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 September 30, 20222023

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)

Delaware27-1347616

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)
400 Kelby Street, 12th Floor


Fort Lee, New Jersey

07024
(Address of principal executive offices)

(I.R.S. Employer Identification No.)

07024

(Zip Code)

(212) 867-0700

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each classTrading symbol(s)Name of each exchange on which registered
Common Stock, par value $0.001 per sharePPSINasdaq Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer☐Accelerated filer☐
Non-accelerated filer☒Smaller reporting company☒
Emerging Growth Companygrowth 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 November 14, 202213, 2023 was 9,644,5459,930,022.

 

 

 

PIONEER POWER SOLUTIONS, INC.

Form 10-Q

For the Quarterly Period Ended September 30, 20222023

TABLE OF CONTENTS

 PART I. FINANCIAL INFORMATION

Page
PART I. FINANCIAL INFORMATION 
Page
Item 1. Financial Statements1
Unaudited Consolidated Statements of Operations for the Three and Nine Months Endedmonths ended September 30, 20222023 and 202120221
Consolidated Balance Sheets at September 30, 20222023 (Unaudited) and December 31, 2021 20222
Unaudited Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 20222023 and 202120223
Unaudited Consolidated StatementStatements of Stockholders'Changes in Stockholders’ Equity for the Three and Nine Months Endedmonths ended September 30, 20222023 and 202120224
Notes to Unaudited Consolidated Financial Statements5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations1812
Item 3. Quantitative and Qualitative Disclosures About Market Risk2821
Item 4. Controls and Procedures2821

PART II. OTHER INFORMATION

PART II. OTHER INFORMATION
Item 1. Legal Proceedings2922
Item 1A. Risk Factors2922
Item 2. Unregistered Sales of Equity Securities, and Use of Proceeds, and Issuer Purchases of Equity Securities2922
Item 3. Defaults Upon Senior Securities3022
Item 4. Mine Safety Disclosures3022
Item 5. Other Information3022
Item 6. Exhibits3022

 

PART I - FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

PIONEER POWER SOLUTIONS, INC.

Consolidated Statements of Operations

(In thousands, except for share and per share data)amounts)

(Unaudited)

            2023 2022 2023 2022 
 Three Months Ended Nine Months Ended  Three Months Ended Nine Months Ended 
 September 30,  September 30,  September 30, September 30, 
 2022  2021  2022  2021  2023 2022 2023 2022 
Revenues $6,251  $5,685  $17,476  $14,813  $12,443  $6,251  $33,080  $17,476 
Cost of goods sold  5,390   4,972   15,629   13,445   8,732   5,390   24,445   15,629 
Gross profit  861   713   1,847   1,368   3,711   861   8,635   1,847 
Operating expenses                                
Selling, general and administrative  2,305   1,231   6,636   3,738   2,758   2,305   8,004   6,636 
Total operating expenses  2,305   1,231   6,636   3,738   2,758   2,305   8,004   6,636 
Loss from operations  (1,444)  (518)  (4,789)  (2,370)
Income (loss) from operations  953   (1,444)  631   (4,789)
Interest income  (116)  (99)  (322)  (288)  (60)  (116)  (192)  (322)
Other (income) expense, net  (17)  13   112   (1,294)  (11)  (17)  (4)  112 
Loss before taxes  (1,311)  (432)  (4,579)  (788)
Income tax expense (benefit)  —   2   7   (19)
Net loss $(1,311) $(434) $(4,586) $(769)
Income (loss) before income taxes  1,024   (1,311)  827   (4,579)
Income tax expense  -   -   -   7 
Net income (loss) $1,024  $(1,311) $827  $(4,586)
                                
Loss per share:                
Income (loss) per share:                
Basic $(0.13) $(0.05) $(0.47) $(0.09) $0.10  $(0.13) $0.08  $(0.47)
Diluted $(0.13) $(0.05) $(0.47) $(0.09) $0.10  $(0.13) $0.08  $(0.47)
                                
Weighted average common shares outstanding:                                
Basic  9,770   8,726   9,713   8,726   10,010,226   9,769,545   9,896,850   9,713,335 
Diluted  9,770   8,726   9,713   8,726   10,250,099   9,769,545   10,049,009   9,713,335 

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


1

PIONEER POWER SOLUTIONS, INC.

Consolidated Balance Sheets

(In thousands, except for share data)amounts)

      
 September 30,  December 31,  September 30, December 31, 
 2022  2021  2023 2022 
 (Unaudited)    (Unaudited)    
ASSETS             
Current assets                
Cash $7,210  $9,924  $7,581  $10,296 
Restricted cash  —   1,775 
Notes receivable and accrued interest  6,100   5,778 
Accounts receivable, net  3,822   2,429   8,936   11,139 
Inventories  8,479   4,160   8,280   8,748 
Prepaid expenses and other current assets  840   1,069   5,518   2,853 
Total current assets  26,451   25,135   30,315   33,036 
Property and equipment, net  794   516   3,775   1,800 
Right-of-use assets  2,116   2,237 
Operating lease right-of-use assets  936   1,450 
Financing lease right-of-use assets  458   727 
Deferred financing costs  195   - 
Other assets  84   39   82   162 
Total assets $29,445  $27,927  $35,761  $37,175 
                
LIABILITIES AND STOCKHOLDERS’ EQUITY                
Current liabilities                
Accounts payable and accrued liabilities $5,678  $4,159  $9,772  $7,239 
Current portion of operating lease liabilities  704   703 
Current portion of financing lease liabilities  157   355 
Deferred revenue  6,621   2,423   5,980   10,665 
Total current liabilities  12,299   6,582   16,613   18,962 
Operating lease liabilities, non-current portion  276   797 
Financing lease liabilities, non-current portion  320   418 
Other long-term liabilities  1,304   1,793   53   65 
Total liabilities  13,603   8,375   17,262   20,242 
Commitments        
Stockholders’ equity                
Preferred stock, $0.001 par value, 5,000,000 shares authorized; none issued  —   —   -   - 
Common stock, $0.001 par value, 30,000,000 shares authorized;
9,644,545 and 9,640,545 shares issued and outstanding on September 30, 2022 and December 31, 2021, respectively		  10   10 
Common stock, $0.001 par value, 30,000,000 shares authorized; 9,930,022 and 9,644,545 shares issued and outstanding on September 30, 2023 and December 31, 2022, respectively  10   10 
Additional paid-in capital  32,716   31,840   33,612   32,859 
Accumulated other comprehensive income  14   14   -   14 
Accumulated deficit  (16,898)  (12,312)  (15,123)  (15,950)
Total stockholders’ equity  15,842   19,552   18,499   16,933 
Total liabilities and stockholders’ equity $29,445  $27,927  $35,761  $37,175 

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)

       2023 2022 
 Nine Months Ended  Nine Months Ended 
 September 30,  September 30, 
 2022  2021  2023 2022 
Operating activities                
Net loss $(4,586) $(769)
Net income (loss) $827  $(4,586)
Adjustments to reconcile net income (loss) to net cash used in operating activities:        
Depreciation  113   110   370   113 
Amortization of right-of-use finance leases  177   219 
Amortization of right-of-use financing leases  269   177 
Amortization of imputed interest  (321)  (321)  -   (321)
Interest expense from PPP Loan  —   4 
Gain on forgiveness of PPP Loan  —   (1,417)
Amortization of right-of-use operating leases  495   421   514   495 
Change in receivable reserves  (140)  68   80   (140)
Proceeds from insurance receivable  —   95 
Stock-based compensation  859   129   1,246   859 
Other  (15)  - 
Changes in current operating assets and liabilities:                
Accounts receivable  (1,253)  (758)  1,805   (1,253)
Inventories  (4,319)  (1,097)  468   (4,319)
Prepaid expenses and other assets  167   247   (2,990)  167 
Income taxes  24   401   (4)  24 
Accounts payable and accrued liabilities  1,141   541   2,407   1,141 
Deferred revenue  4,198   1,549   (4,685)  4,198 
Principal repayments of operating leases  (491)  (413)
Operating lease liabilities  (520)  (491)
Net cash used in operating activities  (3,936)  (991)  (228)  (3,936)
                
Investing activities                
Additions to property and equipment  (391)  (156)
Purchases of property and equipment  (2,345)  (391)
Net cash used in investing activities  (391)  (156)  (2,345)  (391)
                
Financing activities                
Net proceeds from the exercise of options for common stock  17   —   50   17 
Dividend paid to shareholders  —   (1,047)
Net proceeds from issuance of common stock  177   - 
Payment of deferred financing costs  (73)  - 
Principal repayments of financing leases  (179)  (226)  (296)  (179)
Net cash used in financing activities  (162)  (1,273)  (142)  (162)
                
Decrease in cash and restricted cash  (4,489)  (2,420)
Cash, and restricted cash, beginning of year  11,699   7,567 
Cash, and restricted cash, end of period $7,210  $5,147 
Decrease in cash  (2,715)  (4,489)
Cash, beginning of period  10,296   11,699 
Cash, end of period $7,581  $7,210 
                
Non-cash investing and financing activities:                
Acquisition of right-of-use assets and lease liabilities  551   1,418  $-  $551 
Deferred financing costs included in accounts payable and accrued liabilities  122   - 
Surrender and retirement of common stock  720   - 

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


3

PIONEER POWER SOLUTIONS, INC.

Consolidated StatementStatements of Stockholders'Changes in Stockholders’ Equity

(In thousands, except perfor share data)amounts)

(Unaudited)

                     
           Accumulated       
        Additional  other     Total 
  Common Stock  paid-in  comprehensive  Accumulated  stockholders' 
  Shares  Amount  capital  income  deficit  equity 
Balance - June 30, 2021  8,726,045  $9  $23,005  $14  $(10,480) $12,548 
Net loss  —   —   —   —   (434)  (434)
Stock-based compensation  —   —   58   —   —   58 
Balance - September 30, 2021  8,726,045  $9  $23,063  $14  $(10,914) $12,172 
                         
Balance - June 30, 2022 (Revised)  9,644,545  $10  $32,573  $14  $(15,587) $17,010 
Net loss  —   —   —   —   (1,311)  (1,311)
Stock-based compensation  —   —   143   —   —   143 
Balance - September 30, 2022  9,644,545  $10  $32,716  $14  $(16,898) $15,842 

                     
           Accumulated       
        Additional  other     Total 
  Common Stock  paid-in  comprehensive  Accumulated  stockholders' 
  Shares  Amount  capital  income  deficit  equity 
Balance - January 1, 2021  8,726,045  $9  $23,981  $14  $(10,145) $13,859 
Net loss  —   —   —   —   (769)  (769)
Stock-based compensation  —   —   129   —   —   129 
Dividend to shareholders  —   —   (1,047)  —   —   (1,047)
Balance - September 30, 2021  8,726,045  $9  $23,063  $14  $(10,914) $12,172 
                         
Balance - January 1, 2022  9,640,545  $10  $31,840  $14  $(12,312) $19,552 
Net loss  —   —   —   —   (4,586)  (4,586)
Stock-based compensation  —   —   859   —   —   859 
Exercise of stock options  4,000   —   17   —   —   17 
Balance - September 30, 2022  9,644,545  $10  $32,716  $14  $(16,898) $15,842 

  Shares  Amount  capital  income  deficit  equity 
  Common Stock  

Additional

paid-in

  Accumulated
other
compre-hensive		  Accumulated  Total stockholders’ 
  Shares  Amount  capital  income  deficit  equity 
Balance - June 30, 2022 (revised)  9,644,545  $10  $32,573  $14  $(15,587) $17,010 
Net loss  -   -   -   -   (1,311)  (1,311)
Stock-based compensation  -   -   143   -   -   143 
Balance - September 30, 2022  9,644,545  $   10  $32,716  $14  $(16,898) $15,842 
                         
Balance - June 30, 2023  9,994,545  $10  $33,821  $-  $(16,147) $17,684 
Net income  -   -   -   -   1,024   1,024 
Stock-based compensation  10,000   -   285   -   -   285 
Exercise of stock options  15,000   -   50   -   -   50 
Issuance of common stock, net of transaction costs  27,559   -   177   -   -   177 
Surrender and retirement of common stock  (117,082)  -   (720)              -   -   (720)
Balance - September 30, 2023  9,930,022  $10  $33,612  $-  $(15,123) $18,499 

  Common Stock  

Additional

paid-in

  Accumulated
other
compre-hensive		  Accumulated  Total stockholders’ 
  Shares  Amount  capital  income  deficit  equity 
Balance - January 1, 2022  9,640,545  $10  $31,840  $14  $(12,312) $19,552 
Net loss  -   -   -   -   (4,586)  (4,586)
Stock-based compensation  -   -   859   -   -   859 
Exercise of stock options  4,000   -   17   -   -   17 
Balance - September 30, 2022  9,644,545  $10  $32,716  $14  $(16,898) $15,842 
                         
Balance - January 1, 2023  9,644,545  $10  $32,859  $14  $(15,950) $16,933 
Balance  9,644,545  $10  $32,859  $14  $(15,950) $16,933 
Net income  -   -   -   -   827   827 
Net income (loss)  -   -   -   -   827   827 
Stock-based compensation  360,000   -   1,246   -   -   1,246 
Exercise of stock options  15,000   -   50   -   -   50 
Issuance of common stock, net of transaction costs  27,559   -   177   -   -   177 
Surrender and retirement of common stock  (117,082)  -   (720)  -   -   (720)
Other  -   -   -           (14)  -   (14)
Balance - September 30, 2023  9,930,022  $10  $33,612  $-  $(15,123) $18,499 
Balance  9,930,022  $10  $33,612  $-  $(15,123) $18,499 

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


4

PIONEER POWER SOLUTIONS, INC.

Notes to Unaudited Consolidated Financial Statements for the Quarterly Period Ended September 30, 2023

September 30, 2022 (Unaudited)(in thousands, except for share and per share amounts)

1. BASISBUSINESS ORGANIZATION, NATURE OF PRESENTATIONOPERATIONS, RISKS AND UNCERTAINTIES

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, 2021,2022, as filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2022:April 11, 2023: 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 September 30, 2022.2023. 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 this filing does not include all disclosures required by U.S. GAAP for a year-end balance sheet.

 

All dollar amounts (except share and per share data) presented in the notes to our unaudited interim consolidated financial statements are stated in thousands of dollars, unless otherwise noted. Amounts may not foot due to rounding. ASC 740-270 requires the use of an estimated annual effective tax rate to compute the tax provision during an interim period unless certain exceptions are met. We have used a discrete-period computation method to calculate taxes for the fiscal three and nine-month periodsperiod ended September 30, 2022. Due to projected operating losses for the year, the2023. The Company anticipates that its annual effective tax rate will be 0%. for the year ending December 31, 2023. As of September 30, 2022,2023, 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, 2021.2022.

 

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 September 30, 2022,2023, the Company had $7.27,581 million of cash on hand and working capital of $14.213,702 million.. The cash on hand was generated primarily from the sale of common stock under the At The Market Sale AgreementATM Program (as defined below), payment of all unpaid principal and interest from the two subordinated promissory notes we received in connection with the sale of the transformer business units in August 2019 for an aggregate principal amount of $7,500 (the “Seller Notes”) during the year ended December 31, 2021.2022, and cash flows from operating activities. On October 20, 2020, we entered into an At the Market Sale Agreement with H.C. Wainwright & Co., LLC (“Wainwright”), pursuant to which we may offer and sell our shares of common stock from time to time through Wainwright, acting as sales agent or principal (the “ATM Program”). Since October 20, 2020, and through September 30, 2023, the Company sold an aggregate of 916,059 shares of common stock for aggregate gross proceeds of approximately $9,183, before any sales agent fees and expenses payable by us under the ATM Program. During the three and nine months ended September 30, 2023, the Company sold an aggregate of 27,559 shares of common stock for an aggregate consideration of approximately $184, before any sales agent fees and expenses payable by us.

5

 

We have historically met our cash needs through a combination of cash flows from operating activities and bank borrowings, the completion of the Equity Transaction, (as defined herein), proceeds from the sale of the CleanSpark Common Stockcommon stock and warrants to purchase CleanSpark Common Stock, proceeds from insurance and thecommon stock, sale of common stock under the At The Market Sale AgreementATM Program and fundingcollecting all unpaid principal and interest from the Payroll Protection Program. OurSeller Notes. Historically, 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,December 13, 2021, we filed a prospectus supplement to a prospectus which forms a part of our registration statement on Form S-3 (File No. 333-249569) (the “Prior Shelf Registration Statement”), that was declared effective by the boardSEC on October 27, 2020 (the “Prior ATM Prospectus”), in connection with the offer and sale of directorsup to an aggregate offering amount of $8,600 of common stock that may be issued and sold under the ATM Program. Prior to the expiration of the Company declaredPrior Shelf Registration Statement at the end of its three-year term, we sold an aggregate of 27,559 shares of common stock for an aggregate consideration of approximately $184, before any sales agent fees and expenses payable by us, under the Prior ATM Prospectus. On August 30, 2023, we filed a special cash dividendnew registration statement on Form S-3 (File No. 333-274266) to replace the Prior Shelf Registration Statement, including a base prospectus which covers the offering, issuance and sale of up to $150,000 of common stock, preferred stock, warrants and/or units; and a sales agreement prospectus covering the offering, issuance and sale of up to a maximum aggregate offering price of $0.1275,000 perof common share, payable to shareholders of record as of June 22, 2021, tostock that may be paid on July 7, 2021issued and sold under the ATM Program (the “New ATM Prospectus”). The cash dividends were paid in Julynew registration statement was declared effective by the SEC on September 8, 2023. As of 2021 and equaledSeptember 30, 2023, $0.1275,000 per share on the $0.001 par valueof common stock resulting in an aggregate distribution of approximately $1.0 million representing a capital repayment paid from additional paid-in capital (“APIC”).remained available for issuance under the New ATM Prospectus.

 

During the year ended December 31, 2021, the Company executed a cash collateral security agreement with a commercial bank, which agreement required us to pledge cash collateral as security for all unpaid reimbursement obligations owing to the commercial bank for an irrevocable standby letter of credit in the amount of $1.8 million. During the first quarter of 2022, the Company amended its agreement with the commercial bank to decrease the required amount of cash collateral by $1.3 million. On May 6, 2022, the Company received notice that the cash collateral security agreement it had executed with the commercial bank was cancelled. Upon cancellation of the cash collateral security agreement, any unpaid reimbursement obligations owing to the commercial bank were also cancelled. On May 11, 2022, the commercial bank releasedRisks and transferred the remaining cash collateral of $505 to the Company. The Company had no restricted cash on the consolidated balance sheets at September 30, 2022.

The Company accounts for restricted cash under the guidance of ASU No. 2016-18, Statement of Cash Flows - Restricted Cash (Topic 230), which requires the statement of cash flows to explain the change during the period in the total of cash, cash equivalents, and restricted cash and that restricted cash be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows.

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:

  September 30,  December 31, 
  2022  2021 
Cash $7,210  $9,924 
Restricted cash  —   1,775 
Total cash and restricted cash as shown in the statement of cash flows $7,210  $11,699 

COVID-19Uncertainties

 

The full impactWorld Health Organization determined that COVID-19 no longer fit the definition of a public health emergency and the U.S. government announced that the declaration of a public health emergency associated with COVID-19 expired on May 11, 2023. However, COVID-19 has remained and is expected to continue to remain as a serious endemic threat for an indefinite future period and may continue to adversely affect the global economy. The continuing impacts of the COVID-19 pandemicendemic, as well as rising interest rates, inflation, changes in foreign currency exchange rates and geopolitical developments, such as the ongoing conflict between Russia and Ukraine, and the ongoing conflict between Israel and Hamas, have resulted, and may continue to result, in a global slowdown of economic activity, which may decrease demand for a broad variety of goods and services, including those provided by the Company’s clients, while also disrupting supply channels, sales channels and advertising and marketing activities for an unknown period of time. As a result of the current uncertainty in economic activity, the Company is unable to predict the potential size and duration of the impact on its revenue and its ongoing effects continues to evolve asresults of operations, if any. The extent of the datepotential impact of this report. As such, it continues to be uncertain as to the full magnitude that the pandemic will havethese macroeconomic factors on the Company’s operational and financial condition, liquidity,performance will depend on a variety of factors, including the continuing impacts of the COVID-19 endemic and future resultsthe extent of operations.geopolitical disruption and their respective impacts on the Company’s clients, partners, industry, and employees, all of which are uncertain at this time and cannot be accurately predicted. The Company continues to monitor the effects of these macroeconomic factors and intends to take steps deemed appropriate to limit the impact on its business. During the nine months ended September 30, 2023, the Company was 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, its ongoing effects, and the global responses to the continuing crisis, the Company is not able to estimate the full effects of the COVID-19 pandemic and its ongoing effects at this time, however, if the ongoing effects of the COVID-19 pandemic continue or worsen, it may have an adverse effect on the Company’s results of operations, financial condition, or liquidity.capacity.

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.

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 nine months ended September 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 nine months ended September 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.

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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

The Company’sThere have been no material changes to the significant accounting policies are describedincluded 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 changes2022, except as disclosed in the Company’s accounting policies during the third quarter of 2022. this note. 

 

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.

 

MeasurementAccounting Standards Update (“ASU”) 2023-03, “Presentation of Credit LossesFinancial Statements (Topic 205), Income Statement - Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation - Stock Compensation (Topic 718): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 120, SEC Staff Announcement at the March 24, 2022 Emerging Issues Task Force (“EITF”) Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280 - General Revision of Regulation S-X: Income or Loss Applicable to Common Stock.” ASU 2023-03 amends the ASC for SEC updates pursuant to SEC Staff Accounting Bulletin No. 120; SEC Staff Announcement at the March 24, 2022 EITF Meeting; and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280 - General Revision of Regulation S-X: Income or Loss Applicable to Common Stock. These updates were immediately effective and did not have a significant impact on Financial Instrument. In June 2016,our financial statements.

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Accounts Receivable

On January 1, 2023, the FASB issued amended guidance toCompany adopted ASU No. 2016-13, Financial“Financial Instruments - Credit Losses (Topic 326):, Measurement of Credit Losses on Financial Instruments, that changes” using a modified retrospective approach. The standard amends several aspects of the impairmentmeasurement of credit losses related to certain financial instruments, including the replacement of the existing incurred credit loss 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 willmodels with the current expected credit losses model. The cumulative effect of adoption did not 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 earningsthe allowance for credit loss, and accordingly, the Company’s accumulated deficit 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.January 1, 2023.

 

The Company accounts for trade receivables at original invoice amount less an estimate made for expected credit losses. The Company’s allowance for expected credit losses on accounts receivable reflects management’s estimate of credit losses over the remaining expected life of such assets, measured primarily using historical experience, as well as current conditions and forecasts that affect the collectability of the reported amount. There were no allowances for expected credit losses as of September 30, 2023 and December 31, 2022.

Deferred Financing Costs

Certain legal, accounting and other third-party fees that are directly associated with equity financings are capitalized as deferred financing costs and included as a non-current asset on the balance sheet until such financings are consummated. After consummation of the equity financing, these costs will be recorded in the stockholders’ equity section of the consolidated balance sheets as a reduction of additional paid-in capital generated as a result of the offering, to the extent there are sufficient proceeds. Should the equity financing no longer be considered probable of being consummated, all deferred financing costs would be charged to operating expenses in the consolidated statements of operations.

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-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.

 

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.

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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 electric power systems is recognized either over time or at a point in time and substantially all of our revenue from the sale of power generation equipment is recognized at a point in time. Revenues are recognized at the point in time that the customer obtains control of the good, which is when it has taken title to the products and has assumed the risks and rewards of ownership specified in the purchase order or sales agreement. Certain sales of highly customized electrical power systems are recognized over time when such equipment has no alternative use and the Company has an enforceable right to payment for performance completed to date. Revenue for such agreements is recognized under the input method based on either cost or direct labor hours incurred relative to the estimated cost or direct labor hours expected to be consumed to complete the project. Under the cost-to-cost method of revenue recognition, a single estimated profit margin is used to recognize profit for each performance obligation over its period of performance. Recognition of profit on a contract requires estimates of the total cost at completion and transaction price and the measurement of progress towards completion. Due to the nature of many of our contracts, developing the estimated total cost at completion and total transaction price often requires judgment. Factors that must be considered in estimating the cost of the work to be completed include the nature and complexity of the work to be performed, subcontractor performance and the risk and impact of delayed performance. When adjustments in estimated total costs at completion or in estimated total transaction price are determined, the related impact on income is recognized using the cumulative catch-up method, which recognizes in the current period the cumulative effect of such adjustments for all prior periods. Any anticipated losses on these contracts are fully recognized in the period in which the losses become evident.

 

During the three months ended September 30, 2022 and 2021,2023, the Company recognized $1.88,919 millionof revenue over time and incurred costs of $6,408. During the three months ended September 30, 2022, the Company recognized $2,410 of revenue over time and incurred costs of $2,100. Additionally, the Company recognized $1,461 and $3.41,788 million of revenue at a point in time respectively, from the sale of our electric power systems and power generation equipment. Duringproducts during the ninethree months ended September 30, 2023 and 2022, and 2021, the Company recognized $8.7 million and $6.0 million of revenue at a point in time, respectively, from the sale of our products.respectively.

 

Service revenues include maintenance contracts that are recognized over time based on the contract term and repair services which are recognized as services are delivered. The Company recognized $2.12,063 million and $22,053.0 million of service revenue during the three months ended September 30, 2023 and 2022, respectively.

During the nine months ended September 30, 2023, the Company recognized $18,963of revenue over time and 2021,incurred costs of $13,195. During the nine months ended September 30, 2022, the Company recognized $3,309 of revenue over time and incurred costs of $2,881. Additionally, the Company recognized $8,103 and $8,723 of revenue at a point in time from the sale of our products during the nine months ended September 30, 2023 and 2022, respectively.

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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 $5.46,014 million and $5.55,444 million of service revenue during the nine months ended September 30, 20222023 and 2021,2022, respectively.

 

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During the three months ended September 30, 2022 and 2021,2023, the Company recognized approximately $2.4 million and $2622,569 of revenue over time and incurred coststhat was classified as deferred revenue as of December 31, 2022, as compared to $281.0 million and $ of revenue recognized during the three months ended September 30, 2022 that was classified as deferred revenue at December 31, 2021.

227, respectively, related to a single contract.

During the nine months ended September 30, 2022 and 2021, the Company recognized $3.3 million and $3.4 million of revenue over time and incurred costs of $2.9 million and $3.1 million, respectively, related to a single contract.

During the three months ended September 30, 2022,2023, the Company recognized approximately $818,336 of revenue that was recognized as deferred revenue at December 31, 2021,2022, as compared to $225 of revenue during the three months ended September 30, 2021 that was recognized as deferred revenue at December 31, 2020.

During the nine months ended September 30, 2022, the Company recognized approximately $2.1 million of revenue that was recognized as deferred revenue at December 31, 2021, as compared to $2842,137 of revenue during the nine months ended September 30, 20212022 that was recognized as deferred revenue at December 31, 2020.

There was no revenue recognized during the three and nine months ended September 30, 2022 and 2021 from performance obligations satisfied in prior periods.2021.

 

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.

 

AtAs of September 30, 2022,2023, three customers represented approximately 4036%, 2116% and 1314% of the Company’s accounts receivable. At December 31, 2021, two2022, three customers represented approximately 3257%, 13% and 11% of the Company’s accounts receivable.

 

For the three months ended September 30, 2023, two customers represented approximately 54% and 17% of the Company’s revenue. For the three months ended September 30, 2022, one customer represented approximately 54% of the Company’s revenue.

For the nine months ended September 30, 2023, two customers represented approximately 42% and 22% of the Company’s revenue. For the nine months ended September 30, 2022, two customers represented approximately 31% and 12% of the Company’s revenue. For the nine months ended September 30, 2021, two customers represented approximately 23% and 22% 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 the three and nine months ended September 30, 20222023 and 20212022 were insignificant.

 

The following table presents our revenues disaggregated by revenue discipline:

 SCHEDULE OF REVENUE DISAGGREGATED

 2023 2022 2023 2022 
 Three Months Ended Nine Months Ended  Three Months Ended Nine Months Ended 
 September 30,  September 30,  September 30, September 30, 
 2022  2021  2022  2021  2023 2022 2023 2022 
Products $4,198  $3,690  $12,032  $9,359  $  10,380  $4,198  $27,066  $12,032 
Services  2,053   1,995   5,444   5,454   2,063   2,053   6,014   5,444 
Total revenue $6,251  $5,685  $17,476  $14,813  $12,443  $6,251  $33,080  $17,476 

 

See “Note 129 - Business Segment and Geographic Information in Notes to Consolidated Financial Statements” in Part I of this Quarterly Report on Form 10-Q.Information”.

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4.REVISION OF PRIOR PERIOD FINANCIAL STATEMENTS

In connection with the preparation of our consolidated interim financial statements for the quarter ended September 30, 2022, we completed an analysis of one of our customer contracts under ASC 606 and, as a result, we determined that the performance obligations are satisfied over time. See “Note 3 – Revenues in Notes to Consolidated Financial Statements” in Part I of this Quarterly Report on Form 10-Q. As a result of the analysis, we identified additional revenues to be recognized of $326 and $574 related to the three months ended March 31, 2022 and June 30, 2022, respectively, along with the additional related cost of revenues of $278 and $592, respectively.

The following tables reconcile the balances as previously reported in the Quarterly Reports on Form 10-Q as of and for the three months ended March 31, 2022 and as of and for the three and six months ended June 30, 2022 to the as revised balances:

          
  For The Three Months Ended 
  March 31, 2022 
Condensed Consolidated Statements of Operations (Unaudited) As Reported  Adjustment  As Revised 
Revenues $6,036  $326  $6,362 
Cost of goods sold $5,161  $278  $5,439 
Gross profit $875  $48  $923 
Net loss $(788) $48  $(740)
Loss per share - basic and diluted $(0.08)  —  $(0.08)
Weighted average common shares outstanding - basic and diluted  9,641   —   9,641 

          
  For The Three Months Ended 
  June 30, 2022 
Condensed Consolidated Statements of Operations (Unaudited) As Reported  Adjustment  As Revised 
Revenues $4,289  $574  $4,863 
Cost of goods sold $4,208  $592  $4,800 
Gross profit $81  $(19) $62 
Net loss $(2,517) $(19) $(2,536)
Loss per share - basic and diluted $(0.26)  —  $(0.26)
Weighted average common shares outstanding - basic and diluted  9,728   —   9,728 

          
  For The Six Months Ended 
  June 30, 2022 
Condensed Consolidated Statements of Operations (Unaudited) As Reported  Adjustment  As Revised 
Revenues $10,325  $900  $11,225 
Cost of goods sold $9,369  $870  $10,239 
Gross profit $956  $30  $986 
Net loss $(3,305) $30  $(3,275)
Loss per share - basic and diluted $(0.34)  —  $(0.34)
Weighted average common shares outstanding - basic and diluted  9,685   —   9,685 


          
  March 31, 2022 
Condensed Consolidated Balance Sheet (Unaudited) As Reported  Adjustment  As Revised 
Total current assets $32,162  $(278) $31,884 
Total assets  34,983   (278)  34,705 
Total current liabilities  14,719   (326)  14,393 
Total liabilities  16,145   (326)  15,819 
Total stockholders’ equity  18,838   48   18,886 

          
  June 30, 2022 
Condensed Consolidated Balance Sheet (Unaudited) As Reported  Adjustment  As Revised 
Total current assets $31,080  $(870) $30,210 
Total assets  34,116   (870)  33,246 
Total current liabilities  15,696   (900)  14,796 
Total liabilities  17,136   (900)  16,236 
Total stockholders’ equity  16,980   30   17,010 

          
  For The Three Months Ended 
  March 31, 2022 
Cash Flows From Operating Activities (Unaudited) As Reported  Adjustment  As Revised 
Net loss $(788) $48  $(740)
Changes in current operating assets and liabilities:            
Inventories  (2,805)  278   (2,527)
Deferred revenue  4,895   (326)  4,569 
Net cash provided by operating activities  2,087   —   2,087 

          
  For The Six Months Ended 
  June 30, 2022 
Cash Flows From Operating Activities (Unaudited) As Reported  Adjustment  As Revised 
Net loss $(3,305) $30  $(3,275)
Changes in current operating assets and liabilities:            
Inventories  (4,857)  870   (3,987)
Deferred revenue  6,866   (900)  5,966 
Net cash used in operating activities  (1,621)  —   (1,621)

          
  For The Three Months Ended 
  March 31, 2022 
Consolidated Statement of Stockholders’ Equity (Unaudited) As Reported  Adjustment  As Revised 
Accumulated deficit $(13,100) $48  $(13,052)
Total stockholders’ equity  18,838   48   18,886 

          
  For The Six Months Ended 
  June 30, 2022 
Consolidated Statement of Stockholders’ Equity (Unaudited) As Reported  Adjustment  As Revised 
Accumulated deficit $(15,617) $30  $(15,587)
Total stockholders’ equity  16,980   30   17,010 

In accordance with SEC Staff Accounting Bulletin No. 108, we evaluated this revision based on an analysis of quantitative and qualitative factors as to whether it was material to the consolidated statements of operations for the three months ended March 31, 2022 and June 30, 2022 and if amendments of previously filed financial statements with the SEC are required. We determined that the adjustment is neither quantitatively nor qualitatively material and, therefore, the revision does not have a material impact to the consolidated statements of operations for the three months ended March 31, 2022, the three and six months ended June 30, 2022 or other prior periods.

