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 June 30, 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 August 15, 2022 was 9,644,545.

PIONEER POWER SOLUTIONS, INC.

Form 10-Q

For the Quarterly Period Ended June 30, 2022

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION


	Page
Item 1. Financial Statements	1
Unaudited Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2022 and 2021	1
Consolidated Balance Sheets at June 30, 2022 (Unaudited) and December 31, 2021	2
Unaudited Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2022 and 2021	3
Unaudited Consolidated Statement of Stockholders’ Equity for the Three and Six Months Ended June 30, 2022 and 2021	4
Notes to Unaudited Consolidated Financial Statements	5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3. Quantitative and Qualitative Disclosures About Market Risk	25
Item 4. Controls and Procedures	25

PART II. OTHER INFORMATION


Item 1. Legal Proceedings	26
Item 1A. Risk Factors	26
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	26
Item 3. Defaults Upon Senior Securities	26
Item 4. Mine Safety Disclosures	26
Item 5. Other Information	26
Item 6. Exhibits	27

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						Six Months Ended
	June 30,						June 30,
	2022			2021			2022			2021
Revenues	$	4,289		$	5,625		$	10,325		$	9,127
Cost of goods sold		4,208			5,130			9,369			8,473
Gross profit		81			495			956			654
Operating expenses
Selling, general and administrative		2,585			1,240			4,331			2,506
Total operating expenses		2,585			1,240			4,331			2,506
Loss from operations		(2,504	)		(745	)		(3,375	)		(1,852	)
Interest income		(104	)		(95	)		(206	)		(189	)
Other expense (income), net		117			36			129			(1,307	)
Loss before taxes		(2,517	)		(686	)		(3,298	)		(356	)
Income tax expense (benefit)		—			—			7			(21	)
Net loss	$	(2,517	)	$	(686	)	$	(3,305	)	$	(335	)

Loss per share:
Basic	$	(0.26	)	$	(0.08	)	$	(0.34	)	$	(0.04	)
Diluted	$	(0.26	)	$	(0.08	)	$	(0.34	)	$	(0.04	)

Weighted average common shares outstanding:
Basic		9,728			8,726			9,685			8,726
Diluted		9,728			8,726			9,685			8,726

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

PIONEER POWER SOLUTIONS, INC.

Consolidated Balance Sheets

(In thousands, except share data)

	June 30,			December 31,
	2022			2021
	(Unaudited)
ASSETS
Current assets
Cash	$	9,785		$	9,924
Restricted cash		—			1,775
Notes receivable and accrued interest		5,993			5,778
Accounts receivable, net		5,211			2,429
Inventories		9,017			4,160
Prepaid expenses and other current assets		1,074			1,069
Total current assets		31,080			25,135
Property and equipment, net		619			516
Right-of-use assets		2,337			2,237
Other assets		80			39
Total assets	$	34,116		$	27,927

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable and accrued liabilities	$	6,407		$	4,159
Deferred revenue		9,289			2,423
Total current liabilities		15,696			6,582
Other long-term liabilities		1,440			1,793
Total liabilities		17,136			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 June 30, 2022 and December 31, 2021, respectively		10			10
Additional paid-in capital		32,573			31,840
Accumulated other comprehensive income		14			14
Accumulated deficit		(15,617	)		(12,312	)
Total stockholders’ equity		16,980			19,552
Total liabilities and stockholders’ equity	$	34,116		$	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)


	Six Months Ended
	June 30,
	2022			2021
Operating activities
Net loss	$	(3,305	)	$	(335	)
Depreciation		73			74
Amortization of right-of-use finance leases		124			156
Amortization of imputed interest		(214	)		(214	)
Interest expense from PPP Loan		—			4
Gain on forgiveness of PPP Loan		—			(1,417	)
Amortization of right-of-use operating leases		328			262
Change in receivable reserves		(141	)		43
Proceeds from insurance receivable		—			95
Stock-based compensation		716			71
Changes in current operating assets and liabilities:
Accounts receivable		(2,642	)		(1,423	)
Inventories		(4,857	)		(910	)
Prepaid expenses and other assets		(67	)		118
Income taxes		27			403
Accounts payable and accrued liabilities		1,796			1,053
Deferred revenue		6,866			1,839
Principal repayments of operating leases		(325	)		(252	)
Net cash used in operating activities		(1,621	)		(433	)

