What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2023-03-31 compared with 2022-03-31 · 408 added, 419 removed, 1560 unchanged (35% of the section changed)

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Other Information

Disclosure Regarding Foreign Jurisdictions

that Prevent Inspections.

Not applicable.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

Directors, Executive Officers and Corporate Governance.

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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.

Sams has served as our President, Chief Executive Officer and Chairman of our Board 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.

Department of

Sams studied at California State Polytechnic University Pomona and the University California at Irvine with a dual major

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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

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

and Nominating and Corporate Governance Committee.

Albrecht has extensive experience as a commercial real estate appraiser for commercial

banks and local governments.

Albrecht was an appraiser for commercial buildings for the County of Orange, California, from 1996 to

2007, where he was responsible for the assessment of property values of shopping malls, office buildings, hotels and apartment buildings.

Prior thereto, Mr.

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

currently retired and invests in startups and small cap companies.

Albrecht is currently retired

and invests in startups and small cap companies.

In nominating Mr.

Albrecht, our board of directors considered his

commercial real estate appraisal experience, which our board of directors believes gives him particular insight into analysis of income

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

Albrecht, our Board considered his commercial real estate appraisal

experience, which our Board believes gives him particular insight into analysis of income statements and balance sheets, debt analysis

and audits of large commercial institutions.

nominating Mr.

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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

Koster has been in the field of public finance for over 28 years and is a managing director in

Debt Capital Markets for Hilltop Securities, LLC, where she assists municipalities and developers in accessing the capital markets to

fund critical infrastructure since February 2022.

Koster was a managing director of public finance at D.A.

Davidson from February

2021 to February 2022 and with 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 the SIE, Series 7, and Series 79TO licenses

issued by the Financial Industry Regulatory Authority, Series 50, 52TO and Series 53 licenses issued by the Municipal Securities Rulemaking

Board and a Series 63 certificate issued by the North American Securities Administrators Association.

nominating Ms.

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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.

we are currently focusing on female candidates and candidates from underrepresented communities.

of our Board of Directors and Board Committees

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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.

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

of Board in Risk Oversight Process

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audits of our financial statements.

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

accounting and financial reporting process;

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

and approving scope of the annual audit and audit fees;

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

adequacy and effectiveness of internal control policies and procedures;

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

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

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

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

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

overseeing accounting and financial reporting process;

selecting, retaining and

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

reviewing and approving scope of the annual audit and

discussing with management

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

reviewing adequacy and

effectiveness of internal control policies and procedures;

approving retention of

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

overseeing internal audit

functions and annually reviewing audit committee charter and committee performance;

preparing the audit committee

report that the Securities and Exchange Commission requires in our annual proxy statement;

reviewing and evaluating

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

members of our Compensation Committee are Messrs.

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

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

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

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

the CEO’s performance in light of those goals and objectives and determining the CEO’s compensation based on that evaluation;

and approving the annual compensation for other executive officers;

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

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

the extent provided under our equity compensation plans;

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

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

developing and maintaining an executive compensation

policy and monitor the results of that policy;

recommending to our board of directors for approval

compensation and benefit plans;

reviewing and approving

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

performance in light of those goals and objectives and determining the CEO’s compensation based on that evaluation;

determining and approving the annual compensation for

other executive officers;

retaining or obtaining the advice of a compensation

consultant, outside legal counsel or other advisor;

approving any grants of

stock options, restricted stock, performance shares, stock appreciation rights, and other equity-based incentives to the extent provided

under our equity compensation plans;

reviewing and making recommendations

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

reviewing and evaluating

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

and Corporate Governance Committee

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other things:

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

any qualifications and standards for individual directors;

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

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

board of directors and committees;

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

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

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

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

considering and reviewing periodically the desired

composition of our board of directors;

establishing any qualifications and standards for individual

identifying, evaluating and nominating candidates for

election to our board of directors;

ensuring that the members

of our board of directors satisfy SEC and Nasdaq independence and other requirements relating to membership on our board of directors

and committees;

making recommendations

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

of the committees of the board of directors;

considering other corporate governance and related

matters as requested by our board of directors;

reviewing and evaluating

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

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 two 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.

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

of Business Conduct and Ethics

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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.

the importance and scope of the role and how the position compares to other Polar 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

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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.

vacation and sick days available to other full-time employees of Polar.

All executive officers’ unvested equity grants accelerate upon any change in control of Polar.

option re-pricing .

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of our Compensation Committee

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

our executive compensation program.

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

administers our executive compensation program.

Our Compensation Committee establishes our compensation philosophy and objectives;

oversees the design

and administration of our executive compensation program;

the design and administration of our executive compensation program;

establishes the elements and mix of total compensation;

sets the parameters

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

and determines the target compensation of our executive

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.

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

and determines the target compensation of

our executive officers.

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

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

of Management

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Set forth below is the list of the peer group of companies for 2022:

Manufacturing – ESP (NYSE)

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

Telecommunications– WTT (NYSE)

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

Cell Energy – FCEL(Nasdaq)

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

Espey Manufacturing – ESP (NYSE)

Power electronics design

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

Wireless Telecommunications– WTT (NYSE)

Designs and manufactures

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

Fuel Cell Energy – FCEL(Nasdaq)

Designs 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

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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

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

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 2021 the total revenues were $36 million and none of the additional elements qualified, then the executive

example, if at conclusion of 2022 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.

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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.

designed primarily as a retention tool, typically requiring the executive to remain with Polar 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.

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 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

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executive officers” (dollar amounts in thousands):

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

Masina, our former Chief Operating Officer;

Zavala, our Chief Financial Officer.

Sams, our President, Chief Executive Officer,

Secretary and Chairman of the Board;

Rajesh Masina, our former Chief Operating Officer;

Luis Zavala, our Chief

Financial Officer.

Name and Principal

Stock Compensation ($)

Sams, President,

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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.

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On April 2, 2018, we appointed Mr.

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.

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.

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On April 2, 2018, we appointed Mr.

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.

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.

Zavala’s Executive Employment Agreement are identical to the

Masina’s Executive Employment Agreement.

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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 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

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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

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;

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Statements of Operations for the Years Ended December 31, 2022 and 2021

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

Statements of Stockholders’ Equity for the Years Ended December 31, 2022 and 2021

Statements of Cash Flows for the Years Ended December 31, 2022 and 2021

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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.

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 judgments.

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.

As discussed in Note 1 to the financial statements, the Company’s inventories are stated at the lower of cost or net realizable

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

As of December 31, 2022, the Company held inventories of

$15.46 million.

In determining net realizable value, management considers historical usage, forecasted demand in relation to inventory

on hand, market conditions, and other factors.

identified the evaluation of management’s estimate of the net realizable value of certain 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

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.

We evaluated management’s

product demand forecast for reasonableness considering historical sales by product, and whether they were consistent with the historical

data and evidence obtained in other areas of the audit.

We 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.

of the Company’s Ability to Continue as a Going Concern

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, for the year ended December 31, 2022, the Company recorded a net loss of $5.6 million, used cash

in operations of $6.5 million, and at December 31, 2022, had an accumulated deficit of $19.1 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.

Management has concluded that, based on its

current plans and projections, the Company will be able to satisfy its liquidity requirements for more than one year from when these

financial statements were issued.

In 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.

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.

obtained management’s cash flow forecasts covering the going concern

assessment period to March 2024 and evaluated the reasonableness of the cash flow forecast by comparing it to historical operating results.

performed sensitivity analyses on the projected revenue and operating margins

used in the Company’s cash flow projections to evaluate the impact on the conclusions reached by management.

evaluated 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.

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Angeles, California

BALANCE SHEETS

thousands, except share and per share data)

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Employee retention credit receivable

Inventories, net

Prepaid expenses

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Current portion of notes payable

Current portion of PPP loan payable

Line of credit

Total current liabilities

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Operating lease liabilities, net of current portion

PPP loan payable, net of current portion

Total liabilities

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accompanying notes are an integral part of these financial statements.

STATEMENTS OF OPERATIONS

OF OPERATIONS

thousands, except share and per share data)

Cost of Sales (includes inventory

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

Gross profit (loss)

Cost of Sales

Operating Expenses

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Total other income (expenses), net

Loss before income taxes

Benefit from income taxes

Net loss per share, basic and diluted

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accompanying notes are an integral part of these financial statements.

STATEMENTS OF STOCKHOLDERS’ EQUITY

OF STOCKHOLDERS’ EQUITY

thousands, except share data)

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Balances, December 31, 2021

Issuance of common stock for cash, net of offering costs

Common stock issued upon exercise of warrants

Stock-based compensation

Balances, December 31, 2022

accompanying notes are an integral part of these financial statements.

STATEMENTS OF CASH FLOW

Cash flows from operating activities:

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Depreciation and amortization

Inventory write-down

Stock-based compensation

Gain from forgiveness of PPP loan payable

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Income taxes receivable

Decrease in operating lease right-of-use

Decrease in operating lease right-of-use asset

Accounts payable

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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 PPP loan payable

Repayment of notes payable

Proceeds from advances from credit facility

Repayment of advances from credit facility

Net cash provided by financing activities

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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.

accompanying financial statements have been prepared under the assumption that the Company will continue as a going concern.

year ended December 31, 2022, the Company recorded a net loss of $ 5,584

and used cash in operations of $ 6,507 .

The Company’s management evaluated whether there are conditions or events considered in the aggregate, that

raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date the financial

statements are issued.

Notwithstanding the net loss for 2022, management

concluded that the Company will have adequate cash flow from operations and available line of credit in 2023 so that it is probable that

the Company will be able to fund its current operating plan and satisfy its liquidity requirements within one year from the date the Company’s

2022 financial statements are issued.

As of December 31, 2022, the Company had a cash balance of $ 211 , with borrowing

capacity of $ 1,137 , stockholders’ equity of $ 18,181 and a working capital of $ 17,367 .

The Company has taken action to improve its

margins, and is continuing to build a strong back log, and expects to continue investing in product development and sales and marketing

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.

global outbreak of the novel coronavirus (Covid-19) in early 2020 led to disruptions in general economic activities throughout the world

as businesses and governments implemented broad actions to mitigate this public health crisis.

The Company’s financial results

for the twelve months ended December 31, 2022 have been affected by COVID-19 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.

The extent to which COVID-19

may impact the Company’s business activities and capital raising efforts will depend on future developments, which are uncertain

and cannot be predicted.

impact of inflation and changing prices during 2022 has not been significant on the financial condition or results of operations of our

Rapid changes in the global economy may cause significant spikes in inflation which may

have an impact in our financial condition during 2023 and beyond.

Because some of our contracts are at a fixed price, we face the risk

that cost overruns or inflation may exceed, erode or eliminate our expected profit margin, or cause us to record a loss on certain projects.

We are taking actions to manage the potential impacts of these matters and we will continue to assess the actual and expected impacts

and the need for further action.

preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported

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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.

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

for services, and assumptions used in the determination of the Company’s liquidity.

Actual results may differ from those estimates.

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

SCHEDULE OF DISAGGREGATED NET SALES

OF DISAGGREGATED NET SALES

Years Ended December 31,

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Total net sales

following tables shows the Company’s net sales by the respective geographical regions of our customers (in thousands):

OF NET SALES BY GEOGRAPHICAL REGIONS

United States

South Pacific Islands

Other Asia Pacific

Europe and Middle East

Total net sales

the years ended December 31, 2022 and 2021, international sales totaled $ 3,983 and $ 1,279 , respectively.

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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

are of an assurance-type and come standard with all Company products to cover repair or replacement should the product not perform as

Provisions for estimated expenses related to product warranties are made at the time products are sold.

These estimates

are established using historical information about the nature, frequency and average cost of warranty claim settlements as well as product

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.

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As of December 31, 2022 and 2021, 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.

and $ 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

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

OF RECONCILIATION OF THE PRODUCT WARRANT LIABILITY

Years End December 31,

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Company considers all highly liquid investments with an original maturity of 90 days or less when purchased to be cash equivalents.

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

primarily consists of bank demand deposits maintained by a major financial institution.

The Company’s policy is to maintain its

cash balances with financial institutions with high credit ratings and in accounts insured by the Federal Deposit Insurance Corporation

(the “FDIC”).

The Company may periodically have cash balances in financial institutions in excess of the FDIC insurance limit

of $250,000 per account per institution.

The Company has not experienced any losses to date resulting from this policy.

December 31, 2022 and 2021, cash denominated in Australian Dollar with a U.S.

Dollar equivalent of $ 8 and $ 9 , respectively, was held

in an account at a financial institution located in Australia.

At December 31, 2022 and 2021, cash denominated in Romanian Leu with a

Dollar equivalent of $ 23 and $ 23 , respectively, was held in an account at a financial institution located in Romania.

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

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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, 2022 and 2021, inventories consisted of the following (in thousands):

OF INVENTORIES NET

Ended December 31,

Years Ended December 31,

Raw materials

Finished goods

and Equipment

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OF ESTIMATED USEFUL LIFE OF PROPERTY PLANT AND EQUIPMENT

Estimated life

Production tooling, jigs, fixtures

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Leasehold improvements

Shorter of the lease term or estimated useful life

Shorter of the lease term

or estimated useful life

Office equipment

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be anti-dilutive:

SCHEDULE OF DILUTED EARNINGS PER SHARE

OF DILUTED EARNINGS PER SHARE

Assets and Liabilities Measured at Fair Value

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Concentrations

The Company maintains cash balances at four banks, with the majority held at one bank located in the U.S.

At times, the amount on

deposit exceeds the federally insured limits.

Management believes that the financial institutions that hold the Company’s cash

are financially sound and, accordingly, minimal credit risk exists.

denominated in Australian Dollar with a U.S.

Dollar equivalent of $ 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 $ 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

For the year ended December 31, 2022, 66 % and 23 %, respectively, of our revenue was generated from the Company’s two largest customers,

one being a Tier-1 telecommunications customer in the U.S.

and one being a telecommunications customer outside the U.S.

In 2021, 67 %

of revenue was generated from the Company’s largest customer, a Tier-1 telecommunications customer in the U.S.

In 2022 and 2021,

sales to telecommunications customers accounted for 96 % and 89 % of total revenue, respectively.

In 2022 and 2021, sales to international

customers accounted for 25 % and 8 % of total revenue, respectively.

At December 31, 2022, the Company’s largest receivable account represented 90 % of the Company’s total accounts

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

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

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and equipment consist of the following (in thousands):

Schedule of Property and Equipment

OF PROPERTY AND EQUIPMENT

Shop equipment and machinery

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Property and equipment, net

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.

and amortization expense on property and equipment for the years ended December 31, 2022 and 2021 was $ 507 and $ 549 respectively.

the years ended December 31, 2022 and 2021, $ 489 and $ 530 , respectively, of depreciation expense was included in cost of sales for the

years then ended.

3 – NOTES PAYABLE

payable consist of the following (in thousands):

SCHEDULE OF NOTES PAYABLE

OF NOTES PAYABLE

Total Notes Payable

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future principal payments under the outstanding note agreements as of December 31, 2022 are as follows (in thousands):

SCHEDULE OF ANNUAL FUTURE PRINCIPAL PAYMENTS

OF ANNUAL FUTURE PRINCIPAL PAYMENTS

Years ending December 31:

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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.

At December 31, 2022, the outstanding balance under the line of credit was $ 1,884 and the Company had availability under the line of

credit in the amount of $ 1,137 .

The Loan Agreement initially expired on September 30, 2022, and

on November 3, 2022, the Loan Agreement was amended to expire on September 30, 2024 .

Loan Agreement, as amended, 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 %

Interest on the portion of the daily balance consisting of advances against inventory accrues interest at a rate of 2.25 %

above the prime rate, but in no event less than 4.75 % per annum.

may terminate the Loan Agreement, as amended, 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, 2022.

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.

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Company has two operating lease agreements for its warehouse and office spaces both with remaining lease terms at December 31, 2022,

of 1.4 years.

under a year.

Leases with an initial term of 12 months or less are not recorded on the balance sheet.

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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:

The 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

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Lease Cost (in thousands)

Operating lease cost

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, 2022, 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, 2021)

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

OF SUPPLEMENTAL BALANCE SHEET INFORMATION

SCHEDULE OF SUPPLEMENTAL BALANCE SHEET INFORMATION

At December 31,

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OF MATURITIES OF LEASE LIABILITIES

Ending (in thousands)

Year Ending (in thousands)

Operating Leases

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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

stock during 2022 for services

August 2022, the Company issued an aggregate of 161,347 shares of common stock to its officers, employees and consultants as part of

the Company’s Employee Retention Program and the Company’s 2016 Omnibus Incentive Plan.

The shares of common stock had an

aggregate grant date fair value of $ 515 based on the closing price of the Company’s common stock on the grant date of the awards,

which was recorded as stock-based compensation expense of $ 515 during 2022.

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 offering.

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 upon exercise of warrants

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

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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

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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, 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.

December 31, 2022 and 2021, the Company had 17,477 shares of common stock held as treasury stock at a cost of $ 40 .

8 – STOCK OPTIONS

following table summarizes stock option activity:

OF STOCK OPTION ACTIVITY

SCHEDULE OF STOCK OPTION ACTIVITY

Weighted Average

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following table summarizes warrant activity:

OF WARRANTS OUTSTANDING

SCHEDULE OF WARRANTS OUTSTANDING

Weighted Average

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Exercisable, December 31, 2022

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

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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 .

was no intrinsic value of the outstanding and exercisable warrants at December 31, 2022 .

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,

Current Federal

Current State

Deferred Federal

Deferred State

Benefit from income taxes

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

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Net deferred tax asset (liability)

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 .

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 limits NOL absorption to 80% of

taxable income.

At December 31, 2022 and 2021, the Company had income taxes receivable

of $ 787 related to the NOL carrybacks.

December 31, 2022, the Company had available Federal and state NOLs carryforwards to reduce future taxable income of approximately $ 10.6

million and $ 14.8 million, 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 2042.

Authoritative

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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,

For the year ended December 31, 2021, 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.

As of December 31, 2022 and 2021,

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

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What changed 10-K

Item 9A. Controls and Procedures