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. 12 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 nine months ended September 30, 2023. 13 RESULTS OF OPERATIONS Overview of the Three and Nine Months Results Selected financial and operating data for our reportable business segments for the most recent reporting period is summarized below. This information, as well as the selected financial data provided in “Note 9 - Business Segment and Geographic Information” and in our unaudited Consolidated Financial Statements and related notes included in this Quarterly Report on Form 10-Q, should be referred to when reading our discussion and analysis of results of operations below. Our summary of operating results during the three and nine months ended September 30, 2023 and 2022 are as follows: Three Months Ended Nine Months Ended September 30, September 30, 2023 2022 2023 2022 Revenues T&D Solutions $ 9,650 $ 3,773 $ 24,634 $ 10,039 Critical Power Solutions 2,793 2,478 8,446 7,437 Consolidated 12,443 6,251 33,080 17,476 Cost of goods sold T&D Solutions 6,378 3,291 17,614 9,312 Critical Power Solutions 2,354 2,099 6,831 6,317 Consolidated 8,732 5,390 24,445 15,629 Gross profit 3,711 861 8,635 1,847 Selling, general and administrative expenses 2,726 2,273 7,816 6,550 Depreciation and amortization expense 32 32 188 86 Total operating expenses 2,758 2,305 8,004 6,636 Operating income (loss) from continuing operations 953 (1,444 ) 631 (4,789 ) Interest income (60 ) (116 ) (192 ) (322 ) Other (income) expense (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 ) 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. As of September 30, 2023, backlog from our E-Bloc power systems and related equipment was approximately $13,771, or 41% of the total backlog. The following table represents the progression of our backlog, by reporting segment, as of the end of the last five quarters: September 30, June 30, March 31, December 31, September 30, 2023 2023 2023 2022 2022 T&D Solutions $ 25,579 $ 26,425 $ 29,198 $ 30,871 $ 22,689 Critical Power Solutions 8,027 7,146 7,845 6,284 5,207 Total order backlog $ 33,606 $ 33,571 $ 37,043 $ 37,155 $ 27,896 14 Revenue The following table represents our revenues by reporting segment and major product category for the periods indicated (in thousands, except percentages): Three Months Ended Nine Months Ended September 30, September 30, 2023 2022 Variance % 2023 2022 Variance % T&D Solutions Power Systems $ 9,575 $ 3,773 $ 5,802 153.8 $ 24,559 $ 10,029 $ 14,530 144.9 Service 75 - 75 - 75 10 65 650.0 9,650 3,773 5,877 155.8 24,634 10,039 14,595 145.4 Critical Power Solutions Equipment 805 425 380 89.4 2,507 2,003 504 25.2 Service 1,988 2,053 (65 ) (3.2 ) 5,939 5,434 505 9.3 2,793 2,478 315 12.7 8,446 7,437 1,009 13.6 Total revenue $ 12,443 $ 6,251 $ 6,192 99.1 $ 33,080 $ 17,476 $ 15,604 89.3 For the three months ended September 30, 2023, our consolidated revenue increased by $6,192, or 99.1%, to $12,443, up from $6,251 during the three months ended September 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 during the three months ended September 30, 2023. For the nine months ended September 30, 2023, our consolidated revenue increased by $15,604, or 89.3%, to $33,080, up from $17,476 during the nine months ended September 30, 2022, primarily due to an increase in sales of our power systems from our T&D Solutions segment and an increase in equipment and service sales from our Critical Power Solutions segment during the nine months ended September 30, 2023. T&D Solutions . During the three months ended September 30, 2023, revenue from our power systems product lines increased by $5,802, or 153.8%, as compared to the three months ended September 30, 2022, primarily due to increased sales of our E-Bloc power systems and medium and low voltage equipment during the three months ended September 30, 2023. During the nine months ended September 30, 2023, revenue from our power systems product lines increased by $14,530, or 144.9%, as compared to the nine months ended September 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 equipment during the nine months ended September 30, 2023. Critical Power . For the three months ended September 30, 2023, revenue for our Critical Power segment increased by $315, or 12.7%, as compared to the three months ended September 30, 2022, primarily due to an increase in sales of our new and refurbished generation equipment during the three months ended September 30, 2023. For the nine months ended September 30, 2023, revenue for our Critical Power segment increased by $1,009, or 13.6%, as compared to the nine months ended September 30, 2022, primarily due to an increase in sales of our new and refurbished generation equipment and the cyclicality of our preventative maintenance schedules during the nine months ended September 30, 2023. 