UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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PIONEER POWER SOLUTIONS, INC.
Form 10-Q
For the Quarterly Period Ended September 30, 2022
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
PIONEER POWER SOLUTIONS, INC.
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of goods sold | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses | ||||||||||||||||
| Selling, general and administrative | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest income | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other (income) expense, net | ( | ) | ( | ) | ||||||||||||
| Loss before taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax expense (benefit) | ( | ) | ||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Loss 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 share data)
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | $ | ||||||
| Restricted cash | ||||||||
| Notes receivable and accrued interest | ||||||||
| Accounts receivable, net | ||||||||
| Inventories | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Right-of-use assets | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| Deferred revenue | ||||||||
| Total current liabilities | ||||||||
| Other long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments | ||||||||
| Stockholders’ equity | ||||||||
| Preferred stock, $ par value, shares authorized; issued | ||||||||
| Common stock, $ par value, shares authorized; and shares issued and outstanding on September 30, 2022 and December 31, 2021, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive income | ||||||||
| 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)
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2022 | 2021 | |||||||
| Operating activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Depreciation | ||||||||
| Amortization of right-of-use finance leases | ||||||||
| Amortization of imputed interest | ( | ) | ( | ) | ||||
| Interest expense from PPP Loan | ||||||||
| Gain on forgiveness of PPP Loan | ( | ) | ||||||
| Amortization of right-of-use operating leases | ||||||||
| Change in receivable reserves | ( | ) | ||||||
| Proceeds from insurance receivable | ||||||||
| Stock-based compensation | ||||||||
| Changes in current operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventories | ( | ) | ( | ) | ||||
| Prepaid expenses and other assets | ||||||||
| Income taxes | ||||||||
| Accounts payable and accrued liabilities | ||||||||
| Deferred revenue | ||||||||
| Principal repayments of operating leases | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Investing activities | ||||||||
| Additions to property and equipment | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Financing activities | ||||||||
| Net proceeds from the exercise of options for common stock | ||||||||
| Dividend paid to shareholders | ( | ) | ||||||
| Principal repayments of financing leases | ( | ) | ( | ) | ||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| Decrease in cash and restricted cash | ( | ) | ( | ) | ||||
| Cash, and restricted cash, beginning of year | ||||||||
| Cash, and restricted cash, end of period | $ | $ | ||||||
| Non-cash investing and financing activities: | ||||||||
| Acquisition of right-of-use assets and lease liabilities | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
3
PIONEER POWER SOLUTIONS, INC.
Consolidated Statement of Stockholders' Equity
(In thousands, except per share data)
(Unaudited)
| Accumulated | ||||||||||||||||||||||||
| Additional | other | Total | ||||||||||||||||||||||
| Common Stock | paid-in | comprehensive | Accumulated | stockholders' | ||||||||||||||||||||
| Shares | Amount | capital | income | deficit | equity | |||||||||||||||||||
| Balance - June 30, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||
| Balance - September 30, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Balance - June 30, 2022 (Revised) | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||
| Balance - September 30, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Accumulated | ||||||||||||||||||||||||
| Additional | other | Total | ||||||||||||||||||||||
| Common Stock | paid-in | comprehensive | Accumulated | stockholders' | ||||||||||||||||||||
| Shares | Amount | capital | income | deficit | equity | |||||||||||||||||||
| Balance - January 1, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||
| Dividend to shareholders | — | ( | ) | ( | ) | |||||||||||||||||||
| Balance - September 30, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Balance - January 1, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||
| Exercise of stock options | ||||||||||||||||||||||||
| Balance - September 30, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
PIONEER POWER SOLUTIONS, INC.
Notes to Consolidated Financial Statements
September 30, 2022 (Unaudited)
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 (
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
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 $
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.
5
On
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 $
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 | $ | $ | ||||||
| Restricted cash | ||||||||
| Total cash and restricted cash as shown in the statement of cash flows | $ | $ | ||||||
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 $
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 $
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.
6
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company’s significant accounting policies are described in Note 2 to the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. There have been no significant changes in the Company’s accounting policies during the third quarter of 2022.
Recent Accounting Pronouncements
There have been no recent accounting pronouncements not yet adopted by the Company which would have a material impact on the Company’s financial statements.
Measurement of Credit Losses on Financial Instrument. In June 2016, the FASB issued amended guidance to ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments that changes the impairment model for most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, entities will be required to use a new forward-looking “expected loss” model that will replace today’s “incurred loss” model and generally will result in the earlier recognition of allowances for losses. For available-for-sale debt securities with unrealized losses, entities will measure credit losses in a manner similar to current practice, except that the losses will be recognized as an allowance. This amended guidance for small reporting companies is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first effective reporting period. The Company does not expect that the amended guidance will have a material effect on our consolidated financial statements and related disclosures.
3. REVENUES
Nature of our products and services
Our principal products and services include electric power systems, distributed energy resources, power generation equipment and mobile EV charging solutions.
Products
Our T&D Solutions business provides electric power systems and distributed energy resources that help customers effectively and efficiently protect, control, transfer, monitor and manage their electric energy requirements.
Our Critical Power business provides customers with our suite of mobile e-Boost electric vehicle charging solutions and power generation equipment.
Services
Power generation systems represent considerable investments that require proper maintenance and service in order to operate reliably during a time of emergency. Our power maintenance programs provide preventative maintenance, repair and support service for our customers’ power generation systems.
Our principal source of revenue is derived from sales of products and fees for services. We measure revenue based upon the consideration specified in the customer arrangement, and revenue is recognized when the performance obligations in the customer arrangement are satisfied. A performance obligation is a promise in a contract to transfer a distinct product or service to the customer. The transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when or as, the customer receives the benefit of the performance obligation. Customers typically receive the benefit of our products when the risk of loss or control for the product transfers to the customer and for services as they are performed. Under ASC 606, revenue is recognized when a customer obtains control of promised products or services in an amount that reflects the consideration we expect to receive in exchange for those products or services. To achieve this core principal, 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.
7
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 or cost of the product or service. 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.
Revenue from the sale of our electric power systems is recognized either over time or at a point in time and substantially all of our revenue from the sale of power generation equipment is recognized at a point in time. Revenues are recognized at the point in time that the customer obtains control of the good, which is when it has taken title to the products and has assumed the risks and rewards of ownership specified in the purchase order or sales agreement. Certain sales of highly customized electrical power systems 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. Revenue for such agreements is recognized under the input method based on either cost or direct labor hours incurred relative to the estimated cost or direct labor hours expected to be consumed to complete the project. Under the cost-to-cost method of revenue recognition, a single estimated profit margin is used to recognize profit for each performance obligation over its period of performance. Recognition of profit on a contract requires estimates of the total cost at completion and transaction price and the measurement of progress towards completion. Due to the nature of many of our contracts, developing the estimated total cost at completion and total transaction price often requires judgment. Factors that must be considered in estimating the cost of the work to be completed include the nature and complexity of the work to be performed, subcontractor performance and the risk and impact of delayed performance. When adjustments in estimated total costs at completion or in estimated total transaction price are determined, the related impact on income is recognized using the cumulative catch-up method, which recognizes in the current period the cumulative effect of such adjustments for all prior periods. Any anticipated losses on these contracts are fully recognized in the period in which the losses become evident.
During
the three months ended September 30, 2022 and 2021, 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 $
8
During
the three months ended September 30, 2022 and 2021, the Company recognized $
During
the three months ended September 30, 2022, the Company recognized approximately $
During
the nine months ended September 30, 2022, the Company recognized approximately $
There was no revenue recognized during the three and nine months ended September 30, 2022 and 2021 from performance obligations satisfied in prior 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.
At
September 30, 2022, three customers represented approximately
For
the nine months ended September 30, 2022, two customers represented approximately
Return of a product requires that the buyer obtain permission in writing from the Company. When the buyer requests authorization to return material for reasons of their own, the buyer will be charged for placing the returned goods in saleable condition, restocking charges and for any outgoing and incoming transportation paid by the Company. The Company warrants title to the products, and also warrants the products on date of shipment to the buyer, to be of the kind and quality described in the contract, merchantable, and free of defects in workmanship and material. Returns and warranties during three and nine months ended September 30, 2022 and 2021 were insignificant.
The following table presents our revenues disaggregated by revenue discipline:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Products | $ | $ | $ | $ | ||||||||||||
| Services | ||||||||||||||||
| Total revenue | $ | $ | $ | $ | ||||||||||||
See “Note 12 - Business Segment and Geographic Information in Notes to Consolidated Financial Statements” in Part I of this Quarterly Report on Form 10-Q.
