PIONEER POWER SOLUTIONS, INC. 10-Q

ITEM 1. FINANCIAL STATEMENTS PIONEER POWER SOLUTIONS, INC. Condensed Consolidated Statements of Operations (In thousands, except for share and per share amounts) (Unaudited) 2024 2023 (As Restated) 2024 2023 (As Restated) Three Months Ended Nine Months Ended September 30, September 30, 2024 2023 (As Restated) 2024 2023 (As Restated) Revenues $ 10,911 $ 11,453 $ 25,841 $ 33,291 Cost of goods sold 8,845 7,755 21,394 22,882 Gross profit 2,066 3,698 4,447 10,409 Operating expenses Selling, general and administrative 2,907 2,758 8,245 8,004 Research and development 256 - 705 - Total operating expenses 3,163 2,758 8,950 8,004 (Loss) income from operations ( 1,097 ) 940 ( 4,503 ) 2,405 Interest expense (income) 23 ( 60 ) ( 25 ) ( 192 ) Other expense (income), net 1 ( 11 ) ( 39 ) ( 4 ) (Loss) income before income taxes ( 1,121 ) 1,011 ( 4,439 ) 2,601 Income tax expense - - - - Net (loss) income $ ( 1,121 ) $ 1,011 $ ( 4,439 ) $ 2,601 (Loss) income per share: Basic $ ( 0.10 ) $ 0.10 $ ( 0.42 ) $ 0.26 Diluted $ ( 0.10 ) $ 0.10 $ ( 0.42 ) $ 0.26 Weighted average common shares outstanding: Basic 10,917,038 10,010,226 10,652,911 9,896,850 Diluted 10,917,038 10,250,099 10,652,911 10,049,009 The accompanying notes are an integral part of these consolidated financial statements. 1 PIONEER POWER SOLUTIONS, INC. Condensed Consolidated Balance Sheets (In thousands, except for share amounts) September 30, December 31, 2024 2023 (Unaudited) ASSETS Current assets Cash $ 3,080 $ 3,582 Accounts receivable, net of allowance for credit losses of $ 52 and $ 97 as of September 30, 2024 and December 31, 2023, respectively 9,799 9,010 Inventories 16,099 7,579 Prepaid expenses and other current assets 2,476 7,512 Total current assets 31,454 27,683 Property and equipment, net 4,705 3,899 Operating lease right-of-use assets 3,546 760 Financing lease right-of-use assets 278 403 Deferred financing costs - 195 Other assets 75 82 Total assets $ 40,058 $ 33,022 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Accounts payable and accrued liabilities $ 11,071 $ 12,609 Current portion of operating lease liabilities 751 582 Current portion of financing lease liabilities 120 139 Deferred revenue 10,409 4,932 Total current liabilities 22,351 18,262 Operating lease liabilities, non-current portion 2,818 215 Financing lease liabilities, non-current portion 173 278 Other long-term liabilities 36 49 Total liabilities 25,378 18,804 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; 10,917,038 and 9,930,022 shares issued and outstanding on September 30, 2024 and December 31, 2023, respectively 11 10 Additional paid-in capital 38,737 33,837 Accumulated deficit ( 24,068 ) ( 19,629 ) Total stockholders’ equity 14,680 14,218 Total liabilities and stockholders’ equity $ 40,058 $ 33,022 The accompanying notes are an integral part of these consolidated financial statements. 2 PIONEER POWER SOLUTIONS, INC. Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited) Nine Months Ended September 30, 2024 2023 (As Restated) Operating activities Net (loss) income $ ( 4,439 ) $ 2,601 Adjustments to reconcile net (loss) income to net cash used in operating activities: Depreciation 471 370 Amortization of right-of-use financing leases 93 269 Amortization of right-of-use operating leases 551 514 Change in allowance for credit losses ( 46 ) 80 Stock-based compensation 334 1,246 Other - ( 15 ) Changes in current operating assets and liabilities: Accounts receivable ( 966 ) 1,642 Inventories ( 8,520 ) ( 1,095 ) Prepaid expenses and other assets 5,048 ( 2,990 ) Income taxes ( 5 ) ( 4 ) Accounts payable, accrued liabilities and other liabilities ( 1,550 ) 2,407 Deferred revenue 5,477 ( 4,733 ) Operating lease liabilities ( 566 ) ( 520 ) Net cash used in operating activities ( 4,118 ) ( 228 ) Investing activities Purchases of property and equipment ( 1,277 ) ( 2,345 ) Net cash used in investing activities ( 1,277 ) ( 2,345 ) Financing activities Net proceeds from the exercise of options for common stock - 50 Net proceeds from issuance of common stock 4,986 177 Payment of deferred financing costs - ( 73 ) Principal repayments of financing leases ( 93 ) ( 296 ) Net cash provided by/ (used in) financing activities 4,893 ( 142 ) Decrease in cash ( 502 ) ( 2,715 ) Cash, beginning of period 3,582 10,296 Cash, end of period $ 3,080 $ 7,581 Supplemental cash flow information: Interest paid $ 26 $ - Non-cash investing and financing activities: Acquisition of right-of-use assets and lease liabilities 3,337 - Deferred financing costs included in accounts payable and accrued liabilities - 122 Surrender and retirement of common stock 224 720 The accompanying notes are an integral part of these consolidated financial statements. 