15 Gross Profit and Margin The following table represents our gross profit by reporting segment for the periods indicated (in thousands, except percentages): Three Months Ended Nine Months Ended September 30, September 30, 2023 2022 Variance % 2023 2022 Variance % T&D Solutions Gross profit $ 3,272 $ 482 $ 2,790 578.8 $ 7,020 $ 727 $ 6,293 865.6 Gross margin % 33.9 12.8 21.1 28.5 7.2 21.3 Critical Power Solutions Gross profit 439 379 60 15.8 1,615 1,120 495 44.2 Gross margin % 15.7 15.3 0.4 19.1 15.1 4.0 Consolidated gross profit $ 3,711 $ 861 $ 2,850 331.0 $ 8,635 $ 1,847 $ 6,788 367.5 Consolidated gross margin % 29.8 13.8 16.0 26.1 10.6 15.5 For the three months ended September 30, 2023, our consolidated gross margin increased to 29.8% of revenues, as compared to 13.8% during the three months ended September 30, 2022. For the nine months ended September 30, 2023, our consolidated gross margin increased to 26.1% of revenues, as compared to 10.6% during the nine months ended September 30, 2022. T&D Solutions. For the three months ended September 30, 2023, our gross margin percentage increased by 21.1%, from 12.8% to 33.9%, as compared to the three months ended September 30, 2022. The increase was primarily due to the significant increase in sales our E-Bloc power systems and medium and low voltage equipment, a reduction in input costs and improved productivity from our manufacturing facility during the three months ended September 30, 2023. For the nine months ended September 30, 2023, our gross margin percentage increased by 21.3%, from 7.2% to 28.5%, as compared to the nine months ended September 30, 2022. The increase was also primarily due to the significant growth in sales our E-Bloc power systems and medium and low voltage equipment, reduced input costs and improved productivity from our manufacturing facility during the nine months ended September 30, 2023. Critical Power Solutions . For the three months ended September 30, 2023, our gross margin increased by 0.4%, to 15.7%, from 15.3% for the three months ended September 30, 2022. For the nine months ended September 30, 2023, our gross margin increased by 4.0%, to 19.1%, from 15.1% for the nine months ended September 30, 2022. The increase was also primarily due to a favorable sales mix and the acceptance of price increases from our customers. 16 Operating Expenses The following table represents our operating expenses by reportable segment for the periods indicated (in thousands, except percentages): Three Months Ended Nine Months Ended September 30, September 30, 2023 2022 Variance % 2023 2022 Variance % T&D Solutions Selling, general and administrative expense $ 585 $ 306 $ 279 91.2 $ 1,265 $ 902 $ 363 40.2 Depreciation and amortization expense 9 5 4 80.0 26 8 18 225.0 Segment operating expense $ 594 $ 311 $ 283 91.0 $ 1,291 $ 910 $ 381 41.9 Critical Power Solutions Selling, general and administrative expense $ 1,039 $ 1,124 $ (85 ) (7.6 ) $ 3,024 $ 2,739 $ 285 10.4 Depreciation and amortization expense 21 20 1 5.0 155 57 98 171.9 Segment operating expense $ 1,060 $ 1,144 $ (84 ) (7.3 ) $ 3,179 $ 2,796 $ 383 13.7 Unallocated Corporate Overhead Expenses Selling, general and administrative expense $ 1,102 $ 843 $ 259 30.7 $ 3,527 $ 2,909 $ 618 21.2 Depreciation and amortization expense 2 7 (5 ) (71.4 ) 7 21 (14 ) (66.7 ) Segment operating expense $ 1,104 $ 850 $ 254 29.9 $ 3,534 $ 2,930 $ 604 20.6 Consolidated Selling, general and administrative expense $ 2,726 $ 2,273 $ 453 19.9 $ 7,816 $ 6,550 $ 1,266 19.3 Depreciation and amortization expense 32 32 - - 188 86 102 118.6 Consolidated operating expense $ 2,758 $ 2,305 $ 453 19.7 $ 8,004 $ 6,636 $ 1,368 20.6 Selling, General and Administrative Expense . For the three months ended September 30, 2023, consolidated selling, general and administrative expense, before depreciation and amortization, increased by approximately $453, or 19.9%, to $2,726, as compared to $2,273 during the three months ended September 30, 2022, primarily due to an increase in payroll related costs, including stock-based compensation, third party commissions and product development costs related to our e-Boost initiative. As a percentage of our consolidated revenue, selling, general and administrative expense, before depreciation and amortization, decreased to 21.9% during the three months ended September 30, 2023, as compared to 36.4% in the three months ended September 30, 2022. For the nine months ended September 30, 2023, consolidated selling, general and administrative expense, before depreciation and amortization, increased by approximately $1,266, or 19.3%, to $7,816, as compared to $6,550 during the nine months ended September 30, 2022, primarily due to an increase in payroll related costs, including stock-based compensation, travel related costs, third party commissions and product development costs related to our e-Boost initiative. As a percentage of our consolidated revenue, selling, general and administrative expense, before depreciation and amortization, decreased to 23.6% during the nine months ended September 30, 2023, as compared to 37.5% in the nine months ended September 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 September 30, 2023, consolidated depreciation and amortization expense remained the same at $32, as compared to the three months ended September 30, 2022. For the nine months ended September 30, 2023, consolidated depreciation and amortization expense increased by $102, or 118.6%, as compared to the nine months ended September 30, 2022, primarily due to an increase in depreciation as a result of placing certain e-Boost assets into service. Income (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 Nine Months Ended September 30, September 30, 2023 2022 Variance % 2023 2022 Variance % T&D Solutions $ 2,678 $ 171 $ 2,507 1,466.1 $ 5,729 $ (183 ) $ 5,912 3,230.6 Critical Power Solutions (621 ) (765 ) 144 18.8 (1,564 ) (1,676 ) 112 6.7 Unallocated corporate overhead expenses (1,104 ) (850 ) (254 ) (29.9 ) (3,534 ) (2,930 ) (604 ) (20.6 ) Income (loss) from operations $ 953 $ (1,444 ) $ 2,397 (166.0 ) $ 631 $ (4,789 ) $ 5,420 113.2 T&D Solutions . Operating income from our T&D Solutions segment increased by $2,507 during the three months ended September 30, 2023, as compared to the three months ended September 30, 2022, primarily due to an increase in sales of our power systems equipment, reduced input costs and improved productivity from our manufacturing facility during the three months ended September 30, 2023. 17 Operating income from our T&D Solutions segment increased by $5,912 during the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022, primarily due to the significant increase in revenue, reduced input costs and improved productivity from our manufacturing facility during the nine months ended September 30, 2023. Critical Power Solutions . Operating loss from our Critical Power segment decreased by $144, or 18.8%, during the three months ended September 30, 2023, primarily due to a favorable sales mix and the acceptance of price increases from our customers during the three months ended September 30, 2023. Operating loss from our Critical Power segment decreased by $112, or 6.7%, during the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022, primarily due to a favorable sales mix and the acceptance of price increases from our customers during the nine months ended September 30, 2023. General Corporate Expense . Our general corporate expenses consist primarily of executive management, corporate accounting and human resources personnel, corporate office expenses, financing and corporate development activities, payroll and benefits administration, treasury, tax compliance, legal, stock-based compensation, public reporting costs and costs not specifically allocated to reportable business segments. During the three months ended September 30, 2023, our unallocated corporate overhead expense increased by $254, or 29.9%, as compared to the three months ended September 30, 2022, primarily due to an increase in payroll related costs, including stock-based compensation, professional fees and costs related to investor relations. During the nine months ended September 30, 2023, our unallocated corporate overhead expense increased by $604, or 20.6%, as compared to the nine months ended September 30, 2022, primarily due to an increase in payroll related costs, including stock-based compensation, professional fees and costs related to investor relations. Non-Operating (Income) Expense Interest Income . For the three and nine months ended September 30, 2023, we had interest income of approximately $60 and $192, respectively, as compared to interest income of approximately $116 and $322 during the three and nine months ended September 30, 2022, respectively. We generated the majority of our interest income from our cash on hand during the nine months ended September 30, 2023. During the nine months ended September 30, 2022, we generated the majority of our interest income from the Seller Notes we received from the sale of the transformer business units, which were paid off during the year ended December 31, 2022, in addition to our cash on hand. Other (Income) Expense . Other (income) expense in the consolidated statements of operations reports certain gains and losses associated with activities not directly related to our core operations. For