UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For
the quarterly period ended
OR
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(Exact name of registrant as specified in its charter)
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Securities registered pursuant to Section 12(b) of the Act:
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by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
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The number of shares outstanding of the registrant’s common stock, $ par value, as of October 7, 2024 was .
PIONEER POWER SOLUTIONS, INC.
Form 10-Q
For the Quarterly Period Ended June 30, 2024
TABLE OF CONTENTS
| i |
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
PIONEER POWER SOLUTIONS, INC.
Consolidated Statements of Operations
(In thousands, except for share and per share amounts)
(Unaudited)
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2024 | 2023 (As Restated) | 2024 | 2023 (As Restated) | |||||||||||||
| Revenues | $ | $ | | $ | $ | | ||||||||||
| Cost of goods sold | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses | ||||||||||||||||
| Selling, general and administrative | ||||||||||||||||
| Research and development | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| (Loss) income from operations | ( | ) | ( | ) | ||||||||||||
| Interest income | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other expense (income), net | ( | ) | ||||||||||||||
| (Loss) income before income taxes | ( | ) | ( | ) | ||||||||||||
| Income tax expense | ||||||||||||||||
| Net (loss) income | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| (Loss) income per share: | ||||||||||||||||
| Basic | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Diluted | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Weighted average common shares outstanding: | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
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)
| June 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net of allowance for credit losses of $ | ||||||||
| Inventories | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Operating lease right-of-use assets | ||||||||
| Financing lease right-of-use assets | ||||||||
| Deferred financing costs | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| Current portion of operating lease liabilities | ||||||||
| Current portion of financing lease liabilities | ||||||||
| Deferred revenue | ||||||||
| Total current liabilities | ||||||||
| Operating lease liabilities, non-current portion | ||||||||
| Financing lease liabilities, non-current portion | ||||||||
| Other long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Stockholders’ equity | ||||||||
| Preferred stock, $ par value, shares authorized; issued | ||||||||
| Common stock, $ par value, shares authorized; and shares issued and outstanding on June 30, 2024 and December 31, 2023, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
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)
| Six Months Ended | ||||||||
| June 30, | ||||||||
| 2024 | 2023 (As Restated) | |||||||
| Operating activities | ||||||||
| Net (loss) income | $ | ( | ) | $ | ||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | ||||||||
| Amortization of right-of-use financing leases | ||||||||
| Amortization of right-of-use operating leases | ||||||||
| Change in allowance for credit losses | ||||||||
| Stock-based compensation | ||||||||
| Other | ( | ) | ||||||
| Changes in current operating assets and liabilities: | ||||||||
| Accounts receivable | ||||||||
| Inventories | ( | ) | ( | ) | ||||
| Prepaid expenses and other assets | ( | ) | ||||||
| Income taxes | ( | ) | ( | ) | ||||
| Accounts payable, accrued liabilities and other liabilities | ( | ) | ( | ) | ||||
| Deferred revenue | ( | ) | ||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Net cash (used in)/ provided by operating activities | ( | ) | ||||||
| Investing activities | ||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Financing activities | ||||||||
| Net proceeds from issuance of common stock | ||||||||
| Principal repayments of financing leases | ( | ) | ( | ) | ||||
| Net cash provided by/ (used in) financing activities | ( | ) | ||||||
| Increase (decrease) in cash | ( | ) | ||||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
| Supplemental cash flow information: | ||||||||
| Interest paid | $ | $ | ||||||
| Non-cash investing and financing activities: | ||||||||
| Surrender and retirement of common stock | ||||||||
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)
| Accumulated | ||||||||||||||||||||||||
| Additional | other | Total | ||||||||||||||||||||||
| Common Stock | paid-in | comprehensive | Accumulated | stockholders’ | ||||||||||||||||||||
| Shares | Amount | capital | income | deficit | equity | |||||||||||||||||||
| Balance - March 31, 2023 (As Restated) | $ | $ | $ | $ | ( | ) | $ | | ||||||||||||||||
| Net income | - | |||||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||
| Balance - June 30, 2023 (As Restated) | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Balance - March 31, 2024 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||
| Issuance of common stock, net of transaction costs | ||||||||||||||||||||||||
| Surrender and retirement of common stock | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Balance - June 30, 2024 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Accumulated | ||||||||||||||||||||||||
| Additional | other | Total | ||||||||||||||||||||||
| Common Stock | paid-in | comprehensive | Accumulated | stockholders’ | ||||||||||||||||||||
| Shares | Amount | capital | income | deficit | equity | |||||||||||||||||||
| Balance - January 1, 2023 (As Restated) | $ | $ | $ | | $ | ( | ) | $ | | |||||||||||||||
| Net income | - | |||||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||
| Other | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance - June 30, 2023 (As Restated) | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Balance - January 1, 2024 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||
| Issuance of common stock, net of transaction costs | ||||||||||||||||||||||||
| Surrender and retirement of common stock | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Balance - June 30, 2024 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
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 June 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
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 June 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 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 six-month period ended June 30, 2024. The Company anticipates that its annual effective tax rate will be
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, 2023.
Liquidity
The
accompanying 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 June 30, 2024, the Company had $
| 5 |
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, sale of common stock under the ATM Program and collecting all unpaid principal and interest from the Seller Notes. 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. 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 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 six months ended June 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.
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.
| 6 |
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 establish 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 on 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 $
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.
| 7 |
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.
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.
| 8 |
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 June 30, 2024, the Company recognized $
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 $
During
the six months ended June 30, 2024, the Company recognized $
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 $
During
the three months ended June 30, 2024, the Company recognized approximately $
During
the six months ended June 30, 2024, the Company recognized approximately $
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 June 30, 2024, one customer represented approximately
For
the three months ended June 30, 2024, one customer represented approximately
For
the six months ended June 30, 2024, one customer represented approximately
| 9 |
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 six months ended June 30, 2024, and June 30, 2023, were insignificant.
The following table presents our revenues disaggregated by revenue discipline:
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2024 | 2023 (As Restated) | 2024 | 2023 (As Restated) | |||||||||||||
| Products | $ | $ | $ | $ | ||||||||||||
| Services | ||||||||||||||||
| Total revenue | $ | $ | $ | $ | ||||||||||||
See “Note 9 - Business Segment and Geographic Information”.
4. INVENTORIES
The components of inventories are summarized below:
| June 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Raw materials | $ | $ | ||||||
| Work in process | ||||||||
| Total inventories | $ | $ | ||||||
Inventories are stated at the lower of cost or a net realizable value determined on a weighted average method.
| 10 |
5. PROPERTY AND EQUIPMENT, NET
Property and equipment are summarized below:
| June 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Machinery, vehicles and equipment | $ | $ | ||||||
| Furniture and fixtures | ||||||||
| Computer hardware and software | ||||||||
| Leasehold improvements | ||||||||
| Construction in progress | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Total property and equipment, net | $ | $ | ||||||
Depreciation
expense was $
Depreciation
expense was $
6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
The components of accounts payable and accrued liabilities are summarized below:
| June 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Total accounts payable and accrued liabilities | $ | $ | ||||||
Accrued
liabilities primarily consist of accrued legal settlement costs, accrued sales commissions, accrued compensation and benefits, accrued
sales and use taxes and accrued insurance. Accrued legal settlement costs as of June 30, 2024, and December 31, 2023, were $
As
of June 30, 2024, two of the Company’s suppliers represented approximately
| 11 |
Stock-Based Compensation
| Stock Options | Weighted average exercise price | Weighted average remaining contractual term | Aggregate intrinsic value | |||||||||||||
| Outstanding as of January 1, 2024 | $ | |||||||||||||||
| Granted | ||||||||||||||||
| Exercised | ||||||||||||||||
| Forfeited/expired | ( | ) | ||||||||||||||
| Outstanding as of June 30, 2024 | $ | $ | ||||||||||||||
| Exercisable as of June 30, 2024 | $ | $ | ||||||||||||||
| 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 | $ | $ | ||||||||||
| Units granted | ||||||||||||
| Units vested | ( | ) | ( | ) | ||||||||
| Units forfeited | ||||||||||||
| Unvested restricted stock units as of June 30, 2024 | $ | $ | ||||||||||
Stock-based compensation expense recorded for the three and six months ended June 30, 2024, was approximately $ and $, respectively. Stock-based compensation expense recorded for the three and six months ended June 30, 2023, was approximately $ and $, respectively. At June 30, 2024, there was $ of stock-based compensation expense remaining to be recognized in the consolidated statements of operations over a weighted average remaining period of years.