Investing activities
Additions to property and equipment		(174	)		(62	)
Net cash used in investing activities		(174	)		(62	)

Financing activities
Net proceeds from the exercise of options for common stock		17			—
Principal repayments of financing leases		(136	)		(163	)
Net cash used in financing activities		(119	)		(163	)

Decrease in cash and restricted cash		(1,914	)		(658	)
Cash, and restricted cash, beginning of year		11,699			7,567
Cash, and restricted cash, end of period	$	9,785		$	6,909

Non-cash investing and financing activities:
Acquisition of right-of-use assets and lease liabilities		551			—
Declared dividend unpaid		—			1,047

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

PIONEER POWER SOLUTIONS, INC.

Consolidated Statement of Stockholders’ Equity

(In thousands, except per share data)

(Unaudited)


	Common Stock				Additional paid-in			Accumulated other comprehensive		Accumulated			Total stockholders’
	Shares		Amount		capital			income		deficit			equity
Balance - March 31, 2021		8,726,045	$	9	$	24,014		$	14	$	(9,794	)	$	14,243
Net loss		—		—		—			—		(686	)		(686	)
Stock-based compensation		—		—		38			—		—			38
Dividend to shareholders		—		—		(1,047	)		—		—			(1,047	)
Balance - June 30, 2021		8,726,045	$	9	$	23,005		$	14	$	(10,480	)	$	12,548

Balance - March 31, 2022		9,644,545	$	10	$	31,914		$	14	$	(13,100	)	$	18,838
Net loss		—		—		—			—		(2,517	)		(2,517	)
Stock-based compensation		—		—		659			—		—			659
Balance - June 30, 2022		9,644,545	$	10	$	32,573		$	14	$	(15,617	)	$	16,980


	Common Stock				Additional paid-in			Accumulated other comprehensive		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 loss		—		—		—			—		(335	)		(335	)
Stock-based compensation		—		—		71			—		—			71
Dividend to shareholders		—		—		(1,047	)		—		—			(1,047	)
Balance - June 30, 2021		8,726,045	$	9	$	23,005		$	14	$	(10,480	)	$	12,548

Balance - January 1, 2022		9,640,545	$	10	$	31,840		$	14	$	(12,312	)	$	19,552
Net loss		—		—		—			—		(3,305	)		(3,305	)
Stock-based compensation		—		—		716			—		—			716
Exercise of stock options		4,000		—		17			—		—			17
Balance - June 30, 2022		9,644,545	$	10	$	32,573		$	14	$	(15,617	)	$	16,980

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

PIONEER POWER SOLUTIONS, INC.

Notes to Consolidated Financial Statements

June 30, 2022 (Unaudited)

1. BASIS OF PRESENTATION

Overview

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

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

Presentation

The accompanying unaudited interim consolidated financial statements of the Company have been prepared pursuant to the rules of the SEC and reflect the accounts of the Company as of June 30, 2022. Certain information and footnote disclosures, normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”), have been condensed or omitted pursuant to those rules and regulations. We believe that the disclosures made are adequate to make the information presented not misleading to the reader. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary to fairly state the financial position, results of operations and cash flows with respect to the interim consolidated financial statements have been included. The results of operations for the interim period are not necessarily indicative of the results for the entire fiscal year. The year-end balance sheet data was derived from audited financial statements but does not include all disclosures required by U.S. GAAP for a year-end balance sheet.

All dollar amounts (except share and per share data) presented in the notes to our unaudited interim consolidated financial statements are stated in thousands of dollars, unless otherwise noted. Amounts may not foot due to rounding. ASC 740-270 requires the use of an estimated annual effective tax rate to compute the tax provision during an interim period unless certain exceptions are met. We have used a discrete-period computation method to calculate taxes for the fiscal three and six-month periods ended June 30, 2022. Due to projected operating losses for the year, the Company anticipates that its annual effective tax rate will be 0%. As of June 30, 2022, the Company continues to provide a 100% valuation allowance against its net deferred tax assets since the Company believes it is more likely than not that its deferred tax assets will not be realized.