3 PIONEER POWER SOLUTIONS, INC. Condensed Consolidated Statements of Changes in Stockholders’ Equity (In thousands, except for share amounts) (Unaudited) Common Stock Additional paid-in Accumulated other comprehensive Accumulated Total stockholders’ Shares Amount capital income deficit equity Balance - June 30, 2023 (As Restated) 9,994,545 $ 10 $ 33,821 $ - $ ( 16,141 ) $ 17,690 Net income - - - - 1,011 1,011 Stock-based compensation 10,000 - 285 - - 285 Surrender and retirement of common stock ( 117,082 ) - ( 720 ) - - ( 720 ) Exercise of stock options 15,000 - 50 - - 50 Issuance of common stock, net of transaction costs 27,559 - 177 - - 177 Balance - September 30, 2023 (As Restated) 9,930,022 $ 10 $ 33,612 $ - $ ( 15,130 ) $ 18,492 Balance - June 30, 2024 10,917,038 $ 11 $ 38,724 $ - $ ( 22,947 ) $ 15,788 Net loss - - - - ( 1,121 ) ( 1,121 ) Stock-based compensation - - 13 - - 13 Balance - September 30, 2024 10,917,038 $ 11 $ 38,737 $ - $ ( 24,068 ) $ 14,680 Common Stock Additional paid-in Accumulated other comprehensive Accumulated Total stockholders’ Shares Amount capital income deficit equity Balance - January 1, 2023 (As Restated) 9,644,545 $ 10 $ 32,859 $ 14 $ ( 17,731 ) $ 15,152 Net income - - - - 2,601 2,601 Stock-based compensation 360,000 - 1,246 - - 1,246 Surrender and retirement of common stock ( 117,082 ) - ( 720 ) - - ( 720 ) Exercise of stock options 15,000 - 50 - - 50 Issuance of common stock, net of transaction costs 27,559 - 177 - - 177 Other - - - ( 14 ) - ( 14 ) Balance - September 30, 2023 (As Restated) 9,930,022 $ 10 $ 33,612 $ - $ ( 15,130 ) $ 18,492 Balance - January 1, 2024 9,930,022 $ 10 $ 33,837 $ - $ ( 19,629 ) $ 14,218 Balance 9,930,022 $ 10 $ 33,837 $ - $ ( 19,629 ) $ 14,218 Net loss - - - - ( 4,439 ) ( 4,439 ) Net Income (loss) - - - - ( 4,439 ) ( 4,439 ) Stock-based compensation 125,000 - 334 - - 334 Issuance of common stock, net of transaction costs 919,557 1 4,790 - - 4,791 Surrender and retirement of common stock ( 57,541 ) - ( 224 ) - - ( 224 ) Balance - September 30, 2024 10,917,038 $ 11 $ 38,737 $ - $ ( 24,068 ) $ 14,680 Balance 10,917,038 $ 11 $ 38,737 $ - $ ( 24,068 ) $ 14,680 The accompanying notes are an integral part of these consolidated financial statements. 4 PIONEER POWER SOLUTIONS, INC. Notes to Unaudited Condensed Consolidated Financial Statements for the Quarterly Period Ended September 30, 2024 (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, 2023, as filed with the Securities and Exchange Commission (the “SEC”) on July 26, 2024: Electrical Infrastructure Equipment (“Electrical Infrastructure”) and Critical Power Solutions (“Critical Power”). On October 29, 2024, the Company closed on the sale of its Electrical Infrastructure segment. See “Note 11 – Subsequent Events”. Presentation The accompanying unaudited condensed 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, 2024. 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 consolidated 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 condensed 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 nine-month period ended September 30, 2024. The Company is currently in the process of estimating its annual effective tax rate for the year ending December 31, 2024 and, as such, the annual effective tax rate is unknown. As of September 30, 2024, 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 condensed 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 condensed 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, 2023, and the Company’s Quarterly Reports on Form 10-Q for the periods ended March 31, 2024, and June 30, 2024. Liquidity The accompanying condensed interim consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying consolidated financial statements, as of September 30, 2024, the Company had $ 3,080 of cash on hand and working capital of $ 9,103 . The cash on hand was generated primarily from the sale of common stock under the ATM Program (as defined below). 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, 2024, the Company sold an aggregate of 1,835,616 shares of common stock for aggregate gross proceeds of approximately $ 14,051 , before any sales agent fees and expenses payable by us under the ATM Program. During the nine months ended September 30, 2024, the Company sold an aggregate of 919,557 shares of common stock for an aggregate consideration of approximately $ 5,147 , before any sales agent fees and expenses payable by the Company under the ATM Program. As of September 30, 2024, $ 69,853 of common stock remained available for issuance under the ATM Program. 