PIONEER POWER SOLUTIONS, INC. 10-Q

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, 2020 2019 2020 2019 Revenues $ 5,087 $ 5,360 $ 10,088 $ 8,378 Cost of goods sold Cost of goods sold 4,838 4,839 9,662 7,600 Write down of inventory 546 — 546 — Total cost of goods sold 5,384 4,839 10,208 7,600 Gross (loss) profit (297 ) 521 (120 ) 778 Operating expenses Selling, general and administrative 877 2,071 2,812 3,771 Foreign exchange loss 10 — — — Total operating expenses 887 2,071 2,812 3,771 Loss from continuing operations (1,184 ) (1,550 ) (2,932 ) (2,993 ) Interest (income) expense (77 ) 240 (188 ) 463 Gain on sale of subsidiaries — — — 4,207 Other (income) expense (449 ) 3,807 832 465 (Loss) income before taxes (658 ) (5,597 ) (3,576 ) 286 Income tax expense (benefit) 2 (1,442 ) 5 104 Net (loss) income from continuing operations (660 ) (4,155 ) (3,581 ) 182 Discontinued operations Income from operations of discontinued business units — 263 — 1,976 Income tax expense — 131 — 533 Income from discontinued operations, net of income taxes — 132 — 1,443 Net (loss) income $ (660 ) $ (4,023 ) $ (3,581 ) $ 1,625 Earnings (loss) per share: Basic (Loss) income from continuing operations $ (0.08 ) $ (0.48 ) $ (0.41 ) $ 0.02 Income from discontinued operations — 0.02 — 0.17 Net (loss) income $ (0.08 ) $ (0.46 ) $ (0.41 ) $ 0.19 Diluted (Loss) income from continuing operations $ (0.08 ) $ (0.48 ) $ (0.41 ) $ 0.02 Income from discontinued operations — 0.02 — 0.17 Net (loss) income $ (0.08 ) $ (0.46 ) $ (0.41 ) $ 0.19 Weighted average common shares outstanding: Basic 8,726 8,726 8,726 8,726 Diluted 8,726 8,726 8,726 8,730 The accompanying notes are an integral part of these consolidated financial statements. 1 PIONEER POWER SOLUTIONS, INC. Consolidated Statements of Comprehensive (Loss) Income (In thousands) (Unaudited) Three Months Ended Six Months Ended June 30, June 30, 2020 2019 2020 2019 Net (loss) income $ (660 ) $ (4,023 ) $ (3,581 ) $ 1,625 Other comprehensive income Foreign currency translation adjustments — 374 — 62 Amortization of net prior service costs and net actuarial losses, net of tax — 20 — 110 Other comprehensive income — 394 — 172 Comprehensive (loss) income $ (660 ) $ (3,629 ) $ (3,581 ) $ 1,797 The accompanying notes are an integral part of these consolidated financial statements. 2 PIONEER POWER SOLUTIONS, INC. Consolidated Balance Sheets (In thousands, except share data) (Unaudited) June 30, December 31, 2020 2019 (Unaudited) (Revised See Note #6) ASSETS Current assets Cash and cash equivalents $ 7,537 $ 8,213 Short term investments 453 936 Accounts receivable, net 2,002 3,716 Insurance receivable 33 1,800 Inventories, net 3,318 4,554 Income taxes receivable 407 360 Prepaid expenses and other current assets 774 795 Total current assets 14,524 20,374 Property, plant and equipment, net 525 640 Other assets 6,912 7,465 Total assets $ 21,961 $ 28,479 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Bank overdrafts $ — $ 374 Accounts payable and accrued liabilities 4,837 7,533 Deferred revenue 1,344 1,441 Income taxes payable 16 496 Total current liabilities 6,197 9,844 Long-term debt 1,407 — Other long-term liabilities 1,094 1,793 Total liabilities 8,698 11,637 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; 8,726,045 shares issued and outstanding on June 30, 2020 and December 31, 2019 9 9 Additional paid-in capital 23,980 23,978 Accumulated other comprehensive income 14 14 Accumulated deficit (10,740 ) (7,159 ) Total stockholders’ equity 13,263 16,842 Total liabilities and stockholders’ equity $ 21,961 $ 28,479 The accompanying notes are an integral part of these consolidated financial statements. 3 PIONEER POWER SOLUTIONS, INC. Consolidated Statements of Cash Flows (In thousands) (Unaudited) Six Months Ended June 30, 2020 2019 Operating activities Net (loss) income $ (3,581 ) $ 1,625 Depreciation 115 413 Amortization of intangible assets — 106 Amortization of right-of-use assets 294 285 Amortization of debt issuance cost — 14 Interest income on notes receivable (234 ) — Interest expense from PPP loan 2 — Deferred income tax expense — 184 Change in receivable reserves (55 ) (55 ) Change in inventory reserves (333 ) 143 Write down of inventory 546 — Inventory write-off from flood damage — 3,313 Gain on sale of subsidiary — (4,207 ) Change in long term payables (102 ) — Change in insurance receivable 1,767 (2,400 ) Unrealized loss on investments 759 285 Stock-based compensation 2 7 Payroll tax deferral 65 — Changes in current operating assets and liabilities: Accounts receivable 1,769 (1,707 ) Inventories 1,023 (974 ) Prepaid expenses and other assets 32 (284 ) Income taxes (527 ) 433 Accounts payable and accrued liabilities (2,652 ) 1,714 Deferred revenue (97 ) 2,512 Net cash (used in)/provided by operating activities (1,207 ) 1,407 Investing activities Additions to property, plant and equipment — (122 ) Change in note receivable 194 — Net cash provided by/(used in) investing activities 194 (122 ) Financing activities Bank overdrafts (374 ) (144 ) Borrowing under debt agreement — 13,714 Funding from PPP loan 1,404 — Repayment of debt — (14,098 ) Payment of deferred purchase price (397 ) — Principal repayments of financing leases (296 ) (244 ) Net cash provided by/(used in) financing activities 337 (772 ) (Decrease) increase in cash and cash equivalents (676 ) 513 Effect of foreign exchange on cash and cash equivalents — (223 ) Cash and cash equivalents Beginning of period 8,213 200 End of period $ 7,537 $ 490 The accompanying notes are an integral part of these consolidated financial statements. 4 PIONEER POWER SOLUTIONS, INC. Consolidated Statement of Stockholders’ Equity (In thousands) (Unaudited) Accumulated Accumulated Additional other compre- deficit/ Total Common Stock paid-in hensive Retained stockholders' Shares Amount capital income (loss) Earnings equity Balance - March 31, 2019 8,726,045 $ 9 $ 23,971 $ (6,119 ) $ (480 ) $ 17,381 Net loss — — — — (4,023 ) (4,023 ) Stock-based compensation — — 3 — — 3 Foreign currency translation adjustment — — — 374 — 374 Pension adjustment, net of taxes — — — 20 — 20 Balance - June 30, 2019 8,726,045 $ 9 $ 23,974 $ (5,725 ) $ (4,502 ) $ 13,756 Balance - March 31, 2020 (Revised) 8,726,045 $ 9 $ 23,980 $ 14 $ (10,080 ) $ 13,923 Net loss — — — — (660 ) (660 ) Balance - June 30, 2020 8,726,045 $ 9 $ 23,980 $ 14 $ (10,740 ) $ 13,263 Accumulated Additional other Total Common Stock paid-in comprehensive Accumulated stockholders’ Shares Amount capital income (loss) deficit equity Balance - January 1, 2019 8,726,045 $ 9 $ 23,966 $ (5,897 ) $ (6,127 ) $ 11,951 Net income — — — — 1,625 1,625 Stock-based compensation — — 8 — — 8 Foreign currency translation adjustment — — — 62 — 62 Pension adjustment, net of taxes — — — 110 — 110 Balance - June 30, 2019 8,726,045 $ 9 $ 23,974 $ (5,725 ) $ (4,502 ) $ 13,756 Balance - January 1, 2020 (Revised) 8,726,045 $ 9 $ 23,978 $ 14 $ (7,159 ) $ 16,842 Net loss — — — — (3,581 ) (3,581 ) Stock-based compensation — — 2 — — 2 Balance - June 30, 2020 8,726,045 $ 9 $ 23,980 $ 14 $ (10,740 ) $ 13,263 The accompanying notes are an integral part of these consolidated financial statements. 5 PIONEER POWER SOLUTIONS, INC. Notes to Consolidated Financial Statements June 30, 2020 (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”) manufacture, sell and service a broad range of specialty electrical transmission, distribution and on-site power generation equipment for applications in the utility, industrial, commercial and backup power markets. The Company is headquartered in Fort Lee, New Jersey and operates from five (5) additional locations in the U.S. for manufacturing, centralized distribution, 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, 2019, as filed with the Securities and Exchange Commission (the “SEC”) on March 30, 2020: Transmission and Distribution Solutions (“T&D Solutions”) and Critical Power Solutions (“Critical Power”). Sale of Transformer Business Units On June 28, 2019, the Company entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”), by and among the Company, Electrogroup Canada, Inc., a wholly owned subsidiary of the Company (“Electrogroup”), Jefferson Electric, Inc., a wholly owned subsidiary of the Company (“Jefferson”), JE Mexican Holdings, Inc., a wholly owned subsidiary of the Company (“JE Mexico,” and together with Electrogroup and Jefferson, the “Disposed Companies”), Nathan Mazurek (Chief Executive Officer of the Company), Pioneer Transformers L.P. (the “US Buyer”) and Pioneer Acquireco ULC (the “Canadian Buyer,” and together with the US Buyer, the “Buyer”). Pursuant to the terms of the Stock Purchase Agreement, the Company agreed to sell (i) all of the issued and outstanding equity interests of Electrogroup to the Canadian Buyer and (ii) all of the issued and outstanding equity interests of Jefferson and JE Mexico to the US Buyer (the “Equity Transaction”), for a purchase price of $68.0 million. Included in the purchases price, the Company received two subordinated promissory notes, issued by the Buyer, 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”). 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. 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 during the three months ended June 30, 2020. The Company has revalued the notes for an appropriate imputed interest rate, resulting in a change to the value of the notes at June 30, 2020 of $40, for a carrying value of $5.1 million, which is included within other long term assets (see Note 11 - Other Assets). The transaction was consummated on August 16, 2019. Pioneer sold to the Buyer all of the assets and liabilities associated with its liquid-filled transformer and dry-type transformer manufacturing businesses within the Company’s T&D Solutions segment. Pioneer Power retained its switchgear manufacturing business within the T&D Solutions segment, as well as all of the operations associated with its Critical Power segment. For presentation within these statements, the Disposed Companies are being presented as discontinued operations for all periods presented. Presentation The accompanying unaudited 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, 2020. 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 consolidated financial statements are stated in thousands of dollars, unless otherwise noted. Amounts may not foot due to rounding. 6 These unaudited consolidated financial statements include the accounts of Pioneer and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Operating results of liquid-filled and dry-type transformer manufacturing businesses have been previously included in the T&D Segment, which have now been reclassified as discontinued operations for all periods presented. See Note 8 - Discontinued Operations in Notes to Consolidated Financial Statements in Part I of this Form 10-Q. Discussions in these notes pertain to our continuing operations unless noted otherwise. These unaudited 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, 2019. 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 six months ended June 30, 2020, the Company had $7.5 million of cash and cash equivalents on hand, generated primarily from the completion of the Equity Transaction, and working capital of $8.3 million. We have historically met our cash needs through a combination of cash flows from operating activities and bank borrowings. Our cash requirements historically were generally for operating activities, debt repayment, capital improvements and acquisitions. As all outstanding amounts under our credit facilities have been paid in full with the proceeds from the Equity Transaction during the year ended December 31, 2019, 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 and capital improvements. There are two appeals pending in the California Court of Appeals for the Second Appellate District in connection with the litigation with Myers Power Products, Inc., which includes an appeal of an order modifying a previously issued preliminary injunction and an order enjoining the Company to obtain and post a $12 million bond. While the Company intends to defend itself vigorously, due to the uncertainties of litigation, the Company can give no assurance that it will prevail on the appeals which could have an adverse impact on the Company’s financial position. These appeals are currently scheduled to be heard later in calendar year 2021. 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 (the “COVID-19 outbreak”) 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, based on the rapid increase in exposure globally. The full impact of the COVID-19 outbreak continues to evolve as the date of this report. As such, it is uncertain as to the full magnitude that the pandemic will have on the Company’s financial condition, liquidity, and future results of operations. During the three months ended June 30, 2020, the Company experienced a decline in market demand for its products and services. Additionally, we have experienced an impact to productivity as a result of implementing social distancing guidelines and personal protective measures. Notwithstanding, the Company has been able to operate substantially at capacity during the COVID-19 outbreak. 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 outbreak and the global responses to contain its spread, the Company is not able to estimate the full effects of the COVID-19 outbreak 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 for fiscal year 2020. On March 27, 2020, President Trump signed into law the “Coronavirus Aid, Relief, and Economic Security (CARES) Act.” The CARES Act, among other things, appropriates funds for the SBA Paycheck Protection Program loans that are forgivable in certain situations to promote continued employment. On April 13, 2020, the Company received funding in the amount of $1.4 million from the Paycheck Protection Program (the “PPP Loan”) after determining we met the qualifications for this loan program due to the impact that COVID-19 will have on our financial condition, results of operations, and/or liquidity. While the full magnitude of the pandemic’s effect on the Company’s future results of operations is uncertain, the Company had experienced certain declines in service sales and commitments to purchase equipment. The Company made this assertion in good faith based upon all available guidance, however management will continue to assess the Company’s continued qualification if and when updated guidance is released by the Treasury Department. The Company intends to use all proceeds from the PPP Loan to retain employees, maintain payroll and make lease, rent and utility payments. Under the terms of the PPP Loan, the Company may be eligible for full or partial loan forgiveness, however, no assurance is provided that the Company will apply for, or obtain forgiveness for, any portion of the PPP Loan. The Company has accounted for the PPP Loan as a debt instrument in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 470, Debt. At June 30, 2020, $1.4 million of principal payments due starting in the third quarter of 2021 have been recorded as long-term debt in accordance with the enactment of the Paycheck Protection Program Flexibility Act of 2020. The Company does not expect to incur any material interest expense under the PPP Loan. 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, 2019. There have been no significant changes in the Company’s accounting policies during this fiscal quarter of 2020. 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. Income Taxes. In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740) , which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. The ASU is effective for all annual and interim periods beginning December 15, 2020, with early adoption permitted. The Company is currently evaluating the potential impact but does not anticipate there will be a material impact to the consolidated financial statements once implemented. 7 Stock Compensation. In June 2018, the FASB issued ASU No. 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. The amendments in this update expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. An entity should apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost (that is, the period of time over which share-based payment awards vest and the pattern of cost recognition over that period). The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts with Customers. The updated standard became effective for the Company beginning after December 15, 2018, including interim periods within that fiscal year. The Company adopted this guidance on January 1, 2019. The adoption of this ASU did not have a material impact on the consolidated financial statements. Fair Value Measurement. In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement that eliminates, amends, and adds certain disclosure requirements for fair value measurements. The Company adopted this guidance on January 1, 2020. The adoption of this ASU did not have a material impact on the consolidated 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. We do not expect that the amended guidance will have a material effect on our consolidated financial statements and related disclosures. 