PIONEER POWER SOLUTIONS, INC. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying consolidated interim financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and with our Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the Securities and Exchange Commission on April 11, 2023. Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to the “Company,” “Pioneer,” “we,” “our” and “us” refer to Pioneer Power Solutions, Inc. and its subsidiaries. U.S. dollars are reported in thousands except for share and per share amounts . Special Note Regarding Forward-Looking Statements This Quarterly Report on Form 10-Q contains “forward-looking statements,” which include information relating to future events, future financial performance, financial projections, strategies, expectations, competitive environment and regulation. Words such as “may,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates,” and similar expressions, as well as statements in future tense, identify forward-looking statements. Forward-looking statements should not be read as a guarantee of future performance or results and may not be accurate indications of when such performance or results will be achieved. Forward-looking statements are based on information we have when those statements are made or management’s good faith belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause such differences include, but are not limited to: ● General economic conditions and their effect on demand for electrical equipment, particularly in the commercial construction market, but also in the power generation, industrial production, data center, oil and gas, marine and infrastructure industries. ● The effects of fluctuations in sales on our business, revenues, expenses, net income (loss), income (loss) per share, margins and profitability. ● Many of our competitors are better established and have significantly greater resources and may subsidize their competitive offerings with other products and services, which may make it difficult for us to attract and retain customers. ● The potential loss or departure of key personnel, including Nathan J. Mazurek, our chairman, president and chief executive officer. ● Our ability to generate internal growth, maintain market acceptance of our existing products and gain acceptance for our new products. ● Unanticipated increases in raw material prices or disruptions in supply could increase production costs and adversely affect our profitability. ● Our ability to realize revenue reported in our backlog. ● Operating margin risk due to competitive pricing and operating efficiencies, supply chain risk, material, labor or overhead cost increases, interest rate risk and commodity risk. ● Strikes or labor disputes with our employees may adversely affect our ability to conduct our business. ● The impact of geopolitical activity on the economy, changes in government regulations such as income taxes, climate control initiatives, the timing or strength of an economic recovery in our markets and our ability to access capital markets. ● Material weaknesses in internal controls. ● Future sales of large blocks of our common stock may adversely impact our stock price. ● The liquidity and trading volume of our common stock. ● Our business could be adversely affected by an outbreak of disease, epidemic or pandemic, such as the global coronavirus pandemic, or similar public threat, or fear of such an event. ● Risks associated with litigation and claims, which could impact our financial results and condition. 15 The foregoing does not represent an exhaustive list of matters that may be covered by the forward-looking statements contained herein or risk factors that we are faced with that may cause our actual results to differ from those anticipated in our forward-looking statements. Moreover, new risks regularly emerge, and it is not possible for us to predict or articulate all risks we face, nor can we assess the impact of all risks on our business or the extent to which any risk, or combination of risks, may cause actual results to differ from those contained in any forward-looking statements. Except to the extent required by applicable laws or rules, we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. You should review carefully the risks and uncertainties described under the heading “Part II - Item 1A. Risk Factors” in this Quarterly Report on Form 10-Q and “Part I - Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022 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. We are headquartered in Fort Lee, New Jersey and operate from three (3) additional locations in the U.S. for manufacturing, service and maintenance, engineering, and sales and administration. Description of Business Segments We have two reportable segments: Transmission & Distribution Solutions (“T&D Solutions”) and Critical Power Solutions (“Critical Power”). ● Our T&D Solutions business provides equipment solutions that help customers effectively and efficiently protect, control, transfer, monitor and manage their electric energy requirements. These solutions are marketed principally through our Pioneer Custom Electrical Products Corp. (“PCEP”) brand name. ● Our Critical Power business provides customers with our suite of mobile e-Boost© EV charging solutions, power generation equipment and all forms of service and maintenance on our customers’ power generation equipment. These products and services are marketed by our operations headquartered in Minnesota, currently doing business under both the Titan Energy Systems Inc. (“Titan”) and Pioneer Critical Power brand names. Critical Accounting Policies and Estimates Our financial statements have been prepared in accordance with U.S. GAAP. The preparation of our financial statements requires us to make estimates and assumptions that affect the amounts and disclosures in the financial statements. Our estimates are based on our historical experience, knowledge of current events and actions we may undertake in the future, and on various other factors that we believe are reasonable under the circumstances. Our critical accounting policies and estimates are described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies” in our Annual Report on Form 10-K filed with the SEC on April 11, 2023. There were no material changes to our accounting policies during the six months ended June 30, 2023. 16 RESULTS OF OPERATIONS Overview of the Three and Six Months Results Selected financial and operating data for our reportable business segments for the most recent reporting period is summarized below. This information, as well as the selected financial data provided in “Note 10 - Business Segment and Geographic Information” and in our unaudited Consolidated Financial Statements and related notes included in this Quarterly Report on Form 10-Q, should be referred to when reading our discussion and analysis of results of operations below. Our summary of operating results during the three and six months ended June 30, 2023 and 2022 are as follows: Three Months Ended Six Months Ended June 30, June 30, 2023 2022 (Revised) 2023 2022 (Revised) Revenues T&D Solutions $ 9,224 $ 2,543 $ 14,985 $ 6,266 Critical Power Solutions 2,906 2,320 5,653 4,959 Consolidated 12,130 4,863 20,638 11,225 Cost of goods sold T&D Solutions 6,999 2,722 11,238 6,021 Critical Power Solutions 2,420 2,078 4,476 4,218 Consolidated 9,419 4,800 15,714 10,239 Gross profit 2,711 63 4,924 986 Selling, general and administrative expenses 3,059 2,557 5,090 4,277 Depreciation and amortization expense 30 28 156 54 Total operating expenses 3,089 2,585 5,246 4,331 Operating loss from continuing operations (378 ) (2,522 ) (322 ) (3,345 ) Interest income (79 ) (104 ) (132 ) (206 ) Other expense 20 117 7 129 Loss before income taxes (319 ) (2,535 ) (197 ) (3,268 ) Income tax expense - - - 7 Net loss $ (319 ) $ (2,535 ) $ (197 ) $ (3,275 ) Backlog Our backlog is based on firm orders from our customers expected to be delivered in the future, most of which is expected to occur during the next twelve months. Backlog may vary significantly from reporting period to reporting period due to the timing of customer commitments. Backlog reflects the amount of revenue we expect to realize upon the shipment of customer orders for our products that are not yet complete or for which work has not yet begun. At June 30, 2023, backlog from our E-Bloc power systems solutions was approximately $15,300, or 46% 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: June 30, 2023 March 31, 2023 December 31, 2022 September 30, 2022 June 30, 2022 (Revised) T&D Solutions $ 26,425 $ 29,198 $ 30,871 $ 22,689 $ 19,118 Critical Power Solutions 7,146 7,845 6,284 5,207 5,141 Total order backlog $ 33,571 $ 37,043 $ 37,155 $ 27,896 $ 24,259 17 Revenue The following table represents our revenues by reporting segment and major product category for the periods indicated (in thousands, except percentages): Three Months Ended June 30, Six Months Ended June 30, 2023 2022 (Revised) Variance % 2023 2022 (Revised) Variance % T&D Solutions Power Systems $ 9,224 $ 2,543 $ 6,681 262.7 $ 14,985 $ 6,256 $ 8,729 139.5 Service - - - - - 10 (10 ) (100.0 ) 9,224 2,543 6,681 262.7 14,985 6,266 8,719 139.1 Critical Power Solutions Equipment 1,016 463 553 119.4 1,701 1,578 123 7.8 Service 1,890 1,857 33 1.8 3,952 3,381 571 16.9 2,906 2,320 586 25.2 5,653 4,959 694 14.0 Total revenue $ 12,130 $ 4,863 $ 7,267 149.4 $ 20,638 $ 11,225 $ 9,413 83.9 For the three months ended June 30, 2023, our consolidated revenue increased by $7,267, or 149.4%, to $12,130, up from $4,863 during the three months ended June 30, 2022, primarily due to an increase in sales of our power systems from our T&D Solutions segment and an increase in sales of our equipment from our Critical Power Solutions segment. For the six months ended June 30, 2023, our consolidated revenue increased by $9,413, or 83.9%, to $20,638, up from $11,225 during the three months ended June 30, 2022, primarily due to an increase in sales of our power systems from our T&D Solutions segment and an increase in service sales from our Critical Power Solutions segment. T&D Solutions . During the three months ended June 30, 2023, revenue from our power systems product lines increased by $6,681, or 262.7%, as compared to the three months ended June 30, 2022, primarily due to increased sales of our E-Bloc power systems and automatic transfer switches, in addition to an increase in sales of our medium and low voltage power systems. During the six months ended June 30, 2023, revenue from our power systems product lines increased by $8,719, or 139.1%, as compared to the six months ended June 30, 2022, primarily due to increased sales of our E-Bloc power systems and automatic transfer switches, in addition to an increase in sales of our medium and low voltage power systems. Critical Power . For the three months ended June 30, 2023, revenue for our Critical Power segment increased by $586, or 25.2%, as compared to the three months ended June 30, 2022, primarily due to an increase in sales of our new and refurbished generation equipment. For the six months ended June 30, 2023, revenue for our Critical Power segment increased by $694, or 14.0%, as compared to the six months ended June 30, 2022, primarily due to an increase in sales of our new and refurbished generation equipment and the cyclicality of our preventative maintenance schedules. 18 Gross Profit (Loss) and Margin The following table represents our gross profit by reporting segment for the periods indicated (in thousands, except percentages): Three Months Ended Six Months Ended June 30, June 30, 2023 2022 (Revised) Variance % 2023 2022 (Revised) Variance % T&D Solutions Gross profit (loss) $ 2,225 $ (179 ) $ 2,404 (1,343.0 ) $ 3,747 $ 245 $ 3,502 1,429.4 Gross margin % 24.1 (7.0 ) 31.1 25.0 3.9 21.1 Critical Power Solutions Gross profit 486 242 244 100.8 1,177 741 436 58.8 Gross margin % 16.7 10.4 6.3 20.8 14.9 5.9 Consolidated gross profit $ 2,711 $ 63 $ 2,648 4,203.2 $ 4,924 $ 986 $ 3,938 399.4 Consolidated gross margin % 22.3 1.3 21.0 23.9 8.8 15.1 For the three months ended June 30, 2023, our consolidated gross margin increased to 22.3% of revenues, as compared to 1.3% during the three months ended June 30, 2022. For the six months ended June 30, 2023, our consolidated gross margin increased to 23.9% of revenues, as compared to 8.8% during the three months ended June 30, 2022. T&D Solutions. For the three months ended June 30, 2023, our gross margin percentage increased by 31.1%, from (7.0)% to 24.1%, as compared to the three months ended June 30, 2022. The increase was primarily due to the significant increase in sales our E-Bloc solution and medium and low voltage power systems, a favorable sales mix and improved productivity from our manufacturing facility. For the six months ended June 30, 2023, our gross margin percentage increased by 21.1%, from 3.9% to 25.0%, as compared to the six months ended June 30, 2022. The increase was also primarily due to the significant increase in sales our E-Bloc solution and medium and low voltage power systems, a favorable sales mix and improved productivity from our manufacturing facility. Critical Power Solutions . For the three months ended June 30, 2023, our gross margin increased by 6.3%, to 16.7%, from 10.4% for the three months ended June 30, 2022. The increase was predominately due to a favorable sales mix and the acceptance of price increases from our customers. For the six months ended June 30, 2023, our gross margin increased by 5.9%, to 20.8%, from 14.9% for the six months ended June 30, 2022. The increase was also predominately due to a favorable sales mix and the acceptance of price increases from our customers. 19 Operating Expenses The following table represents our operating expenses by reportable segment for the periods indicated (in thousands, except percentages): Three Months Ended Six Months Ended June 30, June 30, 2023 2022 (Revised) Variance % 2023 2022 (Revised) Variance % T&D Solutions Selling, general and administrative expense $ 408 $ 261 $ 147 56.3 $ 680 $ 595 $ 85 14.3 Depreciation and amortization expense 9 2 7 350.0 17 3 14 466.7 Segment operating expense $ 417 $ 263 $ 154 58.6 $ 697 $ 598 $ 99 16.6 Critical Power Solutions Selling, general and administrative expense $ 973 $ 980 $ (7 ) (0.7 ) $ 1,985 $ 1,615 $ 370 22.9 Depreciation and amortization expense 19 19 - - 135 37 98 264.9 Segment operating expense $ 992 $ 999 $ (7 ) (0.7 ) $ 2,120 $ 1,652 $ 468 28.3 Unallocated Corporate Overhead Expenses Selling, general and administrative expense $ 1,678 $ 1,316 $ 362 27.5 $ 2,425 $ 2,067 $ 358 17.3 Depreciation and amortization expense 2 7 (5 ) (71.4 ) 4 14 (10 ) (71.4 ) Segment operating expense $ 1,680 $ 1,323 $ 357 27.0 $ 2,429 $ 2,081 $ 348 16.7 Consolidated Selling, general and administrative expense $ 3,059 $ 2,557 $ 502 19.6 $ 5,090 $ 4,277 $ 813 19.0 Depreciation and amortization expense 30 28 2 7.1 156 54 102 188.9 Consolidated operating expense $ 3,089 $ 2,585 $ 504 19.5 $ 5,246 $ 4,331 $ 915 21.1 Selling, General and Administrative Expense . For the three months ended June 30, 2023, consolidated selling, general and administrative expense, before depreciation and amortization, increased by approximately $502, or 19.6%, to $3,059, due to an increase in payroll related costs, including stock-based compensation, professional fees and product development costs related to our e-Boost initiative, as compared to $2,557 during the three months ended June 30, 2022. As a percentage of our consolidated revenue, selling, general and administrative expense, before depreciation and amortization, decreased to 25.2% during the three months ended June 30, 2023, as compared to 52.6% in the three months ended June 30, 2022. For the six months ended June 30, 2023, consolidated selling, general and administrative expense, before depreciation and amortization, increased by approximately $813, or 19.0%, to $5,090, due to an increase in payroll related costs, including stock-based compensation, professional fees and product development costs related to our e-Boost initiative, as compared to $4,277 during the six months ended June 30, 2022. As a percentage of our consolidated revenue, selling, general and administrative expense, before depreciation and amortization, decreased to 24.7% during the six months ended June 30, 2023, as compared to 38.1% during the six months ended June 30, 2022. 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 June 30, 2023, consolidated depreciation and amortization expense increased by $2, or 7.1%, as compared to the three months ended June 30, 2022. For the six months ended June 30, 2023, consolidated depreciation and amortization expense increased by $102, or 188.9%, as compared to the six months ended June 30, 2022, primarily due to an increase in depreciation as a result of placing certain e-Boost assets into service. 20 Loss From Operations The following table represents our operating income (loss) by reportable segment for the periods indicated (in thousands, except percentages): Three Months Ended Six Months Ended June 30, June 30, 2023 2022 (Revised) Variance % 2023 2022 (Revised) Variance % T&D Solutions $ 1,808 $ (442 ) $ 2,250 509.0 $ 3,050 $ (353 ) $ 3,403 964.0 Critical Power Solutions (506 ) (757 ) 251 33.2 (943 ) (911 ) (32 ) (3.5 ) Unallocated corporate overhead expenses (1,680 ) (1,323 ) (357 ) (27.0 ) (2,429 ) (2,081 ) (348 ) (16.7 ) Loss from operations $ (378 ) $ (2,522 ) $ 2,144 (85.0 ) $ (322 ) $ (3,345 ) $ 3,023 90.4 T&D Solutions . Operating income from our T&D Solutions segment increased by $2,250, or 509.0%, during the three months ended June 30, 2023, as compared to the three months ended June 30, 2022, primarily due to the significant increase in sales our E-Bloc solution and medium and low voltage power systems, a favorable sales mix and improved productivity from our manufacturing facility during the three months ended June 30, 2023. Operating income from our T&D Solutions segment increased by $3,403, or 964.0%, during the six months ended June 30, 2023, as compared to the six months ended June 30, 2022, primarily due an increase in sales of our power systems equipment, a favorable sales mix and improved productivity from our manufacturing facility the six months ended June 30, 2023. Critical Power Solutions . Operating loss for the Critical Power segment decreased by $251, or 33.2% during the three months ended June 30, 2023, primarily due to a favorable sales mix and the acceptance of price increases from our customers during the three months ended June 30, 2023. Operating loss for the Critical Power segment increased by $32, or 3.5% during the six months ended June 30, 2023, as compared to the six months ended June 30, 2022, primarily due to an increase in payroll related costs in addition to professional fees and depreciation expense related to our e-Boost initiative. General Corporate Expense . Our general corporate expenses consist primarily of executive management, corporate accounting and human resources personnel, corporate office expenses, financing and corporate development activities, payroll and benefits administration, treasury, tax compliance, legal, stock-based compensation, public reporting costs and costs not specifically allocated to reportable business segments. During the three months ended June 30, 2023, our unallocated corporate overhead expense increased by $357, or 27.0%, as compared to the three months ended June 30, 2022, primarily due to an increase in payroll related costs, including stock-based compensation, and professional fees. During the three six ended June 30, 2023, our unallocated corporate overhead expense increased by $348, or 16.7%, as compared to the six months ended June 30, 2022, primarily due to an increase in payroll related costs, including stock-based compensation, and professional fees. 21 Non-Operating (Income) Expense Interest Income . For the three and six months ended June 30, 2023, we had interest income of approximately $79 and $132, respectively, as compared to interest income of approximately $104 and $206, respectively, during the three and six months ended June 30, 2022. We generated the majority of our interest income from our cash on hand. During the six months ended June 30, 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. Other Expense . Other expense in the consolidated statements of operations reports certain gains and losses associated with activities not directly related to our core operations. For the three and six months ended June 30, 2023, other non-operating expense was $20 and $7, respectively, as compared to other non-operating expense of $117 and $129, respectively, during the three and six months ended June 30, 2022. Provision for Income Taxes . Our effective income tax rate for the three months ended June 30, 2023 and 2022 was 0.0%. Our provision reflects an effective tax rate on income before taxes of 0.0% for the six months ended June 30, 2023, as compared to (0.2)% for the six months ended June 30, 2022, as set forth below: Three Months Ended Six Months Ended June 30, June 30, 2023 2022 (Revised) Variance 2023 2022 (Revised) Variance Loss before income taxes $ (319 ) $ (2,535 ) $ 2,216 $ (197 ) $ (3,268 ) $ 3,071 Income tax expense - - - - 7 (7 ) Effective income tax rate % - - - - (0.2 ) 0.2 Net Loss per Share We generated a net loss of $319 during the three months ended June 30, 2023, as compared to a net loss of $2,535 during the three months ended June 30, 2022. Our net loss per basic and diluted share for the three months ended June 30, 2023 was $0.03, as compared to a net loss per basic and diluted share of $0.26 for the three months ended June 30, 2022. We generated a net loss of $197 during the six months ended June 30, 2023, as compared to a net loss of $3,268 during the six months ended June 30, 2022. Our net loss per basic and diluted share for the six months ended June 30, 2023 was $0.02, as compared to a net loss per basic and diluted share of $0.34 for the six months ended June 30, 2022. LIQUIDITY AND CAPITAL RESOURCES General . 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 $25,000 from time to time through Wainwright, acting as sales agent or principal (the “ATM Program”). As of June 30, 2023, we had $9,624 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, 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 Notes. Our cash requirements historically were generally for operating activities, capital improvements and acquisitions. 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 $8,600 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 and six months ended June 30, 2023. As of June 30, 2023, $8,600 of common stock remained available for issuance under the ATM Program. The World Health Organization determined that COVID-19 no longer fit the definition of a public health emergency and the U.S. government announced that the declaration of a public health emergency associated with COVID-19 expired on May 11, 2023. However, COVID-19 has remained and is expected to continue to remain as a serious endemic threat for an indefinite future period and may continue to adversely affect the global economy. The continuing impacts of the COVID-19 endemic, 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. As a result of the current uncertainty in economic activity, the Company is unable to predict the potential size and duration of the impact on its revenue and its results of operations, if any. The extent of the potential impact of these macroeconomic factors on the Company’s operational and financial performance will depend on a variety of factors, including the continuing impacts of the COVID-19 endemic 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 these macroeconomic factors and intends to take steps deemed appropriate to limit the impact on its business. During the six months ended June 30, 2023, the Company was able to operate substantially at capacity. 22 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. Cash Provided by / (Used in) Operating Activities . Cash provided by our operating activities was $366 during the six months ended June 30, 2023, as compared to cash used in operating activities of $1,621 during the six months ended June 30, 2022. The increase in cash provided by operating activities is primarily due to the decrease in our net loss and working capital fluctuations. Cash Used in Investing Activities. Cash used in investing activities during the six months ended June 30, 2023 was $810, as compared to $174 during the six months ended June 30, 2022. Additions to property and equipment during the six months ended June 30, 2023 were $810, as compared to $174 of additions during the six months ended June 30, 2022. Cash Used in Financing Activities. Cash used in our financing activities was $228 during the six months ended June 30, 2023, as compared to $119 during the six months ended June 30, 2022. The primary use of cash in financing activities for the six months ended June 30, 2023 and 2022 was repayments of financing leases. Working Capital . As of June 30, 2023, we had working capital of $14,363, including $9,624 of cash on hand, compared to working capital of $14,074, including $10,296 of cash on hand at December 31, 2022. Assessment of Liquidity . At June 30, 2023, we had $9,624 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, 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, 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, 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. As of June 30, 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. Capital Expenditures The Company had $810 of additions to property and equipment during the six months ended June 30, 2023, as compared to $174 of additions to property and equipment during the six months ended June 30, 2022. Known Trends, Events, Uncertainties and Factors That May Affect Future Operations We believe that our future operating results will continue to be subject to quarterly variations based upon a wide variety of factors, including the cyclical nature of the electrical equipment industry and the markets for our products and services. Our operating results could also be impacted by changing customer requirements and exposure to fluctuations in prices of important raw supplies, such as copper, steel and aluminum. We have various insurance policies, including cybersecurity, covering risks in amounts that we consider adequate. In addition to these measures, we attempt to recover other cost increases through improvements to our manufacturing efficiency and through increases in prices where competitively feasible. Lastly, other economic conditions we cannot foresee may affect customer demand. The continuing impacts of the COVID-19 endemic are currently indeterminable, and has affected and may continue to affect the global economy. In addition, the consequences of the ongoing conflict between Russia and Ukraine, including related sanctions and countermeasures, and the effects of rising global inflation, are difficult to predict, and could adversely impact geopolitical and macroeconomic conditions, the global economy, and contribute to increased market volatility, which may in turn adversely affect our business and operations. We predominately sell to customers in the industrial production and commercial construction markets. Accordingly, changes in the condition of any of our customers may have a greater impact than if our sales were more evenly distributed between different end markets. For a further discussion of factors that may affect future operating results see the sections entitled “Special Note Regarding Forward-Looking Statements” in this Quarterly Report on Form 10-Q and “Part I - Item 1A. Risk Factors” in our Annual Report on Form 10-K. 23 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable.