PIONEER POWER SOLUTIONS, INC. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying consolidated interim financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and with our Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the Securities and Exchange Commission on March 31, 2022. Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to the “Company,” “Pioneer,” “we,” “our” and “us” refer to Pioneer Power Solutions, Inc. and its subsidiaries. Special Note Regarding Forward-Looking Statements This Quarterly Report on Form 10-Q contains “forward-looking statements,” which include information relating to future events, future financial performance, financial projections, strategies, expectations, competitive environment and regulation. Words such as “may,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates,” and similar expressions, as well as statements in future tense, identify forward-looking statements. Forward-looking statements should not be read as a guarantee of future performance or results and may not be accurate indications of when such performance or results will be achieved. Forward-looking statements are based on information we have when those statements are made or management’s good faith belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause such differences include, but are not limited to: ● General economic conditions and their effect on demand for electrical equipment, particularly in the commercial construction market, but also in the power generation, industrial production, data center, oil and gas, marine and infrastructure industries. ● The effects of fluctuations in sales on our business, revenues, expenses, net income (loss), income (loss) per share, margins and profitability. ● Many of our competitors are better established and have significantly greater resources and may subsidize their competitive offerings with other products and services, which may make it difficult for us to attract and retain customers. ● The potential loss or departure of key personnel, including Nathan J. Mazurek, our chairman, president and chief executive officer. ● Our ability to generate internal growth, maintain market acceptance of our existing products and gain acceptance for our new products. ● Unanticipated increases in raw material prices or disruptions in supply could increase production costs and adversely affect our profitability. ● Our ability to realize revenue reported in our backlog. ● Operating margin risk due to competitive pricing and operating efficiencies, supply chain risk, material, labor or overhead cost increases, interest rate risk and commodity risk. ● Strikes or labor disputes with our employees may adversely affect our ability to conduct our business. ● The impact of geopolitical activity on the economy, changes in government regulations such as income taxes, climate control initiatives, the timing or strength of an economic recovery in our markets and our ability to access capital markets. ● Material weaknesses in internal controls. ● Future sales of large blocks of our common stock may adversely impact our stock price. ● The liquidity and trading volume of our common stock. ● Our business could be adversely affected by an outbreak of disease, epidemic or pandemic, such as the global coronavirus pandemic, or similar public threat, or fear of such an event. The foregoing does not represent an exhaustive list of matters that may be covered by the forward-looking statements contained herein or risk factors that we are faced with that may cause our actual results to differ from those anticipated in our forward-looking statements. Moreover, new risks regularly emerge, and it is not possible for us to predict or articulate all risks we face, nor can we assess the impact of all risks on our business or the extent to which any risk, or combination of risks, may cause actual results to differ from those contained in any forward-looking statements. Except to the extent required by applicable laws or rules, we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. You should review carefully the risks and uncertainties described under the heading “Part II - Item 1A. Risk Factors” in this Quarterly Report on Form 10-Q and “Part I - Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021 for a discussion of the foregoing and other risks that relate to our business and investing in shares of our common stock. 18 Business Overview We design, manufacture, integrate, refurbish, service, distribute and sell electric power systems, distributed energy resources, power generation equipment and mobile electric vehicle (“EV”) charging solutions. Our products and services are sold to a broad range of customers in the utility, industrial and commercial markets. Our customers include, but are not limited to, electric, gas and water utilities, data center developers and owners, EV charging infrastructure developers and owners, and distributed energy developers. We are headquartered in Fort Lee, New Jersey and operate from three (3) additional locations in the U.S. for manufacturing, service and maintenance, engineering, and sales and administration. Description of Business Segments We have two reportable segments: Transmission & Distribution Solutions (“T&D Solutions”) and Critical Power Solutions (“Critical Power”). ● Our T&D Solutions business provides equipment solutions that help customers effectively and efficiently protect, control, transfer, monitor and manage their electric energy requirements. These solutions are marketed principally through our Pioneer Custom Electrical Products Corp. (“PCEP”) brand name. ● Our Critical Power business provides customers with our suite of mobile e-Boost© EV charging solutions, power generation equipment and all forms of service and maintenance on our customers’ power generation equipment. These products and services are marketed by our operations headquartered in Minnesota, currently doing business under both the Titan Energy Systems Inc. (“Titan”) and Pioneer Critical Power brand names. Critical Accounting Policies and Estimates Our financial statements have been prepared in accordance with U.S. GAAP. The preparation of our financial statements requires us to make estimates and assumptions that affect the amounts and disclosures in the financial statements. Our estimates are based on our historical experience, knowledge of current events and actions we may undertake in the future, and on various other factors that we believe are reasonable under the circumstances. Our critical accounting policies and estimates are described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies” in our Annual Report on Form 10-K filed with the SEC on March 31, 2022. There were no material changes to our accounting policies during the nine months ended September 30, 2022. 19 RESULTS OF OPERATIONS Overview of the Three and Nine Months Results Selected financial and operating data for our reportable business segments for the most recent reporting period is summarized below. This information, as well as the selected financial data provided in “Note 12 - 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 nine months ended September 30, 2022 and 2021 are as follows: Three Months Ended Nine Months Ended September 30, September 30, 2022 2021 2022 2021 Revenues T&D Solutions $ 3,773 $ 2,996 $ 10,039 $ 7,980 Critical Power Solutions 2,478 2,689 7,437 6,833 Consolidated 6,251 5,685 17,476 14,813 Cost of goods sold T&D Solutions 3,291 2,810 9,312 7,807 Critical Power Solutions 2,099 2,162 6,317 5,638 Consolidated 5,390 4,972 15,629 13,445 Gross profit 861 713 1,847 1,368 Selling, general and administrative expenses 2,273 1,207 6,550 3,664 Depreciation and amortization expense 32 24 86 74 Total operating expenses 2,305 1,231 6,636 3,738 Operating loss from continuing operations (1,444 ) (518 ) (4,789 ) (2,370 ) Interest income (116 ) (99 ) (322 ) (288 ) Other (income) expense (17 ) 13 112 (1,294 ) Loss income before taxes (1,311 ) (432 ) (4,579 ) (788 ) Income tax expense (benefit) — 2 7 (19 ) Net loss $ (1,311 ) $ (434 ) $ (4,586 ) $ (769 ) Backlog Our backlog is based on firm orders from our customers expected to be delivered in the future, most of which is expected to occur during the next twelve months. Backlog may vary significantly from reporting period to reporting period due to the timing of customer commitments. Backlog reflects the amount of revenue we expect to realize upon the shipment of customer orders for our products that are not yet complete or for which work has not yet begun. At September 30, 2022, backlog from our E-Bloc power systems solutions was approximately $13.8 million, or 49% of the total backlog. The following table represents the progression of our backlog, by reporting segment, as of the end of the last five quarters: September 30, June 30, March 31, December 31, September 30, 2022 2022 (Revised) 2022 (Revised) 2021 2021 T&D Solutions $ 22,689 $ 19,118 $ 18,406 $ 17,499 $ 5,032 Critical Power Solutions 5,207 5,141 5,222 5,349 5,823 Total order backlog $ 27,896 $ 24,259 $ 23,628 $ 22,848 $ 10,855 20 Revenue The following table represents our revenues by reporting segment and major product category for the periods indicated (in thousands, except percentages): Three Months Ended Nine Months Ended September 30, September 30, 2022 2021 Variance % 2022 2021 Variance % T&D Solutions Power Systems $ 3,773 $ 2,996 $ 777 25.9 $ 10,029 $ 7,980 $ 2,049 25.7 Service — — — — 10 — 10 — 3,773 2,996 777 25.9 10,039 7,980 2,059 25.8 Critical Power Solutions Equipment 425 694 (269 ) (38.8 ) 2,003 1,379 624 45.3 Service 2,053 1,995 58 2.9 5,434 5,454 (20 ) (0.4 ) 2,478 2,689 (211 ) (7.9 ) 7,437 6,833 604 8.8 Total revenue $ 6,251 $ 5,685 $ 566 9.9 $ 17,476 $ 14,813 $ 2,663 18.0 For the three months ended September 30, 2022, our consolidated revenue increased by $566, or 9.9%, to $6.3 million, up from $5.7 million during the three months ended September 30, 2021, primarily due to an increase in sales of our power systems from our T&D Solutions segment and a reduction in equipment sales from our Critical Power segment. For the nine months ended September 30, 2022, our consolidated revenue increased by $2.7 million, or 18.0%, to $17.5 million, up from $14.8 million during the nine months ended September 30, 2021, primarily due to an increase in sales of power systems and equipment from our T&D Solutions and Critical Power segments, respectively. T&D Solutions . During the three months ended