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5. OTHER (INCOME) EXPENSE

Other (income) expense 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 September 30, 2022, other income was $17, as compared to other expense of $13 during the three months ended September 30, 2021.

For the nine months ended September 30, 2022, other expense was $112, as compared to other income of $1.3 million during the nine months ended September 30, 2021. For the nine months ended September 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.

6. INVENTORIES

 

The components of inventories are summarized below:

 SCHEDULE OF INVENTORIES

 September 30,  December 31,  September 30, December 31, 
 2022  2021  2023 2022 
Raw materials $3,119  $993  $  6,808  $  2,962 
Work in process  5,360   3,167   1,472   5,786 
Total inventories $8,479  $4,160  $8,280  $8,748 

 

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

 

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7.

5. PROPERTY AND EQUIPMENT, NET

Property and equipment are summarized below:

SCHEDULE OF PROPERTY AND EQUIPMENT 

 September 30,  December 31,  September 30, December 31, 
Property and equipment 2022  2021 
 2023 2022 
Machinery, vehicles and equipment $1,610  $1,396  $3,209  $2,308 
Furniture and fixtures  208   205   208   208 
Computer hardware and software  567   541   638   591 
Leasehold improvements  368   322   368   368 
Construction in progress  100   —     1,896     499 
Property and equipment  2,853   2,464 
Property and equipment, gross  6,319   3,974 
Less: accumulated depreciation  (2,059)  (1,948)  (2,544)  (2,174)
Total property and equipment, net $794  $516  $3,775  $1,800 

 

Depreciation expense was $40143 and $3540 for the three months ended September 30, 20222023 and 2021,2022, respectively.

 

Depreciation expense was $113370 and $110 113for the nine months ended September 30, 20222023 and 2021,2022, respectively.

 

8. 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 September 30, 2022 of $322 for a carrying value of $6.1 million.

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9.6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

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

SCHEDULE OF ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

 September 30,  December 31,  September 30, December 31, 
 2022  2021  2023 2022 
Accounts payable $3,433  $2,089  $4,961  $5,615 
Accrued liabilities  1,273   1,263     4,811     1,624 
Current portion of lease liabilities  972   807 
Total accounts payable and accrued liabilities $5,678  $4,159  $9,772  $7,239 

 

Accrued liabilities primarily consist of accrued legal settlement costs, accrued sales commissions, accrued compensation and benefits, accrued professional feessales and use taxes and accrued insurance. AtAs of September 30, 20222023 and December 31, 2021,2022, accrued legal settlement costs were $3,500 and $0, respectively. See Note 10 for details. As of September 30, 2023 and December 31, 2022, accrued sales commissions were $148366 and $247278, respectively. Accrued compensation and benefits atas of September 30, 20222023 and December 31, 20212022 were $307312 and $270213, respectively. At September 30, 2022, accrued professional fees were $309 compared to $111 at December 31, 2021. Accrued sales and use taxes atas of September 30, 20222023 and December 31, 20212022 were $31930 and $50258, respectively, and there was no accrued insurance atas of September 30, 20222023 compared to $481559 at December 31, 2021.2022. The remainder of accrued liabilities are comprised of several insignificant accruals in connection with normal business operations.

 

As of September 30, 2023 and December 31, 2022, none of the Company’s suppliers represented more than 10% of the Company’s accounts payable.

10.

STOCKHOLDERS’ EQUITY7. STOCK-BASED COMPENSATION

Common Stock

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

Stock-Based Compensation

 

A summary of stock option activity during the nine months ended September 30, 20222023 is as follows:

SCHEDULE OF STOCK OPTION ACTIVITY

  Stock Options  Weighted average
exercise price		  Weighted
average
remaining
contractual term		  Aggregate
intrinsic value		 
Outstanding as of January 1, 2023  670,667  $5.45         
Granted  97,500   5.80         
Exercised  (15,000)  3.31         
Forfeited  (35,000)  5.60         
Outstanding as of September 30, 2023    718,167  $   5.53      5.70  $   1,056 
Exercisable as of September 30, 2023  623,167  $5.50   5.10  $983 

9

 

  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 September 30, 2022  670,667  $5.45   5.90  $58 
Exercisable as of September 30, 2022  643,667  $5.54   5.70  $58 

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 15 of the calendar year following the calendar year in which such RSUs vested. The fair value of the RSU award at the date of grant was $1.6 million.

A summary of RSU activity during the nine months ended September 30, 2022,2023 is as follows:

 SUMMARY OF RESTRICTED STOCK ACTIVITY

     Weighted-average 
     grant-date 
  Number of units  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 September 30, 2022  250,000  $1,087 

 13

     Weighted-average   
     grant-date fair value per  Weighted-average grant-date 
  Number of units  share  fair value 
Unvested restricted stock units as of January 1, 2023  250,000  $4.35  $1,087 
Units granted  100,000   5.75   575 
Units vested  (225,000)  4.97              (1,119)
Units forfeited  -                       -   - 
Unvested restricted stock units as of September 30, 2023  125,000  $4.35  $543 

 

As of

During the three and nine months ended September 30, 2022, there were2023, the Company issued 498,00010,000 shares availableof its common stock for future grants underconsulting services with a fair value of $64,900.

During the Company’s 2021 Long-Term Incentive Plan.nine months ended September 30, 2023, the Company issued 100,000 shares of common stock to its Chief Executive Officer (“CEO”) in connection with the vesting of 100,0000 restricted stock units (“RSU”) on May 11, 2023. The fair value of the RSUs on the date of grant was $575, which was recognized immediately.

During the nine months ended September 30, 2023, the Company issued 250,000 shares of common stock to its Chief Financial Officer (“CFO”) in connection with the vesting of 125,000 RSUs on May 1, 2022 and 125,000 RSUs on May 1, 2023.

During the three and nine months ended September 30, 2023, the CEO and CFO each individually agreed to surrender shares of common stock to the Company, totaling an aggregate of 117,082 shares with a fair value of $720 in connection with income and payroll tax obligations paid by the Company in connection with the vesting of the above mentioned RSUs. The shares were subsequently cancelled and retired by the Company.

 

Stock-based compensation expense recorded for the three and nine months ended September 30, 2023 was approximately $285 and $1,246, respectively. Stock-based compensation expense recorded for the three and nine months ended September 30, 2022 was approximately $143 and $859, respectively. Stock-based compensation expense recorded for the three and nine months endedAs of September 30, 2021 was approximately $58 and $129, 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 September 30, 2022,2023, there was $878638 of stock-based compensation expense remaining to be recognized in the interim consolidated statements of operations over a weighted average remaining period of 1.61.1 years.

11.8. BASIC AND DILUTED LOSSINCOME (LOSS) PER COMMON SHARE

 

Basic and diluted lossincome (loss) 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 equity awards, as well as incremental shares issuable upon exercise of warrants, are not considered in the calculations if the effect would be anti-dilutive. The following table sets forth the computation of basic and diluted lossincome (loss) per share (in thousands, except per share data):

 SCHEDULE OF BASIC AND DILUTED LOSS PER SHARE

            2023  2022  2023  2022 
 Three Months Ended Nine Months Ended  Three Months Ended Nine Months Ended 
 September 30,  September 30,  September 30, September 30, 
 2022  2021  2022  2021  2023  2022  2023  2022 
Numerator:                  
Net loss $(1,311) $(434) $(4,586) $(769)
Net income (loss) $1,024  $(1,311) $827  $(4,586)
                                
Denominator:                                
Weighted average basic shares outstanding  9,770   8,726   9,713   8,726   10,010,226   9,769,545   9,896,850   9,713,335 
Effect of dilutive securities - equity based compensation plans  —   —   —   —   239,873   -   152,159   - 
Denominator for diluted net loss per common share  9,770   8,726   9,713   8,726 
Weighted average diluted shares outstanding  10,250,099   9,769,545   10,049,009   9,713,335 
                                
Net loss per common share:                
Net income (loss) per common share:                
Basic $(0.13) $(0.05) $(0.47) $(0.09) $0.10  $(0.13) $0.08  $(0.47)
Diluted $(0.13) $(0.05) $(0.47) $(0.09) $0.10  $(0.13) $0.08  $(0.47)

 

As of September 30, 2023 and 2022, and 2021, diluted lossincome (loss) per share excludes671 and 674 potentially dilutive common shares related to equity awards,718,167 and 670,667 shares underlying stock options, respectively, and 125,000 and 250,000 shares underlying nonvested RSUs, respectively, as their effect was anti-dilutive.

 14

10

12.

9. 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 two 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 distributionsale of switchgearcircuit protection and controls equipment used primarily by large industrial and commercial operations to manage their electrical power distribution needs. The Critical Power segment provides mobile high capacity charging equipment, power generation equipment and aftermarket field-services primarilyin order to help customers secure fast vehicle charging where fixed charging infrastructure does not exist, and additionally to ensure smooth, uninterrupted power to operations during times of emergency.

 

The following tables present information about segment income (loss):and loss:

 SCHEDULE OF SEGMENT INCOME AND LOSS

  2023  2022  2023  2022 
  Three Months Ended  Nine Months Ended 
  September 30,  September 30, 
  2023  2022  2023  2022 
Revenues            
T&D Solutions                
Power Systems $9,575  $3,773  $24,559  $10,029 
Service  75   -   75   10 
Total revenue  9,650   3,773   24,634   10,039 
Critical Power Solutions                
Equipment  805   425   2,507   2,003 
Service  1,988   2,053   5,939   5,434 
Total revenue  2,793   2,478   8,446   7,437 
Consolidated $12,443  $6,251  $33,080  $17,476 

                 
  Three Months Ended  Nine Months Ended 
  September 30,  September 30, 
  2022  2021  2022  2021 
Revenues            
T&D Solutions                
Power Systems $3,773  $2,996  $10,029  $7,980 
Service  —   —   10   — 
   3,773   2,996   10,039   7,980 
Critical Power Solutions                
Equipment  425   694   2,003   1,379 
Service  2,053   1,995   5,434   5,454 
   2,478   2,689   7,437   6,833 
Consolidated $6,251  $5,685  $17,476  $14,813 
  2023  2022  2023  2022 
  Three Months Ended  Nine Months Ended 
  September 30,  September 30, 
  2023  2022  2023  2022 
Depreciation and amortization                
T&D Solutions $18  $14  $51  $35 
Critical Power Solutions  187   73   581   234 
Unallocated corporate overhead expenses  2   7   7   21 
Consolidated $207  $94  $639  $290 

  2023  2022  2023  2022 
  Three Months Ended  Nine Months Ended 
  September 30,  September 30, 
  2023  2022  2023  2022 
Operating income (loss)                
T&D Solutions $2,678  $171  $5,728  $(183)
Critical Power Solutions  (621)  (765)  (1,563)  (1,676)
Unallocated corporate overhead expenses  (1,104)  (850)  (3,534)  (2,930)
Consolidated $953  $(1,444) $631  $(4,789)

 

                 
  Three Months Ended  Nine Months Ended 
  September 30,  September 30, 
  2022  2021  2022  2021 
Depreciation and amortization                
T&D Solutions $14  $15  $35  $50 
Critical Power Solutions  73   76   234   257 
Unallocated corporate overhead expenses  7   7   21   22 
Consolidated $94  $98  $290  $329 

                 
  Three Months Ended  Nine Months Ended 
  September 30,  September 30, 
  2022  2021  2022  2021 
Operating income (loss)                
T&D Solutions $171  $(100) $(183) $(664)
Critical Power Solutions  (765)  160   (1,676)  34 
Unallocated corporate overhead expenses  (850)  (578)  (2,930)  (1,740)
Consolidated $(1,444) $(518) $(4,789) $(2,370)

Revenues are attributable to countries based on the location of the Company'sCompany’s customers:

 

  Three Months Ended  Nine Months Ended 
  September 30,  September 30, 
  2022  2021  2022  2021 
Revenues            
United States $6,251  $5,685  $17,476  $14,813 

SCHEDULE OF REVENUES ARE ATTRIBUTABLE TO COUNTRIES BASED ON THE LOCATION

 15

  Three Months Ended  Nine Months Ended 
  September 30,  September 30, 
  2023  2022  2023  2022 
Revenues            
United States $12,443  $6,251  $33,080  $17,476 

13. LEASES

10. COMMITMENTS AND CONTINGENCIES

Litigation and Claims

From time to time, the Company is a defendant or plaintiff in various legal actions that arise in the normal course of business. Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated.

On June 15, 2023, two individuals (the “Plaintiffs”) filed a complaint in the U.S. District Court, District of Nebraska naming the Company, its wholly-owned subsidiary, Titan Energy Systems, Inc., and an individual acting in his capacity as an employee of the Company, collectively as defendants. Plaintiffs filed an amended complaint on July 7, 2023 alleging negligent driving, negligent entrustment, and negligent hiring, training and supervision, as a result of a car accident that occurred on September 9, 2019 involving the Plaintiffs and the individual. According to the amended complaint, the Plaintiffs are seeking special damages related to the injuries sustained by Plaintiffs. On July 27, 2023, the defendants filed an Answer to Plaintiff’s Amended Complaint. On October 6, 2023, a mediation was held, but the parties did not reach a settlement. The Company leases certain offices, facilitiesparties are in the beginning stages of the discovery process and equipment under operating and financing leases. Our leases have remaining terms ranging from less than 1 yearare working to 5 years someschedule a settlement conference before the end of which contain options to extend up to 5 years.2023. As of September 30, 2022 and December 31, 2021, assets recorded under finance leases were2023, the Company recognized a liability of $1.23,500 million and $1.6 million, respectively, and accumulated amortization associated with finance leases were $474 and $1.1 million, respectively.

As of September 30, 2022 and December 31, 2021, assets recorded under operating leases were $2.5 million and $3.9 million, respectively, and accumulated amortization associated with operating leases were $1.2 million and $2.3 million, respectively. The Company did not execute any new lease agreements during the three months ended September 30, 2022.

The components of the lease expense were as follows:

             
  Three Months Ended  Nine Months Ended 
  September 30,  September 30, 
  2022  2021  2022  2021 
Operating lease cost $188  $173  $563  $456 
                 
Finance lease cost                
Amortization of right-of-use asset $53  $62  $177  $219 
Interest on lease liabilities  10   9   31   30 
Total finance lease cost $63  $71  $208  $249 

Other information related to leasesthis matter, which was as follows:included within accounts payable and accrued liabilities, with a corresponding insurance receivable of $3,500 related to the loss recovery, which was deemed to be probable and included within prepaid expenses and other current assets on the consolidated balance sheet.

Supplemental Cash Flows Information

       
  September 30, 
  2022  2021 
Cash paid for amounts included in the measurement of lease liabilities      
Operating cash flow payments for operating leases $559  $449 
Operating cash flow payments for finance leases  31   30 
Financing cash flow payments for finance leases  178   226 
Right-of-use assets obtained in exchange for lease obligations        
Operating lease liabilities arising from obtaining right of use assets  551   1,418 

Weighted Average Remaining Lease Term

 

   September 30, 
   2022   2021 
Operating leases  2 years   3 years 
Finance leases  3 years   2 years 

Weighted Average Discount Rate

  September 30, 
  2022  2021 
Operating leases  5.50%  5.50%
Finance leases  6.61%  6.76%

 16

11

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

  Operating  Finance 
  Leases  Leases 
2022 $182  $74 
2023  670   389 
2024  508   158 
2025  95   174 
Thereafter  24   128 
Total future minmum lease payments  1,479   923 
Less imputed interest  (92)  (102)
Total future minmum lease payments $1,387  $821 

Reported as of September 30, 2022:

  Operating  Finance 
  Leases  Leases 
Right-of-use assets $1,343  $773 

  Operating  Finance 
  Leases  Leases 
Accounts payable and accrued liabilities $621  $351 
Other long-term liabilities  766   470 
Total $1,387  $821 

 17

ITEM 2. MANAGEMENT’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, 2021,2022, which was filed with the Securities and Exchange Commission on March 31, 2022.April 11, 2023.

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.

U.S. dollars are reported in thousands except for share and per share amounts.

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.

●Material weaknesses in internal controls.

●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.
●Risks associated with litigation and claims, which could impact our financial results and condition.

12

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, 20212022 for a discussion of the foregoing and other risks that relate to our business and investing in shares of our common stock.


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© 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.

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 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.April 11, 2023. There were no material changes to our accounting policies during the nine months ended September 30, 2022.2023.


13

RESULTS OF OPERATIONS

Overview of the Three and Nine 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 129 - 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 nine months ended September 30, 20222023 and 20212022 are as follows:

 Three Months Ended Nine Months Ended  Three Months Ended Nine Months Ended 
 September 30,  September 30,  September 30,  September 30, 
 2022  2021  2022  2021  2023  2022  2023  2022 
Revenues                         
T&D Solutions $3,773  $2,996  $10,039  $7,980  $9,650  $3,773  $24,634  $10,039 
Critical Power Solutions  2,478   2,689   7,437   6,833   2,793   2,478   8,446   7,437 
Consolidated  6,251   5,685   17,476   14,813   12,443   6,251   33,080   17,476 
Cost of goods sold                  

 

            
T&D Solutions  3,291   2,810   9,312   7,807   6,378   3,291   17,614   9,312 
Critical Power Solutions  2,099   2,162   6,317   5,638   2,354   2,099   6,831   6,317 
Consolidated  5,390   4,972   15,629   13,445   8,732   5,390   24,445   15,629 
Gross profit  861   713   1,847   1,368   3,711   861   8,635   1,847 
Selling, general and administrative expenses  2,273   1,207   6,550   3,664   2,726   2,273   7,816   6,550 
Depreciation and amortization expense  32   24   86   74   32   32   188   86 
Total operating expenses  2,305   1,231   6,636   3,738   2,758   2,305   8,004   6,636 
Operating loss from continuing operations  (1,444)  (518)  (4,789)  (2,370)
Operating income (loss) from continuing operations  953   (1,444)  631   (4,789)
Interest income  (116)  (99)  (322)  (288)  (60)  (116)  (192)  (322)
Other (income) expense  (17)  13   112   (1,294)  (11)  (17)  (4)  112 
Loss income before taxes  (1,311)  (432)  (4,579)  (788)
Income tax expense (benefit)  —   2   7   (19)
Net loss $(1,311) $(434) $(4,586) $(769)
Income (loss) before income taxes  1,024   (1,311)  827   (4,579)
Income tax expense  -   -   -   7 
Net income (loss) $1,024  $(1,311) $827  $(4,586)

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. AtAs of September 30, 2022,2023, backlog from our E-Bloc power systems solutionsand related equipment was approximately $13.8 million,$13,771, or 49%41% 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:

  September 30,  June 30,  March 31,  December 31,  September 30, 
  2023  2023  2023  2022  2022 
T&D Solutions $25,579  $26,425  $29,198  $30,871  $22,689 
Critical Power Solutions  8,027   7,146   7,845   6,284   5,207 
Total order backlog $33,606  $33,571  $37,043  $37,155  $27,896 

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  September 30,  June 30,  March 31,  December 31,  September 30, 
  2022  2022 (Revised)  2022 (Revised)  2021  2021 
T&D Solutions $22,689  $19,118  $18,406  $17,499  $5,032 
Critical Power Solutions  5,207   5,141   5,222   5,349   5,823 
Total order backlog $27,896  $24,259  $23,628  $22,848  $10,855 

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 Nine Months Ended  Three Months Ended Nine Months Ended 
 September 30,  September 30,  September 30,  September 30, 
 2022  2021  Variance  %  2022  2021  Variance  %  2023  2022  Variance  %  2023  2022  Variance  % 
T&D Solutions                                                                
Power Systems $3,773  $2,996  $777   25.9  $10,029  $7,980  $2,049   25.7  $9,575  $3,773  $5,802   153.8  $24,559  $10,029  $14,530   144.9 
Service  —   —   —   —   10   —   10   —   75   -   75   -   75   10   65   650.0 
  3,773   2,996   777   25.9   10,039   7,980   2,059   25.8   9,650   3,773   5,877   155.8   24,634   10,039   14,595   145.4 
Critical Power Solutions                                                                
Equipment  425   694   (269)  (38.8)  2,003   1,379   624   45.3   805   425   380   89.4   2,507   2,003   504   25.2 
Service  2,053   1,995   58   2.9   5,434   5,454   (20)  (0.4)  1,988   2,053   (65)  (3.2)  5,939   5,434   505   9.3 
  2,478   2,689   (211)  (7.9)  7,437   6,833   604   8.8   2,793   2,478   315   12.7   8,446   7,437   1,009   13.6 
Total revenue $6,251  $5,685  $566   9.9  $17,476  $14,813  $2,663   18.0  $12,443  $6,251  $6,192   99.1  $33,080  $17,476  $15,604   89.3 

For the three months ended September 30, 2022,2023, our consolidated revenue increased by $566,$6,192, or 9.9%99.1%, to $6.3 million,$12,443, up from $5.7 million$6,251 during the three months ended September 30, 2021,2022, primarily due to an increase in sales of our power systems from our T&D Solutions segment and a reductionan increase in sales of our equipment sales from our Critical Power segment.Solutions segment during the three months ended September 30, 2023.

For the nine months ended September 30, 2022,2023, our consolidated revenue increased by $2.7 million,$15,604, or 18.0%89.3%, to $17.5 million,$33,080, up from $14.8 million$17,476 during the nine months ended September 30, 2021,2022, primarily due to an increase in sales of our power systems and equipment from our T&D Solutions segment and an increase in equipment and service sales from our Critical Power segments, respectively.Solutions segment during the nine months ended September 30, 2023.

T&D Solutions. During the three months ended September 30, 2022,2023, revenue forfrom our power systems product lines increased by $777,$5,802, or 25.9%153.8%, as compared to the three months ended September 30, 2021,2022, primarily due to increased sales of our E-Bloc power systems and medium and low voltage equipment during the three months ended September 30, 2023.

During the nine months ended September 30, 2023, revenue from our power systems product lines increased by $14,530, or 144.9%, as compared to the nine months ended September 30, 2022, primarily due to increased sales of our E-Bloc power systems and automatic transfer switches, and a decreasein addition to an increase in sales of our medium and low voltage power systems.

Duringequipment during the nine months ended September 30, 2022,2023.

Critical Power. For the three months ended September 30, 2023, revenue for our power systems product linesCritical Power segment increased by $2.0 million,$315, or 25.7%12.7%, as compared to the three months ended September 30, 2022, primarily due to an increase in sales of our new and refurbished generation equipment during the three months ended September 30, 2023.

For the nine months ended September 30, 2023, revenue for our Critical Power segment increased by $1,009, or 13.6%, as compared to the nine months ended September 30, 2021,2022, primarily due to increased sales of our E-Bloc power systems, automatic transfer switches and low voltage power systems and a decreasean increase in sales of our medium voltage power systems.

Critical Power Solutions. For the three months ended September 30, 2022, revenue from our Critical Power segment decreased by $211, or 7.9%, as compared to the three months ended September 30, 2021, primarily due to decreased sales of our new and refurbished generation equipment.

Forequipment and the nine months ended September 30, 2022, revenue from our Critical Power segment increased by $604, or 8.8%, as compared to the nine months ended September 30, 2021, primarily due to the recognition of revenue from shipmentscyclicality of our e-Boost productspreventative maintenance schedules during the nine months ended September 30, 2022 and no recognition of revenue from e-Boost shipments during the nine months ended September 30, 2021.2023.


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Gross Profit and Margin

The following table represents our gross profit by reporting segment for the periods indicated (in thousands, except percentages):

 Three Months Ended Nine Months Ended  Three Months Ended  Nine Months Ended 
 September 30,  September 30,  September 30,  September 30, 
 2022  2021  Variance  %  2022  2021  Variance  %  2023 2022 Variance % 2023 2022 Variance % 
T&D Solutions                                                                
Gross profit $482  $186  $296   159.1  $727  $173  $554   320.2  $3,272  $482  $2,790   578.8  $7,020  $727  $6,293   865.6 
Gross margin %  12.8   6.2   6.6       7.2   2.2   5.0       33.9   12.8   21.1       28.5   7.2   21.3     
                                                                
Critical Power Solutions                                                                
Gross profit  379   527   (148)  (28.1)  1,120   1,195   (75)  (6.3)  439   379   60   15.8   1,615   1,120   495   44.2 
Gross margin %  15.3   19.6   (4.3)      15.1   17.5   (2.4)      15.7   15.3   0.4       19.1   15.1   4.0     
                                                                
Consolidated gross profit $861  $713  $148   20.8  $1,847  $1,368  $479   35.0  $3,711  $861  $2,850   331.0  $8,635  $1,847  $6,788   367.5 
Consolidated gross margin %  13.8   12.5   1.3       10.6   9.2   1.4       29.8   13.8   16.0       26.1   10.6   15.5     

For the three months ended September 30, 2022,2023, our consolidated gross margin increased to 13.8%29.8% of revenues, as compared to 12.5%13.8% during the three months ended September 30, 2021.2022.

For the nine months ended September 30, 2022,2023, our consolidated gross margin increased to 10.6%26.1% of revenues, as compared to 9.2%10.6% during the nine months ended September 30, 2021.2022.

T&D Solutions. For the three months ended September 30, 2022,2023, our gross margin percentage increased by 6.6%21.1%, from 6.2%12.8% to 12.8%33.9%, as compared to the three months ended September 30, 2021.2022. The increase was primarily due to increasedthe significant increase in sales our E-Bloc power systems and automatic transfer switches which generated higher gross profitsmedium and margins.low voltage equipment, a reduction in input costs and improved productivity from our manufacturing facility during the three months ended September 30, 2023.

For the nine months ended September 30, 2022,2023, our gross margin percentage increased by 5.0%21.3%, from 2.2%7.2% to 7.2%28.5%, as compared to the nine months ended September 30, 2021.2022. The increase in our gross margin percentage was also primarily due to increasedthe significant growth in sales of our E-Bloc power systems and automatic transfer switches, a favorable sales mixmedium and low voltage equipment, reduced input costs and improved productivity from our manufacturing facility.facility during the nine months ended September 30, 2023.

Critical Power Solutions. For the three months ended September 30, 2022,2023, our gross margin decreasedincreased by 4.3%0.4%, to 15.3%15.7%, from 19.6%15.3% for the three months ended September 30, 2021, primarily due to increases in material and overhead costs.2022.

For the nine months ended September 30, 2022,2023, our gross margin decreasedincreased by 2.4%4.0%, to 15.1%19.1%, from 17.5%15.1% for the nine months ended September 30, 2021,2022. The increase was also primarily due to a favorable sales mix and the acceptance of price increases in material and overhead costs.from our customers.


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Operating Expenses

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

 Three Months Ended Nine Months Ended  Three Months Ended  Nine Months Ended 
 September 30,  September 30,  September 30,  September 30, 
 2022  2021  Variance  %  2022  2021  Variance  %  2023 2022 Variance % 2023 2022 Variance % 
T&D Solutions                                                                
Selling, general and administrative expense $306  $283  $23   8.1  $902  $823  $79   9.6  $585  $306  $279   91.2  $1,265  $902  $363   40.2 
Depreciation and amortization expense  5   3   2   66.7   8   14   (6)  (42.9)  9   5   4   80.0   26   8   18   225.0 
Segment operating expense $311  $286  $25   8.7  $910  $837  $73   8.7  $594  $311  $283   91.0  $1,291  $910  $381   41.9 
                                                                
Critical Power Solutions                                                                
Selling, general and administrative expense $1,124  $353  $771   218.4  $2,739  $1,122  $1,617   144.1  $1,039  $1,124  $(85)  (7.6) $3,024  $2,739  $285   10.4 
Depreciation and amortization expense  20   14   6   42.9   57   39   18   46.2   21   20   1   5.0   155   57   98   171.9 
Segment operating expense $1,144  $367  $777   211.7  $2,796  $1,161  $1,635   140.8  $1,060  $1,144  $(84)  (7.3) $3,179  $2,796  $383   13.7 
                                                                
Unallocated Corporate Overhead Expenses                                                                
Selling, general and administrative expense $843  $571  $272   47.6  $2,909  $1,719  $1,190   69.2  $1,102  $843  $259   30.7  $3,527  $2,909  $618   21.2 
Depreciation and amortization expense  7   7   —   —   21   21   —   —   2   7   (5)  (71.4)  7   21   (14)  (66.7)
Segment operating expense $850  $578  $272   47.1  $2,930  $1,740  $1,190   68.4  $1,104  $850  $254   29.9  $3,534  $2,930  $604   20.6 
                                                                
Consolidated                                                                
Selling, general and administrative expense $2,273  $1,207  $1,066   88.3  $6,550  $3,664  $2,886   78.8  $2,726  $2,273  $453   19.9  $7,816  $6,550  $1,266   19.3 
Depreciation and amortization expense  32   24   8   33.3   86   74   12   16.2   32   32   -   -   188   86   102   118.6 
Consolidated operating expense $2,305  $1,231  $1,074   87.2  $6,636  $3,738  $2,898   77.5  $2,758  $2,305  $453   19.7  $8,004  $6,636  $1,368   20.6 

Selling, General and Administrative Expense. For the three months ended September 30, 2022,2023, consolidated selling, general and administrative expense, before depreciation and amortization, increased by approximately $1.1 million,$453, or 88.3%19.9%, to $2.3 million,$2,726, as compared to $2,273 during the three months ended September 30, 2022, primarily due to an increase in payroll related costs, including stock-based compensation, professional feesthird party commissions and product development costs related to our e-Boost and E-Bloc initiatives, as compared to $1.2 million during the three months ended September 30, 2021.initiative. As a percentage of our consolidated revenue, selling, general and administrative expense, before depreciation and amortization, increaseddecreased to 36.4%21.9% during the three months ended September 30, 2022,2023, as compared to 21.2%36.4% in the three months ended September 30, 2021.2022.

For the nine months ended September 30, 2022,2023, consolidated selling, general and administrative expense, before depreciation and amortization, increased by approximately $2.9 million,$1,266, or 78.8%19.3%, to $6.6 million,$7,816, as compared to $3.7 million$6,550 during the nine months ended September 30, 2021,2022, primarily due to an increase in payroll related costs, including stock-based compensation, professional feestravel related costs, third party commissions and product development costs related to our e-Boost and E-Bloc initiatives.initiative. As a percentage of our consolidated revenue, selling, general and administrative expense, before depreciation and amortization, increaseddecreased to 37.5%23.6% during the nine months ended September 30, 2022,2023, as compared to 24.7% during37.5% in the nine months ended September 30, 2021.2022.

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 September 30, 2022,2023, consolidated depreciation and amortization expense increased by $8, or 33.3%,remained the same at $32, as compared to the three months ended September 30, 2021.2022.

For the nine months ended September 30, 2022,2023, consolidated depreciation and amortization expense increased by $12,$102, or 16.2%118.6%, as compared to the nine months ended September 30, 2021.2022, primarily due to an increase in depreciation as a result of placing certain e-Boost assets into service.


Operating Income (Loss) From Operations

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

 

 Three Months Ended Nine Months Ended  Three Months Ended Nine Months Ended 
 September 30,  September 30,  September 30,  September 30, 
 2022  2021  Variance  %  2022  2021  Variance  %  2023  2022  Variance  %  2023  2022  Variance  % 
T&D Solutions $171  $(100) $271   271.0  $(183) $(664) $481   72.4  $2,678  $171  $2,507   1,466.1  $5,729  $(183) $5,912   3,230.6 
Critical Power Solutions  (765)  160   (925)  578.1   (1,676)  34   (1,710)  5,029.4   (621)  (765)  144   18.8   (1,564)  (1,676)  112   6.7 
Unallocated corporate overhead expenses  (850)  (578)  (272)  (47.1)  (2,930)  (1,740)  (1,190)  (68.4)  (1,104)  (850)  (254)  (29.9)  (3,534)  (2,930)  (604)  (20.6)
Total operating loss $(1,444) $(518) $(926)  178.8  $(4,789) $(2,370) $(2,419)  (102.1)
Income (loss) from operations $953  $(1,444) $2,397   (166.0) $631  $(4,789) $5,420   113.2 

T&D Solutions. Operating income from our T&D Solutions segment increased by $271, or 271.0%,$2,507 during the three months ended September 30, 2022,2023, as compared to the three months ended September 30, 2021,2022, primarily due to an increase in sales of our power systems a favorable sales mixequipment, reduced input costs and improved productivity from our manufacturing facility during the three months ended September 30, 2022.2023.

