PIONEER POWER SOLUTIONS, INC. 10-Q

Item 1. FINANCIAL STATEMENTS PIONEER POWER SOLUTIONS, INC. Consolidated Statements of Operations (In thousands, except per share data) (Unaudited) 2023 2022 (Revised) Three Months Ended March 31, 2023 2022 (Revised) Revenues $ 8,507 $ 6,362 Cost of goods sold 6,294 5,439 Gross profit 2,213 923 Operating expenses Selling, general and administrative 2,158 1,746 Total operating expenses 2,158 1,746 Income (loss) from operations 55 ( 823 ) Interest income ( 54 ) ( 101 ) Other (income) expense, net ( 13 ) 11 Income (loss) before income taxes 122 ( 733 ) Income tax expense - 7 Net income (loss) $ 122 $ ( 740 ) Income (loss) per share: Basic $ 0.01 $ ( 0.08 ) Diluted $ 0.01 $ ( 0.08 ) Weighted average common shares outstanding: Basic 9,769,545 9,640,545 Diluted 9,769,565 9,640,545 The accompanying notes are an integral part of these consolidated financial statements. 1 PIONEER POWER SOLUTIONS, INC. Consolidated Balance Sheets (In thousands, except share amounts) 2023 2022 March 31, December 31, 2023 2022 (Unaudited) ASSETS Current assets Cash $ 11,556 $ 10,296 Accounts receivable, net 7,863 11,139 Inventories 9,589 8,748 Prepaid expenses and other current assets 2,900 2,853 Total current assets 31,908 33,036 Property and equipment, net 1,863 1,800 Operating lease right-of-use assets 1,281 1,450 Financing lease right-of-use assets 655 727 Other assets 150 162 Total assets $ 35,857 $ 37,175 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Accounts payable and accrued liabilities $ 6,485 $ 7,239 Current portion of operating lease liabilities 718 703 Current portion of financing lease liabilities 316 355 Deferred revenue 10,095 10,665 Total current liabilities 17,614 18,962 Operating lease liabilities, non-current portion 612 797 Financing lease liabilities, non-current portion 386 418 Other long-term liabilities 61 65 Total liabilities 18,673 20,242 Stockholders’ equity Preferred stock, $ 0.001 par value, 5,000,000 shares authorized; none issued - - Common stock, $ 0.001 par value, 30,000,000 shares authorized; 9,769,545 and 9,644,545 shares issued and outstanding on March 31, 2023 and December 31, 2022, respectively 10 10 Additional paid-in capital 33,002 32,859 Accumulated other comprehensive income - 14 Accumulated deficit ( 15,828 ) ( 15,950 ) Total stockholders’ equity 17,184 16,933 Total liabilities and stockholders’ equity $ 35,857 $ 37,175 The accompanying notes are an integral part of these consolidated financial statements. 2 PIONEER POWER SOLUTIONS, INC. Consolidated Statements of Cash Flows (In thousands) (Unaudited) 2023 2022 (Revised) Three Months Ended March 31, 2023 2022 (Revised) Operating activities Net income (loss) $ 122 $ ( 740 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation 130 36 Amortization of right-of-use financing leases 73 51 Amortization of imputed interest - ( 107 ) Amortization of right-of-use operating leases 169 163 Change in receivable reserves 13 28 Stock-based compensation 143 57 Other ( 14 ) - Changes in current operating assets and liabilities: Accounts receivable 3,275 ( 1,743 ) Inventories ( 841 ) ( 2,527 ) Prepaid expenses and other assets ( 57 ) ( 478 ) Income taxes 2 19 Accounts payable and accrued liabilities ( 750 ) 2,920 Deferred revenue ( 570 ) 4,569 Operating lease liabilities ( 170 ) ( 161 ) Net cash provided by operating activities 1,525 2,087 Investing activities Purchases of property and equipment ( 194 ) ( 112 ) Net cash used in investing activities ( 194 ) ( 112 ) Financing activities Net proceeds from the exercise of options for common stock - 17 Principal repayments of financing leases ( 71 ) ( 48 ) Net cash used in financing activities ( 71 ) ( 31 ) Increase in cash 1,260 1,944 Cash, beginning of period 10,296 11,699 Cash, end of period $ 11,556 $ 13,643 Non-cash investing and financing activities: Acquisition of right-of-use assets and lease liabilities - 156 The accompanying notes are an integral part of these consolidated financial statements. 3 PIONEER POWER SOLUTIONS, INC. Consolidated Statements of Stockholders’ Equity (In thousands, except share amounts) (Unaudited) Shares Amount capital income deficit equity Accumulated Common Stock Additional paid-in other compre- hensive Accumulated Total stockholders’ Shares Amount capital income deficit equity Balance - January 1, 2022 9,640,545 $ 10 $ 31,840 $ 14 $ ( 12,312 ) $ 19,552 Net loss - - - - ( 740 ) ( 740 ) Stock-based compensation - - 57 - - 57 Exercise of stock options 4,000 - 17 - - 17 Balance - March 31, 2022 (revised) 9,644,545 $ 10 $ 31,914 $ 14 $ ( 13,052 ) $ 18,886 Balance 9,644,545 $ 10 $ 31,914 $ 14 $ ( 13,052 ) $ 18,886 Balance - January 1, 2023 9,644,545 $ 10 $ 32,859 $ 14 $ ( 15,950 ) $ 16,933 Balance 9,644,545 $ 10 $ 32,859 $ 14 $ ( 15,950 ) $ 16,933 Net income - - - - 122 122 Net income (loss) 122 122 Stock-based compensation 125,000 - 143 - - 143 Other - - - ( 14 ) - ( 14 ) Balance - March 31, 2023 9,769,545 $ 10 $ 33,002 $ - $ ( 15,828 ) $ 17,184 Balance 9,769,545 $ 10 $ 33,002 $ - $ ( 15,828 ) $ 17,184 The accompanying notes are an integral part of these consolidated financial statements. 4 PIONEER POWER SOLUTIONS, INC. Notes to Consolidated Financial Statements March 31, 2023 (Unaudited) 1. BUSINESS ORGANIZATION, NATURE OF OPERATIONS, RISKS AND UNCERTAINTIES Pioneer Power Solutions, Inc. and its wholly owned subsidiaries (referred to herein as the “Company,” “Pioneer,” “we,” “our” and “us”) design, manufacture, integrate, refurbish, service, distribute and sell electric power systems, distributed energy resources, power generation equipment and mobile electric vehicle (“EV”) charging solutions. Our products and services are sold to a broad range of customers in the utility, industrial and commercial markets. Our customers include, but are not limited to, electric, gas and water utilities, data center developers and owners, EV charging infrastructure developers and owners, and distributed energy developers. The Company is headquartered in Fort Lee, New Jersey and operates from three ( 3 ) additional locations in the U.S. for manufacturing, service and maintenance, engineering, sales and administration. We have two reportable segments as defined in our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the Securities and Exchange Commission (the “SEC”) on April 11, 2023: Transmission and Distribution Solutions (“T&D Solutions”) and Critical Power Solutions (“Critical Power”). Presentation The accompanying unaudited interim consolidated financial statements of the Company have been prepared pursuant to the rules of the SEC and reflect the accounts of the Company as of March 31, 2023. Certain information and footnote disclosures, normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”), have been condensed or omitted pursuant to those rules and regulations. We believe that the disclosures made are adequate to make the information presented not misleading to the reader. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary to fairly state the financial position, results of operations and cash flows with respect to the interim consolidated financial statements have been included. The results of operations for the interim period are not necessarily indicative of the results for the entire fiscal year. The year-end balance sheet data was derived from audited financial statements but does not include all disclosures required by U.S. GAAP for a year-end balance sheet. All dollar amounts (except share and per share data) presented in the notes to our unaudited interim consolidated financial statements are stated in thousands of dollars, unless otherwise noted. Amounts may not foot due to rounding. ASC 740-270 requires the use of an estimated annual effective tax rate to compute the tax provision during an interim period unless certain exceptions are met. We have used a discrete-period computation method to calculate taxes for the fiscal three-month period ended March 31, 2023. The Company anticipates that its annual effective tax rate will be 0 % for the year ending December 31, 2023. As of March 31, 2023, the Company continues to provide a 100 % valuation allowance against its net deferred tax assets since the Company believes it is more likely than not that its deferred tax assets will not be realized. These unaudited interim consolidated financial statements include the accounts of Pioneer and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. These unaudited interim consolidated financial statements should be read in conjunction with the risk factors under the heading “Part II - Item 1A. Risk Factors” and the risk factors and the audited consolidated financial statements and notes thereto of the Company and its subsidiaries included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. Liquidity The accompanying financial statements have been prepared on a basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying financial statements, as of March 31, 2023, the Company had $ 11.6 million of cash on hand and working capital of $ 14.3 million. The cash on hand was generated primarily from the sale of common stock under the ATM Program (as defined below) during the year ended December 31, 2021 and payment of all unpaid principal and interest from the two subordinated promissory notes we received in connection with the sale of the transformer business units in August 2019 for an aggregate principal amount of $ 7.5 million (the “Seller Notes”) during the year ended December 31, 2022. We have met our cash needs through a combination of cash flows from operating activities and bank borrowings, the completion of the Equity Transaction, 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. We expect to meet our cash needs with our working capital and cash flows from our operating activities. We expect our cash requirements to be generally for operating activities, product development and capital improvements. The Company expects that its current cash balance is sufficient to fund operations for the next twelve months. 5 On December 13, 2021, we filed a prospectus supplement, which forms a part of our registration statement on Form S-3 (File No. 333-249569), 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. Risks and Uncertainties The 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 period. 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. The 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. There 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. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Company’s significant accounting policies are described in Note 2 to the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. There have been no significant changes in the Company’s accounting policies during the first quarter of 2023. Recent Accounting Pronouncements The Company did not adopt any new material accounting pronouncements during the three months ended March 31, 2023, except as disclosed below. There have been no recent accounting pronouncements not yet adopted by the Company which would have a material impact on the Company’s financial statements. Accounts Receivable On January 1, 2023, the Company adopted Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments — Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments,” using a modified retrospective approach. The standard amends several aspects of the measurement of credit losses related to certain financial instruments, including the replacement of the existing incurred credit loss model and other models with the current expected credit losses (“CECL”) model. The cumulative effect of adoption did not result in an adjustment to the allowance for credit loss, and accordingly, the Company’s accumulated deficit as of January 1, 2023. The Company accounts for trade receivables at original invoice amount less an estimate made for expected credit losses. The Company’s allowance for expected credit losses on accounts receivable reflects management’s estimate of credit losses over the remaining expected life of such assets, measured primarily using historical experience, as well as current conditions and forecasts that affect the collectability of the reported amount. There were no allowances for expected credit losses as of March 31, 2023 and December 31, 2022. 6 3. REVENUES Nature of our products and services Our principal products and services include electric power systems, distributed energy resources, power generation equipment and mobile EV charging solutions. Products Our T&D Solutions business provides electric power systems and distributed energy resources that help customers effectively and efficiently protect, control, transfer, monitor and manage their electric energy requirements. Our Critical Power business provides customers with our suite of mobile e-Boost electric vehicle charging solutions and power generation equipment. Services Power generation systems represent considerable investments that require proper maintenance and service in order to operate reliably during a time of emergency. Our power maintenance programs provide preventative maintenance, repair and support service for our customers’ power generation systems. Our principal source of revenue is derived from sales of products and fees for services. We measure revenue based upon the consideration specified in the customer arrangement, and revenue is recognized when the performance obligations in the customer arrangement are satisfied. A performance obligation is a promise in a contract to transfer a distinct product or service to the customer. The transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when or as, the customer receives the benefit of the performance obligation. Customers typically receive the benefit of our products when the risk of loss or control for the product transfers to the customer and for services as they are performed. Under ASC 606, revenue is recognized when a customer obtains control of promised products or services in an amount that reflects the consideration we expect to receive in exchange for those products or services. To achieve this core principal, the Company applies the following five steps: 1) Identify the contract with a customer A contract with a customer exists when (i) the Company enters into an enforceable contract with a customer that defines each party’s rights regarding the products or services to be transferred and identifies the payment terms related to these products or services, (ii) the contract has commercial substance and, (iii) the Company determines that collection of substantially all consideration for products or services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration. The Company applies judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors including the customer’s historical payment experience or, in the case of a new customer, published credit and financial information pertaining to the customer. 2) Identify the performance obligations in the contract Performance obligations promised in a contract are identified based on the products or services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the product or service either on its own or together with other resources that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby the transfer of the products or services is separately identifiable from other promises in the contract. To the extent a contract includes multiple promised products or services, the Company must apply judgment to determine whether promised products or services are capable of being distinct and distinct in the context of the contract. If these criteria are not met the promised products or services are accounted for as a combined performance obligation. 3) Determine the transaction price The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring products or services to the customer. The customer payments are generally due in 30 days. 7 4) Allocate the transaction price to performance obligations in the contract If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price basis. The Company determines standalone selling price based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligations. 5) Recognize revenue when or as the Company satisfies a performance obligation The Company satisfies performance obligations either over time or at a point in time. Revenue is recognized at the time the related performance obligation is satisfied by transferring a promised product or service to a customer. Revenue from the sale of our electric power systems is recognized either over time or at a point in time and substantially all of our revenue from the sale of power generation equipment is recognized at a point in time. Revenues are recognized at the point in time that the customer obtains control of the good, which is when it has taken title to the products and has assumed the risks and rewards of ownership specified in the purchase order or sales agreement. Certain sales of highly customized electrical power systems are recognized over time when such equipment has no alternative use and the Company has an enforceable right to payment for performance completed to date. Revenue for such agreements is recognized under the input method based on either cost or direct labor hours incurred relative to the estimated cost or direct labor hours expected to be consumed to complete the project. Under the cost-to-cost method of revenue recognition, a single estimated profit margin is used to recognize profit for each performance obligation over its period of performance. Recognition of profit on a contract requires estimates of the total cost at completion and transaction price and the measurement of progress towards completion. Due to the nature of many of our contracts, developing the estimated total cost at completion and total transaction price often requires judgment. Factors that must be considered in estimating the cost of the work to be completed include the nature and complexity of the work to be performed, subcontractor performance and the risk and impact of delayed performance. When adjustments in estimated total costs at completion or in estimated total transaction price are determined, the related impact on income is recognized using the cumulative catch-up method, which recognizes in the current period the cumulative effect of such adjustments for all prior periods. Any anticipated losses on these contracts are fully recognized in the period in which the losses become evident. During the three months ended March 31, 2023, the Company recognized $ 2.0 million of revenue over time and incurred costs of $ 1.4 million. During the three months ended March 31, 2022, the Company recognized $ 326 of revenue over time and incurred costs of $ 278 . Additionally, the Company recognized $ 2.7 million and $ 4.5 million of revenue at a point in time from the sale of our products during the three months ended March 31, 2023 and 2022, respectively. Service revenues include maintenance contracts that are recognized over time based on the contract term and repair services which are recognized as services are delivered. The Company recognized $ 2.1 million and $ 1.5 million of service revenue during the three months ended March 31, 2023 and 2022, respectively. During the three months ended March 31, 2023, the Company recognized approximately $ 2.1 million of revenue that was recognized as deferred revenue at December 31, 2022, as compared to $ 1.9 million of revenue during the three months ended March 31, 2022 that was recognized as deferred revenue at December 31, 2021. There was no revenue recognized during the three months ended March 31, 2023 and 2022 from performance obligations satisfied in prior periods. The Company manages its accounts receivable credit risk by performing credit evaluations and monitoring amounts due from the Company’s customers. The Company had certain customers whose revenue individually represented 10% or more of the Company’s total revenue, or whose accounts receivable balances individually represented 10% or more of the Company’s total accounts receivable. As of March 31, 2023, two customers represented approximately 73 % and 10 % of the Company’s accounts receivable. At December 31, 2022, three customers represented approximately 57 %, 13 % and 11 % of the Company’s accounts receivable. For the three months ended March 31, 2023, two customers represented approximately 48 % and 16 % of the Company’s revenue. For the three months ended March 31, 2022, three customers represented approximately 20 %, 19 % and 12 % of the Company’s revenue. Return of a product requires that the buyer obtain permission in writing from the Company. When the buyer requests authorization to return material for reasons of their own, the buyer will be charged for placing the returned goods in saleable condition, restocking charges and for any outgoing and incoming transportation paid by the Company. The Company warrants title to the products, and also warrants the products on date of shipment to the buyer, to be of the kind and quality described in the contract, merchantable, and free of defects in workmanship and material. Returns and warranties during three months ended March 31, 2023 and 2022 were insignificant. The following table presents our revenues disaggregated by revenue discipline: SCHEDULE OF REVENUE DISAGGREGATED 2023 2022 Three Months Ended March 31, 2023 2022 Products $ 6,445 $ 4,828 Services 2,062 1,534 Total revenue $ 8,507 $ 6,362 See “Note 12 - Business Segment and Geographic Information”. 8 4. REVISION OF PRIOR PERIOD FINANCIAL STATEMENTS In connection with the preparation of our consolidated interim financial statements for the quarter ended September 30, 2022, we completed an analysis of one of our customer contracts under ASC 606 and, as a result, we determined that the performance obligations are satisfied over time. See “Note 3 – Revenues in Notes to Consolidated Financial Statements” in Part I of this Quarterly Report on Form 10-Q. As a result of the analysis, we identified additional revenues to be recognized of $ 326 related to the three months ended March 31, 2022 along with the additional related cost of revenues of $ 278 . The following tables reconcile the balances as previously reported in the Quarterly Reports on Form 10-Q as of and for the three months ended March 31, 2022 to the as revised balances: SCHEDULE OF PRIOR PERIOD FINANCIAL STATEMENTS Condensed Consolidated Statements of Operations (Unaudited) As Reported Adjustment As Revised For The Three Months Ended March 31, 2022 Condensed Consolidated Statements of Operations (Unaudited) As Reported Adjustment As Revised Revenues $ 6,036 $ 326 $ 6,362 Cost of goods sold $ 5,161 $ 278 $ 5,439 Gross profit $ 875 $ 48 $ 923 Net loss $ ( 788 ) $ 48 $ ( 740 ) Loss per share - basic and diluted $ ( 0.08 ) - $ ( 0.08 ) Weighted average common shares outstanding - basic and diluted 9,641 - 9,641 Condensed Consolidated Balance Sheet (Unaudited) As Reported Adjustment As Revised March 31, 2022 Condensed Consolidated Balance Sheet (Unaudited) As Reported Adjustment As Revised Total current assets $ 32,162 $ ( 278 ) $ 31,884 Total assets 34,983 ( 278 ) 34,705 Total current liabilities 14,719 ( 326 ) 14,393 Total liabilities 16,145 ( 326 ) 15,819 Total stockholders’ equity 18,838 48 18,886 Cash Flows From Operating Activities (Unaudited) As Reported Adjustment As Revised For The Three Months Ended March 31, 2022 Cash Flows From Operating Activities (Unaudited) As Reported Adjustment As Revised Net loss $ ( 788 ) $ 48 $ ( 740 ) Changes in current operating assets and liabilities: Inventories ( 2,805 ) 278 ( 2,527 ) Deferred revenue 4,895 ( 326 ) 4,569 Net cash provided by operating activities 2,087 - 2,087 Consolidated Statement of Stockholders’ Equity (Unaudited) As Reported Adjustment As Revised For The Three Months Ended March 31, 2022 Consolidated Statement of Stockholders’ Equity (Unaudited) As Reported Adjustment As Revised Accumulated deficit $ ( 13,100 ) $ 48 $ ( 13,052 ) Total stockholders’ equity 18,838 48 18,886 In accordance with SEC Staff Accounting Bulletin No. 108, we evaluated this revision based on an analysis of quantitative and qualitative factors as to whether it was material to the consolidated statements of operations for the three months ended March 31, 2022 and if amendments of previously filed financial statements with the SEC are required. We determined that the adjustment is neither quantitatively nor qualitatively material and, therefore, the revision does not have a material impact to the consolidated statements of operations for the three months ended March 31, 2022 or other prior periods. 9 5. OTHER (INCOME) EXPENSE Other (income) expense in the unaudited interim consolidated statements of operations reports certain gains and losses associated with activities not directly related to our core operations. For the three months ended March 31, 2023, other income was $ 13 , as compared to other expense of $ 11 during the three months ended March 31, 2022. 6. INVENTORIES The components of inventories are summarized below: SCHEDULE OF INVENTORIES March 31, December 31, 2023 2022 Raw materials $ 4,412 $ 2,962 Work in process 5,177 5,786 Total inventories $ 9,589 $ 8,748 Inventories are stated at the lower of cost or a net realizable value determined on a weighted average method. 7. PROPERTY AND EQUIPMENT, NET Property and equipment are summarized below: SCHEDULE OF PROPERTY AND EQUIPMENT March 31, December 31, 2023 2022 Machinery, vehicles and equipment $ 2,737 $ 2,308 Furniture and fixtures 208 208 Computer hardware and software 591 591 Leasehold improvements 367 368 Construction in progress 264 499 Property and equipment gross 4,167 3,974 Less: accumulated depreciation ( 2,304 ) ( 2,174 ) Total property and equipment, net $ 1,863 $ 1,800 Depreciation expense was $ 130 and $ 36 for the periods ended March 31, 2023 and 2022, respectively. 8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES The components of accounts payable and accrued liabilities are summarized below: SCHEDULE OF ACCOUNTS PAYABLE AND ACCRUED LIABILITIES March 31, December 31, 2023 2022 Accounts payable $ 4,894 $ 5,615 Accrued liabilities 1,591 1,624 Total accounts payable and accrued liabilities $ 6,485 $ 7,239 Accrued liabilities primarily consist of accrued sales commissions, accrued compensation and benefits, accrued sales and use taxes and accrued insurance. At March 31, 2023 and December 31, 2022, accrued sales commissions were $ 265 and $ 278 , respectively. Accrued compensation and benefits at March 31, 2023 and December 31, 2022 were $ 268 and $ 213 , respectively. Accrued sales and use taxes at March 31, 2023 and December 31, 2022 were $ 341 and $ 258 , respectively, and there was $ 338 of accrued insurance at March 31, 2023 as compared to $ 559 at December 31, 2022. The remainder of accrued liabilities are comprised of several insignificant accruals in connection with normal business operations. At March 31, 2023, one supplier represented approximately 15 % of the Company’s accounts payable. At December 31, 2022, none of the Company’s suppliers represented more than 10 % of the Company’s accounts payable. 10 9. STOCKHOLDERS’ EQUITY Common Stock The Company had 9,769,545 and 9,644,545 shares of common stock, $ 0.001 par value per share, outstanding as of March 31, 2023 and December 31, 2022, respectively. Preferred Stock The board of directors is authorized, subject to any limitations prescribed by law, without further vote or action by the shareholders, to issue from time to time up to 5,000,000 shares of preferred stock, $ 0.001 par value, in one or more series. Each such series of preferred stock shall have such number of shares, designations, preferences, voting powers, qualifications, and special or relative rights or privileges as shall be determined by the board of directors, which may include, among others, dividend rights, voting rights, liquidation preferences, conversion rights and preemptive rights. 10. STOCK-BASED COMPENSATION Stock-based compensation expense recorded for the three months ended March 31, 2023 and 2022 was approximately $ 143 and $ 57 , respectively. All of the stock-based compensation expense is included in selling, general and administrative expenses in the accompanying interim consolidated statements of operations. At March 31, 2023, there was $ 592 of stock-based compensation expense remaining to be recognized in the consolidated statements of operations over a weighted average remaining period of 1.1 years. 11. BASIC AND DILUTED INCOME (LOSS) PER COMMON SHARE Basic and diluted income (loss) per common share is calculated based on the weighted average number of vested shares outstanding during the period. The Company’s employee and director equity awards, as well as incremental shares issuable upon exercise of warrants, are not considered in the calculations if the effect would be anti-dilutive. The following table sets forth the computation of basic and diluted income (loss) per share (in thousands, except per share data): SCHEDULE OF BASIC AND DILUTED INCOME (LOSS) PER COMMON SHARE 2023 2022 Three Months Ended March 31, 2023 2022 (Revised) Numerator: Net income (loss) $ 122 $ ( 740 ) Denominator: Weighted average basic shares outstanding 9,769,545 9,640,545 Effect of dilutive securities - equity based compensation plans 20 - Weighted average diluted shares outstanding 9,769,565 9,640,545 Net income (loss) per common share: Basic $ 0.01 $ ( 0.08 ) Diluted $ 0.01 $ ( 0.08 ) As of March 31, 2023 and 2022, diluted income (loss) per share excludes potentially dilutive common shares related to 585,667 and 643,667 shares underlying stock options, respectively, and 250,000 and 0 shares underlying nonvested RSUs, respectively, as their effect was anti-dilutive. 11 12. BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION The Company follows ASC 280 - Segment Reporting in determining its reportable segments. The Company considered the way its management team, most notably its chief operating decision maker, makes operating decisions and assesses performance and considered which components of the Company’s enterprise have discrete financial information available. As the Company makes decisions using a manufactured products vs. distributed products and services group focus, its analysis resulted in two reportable segments: T&D Solutions and Critical Power. The Critical Power reportable segment is the Company’s Titan Energy Systems, Inc. business unit. The T&D Solutions reportable segment is the Company’s Pioneer Custom Electrical Products Corp. business unit. The T&D Solutions segment is involved in the design, manufacture and sale of circuit protection and controls equipment used primarily by large industrial and commercial operations to manage their electrical power distribution needs. The Critical Power segment provides mobile high capacity charging equipment, power generation equipment and aftermarket field-services in order to help customers secure fast vehicle charging where fixed charging infrastructure does not exist, and additionally to ensure smooth, uninterrupted power to operations during times of emergency. The following tables present information about segment income and loss: SCHEDULE OF SEGMENT INCOME AND LOSS 2023 2022 Three Months Ended March 31, 2023 2022 (Revised) Revenues T&D Solutions Power Systems $ 5,761 $ 3,713 Service - 10 Total Revenue 5,761 3,723 Critical Power Solutions Equipment 684 1,115 Service 2,062 1,524 Total Revenue 2,746 2,639 Consolidated $ 8,507 $ 6,362 2023 2022 Three Months Ended March 31, 2023 2022 (Revised) Depreciation and amortization T&D Solutions $ 15 $ 10 Critical Power Solutions 186 70 Unallocated corporate overhead expenses 2 7 Consolidated $ 203 $ 87 2023 2022 Three Months Ended March 31, 2023 2022 (Revised) Operating income (loss) T&D Solutions $ 1,242 $ 90 Critical Power Solutions ( 437 ) ( 155 ) Unallocated corporate overhead expenses ( 750 ) ( 758 ) Consolidated $ 55 $ ( 823 ) Revenues are attributable to countries based on the location of the Company’s customers: SCHEDULE OF REVENUES ARE ATTRIBUTABLE TO COUNTRIES BASED ON THE LOCATION Three Months Ended March 31, 2023 2022 (Revised) Revenues United States $ 8,507 $ 6,362 12 13. LEASES The Company leases certain offices, facilities and equipment under operating and financing leases. Our leases have remaining terms ranging from less than 1 year to 5 years some of which contain options to extend up to 5 years. As of March 31, 2023 and December 31, 2022, assets recorded under financing leases were $ 1.2 million and $ 1.3 million, respectively, and accumulated amortization associated with financing leases were $ 564 and $ 534 , respectively. As of March 31, 2023 and December 31, 2022, assets recorded under operating leases were $ 2.2 million and $ 2.2 million, respectively, and accumulated amortization associated with operating leases were $ 967 and $ 798 , respectively. The Company did not execute any new lease agreements during the three months ended March 31, 2023. Components of the lease expense: SCHEDULE OF COMPONENTS OF LEASE EXPENSES 2023 2022 Three Months Ended March 31, 2023 2022 Operating lease cost $ 190 $ 188 Financing lease cost Amortization of right-of-use asset $ 73 $ 51 Interest on lease liabilities 13 10 Total financing lease cost $ 86 $ 61 SCHEDULE OF OTHER INFORMATION RELATED TO LEASES Supplemental cash flows information: 2023 2022 Three Months Ended March 31, 2023 2022 Cash paid for amounts included in the measurement of lease liabilities Operating cash flow payments for operating leases $ 192 $ 186 Operating cash flow payments for financing leases 13 10 Financing cash flow payments for financing leases 71 48 Right-of-use assets obtained in exchange for lease obligations Operating lease liabilities arising from obtaining right of use assets - 165 Financing lease obligations - ( 9 ) Weighted average remaining lease term: March 31, 2023 2022 Operating leases 2 years 3 years Financing leases 3 years 2 years Weighted average discount rate: March 31, 2023 2022 Operating leases 5.50 % 5.50 % Financing leases 5.22 % 6.65 % Future minimum lease payments under non-cancellable leases as of March 31, 2023 were as follows: SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS UNDER NON-CANCELLABLE LEASES Operating Financing Leases Leases 2023 $ 582 $ 313 2024 613 166 2025 200 174 2026 24 88 Thereafter - 41 Total future minimum lease payments 1,419 782 Less imputed interest ( 89 ) ( 80 ) Total future minimum lease payments $ 1,330 $ 702 13