9
4. REVISION OF PRIOR PERIOD FINANCIAL STATEMENTS
In
connection with the preparation of our consolidated interim financial statements for the quarter ended September 30, 2022, we
completed an analysis of one of our customer contracts under ASC 606 and, as a result, we determined that the performance obligations
are satisfied over time. See “Note 3 – Revenues in Notes to Consolidated Financial Statements” in Part I of
this Quarterly Report on Form 10-Q. As a result of the analysis, we identified additional revenues to be recognized of $
The following tables reconcile the balances as previously reported in the Quarterly Reports on Form 10-Q as of and for the three months ended March 31, 2022 and as of and for the three and six months ended June 30, 2022 to the as revised balances:
| For The Three Months Ended | ||||||||||||
| March 31, 2022 | ||||||||||||
| Condensed Consolidated Statements of Operations (Unaudited) | As Reported | Adjustment | As Revised | |||||||||
| Revenues | $ | $ | $ | |||||||||
| Cost of goods sold | $ | $ | $ | |||||||||
| Gross profit | $ | $ | $ | |||||||||
| Net loss | $ | ( | ) | $ | $ | ( | ) | |||||
| Loss per share - basic and diluted | $ | ) | — | $ | ) | |||||||
| Weighted average common shares outstanding - basic and diluted | — | |||||||||||
| For The Three Months Ended | ||||||||||||
| June 30, 2022 | ||||||||||||
| Condensed Consolidated Statements of Operations (Unaudited) | As Reported | Adjustment | As Revised | |||||||||
| Revenues | $ | $ | $ | |||||||||
| Cost of goods sold | $ | $ | $ | |||||||||
| Gross profit | $ | $ | ( | ) | $ | |||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Loss per share - basic and diluted | $ | ) | — | $ | ) | |||||||
| Weighted average common shares outstanding - basic and diluted | — | |||||||||||
| For The Six Months Ended | ||||||||||||
| June 30, 2022 | ||||||||||||
| Condensed Consolidated Statements of Operations (Unaudited) | As Reported | Adjustment | As Revised | |||||||||
| Revenues | $ | $ | $ | |||||||||
| Cost of goods sold | $ | $ | $ | |||||||||
| Gross profit | $ | $ | $ | |||||||||
| Net loss | $ | ( | ) | $ | $ | ( | ) | |||||
| Loss per share - basic and diluted | $ | ) | — | $ | ) | |||||||
| Weighted average common shares outstanding - basic and diluted | — | |||||||||||
10
| March 31, 2022 | ||||||||||||
| Condensed Consolidated Balance Sheet (Unaudited) | As Reported | Adjustment | As Revised | |||||||||
| Total current assets | $ | $ | ( | ) | $ | |||||||
| Total assets | ( | ) | ||||||||||
| Total current liabilities | ( | ) | ||||||||||
| Total liabilities | ( | ) | ||||||||||
| Total stockholders’ equity | ||||||||||||
| June 30, 2022 | ||||||||||||
| Condensed Consolidated Balance Sheet (Unaudited) | As Reported | Adjustment | As Revised | |||||||||
| Total current assets | $ | $ | ( | ) | $ | |||||||
| Total assets | ( | ) | ||||||||||
| Total current liabilities | ( | ) | ||||||||||
| Total liabilities | ( | ) | ||||||||||
| Total stockholders’ equity | ||||||||||||
| For The Three Months Ended | ||||||||||||
| March 31, 2022 | ||||||||||||
| Cash Flows From Operating Activities (Unaudited) | As Reported | Adjustment | As Revised | |||||||||
| Net loss | $ | ( | ) | $ | $ | ( | ) | |||||
| Changes in current operating assets and liabilities: | ||||||||||||
| Inventories | ( | ) | ( | ) | ||||||||
| Deferred revenue | ( | ) | ||||||||||
| Net cash provided by operating activities | ||||||||||||
| For The Six Months Ended | ||||||||||||
| June 30, 2022 | ||||||||||||
| Cash Flows From Operating Activities (Unaudited) | As Reported | Adjustment | As Revised | |||||||||
| Net loss | $ | ( | ) | $ | $ | ( | ) | |||||
| Changes in current operating assets and liabilities: | ||||||||||||
| Inventories | ( | ) | ( | ) | ||||||||
| Deferred revenue | ( | ) | ||||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||||||
| For The Three Months Ended | ||||||||||||
| March 31, 2022 | ||||||||||||
| Consolidated Statement of Stockholders’ Equity (Unaudited) | As Reported | Adjustment | As Revised | |||||||||
| Accumulated deficit | $ | ( | ) | $ | $ | ( | ) | |||||
| Total stockholders’ equity | ||||||||||||
| For The Six Months Ended | ||||||||||||
| June 30, 2022 | ||||||||||||
| Consolidated Statement of Stockholders’ Equity (Unaudited) | As Reported | Adjustment | As Revised | |||||||||
| Accumulated deficit | $ | ( | ) | $ | $ | ( | ) | |||||
| Total stockholders’ equity | ||||||||||||
In accordance with SEC Staff Accounting Bulletin No. 108, we evaluated this revision based on an analysis of quantitative and qualitative factors as to whether it was material to the consolidated statements of operations for the three months ended March 31, 2022 and June 30, 2022 and if amendments of previously filed financial statements with the SEC are required. We determined that the adjustment is neither quantitatively nor qualitatively material and, therefore, the revision does not have a material impact to the consolidated statements of operations for the three months ended March 31, 2022, the three and six months ended June 30, 2022 or other prior periods.
11
5. OTHER (INCOME) EXPENSE
Other
(income) expense in the unaudited interim consolidated statements of operations reports certain gains and losses associated with
activities not directly related to our core operations. For the three months ended September 30, 2022, other income was $
For
the nine months ended September 30, 2022, other expense was $
6. INVENTORIES
The components of inventories are summarized below:
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| 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.
7. PROPERTY AND EQUIPMENT
Property and equipment are summarized below:
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| 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 $
8. NOTES RECEIVABLE
In
connection with the sale of the transformer business units in August 2019 (the “Equity Transaction”), amongst other
consideration, we received two subordinated promissory notes in the aggregate principal amount of $
12
9. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
The components of accounts payable and accrued liabilities are summarized below:
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Current portion of lease liabilities | ||||||||
| Total accounts payable and accrued liabilities | $ | $ | ||||||
Accrued
liabilities primarily consist of accrued sales commissions, accrued compensation and benefits, accrued professional fees and accrued
insurance. At September 30, 2022 and December 31, 2021, accrued sales commissions were $
10. STOCKHOLDERS’ EQUITY
Common Stock
The Company had and shares of common stock, $ par value per share, outstanding as of September 30, 2022 and December 31, 2021, respectively.
Stock-Based Compensation
| Stock Options | Weighted average exercise price | Weighted average remaining contractual term | Aggregate intrinsic value | |||||||||||||
| Outstanding as of January 1, 2022 | $ | |||||||||||||||
| Granted | ||||||||||||||||
| Exercised | ( | ) | ||||||||||||||
| Outstanding as of September 30, 2022 | $ | $ | ||||||||||||||
| Exercisable as of September 30, 2022 | $ | $ | ||||||||||||||
On April 25, 2022, the Company awarded shares of restricted stock units (“RSU”) to an employee with the following vesting terms: (i) units on May 1, 2022, which are included in the calculation of basic EPS as of the vesting date, (ii) an additional units on May 1, 2023, and (iii) the remaining units on May 1, 2024, provided that the employee is employed by the Company or a subsidiary of the Company on each such vesting date. The vested RSUs will be converted into shares of the Company's common stock no later than March 15 of the calendar year following the calendar year in which such RSUs vested. The fair value of the RSU award at the date of grant was $ million.
| Weighted-average | ||||||||
| grant-date | ||||||||
| Number of units | fair value | |||||||
| Unvested restricted stock units as of January 1, 2022 | $ | |||||||
| Units granted | ||||||||
| Units vested | ( | ) | ( | ) | ||||
| Units forfeited | ||||||||
| Unvested restricted stock units as of September 30, 2022 | $ | |||||||
13
As of September 30, 2022, there were shares available for future grants under the Company’s 2021 Long-Term Incentive Plan.
Stock-based compensation expense recorded for the three and nine months ended September 30, 2022 was approximately $ and $, respectively. Stock-based compensation expense recorded for the three and nine months ended September 30, 2021 was approximately $ and $, respectively. All of the stock-based compensation expense is included in selling, general and administrative expenses in the accompanying interim consolidated statements of operations. At September 30, 2022, there was $ of stock-based compensation expense remaining to be recognized in the interim consolidated statements of operations over a weighted average remaining period of years.
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Numerator: | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Denominator: | ||||||||||||||||
| Weighted average basic shares outstanding | ||||||||||||||||
| Effect of dilutive securities - equity based compensation plans | ||||||||||||||||
| Denominator for diluted net loss per common share | ||||||||||||||||
| Net loss per common share: | ||||||||||||||||
| Basic | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
As of September 30, 2022 and 2021, diluted loss per share excludes and potentially dilutive common shares related to equity awards, as their effect was anti-dilutive.
14
12. 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
The T&D Solutions segment is involved in the design, manufacture and distribution of switchgear used primarily by large industrial and commercial operations to manage their electrical power distribution needs. The Critical Power segment provides power generation equipment and aftermarket field-services primarily to help customers ensure smooth, uninterrupted power to operations during times of emergency.
The following tables present information about segment income (loss):
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenues | ||||||||||||||||
| T&D Solutions | ||||||||||||||||
| Power Systems | $ | $ | $ | $ | ||||||||||||
| Service | ||||||||||||||||
| Critical Power Solutions | ||||||||||||||||
| Equipment | ||||||||||||||||
| Service | ||||||||||||||||
| Consolidated | $ | $ | $ | $ | ||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Depreciation and amortization | ||||||||||||||||
| T&D Solutions | $ | $ | $ | $ | ||||||||||||
| Critical Power Solutions | ||||||||||||||||
| Unallocated corporate overhead expenses | ||||||||||||||||
| Consolidated | $ | $ | $ | $ | ||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Operating income (loss) | ||||||||||||||||
| T&D Solutions | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| 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 | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenues | ||||||||||||||||
| United States | $ | $ | $ | $ | ||||||||||||
15
13. LEASES
The
Company leases certain offices, facilities and equipment under operating and financing leases. Our leases have remaining terms
ranging from less than
As
of September 30, 2022 and December 31, 2021, assets recorded under operating leases were $
The components of the lease expense were as follows:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Operating lease cost | $ | $ | $ | $ | ||||||||||||
| Finance lease cost | ||||||||||||||||
| Amortization of right-of-use asset | $ | $ | $ | $ | ||||||||||||
| Interest on lease liabilities | ||||||||||||||||
| Total finance lease cost | $ | $ | $ | $ | ||||||||||||
Other information related to leases was as follows:
Supplemental Cash Flows Information
| September 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash paid for amounts included in the measurement of lease liabilities | ||||||||
| Operating cash flow payments for operating leases | $ | $ | ||||||
| Operating cash flow payments for finance leases | ||||||||
| Financing cash flow payments for finance leases | ||||||||
| Right-of-use assets obtained in exchange for lease obligations | ||||||||
| Operating lease liabilities arising from obtaining right of use assets | ||||||||
Weighted Average Remaining Lease Term
| September 30, | ||||||||
| 2022 | 2021 | |||||||
| Operating leases | ||||||||
| Finance leases | ||||||||
Weighted Average Discount Rate
| September 30, | ||||||||
| 2022 | 2021 | |||||||
| Operating leases | % | % | ||||||
| Finance leases | % | % | ||||||
16
Future minimum lease payments under non-cancellable leases as of September 30, 2022 were as follows:
| Operating | Finance | |||||||
| Leases | Leases | |||||||
| 2022 | $ | $ | ||||||
| 2023 | ||||||||
| 2024 | ||||||||
| 2025 | ||||||||
| Thereafter | ||||||||
| Total future minmum lease payments | ||||||||
| Less imputed interest | ( | ) | ( | ) | ||||
| Total future minmum lease payments | $ | $ | ||||||
Reported as of September 30, 2022:
| Operating | Finance | |||||||
| Leases | Leases | |||||||
| Right-of-use assets | $ | $ | ||||||
| Operating | Finance | |||||||
| Leases | Leases | |||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| Other long-term liabilities | ||||||||
| Total | $ | $ | ||||||
17
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying consolidated interim financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and with our Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the Securities and Exchange Commission on March 31, 2022.
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.
Special Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains “forward-looking statements,” which include information relating to future events, future financial performance, financial projections, strategies, expectations, competitive environment and regulation. Words such as “may,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates,” and similar expressions, as well as statements in future tense, identify forward-looking statements. Forward-looking statements should not be read as a guarantee of future performance or results and may not be accurate indications of when such performance or results will be achieved. Forward-looking statements are based on information we have when those statements are made or management’s good faith belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause such differences include, but are not limited to:
| ● | General economic conditions and their effect on demand for electrical equipment, particularly in the commercial construction market, but also in the power generation, industrial production, data center, oil and gas, marine and infrastructure industries. |
| ● | The effects of fluctuations in sales on our business, revenues, expenses, net income (loss), income (loss) per share, margins and profitability. |
| ● | Many of our competitors are better established and have significantly greater resources and may subsidize their competitive offerings with other products and services, which may make it difficult for us to attract and retain customers. |
| ● | The potential loss or departure of key personnel, including Nathan J. Mazurek, our chairman, president and chief executive officer. |
| ● | Our ability to generate internal growth, maintain market acceptance of our existing products and gain acceptance for our new products. |
| ● | Unanticipated increases in raw material prices or disruptions in supply could increase production costs and adversely affect our profitability. |
| ● | Our ability to realize revenue reported in our backlog. |
| ● | Operating margin risk due to competitive pricing and operating efficiencies, supply chain risk, material, labor or overhead cost increases, interest rate risk and commodity risk. |
| ● | Strikes or labor disputes with our employees may adversely affect our ability to conduct our business. |
| ● | The impact of geopolitical activity on the economy, changes in government regulations such as income taxes, climate control initiatives, the timing or strength of an economic recovery in our markets and our ability to access capital markets. |
| ● | Material weaknesses in internal controls. |
| ● | Future sales of large blocks of our common stock may adversely impact our stock price. |
| ● | The liquidity and trading volume of our common stock. |
| ● | Our business could be adversely affected by an outbreak of disease, epidemic or pandemic, such as the global coronavirus pandemic, or similar public threat, or fear of such an event. |
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, 2021 for a discussion of the foregoing and other risks that relate to our business and investing in shares of our common stock.
18
Business Overview
We design, manufacture, integrate, refurbish, service, distribute and sell electric power systems, distributed energy resources, power generation equipment and mobile electric vehicle (“EV”) charging solutions. Our products and services are sold to a broad range of customers in the utility, industrial and commercial markets. Our customers include, but are not limited to, electric, gas and water utilities, data center developers and owners, EV charging infrastructure developers and owners, and distributed energy developers. We are headquartered in Fort Lee, New Jersey and operate from three (3) additional locations in the U.S. for manufacturing, service and maintenance, engineering, and sales and administration.
Description of Business Segments
We have two reportable segments: Transmission & Distribution Solutions (“T&D Solutions”) and Critical Power Solutions (“Critical Power”).
| ● | Our T&D Solutions business provides equipment solutions that help customers effectively and efficiently protect, control, transfer, monitor and manage their electric energy requirements. These solutions are marketed principally through our Pioneer Custom Electrical Products Corp. (“PCEP”) brand name. |
| ● | Our Critical Power business provides customers with our suite of mobile e-Boost© EV charging solutions, power generation equipment and all forms of service and maintenance on our customers’ power generation equipment. These products and services are marketed by our operations headquartered in Minnesota, currently doing business under both the Titan Energy Systems Inc. (“Titan”) and Pioneer Critical Power brand names. |
Critical Accounting Policies and Estimates
Our financial statements have been prepared in accordance with U.S. GAAP. The preparation of our financial statements requires us to make estimates and assumptions that affect the amounts and disclosures in the financial statements. Our estimates are based on our historical experience, knowledge of current events and actions we may undertake in the future, and on various other factors that we believe are reasonable under the circumstances. Our critical accounting policies and estimates are described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies” in our Annual Report on Form 10-K filed with the SEC on March 31, 2022. There were no material changes to our accounting policies during the nine months ended September 30, 2022.
19
RESULTS OF OPERATIONS
Overview of the Three and Nine Months Results
Selected financial and operating data for our reportable business segments for the most recent reporting period is summarized below. This information, as well as the selected financial data provided in “Note 12 - Business Segment and Geographic Information” and in our unaudited consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q, should be referred to when reading our discussion and analysis of results of operations below.
Our summary of operating results during the three and nine months ended September 30, 2022 and 2021 are as follows:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenues | ||||||||||||||||
| T&D Solutions | $ | 3,773 | $ | 2,996 | $ | 10,039 | $ | 7,980 | ||||||||
| Critical Power Solutions | 2,478 | 2,689 | 7,437 | 6,833 | ||||||||||||
| Consolidated | 6,251 | 5,685 | 17,476 | 14,813 | ||||||||||||
| Cost of goods sold | ||||||||||||||||
| T&D Solutions | 3,291 | 2,810 | 9,312 | 7,807 | ||||||||||||
| Critical Power Solutions | 2,099 | 2,162 | 6,317 | 5,638 | ||||||||||||
| Consolidated | 5,390 | 4,972 | 15,629 | 13,445 | ||||||||||||
| Gross profit | 861 | 713 | 1,847 | 1,368 | ||||||||||||
| Selling, general and administrative expenses | 2,273 | 1,207 | 6,550 | 3,664 | ||||||||||||
| Depreciation and amortization expense | 32 | 24 | 86 | 74 | ||||||||||||
| Total operating expenses | 2,305 | 1,231 | 6,636 | 3,738 | ||||||||||||
| Operating loss from continuing operations | (1,444 | ) | (518 | ) | (4,789 | ) | (2,370 | ) | ||||||||
| Interest income | (116 | ) | (99 | ) | (322 | ) | (288 | ) | ||||||||
| Other (income) expense | (17 | ) | 13 | 112 | (1,294 | ) | ||||||||||
| Loss income before taxes | (1,311 | ) | (432 | ) | (4,579 | ) | (788 | ) | ||||||||
| Income tax expense (benefit) | — | 2 | 7 | (19 | ) | |||||||||||
| Net loss | $ | (1,311 | ) | $ | (434 | ) | $ | (4,586 | ) | $ | (769 | ) | ||||
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. At September 30, 2022, backlog from our E-Bloc power systems solutions was approximately $13.8 million, or 49% of the total backlog.
The following table represents the progression of our backlog, by reporting segment, as of the end of the last five quarters:
| September 30, | June 30, | March 31, | December 31, | September 30, | ||||||||||||||||
| 2022 | 2022 (Revised) | 2022 (Revised) | 2021 | 2021 | ||||||||||||||||
| T&D Solutions | $ | 22,689 | $ | 19,118 | $ | 18,406 | $ | 17,499 | $ | 5,032 | ||||||||||
| Critical Power Solutions | 5,207 | 5,141 | 5,222 | 5,349 | 5,823 | |||||||||||||||
| Total order backlog | $ | 27,896 | $ | 24,259 | $ | 23,628 | $ | 22,848 | $ | 10,855 | ||||||||||
20
Revenue
The following table represents our revenues by reporting segment and major product category for the periods indicated (in thousands, except percentages):
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
| September 30, | September 30, | |||||||||||||||||||||||||||||||
| 2022 | 2021 | Variance | % | 2022 | 2021 | Variance | % | |||||||||||||||||||||||||
| T&D Solutions | ||||||||||||||||||||||||||||||||
| Power Systems | $ | 3,773 | $ | 2,996 | $ | 777 | 25.9 | $ | 10,029 | $ | 7,980 | $ | 2,049 | 25.7 | ||||||||||||||||||
| Service | — | — | — | — | 10 | — | 10 | — | ||||||||||||||||||||||||
| 3,773 | 2,996 | 777 | 25.9 | 10,039 | 7,980 | 2,059 | 25.8 | |||||||||||||||||||||||||
| Critical Power Solutions | ||||||||||||||||||||||||||||||||
| Equipment | 425 | 694 | (269 | ) | (38.8 | ) | 2,003 | 1,379 | 624 | 45.3 | ||||||||||||||||||||||
| Service | 2,053 | 1,995 | 58 | 2.9 | 5,434 | 5,454 | (20 | ) | (0.4 | ) | ||||||||||||||||||||||
| 2,478 | 2,689 | (211 | ) | (7.9 | ) | 7,437 | 6,833 | 604 | 8.8 | |||||||||||||||||||||||
| Total revenue | $ | 6,251 | $ | 5,685 | $ | 566 | 9.9 | $ | 17,476 | $ | 14,813 | $ | 2,663 | 18.0 | ||||||||||||||||||
For the three months ended September 30, 2022, our consolidated revenue increased by $566, or 9.9%, to $6.3 million, up from $5.7 million during the three months ended September 30, 2021, primarily due to an increase in sales of our power systems from our T&D Solutions segment and a reduction in equipment sales from our Critical Power segment.
For the nine months ended September 30, 2022, our consolidated revenue increased by $2.7 million, or 18.0%, to $17.5 million, up from $14.8 million during the nine months ended September 30, 2021, primarily due to an increase in sales of power systems and equipment from our T&D Solutions and Critical Power segments, respectively.
T&D Solutions. During the three months ended September 30, 2022, revenue for our power systems product lines increased by $777, or 25.9%, as compared to the three months ended September 30, 2021, primarily due to increased sales of our E-Bloc power systems and automatic transfer switches and a decrease in sales of our medium and low voltage power systems.
During the nine months ended September 30, 2022, revenue for our power systems product lines increased by $2.0 million, or 25.7%, as compared to the nine months ended September 30, 2021, primarily due to increased sales of our E-Bloc power systems, automatic transfer switches and low voltage power systems and a decrease in sales of our medium voltage power systems.
Critical Power Solutions. For the three months ended September 30, 2022, revenue from our Critical Power segment decreased by $211, or 7.9%, as compared to the three months ended September 30, 2021, primarily due to decreased sales of our new and refurbished generation equipment.
For the nine months ended September 30, 2022, revenue from our Critical Power segment increased by $604, or 8.8%, as compared to the nine months ended September 30, 2021, primarily due to the recognition of revenue from shipments of our e-Boost products during the nine months ended September 30, 2022 and no recognition of revenue from e-Boost shipments during the nine months ended September 30, 2021.
21
Gross Profit and Margin
The following table represents our gross profit by reporting segment for the periods indicated (in thousands, except percentages):
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
| September 30, | September 30, | |||||||||||||||||||||||||||||||
| 2022 | 2021 | Variance | % | 2022 | 2021 | Variance | % | |||||||||||||||||||||||||
| T&D Solutions | ||||||||||||||||||||||||||||||||
| Gross profit | $ | 482 | $ | 186 | $ | 296 | 159.1 | $ | 727 | $ | 173 | $ | 554 | 320.2 | ||||||||||||||||||
| Gross margin % | 12.8 | 6.2 | 6.6 | 7.2 | 2.2 | 5.0 | ||||||||||||||||||||||||||
| Critical Power Solutions | ||||||||||||||||||||||||||||||||
| Gross profit | 379 | 527 | (148 | ) | (28.1 | ) | 1,120 | 1,195 | (75 | ) | (6.3 | ) | ||||||||||||||||||||
| Gross margin % | 15.3 | 19.6 | (4.3 | ) | 15.1 | 17.5 | (2.4 | ) | ||||||||||||||||||||||||
| Consolidated gross profit | $ | 861 | $ | 713 | $ | 148 | 20.8 | $ | 1,847 | $ | 1,368 | $ | 479 | 35.0 | ||||||||||||||||||
| Consolidated gross margin % | 13.8 | 12.5 | 1.3 | 10.6 | 9.2 | 1.4 | ||||||||||||||||||||||||||
For the three months ended September 30, 2022, our consolidated gross margin increased to 13.8% of revenues, as compared to 12.5% during the three months ended September 30, 2021.
For the nine months ended September 30, 2022, our consolidated gross margin increased to 10.6% of revenues, as compared to 9.2% during the nine months ended September 30, 2021.
T&D Solutions. For the three months ended September 30, 2022, our gross margin percentage increased by 6.6%, from 6.2% to 12.8%, as compared to the three months ended September 30, 2021. The increase was primarily due to increased sales our E-Bloc power systems and automatic transfer switches which generated higher gross profits and margins.
For the nine months ended September 30, 2022, our gross margin percentage increased by 5.0%, from 2.2% to 7.2%, as compared to the nine months ended September 30, 2021. The increase in our gross margin percentage was primarily due to increased sales of our E-Bloc power systems and automatic transfer switches, a favorable sales mix and improved productivity from our manufacturing facility.
Critical Power Solutions. For the three months ended September 30, 2022, our gross margin decreased by 4.3%, to 15.3%, from 19.6% for the three months ended September 30, 2021, primarily due to increases in material and overhead costs.
For the nine months ended September 30, 2022, our gross margin decreased by 2.4%, to 15.1%, from 17.5% for the nine months ended September 30, 2021, primarily due to increases in material and overhead costs.
22
Operating Expenses
The following table represents our operating expenses by reportable segment for the periods indicated (in thousands, except percentages):
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
| September 30, | September 30, | |||||||||||||||||||||||||||||||
| 2022 | 2021 | Variance | % | 2022 | 2021 | Variance | % | |||||||||||||||||||||||||
| T&D Solutions | ||||||||||||||||||||||||||||||||
| Selling, general and administrative expense | $ | 306 | $ | 283 | $ | 23 | 8.1 | $ | 902 | $ | 823 | $ | 79 | 9.6 | ||||||||||||||||||
| Depreciation and amortization expense | 5 | 3 | 2 | 66.7 | 8 | 14 | (6 | ) | (42.9 | ) | ||||||||||||||||||||||
| Segment operating expense | $ | 311 | $ | 286 | $ | 25 | 8.7 | $ | 910 | $ | 837 | $ | 73 | 8.7 | ||||||||||||||||||
| Critical Power Solutions | ||||||||||||||||||||||||||||||||
| Selling, general and administrative expense | $ | 1,124 | $ | 353 | $ | 771 | 218.4 | $ | 2,739 | $ | 1,122 | $ | 1,617 | 144.1 | ||||||||||||||||||
| Depreciation and amortization expense | 20 | 14 | 6 | 42.9 | 57 | 39 | 18 | 46.2 | ||||||||||||||||||||||||
| Segment operating expense | $ | 1,144 | $ | 367 | $ | 777 | 211.7 | $ | 2,796 | $ | 1,161 | $ | 1,635 | 140.8 | ||||||||||||||||||
| Unallocated Corporate Overhead Expenses | ||||||||||||||||||||||||||||||||
| Selling, general and administrative expense | $ | 843 | $ | 571 | $ | 272 | 47.6 | $ | 2,909 | $ | 1,719 | $ | 1,190 | 69.2 | ||||||||||||||||||
| Depreciation and amortization expense | 7 | 7 | — | — | 21 | 21 | — | — | ||||||||||||||||||||||||
| Segment operating expense | $ | 850 | $ | 578 | $ | 272 | 47.1 | $ | 2,930 | $ | 1,740 | $ | 1,190 | 68.4 | ||||||||||||||||||
| Consolidated | ||||||||||||||||||||||||||||||||
| Selling, general and administrative expense | $ | 2,273 | $ | 1,207 | $ | 1,066 | 88.3 | $ | 6,550 | $ | 3,664 | $ | 2,886 | 78.8 | ||||||||||||||||||
| Depreciation and amortization expense | 32 | 24 | 8 | 33.3 | 86 | 74 | 12 | 16.2 | ||||||||||||||||||||||||
| Consolidated operating expense | $ | 2,305 | $ | 1,231 | $ | 1,074 | 87.2 | $ | 6,636 | $ | 3,738 | $ | 2,898 | 77.5 | ||||||||||||||||||
Selling, General and Administrative Expense. For the three months ended September 30, 2022, consolidated selling, general and administrative expense, before depreciation and amortization, increased by approximately $1.1 million, or 88.3%, to $2.3 million, due to an increase in payroll related costs, including stock-based compensation, professional fees and product development costs related to our e-Boost and E-Bloc initiatives, as compared to $1.2 million during the three months ended September 30, 2021. As a percentage of our consolidated revenue, selling, general and administrative expense, before depreciation and amortization, increased to 36.4% during the three months ended September 30, 2022, as compared to 21.2% in the three months ended September 30, 2021.
For the nine months ended September 30, 2022, consolidated selling, general and administrative expense, before depreciation and amortization, increased by approximately $2.9 million, or 78.8%, to $6.6 million, as compared to $3.7 million during the nine months ended September 30, 2021, primarily due to an increase in payroll related costs, including stock-based compensation, professional fees and product development costs related to our e-Boost and E-Bloc initiatives. As a percentage of our consolidated revenue, selling, general and administrative expense, before depreciation and amortization, increased to 37.5% during the nine months ended September 30, 2022, as compared to 24.7% during the nine months ended September 30, 2021.
Depreciation and Amortization Expense. Depreciation and amortization expense consists primarily of depreciation of fixed assets and amortization of right-of-use assets related to our finance leases and excludes amounts included in cost of sales. For the three months ended September 30, 2022, consolidated depreciation and amortization expense increased by $8, or 33.3%, as compared to the three months ended September 30, 2021.
For the nine months ended September 30, 2022, consolidated depreciation and amortization expense increased by $12, or 16.2%, as compared to the nine months ended September 30, 2021.
23
Operating Income (Loss)
The following table represents our operating income (loss) by reportable segment for the periods indicated (in thousands, except percentages):
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
| September 30, | September 30, | |||||||||||||||||||||||||||||||
| 2022 | 2021 | Variance | % | 2022 | 2021 | Variance | % | |||||||||||||||||||||||||
| T&D Solutions | $ | 171 | $ | (100 | ) | $ | 271 | 271.0 | $ | (183 | ) | $ | (664 | ) | $ | 481 | 72.4 | |||||||||||||||
| Critical Power Solutions | (765 | ) | 160 | (925 | ) | 578.1 | (1,676 | ) | 34 | (1,710 | ) | 5,029.4 | ||||||||||||||||||||
| Unallocated corporate overhead expenses | (850 | ) | (578 | ) | (272 | ) | (47.1 | ) | (2,930 | ) | (1,740 | ) | (1,190 | ) | (68.4 | ) | ||||||||||||||||
| Total operating loss | $ | (1,444 | ) | $ | (518 | ) | $ | (926 | ) | 178.8 | $ | (4,789 | ) | $ | (2,370 | ) | $ | (2,419 | ) | (102.1 | ) | |||||||||||
T&D Solutions. Operating income from our T&D Solutions segment increased by $271, or 271.0%, during the three months ended September 30, 2022, as compared to the three months ended September 30, 2021, primarily due an increase in sales of our power systems, a favorable sales mix and improved productivity from our manufacturing facility during the three months ended September 30, 2022.
For the nine months ended September 30, 2022, operating loss from our T&D Solutions segment decreased by $481, or 72.4%, as compared to an operating loss of $664 during the nine months ended September 30, 2021, primarily due to an increase in sales of our power systems, a favorable sales mix and improved productivity from our manufacturing facility.
Critical Power Solutions. Operating loss for the Critical Power segment increased by $925, or 578.1% during the three months ended September 30, 2022, primarily due to an increase in material and overhead costs and recognizing product development and promotion fees related to our e-Boost initiative during the three months ended September 30, 2022, as compared to lower material and overhead costs and no product development or promotion fees recognized during the three months ended September 30, 2021.
For the nine months ended September 30, 2022, operating loss from our Critical Power segment increased by $1,710, primarily due to a decrease in gross margin and an increase in consulting, marketing and promotion fees related to our e-Boost initiative, as compared to lower material and overhead costs and no recognition of product development or promotion fees related to our e-Boost initiative during the nine months ended September 30, 2021.
General Corporate Expense. Our general corporate expenses consist primarily of executive management, corporate accounting and human resources personnel, corporate office expenses, financing and corporate development activities, payroll and benefits administration, treasury, tax compliance, legal, stock-based compensation, public reporting costs and costs not specifically allocated to reportable business segments.
During the three months ended September 30, 2022, our unallocated corporate overhead expense increased by $272, or 47.1%, as compared to the three months ended September 30, 2021, primarily due to an increase in payroll related expenses, including stock-based compensation, professional fees and business travel related costs.
During the nine months ended September 30, 2022, our unallocated corporate overhead expense increased by $1.2 million, or 68.4%, as compared to the nine months ended September 30, 2021, primarily due to an increase in payroll related expenses, including stock-based compensation, professional fees and business travel related costs.
Non-Operating (Income) Expense
Interest Income. For the three and nine months ended September 30, 2022, the Company had interest income of approximately $116 and $322, respectively, as compared to interest income of approximately $99 and $288 during the three and nine months ended September 30, 2021, respectively. We generate the majority of our interest income from the Seller Notes we received from the sale of the transformer business units in August 2019 and our cash on hand.
Other (Income) Expense. Other (income) expense in the unaudited consolidated statements of operations reports certain gains and losses associated with activities not directly related to our core operations. During the three months ended September 30, 2022, other income was $17, as compared to other expense of $13 during the three months ended September 30, 2021.
During the nine months ended September 30, 2022, other expense was $112, as compared to other income of $1.3 million during the nine months ended September 30, 2021. For the nine months ended September 30, 2021, included in other income was a gain of $1.4 million for the extinguishment and forgiveness of the PPP Loan.
24
On March 27, 2020, then President Trump signed into law the “Coronavirus Aid, Relief, and Economic Security (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 in the amount of $1.4 million. The Company made this assertion in good faith based upon all available guidance and accounted for the PPP Loan as a debt instrument in accordance with FASB ASC 470, Debt. The Company used the proceeds from the PPP Loan to retain employees, maintain payroll and make lease, rent and utility payments.
Under the terms of the PPP Loan, the Company was eligible for full or partial loan forgiveness. The Company received full forgiveness of the PPP Loan during the nine months ended September 30, 2021 and recognized a $1.4 million gain on extinguishment and forgiveness of debt in other income.
Income Tax Expense (Benefit). Our effective income tax rate for the three months ended September 30, 2022 and 2021 was 0.0% and (0.5)%, respectively.
For the nine months ended September 30, 2022, our effective income tax rate was (0.2)%, as compared to an income tax rate of 2.4% during the nine months ended September 30, 2021, as set forth below:
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
| September 30, | September 30, | |||||||||||||||||||||||
| 2022 | 2021 | Variance | 2022 | 2021 | Variance | |||||||||||||||||||
| Loss before income taxes | $ | (1,311 | ) | $ | (432 | ) | $ | (879 | ) | $ | (4,579 | ) | $ | (788 | ) | $ | (3,791 | ) | ||||||
| Income tax expense (benefit) | — | 2 | (2 | ) | 7 | (19 | ) | 26 | ||||||||||||||||
| Effective income tax rate % | — | (0.5 | ) | 0.5 | (0.2 | ) | 2.4 | (2.6 | ) | |||||||||||||||
Net Loss per Share
We generated a net loss of $1.3 million during the three months ended September 30, 2022, as compared to net loss of $434 during the three months ended September 30, 2021.
Our net loss per basic and diluted share for the three months ended September 30, 2022 was $0.13, as compared to net loss per basic and diluted share of $0.05 for the three months ended September 30, 2021.
We generated a net loss of $4.6 million during the nine months ended September 30, 2022, as compared to net loss of $769 during the nine months ended September 30, 2021.
Our net loss per basic and diluted share for the nine months ended September 30, 2022 was $0.47, as compared to net loss per basic and diluted share of $0.09 for the nine months ended September 30, 2021.
LIQUIDITY AND CAPITAL RESOURCES
General. At September 30, 2022, we had $7.2 million of cash on hand generated primarily from the sale of common stock under the At The Market Sale Agreement (the “ATM Program”) 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 sale of transformer business units in August 2019, proceeds from the sale of the CleanSpark common stock and warrants to purchase CleanSpark common stock, proceeds from insurance, proceeds from the sale of common stock under the ATM Program and funding from the Payroll Protection Program. Our cash requirements historically were generally for operating activities, debt repayment, capital improvements and acquisitions.
25
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 | ||||
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. We were 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, we are 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 our 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 nine months ended September 30, 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 audited consolidated statements of operations.
Cash Used in Operating Activities. Cash used in our operating activities was $3.9 million during the nine months ended September 30, 2022, as compared to cash used in our operating activities of $991 during the nine months ended September 30, 2021. The increase in cash used in operating activities is primarily due to working capital fluctuations.
Cash Used in Investing Activities. Cash used in investing activities during the nine months ended September 30, 2022 was $391, as compared to $156 of cash used in investing activities during the nine months ended September 30, 2021. Additions to property and equipment during the nine months ended September 30, 2022 were $391, as compared to $156 additions to property and equipment during the nine months ended September 30, 2021.
Cash Used in Financing Activities. Cash used in our financing activities was $162 during the nine months ended September 30, 2022, as compared to $1.3 million during the nine months ended September 30, 2021. The primary use of cash in financing activities for the nine months ended September 30, 2022 and 2021 was repayments of financing leases and a dividend paid to shareholders, respectively.
Working Capital. As of September 30, 2022, we had working capital of $14.2 million, including $7.2 million of cash, compared to working capital of $18.6 million, including $9.9 million of cash and $1.8 million of restricted cash at December 31, 2021.
Assessment of Liquidity. At September 30, 2022, we had $7.2 million of cash on hand generated primarily from the sale of common stock under the ATM Program 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 sale of transformer business units in August 2019, proceeds from the sale of the CleanSpark common stock and warrants to purchase CleanSpark common stock, proceeds from insurance, proceeds from the sale of common stock under the ATM Program and funding from the Payroll Protection Program. Our cash requirements historically were generally for operating activities, debt repayment, capital improvements and acquisitions.
On June 1, 2021, our board of directors 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 APIC.
On November 8, 2021, we sold 888,500 shares of common stock under the ATM Program, for total gross proceeds of approximately $9.0 million, at an average price of $10.1288 per share. We incurred approximately $273 of costs related to the common shares issued (including a placement fee of 3.0%, or approximately $270, to H.C. Wainwright & Co., LLC), resulting in net proceeds of approximately $8.7 million. On December 13, 2021, we filed a new sales agreement prospectus supplement, which forms a part of our registration statement on Form S-3 (File No. 333-249569), which covers the offering, issuance and sale of up to a maximum aggregate offering price of $8.6 million of common stock that may be issued and sold under the ATM Program. We did not sell any shares of common stock under the new sales agreement prospectus supplement during the nine months ended September 30, 2022. As of September 30, 2022, $8.6 million of common stock remained available for issuance under the ATM Program.
26
During the year ended December 31, 2021, we 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, we amended our agreement with the commercial bank to decrease the required amount of cash collateral by $1.3 million. On May 6, 2022, we received notice that the cash collateral security agreement we 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 us. We had no restricted cash on the consolidated balance sheets at September 30, 2022.
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, 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 expect to continue to incur costs related to such activities. We expect that our cash balance is sufficient to fund operations for the next twelve months.
As of September 30, 2022, 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 $391 of additions to property and equipment during the nine months ended September 30, 2022, as compared to $156 of additions to property and equipment during the nine months ended September 30, 2021.
Known Trends, Events, Uncertainties and Factors That May Affect Future Operations
We believe that our future operating results will continue to be subject to quarterly variations based upon a wide variety of factors, including the cyclical nature of the electrical equipment industry and the markets for our products and services. Our operating results could also be impacted by changing customer requirements and exposure to fluctuations in prices of important raw supplies, such as copper, steel and aluminum. We have various insurance policies, including cybersecurity, covering risks in amounts that we consider adequate. In addition to these measures, we attempt to recover other cost increases through improvements to our manufacturing efficiency and through increases in prices where competitively feasible. Lastly, other economic conditions we cannot foresee may affect customer demand. The impact of the COVID-19 pandemic, including the Omicron variant of COVID-19 and the subvariant, BA.5, and the ongoing effects of COVID-19, are currently indeterminable and rapidly evolving, and has affected and may continue to affect our operations and the global economy. In addition, the consequences of the ongoing conflict between Russia and Ukraine, 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.
27
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 September 30, 2022. 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 weakness described below, our CEO and CFO have concluded that our disclosure controls and procedures were not effective as of September 30, 2022. 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 Weakness
A material weakness is a deficiency, or a combination of deficiencies, within the meaning of Public Company Accounting Oversight Board (“PCAOB”) Auditing Standard AS 2201, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The deficiency listed below, combined with inadequate compensating controls, created a reasonable possibility that a material misstatement to the consolidated financial statements might not be prevented or detected on a timely basis.
As of September 30, 2022, we had a material weakness in our internal control over financial reporting due to not having the appropriate controls in place over our revenue recognition process for nonroutine and complex revenue transactions in accordance with ASC 606, “Revenue from Contracts with Customers”. This control deficiency resulted in a misstatement of revenue-related accounts during the three months ended March 31, 2022 and June 30, 2022, which management corrected via revision as part of this Quarterly Report on Form 10-Q for the three months ended September 30, 2022.
In order to remediate this material weakness, management has expanded and improved our process for reviewing customer contracts, including through the engagement of third-party accounting professionals with expertise in evaluating customer contracts to obtain guidance on large and/or unique contracts in order to ensure that ASC 606 is accurately applied and documented.
Although we have begun implementing the enhancements described above, the material weakness will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded that these controls are operating effectively.
Changes in Internal Control over Financial Reporting
Except as described above, there were no changes in our internal control over financial reporting during the three months ended September 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
28
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.
As of the date hereof, we are not aware of or a party to any 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, 2021, as filed with the Securities and Exchange Commission on March 31, 2022, and are supplemented with the following additional and revised risk factors:
We currently derive a significant portion of our revenues from a few customers. Material or significant loss of business from these customers could have an adverse effect on our business, financial condition and operating results.
We currently derive a large portion of our revenues from a few customers, and material or significant loss of business from these customers could have a significant impact on our results of operations. As of September 30, 2022, three customers accounted for approximately 51% of our sales: CleanSpark accounted for approximately 8%, which were revenues recorded prior to the termination of the Distribution Agreement on June 3, 2022; Enchanted Rock, LLC became one of our largest customers following the termination of the Distribution Agreement and accounted for approximately 31%; and a utility company based in California accounted for approximately 12%. Enchanted Rock, LLC constitutes a large portion of our business, and material or significant loss of business from this customer could have an adverse effect on our business, financial condition and operating results.
We have identified a material weakness in our internal control over financial reporting, and if we are unable to achieve and maintain effective internal control over financial reporting or effective disclosure controls, this could have a material adverse effect on our business.
As discussed in Item 4 “Controls and Procedures”, we concluded there is a material weakness of our internal control over financial reporting. A material weakness is defined as 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 a company’s annual or interim financial statements will not be prevented or detected on a timely basis by the company’s internal controls.
We cannot assure you that we will be able to remediate our existing material weakness in a timely manner, if at all, or that in the future additional material weaknesses will not exist, reoccur or otherwise be discovered, a risk that is significantly increased in light of the complexity of our business. If our efforts to remediate these material weaknesses, as described in Item 4 “Controls and Procedures”, are not successful or if other deficiencies occur, our ability to accurately and timely report our financial position, results of operations, cash flows or key operating metrics could be impaired, which could result in late filings of our annual and quarterly reports under the Exchange Act, restatements of our consolidated financial statements or other corrective disclosures. Additional impacts could include a decline in our stock price, suspension of trading or delisting of our common stock by the Nasdaq Capital Market, or other material adverse effects on our business, reputation, results of operations, financial condition or liquidity. Furthermore, if we continue to have this existing material weakness, other material weaknesses or significant deficiencies in the future, it could create a perception that our financial results do not fairly state our financial condition or results of operations. Any of the foregoing could have an adverse effect on the value of our stock.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
29
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.
30
EXHIBIT INDEX
Exhibit No. |
Description | |
| 3.1* | Amended and Restated Bylaws of Pioneer Power Solutions, Inc. | |
| 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.
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: November 14, 2022 | By: | /s/ Nathan J. Mazurek |
| Name: Nathan J. Mazurek | ||
| Title: Chief Executive Officer |
| Date: November 14, 2022 | /s/ Walter Michalec |
| Name: Walter Michalec | |
Title: Chief Financial Officer (Principal Financial Officer duly authorized to sign on behalf of Registrant) |
Pioneer Power Solutions, Inc. 10-Q
EXHIBIT 3.1
AMENDED AND RESTATED BYLAWS
OF
PIONEER POWER SOLUTIONS, INC.
