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

PIONEER POWER SOLUTIONS, INC.

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

(in thousands, except for share and per share amounts)

1. BUSINESS ORGANIZATION, NATURE OF OPERATIONS, RISKS AND UNCERTAINTIES

Pioneer Power Solutions, Inc. and its wholly owned subsidiaries (referred to herein as the “Company,” “Pioneer,” “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, 2022, as filed with the Securities and Exchange Commission (the “SEC”) on 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 JuneSeptember 30, 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 six-monthnine-month period ended JuneSeptember 30, 2023. The Company anticipates that its annual effective tax rate will be 0% for the year ending December 31, 2023. As of JuneSeptember 30, 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, 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 JuneSeptember 30, 2023, the Company had $9,6247,581 of cash on hand and working capital of $14,36313,702. The cash on hand was generated primarily from the sale of common stock under the ATM Program (as defined below) during the year ended December 31, 2021 and, 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, 2022.2022, 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.

We have historically met our cash needs through a combination of cash flows from operating activities and bank borrowings, the completion of the Equity Transaction, proceeds from the sale of the CleanSpark common stock and warrants to purchase CleanSpark common stock, sale of common stock under the ATM Program funding from the Payroll Protection Program and collecting all unpaid principal and interest from the Seller Notes. OurHistorically, 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.

On 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 SEC on October 27, 2020 (the “Prior ATM Prospectus”), in connection with the offer and sale of up to an aggregate offering amount of $8,600of common stock that may be issued and sold under the ATM Program. We did not sell anyPrior 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 during(the “New ATM Prospectus”). The new registration statement was declared effective by the six months ended June 30,SEC on September 8, 2023. As of JuneSeptember 30, 2023, $8,600 75,000of common stock remained available for issuance under the New ATM Program.Prospectus.

Risks and Uncertainties

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, (includingsuch as the war in Ukraine)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 sixnine months ended JuneSeptember 30, 2023, the Company was able to operate substantially at capacity.

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, 2022. There have been no significant changes2022, except as disclosed in the Company’s accounting policies during the second quarter of 2023.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.

Accounting Standards Update (“ASU”) 2023-03, “Presentation of Financial 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 our financial statements.

Accounts Receivable

On January 1, 2023, the Company adopted ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments,” using a modified retrospective approach. The standard amends several aspects of the measurement of credit losses related to certain financial instruments, including the replacement of the existing incurred credit loss model and other models with the current expected credit losses model. The cumulative effect of adoption did not result in an adjustment to the allowance for credit loss, and accordingly, the Company’s accumulated deficit as of 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 JuneSeptember 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.

During the three months ended JuneSeptember 30, 2023, the Company recognized $2,4678,919 of revenue over time and incurred costs of $2,1036,408. During the three months ended JuneSeptember 30, 2022, the Company recognized $2,410574 of revenue over time and incurred costs of $2,100592. Additionally, the Company recognized $7,7731,461 and $2,4321,788 of revenue at a point in time from the sale of our products during the three months ended JuneSeptember 30, 2023 and 2022, respectively.

Service revenues include maintenance contracts that are recognized over time based on the contract term and repair services which are recognized as services are delivered. The Company recognized $1,8902,063 and $1,8572,053 of service revenue during the three months ended JuneSeptember 30, 2023 and 2022, respectively.

During the sixnine months ended JuneSeptember 30, 2023, the Company recognized $3,12818,963 of revenue over time and incurred costs of $2,652. During the six months ended June 30, 2022, the Company recognized $900 of revenue over time and incurred costs of $13,195870. 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 13,558and $8,723 6,934of revenue at a point in time from the sale of our products during the sixnine months ended JuneSeptember 30, 2023 and 2022, 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 $3,9526,014 and $5,4443,391 of service revenue during the sixnine months ended JuneSeptember 30, 2023 and 2022, respectively.

During the three months ended JuneSeptember 30, 2023, the Company recognized approximately $3,2852,569 of revenue that was classified as deferred revenue as of December 31, 2022, as compared to $81 of revenue recognized during the three months ended September 30, 2022 that was classified as deferred revenue at December 31, 2021.

During the nine months ended September 30, 2023, the Company recognized approximately $8,336 of revenue that was recognized as deferred revenue at December 31, 2022, as compared to $214of revenue during the three months ended June 30, 2022 that was recognized as deferred revenue at December 31, 2021.

During the six months ended June 30, 2023, the Company recognized approximately $7,794 of revenue that was recognized as deferred revenue at December 31, 2022, as compared to $2,0562,137 of revenue during the sixnine months ended JuneSeptember 30, 2022 that was recognized as deferred revenue at December 31, 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.

As of JuneSeptember 30, 2023, twothree customers represented approximately 6036%, 16% and 1614% of the Company’s accounts receivable. At December 31, 2022, three customers represented approximately 57%, 13% and 11% of the Company’s accounts receivable.

For the three months ended JuneSeptember 30, 2023, one customertwo customers represented approximately 63%54% and 17% of the Company’s revenue. For the three months ended JuneSeptember 30, 2022, two customersone customer represented approximately 35%54 and 11%% of the Company’s revenue.

For the sixnine months ended JuneSeptember 30, 2023, two customers represented approximately 5742% and 1022% of the Company’s revenue. For the sixnine months ended JuneSeptember 30, 2022, threetwo customers represented approximately 1831%, 16% and 1312% 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 sixnine months ended JuneSeptember 30, 2023 and 2022 were insignificant.

The following table presents our revenues disaggregated by revenue discipline:

 SCHEDULE OF REVENUE DISAGGREGATED

See “Note 109 - Business Segment and Geographic Information”.

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 $574 and $900 related to the three and six months ended June 30, 2022, respectively, along with the additional related cost of revenues of $592 and $870, respectively.

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

SCHEDULE OF PRIOR PERIOD FINANCIAL STATEMENTS

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 and six months ended 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 and six months ended June 30, 2022 or other prior periods.

5. INVENTORIES

The components of inventories are summarized below:

 SCHEDULE OF INVENTORIES

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

6.5. PROPERTY AND EQUIPMENT, NET

Property and equipment are summarized below:

SCHEDULE OF PROPERTY AND EQUIPMENT

Depreciation expense was $97143 and $37 40for the three months ended JuneSeptember 30, 2023 and 2022, respectively.

Depreciation expense was $227370 and $73 113for the sixnine months ended JuneSeptember 30, 2023 and 2022, respectively.

7.6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

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

 SCHEDULE OF ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accrued liabilities primarily consist of accrued legal settlement costs, accrued sales commissions, accrued compensation and benefits, accrued sales and use taxes and accrued insurance. At JuneAs of September 30, 2023 and December 31, 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 $250 366and $278, respectively. Accrued compensation and benefits at Juneas of September 30, 2023 and December 31, 2022 were $345 312and $213, respectively. Accrued sales and use taxes at Juneas of September 30, 2023 and December 31, 2022 were $108 30and $258, respectively, and there was $157noof accrued insurance at Juneas of September 30, 2023 as compared to $559at December 31, 2022. The remainder of accrued liabilities are comprised of several insignificant accruals in connection with normal business operations.

At JuneAs of September 30, 2023 one supplier represented approximately 15% of the Company’s accounts payable. Atand December 31, 2022, none of the Company’s suppliers represented more than 10% of the Company’s accounts payable.

8.7. STOCK-BASED COMPENSATION

Stock-Based Compensation

A summary of stock option activity during the sixnine months ended JuneSeptember 30, 2023 is as follows:

 SCHEDULE OF STOCK OPTION ACTIVITY

A summary of RSU activity during the sixnine months ended JuneSeptember 30, 2023 is as follows:

SUMMARY OF RESTRICTED STOCK ACTIVITY

During the three and nine months ended September 30, 2023, the Company issued 10,000 shares of its common stock for consulting services with a fair value of $64,900.

During the 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.