the three and nine months ended September 30, 2023, other non-operating income was $11 and $4, respectively, as compared to other non-operating income of $17 and other non-operating expense of $112 during the three and nine months ended September 30, 2022, respectively. Provision for Income Taxes . Our effective income tax rate for the three months ended September 30, 2023 and 2022 was 0.0%. Our provision reflects an effective tax rate on income before taxes of 0.0% for the nine months ended September 30, 2023, as compared to (0.2)% for the nine months ended September 30, 2022, as set forth below: Three Months Ended Nine Months Ended September 30, September 30, 2023 2022 Variance 2023 2022 Variance Income (loss) before income taxes $ 1,024 $ (1,311 ) $ 2,335 $ 827 $ (4,579 ) $ 5,406 Income tax expense - - - - 7 (7 ) Effective income tax rate % - - - - (0.2 ) 0.2 18 Net Income (Loss) per Share We generated net income of $1,024 during the three months ended September 30, 2023, as compared to a net loss of $1,311 during the three months ended September 30, 2022. Our net income per basic and diluted share for the three months ended September 30, 2023 was $0.10, as compared to a net loss per basic and diluted share of $0.13 for the three months ended September 30, 2022. We generated net income of $827 during the nine months ended September 30, 2023, as compared to a net loss of $4,586 during the nine months ended September 30, 2022. Our net income per basic and diluted share for the nine months ended September 30, 2023 was $0.08, as compared to a net loss per basic and diluted share of $0.47 for the nine months ended September 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 from time to time through Wainwright, acting as sales agent or principal (the “ATM Program”). As of September 30, 2023, we had $7,581 of cash on hand generated primarily from the sale of common stock under the ATM Program, payment of all unpaid principal and interest from the Seller Notes during the year ended December 31, 2022, and cash flows from operating activities. Since October 20, 2020, and through September 30, 2023, we sold an aggregate of 916,059 shares of common stock for an aggregate gross proceeds of approximately $8,904, before any sales agent fees and expenses payable by us under the ATM Program. During the three and nine months ended September 30, 2023, 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. On December 13, 2021, we filed a prospectus supplement to the 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. 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. 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 Used in Operating Activities . Cash used in our operating activities was $228 during the nine months ended September 30, 2023, as compared to $3,936 during the nine months ended September 30, 2022. The decrease in cash used in operating activities is primarily due to the decrease in our net loss and working capital fluctuations. 19 Cash Used in Investing Activities. Cash used in our investing activities during the nine months ended September 30, 2023 was $2,345, as compared to $391 during the nine months ended September 30, 2022. Additions to property and equipment during the nine months ended September 30, 2023 were $2,345, as compared to $391 of additions during the nine months ended September 30, 2022. Cash Used in Financing Activities. Cash used in our financing activities was $142 during the nine months ended September 30, 2023, as compared to $162 during the nine months ended September 30, 2022. The primary use of cash in financing activities for the nine months ended September 30, 2023 and 2022 was repayments of financing leases. Working Capital . As of September 30, 2023, we had working capital of $13,702, including $7,581 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 September 30, 2023, we had $7,581 of cash on hand generated primarily from the sale of common stock under the ATM Program, 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 historically 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 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 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 September 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 $2,345 of additions to property and equipment during the nine months ended September 30, 2023, as compared to $391 of additions to property and equipment during the nine months ended September 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 geopolitical conflicts, such as the ongoing conflict between Russia and Ukraine and the ongoing conflict between Israel and Hamas, 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. 20 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable.