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BASIS OF PRESENTATION | 9 Months Ended
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Sep. 30, 2022
Organization, Consolidation and Presentation of Financial Statements [Abstract] |
BASIS OF PRESENTATION | 1. BASIS OF PRESENTATION Overview Pioneer Power Solutions, Inc. and its wholly owned subsidiaries (referred to herein as the “Company,” “Pioneer,” “Pioneer Power,” “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, 2021, as filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2022: Transmission and Distribution Solutions (“T&D Solutions”) and Critical Power Solutions (“Critical Power”). Presentation The accompanying unaudited interim consolidated financial statements of the Company have been prepared pursuant to the rules of the SEC and reflect the accounts of the Company as of September 30, 2022. Certain information and footnote disclosures, normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”), have been condensed or omitted pursuant to those rules and regulations. We believe that the disclosures made are adequate to make the information presented not misleading to the reader. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary to fairly state the financial position, results of operations and cash flows with respect to the interim consolidated financial statements have been included. The results of operations for the interim period are not necessarily indicative of the results for the entire fiscal year. The year-end balance sheet data was derived from audited financial statements but 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. Amounts may not foot due to rounding. ASC 740-270 requires the use of an estimated annual effective tax rate to compute the tax provision during an interim period unless certain exceptions are met. We have used a discrete-period computation method to calculate taxes for the fiscal three and nine-month periods ended September 30, 2022. Due to projected operating losses for the year, the Company anticipates that its annual effective tax rate will be 0%. As of September 30, 2022, 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, 2021. Liquidity The accompanying financial statements have been prepared on a basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying financial statements as of September 30, 2022, the Company had $7.2 million of cash on hand and working capital of $14.2 million. The cash on hand was generated primarily from the sale of common stock under the At The Market Sale Agreement during the year ended December 31, 2021. We have met our cash needs through a combination of cash flows from operating activities and bank borrowings, the completion of the Equity Transaction (as defined herein), proceeds from the sale of the CleanSpark Common Stock and warrants to purchase CleanSpark Common Stock, proceeds from insurance and the sale of common stock under the At The Market Sale Agreement and funding from the Payroll Protection Program. Our cash requirements historically were generally for operating activities, debt repayment, capital improvements and acquisitions. We expect to meet our cash needs with our working capital and cash flows from our operating activities. We expect our cash requirements to be generally for operating activities, product development and capital improvements. The Company expects that its current cash balance is sufficient to fund operations for the next twelve months. On June 1, 2021, the board of directors of the Company declared a special cash dividend of $0.12 per common share, payable to shareholders of record as of June 22, 2021, to be paid on July 7, 2021. The cash dividends were paid in July of 2021 and equaled $0.12 per share on the $0.001 par value common stock resulting in an aggregate distribution of approximately $1.0 million representing a capital repayment paid from additional paid-in capital (“APIC”). During the year ended December 31, 2021, the Company executed a cash collateral security agreement with a commercial bank, which agreement required us to pledge cash collateral as security for all unpaid reimbursement obligations owing to the commercial bank for an irrevocable standby letter of credit in the amount of $1.8 million. During the first quarter of 2022, the Company amended its agreement with the commercial bank to decrease the required amount of cash collateral by $1.3 million. On May 6, 2022, the Company received notice that the cash collateral security agreement it had executed with the commercial bank was cancelled. Upon cancellation of the cash collateral security agreement, any unpaid reimbursement obligations owing to the commercial bank were also cancelled. On May 11, 2022, the commercial bank released and transferred the remaining cash collateral of $505 to the Company. The Company had no restricted cash on the consolidated balance sheets at September 30, 2022. The Company accounts for restricted cash under the guidance of ASU No. 2016-18, Statement of Cash Flows - Restricted Cash (Topic 230), which requires the statement of cash flows to explain the change during the period in the total of cash, cash equivalents, and restricted cash and that restricted cash be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The following table provides a reconciliation of cash and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the unaudited interim consolidated statement of cash flows:
|  | September 30, |  |  | December 31, |
|  | 2022 |  |  | 2021 |
Cash |  | $ | 7,210 |  |  | $ | 9,924 |
Restricted cash |  |  | — |  |  |  | 1,775 |
Total cash and restricted cash as shown in the statement of cash flows |  | $ | 7,210 |  |  | $ | 11,699 |
COVID-19 The full impact of the COVID-19 pandemic and its ongoing effects continues to evolve as the date of this report. As such, it continues to be uncertain as to the full magnitude that the pandemic will have on the Company’s financial condition, liquidity, and future results of operations. The Company was able to operate substantially at capacity during the COVID-19 pandemic. Management is actively monitoring the global situation on its financial condition, liquidity, operations, suppliers, industry, and workforce. Given the daily evolution of the COVID-19 pandemic, its ongoing effects, and the global responses to the continuing crisis, the Company is not able to estimate the full effects of the COVID-19 pandemic and its ongoing effects at this time, however, if the ongoing effects of the COVID-19 pandemic continue or worsen, it may have an adverse effect on the Company’s results of operations, financial condition, or liquidity. On March 27, 2020, then President Trump signed into law the “Coronavirus Aid, Relief, and Economic Security (CARES) Act” (the “CARES Act”). The CARES Act, among other things, appropriates funds for the SBA Paycheck Protection Program loans that are forgivable in certain situations to promote continued employment. On April 13, 2020, after having determined that it met the qualifications for this loan program due to the impact that COVID-19 would have on our financial condition, results of operations, and/or liquidity and applying for relief, the Company received a loan under the SBA Paycheck Protection Program (the “PPP Loan”) in the amount of $1.4 million. The Company accounted for the PPP Loan as a debt instrument in accordance with FASB ASC 470, Debt. Under the terms of the PPP Loan, the Company was eligible for full or partial loan forgiveness. During the first quarter of 2021, the Company received full forgiveness of the PPP Loan and recognized a $1.4 million gain on extinguishment and forgiveness of debt as other income in the unaudited interim consolidated statements of operations. Reclassification The following items have been reclassified in the 2021 financial statements: The unaudited consolidated statements of cash flows contain a reclassification of the gain on the extinguishment and forgiveness of the PPP Loan from financing activities to operating activities for the nine months ended September 30, 2021. Additionally, principal repayments of financing leases and the reduction in operating leases have been reclassified and presented in the applicable cash flow activity for the nine months ended September 30, 2021. The inventories footnote contains a reclassification of the provision for excess and obsolete inventory and reductions to net realizable value to the applicable inventory classification at December 31, 2021.

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