5 On October 29, 2024, the Company closed on the sale of its Pioneer Custom Electrical Products, LLC subsidiary for gross cash proceeds of $ 48,000 . See “Note 11 – Subsequent Events”. The Company has historically met its cash needs through a combination of cash flows from operating activities and bank borrowings, the completion of the sale of the transformer business units in August 2019 and the sale of common stock under the ATM Program. Historically, the Company’s cash requirements were generally for operating activities, debt repayment, capital improvements and acquisitions. The Company expects to meet its cash needs with the working capital and cash flows from the Company’s operating activities and proceeds from the sale of its subsidiary. The Company expects its 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 from the date our unaudited condensed interim consolidated financial statements are issued. Risks and Uncertainties The continuing impacts of the 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 extent of geopolitical disruption and its impact 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 three and nine months ended September 30, 2024, 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. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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 consolidated 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 consolidated financial statements. In November 2023, the Financial Accounting Standards Board (“FASB”) FASB issued ASU 2023-07, “Improvements to Reportable Segment Disclosures” (“ASU 2023-07”), which requires disclosures of significant expenses by segment and interim disclosure of items that were previously required on an annual basis. ASU 2023-07 is to be applied on a retrospective basis and is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. The Company is evaluating the impact of ASU 2023-07 on disclosures in our consolidated financial statements. In December 2023, the FASB issued ASU 2023-09, “Improvements to Income Tax Disclosures” (“ASU 2023-09”), which provides for additional disclosures primarily related to the income tax rate reconciliations and income taxes paid. ASU 2023-09 requires entities to annually disclose the income tax rate reconciliation using both amounts and percentages, considering several categories of reconciling items, including state and local income taxes, foreign tax effects, tax credits and nontaxable or nondeductible items, among others. Disclosure of the reconciling items is subject to a quantitative threshold and disaggregation by nature and jurisdiction. ASU 2023-09 also requires entities to disclose net income taxes paid or received to federal, state and foreign jurisdictions, as well as by individual jurisdiction, subject to a five percent quantitative threshold. ASU 2023-09 may be adopted on a prospective or retrospective basis and is effective for fiscal years beginning after December 15, 2024 with early adoption permitted. The Company is evaluating the impact of ASU 2023-09 on disclosures in our consolidated financial statements. In November 2024, the FASB issued ASU 2024-03, “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures” to require more detailed information about specified categories of expenses (purchases of inventory, employee compensation, depreciation, amortization, and depletion) included in certain expense captions presented on the face of the income statement. This ASU is effective for fiscal years beginning after December 15, 2026 and for interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. The amendments may be applied either (1) prospectively to financial statements issued for reporting periods after the effective date of this ASU or (2) retrospectively to all prior periods presented in the financial statements. The Company is currently evaluating the impact of adopting this guidance on its condensed consolidated financial statements and related disclosures. 6 Revenue Recognition Revenue is recognized when (1) a contract with a customer exists, (2) performance obligations promised in a contract are identified based on the products or services that will be transferred to the customer, (3) the transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring products or services to the customer, (4) the transaction price is allocated to the performance obligations in the contract and (5) the Company satisfies its performance obligation. The Company satisfies its performance obligations and, therefore, recognizes revenue, either over time or at a point in time, which is when the customer has obtained control of the good or service. Revenue from the sale of the Company’s electric power systems under its Electrical Infrastructure segment is recognized either over time or at a point in time and substantially all of the Company’s revenue from the sale of power generation equipment under its Critical Power segment is recognized at a point in time. Certain sales of highly customized electrical equipment under the Company’s Electrical Infrastructure segment are recognized over time when such equipment has no alternative use and the Company has an enforceable right to payment for performance completed to date. The Company’s measure of progress for such contracts is evaluated under the input method based on direct labor hours incurred relative to the estimated total direct labor hours required in order to complete the project. Any anticipated losses on contracts are fully recognized in the period in which the losses become evident. Service revenues include maintenance contracts that are recognized over time based on the contract term and repair services that are recognized as services are delivered. Contract Estimates Revenue from over time contracts is recognized proportionally over the term of the contract using an input method based on the proportion of labor hours incurred as compared to the total estimated labor hours for the fixed-fee contract performance obligations, which the Company considers the best available indicator of the pattern and timing in which contract performance obligations are fulfilled and control transfers to the customer. This percentage is multiplied by the contracted dollar amount of the project to determine the amount of revenue to recognize in an accounting period. There are situations where the number of hours to complete projects may exceed the original estimate as a result of an increase in project scope or unforeseen events. The related impact on income is recognized using the cumulative catch-up method, which the Company recognizes in the current period. Recognition of revenue on a contract requires estimates of the total labor hours at completion and the measurement of progress towards completion. Due to the long-term nature of many of the Company’s contracts, developing the estimated total labor hours at completion often requires judgment. Factors that must be considered in estimating the total labor hours to be completed include the nature and complexity of the work to be performed and the risk and impact of delayed performance. At the outset of each contract, the Company gauges its complexity and perceived risks and establishes an estimated total number of labor hours at completion in line with these expectations. The Company follows a standard contract review process in which the Company reviews the progress and performance of its ongoing contracts at least quarterly. Cost of Goods Sold Cost of goods sold primarily includes charges for materials, direct labor and related benefits, freight (inbound and outbound), direct supplies and tools, purchasing and receiving costs, inspection costs, internal transfer costs, warehousing costs and utilities related to production facilities and, where appropriate, an allocation of overhead. Cost of goods sold also includes indirect labor and infrastructure cost related to the provision of field services. 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 $ 52 and $ 97 of reserves for expected credit losses as of September 30, 2024, and December 31, 2023, respectively. 7 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 the Company’s products and services The Company’s principal products and services include electric power systems and equipment, distributed energy resources, power generation equipment and mobile EV charging solutions. Products The Company’s Electrical Infrastructure business provides electric power systems and equipment and distributed energy resources that help customers effectively and efficiently protect, control, transfer, monitor and manage their electric energy needs. The Company’s Critical Power business provides customers with power generation equipment and the Company’s suite of mobile e-Boost electric vehicle charging solutions. Services Power generation systems represent considerable investments that require proper maintenance and service in order to operate reliably during a time of emergency. The Company’s power maintenance programs provide preventative maintenance, repair and support service for the Company’s customers’ power generation systems. The timing of revenue recognition, customer billings and cash collections results in accounts receivable, contract assets and deferred revenue at the end of each reporting period. Contract assets include unbilled amounts typically resulting from revenue recognized exceeding amounts billed to customers for contracts utilizing an input method based on the proportion of labor hours incurred as compared to the total estimated labor hours for the fixed-fee contract performance obligations. The Company bills customers as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals, upon achievement of contractual milestones or upon deliveries. The Company’s principal source of revenue is derived from sales of products and fees for services. The Company measures revenue based upon the consideration specified in the customer arrangement, and revenue is recognized when the performance obligations in the customer arrangement are satisfied. Changes in deferred revenue are generally as a result of the Company’s normal operating cycle and the effect of cumulative catch-up adjustments arising from a change in the measure of progress or a contract modification identified at each reporting period. 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 the Company’s 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 the Company expects to receive in exchange for those products or services. To achieve this core principle, the Company applies the following five steps: 1) Identify the contract with a customer A contract with a customer exists when (i) the Company enters into an enforceable contract with a customer that defines each party’s rights regarding the products or services to be transferred and identifies the payment terms related to these products or services, (ii) the contract has commercial substance and, (iii) the Company determines that collection of substantially all consideration for products or services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration. The Company applies judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors including the customer’s historical payment experience or, in the case of a new customer, published credit and financial information pertaining to the customer. 8 2) Identify the performance obligations in the contract Performance obligations promised in a contract are identified based on the products or services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the product or service either on its own or together with other resources that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby the transfer of the products or services is separately identifiable from other promises in the contract. To the extent a contract includes multiple promised products or services, the Company must apply judgment to determine whether promised products or services are capable of being distinct and distinct in the context of the contract. If these criteria are not met the promised products or services are accounted for as a combined performance obligation. 3) Determine the transaction price The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring products or services to the customer. The customer payments are generally due in 30 days. 4) Allocate the transaction price to performance obligations in the contract If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price basis. The Company determines standalone selling price based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligations. 5) Recognize revenue when or as the Company satisfies a performance obligation The Company satisfies performance obligations either over time or at a point in time. Revenue is recognized at the time the related performance obligation is satisfied by transferring a promised product or service to a customer. During the three months ended September 30, 2024, the Company recognized $ 6,607 of revenue over time, as compared to $ 9,900 during the three months ended September 30, 2023. Additionally, the Company recognized $ 4,304 and $ 1,553 of revenue at a point in time from the sale of our products during the three months ended September 30, 2024, and September 30, 2023, 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 $ 2,455 and $ 2,063 of service revenue during the three months ended September 30, 2024, and September 30, 2023, respectively. During the nine months ended September 30, 2024, the Company recognized $ 15,447 of revenue over time, as compared to $ 24,635 during the nine months ended September 30, 2023. Additionally, the Company recognized $ 10,394 and $ 8,656 of revenue at a point in time from the sale of our products during the nine months ended September 30, 2024, and September 30, 2023, 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 $ 6,678 and $ 6,014 of service revenue during the nine months ended September 30, 2024, and September 30, 2023, respectively. During the three months ended September 30, 2024, the Company recognized approximately $ 220 of revenue that was classified as deferred revenue as of December 31, 2023, as compared to $ 2,569 of revenue recognized during the three months ended September 30, 2023 that was classified as deferred revenue as of December 31, 2022, resulting primarily from the progress made on the various active contracts during the respective reporting periods. During the nine months ended September 30, 2024, the Company recognized approximately $ 2,688 of revenue that was classified as deferred revenue as of December 31, 2023, as compared to $ 8,535 of revenue recognized during the nine months ended September 30, 2023 that was classified as deferred revenue as of December 31, 2022, resulting primarily from the progress made on the various active contracts during the respective reporting periods. The Company manages its accounts receivable credit risk by performing credit evaluations and monitoring amounts due from the Company’s customers. The Company had certain customers whose revenue individually represented 10% or more of the Company’s total revenue, or whose accounts receivable balances individually represented 10% or more of the Company’s total accounts receivable. As of September 30, 2024, one customer represented approximately 20 % of the Company’s accounts receivable. As of December 31, 2023, one customer represented approximately 23 % of the Company’s accounts receivable. 9 For the three months ended September 30, 2024, two customers represented approximately 26 % and 10 % of the Company’s revenue. For the three months ended September 30, 2023, two customers represented approximately 55 % and 12 % of the Company’s revenue. For the nine months ended September 30, 2024, one customer represented approximately 11 % of the Company’s revenue. For the nine months ended September 30, 2023, two customers represented approximately 44 % and 20 % 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 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, 2024, and September 30, 2023, were insignificant. The following table presents our revenues disaggregated by revenue discipline: SCHEDULE OF REVENUE DISAGGREGATED 2024 2023 (As Restated) 2024 2023 (As Restated) Three Months Ended Nine Months Ended September 30, September 30, 2024 2023 (As Restated) 2024 2023 (As Restated) Products $ 8,456 $ 9,390 $ 19,163 $ 27,277 Services 2,455 2,063 6,678 6,014 Total revenue $ 10,911 $ 11,453 $ 25,841 $ 33,291 See “Note 9 - Business Segment and Geographic Information”. Lease revenues (Topic 842) ASC 842 revenues pertain to revenues and expenses related to the leasing of electric generators. The Company accounts for such rentals as operating leases. The lease terms are included in the Company’s contracts, and the determination of whether the Company’s contracts contain leases generally does not require significant assumptions or judgments. The Company’s lease revenues do include variable lease payments based on hours. Revenues attributable to the variable lease payments are recognized when earned. There were no leasing revenues arising from variable lease payments during the three and nine months ended September 30, 2024, and 2023. For the three and nine months ended September 30, 2024, leasing revenues were $ 559 and $ 1,305 , respectively, and are included in revenue from products. For the three and nine months ended September 30, 2023, leasing revenues were $ 246 and $ 719 , respectively, and are included in revenue from products. The Company does not provide an option for the lessee to purchase the rented equipment at the end of the lease. Lessees do not provide residual value guarantees on rented equipment. The Company expects to derive significant future benefits from its equipment following the end of the rental term. The Company recognizes revenue over the contractual period of performance of the rental term. The following table presents our lease revenues: SCHEDULE OF LEASE REVENUES 2024 2023 2024 2023 Three Months Ended Nine Months Ended September 30, September 30, 2024 2023 2024 2023 Revenues - leases Fixed lease revenue $ 559 $ 246 $ 1,305 $ 719 Total revenues - leases $ 559 $ 246 $ 1,305 $ 719 10 4. INVENTORIES The components of inventories are summarized below: SCHEDULE OF INVENTORIES September 30, December 31, 2024 2023 Raw materials $ 10,232 $ 5,316 Work in process 5,867 2,263 Total inventories $ 16,099 $ 7,579 Inventories are stated at the lower of cost or a net realizable value determined on a weighted average method. 5. PROPERTY AND EQUIPMENT, NET Property and equipment are summarized below: SCHEDULE OF PROPERTY AND EQUIPMENT September 30, December 31, 2024 2023 Machinery, vehicles and equipment $ 5,152 $ 3,220 Furniture and fixtures 208 208 Computer hardware and software 746 650 Leasehold improvements 367 368 Construction in progress 1,274 2,024 Property and equipment, gross 7,747 6,470 Less: accumulated depreciation ( 3,042 ) ( 2,571 ) Total property and equipment, net $ 4,705 $ 3,899 Depreciation expense was $ 185 and $ 143 for the three months ended September 30, 2024, and 2023, respectively. Depreciation expense was $ 471 and $ 370 for the nine months ended September 30, 2024, and 2023, 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, 2024 2023 Accounts payable $ 9,627 $ 5,396 Accrued liabilities 1,444 7,213 Total accounts payable and accrued liabilities $ 11,071 $ 12,609 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, 2024, and December 31, 2023, accrued sales commissions were $ 364 and $ 442 , respectively. Accrued compensation and benefits as of September 30, 2024, and December 31, 2023, were $ 319 and $ 294 , respectively. There were no accrued legal settlement costs as of September 30, 2024, compared to $ 5,000 as of December 31, 2023. Accrued sales and use taxes as of September 30, 2024, and December 31, 2023, were $ 224 and $ 67 , respectively, and there was no accrued insurance as of September 30, 2024, compared to $ 795 as of December 31, 2023. The remainder of accrued liabilities are comprised of several insignificant accruals in connection with normal business operations. As of September 30, 2024, two of the Company’s suppliers represented approximately 44 % of the Company’s accounts payable. As of December 31, 2023, one of the Company’s suppliers represented approximately 18 % of the Company’s accounts payable. 11 7. STOCK-BASED COMPENSATION Stock-Based Compensation A summary of stock option activity during the nine months ended September 30, 2024, 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, 2024 706,167 $ 5.49 Granted 5,146 3.89 Exercised - - Forfeited/expired ( 57,000 ) 10.21 Outstanding as of September 30, 2024 654,313 $ 5.07 5.29 $ 507 Exercisable as of September 30, 2024 636,335 $ 5.02 5.19 $ 506 A summary of RSU activity during the nine months ended September 30, 2024, is as follows: SCHEDULE OF RESTRICTED STOCK UNITS Weighted-average Weighted-average grant-date grant-date Number of units fair value per share fair value Unvested restricted stock units as of January 1, 2024 125,000 $ 4.35 $ 543 Units granted - - - Units vested ( 125,000 ) 4.35 ( 543 ) Units forfeited - - - Unvested restricted stock units as of September 30, 2024 - $ - $ - Stock-based compensation expense recorded for the three and nine months ended September 30, 2024, was approximately $ 13 and $ 334 , respectively. Stock-based compensation expense recorded for the three and nine months ended September 30, 2023, was approximately $ 285 and $ 1,246 , respectively. As of September 30, 2024, there was $ 96 of stock-based compensation expense remaining to be recognized in the consolidated statements of operations over a weighted average remaining period of 1.9 years. 8. BASIC AND DILUTED (LOSS) INCOME PER COMMON SHARE Basic and diluted (loss) income 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 (loss) income per share (in thousands, except per share data): SCHEDULE OF BASIC AND DILUTED LOSS PER SHARE 2024 2023 (As Restated) 2024 2023 (As Restated) Three Months Ended Nine Months Ended September 30, September 30, 2024 2023 (As Restated) 2024 2023 (As Restated) Numerator: Net (loss) income $ ( 1,121 ) $ 1,011 $ ( 4,439 ) $ 2,601 Denominator: Weighted average basic shares outstanding 10,917,038 10,010,226 10,652,911 9,896,850 Effect of dilutive securities - equity based compensation plans - 239,873 - 152,159 Weighted average diluted shares outstanding 10,917,038 10,250,099 10,652,911 10,049,009 Net (loss) income per common share: Basic $ ( 0.10 ) $ 0.10 $ ( 0.42 ) $ 0.26 Diluted $ ( 0.10 ) $ 0.10 $ ( 0.42 ) $ 0.26 As of September 30, 2024, diluted (loss) income per share excludes potentially dilutive common shares related to 654,313 shares underlying stock options as their effect was anti-dilutive. 12 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: Electrical Infrastructure and Critical Power. The Critical Power reportable segment is the Company’s Titan Energy Systems, Inc. business unit. The Electrical Infrastructure reportable segment is the Company’s Pioneer Custom Electrical Products Corp. business unit. The Electrical Infrastructure 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. On October 29, 2024, the Company closed on the sale of its Electrical Infrastructure segment. See “Note 11 – Subsequent Events”. The following tables present information about segment loss and income: SCHEDULE OF SEGMENT INCOME LOSS 2024 2023 (As Restated) 2024 2023 (As Restated) Three Months Ended Nine Months Ended September 30, September 30, 2024 2023 (As Restated) 2024 2023 (As Restated) Revenues Electrical Infrastructure Equipment $ 4,495 $ 8,585 $ 12,715 $ 24,770 Service - 75 - 75 Revenues 4,495 8,660 12,715 24,845 Critical Power Solutions Equipment 3,961 805 6,448 2,507 Service 2,455 1,988 6,678 5,939 Revenues 6,416 2,793 13,126 8,446 Consolidated $ 10,911 $ 11,453 $ 25,841 $ 33,291 Revenues $ 10,911 $ 11,453 $ 25,841 $ 33,291 2024 2023 2024 2023 Three Months Ended Nine Months Ended September 30, September 30, 2024 2023 2024 2023 Depreciation and amortization Electrical Infrastructure $ 22 $ 18 $ 71 $ 51 Critical Power Solutions 190 187 486 581 Unallocated corporate overhead expenses 3 2 7 7 Consolidated $ 215 $ 207 $ 564 $ 639 Depreciation and amortization $ 215 $ 207 $ 564 $ 639 2024 2023 (As Restated) 2024 2023 (As Restated) Three Months Ended Nine Months Ended September 30, September 30, 2024 2023 (As Restated) 2024 2023 (As Restated) Operating (loss) income Electrical Infrastructure $ ( 382 ) $ 2,665 $ ( 329 ) $ 7,503 Critical Power Solutions 211 ( 621 ) ( 959 ) ( 1,564 ) Unallocated corporate overhead expenses ( 926 ) ( 1,104 ) ( 3,215 ) ( 3,534 ) Consolidated $ ( 1,097 ) $ 940 $ ( 4,503 ) $ 2,405 Operating (loss) income $ ( 1,097 ) $ 940 $ ( 4,503 ) $ 2,405 Revenues are attributable to countries based on the location of the Company’s customers: SCHEDULE OF ATTRIBUTABLE TO COUNTIES BASED ON THE LOCATION Three Months Ended Nine Months Ended September 30, September 30, 2024 2023 (As Restated) 2024 2023 (As Restated) Revenues United States $ 10,911 $ 11,453 $ 25,841 $ 33,291 13 10. COMMITMENTS AND CONTINGENCIES Litigation and Claims Leases During the three months ended September 30, 2024, the Company executed an extension of its operating lease for the manufacturing facility in Santa Fe Springs, California. After adjusting for a weighted average discount rate, the Company recognized a right-of-use asset and lease liability of approximately $ 3,337 within the condensed consolidated balance sheets. 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, Terrence and Kay Mimick (the “Plaintiffs”) filed a complaint in the U.S. District Court, District of Nebraska naming the Company, its wholly-owned subsidiary, Pioneer Critical Power, 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, and seeking special damages related to the injuries allegedly sustained by Plaintiffs. The amended complaint also named Titan Energy Systems, Inc. as a defendant instead of Pioneer Critical Power, Inc. 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. In June 2024, another mediation was held and the parties reached a settlement for all of the Plaintiffs’ claims. The case was dismissed with prejudice on July 23, 2024. The Company is not aware of any material proceedings in which any of its directors, officers or affiliates or any registered or beneficial shareholder of more than 5 % of the Company’s common stock is an adverse party or has a material interest adverse to the Company’s interest. 11. SUBSEQUENT EVENTS Sale of Subsidiary On October 29, 2024, the Company entered into an Equity Contribution and Purchase Agreement (the “Equity Purchase Agreement”), by and among the Company, Pioneer Custom Electrical Products, LLC, a wholly owned subsidiary of the Company (“Pioneer Custom”), Voltaris Power LLC (the “Buyer”) and Pioneer Investment LLC (“Investment”). Pursuant to the terms of the Equity Purchase Agreement, the Company agreed to: (i) contribute 4% of all of the issued and outstanding equity interests of Pioneer Custom to Investment (the “Rollover Interests”) in exchange for Investment issuing $2,000 of common units (representing approximately 6% of Investment’s issued and outstanding common units on the Closing Date (as defined below)) (the “Rollover Units”) to the Company; and (ii) sell all of the issued and outstanding equity interests of Pioneer Custom other than the Rollover Interests to the Buyer ((i) and (ii) being, the “Equity Transaction”). The Equity Transaction included total consideration of (i) $ 48,000 in cash, subject to adjustment pursuant to the terms of the Equity Purchase Agreement, and (ii) $ 2,000 in equity pursuant to Investment’s issuance of the Rollover Units to the Company. Following the execution of the Equity Purchase Agreement, the Equity Transaction was consummated on October 29, 2024 (the “Closing Date”). Pioneer Custom represents the entirety of the Company’s Electrical Infrastructure segment. In addition, upon the closing of the Equity Transaction, the Company and the Buyer entered into a transition services agreement, pursuant to which (i) the Company will provide certain transition services to the Buyer for various service periods ranging from 30 days to 12 months following the Closing Date and (ii) the Buyer will provide one specific transition service to the Company until October 31, 2025. Option Exercises Subsequent to September 30, 2024, the Company issued an aggregate of 95,465 shares of common stock (net of 12,535 shares repurchased) pursuant to option exercises for aggregate net proceeds of $ 339 . 14