accordance with the “Segment Reporting”

of the ASC, the Company’s chief operating decision maker has been identified as the Chief Executive Officer and President,

Topic of the ASC, the Company’s chief operating decision maker has been identified as the Chief Executive Officer and President,

who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company.

12 unchanged sentences

Concentrations

maintains cash balances at five banks, with the majority held at one bank located in the U.S.

At times, the amount on deposit exceeds

the federally insured limits.

Management believes that the financial institutions that hold the Company’s cash are financially

sound and, accordingly, minimal credit risk exists.

Cash denominated in Australian

Dollar with a U.S.

Dollar equivalent of $16,727 and $152,254 at December 31, 2019 and 2018, respectively, was held in

an account at a financial institution located in Australia.

The Company maintains cash balances at four banks, with the majority held at one bank located in the U.S.

At times, the amount

on deposit exceeds the federally insured limits.

Management believes that the financial institutions that hold the Company’s

cash are financially sound and, accordingly, minimal credit risk exists.

denominated in Australian Dollar with a U.S.

Dollar equivalent of $10 and $16 at December 31, 2020 and 2019, respectively, was

held in an account at a financial institution located in Australia.

Cash denominated in Romanian Leu with a U.S.

Dollar equivalent

of $4,273 and $9,368 at December 31, 2019 and 2018, respectively, was held in an account at a financial institution located

years ended December 31, 2019, 68%, 17%, and 6% of revenue were generated from the company’s three largest customers, which

were Tier-1 telecommunications wireless carriers.

of $28 and $4 at December 31, 2020 and 2019, respectively, was held in an account at a financial institution located in Romania.

For the years ended December 31, 2020, 52%, 15%, and 14% of revenue were generated from the company’s three largest customers,

which were customers from the telecommunications industry.

In 2019, 68%, 17%, and 6% of revenue were generated from the Company’s

three largest customers, all Tier-1 telecommunication wireless carriers.

In 2019 and 2018, sales to telecommunications customers

accounted for 96% and 90% of total revenue, respectively.

In 2019 and 2018, sales to international customers accounted for 1% and

6%, of total revenue, respectively.

Accounts receivable .

At December 31, 2019, 70%, nil, and 6% of the Company’s accounts receivable were from the Company’s three largest customers.

At December 31, 2018, 42%, 45%, and 1% of the Company’s accounts receivable were from the Company’s three largest customers.

Accounts payable .

On December 31, 2019, accounts payable to the Company’s largest vendor represented 11% while the other two largest vendors

represented 10% each.

On December 31, 2018, accounts payable to the Company’s largest vendor represented 71%, while the other

two largest vendors represented 3% each.

Net Income (Loss) Per Share

Basic net income

(loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the

Diluted earnings per share is computed by dividing the net income applicable to common stock holders 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 June 2016, the FASB issued ASU No.

Credit Losses - Measurement of Credit Losses on Financial Instruments (“ASC 326”).

The standard significantly changes

how entities will measure credit losses for most financial assets, including accounts and notes receivables.

The standard will

replace today’s “incurred loss”

three largest customers, all are customers from the telecommunications industry.

In 2020 and 2019, sales to telecommunications

customers accounted for 96% and 96% of total revenue, respectively.

In 2020 and 2019, sales to international customers accounted

for 17% and 1%, of total revenue, respectively.

At December 31, 2020, 87% of the Company’s accounts receivable was from one of the Company’s major

At December 31, 2019, 70% and 20% represented the two largest accounts receivable balances from the Company’s

There was no other customer that accounted for more than 10% of the Company’s accounts receivable as of the years

ended December 31, 2020 and 2019.

On December 31, 2020, the three largest accounts payable accounts to the Company’s vendors represented 10%,

9%, and 8%, respectively.

On December 31, 2019, the three largest accounts payable accounts to the Company’s largest vendors

represented 11%, 10%, and 10%, respectively.

Accounting Pronouncements

June 2016, the FASB issued ASU No.

2016-13, Credit Losses - Measurement of Credit Losses on Financial Instruments (“ASC

The standard significantly changes how entities will measure credit losses for most financial assets, including accounts

and notes receivables.

The standard will replace today’s “incurred loss”

approach with an “expected loss”

model, under which companies will

recognize allowances based on expected rather than incurred losses.

Entities will apply the standard’s provisions as a cumulative-effect

adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective.

is effective for interim and annual reporting periods beginning after December 15, 2019.

The adoption of ASU 2016-13 is not expected

to have a material impact on the Company’s financial position, results of operations, and cash flows.

The Company’s management does not believe

that there are other recently issued, but not yet effective, authoritative guidance, if currently adopted, would have a material

impact on the Company’s financial statement presentation or disclosures.

NOTE 2 –

RESTRICTED CASH

As of December 31, 2018,

the Company’s cash balance included restricted cash $1,002,683.

In March 2019, the Company closed the credit facility securing

the restricted cash account, and as such, no cash balance was restricted as of December 31, 2019.

The restricted cash served as

a collateral for the line of credit (see Note 5) opened with a bank in March 2017 and closed in March 2019.

NOTE 3 –

model, under which companies will recognize allowances based on expected rather than incurred losses.

Entities will apply the

standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting

period in which the guidance is effective.

As a smaller reporting company, ASU 2016-13 will be effective for the Company beginning

January 1, 2023, with early adoption permitted.

The adoption of ASU 2016-13 is not expected to have a material impact on the Company’s

financial position, results of operations, and cash flows.

Company’s management does not believe that any other recently issued, but not yet effective, authoritative guidance, if

currently adopted, would have a material impact on the Company’s financial statement presentation or disclosures.

PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

Production tooling, jigs, fixtures

and equipment consist of the following:

Shop equipment and machinery

Production tooling, jigs, fixtures

Leasehold improvements

3 unchanged sentences

Property and equipment, net

Depreciation and amortization

expense on property and equipment for the years ended December 31, 2019 and 2018 was $628,107 and $385,583 respectively.

the years ended December 31, 2019 and 2018, $586,217 and $349,750, respectively, of depreciation expense was included in cost of

and amortization expense on property and equipment for the years ended December 31, 2020 and 2019 was $622 and $628 respectively.

During the years ended December 31, 2020 and 2019, $595 and $586, respectively, of depreciation expense was included in cost of

sales for the years then ended.

NOTE 4 –

NOTES PAYABLE

Notes payable consist of the following:

Total Equipment Notes Payable

payable consist of the following:

Total Notes Payable

Current Portion

Notes Payable, Long term

has entered into several financing agreements for the purchase of equipment.

The terms of these financing arrangements are for

a term of 2 years to 5 years, with interest rates ranging from 1.9% to 6.9% per annum, secured by the purchased equipment.

December 31, 2018, the balance of notes payable was $1,207,927.

During 2019, the Company acquired additional equipment under financing

agreements for a total of $153,307 with terms ranging from 2 to 5 years, interest rate of from 2.9% to 5.0% per annum, and secured

by the purchased equipment.

During 2019, the Company also made repayments on the notes payable totaling about $255,145.

As of December

31, 2019, the balance of notes payable was $1,106,089.

The aggregate monthly payments of principal and interest of the outstanding

notes payable as of December 31, 2019 is approximately $42,000 are due through 2024.

Annual future principal payments

under the outstanding note agreements as of December 31, 2019 are as follows:

Notes Payable, Noncurrent portion

Company has entered into several financing agreements for the purchase of equipment.

The terms of these financing arrangements

are for a term of 2 years to 5 years, with interest rates ranging from 1.9% to 6.9% per annum, secured by the purchased equipment.

The aggregate monthly payments of principal and interest of the outstanding notes payable as of December 31, 2020 is approximately

$20 and are due through 2024.

of December 31, 2019, the balance of notes payable was $1,106.

During 2020, the Company paid down the notes payable by $328, and

at December 31, 2020, the balance of notes payable was $777.

future principal payments under the outstanding note agreements as of December 31, 2020 are as follows:

Years ending December 31:

NOTE 5 –

LINE OF CREDIT

Line of Credit

On March 21, 2017, the

Company entered into a Credit Agreement and related documents with Citibank, N.A.

for a revolving credit facility in the aggregate

amount of up to $1,000,000.

The credit facility was secured by a Certificate of Deposit (restricted cash) account opened by the

Company with Citibank in the amount of $1,000,000 (see Note 2).

On March 20, 2019, the Company terminated the credit facility and

transferred the balance of the Certificate of Deposit that secured the credit facility to its liquid cash account.

20, 2019, the Company had not borrowed any funds under the credit facility.

Supplier Agreement

Effective June 4, 2019, the Company executed

a Supplier Agreement with Citibank, N.A.

Under the terms of the Supplier Agreement, the Company may from time to time offer to

sell to Citibank, without recourse, certain of the Company’s accounts receivable relating to invoiced sales made to AT&T.

Once AT&T approves the invoice, AT&T sends payment instructions to Citibank.

The sale price is equal to the face amount

of the receivable less the applicable discount charge calculated by multiplying the face amount of the receivable by (i) the annual

discount rate (which is equal to the 90-day London Inter-bank Offered Rate plus 1.00%) and (ii) the discount acceptance period

(which is equal the number of days in the payment terms less the number of days necessary to approve the invoice) divided by 360.

Citibank may change the pricing terms at any

time in its sole discretion upon at least thirty days prior written notice to the Company.

In addition, either party may terminate

the Supplier Agreement upon thirty business days prior written notice to the other party, provided that either party may terminate

the agreement upon five business days prior written notice if the other party is in breach of, or fails to perform any of its material

obligations under the Supplier Agreement.

For the year ended December 31, 2019, a total of $13,228,765 of accounts receivables

were sold to Citibank by the Company, and the Company incurred fees of approximately $52,000 during the year then ended.

NOTE 6 –

September 30, 2020, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with Pinnacle Bank

(“Pinnacle”).

During 2020, we advanced $2,500 from the revolving credit facility, which we also paid off during the

As of December 31, 2020, there was no balance outstanding under the line of credit at December 31, 2020, and the Company

had availability under the line of credit in the amount of $1,070.

The Loan Agreement’s initial term ends on September 30,

2022, and is renewed thereafter for additional one-year terms.

Either party may terminate the Loan Agreement on the last day of

the initial term or subsequent renewal term by giving the other party at least sixty days prior written notice.

In addition, Pinnacle

may terminate the Loan Agreement at any time upon sixty days prior written notice and immediately upon the occurrence of an event

Loan Agreement provides for a revolving credit facility under which Pinnacle may make advances to the Company, 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) 35% of the lower of cost or wholesale market value of certain

inventory of the Company or (ii) $2,500.

In no event shall the aggregate amount of the outstanding advances under the revolving

credit facility be greater than $4,000.

Interest accrues on the daily balance at a rate of 1.25% above the prime rate (the “Standard

Interest Rate”), but in no event shall the Standard Interest Rate be less than 3.75% per annum.

Interest on the portion

of the daily balance consisting of advances against inventory accrues interest at a rate of 2.25% above the prime rate per annum

(the “Inventory Interest Rate”), but in no event shall the Inventory Interest Rate be less than 4.75% per annum.

Loan Agreement also contains a financial covenant requiring the Company to attain an effective tangible net worth, defined as

its total assets, excluding all intangible assets, less its total liabilities plus loans to the Company from our officers, stockholders

or employees that have been subordinated to the Company’s obligations to Pinnacle, greater than $6,000 as determined by

Pinnacle as of the end of each fiscal quarter.

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 plus the original principal balance of any term loans and advances other than under the revolving credit facility.

the Loan Agreement, the Company also agreed to grant Pinnacle a security interest in all presently existing and thereafter acquired

or arising assets of the Company.

The Loan Agreement also contains customary representations, warranties and covenants, and other

terms and conditions.

June 4, 2019, the Company executed a Supplier Agreement with Citibank, N.A.

(“Citibank”).

On October 8, 2020, the

Company terminated the Supplier Agreement with Citibank.

the terms of the Supplier Agreement, the Company from time to time offered to sell to Citibank certain of the Company’s

accounts receivable relating to invoiced sales made to AT&T.

Once AT&T approved the invoice, AT&T sent payment instructions

During the years ended December 31, 2020 and 2019, total of $2,621 and $13,229 of accounts receivables, respectively,

was sold to Citibank by the Company, and the Company incurred fees of approximately $12 and $52, respectively.

sale price was equal to the face amount of the receivable less the applicable discount charge calculated by multiplying the face

amount of the receivable by (i) the annual discount rate (which is equal to the 90-day London Inter-bank Offered Rate plus 1.00%)

and (ii) the discount acceptance period (which is equal the number of days in the payment terms less the number of days necessary

to approve the invoice) divided by 360.

May 4, 2020, the Company entered into a loan with Citibank, N.A.

in an aggregate principal amount of $1,715 (the “PPP Loan”),

pursuant to the Paycheck Protection Program (the “PPP”) under the CARES Act.

PPP Loan is evidenced by a promissory note dated May 4, 2020.

The PPP Loan matures two years from the disbursement date and bears

interest at a rate of 1% per annum, with the first nine months of interest deferred.

Principal and interest are payable monthly

commencing nine months after the disbursement date and may be prepaid by the Company at any time prior to maturity with no prepayment

The Company applied ASC 470, Debt , to account for the PPP Loan.

the terms of the CARES Act, recipients of PPP loans can apply for and be granted forgiveness for all or a portion of loans granted

under the PPP.

The PPP Loan is subject to forgiveness to the extent proceeds are used for payroll costs, including payments required

to continue group health care benefits, and certain rent, utility, and mortgage interest expenses (collectively, “Qualifying

Expenses”), pursuant to the terms and limitations of the PPP.

The Company intends to use a significant majority of the PPP

Loan amount for Qualifying Expenses and expects the full amount of the PPP Loan to be forgiven.

However, no assurance can be given

that the Company will obtain forgiveness of the PPP Loan in whole or in part.

OPERATING LEASES

Company has two operating lease agreements for its warehouse and office spaces both with remaining lease terms at December 31,

2020, of 2.4 years.

The Company also has another storage facility on a twelve-month lease term.

Leases with an initial term of

12 months or less are not recorded on the balance sheet.

The Company accounts for the lease and non-lease components of its leases

as a single lease component.

Rent expense is recognized on a straight-line basis over the lease term.

lease right-of-use (“ROU”) assets and liabilities are recognized at commencement date based on the present value of

lease payments over the lease term.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities

represent our obligation to make lease payments arising from the lease.

Generally, the implicit rate of interest in arrangements

is not readily determinable and the Company utilizes its incremental borrowing rate in determining the present value of lease

The Company’s incremental borrowing rate is a hypothetical collateralized borrowing rate based on its understanding

of what its credit rating would be.

The operating lease ROU asset includes any lease payments made and excludes lease incentives.

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

Years Ended December 31,

Operating lease cost (of which $98 is included

in general and administration and $601 is included in cost of sales in the Company’s statement of operations as of December

31, 2020, and $102 is included in general and administration and $597 is included in cost of sales in the Company’s

statement of operations as of December 31, 2019)

Other Information

Weighted average remaining lease term –

leases (in years)

Average discount rate –

operating leases

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

At December 31,

Operating leases

Long-term right-of-use assets, net of accumulated amortization

of $1,265 and $154, respectively

Current portion of operating lease liabilities

Noncurrent portion of operating lease liabilities

Total operating lease liabilities

of the Company’s lease liabilities are as follows:

Operating Leases

Total lease payments

Imputed interest/present value discount

Present value of lease liabilities

expense for the twelve months ended December 31, 2020 and 2019 was $903 and $865, respectively (including short-term and other

STOCKHOLDERS’

is authorized to issue up to a total of 50,000,000 shares of common stock, $0.0001 par value per share.

Holders of common stock

are entitled to one vote for each share held on all matters submitted to a vote of shareholders.

Holders of common stock do not

have cumulative voting rights.

Further, holders of common stock have no preemptive, conversion, redemption or subscription rights

and there are no sinking fund provisions applicable to the Company’s common stock.

Upon the liquidation, dissolution or winding-up

of the Company, holders of common stock are entitled to share ratably in all assets remaining after payment of all liabilities

and the liquidation preferences of any outstanding shares of preferred stock.

Subject to preferences that may be applicable to

any outstanding shares of preferred stock, holders of common stock are entitled to receive dividends, if any, as may be declared

from time to time by the Company’s board of directors, out of the Company’s assets which are legally available.

Preferred Stock

The Company’s

board of directors is authorized to issue up to 5,000,000 shares of preferred stock in one or more series and to fix the rights,

preferences, privileges, qualifications, limitations and restrictions thereof, including dividend rights and rates, conversion

rights, voting rights, terms of redemption, redemption prices, liquidation preferences and the number of shares constituting any

series or the designation of such series, without any vote or action by the Company’s stockholders.

Any preferred stock to

be issued could rank prior to the Company’s common stock with respect to dividend rights and rights on liquidation.

The Company’s

board of directors, without stockholder approval, may issue preferred stock with voting and conversion rights which could adversely

affect the voting power of holders of common stock and discourage, delay or prevent a change in control of the Company.

Treasury Stock

entered into a 10b-18 Stock Repurchase Agreement on November 6, 2019 authorizing ThinkEquity, a division of Fordham Financial Management,

to repurchase up to $500,000 of the Company’s common stock par value $0.0001..

As of December 31, 2019, the Company

of common stock and warrants for cash

July 2, 2020, the Company entered into a securities purchase agreement with certain institutional investors for the sale in a

private placement of 1,250,000 shares of the Company’s common stock, at a purchase price of $2.25 per share.

Additionally,

each investor received a warrant exercisable into 50% of the shares purchased by an investor (see Note 9).

The closing of the

private placement took place on July 7, 2020, and aggregate net proceeds from the sale of the shares of common stock and warrants

was approximately $2,812.

of common stock upon exercise of warrants

the year ended December 31, 2020, warrants to purchase an aggregate of 375,000 shares of common stock were exercised, and the

Company received net proceeds of $1,174 upon such exercise.

Company’s board of directors is authorized to issue up to 5,000,000 shares of preferred stock in one or more series and

to fix the rights, preferences, privileges, qualifications, limitations and restrictions thereof, including dividend rights and

rates, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences and the number of shares

constituting any series or the designation of such series, without any vote or action by the Company’s stockholders.

preferred stock to be issued could rank prior to the Company’s common stock with respect to dividend rights and rights on

The Company’s board of directors, without stockholder approval, may issue preferred stock with voting and conversion

rights which could adversely affect the voting power of holders of common stock and discourage, delay or prevent a change in control

of the Company.

Company entered into a 10b-18 Stock Repurchase Agreement on November 6, 2019 authorizing ThinkEquity, a division of Fordham Financial

Management, Inc.

to repurchase up to $500 of the Company’s common stock.

During the year ended December 31, 2019, the Company

purchased of 17,477 shares and held them as treasury stock at cost of $40.

On January 20, 2020, the Company terminated the

Stock Repurchase Agreement

NOTE 7 –

On January 20, 2020, the Company terminated the Stock

Repurchase Agreement.

STOCK OPTIONS

The following table summarizes stock option

following table summarizes stock option activity:

Weighted Average

Exercise Price

Outstanding, December 31, 2018

Outstanding, December 31, 2019

Exercisable, December 31, 2019

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 1,754,385 shares of common stock as incentives to employees and consultants to the Company with awards limited

to a maximum of 350,877 shares to any one participant in any calendar year.

In April 2018, the Company

granted options to purchase an aggregate of 330,000 shares of the Company’s common stock to three of its executive officers,

with exercise prices ranging from $5.09 to $5.60 per share, that expire ten years from the date of grant, and with one-third of

the total options granted vesting on each of the first, second, and third anniversaries of the grant date.

The fair value of each

of the option award was estimated on the date of grant using the Black-Scholes option pricing model based on the following assumptions:

(i) volatility rate of 57.71%, (ii) discount rate of 2.42%, (iii) zero expected dividend yield, and (iv) expected life of 6.5

years, which is the average of the term of the options and their vesting periods.

The total fair value of these options at their

grant dates was approximately $948,000.

On October 1, 2019, the Company’s three executive officers agreed to terminate their

rights to 220,000 stock option shares that had not vested as of April 1, 2019.

During the years ended

December 31, 2019 and 2018, the Company recorded stock-based compensation costs of $78,943 and $327,471 related to the vesting

of these options.

As of December 31, 2019, there was $210,511 of unamortized cost compensation costs that will be amortized over

the next 1.25 years.

There was no intrinsic value of the outstanding

and exercisable options at December 31, 2019.

NOTE 8 –

The following table summarizes warrant

Outstanding and exercisable, December 31, 2020

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 1,754,385 shares of common stock as incentives to employees and consultants to the Company with

awards limited to a maximum of 350,877 shares to any one participant in any calendar year.

December 31, 2020 and 2019, the Company had total outstanding options of 140,000, which are fully vested, exercise prices ranging

from $4.84 to $5.09, and with 30,000 option shares set to expire in December 2027 and the remaining 110,000 option shares set

to expire in April 2028.

On October 1, 2019, the Company’s

three executive officers agreed to terminate their rights to 220,000 stock option shares that had not vested as of April 1, 2019.

the year ended December 31, 2019, the Company recorded stock-based compensation costs of $79 related to the vesting of these options.

There was no unamortized cost compensation remaining as of December 31, 2019 As such, no further stock compensation expense was

recorded during the year ended December 31, 2020.

was no intrinsic value of the outstanding options at December 31, 2020.

STOCK WARRANTS

following table summarizes warrant activity:

Weighted Average

Exercise Price

Outstanding, December 31, 2018

Outstanding, December 31, 2019

Outstanding and exercisable, December 31, 2019

In connection

with the Company’s underwritten initial public offering in December 2016, the Company issued warrants to the underwriters

to purchase up to 115,000 shares of its common stock with an exercise price of $8.75 per share, which warrants expire December

There was no intrinsic value of the outstanding

and exercisable warrants at December 31, 2019.

NOTE 9 –

DISTRIBUTION AGREEMENT WITH A RELATED ENTITY

On March 1, 2014, the Company entered into a

subcontractor installer agreement with Smartgen Solutions, Inc.

(“Smartgen”), a related entity that is engaged in business

of equipment rental and provider of maintenance, repair and installation services to mobile telecommunications towers in California.

Under the terms of the agreement, Smartgen has been appointed as a non-exclusive, authorized service provider for the installation,

repair and service of the Company’s products in Southern California.

The agreement has a term of three years from the date

of execution and automatically renews for additional one-year periods if not terminated.

During the years ended December 31, 2019 and

2018, Smartgen performed $288,910 and $174,290 in field services, respectively, the cost of which is included in cost of goods

NOTE 10 –

The reconciliation of the

effective income tax rate to the federal statutory rate is as follows:

Outstanding, December 31, 2020

Exercisable, December 31, 2020

July 7, 2020, the Company issued warrants exercisable into 625,000 shares of the Company’s common stock in conjunction with

the sales by the Company in a private placement of 1,250,000 shares of the Company’s common stock (see Note 7).

have an exercise price of $3.13 per share, are exercisable beginning on July 7, 2020 and have a term of five years.

year ended December 31, 2020, warrants to purchase 375,000 shares of common stock were exercised, and the Company received net

proceeds of $1,174 upon such exercise.

was no intrinsic value of the outstanding and exercisable warrants at December 31, 2020.

March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted and signed into law

in response to the COVID-19 pandemic.

Under the CARES Act, NOLs arising in tax years beginning after December 31, 2017, and before

January 1, 2021 (e.g., NOLs incurred in 2018, 2019, or 2020 by a calendar-year taxpayer) may be carried back to each of the five

tax years preceding the tax year of such loss.

Since the enactment of the Tax Cuts and Jobs Act of 2017 (TCJA), NOLs generally

could not be carried back but could be carried forward indefinitely.

Further, the TCJA limited NOL absorption to 80% of taxable

The CARES Act temporarily removes the 80% limitation, reinstating it for tax years beginning after 2020.

on the passage of Cares Act, the Company determined that the NOL carryback provision in the CARES Act would result in a cash benefit

to us for the fiscal years 2017, 2018, and 2019.

As a result, during the year ended December 31, 2020, an income tax benefit of

$2,139 was recorded related to U.S.

Federal loss carryforwards that became eligible for carryback.

At December 31, 2020, we have

recorded an income tax receivable of $1,702 for the benefit of carrying back the NOLs for 2018 to 2019 to the tax year ended September

We are forecasting an NOL for fiscal year 2020 and expect to carry it back to the short tax period ended December 31,

As a result, we have also included the 2020 provisional amounts of $655 in income tax receivable at December 31, 2020.

benefit from income taxes for the years ended December 31, 2020 and 2019 consists of the following:

Years Ended December 31,

Current Federal

Current State

Deferred Federal

Deferred State

Benefit from income taxes

reconciliation of the effective income tax rate to the federal statutory rate is as follows:

Years Ended December 31,

Federal income tax rate

3 unchanged sentences

Effective income tax rate

Deferred income taxes reflect the net tax effects

of temporary differences between the carrying amounts of assets and liabilities for financial statement purposes and the amounts

used for income tax purposes.

Significant components of the Company’s deferred tax assets and liabilities at December 31,

2019 and 2018 are as follows:

income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial

statement purposes and the amounts used for income tax purposes.

Significant components of the Company’s deferred tax assets

and liabilities at December 31, 2020 and 2019 are as follows:

Deferred tax assets:

1 unchanged sentence

Accrued liabilities and other reserves

Net operating loss carryover

Deferred tax liability:

Accumulated depreciation

Net deferred tax assets

Operating lease liability

Net operating loss carryforwards

Gross deferred tax assets

Valuation allowance

Net deferred tax assets, net of valuation allowances

Effective January

1, 2007, the Company adopted FASB guidelines that address the determination of whether tax benefits claimed or expected to be claimed

on a tax return should be recorded in the financial statements.

Under this guidance, the Company may recognize the tax benefit

from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the

taxing authorities, based on the technical merits of the position.

The tax benefits recognized in the financial statements from

such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized

upon ultimate settlement.

This guidance also provides guidance on derecognition, classification, interest and penalties on income

taxes, accounting in interim periods and requires increased disclosures.

At the date of adoption, and as of December 31, 2019 and

2018, the Company did not have a liability for unrecognized tax benefits, and no adjustment was required at adoption.

files income tax returns in the U.S.

Total deferred tax assets

Deferred tax liabilities:

Operating lease right-of-use asset, net

Total deferred tax liabilities

Net deferred tax asset (liability)

December 31, 2020, the Company had available Federal and state net operating loss carryforwards (“NOL”s) to reduce

future taxable income of approximately $7,200,000 and $10,900,000, respectively.

The Federal NOL can be carried forward indefinitely,

but can only offset 80% of taxable income in future years.

The state carryforward expires in 2039 through 2040.

Authoritative

guidance issued by the ASC Topic 740 –

Income Taxes requires that a valuation allowance be established when it is more likely

than not that all or a portion of deferred tax assets will not be realized.

The Company considers all evidence available when

determining whether deferred tax assets are more likely-than-not to be realized, including projected future taxable income, scheduled

reversals of deferred tax liabilities, prudent tax planning strategies, and recent financial operations.

The evaluation of this

evidence requires significant judgement about the forecast of future taxable income is consistent with the plans and estimates

we are using to manage the underlying business.

Based on their evaluation, the Company determined that their net deferred tax

assets do not meet the requirements to be realized, and as such, the Company has provided a full valuation allowance against them.

The Company follows

FASB guidelines that address the determination of whether tax benefits claimed or expected to be claimed on a tax return should

be recorded in the financial statements.

Under this guidance, the Company may recognize the tax benefit from an uncertain tax

position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities,

based on the technical merits of the position.

The tax benefits recognized in the financial statements from such a position should

be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement.

This guidance also provides guidance on derecognition, classification, interest and penalties on income taxes, accounting in interim

periods and requires increased disclosures.

At December 31, 2020 and 2019, the Company did not have a liability for unrecognized

tax benefits, and no adjustment was required at adoption.

Company files income tax returns in the U.S.

federal jurisdiction and various states.

The Company is subject to U.S.

federal or state income

tax examinations by tax authorities for tax years after 2010.

The Company’s

policy is to record interest and penalties on uncertain tax provisions as income tax expense.

As of December 31, 2019 and 2018,

the Company had no accrued interest or penalties related to uncertain tax positions.

Additionally, tax years 2010 through 2019

remain open to examination by the major taxing jurisdictions to which the Company is subject.

Authoritative guidance issued

by the ASC Topic 740 –

Income Taxes requires that a valuation allowance be established when it is more likely than not that

all or a portion of deferred tax assets will not be realized.

The Company considers all evidence available when determining whether

deferred tax assets are more likely-than-not to be realized, including projected future taxable income, scheduled reversals of

deferred tax liabilities, prudent tax planning strategies, and recent financial operations.

The evaluation of this evidence requires

significant judgement about the forecast of future taxable income is consistent with the plans and estimates we are using to manage

the underlying business.

Based on their evaluation, the Company determined that their net deferred tax assets do not meet the

requirements to be realized, and as such, the Company has provided a full valuation allowance against them.

As of December 31, 2019, the Company has approximately

$2,400,000 of available net operating loss carryforwards which may be available to offset income in future periods.

On March 25, 2020, the Senate passed the Coronavirus Aid, Relief, and Economic Security Act (“CARES

Act”), commonly known as “Phase Three”

of coronavirus economic relief.

The CARES Act provides stimulus to individuals,

businesses, and hospitals in response to the economic distress caused by the coronavirus (COVID-19) pandemic.

2020, the House of Representatives passed the CARES Act by voice vote.

President Trump signed the bill into law that same

Under the CARES Act, NOLs arising in tax years beginning

after December 31, 2017, and before January 1, 2021 (e.g., NOLs incurred in 2018, 2019, or 2020 by a calendar-year taxpayer) may

be carried back to each of the five tax years preceding the tax year of such loss.

Since the enactment of the Tax Cuts and Jobs

Act of 2017 (TCJA), NOLs generally could not be carried back but could be carried forward indefinitely.

Further, the TCJA limited

NOL absorption to 80% of taxable income.

The CARES Act temporarily removes the 80% limitation, reinstating it for tax years beginning

Based on the passage of Cares Act, the Company believes it will be entitled to a refund of approximately $1,200,000

from the payment of prior year taxes.

The Company will account for the refund in the first quarter of 2020, the period

that includes the enactment date of the new tax law.

NOTE 11 –

COMMITMENT AND CONTINGENCIES

The Company has

two operating lease agreements for its warehouse and office spaces both with remaining lease terms of 3 years.

The Company also

has another storage facility on a twelve-month lease term.

Leases with an initial term of 12 months or less are not recorded on

the balance sheet.

The Company accounts for the lease and non-lease components of its leases as a single lease component.

expense is recognized on a straight-line basis over the lease term.

Operating lease right-of-use (“ROU”)

assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term.

assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make

lease payments arising from the lease.

Generally, the implicit rate of interest in arrangements is not readily determinable and

the Company utilizes its incremental borrowing rate in determining the present value of lease payments.

The Company’s incremental

borrowing rate is a hypothetical rate based on its understanding of what its credit rating would be.

The operating lease ROU asset

includes any lease payments made and excludes lease incentives.

The components of rent expense and supplemental

cash flow information related to leases for the period are as follows:

Twelve Months Ended

Operating lease cost (of which $102,461 is included in general and administration and $597,007 is included in cost of sales in the Company’s statement of operations)

Other Information

Weighted average remaining lease term –

operating leases (in years)

Average discount rate –

operating leases

The supplemental balance

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

At December 31,

Operating leases

Long-term right-of-use assets, net of amortization of $154,921

Short-term operating lease liabilities

Long-term operating lease liabilities

Total operating lease liabilities

Maturities of the Company’s

lease liabilities are as follows (in thousands):

Operating Leases

Total lease payments

Imputed interest/present value discount

Present value of lease liabilities

Rent expense for the twelve

months ended December 31, 2019 and 2018 was $864,688 and $388,766, respectively (including short-term and other rentals).

Legal Proceedings

From time to time, the

Company may be involved in general commercial disputes arising in the ordinary course of our business.

The Company is not currently

involved in legal proceedings that could reasonably be expected to have material adverse effect on its business, prospects, financial

condition or results of operations.

NOTE 12 –

state income tax examinations by tax authorities for tax years after 2016.

Company’s policy is to record interest and penalties on uncertain tax provisions as income tax expense.

As of December 31,

2020 and 2019, the Company had no accrued interest or penalties related to uncertain tax positions.

Additionally, tax years 2016

through 2020 remain open to examination by the major taxing jurisdictions to which the Company is subject.

DISTRIBUTION AGREEMENT WITH A RELATED ENTITY

March 1, 2014, the Company entered into a subcontractor installer agreement with Smartgen Solutions, Inc.

(“Smartgen”),

a related entity that is engaged in business of equipment rental and provider of maintenance, repair and installation services

to mobile telecommunications towers in California.

Under the terms of the agreement, Smartgen has been appointed as a non-exclusive,

authorized service provider for the installation, repair and service of the Company’s products in Southern California.

agreement has a term of three years from the date of execution and automatically renews for additional one-year periods if not

the years ended December 31, 2020 and 2019, Smartgen performed $129 and $289 in field services, respectively, the cost of which

is included in cost of goods sold.

COMMITMENTS AND CONTINGINCIES.

time to time, the Company may be involved in general commercial disputes arising in the ordinary course of our business.

is not currently involved in legal proceedings that could reasonably be expected to have material adverse effect on its business,

prospects, financial condition or results of operations.

In the opinion of management of the Company, adequate provision has been

made in the Company’s financial statements at December 31, 2020 with respect to such matters.

What changed 10-K

Item 9A. Controls and Procedures