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

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

Liquidity

The accompanying financial statements have been prepared on a basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying financial statements as of June 30, 2022, the Company had $9.8 million of cash on hand and working capital of $15.4 million. The cash on hand was generated primarily from the sale of common stock under the At The Market Sale Agreement during the year ended December 31, 2021.

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

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 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 released and transferred the remaining cash collateral of $505 to the Company. The Company had no restricted cash on the consolidated balance sheets at June 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:

	June 30,		December 31,
	2022		2021
Cash	$	9,785	$	9,924
Restricted cash		—		1,775
Total cash and restricted cash as shown in the statement of cash flows	$	9,785	$	11,699

COVID-19

The full impact of the ongoing COVID-19 pandemic continues to evolve as the date of this report. As such, it continues to be uncertain as to the full magnitude that the pandemic will have on the Company’s financial condition, liquidity, and future results of operations. The Company has been able to operate substantially at capacity during the COVID-19 pandemic. 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 the continuing crisis, the Company is not able to estimate the full effects of the COVID-19 pandemic at this time, however, if the pandemic continues, it may 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 six months ended June 30, 2021. Additionally, principal repayments of financing leases and the reduction in operating leases have been reclassified and presented in the applicable cash flow activity for the six months ended June 30, 2021. The inventories footnote contains a reclassification of the provision for excess and obsolete inventory and reductions to net realizable value to the applicable inventory classification at December 31, 2021.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company’s significant accounting policies are described in Note 2 to the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. There have been no significant changes in the Company’s accounting policies during the second 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 June 30, 2022 and 2021, the Company recognized $2.4 million and $3.8 of revenue at a point in time from the sale of our products, respectively. Service revenues include maintenance contracts that are recognized over time based on the contract term and repair services, which are recognized as services are delivered. The Company recognized $1.9 million of service revenue during the three months ended June 30, 2022 and 2021.

During the six months ended June 30, 2022 and 2021, the Company recognized $6.9 million and $5.7 million of revenue at a point in time from the sale of our products, respectively. The Company recognized $3.4 million and $3.5 million of service revenue during the six months ended June 30, 2022 and 2021, respectively.

During the three months ended June 30, 2021, the Company recognized $2.0 million of revenue over time and incurred costs of $1.8 million related to a single contract. During the six months ended June 30, 2021, the Company recognized $3.1 million of revenue over time and incurred costs of $2.9 million related to a single contract. The Company did not recognize revenue over time or incur costs related to any single contract during the three and six months ended June 30, 2022.

During the three months ended June 30, 2022, the Company recognized approximately $214 of revenue that was recognized as deferred revenue at December 31, 2021, as compared to $2 of revenue during the three months ended June 30, 2021 that was recognized as deferred revenue at December 31, 2020.

During the six months ended June 30, 2022, the Company recognized approximately $2.1 million of revenue that was recognized as deferred revenue at December 31, 2021, as compared to $58 of revenue during the six months ended June 30, 2021 that was recognized as deferred revenue at December 31, 2020.

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

At June 30, 2022, three customers represented approximately 34%, 26% and 15% of the Company’s accounts receivable. At December 31, 2021, two customers represented approximately 32% and 11% of the Company’s accounts receivable.

For the six months ended June 30, 2022, three customers represented approximately 17%, 14% and 11% of the Company’s revenue. For the six months ended June 30, 2021, two customers represented approximately 34% and 14% of the Company’s revenue.

Return of a product requires that the buyer obtain permission in writing from the Company. When the buyer requests authorization to return material for reasons of their own, the buyer will be charged for placing the returned goods in saleable condition, restocking charges and for any outgoing and incoming transportation paid by the Company. The Company warrants title to the products, and also warrants the products on date of shipment to the buyer, to be of the kind and quality described in the contract, merchantable, and free of defects in workmanship and material. Returns and warranties during three and six months ended June 30, 2022 and 2021 were insignificant.

The following table presents our revenues disaggregated by revenue discipline:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021
Products	$	2,432	$	3,755	$	6,934	$	5,668
Services		1,857		1,870		3,391		3,459
Total revenue	$	4,289	$	5,625	$	10,325	$	9,127

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

4. OTHER EXPENSE (INCOME)

Other expense (income) in the unaudited interim consolidated statements of operations reports certain gains and losses associated with activities not directly related to our core operations. For the three months ended June 30, 2022, other expense was $117, as compared to other expense of $36 during the three months ended June 30, 2021.

For the six months ended June 30, 2022, other expense was $129, as compared to other income of $1.3 million during the six months ended June 30, 2021. For the six months ended June 30, 2021, included in other income was a gain of $1.4 million for the extinguishment and forgiveness of the PPP Loan. See “Note 1 – Basis of Presentation in Notes to Consolidated Financial Statements” in Part I of this Quarterly Report on Form 10-Q for reference to the PPP Loan.

5. INVENTORIES

The components of inventories are summarized below:

	June 30,		December 31,
	2022		2021
Raw materials	$	2,570	$	993
Work in process		6,447		3,167
Total inventories	$	9,017	$	4,160

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

6. PROPERTY AND EQUIPMENT

Property and equipment are summarized below:

	June 30,			December 31,
	2022			2021
Property and equipment
Machinery, vehicles and equipment	$	1,404		$	1,396
Furniture and fixtures		208			205
Computer hardware and software		561			541
Leasehold improvements		329			322
Construction in progress		136			—
Property and equipment		2,638			2,464
Less: accumulated depreciation		(2,019	)		(1,948	)
Total property and equipment, net	$	619		$	516

Depreciation expense was $37 and $37 for the three months ended June 30, 2022 and 2021, respectively.

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

7. NOTES RECEIVABLE

In connection with the sale of the transformer business units in August 2019 (the “Equity Transaction”), amongst other consideration, we received two subordinated promissory notes in the aggregate principal amount of $5.0 million and $2.5 million, for a total aggregate principal amount of $7.5 million (the “Seller Notes”), subject to certain adjustments. The Seller Notes accrue interest at a rate of 4.0% per annum, with a final payment of all unpaid principal and interest becoming fully due and payable at December 31, 2022. The Company determined the fair value of the Seller Notes based on market conditions and prevailing interest rates. During the fourth quarter of 2019, the Company and the Buyer, pursuant to the Stock Purchase Agreement, completed the net working capital adjustment, which resulted in the Company paying the Buyer $1.8 million in cash and reducing the principal amount of the $5.0 million Seller Note to $3.2 million. During the second quarter of 2020, the Company recognized an additional reduction to the principal amount of the Seller Note of $194 for a valid claim paid by the Buyer on behalf of the Company. The Company has revalued the Seller Notes for an appropriate imputed interest rate, resulting in a net change to the value of the Seller Notes at June 30, 2022 of $214 for a carrying value of $6.0 million.

8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

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

	June 30,		December 31,
	2022		2021
Accounts payable	$	4,191	$	2,089
Accrued liabilities		1,240		1,263
Current portion of lease liabilities		976		807
Total accounts payable and accrued liabilities	$	6,407	$	4,159

Accrued liabilities primarily consist of accrued insurance, accrued sales commissions and accrued compensation and benefits. At June 30, 2022 and December 31, 2021, accrued insurance was $160 and $481, respectively. Accrued sales commissions at June 30, 2022 and December 31, 2021 were $132 and $247, respectively. At June 30, 2022, accrued compensation and benefits were $357 compared to $270 at December 31, 2021. Accrued sales and use taxes at June 30, 2022 and December 31, 2021 were $231 and $50, respectively. The remainder of accrued liabilities are comprised of several insignificant accruals in connection with normal business operations.

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 June 30, 2022 and December 31, 2021, respectively.

Stock-Based Compensation

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

	Stock Options			Weighted average exercise price		Weighted average remaining contractual term		Aggregate intrinsic value
Outstanding as of January 1, 2022		647,667		$	5.53
Granted		27,000			3.17
Exercised		(4,000	)		4.11
Outstanding as of June 30, 2022		670,667		$	5.45		6.10	$	60
Exercisable as of June 30, 2022		643,667		$	5.54		6.00	$	60

On April 25, 2022, the Company awarded 375,000 shares of restricted stock units (“RSU”) to an employee with the following vesting terms: (i) 125,000 units on May 1, 2022, which are included in the calculation of basic EPS as of the vesting date, (ii) an additional 125,000 units on May 1, 2023, and (iii) the remaining 125,000 units on May 1, 2024, provided that the employee is employed by the Company or a subsidiary of the Company on each such vesting date. The vested RSUs will be converted into shares of the Company’s common stock no later than March 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 six months ended June 30, 2022, is as follows:

	Number of units			Weighted-average grant-date fair value
Unvested restricted stock units as of January 1, 2022		—		$	—
Units granted		375,000			1,631
Units vested		(125,000	)		(544	)
Units forfeited		—			—
Unvested restricted stock units as of June 30, 2022		250,000		$	1,087

As of June 30, 2022, there were 498,000 shares available for future grants under the Company’s 2021 Long-Term Incentive Plan.

Stock-based compensation expense recorded for the three and six months ended June 30, 2022 was approximately $658 and $716, respectively. Stock-based compensation expense recorded for the three and six months ended June 30, 2021 was approximately $38 and $71, respectively. All of the stock-based compensation expense is included in selling, general and administrative expenses in the accompanying interim consolidated statements of operations. At June 30, 2022, there was approximately $1.0 million of stock-based compensation expense remaining to be recognized in the interim consolidated statements of operations over a weighted average remaining period of 1.8 years.

10. BASIC AND DILUTED LOSS PER COMMON SHARE

Basic and diluted 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 loss per share (in thousands, except per share data):


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2022			2021			2022			2021
Numerator:
Net loss	$	(2,517	)	$	(686	)	$	(3,305	)	$	(335	)

Denominator:
Weighted average basic shares outstanding		9,728			8,726			9,685			8,726
Effect of dilutive securities - equity based compensation plans		—			—			—			—
Denominator for diluted net loss per common share		9,728			8,726			9,685			8,726

Net loss per common share:
Basic	$	(0.26	)	$	(0.08	)	$	(0.34	)	$	(0.04	)
Diluted	$	(0.26	)	$	(0.08	)	$	(0.34	)	$	(0.04	)

As of June 30, 2022 and 2021, diluted loss per share excludes 921 and 674 potentially dilutive common shares related to equity 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 loss:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021
Revenues
T&D Solutions
Power Systems	$	1,969	$	3,596	$	5,356	$	4,983
Service		—		—		10		—
		1,969		3,596		5,366		4,983
Critical Power Solutions
Equipment		463		159		1,578		685
Service		1,857		1,870		3,381		3,459
Revenues		2,320		2,029		4,959		4,144
Consolidated	$	4,289	$	5,625	$	10,325	$	9,127


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021
Depreciation and amortization
T&D Solutions	$	11	$	18	$	21	$	35
Critical Power Solutions		92		62		162		181
Unallocated corporate overhead expenses		7		7		14		14
Consolidated	$	110	$	87	$	197	$	230


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2022			2021			2022			2021
Operating loss
T&D Solutions	$	(424	)	$	(125	)	$	(383	)	$	(564	)
Critical Power Solutions		(757	)		(42	)		(911	)		(126	)
Unallocated corporate overhead expenses		(1,323	)		(578	)		(2,081	)		(1,162	)
Consolidated	$	(2,504	)	$	(745	)	$	(3,375	)	$	(1,852	)

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

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021
Revenues
United States	$	4,289	$	5,625	$	10,325	$	9,127

12. LEASES

The Company leases certain offices, facilities and equipment under operating and financing leases. Our leases have remaining terms ranging from less than 1 year to 5 years some of which contain options to extend up to 5 years. As of June 30, 2022 and December 31, 2021, assets recorded under finance leases were $1.2 million and $1.6 million, respectively, and accumulated amortization associated with finance leases were $420 and $1.1 million, respectively.

As of June 30, 2022 and December 31, 2021, assets recorded under operating leases were $2.5 million and $3.9 million, respectively, and accumulated amortization associated with operating leases were $1.0 million and $2.3 million, respectively. During the three months ended June 30, 2022, the Company executed two finance lease agreements for equipment at its Champlin, Minnesota location. After adjusting for a weighted average discount rate, the Company recognized a right-of-use asset and lease liability of approximately $395 within the consolidated balance sheets.

The components of the lease expense were as follows:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021
Operating lease cost	$	188	$	142	$	375	$	284

Finance lease cost
Amortization of right-of-use asset	$	73	$	50	$	124	$	156
Interest on lease liabilities		11		10		21		21
Total finance lease cost	$	84	$	60	$	145	$	177

Other information related to leases was as follows:

Supplemental Cash Flows Information


	June 30,
	2022		2021
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flow payments for operating leases	$	372	$	272
Operating cash flow payments for finance leases		21		21
Financing cash flow payments for finance leases		135		163
Right-of-use assets obtained in exchange for lease obligations
Operating lease liabilities arising from obtaining right of use assets		551		—

Weighted Average Remaining Lease Term

	June 30,
	2022	2021
Operating leases	2 years	4 years
Finance leases	3 years	2 years

Weighted Average Discount Rate

	June 30,
	2022		2021
Operating leases		5.50%		5.50%
Finance leases		6.56%		6.80%

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

	Operating			Finance
	Leases			Leases
2022	$	369		$	147
2023		670			388
2024		508			158
2025		95			174
Thereafter		24			108
Total future minmum lease payments		1,666			975
Less imputed interest		(113	)		(112	)
Total future minmum lease payments	$	1,553		$	863

Reported as of June 30, 2022:

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

	Operating		Finance
	Leases		Leases
Accounts payable and accrued liabilities	$	631	$	345
Other long-term liabilities		922		518
Total	$	1,553	$	863

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, which was filed with the Securities and Exchange Commission on March 31, 2022.

Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to the “Company,” “Pioneer,” “we,” “our” and “us” refer to Pioneer Power Solutions, Inc. and its subsidiaries.

Special Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements,” which include information relating to future events, future financial performance, financial projections, strategies, expectations, competitive environment and regulation. Words such as “may,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates,” and similar expressions, as well as statements in future tense, identify forward-looking statements. Forward-looking statements should not be read as a guarantee of future performance or results and may not be accurate indications of when such performance or results will be achieved. Forward-looking statements are based on information we have when those statements are made or management’s good faith belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause such differences include, but are not limited to:

●

General economic conditions and their effect on demand for electrical equipment, particularly in the commercial construction market, but also in the power generation, industrial production, data center, oil and gas, marine and infrastructure industries.

●

The effects of fluctuations in sales on our business, revenues, expenses, net income (loss), income (loss) per share, margins and profitability.

●

Many of our competitors are better established and have significantly greater resources and may subsidize their competitive offerings with other products and services, which may make it difficult for us to attract and retain customers.

●

The potential loss or departure of key personnel, including Nathan J. Mazurek, our chairman, president and chief executive officer.

●

Our ability to generate internal growth, maintain market acceptance of our existing products and gain acceptance for our new products.

●

Unanticipated increases in raw material prices or disruptions in supply could increase production costs and adversely affect our profitability.

●

Our ability to realize revenue reported in our backlog.

●

Operating margin risk due to competitive pricing and operating efficiencies, supply chain risk, material, labor or overhead cost increases, interest rate risk and commodity risk.

●

Strikes or labor disputes with our employees may adversely affect our ability to conduct our business.

●

The impact of geopolitical activity on the economy, changes in government regulations such as income taxes, climate control initiatives, the timing or strength of an economic recovery in our markets and our ability to access capital markets.

●

Future sales of large blocks of our common stock may adversely impact our stock price.

●

The liquidity and trading volume of our common stock.

●

Our business could be adversely affected by an outbreak of disease, epidemic or pandemic, such as the global coronavirus pandemic, or similar public threat, or fear of such an event.

The foregoing does not represent an exhaustive list of matters that may be covered by the forward-looking statements contained herein or risk factors that we are faced with that may cause our actual results to differ from those anticipated in our forward-looking statements. Moreover, new risks regularly emerge, and it is not possible for us to predict or articulate all risks we face, nor can we assess the impact of all risks on our business or the extent to which any risk, or combination of risks, may cause actual results to differ from those contained in any forward-looking statements. Except to the extent required by applicable laws or rules, we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. You should review carefully the risks and uncertainties described under the heading “Part II - Item 1A. Risk Factors” in this Quarterly Report on Form 10-Q and “Part I - Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021 for a discussion of the foregoing and other risks that relate to our business and investing in shares of our common stock.

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.

Termination Agreement

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

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

Critical Accounting Policies and Estimates

Our financial statements have been prepared in accordance with U.S. GAAP. The preparation of our financial statements requires us to make estimates and assumptions that affect the amounts and disclosures in the financial statements. Our estimates are based on our historical experience, knowledge of current events and actions we may undertake in the future, and on various other factors that we believe are reasonable under the circumstances. Our critical accounting policies and estimates are described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies” in our Annual Report on Form 10-K filed with the SEC on March 31, 2022. There were no material changes to our accounting policies during the six months ended June 30, 2022.

RESULTS OF OPERATIONS

Overview of the Three and Six Months Results

Selected financial and operating data for our reportable business segments for the most recent reporting period is summarized below. This information, as well as the selected financial data provided in “Note 11 - Business Segment and Geographic Information” and in our unaudited consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q, should be referred to when reading our discussion and analysis of results of operations below.

Our summary of operating results during the three and six months ended June 30, 2022 and 2021 are as follows:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2022			2021			2022			2021
Revenues
T&D Solutions	$	1,969		$	3,596		$	5,366		$	4,983
Critical Power Solutions		2,320			2,029			4,959			4,144
Consolidated		4,289			5,625			10,325			9,127
Cost of goods sold
T&D Solutions		2,130			3,442			5,151			4,997
Critical Power Solutions		2,078			1,688			4,218			3,476
Consolidated		4,208			5,130			9,369			8,473
Gross profit		81			495			956			654
Selling, general and administrative expenses		2,557			1,215			4,277			2,456
Depreciation and amortization expense		28			25			54			50
Total operating expenses		2,585			1,240			4,331			2,506
Operating loss from continuing operations		(2,504	)		(745	)		(3,375	)		(1,852	)
Interest income		(104	)		(95	)		(206	)		(189	)
Other expense (income)		117			36			129			(1,307	)
Loss income before taxes		(2,517	)		(686	)		(3,298	)		(356	)
Income tax expense (benefit)		—			—			7			(21	)
Net loss	$	(2,517	)	$	(686	)	$	(3,305	)	$	(335	)

Backlog

Our backlog is based on firm orders from our customers expected to be delivered in the future, most of which is expected to occur during the next twelve months. Backlog may vary significantly from reporting period to reporting period due to the timing of customer commitments. Backlog reflects the amount of revenue we expect to realize upon the shipment of customer orders for our products that are not yet complete or for which work has not yet begun. At June 30, 2022, backlog from our e-Bloc power systems solutions was approximately $15 million, or 60% of the total backlog.

The following table represents the progression of our backlog, by reporting segment, as of the end of the last five quarters:

	June 30,		March 31,		December 31,		September 30,		June 30,
	2022		2022		2021		2021		2021
T&D Solutions	$	20,018	$	18,732	$	17,499	$	5,032	$	6,501
Critical Power Solutions		5,141		5,222		5,349		5,823		6,225
Total order backlog	$	25,159	$	23,954	$	22,848	$	10,855	$	12,726

Revenue

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

Three Months Ended

Six Months Ended

June 30,

2022

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