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 Nine Months Ended September 30, September 30, 2022 2021 2022 2021 Revenues $ 6,251 $ 5,685 $ 17,476 $ 14,813 Cost of goods sold 5,390 4,972 15,629 13,445 Gross profit 861 713 1,847 1,368 Operating expenses Selling, general and administrative 2,305 1,231 6,636 3,738 Total operating expenses 2,305 1,231 6,636 3,738 Loss from operations ( 1,444 ) ( 518 ) ( 4,789 ) ( 2,370 ) Interest income ( 116 ) ( 99 ) ( 322 ) ( 288 ) Other (income) expense, net ( 17 ) 13 112 ( 1,294 ) Loss before taxes ( 1,311 ) ( 432 ) ( 4,579 ) ( 788 ) Income tax expense (benefit) — 2 7 ( 19 ) Net loss $ ( 1,311 ) $ ( 434 ) $ ( 4,586 ) $ ( 769 ) Loss per share: Basic $ ( 0.13 ) $ ( 0.05 ) $ ( 0.47 ) $ ( 0.09 ) Diluted $ ( 0.13 ) $ ( 0.05 ) $ ( 0.47 ) $ ( 0.09 ) Weighted average common shares outstanding: Basic 9,770 8,726 9,713 8,726 Diluted 9,770 8,726 9,713 8,726 The accompanying notes are an integral part of these consolidated financial statements. 1 PIONEER POWER SOLUTIONS, INC. Consolidated Balance Sheets (In thousands, except share data) September 30, December 31, 2022 2021 (Unaudited) ASSETS Current assets Cash $ 7,210 $ 9,924 Restricted cash — 1,775 Notes receivable and accrued interest 6,100 5,778 Accounts receivable, net 3,822 2,429 Inventories 8,479 4,160 Prepaid expenses and other current assets 840 1,069 Total current assets 26,451 25,135 Property and equipment, net 794 516 Right-of-use assets 2,116 2,237 Other assets 84 39 Total assets $ 29,445 $ 27,927 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Accounts payable and accrued liabilities $ 5,678 $ 4,159 Deferred revenue 6,621 2,423 Total current liabilities 12,299 6,582 Other long-term liabilities 1,304 1,793 Total liabilities 13,603 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 September 30, 2022 and December 31, 2021, respectively 10 10 Additional paid-in capital 32,716 31,840 Accumulated other comprehensive income 14 14 Accumulated deficit ( 16,898 ) ( 12,312 ) Total stockholders’ equity 15,842 19,552 Total liabilities and stockholders’ equity $ 29,445 $ 27,927 The accompanying notes are an integral part of these consolidated financial statements. 2 PIONEER POWER SOLUTIONS, INC. Consolidated Statements of Cash Flows (In thousands) (Unaudited) Nine Months Ended September 30, 2022 2021 Operating activities Net loss $ ( 4,586 ) $ ( 769 ) Depreciation 113 110 Amortization of right-of-use finance leases 177 219 Amortization of imputed interest ( 321 ) ( 321 ) Interest expense from PPP Loan — 4 Gain on forgiveness of PPP Loan — ( 1,417 ) Amortization of right-of-use operating leases 495 421 Change in receivable reserves ( 140 ) 68 Proceeds from insurance receivable — 95 Stock-based compensation 859 129 Changes in current operating assets and liabilities: Accounts receivable ( 1,253 ) ( 758 ) Inventories ( 4,319 ) ( 1,097 ) Prepaid expenses and other assets 167 247 Income taxes 24 401 Accounts payable and accrued liabilities 1,141 541 Deferred revenue 4,198 1,549 Principal repayments of operating leases ( 491 ) ( 413 ) Net cash used in operating activities ( 3,936 ) ( 991 ) Investing activities Additions to property and equipment ( 391 ) ( 156 ) Net cash used in investing activities ( 391 ) ( 156 ) Financing activities Net proceeds from the exercise of options for common stock 17 — Dividend paid to shareholders — ( 1,047 ) Principal repayments of financing leases ( 179 ) ( 226 ) Net cash used in financing activities ( 162 ) ( 1,273 ) Decrease in cash and restricted cash ( 4,489 ) ( 2,420 ) Cash, and restricted cash, beginning of year 11,699 7,567 Cash, and restricted cash, end of period $ 7,210 $ 5,147 Non-cash investing and financing activities: Acquisition of right-of-use assets and lease liabilities 551 1,418 The accompanying notes are an integral part of these consolidated financial statements. 3 PIONEER POWER SOLUTIONS, INC. Consolidated Statement of Stockholders' Equity (In thousands, except per share data) (Unaudited) Accumulated Additional other Total Common Stock paid-in comprehensive Accumulated stockholders' Shares Amount capital income deficit equity Balance - June 30, 2021 8,726,045 $ 9 $ 23,005 $ 14 $ ( 10,480 ) $ 12,548 Net loss — — — — ( 434 ) ( 434 ) Stock-based compensation — — 58 — — 58 Balance - September 30, 2021 8,726,045 $ 9 $ 23,063 $ 14 $ ( 10,914 ) $ 12,172 Balance - June 30, 2022 (Revised) 9,644,545 $ 10 $ 32,573 $ 14 $ ( 15,587 ) $ 17,010 Net loss — — — — ( 1,311 ) ( 1,311 ) Stock-based compensation — — 143 — — 143 Balance - September 30, 2022 9,644,545 $ 10 $ 32,716 $ 14 $ ( 16,898 ) $ 15,842 Accumulated Additional other Total Common Stock paid-in comprehensive Accumulated stockholders' Shares Amount capital income deficit equity Balance - January 1, 2021 8,726,045 $ 9 $ 23,981 $ 14 $ ( 10,145 ) $ 13,859 Net loss — — — — ( 769 ) ( 769 ) Stock-based compensation — — 129 — — 129 Dividend to shareholders — — ( 1,047 ) — — ( 1,047 ) Balance - September 30, 2021 8,726,045 $ 9 $ 23,063 $ 14 $ ( 10,914 ) $ 12,172 Balance - January 1, 2022 9,640,545 $ 10 $ 31,840 $ 14 $ ( 12,312 ) $ 19,552 Net loss — — — — ( 4,586 ) ( 4,586 ) Stock-based compensation — — 859 — — 859 Exercise of stock options 4,000 — 17 — — 17 Balance - September 30, 2022 9,644,545 $ 10 $ 32,716 $ 14 $ ( 16,898 ) $ 15,842 The accompanying notes are an integral part of these consolidated financial statements. 4 PIONEER POWER SOLUTIONS, INC. Notes to Consolidated Financial Statements September 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 September 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 nine-month periods ended September 30, 2022. Due to projected operating losses for the year, the Company anticipates that its annual effective tax rate will be 0 %. As of September 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 September 30, 2022, the Company had $ 7.2 million of cash on hand and working capital of $ 14.2 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. 5 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 September 30, 2022. The Company accounts for restricted cash under the guidance of ASU No. 2016-18, Statement of Cash Flows - Restricted Cash (Topic 230), which requires the statement of cash flows to explain the change during the period in the total of cash, cash equivalents, and restricted cash and that restricted cash be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The following table provides a reconciliation of cash and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the unaudited interim consolidated statement of cash flows: September 30, December 31, 2022 2021 Cash $ 7,210 $ 9,924 Restricted cash — 1,775 Total cash and restricted cash as shown in the statement of cash flows $ 7,210 $ 11,699 COVID-19 The full impact of the COVID-19 pandemic and its ongoing effects continues to evolve as the date of this report. As such, it continues to be uncertain as to the full magnitude that the pandemic will have on the Company’s financial condition, liquidity, and future results of operations. The Company was able to operate substantially at capacity during the COVID-19 pandemic. Management is actively monitoring the global situation on its financial condition, liquidity, operations, suppliers, industry, and workforce. Given the daily evolution of the COVID-19 pandemic, its ongoing effects, and the global responses to the continuing crisis, the Company is not able to estimate the full effects of the COVID-19 pandemic and its ongoing effects at this time, however, if the ongoing effects of the COVID-19 pandemic continue or worsen, it may have an adverse effect on the Company’s results of operations, financial condition, or liquidity. On March 27, 2020, then President Trump signed into law the “Coronavirus Aid, Relief, and Economic Security (CARES) Act” (the “CARES Act”). The CARES Act, among other things, appropriates funds for the SBA Paycheck Protection Program loans that are forgivable in certain situations to promote continued employment. On April 13, 2020, after having determined that it met the qualifications for this loan program due to the impact that COVID-19 would have on our financial condition, results of operations, and/or liquidity and applying for relief, the Company received a loan under the SBA Paycheck Protection Program (the “PPP Loan”) in the amount of $ 1.4 million. The Company