3. DIVESTITURES On January 22, 2019, Pioneer Critical Power, Inc., a Delaware corporation (“PCPI”), a wholly-owned subsidiary of the Company within the T&D Solutions segment, CleanSpark and CleanSpark Acquisition, Inc., a Delaware corporation (“Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which, among other things, Merger Sub merged with and into PCPI, with PCPI becoming a wholly-owned subsidiary of the CleanSpark and the surviving company of the merger (the “Merger”). At the effective date of the Merger, all of the issued and outstanding shares of common stock of PCPI, par value $0.01 per share, were converted into the right to receive (i) 175,000 shares of common stock, par value $0.001 per share (“CleanSpark Common Stock”), of CleanSpark, (ii) a five-year warrant to purchase 50,000 shares of CleanSpark Common Stock at an exercise price of $16.00 per share, and (iii) a five-year warrant to purchase 50,000 shares of CleanSpark Common Stock at an exercise price of $20.00 per share. The share quantities and exercise prices of warrants reflect the 10:1 reverse stock split completed by CleanSpark in December 2019. In connection with the Merger Agreement, the Company, CleanSpark and PCPI entered into an Indemnity Agreement (the “Indemnity Agreement”), dated January 22, 2019, pursuant to which the Company agreed to assume the liabilities and obligations related to the claims made by Myers Powers Products, Inc. in the case titled Myers Power Products, Inc. v. Pioneer Power Solutions, Inc., Pioneer Custom Electrical Products, Corp., et al. , Los Angeles County Superior Court Case No. BC606546 (the “Myers Power Case”) as they may relate to PCPI or CleanSpark after the closing of the Merger. In addition, the Company agreed to indemnify and hold harmless CleanSpark and the surviving company of the Merger and their respective officers, directors, agents, members and employees, and the heirs successors and assigns of the foregoing from and against all losses incurred by reason of claims made by Myers Power Products, Inc. as presented or substantially similar to that presented in the Myers Powers Case that are brought against CleanSpark or the surviving company of the Merger after the closing of the Merger. The Indemnity Agreement expires five years from the date of the Indemnity Agreement. In connection with entry into the Merger Agreement, the Company and CleanSpark entered into a Contract Manufacturing Agreement (the “Contract Manufacturing Agreement”), dated as of January 22, 2019, pursuant to which the Company will manufacture paralleling switchgear, automatic transfer switches and related control and circuit protective equipment (collectively, “Products”) exclusively for purchase by CleanSpark. CleanSpark will purchase the Products via purchase orders issued to the Company at any time and from time to time. The price for the Products payable by CleanSpark to the Company will be negotiated on a case by case basis, but all purchases of Products will have a target price of 91% of the CleanSpark customer’s purchase order price and will not be more than 109% of the Company’s cost. The Contract Manufacturing Agreement has a term of 18 months and may be extended by mutual agreement of the Company and CleanSpark. 8 The Merger resulted in the deconsolidation of PCPI and a gain of $4.2 million in the first quarter of 2019. The fair value of the investment in the common stock of CleanSpark was determined using quoted market prices and warrants were established using a Black Scholes model. At June 30, 2020, the estimated fair value of the warrants and CleanSpark common stock amounted to $708 and an unrealized mark to market gain of $384 and an unrealized mark to market loss of $759 was recognized within other expense for the three and six months ended June 30, 2020, respectively. The PCPI entity was a dormant business unit at the time of this sale; therefore this sale has no impact to the discontinued operations presented within the financial statements. 4. FAIR VALUE MEASUREMENTS ASC 820, Fair Value Measurements and Disclosures (“ASC 820”), defines fair value as the price that would be received to sell an asset, or paid to transfer a liability, in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. The fair value standard also establishes a three level hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability on the measurement date. The three levels are defined as follows: ● Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for an identical asset or liability in an active market. ● Level 2 - inputs to the valuation methodology include quoted prices for a similar asset or liability in an active market or model derived valuations in which all significant inputs are observable for substantially the full term of the asset or liability. ● Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement of the asset or liability. At June 30, 2020, the Company’s financial instruments included the right to receive (i) 175,000 shares of common stock, par value $0.001 per share, of CleanSpark Common Stock, (ii) a five-year warrant to purchase 50,000 shares of CleanSpark Common Stock at an exercise price of $16.00 per share, and (iii) a five-year warrant to purchase 50,000 shares of CleanSpark Common Stock at an exercise price of $20.00 per share. The carrying amounts reported in the accompanying financial statements for cash and cash equivalents, receivables, inventories, accounts payable and accrued expenses and other current liabilities approximate their respective fair values because of the short-term nature of these accounts. The share quantities and exercise prices of warrants reflect the 10:1 reverse stock split which was completed by CleanSpark in December 2019. The following table presents, for each of the fair value hierarchy levels required under ASC 820, the Company’s assets that are measured at fair value on a recurring basis: June 30, 2020 Fair Value Measurements Using Quoted prices in Significant other Significant active markets for observable unobservable identical assets inputs inputs (Level 1) (Level 2) (Level 3) Assets Common shares $ 453 $ — $ — Warrants — — 255 Level 3 Valuation The warrant asset (which relates to warrants to purchase shares of common stock) is marked-to-market each reporting period with the change in fair value recorded to other income (expense) in the accompanying statements of operations until the warrants are exercised. The fair value of the warrant asset is estimated using a Black-Scholes option-pricing model. The significant assumptions used in preparing the option pricing model for valuing the warrant asset as of June 30, 2020, include (i) volatility of 290%, (ii) risk free interest rate of 0.24%, (iii) strike price ($16.00 and $20.00), (iv) fair value of common stock ($2.59), and (v) expected life of 3.6 years. 9 The table presented below is a summary of changes in the fair value of the Company’s Level 3 valuation for the CleanSpark warrants for the six months ended June 30, 2020: CleanSpark Warrants Balance at December 31, 2019 $ 531 Issuance of warrants — Change in fair value (276 ) Balance at June 30, 2020 $ 255 No other changes in valuation techniques or inputs occurred during the six months ended June 30, 2020. No transfers of assets between Level 1 and Level 2 of the fair value measurement hierarchy occurred during the six months ended June 30, 2020. 5. REVENUES Nature of our products and services Our principal products and services include custom-engineered engine-generator sets and controls, complemented by a national field-service network to maintain and repair power generation assets. Products We provide switchgear that helps customers effectively and efficiently manage their electrical power distribution systems to desired specifications. 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. 10 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. Substantially all of our revenue from the sale of switchgear and power generation equipment is recognized at a point of 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. 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 following table presents our revenues disaggregated by revenue discipline: Three Months Ended Six Months Ended June 30, June 30, 2020 2019 2020 2019 Products $ 3,212 $ 3,004 $ 6,344 $ 4,251 Services 1,875 2,356 3,744 4,127 Total revenue $ 5,087 $ 5,360 $ 10,088 $ 8,378 See Note 15 - Business Segment and Geographic Information in Notes to Consolidated Financial Statements in Part I of this Form 10-Q. 6. REVISION OF PRIOR PERIOD FINANCIAL STATEMENTS In connection with the preparation of our consolidated interim financial statements for the quarter ended June 30, 2020, we identified a revision as of December 31, 2019 in the calculation of the tax expense related to the Equity Transaction. The revision resulted in a net loss for tax purposes and created additional deferred tax assets related to these tax losses, as well as a reduction in the income tax expense, all recorded as part of discontinued operations. The recognition of additional deferred tax assets requires an increase to the valuation allowance as at December 31, 2019, consistent with the Company’s position on the future realization of these assets. In accordance with Staff Accounting Bulletin (“SAB”) No. 99, Materiality, and SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, we evaluated the revision and determined that the related impact was not material to our results of operations or financial position for any prior annual or interim period, but that correcting the $407 cumulative impact of the revision would be material to our results of operations for the three months ended June 30, 2020. Accordingly, we have corrected the consolidated balance sheets and consolidated statement of operations as of December 31, 2019. 11 The impact to the consolidated balance sheets and consolidated statements of operations as of December 31, 2019 is as follows: As of December 31, 2019 Consolidated Balance Sheets As Reported Adjustment As Revised Income taxes receivable $ — $ 360 $ 360 Total current assets 20,014 360 20,374 Total assets 28,119 360 28,479 Income taxes payable 543 (47 ) 496 Total current liabilities 9,891 (47 ) 9,844 Total liabilities 11,684 (47 ) 11,637 Accumulated deficit (7,566 ) 407 (7,159 ) Total stockholders’ equity 16,435 407 16,842 Consolidated Statements of Operations Income tax expense from discontinued operations $ 737 $ (407 ) $ 330 Income from discontinued operations, net of income taxes 10,598 407 11,005 Net loss (1,439 ) 407 (1,032 ) Basic and diluted loss from continuing operations (1.38 ) — (1.38 ) Basic and diluted income from discontinued operations 1.21 0.05 1.26 Basic and diluted net loss (0.17 ) 0.05 (0.12 ) Subsequent to the December 31, 2019 revision described above, the March 31, 2020 consolidated balance sheet was also revised to reflect an increase in other currents assets of $360 to $16,533, a decrease in other current liabilities of $47 to $8,698, and an increase to stockholders’ equity of $407 to $13,923. The identified adjustment does not impact any other prior periods. 7. OTHER (INCOME) EXPENSE Other expense in the unaudited 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, 2020, other income was $449, as compared to other expense of $3.8 million during the three months ended June 30, 2019. For the three months ended June 30, 2020, included in other income was a gain of $384 related to the mark to market adjustment on the fair value of common stock and warrants received in connection with the Merger of PCPI, CleanSpark and the Merger Sub, as compared to a loss of $3.7 million for the three months ended June 30, 2019. For the six months ended June 30, 2020, other expense was $832, as compared to $465 during the six months ended June 30, 2019. For the six months ended June 30, 2020, included in other expense was a loss of $759 related to the mark to market adjustment on the fair value of common stock and warrants received in connection with the Merger of PCPI, CleanSpark and the Merger Sub, as compared to a loss of $325 for the six months ended June 30, 2019. 8. DISCONTINUED OPERATIONS A discontinued operation is a component of the Company’s business that represents a separate major line of business that had been disposed of or is held for sale. Classification as a discontinued operation occurs upon disposal or when the operation meets the criteria to be classified as held for sale, if earlier. When an operation is classified as a discontinued operation, the comparative Consolidated Statement of Operations, Consolidated Statement of Cash Flows, and Consolidated Balance Sheets are presented as if the operation had been discontinued from the start of the comparative year. Based upon the authoritative guidance, the Company concluded that the operations of the liquid-filled and dry-type transformer business should be presented as discontinued operations for the three and six months ended June 30, 2019. Overview On August 16, 2019, the Company completed the Equity Transaction pursuant to the Stock Purchase Agreement, by and among the Company, the Disposed Companies, Nathan Mazurek, and the Buyer. Pursuant to the terms of the Stock Purchase Agreement, the Company sold (i) all of the issued and outstanding equity interests of Electrogroup to the Canadian Buyer and (ii) all of the issued and outstanding equity interests of Jefferson and JE Mexico to the US Buyer. Upon completion of the Equity Transaction, Pioneer Power sold to the Buyer all of the assets and liabilities associated with its liquid-filled transformer and dry-type transformer manufacturing businesses within the Company’s T&D Segment. Pioneer Power retained its switchgear manufacturing business within the T&D Solutions segment, as well as all of the operations associated with its Critical Power Segment. 12 Consideration The consideration paid by the Buyer in the Equity Transaction is a base cash purchase price of $60.5 million, as well as the issuance by the Buyer of two subordinated promissory notes to Pioneer Power in the principal amounts of $5.0 million and $2.5 million, for a total aggregate principal amount of $7.5 million, in each case subject to adjustment pursuant to the terms of the Stock Purchase Agreement. Pursuant to the terms of the Stock Purchase Agreement, the Seller Notes will bear interest at an annualized rate of 4.0%, to be paid-in-kind annually, and will have a maturity date of December 31, 2022. In addition, pursuant to the terms of the Stock Purchase Agreement, as amended, the Buyer may set-off on a dollar-for-dollar basis any indemnifiable losses the Buyer suffers as a result of certain actions or omissions by Pioneer Power or the Disposed Companies against the first Seller Note in the aggregate principal amount of $5.0 million, and such right of set-off is the Buyer’s sole source of recovery with respect to losses resulting from inaccuracies or breaches of the Company’s representations and warranties, except for breaches of certain fundamental warranties, claims of fraud and breaches of representations, warranties or covenants relating to taxes, and claims for certain specific indemnities. 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. 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 during the three months ended June 30, 2020. The Company has revalued the notes for an appropriate imputed interest rate, resulting in a change to the value of the notes at June 30, 2020 of $40, for a carrying value of $5.1 million, which is included within other long term assets (see Note 11 - Other Assets). Operating results of the liquid-filled and dry-type transformer manufacturing businesses previously included in the T&D Solutions segment, have now been reclassified as discontinued operations for all periods presented. During the quarter ended June 30, 2019 the Company’s Reynosa Facility was damaged by a flood resulting in damages to inventory. This loss has been partially offset by $2.4 million of insurance proceeds that the Company expects to receive. The Company received $600 of these insurance proceeds during the year ended December 31, 2019, and $1.8 million of these insurance proceeds were received during the six months ended June 30, 2020. While the net loss on inventory damaged amounting to approximately $782 has been reflected within the cost of goods sold in discontinued operations during the year ended December 31, 2019, the corresponding insurance receivable amounting to $1.8 million and $33 has been recognized as an asset from continuing operations as of December 31, 2019 and June 30, 2020, respectively. The amount of damaged inventory and insurance proceeds are based upon management’s best estimate, and the actual amount of damaged inventory and insurance proceeds may differ from such estimates. The following table presents the discontinued operations of the liquid-filled and dry-type transformer manufacturing businesses in the Consolidated Statement of Operations: Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Revenues $ — $ 19,003 $ — $ 40,684 Costs and Expenses Cost of goods sold — 16,047 — 33,886 Selling, general and administrative — 2,275 — 4,715 Foreign exchange loss (gain) — 143 — (491 ) Interest expense — 275 — 550 Other expense — — — 48 Total costs and expenses — 18,740 — 38,708 Income before provision for income taxes — 263 — 1,976 Income tax expense — 131 — 533 Income from discontinued operations, net of income taxes $ — $ 132 $ — $ 1,443 Depreciation, capital expenditures, and significant non cash items of the discontinued operations by period were as follows: Six Months Ended June 30, 2020 2019 Depreciation and amortization $ — $ 632 Capital expenditures — 98 13 9. INVENTORIES The components of inventories are summarized below: June 30, December 31, 2020 2019 Raw materials $ 2,392 $ 2,309 Work in process 1,986 2,628 Finished goods — 46 Provision for excess and obsolete inventory (1,060 ) (429 ) Total inventories $ 3,318 $ 4,554 Inventories are stated at the lower of cost or a net realizable value determined on a FIFO method. A negative net realizable value adjustment of $349 was recognized in cost of goods sold of the T&D Solutions segment during the six months ended June 30, 2020. Additionally, a $546 write down of inventory was recognized in cost of goods sold of the T&D Solutions segment during the three months ended June 30, 2020 as a result of management’s strategic decisions to rationalize its traditional product offerings and focus on higher margin equipment sales. 10. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are summarized below: June 30, December 31, 2020 2019 Machinery and equipment $ 1,225 $ 1,225 Furniture and fixtures 205 205 Computer hardware and software 682 682 Leasehold improvements 337 337 2,449 2,449 Less: Accumulated depreciation (1,924 ) (1,809 ) Total property, plant and equipment, net $ 525 $ 640 Depreciation expense for the three months ended June 30, 2020 and 2019 was $57 and $72, respectively. Depreciation expense for the six months ended June 30, 2020 and 2019 was $115 and $142, respectively. 11. OTHER ASSETS Included in other assets at June 30, 2020 and December 31, 2019 are right-of-use assets, net, of $1.5 million and $1.8 million, respectively, related to our lease obligations. As a result of the Company entering into the Stock Purchase Agreement on June 28, 2019, as amended (see Note 3 - Divestitures), we have received two subordinated promissory notes in the aggregate principal amount of $7.5 million, subject to certain adjustments. The subordinated promissory notes accrue interests 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 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. 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 during the three months ended June 30, 2020. The Company has revalued the notes for an appropriate imputed interest rate, resulting in a change to the value of the notes at June 30, 2020 of $40, for a carrying value of $5.1 million. 14 Other assets are summarized below: June 30, December 31, 2020 2019 Right of use assets $ 1,512 $ 1,806 Notes receivable, net 5,136 5,096 CleanSpark warrants 255 531 Deposits 9 32 Other assets $ 6,912 $ 7,465 12. DEBT On March 27, 2020, President Trump signed into law the “Coronavirus Aid, Relief, and Economic Security (CARES) Act.” The CARES Act, among other things, appropriates funds for the SBA Paycheck Protection Program loans that are forgivable in certain situations to promote continued employment. On April 13, 2020, the Company received the PPP Loan in the amount of $1.4 million after determining we met the qualifications for this loan program due to the impact that COVID-19 will have on our financial condition, results of operations, and/or liquidity. While it is uncertain as to the full magnitude that the pandemic will have on the Company’s future results of operations, the Company experienced a decline in market demand for its products and services during the three months ended June 30, 2020. Additionally, we have experienced an impact to productivity as a result of implementing social distancing guidelines and personal protective measures. The Company has made this assertion in good faith based upon all available guidance, however management will continue to assess the Company’s continued qualification if and when updated guidance is released by the Treasury Department. The Company intends to use all proceeds from the PPP Loan to retain employees, maintain payroll and make lease, rent and utility payments. Under the terms of the PPP Loan, the Company may be eligible for full or partial loan forgiveness in the fourth quarter of 2020, however, no assurance is provided that the Company will apply for, or obtain forgiveness for, any portion of the PPP Loan. The Company has accounted for the PPP Loan as a debt instrument in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 470, Debt. At June 30, 2020, $1.4 million of principal payments due starting in the third quarter of 2021 have been recorded as long-term debt in accordance with the enactment of the Paycheck Protection Program Flexibility Act of 2020. The Company does not expect to incur any material interest expense under the PPP Loan. 13. STOCKHOLDERS’ EQUITY Common Stock The Company had 8,726,045 shares of common stock, $0.001 par value per share, outstanding as of June 30, 2020 and December 31, 2019. Stock-Based Compensation A summary of stock option activity under the 2011 Long-Term Incentive Plan as of June 30, 2020, and changes during the six months ended June 30, 2020, are presented below: Stock Options Weighted average exercise price Weighted average remaining contractual term Aggregate intrinsic value Outstanding as of January 1, 2020 379,800 $ 7.54 6.1 $ 22 Granted 70,000 1.68 Exercised — — Forfeited (2,000 ) 15.05 Outstanding as of June 30, 2020 447,800 $ 6.59 6.30 $ 6 Exercisable as of June 30, 2020 377,800 $ 7.50 5.60 $ — As of June 30, 2020, there were 225,867 shares available for future grants under the Company’s 2011 Long-Term Incentive Plan. Stock-based compensation expense recorded for the three and six months ended June 30, 2020 and 2019 was insignificant. As of June 30, 2020, the Company had total stock-based compensation expense remaining to be recognized in the consolidated statements of operations of approximately $1. 15 14. 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 Six Months Ended June 30, June 30, 2020 2019 2020 2019 Numerator: Net (loss) income $ (660 ) $ (4,155 ) $ (3,581 ) $ 182 Income from discontinued operations, net of income taxes — 132 — 1,443 Net (loss) income $ (660 ) $ (4,023 ) $ (3,581 ) $ 1,625 Denominator: Weighted average basic shares outstanding 8,726 8,726 8,726 8,726 Effect of dilutive securities - equity based compensation plans — — — 4 Denominator for diluted net (loss) income per common share 8,726 8,726 8,726 8,730 (Loss) income per share: Basic (Loss) income from continuing operations $ (0.08 ) $ (0.48 ) $ (0.41 ) $ 0.02 Income from discontinued operations — 0.02 — 0.17 Net (loss) income $ (0.08 ) $ (0.46 ) $ (0.41 ) $ 0.19 Diluted (Loss) income from continuing operations $ (0.08 ) $ (0.48 ) $ (0.41 ) $ 0.02 Income from discontinued operations — 0.02 — 0.17 Net (loss) income $ (0.08 ) $ (0.46 ) $ (0.41 ) $ 0.19 16 15. 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, Inc. business unit, together with sales and expenses attributable to strategic sales group for its T&D Solutions marketing activities. 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 aftermarket field-services primarily to help customers ensure smooth, uninterrupted power to operations during times of emergency. The following tables present information about segment income and loss: Three Months Ended Six Months Ended June 30, June 30, 2020 2019 2020 2019 Revenues T&D Solutions Switchgear $ 2,987 $ 2,737 $ 5,864 $ 3,810 2,987 2,737 5,864 3,810 Critical Power Solutions Equipment 225 267 480 441 Service 1,875 2,356 3,744 4,127 2,100 2,623 4,224 4,568 Consolidated $ 5,087 $ 5,360 $ 10,088 $ 8,378 Three Months Ended Six Months Ended June 30, June 30, 2020 2019 2020 2019 Depreciation and Amortization T&D Solutions $ 33 $ 37 $ 68 $ 71 Critical Power Solutions 84 37 163 73 Unallocated Corporate Overhead Expenses 8 14 17 28 Consolidated $ 125 $ 88 $ 248 $ 172 Three Months Ended Six Months Ended June 30, June 30, 2020 2019 2020 2019 Operating (loss) income T&D Solutions $ (626 ) $ (543 ) $ (1,403 ) $ (777 ) Critical Power Solutions (199 ) 251 (399 ) (149 ) Unallocated Corporate Overhead Expenses (359 ) (1,258 ) (1,130 ) (2,067 ) Consolidated $ (1,184 ) $ (1,550 ) $ (2,932 ) $ (2,993 ) Revenues are attributable to countries based on the location of the Company’s customers: Three Months Ended Six Months Ended June 30, June 30, 2020 2019 2020 2019 Revenues United States $ 5,087 $ 5,360 $ 10,088 $ 8,378 17 16. LEASES The Company leases certain offices, facilities and equipment under operating and financing leases. Our leases have remaining terms of 1 year to 2 years some of which contain options to extend up to 10 years. As of June 30, 2020 and 2019, assets recorded under finance leases were $1.4 million and $1.0 million, respectively, and accumulated amortization associated with finance leases were $648 and $475, respectively. As of June 30, 2020 and 2019, assets recorded under operating leases were $2.1 million and $2.1 million, respectively, and accumulated amortization associated with operating leases were $1.4 million and $748, respectively. Such amounts are included within other assets. The components of the lease expense were as follows: Three Months Ended Six Months Ended June 30, June 30, 2020 2019 2020 2019 Operating lease cost $ 169 $ 169 $ 339 $ 339 Finance lease cost Amortization of right-of-use asset $ 69 $ 61 $ 133 $ 135 Interest on lease liabilities 14 13 28 27 Total finance lease cost $ 83 $ 74 $ 161 $ 162 Other information related to leases was as follows: Supplemental Cash Flows Information June 30, 2020 2019 Cash paid for amounts included in the measurement of lease liabilities Operating cash flow payments for operating leases $ 341 $ 334 Operating cash flow payments for finance leases 28 27 Financing cash flow payments for finance leases 120 127 Right-of-use assets obtained in exchange for lease obligations: Operating leases 312 296 Finance leases 69 61 Weighted Average Remaining Lease Term June 30, 2020 2019 Operating leases 1 years 2 years Finance leases 2 years 2 years Weighted Average Discount Rate June 30, 2020 2019 Operating leases 5.50% 5.50% Finance leases 6.70% 6.72% 18 Future minimum lease payments under non-cancellable leases as of June 30, 2020 were as follows: Operating Finance Leases Leases 2020 335 144 2021 401 317 2022 91 184 2023 — 247 Total future minmum lease payments 827 892 Less imputed interest (35 ) (89 ) Total future minmum lease payments $ 792 $ 803 Reported as of June 30, 2020: Operating Finance Leases Leases Accounts payable and accrued liabilities $ 557 $ 281 Other long-term liabilities 235 522 Total $ 792 $ 803 19 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, 2019, which was filed with the Securities and Exchange Commission on March 30, 2020. Unless the context requires otherwise, references in this 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 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, 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. ● We depend on CleanSpark, Inc (“CleanSpark”) for a large portion of our business, and any change in the level of orders from CleanSpark could have a significant impact on results of operations. ● 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, duties and tariffs on the importation of products we sell into the United States, climate control initiatives, the timing or strength of an economic recovery in our markets and our ability to access capital markets. ● Our chairman controls a majority of our voting power, and may have, or may develop in the future, interests that may diverge from yours. ● 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. 20 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, 2019 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 manufacture, sell and service a broad range of specialty electrical transmission, distribution and on-site power generation equipment for applications in the utility, industrial, commercial and backup power markets. Our principal products and services include switchgear and engine-generator controls, complemented by a national field-service network to maintain and repair power generation assets. We are headquartered in Fort Lee, New Jersey and operate from five (5) additional locations in the U.S. for manufacturing, service, centralized distribution, engineering, 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 manage their electrical power distribution systems to desired specifications. These solutions are marketed principally through our Pioneer Custom Electrical Products, Inc. (“PCEP”) brand name. ● Our Critical Power business performs service on our customer’s sophisticated power generation equipment. These solutions are marketed by our operations headquartered in Minnesota, currently doing business under the Titan Energy Systems Inc. (“Titan”) brand name. Discontinued Operations Operating results for our liquid-filled transformer and dry-type transformer manufacturing businesses, which have been previously included in the T&D Solutions segment, have now been reclassified as discontinued operations for all periods presented. See Note 8 - Discontinued Operations in Notes to Consolidated Financial Statements in Part I of this Form 10-Q. Critical Accounting Policies There have been no material changes to our critical accounting policies as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019. 21 RESULTS OF OPERATIONS Overview of the Three and Six Month 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 15 - 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, 2020 and 2019 are as follows: Three Months Ended Six Months Ended June 30, June 30, 2020 2019 2020 2019 Revenues T&D Solutions $ 2,987 $ 2,737 $ 5,864 $ 3,810 Critical Power Solutions 2,100 2,623 4,224 4,568 Consolidated 5,087 5,360 10,088 8,378 Cost of goods sold T&D Solutions 3,468 2,914 6,440 3,825 Critical Power Solutions 1,916 1,925 3,768 3,775 Consolidated 5,384 4,839 10,208 7,600 Gross (loss) profit (297 ) 521 (120 ) 778 Selling, general and administrative expenses 839 2,007 2,734 3,645 Depreciation and amortization expense 38 64 78 126 Foreign exchange loss 10 — — — Total operating expenses 887 2,071 2,812 3,771 Operating loss from continuing operations (1,184 ) (1,550 ) (2,932 ) (2,993 ) Interest (income) expense (77 ) 240 (188 ) 463 Gain on sale of subsidiaries — — — 4,207 Other (income) expense (449 ) 3,807 832 465 (Loss) income before taxes (658 ) (5,597 ) (3,576 ) 286 Income tax expense (benefit) 2 (1,442 ) 5 104 Net (loss) income from continuing operations (660 ) (4,155 ) (3,581 ) 182 Discontinued operations Income from operations of discontinued business units — 263 — 1,976 Income tax expense — 131 — 533 Income from discontinued operations, net of income taxes — 132 — 1,443 Net (loss) income $ (660 ) $ (4,023 ) $ (3,581 ) $ 1,625 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. The time between receipt of an order and actual delivery, or completion, of our products and services varies from one or more days, in the case of inventoried standard products, to three to nine months, in the case of certain custom engineered equipment solutions, and up to one year or more under our service contracts. 