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Item 8. Financial Statements and Supplementary Data

2023-04-11 compared with 2022-03-31 · 783 added, 748 removed, 309 unchanged (83% of the section changed)

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Financial Statements for the Years Ended December 31, 2022 and 2021

Report of Independent Registered Public Accounting Firm ( Marcum LLP , Saddle Brook, NJ :

PCAOB ID# 688 )

Report of Independent Registered Public Accounting Firm (BDO USA, LLP, New York, NY:

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Lee, New Jersey

Opinion on the Financial Statements

We have audited the accompanying consolidated balance

sheet of Pioneer Power Solutions, Inc.

(the “Company”) as of December 31, 2022, the related consolidated statements of operations,

stockholders’ equity, and cash flows for the year ended December 31, 2022, 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, 2022, and the results of its operations and its cash flows for the year ended December 31,

2022, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These 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 audit.

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.

We conducted our audit in accordance with the standards

of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements

are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform,

an audit of its internal control over financial reporting.

As part of our audit we are required to obtain an understanding of internal

control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control

over financial reporting.

Accordingly, we express no such opinion.

Our audit 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 audit 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 audit provides a reasonable basis for our opinion.

Critical Audit Matters

Critical audit matters are matters arising from the

current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective,

or complex judgments.

We determined that there are no critical audit matters.

/s/ Marcum llp

We have served as the Company’s auditor since 2022.

Saddle Brook, New Jersey

April 11, 2023

of Independent Registered Public Accounting Firm

and Board of Directors

Power Solutions, Inc.

Lee, New Jersey

on the Consolidated Financial Statements

have audited the accompanying consolidated balance sheets of Pioneer Power Solutions, Inc.

have audited the accompanying consolidated balance sheet of Pioneer Power Solutions, Inc.

(the “Company”) as of December

31, 2021 and 2020, the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the two

years in the period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company

at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December

31, 2021, in conformity with accounting principles generally accepted in the United States of America.

31, 2021, the related consolidated statements of operations, stockholders’ equity, and cash flows for the year then ended, and

the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated

financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021, and the results

of its operations and its cash flows for the year ended December 31, 2021, in conformity with accounting principles generally accepted

in the United States of America.

consolidated financial statements are the responsibility of the Company’s management.

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Those standards require that we plan and perform the audit to obtain

reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

reasonable assurance about whether the consolidated 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 reporting.

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.

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 consolidated financial statements, whether

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We believe that our audits provide a reasonable basis for our opinion.

critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that

was 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.

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 matter below, providing separate opinions on the critical audit matter or on the accounts or

disclosures to which it relates.

Inventory Reserve

As described in Note 6 to the consolidated financial statements, as of

December 31, 2021 a substantial portion of the Company’s inventory is comprised of work-in-process, which includes raw materials

and capitalized labor and overhead utilized to support the manufacturing process at Pioneer Custom Electrical Products Corp (PCEP) to

fulfill customer orders.

Management analyzes work-in-process inventory to identify circumstances whereby the capitalized inventory cost

exceeds its net realizable value.

If management determines that the cost of the work-in-process inventory will not be recoverable, a reserve

to adjust the inventory to net realizable value is required to be recognized.

We identified the valuation of inventory reserve related

to net realizable value at PCEP as a critical audit matter.

In determining the net realizable value reserve over PCEP work-in-process

inventory, significant estimates for estimated costs to complete projects are applied to open work orders.

The evaluation over the need

for a reserve requires management to develop and utilize assumptions in its determination of estimates to complete the open work orders

based upon an assessment of project status and efforts required to complete the assembly of the finished product.

Auditing the critical

assumptions used by management in determining the net realizable value reserve involved especially challenging auditor judgment due to

the nature and extent of audit effort needed to evaluate the reasonableness of the assumptions and judgments made by management.

The primary procedures we performed to address this

critical audit matter included:

● Testing a sample of PCEP work-in-process inventory on hand at year end

and comparing expected completed costs to current market prices through the examination of relevant source documents.

● Testing the completeness and accuracy of the underlying costs incurred to date on PCEP work-in-process

inventory on hand at year end through the examination of relevant source documents including bill of materials and actual costs incurred

● Evaluating management's conclusion of estimated projects to complete on a sample of PCEP work-in-process

inventory on hand at year end through a combination of inquiries of operating project managers and agreeing subsequent costs incurred

through the examination of relevant source documents.

● Evaluating the reasonableness of management’s estimates and current period costs estimates of inventory

reserves by performing a retrospective comparison of prior estimates to current period activity to assess management’s ability to

estimate inventory reserves.

We have served as the Company's auditor since

We served as the Company’s auditor from 2014 to 2022.

York, New York

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thousands, except per share data)

For the Year Ended

Cost of goods sold

Write down of inventory

Total cost of goods sold

Operating expenses

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Total operating expenses

Loss from continuing operations

Loss from operations

Interest income

Other expense (income), net

Loss before taxes

Income tax (benefit) expense

Income tax expense (benefit)

Loss per share:

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Restricted cash

Notes receivable

Notes receivable and accrued interest

Accounts receivable, net

Insurance receivable

Inventories, net

Income taxes receivable

Prepaid expenses and other current assets

Total current assets

Property, plant and equipment, net

Right-of-use assets

Notes receivable

Property and equipment, net

Operating lease right-of-use assets

Financing lease right-of-use assets

LIABILITIES AND STOCKHOLDERS’ EQUITY

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Accounts payable and accrued liabilities

Current portion of operating lease liabilities

Current portion of financing lease liabilities

Deferred revenue

Current maturities of long-term debt

Income taxes payable

Total current liabilities

Long-term debt

Operating lease liabilities, non-current portion

Financing lease liabilities, non-current portion

Other long-term liabilities

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Statements of Cash Flows

For the Year Ended

Operating activities

Amortization of right-of-use assets

Amortization of right-of-use finance leases

Amortization of imputed interest

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Gain on forgiveness of PPP Loan

Non-cash cost of operating leases

Amortization of right-of-use operating leases

Change in receivable reserves

Change in inventory reserves

Write down of inventory

Change in long term payables

Proceeds from insurance receivable

Gain on investments

Stock-based compensation

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Deferred revenue

Operating lease liabilities

Net cash used in operating activities

Investing activities

Additions to property, plant and equipment

Proceeds from sale of investments

Change in notes receivable

Net cash (used in) / provided by investing activities

Purchases of property and equipment

Collection of notes receivable

Net cash provided by/ (used in) investing activities

Financing activities

Bank overdrafts

Funding from PPP Loan

Payment of deferred purchase price

Payment of deferred payroll taxes

Net proceeds from the exercise of options for common stock

Net proceeds from issuance of common stock

Payment to affiliates

Dividend paid to shareholders

Principal repayments of financing leases

Net cash provided by financing activities

Increase / (decrease) in cash and restricted cash

Net cash (used in)/ provided by financing activities

(Decrease) increase in cash and restricted cash

Cash, and restricted cash, beginning of year

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Non-cash investing and financing activities:

Acquisition of right-of-use assets

Acquisition of right-of-use assets and lease liabilities

accompanying notes are an integral part of these consolidated financial statements.

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Statements of Stockholders’ Equity

(Amounts in thousands, except share amounts)

other compre-

stockholders’

Balance - January 1, 2020 (Revised)

Stock-based compensation

Balance - December 31, 2020

(Amounts in thousands,

except share amounts)

Total stockholders’

Balance - January 1, 2021

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Balance - December 31, 2021

Balance - January 1, 2022

Stock-based compensation

Exercise of stock options

Balance - December 31, 2022

accompanying notes are an integral part of these consolidated financial statements.

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to Consolidated Financial Statements

BASIS OF PRESENTATION

BUSINESS ORGANIZATION, NATURE OF OPERATIONS, RISKS AND UNCERTAINTIES

Power Solutions, Inc.

and its wholly owned subsidiaries (referred to herein as the “Company,” “Pioneer,”

“Pioneer Power,” “we,” “our” and “us”) design, manufacture, integrate, refurbish,

service, distribute and sell electric power systems, distributed energy resources, used and new power generation equipment and

mobile electric vehicle (“EV”) charging solutions.

Our products and services are sold to a broad range of customers

in the utility, industrial and commercial markets.

Our customers include, but are not limited to, electric, gas and water utilities,

data center developers and owners, EV charging infrastructure developers and owners, and distributed energy developers.

is headquartered in Fort Lee, New Jersey and operates from three ( 3 ) additional locations in the U.S.

for manufacturing, service

and maintenance, engineering, sales and administration.

September 24, 2013, the Company completed an underwritten public offering of 1,265,000 shares of its common stock at a gross

sales price of $ 7.00 per

share, resulting in net proceeds to the Company of approximately $ 7.9 million ,

after deducting underwriting discounts and commissions and other offering expenses.

In connection with the public offering, the

Company’s common stock began trading on the Nasdaq Capital Market under the symbol PPSI.

and its wholly owned subsidiaries (referred to herein as the “Company,” “Pioneer,” “Pioneer

Power,” “we,” “our” and “us”) design, manufacture, integrate, refurbish, service, distribute

and sell electric power systems, distributed energy resources, power generation equipment and mobile electric vehicle (“EV”)

charging solutions.

Our products and services are sold to a broad range of customers in the utility, industrial and commercial markets.

Our customers include, but are not limited to, electric, gas and water utilities, data center developers and owners, EV charging infrastructure

developers and owners, and distributed energy developers.

The Company is headquartered in Fort Lee, New Jersey and operates from three

(3) additional locations in the U.S.

for manufacturing, service and maintenance, engineering, sales and administration.

September 24, 2013, the Company completed an underwritten public offering of 1,265,000 shares of its common stock at a gross sales price

of $ 7.00 per share, resulting in net proceeds to the Company of approximately $ 7.9 million, after deducting underwriting discounts and

commissions and other offering expenses.

In connection with the public offering, the Company’s common stock began trading on the

Nasdaq Capital Market under the symbol PPSI.

determining operating and reportable segments in accordance with Financial Accounting Standards Board (“FASB”) Accounting

Standards Codification (“ASC”) 280, Segment Reporting (“ASC 280”), the Company concluded that it has two

reportable segments, which are also our operating segments:

Transmission & Distribution Solutions (“T&D Solutions”)

and Critical Power Solutions (“Critical Power”).

Financial information about the Company’s segments is presented

in Note 15 - Business Segment, Geographic and Customer Information.

Standards Codification (“ASC”) 280, Segment Reporting (“ASC 280”), the Company concluded that it has two reportable

segments, which are also our operating segments:

Transmission & Distribution Solutions (“T&D Solutions”) and Critical

Power Solutions (“Critical Power”).

Financial information about the Company’s segments is presented in Note 13 -

Business Segment, Geographic and Customer Information.

of Transformer Business Units

June 28, 2019, the Company entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”), by and among the

Company, Electrogroup Canada, Inc., a wholly owned subsidiary of the Company (“Electrogroup”), Jefferson Electric, Inc.,

a wholly owned subsidiary of the Company (“Jefferson”), JE Mexican Holdings, Inc., a wholly owned subsidiary of the

Company (“JE Mexico,” and together with Electrogroup and Jefferson, the “Disposed Companies”), Nathan

Mazurek (Chief Executive Officer of the Company), Pioneer Transformers L.P.

(the “US Buyer”) and Pioneer Acquireco ULC

(the “Canadian Buyer,” and together with the US Buyer, the “Buyer”).

Pursuant to the terms of the Stock

Purchase Agreement, the Company agreed to sell (i) all of the issued and outstanding equity interests of Electrogroup to the

Canadian Buyer and (ii) all of the issued and outstanding equity interests of Jefferson and JE Mexico to the US Buyer (the

“Equity Transaction”), for a purchase price of $ 68 .0

Included in the purchase price, the Company received two subordinated promissory notes, issued by the Buyer, in the

aggregate principal amount of $ 5 .0

million and $ 2.5

million, for a total aggregate principal amount of $ 7.5

million (the “Seller Notes”).

During the fourth quarter of 2019, the Company and the Buyer, pursuant to the Stock

Purchase Agreement, completed the net working capital adjustment, which resulted in the Company paying the Buyer $ 1.8

million in cash and reducing the principal amount of the $ 5 .0 million Seller Note to $ 3.2

June 28, 2019, the Company entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”), by and among the Company,

Electrogroup Canada, Inc., a wholly owned subsidiary of the Company (“Electrogroup”), Jefferson Electric, Inc., a wholly

owned subsidiary of the Company (“Jefferson”), JE Mexican Holdings, Inc., a wholly owned subsidiary of the Company (“JE

Mexico,” and together with Electrogroup and Jefferson, the “Disposed Companies”), Nathan Mazurek (Chief Executive Officer

of the Company), Pioneer Transformers L.P.

(the “US Buyer”) and Pioneer Acquireco ULC (the “Canadian Buyer,”

and together with the US Buyer, the “Buyer”).

Pursuant to the terms of the Stock Purchase Agreement, the Company agreed to

sell (i) all of the issued and outstanding equity interests of Electrogroup to the Canadian Buyer and (ii) all of the issued and outstanding

equity interests of Jefferson and JE Mexico to the US Buyer (the “Equity Transaction”), for a purchase price of $ 68.0 million.

Included in the purchase price, the Company received two subordinated promissory notes, issued by the Buyer, in the aggregate principal

amount of $ 5.0 million and $ 2.5 million, for a total aggregate principal amount of $ 7.5 million (the “Seller Notes”).

the fourth quarter of 2019, the Company and the Buyer, pursuant to the Stock Purchase Agreement, completed the net working capital adjustment,

which resulted in the Company paying the Buyer $ 1.8 million in cash and reducing the principal amount of the $ 5.0 million Seller Note

to $ 3.2 million.

During the second quarter of 2020, the Company recognized an additional reduction to the principal amount of the Seller

Note of $ 194

for a valid claim paid by the Buyer on behalf of the Company.

Including the reduction to the principal amount for the valid claim,

the Company has revalued the Seller Notes for an appropriate imputed interest rate, resulting in a change to the value of the Seller

Notes at December 31, 2021 of $ 428 , for a carrying value of $ 5.8

million, which is included within notes receivable (see Note 8 - Notes Receivable).

Note of $ 194 for a valid claim paid by the Buyer on behalf of the Company.

On December 15, 2022, the Company received in excess of $ 6.2

million as a final payment of all unpaid principal and interest paying the Seller Notes in full (see Note 7 - Notes Receivable).

transaction was consummated on August 16, 2019.

Pioneer sold to the Buyer all of the assets and liabilities associated with its liquid-filled

transformer and dry-type transformer manufacturing businesses within the Company’s T&D Solutions segment.

Pioneer Power retained

its switchgear manufacturing business within the T&D Solutions segment, as well as all of the operations associated with its Critical

Power segment.

Termination of CleanSpark Agreement

On June 3, 2022, the Company and CleanSpark entered

into a termination agreement (the “Termination Agreement”) to terminate the Distribution Agreement.

Pursuant to the Termination

Agreement, the Company agreed to, amongst others, (i) release CleanSpark from further liabilities due under the Distribution Agreement,

including for certain future amounts due under the Distribution Agreement and certain accounts payable invoices, (ii) assume the responsibility

of billing and collecting payment from Enchanted Rock Electric, LLC, a third party and mutual client of both the Company and CleanSpark

for all open sales orders amounts under its outstanding agreements for Products that have or will be manufactured by the Company, and

(iii) return portions of certain deposits advanced to the Company pursuant to the Distribution Agreement.

CleanSpark additionally transferred the services and maintenance agreements

and associated rights and liabilities it had related to switchgear products manufactured by the Company, and the Company assumed all liability

and responsibility for all claims of the Products including, but not limited to, all repairs, defects, and warranty liability of the Products

that were previously manufactured by the Company and then distributed or sold by CleanSpark.

of Presentation

accompanying audited consolidated financial statements of the Company have been prepared pursuant to the rules of the SEC and

reflect the accounts of the Company as of December 31, 2021.

reflect the accounts of the Company as of December 31, 2022 and 2021.

Certain information and footnote disclosures, normally included in

annual financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S.

GAAP”), have been condensed or omitted pursuant to those rules and regulations.

We believe that the disclosures made are

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accounts and transactions have been eliminated in consolidation.

The accompanying financial statements have

been prepared on a basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course

As shown in the accompanying financial statements as of the year ended December 31, 2021, the Company had $ 9.9 million

of cash on hand and working capital of $ 18.6 million.

The cash on hand was generated primarily from the sale of common stock under

the ATM Program during the year ended December 31, 2021.

We have historically met our cash needs through a combination of cash

flows from operating activities and bank borrowings, the completion of the Equity Transaction, proceeds from the sale of the CleanSpark

Common Stock and warrants to purchase CleanSpark Common Stock, proceeds from insurance and funding from the Payroll Protection

Our cash requirements historically were generally for operating activities, debt repayment, capital improvements and acquisitions.

The accompanying financial statements have been prepared on a basis, which contemplates the realization of assets and the satisfaction

of liabilities in the normal course of business.

As shown in the accompanying financial statements as of the year ended December 31, 2022,

the Company had $10.3 million of cash on hand and working capital of $14.1 million.

The cash on hand was generated primarily from the

sale of common stock under the ATM Program during the year ended December 31, 2021 and payment of all unpaid principal and interest from

the Seller Notes during the year ended December 31, 2022.

We have met our cash needs through a combination of cash flows from operating activities and bank borrowings, the completion of the Equity

Transaction, proceeds from the sale of the CleanSpark Common Stock and warrants to purchase CleanSpark Common Stock, proceeds from insurance,

sale of common stock under the ATM Program, funding from the Payroll Protection Program and collecting all unpaid principal and interest

from the Seller Notes.

Our cash requirements historically were generally for operating activities, debt repayment, capital improvements

and acquisitions.

We expect to meet our cash needs with our working capital and cash flows from our operating activities.

We expect our cash requirements

to be generally for operating activities, product development and capital improvements.

The Company expects that its current cash

balance is sufficient to fund operations for the next twelve months.

We expect our

cash requirements to be generally for operating activities, product development and capital improvements.

The Company expects that its

current cash balance is sufficient to fund operations for the next twelve months.

June 1, 2021, the board of directors of the Company declared a special cash dividend of $ 0.12 per common share, payable to shareholders

of record as of June 22, 2021, to be paid on July 7, 2021.

The Cash dividends were paid in July of 2021 and equaled $ 0.12 per

share on the $ 0.001 par value common stock resulting in an aggregate distribution of approximately $ 1 .0 million representing a

capital repayment paid from additional paid-in capital (“APIC”).

October 20, 2020, we entered into an At The Market Sale Agreement with H.C.

Wainwright & Co., LLC (“Wainwright”),

pursuant to which we may offer and sell our common shares having an aggregate price of up to $ 9 .0 million from time to time through

Wainwright, acting as agent or principal (the “ATM Program”).

Shares of common stock are offered pursuant to a sales

agreement prospectus included in the Company’s shelf registration on Form S-3 filed with the Securities and Exchange Commission

on October 20, 2020, which was declared effective on October 27, 2020.

On November 8, 2021, we sold 888,500 shares of common stock

under the ATM Program, for total gross proceeds of approximately $ 9 .0 million, at an average price of $ 10.1288 per share.

approximately $ 273 of costs related to the common shares issued (including a placement fee of 3.0 % , or approximately $ 270 , to

Wainwright), resulting in net proceeds of approximately $ 8.7 million.

the first quarter of 2021, the Company executed a cash collateral security agreement with a commercial bank, which agreement required

us to pledge cash collateral as security for all unpaid reimbursement obligations owing to the commercial bank for an irrevocable

standby letter of credit in the amount of $ 1.8 million .

As a result of executing the cash collateral security agreement, the Company

recognized approximately $ 1.8 million of restricted cash within the consolidated balance sheet at December 31, 2021.

November 2016, the FASB issued amended guidance to ASU No.

The cash dividends were paid in July of 2021 and equaled $ 0.12 per share on

the $ 0.001 par value common stock resulting in an aggregate distribution of approximately $ 1.0 million representing a capital repayment

paid from additional paid-in capital (“APIC”).

On November 10, 2021, we sold 888,500 shares of common stock under the ATM Program, for total gross proceeds of approximately $ 9.0 million,

at an average price of $ 10.1288 per share.

We incurred approximately $ 273 of costs related to the common shares issued (including a placement

fee of 3.0 % , or approximately $ 270 , to Wainwright), resulting in net proceeds of approximately $ 8.7 million.

On December 13, 2021, we

filed a prospectus supplement, which forms a part of our registration statement on Form S-3 (File No.

333-249569), that was declared effective

by the SEC on October 27, 2020, in connection with the offer and sale of up to an aggregate offering amount of $ 8.6 million of common

stock that may be issued and sold under the ATM Program.

We did not sell any shares of common stock under the ATM Program during the year

ended December 31, 2022.

As of December 31, 2022, $ 8.6 million of common stock remained available for issuance under the ATM Program.

the year ended December 31, 2021, the Company executed a cash collateral security agreement with a commercial bank, which agreement required

us to pledge cash collateral as security for all unpaid reimbursement obligations owing to the commercial bank for an irrevocable standby

letter of credit in the amount of $ 1.8 million.

During the first quarter of 2022, the Company amended its agreement with the commercial

bank to decrease the required amount of cash collateral by $ 1.3 million.

On May 6, 2022, the Company received notice that the cash collateral

security agreement it had executed with the commercial bank was cancelled.

Upon cancellation of the cash collateral security agreement,

any unpaid reimbursement obligations owing to the commercial bank were also cancelled.

On May 11, 2022, the commercial bank released

and transferred the remaining cash collateral of $ 505 to the Company.

The Company had no restricted cash on the consolidated balance

sheets at December 31, 2022.

Company accounts for restricted cash under the guidance of ASU No.

2016-18, Statement of Cash Flows - Restricted Cash (Topic 230), which

requires the statement of cash flows to explain the change during the period in the total of cash, cash equivalents, and restricted

cash and that restricted cash be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period

total amounts shown on the statement of cash flows.

following table provides a reconciliation of cash and restricted cash reported within the consolidated balance sheets that sum

to the total of the same such amounts shown in the audited consolidated statement of cash flows:

requires the statement of cash flows to explain the change during the period in the total of cash, cash equivalents, and restricted cash

and that restricted cash be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total

amounts shown on the statement of cash flows.

following table provides a reconciliation of cash and restricted cash reported within the consolidated balance sheets that sum to the

total of the same such amounts shown in the consolidated statement of cash flows:

OF RECONCILIATION OF CASH AND RESTRICTED CASH

Restricted cash

Total cash and restricted cash as shown in the statement of cash flows

January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain

of coronavirus originating in Wuhan, China and the risks to the international community as the virus spreads globally beyond its

point of origin.

In March 2020, the WHO classified the COVID-19 outbreak as a pandemic (the “COVID-19 pandemic”),

based on the rapid increase in exposure globally.

full impact of the COVID-19 pandemic continues to evolve as the date of this report.

As such, it is uncertain as to the full magnitude

that the pandemic will have on the Company’s financial condition, liquidity, and future results of operations.

year ended December 31, 2021, the Company experienced an impact to productivity as a result of following social distancing guidelines

and practicing personal protective measures.

Notwithstanding, the Company has been able to operate substantially at capacity during

the COVID-19 pandemic.

Management is actively monitoring the global situation on its financial condition, liquidity, operations,

suppliers, industry, and workforce.

Given the daily evolution of the COVID-19 pandemic and the global responses to contain its

spread, the Company is not able to estimate the full effects of the COVID-19 pandemic at this time, however, if the pandemic continues,

it may continue to have an adverse effect on the Company’s results of operations, financial condition, or liquidity.

March 27, 2020, then President Trump signed into law the “Coronavirus Aid, Relief, and Economic Security (CARES) Act”

(the “CARES Act”) The CARES Act, among other things, appropriates funds for the SBA Paycheck Protection Program loans

that are forgivable in certain situations to promote continued employment.

On April 13, 2020, after having determined that it

met the qualifications for this loan program due to the impact that COVID-19 would have on our financial condition, results of

operations, and/or liquidity and applying for relief, the Company received a loan under the SBA Paycheck Protection Program (the

“PPP Loan”) in the amount of $ 1.4 million .

The Company accounted for the PPP Loan as a debt instrument in accordance

with FASB ASC 470, Debt.

the terms of the PPP Loan, the Company was eligible for full or partial loan forgiveness.

During the first quarter of 2021, the

Company received full forgiveness of the PPP Loan and recognized a $ 1.4 million gain on extinguishment and forgiveness of debt

as other income in the audited consolidated statements of operations.

dollar amounts (except share and per share data, and with respect to Item 11, Agreements with Executive Officers) presented are

stated in thousands of dollars, unless otherwise noted.

Amounts may not foot due to rounding.

Risks and Uncertainties

The worldwide spread of the novel coronavirus (“COVID-19”),

including the emergence of variants and subvariants, as well as rising interest rates, inflation, changes in foreign currency exchange

rates and geopolitical developments (including the war in Ukraine) have resulted, and may continue to result, in a global slowdown of

economic activity, which may decrease demand for a broad variety of goods and services, including those provided by the Company’s

clients, while also disrupting supply channels, sales channels and advertising and marketing activities for an unknown period of time

until economic activity normalizes.

As a result of the current uncertainty in economic activity, the Company is unable to predict the

size and duration of the impact on its revenue and its results of operations.

The extent of the impact of these macroeconomic factors

on the Company’s operational and financial performance will depend on a variety of factors, including the duration and spread of

COVID-19 and its variants and the duration and the extent of geopolitical disruption and their respective impacts on the Company’s

clients, partners, industry, and employees, all of which are uncertain at this time and cannot be accurately predicted.

The Company continues

to monitor the effects of the COVID-19 pandemic and take steps deemed appropriate to limit the impact on its business.

During the year

ended December 31, 2022, the Company was able to operate substantially at capacity.

Similarly, the economic uncertainty caused by the

COVID-19 pandemic has made and may continue to make it difficult for the Company to forecast revenue and operating results and to make

decisions regarding operational cost structures and investments.

The Company has committed, and the Company plans to continue to commit,

resources to grow its business, employee base, and technology development, and such investments may not yield anticipated returns, particularly

if worldwide business activity continues to be impacted by the COVID-19 pandemic.

The duration and extent of the impact from the COVID-19

pandemic depend on future developments that cannot be accurately predicted at this time, and if the Company is not able to respond to

and manage the impact of such events effectively, its business may be harmed.

There can be no assurance that precautionary measures,

whether adopted by the Company or imposed by others, will be effective, and such measures could negatively affect its sales, marketing,

and client service efforts, delay and lengthen its sales cycles, decrease its employees’, clients’, or partners’ productivity,

or create operational or other challenges, any of which could harm its business and results of operations.

See Note 2 – Summary of Significant Accounting

Policies for details of risks and uncertainties surrounding recent bank failures.

Reclassification

following items have been reclassified in the 2021 financial statements to conform to current year presentation:

repayments of financing leases and the reduction in operating leases have been reclassified in the audited consolidated statements of

cash flows and presented in the applicable cash flow activity for the year ended December 31, 2021.

The inventories footnote contains

a reclassification of the provision for excess and obsolete inventory and reductions to net realizable value to the applicable inventory

classification at December 31, 2021.

The payment of deferred payroll taxes during the year ended December 31, 2021 was reclassified to now be included

in cash used in operating activities.

All dollar amounts (except share and per share data) presented are stated in thousands of dollars, unless otherwise noted.

not foot due to rounding.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

preparation of consolidated financial statements requires management to make estimates and assumptions that affect the reported

amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during

the reporting period.

preparation of consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts

of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting

Actual results could differ from those estimates.

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based on currently available information and management’s judgment as to the outcome of future conditions and circumstances.

estimates in these financial statements include allowance for doubtful accounts receivable, inventory provision, useful lives

and impairment of long-lived assets and income tax provision.

in the status of certain facts or circumstances could result in material changes to the estimates used in the preparation of the

financial statements and actual results could differ from the estimates and assumptions.

is recognized when (1) a contract with a customer exists, (2) performance obligations promised in a contract are identified based

on the products or services that will be transferred to the customer, (3) the transaction price is determined based on the consideration

to which the Company will be entitled in exchange for transferring products or services to the customer, (4) the transaction price

is allocated to the performance obligations in the contract and (5) the Company satisfies performance obligations.

satisfies performance obligations either over time or at a point in time.

Revenue is recognized at the time the related performance

obligation is satisfied by transferring a promised product or service to a customer.

Revenue from the sale of our products is

predominantly recognized at a point in time.

Revenues are recognized at the point in time that the customer obtains control of

the good which is when it has taken title to the products and has assumed the risks and rewards of ownership specified in the

purchase order or sales agreement.

Certain sales of highly customized large equipment are recognized over time when such equipment

has no alternative use and the Company has an enforceable right to payment for performance completed to date.

Revenue for such

agreements is recognized under the input method based on cost incurred relative to the estimated cost expected to be consumed

to complete the project.

Service revenues include maintenance contracts that are recognized over time based on the contract term

and repair services which are recognized as services are delivered.

Significant estimates in these financial statements include measurement of revenue for contracts accounted for over time, allowance

for doubtful accounts receivable, inventory provision, useful lives and impairment of long-lived assets and income tax

in the status of certain facts or circumstances could result in material changes to the estimates used in the preparation of the financial

statements and actual results could differ from the estimates and assumptions.

is recognized when (1) a contract with a customer exists, (2) performance obligations promised in a contract are identified based on

the products or services that will be transferred to the customer, (3) the transaction price is determined based on the consideration

to which the Company will be entitled in exchange for transferring products or services to the customer, (4) the transaction price is

allocated to the performance obligations in the contract and (5) the Company satisfies performance obligations.

The Company satisfies

performance obligations either over time or at a point in time.

Revenue is recognized at the time the related performance obligation

is satisfied by transferring a promised product or service to a customer.

Revenue from the sale of our electric power systems is recognized

either over time or at a point in time and substantially all of our revenue from the sale of power generation equipment is recognized

at a point in time.

Revenues are recognized at the point in time that the customer obtains control of the good, which is when it has

taken title to the products and has assumed the risks and rewards of ownership specified in the purchase order or sales agreement.

sales of highly customized electrical power systems are recognized over time when such equipment has no alternative use and the Company

has an enforceable right to payment for performance completed to date.

Revenue for such agreements is recognized under the input method

based on either cost or direct labor hours incurred relative to the estimated cost or direct labor hours expected to be consumed to complete

Under the cost-to-cost method of revenue recognition, a single estimated profit margin is used to recognize profit for each

performance obligation over its period of performance.

Recognition of profit on a contract requires estimates of the total cost at completion

and transaction price and the measurement of progress towards completion.

Due to the nature of many of our contracts, developing the

estimated total cost at completion and total transaction price often requires judgment.

Factors that must be considered in estimating

the cost of the work to be completed include the nature and complexity of the work to be performed, subcontractor performance and the

risk and impact of delayed performance.

When adjustments in estimated total costs at completion or in estimated total transaction price

are determined, the related impact on income is recognized using the cumulative catch-up method, which recognizes in the current period

the cumulative effect of such adjustments for all prior periods.

Any anticipated losses on these contracts are fully recognized in the

period in which the losses become evident.

Service revenues include maintenance contracts that are recognized over time based on the

contract term and repair services, which are recognized as services are delivered.

of Goods Sold

of goods sold for the T&D Solutions and Critical Power segments primarily includes charges for materials, direct labor and

related benefits, freight (inbound and outbound), direct supplies and tools, purchasing and receiving costs, inspection costs,

internal transfer costs, warehousing costs and utilities related to production facilities and, where appropriate, an allocation

Cost of goods sold also includes indirect labor and infrastructure cost related to the provision of field services.

of goods sold for the T&D Solutions and Critical Power segments primarily includes charges for materials, direct labor and related

benefits, freight (inbound and outbound), direct supplies and tools, purchasing and receiving costs, inspection costs, internal transfer

costs, warehousing costs and utilities related to production facilities and, where appropriate, an allocation of overhead.

Cost of goods

sold also includes indirect labor and infrastructure cost related to the provision of field services.

Company’s financial instruments consist primarily of cash, restricted cash, receivables, payables and debt instruments.

The carrying values of these financial instruments approximate their respective fair values as they are either short-term in nature

or carry interest rates which are periodically adjusted to market rates.

carrying values of these financial instruments approximate their respective fair values as they are either short-term in nature or

carry interest rates which are periodically adjusted to market rates.

Unless otherwise indicated, the carrying value of these

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Concentrations

The Company manages its accounts receivable credit

risk by performing credit evaluations and monitoring amounts due from the Company’s customers.

The Company had certain customers

whose revenue individually represented 10% or more of the Company’s total revenue, or whose accounts receivable balances individually

represented 10% or more of the Company’s total accounts receivable, as follows:

At December 31, 2021 and 2020, two customers

represented approximately 43 % and 42 % of accounts receivable, respectively.

Company manages its accounts receivable credit risk by performing credit evaluations and monitoring amounts due from the Company’s

The Company had certain customers whose revenue individually represented 10% or more of the Company’s total revenue,

or whose accounts receivable balances individually represented 10% or more of the Company’s total accounts receivable, as follows:

December 31, 2022, three customers represented approximately 57 %,

of the Company’s accounts receivable.

At December 31, 2021, two customers represented approximately 32 %

of the Company’s accounts receivable.

the year ended December 31, 2022, one customer represented approximately 45 % of the Company’s revenue.

For the year ended December

two customers represented approximately 41 % of revenue.

For the year ended December 31, 2020, one customer represented approximately

34 % of revenue.

31, 2021, two customers represented approximately 22 % and 19 % of the Company’s revenue.

and Cash Equivalents

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The Company has not experienced

any losses on these accounts and conclude the credit risk to be minimal.

Cash consists of a cash collateral security agreement with a commercial bank which required the Company to pledge cash collateral

as security for all unpaid reimbursement obligations owing to the commercial bank for an irrevocable standby letter of credit.

Company accounts for trade receivables at original invoice amount less an estimate made for doubtful receivables based on a review

of all outstanding amounts on a monthly basis.

Management determines the allowance for doubtful accounts by regularly evaluating

individual customer receivables and considering a customer’s financial condition, credit history and current economic conditions.

The Company writes off trade receivables when they are deemed uncollectible.

The Company records recoveries of trade receivables

previously written off when it receives them.

Management considers the Company’s allowance for doubtful accounts, which

was $ 140 and $ 69 as of December 31, 2021 and 2020, respectively, to appropriately measure the uncertainty in certain accounts

and amortization for property, plant and equipment, and finite life intangible assets, is computed and included in cost of goods

sold and in selling and administrative expense, as appropriate.

Long-lived assets, consisting primarily of property, plant and

equipment, are stated at cost less accumulated depreciation.

Property, plant and equipment are depreciated using the straight

line method, based on the estimated useful lives of the assets (buildings - 25 years, machinery and equipment - 5 to 15 years,

computer hardware and software - 3 to 5 years, furniture & fixtures 5 to 7 years, leasehold improvements – term of lease).

Depreciation commences in the year the assets are ready for their intended use.

any losses on these accounts to date.

While the Company does not anticipate any losses, liquidity issues,

or capital resource constraints arising from the recent bank failures, it cannot predict at this time to what extent it or its collaborators,

employees, suppliers, and/or vendors could be negatively impacted by such bank failures and other macroeconomic and geopolitical events.

cash consists of a cash collateral security agreement with a commercial bank which required the Company to pledge cash collateral as

security for all unpaid reimbursement obligations owing to the commercial bank for an irrevocable standby letter of credit.

Company accounts for trade receivables at original invoice amount less an estimate made for doubtful receivables based on a review of

all outstanding amounts on a monthly basis.

Management determines the allowance for doubtful accounts by regularly evaluating individual

customer receivables and considering a customer’s financial condition, credit history and current economic conditions.

writes off trade receivables when they are deemed uncollectible.

The Company records recoveries of trade receivables previously written

off when it receives them.

Management considers the Company’s allowance for doubtful accounts to appropriately measure the uncertainty

in certain accounts receivable.

The allowance for doubtful accounts was $ 0 and $ 140 as of December 31, 2022 and 2021, respectively.

and amortization for property and equipment, and finite life intangible assets, is computed and included in cost of goods sold and in

selling and administrative expense, as appropriate.

Long-lived assets, consisting primarily of property and equipment, are stated at

cost less accumulated depreciation.

Property and equipment are depreciated using the straight line method, based on the estimated useful

lives of the assets (buildings - 25 years, machinery and equipment - 5 to 15 years, computer hardware and software - 3 to 5 years, furniture

& fixtures 5 to 7 years, leasehold improvements – term of lease).

Depreciation commences in the year the assets are ready for

their intended use.

Historically,

finite life intangible assets have consisted primarily of customer relationships in multiple categories that are specific to the

businesses acquired and for which estimated useful lives were determined based on actual historical customer attrition rates.

These finite life intangible assets were amortized by the Company over periods ranging from four to ten years.

assets and finite life intangible assets are reviewed for impairment whenever events or circumstances have occurred that indicate

the remaining useful life of the asset may warrant revision or that the remaining balance of the asset may not be recoverable.

Upon indications of impairment, or in the normal course of annual testing, assets and liabilities are grouped at the lowest level

for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities.

The measurement of

possible impairment is generally estimated by the ability to recover the balance of an asset group from its expected future operating

cash flows on an undiscounted basis.

If such assets are considered to be impaired, the impairment to be recognized is measured

by the amount by which the carrying amount of the asset exceeds the fair value thereof.

Determining asset groups and underlying

cash flows requires the use of significant judgment.

Company accounts for income taxes under the asset and liability method, based on the income tax laws and rates in the countries

in which operations are conducted and income is earned.

This approach requires the recognition of deferred tax assets and liabilities

for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and

Developing the provision for income taxes requires significant judgment and expertise in federal, international and

state income tax laws, regulations and strategies, including the determination of deferred tax assets and liabilities and, if

necessary, any valuation allowances that may be required for deferred tax assets.

The Company records a valuation allowance to

reduce its deferred tax assets to the amount that is more likely than not to be realized.

The Company believes that the deferred

asset, net recorded as of December 31, 2021 and 2020 is realizable through future reversals of existing taxable temporary differences.

If the Company was to subsequently determine that it would be able to realize deferred tax assets in the future in excess of its

net recorded amount, an adjustment to deferred tax assets would increase net income for the period in which such determination

The Company will continue to assess the adequacy of the valuation allowance on a quarterly basis.

The Company’s

tax filings are subject to audit by various taxing authorities.

finite life intangible assets have consisted primarily of customer relationships in multiple categories that are specific to the businesses

acquired and for which estimated useful lives were determined based on actual historical customer attrition rates.

These finite life

intangible assets were amortized by the Company over periods ranging from four to ten years.

assets and finite life intangible assets are reviewed for impairment whenever events or circumstances have occurred that indicate the

remaining useful life of the asset may warrant revision or that the remaining balance of the asset may not be recoverable.

Upon indications

of impairment, or in the normal course of annual testing, assets and liabilities are grouped at the lowest level for which identifiable

cash flows are largely independent of the cash flows of other assets and liabilities.

The measurement of possible impairment is generally

estimated by the ability to recover the balance of an asset group from its expected future operating cash flows on an undiscounted basis.

If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount

of the asset exceeds the fair value thereof.

Determining asset groups and underlying cash flows requires the use of significant judgment.

The Company leases offices, facilities and equipment

under operating and financing leases.

The Company determines whether an arrangement is, or contains, a lease at contract inception.

arrangement contains a lease if the Company has the right to direct the use of and obtain substantially all of the economic benefits of

an identified asset.

Right-of-use assets and lease liabilities are recognized at lease commencement based on the present value of lease

payments over the lease term.

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

as short-term lease expense.

The discount rate used to calculate present value is the Company’s incremental borrowing rate based on the

lease term and the economic environment of the applicable country or region.

Certain leases contain renewal options or options

to terminate prior to lease expiration, which are included in the measurement of right-of-use assets and lease liabilities when it is

reasonably certain they will be exercised.

The Company has elected to account for lease and non-lease components as a single lease component

for its offices and manufacturing facilities.

Some lease arrangements include payments that are adjusted periodically based on actual

charges incurred for common area maintenance, utilities, taxes and insurance, or changes in an index or rate referenced in the lease.

The fixed portion of these payments is included in the measurement of right-of-use assets and lease liabilities at lease commencement,

while the variable portion is recorded as variable lease expense.

The Company’s leases typically do not contain material residual value

guarantees or restrictive covenants.

Company accounts for income taxes under the asset and liability method, based on the income tax laws and rates in the countries in which

operations are conducted and income is earned.

For the year ended December 31, 2022 and 2021, the Company operated solely

in the United States.

This approach requires the recognition of deferred tax assets and liabilities for the

expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities.

the provision for income taxes requires significant judgment and expertise in federal, international and state income tax laws, regulations

and strategies, including the determination of deferred tax assets and liabilities and, if necessary, any valuation allowances that may

be required for deferred tax assets.

The Company records a valuation allowance to reduce its deferred tax assets to the amount that is

more likely than not to be realized.

The Company believes that the deferred asset, net recorded as of December 31, 2022 and 2021 is realizable

through future reversals of existing taxable temporary differences.

If the Company was to subsequently determine that it would be able

to realize deferred tax assets in the future in excess of its net recorded amount, an adjustment to deferred tax assets would increase

net income for the period in which such determination was made.

The Company will continue to assess the adequacy of the valuation allowance

on a quarterly basis.

The Company’s tax filings are subject to audit by various taxing authorities.

objective of accounting for income taxes is to recognize the amount of taxes payable or refundable for the current year and deferred

tax liabilities and assets for the future tax consequences or events that have been recognized in the Company’s financial

statements or tax returns.

The Company recognizes 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

(see “Unrecognized Tax Benefits” below).

tax liabilities and assets for the future tax consequences or events that have been recognized in the Company’s financial statements

or tax returns.

The Company recognizes 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 (see “Unrecognized

Tax Benefits” below).

tax related interest and penalties are grouped with interest expense on the consolidated statement of operations.

Company accounts for unrecognized tax benefits in accordance with FASB ASC “Income Taxes” (“ASC 740”).

ASC 740 prescribes a recognition threshold that a tax position is required to meet before being recognized in the financial statements

and provides guidance on de-recognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure

and transition issues.

The Company accounts for unrecognized tax benefits in accordance with FASB ASC “Income Taxes” (“ASC 740”).

740 prescribes a recognition threshold that a tax position is required to meet before being recognized in the financial statements and

provides guidance on de-recognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and

transition issues.

ASC 740 contains a two-step approach to recognizing and measuring uncertain tax positions.

The first step

is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely

than not that the position will be sustained upon ultimate settlement with a taxing authority, including resolution of related

appeals or litigation processes, if any.

The second step is to measure the tax benefit as the largest amount that is more than

50% likely of being realized upon ultimate settlement.

The first step is to evaluate

the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the

position will be sustained upon ultimate settlement with a taxing authority, including resolution of related appeals or litigation processes,

The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate

Additionally,

ASC 740 requires the Company to accrue interest and related penalties, if applicable, on all tax positions for which reserves

have been established consistent with jurisdictional tax laws.

The Company’s policy is to recognize interest and penalties

related to income tax matters as interest expense.

ASC 740 requires the Company to accrue interest and related penalties, if applicable, on all tax positions for which reserves have been

established consistent with jurisdictional tax laws.

The Company’s policy is to recognize interest and penalties related to income

tax matters as interest expense.

See Note 12 - Income Taxes.

Company accounts for share based payments in accordance with the provisions of FASB ASC 718 “Compensation – Stock

Compensation” and accordingly recognizes in its financial statements share based payments at their fair value.

it recognizes in the financial statements an expense based on the grant date fair value of stock options granted to employees

and directors.

The expense is recognized on a straight line basis over the expected option life while taking into account the

vesting period and the offsetting credit is recorded in additional paid-in capital.

Upon exercise of options, the consideration

paid together with the amount previously recorded as additional paid-in capital is recognized as capital stock.

The Company estimates

its forfeiture rate in order to determine its compensation expense arising from stock based awards.

The Company uses the Black-Scholes

Merton option pricing model to determine the fair value of the options.

Non-employee members of the Board of Directors are deemed

to be employees for the purposes of recognizing share-based compensation expense.

are stated at the lower of cost or net realizable value using weighted average method and include the cost of materials, labor

and manufacturing overhead.

The Company uses estimates in determining the level of reserves required to state inventory at the

lower of cost or market.

The Company measures the cost of services received

in exchange for an award of equity instruments based on the fair value of the award.

The fair value of the award is measured on the grant

The fair value amount is then recognized over the period during which services are required to be provided in exchange for the award,

usually the vesting period, using the straight-line attribution approach.

Upon the exercise of an award, the Company issues new shares

of common stock out of its authorized shares.

The Company computes the fair value of stock options

granted using the Black-Scholes option pricing model.

Award forfeitures are accounted for at the time of occurrence.

The expected term

used for options is the estimated period of time that options granted are expected to be outstanding.

The expected term used for warrants

is the contractual life.

The Company utilizes the “simplified” method to develop an estimate of the expected term of “plain

vanilla” option grants.

The Company does not currently have a sufficient trading history to support its historical volatility calculations.

Accordingly, the Company is utilizing an expected volatility figure based on a review of the historical volatility of comparable entities

over a period of time equivalent to the expected life of the instrument being valued.

The risk-free interest rate was determined from

the implied yields from U.S.

Treasury zero-coupon bonds with a remaining term consistent with the expected term of the instrument being

Inventories are stated at the lower of cost or net realizable value using a weighted average cost method and includes the cost of materials,

labor and manufacturing overhead.

The Company uses estimates in determining the level of reserves required to state inventory at the lower

of cost or net realizable value.

The Company estimates are based on market activity levels, production requirements, the physical condition

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Loss Per Share

income (loss) per share is computed by dividing the income (loss) for the period by the weighted average number of common shares

outstanding during the period.

Diluted income (loss) per share is computed by dividing the income (loss) for the period by the

weighted average number of common and common equivalent shares outstanding during the period.

(See Note 16 - Basic and Diluted

Net Loss Per Share).

loss per share is computed by dividing the income loss for the period by the weighted average number of common shares outstanding

during the period.

Diluted loss per share is computed by dividing the loss for the period by the weighted average

number of common and common equivalent shares outstanding during the period.

(See Note 14 - Basic and Diluted Net Loss Per

Accounting Pronouncements

have been no recent accounting pronouncements not yet adopted by the Company which would have a material impact on the Company’s

financial statements.

In December 2019, the FASB issued ASU No.

2019-12, Income Taxes (Topic 740), which simplifies the accounting for income

taxes by removing certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to

improve consistent application.

The ASU is effective for all annual and interim periods beginning December 15, 2020, with early

adoption permitted.

The Company adopted this guidance on January 1, 2021.

The adoption of this ASU did not have a material impact

on the consolidated financial statements.

Fair Value Measurement.

In August 2018, the

FASB issued ASU No.

2018-13, Fair Value Measurement (Topic 820):

Disclosure Framework - Changes to the Disclosure Requirements for

Fair Value Measurement that eliminates, amends, and adds certain disclosure requirements for fair value measurements.

adopted this guidance on January 1, 2020.

The adoption of this ASU did not have a material impact on the consolidated financial statements.

The Company did not adopt any new material accounting pronouncements during the year ended December 31, 2022.

There have been no recent

accounting pronouncements not yet adopted by the Company which would have a material impact on the Company’s financial statements.

of Credit Losses on Financial Instrument .

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- Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments that changes the impairment model for most

financial assets and certain other instruments.

For trade and other receivables, held-to-maturity debt securities, loans and other

instruments, entities will be required to use a new forward-looking “expected loss” model that will replace today’s

“incurred loss” model and generally will result in the earlier recognition of allowances for losses.

For available-for-sale

debt securities with unrealized losses, entities will measure credit losses in a manner similar to current practice, except that

the losses will be recognized as an allowance.

This amended guidance for small reporting companies is effective for fiscal years

beginning after December 15, 2022, including interim periods within those fiscal years.

Entities will apply the standard’s

provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first effective reporting period.

The Company does not expect that the amended guidance will have a material effect on our consolidated financial statements and

related disclosures.

FAIR VALUE MEASUREMENTS

820, Fair Value Measurements and Disclosures (“ASC 820”), defines fair value as the price that would be received

to sell an asset, or paid to transfer a liability, in the principal or most advantageous market in an orderly transaction between

market participants on the measurement date.

The fair value standard also establishes a three level hierarchy, which requires

an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability on the measurement date.

The three levels are defined as follows:

1 - inputs to the valuation methodology are quoted prices (unadjusted) for an identical

asset or liability in an active market.

2 - inputs to the valuation methodology include quoted prices for a similar asset or

liability in an active market or model derived valuations in which all significant inputs

are observable for substantially the full term of the asset or liability.

3 - inputs to the valuation methodology are unobservable and significant to the fair

value measurement of the asset or liability.

January 22, 2019, we entered into an Agreement and Plan of Merger with Merger Sub, which resulted in the Company receiving financial

instruments that included the right to receive (i) 175,000 shares of CleanSpark Common Stock, (ii) a five -year warrant to purchase

50,000 shares of CleanSpark Common Stock at an exercise price of $ 16.00 per share, and (iii) a five -year warrant to purchase 50,000

shares of CleanSpark Common Stock at an exercise price of $ 20.00 per share.

The share quantities and exercise prices of warrants

reflect the 10:1 reverse stock split which was completed by CleanSpark in December 2019.

the year ended December 31, 2020, the Company sold all of the CleanSpark Common Stock and warrants to purchase CleanSpark Common

Stock it received in connection with the Merger Agreement and recorded proceeds of $ 2.4 million .

The gain from the sale was partially

offset by a mark to market adjustment of $ 1.4 million resulting in a net gain of $ 968 to other income in the accompanying statements

of operations.

Warrants at fair value were previously recorded at inception as long term within other assets.

other changes in valuation techniques or inputs occurred during the year ended December 31, 2021 and 2020.

No transfers of assets

between Level 1 and Level 2 of the fair value measurement hierarchy occurred during the year ended December 31, 2021 and 2020.

Measurement of Credit Losses on Financial Instruments that changes the impairment model for most financial

assets and certain other instruments.

For trade and other receivables, held-to-maturity debt securities, loans and other instruments,

entities will be required to use a new forward-looking “expected loss” model that will replace today’s “incurred

loss” model and generally will result in the earlier recognition of allowances for losses.

For available-for-sale debt securities

with unrealized losses, entities will measure credit losses in a manner similar to current practice, except that the losses will be recognized

as an allowance.

This amended guidance for small reporting companies is effective for fiscal years beginning after December 15, 2022,

including interim periods within those fiscal years.

Entities will apply the standard’s provisions as a cumulative-effect adjustment

to retained earnings as of the beginning of the first effective reporting period.

The Company does not expect that the amended guidance

will have a material effect on our consolidated financial statements and related disclosures.

of our products and services

principal products and services include electric power systems, distributed energy resources, used and new power generation equipment

and mobile electric vehicle (“EV”) charging solutions.

T&D Solutions business provides electric power systems, including e-Bloc, and distributed energy resources that help customers

effectively and efficiently protect, control, transfer, monitor and manage their electric energy requirements

Critical Power business provides customers with our suite of mobile e-Boost electric vehicle charging solutions and new and refurbished

power generation equipment.

generation systems represent considerable investments that require proper maintenance and service in order to operate reliably

during a time of emergency.

Our power maintenance programs provide preventative maintenance, repair and support service

for our customers’ power generation systems.

principal products and services include electric power systems, distributed energy resources, power generation equipment and mobile EV

charging solutions.

T&D Solutions business provides electric power systems and distributed energy resources that help customers effectively and efficiently

protect, control, transfer, monitor and manage their electric energy requirements.

Critical Power business provides customers with our suite of mobile e-Boost electric vehicle charging solutions and power generation

generation systems represent considerable investments that require proper maintenance and service in order to operate reliably during

a time of emergency.

Our power maintenance programs provide preventative maintenance, repair and support service for our customers’

power generation systems.

principal source of revenue is derived from sales of products and fees for services.

We measure revenue based upon the consideration

specified in the customer arrangement, and revenue is recognized when the performance obligations in the customer arrangement

are satisfied.

specified in the customer arrangement, and revenue is recognized when the performance obligations in the customer arrangement are satisfied.

A performance obligation is a promise in a contract to transfer a distinct product or service to the customer.

The transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when or as,

the customer receives the benefit of the performance obligation.

Customers typically receive the benefit of our products when

the risk of loss or control for the product transfers to the customer and for services as they are performed.

Under ASC 606, revenue

is recognized when a customer obtains control of promised products or services in an amount that reflects the consideration we

expect to receive in exchange for those products or services.

To achieve this core principal, the Company applies the following

the contract with a customer

contract with a customer exists when (i) the Company enters into an enforceable contract with a customer that defines each party’s

rights regarding the products or services to be transferred and identifies the payment terms related to these products or services,

(ii) the contract has commercial substance and, (iii) the Company determines that collection of substantially all consideration

for products or services that are transferred is probable based on the customer’s intent and ability to pay the promised

consideration.

The Company applies judgment in determining the customer’s ability and intention to pay, which is based on

a variety of factors including the customer’s historical payment experience or, in the case of a new customer, published

credit and financial information pertaining to the customer.

the performance obligations in the contract

obligations promised in a contract are identified based on the products or services that will be transferred to the customer that

are both capable of being distinct, whereby the customer can benefit from the product or service either on its own or together

with other resources that are readily available from third parties or from the Company, and are distinct in the context of the

contract, whereby the transfer of the products or services is separately identifiable from other promises in the contract.

the extent a contract includes multiple promised products or services, the Company must apply judgment to determine whether promised

products or services are capable of being distinct and distinct in the context of the contract.

If these criteria are not met

the promised products or services are accounted for as a combined performance obligation.

The transaction price

transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring

products or services to the customer.

of a contract is allocated to each distinct performance obligation and recognized as revenue when or as, the customer receives the benefit

of the performance obligation.

Customers typically receive the benefit of our products when the risk of loss or control for the product

transfers to the customer and for services as they are performed.

Under ASC 606, revenue is recognized when a customer obtains control

of promised products or services in an amount that reflects the consideration we expect to receive in exchange for those products or

To achieve this core principal, the Company applies the following five steps:

Identify the contract with a customer

contract with a customer exists when (i) the Company enters into an enforceable contract with a customer that defines each party’s

rights regarding the products or services to be transferred and identifies the payment terms related to these products or services, (ii)

the contract has commercial substance and, (iii) the Company determines that collection of substantially all consideration for products

or services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration.

Company applies judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors including

the customer’s historical payment experience or, in the case of a new customer, published credit and financial information pertaining

to the customer.

Identify the performance obligations in the contract

obligations promised in a contract are identified based on the products or services that will be transferred to the customer that are

both capable of being distinct, whereby the customer can benefit from the product or service either on its own or together with other

resources that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby

the transfer of the products or services is separately identifiable from other promises in the contract.

To the extent a contract includes

multiple promised products or services, the Company must apply judgment to determine whether promised products or services are capable

of being distinct and distinct in the context of the contract.

If these criteria are not met the promised products or services are accounted

for as a combined performance obligation.

Determine the transaction price

transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring products

or services to the customer.

The customer payments are generally due in 30 days.

the transaction price to performance obligations in the contract

Allocate the transaction price to performance obligations

in the contract

the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation.

Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation

based on a relative standalone selling price basis or cost of the product or service.

The Company determines standalone selling

price based on the price at which the performance obligation is sold separately.

If the standalone selling price is not observable

through past transactions, the Company estimates the standalone selling price taking into account available information such as

market conditions and internally approved pricing guidelines related to the performance obligations.

revenue when or as the Company satisfies a performance obligation

based on a relative standalone selling price basis.

The Company determines standalone selling price

based on the price at which the performance obligation is sold separately.

If the standalone selling price is not observable through

past transactions, the Company estimates the standalone selling price taking into account available information such as market conditions

and internally approved pricing guidelines related to the performance obligations.

Recognize revenue when or as the Company satisfies a performance

Company satisfies performance obligations either over time or at a point in time.

Revenue is recognized at the time the related

performance obligation is satisfied by transferring a promised product or service to a customer.

from the sale of our products is predominantly recognized at a point in time.

Revenues are recognized at the point in time that

the customer obtains control of the good which is when it has taken title to the products and has assumed the risks and rewards

of ownership specified in the purchase order or sales agreement.

Certain sales of highly customized large equipment are recognized

over time when such equipment has no alternative use and the Company has an enforceable right to payment for performance completed

Revenue for such agreements is recognized under the input method based on cost incurred relative to the estimated cost

expected to be consumed to complete the project.

the year ended December 31, 2021, the Company recognized $ 3.5

million of revenue over time and incurred costs

of $ 3.1 million related

to a single contract for a highly customized large equipment order.

Additionally, the Company recognized $ 7.9

million of revenue at a point in time from the

sale of our products during the year ended December 31, 2021.

Service revenues include maintenance contracts that are recognized over

time based on the contract term and repair services which are recognized as services are delivered.

The Company recognized $ 6.9

million of service revenue during the year ended

December 31, 2021.

During the year ended December 31, 2021, the Company

recognized approximately $ 714 of revenue that was recognized as deferred revenue at December 31, 2020, as compared to $ 1.4 million during

the year ended December 31, 2020.

Return of a product requires that the buyer obtain

permission in writing from the Company.

When the buyer requests authorization to return material for reasons of their own, the buyer will

be charged for placing the returned goods in saleable condition, restocking charges and for any outgoing and incoming transportation paid

by the Company.

The Company warrants title to the products, and also warrants the products on date of shipment to the buyer, to be of

the kind and quality described in the contract, merchantable, and free of defects in workmanship and material.

Returns and warranties

during the years ended December 31, 2021 and 2020 were insignificant.

Revenue is recognized at the time the related performance

obligation is satisfied by transferring a promised product or service to a customer.

from the sale of our electric power systems is recognized either over time or at a point in time and substantially all of our revenue

from the sale of power generation equipment is recognized at a point in time.

Revenues are recognized at the point in time that the customer

obtains control of the good, which is when it has taken title to the products and has assumed the risks and rewards of ownership specified

in the purchase order or sales agreement.

Certain sales of highly customized electrical power systems are recognized over time when such

equipment has no alternative use and the Company has an enforceable right to payment for performance completed to date.

Revenue for such

agreements is recognized under the input method based on either cost or direct labor hours incurred relative to the estimated cost or

direct labor hours expected to be consumed to complete the project.

Under the cost-to-cost method of revenue recognition, a single estimated

profit margin is used to recognize profit for each performance obligation over its period of performance.

Recognition of profit on a

contract requires estimates of the total cost at completion and transaction price and the measurement of progress towards completion.

Due to the nature of many of our contracts, developing the estimated total cost at completion and total transaction price often requires

Factors that must be considered in estimating the cost of the work to be completed include the nature and complexity of the

work to be performed, subcontractor performance and the risk and impact of delayed performance.

When adjustments in estimated total costs

at completion or in estimated total transaction price are determined, the related impact on income is recognized using the cumulative

catch-up method, which recognizes in the current period the cumulative effect of such adjustments for all prior periods.

Any anticipated

losses on these contracts are fully recognized in the period in which the losses become evident.

the year ended December 31, 2022, the Company recognized $ 4.5 million of revenue over time and incurred costs of $ 3.7 million.

the year ended December 31, 2021, the Company recognized $ 3.5 million of revenue over time and incurred costs of $ 3.1 million.

Additionally,

the Company recognized $ 15.8 million and 7.9 million of revenue at a point in time from the sale of our products during the year ended

December 31, 2022 and 2021, respectively.

revenues include maintenance contracts that are recognized over time based on the contract term and repair services which are recognized

as services are delivered.

The Company recognized $ 7.4 million and $ 6.9 million of service revenue during the year ended December 31,

2022 and 2021, respectively.

the year ended December 31, 2022, the Company recognized approximately $ 2.2 million of revenue that was recognized as deferred revenue

at December 31, 2021, as compared to $ 714 of revenue during the year ended December 31, 2021 that was recognized as deferred revenue

at December 31, 2020.

was no revenue recognized during the year ended December 31, 2022 and 2021 from performance obligations satisfied in prior periods.

of a product requires that the buyer obtain permission in writing from the Company.

When the buyer requests authorization to return material

for reasons of their own, the buyer will be charged for placing the returned goods in saleable condition, restocking charges and for

any outgoing and incoming transportation paid by the Company.

The Company warrants title to the products, and also warrants the products

on date of shipment to the buyer, to be of the kind and quality described in the contract, merchantable, and free of defects in workmanship

and material.

Returns and warranties during the years ended December 31, 2022 and 2021 were insignificant.

following table presents our revenues disaggregated by revenue discipline:

For the Year Ended

OF REVENUE DISAGGREGATED

Year Ended December 31,

Total revenue

Note 13 - Business Segment, Geographic and Customer Information.

income in the consolidated statements of operations reports certain gains and losses associated with activities not directly related

to our core operations.

For the year ended December 31, 2021, other income was $ 1.3 million , as compared to other income of $ 969

OTHER EXPENSE (INCOME)

expense (income) in the consolidated statements of operations reports certain gains and losses associated with activities not directly

related to our core operations.

For the year ended December 31, 2022, other expense was $ 67 , as compared to other income of $ 1.3 million

during the year ended December 31, 2021.

For the year ended December 31, 2021, included in other income was a gain of $ 1.4 million

for the extinguishment and forgiveness of the PPP Loan.

For the year ended December 31, 2020, included in other income was a gain

of $ 968 related to the sale and mark to market adjustment on the fair value of the CleanSpark Common Stock and warrants.

For the year ended December 31, 2021, included in other income was a gain of $ 1.4 million for

the extinguishment and forgiveness of the PPP Loan.

components of inventories are summarized below:

OF INVENTORIES

Raw materials

Work in process

Provision for excess and obsolete inventory

Total inventories

are stated at the lower of cost or a net realizable value determined on a weighted average method.

PROPERTY, PLANT AND EQUIPMENT

plant and equipment are summarized below:

Machinery and equipment

PROPERTY AND EQUIPMENT, NET

and equipment are summarized below:

SCHEDULE OF PROPERTY AND EQUIPMENT

Machinery, vehicles and equipment

Furniture and fixtures

1 unchanged sentence

Leasehold improvements

Construction in progress

Property and equipment gross

accumulated depreciation

Total property, plant and equipment, net

Total property and equipment, net

expense was $ 228 and $ 153 for the period ended December 31, 2022 and 2021, respectively.

NOTES RECEIVABLE

connection with the sale of the transformer business units in August 2019, amongst other consideration, we received two subordinated

promissory notes in the aggregate principal amount of $ 5 .0 million and $ 2.5 million, for a total aggregate principal amount of

$ 7.5 million (the “Seller Notes”), subject to certain adjustments.

The Seller Notes accrue interest at a rate of 4.0 %

per annum, with a final payment of all unpaid principal and interest becoming fully due and payable at December 31, 2022 .

Company determined the fair value of the Seller Notes based on market conditions and prevailing interest rates.

NOTES RECEIVABLE, NET

connection with the sale of the transformer business units in August 2019 (the “Equity Transaction”), amongst other consideration,

we received two subordinated promissory notes in the aggregate principal amount of $ 5.0 million and $ 2.5 million, for a total aggregate

principal amount of $ 7.5 million (the “Seller Notes”), subject to certain adjustments.

The Seller Notes accrue interest at

a rate of 4.0 % per annum, with a final payment of all unpaid principal and interest becoming fully due and payable at December 31, 2022.

The Company determined the fair value of the Seller Notes based on market conditions and prevailing interest rates.

During the fourth

quarter of 2019, the Company and the Buyer, pursuant to the Stock Purchase Agreement, completed the net working capital adjustment,

which resulted in the Company paying the Buyer $ 1.8 million in cash and reducing the principal amount of the $ 5 .0 million Seller

Note to $ 3.2 million.

During the second quarter of 2020, the Company recognized an additional reduction to the principal amount

of the Seller Note of $ 194 for a valid claim paid by the Buyer on behalf of the Company.

The Company has revalued the Seller Notes

for an appropriate imputed interest rate, resulting in a net change to the value of the Seller Notes at December 31, 2021 of $ 428

for a carrying value of $ 5.8 million.

quarter of 2019, the Company and the Buyer, pursuant to the Stock Purchase Agreement, completed the net working capital adjustment, which

resulted in the Company paying the Buyer $ 1.8 million in cash and reducing the principal amount of the $ 5.0 million Seller Note to $ 3.2

During the second quarter of 2020, the Company recognized an additional reduction to the principal amount of the Seller Note

of $ 194 for a valid claim paid by the Buyer on behalf of the Company.

On December 15, 2022, the Company received in excess of $ 6.2 million

as a final payment of all unpaid principal and interest paying the Seller Notes in full.

ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

The components of accounts payable and accrued liabilities

are summarized below:

components of accounts payable and accrued liabilities are summarized below:

OF ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable

Accrued liabilities

Current portion of lease liabilities

Total accounts payable and accrued liabilities

Accrued liabilities primarily consist of accrued insurance, accrued sales

commissions and accrued compensation and benefits.

At December 31, 2021 and 2020, accrued insurance was $ 481 and $ 445 , respectively.

Accrued sales commissions at December 31, 2021 and 2020 were $ 247 and $ 122 , respectively.

At December 31, 2021 accrued compensation and

benefits were $ 270 compared to $ 256 at December 31, 2020.

The remainder of accrued liabilities are comprised of several insignificant

accruals in connection with normal business operations.

March 27, 2020, then President Trump signed into law the “Coronavirus Aid, Relief, and Economic Security (CARES) Act.”

The CARES Act, among other things, appropriates funds for the SBA Paycheck Protection Program loans that are forgivable in certain

situations to promote continued employment.

On April 13, 2020 after having determined that it met the qualifications for this

loan program due to the impact that COVID-19 would have on our financial condition, results of operations, and/or liquidity and

applying for relief, the Company received a loan under the SBA Paycheck Protection Program in the amount of $ 1.4 million .

Company made this assertion in good faith based upon all available guidance and accounted for the PPP Loan as a debt instrument

in accordance with FASB ASC 470, Debt.

The Company used the proceeds from the PPP Loan to retain employees, maintain payroll and

make lease, rent and utility payments.

the terms of the PPP Loan, the Company was eligible for full or partial loan forgiveness.

The Company received full forgiveness of

the PPP Loan during the first quarter of 2021 and recognized a $ 1.4

million gain on extinguishment and forgiveness of debt in other income (see Note 5 - Other Income).

December 31, 2020, $ 633 of principal payments due were recorded as long-term debt and $ 780 as current debt in accordance with

the enactment of the Paycheck Protection Program Flexibility Act of 2020.

Schedule of debt

current portion

Total long-term obligations

liabilities primarily consist of accrued sales commissions, accrued compensation and benefits, accrued sales and use taxes and accrued

At December 31, 2022 and 2021, accrued sales commissions were $ 278 and $ 247 , respectively.

Accrued compensation and benefits

at December 31, 2022 and 2021 were $ 213 and $ 270 , respectively.

Accrued sales and use taxes at December 31, 2022 and 2021 were $ 258 and

$ 50 , respectively, and there was $ 559 of accrued insurance at December 31, 2022 compared to $ 481 at December 31, 2021.

The remainder

of accrued liabilities are comprised of several insignificant accruals in connection with normal business operations.

COMMITMENTS AND CONTINGENCIES

Company leases certain offices, facilities and equipment under operating and financing leases.

Our leases have remaining terms

ranging from less than 1 year to 5 years some of which contain options to extend up to 5 years.

As of December 31, 2021 and 2020,

assets recorded under finance leases were $ 1.6 million and $ 1.4 million , respectively, and accumulated amortization associated

with finance leases were $ 1.1 million and $ 776 , respectively.

Our leases have remaining terms ranging

from less than 1 year to 5 years some of which contain options to extend up to 5 years.

As of December 31, 2022 and 2021, assets recorded

under finance leases were $ 1.3 million and $ 1.6 million, respectively, and accumulated amortization associated with finance leases were

$ 534 and $ 1.1 million, respectively.

of December 31, 2022 and 2021, assets recorded under operating leases were $ 2.2 million and $ 3.9 million, respectively, and accumulated

amortization associated with operating leases were $ 2.3 million and $ 1.7 million , respectively.

During the third quarter of 2021,

the Company executed an extension of its operating lease for the manufacturing facility in Santa Fe Springs, California.

adjusting for a weighted average discount rate, the Company recognized a right-of-use asset and lease liability of approximately

$ 1.4 million within the consolidated balance sheets.

amortization associated with operating leases were $ 798 and $ 2.3 million, respectively.

During the fourth quarter of 2022, the Company

executed an extension of its operating lease for the corporate management and sales office in Fort Lee, New Jersey.

After adjusting for

a weighted average discount rate, the Company recognized a right-of-use asset and lease liability of approximately $ 275 within the consolidated

balance sheets.

components of the lease expense were as follows:

For the Year Ended

OF LEASE EXPENSES

Operating lease cost

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cash flows information:

OF CASH FLOWS INFORMATION

Cash paid for amounts included in the measurement of lease liabilities

5 unchanged sentences

Capitalized lease obligations

Average Remaining Lease Term

Weighted average remaining lease term:

Operating leases

Finance leases

Average Discount Rate

Weighted average discount rate:

Operating leases

1 unchanged sentence

minimum lease payments under non-cancellable leases as of December 31, 2022 were as follows:

Total future minmum lease payments

OF FUTURE MINIMUM LEASE PAYMENTS

Total future minimum lease payments

Less imputed interest

Total future minmum lease payments

Total future minimum lease payments

as of December 31, 2022:

OF LEASE REPORTED

Right-of-use assets

1 unchanged sentence

Other long-term liabilities

From time to time, we may become involved in lawsuits,

investigations and claims that arise in the ordinary course of business.

On January 11, 2016, Myers Power Products, Inc., a

specialty electrical products manufacturer, filed suit with the Superior Court of the State of California, County of Los Angeles, against

us, PCEP and two PCEP employees who are former employees of Myers Power Products, Inc., Geo Murickan, the president of PCEP (“Murickan”),

and Brett DeChellis (“DeChellis”), alleging, among other things, that Murickan wrongly used and retained confidential business

information of Myers Power Products, Inc.

for the benefit of us and PCEP, in breach of their confidentiality agreement and/or employment

agreement entered into with Myers Power Products, Inc., and that we and PCEP knowingly received and used such confidential business information.

Myers Power Products, Inc.

sought injunctive relief enjoining us, PCEP and our employees from using its confidential business information

and compensatory damages of an unspecified unlimited amount;

however, the Company recognized approximately $ 1.2 million for expected costs

related to this litigation prior to fiscal 2020.

On October 4, 2019, the dividend that was payable

by the Company was enjoined by court order of the Superior Court of California related to the foregoing case.

On October 16, 2019, Myers

Power Products, Inc.

filed an ex parte application arguing the Company had violated, or intended to violate the modified preliminary injunction

and sought an order from the court for the Company to post a bond in an amount of $ 30,000 or more (which was not granted).

cancelled the dividend as the result of this court order.

There were also two related appeals in the California

Court of Appeal for the Second Appellate District (“Court of Appeal”).

B301494 was an appeal of the October 4, 2019

order modifying a previously issued preliminary injunction.

B302943 was an appeal of the November 26, 2019 order requiring Pioneer

Power Solutions, Inc.

and Pioneer Custom Electrical Products Corp.

to obtain and post a $ 12 million bond.

On April 10, 2020, the Court

of Appeal granted our motion to combine the two appeals.

On November 20, 2020, the Company entered into a settlement

and release agreement with Myers Power Products, Inc.

As part of the settlement, all injunctions were dissolved, and all litigation and

appeals related to the action were dismissed with prejudice.

The parties executed full releases of all known and unknown claims, thereby

eliminating all such restrictions on the Company.

Terms of the settlement were not disclosed;

however, the Company agreed to pay Myers

Power Products, Inc.

an amount that did not differ significantly from the $ 1.2 million of expected costs the Company recognized as a legal

contingency during the year ended December 31, 2018.

This payment was made during the fourth quarter of 2020.

We can give no assurance that any other lawsuits or

claims brought in the future will not have an adverse effect on our financial condition, liquidity or operating results.

As of the date hereof, we are not aware of or a party

to any legal proceedings to which we or any of our subsidiaries is a party or to which any of our property is subject, nor are we aware

of any such threatened or pending litigation or any such proceedings known to be contemplated by governmental authorities that we believe

could have a material adverse effect on our business, financial condition or operating results.

We are not aware of any material proceedings in which any of our directors,

officers or affiliates or any registered or beneficial shareholder of more than 5 % of our common stock is an adverse party or has a material interest adverse

to our interest.

of the date hereof, we are not aware of or a party to any legal proceedings to which we or any of our subsidiaries is a party or to which

any of our property is subject, nor are we aware of any such threatened or pending litigation or any such proceedings known to be contemplated

by governmental authorities that we believe could have a material adverse effect on our business, financial condition or operating results.

are not aware of any material proceedings in which any of our directors, officers or affiliates or any registered or beneficial shareholder

of more than 5 % of our common stock is an adverse party or has a material interest adverse to our interest.

STOCKHOLDERS’ EQUITY

Company had 9,640,545 and 8,726,045 shares of common stock, $ 0.001 par value per share, outstanding as of December 31, 2021 and

December 31, 2020, respectively.

board of directors is authorized, subject to any limitations prescribed by law, without further vote or action by the shareholders,

to issue from time to time up to 5,000,000 shares of preferred stock, $ 0.001 par value, in one or more series.

Each such series

of preferred stock shall have such number of shares, designations, preferences, voting powers, qualifications, and special or

relative rights or privileges as shall be determined by the board of directors, which may include, among others, dividend rights,

voting rights, liquidation preferences, conversion rights and preemptive rights.

Company had 9,644,545 and 9,640,545 shares of common stock, $ 0.001 par value per share, outstanding as of December 31, 2022 and December

31, 2021, respectively.

board of directors is authorized, subject to any limitations prescribed by law, without further vote or action by the shareholders, to

issue from time to time up to 5,000,000 shares of preferred stock, $ 0.001 par value, in one or more series.

Each such series of preferred

stock shall have such number of shares, designations, preferences, voting powers, qualifications, and special or relative rights or privileges

as shall be determined by the board of directors, which may include, among others, dividend rights, voting rights, liquidation preferences,

conversion rights and preemptive rights.

STOCK-BASED COMPENSATION

December 2, 2009, the Company adopted the 2009 Equity Incentive Plan (the “2009 Plan”) for the purpose of issuing

incentive stock options intended to qualify under Section 422 of the Internal Revenue Code of 1986, as amended, non-qualified

stock options, restricted stock, stock appreciation rights, performance unit awards and stock bonus awards to employees, directors,

consultants and other service providers.

A total of 320,000 shares of common stock are reserved for issuance under the 2009 Plan.

Options may be granted under the 2009 Plan on terms and at prices as determined by the board of directors or by the plan administrators

appointed by the board of directors.

May 11, 2011, the board of directors of the Company adopted the Pioneer Power Solutions, Inc.

1 unchanged sentence

Plan”) which was subsequently approved by stockholders of the Company on May 31, 2011.

The 2011 Plan replaces

and supersedes the 2009 Plan.

The Company’s outside directors and employees, including the Company’s principal executive

officer, principal financial officer and other named executive officers, and certain contractors are all eligible to participate

in the 2011 Plan.

The 2011 Plan allows for the granting of incentive stock options, nonqualified stock options, stock appreciation

rights, restricted stock, restricted stock units, performance awards, dividend equivalent rights, and other awards, which may

be granted singly, in combination, or in tandem, and upon such terms as are determined by the Board or a committee of the Board

that is designated to administer the Plan.

Subject to certain adjustments, the maximum number of shares of the Company’s

common stock that may be delivered pursuant to awards under the 2011 Plan is 700,000 shares.

As of December 31, 2021, there were

no shares available for future grants under the Company’s 2011 Long-Term Incentive Plan.

The Company’s 2011 Long-Term

Incentive Plan expired during the second quarter of 2021.

On October 13, 2021, our board of directors

adopted the 2021 Long-Term Incentive Plan (the “2021 Plan”), subject to stockholder approval, which was obtained on

November 11, 2021.

Our outside directors and our employees, including the principal executive officer, principal financial officer

and other named executive officers, and certain contractors are all eligible to participate in the 2021 Plan.

The 2021 Plan allows

for the granting of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, restricted

stock units, performance awards, dividend equivalent rights, and other awards, which may be granted singly, in combination, or

in tandem, and upon such terms as are determined by the board or a committee of the board that is designated to administer the

Subject to certain adjustments, the maximum number of shares of the Company’s common stock that may be delivered

pursuant to awards under the 2021 Plan is 900,000 shares.

As of December 31, 2021, there were 900,000 shares available for future

grants under the Company’s 2021 Plan.

The 2021 Plan was initially administered by our board of directors, but it has been

administered by the compensation committee following the creation of such committee in the first quarter of 2022.

compensation expense recorded for the year ended December 31, 2021 and 2020 was approximately $ 186 and $ 3 , respectively.

the stock-based compensation expense is included in selling, general and administrative expenses in the accompanying consolidated

The 2011 Plan replaced and superseded the

The Company’s outside directors and employees, including the Company’s principal executive officer, principal

financial officer and other named executive officers, and certain contractors were all eligible to participate in the 2011 Plan.

The 2011 Plan allowed for the granting of incentive stock options, nonqualified stock options, stock appreciation rights, restricted

stock, restricted stock units, performance awards, dividend equivalent rights, and other awards, which were granted singly, in combination,

or in tandem, and upon such terms as determined by the Board or a committee of the Board that was designated to administer the Plan.

Subject to certain adjustments, the maximum number of shares of the Company’s common stock that were available to be delivered

pursuant to awards under the 2011 Plan was 700,000 shares.

As of December 31, 2022, there were no shares available for future grants

under the Company’s 2011 Long-Term Incentive Plan.

The Company’s 2011 Long-Term Incentive Plan expired during the second

quarter of 2021.

October 13, 2021, our board of directors adopted the 2021 Long-Term Incentive Plan (the “2021 Plan”), subject to stockholder

approval, which was obtained on November 11, 2021.

Our outside directors and our employees, including the principal executive officer,

principal financial officer and other named executive officers, and certain contractors are all eligible to participate in the 2021 Plan.

The 2021 Plan allows for the granting of incentive stock options, non-qualified stock options, stock appreciation rights, restricted

stock, restricted stock units, performance awards, dividend equivalent rights, and other awards, which may be granted singly, in combination,

or in tandem, and upon such terms as are determined by the Board or a committee of the board that is designated to administer the 2021

Subject to certain adjustments, the maximum number of shares of the Company’s common stock that may be delivered pursuant

to awards under the 2021 Plan is 900,000 shares.

As of December 31, 2022, there were 498,000 shares available for future grants under

the Company’s 2021 Plan.

The 2021 Plan was initially administered by our board of directors, but it has been administered by the

compensation committee following the creation of such committee in the first quarter of 2022.

compensation expense recorded for the year ended December 31, 2022 and 2021 was approximately $ 1.0 million and $ 186 , respectively.

of the stock-based compensation expense is included in selling, general and administrative expenses in the accompanying consolidated

statements of operations.

At December 31, 2021, the Company had total stock-based compensation expense remaining to be recognized

in the consolidated statements of operations of approximately $ 77 .

At December 31, 2022, the Company had total stock-based compensation expense remaining to be recognized in

the consolidated statements of operations of approximately $ 735 , which will be recognized over a weighted average period of 1.3 years.

fair value of the stock options granted was measured using the Black-Scholes valuation model with the following assumptions:

OF STOCK OPTION GRANTED MEASURED USING BLACK SCHOLES VALUATION

Year Ended December 31,

2 unchanged sentences

Risk-free interest rate

summary of stock option activity for the years ended December 31, 2021 and 2020, and changes during the years then ended is presented

Expected dividend yield

A summary of stock option activity for the year ended December 31, 2022 is presented below:

SUMMARY OF STOCK OPTION ACTIVITY

Weighted average

4 unchanged sentences

Outstanding as of January 1, 2022

Outstanding as of January 1, 2021

Outstanding as of December 31, 2022

Exercisable as of December 31, 2022

value is the difference between the market value of the stock at December 31, 2021 and the exercise price which is aggregated

for all options outstanding and exercisable.

A summary of the weighted-average grant-date fair value of options, total intrinsic

value of options exercised, and cash receipts from options exercised is shown below:

value is the difference between the market value of the stock at December 31, 2022 and the exercise price which is aggregated for all

options outstanding and exercisable.

A summary of the weighted-average grant-date fair value of options, total intrinsic value of options

exercised, and cash receipts from options exercised is shown below:

OF WEIGHTED AVERAGE GRANT DATE FAIR VALUE OF OPTIONS

Year Ended December 31,

Weighted-average fair value of options granted (per share)

Intrinsic value gain of options exercised

Intrinsic value (loss) gain of options exercised

Cash receipts from exercise of options

following table presents information related to stock options as of December 31, 2022:

OF INFORMATION RELATED TO OPTIONS OUTSTANDING AND EXERCISABLE

Options outstanding

Options exercisable

Weighted average

remaining life

Exercise price

April 25, 2022, the Company awarded 375,000

shares of restricted stock units (“RSU”)

to the Company’s Chief Financial Officer with the following vesting terms:

units on May 1, 2022, which are included in the

calculation of basic EPS as of the vesting date, (ii) an additional 125,000

units on May 1, 2023, and (iii) the remaining

units on May 1, 2024, provided that the executive

has remained continuously employed by the Company through each applicable vesting date.

The vested RSUs will be converted into shares

of the Company’s common stock no later than March 15 of the calendar year following the calendar year in which such RSUs vested.

The fair value of the RSU award at the date of grant was $ 1.6

million, which will be recognized over the vesting

Subsequent to December 31, 2022, the Company issued 125,000 of common stock to the holder in connection with the RSUs that vested

on May 1, 2022.

summary of RSU activity during the year ended December 31, 2022 is as follows:

OF RESTRICTED STOCK UNITS

Weighted-average

Number of units

fair value per share

Unvested restricted stock units as of January 1, 2022

Units granted

Units forfeited

Unvested restricted stock units as of December 31, 2022

components of loss before income taxes are summarized below:

Year Ended Decmber 31,

OF LOSS BEFORE INCOME TAXES

Year Ended December 31,

Loss before income taxes

1 unchanged sentence

components of the income tax provision were as follows :

Year Ended Decmber 31,

OF INCOME TAX PROVISION

Year Ended December 31,

Total income tax provision

2 unchanged sentences

taxes, is as follows:

OF INCOME TAX RATE RECONCILIATION

Year Ended December 31,

4 unchanged sentences

Valuation allowance

Company’s provision for income taxes reflects an effective tax rate on loss before income taxes of 0.7 % in 2021, as compared

to ( 0.2 ) % in 2020.

Company’s provision for income taxes reflects an effective tax rate on loss before income taxes of ( 0.2 )%

in 2022, as compared to 0.7 %

The consistency in the Company’s effective tax rate during the year ended December 31, 2022 primarily reflects the increase in state income

taxes, valuation allowance and net operating losses.

net deferred income tax asset (liability) was comprised of the following:

OF DEFERRED INCOME TAX ASSETS LIABILITY

Noncurrent deferred income taxes

2 unchanged sentences

Net deferred income tax asset

tax effect of temporary differences between GAAP accounting and federal income tax accounting creating deferred income tax assets

and liabilities were as follows:

tax effect of temporary differences between GAAP accounting and federal income tax accounting creating deferred income tax assets and

liabilities were as follows:

OF ACCOUNTING CREATING DEFERRED INCOME TAX

Deferred tax assets

6 unchanged sentences

Deferred asset, net

The composition of the Company’s foreign tax credits (FTC) carryforward as of December 31, 2022 is as follows:

SCHEDULE OF FOREIGN TAX CREDITS CARRYFORWARD

Tax year-ended

December 31, 2017

December 31, 2027

December 31, 2016

December 31, 2026

December 31, 2015

December 31, 2025

December 31, 2014

December 31, 2024

December 31, 2013

December 31, 2023

assessment of the amount of value assigned to our deferred tax assets under the applicable accounting rules is judgmental.

We are required to consider all available positive and negative evidence in evaluating the likelihood that we will be able to

realize the benefit of our deferred tax assets in the future.

Such evidence includes scheduled reversals of deferred tax

liabilities, projected future taxable income, tax planning strategies and the results of recent operations.

Since this evaluation

requires consideration of events that may occur some years into the future, there is an element of judgment involved.

of our deferred tax assets is dependent on generating sufficient taxable income in future periods.

We do not believe that

it is more likely than not that future taxable income will be sufficient to allow us to recover any of the value assigned to our

deferred tax assets.

Accordingly, we have provided for a valuation allowance of the Company’s foreign tax credits as we do not

anticipate generating sufficient foreign source income.

In addition, we have provided for a full valuation allowance on the domestic

deferred tax assets as the combined effect of future domestic source income and the future reversals of future tax assets and

liabilities will likely be insufficient to realize the full benefits of the assets.

We are required

to consider all available positive and negative evidence in evaluating the likelihood that we will be able to realize the benefit of

our deferred tax assets in the future.

Such evidence includes scheduled reversals of deferred tax liabilities, projected future taxable

income, tax planning strategies and the results of recent operations.

Since this evaluation requires consideration of events that may

occur some years into the future, there is an element of judgment involved.

Realization of our deferred tax assets is dependent on generating

sufficient taxable income in future periods.

We do not believe that it is more likely than not that future taxable income will be sufficient

to allow us to recover any of the value assigned to our deferred tax assets.

Accordingly, we have provided for a valuation allowance

of the Company’s foreign tax credits as we do not anticipate generating sufficient foreign source income.

In addition, we have

provided for a full valuation allowance on the domestic deferred tax assets as the combined effect of future domestic source income and

the future reversals of future tax assets and liabilities will likely be insufficient to realize the full benefits of the assets.

of December 31, 2022, the Company has a net operating loss carryforward of $ 14.3 million.

The Company has $ 10.1 million of deferred

tax assets on which it is taking a full valuation allowance.

The total valuation allowance recorded is $ 10.1 million , representing

an increase of $ 611 from December 31, 2020.

The Company has approximately $ 4.4 million of foreign tax credits for which it has

provided a full valuation allowance and $ 39 of research and development credits which expire in 2032.

382 of the Internal Revenue Code of 1986, as amended imposes an annual limitation on the amount of net operating loss carryforwards

that may be used to offset federal taxable income and federal tax liabilities when a corporation has undergone significant changes

in its ownership.

If the Company experiences an ownership change as a result of future events, the use of tax attributes may be

The Company has $ 10.9 million of deferred tax

assets on which it is taking a full valuation allowance.

The total valuation allowance recorded is $ 10.9 million, representing an increase

of $ 766 from December 31, 2021.

The Company has approximately $ 4.3 million of foreign tax credits for which it has provided a full valuation

allowance and $ 39 of research and development credits which expire in 2032.

The Company has interest expense subject to a tax deduction limitation under IRC 163(j).

The new calculation arising from the 2017 tax

reform requires an adjusted taxable income to be calculated by, among other things, adding back to taxable income any depreciation, amortization,

or depletion deductions for the taxable years beginning after December 31, 2017, and before January 1, 2022, as well as removing any GILTI

When calculating the adjusted taxable income for this purpose, the Company did not have sufficient taxable income in previous

years to deduct interest expense exceeding the limitation, therefore creating a carryover of business interest expense to future years.

For the quarter ended December 31, 2022, $ 467 of interest expense disallowed from prior years has been utilized to offset current interest

income reported.

The amount available for carryover to future periods of IRC 163(j) as of December 31, 2022 is $ 3.1 million.

This carryover

is available indefinitely.

believes that an adequate provision has been made for any adjustments that may result from tax examinations.

However, the outcome

of tax audits cannot be predicted with certainty.

If any issues addressed in the Company’s tax audits are resolved in a

manner not consistent with management’s expectations, the Company could be required to adjust its provision for income taxes

in the period such resolution occurs.

However, the outcome of

tax audits cannot be predicted with certainty.

If any issues addressed in the Company’s tax audits are resolved in a manner not

consistent with management’s expectations, the Company could be required to adjust its provision for income taxes in the period

such resolution occurs.

tax years subject to examination by major tax jurisdiction include the years 2019 and forward by the U.S.

Internal Revenue Service

and most state jurisdictions, and the years 2016 and forward for the Canadian jurisdiction.

Internal Revenue Service and

most state jurisdictions, and the years 2019 and forward for the Canadian jurisdiction.

BUSINESS SEGMENT, GEOGRAPHIC AND CUSTOMER INFORMATION

Company follows ASC 280 - Segment Reporting in determining its reportable segments.

The Company considered the way its

management team, most notably its chief operating decision maker, makes operating decisions and assesses performance and

considered which components of the Company’s enterprise have discrete financial information available.

Company makes decisions using a manufactured products vs.

distributed products and services group focus, its analysis

resulted in two reportable segments:

T&D Solutions and Critical Power.

The Critical Power reportable segment is the

Company’s Titan Energy Systems, Inc.

The Company considered the way its management

team, most notably its chief operating decision maker, makes operating decisions and assesses performance and considered which

components of the Company’s enterprise have discrete financial information available.

As the Company makes decisions using a

manufactured products vs.

distributed products and services group focus, its analysis resulted in two reportable segments:

Solutions and Critical Power.

The Critical Power reportable segment is the Company’s Titan Energy Systems, Inc.

business unit.

The T&D Solutions reportable segment is the Company’s

Pioneer Custom Electrical Products Corp.

The T&D Solutions reportable segment is the Company’s Pioneer Custom Electrical Products Corp.

business unit.

T&D Solutions segment is involved in the design, manufacture and distribution of switchgear used primarily by large industrial

and commercial operations to manage their electrical power distribution needs.

The Critical Power segment provides new and used

power generation equipment and aftermarket field-services primarily to help customers ensure smooth, uninterrupted power to operations

during times of emergency.

following tables present information about segment loss:

Schedule of information about segment income and loss and segment assets

For the Year Ended

T&D Solutions segment is involved in the design, manufacture and distribution of switchgear used primarily by large industrial and

commercial operations to manage their electrical power distribution needs.

The Critical Power segment provides power generation equipment

and aftermarket field-services primarily to help customers ensure smooth, uninterrupted power to operations during times of emergency.

following tables present information about segment income (loss):

OF SEGMENT INCOME LOSS

T&D Solutions

Power Systems

Critical Power Solutions

For the Year Ended

Depreciation and amortization

2 unchanged sentences

Unallocated corporate overhead expenses

For the Year Ended

Operating loss

Depreciation and amortization

Operating income (loss)

T&D Solutions

1 unchanged sentence

Unallocated corporate overhead expenses

Operating income (loss)

following table presents information which reconciles segment assets to consolidated total assets:

1 unchanged sentence

Critical Power Solutions

assets consisted primarily of cash, restricted cash and notes receivable.

assets consisted primarily of cash on hand.

are attributable to countries based on the location of the Company’s customers:

For the Year Ended

OF ATTRIBUTABLE TO COUNTIES BASED ON THE LOCATION

United States

to CleanSpark accounted for approximately 22 %

and 34 % of the Company’s total sales in 2021 and 2020, respectively.

distribution of the Company’s property, plant, and equipment by geographic location is approximately as follows:

Property, plant and equipment

to Enchanted Rock Electric, LLC accounted for approximately 45 %

of the Company’s total sales during the year ended December 31, 2022.

The Company had no sales to Enchanted Rock Electric, LLC

during the year ended December 31, 2021.

distribution of the Company’s property and equipment by geographic location is approximately as follows:

OF PROPERTY AND EQUIPMENT BY GEOGRAPHIC LOCATION

Property and equipment

United States

1 unchanged sentence

and diluted loss per common share is calculated based on the weighted average number of shares outstanding during the period.

The Company’s employee and director stock option awards, as well as incremental shares issuable upon exercise of warrants,

are not considered in the calculations if the effect would be anti-dilutive.

The following table sets forth the computation of

basic and diluted loss per share (in thousands, except per share data):

For the Year Ended

The Company’s

employee and director equity awards, as well as incremental shares issuable upon exercise of warrants, are not considered in the calculations

if the effect would be anti-dilutive.

The following table sets forth the computation of basic and diluted loss per share (in thousands,

except per share data):

OF BASIC AND DILUTED LOSS PER SHARE

Weighted average basic shares outstanding

2 unchanged sentences

Net loss per common share:

As of December 31, 2021 and 2020, diluted loss per share excludes 411 and 370 potentially dilutive common shares related to vested option

awards, as their effect was anti-dilutive.

of December 31, 2022 and 2021, diluted loss per share excludes potentially dilutive common shares related to (i) 670,667

shares underlying stock options, respectively, and (ii) 250,000

shares underlying nonvested RSUs, respectively, as their effect was anti-dilutive.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data