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 March 31,June 30, 2022

OR

  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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)

(212(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

NasdaqCapital 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 May 16,August 15, 2022 was 9,644,545.

 

 

 

PIONEER POWER SOLUTIONS, INC.

Form 10-Q

For the Quarterly Period Ended March 31,June 30, 2022

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

Page

Item 1. Financial Statements

1

Unaudited Consolidated Statements of Operations for the Three and Six Months Ended March 31,June 30, 2022 and 2021

    1

Consolidated Balance Sheets at March 31,June 30, 2022 (Unaudited) and December 31, 2021

    2

Unaudited Consolidated Statements of Cash Flows for the ThreeSix Months Ended March 31,June 30, 2022 and 2021

    3

Unaudited Consolidated Statement of Stockholders’ Equity for the Three and Six Months Ended March 31,June 30, 2022 and 2021

    4

Notes to Unaudited Consolidated Financial Statements

    5

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     15

  16

Item 3. Quantitative and Qualitative Disclosures About Market Risk

      22

   25

Item 4. Controls and Procedures

      22

   25

PART II. OTHER INFORMATION

PART II. OTHER INFORMATION 

Item 1. Legal Proceedings

      24

   26

Item 1A. Risk Factors

       24

   26

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

      24

   26

Item 3. Defaults Upon Senior Securities

      24

   26

Item 4. Mine Safety Disclosures

      24

   26

Item 5. Other Information

      24

   26

Item 6.  Exhibits

      24

   27


 

 

PARTPART I - FINANCIAL INFORMATION

ItemItem 1. FINANCIAL STATEMENTS

PIONEER POWER SOLUTIONS, INC.

ConsolidatedConsolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)

                 

 

Three Months Ended

 

 Three Months Ended Six Months Ended 

 

March 31,

 

 June 30,  June 30, 

 

2022

 

 

2021

 

 2022  2021  2022  2021 

Revenues

 

$

6,036

 

 

$

3,502

 

 $4,289  $5,625  $10,325  $9,127 

Cost of goods sold

 

 

5,161

 

 

 

3,343

 

  4,208   5,130   9,369   8,473 

Gross profit

 

 

875

 

 

 

159

 

  81   495   956   654 

Operating expenses

 

 

 

 

 

 

 

 

                

Selling, general and administrative

 

 

1,746

 

 

 

1,265

 

  2,585   1,240   4,331   2,506 

Total operating expenses

 

 

1,746

 

 

 

1,265

 

  2,585   1,240   4,331   2,506 

Loss from continuing operations

 

 

(871

)

 

 

(1,106

)

Loss from operations  (2,504)  (745)  (3,375)  (1,852)

Interest income

 

 

(101

)

 

 

(93

)

  (104)  (95)  (206)  (189)

Other expense (income)

 

 

11

 

 

 

(1,343

)

(Loss) income before taxes

 

 

(781

)

 

 

330

 

Other expense (income), net  117   36   129   (1,307)
Loss before taxes  (2,517)  (686)  (3,298)  (356)

Income tax expense (benefit)

 

 

7

 

 

 

(21

)

        7   (21)

Net (loss) income

 

$

(788

)

 

$

351

 

Net loss $(2,517) $(686) $(3,305) $(335)

 

 

 

 

 

 

 

 

                

(Loss) income per share:

 

 

 

 

 

 

 

 

Loss per share:                

Basic

 

$

(0.08

)

 

$

0.04

 

 $(0.26) $(0.08) $(0.34) $(0.04)

Diluted

 

$

(0.08

)

 

$

0.04

 

 $(0.26) $(0.08) $(0.34) $(0.04)

 

 

 

 

 

 

 

 

                

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

                

Basic

 

 

9,641

 

 

 

8,726

 

  9,728   8,726   9,685   8,726 

Diluted

 

 

9,641

 

 

 

8,789

 

  9,728   8,726   9,685   8,726 

 

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


1

PIONEER POWER SOLUTIONS, INC.

ConsolidatedConsolidated Balance Sheets

(In thousands, except share amounts)data)

 

March 31,

 

 

December 31,

 

 June 30,  December 31, 

 

2022

 

 

2021

 

 2022  2021 

 

(Unaudited)

 

 

 

 

 (Unaudited)  

ASSETS

 

 

 

 

 

 

 

 

        

Current assets

 

 

 

 

 

 

 

 

        

Cash

 

$

13,138

 

 

$

9,924

 

 $9,785  $9,924 

Restricted cash

 

 

505

 

 

 

1,775

 

     1,775 

Notes receivable and accrued interest

 

 

5,886

 

 

 

5,778

 

  5,993   5,778 

Accounts receivable, net

 

 

4,145

 

 

 

2,429

 

  5,211   2,429 

Inventories

 

 

6,965

 

 

 

4,160

 

  9,017   4,160 

Prepaid expenses and other current assets

 

 

1,523

 

 

 

1,069

 

  1,074   1,069 

Total current assets

 

 

32,162

 

 

 

25,135

 

  31,080   25,135 

Property and equipment, net

 

 

592

 

 

 

516

 

  619   516 

Right-of-use assets

 

 

2,180

 

 

 

2,237

 

  2,337   2,237 

Other assets

 

 

49

 

 

 

39

 

  80   39 

Total assets

 

$

34,983

 

 

$

27,927

 

 $34,116  $27,927 

 

 

 

 

 

 

 

 

        

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

        

Current liabilities

 

 

 

 

 

 

 

 

        

Accounts payable and accrued liabilities

 

$

7,401

 

 

$

4,159

 

 $6,407  $4,159 

Deferred revenue

 

 

7,318

 

 

 

2,423

 

  9,289   2,423 

Total current liabilities

 

 

14,719

 

 

 

6,582

 

  15,696   6,582 

Other long-term liabilities

 

 

1,426

 

 

 

1,793

 

  1,440   1,793 

Total liabilities

 

 

16,145

 

 

 

8,375

 

  17,136   8,375 
Commitments  

           

Stockholders’ equity

 

 

 

 

 

 

 

 

        

Preferred stock, $0.001 par value, 5,000,000 shares authorized; NaN issued

 

 

 

 

 

 

      

Common stock, $0.001 par value, 30,000,000 shares authorized;
9,644,545 and 9,640,545 shares issued and outstanding on March 31, 2022 and December 31, 2021, respectively

 

 

10

 

 

 

10

 

Common stock, $0.001 par value, 30,000,000 shares authorized;
9,644,545 and 9,640,545 shares issued and outstanding on June 30, 2022 and December 31, 2021, respectively
  10   10 

Additional paid-in capital

 

 

31,914

 

 

 

31,840

 

  32,573   31,840 

Accumulated other comprehensive income

 

 

14

 

 

 

14

 

  14   14 

Accumulated deficit

 

 

(13,100

)

 

 

(12,312

)

  (15,617)  (12,312)

Total stockholders’ equity

 

 

18,838

 

 

 

19,552

 

  16,980   19,552 

Total liabilities and stockholders’ equity

 

$

34,983

 

 

$

27,927

 

 $34,116  $27,927 

 

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


2

PIONEER POWER SOLUTIONS, INC.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

            

 

Three Months Ended

 

 Six Months Ended 

 

March 31,

 

 June 30, 

 

2022

 

 

2021

 

 2022  2021 

Operating activities

 

 

 

 

 

 

 

 

        

Net (loss) income

 

$

(788

)

 

$

351

 

Net loss $(3,305) $(335)

Depreciation

 

 

36

 

 

 

37

 

  73   74 

Amortization of right-of-use finance leases

 

 

51

 

 

 

107

 

  124   156 

Amortization of imputed interest

 

 

(107

)

 

 

(107

)

  (214)  (214)

Interest expense from PPP Loan

 

 

 

 

 

4

 

     4 

Gain on forgiveness of PPP Loan

 

 

 

 

 

(1,417

)

     (1,417)

Amortization of right-of-use operating leases

 

 

163

 

 

 

130

 

  328   262 

Change in receivable reserves

 

 

28

 

 

 

34

 

  (141)  43 

Proceeds from insurance receivable

 

 

 

 

 

95

 

     95 

Stock-based compensation

 

 

57

 

 

 

33

 

  716   71 

Changes in current operating assets and liabilities:

 

 

 

 

 

 

 

 

        

Accounts receivable

 

 

(1,743

)

 

 

(1,480

)

  (2,642)  (1,423)

Inventories

 

 

(2,805

)

 

 

(780

)

  (4,857)  (910)

Prepaid expenses and other assets

 

 

(478

)

 

 

(94

)

  (67)  118 

Income taxes

 

 

19

 

 

 

(10

)

  27   403 

Accounts payable and accrued liabilities

 

 

2,920

 

 

 

421

 

  1,796   1,053 

Deferred revenue

 

 

4,895

 

 

 

1,849

 

  6,866   1,839 
Principal repayments of operating leases  (161)  (114   (325)  (252)

Net cash provided by / (used in) operating activities

 

 

2,087

 

 

 

(941

)

Net cash used in operating activities  (1,621)  (433)

 

 

 

 

 

 

 

 

        

Investing activities

 

 

 

 

 

 

 

 

        

Additions to property and equipment

 

 

(112

)

 

 

 

  (174)  (62)

Net cash used in investing activities

 

 

(112

)

 

 

 

  (174)  (62)

 

 

 

 

 

 

 

 

        

Financing activities

 

 

 

 

 

 

 

 

        

Net proceeds from the exercise of options for common stock

 

 

17

 

 

 

 

  17    

Principal repayments of financing leases

 

 

(48

)

 

 

(118

)

  (136)  (163)

Net cash used in financing activities

 

 

(31

)

 

 

(118

)

  (119)  (163)

 

 

 

 

 

 

 

 

        

Increase / (decrease) in cash and restricted cash

 

 

1,944

 

 

 

(1,059

)

Decrease in cash and restricted cash  (1,914)  (658)

Cash, and restricted cash, beginning of year

 

 

11,699

 

 

 

7,567

 

  11,699   7,567 

Cash, and restricted cash, end of period

 

$

13,643

 

 

$

6,508

 

 $9,785  $6,909 

 

 

 

 

 

 

 

 

        

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

        

Acquisition of right-of-use assets and lease liabilities

 

 

156

 

 

 

 

  551    
Declared dividend unpaid     1,047 

 

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


3

PIONEER POWER SOLUTIONS, INC.

Consolidated StatementStatement of Stockholders’ Equity

(In thousands, except per share amounts)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
paid-in

 

 

Accumulated
other
compre-hensive

 

 

Accumulated

 

 

Total
stockholders’

 

 Common Stock  Additional
paid-in
  Accumulated
other comprehensive
  Accumulated  Total
stockholders’
 

 

Shares

 

 

Amount

 

 

capital

 

 

income

 

 

deficit

 

 

equity

 

 Shares  Amount  capital  income  deficit  equity 

Balance - January 1, 2021

 

 

8,726,045

 

 

$

9

 

 

$

23,981

 

 

$

14

 

 

$

(10,145

)

 

$

13,859

 

  8,726,045  $9  $23,981  $14  $(10,145) $13,859 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

351

 

 

 

351

 

Net loss              (335)  (335)

Stock-based compensation

 

 

 

 

 

 

 

 

33

 

 

 

 

 

 

 

 

 

33

 

        71         71 

Balance - March 31, 2021

 

 

8,726,045

 

 

$

9

 

 

$

24,014

 

 

$

14

 

 

$

(9,794

)

 

$

14,243

 

Dividend to shareholders        (1,047)        (1,047)
Balance - June 30, 2021  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

 

  9,640,545  $10  $31,840  $14  $(12,312) $19,552 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(788

)

 

 

(788

)

              (3,305)  (3,305)

Stock-based compensation

 

 

 

 

 

 

 

 

57

 

 

 

 

 

 

 

 

 

57

 

        716         716 

Exercise of stock options

 

 

4,000

 

 

 

 

 

 

17

 

 

 

 

 

 

 

 

 

17

 

  4,000      17         17 

Balance - March 31, 2022

 

 

9,644,545

 

 

$

10

 

 

$

31,914

 

 

$

14

 

 

$

(13,100

)

 

$

18,838

 

Balance - June 30, 2022  9,644,545  $10  $32,573  $14  $(15,617) $16,980 

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


4

PIONEER POWER SOLUTIONS, INC.

Notes to ConsolidatedConsolidated Financial Statements

March 31,June 30, 2022 (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 mobile electric vehicle (“EV”) charging solutions. Our products and services are sold to a broad range of customers in the utility, industrial and commercial markets. Our customers include, but are not limited to, electric, gas and water utilities, data center developers and owners, EV charging infrastructure developers and owners, and distributed energy developers. The Company is headquartered in Fort Lee, New Jersey and operates from three (3) additional locations in the U.S. for manufacturing, service and maintenance, engineering, sales and administration.

We have two reportable segments as defined in our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the Securities and Exchange Commission (the “SEC”) on March 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 March 31,June 30, 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-month periodthree and six-month periods ended March 31,June 30, 2022. Due to projected operating losses for the year, the Company anticipates that its annual effective tax rate will be 0%. As of March 31,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, 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 three months ended March 31,June 30, 2022, the Company had $13.19.8 million of cash on hand and working capital of $17.415.4 million. The cash on hand was generated primarily from cash flows from operating activities and the sale of common stock under the At The Market Sale Agreement 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 (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 acquisitions. We expect to meet our cash needs with our working capital and cash flows from our operating activities. We expect our cash requirements to be generally for operating activities, product development and capital improvements. The Company expects that its current cash balance is sufficient to fund operations for the next twelve months.


5

On June 1, 2021, the board of directors of the Company declared a special cash dividend of $0.12 per common share, payable to shareholders of record as of June 22, 2021, to be paid on July 7, 2021. The cash dividends were paid in July of 2021 and equaled $0.12 per share on the $0.001 par value common stock resulting in an aggregate distribution of approximately $1.0 million representing a capital repayment paid from additional paid-in capital (“APIC”).

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. During the three months ended March 31,first quarter of 2022, the Company amended its agreement with the commercial bank to decrease the required amount of cash collateral by $1.3 million. As a result of executingOn 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 amendment,transferred the Company classified approximatelyremaining cash collateral of $505 ofto the Company. The Company had no restricted cash withinon the consolidated balance sheetsheets at March 31,June 30, 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:

 

March 31,

 

 

December 31,

 

 June 30,  December 31, 

 

2022

 

 

2021

 

 2022  2021 

Cash

 

$

13,138

 

 

$

9,924

 

 $9,785  $9,924 

Restricted cash

 

 

505

 

 

 

1,775

 

     1,775 

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

 

$

13,643

 

 

$

11,699

 

 $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 continues 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. The Company has been able to operate substantially at capacity during the COVID-19 pandemic. Notwithstanding, the Company has been able to operate substantially at capacity during the COVID-19 pandemic. Management is actively monitoring the global situation on its financial condition, liquidity, operations, suppliers, industry, and workforce. Given the daily evolution of the COVID-19 pandemic and the global responses to contain its spread,the 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

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 threesix months ended March 31,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 threesix months ended March 31, 2022 andJune 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, 2021. There have been no significant changes in the Company’s accounting policies during the firstsecond quarter of 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.

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. REVENUES

Nature of our products and services

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

Products

Our T&D Solutions business provides electric power systems and distributed energy resources that help customers effectively and efficiently protect, control, transfer, monitor and manage their electric energy requirements.

