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

For the quarterly period ended March 31, 2022

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

Commission file number: 001-35212

PIONEER POWER SOLUTIONS, INC.

(Exact name of registrant as specified in its charter)

Delaware

27-1347616

(State or other jurisdiction of incorporation or organization)

400 Kelby Street, 12th Floor

Fort Lee, New Jersey

(Address of principal executive offices)

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

07024

(Zip Code)

(212) 867-0700

(Registrant’s telephone number, including area code)

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

Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock	PPSI	Nasdaq Capital Market

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

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

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

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging Growth Company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares outstanding of the registrant’s common stock, $0.001 par value, as of May 16, 2022 was 9,644,545.

PIONEER POWER SOLUTIONS, INC.

Form 10-Q

For the Quarterly Period Ended March 31, 2022

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION


	Page
Item 1. Financial Statements	1
Unaudited Consolidated Statements of Operations for the Three Months Ended March 31, 2022 and 2021	1
Consolidated Balance Sheets at March 31, 2022 (Unaudited) and December 31, 2021	2
Unaudited Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021	3
Unaudited Consolidated Statement of Stockholders’ Equity for the Three Months Ended March 31, 2022 and 2021	4
Notes to Unaudited Consolidated Financial Statements	5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3. Quantitative and Qualitative Disclosures About Market Risk	22
Item 4. Controls and Procedures	22

PART II. OTHER INFORMATION
Item 1. Legal Proceedings	24
Item 1A. Risk Factors	24
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	24
Item 3. Defaults Upon Senior Securities	24
Item 4. Mine Safety Disclosures	24
Item 5. Other Information	24
Item 6. Exhibits	24

PART I - FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

PIONEER POWER SOLUTIONS, INC.

Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)


	Three Months Ended
	March 31,
	2022			2021
Revenues	$	6,036		$	3,502
Cost of goods sold		5,161			3,343
Gross profit		875			159
Operating expenses
Selling, general and administrative		1,746			1,265
Total operating expenses		1,746			1,265
Loss from continuing operations		(871	)		(1,106	)
Interest income		(101	)		(93	)
Other expense (income)		11			(1,343	)
(Loss) income before taxes		(781	)		330
Income tax expense (benefit)		7			(21	)
Net (loss) income	$	(788	)	$	351

(Loss) income per share:
Basic	$	(0.08	)	$	0.04
Diluted	$	(0.08	)	$	0.04

Weighted average common shares outstanding:
Basic		9,641			8,726
Diluted		9,641			8,789

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

PIONEER POWER SOLUTIONS, INC.

Consolidated Balance Sheets

(In thousands, except share amounts)

	March 31,			December 31,
	2022			2021
	(Unaudited)
ASSETS
Current assets
Cash	$	13,138		$	9,924
Restricted cash		505			1,775
Notes receivable and accrued interest		5,886			5,778
Accounts receivable, net		4,145			2,429
Inventories		6,965			4,160
Prepaid expenses and other current assets		1,523			1,069
Total current assets		32,162			25,135
Property and equipment, net		592			516
Right-of-use assets		2,180			2,237
Other assets		49			39
Total assets	$	34,983		$	27,927

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable and accrued liabilities	$	7,401		$	4,159
Deferred revenue		7,318			2,423
Total current liabilities		14,719			6,582
Other long-term liabilities		1,426			1,793
Total liabilities		16,145			8,375
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 March 31, 2022 and December 31, 2021, respectively		10			10
Additional paid-in capital		31,914			31,840
Accumulated other comprehensive income		14			14
Accumulated deficit		(13,100	)		(12,312	)
Total stockholders’ equity		18,838			19,552
Total liabilities and stockholders’ equity	$	34,983		$	27,927

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

PIONEER POWER SOLUTIONS, INC.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


	Three Months Ended
	March 31,
	2022			2021
Operating activities
Net (loss) income	$	(788	)	$	351
Depreciation		36			37
Amortization of right-of-use finance leases		51			107
Amortization of imputed interest		(107	)		(107	)
Interest expense from PPP Loan		—			4
Gain on forgiveness of PPP Loan		—			(1,417	)
Amortization of right-of-use operating leases		163			130
Change in receivable reserves		28			34
Proceeds from insurance receivable		—			95
Stock-based compensation		57			33
Changes in current operating assets and liabilities:
Accounts receivable		(1,743	)		(1,480	)
Inventories		(2,805	)		(780	)
Prepaid expenses and other assets		(478	)		(94	)
Income taxes		19			(10	)
Accounts payable and accrued liabilities		2,920			421
Deferred revenue		4,895			1,849
Principal repayments of operating leases		(161	)		(114	)
Net cash provided by / (used in) operating activities		2,087			(941	)

Investing activities
Additions to property and equipment		(112	)		—
Net cash used in investing activities		(112	)		—

Financing activities
Net proceeds from the exercise of options for common stock		17			—
Principal repayments of financing leases		(48	)		(118	)
Net cash used in financing activities		(31	)		(118	)

Increase / (decrease) in cash and restricted cash		1,944			(1,059	)
Cash, and restricted cash, beginning of year		11,699			7,567
Cash, and restricted cash, end of period	$	13,643		$	6,508

Non-cash investing and financing activities:
Acquisition of right-of-use assets and lease liabilities		156			—

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

PIONEER POWER SOLUTIONS, INC.

Consolidated Statement of Stockholders’ Equity

(In thousands, except share amounts)

(Unaudited)


	Common Stock				Additional paid-in		Accumulated other compre-hensive		Accumulated			Total stockholders’
	Shares		Amount		capital		income		deficit			equity
Balance - January 1, 2021		8,726,045	$	9	$	23,981	$	14	$	(10,145	)	$	13,859
Net income		—		—		—		—		351			351
Stock-based compensation		—		—		33		—		—			33
Balance - March 31, 2021		8,726,045	$	9	$	24,014	$	14	$	(9,794	)	$	14,243

Balance - January 1, 2022		9,640,545	$	10	$	31,840	$	14	$	(12,312	)	$	19,552
Net loss		—		—		—		—		(788	)		(788	)
Stock-based compensation		—		—		57		—		—			57
Exercise of stock options		4,000		—		17		—		—			17
Balance - March 31, 2022		9,644,545	$	10	$	31,914	$	14	$	(13,100	)	$	18,838

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

PIONEER POWER SOLUTIONS, INC.

Notes to Consolidated Financial Statements

March 31, 2022 (Unaudited)

1. BASIS OF PRESENTATION

Overview

Pioneer Power Solutions, Inc. and its wholly owned subsidiaries (referred to herein as the “Company,” “Pioneer,” “Pioneer Power,” “we,” “our” and “us”) design, manufacture, integrate, refurbish, service, distribute and sell electric power systems, distributed energy resources, power generation equipment and mobile electric vehicle (“EV”) charging solutions. Our products and services are sold to a broad range of customers in the utility, industrial and commercial markets. Our customers include, but are not limited to, electric, gas and water utilities, data center developers and owners, EV charging infrastructure developers and owners, and distributed energy developers. The Company is headquartered in Fort Lee, New Jersey and operates from three (3) additional locations in the U.S. for manufacturing, service and maintenance, engineering, sales and administration.

We have two reportable segments as defined in our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2022: Transmission and Distribution Solutions (“T&D Solutions”) and Critical Power Solutions (“Critical Power”).

Presentation

The accompanying unaudited interim consolidated financial statements of the Company have been prepared pursuant to the rules of the SEC and reflect the accounts of the Company as of March 31, 2022. Certain information and footnote disclosures, normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”), have been condensed or omitted pursuant to those rules and regulations. We believe that the disclosures made are adequate to make the information presented not misleading to the reader. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary to fairly state the financial position, results of operations and cash flows with respect to the interim consolidated financial statements have been included. The results of operations for the interim period are not necessarily indicative of the results for the entire fiscal year. The year-end balance sheet data was derived from audited financial statements but does not include all disclosures required by U.S. GAAP for a year-end balance sheet.

All dollar amounts (except share and per share data) presented in the notes to our unaudited interim consolidated financial statements are stated in thousands of dollars, unless otherwise noted. Amounts may not foot due to rounding. ASC 740-270 requires the use of an estimated annual effective tax rate to compute the tax provision during an interim period unless certain exceptions are met. We have used a discrete-period computation method to calculate taxes for the fiscal three-month period ended March 31, 2022. Due to projected operating losses for the year, the Company anticipates that its annual effective tax rate will be 0%. As of March 31, 2022, the Company continues to provide a 100% valuation allowance against its net deferred tax assets since the Company believes it is more likely than not that its deferred tax assets will not be realized.

These unaudited interim consolidated financial statements include the accounts of Pioneer and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

These unaudited interim consolidated financial statements should be read in conjunction with the risk factors under the heading “Part II - Item 1A. Risk Factors” and the risk factors and the audited consolidated financial statements and notes thereto of the Company and its subsidiaries included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

Liquidity

The accompanying financial statements have been prepared on a basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying financial statements as of the three months ended March 31, 2022, the Company had $13.1 million of cash on hand and working capital of $17.4 million. The cash on hand was generated primarily from cash flows from operating activities and the sale of common stock under the At The Market Sale Agreement during the year ended December 31, 2021.

We have met our cash needs through a combination of cash flows from operating activities and bank borrowings, the completion of the Equity Transaction (as defined herein), proceeds from the sale of the CleanSpark Common Stock and warrants to purchase CleanSpark Common Stock, proceeds from insurance and funding from the Payroll Protection Program. Our cash requirements historically were generally for operating activities, debt repayment, capital improvements and acquisitions. We expect to meet our cash needs with our working capital and cash flows from our operating activities. We expect our cash requirements to be generally for operating activities, product development and capital improvements. The Company expects that its current cash balance is sufficient to fund operations for the next twelve months.

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

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

In November 2016, the FASB issued amended guidance to 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 consolidated statement of cash flows:

	March 31,		December 31,
	2022		2021
Cash	$	13,138	$	9,924
Restricted cash		505		1,775
Total cash and restricted cash as shown in the statement of cash flows	$	13,643	$	11,699

COVID-19

On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China and the risks to the international community as the virus spreads globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic (the “COVID-19 pandemic”), based on the rapid increase in exposure globally.

The full impact of the COVID-19 pandemic continues to evolve as the date of this report. As such, it continues to be uncertain as to the full magnitude that the pandemic will have on the Company’s financial condition, liquidity, and future results of operations. The Company has been able to operate substantially at capacity during the COVID-19 pandemic. Notwithstanding, the Company has been able to operate substantially at capacity during the COVID-19 pandemic. Management is actively monitoring the global situation on its financial condition, liquidity, operations, suppliers, industry, and workforce. Given the daily evolution of the COVID-19 pandemic and the global responses to contain its spread, the Company is not able to estimate the full effects of the COVID-19 pandemic at this time, however, if the pandemic continues, it may continue to have an adverse effect on the Company’s results of operations, financial condition, or liquidity.

On March 27, 2020, then President Trump signed into law the “Coronavirus Aid, Relief, and Economic Security (CARES) Act” (the “CARES Act”). The CARES Act, among other things, appropriates funds for the SBA Paycheck Protection Program loans that are forgivable in certain situations to promote continued employment. On April 13, 2020, after having determined that it met the qualifications for this loan program due to the impact that COVID-19 would have on our financial condition, results of operations, and/or liquidity and applying for relief, the Company received a loan under the SBA Paycheck Protection Program (the “PPP Loan”) in the amount of $1.4 million. The Company accounted for the PPP Loan as a debt instrument in accordance with FASB ASC 470, Debt.

Under the terms of the PPP Loan, the Company was eligible for full or partial loan forgiveness. During the first quarter of 2021, the Company received full forgiveness of the PPP Loan and recognized a $1.4 million gain on extinguishment and forgiveness of debt as other income in the unaudited interim consolidated statements of operations.

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 three months ended March 31, 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 three months ended March 31, 2022 and 2021. The inventories footnote contains a reclassification of the provision for excess and obsolete inventory and reductions to net realizable value to the applicable inventory classification at December 31, 2021.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company’s significant accounting policies are described in Note 2 to the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. There have been no significant changes in the Company’s accounting policies during the first quarter of 2022.

Recent Accounting Pronouncements

There have been no recent accounting pronouncements not yet adopted by the Company which would have a material impact on the Company’s financial statements.

Measurement of Credit Losses on Financial Instrument. In June 2016, the FASB issued amended guidance to ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments that changes the impairment model for most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, entities will be required to use a new forward-looking “expected loss” model that will replace today’s “incurred loss” model and generally will result in the earlier recognition of allowances for losses. For available-for-sale debt securities with unrealized losses, entities will measure credit losses in a manner similar to current practice, except that the losses will be recognized as an allowance. This amended guidance for small reporting companies is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first effective reporting period. The Company does not expect that the amended guidance will have a material effect on our consolidated financial statements and related disclosures.

3. REVENUES

Nature of our products and services

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

Products

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

Our Critical Power business provides customers with our suite of mobile E-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.

2) Identify the performance obligations in the contract

Performance obligations promised in a contract are identified based on the products or services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the product or service either on its own or together with other resources that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby the transfer of the products or services is separately identifiable from other promises in the contract. To the extent a contract includes multiple promised products or services, the Company must apply judgment to determine whether promised products or services are capable of being distinct and distinct in the context of the contract. If these criteria are not met the promised products or services are accounted for as a combined performance obligation.

3) Determine the transaction price

The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring products or services to the customer. The customer payments are generally due in 30 days.

4) Allocate the transaction price to performance obligations in the contract

If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price basis or cost of the product or service. The Company determines standalone selling price based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligations.

5) Recognize revenue when or as the Company satisfies a performance obligation

The Company satisfies performance obligations either over time or at a point in time. Revenue is recognized at the time the related performance obligation is satisfied by transferring a promised product or service to a customer.

Revenue from the sale of our products is predominantly recognized at a point in time. Revenues are recognized at the point in time that the customer obtains control of the good, which is when it has taken title to the products and has assumed the risks and rewards of ownership specified in the purchase order or sales agreement. Certain sales of highly customized large equipment are recognized over time when such equipment has no alternative use and the Company has an enforceable right to payment for performance completed to date. Revenue for such agreements is recognized under the input method based on cost incurred relative to the estimated cost expected to be consumed to complete the project.

During the three months ended March 31, 2022, the Company recognized $4.5 million of revenue at a point in time from the sale of our products. 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 $1.5 million of service revenue during the three months ended March 31, 2022.

During the three months ended March 31, 2021, the Company recognized $1.2 million of revenue over time and incurred costs of $1.1 million related to a single contract. The Company did not recognize revenue over time or incur costs related to any contracts during the three months ended March 31, 2022.

During the three months ended March 31, 2022, the Company recognized approximately $1.9 million of revenue that was recognized as deferred revenue at December 31, 2021, as compared to $2 during the three months ended March 31, 2021 that was recognized as deferred revenue at December 31, 2020.

The Company manages its accounts receivable credit risk by performing credit evaluations and monitoring amounts due from the Company’s customers. The Company had certain customers whose revenue individually represented 10% or more of the Company’s total revenue, or whose accounts receivable balances individually represented 10% or more of the Company’s total accounts receivable.

At March 31, 2022, three customers represented approximately 68% of the Company’s accounts receivable. At December 31, 2021, two customers represented approximately 43% of the Company’s accounts receivable.

For the three months ended March 31, 2022, three customers represented approximately 54% of revenue. For the three months ended March 31, 2021, two customer represented approximately 45% of revenue.

Return of a product requires that the buyer obtain permission in writing from the Company. When the buyer requests authorization to return material for reasons of their own, the buyer will be charged for placing the returned goods in saleable condition, restocking charges and for any outgoing and incoming transportation paid by the Company. The Company warrants title to the products, and also warrants the products on date of shipment to the buyer, to be of the kind and quality described in the contract, merchantable, and free of defects in workmanship and material. Returns and warranties during three months ended March 31, 2022 and 2021 were insignificant.

The following table presents our revenues disaggregated by revenue discipline:


	Three Months Ended March 31,
	2022		2021
Products	$	4,502	$	1,913
Services		1,534		1,589
Total revenue	$	6,036	$	3,502

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

4. OTHER EXPENSE (INCOME)

Other expense (income) in the unaudited interim consolidated statements of operations reports certain gains and losses associated with activities not directly related to our core operations. For the three months ended March 31, 2022, other expense was $11, as compared to other income of $1.3 million during the three months ended March 31, 2021. 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.

5. INVENTORIES

The components of inventories are summarized below:

	March 31,		December 31,
	2022		2021
Raw materials	$	2,595	$	993
Work in process		4,370		3,167
Total inventories	$	6,965	$	4,160

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

6. PROPERTY AND EQUIPMENT

Property and equipment are summarized below:

		March 31,			December 31,
	2022			2021
Property and equipment
Machinery, vehicles and equipment	$	1,400		$	1,396
Furniture and fixtures		205			205
Computer hardware and software		541			541
Leasehold improvements		329			322
Construction in progress		101			—
		2,576			2,464
Less: accumulated depreciation		(1,984	)		(1,948	)
Total property and equipment, net	$	592		$	516

Depreciation expense was $36 and $37 for the periods ended March 31, 2022 and 2021, respectively.

7. NOTES RECEIVABLE

In connection with the sale of the transformer business units in August 2019 (the “Equity Transaction”), amongst other consideration, we received two subordinated promissory notes in the aggregate principal amount of $5.0 million and $2.5 million, for a total aggregate principal amount of $7.5 million (the “Seller Notes”), subject to certain adjustments. The Seller Notes accrue interest at a rate of 4.0% per annum, with a final payment of all unpaid principal and interest becoming fully due and payable at December 31, 2022. The Company determined the fair value of the Seller Notes based on market conditions and prevailing interest rates. During the fourth quarter of 2019, the Company and the Buyer, pursuant to the Stock Purchase Agreement, completed the net working capital adjustment, which resulted in the Company paying the Buyer $1.8 million in cash and reducing the principal amount of the $5.0 million Seller Note to $3.2 million. During the second quarter of 2020, the Company recognized an additional reduction to the principal amount of the Seller Note of $194 for a valid claim paid by the Buyer on behalf of the Company. The Company has revalued the Seller Notes for an appropriate imputed interest rate, resulting in a net change to the value of the Seller Notes at March 31, 2022 of $107 for a carrying value of $5.9 million.

8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

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

	March 31,		December 31,
	2022		2021
Accounts payable	$	5,094	$	2,089
Accrued liabilities		1,460		1,263
Current portion of lease liabilities		847		807
Total accounts payable and accrued liabilities	$	7,401	$	4,159

Accrued liabilities primarily consist of accrued insurance, accrued sales commissions and accrued compensation and benefits. At March 31, 2022 and December 31, 2021, accrued insurance was $328 and $481, respectively. Accrued sales commissions at March 31, 2022 and December 31, 2021 were $72 and $247, respectively. At March 31, 2022, accrued compensation and benefits were $379 compared to $270 at December 31, 2021. The remainder of accrued liabilities are comprised of several insignificant accruals in connection with normal business operations.

9. STOCKHOLDERS’ EQUITY

Common Stock

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

Stock-Based Compensation

A summary of stock option activity as of March 31, 2022, and changes during the three months ended March 31, 2022, are presented below:

	Stock Options			Weighted average exercise price		Weighted average remaining contractual term		Aggregate intrinsic value
Outstanding as of January 1, 2022		647,667		$	5.53		6.40	$	1,442
Exercised		(4,000	)		0.29
Outstanding as of March 31, 2022		643,667		$	5.54		6.20	$	768
Exercisable as of March 31, 2022		407,000		$	6.84		4.60	$	211

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

Stock-based compensation expense recorded for the three months ended March 31, 2022 and 2021 was approximately $57 and $33, respectively. All of the stock-based compensation expense is included in selling, general and administrative expenses in the accompanying consolidated statements of operations. At March 31, 2022, the Company had total stock-based compensation expense remaining to be recognized in the consolidated statements of operations of approximately $19.

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

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


	Three Months Ended March 31,
	2022			2021
Numerator:
Net (loss) income	$	(788	)	$	351

Denominator:
Weighted average basic shares outstanding		9,641			8,726
Effect of dilutive securities - equity based compensation plans		—			63
Denominator for diluted net (loss) income per common share		9,641			8,789

Net (loss) income per common share:
Basic	$	(0.08	)	$	0.04
Diluted	$	(0.08	)	$	0.04

As of March 31, 2022 and 2021, diluted (loss) income per share excludes 644 and 437 potentially dilutive common shares related to option awards, as their effect was anti-dilutive.

11. BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION

The Company follows ASC 280 - Segment Reporting in determining its reportable segments. The Company considered the way its management team, most notably its chief operating decision maker, makes operating decisions and assesses performance and considered which components of the Company’s enterprise have discrete financial information available. As the Company makes decisions using a manufactured products vs. distributed products and services group focus, its analysis resulted in 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 distribution of switchgear used primarily by large industrial and commercial operations to manage their electrical power distribution needs. The Critical Power segment provides power generation equipment and aftermarket field-services primarily to help customers ensure smooth, uninterrupted power to operations during times of emergency.

The following tables present information about segment income and loss:


	Three Months Ended March 31,
	2022		2021
Revenues
T&D Solutions
Switchgear	$	3,387	$	1,387
Service		10		—
		3,397		1,387
Critical Power Solutions
Equipment		1,115		526
Service		1,524		1,589
		2,639		2,115
Consolidated	$	6,036	$	3,502


	Three Months Ended March 31,
	2022		2021
Depreciation and amortization
T&D Solutions	$	10	$	18
Critical Power Solutions		70		119
Unallocated corporate overhead expenses		7		7
Consolidated	$	87	$	144


	Three Months Ended March 31,
	2022			2021
Operating income (loss)
T&D Solutions	$	42		$	(439	)
Critical Power Solutions		(155	)		(84	)
Unallocated corporate overhead expenses		(758	)		(583	)
Consolidated	$	(871	)	$	(1,106

SEC Form 10-Q filed by Pioneer Power Solutions Inc.