What changed in this filing

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Item 9A. Controls and Procedures

2022-03-31 compared with 2021-03-31 · 1454 added, 1433 removed, 525 unchanged (85% of the section changed)

1 unchanged sentence

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

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, 2021, 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.

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.

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

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

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.

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, 2021, 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

Based on this evaluation, our management concluded that, as of December 31, 2021, 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

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.

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, 2021 that have materially affected, or are reasonably

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

Other Information

Disclosure Regarding Foreign Jurisdictions

that Prevent Inspections.

Not applicable.

Directors, Executive Officers and Corporate Governance.

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.

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.

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.

Department of Defense and the U.S.

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

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.

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

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.

Sams, our Board considered his Board and executive level leadership, broad international exposure, and extensive global

experience in engineering and manufacturing as key attributes in his selection.

The Board believes that through his experience in product

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

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

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.

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.

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.

Masina served as our Chief Operating Officer from April 2018 until January 2022 and previously served as our Vice President Operations

from August 2009 to April 2018.

On January 10, 2022, Rajesh Masina notified us of his resignation

from the position of our Chief Operating Officer, effective January 21, 2022.

Masina’s resignation from the Company was not

a result of any disagreement with the Company on any matter related to its operations, policies or practices.

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

Prior thereto, Mr.

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.

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

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.

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.

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.

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.

nominating Mr.

Albrecht, our Board considered his Board and executive level leadership, high level financial expertise, and extensive

expertise in risk management as key attributes in his selection.

The Board believes Mr.

Albrecht can provide our Company particular insight

into analysis of financial statements, debt analysis, and risk oversight.

Gross has served as a member of our Board since December 2018 and serves as a member of each of our Audit Committee, Compensation

Committee and Nominating and Corporate Governance Committee.

Gross is a technology and energy internationally recognized expert whose

career spans over three decades.

He has been the managing partner of PMG Associates, a consulting and advisory firm since August 2019.

In addition, he sits on several boards of directors and boards of advisors for public, private and not-for-profit companies.

PMG Associates, Mr.

Gross served as the Vice President of Mission Critical Systems at Bloom Energy, a fuel cell power systems company

located in Sunnyvale, California.

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 Advisors.

In nominating Mr.

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.

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.

Koster has served as Managing Director –

Public Finance

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:

Preparing for Board Membership”

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.

Gross, our Board considered his significant engineering experience in the power systems industry, especially for data

center and telecommunications applications.

Our Board believes that Mr.

Gross will provide critical leadership as we expand our DC power

systems within the data and military markets.

nominating Mr.

Gross, our Board considered his Board and executive level leadership, his extensive energy industry expertise, and experience

with global publicly traded companies as key attributes in his selection.

Our Board believes that Mr.

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 since December 2019 and serves as a member of each of our Audit Committee and Nominating

and Corporate Governance Committee.

Koster has been in the field of public finance for over 25 years and has been the managing director

for the Southwest Region at D.

Davidson & Co.

where she assists municipalities in accessing the capital markets to fund critical

infrastructure since February 2021.

Koster was the managing director of public finance at Piper Sandler Companies from June 2008

to February 2021.

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

nominating Ms.

Koster, our Board considered her Board and executive level leadership, extensive experience with capital markets, and

high level financial expertise as key attributes in her selection.

Our Board believes that Ms.

Koster’s investment banking experience

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

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.

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.

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.

Our 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 entire

Our certificate of incorporation and bylaws also provide that any vacancy on our Board, including a vacancy resulting from an

expansion of our Board, 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.

recognize the value of diversity on the Board.

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 and candidates from underrepresented communities in order to meet the requirements of

California SB 826 and AB 979.

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

to have at least three female directors.

AB 979 requires that by the end of 2021 public companies headquartered in California to have

at least one director on their boards who is from an underrepresented community, defined as “an individual who self-identifies

as Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian, or Alaska Native, or who self-identifies

as gay, lesbian, bisexual, or transgender.” By the end of 2022, public company boards with five to eight members will be required

to have at least two directors from underrepresented communities, and public company boards with eight or more members will be required

to have at least three directors from underrepresented communities.

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 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”

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 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 Securities

Exchange Act of 1934, as amended (the “Exchange Act”);

and compensation committee members also satisfy an additional independence

test for compensation committee members under the Nasdaq Listing Rules.

Board has evaluated the independence of its members based upon the rules of the Nasdaq Stock Market and the Securities and Exchange Commission.

Applying these standards, our Board 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”

as defined under the Nasdaq Listing Rules.

Sams is not considered independent because he is an officer

of Polar Power, Inc.

As such, a majority of our Board is comprised of “independent directors” as defined under the Nasdaq

Listing Rules.

Growth Company Exemption

are no longer an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act.

As December 31, 2021 represented

the last day of the fifth fiscal year following our IPO, we no longer qualify for the status of emerging growth company commencing December

Accordingly, the proxy statement we file for the 2022 annual meeting of stockholders will provide our stockholders with a nonbinding

advisory vote on executive compensation, generally known as “say-on-pay” votes, and the desired frequency of say-on-pay votes.

of Board in Risk Oversight Process

of the key functions of our Board is informed oversight of our risk management process.

Our Board does not have a standing risk management

committee, but rather administers this oversight function directly through the Board as a whole, as well as through its standing committees

that address risks inherent in their respective areas of oversight.

In particular, our Board is responsible for monitoring and assessing

strategic risk exposure.

Our Audit Committee is responsible for reviewing and discussing our major financial risk exposures and the steps

our management has taken to monitor and control these exposures, including guidelines and policies with respect to risk assessment and

risk management.

Our Audit Committee also monitors compliance with legal and regulatory requirements and reviews related party transactions,

in addition to oversight of the performance of our external audit function.

Our Board monitors the effectiveness of our corporate governance

Our Compensation Committee assesses and monitors whether any of our compensation policies and programs has the potential

to encourage excessive risk-taking.

The Board believes its leadership structure is consistent with and supports the administration of

its risk oversight function.

Committees and Meetings

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.

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.

1 unchanged sentence

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.

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:

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

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;

10 unchanged sentences

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:

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

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 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;

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;

3 unchanged sentences

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:

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;

1 unchanged sentence

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;

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;

1 unchanged sentence

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.

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 our Board 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 or our Compensation Committee.

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

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

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.

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.

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:

2021, 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,” with the 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 2020.

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 performance.

2021, 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 2021, 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 2021.

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;

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

officer’s role and responsibilities.

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.

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;

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

role and responsibilities.

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.

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.

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:

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.

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.

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 .

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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 Power.

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 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.

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

2 unchanged sentences

Our Compensation Committee establishes our compensation philosophy and objectives;

the design and administration of our executive compensation program;

oversees the design

and administration of our executive compensation program;

establishes the elements and mix of total compensation;

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.

sets the parameters

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

and determines the target compensation of our executive

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.

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

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.

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

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

Manufacturing –

Manufacturing – ESP (NYSE)

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

Telecommunications–

Telecommunications– WTT (NYSE)

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

Cell Energy –

Cell Energy – FCEL(Nasdaq)

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.

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

of Total Compensation

2020, our executive officers’

compensation program included three major elements:

2021, our executive officers’ compensation program included three major elements:

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.

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:

For 2021, the Compensation Committee kept the same base

salary structure as in 2020.

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)

1 unchanged sentence

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.

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.

2021, 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

2 unchanged sentences

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.

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 that

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 2021 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

9 unchanged sentences

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”

above as well as our Compensation Committee’s judgment regarding the desired mix of base salary, annual

non-equity incentives and long-term equity incentives.

Our Compensation Committee also considers outstanding vested and unvested

equity awards to executive officers, the stock ownership levels of executive officers and the potential dilutive effect on our

stockholders.

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 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.

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”

above as well as our Compensation Committee’s judgment regarding the desired mix of base salary, annual non-equity incentives and

long-term equity incentives.

Our Compensation Committee also considers outstanding vested and unvested equity awards to executive officers,

the stock ownership levels of executive officers and the potential dilutive effect on our stockholders.

Compensation Table

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

executive officers”:

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

executive officers” (dollar amounts in thousands):

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

Masina, our Chief Operating Officer;

Masina, our former Chief Operating Officer;

Zavala, our Chief Financial Officer.

and Principal

Name and Principal

Sams, President,

1 unchanged sentence

Rajesh Masina,

Chief Operating Officer

Former Chief Operating Officer

Chief Financial Officer

Amended and Restated Executive Employment Agreement with Arthur D.

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

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

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

On April 2, 2018, we increased

On April 2, 2018, we increased Mr.

annual base salary to $275 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.

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.

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 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

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,

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.

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,

Sams’ 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.

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.

Sams’ 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.

Sams’ place of work, or Polar’s principal executive

offices if Mr.

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

Sams’ 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

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

Sams’ indictment or conviction

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

Sams’ participation in any fraud or other act of willful misconduct

against Polar, (iii) Mr.

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

Sams’ 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 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.

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” (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

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

at an annual base salary is $120.

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.

termination by Polar without cause, resignation by Mr.

Masina for good reason or upon Mr.

Masina’s disability, Mr.

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.

Amended and Restated Executive Employment Agreement.

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.

Masina as our Chief Operating Officer and increased his annual

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

Masina was 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 was eligible to participate in

all of our employee benefit programs including our 2016 Plan.

January 12, 2022, Rajesh Masina notified the Company of his resignation, effective January 21, 2022.

Masina’s resignation from the Company was not a result of any disagreement with the Company on any matter related to its operations,

policies or practices.

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.

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 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.

Masina’s Executive Employment Agreement.

Zavala’s Executive Employment Agreement are

identical to the terms of Mr.

Masina’s Executive Employment Agreement.

Omnibus Incentive Plan

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.

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

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

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.

Administration .

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

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

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.

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 SAR.

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.

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

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.

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

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

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

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

Transferability.

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.

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.

However, the 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

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.

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With Applicable Law.

No award shall be exercisable, vested or payable except in compliance with all applicable federal and

state laws and regulations (including, without limitation, tax and securities laws), any listing agreement with any stock exchange

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”

procedure, or any other specified medium of payment.

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).

No award shall be exercisable, vested or payable except in compliance with all applicable federal and state

laws and regulations (including, without limitation, tax and securities laws), any listing agreement with any stock exchange 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” procedure, or any other specified medium of payment.

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).

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

stock subject to the exercised portion of the SAR over the fair market value of each such share on the date of the grant of the

A SAR can be granted alone or in tandem with an Option.

A SAR granted in tandem with an Option is called a Corresponding

SAR and entitles the participant to exercise the Option or the SAR, at which time the other tandem award expires with respect

to the number of shares being exercised.

The Compensation Committee is authorized to determine the eligible individuals to whom

grants of SARs will be made, the number of shares of common stock covered by the grant, the time or times at which a SAR may be

exercised and all other terms and conditions of the SAR.

However, no participant may be granted Corresponding SARs that are related

to ISOs which are first exercisable in any calendar year for shares of common stock having an aggregate fair market value (determined

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

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 is granted.

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 stock

subject to the exercised portion of the SAR over the fair market value of each such share on the date of the grant of the SAR.

can be granted alone or in tandem with an Option.

A SAR granted in tandem with an Option is called a Corresponding SAR and entitles the

participant to exercise the Option or the SAR, at which time the other tandem award expires with respect to the number of shares being

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

of shares of common stock covered by the grant, the time or times at which a SAR may be exercised and all other terms and conditions

However, no participant may be granted Corresponding SARs that are related to ISOs which are first exercisable in any calendar

year for shares of common stock having an aggregate fair market value (determined on the date of grant) that exceeds $100,000.

Stock Awards and RSUs .

1 unchanged sentence

for a period of time or subject to certain conditions.

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

common stock.

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

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

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.

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 of the RSUs.

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.

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.

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.

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.

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

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 thereof.

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

(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 per share;

(x) return on equity, (y) appreciation in and/or maintenance of the price of the shares of common stock, (z) market

share, (aa) gross profits, (bb) comparisons with various stock market indices;

(cc) reductions in cost, (dd) cash flow or cash

flow per share (before or after dividends), (ee) return on capital (including return on total capital or return on invested capital),

(ff) cash flow return on investments;

(gg) improvement in or attainment of expense levels or working capital levels, (hh) stockholder

equity and/or (ii) other criteria selected by the Compensation Committee.

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.

(cc) reductions in cost, (dd) cash flow or cash flow per

share (before or after dividends), (ee) return on capital (including return on total capital or return on invested capital), (ff) cash

flow return on investments;

(gg) improvement in or attainment of expense levels or working capital levels, (hh) stockholder equity and/or

(ii) other criteria selected by the Compensation Committee.

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.

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 awards;

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;

(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

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.

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.

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.

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.

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.

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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’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.

The ordinary income recognized will equal the excess of the fair market value of the common stock on such date over the price,

if any, paid for the stock.

However, even if the shares under a Restricted Stock Award are both nontransferable and subject to

a substantial risk of forfeiture, the participant may make a special “83(b) election”

to recognize income, and have

his or her tax consequences determined, as of the date the Restricted Stock Award is made.

The participant’s tax basis in

the shares received will equal the income recognized plus the price, if any, paid for the Restricted Stock Award.

will be entitled to a federal income tax deduction equal to the ordinary income the participant recognizes.

With regard to RSUs,

the participant will not recognize any taxable income at the time RSUs are granted.

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.

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.

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.

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.

income recognized will equal the excess of the fair market value of the common stock on such date over the price, if any, paid for the

However, even if the shares under a Restricted Stock Award are both nontransferable and subject to a substantial risk of forfeiture,

the participant may make a special “83(b) election” to recognize income, and have his or her tax consequences determined,

as of the date the Restricted Stock Award is made.

The participant’s tax basis in the shares received will equal the income recognized

plus the price, if any, paid for the Restricted Stock Award.

We generally will be entitled to a federal income tax deduction equal to

the ordinary income the participant recognizes.

With regard to RSUs, the participant will not recognize any taxable income at the time

RSUs are granted.

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.

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

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Equivalents .

A participant will recognize as ordinary income the amount of cash and the fair market value of any common stock

he or she receives on payment of the Dividend Equivalents.

To the extent the Dividend Equivalents are paid in the form of other

awards, the participant will recognize income as otherwise described herein.

A participant will recognize as ordinary income the amount of cash and the fair market value of any common stock he

or she receives on payment of the Dividend Equivalents.

To the extent the Dividend Equivalents are paid in the form of other awards,

the participant will recognize income as otherwise described herein.

on Deductions.

The deduction for a publicly-held corporation for otherwise deductible compensation to a “covered employee”

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.

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.

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 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.

Moreover, 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 by Section 409A of the

Director Compensation

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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’

indemnity insurance policies.

for travel and other necessary business expenses incurred in the performance of director services and extend coverage to them under our

directors’ and officers’ indemnity insurance policies.

During 2021, each of Messrs.

Albrecht and Gross and

Koster received total compensation in the amount of $30,000.

Albrecht and Gross and Ms.

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.

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.

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’

and officers’

liability insurance.

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’ and officers’ liability insurance.

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.

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.

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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.

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, 2022.

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, 2022 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.

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Title of Class

Amount and Nature

Amount and Nature of

Beneficial Ownership

Rajesh Masina (3)

Luis Zavala (3)

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Koster are directors of Polar.

Sams, Masina and Zavala are named executive officers

50,000 shares of common stock issuable upon exercise of options.

Sams and Zavala are named executive officers of Polar.

50,000 shares of common stock issuable upon exercise of options.

Masina owns 40% of the share capital of Smartgen Solutions,

Masina disclaims beneficial ownership over the shares of common stock of Polar held by Smartgen Solutions, Inc.

Penumarthi, the President and Secretary of Smartgen Solutions, Inc., has voting and investment power over such shares of common

The address of Smartgen Solutions, Inc.

10324 Chestnut Ridge Rd., Austin, TX.

30,000 shares of common stock issuable upon exercise of options.

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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.

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, 2021.

Plan Category

Securities to

Securities to be

Issued Upon Exercise

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Weighted-Average

Future Issuance

Exercise Price of

Remaining Available

for Future Issuance

Compensation Plans

Equity Compensation Plans Approved by Security Holders:

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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.

See “Policies and Procedures for Related Person Transactions”

amount involved exceeded or will exceed $120 (in thousands);

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.

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.

See “Policies and Procedures for Related Person Transactions” below.

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

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.

Masina, our former Chief Operating Officer, 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.

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.

All transactions involving this agreement have been monitored by our audit

2021 and 2020, Smartgen performed $88 and $129 in field services, respectively, the cost of which is included in cost of goods sold.

January 2, 2022, we provided written notice to Smartgen to terminate all agreements between the two companies.

The termination was effective

January 31, 2022.

have entered into amended employment agreement with each of Arthur D.

Sams, our President, Chief Executive Officer and Secretary;

Rajesh Masina, our Chief Operating Officer;

Masina, our former Chief Operating Officer;

and Luis Zavala, our Chief Financial Officer;

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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.

See “Executive Compensation–Employment Agreements” in this 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.

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

and Procedures for Related Person Transactions

3 unchanged sentences

The Audit Committee of our board of directors manages this policy.

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”

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.

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.

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 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:

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.

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

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 (in thousands)

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 the rendering of services at rates or charges fixed in conformity with law or governmental authority;

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.

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.

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.

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.

following table presents fees for professional audit services rendered by Weinberg & Company, P.A.

for 2020 and 2019.

for 2021 and 2020 (in thousands).

Audit-Related Fees

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Audit-Related

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.

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.

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.

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 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.

Exhibits, Financial Statement Schedules.

Financial Statements

is made to the financial statements listed on and attached following the Index to Financial Statements contained on page F-1 of

is made to the financial statements listed on and attached following the Index to Financial Statements contained on page F-1 of this

Financial Statement Schedules

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TO FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB Firm ID:

Balance Sheets as at December 31, 2021 and 2020

Statements of Operations for the Years Ended December 31, 2021 and 2020

Statements of Shareholders’

Equity for the Years Ended December 31, 2020 and 2019

Statements of Shareholders’ Equity for the Years Ended December 31, 2021 and 2020

Statements of Cash Flows for the Years Ended December 31, 2021 and 2020

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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 U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission

and the PCAOB.

(the “Company”) as of December 31, 2021 and 2020, 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, 2021 and 2020, 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.

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 U.S.

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.

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.

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.

Accordingly, we express no such opinion.

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.

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.

Audit Matters

critical audit matters communicated below are matters arising from the current period audit of the consolidated financial

statements that were communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures

that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements,

taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the

critical audit matters or on the accounts or disclosures to which they relate.

described in Note 1 to the financial statements, the Company’s inventories are valued at the lower of cost or net realizable value,

with cost determined on first-in, first-out (“FIFO”) basis.

Management considers historical usage, forecasted

demand in relation to inventory on hand, market conditions, and other factors when estimating net realizable value.

We identified management’s

estimation of the net realizable value of inventory as a critical audit matter, because of the significant judgments made by management

in estimating future demand and market conditions which are used to arrive at the net realizable value.

This required a high degree of

auditor judgment and increased auditor effort in auditing such assumptions.

primary procedures we performed to address this critical audit matter included:

obtained an understanding of management’s process for estimating net realizable value.

assessed the reasonableness of management’s forecasted product demand and tested the

completeness and accuracy of the underlying data used in the analyses and whether they were

consistent with the historical data and evidence obtained in other areas of the audit.

evaluated management’s product demand forecast for reasonableness considering historical

sales by product, comparing prior period estimates to actual results of the same period,

and considering trends within the industry that could impact the movement of the products

provided by the Company.

developed an independent expectation of the net realizable value of inventory using historic

inventory activity and compared our independent expectation to the amount recorded in the

financial statements.

Assessment of the Company’s Ability to

Continue as a Going Concern

The accompanying financial statements have been

prepared assuming that the Company will continue as a going concern.

As disclosed in Note 1 to the financial statements, the Company

recorded a net loss of $1.4 million, used cash in operations of $9.4 million for the year ended December 31, 2021 and presented an accumulated

deficit of $13.5 million.

Management evaluated the Company’s liquidity within one year after the date of issuance of the consolidated

financial statements to determine if there is substantial doubt about the Company’s ability to continue as a going concern.

the preparation of the liquidity assessment, management applied judgment to estimate the projected cash flows of the Company, including

the following:

(i) projected cash outflows, (ii) projected cash inflows, and (iii) excess availability levels under the Company’s

existing line of credit financing.

The cash flow projections were based on known or planned cash requirements for operating and financing

Management believes, based on the Company’s forecast, that current working capital and capital expenditure financing is

sufficient to fund operations and satisfy the Company’s obligations as they come due within one year after the date of issuance

of the consolidated financial statements.

identified management’s evaluation of the Company’s ability to continue as a going concern and related disclosures

as a critical audit matter due to the significant judgments and assumptions used by management in preparing the Company’s forecasted

cash flows and the risk of bias in management’s judgments and assumptions in estimating these cash flows.

Auditing these judgments

and assumptions required a high degree of auditor judgment and increased auditor effort required to address these matters.

primary procedures we performed to address this critical audit matter included:

obtained an understanding of management’s process for evaluating the Company’s

the completeness and accuracy of the underlying data used by management in preparing the

forecasted cash flows by comparison to prior period forecasts to actual results.

positive and negative evidence impacting management’s forecasts, including market and

industry trends.

compared management’s forecasts to the actual results of operations and excess availability

levels for the available period after year-end.

the adequacy of management’s disclosure in the financial statements regarding

the Company’s liquidity by comparing to other audit evidence obtained to determine

whether such information is consistent with the Company’s liquidity disclosure.

have served as the Company’s auditor since 2016.

Weinberg & Company, P.A .

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Accounts receivable

Employee retention credit receivable

Prepaid expenses

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Property and equipment, net

LIABILITIES AND STOCKHOLDERS’

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities

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Current portion of notes payable

portion of loan payable

Current portion of PPP loan payable

Total current liabilities

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Operating lease liabilities, net of current portion

Loan payable, net of current

PPP loan payable, net of current portion

Total liabilities

Commitments and Contingencies

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, 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

Stockholders’ Equity

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, 12,805,680 shares issued and 12,788,203 shares outstanding on December 31, 2021, and 11,768,158 shares issued and 11,750,681 shares outstanding on December 31, 2020

Additional paid-in capital

Accumulated deficit

Treasury Stock, at cost (17,477

Total stockholders’

Total liabilities and stockholders’

Treasury Stock, at cost ( 17,477 shares)

Total stockholders’ equity

Total liabilities and stockholders’ equity

accompanying notes are an integral part of these financial statements.

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Cost of Sales (includes inventory

write-downs of $3,400 and $270, respectively)

write-downs of $ 3,400 during the year ended December 31, 2020)

Gross profit (loss)

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Interest expense and finance costs

Total other income (expenses)

Gain on forgiveness of PPP loan payable

Other income (expenses), net

Total other income (expenses), net

Loss before income taxes

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accompanying notes are an integral part of these financial statements.

STATEMENTS OF STOCKHOLDERS’

STATEMENTS OF STOCKHOLDERS’ EQUITY

thousands, except share data)

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Additional paid-in

Retained Earnings (Accumulated

Total Stockholders’

Balances, December 31, 2019

Fair value of vested stock options

Treasury Stock

Shares of common stock issued with warrants for cash

Common stock issued upon exercise of warrants

Balances, December 31, 2020

Common stock and warrants issued for cash

Issuance of common stock for cash, net of offering costs

Common stock issued upon exercise of warrants

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accompanying notes are an integral part of these financial statements.

STATEMENTS OF CASH FLOWS

STATEMENTS OF CASH FLOW

Cash flows from operating activities:

Adjustments to reconcile net loss to net cash used in operating

Fair value of vested stock options

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization

Amortization of operating lease right-of-use assets

Inventory write-down

Gain from forgiveness of PPP loan payable

Changes in operating assets and liabilities

Accounts receivable

Employee retention credit receivable

Prepaid expenses

Income taxes receivable

Decrease in operating lease right-of-use

Accounts payable

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Accrued expenses and other current liabilities

Decrease in lease liabilities

Decrease in lease liability

Net cash used in operating activities

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Cash flows from financing activities:

Proceeds from sale of common stock, net of offering costs

Proceeds from sale of common stock and warrants

Proceeds from exercise of warrants

Proceeds from loan payable

Proceeds from PPP loan payable

Repayment of notes payable

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Repayment of advances from credit facility

Purchase of treasury stock

Net cash provided by (used in) financing

Decrease in cash and cash equivalents

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

Recording of lease right-of-use

assets and lease liabilities

Reclassification of prepaid expenses

to property and equipment

Net cash provided by financing activities

Increase (decrease) in cash and cash equivalents

Cash and cash equivalents, beginning of period

Cash and cash equivalents, end of period

accompanying notes are an integral part of these financial statements.

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1 – 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.

was incorporated in the State of Washington as Polar Products, Inc.

and in 1991 reincorporated in the State of California

under the name Polar Power, Inc.

In December 2016, Polar Power, Inc.

reincorporated in the State of Delaware (the

“Company”).

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.

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, electric vehicle (EV) charging, and nano-grid applications.

The Company’s products integrate DC generator,

proprietary electronic control systems, lithium batteries and solar photovoltaic (PV) technologies to provide low operating cost and

emissions for telecommunications, defense, automotive, nano-grid, EV charging and industrial markets.

The accompanying financial statements have been

prepared under the assumption that the Company will continue as a going concern.

Such assumption contemplates the realization of assets

and satisfaction of liabilities in the normal course of business.

For the year ended December 31, 2021, the Company recorded a net loss

of $ 1,414 and used cash in operations of $ 9,380 .

As of December 31, 2021, we had a cash balance of $ 5,101 , with borrowing capacity of

$ 2,943 , stockholders’ equity of $ 23,250 and a working capital of $ 21,760 .

Notwithstanding the net loss for 2021, management projects

adequate cash flow from operations and available line of credit in 2022 sufficient to ensure continuation of the Company as a going concern

for at least one year from the date the Company’s 2021 financial statements are issued.

Historically, we have financed our operations

through public and private sales of common stock, credit lines from financial institutions, and cash generated from operations to provide

the Company the liquidity and capital resources to fund its operating expenses and capital expenditure requirements.

The Company expects

to continue investing in product development and sales and marketing activities and has taken action to improve our margins, and are

continuing to build a strong back log.

The long-term continuation of the Company’s business plan is dependent upon the generation

of sufficient revenues from its products to offset expenses.

In the event that the Company does not generate sufficient cash flows from

operations and is unable to obtain funding, the Company will be forced to delay, reduce, or eliminate some or all of its discretionary

spending, which could adversely affect the Company’s business prospects, ability to meet long-term liquidity needs or ability to

continue operations.

Company continues to monitor the evolving COVID-19 pandemic and related guidance from international and domestic authorities, including

federal, state and local public health authorities and it may need to make changes to its business based on their recommendations.

has had, and is likely to continue to have, a material and substantial adverse impact on the Company’s results of operations including,

among others, a decrease in the Company’s sales and delays in sourcing of raw materials from suppliers.

The Company’s business

is directly dependent upon, and correlates closely with, the marketing levels and ongoing business activities of its existing customers

and suppliers.

In the event of a continued widespread economic downturn caused by COVID-19, the Company could experience a further reduction

in current projects, longer sales and collection cycles, deferral or delay of purchase commitments for its DC power systems, a reduction

in its manufacturing functionality, higher than normal inventory levels, a reduction in the availability of qualified labor, and increased

price competition, all of which could substantially adversely affect its net revenues and its ability to remain a going concern.

extent of the impact of COVID-19 on its operational and financial performance will depend on certain developments, including the duration

and potential resurgence of the outbreak, the impact on its customers and sales cycles, the impact on its customer, employee or industry

events, and the effect on its vendors, all of which are uncertain and cannot be predicted.

At this point, the Company is uncertain of

the full magnitude that the COVID-19 pandemic may have on our financial condition, liquidity and future results of operations.

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 net realizable value, impairment analysis of long-term assets, valuation allowance

on deferred tax assets, accruals for potential liabilities and warrant reserves, and assumptions made in valuing equity instruments

issued for services.

Actual results may differ from those estimates.

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.

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

the Company’s 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.

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.

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.

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 delivers the product to a customer’s location.

The Company regularly

reviews its customers’ financial positions to ensure that collectability is reasonably assured.

Company also recognizes revenues from engineering services, technical support, and sale of accessories that support the Company’s

direct current, or DC, power systems.

Revenue is recognized when transfer of control to the customer has been made and the Company’s

performance obligation has been fulfilled.

The Company’s revenue from engineering services, technical support services, and product

accessories are clearly defined in each transaction with its customers and have not been significant to date.

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.

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, 2021 and 2020.

The Company’s rental

contracts are fixed price contracts for fixed durations of time and include freight and delivery charges and are recognized on a straight-line

basis over the rental period.

Disaggregation

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

following table shows the Company’s disaggregated net sales by product type (in thousands):

SCHEDULE OF DISAGGREGATED NET SALES

Years Ended December 31,

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Total net sales

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

Ended December 31,

following table shows the Company’s disaggregated net sales by customer type (in thousands):

Years Ended December 31,

Government/Military

(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.

Other (backup DC power to various industries )

Total net sales

the years ended December 31, 2021 and 2020, international sales totaled $ 1,279 and $ 1,522 , respectively.

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

Company’s standard warranty on new products is two years from the date of delivery to the customer.

The Company offers a limited

extended warranty of up to five years on its 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 the product not perform

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 had accrued a liability for warranty reserve of $600 and $375, respectively, which are included in other accrued liabilities

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, which are included in accrued liabilities and other current 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.

following is a tabular reconciliation of the product warranty liability, excluding the deferred revenue related to the Company’s

warranty coverage:

As of December 31, 2021 and 2020, the Company had accrued a liability for warranty reserve of $ 600

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.

following is a tabular reconciliation of the product warranty liability, excluding the deferred revenue related to the Company’s

warranty coverage (in thousands):

SCHEDULE OF RECONCILIATION OF THE PRODUCT WARRANTY LIABILITY

Years End December 31,

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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.

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,

carrying amounts reported in the Balance Sheets for cash and cash equivalents are valued at cost, which approximates their fair value.

receivables are recorded at net realizable value consisting of the carrying amount less an allowance for uncollectible accounts, as needed.

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

Under the allowance method, if needed,

an estimate of uncollectible customer balances is made based upon specific account balances that are considered uncollectible.

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, 2021 and 2020.

are stated at the lower of cost or net realizable value, with cost determined on a first-in, first-out (“FIFO”) basis.

Company records adjustments to its inventory based on an estimated forecast of the inventory demand, taking into consideration, among

others, inventory turnover, inventory quantities on hand, unfilled customer order quantities, forecasted demand, current prices, competitive

pricing, and trends and performance of similar products.

If the estimated net realizable value is determined to be less than the recorded

cost of the inventory, the difference is recognized as a loss in the period in which it occurs.

Once inventory has been written down,

it creates a new cost basis for inventory that may not be subsequently written up.

For the year ended December 31, 2021, there were no

write-downs of inventory.

For the year ended December 31, 2020, the Company recorded a write down of inventory of $ 3,400 .

of December 31, 2021 and 2020, inventories consisted of the following (in thousands):

OF INVENTORIES NET

Ended December 31,

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:

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.

useful lives of the principal classes of assets are as follows:

OF ESTIMATED USEFUL LIFE OF PROPERTY PLANT AND EQUIPMENT

Estimated life

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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.

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, 2021, or December 31, 2020.

Company accounts for its leases in accordance with the guidance of ASC 842, Leases .

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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.

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.

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.

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.

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 to employees, which are generally time vested, are measured at the grant date fair value and depending on the conditions

associated with the vesting of the award, compensation cost is recognized on a straight-line or graded basis over the vesting period.

Recognition of compensation expense for non-employees is in the same period and manner as if the Company had paid cash for the services.

The fair value of stock options granted is estimated using the Black-Scholes option-pricing model, which uses certain assumptions related

to risk-free interest rates, expected volatility, expected life, and future dividends.

The assumptions used in the Black-Scholes option

pricing model could materially affect compensation expense recorded in future periods.

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.

and testing of the Company’s products.

For the years ended December 31, 2021 and 2020, research and development expenditures totaled

$ 1,986 and $ 1,723 , 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:

net income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding

for the period.

Diluted earnings per share is computed by dividing the net income applicable to common stockholders by the weighted average

number of shares of common stock outstanding plus the number of additional shares of common stock that would have been outstanding if

all dilutive potential shares of common stock had been issued using the treasury stock method.

Potential shares of common stock 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 shares of common stock during the reporting

following potentially dilutive shares were excluded from the shares used to calculate diluted earnings per share as their inclusion would

be anti-dilutive:

SCHEDULE OF DILUTED EARNINGS PER SHARE

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:

Company uses various inputs in determining the fair value of its financial assets and liabilities.

Financial assets recorded at fair

value in the balance sheets are categorized by the level of objectivity associated with the inputs used to measure their fair value.

Authoritative

guidance provided by the Financial Accounting Standards Board (“FASB”) defines the following levels directly related to the

amount of subjectivity associated with the inputs to fair valuation of these financial assets:

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.

inputs based on the Company’s assumptions.

carrying amounts of financial assets and liabilities, such as cash and cash equivalents, accounts receivable, accounts payable and accrued

expenses, approximate their fair values because of the short maturity of these instruments.

The carrying values of notes and loans payable

approximate their fair values due to the fact that the interest rates on these obligations are based on prevailing market interest rates.

Company operates in one segment for the manufacture and distribution of its products.

In accordance with the “Segment Reporting”

Topic of the ASC, the Company’s chief operating decision maker has been identified as the Chief Executive Officer and President,

In accordance with the “Segment Reporting”

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.

guidance, which is based on a management approach to segment reporting, establishes requirements to report selected segment information

quarterly and to report annually entity-wide disclosures about products and services, major customers, and the countries in which

the entity holds material assets and reports revenue.

All material operating units qualify for aggregation under “Segment

Reporting”

quarterly and to report annually entity-wide disclosures about products and services, major customers, and the countries in which the

entity holds material assets and reports revenue.

All material operating units qualify for aggregation under “Segment Reporting”

due to their similar customer base and similarities in:

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nature of products and services;

and procurement, manufacturing and distribution processes.

Since the Company operates in one segment, all financial information

required by “Segment Reporting”

and procurement, manufacturing

and distribution processes.

Since the Company operates in one segment, all financial information required by “Segment Reporting”

can be found in the accompanying financial statements.

1 unchanged sentence

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.

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.

Dollar equivalent of $ 9 and $ 10 at December 31, 2021 and 2020, 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 $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 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%,

Dollar equivalent of $ 23 and

$ 28 at December 31, 2021 and 2020, respectively, was held in an account at a financial institution located in Romania.

For the years ended December 31, 2021, 67 % of revenue was generated from the company’s largest customer, which is from the telecommunications

In 2020, 52 %, 15 %, and 14 % of revenue were generated from the Company’s three largest customers, which were all customers

from the telecommunications industry.

In 2021 and 2020, sales to telecommunications customers accounted for 89 % and 96 % of total revenue,

respectively.

In 2021 and 2020, sales to international customers accounted for 8 % and 17 % of total revenue, respectively.

At December 31, 2021, the Company’s two largest receivable accounts represented 74 % and 15 % of the Company’s

total accounts receivable.

At December 31, 2020, 87 % of the Company’s accounts receivable was from one of the Company’s major

There was no other customer that accounted for more than 10% of the Company’s accounts receivable as of the years ended

December 31, 2021 and 2020.

On December 31, 2021, the three largest accounts payable accounts to the Company’s vendors represented 16 %, 9 %, and

9 %, respectively.

On December 31, 2020, the three largest accounts payable accounts to the Company’s largest 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.

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.

September 2016, the FASB issued ASU No.

2016-13, 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” 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.

The standard is

effective for interim and annual reporting periods beginning after December 15, 2022.

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.

August 2020, the FASB issued ASU No.

2020-06 (“ASU 2020-06”) “Debt—Debt with Conversion and Other Options (Subtopic

470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40).” ASU 2020-06 reduces the number

of accounting models for convertible debt instruments by eliminating the cash conversion and beneficial conversion models.

a convertible debt instrument will be accounted for as a single liability measured at its amortized cost as long as no other features

require bifurcation and recognition as derivatives.

By removing those separation models, the effective interest rate of convertible debt

instruments will be closer to the coupon interest rate.

Further, the diluted net income per share calculation for convertible instruments

will require the Company to use the if-converted method.

For contracts in an entity’s own equity, the type of contracts primarily

affected by this update are freestanding and embedded features that are accounted for as derivatives under the current guidance due to

a failure to meet the settlement conditions of the derivative scope exception.

This update simplifies the related settlement assessment

by removing the requirements to (i) consider whether the contract would be settled in registered shares, (ii) consider whether collateral

is required to be posted, and (iii) assess shareholder rights.

ASU 2020-06 is effective January 1, 2024, for the Company and the provisions

of this update can be adopted using either the modified retrospective method or a fully retrospective method.

Early adoption is permitted,

but no earlier than January 1, 2021, including interim periods within that year.

Effective January 1, 2021, the Company early adopted

ASU 2020-06 and that adoption did not have an impact on its financial statements and the related disclosures.

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.

2 – PROPERTY AND EQUIPMENT

and equipment consist of the following:

and equipment consist of the following (in thousands):

Schedule of Property and Equipment

Shop equipment and machinery

5 unchanged sentences

Property and equipment, net

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.

and amortization expense on property and equipment for the years ended December 31, 2021 and 2020 was $ 549

respectively.

During the years ended December

31, 2021 and 2020, $ 530 and

respectively, of depreciation expense was included in cost of sales for the years then ended.

3 – NOTES PAYABLE

payable consist of the following:

payable consist of the following (in thousands):

SCHEDULE OF NOTES PAYABLE

Total Notes Payable

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Notes Payable, Noncurrent portion

Company has entered into several financing agreements for the purchase of equipment.

Company has entered into several financing agreements for the purchase of equipment in prior years.

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.

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, and

mature between September 2023 and July 2024 .

The aggregate monthly payments of principal and interest of the outstanding notes payable

as of December 31, 2021 is approximately $ 22 .

of December 31, 2020, the balance of notes payable was $ 777 .

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:

During 2021, the Company paid down the notes payable by $ 267 , and at December

31, 2021, the balance of notes payable was $ 510 .

future principal payments under the outstanding note agreements as of December 31, 2021 are as follows (in thousands):

SCHEDULE OF ANNUAL FUTURE PRINCIPAL PAYMENTS

Years ending December 31:

4 – LINE OF CREDIT

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.

September 30, 2020, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with Pinnacle Bank (“Pinnacle”).

During 2021, the Company did not take any advances from the revolving credit facility.

At December 31, 2021, there was no balance outstanding

under the line of credit and the Company had availability under the line of credit in the amount of $ 2,943 .

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, but in no event less than 3.75 % per annum .

the portion of the daily balance consisting of advances against inventory accrues interest at a rate of 2.25 % above the prime rate, but

in no event less than 4.75 % per annum.

Loan Agreement’s initial term ends on September

30, 2022 and is renewed thereafter for additional

one-year term.

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 of default.

Under the Loan Agreement, the Company granted Pinnacle a security interest in all presently

existing and thereafter acquired or arising assets of the Company.

The Loan Agreement also contains a financial covenant requiring the

Company to attain an effective tangible net worth, as defined, which the Company attained as of December 31, 2021.

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.

5 – PPP LOAN PAYABLE

May 4, 2020, the Company entered into a loan (the “PPP Loan”) with Citibank, N.A.

in an aggregate principal amount of $ 1,715 ,

pursuant to the Paycheck Protection Program (the “PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (“CARES

PPP Loan matures two years from the disbursement date and bears interest at a rate of 1 % per annum.

The Company applied ASC 470, Debt,

to account for the PPP Loan.

The PPP loan and accrued interest were forgivable after December 31, 2020, as long as the borrower used

the loan proceeds for qualifying expenses, including payroll, benefits, rent and utilities, and maintains its payroll levels.

believes the entire loan amount has been used for qualifying expenses.

Company filed its application for a full loan forgiveness to Citibank in July 2021.

On September 28, 2021, the Company received notice

from Citibank indicating that the SBA approved the forgiveness of the PPP loan payable in the amount of $ 1,715 .

Accordingly, for the

year ended December 31, 2021, the Company recognized the forgiveness of the PPP loan as “Gain on forgiveness of PPP loan payable”

in the accompanying statements of operations.

6 – OPERATING LEASES

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of 1.4 years.

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

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.

Leases with an initial term of 12 months or less are

not recorded on the balance sheet.

lease right-of-use (“ROU”) assets and liabilities are recognized at the lease commencement date based on the present value

of lease payments over the lease term.

ROU assets represent the Company’s right to use an underlying asset for the lease term and

lease liabilities represent the Company’s 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 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:

OF RENT EXPENSE AND SUPPLEMENTAL CASH FLOW INFORMATION

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)

Lease Cost (in thousands)

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, 2021, and $ 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)

Other Information

Weighted average remaining lease term –

leases (in years)

Average discount rate –

operating leases

Weighted average remaining lease term – operating leases (in years)

Average discount rate – operating leases

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

OF SUPPLEMENTAL BALANCE SHEET INFORMATION

At December 31,

Operating leases

Long-term right-of-use assets, net of accumulated amortization

of $1,265 and $154, respectively

Operating leases (in thousands)

Long-term right-of-use assets, net of accumulated amortization of $ 990 and $ 1,265 , respectively

Current portion of operating lease liabilities

1 unchanged sentence

Total operating lease liabilities

of the Company’s lease liabilities are as follows:

OF MATURITIES OF LEASE LIABILITIES

Ending (in thousands)

Operating Leases

2 unchanged sentences

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’

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.

expense for the twelve months ended December 31, 2021 and 2020 was $ 903 and $ 903 , respectively (including short-term and other rentals).

7 – STOCKHOLDERS’ EQUITY

● Underwritten

Public Offering of Common Stock

February 10, 2021, and the Company issued and sold 750,000

shares of common stock in an underwritten public

The Company received at the closing of the offering net proceeds of approximately $ 12,466

after deducting underwriting discounts and commissions and other offering expenses payable by the Company.

The Company is

using the net proceeds from the Offering for general corporate purposes.

Issuance of common

stock and warrants for cash in 2020

On 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.

the year ended December 31, 2021, warrants to purchase an aggregate of 225,878 shares of common stock were exercised, and the Company

received net proceeds of $ 707 upon such exercise.

In addition, warrants exercisable into 120,000 shares of common stock were converted

under a cashless exercise option into 61,644 shares of the Company’s common stock.

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.

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.

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.

to repurchase up to $ 500 of the Company’s common stock.

During the year ended December 31, 2020, 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.

8 – STOCK OPTIONS

following table summarizes stock option activity:

OF STOCK OPTION ACTIVITY

Weighted Average

Exercise Price

Outstanding, December 31, 2019

1 unchanged sentence

Outstanding and exercisable, December 31, 2021

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.

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, 2021 and 2020, 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

was no intrinsic value of the outstanding options at December 31, 2021.

1 unchanged sentence

following table summarizes warrant activity:

OF WARRANTS OUTSTANDING

Weighted Average

Exercise Price

Outstanding, December 31, 2019

2 unchanged sentences

Exercisable, December 31, 2021

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:

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).

The warrants have an

exercise price of $ 3.13 per share, are exercisable beginning on July 7, 2020 and have a term of five years .

During the 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

year ended December 31, 2021, warrants to purchase 225,878 shares of common stock were exercised at $ 3.13 exercise price per share or

total net proceeds to the Company of $ 707 upon exercise.

Also during 2021, warrants exercisable into 120,000 shares of the Company’s

common stock were exercised under a cashless exercise option into 61,644 shares of the Company’s common stock.

intrinsic value of the outstanding and exercisable warrants at December 31, 2021 was $ 11 .

10 – INCOME TAXES

benefit from income taxes for the years ended December 31, 2021 and 2020 consists of the following (in thousands):

SCHEDULE OF INCOME TAX

PROVISION (BENEFIT)

Years Ended December 31,

5 unchanged sentences

reconciliation of the effective income tax rate to the federal statutory rate is as follows:

SCHEDULE OF EFFECTIVE

INCOME TAX RATE TO THE FEDERAL STATUTORY RATE

Years Ended December 31,

6 unchanged sentences

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:

Significant components of the Company’s deferred tax assets and

liabilities at December 31, 2021 and 2020 are as follows (in thousands):

OF DEFERRED TAX ASSETS AND LIABILITIES

Deferred tax assets:

Inventory reserves

Inventory valuation

Accrued liabilities and other reserves

8 unchanged sentences

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.

On 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, net operating loss (“NOL”s) carryforwards 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.

CARES Act temporarily removes the 80% limitation, reinstating it for tax years beginning after 2020.

Based 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 recorded total income taxes receivable of $ 2,357 ,

of which $ 1,702 pertained to the benefit of carrying back the NOLs for 2018 and 2019 to the tax year ended September 30, 2016, and $ 655

pertained to the benefit of carrying back NOL for fiscal year 2020 to the short tax period ended December 31, 2016.

During the year ended

December 31, 2021, the Company received $ 1,570 of the income taxes receivable, and the balance of $ 787 remained outstanding at December

December 31, 2021, the Company had available Federal and state NOLs carryforwards to reduce future taxable

income of approximately $ 10.7

million and $ 12.9

million, respectively.

The Federal NOL can

be carried forward indefinitely, but can only offset 80 %

of taxable income in future years.

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.

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.

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.

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, 2021 and 2020, 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.

1 unchanged sentence

The Company is subject to U.S.

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.

federal or state

income tax examinations by tax authorities for tax years after 2017.

Company’s policy is to record interest and penalties on uncertain tax provisions as income tax expense.

As of December 31, 2021

and 2020, 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.

Additionally, tax years 2017 through 2021

remain open to examination by the major taxing jurisdictions to which the Company is subject.

11 - EMPLOYEE RETENTION CREDITS

Consolidated Appropriations Act, passed in December 2020, expanded the employee retention credit (“ERC”) program through

December 2021.

The credits cover 70 % of qualified wages, plus the cost to continue providing health benefits to our employees, subject

to a $ 7 cap per employee per quarter.

Due to revenue declines we have experienced, we qualified for approximately $ 2,000 of employee

retention credits (“ERC”) during the year ended December 31, 2021.

The Company believes that there is reasonable assurance

that it has complied with the ERC eligibility requirements and has elected an accounting policy to present government assistance as a

reduction of the related expense.

The ERC refund was recorded as an offset to certain payroll expenses in cost of sales of $ 1,300 and

operating expenses of $ 700 in the accompanying statement of operations for the year ended December 31, 2021.

As of December 31, 2021,

the balance of $ 2,000 is presented as employee retention credit receivable in the accompanying balance sheet.

12 – 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.

(“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.

the years ended December 31, 2021 and 2020, Smartgen performed $ 88 and $ 129 in field services, respectively, the cost of which is included

in cost of goods sold.

January 2, 2022, we provided written notice to Smartgen to terminate all agreements between the two companies.

The termination was effective

January 31, 2022.

13 – COMMITMENTS AND CONTINGENCIES .

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.

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, 2021 with respect to such matters.

What changed 10-K

Item 9A. Controls and Procedures