What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-05-15 compared with 2022-11-14 · 288 added, 428 removed, 63 unchanged (92% of the section changed)

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.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

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, 2022, which was filed with the Securities and Exchange Commission on April 11, 2023.

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

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

Note Regarding Forward-Looking Statements

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

● 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

● 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.

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:

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.

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

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.

potential loss or departure of key personnel, including Nathan J.

Mazurek, our chairman, president and chief executive officer.

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.

ability to realize revenue reported in our backlog.

margin risk due to competitive pricing and operating efficiencies, supply chain risk, material, labor or overhead cost increases,

interest rate risk and commodity risk.

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

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.

weaknesses in internal controls.

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

liquidity and trading volume of our common stock.

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.

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.

review carefully the risks and uncertainties described under the heading “Part II - Item 1A.

Risk Factors” in this

Quarterly Report on Form 10-Q and “Part I - Item 1A.

Risk Factors” in our Annual Report on Form 10-K for the year ended

December 31, 2021 for a discussion of the foregoing and other risks that relate to our business and investing in shares of our

common stock.

Business Overview

We design, manufacture, integrate, refurbish,

service, distribute and sell electric power systems, distributed energy resources, power generation equipment and mobile electric

vehicle (“EV”) charging solutions.

Our products and services are sold to a broad range of customers in the utility,

industrial and commercial markets.

Our customers include, but are not limited to, electric, gas and water utilities, data center

developers and owners, EV charging infrastructure developers and owners, and distributed energy developers.

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,

2022 for a discussion of the foregoing and other risks that relate to our business and investing in shares of our common stock.

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:

& 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.

for manufacturing, service and maintenance, engineering,

and sales and administration.

of Business Segments

have two reportable segments:

Transmission & Distribution Solutions (“T&D Solutions”) and Critical Power Solutions

(“Critical Power”).

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.

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,

There were no material changes to our accounting policies during the nine months ended September 30, 2022.

RESULTS OF OPERATIONS

Overview of the Three and Nine Months

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:

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.

and Pioneer Critical Power brand names.

Accounting Policies and Estimates

financial statements have been prepared in accordance with U.S.

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 April 11, 2023.

There were no material changes to our accounting policies during the three months ended March 31,

OF OPERATIONS

of the Three-Month Results

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.

summary of operating results during the three months ended March 31, 2023 and 2022 are as follows:

Three Months Ended

Nine Months Ended

September 30,

2022 (Revised)

T&D Solutions

6 unchanged sentences

Total operating expenses

Operating loss from continuing operations

Operating income (loss) from continuing operations

Interest income

Other (income) expense

Loss income before taxes

Income tax expense (benefit)

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.

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,

Income (loss) before income taxes

Income tax expense

Net income (loss)

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 March 31, 2023, backlog from our E-Bloc power systems solutions was approximately $24.4 million,

or 66% 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,

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

September 30,

4 unchanged sentences

Total order backlog

The following table represents our revenues

by reporting segment and major product category for the periods indicated (in thousands, except percentages):

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,

2022 (Revised)

T&D Solutions

2 unchanged sentences

Total revenue

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 .

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.

Gross Profit and Margin

The following table represents our gross

profit by reporting segment for the periods indicated (in thousands, except percentages):

the three months ended March 31, 2023, our consolidated revenue increased by $2.1 million, or 33.7%, to $8.5 million, up from $6.4 million

during the three months ended March 31, 2022, primarily due to an increase in sales of our power systems from our T&D Solutions segment.

During the three months ended March 31, 2023, revenue from our power systems product lines increased by $2.0 million,

or 55.2%, as compared to the three months ended March 31, 2022, 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.

For the three months ended March 31, 2023, revenue for our Critical Power segment increased by $107, or 4.1%, as compared

to the three months ended March 31, 2022, primarily due to a reduction in sales of our equipment and an increase in service sales.

Profit and Margin

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,

2022 (Revised)

T&D Solutions

4 unchanged sentences

Consolidated gross margin %

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

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

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

the three months ended March 31, 2023, our consolidated gross margin increased to 26.0% of revenues, as compared to 14.5% during three

months ended March 31, 2022.

For the three months ended March 31, 2023, our gross margin percentage increased by 15.0%, from 11.4% to 26.4%, as compared

to the three months ended March 31, 2022.

The increase was primarily due to increased sales our E-Bloc power systems and automatic transfer

switches, a favorable sales mix and improved productivity from our manufacturing facility.

Critical Power Solutions .

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.

Operating Expenses

The following table represents our operating

expenses by reportable segment for the periods indicated (in thousands, except percentages):

Power Solutions .

For the three months ended March 31, 2023, our gross margin increased by 6.2%, to 25.1%, from 18.9% for the three

months ended March 31, 2022.

The increase was predominately due to a favorable sales mix and the acceptance of price increases from our

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,

2022 (Revised)

T&D Solutions

13 unchanged sentences

Consolidated operating expense

Selling, General and Administrative

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

Operating Income (Loss)

The following table represents our operating

income (loss) by reportable segment for the periods indicated (in thousands, except percentages):

General and Administrative Expense .

For the three months ended March 31, 2023, consolidated selling, general and administrative expense,

before depreciation and amortization, increased by approximately $314, or 18.3%, to $2.0 million, due to an increase in payroll related

costs, including stock-based compensation, professional fees, depreciation expense and product development costs related to our e-Boost

initiative, as compared to $1.7 million during the three months ended March 31, 2022.

As a percentage of our consolidated revenue, selling,

general and administrative expense, before depreciation and amortization, decreased to 23.9% during the three months ended March 31,

2023, as compared to 27.0% in the three months ended March 31, 2022.

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 March

31, 2023, consolidated depreciation and amortization expense increased by $98, or 363.0%, as compared to the three months ended March

Income (Loss)

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,

2022 (Revised)

T&D Solutions

1 unchanged sentence

Unallocated corporate overhead expenses

Total operating loss

T&D Solutions .

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 .

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

General Corporate Expense .

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.

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.

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

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.

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) .

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:

Total operating income (loss)

Operating income from our T&D Solutions segment increased by $1.2 million, or 1,280.0%, during the three months ended

March 31, 2023, as compared to the three months ended March 31, 2022, primarily due an increase in sales of our power systems, a favorable

sales mix and improved productivity from our manufacturing facility the three months ended March 31, 2023.

Power Solutions .

Operating loss for the Critical Power segment increased by $282, or 181.9% during the three months ended March 31,

2023, primarily due to an increase in consulting, marketing and promotion fees related to our e-Boost initiative during the three months

ended March 31, 2023.

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.

the three months ended March 31, 2023, our unallocated corporate overhead expense decreased by $8, or 1.1%, as compared to the three

months ended March 31, 2022.

Non-Operating

(Income) Expense

For the three months ended March 31, 2023, we had interest income of approximately $54, as compared to interest income of

approximately $101 during the three months ended March 31, 2022.

We generated the majority of our interest income from our cash on hand.

During the three months ended March 31, 2022, we generated the majority of our interest income from the Seller Notes we received from

the sale of the transformer business units and our cash on hand.

(Income) Expense .

Other (income) expense in the consolidated statements of operations reports certain gains and losses associated

with activities not directly related to our core operations.

the three months ended March 31, 2023, other non-operating income was $13, as compared to other non-operating expense of $11 during the

three months ended March 31, 2022.

for Income Taxes .

Our provision reflects an effective tax rate on income before taxes of 0.0% for the three months ended March 31,

2023, as compared to (1.0)% for the three months ended March 31, 2022, as set forth below:

Three Months Ended

Nine Months Ended

September 30,

Loss before income taxes

Income tax expense (benefit)

Income (loss) before income taxes

Income tax expense

Effective income tax rate %

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

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.

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,

Restricted cash

Total cash and restricted cash as shown in the statement of cash flows

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.

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.

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

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 .

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.

Income (Loss) per Share

generated a net income of $122 during the three months ended March 31, 2023, as compared to a net loss of $740 during the three months

ended March 31, 2022.

net income per basic and diluted share for the three months ended March 31, 2023 was $0.01, as compared to a net loss per basic and diluted

share of $0.08 for the three months ended March 31, 2022.

AND CAPITAL RESOURCES

On October 20, 2020, we entered into an At the Market Sale Agreement with H.C.

Wainwright & Co., LLC (“Wainwright”),

pursuant to which we may offer and sell our shares of common stock, preferred stock, warrants and/or units of up to $25.0 million from

time to time through Wainwright, acting as sales agent or principal (the “ATM Program”).

As of March 31, 2023, we had $11.6

million of cash on hand generated primarily from the sale of common stock under the ATM Program during the year ended December 31, 2021,

payment of all unpaid principal and interest from the Seller Notes during the year ended December 31, 2022 and cash flows from operating

We have met our cash needs through a combination of cash flows from operating activities and bank borrowings, proceeds from

the sale of the CleanSpark Common Stock and warrants to purchase CleanSpark Common Stock, proceeds from insurance, the sale of common

stock under the ATM Program, funding from the Payroll Protection Program and collecting all unpaid principal and interest from the Seller

Our cash requirements historically were generally for operating activities, capital improvements and acquisitions.

December 13, 2021, we filed a prospectus supplement, which forms a part of our registration statement on Form S-3 (File No.

that was declared effective by the SEC on October 27, 2020, in connection with the offer and sale of up to an aggregate offering amount

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

ATM Program during the three months ended March 31, 2023.

As of March 31, 2023, $8.6 million of common stock remained available for issuance

under the ATM Program.

worldwide spread of the novel coronavirus (“COVID-19”), including the emergence of variants and subvariants, as well as rising

interest rates, inflation, changes in foreign currency exchange rates and geopolitical developments (including the war in Ukraine) have

resulted, and may continue to result, in a global slowdown of economic activity, which may decrease demand for a broad variety of goods

and services, including those provided by the Company’s clients, while also disrupting supply channels, sales channels and advertising

and marketing activities for an unknown period of time until economic activity normalizes.

As a result of the current uncertainty in

economic activity, the Company is unable to predict the size and duration of the impact on its revenue and its results of operations.

The extent of the impact of these macroeconomic factors on the Company’s operational and financial performance will depend on a

variety of factors, including the duration and spread of COVID-19 and its variants and the duration and the extent of geopolitical disruption

and their respective impacts on the Company’s clients, partners, industry, and employees, all of which are uncertain at this time

and cannot be accurately predicted.

The Company continues to monitor the effects of the COVID-19 pandemic and take steps deemed appropriate

to limit the impact on its business.

During the three months ended March 31, 2023, the Company was able to operate substantially at capacity.

The World Health Organization recently determined that COVID-19 no longer

fit the definition of a public health emergency, and the U.S.

government has announced that the declaration of a public health emergency

associated with COVID-19 expired on May 11, 2023.

However, COVID-19 is expected to remain a serious endemic threat for an indefinite future

The economic uncertainty caused by the COVID-19 pandemic has made and may continue to make it difficult for the Company to forecast

revenue and operating results and to make decisions regarding operational cost structures and investments.

The Company has committed,

and the Company plans to continue to commit, resources to grow its business, employee base, and technology development, and such investments

may not yield anticipated returns, particularly if worldwide business activity continues to be impacted by the COVID-19 pandemic.

duration and extent of the impact from the COVID-19 pandemic depend on future developments that cannot be accurately predicted at this

time, and if the Company is not able to respond to and manage the impact of such events effectively, its business may be harmed.

can be no assurance that precautionary measures, whether adopted by the Company or imposed by others, will be effective, and such measures

could negatively affect its sales, marketing, and client service efforts, delay and lengthen its sales cycles, decrease its employees’,

clients’, or partners’ productivity, or create operational or other challenges, any of which could harm its business and

results of operations.

Provided by Operating Activities .

Cash provided by our operating activities was $1.5 million during the three months ended March

31, 2023, as compared to $2.1 million during the three months ended March 31, 2022.

in cash provided by operating activities is primarily due to working capital fluctuations.

Used in Investing Activities.

Cash used in investing activities during the three months ended March 31, 2023 was $194, as compared

to cash used in our investing activities of $112 during the three months ended March 31, 2022.

Additions to property and equipment during

the three months ended March 31, 2023 were $194, as compared to $112 additions during the three months ended March 31, 2022.

Used in Financing Activities.

Cash used in our financing activities was $71 during the three months ended March 31, 2023, as compared

to $31 during the three months ended March 31, 2022.

The primary use of cash in financing activities for the three months ended March

31, 2023 and 2022 was repayments of financing leases.

As of March 31, 2023, we had working capital of $14.3 million, including $11.6 million of cash on hand, compared to working

capital of $14.1 million, including $10.3 million of cash on hand at December 31, 2022.

of Liquidity .

At March 31, 2023, we had $11.6 million of cash on hand generated primarily from the sale of common stock under the

ATM Program during the year ended December 31, 2021, payment of all unpaid principal and interest from the Seller Notes during the year

ended December 31, 2022 and cash flows from operating activities.

We have met our cash needs through a combination of cash flows from

operating activities and bank borrowings, proceeds from the sale of the CleanSpark Common Stock and warrants to purchase CleanSpark Common

Stock, proceeds from insurance, sale of common stock under the ATM Program, funding from the Payroll Protection Program and collecting

all unpaid principal and interest from the Seller Notes.

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

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.

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.

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.

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.

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.

capital improvements and acquisitions.

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 we 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.

of March 31, 2023, 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.

Company had $194 of additions to property and equipment during the three months ended March 31, 2023, as compared to $112 of additions

to property and equipment during the three months ended March 31, 2022.

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.2, 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.

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.

changes in the condition of any of our customers may have a greater impact than if our sales were more evenly distributed between different

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.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis