PIONEER POWER SOLUTIONS, INC. 10-Q

Item 1. FINANCIAL STATEMENTS PIONEER POWER SOLUTIONS, INC. Consolidated Statements of Operations (In thousands, except for share and per share amounts) (Unaudited) 2023 2022 2023 2022 Three Months Ended Nine Months Ended September 30, September 30, 2023 2022 2023 2022 Revenues $ 12,443 $ 6,251 $ 33,080 $ 17,476 Cost of goods sold 8,732 5,390 24,445 15,629 Gross profit 3,711 861 8,635 1,847 Operating expenses Selling, general and administrative 2,758 2,305 8,004 6,636 Total operating expenses 2,758 2,305 8,004 6,636 Income (loss) from operations 953 ( 1,444 ) 631 ( 4,789 ) Interest income ( 60 ) ( 116 ) ( 192 ) ( 322 ) Other (income) expense, net ( 11 ) ( 17 ) ( 4 ) 112 Income (loss) before income taxes 1,024 ( 1,311 ) 827 ( 4,579 ) Income tax expense - - - 7 Net income (loss) $ 1,024 $ ( 1,311 ) $ 827 $ ( 4,586 ) Income (loss) per share: Basic $ 0.10 $ ( 0.13 ) $ 0.08 $ ( 0.47 ) Diluted $ 0.10 $ ( 0.13 ) $ 0.08 $ ( 0.47 ) Weighted average common shares outstanding: Basic 10,010,226 9,769,545 9,896,850 9,713,335 Diluted 10,250,099 9,769,545 10,049,009 9,713,335 The accompanying notes are an integral part of these consolidated financial statements. 1 PIONEER POWER SOLUTIONS, INC. Consolidated Balance Sheets (In thousands, except for share amounts) September 30, December 31, 2023 2022 (Unaudited) ASSETS Current assets Cash $ 7,581 $ 10,296 Accounts receivable, net 8,936 11,139 Inventories 8,280 8,748 Prepaid expenses and other current assets 5,518 2,853 Total current assets 30,315 33,036 Property and equipment, net 3,775 1,800 Operating lease right-of-use assets 936 1,450 Financing lease right-of-use assets 458 727 Deferred financing costs 195 - Other assets 82 162 Total assets $ 35,761 $ 37,175 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Accounts payable and accrued liabilities $ 9,772 $ 7,239 Current portion of operating lease liabilities 704 703 Current portion of financing lease liabilities 157 355 Deferred revenue 5,980 10,665 Total current liabilities 16,613 18,962 Operating lease liabilities, non-current portion 276 797 Financing lease liabilities, non-current portion 320 418 Other long-term liabilities 53 65 Total liabilities 17,262 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; 9,930,022 and 9,644,545 shares issued and outstanding on September 30, 2023 and December 31, 2022, respectively 10 10 Additional paid-in capital 33,612 32,859 Accumulated other comprehensive income - 14 Accumulated deficit ( 15,123 ) ( 15,950 ) Total stockholders’ equity 18,499 16,933 Total liabilities and stockholders’ equity $ 35,761 $ 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 Nine Months Ended September 30, 2023 2022 Operating activities Net income (loss) $ 827 $ ( 4,586 ) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation 370 113 Amortization of right-of-use financing leases 269 177 Amortization of imputed interest - ( 321 ) Amortization of right-of-use operating leases 514 495 Change in receivable reserves 80 ( 140 ) Stock-based compensation 1,246 859 Other ( 15 ) - Changes in current operating assets and liabilities: Accounts receivable 1,805 ( 1,253 ) Inventories 468 ( 4,319 ) Prepaid expenses and other assets ( 2,990 ) 167 Income taxes ( 4 ) 24 Accounts payable and accrued liabilities 2,407 1,141 Deferred revenue ( 4,685 ) 4,198 Operating lease liabilities ( 520 ) ( 491 ) Net cash used in operating activities ( 228 ) ( 3,936 ) Investing activities Purchases of property and equipment ( 2,345 ) ( 391 ) Net cash used in investing activities ( 2,345 ) ( 391 ) Financing activities Net proceeds from the exercise of options for common stock 50 17 Net proceeds from issuance of common stock 177 - Payment of deferred financing costs ( 73 ) - Principal repayments of financing leases ( 296 ) ( 179 ) Net cash used in financing activities ( 142 ) ( 162 ) Decrease in cash ( 2,715 ) ( 4,489 ) Cash, beginning of period 10,296 11,699 Cash, end of period $ 7,581 $ 7,210 Non-cash investing and financing activities: Acquisition of right-of-use assets and lease liabilities $ - $ 551 Deferred financing costs included in accounts payable and accrued liabilities 122 - Surrender and retirement of common stock 720 - The accompanying notes are an integral part of these consolidated financial statements. 3 PIONEER POWER SOLUTIONS, INC. Consolidated Statements of Changes in Stockholders’ Equity (In thousands, except for share amounts) (Unaudited) Shares Amount capital income deficit equity Common Stock Additional paid-in Accumulated other compre-hensive Accumulated Total stockholders’ Shares Amount capital income deficit equity Balance - June 30, 2022 (revised) 9,644,545 $ 10 $ 32,573 $ 14 $ ( 15,587 ) $ 17,010 Net loss - - - - ( 1,311 ) ( 1,311 ) Stock-based compensation - - 143 - - 143 Balance - September 30, 2022 9,644,545 $ 10 $ 32,716 $ 14 $ ( 16,898 ) $ 15,842 Balance - June 30, 2023 9,994,545 $ 10 $ 33,821 $ - $ ( 16,147 ) $ 17,684 Net income - - - - 1,024 1,024 Stock-based compensation 10,000 - 285 - - 285 Exercise of stock options 15,000 - 50 - - 50 Issuance of common stock, net of transaction costs 27,559 - 177 - - 177 Surrender and retirement of common stock ( 117,082 ) - ( 720 ) - - ( 720 ) Balance - September 30, 2023 9,930,022 $ 10 $ 33,612 $ - $ ( 15,123 ) $ 18,499 Common Stock Additional paid-in Accumulated 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 - - - - ( 4,586 ) ( 4,586 ) Stock-based compensation - - 859 - - 859 Exercise of stock options 4,000 - 17 - - 17 Balance - September 30, 2022 9,644,545 $ 10 $ 32,716 $ 14 $ ( 16,898 ) $ 15,842 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 - - - - 827 827 Net income (loss) - - - - 827 827 Stock-based compensation 360,000 - 1,246 - - 1,246 Exercise of stock options 15,000 - 50 - - 50 Issuance of common stock, net of transaction costs 27,559 - 177 - - 177 Surrender and retirement of common stock ( 117,082 ) - ( 720 ) - - ( 720 ) Other - - - ( 14 ) - ( 14 ) Balance - September 30, 2023 9,930,022 $ 10 $ 33,612 $ - $ ( 15,123 ) $ 18,499 Balance 9,930,022 $ 10 $ 33,612 $ - $ ( 15,123 ) $ 18,499 The accompanying notes are an integral part of these consolidated financial statements. 4 PIONEER POWER SOLUTIONS, INC. Notes to Unaudited Consolidated Financial Statements for the Quarterly Period Ended September 30, 2023 (in thousands, except for share and per share amounts) 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 September 30, 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 this filing 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. ASC 740-270 requires the use of an estimated annual effective tax rate to compute the tax provision during an interim period unless certain exceptions are met. We have used a discrete-period computation method to calculate taxes for the fiscal three and nine-month period ended September 30, 2023. The Company anticipates that its annual effective tax rate will be 0 % for the year ending December 31, 2023. As of September 30, 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 September 30, 2023, the Company had $ 7,581 of cash on hand and working capital of $ 13,702 . The cash on hand was generated primarily from the sale of common stock under the ATM Program (as defined below), 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 $ 7,500 (the “Seller Notes”) during the year ended December 31, 2022, and cash flows from operating activities. 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 from time to time through Wainwright, acting as sales agent or principal (the “ATM Program”). Since October 20, 2020, and through September 30, 2023, the Company sold an aggregate of 916,059 shares of common stock for aggregate gross proceeds of approximately $ 9,183 , before any sales agent fees and expenses payable by us under the ATM Program. During the three and nine months ended September 30, 2023, the Company sold an aggregate of 27,559 shares of common stock for an aggregate consideration of approximately $ 184 , before any sales agent fees and expenses payable by us. 5 We have historically 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, sale of common stock under the ATM Program and collecting all unpaid principal and interest from the Seller Notes. Historically, our cash requirements 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. On December 13, 2021, we filed a prospectus supplement to a prospectus which forms a part of our registration statement on Form S-3 (File No. 333-249569) (the “Prior Shelf Registration Statement”), that was declared effective by the SEC on October 27, 2020 (the “Prior ATM Prospectus”), 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. Prior to the expiration of the Prior Shelf Registration Statement at the end of its three-year term, we sold an aggregate of 27,559 shares of common stock for an aggregate consideration of approximately $ 184 , before any sales agent fees and expenses payable by us, under the Prior ATM Prospectus. On August 30, 2023, we filed a new registration statement on Form S-3 (File No. 333-274266) to replace the Prior Shelf Registration Statement, including a base prospectus which covers the offering, issuance and sale of up to $ 150,000 of common stock, preferred stock, warrants and/or units; and a sales agreement prospectus covering the offering, issuance and sale of up to a maximum aggregate offering price of $ 75,000 of common stock that may be issued and sold under the ATM Program (the “New ATM Prospectus”). The new registration statement was declared effective by the SEC on September 8, 2023. As of September 30, 2023, $ 75,000 of common stock remained available for issuance under the New ATM Prospectus. Risks and Uncertainties 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, such as the ongoing conflict between Russia and Ukraine, and the ongoing conflict between Israel and Hamas, 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 nine months ended September 30, 2023, the Company was able to operate substantially at capacity. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES There have been no material changes to the significant accounting policies included 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, except as disclosed in this note. Recent Accounting Pronouncements There have been no recent accounting pronouncements not yet adopted by the Company which would have a material impact on the Company’s financial statements. Accounting Standards Update (“ASU”) 2023-03, “Presentation of Financial Statements (Topic 205), Income Statement - Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation - Stock Compensation (Topic 718): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 120, SEC Staff Announcement at the March 24, 2022 Emerging Issues Task Force (“EITF”) Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280 - General Revision of Regulation S-X: Income or Loss Applicable to Common Stock.” ASU 2023-03 amends the ASC for SEC updates pursuant to SEC Staff Accounting Bulletin No. 120; SEC Staff Announcement at the March 24, 2022 EITF Meeting; and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280 - General Revision of Regulation S-X: Income or Loss Applicable to Common Stock. These updates were immediately effective and did not have a significant impact on our financial statements. 6 Accounts Receivable On January 1, 2023, the Company adopted 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 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 September 30, 2023 and December 31, 2022. Deferred Financing Costs Certain legal, accounting and other third-party fees that are directly associated with equity financings are capitalized as deferred financing costs and included as a non-current asset on the balance sheet until such financings are consummated. After consummation of the equity financing, these costs will be recorded in the stockholders’ equity section of the consolidated balance sheets as a reduction of additional paid-in capital generated as a result of the offering, to the extent there are sufficient proceeds. Should the equity financing no longer be considered probable of being consummated, all deferred financing costs would be charged to operating expenses in the consolidated statements of operations. 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. During the three months ended September 30, 2023, the Company recognized $ 8,919 of revenue over time and incurred costs of $ 6,408 . During the three months ended September 30, 2022, the Company recognized $ 2,410 of revenue over time and incurred costs of $ 2,100 . Additionally, the Company recognized $ 1,461 and $ 1,788 of revenue at a point in time from the sale of our products during the three months ended September 30, 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 $ 2,063 and $ 2,053 of service revenue during the three months ended September 30, 2023 and 2022, respectively. During the nine months ended September 30, 2023, the Company recognized $ 18,963 of revenue over time and incurred costs of $ 13,195 . During the nine months ended September 30, 2022, the Company recognized $ 3,309 of revenue over time and incurred costs of $ 2,881 . Additionally, the Company recognized $ 8,103 and $ 8,723 of revenue at a point in time from the sale of our products during the nine months ended September 30, 2023 and 2022, respectively. 7 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 $ 6,014 and $ 5,444 of service revenue during the nine months ended September 30, 2023 and 2022, respectively. During the three months ended September 30, 2023, the Company recognized approximately $ 2,569 of revenue that was classified as deferred revenue as of December 31, 2022, as compared to $ 81 of revenue recognized during the three months ended September 30, 2022 that was classified as deferred revenue at December 31, 2021. During the nine months ended September 30, 2023, the Company recognized approximately $ 8,336 of revenue that was recognized as deferred revenue at December 31, 2022, as compared to $ 2,137 of revenue during the nine months ended September 30, 2022 that was recognized as deferred revenue at December 31, 2021. 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 September 30, 2023, three customers represented approximately 36 %, 16 % and 14 % 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 September 30, 2023, two customers represented approximately 54 % and 17 % of the Company’s revenue. For the three months ended September 30, 2022, one customer represented approximately 54 % of the Company’s revenue. For the nine months ended September 30, 2023, two customers represented approximately 42 % and 22 % of the Company’s revenue. For the nine months ended September 30, 2022, two customers represented approximately 31 % 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 the three and nine months ended September 30, 2023 and 2022 were insignificant. The following table presents our revenues disaggregated by revenue discipline: SCHEDULE OF REVENUE DISAGGREGATED 2023 2022 2023 2022 Three Months Ended Nine Months Ended September 30, September 30, 2023 2022 2023 2022 Products $ 10,380 $ 4,198 $ 27,066 $ 12,032 Services 2,063 2,053 6,014 5,444 Total revenue $ 12,443 $ 6,251 $ 33,080 $ 17,476 See “Note 9 - Business Segment and Geographic Information”. 4. INVENTORIES The components of inventories are summarized below: SCHEDULE OF INVENTORIES September 30, December 31, 2023 2022 Raw materials $ 6,808 $ 2,962 Work in process 1,472 5,786 Total inventories $ 8,280 $ 8,748 Inventories are stated at the lower of cost or a net realizable value determined on a weighted average method. 8 5. PROPERTY AND EQUIPMENT, NET Property and equipment are summarized below: SCHEDULE OF PROPERTY AND EQUIPMENT September 30, December 31, 2023 2022 Machinery, vehicles and equipment $ 3,209 $ 2,308 Furniture and fixtures 208 208 Computer hardware and software 638 591 Leasehold improvements 368 368 Construction in progress 1,896 499 Property and equipment, gross 6,319 3,974 Less: accumulated depreciation ( 2,544 ) ( 2,174 ) Total property and equipment, net $ 3,775 $ 1,800 Depreciation expense was $ 143 and $ 40 for the three months ended September 30, 2023 and 2022, respectively. Depreciation expense was $ 370 and $ 113 for the nine months ended September 30, 2023 and 2022, respectively. 6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES The components of accounts payable and accrued liabilities are summarized below: SCHEDULE OF ACCOUNTS PAYABLE AND ACCRUED LIABILITIES September 30, December 31, 2023 2022 Accounts payable $ 4,961 $ 5,615 Accrued liabilities 4,811 1,624 Total accounts payable and accrued liabilities $ 9,772 $ 7,239 Accrued liabilities primarily consist of accrued legal settlement costs, accrued sales commissions, accrued compensation and benefits, accrued sales and use taxes and accrued insurance. As of September 30, 2023 and December 31, 2022, accrued legal settlement costs were $ 3,500 and $ 0 , respectively. See Note 10 for details. As of September 30, 2023 and December 31, 2022, accrued sales commissions were $ 366 and $ 278 , respectively. Accrued compensation and benefits as of September 30, 2023 and December 31, 2022 were $ 312 and $ 213 , respectively. Accrued sales and use taxes as of September 30, 2023 and December 31, 2022 were $ 30 and $ 258 , respectively, and there was no accrued insurance as of September 30, 2023 compared to $ 559 at December 31, 2022. The remainder of accrued liabilities are comprised of several insignificant accruals in connection with normal business operations. As of September 30, 2023 and December 31, 2022, none of the Company’s suppliers represented more than 10 % of the Company’s accounts payable. 7. STOCK-BASED COMPENSATION Stock-Based Compensation A summary of stock option activity during the nine months ended September 30, 2023 is as follows: SCHEDULE OF STOCK OPTION ACTIVITY Stock Options Weighted average exercise price Weighted average remaining contractual term Aggregate intrinsic value Outstanding as of January 1, 2023 670,667 $ 5.45 Granted 97,500 5.80 Exercised ( 15,000 ) 3.31 Forfeited ( 35,000 ) 5.60 Outstanding as of September 30, 2023 718,167 $ 5.53 5.70 $ 1,056 Exercisable as of September 30, 2023 623,167 $ 5.50 5.10 $ 983 9 A summary of RSU activity during the nine months ended September 30, 2023 is as follows: SUMMARY OF RESTRICTED STOCK ACTIVITY Weighted-average grant-date fair value per Weighted-average grant-date Number of units share fair value Unvested restricted stock units as of January 1, 2023 250,000 $ 4.35 $ 1,087 Units granted 100,000 5.75 575 Units vested ( 225,000 ) 4.97 ( 1,119 ) Units forfeited - - - Unvested restricted stock units as of September 30, 2023 125,000 $ 4.35 $ 543 During the three and nine months ended September 30, 2023, the Company issued 10,000 shares of its common stock for consulting services with a fair value of $ 64,900 . During the nine months ended September 30, 2023, the Company issued 100,000 shares of common stock to its Chief Executive Officer (“CEO”) in connection with the vesting of 100,0000 restricted stock units (“RSU”) on May 11, 2023. The fair value of the RSUs on the date of grant was $ 575 , which was recognized immediately. During the nine months ended September 30, 2023, the Company issued 250,000 shares of common stock to its Chief Financial Officer (“CFO”) in connection with the vesting of 125,000 RSUs on May 1, 2022 and 125,000 RSUs on May 1, 2023. During the three and nine months ended September 30, 2023, the CEO and CFO each individually agreed to surrender shares of common stock to the Company, totaling an aggregate of 117,082 shares with a fair value of $ 720 in connection with income and payroll tax obligations paid by the Company in connection with the vesting of the above mentioned RSUs. The shares were subsequently cancelled and retired by the Company. Stock-based compensation expense recorded for the three and nine months ended September 30, 2023 was approximately $ 285 and $ 1,246 , respectively. Stock-based compensation expense recorded for the three and nine months ended September 30, 2022 was approximately $ 143 and $ 859 , respectively. As of September 30, 2023, there was $ 638 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. 8. 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 LOSS PER SHARE 2023 2022 2023 2022 Three Months Ended Nine Months Ended September 30, September 30, 2023 2022 2023 2022 Numerator: Net income (loss) $ 1,024 $ ( 1,311 ) $ 827 $ ( 4,586 ) Denominator: Weighted average basic shares outstanding 10,010,226 9,769,545 9,896,850 9,713,335 Effect of dilutive securities - equity based compensation plans 239,873 - 152,159 - Weighted average diluted shares outstanding 10,250,099 9,769,545 10,049,009 9,713,335 Net income (loss) per common share: Basic $ 0.10 $ ( 0.13 ) $ 0.08 $ ( 0.47 ) Diluted $ 0.10 $ ( 0.13 ) $ 0.08 $ ( 0.47 ) As of September 30, 2023 and 2022, diluted income (loss) per share excludes potentially dilutive common shares related to 718,167 and 670,667 shares underlying stock options, respectively, and 125,000 and 250,000 shares underlying nonvested RSUs, respectively, as their effect was anti-dilutive. 10 9. 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 2023 2022 Three Months Ended Nine Months Ended September 30, September 30, 2023 2022 2023 2022 Revenues T&D Solutions Power Systems $ 9,575 $ 3,773 $ 24,559 $ 10,029 Service 75 - 75 10 Total revenue 9,650 3,773 24,634 10,039 Critical Power Solutions Equipment 805 425 2,507 2,003 Service 1,988 2,053 5,939 5,434 Total revenue 2,793 2,478 8,446 7,437 Consolidated $ 12,443 $ 6,251 $ 33,080 $ 17,476 2023 2022 2023 2022 Three Months Ended Nine Months Ended September 30, September 30, 2023 2022 2023 2022 Depreciation and amortization T&D Solutions $ 18 $ 14 $ 51 $ 35 Critical Power Solutions 187 73 581 234 Unallocated corporate overhead expenses 2 7 7 21 Consolidated $ 207 $ 94 $ 639 $ 290 2023 2022 2023 2022 Three Months Ended Nine Months Ended September 30, September 30, 2023 2022 2023 2022 Operating income (loss) T&D Solutions $ 2,678 $ 171 $ 5,728 $ ( 183 ) Critical Power Solutions ( 621 ) ( 765 ) ( 1,563 ) ( 1,676 ) Unallocated corporate overhead expenses ( 1,104 ) ( 850 ) ( 3,534 ) ( 2,930 ) Consolidated $ 953 $ ( 1,444 ) $ 631 $ ( 4,789 ) 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 Nine Months Ended September 30, September 30, 2023 2022 2023 2022 Revenues United States $ 12,443 $ 6,251 $ 33,080 $ 17,476 10. COMMITMENTS AND CONTINGENCIES Litigation and Claims From time to time, the Company is a defendant or plaintiff in various legal actions that arise in the normal course of business. Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated. On June 15, 2023, two individuals (the “Plaintiffs”) filed a complaint in the U.S. District Court, District of Nebraska naming the Company, its wholly-owned subsidiary, Titan Energy Systems, Inc., and an individual acting in his capacity as an employee of the Company, collectively as defendants. Plaintiffs filed an amended complaint on July 7, 2023 alleging negligent driving, negligent entrustment, and negligent hiring, training and supervision, as a result of a car accident that occurred on September 9, 2019 involving the Plaintiffs and the individual. According to the amended complaint, the Plaintiffs are seeking special damages related to the injuries sustained by Plaintiffs. On July 27, 2023, the defendants filed an Answer to Plaintiff’s Amended Complaint. On October 6, 2023, a mediation was held, but the parties did not reach a settlement. The parties are in the beginning stages of the discovery process and are working to schedule a settlement conference before the end of 2023. As of September 30, 2023, the Company recognized a liability of $ 3,500 related to this matter, which was included within accounts payable and accrued liabilities, with a corresponding insurance receivable of $ 3,500 related to the loss recovery, which was deemed to be probable and included within prepaid expenses and other current assets on the consolidated balance sheet. 11