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, 2020 2020 2019 2019 2019 T&D Solutions $ 4,725 $ 7,632 $ 6,450 $ 7,714 $ 10,120 Critical Power Solutions 7,420 7,068 9,406 4,832 4,844 Order backlog $ 12,145 $ 14,700 $ 15,856 $ 12,546 $ 14,964 Discountinued operations — — — — 35,672 Total order backlog $ 12,145 $ 14,700 $ 15,856 $ 12,546 $ 50,635 22 Revenue The following table represents our revenues by reporting segment and major product category for the periods indicated: Three Months Ended Six Months Ended June 30, June 30, 2020 2019 Variance % 2020 2019 Variance % T&D Solutions Switchgear $ 2,987 $ 2,737 $ 250 9.1 $ 5,864 $ 3,810 $ 2,054 53.9 2,987 2,737 250 9.1 5,864 3,810 2,054 53.9 Critical Power Solutions Equipment 225 267 (42 ) (15.7 ) 480 441 39 8.8 Service 1,875 2,356 (481 ) (20.4 ) 3,744 4,127 (383 ) (9.3 ) 2,100 2,623 (523 ) (20.0 ) 4,224 4,568 (344 ) (7.5 ) Total revenue $ 5,087 $ 5,360 $ (273 ) (5.1 ) $ 10,088 $ 8,378 $ 1,710 20.4 For the three months ended June 30, 2020, our consolidated revenue decreased by $273, or 5.1%, to $5.1 million, down from $5.4 million during the three months ended June 30, 2019. For the six months ended June 30, 2020, our consolidated revenue increased by $1.7 million, or 20.4%, to $10.1 million, up from $8.4 million during the six months ended June 30, 2019. T&D Solutions. During the three months ended June 30, 2020, revenue from our switchgear product lines increased by $250, or 9.1%, as compared to the three months ended June 30, 2019, as a result of increased sales of our transfer switches offset by decreased sales of our low and medium voltage switchgear. During the six months ended June 30, 2020, revenue from our switchgear product lines increased by $2.1 million, or 53.9% as compared to the six months ended June 30, 2019, as result of increased sales of our transfer switches offset by decreased sales of our low and medium voltage switchgear. Critical Power. For the three months ended June 30, 2020, revenue for our equipment sales decreased by $42, or 15.7%, as compared to the same period in the prior year. For the six months ended June 30, 2020, equipment sales increased by $39, or 8.8%, as compared to the same period in 2019. For the three and six months ended June 30, 2020, our service revenue decreased by $481, or 20.4%, and $383, or 9.3%, respectively, as compared to the same periods in the prior year due to the loss of the Verizon preventative maintenance business. Gross (Loss) Profit and Gross Margin The following table represents our gross profit by reporting segment for the periods indicated: Three Months Ended Six Months Ended June 30, June 30, 2020 2019 Variance % 2020 2019 Variance % T&D Solutions Gross loss $ (481 ) $ (177 ) $ (304 ) (171.8 ) $ (576 ) $ (15 ) $ (561 ) (3,740.0 ) Gross margin % (16.1 ) (6.5 ) (9.6 ) (9.8 ) (0.4 ) (9.4 ) Critical Power Solutions Gross profit 184 698 (514 ) (73.6 ) 456 793 (337 ) (42.5 ) Gross margin % 8.8 26.6 (17.8 ) 10.8 17.4 (6.6 ) Consolidated gross (loss) profit $ (297 ) $ 521 $ (818 ) (157.0 ) $ (120 ) $ 778 $ (898 ) (115.4 ) Consolidated gross margin % (5.8 ) 9.7 (15.5 ) (1.2 ) 9.3 (10.5 ) For the three months ended June 30, 2020, our consolidated gross margin was (5.8%) of revenues, compared to 9.7% during the three months ended June 30, 2019. The 15.5% reduction in our consolidated gross margin percentage is predominantly due to the reduction in our T&D Solutions gross margin. For the six months ended June 30, 2020, our gross margin was (1.2%) of revenues, compared to 9.3% for the six months ended June 30, 2019. The 10.5% reduction in our consolidated gross margin percentage is predominantly due to the reduction in our T&D Solutions gross margin. T&D Solutions . The reduction in our T&D Solutions gross margin resulted primarily from the shipment of lower margin orders, providing customer discounts and an increase to the segment’s obsolescence reserve of $546 as a result of management’s strategic decisions to rationalize its traditional product offerings and focus on higher margin equipment sales. 23 Critical Power. During the three and six months ended June 30, 2020, the gross margin decreased by 17.8% and 6.6%, respectively, as compared to the same period in 2019, primarily due to the loss of the Verizon preventative maintenance business which historically has provided higher gross margins. Operating Expenses The following table represents our operating expenses by reportable segment for the periods indicated: Three Months Ended Six Months Ended June 30, June 30, 2020 2019 Variance % 2020 2019 Variance % T&D Solutions Selling, general and administrative expense $ 131 $ 348 $ (217 ) (62.4 ) $ 798 $ 727 $ 71 9.8 Depreciation and amortization expense 14 17 (3 ) (17.6 ) 29 33 (4 ) (12.1 ) Segment operating expense $ 145 $ 365 $ (220 ) (60.3 ) $ 827 $ 760 $ 67 8.8 Critical Power Solutions Selling, general and administrative expense $ 367 $ 413 $ (46 ) (11.1 ) $ 824 $ 876 $ (52 ) (5.9 ) Depreciation and amortization expense 16 33 (17 ) (51.5 ) 31 65 (34 ) (52.3 ) Segment operating expense $ 383 $ 446 $ (63 ) (14.1 ) $ 855 $ 941 $ (86 ) (9.1 ) Unallocated Corporate Overhead Expenses Selling, general and administrative expense $ 341 $ 1,246 $ (905 ) (72.6 ) $ 1,112 $ 2,042 $ (930 ) (45.5 ) Depreciation expense 8 14 (6 ) (42.9 ) 18 28 (10 ) (35.7 ) Foreign exchange gain 10 — 10 — — — — — Segment operating expense $ 359 $ 1,260 $ (901 ) (71.5 ) $ 1,130 $ 2,070 $ (940 ) (45.4 ) Consolidated Selling, general and administrative expense $ 839 $ 2,007 $ (1,168 ) (58.2 ) $ 2,734 $ 3,645 $ (911 ) (25.0 ) Depreciation and amortization expense 38 64 (26 ) (40.6 ) 78 126 (48 ) (38.1 ) Foreign exchange gain 10 — 10 — — — — — Consolidated operating expense $ 887 $ 2,071 $ (1,184 ) (57.2 ) $ 2,812 $ 3,771 $ (959 ) (25.4 ) Selling, General and Administrative Expense . For the three months ended June 30, 2020, consolidated selling, general and administrative expense, before depreciation and amortization, decreased by $1.2 million, or 58.2%, to $839, due to fewer payroll related costs and a reduction in professional fees, as compared to $2.0 million during the three months ended June 30, 2019. As a percentage of our consolidated revenue, selling, general and administrative expense before depreciation and amortization decreased to 16.5% in the three months ended June 30, 2020, as compared to 37.4% in the three months ended June 30, 2019. During the six months ended June 30, 2020, consolidated selling, general and administrative expense, before depreciation and amortization, decreased by $911, or 25.0%, to $2.7 million due to a reduction in professional fees, as compared to $3.6 million during the six months ended June 30, 2019. As a percentage of our consolidated revenue, selling, general and administrative expense before depreciation and amortization decreased to 27.1% in the six months ended June 30, 2020, as compared to 43.5% in the six months ended June 30, 2019. Depreciation and Amortization Expenses. Depreciation and amortization expense consists primarily of depreciation of fixed assets and amortization of definite-lived intangible assets and right-of-use assets related to our finance leases and excludes amounts included in cost of sales. For the three and six months ended June 30, 2020, depreciation and amortization expense decreased by $26, or 40.6%, and $48, or 38.1%, respectively, as compared to the same periods in 2019 primarily due to an intangible asset becoming fully amortized in our Critical Power segment during 2019. 24 Operating Loss The following table represents our operating loss by reportable segment for the periods indicated: Three Months Ended Six Months Ended June 30, June 30, 2020 2019 Variance % 2020 2019 Variance % T&D Solutions $ (626 ) $ (543 ) $ (83 ) 15.3 $ (1,403 ) $ (777 ) $ (626 ) (80.6 ) Critical Power Solutions (199 ) 251 (450 ) 179.3 (399 ) (149 ) (250 ) (167.8 ) Unallocated Corporate Overhead Expenses (359 ) (1,258 ) 899 71.5 (1,130 ) (2,067 ) 937 45.3 Total operating loss $ (1,184 ) $ (1,550 ) $ 366 (23.6 ) $ (2,932 ) $ (2,993 ) $ 61 2.0 T&D Solutions . During the three and six months ended June 30, 2020, our T&D Solutions segment generated an operating loss of $626 and $1.4 million, respectively, as compared to $543 and $777 for the same respective periods in 2019. The increase in the operating loss for the three and six months ended June 30, 2020, as compared to the same period in 2019, is primarily due to an increase in the segment’s obsolescence reserve, offset by lower legal fees related to ongoing litigation. Critical Power . During the three and six months ended June 30, 2020, our Critical Power segment generated an operating loss of $199 and $399, respectively, as compared to operating income of $251 and an operating loss of $149 during the three and six months ended June 30, 2019, respectively. The increase in the operating loss for the three and six months ended June 30, 2020 is due primarily to the loss of the Verizon preventative maintenance business which has historically generated higher operating income. General Corporate Expense. Our general corporate expense consists primarily of executive management, corporate accounting and human resources personnel, office expenses, financing and corporate development activities, payroll and benefits