accounted for the PPP Loan as a debt instrument in accordance with FASB ASC 470, Debt. Under the terms of the PPP Loan, the Company was eligible for full or partial loan forgiveness. During the first quarter of 2021, the Company received full forgiveness of the PPP Loan and recognized a $ 1.4 million gain on extinguishment and forgiveness of debt as other income in the unaudited interim consolidated statements of operations. Reclassification The following items have been reclassified in the 2021 financial statements: The unaudited consolidated statements of cash flows contain a reclassification of the gain on the extinguishment and forgiveness of the PPP Loan from financing activities to operating activities for the nine months ended September 30, 2021. Additionally, principal repayments of financing leases and the reduction in operating leases have been reclassified and presented in the applicable cash flow activity for the nine months ended September 30, 2021. The inventories footnote contains a reclassification of the provision for excess and obsolete inventory and reductions to net realizable value to the applicable inventory classification at December 31, 2021. 6 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 third 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. 7 2) Identify the performance obligations in the contract Performance obligations promised in a contract are identified based on the products or services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the product or service either on its own or together with other resources that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby the transfer of the products or services is separately identifiable from other promises in the contract. To the extent a contract includes multiple promised products or services, the Company must apply judgment to determine whether promised products or services are capable of being distinct and distinct in the context of the contract. If these criteria are not met the promised products or services are accounted for as a combined performance obligation. 3) Determine the transaction price The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring products or services to the customer. The customer payments are generally due in 30 days. 4) Allocate the transaction price to performance obligations in the contract If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price basis or cost of the product or service. The Company determines standalone selling price based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligations. 5) Recognize revenue when or as the Company satisfies a performance obligation The Company satisfies performance obligations either over time or at a point in time. Revenue is recognized at the time the related performance obligation is satisfied by transferring a promised product or service to a customer. Revenue from the sale of our electric power systems is recognized either over time or at a point in time and substantially all of our revenue from the sale of power generation equipment is recognized at a point in time. Revenues are recognized at the point in time that the customer obtains control of the good, which is when it has taken title to the products and has assumed the risks and rewards of ownership specified in the purchase order or sales agreement. Certain sales of highly customized electrical power systems are recognized over time when such equipment has no alternative use and the Company has an enforceable right to payment for performance completed to date. Revenue for such agreements is recognized under the input method based on either cost or direct labor hours incurred relative to the estimated cost or direct labor hours expected to be consumed to complete the project. Under the cost-to-cost method of revenue recognition, a single estimated profit margin is used to recognize profit for each performance obligation over its period of performance. Recognition of profit on a contract requires estimates of the total cost at completion and transaction price and the measurement of progress towards completion. Due to the nature of many of our contracts, developing the estimated total cost at completion and total transaction price often requires judgment. Factors that must be considered in estimating the cost of the work to be completed include the nature and complexity of the work to be performed, subcontractor performance and the risk and impact of delayed performance. When adjustments in estimated total costs at completion or in estimated total transaction price are determined, the related impact on income is recognized using the cumulative catch-up method, which recognizes in the current period the cumulative effect of such adjustments for all prior periods. Any anticipated losses on these contracts are fully recognized in the period in which the losses become evident. During the three months ended September 30, 2022 and 2021, the Company recognized $ 1.8 million and $ 3.4 million of revenue at a point in time, respectively, from the sale of our electric power systems and power generation equipment. During the nine months ended September 30, 2022 and 2021, the Company recognized $ 8.7 million and $ 6 .0 million of revenue at a point in time, respectively, from the sale of our products. Service revenues include maintenance contracts that are recognized over time based on the contract term and repair services, which are recognized as services are delivered. The Company recognized $ 2.1 million and $ 2 .0 million of service revenue during the three months ended September 30, 2022 and 2021, respectively. The Company recognized $ 5.4 million and $ 5.5 million of service revenue during the nine months ended September 30, 2022 and 2021, respectively. 8 During the three months ended September 30, 2022 and 2021, the Company recognized $ 2.4 million and $ 262 of revenue over time and incurred costs of $ 2 .0 million and $ 227 , respectively, related to a single contract. During the nine months ended September 30, 2022 and 2021, the Company recognized $ 3.3 million and $ 3.4 million of revenue over time and incurred costs of $ 2.9 million and $ 3.1 million, respectively, related to a single contract. During the three months ended September 30, 2022, the Company recognized approximately $ 81 of revenue that was recognized as deferred revenue at December 31, 2021, as compared to $ 225 of revenue during the three months ended September 30, 2021 that was recognized as deferred revenue at December 31, 2020. During the nine months ended September 30, 2022, the Company recognized approximately $ 2.1 million of revenue that was recognized as deferred revenue at December 31, 2021, as compared to $ 284 of revenue during the nine months ended September 30, 2021 that was recognized as deferred revenue at December 31, 2020. There was no revenue recognized during the three and nine months ended September 30, 2022 and 2021 from performance obligations satisfied in prior periods. 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 September 30, 2022, three customers represented approximately 40 %, 21 % and 13 % 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 nine months ended September 30, 2022, two customers represented approximately 31 % and 12 % of the Company’s revenue. For the nine months ended September 30, 2021, two customers represented approximately 23 % and 22 % of the Company’s revenue. Return of a product requires that the buyer obtain permission in writing from the Company. When the buyer requests authorization to return material for reasons of their own, the buyer will be charged for placing the returned goods in saleable condition, restocking charges and for any outgoing and incoming transportation paid by the Company. The Company warrants title to the products, and also warrants the products on date of shipment to the buyer, to be of the kind and quality described in the contract, merchantable, and free of defects in workmanship and material. Returns and warranties during three and nine months ended September 30, 2022 and 2021 were insignificant. The following table presents our revenues disaggregated by revenue discipline: Three Months Ended Nine Months Ended September 30, September 30, 2022 2021 2022 2021 Products $ 4,198 $ 3,690 $ 12,032 $ 9,359 Services 2,053 1,995 5,444 5,454 Total revenue $ 6,251 $ 5,685 $ 17,476 $ 14,813 See “Note 12 - Business Segment and Geographic Information in Notes to Consolidated Financial Statements” in Part I of this Quarterly Report on Form 10-Q. 9 4. REVISION OF PRIOR PERIOD FINANCIAL STATEMENTS In connection with the preparation of our consolidated interim financial statements for the quarter ended September 30, 2022, we completed an analysis of one of our customer contracts under ASC 606 and, as a result, we determined that the performance obligations are satisfied over time. See “Note 3 – Revenues in Notes to Consolidated Financial Statements” in Part I of this Quarterly Report on Form 10-Q. As a result of the analysis, we identified additional revenues to be recognized of $ 326 and $ 574 related to the three months ended March 31, 2022 and June 30, 2022, respectively, along with the additional related cost of revenues of $ 278 and $ 592 , respectively. The following tables reconcile the balances as previously reported in the Quarterly Reports on Form 10-Q as of and for the three months ended March 31, 2022 and as of and for the three and six months ended June 30, 2022 to the as revised balances: For The Three Months Ended March 31, 2022 Condensed Consolidated Statements of Operations (Unaudited) As Reported Adjustment As Revised Revenues $ 6,036 $ 326 $ 6,362 Cost of goods sold $ 5,161 $ 278 $ 5,439 Gross profit $ 875 $ 48 $ 923 Net loss $ ( 788 ) $ 48 $ ( 740 ) Loss per share - basic and diluted $ ( 0.08 ) — $ ( 0.08 ) Weighted average common shares outstanding - basic and diluted 9,641 — 9,641 For The Three Months Ended June 30, 2022 Condensed Consolidated Statements of Operations (Unaudited) As Reported Adjustment As Revised Revenues $ 4,289 $ 574 $ 4,863 Cost of goods sold $ 4,208 $ 592 $ 4,800 Gross profit $ 81 $ ( 19 ) $ 62 Net loss $ ( 2,517 ) $ ( 19 ) $ ( 2,536 ) Loss per share - basic and diluted $ ( 0.26 ) — $ ( 0.26 ) Weighted average common shares outstanding - basic and diluted 9,728 — 9,728 For The Six Months Ended June 30, 2022 Condensed Consolidated Statements of Operations (Unaudited) As Reported Adjustment As Revised Revenues $ 10,325 $ 900 $ 11,225 Cost of goods sold $ 9,369 $ 870 $ 10,239 Gross profit $ 956 $ 30 $ 986 Net loss $ ( 3,305 ) $ 30 $ ( 3,275 ) Loss per share - basic and diluted $ ( 0.34 ) — $ ( 0.34 ) Weighted average common shares outstanding - basic and diluted 9,685 — 9,685 10 March 31, 2022 Condensed Consolidated Balance Sheet (Unaudited) As Reported Adjustment As Revised Total current assets $ 32,162 $ ( 278 ) $ 31,884 Total assets 34,983 ( 278 ) 34,705 Total current liabilities 14,719 ( 326 ) 14,393 Total liabilities 16,145 ( 326 ) 15,819 Total stockholders’ equity 18,838 48 18,886 June 30, 2022 Condensed Consolidated Balance Sheet (Unaudited) As Reported Adjustment As Revised Total current assets $ 31,080 $ ( 870 ) $ 30,210 Total assets 34,116 ( 870 ) 33,246 Total current liabilities 15,696 ( 900 ) 14,796 Total liabilities 17,136 ( 900 ) 16,236 Total stockholders’ equity 16,980 30 17,010 For The Three Months Ended March 31, 2022 Cash Flows From Operating Activities (Unaudited) As Reported Adjustment As Revised Net loss $ ( 788 ) $ 48 $ ( 740 ) Changes in current operating assets and liabilities: Inventories ( 2,805 ) 278 ( 2,527 ) Deferred revenue 4,895 ( 326 ) 4,569 Net cash provided by operating activities 2,087 — 2,087 For The Six Months Ended June 30, 2022 Cash Flows From Operating Activities (Unaudited) As Reported Adjustment As Revised Net loss $ ( 3,305 ) $ 30 $ ( 3,275 ) Changes in current operating assets and liabilities: Inventories ( 4,857 ) 870 ( 3,987 ) Deferred revenue 6,866 ( 900 ) 5,966 Net cash used in operating activities ( 1,621 ) — ( 1,621 ) For The Three Months Ended March 31, 2022 Consolidated Statement of Stockholders’ Equity (Unaudited) As Reported Adjustment As Revised Accumulated deficit $ ( 13,100 ) $ 48 $ ( 13,052 ) Total stockholders’ equity 18,838 48 18,886 For The Six Months Ended June 30, 2022 Consolidated Statement of Stockholders’ Equity (Unaudited) As Reported Adjustment As Revised Accumulated deficit $ ( 15,617 ) $ 30 $ ( 15,587 ) Total stockholders’ equity 16,980 30 17,010 In accordance with SEC Staff Accounting Bulletin No. 108, we evaluated this revision based on an analysis of quantitative and qualitative factors as to whether it was material to the consolidated statements of operations for the three months ended March 31, 2022 and June 30, 2022 and if amendments of previously filed financial statements with the SEC are required. We determined that the adjustment is neither quantitatively nor qualitatively material and, therefore, the revision does not have a material impact to the consolidated statements of operations for the three months ended March 31, 2022, the three and six months ended June 30, 2022 or other prior periods. 11 5. OTHER (INCOME) EXPENSE Other (income) expense in the unaudited interim consolidated statements of operations reports certain gains and losses associated with activities not directly related to our core operations. For the three months ended September 30, 2022, other income was $ 17 , as compared to other expense of $ 13 during the three months ended September 30, 2021. For the nine months ended September 30, 2022, other expense was $ 112 , as compared to other income of $ 1.3 million during the nine months ended September 30, 2021. For the nine months ended September 30, 2021, included in other income was a gain of $ 1.4 million for the extinguishment and forgiveness of the PPP Loan. See “Note 1 – Basis of Presentation in Notes to Consolidated Financial Statements” in Part I of this Quarterly Report on Form 10-Q for reference to the PPP Loan. 6. INVENTORIES The components of inventories are summarized below: September 30, December 31, 2022 2021 Raw materials $ 3,119 $ 993 Work in process 5,360 3,167 Total inventories $ 8,479 $ 4,160 Inventories are stated at the lower of cost or a net realizable value determined on a weighted average method. 7. PROPERTY AND EQUIPMENT Property and equipment are summarized below: September 30, December 31, Property and equipment 2022 2021 Machinery, vehicles and equipment $ 1,610 $ 1,396 Furniture and fixtures 208 205 Computer hardware and software 567 541 Leasehold improvements 368 322 Construction in progress 100 — Property and equipment 2,853 2,464 Less: accumulated depreciation ( 2,059 ) ( 1,948 ) Total property and equipment, net $ 794 $ 516 Depreciation expense was $ 40 and $ 35 for the three months ended September 30, 2022 and 2021, respectively. Depreciation expense was $ 113 and $ 110 for the nine months ended September 30, 2022 and 2021, respectively. 8. NOTES RECEIVABLE In connection with the sale of the transformer business units in August 2019 (the “Equity Transaction”), amongst other consideration, we received two subordinated promissory notes in the aggregate principal amount of $ 5 .0 million and $ 2.5 million, for a total aggregate principal amount of $ 7.5 million (the “Seller Notes”), subject to certain adjustments. The Seller Notes accrue interest at a rate of 4 .0% per annum, with a final payment of all unpaid principal and interest becoming fully due and payable at December 31, 2022 . The Company determined the fair value of the Seller Notes based on market conditions and prevailing interest rates. During the fourth quarter of 2019, the Company and the Buyer, pursuant to the Stock Purchase Agreement, completed the net working capital adjustment, which resulted in the Company paying the Buyer $ 1.8 million in cash and reducing the principal amount of the $ 5 .0 million Seller Note to $ 3.2 million. During the second quarter of 2020, the Company recognized an additional reduction to the principal amount of the Seller Note of $ 194 for a valid claim paid by the Buyer on behalf of the Company. The Company has revalued the Seller Notes for an appropriate imputed interest rate, resulting in a net change to the value of the Seller Notes at September 30, 2022 of $ 322 for a carrying value of $ 6.1 million. 12 9. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES The components of accounts payable and accrued liabilities are summarized below: September 30, December 31, 2022 2021 Accounts payable $ 3,433 $ 2,089 Accrued liabilities 1,273 1,263 Current portion of lease liabilities 972 807 Total accounts payable and accrued liabilities $ 5,678 $ 4,159 Accrued liabilities primarily consist of accrued sales commissions, accrued compensation and benefits, accrued professional fees and accrued insurance. At September 30, 2022 and December 31, 2021, accrued sales commissions were $ 148 and $ 247 , respectively. Accrued compensation and benefits at September 30, 2022 and December 31, 2021 were $ 307 and $ 270 , respectively. At September 30, 2022, accrued professional fees were $ 309 compared to $ 111 at December 31, 2021. Accrued sales and use taxes at September 30, 2022 and December 31, 2021 were $ 319 and $ 50 , respectively, and there was no accrued insurance at September 30, 2022 compared to $ 481 at December 31, 2021. The remainder of accrued liabilities are comprised of several insignificant accruals in connection with normal business operations. 10. 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 September 30, 2022 and December 31, 2021, respectively. Stock-Based Compensation A summary of stock option activity during the nine months ended September 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 September 30, 2022 670,667 $ 5.45 5.90 $ 58 Exercisable as of September 30, 2022 643,667 $ 5.54 5.70 $ 58 On April 25, 2022, the Company awarded 375,000 shares of restricted stock units (“RSU”) to an employee with the following vesting terms: (i) 125,000 units on May 1, 2022, which are included in the calculation of basic EPS as of the vesting date, (ii) an additional 125,000 units on May 1, 2023, and (iii) the remaining 125,000 units on May 1, 2024, provided that the employee is employed by the Company or a subsidiary of the Company on each such vesting date. The vested RSUs will be converted into shares of the Company's common stock no later than March 15 of the calendar year following the calendar year in which such RSUs vested. The fair value of the RSU award at the date of grant was $ 1.6 million. A summary of RSU activity during the nine months ended September 30, 2022, is as follows: Weighted-average grant-date Number of units fair value Unvested restricted stock units as of January 1, 2022 — $ — Units granted 375,000 1,631 Units vested ( 125,000 ) ( 544 ) Units forfeited — — Unvested restricted stock units as of September 30, 2022 250,000 $ 1,087 13 As of September 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 nine months ended September 30, 2022 was approximately $ 143 and $ 859 , respectively. Stock-based compensation expense recorded for the three and nine months ended September 30, 2021 was approximately $ 58 and $ 129 , respectively. All of the stock-based compensation expense is included in selling, general and administrative expenses in the accompanying interim consolidated statements of operations. At September 30, 2022, there was $ 878 of stock-based compensation expense remaining to be recognized in the interim consolidated statements of operations over a weighted average remaining period of 1.6 years. 11. 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 Nine Months Ended September 30, September 30, 2022 2021 2022 2021 Numerator: Net loss $ ( 1,311 ) $ ( 434 ) $ ( 4,586 ) $ ( 769 ) Denominator: Weighted average basic shares outstanding 9,770 8,726 9,713 8,726 Effect of dilutive securities - equity based compensation plans — — — — Denominator for diluted net loss per common share 9,770 8,726 9,713 8,726 Net loss per common share: Basic $ ( 0.13 ) $ ( 0.05 ) $ ( 0.47 ) $ ( 0.09 ) Diluted $ ( 0.13 ) $ ( 0.05 ) $ ( 0.47 ) $ ( 0.09 ) As of September 30, 2022 and 2021, diluted loss per share excludes 671 and 674 potentially dilutive common shares related to equity awards, as their effect was anti-dilutive. 14 12. BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION The Company follows ASC 280 Segment Reporting in determining its reportable segments. The Company considered the way its management team, most notably its chief operating decision maker, makes operating decisions and assesses performance and considered which components of the Company’s enterprise have discrete financial information available. As the Company makes decisions using a manufactured products vs. distributed products and services group focus, its analysis resulted in two reportable segments: T&D Solutions and Critical Power. The Critical Power reportable segment is the Company’s Titan Energy Systems, Inc. business unit. The T&D Solutions reportable segment is the Company’s Pioneer Custom Electrical Products Corp. business unit. The T&D Solutions segment is involved in the design, manufacture and distribution of switchgear used primarily by large industrial and commercial operations to manage their electrical power distribution needs. The Critical Power segment provides power generation equipment and aftermarket field-services primarily to help customers ensure smooth, uninterrupted power to operations during times of emergency. The following tables present information about segment income (loss): Three Months Ended Nine Months Ended September 30, September 30, 2022 2021 2022 2021 Revenues T&D Solutions Power Systems $ 3,773 $ 2,996 $ 10,029 $ 7,980 Service — — 10 — 3,773 2,996 10,039 7,980 Critical Power Solutions Equipment 425 694 2,003 1,379 Service 2,053 1,995 5,434 5,454 2,478 2,689 7,437 6,833 Consolidated $ 6,251 $ 5,685 $ 17,476 $ 14,813 Three Months Ended Nine Months Ended September 30, September 30, 2022 2021 2022 2021 Depreciation and amortization T&D Solutions $ 14 $ 15 $ 35 $ 50 Critical Power Solutions 73 76 234 257 Unallocated corporate overhead expenses 7 7 21 22 Consolidated $ 94 $ 98 $ 290 $ 329 Three Months Ended Nine Months Ended September 30, September 30, 2022 2021 2022 2021 Operating income (loss) T&D Solutions $ 171 $ ( 100 ) $ ( 183 ) $ ( 664 ) Critical Power Solutions ( 765 ) 160 ( 1,676 ) 34 Unallocated corporate overhead expenses ( 850 ) ( 578 ) ( 2,930 ) ( 1,740 ) Consolidated $ ( 1,444 ) $ ( 518 ) $ ( 4,789 ) $ ( 2,370 ) Revenues are attributable to countries based on the location of the Company's customers: Three Months Ended Nine Months Ended September 30, September 30, 2022 2021 2022 2021 Revenues United States $ 6,251 $ 5,685 $ 17,476 $ 14,813 15 13. 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 September 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 $ 474 and $ 1.1 million, respectively. As of September 30, 2022 and December 31, 2021, assets recorded under operating leases were $ 2.5 million and $ 3.9 million, respectively, and accumulated amortization associated with operating leases were $ 1.2 million and $ 2.3 million, respectively. The Company did not execute any new lease agreements during the three months ended September 30, 2022. The components of the lease expense were as follows: Three Months Ended Nine Months Ended September 30, September 30, 2022 2021 2022 2021 Operating lease cost $ 188 $ 173 $ 563 $ 456 Finance lease cost Amortization of right-of-use asset $ 53 $ 62 $ 177 $ 219 Interest on lease liabilities 10 9 31 30 Total finance lease cost $ 63 $ 71 $ 208 $ 249 Other information related to leases was as follows: Supplemental Cash Flows Information September 30, 2022 2021 Cash paid for amounts included in the measurement of lease liabilities Operating cash flow payments for operating leases $ 559 $ 449 Operating cash flow payments for finance leases 31 30 Financing cash flow payments for finance leases 178 226 Right-of-use assets obtained in exchange for lease obligations Operating lease liabilities arising from obtaining right of use assets 551 1,418 Weighted Average Remaining Lease Term September 30, 2022 2021 Operating leases 2 years 3 years Finance leases 3 years 2 years Weighted Average Discount Rate September 30, 2022 2021 Operating leases 5.50 % 5.50 % Finance leases 6.61 % 6.76 % 16 Future minimum lease payments under non-cancellable leases as of September 30, 2022 were as follows: Operating Finance Leases Leases 2022 $ 182 $ 74 2023 670 389 2024 508 158 2025 95 174 Thereafter 24 128 Total future minmum lease payments 1,479 923 Less imputed interest ( 92 ) ( 102 ) Total future minmum lease payments $ 1,387 $ 821 Reported as of September 30, 2022: Operating Finance Leases Leases Right-of-use assets $ 1,343 $ 773 Operating Finance Leases Leases Accounts payable and accrued liabilities $ 621 $ 351 Other long-term liabilities 766 470 Total $ 1,387 $ 821 17