Our Critical Power business provides customers with our suite of mobile E-BOOSTe-Boost electric vehicle charging solutions and power generation 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 products is predominantly recognized at a point in time. Revenues are recognized at the point in time that the customer obtains control of the good, which is when it has taken title to the products and has assumed the risks and rewards of ownership specified in the purchase order or sales agreement. Certain sales of highly customized large equipment are recognized over time when such equipment has no alternative use and the Company has an enforceable right to payment for performance completed to date. Revenue for such agreements is recognized under the input method based on cost incurred relative to the estimated cost expected to be consumed to complete the project.

During the three months ended March 31,June 30, 2022 and 2021, the Company recognized $4.52.4 million and $3.8 of revenue at a point in time from the sale of our products.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 $1.51.9 million of service revenue during the three months ended March 31, 2022.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 March 31,June 30, 2021, the Company recognized $1.22.0 million of revenue over time and incurred costs of $1.11.8 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. The Company did not recognize revenue over time or incur costs related to any contractssingle contract during the three and six months ended March 31,June 30, 2022.


8

During the three months ended March 31,June 30, 2022, the Company recognized approximately $1.9214 of revenue that was recognized as deferred revenue at December 31, 2021, as compared to $2 of revenue during the three months ended June 30, 2021 that was recognized as 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 $258 of revenue during the threesix months ended March 31,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 March 31,June 30, 2022, three customers represented approximately 68%34%, 26% and 15% of the Company’s accounts receivable. At December 31, 2021, two customers represented approximately 43%32% and 11% of the Company’s accounts receivable.

For the threesix months ended March 31,June 30, 2022, three customers represented approximately 54%17%, 14% and 11% of the Company’s revenue. For the threesix months ended March 31,June 30, 2021, two customercustomers represented approximately 45%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, merchantable, and free of defects in workmanship and material. Returns and warranties during three and six months ended March 31,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
March 31,

 

 June 30,  June 30, 

 

2022

 

 

2021

 

 2022  2021  2022  2021 

Products

 

$

4,502

 

 

$

1,913

 

 $2,432  $3,755  $6,934  $5,668 

Services

 

 

1,534

 

 

 

1,589

 

  1,857   1,870   3,391   3,459 

Total revenue

 

$

6,036

 

 

$

3,502

 

 $4,289  $5,625  $10,325  $9,127 

 

See “Note 11 - Business Segment and Geographic Information in Notes to Consolidated Financial Statements” in Part I of this Quarterly Report on Form 10-Q.

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 March 31,June 30, 2022, other expense was $11117, 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 $1.3 million during the threesix months ended March 31,June 30, 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. See “Note 1 – Basis of Presentation in Notes to Consolidated Financial Statements” in Part I of this Quarterly Report on Form 10-Q for reference to the PPP Loan.

9

 

5. INVENTORIES

The components of inventories are summarized below:

 

March 31,

 

 

December 31,

 

 June 30,  December 31, 

 

2022

 

 

2021

 

 2022  2021 

Raw materials

 

$

2,595

 

 

$

993

 

 $2,570  $993 

Work in process

 

 

4,370

 

 

 

3,167

 

  6,447   3,167 

Total inventories

 

$

6,965

 

 

$

4,160

 

 $9,017  $4,160 

 

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


6. PROPERTY AND EQUIPMENT

Property and equipment are summarized below:

 

 

March 31,

 

 

 

December 31,

 

 June 30,  December 31, 

 

2022

 

 

2021

 

 2022  2021 
Property and equipment        

Machinery, vehicles and equipment

 

$

1,400

 

 

$

1,396

 

 $1,404  $1,396 

Furniture and fixtures

 

 

205

 

 

 

205

 

  208   205 

Computer hardware and software

 

 

541

 

 

 

541

 

  561   541 

Leasehold improvements

 

 

329

 

 

 

322

 

  329   322 

Construction in progress

 

 

101

 

 

 

 

  136    

Property and equipment

 

 

2,576

 

 

 

2,464

 

  2,638   2,464 

Less: accumulated depreciation

 

 

(1,984

)

 

 

(1,948

)

  (2,019)  (1,948)

Total property and equipment, net

 

$

592

 

 

$

516

 

 $619  $516 

 

Depreciation expense was $3637 and $37 for the periodsthree months ended March 31,June 30, 2022 and 2021, respectively.

Depreciation expense was $73 and $74 for the six months ended June 30, 2022 and 2021, respectively.

7. NOTES RECEIVABLE

In connection with the sale of the transformer business units in August 2019 (the “Equity Transaction”), amongst other consideration, we received two subordinated promissory notes in the aggregate principal amount of $5.0 million and $2.5 million, for a total aggregate principal amount of $7.5 million (the “Seller Notes”), subject to certain adjustments. The Seller Notes accrue interest at a rate of 4.0% per annum, with a final payment of all unpaid principal and interest becoming fully due and payable at December 31, 2022. The Company determined the fair value of the Seller Notes based on market conditions and prevailing interest rates. During the fourth quarter of 2019, the Company and the Buyer, pursuant to the Stock Purchase Agreement, completed the net working capital adjustment, which resulted in the Company paying the Buyer $1.8 million in cash and reducing the principal amount of the $5.0 million Seller Note to $3.2 million. During the second quarter of 2020, the Company recognized an additional reduction to the principal amount of the Seller Note of $194 for a valid claim paid by the Buyer on behalf of the Company. The Company has revalued the Seller Notes for an appropriate imputed interest rate, resulting in a net change to the value of the Seller Notes at March 31,June 30, 2022 of $107214 for a carrying value of $5.96.0 million.

10

 

8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

The components of accounts payable and accrued liabilities are summarized below:

 

March 31,

 

 

December 31,

 

 June 30,  December 31, 

 

2022

 

 

2021

 

 2022  2021 

Accounts payable

 

$

5,094

 

 

$

2,089

 

 $4,191  $2,089 

Accrued liabilities

 

 

1,460

 

 

 

1,263

 

  1,240   1,263 

Current portion of lease liabilities

 

 

847

 

 

 

807

 

  976   807 

Total accounts payable and accrued liabilities

 

$

7,401

 

 

$

4,159

 

 $6,407  $4,159 

 

Accrued liabilities primarily consist of accrued insurance, accrued sales commissions and accrued compensation and benefits. At March 31,June 30, 2022 and December 31, 2021, accrued insurance was $328160 and $481, respectively. Accrued sales commissions at March 31,June 30, 2022 and December 31, 2021 were $72132 and $247, respectively. At March 31,June 30, 2022, accrued compensation and benefits were $379357 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.


9. STOCKHOLDERS’ EQUITY

Common Stock

The Company had 9,644,545 and 9,640,545 shares of common stock, $0.001par value per share, outstanding as of March 31,June 30, 2022 and December 31, 2021, respectively.

Stock-Based Compensation

A summary of stock option activity during the six months ended June 30, 2022 is as follows:

  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   6.10  $60 
Exercisable as of June 30, 2022  643,667  $5.54   6.00  $60 

On April 25, 2022, the Company awarded 375,000 shares of restricted stock units (“RSU”) to an employee with the following vesting terms: (i) 125,000 units on May 1, 2022, which are included in the calculation of basic EPS as of the vesting date, (ii) an additional 125,000 units on May 1, 2023, and (iii) the remaining 125,000 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 31, 2022, and changes15 of the calendar year following the calendar year in which such RSUs vested. The fair value of the RSU award at the date of grant was $1.6 million.

A summary of RSU activity during the threesix months ended March 31,June 30, 2022, are presented below:is as follows:

 

 

Stock
Options

 

 

Weighted average
exercise price

 

 

Weighted
average remaining
contractual term

 

 

Aggregate
intrinsic
value

 

Outstanding as of January 1, 2022

 

 

647,667

 

 

$

5.53

 

 

 

6.40

 

 

$

1,442

 

Exercised

 

 

(4,000

)

 

 

0.29

 

 

 

 

 

 

 

 

 

Outstanding as of March 31, 2022

 

 

643,667

 

 

$

5.54

 

 

 

6.20

 

 

$

768

 

Exercisable as of March 31, 2022

 

 

407,000

 

 

$

6.84

 

 

 

4.60

 

 

$

211

 

  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 March 31,June 30, 2022, there were 900,000498,000 shares available for future grants under the Company’s 2021 Long-Term Incentive Plan.

Stock-based compensation expense recorded for the three and six months ended March 31,June 30, 2022 was approximately $658and $716, respectively. Stock-based compensation expense recorded for the three and six months ended June 30, 2021 was approximately $5738 and $3371, 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 March 31,June 30, 2022, the Company had totalthere was approximately $1.0 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 $191.8. years.

11

 

10. BASIC AND DILUTED (LOSS) INCOMELOSS PER COMMON SHARE

Basic and diluted (loss) incomeloss per common share is calculated based on the weighted average number of vested shares outstanding even if such shares are not legally outstanding during the period. The Company’s employee and director stock optionequity awards, as well as incremental shares issuable upon exercise of warrants, are not considered in the calculations if the effect would be anti-dilutive. The following table sets forth the computation of basic and diluted (loss) incomeloss per share (in thousands, except per share data):

           
       Three Months Ended Six Months Ended 

 

Three Months Ended
March 31,

 

 June 30,  June 30, 

 

2022

 

 

2021

 

 2022  2021  2022  2021 

Numerator:

 

 

 

 

 

 

 

 

         

Net (loss) income

 

$

(788

)

 

$

351

 

Net loss $(2,517) $(686) $(3,305) $(335)

 

 

 

 

 

 

 

 

                

Denominator:

 

 

 

 

 

 

 

 

                

Weighted average basic shares outstanding

 

 

9,641

 

 

 

8,726

 

  9,728   8,726   9,685   8,726 

Effect of dilutive securities - equity based compensation plans

 

 

 

 

 

63

 

            

Denominator for diluted net (loss) income per common share

 

 

9,641

 

 

 

8,789

 

Denominator for diluted net loss per common share  9,728   8,726   9,685   8,726 

 

 

 

 

 

 

 

 

                

Net (loss) income per common share:

 

 

 

 

 

 

 

 

Net loss per common share:                

Basic

 

$

(0.08

)

 

$

0.04

 

 $(0.26) $(0.08) $(0.34) $(0.04)

Diluted

 

$

(0.08

)

 

$

0.04

 

 $(0.26) $(0.08) $(0.34) $(0.04)

 

As of March 31,June 30, 2022 and 2021, diluted (loss) incomeloss per share excludes 644921 and 437674 potentially dilutive common shares related to optionequity awards, as their effect was anti-dilutive.


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.

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 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 

 

Three Months Ended
March 31,

 

 June 30,  June 30, 

 

2022

 

 

2021

 

 2022  2021  2022  2021 

Revenues

 

 

 

 

 

 

 

 

         

T&D Solutions

 

 

 

 

 

 

 

 

                

Switchgear

 

$

3,387

 

 

$

1,387

 

Power Systems $1,969  $3,596  $5,356  $4,983 

Service

 

 

10

 

 

 

 

        10    

 

 

3,397

 

 

 

1,387

 

  1,969   3,596   5,366   4,983 

Critical Power Solutions

 

 

 

 

 

 

 

 

                

Equipment

 

 

1,115

 

 

 

526

 

  463   159   1,578   685 

Service

 

 

1,524

 

 

 

1,589

 

  1,857   1,870   3,381   3,459 

 

 

2,639

 

 

 

2,115

 

Revenues  2,320   2,029   4,959   4,144 

Consolidated

 

$

6,036

 

 

$

3,502

 

 $4,289  $5,625  $10,325  $9,127 

 

           
       Three Months Ended Six Months Ended 

 

Three Months Ended
March 31,

 

 June 30,  June 30, 

 

2022

 

 

2021

 

 2022  2021  2022  2021 

Depreciation and amortization

 

 

 

 

 

 

 

 

                

T&D Solutions

 

$

10

 

 

$

18

 

 $11  $18  $21  $35 

Critical Power Solutions

 

 

70

 

 

 

119

 

  92   62   162   181 

Unallocated corporate overhead expenses

 

 

7

 

 

 

7

 

  7   7   14   14 

Consolidated

 

$

87

 

 

$

144

 

 $110  $87  $197  $230 

 

                 

 

Three Months Ended
March 31,

 

 Three Months Ended Six Months Ended 

 

2022

 

 

2021

 

 June 30,  June 30, 

Operating income (loss)

 

 

 

 

 

 

 

 

 2022  2021  2022  2021 
Operating loss                

T&D Solutions

 

$

42

 

 

$

(439

)

 $(424) $(125) $(383) $(564)

Critical Power Solutions

 

 

(155

)

 

 

(84

)

  (757)  (42)  (911)  (126)

Unallocated corporate overhead expenses

 

 

(758

)

 

 

(583

)

  (1,323)  (578)  (2,081)  (1,162)

Consolidated

 

$

(871

)

 

$

(1,106

)

 $(2,504) $(745) $(3,375) $(1,852)

 

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
March 31,

 

 

 

2022

 

 

2021

 

Revenues

 

 

 

 

 

 

 

 

United States

 

$

6,036

 

 

$

3,502

 

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 March 31,June 30, 2022 and December 31, 2021, assets recorded under finance leases were $9521.2 million and $9211.6, million, respectively, and accumulated amortization associated with finance leases were $447420 and $3581.1, million, respectively.

As of March 31,June 30, 2022 and December 31, 2021, assets recorded under operating leases were $2.5 million and $2.13.9 million,, respectively, and accumulated amortization associated with operating leases were $845 1.0 million and $1.42.3 million,, respectively. During the three months ended March 31,June 30, 2022, the Company executed an extension oftwo finance lease agreements for equipment at its operating lease for the manufacturing facility in Miami, Florida.Champlin, Minnesota location. After adjusting for a weighted average discount rate, the Company recognized a right-of-use asset and lease liability of approximately $156395 within the consolidated balance sheets.

The components of the lease expense were as follows:

            
       Three Months Ended Six Months Ended 

 

Three Months Ended
March 31,

 

 June 30,  June 30, 

 

2022

 

 

2021

 

 2022  2021  2022  2021 

Operating lease cost

 

$

188

 

 

$

142

 

 $188  $142  $375  $284 

 

 

 

 

 

 

 

 

                

Finance lease cost

 

 

 

 

 

 

 

 

                

Amortization of right-of-use asset

 

$

51

 

 

$

107

 

 $73  $50  $124  $156 

Interest on lease liabilities

 

 

10

 

 

 

11

 

  11   10   21   21 

Total finance lease cost

 

$

61

 

 

$

118

 

 $84  $60  $145  $177 

 

Other information related to leases was as follows:

Supplemental Cash Flows Information

            

 

March 31,

 

 June 30, 

 

2022

 

 

2021

 

 2022  2021 
Cash paid for amounts included in the measurement of lease liabilities

 

 

 

 

 

 

 

 

     
Operating cash flow payments for operating leases

 

$

186

 

 

$

125

 

 $372  $272 
Operating cash flow payments for finance leases

 

 

10

 

 

 

11

 

  21   21 
Financing cash flow payments for finance leases

 

 

48

 

 

 

118

 

  135   163 
Right-of-use assets obtained in exchange for lease obligations

 

 

 

 

 

 

 

 

        
Operating lease liabilities arising from obtaining right of use assets

 

 

156

 

 

 

 

  551    

 

Weighted Average Remaining Lease Term

 

March 31,

  June 30, 

2022

 

2021

  2022   2021 

Operating leases

3 years

 

4 years

  2 years   4 years 

Finance leases

2 years

 

2 years

  3 years   2 years 

Weighted Average Discount Rate

March 31,

 June 30, 

2022

 

2021

 2022  2021 

Operating leases

5.50%

 

5.50%

  5.50%  5.50%

Finance leases

6.65%

 

6.80%

  6.56%  6.80%

Future minimum lease payments under non-cancellable leases as of March 31,June 30, 2022 were as follows:

 

Operating

 

 

Finance

 

 Operating Finance 

 

Leases

 

 

Leases

 

 Leases  Leases 

2022

 

 $

555

 

 

 $

176

 

 $369  $147 

2023

 

 

670

 

 

 

291

 

  670   388 

2024

 

 

508

 

 

 

61

 

  508   158 

2025

 

 

95

 

 

 

77

 

  95   174 

Thereafter

 

 

24

 

 

 

 

  24   108 

Total future minmum lease payments

 

 

1,852

 

 

 

605

 

  1,666   975 

Less imputed interest

 

 

(136

)

 

 

(49

)

  (113)  (112)

Total future minmum lease payments

 

$

1,716

 

 

$

556

 

 $1,553  $863 

 

Reported as of March 31,June 30, 2022:

  Operating  Finance 
  Leases  Leases 
Right-of-use assets $1,511  $826 

 

 

 

Operating

 

 

Finance

 

 

 

Leases

 

 

Leases

 

Right-of-use assets

 

$

1,675

 

 

$

505

 

 

Operating

 

 

Finance

 

 Operating Finance 

 

Leases

 

 

Leases

 

 Leases  Leases 

Accounts payable and accrued liabilities

 

$

643

 

 

$

204

 

 $631  $345 

Other long-term liabilities

 

 

1,073

 

 

 

352

 

  922   518 

Total

 

$

1,716

 

 

$

556

 

 $1,553  $863 

 

 

13. SUBSEQUENT EVENTS15

 

Equity Issuances.

On April 25, 2022, the Company awarded 375,000 shares of restricted stock units to an employee with the following vesting terms: (i) 125,000 units on May 1, 2022, (ii) an additional 125,000 units on May 1, 2023, and (iii) the remaining 125,000 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.

Restricted Cash.

On May 6, 2022, the Company received notice that the cash collateral security agreement it had executed with a commercial bank to pledge cash collateral as security for all unpaid reimbursement obligations it owed to the commercial bank for an irrevocable standby letter of credit was cancelled. On May 11, 2022, the commercial bank released and transferred the remaining cash collateral of $505 to the Company.

Employment Agreements.

On April 25, 2022, the Company and Nathan J. Mazurek, the Company’s Chief Executive Officer, entered into a fourth amendment to the employment agreement between the Company and Mr. Mazurek, dated as of March 30, 2012, as amended on each of November 11, 2014, June 30, 2016 and March 30, 2020 (as amended, the “Mazurek Agreement”), in order to (i) extend the termination date of the Mazurek Agreement from March 31, 2023, to December 31, 2024, and (ii) adjust Mr. Mazurek's annual base salary at $535,500, for the period beginning on January 1, 2022 and ending on December 31, 2022, $562,500, for the period beginning on January 1, 2023 and ending on December 31, 2023, and $590,500, for the period beginning on January 1, 2024 and ending on December 31, 2024. 

On April 25, 2022, the Company entered into a new employment agreement, effective as of April 25, 2022, with Wojciech (Walter) Michalec (the “Michalec Employment Agreement”), under which the Company agreed to employ Mr. Michalec as its Chief Financial Officer, Secretary and Treasurer for a term of three (3) years, commencing on January 1, 2022 and ending on December 31, 2024, unless such employment is terminated earlier in accordance with the Michalec Employment Agreement. Pursuant to the Michalec Employment Agreement, Mr. Michalec is entitled to an annualized base salary at a rate of $200,000 per annum for the period of January 1, 2022 through December 31, 2022, $220,000 per annum for the period of January 1, 2023 through December 31, 2023, and $240,000 per annum for the period of January 1, 2023 through December 31, 2024, payable less all applicable withholdings and deductions in accordance with the Company’s customary payroll practices for its executive employees.


ITEM 2. MANAGEMENT’SMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

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, 2021, which was filed with the Securities and Exchange Commission on March 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, 2021 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 mobile electric vehicle (“EV”) charging solutions. Our products and services are sold to a broad range of customers in the utility, industrial and commercial markets. Our customers include, but are not limited to, electric, gas and water utilities, data center developers and owners, EV charging infrastructure developers and owners, and distributed energy developers. We are headquartered in Fort Lee, New Jersey and operate 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 electric energy requirements. These solutions are marketed principally through our Pioneer Custom Electrical Products Corp. (“PCEP”) brand name.

Our Critical Power business provides customers with our suite of mobile E-BOOST©e-Boost© EV charging solutions, power generation equipment and all forms of service and maintenance on our customers’ power generation equipment. These products and services are marketed by our operations headquartered in Minnesota, currently doing business under both the Titan Energy Systems Inc. (“Titan”) and Pioneer Critical Power brand names.

Termination Agreement

On June 3, 2022, the Company and CleanSpark Inc., a Nevada corporation (“CleanSpark”), entered into a termination agreement (the “Termination Agreement”) to terminate the Distribution Agreement dated May 31, 2021, by and between the Company and CleanSpark (the “Distribution Agreement”), pursuant to which CleanSpark served as the Company’s exclusive distributor of parallel switchgears, automatic transfer switches and related products (the “Products”). Pursuant to the Termination Agreement, the Company agreed to, amongst others, (i) release CleanSpark from further liabilities due under the Distribution Agreement, including for certain future amounts due under the Distribution Agreement and certain accounts payable invoices, (ii) assume the responsibility of billing and collecting payment from Enchanted Rock Electric, LLC, a third party and mutual client of both the Company and CleanSpark for all open sales orders amounts under its outstanding agreements for Products that have or will be manufactured by the Company, and (iii) return portions of certain deposits advanced to the Company pursuant to the Distribution Agreement.

CleanSpark additionally transferred the services and maintenance agreements and associated rights and liabilities it had related to switchgear products manufactured by the Company, and the Company assumed all liability and responsibility for all claims of the Products including, but not limited to, all repairs, defects, and warranty liability of the Products that were previously manufactured by the Company and then distributed or sold by CleanSpark.

Critical Accounting Policies and Estimates

Our financial statements have been prepared 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 and estimates are described in “Management's“Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies” in our Annual Report on Form 10-K filed with the SEC on March 31, 2022. There were no material changes to our accounting policies during the threesix months ended March 31,June 30, 2022.


17

RESULTS OF OPERATIONS

Overview of the Three-MonthThree 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 11 - Business Segment and Geographic Information” 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 March 31,June 30, 2022 and 2021 are as follows:

 Three Months Ended Six Months Ended 

 

Three Months Ended
March 31,

 

 June 30,  June 30, 

 

2022

 

 

2021

 

 2022  2021  2022  2021 

Revenues

 

 

 

 

 

 

 

 

         

T&D Solutions

 

$

3,397

 

 

$

1,387

 

 $1,969  $3,596  $5,366  $4,983 

Critical Power Solutions

 

 

2,639

 

 

 

2,115

 

  2,320   2,029   4,959   4,144 

Consolidated

 

 

6,036

 

 

 

3,502

 

  4,289   5,625   10,325   9,127 

Cost of goods sold

 

 

 

 

 

 

 

 

                

T&D Solutions

 

 

3,021

 

 

 

1,556

 

  2,130   3,442   5,151   4,997 

Critical Power Solutions

 

 

2,140

 

 

 

1,787

 

  2,078   1,688   4,218   3,476 

Consolidated

 

 

5,161

 

 

 

3,343

 

  4,208   5,130   9,369   8,473 

Gross profit

 

 

875

 

 

 

159

 

  81   495   956   654 

Selling, general and administrative expenses

 

 

1,719

 

 

 

1,240

 

  2,557   1,215   4,277   2,456 

Depreciation and amortization expense

 

 

27

 

 

 

25

 

  28   25   54   50 

Total operating expenses

 

 

1,746

 

 

 

1,265

 

  2,585   1,240   4,331   2,506 

Operating loss from continuing operations

 

 

(871

)

 

 

(1,106

)

  (2,504)  (745)  (3,375)  (1,852)

Interest income

 

 

(101

)

 

 

(93

)

  (104)  (95)  (206)  (189)

Other expense (income)

 

 

11

 

 

 

(1,343

)

  117   36   129   (1,307)

(Loss) income before taxes

 

 

(781

)

 

 

330

 

Loss income before taxes  (2,517)  (686)  (3,298)  (356)

Income tax expense (benefit)

 

 

7

 

 

 

(21

)

        7   (21)

Net (loss) income

 

$

(788

)

 

$

351

 

Net loss $(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. Backlog reflects the amount of revenue we expect to realize upon the shipment of customer orders for our products that are not yet complete or for which work has not yet begun. At June 30, 2022, backlog from our e-Bloc power systems solutions was approximately $15 million, or 60% of the 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 

 

 

 

March 31,

 

 

December 31,

 

 

September 30,

 

 

June 30,

 

 

March 31,

 

 

 

2022

 

 

2021

 

 

2021

 

 

2021

 

 

2021

 

T&D Solutions

 

$

18,732

 

 

$

17,499

 

 

$

5,032

 

 

$

6,501

 

 

$

10,210

 

Critical Power Solutions

 

 

5,222

 

 

 

5,349

 

 

 

5,823

 

 

 

6,225

 

 

 

6,934

 

Total order backlog

 

$

23,954

 

 

$

22,848

 

 

$

10,855

 

 

$

12,726

 

 

$

17,144

 


18

Revenue

The following table represents our revenues by reporting segment and major product category for the periods indicated (in thousands, except percentages):

 Three Months Ended Six Months Ended 

 

Three Months Ended
March 31,

 

 June 30,  June 30, 

 

2022

 

 

2021

 

 

Variance

 

 

%

 

 2022  2021  Variance  %  2022  2021  Variance  % 

T&D Solutions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                                

Switchgear and e-Bloc power system

 

$

3,387

 

 

$

1,387

 

 

$

2,000

 

 

 

144.2

 

Power Systems $1,969  $3,596  $(1,627)  (45.2) $5,356  $4,983  $373   7.5 

Service

 

 

10

 

 

 

 

 

 

10

 

 

 

 

              10      10    

 

 

3,397

 

 

 

1,387

 

 

 

2,010

 

 

 

144.9

 

  1,969   3,596   (1,627)  (45.2)  5,366   4,983   383   7.7 

Critical Power Solutions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                                

Equipment

 

 

1,115

 

 

 

526

 

 

 

589

 

 

 

112.0

 

  463   159   304   191.2   1,578   685   893   130.4 

Service

 

 

1,524

 

 

 

1,589

 

 

 

(65

)

 

 

(4.1

)

  1,857   1,870   (13)  (0.7)  3,381   3,459   (78)  (2.3)

 

 

2,639

 

 

 

2,115

 

 

 

524

 

 

 

24.8

 

  2,320   2,029   291   14.3   4,959   4,144   815   19.7 

Total revenue

 

$

6,036

 

 

$

3,502

 

 

$

2,534

 

 

 

72.4

 

 $4,289  $5,625  $(1,336)  (23.8) $10,325  $9,127  $1,198   13.1 

 

For the three months ended March 31,June 30, 2022, our consolidated revenue decreased by $1.3 million, or 23.8%, to $4.3 million, down from $5.6 million during the three months ended June 30, 2021, primarily due to a decrease in sales of our power systems from our T&D Solutions segment.

For the six months ended June 30, 2022, our consolidated revenue increased by $2.5$1.2 million, or 72.4%13.1%, to $6.0$10.3 million, up from $3.5$9.1 million during the threesix months ended March 31,June 30, 2021, mainlyprimarily due to an increase in sales of our power systems and switchgearequipment from ourboth the T&D Solutions segment.and Critical Power segments.

T&D Solutions. During the three months ended March 31,June 30, 2022, revenue fromfor our power systems and switchgear product lines increaseddecreased by $2.0$1.6 million, or 144.2%45.2%, as compared to the three months ended March 31,June 30, 2021, primarily due to decreased sales of our medium and low voltage power systems.

During the six months ended June 30, 2022, revenue for our power systems product lines increased by $373, or 7.5%, as a result ofcompared to the six months ended June 30, 2021, primarily due to increased sales of our e-Bloc power systems and automatic transfer switches and a decrease in sales of our medium voltage switchgear.power systems.

Critical Power. For the three months ended March 31,June 30, 2022, revenue for our equipment sales increased by $589,$304, or 112.0%191.2%, as compared to the three months ended March 31, 2021, mainlyJune 30, 2022, primarily due to increased sales of our refurbished generation equipment and the recognition of $788$129 of revenuesales from our first E-BOOST shipment duringsuite of e-Boost products.

During the three months ended March 31, 2022.

For the three months ended March 31,June 30, 2022, our service revenue decreased by $65,$13, or 4.1%0.7%, as compared to the same period in the three months ended March 31,June 30, 2021.

For the six months ended June 30, 2022, revenue for our equipment sales increased by $893, or 130.4%, as compared to the six months ended June 30, 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 (in thousands, except percentages):

 Three Months Ended Six Months Ended 

 

Three Months Ended
March 31,

 

 June 30,  June 30, 

 

2022

 

 

2021

 

 

Variance

 

 

%

 

 2022  2021  Variance  %  2022  2021  Variance  % 

T&D Solutions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                                

Gross profit (loss)

 

$

376

 

 

$

(169

)

 

$

545

 

 

 

322.5

 

Gross margin%

 

 

11.1

 

 

 

(12.2

)

 

 

23.3

 

 

 

 

 

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

 

 

499

 

 

 

328

 

 

 

171

 

 

 

52.1

 

  242   341   (99)  (29.0)  741   668   73   10.9 

Gross margin%

 

 

18.9

 

 

 

15.5

 

 

 

3.4

 

 

 

 

 

Gross margin %  10.4   16.8   (6.4)      14.9   16.1   (1.2)    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                                

Consolidated gross profit

 

$

875

 

 

$

159

 

 

$

716

 

 

 

450.3

 

 $81  $495  $(414)  (83.6) $956  $654  $302   46.2 

Consolidated gross margin%

 

 

14.5

 

 

 

4.5

 

 

 

10.0

 

 

 

 

 

Consolidated gross margin %  1.9   8.8   (6.9)      9.3   7.2   2.1     

 

For the three months ended March 31,June 30, 2022, our consolidated gross margin was 14.5%1.9% of revenues, as compared to 4.5%8.8% during the three months ended March 31,June 30, 2021.


For the six months ended June 30, 2022, our consolidated gross margin was 9.3% of revenues, compared to 7.2% during the six months ended June 30, 2021.

T&D Solutions. For the three months ended March 31,June 30, 2022, our gross margin percentage increaseddecreased by 23.3%12.5%, from (12.2)%4.3% to 11.1%(8.2)%, as compared to the three months ended March 31,June 30, 2021. ThisThe 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 switchgear equipment,automatic transfer switches, a favorable sales mix and improved productivity from our manufacturing facility.

Critical Power. For the three months ended March 31,June 30, 2022, our gross margin increaseddecreased by 3.4%6.4%, to 18.9%10.4%, from 15.5%16.8% for the three months ended March 31,June 30, 2021, predominatelyprimarily due to a reductionan unfavorable sales mix and an increase in overhead costs,costs.

For the acceptance of price increases fromsix months ended June 30, 2022, our customers and the shipment of our first E-BOOST order, which generated a higher gross margin as compareddecreased by 1.2%, to shipments of our power generation equipment.14.9%, from 16.1% for the six months ended June 30, 2021.

20

 

Operating Expenses

The following table represents our operating expenses by reportable segment for the periods indicated (in thousands, except percentages):

 Three Months Ended Six Months Ended 

 

Three Months Ended
March 31,

 

 June 30,  June 30, 

 

2022

 

 

2021

 

 

Variance

 

 

%

 

 2022  2021  Variance  %  2022  2021  Variance  % 

T&D Solutions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                                

Selling, general and administrative expense

 

$

333

 

 

$

265

 

 

$

68

 

 

 

25.7

 

 $261  $274  $(13)  (4.7) $595  $538  $57   10.6 

Depreciation and amortization expense

 

 

1

 

 

 

5

 

 

 

(4

)

 

 

(80.0

)

  2   5   (3)  (60.0)  3   11   (8)  (72.7)

Segment operating expense

 

$

334

 

 

$

270

 

 

$

64

 

 

 

23.7

 

 $263  $279  $(16)  (5.7) $598  $549  $49   8.9 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                                

Critical Power Solutions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                                

Selling, general and administrative expense

 

$

635

 

 

$

399

 

 

$

236

 

 

 

59.1

 

 $980  $370  $610   164.9  $1,615  $770  $845   109.7 

Depreciation and amortization expense

 

 

19

 

 

 

13

 

 

 

6

 

 

 

46.2

 

  19   13   6   46.2   37   25   12   48.0 

Segment operating expense

 

$

654

 

 

$

412

 

 

$

242

 

 

 

58.7

 

 $999  $383  $616   160.8  $1,652  $795  $857   107.8 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                                

Unallocated Corporate Overhead Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                                

Selling, general and administrative expense

 

$

751

 

 

$

576

 

 

$

175

 

 

 

30.4

 

 $1,316  $571  $745   130.5  $2,067  $1,148  $919   80.1 

Depreciation and amortization expense

 

 

7

 

 

 

7

 

 

 

 

 

 

 

  7   7         14   14       

Segment operating expense

 

$

758

 

 

$

583

 

 

$

175

 

 

 

30.0

 

 $1,323  $578  $745   128.9  $2,081  $1,162  $919   79.1 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                                

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                                

Selling, general and administrative expense

 

$

1,719

 

 

$

1,240

 

 

$

479

 

 

 

38.6

 

 $2,557  $1,215  $1,342   110.5  $4,277  $2,456  $1,821   74.1 

Depreciation and amortization expense

 

 

27

 

 

 

25

 

 

 

2

 

 

 

8.0

 

  28   25   3   12.0   54   50   4   8.0 

Consolidated operating expense

 

$

1,746

 

 

$

1,265

 

 

$

481

 

 

 

38.0

 

 $2,585  $1,240  $1,345   108.5  $4,331  $2,506  $1,825   72.8 

 

Selling, General and Administrative Expense. For the three months ended March 31,June 30, 2022, consolidated selling, general and administrative expense, before depreciation and amortization, increased by approximately $479,$1.3 million, or 38.6%110.5%, to $1.7$2.6 million, due to an increase in payroll related costs, including stock-based compensation, and product development costs related to our e-Boost and e-Bloc initiatives, as compared to $1.2 million during the three months ended March 31,June 30, 2021. As a percentage of our consolidated revenue, selling, general and administrative expense, decreasedbefore depreciation and amortization, increased to 28.5%59.6% during the three months ended March 31, 2022,June 30, 2021, as compared to 35.4%21.6% in the three months ended March 31,June 30, 2021.

TheFor the six months ended June 30, 2022, consolidated selling, general and administrative expense, in our T&D Solutions segmentbefore depreciation and amortization, increased by $68,approximately $1.8 million, or 25.7%71.1%, during the three months ended March 31, 2022,to $4.3 million, as compared to $2.5 million during the threesix months ended March 31,June 30, 2021, primarily due to an increase in payroll related expenses,costs, including stock-based compensation, and product development feescosts related to our e-Boost and third-party commissions.

Thee-Bloc initiatives. As a percentage of our consolidated revenue, selling, general and administrative expense, in our Critical Power segmentbefore depreciation and amortization, increased by $236, or 59.1%,to 41.4% during the threesix months ended March 31,June 30, 2022, as compared to 26.9% during the threesix months ended March 31, 2021, primarily due to product development and promotion fees recorded during the three months ended March 31, 2022, as compared to no product development or promotion fees recognized during the three months ended March 31,June 30, 2021.

The selling, general and administrative expense in our unallocated corporate overhead expenses increased by $175, or 30.4%, during the three months ended March 31, 2022, as compared to the three months ended March 31, 2021, primarily due to an increase in stock-based compensation and payroll related expenses, professional fees and business travel related costs.


Depreciation and Amortization Expense. Depreciation and amortization expense consists primarily of depreciation of fixed assets and amortization of right-of-use assets related to our finance leases and excludes amounts included in cost of sales. For the three months ended March 31,June 30, 2022, consolidated depreciation and amortization expense increased by $2,$3, or 8.0%12.0%, as compared to the three months ended March 31,June 30, 2021.

For the six months ended June 30, 2022, consolidated depreciation and amortization expense increased by $4, or 8.0%, as compared to the six months ended June 30, 2021.

Operating Income (Loss)Loss

The following table represents our operating income (loss)loss by reportable segment for the periods indicated (in thousands, except percentages):

  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)

 

 

 

Three Months Ended
March 31,

 

 

 

2022

 

 

2021

 

 

Variance

 

 

%

 

T&D Solutions

 

$

42

 

 

$

(439

)

 

$

481

 

 

 

109.6

 

Critical Power Solutions

 

 

(155

)

 

 

(84

)

 

 

(71

)

 

 

(84.5

)

Unallocated corporate overhead expenses

 

 

(758

)

 

 

(583

)

 

 

(175

)

 

 

(30.0

)

Total operating loss

 

$

(871

)

 

$

(1,106

)

 

$

235

 

 

 

21.2

 


T&D Solutions. Operating incomeloss from our T&D Solutions segment increased by $481,$299, or 109.6%239.2%, during the three months ended March 31,June 30, 2022, as compared to the three months ended March 31,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, 2022, operating loss from our T&D Solutions segment decreased by $181, or 32.1%, as compared to an operating loss of $564 during the six months ended June 30, 2021, primarily due to an increase in sales of our e-Bloc power systems, and switchgear,a favorable sales mix and improved productivity from our manufacturing facility.

Critical Power. Operating loss for the Critical Power segment increased by $71,$715, or 84.5%1,702.4% during the three months ended March 31,June 30, 2022, primarily due to recognizing product development and promotion fees recordingrelated to our e-Boost initiative during the three months ended March 31,June 30, 2022, as compared to no product development or promotion fees recognized during the three months ended March 31,June 30, 2021.

For the six months ended June 30, 2022, operating loss from our Critical Power segment increased by $785, or 623.0% during the six months ended June 30, 2022, primarily due to recognizing product development and promotion fees related to our e-Boost initiative during the six months ended June 30, 2022, as compared to no product development or promotion fees recognized during the six months ended June 30, 2021.

General Corporate Expense. Our general corporate expenses 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, public reporting costs and costs not specifically allocated to reportable business segments.

During the three months ended March 31,June 30, 2022, our unallocated corporate overhead expense increased by $175,$745, or 30.0%128.9%, as compared to the three months ended March 31,June 30, 2021, primarily due to an increase in payroll related expenses, 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 and business travel related costs.

Non-Operating (Income) Expense

Interest Income. For the three and six months ended March 31,June 30, 2022, and 2021, wethe Company had interest income of $101approximately $104 and $93,$206, respectively, as compared to interest income of approximately $95 and $189 during the three and six months ended June 30, 2021, respectively. We generate the majority of our interest income from the Seller Notes we received from the sale of the transformer business units in August 2019 and our cash on hand.

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. ForDuring the three months ended March 31,June 30, 2022, other expense was $11,$117, as compared to other expense of $36 during the three months ended June 30, 2021.

During the six months ended June 30, 2022, other expense was $129, as compared to other income of $1.3 million during the threesix months ended March 31,June 30, 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 threesix months ended March 31,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 was (0.9)% for the three months ended March 31,June 30, 2022 and 2021 was 0.0%.

22

For the six months ended June 30, 2022, our effective income tax rate was (0.2)%, as compared to (6.4)%an income tax rate of 5.9% during the threesix months ended March 31,June 30, 2021, as set forth below:

 

Three Months Ended
March 31,

 

 Three Months Ended Six Months Ended 

 

2022

 

 

2021

 

 

Variance

 

 June 30,  June 30, 

(Loss) income before income taxes

 

$

(781

)

 

$

330

 

 

$

(1,111

)

 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

 

           7   (21)  28 

Effective income tax rate %

 

 

(0.9

)

 

 

(6.4

)

 

 

5.5

 

           (0.2)  5.9   (6.1)

 

Net (Loss) IncomeLoss per Share

We generated a net loss of $788$2.5 million during the three months ended March 31,June 30, 2022, as compared to net incomeloss of $351$686 during the three months ended March 31,June 30, 2021.

Our net loss per basic and diluted share for the three months ended March 31,June 30, 2022 was $0.08,$0.26, as compared to net incomeloss per basic and diluted share of $0.08 for the three months ended June 30, 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.

Our net loss per basic and diluted share for the six months ended June 30, 2022 was $0.34, as compared to net loss per basic and diluted share of $0.04 for the threesix months ended March 31,June 30, 2021.

LIQUIDITY AND CAPITAL RESOURCES

General. At March 31,June 30, 2022, we had $13.1$9.8 million of cash on hand generated primarily from the sale of common stock under the At The Market Sale Agreement (the “ATM Program”) and cash flows from operating activities.. 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 Payroll Protection Program. Our cash requirements historically were generally for 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:

 

March 31,

 

 

December 31,

 

 June 30,  December 31, 

 

2022

 

 

2021

 

 2022  2021 

Cash

 

$

13,138

 

 

$

9,924

 

 $9,785  $9,924 

Restricted cash

 

 

505

 

 

 

1,775

 

     1,775 

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

 

$

13,643

 

 

$

11,699

 

 $9,785  $11,699 

 

During the first quarter of 2021, the Company executed a cash collateral security agreement with a commercial bank, which agreement required us to pledge cash collateral as security for all unpaid reimbursement obligations owing to the commercial bank for an irrevocable standby letter of credit in the amount of $1.8 million. During the three months ended March 31, 2022, we amended our agreement with the commercial bank to decrease the required amount of cash collateral by $1.3 million. As a result of executing the cash collateral security agreement and amendment, we recognized approximately $505 of restricted cash within the consolidated balance sheet at March 31, 2022.

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 continues 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. The Company has been able to operate substantially at capacity during the COVID-19 pandemic. Notwithstanding, the Company has been able to operate substantially at capacity during the COVID-19 pandemic. Management is actively monitoring the global situation on its financial condition, liquidity, operations, suppliers, industry, and workforce. Given the daily evolution of the COVID-19 pandemic and the global responses to contain its spread,the 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.


23

Under the terms of the PPP Loan, the Company was eligible for full or partial loan forgiveness. During the threesix months ended March 31,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 the audited consolidated statements of operations.

Cash Provided by/ (Used in)Used in Operating Activities. Cash provided byused in our operating activities was $2.1$1.6 million during the threesix months ended March 31,June 30, 2022, as compared to cash used in our operating activities of $941$433 during the threesix months ended March 31,June 30, 2021. The increase in cash provided byused in operating activities is primarily due to working capital fluctuations and a one-time $1.4 million gain on the extinguishment and forgiveness of the PPP Loan recognized during the three months ended March 31, 2021.fluctuations.

Cash Used in Investing Activities. Cash used in investing activities during the threesix months ended March 31,June 30, 2022 was $112,$174, as compared to no$62 of cash used in investing activities during the threesix months ended March 31,June 30, 2021. Additions to property and equipment during the threesix months ended March 31,June 30, 2022 were $112,$198, as compared to no$62 additions to property and equipment during the threesix months ended March 31,June 30, 2021.

Cash Used in Financing Activities. Cash used in our financing activities was $31$119 during the threesix months ended March 31,June 30, 2022, as compared to $118$163 during the threesix months ended March 31,June 30, 2021. The primary use of cash in financing activities for the threesix months ended March 31,June 30, 2022 and 2021 was repayments of financing leases.

Working Capital. As of March 31,June 30, 2022, we had working capital of $17.4$15.4 million, including $13.1$9.8 million of cash and $505 of restricted cash, compared to working capital of $18.6 million, including $9.9 million of cash and $1.8 million of restricted cash at December 31, 2021.

Assessment of Liquidity. At March 31,June 30, 2022, we had $13.1$9.8 million of cash on hand generated primarily from cash flows from operating activities during the three months ended March 31, 2022 and 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 Payroll Protection Program. Our cash requirements historically were generally for operating activities, debt repayment, capital improvements and acquisitions.

On June 1, 2021, our board of directors declared a special cash dividend of $0.12 per common share, payable to shareholders of record as of June 22, 2021, to be paid on July 7, 2021. The cash dividends were paid in July of 2021 and equaled $0.12 per share on the $0.001 par value common stock resulting in an aggregate distribution of approximately $1.0 million representing a capital repayment paid from APIC.

On November 8, 2021, we sold 888,500 shares of common stock under the ATM Program, for total gross proceeds of approximately $9.0 million, at an average price of $10.1288 per share. 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 net proceeds of approximately $8.7 million. On December 13, 2021, we filed a new sales agreement prospectus supplement related to the Registration 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 At 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, 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 remaining 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 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 March 31,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.

24

 

Capital Expenditures

The Company had $112$198 of additions to property and equipment during the threesix months ended March 31,June 30, 2022, as compared to no$62 of additions to property and equipment during the threesix months ended March 31,June 30, 2021.

Known 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.2,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 applicableapplicable.

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 March 31,June 30, 2022 (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 March 31,June 30, 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 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 March 31,June 30, 2022 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


25

PART II – OTHOTHER INFORMATION

ER INFORMATION

ITEM 1. LEGALLEGAL PROCEEDINGS

From time to time, we may become involved in lawsuits, investigations and claims that arise in the ordinary course of business.

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 FACFACTORSTORS

A description of the risks associated with our business, financial condition and results of operations is set forth in “Item 1A. Risk Factors” of our annual report on Form 10-K for the fiscal year ended December 31, 2021, as filed with the Securities and Exchange Commission on March 31, 2022. There2022, 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 been no material changes to these risks during the three months ended March 31, 2022.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 OFOF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3.3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINEMINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER IINFORMATION

None.

NFORMATION

None.

ITEM 6. EXHIBIEXHIBITSTS

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.


26

EXHIBIT INDEX

Exhibit
No.

Description

10.1Exhibit

No.

Description

10.1Fourth Amendment to Employment Agreement, dated April 25, 2022, by and between Pioneer Power Solutions, Inc. and Nathan J. Mazurek (previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 29, 2022).

10.2

Employment Agreement, dated April 25, 2022, by and between Pioneer Power Solutions, Inc. and Wojciech (Walter) Michalec (previously filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 29, 2022).

10.3

Termination Agreement, dated as of June 3, 2022, between Pioneer Power Solutions, Inc. and CleanSpark, Inc. (previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 8, 2022).
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.DEF*

101.LAB*

101.PRE*

104 

Inline XBRL Instance Document.

101.SCH*

Inline XBRL Taxonomy Extension Schema Document.

101.CAL*

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF*

Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB*

Inline XBRL Taxonomy Extension Labels Linkbase Document.

101.PRE*

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104

Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).

_______________

* 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: May 16,August 15, 2022

By:

/s/ Nathan J. Mazurek

Name: Nathan J. Mazurek

Title: Chief Executive Officer

Date: May 16,August 15, 2022

/s/ Walter Michalec

Name: Walter Michalec

Title: Chief Financial Officer

(Principal Financial Officer duly authorized to sign on behalf of Registrant)