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):
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2024 | 2023 (As Restated) | 2024 | 2023 (As Restated) | |||||||||||||
| Numerator: | ||||||||||||||||
| Net (loss) income | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Denominator: | ||||||||||||||||
| Weighted average basic shares outstanding | ||||||||||||||||
| Effect of dilutive securities - equity based compensation plans | ||||||||||||||||
| Weighted average diluted shares outstanding | ||||||||||||||||
| Net (loss) income per common share: | ||||||||||||||||
| Basic | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Diluted | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
As of June 30, 2024, diluted (loss) income per share excludes potentially dilutive common shares related to 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.
The following tables present information about segment loss and income:
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2024 | 2023 (As Restated) | 2024 | 2023 (As Restated) | |||||||||||||
| Revenues | ||||||||||||||||
| Electrical Infrastructure | ||||||||||||||||
| Equipment | $ | $ | $ | $ | ||||||||||||
| Service | ||||||||||||||||
| Critical Power Solutions | ||||||||||||||||
| Equipment | ||||||||||||||||
| Service | ||||||||||||||||
| Consolidated | $ | $ | $ | $ | ||||||||||||
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Electrical Infrastructure | $ | $ | $ | $ | ||||||||||||
| Critical Power Solutions | ||||||||||||||||
| Unallocated corporate overhead expenses | ||||||||||||||||
| Consolidated | $ | $ | $ | $ | ||||||||||||
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2024 | 2023 (As Restated) | 2024 | 2023 (As Restated) | |||||||||||||
| Operating (loss) income | ||||||||||||||||
| Electrical Infrastructure | $ | ( | ) | $ | $ | $ | ||||||||||
| Critical Power Solutions | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Unallocated corporate overhead expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Consolidated | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
Revenues are attributable to countries based on the location of the Company’s customers:
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2024 | 2023 (As Restated) | 2024 | 2023 (As Restated) | |||||||||||||
| Revenues | ||||||||||||||||
| United States | $ | $ | $ | $ | ||||||||||||
| 13 |
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, 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. As of June 30, 2024, the Company recognized a liability of $
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
| 14 |
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 unaudited 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, 2023, which was filed with the Securities and Exchange Commission on July 26, 2024.
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 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. | |
| ● | Our ability to remediate the material weaknesses identified in our internal control over financial reporting in our Annual Report on Form 10-K for the year ended December 31, 2023, or inability to otherwise maintain an effective system of internal control. | |
| ● | The effect that the restatement of the prior financial statements could have on investor confidence in us and raise reputational risk. | |
| ● | 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. | |
| ● | Our ability to regain and maintain compliance with the continued listing standards of Nasdaq. | |
| ● | Risks associated with litigation and claims, which could impact our financial results and condition. |
| 15 |
The foregoing does not represent an exhaustive list of matters that may be covered by the forward-looking statements contained herein or risk factors that we are faced with that may cause our actual results to differ from those anticipated in our forward-looking statements. Moreover, new risks regularly emerge, and it is not possible for us to predict or articulate all risks we face, nor can we assess the impact of all risks on our business or the extent to which any risk, or combination of risks, may cause actual results to differ from those contained in any forward-looking statements. Except to the extent required by applicable laws or rules, we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. You should review carefully the risks and uncertainties described under the heading “Part II - Item 1A. Risk Factors” in this Quarterly Report on Form 10-Q and “Part I - Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023, 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 United States for manufacturing, service and maintenance, engineering, and sales and administration.
Description of Business Segments
We have two reportable segments: Electrical Infrastructure Equipment (“Electrical Infrastructure”) and Critical Power Solutions (“Critical Power”).
| ● | Our Electrical Infrastructure business provides equipment solutions that allow customers to effectively and efficiently protect, control, transfer, monitor and manage their electric energy usage and 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 preventative maintenance, repairs, remote monitoring and other equipment service on our customers’ equipment. These products and services are marketed by our operations headquartered in Minnesota, currently doing business under our Pioneer eMobility (“e-Boost”), Titan Energy Systems Inc. (“Titan”) and Pioneer Critical Power brand names. |
Critical Accounting Estimates
Our consolidated financial statements have been prepared in accordance with U.S. GAAP. The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the amounts and disclosures in the consolidated 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 Securities and Exchange Commission (the “SEC”) on July 26, 2024. There were no material changes to our accounting policies during the six months ended June 30, 2024.
| 16 |
RESULTS OF OPERATIONS
Overview of the Three and Six Months Results
Selected financial and operating data for our reportable business segments for the most recent reporting period is summarized below. This information, as well as the selected financial data provided in “Note 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 six months ended June 30, 2024, and 2023 are as follows:
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2024 | 2023 (As Restated) | 2024 | 2023 (As Restated) | |||||||||||||
| Revenues | ||||||||||||||||
| Electrical Infrastructure | $ | 2,945 | $ | 9,376 | $ | 8,220 | $ | 16,185 | ||||||||
| Critical Power Solutions | 3,395 | 2,906 | 6,710 | 5,653 | ||||||||||||
| Consolidated | 6,340 | 12,282 | 14,930 | 21,838 | ||||||||||||
| Cost of goods sold | ||||||||||||||||
| Electrical Infrastructure | 2,933 | 5,984 | 7,015 | 10,651 | ||||||||||||
| Critical Power Solutions | 2,754 | 2,420 | 5,534 | 4,476 | ||||||||||||
| Consolidated | 5,687 | 8,404 | 12,549 | 15,127 | ||||||||||||
| Gross profit | 653 | 3,878 | 2,381 | 6,711 | ||||||||||||
| Selling, general and administrative | 2,689 | 3,059 | 5,295 | 5,090 | ||||||||||||
| Depreciation and amortization | 26 | 30 | 43 | 156 | ||||||||||||
| Research and development | 238 | - | 449 | - | ||||||||||||
| Total operating expenses | 2,953 | 3,089 | 5,787 | 5,246 | ||||||||||||
| Operating (loss) income from continuing operations | (2,300 | ) | 789 | (3,406 | ) | 1,465 | ||||||||||
| Interest income | (17 | ) | (79 | ) | (48 | ) | (132 | ) | ||||||||
| Other expense (income) | - | 20 | (40 | ) | 7 | |||||||||||
| (Loss) income before income taxes | (2,283 | ) | 848 | (3,318 | ) | 1,590 | ||||||||||
| Income tax expense | - | - | - | - | ||||||||||||
| Net (loss) income | $ | (2,283 | ) | $ | 848 | $ | (3,318 | ) | $ | 1,590 | ||||||
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 June 30, 2024, backlog from our E-Bloc power systems and related equipment was approximately $12,523, or 19% of the total backlog.
The following table represents the progression of our backlog, by reporting segment, as of the end of the last five quarters:
| June 30, | March 31, | December 31, | September 30, 2023 | June 30, 2023 | ||||||||||||||||
| 2024 | 2024 | 2023 | (As Restated) | (As Restated) | ||||||||||||||||
| Electrical Infrastructure | $ | 39,670 | $ | 30,889 | $ | 28,497 | $ | 25,368 | $ | 25,225 | ||||||||||
| Critical Power Solutions | 27,251 | 15,022 | 16,668 | 8,027 | 7,146 | |||||||||||||||
| Total order backlog | $ | 66,921 | $ | 45,911 | $ | 45,165 | $ | 33,395 | $ | 32,371 | ||||||||||
| 17 |
Revenue
The following table represents our revenues by reporting segment and major product category for the periods indicated (in thousands, except percentages):
| Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||
| June 30, | June 30, | |||||||||||||||||||||||||||||||
| 2024 | 2023 (As Restated) | Variance | % | 2024 | 2023 (As Restated) | Variance | % | |||||||||||||||||||||||||
| Electrical Infrastructure | ||||||||||||||||||||||||||||||||
| Equipment | $ | 2,945 | $ | 9,376 | $ | (6,431 | ) | (68.6 | ) | $ | 8,220 | $ | 16,185 | $ | (7,965 | ) | (49.2 | ) | ||||||||||||||
| Service | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
| 2,945 | 9,376 | (6,431 | ) | (68.6 | ) | 8,220 | 16,185 | (7,965 | ) | (49.2 | ) | |||||||||||||||||||||
| Critical Power Solutions | ||||||||||||||||||||||||||||||||
| Equipment | 1,160 | 1,016 | 144 | 14.2 | 2,487 | 1,701 | 786 | 46.2 | ||||||||||||||||||||||||
| Service | 2,235 | 1,890 | 345 | 18.3 | 4,223 | 3,952 | 271 | 6.9 | ||||||||||||||||||||||||
| 3,395 | 2,906 | 489 | 16.8 | 6,710 | 5,653 | 1,057 | 18.7 | |||||||||||||||||||||||||
| Total revenue | $ | 6,340 | $ | 12,282 | $ | (5,942 | ) | (48.4 | ) | $ | 14,930 | $ | 21,838 | $ | (6,908 | ) | (31.6 | ) | ||||||||||||||
For the three months ended June 30, 2024, our consolidated revenue decreased by $5,942, or 48.4%, to $6,340, down from $12,282 during the three months ended June 30, 2023, primarily due to a decrease in sales of equipment from our Electrical Infrastructure segment during the three months ended June 30, 2024.
For the six months ended June 30, 2024, our consolidated revenue decreased by $6,908 or 31.6%, to $14,930, down from $21,838 during the six months ended June 30, 2023, primarily due to a decrease in sales of equipment from our Electrical Infrastructure segment during the six months ended June 30, 2024.
Electrical Infrastructure. During the three months ended June 30, 2024, revenue from our equipment sales decreased by $6,431, or 68.6%, to $2,945, down from $9,376 during the three months ended June 30, 2023, primarily due to a decrease in shipments and revenue recognized over time from our equipment sales during the three months ended June 30, 2024.
During the six months ended June 30, 2024, revenue from our equipment sales decreased by $7,965, or 49.2%, to $8,220, down from $16,185 during the six months ended June 30, 2023, primarily due to a decrease in revenue recognized over time from our equipment sales during the six months ended June 30, 2024.
Critical Power Solutions. For the three months ended June 30, 2024, revenue for our Critical Power segment increased by $489, or 16.8%, to $3,395, up from $2,906 during the three months ended June 30, 2023, primarily due to an increase in service sales during the three months ended June 30, 2024.
For the six months ended June 30, 2024, revenue for our Critical Power segment increased by $1,057, or 18.7%, to $6,710, up from $5,653 during the six months ended June 30, 2023, primarily due to an increase in sales of our e-Boost equipment from our Pioneer eMobility business in addition to an increase in service sales during the six months ended June 30, 2024.
| 18 |
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 | Six Months Ended | |||||||||||||||||||||||||||||||
| June 30, | June 30, | |||||||||||||||||||||||||||||||
| 2024 | 2023 (As Restated) | Variance | % | 2024 | 2023 (As Restated) | Variance | % | |||||||||||||||||||||||||
| Electrical Infrastructure | ||||||||||||||||||||||||||||||||
| Gross profit | $ | 12 | $ | 3,392 | $ | (3,380 | ) | (99.6 | ) | $ | 1,205 | $ | 5,534 | $ | (4,329 | ) | (78.2 | ) | ||||||||||||||
| Gross margin % | 0.4 | 36.2 | (35.8 | ) | 14.7 | 34.2 | (19.5 | ) | ||||||||||||||||||||||||
| Critical Power Solutions | ||||||||||||||||||||||||||||||||
| Gross profit | 641 | 486 | 155 | 31.9 | 1,176 | 1,177 | (1 | ) | (0.1 | ) | ||||||||||||||||||||||
| Gross margin % | 18.9 | 16.7 | 2.2 | 17.5 | 20.8 | (3.3 | ) | |||||||||||||||||||||||||
| Consolidated gross profit | $ | 653 | $ | 3,878 | $ | (3,225 | ) | (83.2 | ) | $ | 2,381 | $ | 6,711 | $ | (4,330 | ) | (64.5 | ) | ||||||||||||||
| Consolidated gross margin % | 10.3 | 31.6 | (21.3 | ) | 15.9 | 30.7 | (14.8 | ) | ||||||||||||||||||||||||
For the three months ended June 30, 2024, our consolidated gross margin decreased to 10.3% of revenues, as compared to 31.6% during the three months ended June 30, 2023.
For the six months ended June 30, 2024, our consolidated gross margin decreased to 15.9% of revenues, as compared to 30.7% during the six months ended June 30, 2023.
Electrical Infrastructure. For the three months ended June 30, 2024, our gross margin percentage decreased by 35.8%, from 36.2% to 0.4%, as compared to the three months ended June 30, 2023. The decrease was primarily due to the decrease in sales of our power systems and switchgear equipment.
For the six months ended June 30, 2024, our gross margin percentage decreased by 19.5%, from 34.2% to 14.7%, as compared to the six months ended June 30, 2023. The decrease was primarily due to the decrease in sales of our E-Bloc power systems and medium and low voltage switchgear equipment.
Critical Power Solutions. For the three months ended June 30, 2024, our gross margin increased by 2.2%, from 16.7% to 18.9%, for the three months ended June 30, 2023. The increase was predominately due to the increase in sales of our equipment and service.
For the six months ended June 30, 2024, our gross margin decreased by 3.3%, from 20.8% to 17.5%, for the six months ended June 30, 2023. The decrease was primarily due to an unfavorable sales mix.
| 19 |
Operating Expenses
The following table represents our operating expenses by reportable segment for the periods indicated (in thousands, except percentages):
| Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||
| June 30, | June 30, | |||||||||||||||||||||||||||||||
| 2024 | 2023 | Variance | % | 2024 | 2023 | Variance | % | |||||||||||||||||||||||||
| Electrical Infrastructure | ||||||||||||||||||||||||||||||||
| Selling, general and administrative | $ | 563 | $ | 408 | $ | 155 | 38.0 | $ | 1,122 | $ | 680 | $ | 442 | 65.0 | ||||||||||||||||||
| Depreciation and amortization | 14 | 9 | 5 | 55.6 | 29 | 17 | 12 | 70.6 | ||||||||||||||||||||||||
| Segment operating expense | $ | 577 | $ | 417 | $ | 160 | 38.4 | $ | 1,151 | $ | 697 | $ | 454 | 65.1 | ||||||||||||||||||
| Critical Power Solutions | ||||||||||||||||||||||||||||||||
| Selling, general and administrative | $ | 1,004 | $ | 973 | $ | 31 | 3.2 | $ | 1,888 | $ | 1,985 | $ | (97 | ) | (4.9 | ) | ||||||||||||||||
| Depreciation and amortization | 10 | 19 | (9 | ) | (47.4 | ) | 10 | 135 | (125 | ) | (92.6 | ) | ||||||||||||||||||||
| Research and development | 238 | - | 238 | - | 449 | - | 449 | - | ||||||||||||||||||||||||
| Segment operating expense | $ | 1,014 | $ | 992 | $ | 22 | 2.2 | $ | 2,347 | $ | 2,120 | $ | 227 | (97 | ) | |||||||||||||||||
| Unallocated Corporate Overhead Expenses | ||||||||||||||||||||||||||||||||
| Selling, general and administrative | $ | 1,122 | $ | 1,678 | $ | (556 | ) | (33.1 | ) | $ | 2,285 | $ | 2,425 | $ | (140 | ) | (5.8 | ) | ||||||||||||||
| Depreciation and amortization | 2 | 2 | - | - | 4 | 4 | - | - | ||||||||||||||||||||||||
| Segment operating expense | $ | 1,124 | $ | 1,680 | $ | (556 | ) | (33.1 | ) | $ | 2,289 | $ | 2,429 | $ | (140 | ) | (5.8 | ) | ||||||||||||||
| Consolidated | ||||||||||||||||||||||||||||||||
| Selling, general and administrative | $ | 2,689 | $ | 3,059 | $ | (370 | ) | (12.1 | ) | $ | 5,295 | $ | 5,090 | $ | 205 | 4.0 | ||||||||||||||||
| Depreciation and amortization | 26 | 30 | (4 | ) | (13.3 | ) | 43 | 156 | (113 | ) | (72.4 | ) | ||||||||||||||||||||
| Research and development | 238 | - | 398 | - | 449 | - | 449 | - | ||||||||||||||||||||||||
| Consolidated operating expense | $ | 2,953 | $ | 3,089 | $ | 24 | (4.4 | ) | $ | 5,787 | $ | 5,246 | $ | 541 | 10.3 | |||||||||||||||||
Selling, General and Administrative Expense. For the three months ended June 30, 2024, consolidated selling, general and administrative expense, before depreciation and amortization, decreased by approximately $370, or 12.1%, to $2,689, as compared to $3,059 during the three months ended June 30, 2023, primarily due to a decrease in stock-based compensation expense. As a percentage of our consolidated revenue, selling, general and administrative expense, before depreciation and amortization, increased to 42.4% during the three months ended June 30, 2024, as compared to 24.9% in the three months ended June 30, 2023.
For the six months ended June 30, 2024, consolidated selling, general and administrative expense, before depreciation and amortization, increased by approximately $205, or 4.0%, to $5,295, as compared to $5,090 during the six months ended June 30, 2023, primarily due to an increase in travel related costs. As a percentage of our consolidated revenue, selling, general and administrative expense, before depreciation and amortization, increased to 35.5% during the six months ended June 30, 2024, as compared to 23.3% in the six months ended June 30, 2023.
Depreciation and Amortization Expense. Depreciation and amortization expense consists primarily of depreciation of fixed assets and amortization of right-of-use assets related to our finance leases, and excludes amounts included in cost of sales. For the three months ended June 30, 2024, consolidated depreciation and amortization expense decreased by $4, or 13.3%, to $26, as compared to $30 during the three months ended June 30, 2023.
For the six months ended June 30, 2024, consolidated depreciation and amortization expense decreased by $113, or 72.4%, to $43, as compared to $156 during the six months ended June 30, 2023.
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(Loss) Income from Operations
The following table represents our operating (loss) income by reportable segment for the periods indicated (in thousands, except percentages):
| Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||
| June 30, | June 30, | |||||||||||||||||||||||||||||||
| 2024 | 2023 (As Restated) | Variance | % | 2024 | 2023 (As Restated) | Variance | % | |||||||||||||||||||||||||
| Electrical Infrastructure | $ | (565 | ) | $ | 2,975 | $ | (3,540 | ) | (119.0 | ) | $ | 54 | $ | 4,837 | $ | (4,783 | ) | (98.9 | ) | |||||||||||||
| Critical Power Solutions | (611 | ) | (506 | ) | (105 | ) | (20.8 | ) | (1,171 | ) | (943 | ) | (228 | ) | (24.2 | ) | ||||||||||||||||
| Unallocated corporate overhead expenses | (1,124 | ) | (1,680 | ) | 556 | 33.1 | (2,289 | ) | (2,429 | ) | 140 | 5.8 | ||||||||||||||||||||
| (Loss) income from operations | $ | (2,300 | ) | $ | 789 | $ | (3,089 | ) | (391.5 | ) | $ | (3,406 | ) | $ | 1,465 | $ | (4,871 | ) | 332.5 | |||||||||||||
Electrical Infrastructure. Operating income from our Electrical Infrastructure segment decreased by $3,540 during the three months ended June 30, 2024, as compared to the three months ended June 30, 2023, primarily due to a decrease in sales of our electrical infrastructure equipment and an increase in selling, general and administrative expense.
Operating income from our Electrical Infrastructure segment decreased by $4,783 during the six months ended June 30, 2024, as compared to the six months ended June 30, 2023, primarily due to a decrease in sales of our electrical infrastructure equipment and an increase in selling, general and administrative expense.
Critical Power Solutions. Operating loss from our Critical Power segment increased by $105 during the three months ended June 30, 2024, as compared to the three months ended June 30, 2023, primarily due to an increase research and development costs related to our e-Boost equipment from Pioneer eMobility business and an unfavorable sales mix in the service business.
Operating loss from our Critical Power segment increased by $228 during the six months ended June 30, 2024, as compared to the six months ended June 30, 2023, primarily due to an increase research and development costs related to our e-Boost equipment from Pioneer eMobility business and an unfavorable sales mix in the service business.
General Corporate Expense. Our general corporate expenses consist primarily of executive management, corporate accounting and human resources personnel, corporate office expenses, financing and corporate development activities, payroll and benefits administration, treasury, tax compliance, legal, stock-based compensation, public reporting costs and costs not specifically allocated to reportable business segments.
During the three months ended June 30, 2024, our unallocated corporate overhead expense decreased by $556, or 33.1%, as compared to the three months ended June 30, 2023, primarily due to a decrease in stock-based compensation expense.
During the six months ended June 30, 2024, our unallocated corporate overhead expense decreased by $140, or 5.8%, as compared to the six months ended June 30, 2023, primarily due to a decrease in stock-based compensation expense.
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Non-Operating (Income) Expense
Interest Income. For the three and six months ended June 30, 2024, we had interest income of approximately $17 and $48, respectively, as compared to interest income of approximately $79 and $132, respectively, during the three and six months ended June 30, 2023. We generated the majority of our interest income from our cash on hand during the six months ended June 30, 2024, and 2023.
Other Expense (Income). Other expense (income) in the consolidated statements of operations reports certain gains and losses associated with activities not directly related to our core operations.
For the three and six months ended June 30, 2024, other non-operating income was $0 and $40, respectively, as compared to other non-operating expense of $20 and $7, respectively, during the three and six months ended June 30, 2023.
Provision for Income Taxes. Our effective income tax rate for the three and six months ended June 30, 2024, and 2023 was 0.0%.
Net Loss (Income) per Share
We generated a net loss of $2,283 during the three months ended June 30, 2024, as compared to net income of $848 during the three months ended June 30, 2023.
Our net loss per basic and diluted share for the three months ended June 30, 2024, was $0.21, as compared to net income per basic share of $0.09 and net income per diluted share of $0.08 for the three months ended June 30, 2023.
We generated a net loss of $3,318 during the six months ended June 30, 2024, as compared to net income of $1,590 during the six months ended June 30, 2023.
Our net loss per basic and diluted share for the six months ended June 30, 2024, was $0.32, as compared to net income per basic share of $0.16 and net income per diluted share of $0.15 for the six months ended June 30, 2023.
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 June 30, 2024, the Company had $6,512 of cash on hand generated primarily from the sale of common stock under the ATM Program. Since October 20, 2020, and through June 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 six months ended June 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 June 30, 2024, $69,853 of common stock remained available for issuance under the ATM Program.
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 our 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, we are unable to predict the potential size and duration of the impact on our revenue and our results of operations, if any. The extent of the potential impact of these macroeconomic factors on our operational and financial performance will depend on a variety of factors, including the extent of geopolitical disruption and its impact on our clients, partners, industry, and employees, all of which are uncertain at this time and cannot be accurately predicted. We continue to monitor the effects of these macroeconomic factors and intends to take steps deemed appropriate to limit the impact on our business. During the six months ended June 30, 2024, we were able to operate substantially at capacity.
There can be no assurance that precautionary measures, whether adopted by us or imposed by others, will be effective, and such measures could negatively affect our sales, marketing, and client service efforts, delay and lengthen our sales cycles, decrease our employees’, clients’, or partners’ productivity, or create operational or other challenges, any of which could harm our business and results of operations.
Cash (Used in)/ Provided by Operating Activities. Cash used in our operating activities was $1,379 during the six months ended June 30, 2024, as compared to cash provided by operating activities of $366 during the six months ended June 30, 2023. The increase in cash used in operating activities is primarily due to the increase in our net loss and working capital fluctuations.
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Cash Used in Investing Activities. Cash used in investing activities during the six months ended June 30, 2024, was $614, as compared to $810 during the six months ended June 30, 2023. Additions to property and equipment during the six months ended June 30, 2024, were $614, as compared to $810 of additions during the six months ended June 30, 2023.
Cash Provided by/ (Used in) Financing Activities. Cash provided by our financing activities was $4,923 during the six months ended June 30, 2024, as compared to cash used in financing activities of $228 during the six months ended June 30, 2023. The increase in cash provided by financing activities is primarily due to the sale of common stock under the ATM Program.
Working Capital. As of June 30, 2024, we had working capital of $11,140, including $6,512 of cash on hand, compared to working capital of $9,421, including $3,582 of cash on hand as of December 31, 2023.
Assessment of Liquidity. As of June 30, 2024, we had $6,512 of cash on hand generated primarily from the sale of common stock under the ATM Program. We have historically met our 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, 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 from the date our unaudited consolidated financial statements are issued.
As of June 30, 2024, 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 $614 of additions to property and equipment during the six months ended June 30, 2024, as compared to $810 of additions to property and equipment during the six months ended June 30, 2023.
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. 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.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), evaluated the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of June 30, 2024. Our disclosure controls and procedures are designed to provide reasonable assurance that information we are required to disclose in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosures, and is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Based on this evaluation, and as a result of the material weaknesses described below, our CEO and CFO have concluded that our disclosure controls and procedures were not effective as of June 30, 2024. In light of this determination, our management has performed additional analyses, reconciliations, and other post-closing procedures and has concluded that, notwithstanding the material weakness in our internal control over financial reporting, the unaudited interim condensed consolidated financial statements for the periods covered by and included in this Quarterly Report on Form 10-Q fairly state, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with U.S. GAAP.
Material Weaknesses in Internal Control over Financial Reporting
A material weakness, as defined in the standards established by Sarbanes-Oxley, is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis.
Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with U.S. GAAP. The following material weaknesses in our internal control over financial reporting were present as of December 31, 2023, and continued to exist as of June 30, 2024:
| ● | The Company did not maintain effective controls over the revenue recognition of over-time contracts and associated costs. The Company’s underlying estimates of total labor hours required to complete over-time contracts were materially different from the actual labor hours required, which was determined to represent an error, and, as a result, the percentage of completion used to recognize revenue was materially different from the percentage of completion using actual labor hours incurred. Additionally, the Company did not properly account for recognition of costs incurred by contract. This material weakness resulted in the restatement of the Company’s consolidated financial statements for the year ended December 31, 2022, as well as its interim consolidated financial statements for the three months ended March 31, 2022, and 2023, the three and six months ended June 30, 2022, and 2023 and the three and nine months ended September 30, 2022, and 2023. | |
| ● | The Company did not design and maintain effective controls over the accounting for inventory and related cost of sales, primarily due to the lack of an automated tracking system and the manual nature of its current processes and controls surrounding inventory. Specifically, we did not design and maintain effective controls over (1) complete and accurate inventory costing, including recording inventoriable costs at the lower of cost and net realizable value, (2) cycle count procedures and inventory system changes, which occur without proper review and documentation and (3) proper segregation of duties. | |
| ● | The Company has a lack of sufficient accounting personnel with the necessary skills, knowledge, and expertise. This deficiency impacts our ability to ensure appropriate segregation of duties, and to accurately and timely close, consolidate and prepare financial statements as required to maintain compliance with reporting deadlines under applicable SEC regulations. |
Management’s Plan to Remediate the Material Weaknesses
The Company is implementing enhancements to its internal controls to remediate the identified material weaknesses in its internal control over financial reporting. Specifically, the Company has:
| ● | engaged external third parties for assistance as needed; | |
| ● | initiated a review and update of significant accounting policies, procedures, and controls; and | |
| ● | begun additional training for its accounting and financial reporting personnel. |
Additionally, the Company plans to hire additional accounting and finance personnel with the requisite skills, knowledge and expertise to address identified control deficiencies.
The Company is committed to maintaining a strong internal control environment and believes these remediation efforts will represent significant improvements in its controls over the control environment. These steps will take time to be fully implemented and confirmed to be effective and sustainable. Additional controls may also be required over time. While the Company believes that these efforts will improve its internal control over financial reporting, the Company will not be able to conclude whether the steps the Company is taking will remediate the material weaknesses in internal control over financial reporting until a sufficient period of time has passed to allow management to test the design and operational effectiveness of the new and enhanced controls. Until the remediation steps set forth above are fully implemented and tested, the material weaknesses described above will continue to exist.
Changes in Internal Control over Financial Reporting
Other than described above, there have been no changes in our internal control over financial reporting that occurred during the three months ended June 30, 2024, that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we may become involved in lawsuits, investigations and claims that arise in the ordinary course of business.
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.
As of the date hereof, we are not aware of or a party to any other legal proceedings to which we or any of our subsidiaries is a party or to which any of our property is subject, nor are we aware of any such threatened or pending litigation or any such proceedings known to be contemplated by governmental authorities that we believe could have a material adverse effect on our business, financial condition or operating results.
We can give no assurance that any other lawsuits or claims brought in the future will not have an adverse effect on our financial condition, liquidity or operating results.
We are not aware of any material proceedings in which any of our directors, officers or affiliates or any registered or beneficial shareholder of more than 5% of our common stock is an adverse party or has a material interest adverse to our interest.
ITEM 1A. RISK FACTORS
A description of the risks associated with our business, financial condition and results of operations is set forth in “Item 1A. Risk Factors” of our annual report on Form 10-K for the fiscal year ended December 31, 2023, as filed with the Securities and Exchange Commission on July 26, 2024, and are supplemented with the following revised risk factors:
We may not meet the continued listing requirements of Nasdaq, which could result in a delisting of our common stock.
As previously disclosed, on April 18, 2024, we received a notice (the “10-K Notice”) from the Listing Qualifications staff of Nasdaq (the “Staff”) notifying us that as we had not yet filed our Annual Report on Form 10-K for the year ended December 31, 2023 (the “Form 10-K”), we no longer complied with Listing Rule 5250(c)(1) for continued listing on Nasdaq (the “Listing Rule”). On May 24, 2024, we received an additional notice from Nasdaq notifying us that as we had not yet filed our Form 10-Q for the quarter ended March 31, 2024 (the “Q1 10-Q”), and because we remained delinquent in filing the Form 10-K, we did not comply with the Listing Rule. On July 26, 2024, we filed the Form 10-K with the SEC and are now in compliance with such filing.
On August 21, 2024, we received a notice from Nasdaq notifying us that as we had not yet filed our Form 10-Q for the quarter ended June 30, 2024 (the “Q2 10-Q”, and together with the Q1 10-Q, the “Delinquent Filings”), we were not in compliance with the Listing Rule. We previously submitted a plan to Nasdaq (the “Plan”) on June 17, 2024, to regain compliance with respect to the Delinquent Filings and Nasdaq granted an exception until September 20, 2024, to file the Delinquent Filings. Pursuant to the notice we received on August 21, 2024, we were required to submit an update to the Plan to Nasdaq by September 5, 2024, to regain compliance. We submitted an update to the Plan to Nasdaq on September 5, 2024, and we filed the Q1 10-Q on September 10, 2024. On September 19, 2024, Nasdaq granted us an additional exception of up to a maximum of 180 calendar days from the prescribed filing due date of the Form 10-K to file the Q2 10-Q, or until October 14, 2024, to regain compliance. In the event we do not satisfy these terms, the Staff will provide written notification that our securities will be delisted. At that time, we may appeal the Staff’s determination to a hearings panel.
Although we expect to take actions intended to restore our compliance with the listing requirements, we can provide no assurance that any action taken by us would be successful.
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If our common stock is delisted from the Nasdaq Capital Market, we expect that our common stock would begin trading on the over-the-counter markets. The delisting of our common stock could result in a reduction in our trading price and would substantially limit the liquidity of our common stock. In addition, delisting could materially adversely impact our ability to raise capital or pursue strategic restructuring, refinancing or other transactions. Delisting from the Nasdaq Capital Market could also have other negative results, including the potential loss of confidence by institutional investors.
We currently derive a significant portion of our revenues from two customers. Material or significant loss of business from these customers could have an adverse effect on our business, financial condition and operating results.
We depend on two customers for a large portion of our business, and any change in the level of orders from these customers could have a significant impact on our results of operations. Approximately 10% of our sales during the three months ended June 30, 2024, were made to one customer and approximately 16% of our sales during the six months ended June 30, 2024, were made to another customer. Loss of business from these customers could have an adverse effect on our business, financial condition and operating results. The majority of our sales to these customers were made pursuant to contract terms and conditions for each project.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
See the Exhibit Index following the signature page to this Quarterly Report on Form 10-Q for a list of exhibits filed or furnished with this report, which Exhibit Index is incorporated herein by reference.
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INDEX TO EXHIBITS
Exhibit No. |
Description | |
| 31.1* | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 31.2* | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 32.1** | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 32.2** | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101.INS* 101.SCH* 101.CAL* 101.DEF* 101.LAB* 101.PRE* 104* |
|
Inline XBRL Instance Document. Inline XBRL Taxonomy Extension Schema Document. Inline XBRL Taxonomy Extension Calculation Linkbase Document. Inline XBRL Taxonomy Extension Definition Linkbase Document. Inline XBRL Taxonomy Extension Labels Linkbase Document. Inline XBRL Taxonomy Extension Presentation Linkbase Document. Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). |
* Filed herewith.
** Furnished herewith
| 27 |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| PIONEER POWER SOLUTIONS, INC. | ||
| Date: October 8, 2024 | By: | /s/ Nathan J. Mazurek |
| Name: | Nathan J. Mazurek | |
| Title: | Chief Executive Officer (Principal Executive Officer duly authorized to sign on behalf of Registrant) | |
| Date: October 8, 2024 | /s/ Walter Michalec | |
| Name: | Walter Michalec | |
| Title: | Chief Financial Officer (Principal Financial Officer duly authorized to sign on behalf of Registrant) |
| 28 |
EXHIBIT 31.1
CERTIFICATION
I, Nathan J. Mazurek, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Pioneer Power Solutions, Inc.; | |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a. | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b. | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c. | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d. | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a. | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and; | |
| b. | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: October 8, 2024 | /s/ Nathan J. Mazurek |
| Nathan J. Mazurek | |
President, Chief Executive Officer and Chairman of the Board of Directors (Principal Executive Officer duly authorized to sign on behalf of Registrant) |
EXHIBIT 31.2
CERTIFICATION
I, Walter Michalec, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Pioneer Power Solutions, Inc.; | |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a. | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b. | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c. | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d. | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a. | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and; | |
| b. | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: October 8, 2024 | /s/ Walter Michalec |
| Walter Michalec | |
Chief Financial Officer (Principal Financial Officer duly authorized to sign on behalf of Registrant) |
EXHIBIT 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
This certification is furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) and accompanies the Quarterly Report on Form 10-Q (the “Form 10-Q”) for the fiscal quarter ended June 30, 2024, of Pioneer Power Solutions, Inc. (the “Company”). I, Nathan J. Mazurek, the Chief Executive Officer of the Company, certify that, based on my knowledge:
| (1) | The Form 10-Q fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and | |
| (2) | The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods covered in this report. |
| Date: October 8, 2024 | By: | /s/ Nathan J. Mazurek |
| Name: | Nathan J. Mazurek | |
| Title: | Chief Executive Officer |
The foregoing certification is being furnished as an exhibit to the Form 10-Q pursuant to Item 601(b)(32) of Regulation S-K and Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and, accordingly, is not being filed as part of the Form 10-Q for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
EXHIBIT 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
This certification is furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) and accompanies the Quarterly Report on Form 10-Q (the “Form 10-Q”) for the fiscal quarter ended June 30, 2024, of Pioneer Power Solutions, Inc. (the “Company”). I, Walter Michalec, the Chief Financial Officer of the Company, certify that, based on my knowledge:
| (1) | The Form 10-Q fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and | |
| (2) | The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods covered in this report. |
| Date: October 8, 2024 | By: | /s/ Walter Michalec |
| Name: | Walter Michalec | |
| Title: | Chief Financial Officer |
The foregoing certification is being furnished as an exhibit to the Form 10-Q pursuant to Item 601(b)(32) of Regulation S-K and Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and, accordingly, is not being filed as part of the Form 10-Q for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
Consolidated Statements of Operations (Unaudited) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2024 |
Jun. 30, 2023 |
Jun. 30, 2024 |
Jun. 30, 2023 |
|
| Income Statement [Abstract] | ||||
| Revenues | $ 6,340 | $ 12,282 | $ 14,930 | $ 21,838 |
| Cost of goods sold | 5,687 | 8,404 | 12,549 | 15,127 |
| Gross profit | 653 | 3,878 | 2,381 | 6,711 |
| Operating expenses | ||||
| Selling, general and administrative | 2,715 | 3,089 | 5,338 | 5,246 |
| Research and development | 238 | 449 | ||
| Total operating expenses | 2,953 | 3,089 | 5,787 | 5,246 |
| (Loss) income from operations | (2,300) | 789 | (3,406) | 1,465 |
| Interest income | (17) | (79) | (48) | (132) |
| Other expense (income), net | 20 | (40) | 7 | |
| (Loss) income before income taxes | (2,283) | 848 | (3,318) | 1,590 |
| Income tax expense | ||||
| Net (loss) income | $ (2,283) | $ 848 | $ (3,318) | $ 1,590 |
| (Loss) income per share: | ||||
| Basic | $ (0.21) | $ 0.09 | $ (0.32) | $ 0.16 |
| Diluted | $ (0.21) | $ 0.08 | $ (0.32) | $ 0.15 |
| Weighted average common shares outstanding: | ||||
| Basic | 10,920,125 | 9,908,434 | 10,518,659 | 9,838,989 |
| Diluted | 10,920,125 | 10,746,601 | 10,518,659 | 10,677,156 |
Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands |
Jun. 30, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Statement of Financial Position [Abstract] | ||
| Allowance of credit losses | $ 150 | $ 97 |
| Preferred stock, par value | $ 0.001 | $ 0.001 |
| Preferred stock, shares authorized | 5,000,000 | 5,000,000 |
| Preferred stock, shares issued | 0 | 0 |
| Common stock, par value | $ 0.001 | $ 0.001 |
| Common stock, shares authorized | 30,000,000 | 30,000,000 |
| Common stock, shares issued | 10,917,038 | 9,930,022 |
| Common stock, shares outstanding | 10,917,038 | 9,930,022 |
BUSINESS ORGANIZATION, NATURE OF OPERATIONS, RISKS AND UNCERTAINTIES |
6 Months Ended |
|---|---|
Jun. 30, 2024 | |
| Accounting Policies [Abstract] | |
| BUSINESS ORGANIZATION, NATURE OF OPERATIONS, RISKS AND UNCERTAINTIES | 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”).
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 June 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 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 six-month period ended June 30, 2024. The Company anticipates that its annual effective tax rate will be 0% for the year ending December 31, 2024. As of June 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 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, 2023.
Liquidity
The accompanying 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 June 30, 2024, the Company had $6,512 of cash on hand and working capital of $11,140. 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 June 30, 2024, the Company sold an aggregate of 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 six months ended June 30, 2024, the Company sold an aggregate of 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 June 30, 2024, $ of common stock remained available for issuance under the ATM Program.
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, sale of common stock under the ATM Program and collecting all unpaid principal and interest from the Seller Notes. 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. 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 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 six months ended June 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.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
6 Months Ended |
|---|---|
Jun. 30, 2024 | |
| Accounting Policies [Abstract] | |
| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 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.
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 establish 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 on 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 $150 and $97 of reserves for expected credit losses as of June 30, 2024, and December 31, 2023, respectively.
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.
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REVENUES |
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| Revenue from Contract with Customer [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| REVENUES | 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.
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 June 30, 2024, the Company recognized $4,676 of revenue over time, as compared to $8,224 during the three months ended June 30, 2023. Additionally, the Company recognized $1,664 and $4,058 of revenue at a point in time from the sale of our products during the three months ended June 30, 2024, and June 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 $2,235 and $1,890 of service revenue during the three months ended June 30, 2024, and June 30, 2023, respectively.
During the six months ended June 30, 2024, the Company recognized $8,833 of revenue over time, as compared to $14,683 during the six months ended June 30, 2023. Additionally, the Company recognized $6,097 and $7,155 of revenue at a point in time from the sale of our products during the six months ended June 30, 2024, and June 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 $4,223 and $3,952 of service revenue during the six months ended June 30, 2024, and June 30, 2023, respectively.
During the three months ended June 30, 2024, the Company recognized approximately $98 of revenue that was classified as deferred revenue as of December 31, 2023, as compared to $3,334 of revenue recognized during the three months ended June 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 six months ended June 30, 2024, the Company recognized approximately $2,477 of revenue that was classified as deferred revenue as of December 31, 2023, as compared to $5,966 of revenue recognized during the six months ended June 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 June 30, 2024, one customer represented approximately 11% of the Company’s accounts receivable. As of December 31, 2023, one customer represented approximately 23% of the Company’s accounts receivable.
For the three months ended June 30, 2024, one customer represented approximately 10% of the Company’s revenue. For the three months ended June 30, 2023, one customer represented approximately 65% of the Company’s revenue.
For the six months ended June 30, 2024, one customer represented approximately 16% of the Company’s revenue. For the six months ended June 30, 2023, two customers represented approximately 60% and 10% 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 six months ended June 30, 2024, and June 30, 2023, were insignificant.
The following table presents our revenues disaggregated by revenue discipline:
See “Note 9 - Business Segment and Geographic Information”.
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INVENTORIES |
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| Inventory Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
| INVENTORIES | 4. INVENTORIES
The components of inventories are summarized below:
Inventories are stated at the lower of cost or a net realizable value determined on a weighted average method.
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PROPERTY AND EQUIPMENT, NET |
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| PROPERTY AND EQUIPMENT, NET | 5. PROPERTY AND EQUIPMENT, NET
Property and equipment are summarized below:
Depreciation expense was $164 and $97 for the three months ended June 30, 2024, and 2023, respectively.
Depreciation expense was $286 and $227 for the six months ended June 30, 2024, and 2023, respectively.
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ACCOUNTS PAYABLE AND ACCRUED LIABILITIES |
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Jun. 30, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||
| Payables and Accruals [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
| ACCOUNTS PAYABLE AND ACCRUED LIABILITIES | 6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
The components of accounts payable and accrued liabilities are summarized below:
Accrued liabilities primarily consist of accrued legal settlement costs, accrued sales commissions, accrued compensation and benefits, accrued sales and use taxes and accrued insurance. Accrued legal settlement costs as of June 30, 2024, and December 31, 2023, were $5,000. See Note 10 for details. As of June 30, 2024, and December 31, 2023, accrued sales commissions were $584 and $442, respectively. Accrued compensation and benefits as of June 30, 2024, and December 31, 2023, were $252 and $294, respectively. Accrued sales and use taxes as of June 30, 2024, and December 31, 2023, were $167 and $67, respectively, and there was $228 accrued insurance as of June 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 June 30, 2024, two of the Company’s suppliers represented approximately 41% 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.
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STOCK-BASED COMPENSATION |
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| Share-Based Payment Arrangement [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| STOCK-BASED COMPENSATION |
Stock-Based Compensation
Stock-based compensation expense recorded for the three and six months ended June 30, 2024, was approximately $ and $, respectively. Stock-based compensation expense recorded for the three and six months ended June 30, 2023, was approximately $ and $, respectively. At June 30, 2024, there was $ of stock-based compensation expense remaining to be recognized in the consolidated statements of operations over a weighted average remaining period of years.
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BASIC AND DILUTED (LOSS) INCOME PER COMMON SHARE |
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| (Loss) income per share: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 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):
As of June 30, 2024, diluted (loss) income per share excludes potentially dilutive common shares related to shares underlying stock options as their effect was anti-dilutive.
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BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION |
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Jun. 30, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION | 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.
The following tables present information about segment loss and income:
Revenues are attributable to countries based on the location of the Company’s customers:
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COMMITMENTS AND CONTINGENCIES |
6 Months Ended |
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Jun. 30, 2024 | |
| Commitments and Contingencies Disclosure [Abstract] | |
| COMMITMENTS AND CONTINGENCIES | 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, 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. As of June 30, 2024, the Company recognized a liability of $5,000 related to this matter, which was included within accounts payable and accrued liabilities, with a corresponding insurance receivable of $5,000 related to the loss recovery, which was deemed to be probable and included within prepaid expenses and other current assets on the consolidated balance sheets.
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. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) |
6 Months Ended |
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Jun. 30, 2024 | |
| Accounting Policies [Abstract] | |
| Recent Accounting Pronouncements | 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.
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| Revenue Recognition | 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 establish 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 on its ongoing contracts at least quarterly.
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| Cost of Goods Sold | 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.
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| Accounts Receivable | 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 $150 and $97 of reserves for expected credit losses as of June 30, 2024, and December 31, 2023, respectively.
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| Deferred Financing Costs | 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. |
REVENUES (Tables) |
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Jun. 30, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenue from Contract with Customer [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF REVENUE DISAGGREGATED | The following table presents our revenues disaggregated by revenue discipline:
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INVENTORIES (Tables) |
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Jun. 30, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||
| Inventory Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF INVENTORIES | The components of inventories are summarized below:
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PROPERTY AND EQUIPMENT, NET (Tables) |
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Jun. 30, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF PROPERTY AND EQUIPMENT | Property and equipment are summarized below:
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ACCOUNTS PAYABLE AND ACCRUED LIABILITIES (Tables) |
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Jun. 30, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||
| Payables and Accruals [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF ACCOUNTS PAYABLE AND ACCRUED LIABILITIES | The components of accounts payable and accrued liabilities are summarized below:
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STOCK-BASED COMPENSATION (Tables) |
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Jun. 30, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-Based Payment Arrangement [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF STOCK OPTION ACTIVITY |
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| SCHEDULE OF RESTRICTED STOCK UNITS |
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BASIC AND DILUTED (LOSS) INCOME PER COMMON SHARE (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (Loss) income per share: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF BASIC AND DILUTED LOSS PER SHARE |
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BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Segment Reporting [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF SEGMENT INCOME LOSS | The following tables present information about segment loss and income:
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| SCHEDULE OF ATTRIBUTABLE TO COUNTIES BASED ON THE LOCATION | Revenues are attributable to countries based on the location of the Company’s customers:
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BUSINESS ORGANIZATION, NATURE OF OPERATIONS, RISKS AND UNCERTAINTIES (Details Narrative) |
3 Months Ended | 6 Months Ended | 12 Months Ended | 44 Months Ended | |||
|---|---|---|---|---|---|---|---|
Dec. 31, 2024 |
Jun. 30, 2024
USD ($)
shares
|
Jun. 30, 2024
USD ($)
shares
|
Jun. 30, 2023
USD ($)
|
Dec. 31, 2023
Segments
|
Jun. 30, 2024
USD ($)
shares
|
Dec. 31, 2022
USD ($)
|
|
| Number of reportable segments | Segments | 2 | ||||||
| Deferred tax assets valuation allowance percentage | 100.00% | 100.00% | 100.00% | ||||
| Cash | $ 6,512,000 | $ 6,512,000 | $ 6,512,000 | ||||
| Working capital | 11,140,000 | 11,140,000 | 11,140,000 | ||||
| Principal amount | $ 7,500,000 | ||||||
| Issue of common stock | 4,986,000 | ||||||
| New Sales Agreement [Member] | |||||||
| Common stock avialable for issuance | $ 69,853 | $ 69,853 | $ 69,853 | ||||
| Common Stock [Member] | |||||||
| Number of sale of stock | shares | 1,835,616 | ||||||
| Proceeds from sale of stock | $ 14,051,000 | ||||||
| Issue of common stock | shares | 27,719 | 919,557 | |||||
| Issue of common stock | $ 5,147,000 | ||||||
| Forecast [Member] | |||||||
| Effective Income Tax Rate Reconciliation, Percent | 0.00% | ||||||
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($) $ in Thousands |
Jun. 30, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Accounting Policies [Abstract] | ||
| Allowance for doubtful accounts | $ 150 | $ 97 |
SCHEDULE OF REVENUE DISAGGREGATED (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2024 |
Jun. 30, 2023 |
Jun. 30, 2024 |
Jun. 30, 2023 |
|
| Disaggregation of Revenue [Line Items] | ||||
| Total revenue | $ 6,340 | $ 12,282 | $ 14,930 | $ 21,838 |
| Product [Member] | ||||
| Disaggregation of Revenue [Line Items] | ||||
| Total revenue | 4,105 | 10,392 | 10,707 | 17,886 |
| Service [Member] | ||||
| Disaggregation of Revenue [Line Items] | ||||
| Total revenue | $ 2,235 | $ 1,890 | $ 4,223 | $ 3,952 |
SCHEDULE OF INVENTORIES (Details) - USD ($) $ in Thousands |
Jun. 30, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Inventory Disclosure [Abstract] | ||
| Raw materials | $ 10,346 | $ 5,316 |
| Work in process | 2,311 | 2,263 |
| Total inventories | $ 12,657 | $ 7,579 |
SCHEDULE OF PROPERTY AND EQUIPMENT (Details) - USD ($) $ in Thousands |
Jun. 30, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment, gross | $ 7,084 | $ 6,470 |
| Less: accumulated depreciation | (2,858) | (2,571) |
| Total property and equipment, net | 4,226 | 3,899 |
| Machinery and Equipment [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment, gross | 4,652 | 3,220 |
| Furniture and Fixtures [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment, gross | 208 | 208 |
| Computer Hardware And Software [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment, gross | 734 | 650 |
| Leasehold Improvements [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment, gross | 368 | 368 |
| Construction in Progress [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment, gross | $ 1,122 | $ 2,024 |
PROPERTY AND EQUIPMENT, NET (Details Narrative) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2024 |
Jun. 30, 2023 |
Jun. 30, 2024 |
Jun. 30, 2023 |
|
| Property, Plant and Equipment [Abstract] | ||||
| Depreciation expense | $ 164 | $ 97 | $ 286 | $ 227 |
SCHEDULE OF ACCOUNTS PAYABLE AND ACCRUED LIABILITIES (Details) - USD ($) $ in Thousands |
Jun. 30, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Payables and Accruals [Abstract] | ||
| Accounts payable | $ 5,520 | $ 5,396 |
| Accrued liabilities | 6,987 | 7,213 |
| Total accounts payable and accrued liabilities | $ 12,507 | $ 12,609 |
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES (Details Narrative) - USD ($) $ in Thousands |
6 Months Ended | 12 Months Ended |
|---|---|---|
Jun. 30, 2024 |
Dec. 31, 2023 |
|
| Product Information [Line Items] | ||
| Accrued legal settlement costs | $ 5,000 | $ 5,000 |
| Accrued sales commissions | 584 | 442 |
| Accrued compensation and benefits | 252 | 294 |
| Accrued sales and use taxes | 167 | 67 |
| Accrued insurance | $ 228 | $ 795 |
| Two Suppliers [Member] | Accounts Payable [Member] | Supplier Concentration Risk [Member] | ||
| Product Information [Line Items] | ||
| Concentration risk percentage | 41.00% | |
| One Supplier [Member] | Accounts Payable [Member] | Supplier Concentration Risk [Member] | ||
| Product Information [Line Items] | ||
| Concentration risk percentage | 18.00% |
STOCK-BASED COMPENSATION (Details Narrative) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2024 |
Jun. 30, 2023 |
Jun. 30, 2024 |
Jun. 30, 2023 |
|
| Share-Based Payment Arrangement [Abstract] | ||||
| Stock-based compensation | $ 96 | $ 819 | $ 321 | $ 962 |
| Stock-based compensation expense | $ 109 | $ 109 | ||
| Weighted average remaining period | 2 years 1 month 6 days | |||
SCHEDULE OF BASIC AND DILUTED LOSS PER SHARE (Details) - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2024 |
Jun. 30, 2023 |
Jun. 30, 2024 |
Jun. 30, 2023 |
|
| (Loss) income per share: | ||||
| Net (loss) income | $ (2,283) | $ 848 | $ (3,318) | $ 1,590 |
| Weighted average basic shares outstanding | 10,920,125 | 9,908,434 | 10,518,659 | 9,838,989 |
| Effect of dilutive securities - equity based compensation plans | 838,167 | 838,167 | ||
| Weighted average diluted shares outstanding | 10,920,125 | 10,746,601 | 10,518,659 | 10,677,156 |
| Basic | $ (0.21) | $ 0.09 | $ (0.32) | $ 0.16 |
| Diluted | $ (0.21) | $ 0.08 | $ (0.32) | $ 0.15 |
BASIC AND DILUTED (LOSS) INCOME PER COMMON SHARE (Details Narrative) |
6 Months Ended |
|---|---|
|
Jun. 30, 2024
shares
| |
| Share-Based Payment Arrangement, Option [Member] | |
| Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | |
| Potentially dilutive common shares | 654,313 |
SCHEDULE OF ATTRIBUTABLE TO COUNTIES BASED ON THE LOCATION (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2024 |
Jun. 30, 2023 |
Jun. 30, 2024 |
Jun. 30, 2023 |
|
| Revenues from External Customers and Long-Lived Assets [Line Items] | ||||
| Revenues | $ 6,340 | $ 12,282 | $ 14,930 | $ 21,838 |
| UNITED STATES | ||||
| Revenues from External Customers and Long-Lived Assets [Line Items] | ||||
| Revenues | $ 6,340 | $ 12,282 | $ 14,930 | $ 21,838 |
COMMITMENTS AND CONTINGENCIES (Details Narrative) - USD ($) $ in Thousands |
Jun. 30, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Loss Contingencies [Line Items] | ||
| Recognized liability | $ 5,000 | $ 5,000 |
| Common stock for adverse interest percentage | 5.00% | |
| Accounts Payable and Accrued Liabilities [Member] | ||
| Loss Contingencies [Line Items] | ||
| Recognized liability | $ 5,000 | |
| Loss recovery on insurance receivable | $ 5,000 |