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For the nine months ended September 30, 2022, operating loss

Operating income from our T&D Solutions segment decreasedincreased by $481, or 72.4%, as compared to an operating loss of $664$5,912 during the nine months ended September 30, 2021, primarily due2023, as compared to an increase in sales of our power systems, a favorable sales mix and improved productivity from our manufacturing facility.

Critical Power Solutions. Operating loss for the Critical Power segment increased by $925, or 578.1% during the threenine months ended September 30, 2022, primarily due to anthe significant increase in material and overheadrevenue, reduced input costs and recognizing product development and promotion fees related toimproved productivity from our e-Boost initiativemanufacturing facility during the nine months ended September 30, 2023.

Critical Power Solutions. Operating loss from our Critical Power segment decreased by $144, or 18.8%, during the three months ended September 30, 2022, as compared2023, primarily due to lower materiala favorable sales mix and overhead costs and no product development or promotion fees recognizedthe acceptance of price increases from our customers during the three months ended September 30, 2021.2023.

ForOperating loss from our Critical Power segment decreased by $112, or 6.7%, during the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022, operating loss from our Critical Power segment increased by $1,710, primarily due to a decrease in gross marginfavorable sales mix and an increase in consulting, marketing and promotion fees related tothe acceptance of price increases from our e-Boost initiative, as compared to lower material and overhead costs and no recognition of product development or promotion fees related to our e-Boost initiativecustomers during the nine months ended September 30, 2021.2023.

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 September 30, 2022,2023, our unallocated corporate overhead expense increased by $272,$254, or 47.1%29.9%, as compared to the three months ended September 30, 2021,2022, primarily due to an increase in payroll related expenses,costs, including stock-based compensation, professional fees and business travelcosts related costs.to investor relations.

During the nine months ended September 30, 2022,2023, our unallocated corporate overhead expense increased by $1.2 million,$604, or 68.4%20.6%, as compared to the nine months ended September 30, 2021,2022, primarily due to an increase in payroll related expenses,costs, including stock-based compensation, professional fees and business travelcosts related costs.to investor relations.

Non-Operating (Income) Expense

Interest Income. Income. For the three and nine months ended September 30, 2022, the Company2023, we had interest income of approximately $116$60 and $322,$192, respectively, as compared to interest income of approximately $99$116 and $288$322 during the three and nine months ended September 30, 2021,2022, respectively. We generategenerated the majority of our interest income from our cash on hand during the nine months ended September 30, 2023. During the nine months ended September 30, 2022, we generated the majority of our interest income from the Seller Notes we received from the sale of the transformer business units, which were paid off during the year ended December 31, 2022, in August 2019 andaddition to our cash on hand.

Other (Income) Expense. Expense. Other (income) expense in the unaudited consolidated statements of operations reports certain gains and losses associated with activities not directly related to our core operations. During

For the three and nine months ended September 30, 2022,2023, other non-operating income was $17,$11 and $4, respectively, as compared to other non-operating income of $17 and other non-operating expense of $13$112 during the three months ended September 30, 2021.

During theand nine months ended September 30, 2022, other expense was $112, as compared to other income of $1.3 million during the nine months ended September 30, 2021. For the nine months ended September 30, 2021, included in other income was a gain of $1.4 millionrespectively.

Provision 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 nine months ended September 30, 2021 and recognized a $1.4 million gain on extinguishment and forgiveness of debt in other income.

Income Tax Expense (Benefit)Taxes. Our effective income tax rate for the three months ended September 30, 20222023 and 20212022 was 0.0% and (0.5)%, respectively..

ForOur provision reflects an effective tax rate on income before taxes of 0.0% for the nine months ended September 30, 2023, as compared to (0.2)% for the nine months ended September 30, 2022, our effective income tax rate was (0.2)%, as compared to an income tax rate of 2.4% during the nine months ended September 30, 2021, as set forth below:

  Three Months Ended  Nine Months Ended 
  September 30,  September 30, 
  2022  2021  Variance  2022  2021  Variance 
Loss before income taxes $(1,311) $(432) $(879) $(4,579) $(788) $(3,791)
Income tax expense (benefit)  —   2   (2)  7   (19)  26 
Effective income tax rate %  —   (0.5)  0.5   (0.2)  2.4   (2.6)
  Three Months Ended  Nine Months Ended 
  September 30,  September 30, 
  2023  2022  Variance  2023  2022  Variance 
Income (loss) before income taxes $1,024  $(1,311) $2,335  $827  $(4,579) $5,406 
Income tax expense  -   -   -   -   7   (7)
Effective income tax rate %  -   -   -   -   (0.2)  0.2 

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Net LossIncome (Loss) per Share

We generated a net lossincome of $1.3 million$1,024 during the three months ended September 30, 2022,2023, as compared to a net loss of $434$1,311 during the three months ended September 30, 2021.2022.

Our net lossincome per basic and diluted share for the three months ended September 30, 20222023 was $0.13,$0.10, as compared to a net loss per basic and diluted share of $0.05$0.13 for the three months ended September 30, 2021.2022.

We generated a net lossincome of $4.6 million$827 during the nine months ended September 30, 2022,2023, as compared to a net loss of $769$4,586 during the nine months ended September 30, 2021.2022.

Our net lossincome per basic and diluted share for the nine months ended September 30, 20222023 was $0.47,$0.08, as compared to a net loss per basic and diluted share of $0.09$0.47 for the nine months ended September 30, 2021.2022.

LIQUIDITY AND CAPITAL RESOURCES

General. On October 20, 2020, we entered into an At the Market Sale Agreement with H.C. Wainwright & Co., LLC (“Wainwright”), pursuant to which we may offer and sell our shares of common stock from time to time through Wainwright, acting as sales agent or principal (the “ATM Program”). As of September 30, 2022,2023, we had $7.2 million$7,581 of cash on hand generated primarily from the sale of common stock under the At The Market Sale Agreement (the “ATM Program”)ATM Program, payment of all unpaid principal and interest from the Seller Notes during the year ended December 31, 2021.2022, and cash flows from operating activities. Since October 20, 2020, and through September 30, 2023, we sold an aggregate of 916,059 shares of common stock for an aggregate gross proceeds of approximately $8,904, before any sales agent fees and expenses payable by us under the ATM Program. During the three and nine months ended September 30, 2023, we sold an aggregate of 27,559 shares of common stock for an aggregate consideration of approximately $184, before any sales agent fees and expenses payable by us.

On December 13, 2021, we filed a prospectus supplement to the prospectus which forms a part of our registration statement on Form S-3 (File No. 333-249569) (the “Prior Shelf Registration Statement”), that was declared effective by the SEC on October 27, 2020 (the “Prior ATM Prospectus”), in connection with the offer and sale of up to an aggregate offering amount of $8,600 of common stock that may be issued and sold under the ATM Program. Prior to the expiration of the Prior Shelf Registration Statement at the end of its three-year term, we sold an aggregate of 27,559 shares of common stock for an aggregate consideration of approximately $184, before any sales agent fees and expenses payable by us, under the Prior ATM Prospectus. On August 30, 2023, we filed a new registration statement on Form S-3 (File No. 333-274266) to replace the Prior Shelf Registration Statement, including a base prospectus which covers the offering, issuance and sale of up to $150,000 of common stock, preferred stock, warrants and/or units; and a sales agreement prospectus covering the offering, issuance and sale of up to a maximum aggregate offering price of $75,000 of common stock that may be issued and sold under the ATM Program (the “New ATM Prospectus”). The new registration statement was declared effective by the SEC on September 8, 2023. As of September 30, 2023, $75,000 of common stock remained available for issuance under the New ATM Prospectus.

The World Health Organization determined that COVID-19 no longer fit the definition of a public health emergency and the U.S. government announced that the declaration of a public health emergency associated with COVID-19 expired on May 11, 2023. However, COVID-19 has remained and is expected to continue to remain as a serious endemic threat for an indefinite future period and may continue to adversely affect the global economy. The continuing impacts of the COVID-19 endemic, as well as rising interest rates, inflation, changes in foreign currency exchange rates and geopolitical developments, such as the ongoing conflict between Russia and Ukraine, and the ongoing conflict between Israel and Hamas, have resulted, and may continue to result, in a global slowdown of economic activity, which may decrease demand for a broad variety of goods and services, including those provided by the Company’s clients, while also disrupting supply channels, sales channels and advertising and marketing activities for an unknown period of time. As a result of the current uncertainty in economic activity, the Company is unable to predict the potential size and duration of the impact on its revenue and its results of operations, if any. The extent of the potential impact of these macroeconomic factors on the Company’s operational and financial performance will depend on a variety of factors, including the continuing impacts of the COVID-19 endemic and the extent of geopolitical disruption and their respective impacts on the Company’s clients, partners, industry, and employees, all of which are uncertain at this time and cannot be accurately predicted. The Company continues to monitor the effects of these macroeconomic factors and intends to take steps deemed appropriate to limit the impact on its business. During the nine months ended September 30, 2023, the Company was able to operate substantially at capacity.

There can be no assurance that precautionary measures, whether adopted by the Company or imposed by others, will be effective, and such measures could negatively affect its sales, marketing, and client service efforts, delay and lengthen its sales cycles, decrease its employees’, clients’, or partners’ productivity, or create operational or other challenges, any of which could harm its business and results of operations.

Cash Used in Operating Activities. Cash used in our operating activities was $228 during the nine months ended September 30, 2023, as compared to $3,936 during the nine months ended September 30, 2022. The decrease in cash used in operating activities is primarily due to the decrease in our net loss and working capital fluctuations.

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Cash Used in Investing Activities. Cash used in our investing activities during the nine months ended September 30, 2023 was $2,345, as compared to $391 during the nine months ended September 30, 2022. Additions to property and equipment during the nine months ended September 30, 2023 were $2,345, as compared to $391 of additions during the nine months ended September 30, 2022.

Cash Used in Financing Activities. Cash used in our financing activities was $142 during the nine months ended September 30, 2023, as compared to $162 during the nine months ended September 30, 2022. The primary use of cash in financing activities for the nine months ended September 30, 2023 and 2022 was repayments of financing leases.

Working Capital. As of September 30, 2023, we had working capital of $13,702, including $7,581 of cash on hand, compared to working capital of $14,074, including $10,296 of cash on hand at December 31, 2022.

Assessment of Liquidity. At September 30, 2023, we had $7,581 of cash on hand generated primarily from the sale of common stock under the ATM Program, payment of all unpaid principal and interest from the Seller Notes during the year ended December 31, 2022 and cash flows from operating activities. We have historically met our cash needs through a combination of cash flows from operating activities and bank borrowings, the completion of the sale of transformer business units in August 2019, proceeds from the sale of the CleanSpark common stockCommon Stock and warrants to purchase CleanSpark common stock, proceeds from insurance, proceeds from theCommon Stock, sale of common stock under the ATM Program and fundingcollecting all unpaid principal and interest from the Payroll Protection Program. OurSeller Notes. Historically, 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:

  September 30,  December 31, 
  2022  2021 
Cash $7,210  $9,924 
Restricted cash  —   1,775 
Total cash and restricted cash as shown in the statement of cash flows $7,210  $11,699 

The full impact of the COVID-19 pandemic and its ongoing effects 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. We were 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, its ongoing effects, and the global responses to the continuing crisis, we are not able to estimate the full effects of the COVID-19 pandemic and its ongoing effects at this time, however, if the ongoing effects of the COVID-19 pandemic continue or worsen, it may have an adverse effect on our 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 nine months ended September 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 Used in Operating Activities. Cash used in our operating activities was $3.9 million during the nine months ended September 30, 2022, as compared to cash used in our operating activities of $991 during the nine months ended September 30, 2021. The increase in cash used in operating activities is primarily due to working capital fluctuations.

Cash Used in Investing Activities. Cash used in investing activities during the nine months ended September 30, 2022 was $391, as compared to $156 of cash used in investing activities during the nine months ended September 30, 2021. Additions to property and equipment during the nine months ended September 30, 2022 were $391, as compared to $156 additions to property and equipment during the nine months ended September 30, 2021.

Cash Used in Financing Activities. Cash used in our financing activities was $162 during the nine months ended September 30, 2022, as compared to $1.3 million during the nine months ended September 30, 2021. The primary use of cash in financing activities for the nine months ended September 30, 2022 and 2021 was repayments of financing leases and a dividend paid to shareholders, respectively.

Working Capital. As of September 30, 2022, we had working capital of $14.2 million, including $7.2 million of 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 September 30, 2022, we had $7.2 million of cash on hand generated primarily from the sale of common stock under the ATM Program during the year ended December 31, 2021. We have met our cash needs through a combination of cash flows from operating activities and bank borrowings, the completion of the sale of transformer business units in August 2019, 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, which forms a part of our registration statement on Form S-3 (File No. 333-249569), 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 ATM Program. We did not sell any shares of common stock under the new sales agreement prospectus supplement during the nine months ended September 30, 2022. As of September 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 to us. We had no restricted cash on the consolidated balance sheets at September 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 we 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 September 30, 2022,2023, 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.

Capital Expenditures

The Company had $2,345 of additions to property and equipment during the nine months ended September 30, 2023, as compared to $391 of additions to property and equipment during the nine months ended September 30, 2022, as compared to $156 of additions to property and equipment during the nine months ended September 30, 2021.2022.

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 impactcontinuing impacts of the COVID-19 pandemic, including the Omicron variant of COVID-19 and the subvariant, BA.5, and the ongoing effects of COVID-19,endemic are 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 geopolitical conflicts, such as the ongoing conflict between Russia and Ukraine and the ongoing conflict between Israel and Hamas, including related sanctions and countermeasures, and the effects of rising global inflation, 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.


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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

Our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), evaluated the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of September 30, 2022.2023. Our disclosure controls and procedures are designed to provide reasonable assurance that information we are required to disclose in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosures, and is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Based on this evaluation, and as a result of the material weakness described below, our CEO and CFO have concluded that our disclosure controls and procedures were not effective as of September 30, 2022.2023. In light of this determination, our management has performed additional analyses, reconciliations, and other post-closing procedures and has concluded that, notwithstanding the material weakness in our internal control over financial reporting, the unaudited interim condensed consolidated financial statements for the periods covered by and included in this Quarterly Report on Form 10-Q fairly state, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with U.S. GAAP.

 

Material Weakness

A material weakness is a deficiency, or a combination of deficiencies, within the meaning of Public Company Accounting Oversight Board (“PCAOB”) Auditing Standard AS 2201, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The deficiency listed below, combined with inadequate compensating controls, created a reasonable possibility that a material misstatement to the consolidated financial statements might not be prevented or detected on a timely basis.

As of September 30,December 31, 2022, we hadidentified a material weakness in our internal control over financial reporting due to not having the appropriate controls in place over our revenue recognition process for nonroutine and complex revenue transactions in accordance with ASC 606, “Revenue from Contracts with Customers”. This control deficiency resulted in a misstatement, which continued to exist as of revenue-related accounts during the three months ended March 31, 2022 and June 30, 2022, which management corrected via revision as part of this Quarterly Report on Form 10-Q for the three months ended September 30, 2022.2023.

 

In order to remediate this material weakness, management has expanded and improved our process for reviewing customer contracts and revenue recognition inputs, including through the engagement of third-party accounting professionals with expertise in evaluating customer contracts to obtain guidance on large and/or unique contracts in order to ensure that ASC 606 is accurately applied and documented.

 

Although we have begunbegan implementing the enhancements described above at the end of 2022 and have been continuing our remediation efforts through September 30, 2023, the material weakness will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded that these controls are operating effectively.

 

Changes in Internal Control over Financial Reporting

 

Except as described above, there were no changes in our internal control over financial reporting during the three months ended September 30, 20222023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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21

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

 

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

 

On June 15, 2023, two individuals (the “Plaintiffs”) filed a complaint in the U.S. District Court, District of Nebraska naming the Company, its wholly-owned subsidiary, Titan Energy Systems, Inc., and an individual acting in his capacity as an employee of the Company, collectively as defendants. Plaintiffs filed an amended complaint on July 7, 2023 alleging negligent driving, negligent entrustment, and negligent hiring, training and supervision, as a result of a car accident that occurred on September 9, 2019 involving the Plaintiffs and the individual. According to the amended complaint, the Plaintiffs are seeking special damages related to the injuries sustained by Plaintiffs. On July 27, 2023, the defendants filed an Answer to Plaintiff’s Amended Complaint. On October 6, 2023, a mediation was held, but the parties did not reach a settlement. The parties are in the beginning stages of the discovery process and are working to schedule a settlement conference before the end of 2023.

As of the date hereof, we are not aware of or a party to any other legal proceedings to which we or any of our subsidiaries is a party or to which any of our property is subject, nor are we aware of any such threatened or pending litigation or any such proceedings known to be contemplated by governmental authorities that we believe could have a material adverse effect on our business, financial condition or operating results.

 

We can give no assurance that any other lawsuits or claims brought in the future will not have an adverse effect on our financial condition, liquidity or operating results.

 

We are not aware of any material proceedings in which any of our directors, officers or affiliates or any registered or beneficial shareholder of more than 5% of our common stock is an adverse party or has a material interest adverse to our interest.

ITEM 1A. RISK FACTORS

 

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, 2021,2022, as filed with the Securities and Exchange Commission on March 31, 2022,April 11, 2023, and are supplemented with the following additional and revised risk factors:factor:

 

We currently derive a significant portion offace risks associated with litigation and claims, which could impact our revenues from a few customers. Material or significant loss of business from these customers could have an adverse effect on our business, financial conditionresults and operating results.condition.

 

We currently derive a large portion of our revenues from a few customers, and material or significant loss ofOur business, from these customers could have a significant impact on our results of operations. As of September 30, 2022, three customers accounted for approximately 51% of our sales: CleanSpark accounted for approximately 8%, 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 Agreementoperations and accounted for approximately 31%; and a utility company based in California accounted for approximately 12%. Enchanted Rock, LLC constitutes 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 could be affected by significant litigation or claims adverse to us. Types of potential litigation cases include product liability, contract, employment-related, labor relations, personal injury or property damage, intellectual property, trade secret or unfair competition claims, stockholder claims and operating results.

We have identified a material weakness in our internal control over financial reporting, and if we are unableclaims arising from any injury or damage to achieve and maintain effective internal control over financial reportingpersons, property or effective disclosure controls, this could have a material adverse effect on our business.

As discussed in Item 4 “Controls and Procedures”, we concluded there is a material weaknessthe environment from hazardous substances used, generated or disposed of our internal control over financial reporting. A material weakness is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis by the company’s internal controls.

We cannot assure you that we will be able to remediate our existing material weakness in a timely manner, if at all, or that in the future additional material weaknesses will not exist, reoccur or otherwise be discovered, a risk that is significantly increased in light of the complexityconduct of our business. If our efforts to remediate these material weaknesses, as describedWe are currently involved in a legal proceeding in which plaintiffs are alleging negligence claims and seeking special damages for personal injuries. See “Part II. Item 4 “Controls and Procedures”, are not successful or if other deficiencies occur, our ability to accurately and timely report our financial position, results of operations, cash flows or key operating metrics could be impaired, which could result in late filings of our annual and quarterly reports under the Exchange Act, restatements of our consolidated financial statements or other corrective disclosures. Additional impacts could include a decline in our stock price, suspension of trading or delisting of our common stock by the Nasdaq Capital Market, or other material adverse effects on our business, reputation, results of operations, financial condition or liquidity. Furthermore, if we continue to have this existing material weakness, other material weaknesses or significant deficiencies in the future, it could create a perception that our financial results do not fairly state our financial condition or results of operations. Any of the foregoing could have an adverse effect on the value of our stock.1 – Legal Proceedings.”

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES, AND USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES

 

None.

On August 22, 2023, the Company issued 10,000 shares of common stock to a vendor in exchange for consulting services with a fair value of $64,900.

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The issuance of the shares of common stock as described above was not registered under the Securities Act, or the securities laws of any state, and the shares of common stock were issued in reliance on the exemption from registration under the Securities Act pursuant to Section 4(a)(2) of the Securities Act.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

None.

ITEM 6. EXHIBITS

 

See the Exhibit Index following the signature page to this Quarterly Report on Form 10-Q for a list of exhibits filed or furnished with this report, which Exhibit Index is incorporated herein by reference.

 

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22

EXHIBIT INDEX

 

Exhibit

No.

 Description
10.1+

3.1*Letter Agreement, dated September 20, 2023, by and between Pioneer Power Solutions, Inc. and Walter Michalec (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of Pioneer Power Solutions, Inc. filed with the Securities and Exchange Commission on September 22, 2023).

10.2+

Letter Agreement, dated September 20, 2023, by and between Pioneer Power Solutions, Inc. and Nathan Mazurek (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K of Pioneer Power Solutions, Inc. filed with the Securities and Exchange Commission on September 22, 2023).

10.3+*

First Amendment to Pioneer Power Solutions, Inc. 2021 Long-Term Incentive Plan.

31.1* Amended and Restated Bylaws of Pioneer Power Solutions, Inc.
31.1*Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2* Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1** Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2** Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS*

 

101.SCH*

101.CAL*

101.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).

_______________

+ Management contract or compensatory plan or arrangement

* Filed herewith.

** Furnished herewith

 

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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: November 14, 20222023By:/s/ Nathan J. Mazurek
Name:Nathan J. Mazurek
 Title:

Name: Nathan J. Mazurek

Title: Chief Executive Officer

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

Date: November 14, 20222023/s/ Walter Michalec
Name:Walter Michalec
 Name: Walter Michalec
Title:

Title: Chief Financial Officer

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

24