administration, treasury, tax compliance, legal, stock-based compensation and public reporting costs, and costs not specifically allocated to reportable business segments. During the three and six months ended June 30, 2020, our unallocated corporate overhead expense decreased by $899, or 71.5%, and by $937, or 45.3%, as compared to the same periods in 2019, primarily due to a reduction in professional fees related to the Equity Transaction that was entered into in 2019. Non-Operating (Income) Expense Interest (Income) Expense . For the three and six months ended June 30, 2020, the Company had interest income of approximately $77 and $188, respectively, as compared to interest expense of $240 and $463, respectively, during the three and six months ended June 30, 2019. The net decrease in our interest expense was due to the retirement of our bank indebtedness with the proceeds from the sale of the transformer business units in August 2019. Other Expense (Income). For the three months ended June 30, 2020, other non-operating income was $449, as compared to other non-operating expense of $3.8 million during the three months ended June 30, 2019. For the three months ended June 30, 2020, included in other non-operating income was a gain of $384 related to the mark to market adjustment on the fair value of common stock and warrants received in connection with the Merger of PCPI, CleanSpark and the Merger Sub, as compared to a loss of $3.7 million during the three months ended June 30, 2019. For the six months ended June 30, 2020, other non-operating expense was $832, as compared to $465 during the six months ended June 30, 2019. For the six months ended June 30, 2020 and 2019, included in other non-operating expense was a loss of $759 and $325, respectively, related to the mark to market adjustment on the fair value of common stock and warrants received in connection with the Merger of PCPI, CleanSpark and the Merger Sub. Income Tax Expense (Benefit) . Our effective income tax expense rate was (0.3%) for the three months ended June 30, 2020, compared to an income tax benefit rate of 25.8% during the same period in 2019. For the six months ended June 30, 2020, our effective income tax expense rate was (0.1%), as compared to an income tax expense rate of 36.4% during the same period in 2019, as set forth below: Three Months Ended Six Months Ended June 30, June 30, 2020 2019 Variance 2020 2019 Variance (Loss) income before income taxes $ (658 ) $ (5,597 ) $ 4,939 $ (3,576 ) $ 286 $ (3,862 ) Income tax expense (benefit) 2 (1,442 ) 1,444 5 104 (99 ) Effective income tax rate % (0.3 ) 25.8 (26.1 ) (0.1 ) 36.4 (36.5 ) 25 Net (Loss) Income per Share from Continuing Operations We generated a net loss from continuing operations of $660 and $3.6 million during the three and six months ended June 30, 2020, respectively, as compared to net loss from continuing operations of $4.2 million and net income from continuing operations $182 during the three and six months ended June 30, 2019, respectively. Our net loss from continuing operations per basic and diluted share for the three months ended June 30, 2020, and June 30, 2019 was $0.08 and $0.48, respectively. Our net loss from continuing operations per basic and diluted share for the six months ended June 30, 2020 was $0.41, as compared to an income from continuing operations per basic and diluted share of $0.02 for the six months ended June 30, 2019. LIQUIDITY AND CAPITAL RESOURCES General . As of June 30, 2020, we had $7.5 million of cash and cash equivalents on hand. We have historically met our cash needs through a combination of cash flows from operating activities and bank borrowings. Our cash requirements have been generally applied toward operating activities, debt repayment, capital improvements and acquisitions. 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 (the “COVID-19 outbreak”) 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, based on the rapid increase in exposure globally. The full impact of the COVID-19 outbreak continues to evolve as the date of this report. As such, it is uncertain as to the full magnitude that the pandemic will have on the Company’s financial condition, liquidity, and future results of operations. During the three months ended June 30, 2020, the Company experienced a decline in market demand for its products and services. Additionally, we have experienced an impact to productivity as a result of implementing social distancing guidelines and personal protective measures. Notwithstanding, the Company has been able to operate substantially at capacity during the COVID-19 outbreak. 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 outbreak and the global responses to contain its spread, the Company is not able to estimate the full effects of the COVID-19 outbreak 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 for fiscal year 2020. On March 27, 2020, President Trump signed into law the “Coronavirus Aid, Relief, and Economic Security (CARES) Act.” The CARES Act, among other things, appropriates funds for the SBA Paycheck Protection Program loans that are forgivable in certain situations to promote continued employment. On April 13, 2020, the Company received the PPP Loan in the amount of $1.4 million after determining we met the qualifications for this loan program due to the impact that COVID-19 will have on our financial condition, results of operations, and/or liquidity. The Company has accounted for the PPP Loan as a debt instrument in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 470, Debt. At June 30, 2020, $1.4 million of principal payments due starting in the third quarter of 2021 have been recorded as long-term debt in accordance with the enactment of the Paycheck Protection Program Flexibility Act of 2020. The Company does not expect to incur any material interest expense under the PPP Loan. Cash (Used in)/ Provided by Operating Activities . Cash used in our operating activities was $1.2 million during the six months ended June 30, 2020, as compared to cash provided by our operating activities of $1.4 million during the six months ended June 30, 2019. The increase in cash used in operations during the six months ended June 30, 2020 occurred as a result of an increase of cash used for working capital when compared to the six months ended June 30, 2019. Cash Provided by/ (Used in) Investing Activities. Cash provided by investing activities during the six months ended June 30, 2020 was $194, as compared to cash used in investing activities of $122 during the six months ended June 30, 2019. Cash Provided by/ (Used in) Financing Activities. Cash provided by our financing activities was $337 during the six months ended June 30, 2020, as compared to cash used in our financing activities of $772 during the six months ended June 30, 2019. The primary source of cash in financing activities for the six months ending June 30, 2020 was funding from the Payroll Protection Program. Working Capital . As of June 30, 2020, we had working capital of $8.3 million, including $7.5 million of cash and equivalents, compared to working capital of $10.1 million, including $8.2 million of cash and equivalents at December 31, 2019. At June 30, 2020 and December 31, 2019, we no longer had a revolving credit facility, as it was paid in full in August 2019 with the proceeds from the sale of the transformer business units. Assessment of Liquidity . At June 30, 2020, we had $7.5 million of cash and cash equivalents on hand generated primarily from the completion of the Equity Transaction. We have historically met our cash needs through a combination of cash flows from operating activities and bank borrowings. Our cash requirements historically were generally for operating activities, debt repayment, capital improvements and acquisitions. As all outstanding amounts under our credit facilities have been paid in full with the proceeds from the Equity Transaction during the year ended December 31, 2019, 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 and capital improvements. 26 Capital Expenditures The Company had no additions to property, plant and equipment during the six months ended June 30, 2020, as compared to additions of $122 during the six months ended June 30, 2019. We have no major future capital projects planned, or significant replacement spending anticipated during the rest of 2020. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not Applicable