UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 20212022
OR
☐
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________ to ___________
Commission file number: 001-35212
PIONEER POWER SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware | 27-1347616 | |
(State or other jurisdiction of incorporation or organization) 400 Kelby Street, 12th Floor Fort Lee, New Jersey (Address of principal executive offices) | (I.R.S. Employer Identification No.) 07024 (Zip Code) |
400 Kelby Street, 12th FloorFort Lee, New Jersey(212) 07024867-0700(Address of principal executive offices)
(212) 867-0700(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading symbol(s) | Name of each exchange on which registered |
Common Stock | PPSI | Nasdaq Capital Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer | ☐ | Accelerated filer | ☐ | |
Non-accelerated filer | ☒ | Smaller reporting company | ☒ | |
Emerging Growth Company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐No ☒
The number of shares outstanding of the registrant’s common stock, $0.001 par value, as of August 13, 202115, 2022 was .
PIONEER POWER SOLUTIONS, INC.
Form 10-Q
For the Quarterly Period Ended June 30, 20212022
TABLE OF CONTENTS
26 | |
26 | |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 26 |
26 | |
26 | |
| |
27 |
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATSTATEMENTSEMENTS
PIONEER POWERPOWER SOLUTIONS, INC.
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Revenues |
| $ | 5,625 |
|
| $ | 5,087 |
|
| $ | 9,127 |
|
| $ | 10,088 |
|
Cost of goods sold |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
| 5,130 |
|
|
| 4,838 |
|
|
| 8,473 |
|
|
| 9,662 |
|
Write down of inventory |
|
| — |
|
|
| 546 |
|
|
| — |
|
|
| 546 |
|
Total cost of goods sold |
|
| 5,130 |
|
|
| 5,384 |
|
|
| 8,473 |
|
|
| 10,208 |
|
Gross profit (loss) |
|
| 495 |
|
|
| (297 | ) |
|
| 654 |
|
|
| (120 | ) |
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
| 1,240 |
|
|
| 877 |
|
|
| 2,506 |
|
|
| 2,812 |
|
Foreign exchange loss |
|
| — |
|
|
| 10 |
|
|
| — |
|
|
| — |
|
Total operating expenses |
|
| 1,240 |
|
|
| 887 |
|
|
| 2,506 |
|
|
| 2,812 |
|
Loss from continuing operations |
|
| (745 | ) |
|
| (1,184 | ) |
|
| (1,852 | ) |
|
| (2,932 | ) |
Interest income |
|
| (95 | ) |
|
| (77 | ) |
|
| (189 | ) |
|
| (188 | ) |
Other expense (income) |
|
| 36 |
|
|
| (449 | ) |
|
| (1,307 | ) |
|
| 832 |
|
Loss before taxes |
|
| (686 | ) |
|
| (658 | ) |
|
| (356 | ) |
|
| (3,576 | ) |
Income tax expense (benefit) |
|
| — |
|
|
| 2 |
|
|
| (21 | ) |
|
| 5 |
|
Net loss |
| $ | (686 | ) |
| $ | (660 | ) |
| $ | (335 | ) |
| $ | (3,581 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | (0.08 | ) |
| $ | (0.08 | ) |
| $ | (0.04 | ) |
| $ | (0.41 | ) |
Diluted |
| $ | (0.08 | ) |
| $ | (0.08 | ) |
| $ | (0.04 | ) |
| $ | (0.41 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 8,726 |
|
|
| 8,726 |
|
|
| 8,726 |
|
|
| 8,726 |
|
Diluted |
|
| 8,726 |
|
|
| 8,726 |
|
|
| 8,726 |
|
|
| 8,726 |
|
The accompanying notes are an integral part of these consolidated financial statements.
PIONEER POWER SOLUTIONS, INC.
Consolidated Statements of Comprehensive Loss
(In thousands)
(Unaudited)
| Three Months Ended |
|
| Six Months Ended |
| |||||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||||||
Net loss |
| $ | (686 | ) |
| $ | (660 | ) |
| $ | (335 | ) |
| $ | (3,581 | ) |
Other comprehensive income (loss) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Comprehensive loss |
| $ | (686 | ) |
| $ | (660 | ) |
| $ | (335 | ) |
| $ | (3,581 | ) |
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Revenues | $ | 4,289 | $ | 5,625 | $ | 10,325 | $ | 9,127 | ||||||||
Cost of goods sold | 4,208 | 5,130 | 9,369 | 8,473 | ||||||||||||
Gross profit | 81 | 495 | 956 | 654 | ||||||||||||
Operating expenses | ||||||||||||||||
Selling, general and administrative | 2,585 | 1,240 | 4,331 | 2,506 | ||||||||||||
Total operating expenses | 2,585 | 1,240 | 4,331 | 2,506 | ||||||||||||
Loss from operations | (2,504 | ) | (745 | ) | (3,375 | ) | (1,852 | ) | ||||||||
Interest income | (104 | ) | (95 | ) | (206 | ) | (189 | ) | ||||||||
Other expense (income), net | 117 | 36 | 129 | (1,307 | ) | |||||||||||
Loss before taxes | (2,517 | ) | (686 | ) | (3,298 | ) | (356 | ) | ||||||||
Income tax expense (benefit) | — | — | 7 | (21 | ) | |||||||||||
Net loss | $ | (2,517 | ) | $ | (686 | ) | $ | (3,305 | ) | $ | (335 | ) | ||||
Loss per share: | ||||||||||||||||
Basic | $ | (0.26 | ) | $ | (0.08 | ) | $ | (0.34 | ) | $ | (0.04 | ) | ||||
Diluted | $ | (0.26 | ) | $ | (0.08 | ) | $ | (0.34 | ) | $ | (0.04 | ) | ||||
Weighted average common shares outstanding: | ||||||||||||||||
Basic | 9,728 | 8,726 | 9,685 | 8,726 | ||||||||||||
Diluted | 9,728 | 8,726 | 9,685 | 8,726 |
The accompanying notes are an integral part of these consolidated financial statements.
21
PIONEERPIONEER POWER SOLUTIONS, INC.
Consolidated Balance Sheets
(In thousands, except share data)
|
| June 30, |
|
| December 31, |
| June 30, | December 31, | ||||||||
|
| 2021 |
|
| 2020 |
| 2022 | 2021 | ||||||||
| (Unaudited) |
|
|
|
| (Unaudited) | ||||||||||
ASSETS |
|
|
|
|
| |||||||||||
Current assets |
|
|
|
|
|
|
|
| ||||||||
Cash |
| $ | 5,134 |
|
| $ | 7,567 |
| $ | 9,785 | $ | 9,924 | ||||
Restricted cash |
|
| 1,775 |
|
|
| — |
| — | 1,775 | ||||||
Notes receivable and accrued interest | 5,993 | 5,778 | ||||||||||||||
Accounts receivable, net |
|
| 3,994 |
|
|
| 2,587 |
| 5,211 | 2,429 | ||||||
Insurance receivable |
|
| — |
|
|
| 95 |
| ||||||||
Inventories, net |
|
| 3,313 |
|
|
| 2,403 |
| ||||||||
Income taxes receivable |
|
| — |
|
|
| 407 |
| ||||||||
Inventories | 9,017 | 4,160 | ||||||||||||||
Prepaid expenses and other current assets |
|
| 779 |
|
|
| 897 |
| 1,074 | 1,069 | ||||||
Total current assets |
|
| 14,995 |
|
|
| 13,956 |
| 31,080 | 25,135 | ||||||
Property, plant and equipment, net |
|
| 418 |
|
|
| 433 |
| ||||||||
Property and equipment, net | 619 | 516 | ||||||||||||||
Right-of-use assets | 2,337 | 2,237 | ||||||||||||||
Other assets |
|
| 6,665 |
|
|
| 6,898 |
| 80 | 39 | ||||||
Total assets |
| $ | 22,078 |
|
| $ | 21,287 |
| $ | 34,116 | $ | 27,927 | ||||
|
|
|
|
|
|
|
|
| ||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
| ||||||||
Current liabilities |
|
|
|
|
|
|
|
| ||||||||
Accounts payable and accrued liabilities |
| $ | 4,857 |
|
| $ | 4,027 |
| $ | 6,407 | $ | 4,159 | ||||
Deferred revenue |
|
| 2,553 |
|
|
| 714 |
| 9,289 | 2,423 | ||||||
Current maturities of long-term debt |
|
| — |
|
|
| 780 |
| ||||||||
Income taxes payable |
|
| — |
|
|
| 17 |
| ||||||||
Dividend payable |
|
| 1,047 |
|
|
| — |
| ||||||||
Total current liabilities |
|
| 8,457 |
|
|
| 5,538 |
| 15,696 | 6,582 | ||||||
Long-term debt |
|
| — |
|
|
| 633 |
| ||||||||
Other long-term liabilities |
|
| 1,073 |
|
|
| 1,257 |
| 1,440 | 1,793 | ||||||
Total liabilities |
|
| 9,530 |
|
|
| 7,428 |
| 17,136 | 8,375 | ||||||
Commitments | ||||||||||||||||
Stockholders’ equity |
|
|
|
|
|
|
|
| ||||||||
Preferred stock, $ par value, shares authorized; issued |
|
| — |
|
|
| — |
| — | — | ||||||
Common stock, $ par value, shares authorized;shares issued and outstanding on June 30, 2021 and December 31, 2020 |
|
| 9 |
|
|
| 9 |
| ||||||||
Common stock, $ and shares issued and outstanding on June 30, 2022 and December 31, 2021, respectively | par value, shares authorized;10 | 10 | ||||||||||||||
Additional paid-in capital |
|
| 23,005 |
|
|
| 23,981 |
| 32,573 | 31,840 | ||||||
Accumulated other comprehensive income |
|
| 14 |
|
|
| 14 |
| 14 | 14 | ||||||
Accumulated deficit |
|
| (10,480 | ) |
|
| (10,145 | ) | (15,617 | ) | (12,312 | ) | ||||
Total stockholders’ equity |
|
| 12,548 |
|
|
| 13,859 |
| 16,980 | 19,552 | ||||||
Total liabilities and stockholders’ equity |
| $ | 22,078 |
|
| $ | 21,287 |
| $ | 34,116 | $ | 27,927 |
The accompanying notes are an integral part of these consolidated financial statements.
2
PIONEERPIONEER POWER SOLUTIONS, INC.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
|
| Six Months Ended |
| Six Months Ended | ||||||||||||
|
| June 30, |
| June 30, | ||||||||||||
|
| 2021 |
|
| 2020 |
| 2022 | 2021 | ||||||||
Operating activities |
|
|
|
|
|
|
|
| ||||||||
Net loss |
| $ | (335 | ) |
| $ | (3,581 | ) | $ | (3,305 | ) | $ | (335 | ) | ||
Depreciation |
|
| 74 |
|
|
| 115 |
| 73 | 74 | ||||||
Amortization of right-of-use assets |
|
| 156 |
|
|
| 133 |
| ||||||||
Amortization of right-of-use finance leases | 124 | 156 | ||||||||||||||
Amortization of imputed interest |
|
| (214 | ) |
|
| (234 | ) | (214 | ) | (214 | ) | ||||
Interest expense from PPP Loan |
|
| 4 |
|
|
| 2 |
| — | 4 | ||||||
Non-cash cost of operating leases |
|
| 262 |
|
|
| 161 |
| ||||||||
Gain on forgiveness of PPP Loan | — | (1,417 | ) | |||||||||||||
Amortization of right-of-use operating leases | 328 | 262 | ||||||||||||||
Change in receivable reserves |
|
| 43 |
|
|
| (55 | ) | (141 | ) | 43 | |||||
Change in inventory reserves |
|
| 47 |
|
|
| (333 | ) | ||||||||
Write down of inventory |
|
| — |
|
|
| 546 |
| ||||||||
Change in long term payables |
|
| — |
|
|
| (102 | ) | ||||||||
Change in insurance receivable |
|
| 95 |
|
|
| 1,767 |
| ||||||||
Loss on investments |
|
| — |
|
|
| 759 |
| ||||||||
Proceeds from insurance receivable | — | 95 | ||||||||||||||
Stock-based compensation |
|
| 71 |
|
|
| 2 |
| 716 | 71 | ||||||
Payroll tax deferral |
|
| — |
|
|
| 65 |
| ||||||||
Changes in current operating assets and liabilities: |
|
|
|
|
|
|
|
| ||||||||
Accounts receivable |
|
| (1,423 | ) |
|
| 1,769 |
| (2,642 | ) | (1,423 | ) | ||||
Inventories |
|
| (957 | ) |
|
| 1,023 |
| (4,857 | ) | (910 | ) | ||||
Prepaid expenses and other assets |
|
| 118 |
|
|
| 32 |
| (67 | ) | 118 | |||||
Income taxes |
|
| 403 |
|
|
| (527 | ) | 27 | 403 | ||||||
Accounts payable and accrued liabilities |
|
| 1,053 |
|
|
| (2,652 | ) | 1,796 | 1,053 | ||||||
Deferred revenue |
|
| 1,839 |
|
|
| (97 | ) | 6,866 | 1,839 | ||||||
Net cash provided by / (used in) operating activities |
|
| 1,236 |
|
|
| (1,207 | ) | ||||||||
Principal repayments of operating leases | (325 | ) | (252 | ) | ||||||||||||
Net cash used in operating activities | (1,621 | ) | (433 | ) | ||||||||||||
|
|
|
|
|
|
|
|
| ||||||||
Investing activities |
|
|
|
|
|
|
|
| ||||||||
Additions to property, plant and equipment |
|
| (62 | ) |
|
| — |
| ||||||||
Change in notes receivable |
|
| — |
|
|
| 194 |
| ||||||||
Net cash (used in) / provided by investing activities |
|
| (62 | ) |
|
| 194 |
| ||||||||
Additions to property and equipment | (174 | ) | (62 | ) | ||||||||||||
Net cash used in investing activities | (174 | ) | (62 | ) | ||||||||||||
|
|
|
|
|
|
|
|
| ||||||||
Financing activities |
|
|
|
|
|
|
|
| ||||||||
Bank overdrafts |
|
| — |
|
|
| (374 | ) | ||||||||
Funding from PPP Loan |
|
| — |
|
|
| 1,404 |
| ||||||||
Payment of deferred purchase price |
|
| — |
|
|
| (397 | ) | ||||||||
Gain on forgiveness of PPP Loan |
|
| (1,417 | ) |
|
| — |
| ||||||||
Net proceeds from the exercise of options for common stock | 17 | — | ||||||||||||||
Principal repayments of financing leases |
|
| (415 | ) |
|
| (296 | ) | (136 | ) | (163 | ) | ||||
Net cash (used in) / provided by financing activities |
|
| (1,832 | ) |
|
| 337 |
| ||||||||
Net cash used in financing activities | (119 | ) | (163 | ) | ||||||||||||
|
|
|
|
|
|
|
|
| ||||||||
Decrease in cash and restricted cash |
|
| (658 | ) |
|
| (676 | ) | (1,914 | ) | (658 | ) | ||||
Cash, and restricted cash, beginning of year |
|
| 7,567 |
|
|
| 8,213 |
| 11,699 | 7,567 | ||||||
Cash, and restricted cash, end of period |
| $ | 6,909 |
|
| $ | 7,537 |
| $ | 9,785 | $ | 6,909 | ||||
|
|
|
|
|
|
|
|
| ||||||||
Non-cash financing activities: |
|
|
|
|
|
|
|
| ||||||||
Non-cash investing and financing activities: | ||||||||||||||||
Acquisition of right-of-use assets and lease liabilities | 551 | — | ||||||||||||||
Declared dividend unpaid |
|
| 1,047 |
|
|
| — |
| — | 1,047 |
The accompanying notes are an integral part of these consolidated financial statements.
3
PIONEERPIONEER POWER SOLUTIONS, INC.
Consolidated Statement of Stockholders’ Equity
(In thousands)thousands, except per share data)
(Unaudited)
Common Stock | Additional paid-in | Accumulated other comprehensive | Accumulated | Total stockholders’ | ||||||||||||||||||||
Shares | Amount | capital | income | deficit | equity | |||||||||||||||||||
Balance - March 31, 2021 | 8,726,045 | $ | 9 | $ | 24,014 | $ | 14 | $ | (9,794 | ) | $ | 14,243 | ||||||||||||
Net loss | — | — | — | — | (686 | ) | (686 | ) | ||||||||||||||||
Stock-based compensation | — | — | 38 | — | — | 38 | ||||||||||||||||||
Dividend to shareholders | — | — | (1,047 | ) | — | — | (1,047 | ) | ||||||||||||||||
Balance - June 30, 2021 | 8,726,045 | $ | 9 | $ | 23,005 | $ | 14 | $ | (10,480 | ) | $ | 12,548 | ||||||||||||
Balance - March 31, 2022 | 9,644,545 | $ | 10 | $ | 31,914 | $ | 14 | $ | (13,100 | ) | $ | 18,838 | ||||||||||||
Net loss | — | — | — | — | (2,517 | ) | (2,517 | ) | ||||||||||||||||
Stock-based compensation | — | — | 659 | — | — | 659 | ||||||||||||||||||
Balance - June 30, 2022 | 9,644,545 | $ | 10 | $ | 32,573 | $ | 14 | $ | (15,617 | ) | $ | 16,980 |
|
| Common Stock |
|
| Additional |
|
| Accumulated comprehensive |
|
| Accumulated |
|
| Total |
| Common Stock | Additional paid-in | Accumulated other comprehensive | Accumulated | Total stockholders’ | ||||||||||||||||||||||||||||
|
| Shares |
|
| Amount |
|
| capital |
|
| income |
|
| deficit |
|
| equity |
| Shares | Amount | capital | income | deficit | equity | ||||||||||||||||||||||||
Balance - March 31, 2020 (Revised) |
|
|
| $ | 9 |
|
| $ | 23,980 |
|
| $ | 14 |
|
| $ | (10,080 | ) |
| $ | 13,923 |
| ||||||||||||||||||||||||||
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (660 | ) |
|
| (660 | ) | ||||||||||||||||||||||||
Balance - June 30, 2020 |
|
|
|
| $ | 9 |
|
| $ | 23,980 |
|
| $ | 14 |
|
| $ | (10,740 | ) |
| $ | 13,263 |
| |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Balance - March 31, 2021 |
|
|
|
| $ | 9 |
|
| $ | 24,014 |
|
| $ | 14 |
|
| $ | (9,794 | ) |
| $ | 14,243 |
| |||||||||||||||||||||||||
Balance - January 1, 2021 | 8,726,045 | $ | 9 | $ | 23,981 | $ | 14 | $ | (10,145 | ) | $ | 13,859 | ||||||||||||||||||||||||||||||||||||
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (686 | ) |
|
| (686 | ) | — | — | — | — | (335 | ) | (335 | ) | ||||||||||||||||
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 38 |
|
|
| — |
|
|
| — |
|
|
| 38 |
| — | — | 71 | — | — | 71 | ||||||||||||||||||
Declared dividend |
|
| — |
|
|
| — |
|
|
| (1,047 | ) |
|
| — |
|
|
| — |
|
|
| (1,047 | ) | ||||||||||||||||||||||||
Dividend to shareholders | — | — | (1,047 | ) | — | — | (1,047 | ) | ||||||||||||||||||||||||||||||||||||||||
Balance - June 30, 2021 |
|
|
|
| $ | 9 |
|
| $ | 23,005 |
|
| $ | 14 |
|
| $ | (10,480 | ) |
| $ | 12,548 |
| 8,726,045 | $ | 9 | $ | 23,005 | $ | 14 | $ | (10,480 | ) | $ | 12,548 | |||||||||||||
Balance - January 1, 2022 | 9,640,545 | $ | 10 | $ | 31,840 | $ | 14 | $ | (12,312 | ) | $ | 19,552 | ||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | (3,305 | ) | (3,305 | ) | ||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | 716 | — | — | 716 | ||||||||||||||||||||||||||||||||||||||||||
Exercise of stock options | 4,000 | — | 17 | — | — | 17 | ||||||||||||||||||||||||||||||||||||||||||
Balance - June 30, 2022 | 9,644,545 | $ | 10 | $ | 32,573 | $ | 14 | $ | (15,617 | ) | $ | 16,980 |
|
| Common Stock |
|
| Additional |
|
| Accumulated |
|
| Accumulated |
|
| Total |
| |||||||||
|
| Shares |
|
| Amount |
|
| capital |
|
| income |
|
| deficit |
|
| equity |
| ||||||
Balance - January 1, 2020 (Revised) |
|
|
| $ | 9 |
|
| $ | 23,978 |
|
| $ | 14 |
|
| $ | (7,159 | ) |
| $ | 16,842 |
| ||
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,581 | ) |
|
| (3,581 | ) |
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 2 |
|
|
| — |
|
|
| — |
|
|
| 2 |
|
Balance - June 30, 2020 |
|
|
|
| $ | 9 |
|
| $ | 23,980 |
|
| $ | 14 |
|
| $ | (10,740 | ) |
| $ | 13,263 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - January 1, 2021 |
|
|
|
| $ | 9 |
|
| $ | 23,981 |
|
| $ | 14 |
|
| $ | (10,145 | ) |
| $ | 13,859 |
| |
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (335 | ) |
|
| (335 | ) |
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 71 |
|
|
| — |
|
|
| — |
|
|
| 71 |
|
Declared dividend |
|
| — |
|
|
| — |
|
|
| (1,047 | ) |
|
| — |
|
|
| — |
|
|
| (1,047 | ) |
Balance - June 30, 2021 |
|
|
|
| $ | 9 |
|
| $ | 23,005 |
|
| $ | 14 |
|
| $ | (10,480 | ) |
| $ | 12,548 |
|
The accompanying notes are an integral part of these consolidated financial statements.
4
PIONEER POWER SOLUTIONS, INC.
Notes to Consolidated Financial Statements
June 30, 20212022 (Unaudited)
1. BASIS OF PRESENTATION
Overview
Pioneer 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, power generation equipment and servicemobile electric vehicle (“EV”) charging solutions. Our products and services are sold to a broad range of specialty electrical transmission, distribution and on-site power generation equipment for applicationscustomers in the utility, industrial commercial and backup powercommercial markets. Our principal productscustomers include, but are not limited to, electric, gas and services include switchgearwater utilities, data center developers and engine-generator controls, complemented by a national field-service network to maintainowners, EV charging infrastructure developers and repair power generation assets.owners, and distributed energy developers. The Company is headquartered in Fort Lee, New Jersey and operates from three (3 (3)) additional locations in the U.S. for manufacturing, service and maintenance, engineering, sales and administration.
We have 2two reportable segments as defined in our Annual Report on Form 10-K for the year ended December 31, 2020,2021, as filed with the Securities and Exchange Commission (the “SEC”) on March 30, 2021:31, 2022: Transmission and Distribution Solutions (“T&D Solutions”) and Critical Power Solutions (“Critical Power”).
Presentation
The accompanying unaudited interim 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 June 30, 2021.2022. 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 adequate to make the information presented not misleading to the reader. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary to fairly state the financial position, results of operations and cash flows with respect to the interim consolidated financial statements have been included. The results of operations for the interim period are not necessarily indicative of the results for the entire fiscal year. The year-end balance sheet data was derived from audited financial statements but does not include all disclosures required by U.S. GAAP for a year-end balance sheet.
All dollar amounts (except share and per share data) presented in the notes to our unaudited interim consolidated financial statements are stated in thousands of dollars, unless otherwise noted. Amounts may not foot due to rounding. ASC 740-270 requires the use of an estimated annual effective tax rate to compute the tax provision during an interim period unless certain exceptions are met. We have used a discrete-period computation method to calculate taxes for the fiscal three and six monthsix-month periods ended June 30, 2021.2022. Due to projected operating losses for the year, the Company has determinedanticipates that it is unable to reliably estimate its annual effective tax rate.rate will be 0%. As of June 30, 2022, the Company continues to provide a 100% valuation allowance against its net deferred tax assets since the Company believes it is more likely than not that its deferred tax assets will not be realized.
These unaudited interim consolidated financial statements include the accounts of Pioneer and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
These unaudited interim consolidated financial statements should be read in conjunction with the risk factors under the heading “Part II - Item 1A. Risk Factors” and the risk factors and the audited consolidated financial statements and notes thereto of the Company and its subsidiaries included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.2021.
Liquidity
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 six months ended June 30, 2021,2022, the Company had $5.19.8 million of cash on hand and working capital of $6.515.4 million. The cash on hand was generated primarily from the completion of the sale of common stock under the transformer business unitsAt The Market Sale Agreement during the year ended December 31, 2019, proceeds from the sale of the CleanSpark Common Stock (as defined herein) and warrants to purchase CleanSpark Common Stock, proceeds from insurance and the funding from the Paycheck Protection Program recognized during the year ended December 31, 2020. 2021.
We have historically met our cash needs through a combination of cash flows from operating activities and bank borrowings.borrowings, the completion of the Equity Transaction (as defined herein), proceeds from the sale of the CleanSpark Common Stock and warrants to purchase CleanSpark Common Stock, proceeds from insurance and the sale of common stock under the At The Market Sale Agreement and funding from the Payroll Protection Program. Our cash requirements historically were generally for operating activities, debt repayment, capital improvements and capital improvements. As all outstanding amounts under our credit facilities were paid in full during the year ended December 31, 2019, and the credit facilities terminated, weacquisitions. 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.
5
On June 1, 2021, the board of directors of the Company declared a special cash dividend of $ per common share, payable to shareholders of record as of June 22, 2021, to be paid on July 7, 2021. The Cashcash dividends were paid in July of 2021 equaland equaled $ per share on the $ par value common stock resulting in an aggregate distribution of approximately $1.0$1.0 million representing a capital repayment paid from additional paid-in capital (“APIC”).
During the first quarter ofyear 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 million. As a result. During the first quarter of executing2022, 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 recognized approximately $1.8 million ofhad no restricted cash withinon the consolidated balance sheetsheets at June 30, 2021.2022.
In November 2016,The Company accounts for restricted cash under the FASB issued amended guidance toof 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.
The 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 unaudited interim consolidated statement of cash flows:
|
| June 30, |
|
| December 31, |
| June 30, | December 31, | ||||||||
|
| 2021 |
|
| 2020 |
| 2022 | 2021 | ||||||||
Cash |
| $ | 5,134 |
|
| $ | 7,567 |
| $ | 9,785 | $ | 9,924 | ||||
Restricted cash |
|
| 1,775 |
|
|
| — |
| — | 1,775 | ||||||
Total cash and restricted cash as shown in the statement of cash flows |
| $ | 6,909 |
|
| $ | 7,567 |
| $ | 9,785 | $ | 11,699 |
COVID-19
On 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.
The full impact of the ongoing COVID-19 pandemic continues to evolve as the date of this report. As such, it iscontinues to be uncertain as to the full magnitude that the pandemic will have on the Company’s financial condition, liquidity, and future results of operations. During the three months ended June 30, 2021, the Company experienced an impact to productivity as a result of following social distancing guidelines and practicing personal protective measures. Notwithstanding, theThe 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 continuing crisis, 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.
On 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.
Under 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 unaudited interim consolidated statements of operations.
6
Reclassification
The following items have been reclassified in the 2021 financial statements:
The unaudited consolidated statements of cash flows contain a reclassification of the gain on the extinguishment and forgiveness of the PPP Loan from financing activities to operating activities for the six months ended June 30, 2021. Additionally, principal repayments of financing leases and the reduction in operating leases have been reclassified and presented in the applicable cash flow activity for the six months ended June 30, 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.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company’s significant accounting policies are described in Note 2 to the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.2021. There have been no significant changes in the Company’s accounting policies during the second quarter of 2021.2022.
Recent Accounting Pronouncements
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.
Income Taxes. 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. The Company adopted this guidance on January 1, 2020. The adoption of this ASU did not have a material impact on the consolidated financial statements.
Measurement of Credit Losses on Financial Instrument. In June 2016, the FASB issued amended guidance to ASU No. 2016-13, Financial Instruments - 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.
3. FAIR VALUE MEASUREMENTSREVENUES
ASC 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. The 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:
|
|
|
|
|
|
On January 22, 2019, Pioneer Critical Power, Inc., a Delaware corporation, and a wholly-owned subsidiary of the Company within the T&D Solutions segment, entered into an Agreement and Plan of Merger with CleanSpark and CleanSpark Acquisition, Inc., a Delaware corporation, which resulted in the Company receiving financial instruments that included the right to receive (i) shares of CleanSpark Common Stock (“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.
At June 30, 2020, the estimated fair value of the CleanSpark Common Stock and warrants to purchase CleanSpark Common Stock was $708, and an unrealized mark to market gain of $384 and an unrealized mark to market loss of $759 was recognized within other expense (income) for the three and six months ended June 30, 2020, respectively.
The Company sold all of the CleanSpark Common Stock and warrants to purchase CleanSpark Common Stock it received in connection with the Merger Agreement during the third quarter of 2020.
No changes in valuation techniques or inputs occurred during the six months ended June 30, 2021 and 2020. No transfers of assets between Level 1 and Level 2 of the fair value measurement hierarchy occurred during the six months ended June 30, 2021 and 2020.
4. REVENUES
Nature of our products and services
Our principal products and services include switchgear and engine-generator controls, complemented by a national field-service network to maintain and repairelectric power systems, distributed energy resources, power generation assets.equipment and mobile EV charging solutions.
Products
We provide switchgearOur T&D Solutions business provides electric power systems and distributed energy resources that helpshelp customers effectively and efficiently protect, control, transfer, monitor and manage their electrical power distribution systems to desired specifications.electric energy requirements.
Additionally, we provide ourOur Critical Power business provides customers with newour suite of mobile e-Boost electric vehicle charging solutions and used sophisticated power generation equipment intended to ensure smooth, uninterrupted power to operations during times of emergency.equipment.
Services
Power 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.
7
Our 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. 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 five steps:
1) Identify the contract with a customer
A 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.
2) Identify the performance obligations in the contract
Performance 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.
3) Determine the transaction price
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. The customer payments are generally due in 30 days.
4) Allocate the transaction price to performance obligations in the contract
If 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.
5) Recognize revenue when or as the Company satisfies a performance obligation
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 switchgear equipmentproducts is predominantly recognized 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 large switchgear 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.
During the three months ended June 30, 2022 and 2021, the Company recognized $2.4 million and $3.8 of revenue at a point in time from the sale of our products, respectively. 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 $1.9 million of service revenue during the three months ended June 30, 2022 and 2021.
During the six months ended June 30, 2022 and 2021, the Company recognized $6.9 million and $5.7 million of revenue at a point in time from the sale of our products, respectively. The Company recognized $3.4 million and $3.5 million of service revenue during the six months ended June 30, 2022 and 2021, respectively.
During the three months ended June 30, 2021, the Company recognized $22.0.0 million of revenue over time and incurred costs of $1.8 million related to a single contract. During the six months ended June 30, 2021, the Company recognized $3.1 million of revenue over time and incurred costs of $2.9 million related to a single contract. Additionally, theThe Company recognized $1.8 million and $2.6 million ofdid not recognize revenue at a point inover time from the sale of our switchgear and power generation equipmentor incur costs related to any single contract during the three and six months ended June 30, 2022.
8
During the three months ended June 30, 2022, the Company recognized approximately $214 of revenue that was recognized as deferred revenue at December 31, 2021, respectively. Service revenues include maintenance contractsas compared to $2 of revenue during the three months ended June 30, 2021 that arewas recognized over time basedas deferred revenue at December 31, 2020.
During the six months ended June 30, 2022, the Company recognized approximately $2.1 million of revenue that was recognized as deferred revenue at December 31, 2021, as compared to $58 of revenue during the six months ended June 30, 2021 that was recognized as deferred revenue at December 31, 2020.
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.
At June 30, 2022, three customers represented approximately 34%, 26% and 15% of the Company’s accounts receivable. At December 31, 2021, two customers represented approximately 32% and 11% of the Company’s accounts receivable.
For the six months ended June 30, 2022, three customers represented approximately 17%, 14% and 11% of the Company’s revenue. For the six months ended June 30, 2021, two customers represented approximately 34% and 14% of the Company’s revenue.
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, termmerchantable, and repair services which are recognized as services are delivered.free of defects in workmanship and material. Returns and warranties during three and six months ended June 30, 2022 and 2021 were insignificant.
The following table presents our revenues disaggregated by revenue discipline:
Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| June 30, | June 30, | ||||||||||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||
Products |
| $ | 3,755 |
|
| $ | 3,212 |
|
| $ | 5,668 |
|
| $ | 6,344 |
| $ | 2,432 | $ | 3,755 | $ | 6,934 | $ | 5,668 | ||||||||
Services |
|
| 1,870 |
|
|
| 1,875 |
|
|
| 3,459 |
|
|
| 3,744 |
| 1,857 | 1,870 | 3,391 | 3,459 | ||||||||||||
Total revenue |
| $ | 5,625 |
|
| $ | 5,087 |
|
| $ | 9,127 |
|
| $ | 10,088 |
| $ | 4,289 | $ | 5,625 | $ | 10,325 | $ | 9,127 |
See Note 12“Note 11 - Business Segment and Geographic Information in Notes to Consolidated Financial StatementsStatements” in Part I of this Quarterly Report on Form 10-Q.
5.4. OTHER EXPENSE (INCOME)
Other expense (income) in the unaudited interim consolidated statements of operations reports certain gains and losses associated with activities not directly related to our core operations. For the three months ended June 30, 2021,2022, other expense was $117, as compared to other expense of $36 during the three months ended June 30, 2021.
For the six months ended June 30, 2022, other expense was $129, as compared to other income of $449 during the three months ended June 30, 2020. For the three months ended June 30, 2020, included in other income was a gain of $384 related to the mark to market adjustment on the fair value of the CleanSpark Common Stock and warrants.
For the six months ended June 30, 2021, other income was $1.3 million as compared to other expense of $832 during the six months ended June 30, 2020.2021. For the six months ended June 30, 2021, included in other income was a gain of $1.4 million for the extinguishment and forgiveness of the PPP Loan. For the six months ended June 30, 2020, includedSee “Note 1 – Basis of Presentation in other expense was a lossNotes to Consolidated Financial Statements” in Part I of $759 relatedthis Quarterly Report on Form 10-Q for reference to the mark to market adjustment on the fair value of the CleanSpark Common Stock and warrants.PPP Loan.
9
6.5. INVENTORIES
The components of inventories are summarized below:
|
| June 30, |
|
| December 31, |
| June 30, | December 31, | ||||||||
|
| 2021 |
|
| 2020 |
| 2022 | 2021 | ||||||||
Raw materials |
| $ | 1,834 |
|
| $ | 1,719 |
| $ | 2,570 | $ | 993 | ||||
Work in process |
|
| 2,262 |
|
|
| 1,420 |
| 6,447 | 3,167 | ||||||
Provision for excess and obsolete inventory |
|
| (783 | ) |
|
| (736 | ) | ||||||||
Total inventories |
| $ | 3,313 |
|
| $ | 2,403 |
| $ | 9,017 | $ | 4,160 |
Inventories are stated at the lower of cost or a net realizable value determined on a weighted average method.
7.6. PROPERTY PLANT AND EQUIPMENT
Property plant and equipment are summarized below:
|
| June 30, |
|
| December 31, |
| June 30, | December 31, | ||||||||
|
| 2021 |
|
| 2020 |
| 2022 | 2021 | ||||||||
Machinery and equipment |
| $ | 1,176 |
|
| $ | 1,210 |
| ||||||||
Property and equipment | ||||||||||||||||
Machinery, vehicles and equipment | $ | 1,404 | $ | 1,396 | ||||||||||||
Furniture and fixtures |
|
| 205 |
|
|
| 205 |
| 208 | 205 | ||||||
Computer hardware and software |
|
| 539 |
|
| 669 |
| 561 | 541 | |||||||
Leasehold improvements |
|
| 322 |
|
|
| 337 |
| 329 | 322 | ||||||
Construction in progress |
|
| 53 |
|
|
| — |
| 136 | — | ||||||
|
|
| 2,295 |
|
|
| 2,421 |
| ||||||||
Property and equipment | 2,638 | 2,464 | ||||||||||||||
Less: accumulated depreciation |
|
| (1,877 | ) |
|
| (1,988 | ) | (2,019 | ) | (1,948 | ) | ||||
Total property, plant and equipment, net |
| $ | 418 |
|
| $ | 433 |
| ||||||||
Total property and equipment, net | $ | 619 | $ | 516 |
Depreciation expense was $37 and $5737 for the three months ended June 30, 2022 and 2021, and 2020, respectively.
Depreciation expense was $7473 and $11574 for the six months ended June 30, 2022 and 2021, and 2020, respectively.
8.7. OTHER ASSETSNOTES RECEIVABLE
Included in other assets at June 30, 2021 and December 31, 2020 are right-of-use assets, net, of $1.1 million and $1.5 million, respectively, related to our lease obligations.
As a resultIn connection with the sale of the Company entering into that certain 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”), Nathan Mazurek (Chief Executive Officer of the Company), Pioneer Transformers L.P. (the “US Buyer”) and Pioneer Acquireco ULC (the “Canadian Buyer”) on June 28,transformer business units in August 2019 in connection with our sale of (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, on August 16, 2019amongst other consideration, we received two subordinated promissory notes in the aggregate principal amount of $5.05.0 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 4.04%.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 $5.05.0 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 June 30, 20212022 of $214 for a carrying value of $5.66.0 million.
10
Other assets8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
The components of accounts payable and accrued liabilities are summarized below:
|
| June 30, |
|
| December 31, |
| ||
|
| 2021 |
|
| 2020 |
| ||
Right of use assets |
| $ | 1,086 |
|
| $ | 1,505 |
|
Notes receivable, net |
|
| 5,564 |
|
|
| 5,350 |
|
Deposits |
|
| 15 |
|
|
| 15 |
|
Other long-term receivables |
|
| — |
|
|
| 28 |
|
Other assets |
| $ | 6,665 |
|
| $ | 6,898 |
|
9. DEBT
On 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. The 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.
Under 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 Expense (Income)).
At 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.
June 30, | December 31, | |||||||
2022 | 2021 | |||||||
Accounts payable | $ | 4,191 | $ | 2,089 | ||||
Accrued liabilities | 1,240 | 1,263 | ||||||
Current portion of lease liabilities | 976 | 807 | ||||||
Total accounts payable and accrued liabilities | $ | 6,407 | $ | 4,159 |
ScheduleAccrued liabilities primarily consist of debtaccrued insurance, accrued sales commissions and accrued compensation and benefits. At June 30, 2022 and December 31, 2021, accrued insurance was $160 and $481, respectively. Accrued sales commissions at June 30, 2022 and December 31, 2021 were $132 and $247, respectively. At June 30, 2022, accrued compensation and benefits were $357 compared to $270 at December 31, 2021. Accrued sales and use taxes at June 30, 2022 and December 31, 2021 were $231 and $50, respectively. The remainder of accrued liabilities are comprised of several insignificant accruals in connection with normal business operations.
|
| June 30, |
|
| December 31, |
| ||
|
| 2021 |
|
| 2020 |
| ||
PPP Loan |
| $ | — |
|
| $ | 1,413 |
|
Less: current portion |
|
| — |
|
|
| 780 |
|
Total long-term obligations |
| $ | — |
|
| $ | 633 |
|
10.9. STOCKHOLDERS’ EQUITY
Common Stock
The Company had shares of common stock, $ and 9,640,545 par value per share, outstanding as of June 30, 20212022 and December 31, 2020.2021, respectively.
Stock-Based Compensation
|
| Stock Options |
|
| Weighted average exercise price |
|
| Weighted average remaining contractual term |
|
| Aggregate intrinsic value |
| ||||
Outstanding as of January 1, 2021 |
|
|
|
| $ |
|
|
|
|
| $ |
| ||||
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Forfeited |
|
| ) |
|
|
|
|
|
|
|
|
|
|
| ||
Outstanding as of June 30, 2021 |
|
|
|
| $ |
|
|
|
|
| $ |
| ||||
Exercisable as of June 30, 2021 |
|
|
|
| $ |
|
|
|
|
| $ |
|
Stock Options | Weighted average exercise price | Weighted average remaining contractual term | Aggregate intrinsic value | |||||||||||||
Outstanding as of January 1, 2022 | 647,667 | $ | 5.53 | |||||||||||||
Granted | 27,000 | 3.17 | ||||||||||||||
Exercised | (4,000 | ) | 4.11 | |||||||||||||
Outstanding as of June 30, 2022 | 670,667 | $ | 5.45 | $ | 60 | |||||||||||
Exercisable as of June 30, 2022 | 643,667 | $ | 5.54 | $ | 60 |
On April 25, 2022, the Company awarded shares of restricted stock units (“RSU”) to an employee with the following vesting terms: (i) units on May 1, 2022, which are included in the calculation of basic EPS as of the vesting date, (ii) an additional units on May 1, 2023, and (iii) the remaining units on May 1, 2024, provided that the employee is employed by the Company or a subsidiary of the Company on each such 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 $ .
Number of units | Weighted-average grant-date fair value | |||||||
Unvested restricted stock units as of January 1, 2022 | — | $ | — | |||||
Units granted | 375,000 | 1,631 | ||||||
Units vested | (125,000 | ) | (544 | ) | ||||
Units forfeited | — | — | ||||||
Unvested restricted stock units as of June 30, 2022 | 250,000 | $ | 1,087 |
As of June 30, 2021,2022, there were shares available for future grants under the Company’s 20112021 Long-Term Incentive Plan.
Stock-based compensation expense recorded for the three and six months ended June 30, 2022 was approximately $2021, the Company had total2022, there was approximately $ .0 million of stock-based compensation expense remaining to be recognized in the interim consolidated statements of operations over a weighted average remaining period of approximately $. years. and $ , respectively. Stock-based compensation expense recorded for the three and six months ended June 30, 2021 was approximately $ and $ , respectively. All of the stock-based compensation expense is included in selling, general and administrative expenses in the accompanying interim consolidated statements of operations. At June 30,
11
The Company’s 2011 Long-Term Incentive Plan expired during the three months ended June 30, 2021 and there was no plan in effect at June 30, 2021.
Cash Dividend Declared
On June 1, 2021, the board of directors of the Company declared a special cash dividend of $ per common share, payable to shareholders of record as of June 22, 2021, to be paid on July 7, 2021. The Cash dividends paid in July of 2021 equal $ per share on the $ par value common stock resulting in an aggregate distribution of approximately $1.0 million representing a capital repayment paid from APIC.
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Numerator: | ||||||||||||||||
Net loss | $ | (2,517 | ) | $ | (686 | ) | $ | (3,305 | ) | $ | (335 | ) | ||||
Denominator: | ||||||||||||||||
Weighted average basic shares outstanding | 9,728 | 8,726 | 9,685 | 8,726 | ||||||||||||
Effect of dilutive securities - equity based compensation plans | — | — | — | — | ||||||||||||
Denominator for diluted net loss per common share | 9,728 | 8,726 | 9,685 | 8,726 | ||||||||||||
Net loss per common share: | ||||||||||||||||
Basic | $ | (0.26 | ) | $ | (0.08 | ) | $ | (0.34 | ) | $ | (0.04 | ) | ||||
Diluted | $ | (0.26 | ) | $ | (0.08 | ) | $ | (0.34 | ) | $ | (0.04 | ) |
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| $ | (686 | ) |
| $ | (660 | ) |
| $ | (335 | ) |
| $ | (3,581 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average basic shares outstanding |
|
| 8,726 |
|
|
| 8,726 |
|
|
| 8,726 |
|
|
| 8,726 |
|
Effect of dilutive securities - equity based compensation plans |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Denominator for diluted net loss per common share |
| $ | 8,726 |
|
| $ | 8,726 |
|
| $ | 8,726 |
|
| $ | 8,726 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | (0.08 | ) |
| $ | (0.08 | ) |
| $ | (0.04 | ) |
| $ | (0.41 | ) |
Diluted |
| $ | (0.08 | ) |
| $ | (0.08 | ) |
| $ | (0.04 | ) |
| $ | (0.41 | ) |
As of June 30, 2022 and 2021, diluted loss per share excludes and potentially dilutive common shares related to equity awards, as their effect was anti-dilutive.
12
12.11. BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION
The 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. As the Company makes decisions using a manufactured products vs. distributed products and services group focus, its analysis resulted in 2 reportable segments: T&D 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. business unit, together with sales and expenses attributable to the strategic sales group for its T&D Solutions marketing activities.unit.
The 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.
The following tables present information about segment income and loss:
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Revenues | ||||||||||||||||
T&D Solutions | ||||||||||||||||
Power Systems | $ | 1,969 | $ | 3,596 | $ | 5,356 | $ | 4,983 | ||||||||
Service | — | — | 10 | — | ||||||||||||
1,969 | 3,596 | 5,366 | 4,983 | |||||||||||||
Critical Power Solutions | ||||||||||||||||
Equipment | 463 | 159 | 1,578 | 685 | ||||||||||||
Service | 1,857 | 1,870 | 3,381 | 3,459 | ||||||||||||
Revenues | 2,320 | 2,029 | 4,959 | 4,144 | ||||||||||||
Consolidated | $ | 4,289 | $ | 5,625 | $ | 10,325 | $ | 9,127 |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| June 30, |
|
| June 30, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
T&D Solutions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Switchgear |
| $ | 3,596 |
|
| $ | 2,987 |
|
| $ | 4,983 |
|
| $ | 5,864 |
|
|
|
| 3,596 |
|
|
| 2,987 |
|
|
| 4,983 |
|
|
| 5,864 |
|
Critical Power Solutions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment |
|
| 159 |
|
|
| 225 |
|
|
| 685 |
|
|
| 480 |
|
Service |
|
| 1,870 |
|
|
| 1,875 |
|
|
| 3,459 |
|
|
| 3,744 |
|
|
|
| 2,029 |
|
|
| 2,100 |
|
|
| 4,144 |
|
|
| 4,224 |
|
Consolidated |
| $ | 5,625 |
|
| $ | 5,087 |
|
| $ | 9,127 |
|
| $ | 10,088 |
|
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Depreciation and amortization | ||||||||||||||||
T&D Solutions | $ | 11 | $ | 18 | $ | 21 | $ | 35 | ||||||||
Critical Power Solutions | 92 | 62 | 162 | 181 | ||||||||||||
Unallocated corporate overhead expenses | 7 | 7 | 14 | 14 | ||||||||||||
Consolidated | $ | 110 | $ | 87 | $ | 197 | $ | 230 |
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Operating loss | ||||||||||||||||
T&D Solutions | $ | (424 | ) | $ | (125 | ) | $ | (383 | ) | $ | (564 | ) | ||||
Critical Power Solutions | (757 | ) | (42 | ) | (911 | ) | (126 | ) | ||||||||
Unallocated corporate overhead expenses | (1,323 | ) | (578 | ) | (2,081 | ) | (1,162 | ) | ||||||||
Consolidated | $ | (2,504 | ) | $ | (745 | ) | $ | (3,375 | ) | $ | (1,852 | ) |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| June 30, |
|
| June 30, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
T&D Solutions |
| $ | 18 |
|
| $ | 33 |
|
| $ | 35 |
|
| $ | 68 |
|
Critical Power Solutions |
|
| 62 |
|
|
| 84 |
|
|
| 181 |
|
|
| 163 |
|
Unallocated corporate overhead expenses |
|
| 7 |
|
|
| 8 |
|
|
| 14 |
|
|
| 17 |
|
Consolidated |
| $ | 87 |
|
| $ | 125 |
|
| $ | 230 |
|
| $ | 248 |
|
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| June 30, |
|
| June 30, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Operating loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
T&D Solutions |
| $ | (125 | ) |
| $ | (626 | ) |
| $ | (564 | ) |
| $ | (1,403 | ) |
Critical Power Solutions |
|
| (42 | ) |
|
| (199 | ) |
|
| (126 | ) |
|
| (399 | ) |
Unallocated corporate overhead expenses |
|
| (578 | ) |
|
| (359 | ) |
|
| (1,162 | ) |
|
| (1,130 | ) |
Consolidated |
| $ | (745 | ) |
| $ | (1,184 | ) |
| $ | (1,852 | ) |
| $ | (2,932 | ) |
Revenues are attributable to countries based on the location of the Company’s customers:
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Revenues | ||||||||||||||||
United States | $ | 4,289 | $ | 5,625 | $ | 10,325 | $ | 9,127 |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| June 30, |
|
| June 30, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
| $ | 5,625 |
|
| $ | 5,087 |
|
| $ | 9,127 |
|
| $ | 10,088 |
|
13
12. LEASES
The 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 June 30, 2022 and December 31, 2021, assets recorded under finance leases were $1.2 million and $1.6 million, respectively, and accumulated amortization associated with finance leases were $420 and $1.1 million, respectively.
As of June 30, 2022 and December 31, 2021, assets recorded under operating leases were $2.5 million and $3.9 million, respectively, and accumulated amortization associated with operating leases were $1.0 million and $2.3 million, respectively. During the three months ended June 30, 2022, the Company executed two finance lease agreements for equipment at its Champlin, Minnesota location. After adjusting for a weighted average discount rate, the Company recognized a right-of-use asset and lease liability of approximately $395 within the consolidated balance sheets.
The components of the lease expense were as follows:
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Operating lease cost | $ | 188 | $ | 142 | $ | 375 | $ | 284 | ||||||||
Finance lease cost | ||||||||||||||||
Amortization of right-of-use asset | $ | 73 | $ | 50 | $ | 124 | $ | 156 | ||||||||
Interest on lease liabilities | 11 | 10 | 21 | 21 | ||||||||||||
Total finance lease cost | $ | 84 | $ | 60 | $ | 145 | $ | 177 |
Other information related to leases was as follows:
Supplemental Cash Flows Information
June 30, | ||||||||
2022 | 2021 | |||||||
Cash paid for amounts included in the measurement of lease liabilities | ||||||||
Operating cash flow payments for operating leases | $ | 372 | $ | 272 | ||||
Operating cash flow payments for finance leases | 21 | 21 | ||||||
Financing cash flow payments for finance leases | 135 | 163 | ||||||
Right-of-use assets obtained in exchange for lease obligations | ||||||||
Operating lease liabilities arising from obtaining right of use assets | 551 | — |
Weighted Average Remaining Lease Term
June 30, | ||||||||
2022 | 2021 | |||||||
Operating leases | 2 years | 4 years | ||||||
Finance leases | 3 years | 2 years |
Weighted Average Discount Rate
June 30, | ||||||||
2022 | 2021 | |||||||
Operating leases | 5.50% | 5.50% | ||||||
Finance leases | 6.56% | 6.80% |
Future minimum lease payments under non-cancellable leases as of June 30, 2022 were as follows:
Operating | Finance | |||||||
Leases | Leases | |||||||
2022 | $ | 369 | $ | 147 | ||||
2023 | 670 | 388 | ||||||
2024 | 508 | 158 | ||||||
2025 | 95 | 174 | ||||||
Thereafter | 24 | 108 | ||||||
Total future minmum lease payments | 1,666 | 975 | ||||||
Less imputed interest | (113 | ) | (112 | ) | ||||
Total future minmum lease payments | $ | 1,553 | $ | 863 |
Reported as of June 30, 2022:
Operating | Finance | |||||||
Leases | Leases | |||||||
Right-of-use assets | $ | 1,511 | $ | 826 |
Operating | Finance | |||||||
Leases | Leases | |||||||
Accounts payable and accrued liabilities | $ | 631 | $ | 345 | ||||
Other long-term liabilities | 922 | 518 | ||||||
Total | $ | 1,553 | $ | 863 |
15
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIOOPERATIONS.NS.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying consolidated interim financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and with our Annual Report on Form 10-K for the year ended December 31, 2020,2021, which was filed with the Securities and Exchange Commission on March 30, 2021.31, 2022.
Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to the “Company,” “Pioneer,” “we,” “our” and “us” refer to Pioneer Power Solutions, Inc. and its subsidiaries.
Special Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains “forward-looking statements,” which include information relating to future events, future financial performance, financial projections, strategies, expectations, competitive environment and regulation. Words such as “may,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates,” and similar expressions, as well as statements in future tense, identify forward-looking statements. Forward-looking statements should not be read as a guarantee of future performance or results and may not be accurate indications of when such performance or results will be achieved. Forward-looking statements are based on information we have when those statements are made or management’s good faith belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause such differences include, but are not limited to:
● | General economic conditions and their effect on demand for electrical equipment, particularly in the commercial construction market, but also in the power generation, industrial production, data center, oil and gas, marine and infrastructure industries. |
● | The effects of fluctuations in sales on our business, revenues, expenses, net income (loss), income (loss) per share, margins and profitability. |
● | Many of our competitors are better established and have significantly greater resources and may subsidize their competitive offerings with other products and services, which may make it difficult for us to attract and retain customers. |
● |
|
| The potential loss or departure of key personnel, including Nathan J. Mazurek, our chairman, president and chief executive officer. |
● | Our ability to generate internal growth, maintain market acceptance of our existing products and gain acceptance for our new products. |
● | Unanticipated increases in raw material prices or disruptions in supply could increase production costs and adversely affect our profitability. |
● | Our ability to realize revenue reported in our backlog. |
● | Operating margin risk due to competitive pricing and operating efficiencies, supply chain risk, material, labor or overhead cost increases, interest rate risk and commodity risk. |
● | Strikes or labor disputes with our employees may adversely affect our ability to conduct our business. |
● | The impact of geopolitical activity on the economy, changes in government regulations such as income taxes, climate control initiatives, the timing or strength of an economic recovery in our markets and our ability to access capital markets. |
● |
|
| Future sales of large blocks of our common stock may adversely impact our stock price. |
● | The liquidity and trading volume of our common stock. |
● | Our business could be adversely affected by an outbreak of disease, epidemic or pandemic, such as the global coronavirus pandemic, or similar public threat, or fear of such an event. |
The foregoing does not represent an exhaustive list of matters that may be covered by the forward-looking statements contained herein or risk factors that we are faced with that may cause our actual results to differ from those anticipated in our forward-looking statements. Moreover, new risks regularly emerge, and it is not possible for us to predict or articulate all risks we face, nor can we assess the impact of all risks on our business or the extent to which any risk, or combination of risks, may cause actual results to differ from those contained in any forward-looking statements. Except to the extent required by applicable laws or rules, we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. You should review carefully the risks and uncertainties described under the heading “Part II - Item 1A. Risk Factors” in this Quarterly Report on Form 10-Q and “Part I - Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 20202021 for a discussion of the foregoing and other risks that relate to our business and investing in shares of our common stock.
16
Business Overview
We design, manufacture, integrate, refurbish, service, distribute and sell electric power systems, distributed energy resources, power generation equipment and servicemobile electric vehicle (“EV”) charging solutions. Our products and services are sold to a broad range of specialty electrical transmission, distribution and on-site power generation equipment for applicationscustomers in the utility, industrial commercial and backup powercommercial markets. Our principal productscustomers include, but are not limited to, electric, gas and services include switchgearwater utilities, data center developers and engine-generator controls, complemented by a national field-service network to maintainowners, EV charging infrastructure developers and repair power generation assets. The Company isowners, and distributed energy developers. We are headquartered in Fort Lee, New Jersey and operatesoperate from three (3) additional locations in the U.S. for manufacturing, service and maintenance, engineering, and sales and administration.
Description of Business Segments
We have two reportable segments: Transmission & Distribution Solutions (“T&D Solutions”) and Critical Power Solutions (“Critical Power”).
● | Our T&D Solutions business provides equipment solutions that help customers effectively and efficiently protect, control, transfer, monitor and manage their |
● | Our Critical Power business |
Recent EventsTermination Agreement
Special Cash Dividend
On June 1, 2021, the board of directors of3, 2022, the Company declaredand CleanSpark Inc., 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 paid in July of 2021 equal $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 capitalNevada corporation (“APIC”CleanSpark”).
Distribution Agreement
As previously reported, on January 22, 2019, the Company, entered into a Contract Manufacturingtermination agreement (the “Termination Agreement”) to terminate the Distribution Agreement dated as of January 22, 2019 (the “Contract Manufacturing Agreement”),May 31, 2021, by and amongbetween the Company and CleanSpark. PursuantCleanSpark (the “Distribution Agreement”), pursuant to which CleanSpark served as the termsCompany’s exclusive distributor of the Contract Manufacturing Agreement, the Company manufactured parallel switchgears, automatic transfer switches and related products (collectively,(the “Products”) exclusively. Pursuant to the Termination Agreement, the Company agreed to, amongst others, (i) release CleanSpark from further liabilities due under the Distribution Agreement, including for purchase by CleanSpark. The Contract Manufacturingcertain future amounts due under the Distribution Agreement hadand certain accounts payable invoices, (ii) assume the responsibility of billing and collecting payment from Enchanted Rock Electric, LLC, a termthird party and mutual client of 18 months and expired on the 18-month anniversary of the execution of the Contract Manufacturing Agreement.
In connection with the expiry of the Contract Manufacturing Agreement,both the Company and CleanSpark entered into a Distribution Agreement (the “Distribution Agreement”), dated asfor 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 May 31, 2021,certain deposits advanced to the Company pursuant to which the Distribution Agreement.
CleanSpark will serve asadditionally transferred the Company’s exclusive distributorservices 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 within any geographic region in which CleanSpark conducts its business (the “Sales Channel”). The Company will serve as CleanSpark’s sole sourceincluding, but not limited to, all repairs, defects, and warranty liability of the Products and of any similar goods or products that would reasonably be deemed as interchangeable with such Products for sale within the Sales Channel. CleanSpark will purchase the Products via written purchase orders to the Company. The price for the Products sold under the Distribution Agreement will be determined on a job-by-job basis, provided that CleanSpark shall pay the Company 97% of the contract sales price of the Products to all end-use customers. The Distribution Agreement terminates on December 31, 2023 and may be extendedwere previously manufactured by mutual agreement of the Company and then distributed or sold by CleanSpark.
Critical Accounting Policies and Estimates
ThereOur financial statements have been no material changesprepared in accordance with U.S. GAAP. The preparation of our financial statements requires us to make estimates and assumptions that affect the amounts and disclosures in the financial statements. Our estimates are based on our historical experience, knowledge of current events and actions we may undertake in the future, and on various other factors that we believe are reasonable under the circumstances. Our critical accounting policies as disclosedand estimates are described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies” in our Annual Report on Form 10-K forfiled with the yearSEC on March 31, 2022. There were no material changes to our accounting policies during the six months ended December 31, 2020.June 30, 2022.
17
RESULTS OF OPERATIONS
Overview of the Three and Six Months Results
Selected financial and operating data for our reportable business segments for the most recent reporting period is summarized below. This information, as well as the selected financial data provided in Note 12“Note 11 - Business Segment and Geographic InformationInformation” and in our unaudited Consolidated Financial Statementsconsolidated financial statements and related notes included in this Quarterly Report on Form 10-Q, should be referred to when reading our discussion and analysis of results of operations below.
Our summary of operating results during the three and six months ended June 30, 20212022 and 20202021 are as follows:
|
| Three Months Ended |
|
| Six Months Ended |
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||||
|
| June 30, |
|
| June 30, |
| June 30, | June 30, | ||||||||||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
T&D Solutions |
| $ | 3,596 |
|
| $ | 2,987 |
|
| $ | 4,983 |
|
| $ | 5,864 |
| $ | 1,969 | $ | 3,596 | $ | 5,366 | $ | 4,983 | ||||||||
Critical Power Solutions |
|
| 2,029 |
|
|
| 2,100 |
|
|
| 4,144 |
|
|
| 4,224 |
| 2,320 | 2,029 | 4,959 | 4,144 | ||||||||||||
Consolidated |
|
| 5,625 |
|
|
| 5,087 |
|
|
| 9,127 |
|
|
| 10,088 |
| 4,289 | 5,625 | 10,325 | 9,127 | ||||||||||||
Cost of goods sold |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
T&D Solutions |
|
| 3,442 |
|
|
| 3,468 |
|
|
| 4,997 |
|
|
| 6,440 |
| 2,130 | 3,442 | 5,151 | 4,997 | ||||||||||||
Critical Power Solutions |
|
| 1,688 |
|
|
| 1,916 |
|
|
| 3,476 |
|
|
| 3,768 |
| 2,078 | 1,688 | 4,218 | 3,476 | ||||||||||||
Consolidated |
|
| 5,130 |
|
|
| 5,384 |
|
|
| 8,473 |
|
|
| 10,208 |
| 4,208 | 5,130 | 9,369 | 8,473 | ||||||||||||
Gross profit |
|
| 495 |
|
|
| (297 | ) |
|
| 654 |
|
|
| (120 | ) | 81 | 495 | 956 | 654 | ||||||||||||
Selling, general and administrative expenses |
|
| 1,215 |
|
|
| 839 |
|
|
| 2,456 |
|
|
| 2,734 |
| 2,557 | 1,215 | 4,277 | 2,456 | ||||||||||||
Depreciation and amortization expense |
|
| 25 |
|
|
| 38 |
|
|
| 50 |
|
|
| 78 |
| 28 | 25 | 54 | 50 | ||||||||||||
Foreign exchange loss |
|
| — |
|
|
| 10 |
|
|
| — |
|
|
| — |
| ||||||||||||||||
Total operating expenses |
|
| 1,240 |
|
|
| 887 |
|
|
| 2,506 |
|
|
| 2,812 |
| 2,585 | 1,240 | 4,331 | 2,506 | ||||||||||||
Operating loss from continuing operations |
|
| (745 | ) |
|
| (1,184 | ) |
|
| (1,852 | ) |
|
| (2,932 | ) | (2,504 | ) | (745 | ) | (3,375 | ) | (1,852 | ) | ||||||||
Interest income |
|
| (95 | ) |
|
| (77 | ) |
|
| (189 | ) |
|
| (188 | ) | (104 | ) | (95 | ) | (206 | ) | (189 | ) | ||||||||
Other expense (income) |
|
| 36 |
|
|
| (449 | ) |
|
| (1,307 | ) |
|
| 832 |
| 117 | 36 | 129 | (1,307 | ) | |||||||||||
Loss before taxes |
|
| (686 | ) |
|
| (658 | ) |
|
| (356 | ) |
|
| (3,576 | ) | ||||||||||||||||
Loss income before taxes | (2,517 | ) | (686 | ) | (3,298 | ) | (356 | ) | ||||||||||||||||||||||||
Income tax expense (benefit) |
|
| — |
|
|
| 2 |
|
|
| (21 | ) |
|
| 5 |
| — | — | 7 | (21 | ) | |||||||||||
Net loss |
| $ | (686 | ) |
| $ | (660 | ) |
| $ | (335 | ) |
| $ | (3,581 | ) | $ | (2,517 | ) | $ | (686 | ) | $ | (3,305 | ) | $ | (335 | ) |
Backlog
Our backlog is based on firm orders from our customers expected to be delivered in the future, most of which is expected to occur during the next twelve months. Backlog may vary significantly from reporting period to reporting period due to the timing of customer commitments. The time between receiptBacklog reflects the amount of an order and actual delivery, or completion,revenue we expect to realize upon the shipment of customer orders for our products and services variesthat are not yet complete or for which work has not yet begun. At June 30, 2022, backlog from oneour e-Bloc power systems solutions was approximately $15 million, or more days, in60% of the case of inventoried standard products, to three to nine months, in the case of certain custom engineered equipment solutions, and up to one year or more under our service contracts.total backlog.
The following table represents the progression of our backlog, by reporting segment, as of the end of the last five quarters:
June 30, | March 31, | December 31, | September 30, | June 30, | ||||||||||||||||
2022 | 2022 | 2021 | 2021 | 2021 | ||||||||||||||||
T&D Solutions | $ | 20,018 | $ | 18,732 | $ | 17,499 | $ | 5,032 | $ | 6,501 | ||||||||||
Critical Power Solutions | 5,141 | 5,222 | 5,349 | 5,823 | 6,225 | |||||||||||||||
Total order backlog | $ | 25,159 | $ | 23,954 | $ | 22,848 | $ | 10,855 | $ | 12,726 |
|
| June 30, |
|
| March 31, |
|
| December 31, |
|
| September 30, |
|
| June 30, |
| |||||
|
| 2021 |
|
| 2021 |
|
| 2020 |
|
| 2020 |
|
| 2020 |
| |||||
T&D Solutions |
| $ | 6,501 |
|
| $ | 10,210 |
|
| $ | 5,881 |
|
| $ | 3,872 |
|
| $ | 4,725 |
|
Critical Power Solutions |
|
| 6,225 |
|
|
| 6,934 |
|
|
| 6,792 |
|
|
| 7,472 |
|
|
| 7,420 |
|
Total order backlog |
| $ | 12,726 |
|
| $ | 17,144 |
|
| $ | 12,673 |
|
| $ | 11,344 |
|
| $ | 12,145 |
|
18
Revenue
The following table represents our revenues by reporting segment and major product category for the periods indicated:indicated (in thousands, except percentages):
|
| Three Months Ended |
|
| Six Months Ended |
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| June 30, |
|
| June 30, |
| June 30, | June 30, | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| Variance |
|
| % |
|
| 2021 |
|
| 2020 |
|
| Variance |
|
| % |
| 2022 | 2021 | Variance | % | 2022 | 2021 | Variance | % | ||||||||||||||||||||||||||||||||
T&D Solutions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
Switchgear |
| $ | 3,596 |
|
| $ | 2,987 |
|
| $ | 609 |
|
| 20.4 |
|
| $ | 4,983 |
|
| $ | 5,864 |
|
| $ | (881 | ) |
| (15.0 | ) | ||||||||||||||||||||||||||||||||||
Power Systems | $ | 1,969 | $ | 3,596 | $ | (1,627 | ) | (45.2 | ) | $ | 5,356 | $ | 4,983 | $ | 373 | 7.5 | ||||||||||||||||||||||||||||||||||||||||||||||||
Service | — | — | — | — | 10 | — | 10 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
| 3,596 |
|
|
| 2,987 |
|
|
| 609 |
|
|
| 20.4 |
|
|
| 4,983 |
|
|
| 5,864 |
|
|
| (881 | ) |
|
| (15.0 | ) | 1,969 | 3,596 | (1,627 | ) | (45.2 | ) | 5,366 | 4,983 | 383 | 7.7 | ||||||||||||||||||||||
Critical Power Solutions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
Equipment |
|
| 159 |
|
|
| 225 |
|
|
| (66 | ) |
|
| (29.3 | ) |
|
| 685 |
|
|
| 480 |
|
|
| 205 |
|
|
| 42.7 |
| 463 | 159 | 304 | 191.2 | 1,578 | 685 | 893 | 130.4 | ||||||||||||||||||||||||
Service |
|
| 1,870 |
|
|
| 1,875 |
|
|
| (5 | ) |
|
| (0.2 | ) |
|
| 3,459 |
|
|
| 3,744 |
|
|
| (285 | ) |
|
| (7.6 | ) | 1,857 | 1,870 | (13 | ) | (0.7 | ) | 3,381 | 3,459 | (78 | ) | (2.3 | ) | ||||||||||||||||||||
|
|
| 2,029 |
|
|
| 2,100 |
|
|
| (71 | ) |
|
| (3.4 | ) |
|
| 4,144 |
|
|
| 4,224 |
|
|
| (80 | ) |
|
| (1.9 | ) | 2,320 | 2,029 | 291 | 14.3 | 4,959 | 4,144 | 815 | 19.7 | ||||||||||||||||||||||||
Total revenue |
| $ | 5,625 |
|
| $ | 5,087 |
|
| $ | 538 |
|
|
| 10.6 |
|
| $ | 9,127 |
|
| $ | 10,088 |
|
| $ | (961 | ) |
|
| (9.5 | ) | $ | 4,289 | $ | 5,625 | $ | (1,336 | ) | (23.8 | ) | $ | 10,325 | $ | 9,127 | $ | 1,198 | 13.1 |
For the three months ended June 30, 2021,2022, our consolidated revenue increaseddecreased by $538,$1.3 million, or 10.6%23.8%, to $5.6$4.3 million, updown from $5.1$5.6 million during the three months ended June 30, 2020,2021, primarily due to an increasea decrease in sales of our switchgearpower systems from our T&D Solutions segment, slightly offset by a decrease in sales in our Critical Power Solutions segment.
For the six months ended June 30, 2021,2022, our consolidated revenue decreasedincreased by $961,$1.2 million, or 9.5%13.1%, to $9.1$10.3 million, downup from $10.1$9.1 million during the six months ended June 30, 20202021, primarily due to a reductionan increase in sales of our switchgearequipment from ourboth the T&D Solutions segment.and Critical Power segments.
T&D Solutions. During the three months ended June 30, 2021,2022, revenue fromfor our switchgearpower systems product lines increaseddecreased by $609,$1.6 million, or 20.4%45.2%, as compared to the three months ended June 30, 2020, as a result of increased sales of medium voltage switchgear, offset by a reduction in2021, primarily due to decreased sales of our automatic transfer switchesmedium and low voltage switchgear.power systems.
During the six months ended June 30, 2021,2022, revenue fromfor our switchgearpower systems product lines decreasedincreased by $881,$373, or 15%7.5%, as compared to the six months ended June 30, 2020, as a result of decreased2021, primarily due to increased sales of our e-Bloc power systems and automatic transfer switches and low voltage switchgear, offset by increaseda decrease in sales of our medium voltage switchgear.power systems.
Critical Power. For the three months ended June 30, 2021,2022, revenue for our equipment sales decreasedincreased by $66,$304, or 29.3%, as compared to the same period in the prior year. Revenue for our service sales decreased by $5, or 0.2%191.2%, as compared to the three months ended June 30, 2020.2022, primarily due to increased sales of our refurbished generation equipment and the recognition of $129 of sales from our suite of e-Boost products.
During the three months ended June 30, 2022, our service revenue decreased by $13, or 0.7%, as compared to the three months ended June 30, 2021.
For the six months ended June 30, 2021,2022, revenue for our equipment sales increased by $205,$893, or 42.7%, as compared to the same period in the prior year. Revenue for our service sales decreased by $285, or 7.6%130.4%, as compared to the six months ended June 30, 2020.2021, mainly due to increased sales of our refurbished generation equipment and the recognition of $917 of revenue from shipments of our suite of e-Boost products.
For the six months ended June 30, 2022, our service revenue decreased by $78, or 2.3%, as compared to the six months ended June 30, 2021, primarily due to the cyclicality of our preventative maintenance schedules.
19
Gross (Loss) Profit (Loss) and Gross Margin
The following table represents our gross (loss) profit (loss) by reporting segment for the periods indicated:indicated (in thousands, except percentages):
Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||
June 30, | June 30, | |||||||||||||||||||||||||||||||
2022 | 2021 | Variance | % | 2022 | 2021 | Variance | % | |||||||||||||||||||||||||
T&D Solutions | ||||||||||||||||||||||||||||||||
Gross (loss) profit | $ | (161 | ) | $ | 154 | $ | (315 | ) | 204.5 | $ | 215 | $ | (14 | ) | $ | 229 | 1,635.7 | |||||||||||||||
Gross margin % | (8.2 | ) | 4.3 | (12.5 | ) | 4.0 | (0.3 | ) | 4.3 | |||||||||||||||||||||||
Critical Power Solutions | ||||||||||||||||||||||||||||||||
Gross profit | 242 | 341 | (99 | ) | (29.0 | ) | 741 | 668 | 73 | 10.9 | ||||||||||||||||||||||
Gross margin % | 10.4 | 16.8 | (6.4 | ) | 14.9 | 16.1 | (1.2 | ) | ||||||||||||||||||||||||
Consolidated gross profit | $ | 81 | $ | 495 | $ | (414 | ) | (83.6 | ) | $ | 956 | $ | 654 | $ | 302 | 46.2 | ||||||||||||||||
Consolidated gross margin % | 1.9 | 8.8 | (6.9 | ) | 9.3 | 7.2 | 2.1 |
Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||
June 30, | June 30, | |||||||||||||||||||||||||||||||
2021 | 2020 | Variance | % | 2021 | 2020 | Variance | % | |||||||||||||||||||||||||
T&D Solutions | ||||||||||||||||||||||||||||||||
Gross profit (loss) | $ | 154 | $ | (481 | ) | $ | 635 | 132.0 | $ | (14 | ) | $ | (576 | ) | $ | 562 | 97.6 | |||||||||||||||
Gross margin % | 4.3 | (16.1 | ) | 20.4 | (0.3 | ) | (9.8 | ) | 9.5 | |||||||||||||||||||||||
Critical Power Solutions | ||||||||||||||||||||||||||||||||
Gross profit | 341 | 184 | 157 | 85.3 | 668 | 456 | 212 | 46.5 | ||||||||||||||||||||||||
Gross margin % | 16.8 | 8.8 | 8.0 | 16.1 | 10.8 | 5.3 | ||||||||||||||||||||||||||
Consolidated gross profit (loss) | $ | 495 | $ | (297 | ) | $ | 792 | (266.7 | ) | $ | 654 | $ | (120 | ) | $ | 774 | (645.0 | ) | ||||||||||||||
Consolidated gross margin % | 8.8 | (5.8 | ) | 14.6 | 7.2 | (1.2 | ) | 8.4 |
For the three months ended June 30, 2021,2022, our consolidated gross margin was 8.8%1.9% of revenues, compared to (5.8)% during the three months ended June 30, 2020.
For the six months ended June 30, 2021, our consolidated gross margin was 7.2% of revenues, compared to (1.2)% during the six months ended June 30, 2020.
T&D Solutions. For the three months ended June 30, 2021, our gross margin increased by 20.4%, to 4.3%, up from (16.1)% for the three months ended June 30, 2020, primarily due to the recognition of a $546 write down of inventory during the three months ended June 30, 2020 and no comparable write down being recognized8.8% during the three months ended June 30, 2021.
For the six months ended June 30, 2021,2022, our consolidated gross margin increased by 9.5%,was 9.3% of revenues, compared to (0.3)%, up from (9.8)% for7.2% during the six months ended June 30, 2020, primarily due to taking on higher margin contracts and the recognition of a $546 write down of inventory during2021.
T&D Solutions. For the three months ended June 30, 2020.2022, our gross margin percentage decreased by 12.5%, from 4.3% to (8.2)%, as compared to the three months ended June 30, 2021. The decrease was primarily due to decreased sales of our medium and low voltage power systems and the sale of stock inventory at a loss.
For the six months ended June 30, 2022, our gross margin percentage increased by 4.3%, from (0.3)% to 4.0%, as compared to the six months ended June 30, 2021. The increase in our gross margin percentage was primarily due to increased sales of our e-Bloc power systems and automatic transfer switches, a favorable sales mix and improved productivity from our manufacturing facility.
Critical Power. For the three months ended June 30, 2021,2022, our gross margin increaseddecreased by 8.0%6.4%, to 16.8%10.4%, up from 8.8%16.8% for the three months ended June 30, 2020, predominately2021, primarily due to a reductionan unfavorable sales mix and an increase in overhead costs.
For the six months ended June 30, 2021,2022, our gross margin increaseddecreased by 5.3%1.2%, to 16.1%14.9%, up from 10.8%16.1% for the six months ended June 30, 2020, predominately due to a reduction in overhead costs.2021.
20
Operating Expenses
The following table represents our operating expenses by reportable segment for the periods indicated:indicated (in thousands, except percentages):
Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||
June 30, | June 30, | |||||||||||||||||||||||||||||||
2022 | 2021 | Variance | % | 2022 | 2021 | Variance | % | |||||||||||||||||||||||||
T&D Solutions | ||||||||||||||||||||||||||||||||
Selling, general and administrative expense | $ | 261 | $ | 274 | $ | (13 | ) | (4.7 | ) | $ | 595 | $ | 538 | $ | 57 | 10.6 | ||||||||||||||||
Depreciation and amortization expense | 2 | 5 | (3 | ) | (60.0 | ) | 3 | 11 | (8 | ) | (72.7 | ) | ||||||||||||||||||||
Segment operating expense | $ | 263 | $ | 279 | $ | (16 | ) | (5.7 | ) | $ | 598 | $ | 549 | $ | 49 | 8.9 | ||||||||||||||||
Critical Power Solutions | ||||||||||||||||||||||||||||||||
Selling, general and administrative expense | $ | 980 | $ | 370 | $ | 610 | 164.9 | $ | 1,615 | $ | 770 | $ | 845 | 109.7 | ||||||||||||||||||
Depreciation and amortization expense | 19 | 13 | 6 | 46.2 | 37 | 25 | 12 | 48.0 | ||||||||||||||||||||||||
Segment operating expense | $ | 999 | $ | 383 | $ | 616 | 160.8 | $ | 1,652 | $ | 795 | $ | 857 | 107.8 | ||||||||||||||||||
Unallocated Corporate Overhead Expenses | ||||||||||||||||||||||||||||||||
Selling, general and administrative expense | $ | 1,316 | $ | 571 | $ | 745 | 130.5 | $ | 2,067 | $ | 1,148 | $ | 919 | 80.1 | ||||||||||||||||||
Depreciation and amortization expense | 7 | 7 | — | — | 14 | 14 | — | — | ||||||||||||||||||||||||
Segment operating expense | $ | 1,323 | $ | 578 | $ | 745 | 128.9 | $ | 2,081 | $ | 1,162 | $ | 919 | 79.1 | ||||||||||||||||||
Consolidated | ||||||||||||||||||||||||||||||||
Selling, general and administrative expense | $ | 2,557 | $ | 1,215 | $ | 1,342 | 110.5 | $ | 4,277 | $ | 2,456 | $ | 1,821 | 74.1 | ||||||||||||||||||
Depreciation and amortization expense | 28 | 25 | 3 | 12.0 | 54 | 50 | 4 | 8.0 | ||||||||||||||||||||||||
Consolidated operating expense | $ | 2,585 | $ | 1,240 | $ | 1,345 | 108.5 | $ | 4,331 | $ | 2,506 | $ | 1,825 | 72.8 |
Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||
June 30, | June 30, | |||||||||||||||||||||||||||||||
2021 | 2020 | Variance | % | 2021 | 2020 | Variance | % | |||||||||||||||||||||||||
T&D Solutions | ||||||||||||||||||||||||||||||||
Selling, general and administrative expense | $ | 274 | $ | 131 | $ | 143 | 109.2 | $ | 538 | $ | 798 | $ | (260 | ) | (32.6 | ) | ||||||||||||||||
Depreciation and amortization expense | 5 | 14 | (9 | ) | (64.3 | ) | 11 | 29 | (18 | ) | (62.1 | ) | ||||||||||||||||||||
Segment operating expense | $ | 279 | $ | 145 | $ | 134 | 92.4 | $ | 549 | $ | 827 | $ | (278 | ) | (33.6 | ) | ||||||||||||||||
Critical Power Solutions | ||||||||||||||||||||||||||||||||
Selling, general and administrative expense | $ | 370 | $ | 367 | $ | 3 | 0.8 | $ | 770 | $ | 824 | $ | (54 | ) | (6.6 | ) | ||||||||||||||||
Depreciation and amortization expense | 13 | 16 | (3 | ) | (18.8 | ) | 25 | 31 | (6 | ) | (19.4 | ) | ||||||||||||||||||||
Segment operating expense | $ | 383 | $ | 383 | $ | — | — | $ | 795 | $ | 855 | $ | (60 | ) | (7.0 | ) | ||||||||||||||||
Unallocated Corporate Overhead Expenses | ||||||||||||||||||||||||||||||||
Selling, general and administrative expense | $ | 571 | $ | 341 | $ | 230 | 67.4 | $ | 1,148 | $ | 1,112 | $ | 36 | 3.2 | ||||||||||||||||||
Depreciation and amortization expense | 7 | 8 | (1 | ) | (12.5 | ) | 14 | 18 | (4 | ) | (22.2 | ) | ||||||||||||||||||||
Foreign exchange loss | — | 10 | (10 | ) | (100.0 | ) | — | — | — | — | ||||||||||||||||||||||
Segment operating expense | $ | 578 | $ | 359 | $ | 219 | 61.0 | $ | 1,162 | $ | 1,130 | $ | 32 | 2.8 | ||||||||||||||||||
Consolidated | ||||||||||||||||||||||||||||||||
Selling, general and administrative expense | $ | 1,215 | $ | 839 | $ | 376 | 44.8 | $ | 2,456 | $ | 2,734 | $ | (278 | ) | (10.2 | ) | ||||||||||||||||
Depreciation and amortization expense | 25 | 38 | (13 | ) | (34.2 | ) | 50 | 78 | (28 | ) | (35.9 | ) | ||||||||||||||||||||
Foreign exchange loss | — | 10 | (10 | ) | (100.0 | ) | — | — | — | — | ||||||||||||||||||||||
Consolidated operating expense | $ | 1,240 | $ | 887 | $ | 353 | 39.8 | $ | 2,506 | $ | 2,812 | $ | (306 | ) | (10.9 | ) |
Selling, General and Administrative Expense. For the three months ended June 30, 2021,2022, consolidated selling, general and administrative expense, before depreciation and amortization, increased by approximately $376,$1.3 million, or 44.8%110.5%, to $1.2$2.6 million, due to an increase in payroll related costs, professional feesincluding stock-based compensation, and commissions,product development costs related to our e-Boost and e-Bloc initiatives, as compared to $839$1.2 million during the three months ended June 30, 2020.2021. As a percentage of our consolidated revenue, selling, general and administrative expense, before depreciation and amortization, increased to 21.6%59.6% during the three months ended June 30, 2021, as compared to 16.5%21.6% in the three months ended June 30, 2020.2021.
For the six months ended June 30, 2021,2022, consolidated selling, general and administrative expense, before depreciation and amortization, decreasedincreased by approximately $278,$1.8 million, or 10.2%71.1%, to $2.5$4.3 million, as compared to $2.7$2.5 million during the six months ended June 30, 2020,2021, primarily due to a reduction in professional fees related to the then-pending case titled Myers Power Products, Inc. v. Pioneer Power Solutions, Inc., Pioneer Custom Electrical Products, Corp., et al., Los Angeles County Superior Court Case No. BC606546 (the “Myers Power Case”), which was settled on November 20, 2020, offset by an increase in payroll related costs, including stock-based compensation, and commissions.product development costs related to our e-Boost and e-Bloc initiatives. As a percentage of our consolidated revenue, selling, general and administrative expense, decreasedbefore depreciation and amortization, increased to 41.4% during the six months ended June 30, 2022, as compared to 26.9% during the six months ended June 30, 2021, as compared to 27.1% in the six months ended June 30, 2020.2021.
Depreciation and Amortization Expense. Depreciation and amortization expense consists primarily of depreciation of fixed assets and amortization of definite-lived intangible assets and right-of-use assets related to our finance leases and excludes amounts included in cost of sales. For the three months ended June 30, 2022, consolidated depreciation and amortization expense increased by $3, or 12.0%, as compared to the three months ended June 30, 2021.
For the six months ended June 30, 2021,2022, consolidated depreciation and amortization expense decreasedincreased by $13,$4, or 34.2%8.0%, and $28, or 35.9%, respectively, as compared to the three and six months ended June 30, 2020.2021.
Operating Loss
The following table represents our operating loss by reportable segment for the periods indicated:indicated (in thousands, except percentages):
Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||
June 30, | June 30, | |||||||||||||||||||||||||||||||
2021 | 2020 | Variance | % | 2021 | 2020 | Variance | % | |||||||||||||||||||||||||
T&D Solutions | $ | (125 | ) | $ | (626 | ) | $ | 501 | 80.0 | $ | (564 | ) | $ | (1,403 | ) | $ | 840 | 59.9 | ||||||||||||||
Critical Power Solutions | (42 | ) | (199 | ) | 157 | 78.9 | (126 | ) | (399 | ) | 272 | 68.2 | ||||||||||||||||||||
Unallocated corporate overhead expenses | (578 | ) | (359 | ) | (219 | ) | (61.0 | ) | (1,162 | ) | (1,130 | ) | (32 | ) | (2.8 | ) | ||||||||||||||||
Total operating loss | $ | (745 | ) | $ | (1,184 | ) | $ | 439 | (37.1 | ) | $ | (1,852 | ) | $ | (2,932 | ) | $ | 1,080 | 36.8 |
Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||
June 30, | June 30, | |||||||||||||||||||||||||||||||
2022 | 2021 | Variance | % | 2022 | 2021 | Variance | % | |||||||||||||||||||||||||
T&D Solutions | $ | (424 | ) | $ | (125 | ) | $ | (299 | ) | (239.2 | ) | $ | (383 | ) | $ | (564 | ) | $ | 181 | 32.1 | ||||||||||||
Critical Power Solutions | (757 | ) | (42 | ) | (715 | ) | (1,702.4 | ) | (911 | ) | (126 | ) | (785 | ) | (623.0 | ) | ||||||||||||||||
Unallocated corporate overhead expenses | (1,323 | ) | (578 | ) | (745 | ) | (128.9 | ) | (2,081 | ) | (1,162 | ) | (919 | ) | (79.1 | ) | ||||||||||||||||
Total operating loss | $ | (2,504 | ) | $ | (745 | ) | $ | (1,759 | ) | 236.1 | $ | (3,375 | ) | $ | (1,852 | ) | $ | (1,523 | ) | (82.2 | ) |
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T&D Solutions. DuringOperating loss from our T&D Solutions segment increased by $299, or 239.2%, during the three months ended June 30, 2022, as compared to the three months ended June 30, 2021, primarily due a decrease in sales of our power systems, an increase in product development costs related to our e-Bloc initiative and the sale of stock inventory at a loss during the three months ended June 30, 2022.
For the six months ended June 30, 2021,2022, operating loss from our T&D Solutions segment generated an operating loss of $125 and $564, respectively,decreased by $181, or 32.1%, as compared to an operating loss of $626 and $1.4 million for$564 during the same respective periods in 2020. The decrease in operating loss for the three and six months ended June 30, 2021, as compared to the corresponding periods in 2020, is primarily due to an increase in sales of our power systems, a favorable sales mix and improved productivity from our manufacturing facility.
Critical Power. Operating loss for the recognition of a $546 write down of inventoryCritical Power segment increased by $715, or 1,702.4% during the three months ended June 30, 2020,2022, primarily due to recognizing product development and promotion fees related to our e-Boost initiative during the three months ended June 30, 2022, as compared to no comparable write down beingproduct development or promotion fees recognized during the three and months ended June 30, 2021.
Critical Power. DuringFor the three and six months ended June 30, 2021,2022, operating loss from our Critical Power segment generated an operating loss of $42 and $126, respectively, as compared to an operating loss of $199 and $399increased by $785, or 623.0% during the three and six months ended June 30, 2020, respectively. The decrease in operating loss for2022, primarily due to recognizing product development and promotion fees related to our e-Boost initiative during the three and six months ended June 30, 2021 is due primarily2022, as compared to a reduction in overhead costs.no product development or promotion fees recognized during the six months ended June 30, 2021.
General Corporate Expense. Our general corporate expense is comprisedexpenses consist primarily of executive management, corporate accounting and human resources personnel, corporate office expenses, financing and corporate development activities, payroll and benefits administration, treasury, tax compliance, legal, stock-based compensation, and public reporting costs and costs not specifically allocated to reportable business segments.
During the three and six months ended June 30, 2021,2022, our unallocated corporate overhead expense increased by $219,$745, or 61.0%128.9%, to $578, and by $32, or 2.8%, to $1,162, as compared to the three and six months ended June 30, 20202021, primarily due to an increase in payroll related costsexpenses, including stock-based compensation, and business travel related costs.
During the six months ended June 30, 2022, our unallocated corporate overhead expense increased by $919, or 79.1%, as compared to the six months ended June 30, 2021, primarily due to an increase in payroll related expenses, including stock-based compensation, professional fees.fees and business travel related costs.
Non-Operating (Income) Expense
Interest Income. For the three and six months ended June 30, 2021,2022, the Company had interest income of approximately $95$104 and $189,$206, respectively, as compared to interest income of approximately $77$95 and $188$189 during the three and six months ended June 30, 2020,2021, respectively. The Company generatesWe generate the majority of itsour interest income from the Seller Notes itwe received from the sale of the transformer business units in August 2019 and itsour cash on hand.
Other Expense (Income). ForOther expense (income) in the unaudited interim consolidated statements of operations reports certain gains and losses associated with activities not directly related to our core operations. During the three months ended June 30, 2021,2022, other expense was $36,$117, as compared to other incomeexpense of $449$36 during the three months ended June 30, 2020. For the three months ended June 30, 2020, included in other income was a gain of $384 related to the mark to market adjustment on the fair value of the CleanSpark Common Stock and warrants.2021.
ForDuring the six months ended June 30, 2021,2022, other incomeexpense was $1.3 million,$129, as compared to other expenseincome of $832$1.3 million during the six months ended June 30, 2020.2021. For the six months ended June 30, 2021, included in other income was a gain of $1.4 million for the extinguishment and forgiveness of the PPP Loan.
On 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. The 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.
Under 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 six months ended June 30, 2021 and recognized a $1.4 million gain on extinguishment and forgiveness of debt in other income.
Income Tax Expense (Benefit). Our effective income tax rate for the three months ended June 30, 2022 and 2021 was 0.0%.
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For the six months ended June 30, 2020, included in other expense was a loss of $759 related to the mark to market adjustment on the fair value of the CleanSpark Common Stock and warrants.
Income Tax (Benefit) Expense. Our effective income tax rate was 0.0% for the three months ended June 30, 2021, compared to (0.3)% during the three months ended June 30, 2020. For the six months ended June 30, 2021,2022, our effective income tax rate was 5.9%(0.2)%, as compared to an income tax rate of (0.1)%5.9% during the six months ended June 30, 2020,2021, as set forth below:
Three Months Ended | Six Months Ended | |||||||||||||||||||||||
June 30, | June 30, | |||||||||||||||||||||||
2022 | 2021 | Variance | 2022 | 2021 | Variance | |||||||||||||||||||
Loss income before income taxes | $ | (2,517 | ) | $ | (686 | ) | $ | (1,831 | ) | $ | (3,298 | ) | $ | (356 | ) | $ | (2,942 | ) | ||||||
Income tax expense (benefit) | — | — | — | 7 | (21 | ) | 28 | |||||||||||||||||
Effective income tax rate % | — | — | — | (0.2 | ) | 5.9 | (6.1 | ) |
Three Months Ended | Six Months Ended | |||||||||||||||||||||||
June 30, | June 30, | |||||||||||||||||||||||
2021 | 2020 | Variance | 2021 | 2020 | Variance | |||||||||||||||||||
Loss before income taxes | $ | (686 | ) | $ | (658 | ) | $ | (28 | ) | $ | (356 | ) | $ | (3,576 | ) | $ | 3,220 | |||||||
Income tax (benefit) expense | — | 2 | (2 | ) | (21 | ) | 5 | (26 | ) | |||||||||||||||
Effective income tax rate % | — | (0.3 | ) | 0.3 | 5.9 | (0.1 | ) | 6.0 |
Net Loss per Share
We generated a net loss of $2.5 million during the three months ended June 30, 2022, as compared to net loss of $686 during the three months ended June 30, 2021, as compared to $660 during the three months ended June 30, 2020. 2021.
Our net loss per basic and diluted share for the three months ended June 30, 20212022 was $0.08,$0.26, as compared to a net loss per basic and diluted share of $0.08 for the three months ended June 30, 2020.2021.
We generated a net loss of $3.3 million during the six months ended June 30, 2022, as compared to net loss of $335 during the six months ended June 30, 2021, as compared to net loss of $3.6 million during the six months ended June 30, 2020. 2021.
Our net loss per basic and diluted share for the six months ended June 30, 20212022 was $0.04,$0.34, as compared to a net loss per basic and diluted share of $0.41$0.04 for the six months ended June 30, 2020.2021.
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LIQUIDITY AND CAPITAL RESOURCES
General. At June 30, 2021,2022, we had $5.1$9.8 million of cash on hand.hand generated primarily from the sale of common stock under the At The Market Sale Agreement (the “ATM Program”). We have historically met our cash needs through a combination of cash flows from operating activities and bank borrowings.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, proceeds from the sale of common stock under the ATM Program and funding from the Payroll Protection Program. Our cash requirements have beenhistorically were generally applied towardfor operating activities, debt repayment, capital improvements and acquisitions.
The 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 unaudited interim consolidated statement of cash flows:
June 30, | December 31, | |||||||
2022 | 2021 | |||||||
Cash | $ | 9,785 | $ | 9,924 | ||||
Restricted cash | — | 1,775 | ||||||
Total cash and restricted cash as shown in the statement of cash flows | $ | 9,785 | $ | 11,699 |
June 30, | December 31, | |||||||
2021 | 2020 | |||||||
Cash | $ | 5,134 | $ | 7,567 | ||||
Restricted cash | 1,775 | — | ||||||
Total cash and restricted cash as shown in the statement of cash flows | $ | 6,909 | $ | 7,567 |
The Company has restricted cash of approximately $1.8 million as a result of executing a cash collateral security agreement with a commercial bank which 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.
On 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.
The full impact of the ongoing COVID-19 pandemic continues to evolve as the date of this report. As such, it iscontinues to be uncertain as to the full magnitude that the pandemic will have on the Company’s financial condition, liquidity, and future results of operations. During the three months ended June 30, 2021, the Company experienced an impact to productivity as a result of following social distancing guidelines and practicing personal protective measures. Notwithstanding, theThe 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 continuing crisis, 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.
On 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.
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Under the terms of the PPP Loan, the Company was eligible for full or partial loan forgiveness. During the first quarter ofsix months ended June 30, 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 other expense (income).the audited consolidated statements of operations.
Cash Provided by/ (Used in)Used in Operating Activities. Cash provided byused in our operating activities was $1.2$1.6 million during the six months ended June 30, 2021,2022, as compared to cash used in our operating activities of $1.2 million$433 during the six months ended June 30, 2020.2021. The increase in cash used in operating activities is primarily due to working capital fluctuations.
Cash (Used in)/ Provided byUsed in Investing Activities. Cash used in investing activities during the six months ended June 30, 20212022 was $62,$174, as compared to $62 of cash provided byused in investing activities of $194 during the six months ended June 30, 2020.2021. Additions to property and equipment during the six months ended June 30, 2022 were $198, as compared to $62 additions to property and equipment during the six months ended June 30, 2021.
Cash (Used in)/ Provided byUsed in Financing Activities. Cash used in our financing activities was $1.8 million$119 during the six months ended June 30, 2021,2022, as compared to cash provided by financing activities of $337$163 during the six months ended June 30, 2020.2021. The primary use of cash in financing activities for the six months ended June 30, 2022 and 2021 was repayments of financing leases, and the primary source of cash in financing activities for the six months ended June 30, 2021 was gain on the extinguishment and forgiveness of the PPP Loan.leases.
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Working Capital. As of June 30, 2021,2022, we had working capital of $6.5$15.4 million, including $6.9$9.8 million of cash and restricted cash, compared to working capital of $8.4$18.6 million, including $7.6$9.9 million of cash and $1.8 million of restricted cash at December 31, 2020. At June 30, 2021 and December 31, 2020, we no longer had a revolving credit facility, as it was paid in full in August 2019 with the proceeds from the sale of the transformer business units.2021.
Assessment of Liquidity. At June 30, 2021,2022, we had $5.1$9.8 million of cash on hand generated primarily from the sale of common stock under the ATM Program during the year ended December 31, 2021. 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, proceeds from the sale of common stock under the ATM Program and funding from the PPP Loan. We have historically met our cash needs through a combination of cash flows from operating activities and bank borrowings.Payroll Protection Program. Our cash requirements historically were generally for operating activities, debt repayment, capital improvements and acquisitions.
On June 1, 2021, theour 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 Cashcash dividends were paid in July of 2021 equaland 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 APIC.
As all outstanding amountsOn November 8, 2021, we sold 888,500 shares of common stock under our credit facilities have been paidthe 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 H.C. Wainwright & Co., LLC), resulting in full withnet proceeds of approximately $8.7 million. On December 13, 2021, we filed a new sales agreement prospectus supplement related to the proceeds fromRegistration Statement, which covers the offering, issuance and sale of up to a maximum aggregate offering price of $8.6 million of common stock that may be issued and sold under the transformer business unitsAt The Market Sale Agreement. We did not sell any shares of common stock under the new sales agreement prospectus supplement during the six months ended June 30, 2022. As of June 30, 2022, $8.6 million of common stock remained available for issuance under the ATM Program.
During the year ended December 31, 2019,2021, we 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, we amended our agreement with the commercial bank to decrease the required amount of cash collateral by $1.3 million. On May 6, 2022, we received notice that the cash collateral security agreement we 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 credit facilities terminated, weremaining cash collateral of $505. We had no restricted cash on the consolidated balance sheets at June 30, 2022.
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, capital improvements and capital improvements.product development. We expect that product development and promotional activities related to our new initiatives will continue in the near future and expect to continue to incur costs related to such activities. We expect that our cash balance is sufficient to fund operations for the next twelve months.
As of June 30, 2022, we had no off-balance sheet transactions, arrangements, obligations (including contingent obligations), or other relationships with unconsolidated entities or other persons that had, or that may have, a material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
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Capital Expenditures
OurThe Company had $198 of additions to property plant and equipment were $62 during the six months ended June 30, 20212022, as compared to no$62 of additions to property and equipment during the six months ended June 30, 2020. At June 30, 2021 and 2020, we no longer had a revolving credit facility as it was paid in full and terminated in August 2019 with the proceeds from the sale of the transformer business units.2021.
24Known Trends, Events, Uncertainties and Factors That May Affect Future Operations
We believe that our future operating results will continue to be subject to quarterly variations based upon a wide variety of factors, including the cyclical nature of the electrical equipment industry and the markets for our products and services. Our operating results could also be impacted by changing customer requirements and exposure to fluctuations in prices of important raw supplies, such as copper, steel and aluminum. We have various insurance policies, including cybersecurity, covering risks in amounts that we consider adequate. In addition to these measures, we attempt to recover other cost increases through improvements to our manufacturing efficiency and through increases in prices where competitively feasible. Lastly, other economic conditions we cannot foresee may affect customer demand. The impact of the ongoing COVID-19 pandemic, including the Omicron variant of COVID-19, which appears to be the most transmissible variant to-date, and the subvariant, BA.5, is currently indeterminable and rapidly evolving, and has affected and may continue to affect our operations and the global economy. In addition, the consequences of the ongoing conflict between Russia and Ukraine, including related sanctions and countermeasures, are difficult to predict, and could adversely impact geopolitical and macroeconomic conditions, the global economy, and contribute to increased market volatility, which may in turn adversely affect our business and operations. We predominately sell to customers in the industrial production and commercial construction markets. Accordingly, changes in the condition of any of our customers may have a greater impact than if our sales were more evenly distributed between different end markets. For a further discussion of factors that may affect future operating results see the sections entitled “Special Note Regarding Forward-Looking Statements” in this Quarterly Report on Form 10-Q and “Part I - Item 1A. Risk Factors” in our Annual Report on Form 10-K.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
Management’s Conclusions Regarding Effectiveness of Disclosure Controls and Procedures
We conducted an evaluation of the effectiveness of our “disclosure controls and procedures” (“Disclosure Controls”), as defined by Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of June 30, 20212022 (the “Evaluation Date”), the end of the period covered by this Quarterly Report on Form 10-Q. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures. As of June 30, 2021,2022, based on the evaluation of these disclosure controls and procedures, our chief executive officer and chief financial officer have concluded that our disclosure controls and procedures were effective at the reasonable assurance level.
Management believes that the condensed consolidated financial statements in this Quarterly Report on Form 10-Q fairly present, in all material respects, the Company’s financial condition as of the Evaluation Date, and results of its operations and cash flows for the Evaluation Date, in conformity with United States Generally Accepted Accounting Principles.U.S. GAAP.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting during the quarter ended June 30, 20212022 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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 in the prior two fiscal years.
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). The Company 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”). Case no. B301494 was an appeal of the October 4, 2019 order modifying a previously issued preliminary injunction. Case no. 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 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.
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.
ITEM 1A. RISK FACTORS
There have been no material changes fromA description of the risk factors disclosedrisks associated with our business, financial condition and results of operations is set forth in “Item 1A. Risk Factors” of our Annual Reportannual report on Form 10-K for the fiscal year ended December 31, 2020.2021, as filed with the Securities and Exchange Commission on March 31, 2022, and are supplemented with the following revised risk factors:
We currently derive a significant portion of our revenues from a few customers. Material or significant loss of business from these customers could have an adverse effect on our business, financial condition and operating results.
We currently derive a large portion of our revenues from a few customers, and material or significant loss of business from these customers could have a significant impact on our results of operations. As of June 30, 2022, three customers accounted for approximately 42% of our sales: CleanSpark accounted for approximately 14%, which were revenues recorded prior to the termination of the Distribution Agreement on June 3, 2022; Enchanted Rock, LLC became one of our largest customers following the termination of the Distribution Agreement and accounted for approximately 11%; and a utility company based in California accounted for approximately 17%. We expect that, following the termination of the Distribution Agreement, Enchanted Rock, LLC will constitute a large portion of our business, and material or significant loss of business from this customer could have an adverse effect on our business, financial condition and operating results.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
See the Exhibit Index following the signature page to this Quarterly Report on Form 10-Q for a list of exhibits filed or furnished with this report, which Exhibit Index is incorporated herein by reference.
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EXHIBIT INDEX
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No. | Description | ||
10.1 | |||
| |||
10.3 | Termination Agreement, dated as of June 3, 2022, between Pioneer Power Solutions, Inc. and CleanSpark, Inc. | ||
31.1* | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
31.2* | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
32.1* | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
32.2* | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
101.INS*
| 101.SCH*
| 101.CAL*
| |
|
101.LAB* 101.PRE* 104 |
Inline XBRL Taxonomy Extension Schema Document. Inline XBRL Taxonomy Extension Calculation Linkbase Document. Inline XBRL Taxonomy Extension Definition Linkbase Document. Inline XBRL Taxonomy Extension Labels Linkbase Document. Inline XBRL Taxonomy Extension Presentation Linkbase Document. Cover Page Interactive Data File (formatted as inline XBRL and contained in |
_______________
* Filed herewith.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
PIONEER POWER SOLUTIONS, INC. | ||
Date: August | By: | /s/ Nathan J. Mazurek |
Name: Nathan J. Mazurek | ||
Title: Chief Executive Officer | ||
Date: August | /s/ Walter Michalec |
Name: Walter Michalec | |
Title: Chief Financial Officer
(Principal Financial Officer duly authorized to sign on behalf of Registrant)
|