September 30, 2022, revenue for our power systems product lines increased by $777, or 25.9%, as compared to the three months ended September 30, 2021, primarily due to increased sales of our E-Bloc power systems and automatic transfer switches and a decrease in sales of our medium and low voltage power systems. During the nine months ended September 30, 2022, revenue for our power systems product lines increased by $2.0 million, or 25.7%, as compared to the nine months ended September 30, 2021, primarily due to increased sales of our E-Bloc power systems, automatic transfer switches and low voltage power systems and a decrease in sales of our medium voltage power systems. Critical Power Solutions . For the three months ended September 30, 2022, revenue from our Critical Power segment decreased by $211, or 7.9%, as compared to the three months ended September 30, 2021, primarily due to decreased sales of our new and refurbished generation equipment. For the nine months ended September 30, 2022, revenue from our Critical Power segment increased by $604, or 8.8%, as compared to the nine months ended September 30, 2021, primarily due to the recognition of revenue from shipments of our e-Boost products during the nine months ended September 30, 2022 and no recognition of revenue from e-Boost shipments during the nine months ended September 30, 2021. 21 Gross Profit and Margin The following table represents our gross profit by reporting segment for the periods indicated (in thousands, except percentages): Three Months Ended Nine Months Ended September 30, September 30, 2022 2021 Variance % 2022 2021 Variance % T&D Solutions Gross profit $ 482 $ 186 $ 296 159.1 $ 727 $ 173 $ 554 320.2 Gross margin % 12.8 6.2 6.6 7.2 2.2 5.0 Critical Power Solutions Gross profit 379 527 (148 ) (28.1 ) 1,120 1,195 (75 ) (6.3 ) Gross margin % 15.3 19.6 (4.3 ) 15.1 17.5 (2.4 ) Consolidated gross profit $ 861 $ 713 $ 148 20.8 $ 1,847 $ 1,368 $ 479 35.0 Consolidated gross margin % 13.8 12.5 1.3 10.6 9.2 1.4 For the three months ended September 30, 2022, our consolidated gross margin increased to 13.8% of revenues, as compared to 12.5% during the three months ended September 30, 2021. For the nine months ended September 30, 2022, our consolidated gross margin increased to 10.6% of revenues, as compared to 9.2% during the nine months ended September 30, 2021. T&D Solutions. For the three months ended September 30, 2022, our gross margin percentage increased by 6.6%, from 6.2% to 12.8%, as compared to the three months ended September 30, 2021. The increase was primarily due to increased sales our E-Bloc power systems and automatic transfer switches which generated higher gross profits and margins. For the nine months ended September 30, 2022, our gross margin percentage increased by 5.0%, from 2.2% to 7.2%, as compared to the nine months ended September 30, 2021. The increase in our gross margin percentage was primarily due to increased sales of our E-Bloc power systems and automatic transfer switches, a favorable sales mix and improved productivity from our manufacturing facility. Critical Power Solutions . For the three months ended September 30, 2022, our gross margin decreased by 4.3%, to 15.3%, from 19.6% for the three months ended September 30, 2021, primarily due to increases in material and overhead costs. For the nine months ended September 30, 2022, our gross margin decreased by 2.4%, to 15.1%, from 17.5% for the nine months ended September 30, 2021, primarily due to increases in material and overhead costs. 22 Operating Expenses The following table represents our operating expenses by reportable segment for the periods indicated (in thousands, except percentages): Three Months Ended Nine Months Ended September 30, September 30, 2022 2021 Variance % 2022 2021 Variance % T&D Solutions Selling, general and administrative expense $ 306 $ 283 $ 23 8.1 $ 902 $ 823 $ 79 9.6 Depreciation and amortization expense 5 3 2 66.7 8 14 (6 ) (42.9 ) Segment operating expense $ 311 $ 286 $ 25 8.7 $ 910 $ 837 $ 73 8.7 Critical Power Solutions Selling, general and administrative expense $ 1,124 $ 353 $ 771 218.4 $ 2,739 $ 1,122 $ 1,617 144.1 Depreciation and amortization expense 20 14 6 42.9 57 39 18 46.2 Segment operating expense $ 1,144 $ 367 $ 777 211.7 $ 2,796 $ 1,161 $ 1,635 140.8 Unallocated Corporate Overhead Expenses Selling, general and administrative expense $ 843 $ 571 $ 272 47.6 $ 2,909 $ 1,719 $ 1,190 69.2 Depreciation and amortization expense 7 7 — — 21 21 — — Segment operating expense $ 850 $ 578 $ 272 47.1 $ 2,930 $ 1,740 $ 1,190 68.4 Consolidated Selling, general and administrative expense $ 2,273 $ 1,207 $ 1,066 88.3 $ 6,550 $ 3,664 $ 2,886 78.8 Depreciation and amortization expense 32 24 8 33.3 86 74 12 16.2 Consolidated operating expense $ 2,305 $ 1,231 $ 1,074 87.2 $ 6,636 $ 3,738 $ 2,898 77.5 Selling, General and Administrative Expense . For the three months ended September 30, 2022, consolidated selling, general and administrative expense, before depreciation and amortization, increased by approximately $1.1 million, or 88.3%, to $2.3 million, due to an increase in payroll related costs, including stock-based compensation, professional fees and product development costs related to our e-Boost and E-Bloc initiatives, as compared to $1.2 million during the three months ended September 30, 2021. As a percentage of our consolidated revenue, selling, general and administrative expense, before depreciation and amortization, increased to 36.4% during the three months ended September 30, 2022, as compared to 21.2% in the three months ended September 30, 2021. For the nine months ended September 30, 2022, consolidated selling, general and administrative expense, before depreciation and amortization, increased by approximately $2.9 million, or 78.8%, to $6.6 million, as compared to $3.7 million during the nine months ended September 30, 2021, primarily due to an increase in payroll related costs, including stock-based compensation, professional fees and product development costs related to our e-Boost and E-Bloc initiatives. As a percentage of our consolidated revenue, selling, general and administrative expense, before depreciation and amortization, increased to 37.5% during the nine months ended September 30, 2022, as compared to 24.7% during the nine months ended September 30, 2021. Depreciation and Amortization Expense. Depreciation and amortization expense consists primarily of depreciation of fixed assets and amortization of right-of-use assets related to our finance leases and excludes amounts included in cost of sales. For the three months ended September 30, 2022, consolidated depreciation and amortization expense increased by $8, or 33.3%, as compared to the three months ended September 30, 2021. For the nine months ended September 30, 2022, consolidated depreciation and amortization expense increased by $12, or 16.2%, as compared to the nine months ended September 30, 2021. 23 Operating Income (Loss) The following table represents our operating income (loss) by reportable segment for the periods indicated (in thousands, except percentages): Three Months Ended Nine Months Ended September 30, September 30, 2022 2021 Variance % 2022 2021 Variance % T&D Solutions $ 171 $ (100 ) $ 271 271.0 $ (183 ) $ (664 ) $ 481 72.4 Critical Power Solutions (765 ) 160 (925 ) 578.1 (1,676 ) 34 (1,710 ) 5,029.4 Unallocated corporate overhead expenses (850 ) (578 ) (272 ) (47.1 ) (2,930 ) (1,740 ) (1,190 ) (68.4 ) Total operating loss $ (1,444 ) $ (518 ) $ (926 ) 178.8 $ (4,789 ) $ (2,370 ) $ (2,419 ) (102.1 ) T&D Solutions . Operating income from our T&D Solutions segment increased by $271, or 271.0%, during the three months ended September 30, 2022, as compared to the three months ended September 30, 2021, primarily due an increase in sales of our power systems, a favorable sales mix and improved productivity from our manufacturing facility during the three months ended September 30, 2022. For the nine months ended September 30, 2022, operating loss from our T&D Solutions segment decreased by $481, or 72.4%, as compared to an operating loss of $664 during the nine months ended September 30, 2021, primarily due to an increase in sales of our power systems, a favorable sales mix and improved productivity from our manufacturing facility. Critical Power Solutions . Operating loss for the Critical Power segment increased by $925, or 578.1% during the three months ended September 30, 2022, primarily due to an increase in material and overhead costs and recognizing product development and promotion fees related to our e-Boost initiative during the three months ended September 30, 2022, as compared to lower material and overhead costs and no product development or promotion fees recognized during the three months ended September 30, 2021. For the nine months ended September 30, 2022, operating loss from our Critical Power segment increased by $1,710, primarily due to a decrease in gross margin and an increase in consulting, marketing and promotion fees related to our e-Boost initiative, as compared to lower material and overhead costs and no recognition of product development or promotion fees related to our e-Boost initiative during the nine months ended September 30, 2021. General Corporate Expense . Our general corporate expenses consist primarily of executive management, corporate accounting and human resources personnel, corporate office expenses, financing and corporate development activities, payroll and benefits administration, treasury, tax compliance, legal, stock-based compensation, public reporting costs and costs not specifically allocated to reportable business segments. During the three months ended September 30, 2022, our unallocated corporate overhead expense increased by $272, or 47.1%, as compared to the three months ended September 30, 2021, primarily due to an increase in payroll related expenses, including stock-based compensation, professional fees and business travel related costs. During the nine months ended September 30, 2022, our unallocated corporate overhead expense increased by $1.2 million, or 68.4%, as compared to the nine months ended September 30, 2021, primarily due to an increase in payroll related expenses, including stock-based compensation, professional fees and business travel related costs. Non-Operating (Income) Expense Interest Income. For the three and nine months ended September 30, 2022, the Company had interest income of approximately $116 and $322, respectively, as compared to interest income of approximately $99 and $288 during the three and nine months ended September 30, 2021, respectively. We generate the majority of our interest income from the Seller Notes we received from the sale of the transformer business units in August 2019 and our cash on hand. Other (Income) Expense. Other (income) expense in the unaudited consolidated statements of operations reports certain gains and losses associated with activities not directly related to our core operations. During 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. During 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. 24 On March 27, 2020, then 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 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 in the amount of $1.4 million. The Company made this assertion in good faith based upon all available guidance and accounted for the PPP Loan as a debt instrument in accordance with FASB ASC 470, Debt. The Company used the 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 was eligible for full or partial loan forgiveness. The Company received full forgiveness of the PPP Loan during the nine months ended September 30, 2021 and recognized a $1.4 million gain on extinguishment and forgiveness of debt in other income. Income Tax Expense (Benefit) . Our effective income tax rate for the three months ended September 30, 2022 and 2021 was 0.0% and (0.5)%, respectively. For the nine months ended September 30, 2022, our effective income tax rate was (0.2)%, as compared to an income tax rate of 2.4% during the nine months ended September 30, 2021, as set forth below: Three Months Ended Nine Months Ended September 30, September 30, 2022 2021 Variance 2022 2021 Variance Loss before income taxes $ (1,311 ) $ (432 ) $ (879 ) $ (4,579 ) $ (788 ) $ (3,791 ) Income tax expense (benefit) — 2 (2 ) 7 (19 ) 26 Effective income tax rate % — (0.5 ) 0.5 (0.2 ) 2.4 (2.6 ) Net Loss per Share We generated a net loss of $1.3 million during the three months ended September 30, 2022, as compared to net loss of $434 during the three months ended September 30, 2021. Our net loss per basic and diluted share for the three months ended September 30, 2022 was $0.13, as compared to net loss per basic and diluted share of $0.05 for the three months ended September 30, 2021. We generated a net loss of $4.6 million during the nine months ended September 30, 2022, as compared to net loss of $769 during the nine months ended September 30, 2021. Our net loss per basic and diluted share for the nine months ended September 30, 2022 was $0.47, as compared to net loss per basic and diluted share of $0.09 for the nine months ended September 30, 2021. LIQUIDITY AND CAPITAL RESOURCES General . At September 30, 2022, we had $7.2 million of cash on hand generated primarily from the sale of common stock under the At The Market Sale Agreement (the “ATM Program”) 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 sale of transformer business units in August 2019, proceeds from the sale of the CleanSpark common stock and warrants to purchase CleanSpark common stock, proceeds from insurance, proceeds from the sale of common stock under the ATM Program and funding from the Payroll Protection Program. Our cash requirements historically were generally for operating activities, debt repayment, capital improvements and acquisitions. 25 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 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. We were 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, we are 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 our 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 nine months ended September 30, 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 audited consolidated statements of operations. Cash Used in Operating Activities . Cash used in our operating activities was $3.9 million during the nine months ended September 30, 2022, as compared to cash used in our operating activities of $991 during the nine months ended September 30, 2021. The increase in cash used in operating activities is primarily due to working capital fluctuations. Cash Used in Investing Activities. Cash used in investing activities during the nine months ended September 30, 2022 was $391, as compared to $156 of cash used in investing activities during the nine months ended September 30, 2021. Additions to property and equipment during the nine months ended September 30, 2022 were $391, as compared to $156 additions to property and equipment during the nine months ended September 30, 2021. Cash Used in Financing Activities. Cash used in our financing activities was $162 during the nine months ended September 30, 2022, as compared to $1.3 million during the nine months ended September 30, 2021. The primary use of cash in financing activities for the nine months ended September 30, 2022 and 2021 was repayments of financing leases and a dividend paid to shareholders, respectively. Working Capital . As of September 30, 2022, we had working capital of $14.2 million, including $7.2 million of cash, compared to working capital of $18.6 million, including $9.9 million of cash and $1.8 million of restricted cash at December 31, 2021. Assessment of Liquidity . At September 30, 2022, we had $7.2 million of cash on hand generated primarily from the sale of common stock under the ATM Program 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 sale of transformer business units in August 2019, proceeds from the sale of the CleanSpark common stock and warrants to purchase CleanSpark common stock, proceeds from insurance, proceeds from the sale of common stock under the ATM Program and funding from the Payroll Protection Program. Our cash requirements historically were generally for operating activities, debt repayment, capital improvements and acquisitions. On June 1, 2021, our board of directors 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 APIC. On November 8, 2021, we sold 888,500 shares of common stock under the ATM Program, for total gross proceeds of approximately $9.0 million, at an average price of $10.1288 per share. We incurred approximately $273 of costs related to the common shares issued (including a placement fee of 3.0%, or approximately $270, to H.C. Wainwright & Co., LLC), resulting in net proceeds of approximately $8.7 million. On December 13, 2021, we filed a new sales agreement prospectus supplement, which forms a part of our registration statement on Form S-3 (File No. 333-249569), which covers the offering, issuance and sale of up to a maximum aggregate offering price of $8.6 million of common stock that may be issued and sold under the ATM Program. We did not sell any shares of common stock under the new sales agreement prospectus supplement during the nine months ended September 30, 2022. As of September 30, 2022, $8.6 million of common stock remained available for issuance under the ATM Program. 26 During the year ended December 31, 2021, we 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, we amended our agreement with the commercial bank to decrease the required amount of cash collateral by $1.3 million. On May 6, 2022, we received notice that the cash collateral security agreement we 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 us. We had no restricted cash on the consolidated balance sheets at September 30, 2022. 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, capital improvements and product development. We expect that product development and promotional activities related to our new initiatives will continue in the near future and expect to continue to incur costs related to such activities. We expect that our cash balance is sufficient to fund operations for the next twelve months. As of September 30, 2022, we had no off-balance sheet transactions, arrangements, obligations (including contingent obligations), or other relationships with unconsolidated entities or other persons that had, or that may have, a material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. Capital Expenditures The Company had $391 of additions to property and equipment during the nine months ended September 30, 2022, as compared to $156 of additions to property and equipment during the nine months ended September 30, 2021. Known Trends, Events, Uncertainties and Factors That May Affect Future Operations We believe that our future operating results will continue to be subject to quarterly variations based upon a wide variety of factors, including the cyclical nature of the electrical equipment industry and the markets for our products and services. Our operating results could also be impacted by changing customer requirements and exposure to fluctuations in prices of important raw supplies, such as copper, steel and aluminum. We have various insurance policies, including cybersecurity, covering risks in amounts that we consider adequate. In addition to these measures, we attempt to recover other cost increases through improvements to our manufacturing efficiency and through increases in prices where competitively feasible. Lastly, other economic conditions we cannot foresee may affect customer demand. The impact of the COVID-19 pandemic, including the Omicron variant of COVID-19 and the subvariant, BA.5, and the ongoing effects of COVID-19, are currently indeterminable and rapidly evolving, and has affected and may continue to affect our operations and the global economy. In addition, the consequences of the ongoing conflict between Russia and Ukraine, including related sanctions and countermeasures, and the effects of rising global inflation, are difficult to predict, and could adversely impact geopolitical and macroeconomic conditions, the global economy, and contribute to increased market volatility, which may in turn adversely affect our business and operations. We predominately sell to customers in the industrial production and commercial construction markets. Accordingly, changes in the condition of any of our customers may have a greater impact than if our sales were more evenly distributed between different end markets. For a further discussion of factors that may affect future operating results see the sections entitled “Special Note Regarding Forward-Looking Statements” in this Quarterly Report on Form 10-Q and “Part I - Item 1A. Risk Factors” in our Annual Report on Form 10-K. 27 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable.