5. OTHER EXPENSE

Other expense in the consolidated statements of income foroperations reports certain gains and losses associated with activities not directly related to our core operations. For the three and nine months ended SeptemberJune 30, 20172019, other non-operating expense was $3.8 million, as compared to $212 during the three months ended June 30, 2018. For the three months ended June 30, 2019, included in other non-operating expense was a loss of $3.7 million related to the mark to market adjustment on the fair value of common stock and 2016, respectively, are as follows:warrants received in connection with the Merger of PCPI, CleanSpark and the Merger Sub. See Note 3 - Divestitures.

For the six months ended June 30, 2019, other non-operating expense was $465, as compared to $349 during the six months ended June 30, 2018. For the six months ended June 30, 2019, included in other non-operating expense was a loss of $325 related to the mark to market adjustment on the fair value of common stock and warrants received in connection with the Merger of PCPI, CleanSpark and the Merger Sub. See Note 3 - Divestitures.

6. DISCONTINUED OPERATIONS

A discontinued operation is a component of the Company’s business that represents a separate major line of business that had been disposed of or is held for sale. Classification as a discontinued operation occurs upon disposal or when the operation meets the criteria to be classified as held for sale, if earlier. When an operation is classified as a discontinued operation, the comparative Consolidated Statement of Operations, Consolidated Statement of Cash Flows, and Consolidated Balance Sheets are presented as if the operation had been discontinued from the start of the comparative year. Based upon the authoritative guidance, the Company concluded that the operations of the liquid-filled and dry-type transformer business should be presented as discontinued operations as of June 30, 2019.

Overview

OnJune 28, 2019, the Company entered into the Stock Purchase Agreement, by and among the Company, the Disposed Companies, Nathan Mazurek, and 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.

If the Equity Transaction is completed, Pioneer Power would sell 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 Segment. However,Pioneer Power would retainits switchgear manufacturing business within the T&D segment, as well as all of the operations associated with its critical power solutions segment.

Consideration

The consideration payable by the Buyer in the Equity Transaction is a base cash purchase price of $60.5 million, as well as the issuance by the Buyer of a subordinated promissory note to Pioneer Power in the aggregate principal amount of $7.5 million (the “Seller Note”), in each case subject to adjustment pursuant to the terms of the Stock Purchase Agreement. Pursuant to the terms of the Stock Purchase Agreement, the Seller Note will bear interest at an annualized rate of 4.0%, to be paid-in-kind annually, and will have a maturity date of December 31, 2022. In addition, pursuant to the terms of the Stock Purchase Agreement, the Buyer will have the right to set-off amounts owed to Pioneer Power under the Seller Note on a dollar-for-dollar basis by the amount of any indemnifiable losses Buyer suffers as a result of certain actions or omissions by Pioneer Power or the Disposed Companies.

Covenants

The Company continueshas agreed, subject to record interest onthe terms of the Stock Purchase Agreement, to various covenants and agreements, including, among others, to conduct the business of the Disposed Companies in the ordinary course during the period between the execution of the Stock Purchase Agreement and the closing of the Equity Transaction in a manner consistent with past duepractice. The parties have also agreed to use their respective best efforts to take, or cause to be taken, all things necessary, proper or advisable to consummate the transactions contemplated by the Stock Purchase Agreement.

In addition, pursuant to the Stock Purchase Agreement, each of Pioneer Power, its affiliates and unpaid payroll tax obligations. DuringNathan Mazurek, Pioneer Power’s President, Chief Executive Officer and Chairman of the nine months ended September 30, 2017Board of Directors, have agreed to a non-solicitation provision that generally prohibits such persons, for a three-year period, from, among other things, soliciting or attempting to hire employees of the Disposed Companies or the Buyer or engaging in the business operated by the Disposed Companies within certain geographic areas, subject to certain limitations and 2016, the Company received waivers of certain interest and penalties on these obligations totaling $0.1 million and $0.4 million, respectively.exceptions.

Closing Conditions

4.Each party’s obligation to consummate the Stock Purchase Agreement is subject to certain conditions, including, among others: (i) approval of the Stock Purchase Agreement by the holders of a majority of Pioneer Power’s outstanding common stock, which such approval was obtained by the written consent of certain Pioneer Power stockholders onJune 28, 2019 (as discussed in more detail below),(ii) 20 days having elapsed since the mailing to the stockholders of the Company of the definitive information statement with respect to the approval and adoption of the Stock Purchase Agreement and (iii) the absence of any order or legal requirement issued or enacted by any court or other governmental authority preventing consummation of the Equity Transaction.

In addition, the consummation of the Equity Transaction is subject to a financing condition. Certain lenders have entered into a debt financing commitment letter with the Buyer, and Mill Point Capital LLC entered into an equity commitment letter with the Buyer, in each case committing to provide the Buyer with funding to pay the aggregate consideration to be paid by the Buyer in connection with the Equity Transaction. The Buyer is not obligated to consummate the Equity Transaction unless it receives debt financing on substantially the terms provided for in the debt financing commitment letter or the Buyer is able to obtain alternative financing in amount sufficient to consummate the Equity Transaction.

If the Stock Purchase Agreement is terminated by the Buyer after all mutual conditions to closing have been satisfied, except that the Buyer has not obtained sufficient financing to consummate the Equity Transaction, the Buyer would be required to pay a $4.0 million reverse termination fee to Pioneer Power, subject to certain limitations set forth in the Stock Purchase Agreement. The reverse termination fee would also be payable by the Buyer in certain other limited circumstances described in the Stock Purchase Agreement

Termination Fee

Under the terms of the Stock Purchase Agreement, Pioneer Power is not permitted to, and may not authorize or permit its representatives to, directly or indirectly, solicit, initiate or knowingly take any action to encourage or facilitate the submission of an Acquisition Proposal (as defined in the Stock Purchase Agreement), or any inquiries relating to a potential Acquisition Proposal.

Notwithstanding this restriction, Pioneer Power may, prior to the closing of the Equity Transaction, respond to, and engage in discussions and negotiations concerning, a written unsolicited bona fide Acquisition Proposal submitted, and not withdrawn, by a party other than the Buyer that Pioneer Power’s board of directors believes, in good faith and after consultation with its outside legal counsel and its financial advisor, constitutes, or could reasonably be expected to result in, a Superior Proposal (as defined in the Stock Purchase Agreement).

If the Stock Purchase Agreement were to be terminated in connection with or as a result of Pioneer Power’s adoption of a Superior Proposal or entry into an Alternative Acquisition Agreement (as defined in the Stock Purchase Agreement), Pioneer Power would be required to pay a $4.0 million termination fee to the Buyer, subject to certain limitations set forth in the Stock Purchase Agreement. The termination fee would also be payable by Pioneer Power in certain other limited circumstances described in the Stock Purchase Agreement.

Indemnification

Pursuant to the Stock Purchase Agreement, Pioneer Power and the Buyer have each agreed toindemnify one another for any and all liabilities, losses, damages, claims, demands, suits, actions, judgments, fines, penalties, deficiencies, awards, taxes, assessments, costs or expenses (including reasonable attorney’s or other professional fees and expenses) (“Losses”) resulting from any inaccuracy or breach of the respective party’s representations and warranties or any breach or nonperformance of the respective party’s covenants and agreements in the Stock Purchase Agreement or its related ancillary agreements.

In addition, Pioneer Power has agreed to indemnify the Buyer and its affiliated parties for Losses resulting from, among other things, certain pre-closing tax matters, debt held by the Disposed Companies, transaction expenses, breaches of representations and warranties that are not covered by the Buyer’s representation and warranty insurance because the Buyer had knowledge of such breach (only to the extent such Losses would have been covered by the representation and warranty insurance had the Buyer not known of such breach) (“Interim Breaches”), certain matters related to Electrogroup’s operations, certain legal proceedings, certain matters related to Nexus Custom Magnetics, L.L.C., a wholly owned subsidiary of Jefferson, and certain matters concerning end-user software utilized by the Disposed Companies.

The indemnification obligations of Pioneer Power with respect to Losses of the Buyer resulting from inaccuracies or breaches of the Company’s representations and warranties, except for breaches of certain fundamental warranties, claims of fraud and breaches of representations, warranties or covenants relating to taxes, and claims for certain specific indemnities, are subject to (i) a true deductible equal to $330,000, (ii) a cap equal to 0.5% of the purchase price, and (iii) a per-claim threshold amount of $50,000. In addition, the indemnification rights of the Buyer with respect to Interim Breaches are subject to a cap equal to $5.0 million, and the indemnification rights of the Buyer with respect to Losses resulting from certain matters related to Electrogroup’s operations are subject to a true deductible equal to $500,000 and a cap equal to $5.0 million.

The indemnification obligations of the Buyer, except with respect to breaches of certain fundamental representations and warranties and claims of fraud, are subject to a true deductible equal to $330,000 and a cap equal to $3.3 million. In addition, each party’s total indemnification obligation is subject to a cap equal to the purchase price, except for claims of fraud.

The Buyer has obtained a customary representation and warranty insurance policy insuring the Buyer against losses resulting from a breach of representations and warranties by Pioneer Power and the Disposed Companies, and the Buyer is required to use commercially reasonable efforts to utilize the representation and warranty insurance to cover any Losses resulting from such a breach. In addition, in rather than seeking recovery from Pioneer Power, the Buyer is required to setoff amounts owed to Pioneer Power under the Seller Note on a dollar-for-dollar basis by the amount of any indemnifiable losses Buyer suffers as a result of certain actions or omissions by Pioneer Power or the Disposed Companies.

Other Provisions

The Stock Purchase Agreement also contains customary representations and warranties, certain termination rights of both parties, including termination by mutual written consent of the parties, and provisions governing certain other matters between the parties.

The foregoing description of the Stock Purchase Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Stock Purchase Agreement, a copy of which is filed as Exhibit 2.1 on Form 8-K filed with the Security and Exchange Commission on July 1, 2019 and is incorporated by reference herein.

Operating results of liquid-filled and dry-type transformer manufacturing businesses previously included in the T&D Segment, have now been reclassified as discontinued operations for all periods presented.

The components of assets and liabilities that are attributable to discontinued operations are as follows (in thousands):

During the quarter ended June 30, 2019 the Company’s Reynosa Facility was damaged by a flood resulting in damages to inventory. While management continues to evaluate the extent of the damaged inventory, as of June 30, 2019 the Company has recognized a loss of $3.3 million based upon an estimate of inventory damaged and unsalable as a result of the flood. This loss has been partially offset by $2.4 million of insurance proceeds that the Company expects to receive. While the net loss on inventory damaged amounting to approximately $913 has been reflected within the Cost of goods sold in discontinued operations, the corresponding insurance receivable of $2.4 million has been recognized as an asset from continuing operations. The amount of damaged inventory and insurance proceeds are based upon the management’s best estimate, and the actual amount of damaged inventory and insurance proceeds may differ from such estimates.

The following table presents the discontinued operations of theliquid-filled and dry-type transformer manufacturing businesses in the Consolidated Statement of Operations (in thousands):

The following table presents the discontinued operations of theliquid-filled and dry-type transformer manufacturing businesses in the Consolidated Statements of Cash Flows (in thousands):

7. INVENTORIES

The components of inventories are summarized below:

Inventories are stated at the lower of cost or a net realizable value determined on a FIFO method. Included in raw materials and finished goods at SeptemberJune 30, 20172019 and December 31, 20162018 are goods in transit of approximately $3.1 million.$36 and $120, respectively.

At September 30, 2017 and December 31, 2016, raw materials not pledged to our secured creditor were used as collateral to secure short term borrowings under a product financing agreement amounting to $5.3 million and $4.0 million, respectively.

5.8. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are summarized below:

Depreciation expense was $1.0 million in$142 and $106 for the nine monthsperiod ended SeptemberJune 30, 20172019 and 2016.2018, respectively.

6.9. OTHER ASSETS

Included in other assets at June 30, 2019 and December 31, 2018 are right-of-use asset, net, of $1.9 million and $2.2 million, respectively, related to our lease obligations.

In December 2011 and January 2012, the Company made two secured loans, each in the amount of $0.3 million$300 to a developer of a renewable energy project in the U.S.U.S, secured by assets of the developer. The promissory notes accrue interest at a rate of 4.5% per annum with a final payment of all unpaid principal and interest becoming fully due and payable upon the earlier to occur of (i) the four year anniversary of the issuance date of the promissory notes, or (ii) an event of default. As defined in the promissory notes, an event of default includes, but is not limited to, the following: any bankruptcy, reorganization or similar proceeding involving the borrower, a sale or transfer of substantially all the assets of the borrower, a default by the borrower relating to any indebtedness due to third parties, the incurrence of additional indebtedness by the borrower without the Company’s written consent and failure of the borrower to perform its obligations pursuant to its other agreements with the Company, including its purchase order for pad mount transformers. The principal balance of the loan receivable is outstanding at SeptemberJune 30, 20172019 and December 31, 2016.2018. The Company expects to fully recover these amounts. At SeptemberAs of June 30, 2017,2019 the Company has classified the principal of $0.6 million to$600 as other current assets as the Company anticipatesdoes not anticipate the settlement of both notes in the next twelve months based upon ongoing negotiations with the debtor.

Included in Other Assets at September 30, 2017 and December 31, 2016 is a customer note receivable of $0.2 million.

7.10. GOODWILL AND OTHER INTANGIBLE ASSETS

There were no changes in the carrying values of goodwill for the ninesix months ended SeptemberJune 30, 2017.2019.

Changes in the carrying values of intangible assets for the ninesix months ended SeptemberJune 30, 2017,2019, were as follows:

The components of intangible assets as of SeptemberJune 30, 20172019 are summarized below:

The Company accelerated and fully amortizedamortization of intangible assets expense was $21 for the distributor territory license intangible asset upon the termination of its distribution agreement with a supplier during the quartersix months ended SeptemberJune 30, 2017.

8. DEBT2019.

11. DEBT

Canadian Credit Facilities

Our Canadian subsidiaries have maintained credit facilities with BMO since October 2009. In June 2011, our wholly owned subsidiary Pioneer Electrogroup Canada Inc. entered into a letter loan agreement with BMO (the “Initial Canadian Facilities”) that replaced and superseded all of our businesses’ prior financing arrangements with the bank.

Our Initial Canadian Facilities originally provided for up to $22.0 million Canadian dollars (“CAD”) (approximately $15.9 million expressed in U.S. dollars) consisting of a $10.0 million CAD demand revolving credit facility (“Facility A”) to finance ongoing operations, a $2.0 million CAD term credit facility (“Facility B”) that financed a plant expansion, and a $10.0 million CAD term credit facility (“Facility C”) that financed a business acquisition and the purchase and expansion of its manufacturing facilities.

The Initial Canadian Facilities required us to comply on a consolidated Canadian basis with various financial covenants, including maintaining a minimum fixed charge coverage ratio, a maximum funded debt to EBITDA ratio and a limitation on funded debt as a percent of capitalization.

Facility A was originally subject to margin criteria and borrowings bore interest at BMO’s prime rate plus 0.50% per annum on amounts borrowed in Canadian dollars, or its U.S. base rate plus 0.50% per annum or LIBOR plus 2.00% per annum on amounts borrowed in U.S. dollars.

Borrowings under Facility B originally bore interest at BMO’s prime rate plus 1.00% per annum with principal repayments becoming due on a five year amortization schedule.

Borrowings under Facility C were repayable according to a five year principal amortization schedule and bore interest at the following rates: if the funded debt to EBITDA ratio is equal to or greater than 2.00, BMO’s prime rate plus 1.25% per annum on amounts borrowed in Canadian dollars, or its U.S. base rate plus 1.25% per annum or LIBOR plus 2.50% per annum on amounts borrowed in U.S. dollars; or, if the funded debt to EBITDA ratio is less than 2.00, BMO’s prime rate plus 1.00% per annum on amounts borrowed in Canadian dollars, or its U.S. base rate plus 1.00% per annum or LIBOR plus 2.25% per annum on amounts borrowed in U.S. dollars. In addition, Facility C was subject to a standby fee which is calculated monthly using the unused portion of the facility at either 0.625% per annum if the funded debt to EBITDA ratio is equal to or greater than 2.00 or 0.5625% per annum if the funded debt to EBITDA ratio is less than 2.00.

In the third quarter of 2015, in connection with an amendment to our United States credit facilities, we elected to prepay $5.0 million Canadian dollars (approximately $4.0 million expressed in U.S. dollars) of Facility C with cash available on hand.

In April 2016, our wholly owned subsidiary, Pioneer Electrogroup Canada Inc. (“PECI”), entered into an Amended and Restated Credit Agreement (“CAD ARCA”) with BMOBank of Montreal (“BMO”) with respect to our existing Canadian credit facilities (as amended and restated, the “Canadian Facilities”) that replaced and superseded all of our businesses’ prior financing arrangements with the bank. This CAD ARCA extended the maturity date of our Canadian Facilities to July 31, 2017. Additionally, defaults relating to the breach of certain financial covenants under the prior financing arrangements with the bank were waived by BMO. On March 15, 2017, theThe CAD ARCA was further amended (the “2017 CAD ARCA Amendment”) on March 15, 2017, and again on March 28, 2018 (the “2018 CAD ARCA Amendment”). The 2018 CAD ARCA Amendment extended the term of our Canadian Facilities to April 1, 2020. On August 8, 2019, BMO agreed to a Temporary Borrowing Base Increase (defined in Note 17 - Subsequent Events), until the earlier of the (i) closing of the Equity Transaction and repayment in full of all amounts owned under the Canadian Facilities and the U.S. Facilities, and (ii) August 31, 2019.

Our Canadian Facilities provided for up to $8.2 million CADCanadian dollars (“CAD”) (approximately $6.3 million expressed in U.S. dollars) consisting of a revolving $7.0 million CAD revolving credit facility (“Facility AA”) to finance ongoing operations, a $0.5 million$471 CAD term credit facility (“Facility BB”) that financed a plant expansion, and a $0.7 million$712 USD Facility C that financed a business acquisition and the purchase and expansion of its manufacturing facilities. The 2017 CAD ARCA Amendment increased the Facility A to $8.0 million CAD, increasing the total amount of loans available under the Canadian Facilities to $9.1$9.2 million CAD.

Facility A, as amended by the 2017 CAD ARCA Amendment and restated,the 2018 CAD ARCA Amendment, is subject to margin criteria and borrowings bearcriteria. Facility A, as amended by the 2017 CAD ARCA Amendment, bore interest at BMO’s prime rate plus 0.75% per annum on amounts borrowed in Canadian dollars, or itsBMO’s U.S. base rate plus 0.75% per annum or LIBOR plus 2.25% per annum on amounts borrowed in U.S. dollars. The 2018 CAD ARCA Amendment modified the interest rate on Facility A borrowings to BMO’s prime rate plus 0.50% per annum on amounts borrowed in Canadian dollars, or BMO’s U.S. base rate plus 0.50% per annum or LIBOR plus 2.0% per annum on amounts borrowed in U.S. dollars. Pursuant to the 2017 CAD ARCA Amendment, Facility A willwas to mature on July 31, 2018. The 2018 CAD ARCA Amendment extended the maturity of borrowings under Facility A to April 1, 2020. Consistent with the terms of the historical Facility A, including both a subjective acceleration clause and lockbox arrangement, will continue to be presented as a current liability. We believe based upon historical experience, that Facility A will remain in place to fund operations through maturity of this facility in April 2020.

Borrowings under Facility B, as amended and restated, bearby the 2017 CAD ARCA Amendment, bore interest at BMO’s prime rate plus 1.25% per annum with principal repayments becoming due on a five year amortization schedule. Pursuant to the CAD ARCA, quarterly principal repayments were reduced to $47 CAD, with a balloon payment of $141 CAD due on July 31, 2017. The 2017 CAD ARCA Amendment amended the payment schedules so that the quarterly principal payments of $47 CAD willwas to continue after July 31, 2017 until our borrowings under the facility is fully paid on April 30, 2018. The 2018 CAD ARCA Amendment did not modify the interest rate on Facility B borrowings, which remained at BMO’s prime rate plus 1.25% per annum. Pursuant to the 2018 CAD ARCA Amendment, we made the final principal payment of $47 under Facility B on April 30, 2018.

Borrowings under Facility C, as amended and restated, bearby the 2017 CAD ARCA, bore interest at BMO’s prime rate plus 1.50% per annum on amounts borrowed in Canadian dollars, or itsBMO’s U.S. base rate plus 1.50% per annum or LIBOR plus 2.75% per annum on amounts borrowed in U.S. dollars. Pursuant to the CAD ARCA, a principal repayment of $72 USD was due on June 30, 2016, and the reduced quarterly principal repayments of $36 USD waswere to be made beginning on October 31, 2016, with a balloon payment of $496 USD due on July 31, 2017. The 2017 CAD ARCA Amendment amended the payment schedules so that the quarterly payments of $36 USD willwere to continue until July 31, 2018, with a balloon payment of $352 due on July 31, 2018. Pursuant to the 2018 CAD ARCA Amendment, quarterly principal repayments of $36 were to continue until January 31, 2020, with a balloon payment of $136 due on April 1, 2020. The 2018 CAD ARCA Amendment modified the interest rate on Facility C borrowings to BMO’s prime rate plus 1.25% per annum on amounts borrowed in Canadian dollars, or BMO’s U.S. base rate plus 1.25% per annum or LIBOR plus 2.50% per annum on amounts borrowed in U.S. dollars. In December 2018 we repaid the outstanding principal balance under Facility C of $316 CAD with proceeds received from the sale of the Farnham, Quebec, Canada building.

ThePursuant to the CAD ARCA, modifiedas amended by the 2017 CAD ARCA Amendment and the 2018 CAD ARCA Amendment, financial covenant testing so that testing will beis performed on our consolidated financial statements. The financial covenants were changed pursuantWe are required to the CAD 2017 Amendment to requiremeet certain minimum working capital ratios, minimum EBITDA levels and effective tangible net worth levels for each fiscal quarter, which were further modified byas set forth in the 2017 CAD ARCA Amendment. On March 6, 2017, we received a waiver from BMO on a certain financial covenant as of December 31, 2016.

We are currently inAmendment and the process of renegotiating the terms of our credit facilities with BMO. BMO has agreed to suspend testing of the current ratio covenant as of September 30, 2017, due to such ongoing negotiation. We are in compliance with all financial covenants not suspended and required to be tested at September 30, 2017. We anticipate renegotiating our credit facilities on terms that will allow the Company to meet its covenants prospectively.2018 CAD ARCA Amendment.

As of SeptemberJune 30, 2017,2019, we had approximately $6.8$6.0 million in U.S. dollar equivalents outstanding under our Canadian Credit Facilities. Our borrowings consisted of approximately $6.2$6.0 million outstanding under Facility A, $0.1A. As of June 30, 2019, the Company was not in compliance with a financial covenant and on August 8, 2019, the Company received a waiver from BMO on the financial covenant breach existing as of June 30, 2019.

Concurrently with the closing of the Equity Transaction, all existing credit facilities granted by BMO under the Canadian Facilities and the U.S. Facilities will be repaid in full.

As of December 31, 2018, we had approximately $5.8 million in U.S. dollar equivalents outstanding under our Canadian Facilities. Our borrowings consisted of approximately $5.8 million outstanding under Facility BA. As of December 31, 2018, the Company was not in compliance with its financial covenants and $0.5 million outstanding under Facility C.on March 25, 2019, the Company received a waiver from BMO on all financial covenant breaches existing as of December 31, 2018.

United States Credit Facilities

On December 2, 2014, our existing U.S. credit facilities (the “U.S. Facilities) were amended in order to provide a $5.0 million term loan facility that was used for the acquisition of Titan. The term loan facility had principal repayments becoming due on a five year amortization schedule.

The U.S. Facilities initially required us to comply with a two-step test of financial covenants. First, as measured on a consolidated basis, we were required to comply with a maximum funded debt to adjusted EBITDA ratio of (a) 3.15x for the quarter ended December 31, 2014 and the quarter ending March 31, 2015, (b) 3.25x for the quarter ending June 30, 2015, (c) 3.65x for the quarter ending September 30, 2015, and (d) 2.75x for the quarter ending December 31, 2015 and all testing periods thereafter. Secondly, if the funded debt to adjusted EBITDA tests above are met, and our fixed charge coverage ratio is at or above 1.10x for the quarter ended December 31, 2014, and at or above 1.25x for all testing periods thereafter, then no further compliance tests were required.

Alternatively, we could comply with the financial covenant requirements of the U.S. Facilities if our U.S. operations maintained a maximum funded debt to capitalization ratio and various minimum fixed charge coverage ratios and maximum funded debt to adjusted EBITDA ratios which were set at different thresholds by time period.

Borrowings under the demand revolving credit facility (USD Facility A) bore interest, at our option, at the bank’s prime rate plus 1.00% per annum on U.S. prime rate loans, or an adjusted LIBOR rate plus 2.25% per annum on Eurodollar loans. Borrowings under the term loan facility (USD Facility B) bore interest, at our option, at the bank’s prime rate plus 1.25% per annum on U.S. prime rate loans, or an adjusted LIBOR rate plus 2.50% per annum on Eurodollar loans.

In April 2016, we entered into an Amended and Restated Credit Agreement (“US ARCA”) with BMO with respect to our existing U.S. Facilitiesfacilities that replaced and superseded all of our businesses’ prior financing arrangements with the bank. Additionally, defaults relating to the breach of certain financial covenants under the prior financing arrangements with the bank were waived by BMO. On March 15, 2017, the(the “U.S. Facilities”).The US ARCA was further amended (the “2017 US ARCA Amendment”) on March 15, 2017, and again on March 28, 2018 (the “2018 US ARCA Amendment”). The 2018 US ARCA Amendment extended the term of our US Facilities to April 1, 2020.

Our U.S. Facilities, as amended and restated, provided for up to $19.1 million USD consisting of a $14.0 million USD demand revolving credit facility (“USD Facility AA”) to finance ongoing operations, a $5.0 million USD term loan facility (“USD Facility BB”) that financed the acquisition of Titan, and a new $0.1 million$100 revolving credit facility provided pursuant to a MasterCard is to be used to pay for and temporarily finance our day-to-day business expenses and for no other purpose. The 2017 US ARCA Amendment increased the USD Facility A to $15.0 million, increasing the total amount of loans available under the U.S. Facilities to $20.1 million USD.

USD Facility A, continues to bearas amended and restated per 2017 US ARCA, bore interest, at our option, at the bank’sBMO’s prime rate plus 1.00% per annum on U.S. prime rate loans, or an adjusted LIBOR rate plus 2.25% per annum on Eurodollar loans. Pursuant to the 2018 US ARCA Amendment, borrowings under Facility A bears interest, at our option, at the BMO’s prime rate plus 0.75% per annum on U.S. prime rate loans, or an adjusted LIBOR rate plus 2.00% per annum on Eurodollar loans. USD Facility A had a maturity date of July 31, 2017, which was extended to July 31, 2018 pursuant to the 2017 US ARCA Amendment. The 2018 US ARCA Amendment extended the maturity of borrowings under USD Facility A to April 1, 2020. Consistent with the terms of the historical USD Facility A, including both a subjective acceleration clause and lockbox arrangement, will continue to be presented as a current liability. We believe based upon historical experience, that the USD Facility A will remain in place to fund operations through maturity in April 2020.

Borrowings under USD Facility B bear interest, at our option, at U.S. base rate plus 1.25% per annum on U.S. prime loans, or an adjusted LIBOR rate plus 2.50% per annum on Eurodollar loans. Pursuant to the US ARCA, our quarterly principal payments were reduced to $31 USD for calendar year 2016, with the original amortization schedule continuing to apply to all quarterly principal payments made after December 31, 2016, and the final maturity date of December 2, 2019. The 2017 US ARCA Amendment reduced the scheduled quarterly principal payments to $31 USD, commencing March 31, 2017, to continue until July 31, 2018, with a balloon payment of $4,438$4.4 million on July 31, 2018. Pursuant to the 2018 US ARCA Amendment, monthly principal repayments beginning on July 31, 2018 are increased to $100 and will continue until March 31, 2020, with a balloon payment of $2.3 million due on April 1, 2020. The 2018 US ARCA Amendment did not change the USD Facility B interest rate.

ThePursuant to the US ARCA, modifiedas amended by the 2017 US ARCA Amendment and the 2018 US ARCA Amendment, financial covenant testing so that testing will beis performed on our consolidated financial statements. The financial covenants were changed pursuantWe are required to the US ARCA to requiremeet certain minimum working capital ratios, minimum EBITDA levels and effective tangible net worth levels for each fiscal quarter, which were further modified byas set forth in the 2017 US ARCA Amendment and the 2018 US ARCA Amendment. On March 6, 2017, we received a waiver from28, 2018, pursuant to the 2018 US ARCA Amendment, BMO waived defaults on a certainall financial covenantcovenants existing as of December 31, 2016.

We are currently2017 for which we were not in the process of renegotiating the terms of our credit facilities with BMO. BMO has agreed to suspend testing of the current ratio covenant as of September 30, 2017 due to such ongoing negotiation. We are in compliance with all financial covenants not suspended and required to be tested at September 30, 2017. We anticipate renegotiating our credit facilities on terms that will allow the Company to meet its covenants prospectively.compliance.

Our obligations under the U.S. Facilities are guaranteed by all our wholly-owned U.S. subsidiaries. In addition, we and our wholly-owned U.S. subsidiaries granted a security interest in substantially all of our assets, including 65% of the shares of Pioneer Electrogroup Canada Inc. held by us, to secure our obligations for borrowed money under the U.S. Facilities. The U.S. Facilities also restrict our ability to incur indebtedness, create or incur liens, make investments, make distributions or dividends and enter into merger agreements or agreements for the sale of any or all our assets.

As of SeptemberJune 30, 2017,2019, we had approximately $18.5$18.2 million outstanding under our U.S. Credit Facilities. Our borrowings consisted of approximately $14.0$15.0 million outstanding under USD Facility A, and $4.5$3.2 million outstanding under USD Facility B. As of June 30, 2019, the Company was not in compliance with a financial covenant and on August 8, 2019, the Company received a waiver from BMO on the financial covenant breach existing as of June 30, 2019.

Nexus Promissory NoteConcurrently with the closing of the Equity Transaction, all existing credit facilities granted by BMO under the Canadian and the U.S. Facilities will be repaid in full. In the event that the Stock Purchase Agreement is terminated prior to closing of the Equity Transaction and if we receive the reverse termination fee as set forth therein, we are required to remit to BMO 50% of such reverse termination fee, which will be applied to permanently reduce the amounts outstanding under our USD Facility B.

On July 25, 2012, the Company’s Mexican subsidiary, Nexus Magneticos de Mexico, S. de R.L. de C.V. (“Nexus”), entered into a $1.7 million term loan agreement with GE CF Mexico, S.A. de C.V. (“GE Capital Mexico”). The term loan was payable in 60 consecutive monthly installments and bore interest, payable monthly, at a rate of 6.93% per annum. The obligations of Nexus under the term loan were secured by certain machinery and equipment located in Mexico and by a corporate guaranty by the Company. As of September 30, 2017 the balance of the note has been fully repaid, while at December 31, 2016 there was2018, we had approximately $185$18.8 million outstanding under our U.S. Facilities. Our borrowings consisted of approximately $15.0 million outstanding under USD Facility A, and $3.8 million outstanding under USD Facility B. As of December 31, 2018, the Nexus Promissory Note.Company was not in compliance with its financial covenants and on March 25, 2019, the Company received a waiver from BMO on all financial covenant breaches existing as of December 31, 2018.

Long-termThe Company’s debt consists of the following:

 (a) The balances as of September 30, 2017 and December 31, 2016 are net of debt issuance costs of $218 and $245, respectively.

9.12. PENSION PLAN

The Company’s Canadian subsidiary sponsors a defined benefit pension plan at one of its locations in which a majority of its employees are members. The subsidiary funds 100% of all contributions to the plan. The benefits, or the rate per year of credit service, are established by the Company and updated at its discretion.

The components of the expense the Company incurred under the pension plan are included in Income from discontinued operations, net of income taxes, in the Consolidated Statements of operations.

The components of the expense the Company incurred under the pension plan are as follows:

The Company’s policy is to fund the pension plan at or above the minimum level required by law. The Company made $56$30 and $86$36 of contributions to its defined benefit pension plan during the ninesix months ended SeptemberJune 30, 20172019 and 2016,2018, respectively. Changes in the discount rate and actual investment returns that are lower than the long-term expected return on plan assets could result in the Company making additional contributions. There were no changes during the current period.

10.13. STOCKHOLDERS’ EQUITY

Common Stock

The Company had 8,726,045 and 8,699,712 shares of common stock, $0.001 par value per share, outstanding as of SeptemberJune 30, 20172019 and December 31, 2016, respectively.2018.

Warrants

As of September 30, 2017 and December 31, 2016, the Company had warrants outstanding to purchase 50,600 shares of common stock with a weighted average exercise price of $7.00 per share. The warrants expire on September 18, 2018.  No warrants were exercised during the nine months ended September 30, 2017.

Stock-Based Compensation

A summary of stock option activity under the 2011 Long-Term Incentive Plan as of SeptemberJune 30, 2017,2019, and changes during the ninesix months ended SeptemberJune 30, 2017,2019, are presented below:

As of SeptemberJune 30, 20172019, there were 237,867248,867 shares available for future grants under the Company’s 2011 Long-Term Incentive Plan.

Stock-based compensation expense recorded for the three and ninesix months ended SeptemberJune 30, 20172019 was approximately $148$2 and $319,$7, respectively, as compared to the expense of $28approximately ($2) and $34,$146, during the three and ninesix months ended SeptemberJune 30, 2016,2018, respectively. At SeptemberFor the three and six months ended June 30, 2017,2018, the expense reversal was primarily the result of forfeitures of previously expensed awards to a former employee. As of June 30, 2019, the Company had total stock-based compensation expense remaining to be recognized in the consolidated statements of incomeoperations of approximately $339.$6.

Foreign Currency Translation

Foreign assets and liabilities are translated using the exchange rate in effect at the balance sheet date, and results of operations are translated using an average rate for the period. Translation adjustments are accumulated and reported as a component of accumulated other comprehensive income (loss). The Company had foreign currency translation adjustments resulting in a nominal unrealized lossgain of $374 for the three months ended SeptemberJune 30, 20172019 and $147unrealized loss of $1 for the three months ended SeptemberJune 30, 2016.2018. For the ninesix months ended SeptemberJune 30, 20172019 and 2016,2018, the Company had foreign currency translation adjustments resulting in unrealized incomegain of $68$62 and $445,unrealized loss of $167, respectively.

11.14. BASIC AND DILUTED INCOME (LOSS) INCOME PER COMMON SHARE

Basic and diluted income (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. In periods where the company reported a net loss, diluted net loss per common share is the same as basic net loss per common share for those periods. The following table sets forth the computation of basic and diluted income (loss) income per share (in thousands, except per share data):