(as amended on September 21, 2022)
____________________________________________
a Delaware corporation
| ARTICLE 1 | OFFICES | 1 | |
| Section 1.1 | Registered Office | 1 | |
| Section 1.2 | Other Offices | 1 | |
| ARTICLE 2 | STOCKHOLDERS’ MEETINGS | 1 | |
| Section 2.1 | Place of Meetings | 1 | |
| Section 2.2 | Annual Meetings | 2 | |
| Section 2.3 | Special Meetings | 2 | |
| Section 2.4 | Notice of Meetings | 2 | |
| Section 2.5 | Quorum and Voting | 3 | |
| Section 2.6 | Voting Rights | 4 | |
| Section 2.7 | Voting Procedures and Inspectors of Elections | 5 | |
| Section 2.8 | List of Stockholders | 6 | |
| Section 2.9 | Action Without Meeting | 6 | |
| ARTICLE 3 | DIRECTORS | 7 | |
| Section 3.1 | Number and Term of Office | 7 | |
| Section 3.2 | Powers | 8 | |
| Section 3.3 | Vacancies | 8 | |
| Section 3.4 | Resignations and Removals | 8 | |
| Section 3.5 | Meetings | 8 | |
| Section 3.6 | Quorum and Voting | 9 | |
| Section 3.7 | Action Without Meeting | 9 | |
| Section 3.8 | Fees and Compensation | 10 | |
| Section 3.9 | Committees | 10 | |
| ARTICLE 4 | OFFICERS | 11 | |
| Section 4.1 | Officers Designated | 11 | |
| Section 4.2 | Tenure and Duties of Officers | 11 | |
| ARTICLE 5 | EXECUTION OF CORPORATE INSTRUMENTS, AND VOTING OF SECURITIES OWNED BY THE CORPORATION | 12 | |
| Section 5.1 | Execution of Corporate Instruments | 12 | |
| Section 5.2 | Voting of Securities Owned by Corporation | 12 | |
| ARTICLE 6 | SHARES OF STOCK | 13 | |
| Section 6.1 | Form and Execution of Certificates | 13 | |
| Section 6.2 | Lost Certificates | 13 | |
| Section 6.3 | Transfers | 13 | |
| Section 6.4 | Fixing Record Dates | 13 | |
| Section 6.5 | Registered Stockholders | 14 | |
| ARTICLE 7 | OTHER SECURITIES OF THE CORPORATION | 15 | |
| ARTICLE 8 | INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS | 15 | |
| Section 8.1 | Right to Indemnification | 15 | |
| Section 8.2 | Authority to Advance Expenses | 16 | |
| Section 8.3 | Right of Claimant to Bring Suit | 16 | |
| Section 8.4 | Provisions Nonexclusive | 16 | |
| Section 8.5 | Authority to Insure | 17 | |
| Section 8.6 | Survival of Rights | 17 | |
| Section 8.7 | Settlement of Claims | 17 | |
| Section 8.8 | Effect of Amendment | 17 | |
| Section 8.9 | Subrogation | 17 | |
| Section 8.10 | No Duplication of Payments | 17 | |
| ARTICLE 9 | NOTICES | 18 | |
| ARTICLE 10 | AMENDMENTS | 19 | |
BYLAWS
OF
PIONEER POWER SOLUTIONS, INC.
ARTICLE 1
OFFICES
Section 1.1 Registered Office.
The registered office of PIONEER POWER SOLUTIONS, INC. (hereinafter, the “corporation”) in the State of Delaware shall be The Corporation Trust Company, 1209 Orange Street, County of Newcastle, State of Delaware,19801.
Section 1.2 Other Offices.
The corporation may also have and maintain an office or principal place of business at such other places, both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the corporation may require.
ARTICLE 2
STOCKHOLDERS’ MEETINGS
Section 2.1 Place of Meetings.
(a) Meetings of stockholders may be held at such place, either within or without this State, as may be designated by or in the manner provided in these bylaws or, if not so designated, as determined by the Board of Directors. The Board of Directors may, in its sole discretion, determine that the meeting shall not be held at any place, but may instead be held solely by means of remote communication as authorized by paragraph (b) of this Section 2.1.
(b) If authorized by the Board of Directors in its sole discretion, and subject to such guidelines and procedures as the Board of Directors may adopt, stockholders and proxyholders not physically present at a meeting of stockholders may, by means of remote communication:
(1) Participate in a meeting of stockholders; and
(2) Be deemed present in person and vote at a meeting of stockholders whether such meeting is to be held at a designated place or solely by means of remote communication, provided that (A) the corporation shall implement reasonable measures to verify that each person deemed present and permitted to vote at the meeting by means of remote communication is a stockholder or proxyholder, (B) the corporation shall implement reasonable measures to provide such stockholders and proxyholders a reasonable opportunity to participate in the meeting and to vote on matters submitted to the stockholders, including an opportunity to read or hear the proceedings of the meeting substantially concurrently with such proceedings, and (C) if any stockholder or proxyholder votes or takes other action at the meeting by means of remote communication, a record of such vote or other action shall be maintained by the corporation.
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(c) For purposes of this Section 2.1, “remote communication” shall include (1) telephone or other voice communications and (2) electronic mail or other form of written or visual electronic communications satisfying the requirements of Section 2.11(b).
Section 2.2 Annual Meetings.
The annual meetings of the stockholders of the corporation, for the purpose of election of directors and for such other business as may lawfully come before it, shall be held on such date and at such time as may be designated from time to time by the Board of Directors.
Section 2.3 Special Meetings.
Special Meetings of the stockholders of the corporation may be called, for any purpose or purposes, by the Chairman of the Board or the President or the Board of Directors at any time.
Section 2.4 Notice of Meetings.
(a) Except as otherwise provided by law or the Certificate of Incorporation, written notice of each meeting of stockholders, specifying the place, if any, date and hour and purpose or purposes of the meeting, and the means of remote communication, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such meeting, shall be given not less than 10 nor more than 60 days before the date of the meeting to each stockholder entitled to vote thereat, directed to his address as it appears upon the books of the corporation; except that where the matter to be acted on is a merger or consolidation of the Corporation or a sale, lease or exchange of all or substantially all of its assets, such notice shall be given not less than 20 nor more than 60 days prior to such meeting.
(b) If at any meeting action is proposed to be taken which, if taken, would entitle shareholders fulfilling the requirements of section 262(d) of the Delaware General Corporation Law to an appraisal of the fair value of their shares, the notice of such meeting shall contain a statement of that purpose and to that effect and shall be accompanied by a copy of that statutory section.
(c) When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time, place, if any, thereof, and the means of remote communication, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such adjourned meeting, are announced at the meeting at which the adjournment is taken unless the adjournment is for more than thirty days, or unless after the adjournment a new record date is fixed for the adjourned meeting, in which event a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.
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(d) Notice of the time, place and purpose of any meeting of stockholders may be waived in writing, either before or after such meeting, and, to the extent permitted by law, will be waived by any stockholder by his attendance thereat, in person or by proxy. Any stockholder so waiving notice of such meeting shall be bound by the proceedings of any such meeting in all respects as if due notice thereof had been given.
(e) Without limiting the manner by which notice otherwise may be given effectively to stockholders, any notice to stockholders given by the corporation under any provision of Delaware General Corporation Law, the certificate of incorporation, or these bylaws shall be effective if given by a form of electronic transmission consented to by the stockholder to whom the notice is given. Any such consent shall be revocable by the stockholder by written notice to the corporation. Any such consent shall be deemed revoked if (i) the corporation is unable to deliver by electronic transmission two consecutive notices given by the corporation in accordance with such consent, and (ii) such inability becomes known to the secretary or an assistant secretary of the corporation or to the transfer agent or other person responsible for the giving of notice; provided, however, the inadvertent failure to treat such inability as a revocation shall not invalidate any meeting or other action. Notice given pursuant to this subparagraph (e) shall be deemed given: (1) if by facsimile telecommunication, when directed to a number at which the stockholder has consented to receive notice; (2) if by electronic mail, when directed to an electronic mail address at which the stockholder has consented to receive notice; (3) if by a posting on an electronic network together with separate notice to the stockholder of such specific posting, upon the later of (A) such posting and (B) the giving of such separate notice; and (4) if by any other form of electronic transmission, when directed to the stockholder. An affidavit of the secretary or an assistant secretary or of the transfer agent or other agent of the corporation that the notice has been given by a form of electronic transmission shall, in the absence of fraud, be prima facie evidence of the facts stated therein. For purposes of these bylaws, “electronic transmission” means any form of communication, not directly involving the physical transmission of paper, that creates a record that may be retained, retrieved and reviewed by a recipient thereof, and that may be directly reproduced in paper form by such a recipient through an automated process.
Section 2.5 Quorum and Voting.
(a) At all meetings of stockholders except where otherwise provided by law, the Certificate of Incorporation or these Bylaws, the presence, in person or by proxy duly authorized, of the holders of one-third of the outstanding shares of stock entitled to vote shall constitute a quorum for the transaction of business. Shares, the voting of which at said meeting have been enjoined, or which for any reason cannot be lawfully voted at such meeting, shall not be counted to determine a quorum at said meeting. In the absence of a quorum, any meeting of stockholders may be adjourned, from time to time, by vote of the holders of a majority of the shares represented thereat, but no other business shall be transacted at such meeting. At such adjourned meeting at which a quorum is present or represented, any business may be transacted which might have been transacted at the original meeting. The stockholders present at a duly called or convened meeting at which a quorum is present may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum.
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(b) Except as otherwise provided by law, the Certificate of Incorporation or these Bylaws, all action taken by the holders of a majority of the voting power represented at any meeting at which a quorum is present shall be valid and binding upon the corporation.
Section 2.6 Voting Rights.
(a) Except as otherwise provided by law, only persons in whose names shares entitled to vote stand on the stock records of the corporation on the record date for determining the stockholders entitled to vote at said meeting shall be entitled to vote at such meeting. Shares standing in the names of two or more persons shall be voted or represented in accordance with the determination of the majority of such persons, or, if only one of such persons is present in person or represented by proxy, such person shall have the right to vote such shares and such shares shall be deemed to be represented for the purpose of determining a quorum.
(b) Every person entitled to vote or to execute consents shall have the right to do so either in person or by an agent or agents authorized by a written proxy executed by such person or his duly authorized agent, which proxy shall be filed with the Secretary of the corporation at or before the meeting at which it is to be used. Said proxy so appointed need not be a stockholder. No proxy shall be voted on after three (3) years from its date unless the proxy provides for a longer period. Unless and until voted, every proxy shall be revocable at the pleasure of the person who executed it or of his legal representatives or assigns, except in those cases where an irrevocable proxy permitted by statute has been given.
(c) Without limiting the manner in which a stockholder may authorize another person or persons to act for him as proxy pursuant to subsection (b) of this section, the following shall constitute a valid means by which a stockholder may grant such authority:
(1) A stockholder may execute a writing authorizing another person or persons to act for him as proxy. Execution may be accomplished by the stockholder or his authorized officer, director, employee or agent signing such writing or causing his or her signature to be affixed to such writing by any reasonable means including, but not limited to, by facsimile signature.
(2) A stockholder may authorize another person or persons to act for him as proxy by transmitting or authorizing the transmission of a telephone, telegram, cablegram or other means of electronic transmission to the person who will be the holder of the proxy or to a proxy solicitation firm, proxy support service organization or like agent duly authorized by the person who will be the holder of the proxy to receive such transmission, provided that any such telephone, telegram, cablegram or other means of electronic transmission must either set forth or be submitted with information from which it can be determined that the telephone, telegram, cablegram or other electronic transmission was authorized by the stockholder. Such authorization can be established by the signature of the stockholder on the proxy, either in writing or by a signature stamp or facsimile signature, or by a number or symbol from which the identity of the stockholder can be determined, or by any other procedure deemed appropriate by the inspectors or other persons making the determination as to due authorization.
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If it is determined that such telegrams, cablegrams or other electronic transmissions are valid, the inspectors or, if there are no inspectors, such other persons making that determination shall specify the information upon which they relied.
(d) Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission created pursuant to subsection (c) of this section may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission.
Section 2.7 Voting Procedures and Inspectors of Elections.
(a) The corporation shall, in advance of any meeting of stockholders, appoint one or more inspectors to act at the meeting and make a written report thereof. The corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his ability.
(b) The inspectors shall (i) ascertain the number of shares outstanding and the voting power of each, (ii) determine the shares represented at a meeting and the validity of proxies and ballots, (iii) count all votes and ballots, (iv) determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors, and (v) certify their determination of the number of shares represented at the meeting and their count of all votes and ballots. The inspectors may appoint or retain other persons or entities to assist the inspectors in the performance of the duties of the inspectors.
(c) The date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced at the meeting. No ballot, proxies or votes, nor any revocations thereof or changes thereto, shall be accepted by the inspectors after the closing of the polls unless the Court of Chancery upon application by a stockholder shall determine otherwise.
(d) In determining the validity and counting of proxies and ballots, the inspectors shall be limited to an examination of the proxies, any envelopes submitted with those proxies, any information provided in accordance with Sections 211(e) or 212(c)(2) of the Delaware General Corporation Law, or any information provided pursuant to Section 211(a)(2)(B)(i) or (iii) thereof, ballots and the regular books and records of the corporation, except that the inspectors may consider other reliable information for the limited purpose of reconciling proxies and ballots submitted by or on behalf of banks, brokers, their nominees or similar persons which represent more votes than the holder of a proxy is authorized by the record owner to cast or more votes than the stockholder holds of record. If the inspectors consider other reliable information for the limited purpose permitted herein, the inspectors at the time they make their certification pursuant to subsection (b)(v) of this section shall specify the precise information considered by them including the person or persons from whom they obtained the information, when the information was obtained, the means by which the information was obtained and the basis for the inspectors’ belief that such information is accurate and reliable.
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Section 2.8 List of Stockholders.
The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at said meeting, arranged in alphabetical order, showing the address of and the number of shares registered in the name of each stockholder. The corporation need not include electronic mail addresses or other electronic contact information on such list. Such list shall be open to the examination of any stockholder for any purpose germane to the meeting for a period of at least 10 days prior to the meeting: (i) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting, or (ii) during ordinary business hours at the principal place of business of the corporation. In the event that the corporation determines to make the list available on an electronic network, the corporation may take reasonable steps to ensure that such information is available only to stockholders of the corporation. If the meeting is to be held at a place, then the list shall be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. If the meeting is to be held solely by means of remote communication, then the list shall also be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access such list shall be provided with the notice of the meeting.
Section 2.9 Action Without Meeting.
(a) Unless otherwise provided in the Certificate of Incorporation, any action required by statute to be taken at any annual or special meeting of stockholders of the corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing setting forth the action so taken are signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. To be effective, a written consent must be delivered to the corporation by delivery to its registered office in Delaware, its principal place of business, or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a corporation’s registered office shall be by hand or by certified or registered mail, return receipt requested. Every written consent shall bear the date of signature of each stockholder who signs the consent, and no written consent shall be effective to take the corporate action referred to therein unless, within 60 days of the earliest dated consent delivered in the manner required by this Section to the corporation, written consents signed by a sufficient number of holders to take action are delivered to the corporation in accordance with this Section. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing.
(b) A telegram, cablegram or other electronic transmission consent to an action to be taken and transmitted by a stockholder or proxyholder, or by a person or persons authorized to act for a stockholder or proxyholder, shall be deemed to be written, signed and dated for the purposes of this section, provided that any such telegram, cablegram or other electronic transmission sets forth or is delivered with information from which the corporation can determine (i) that the telegram, cablegram or other electronic transmission was transmitted by the stockholder or proxyholder or by a person or persons authorized to act for the stockholder or proxyholder, and (ii) the date on which such stockholder or proxyholder or authorized person or persons transmitted such telegram, cablegram or electronic transmission. The date on which such telegram, cablegram or electronic transmission is transmitted shall be deemed to be the date on which such consent was signed. No consent given by telegram, cablegram or other electronic transmission shall be deemed to have been delivered until such consent is reproduced in paper form and until such paper form shall be delivered to the corporation by delivery to its registered office in this State, its principal place of business or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a corporation’s registered office shall be made by hand or by certified or registered mail, return receipt requested. Notwithstanding the foregoing limitations on delivery, consents given by telegram, cablegram or other electronic transmission may be otherwise delivered to the principal place of business of the corporation or to an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded if to the extent and in the manner provided by resolution of the Board of Directors of the corporation.
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(c) Any copy, facsimile or other reliable reproduction of a consent in writing may be substituted or used in lieu of the original writing for any and all purposes for which the original writing could be used, provided that such copy, facsimile or other reproduction shall be a complete reproduction of the entire original writing.
ARTICLE 3
DIRECTORS
Section 3.1 Number and Term of Office.
The number of directors of the corporation shall not be less than one (1) nor more than ten (10) until changed by amendment of the Certificate of Incorporation or by a Bylaw amending this Section 3.1 duly adopted by the vote or written consent of holders of a majority of the outstanding shares or by the Board of Directors. The exact number of directors shall be fixed from time to time, within the limits specified in the Certificate of Incorporation or in this Section 3.1, by a bylaw or amendment thereof duly adopted by the vote of a majority of the shares entitled to vote represented at a duly held meeting at which a Board Term is present, or by the written consent of the holders of a majority of the outstanding shares entitled to vote, or by the Board of Directors. Subject to the foregoing provisions for changing the number of directors, the number of directors of the corporation has been fixed at seven (7).
With the exception of the first Board of Directors, which shall be elected by the incorporators, and except as provided in Section 3.3 of this Article III, the directors shall be elected by a plurality vote of the shares represented in person or by proxy, at the stockholders annual meeting in each year and entitled to vote on the election of directors. Elected directors shall hold office until the next annual meeting of the stockholders, or until their successors shall be duly elected and qualified. Directors need not be stockholders. If, for any cause, the Board of Directors shall not have been elected at an annual meeting, they may be elected as soon thereafter as convenient at a special meeting of the stockholders called for that purpose in the manner provided in these Bylaws.
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Section 3.2 Powers.
The powers of the corporation shall be exercised, its business conducted and its property controlled by or under the direction of the Board of Directors.
Section 3.3 Vacancies.
Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director, and each director so elected shall hold office for the unexpired portion of the term of the director whose place shall be vacant and until his successor shall have been duly elected and qualified. A vacancy in the Board of Directors shall be deemed to exist under this section in the case of the death, removal or resignation of any director, or if the stockholders fail at any meeting of stockholders at which directors are to be elected (including any meeting referred to in Section 3.4 below) to elect the number of directors then constituting the whole Board.
Section 3.4 Resignations and Removals.
(a) Any director may resign at any time by delivering his resignation to the Secretary in writing or by electronic transmission, such resignation to specify whether it will be effective at a particular time, upon receipt by the Secretary or at the pleasure of the Board of Directors. If no such specification is made it shall be deemed effective at the pleasure of the Board of Directors. When one or more directors shall resign from the Board effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office for the unexpired portion of the term of the director whose place shall be vacated and until his successor shall have been duly elected and qualified.
(b) At a special meeting of stockholders called for the purpose in the manner hereinabove provided, the Board of Directors or any individual director may be removed from office, with or without cause, and a new director or directors elected by a vote of stockholders holding a majority of the outstanding shares entitled to vote at an election of directors.
Section 3.5 Meetings.
(a) The annual meeting of the Board of Directors shall be held immediately after the annual stockholders’ meeting and at the place where such meeting is held or at the place announced by the Chairman at such meeting. No notice of an annual meeting of the Board of Directors shall be necessary, and such meeting shall be held for the purpose of electing officers and transacting such other business as may lawfully come before it.
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(b) Except as hereinafter otherwise provided, regular meetings of the Board of Directors shall be held in the office of the corporation required to be maintained pursuant to Section 1.2 of Article I hereof. Regular meetings of the Board of Directors may also be held at any place, within or without the State of Delaware, which has been designated by resolutions of the Board of Directors or the written consent of all directors.
(c) Special meetings of the Board of Directors may be held at any time and place within or without the State of Delaware whenever called by the Chairman of the Board or, if there is no Chairman of the Board, by the President, or by any of the directors.
(d) Written notice of the time and place of all regular and special meetings of the Board of Directors shall be delivered personally to each director or sent by telegram or facsimile transmission or other form of electronic transmission at least 48 hours before the start of the meeting, or sent by first class mail at least 120 hours before the start of the meeting. Notice of any meeting may be waived in writing at any time before or after the meeting and will be waived by any director by attendance thereat.
Section 3.6 Quorum and Voting.
(a) A quorum of the Board of Directors shall consist of a majority of the exact number of directors fixed from time to time in accordance with Section 3.1 of Article III of these Bylaws, but not less than one; provided, however, at any meeting whether a quorum be present or otherwise, a majority of the directors present may adjourn from time to time until the time fixed for the next regular meeting of the Board of Directors, without notice other than by announcement at the meeting.
(b) At each meeting of the Board at which a quorum is present, all questions and business shall be determined by a vote of a majority of the directors present, unless a different vote be required by law, the Certificate of Incorporation, or these Bylaws.
(c) Any member of the Board of Directors, or of any committee thereof, may participate in a meeting by means of conference telephone or other communication equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting by such means shall constitute presence in person at such meeting.
(d) The transactions of any meeting of the Board of Directors, or any committee thereof, however called or noticed, or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice if a quorum be present and if, either before or after the meeting, each of the directors not present shall sign a written waiver of notice, or a consent to holding such meeting, or an approval of the minutes thereof. All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting.
Section 3.7 Action Without Meeting.
Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board or of such committee, as the case may be, consent thereto in writing or by electronic transmission, and such writing or writings or electronic transmission or transmissions are filed with the minutes of proceedings of the Board or committee. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.
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Section 3.8 Fees and Compensation.
Directors and members of committees may receive such compensation, if any, for their services, and such reimbursement for expenses, as may be fixed or determined by resolution of the Board of Directors.
Section 3.9 Committees.
(a) Executive Committee: The Board of Directors may appoint an Executive Committee of not less than one member, each of whom shall be a director. The Executive Committee, to the extent permitted by law, shall have and may exercise when the Board of Directors is not in session all powers of the Board in the management of the business and affairs of the corporation, except such committee shall not have the power or authority to amend these Bylaws or to approve or recommend to the stockholders any action which must be submitted to stockholders for approval under the General Corporation Law.
(b) Other Committees: The Board of Directors may, by resolution passed by a majority of the whole Board, from time to time appoint such other committees as may be permitted by law. Such other committees appointed by the Board of Directors shall have such powers and perform such duties as may be prescribed by the resolution or resolutions creating such committee, but in no event shall any such committee have the powers denied to the Executive Committee in these Bylaws.
(c) Term: The terms of members of all committees of the Board of Directors shall expire on the date of the next annual meeting of the Board of Directors following their appointment; provided that they shall continue in office until their successors are appointed. The Board, subject to the provisions of subsections (a) or (b) of this Section 3.9, may at any time increase or decrease the number of members of a committee or terminate the existence of a committee; provided that no committee shall consist of less than one member. The membership of a committee member shall terminate on the date of his death or voluntary resignation, but the Board may at any time for any reason remove any individual committee member and the Board may fill any committee vacancy created by death, resignation, removal or increase in the number of members of the committee. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee, and, in addition, in the absence or disqualification of any member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member.
(d) Meetings: Unless the Board of Directors shall otherwise provide, regular meetings of the Executive Committee or any other committee appointed pursuant to this Section 3.9 shall be held at such times and places as are determined by the Board of Directors, or by any such committee, and when notice thereof has been given to each member of such committee, no further notice of such regular meetings need be given thereafter; special meetings of any such committee may be held at the principal office of the corporation required to be maintained pursuant to Section 1.2 of Article I hereof; or at any place which has been designated from time to time by resolution of such committee or by written consent of all members thereof, and may be called by any director who is a member of such committee upon written notice to the members of such committee of the time and place of such special meeting given in the manner provided for the giving of written notice to members of the Board of Directors of the time and place of special meetings of the Board of Directors. Notice of any special meeting of any committee may be waived in writing at any time after the meeting and will be waived by any director by attendance thereat. A majority of the authorized number of members of any such committee shall constitute a quorum for the transaction of business, and the act of a majority of those present at any meeting at which a quorum is present shall be the act of such committee.
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ARTICLE 4
OFFICERS
Section 4.1 Officers Designated.
The officers of the corporation shall be a President, a Secretary and a Treasurer. The Board of Directors or the President may also appoint a Chairman of the Board, one or more Vice-Presidents, assistant secretaries, assistant treasurers, and such other officers and agents with such powers and duties as it or he shall deem necessary. The order of the seniority of the Vice- Presidents shall be in the order of their nomination unless otherwise determined by the Board of Directors. The Board of Directors may assign such additional titles to one or more of the officers as they shall deem appropriate. Any one person may hold any number of offices of the corporation at any one time unless specifically prohibited therefrom by law. The salaries and other compensation of the officers of the corporation shall be fixed by or in the manner designated by the Board of Directors.
Section 4.2 Tenure and Duties of Officers.
(a) General: All officers shall hold office at the pleasure of the Board of Directors and until their successors shall have been duly elected and qualified, unless sooner removed. Any officer elected or appointed by the Board of Directors may be removed at any time by the Board of Directors. If the office of any officer becomes vacant for any reason, the vacancy may be filled by the Board of Directors. Nothing in these Bylaws shall be construed as creating any kind of contractual right to employment with the corporation.
(b) Duties of the Chairman of the Board of Directors: The Chairman of the Board of Directors (if there be such an officer appointed) when present shall preside at all meetings of the stockholders and the Board of Directors. The Chairman of the Board of Directors shall perform such other duties and have such other powers as the Board of Directors shall designate from time to time.
(c) Duties of President: The President shall preside at all meetings of the stockholders and at all meetings of the Board of Directors, unless the Chairman of the Board of Directors has been appointed and is present. The President shall perform such other duties and have such other powers as the Board of Directors shall designate from time to time.
(d) Duties of Vice-Presidents: The Vice-Presidents, in the order of their seniority, may assume and perform the duties of the President in the absence or disability of the President or whenever the office of the President is vacant. The Vice-President shall perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time.
(e) Duties of Secretary: The Secretary shall attend all meetings of the stockholders and of the Board of Directors and any committee thereof, and shall record all acts and proceedings thereof in the minute book of the corporation, which may be maintained in either paper or electronic form. The Secretary shall give notice, in conformity with these Bylaws, of all meetings of the stockholders and of all meetings of the Board of Directors and any Committee thereof requiring notice. The Secretary shall perform such other duties and have such other powers as the Board of Directors shall designate from time to time. The President may direct any assistant secretary to assume and perform the duties of the Secretary in the absence or disability of the Secretary, and each assistant secretary shall perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time.
(f) Duties of Treasurer: The Treasurer shall keep or cause to be kept the books of account of the corporation in a thorough and proper manner, and shall render statements of the financial affairs of the corporation in such form and as often as required by the Board of Directors or the President. The Treasurer, subject to the order of the Board of Directors, shall have the custody of all funds and securities of the corporation. The Treasurer shall perform all other duties commonly incident to his office and shall perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. The President may direct any assistant treasurer to assume and perform the duties of the Treasurer in the absence or disability of the Treasurer, and each assistant treasurer shall perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time.
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ARTICLE 5
EXECUTION OF CORPORATE INSTRUMENTS, AND
VOTING OF SECURITIES OWNED BY THE CORPORATION
Section 5.1 Execution of Corporate Instruments.
(a) The Board of Directors may in its discretion determine the method and designate the signatory officer or officers, or other person or persons, to execute any corporate instrument or document, or to sign the corporate name without limitation, except where otherwise provided by law, and such execution or signature shall be binding upon the corporation.
(b) Unless otherwise specifically determined by the Board of Directors or otherwise required by law, formal contracts of the corporation, promissory notes, deeds of trust, mortgages and other evidences of indebtedness of the corporation, and other corporate instruments or documents requiring the corporate seal, and certificates of shares of stock owned by the corporation, shall be executed, signed or endorsed by the Chairman of the Board (if there be such an officer appointed) or by the President; such documents may also be executed by any Vice-President and by the Secretary or Treasurer or any assistant secretary or assistant treasurer. All other instruments and documents requiring the corporate signature but not requiring the corporate seal may be executed as aforesaid or in such other manner as may be directed by the Board of Directors.
(c) All checks and drafts drawn on banks or other depositaries on funds to the credit of the corporation or in special accounts of the corporation shall be signed by such person or persons as the Board of Directors shall authorize so to do.
(d) Execution of any corporate instrument may be effected in such form, either manual, facsimile or electronic signature, as may be authorized by the Board of Directors.
Section 5.2 Voting of Securities Owned by Corporation.
All stock and other securities of other corporations owned or held by the corporation for itself or for other parties in any capacity shall be voted, and all proxies with respect thereto shall be executed, by the person authorized so to do by resolution of the Board of Directors or, in the absence of such authorization, by the Chairman of the Board (if there be such an officer appointed), or by the President, or by any Vice-President.
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ARTICLE 6
SHARES OF STOCK
Section 6.1 Form and Execution of Certificates.
The shares of the corporation shall be represented by certificates, provided that the Board of Directors may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the corporation. Certificates for the shares of stock of the corporation shall be in such form as is consistent with the Certificate of Incorporation and applicable law. Every holder of stock in the corporation shall be entitled to have a certificate signed by, or in the name of the corporation by, the Chairman of the Board (if there be such an officer appointed), or by the President or any Vice-President and by the Treasurer or assistant treasurer or the Secretary or assistant secretary, certifying the number of shares owned by him in the corporation. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued with the same effect as if he were such officer, transfer agent, or registrar at the date of issue. If the corporation shall be authorized to issue more than one class of stock or more than one series of any class, the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the corporation shall issue to represent such class or series of stock, provided that, except as otherwise provided in section 202 of the Delaware General Corporation Law, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the corporation shall issue to represent such class or series of stock, a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.
Section 6.2 Lost Certificates.
The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost or destroyed certificate or certificates, or his legal representative, to indemnify the corporation in such manner as it shall require and/or to give the corporation a surety bond in such form and amount as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost or destroyed.
Section 6.3 Transfers.
Transfers of record of shares of stock of the corporation shall be made only upon its books by the holders thereof, in person or by attorney duly authorized, and upon the surrender of a certificate or certificates for a like number of shares, properly endorsed.
Section 6.4 Fixing Record Dates.
(a) In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than 60 nor less than 10 days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the date on which the meeting is held. A determination of stockholders of record entitled notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.
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(b) In order that the corporation may determine the stockholders entitled to consent to corporate action in writing or by electronic transmission without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which date shall not be more than 10 days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. If no record date has been fixed by the Board of Directors, the record date for determining stockholders entitled to consent to corporate action in writing or by electronic transmission without a meeting, when no prior action by the Board of Directors is required by the Delaware General Corporation Law, shall be the first date on which a signed written consent or electronic transmission setting forth the action taken or proposed to be taken is delivered to the corporation by delivery to its registered office in Delaware, its principal place of business, or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded; provided that any such electronic transmission shall satisfy the requirements of Section 2.11(b) and, unless the Board of Directors otherwise provides by resolution, no such consent by electronic transmission shall be deemed to have been delivered until such consent is reproduced in paper form and until such paper form shall be delivered to the corporation by delivery to its registered office in Delaware, its principal place of business or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a corporation’s registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by law, the record date for determining stockholders entitled to consent to corporate action in writing or by electronic transmission without a meeting shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action.
(c) In order that the corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than 60 days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.
Section 6.5 Registered Stockholders.
The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.
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ARTICLE 7
OTHER SECURITIES OF THE CORPORATION
All bonds, debentures and other corporate securities of the corporation, other than stock certificates, may be signed by the Chairman of the Board (if there be such an officer appointed), or the President or any Vice-President or such other person as may be authorized by the Board of Directors and the corporate seal impressed thereon or a facsimile of such seal imprinted thereon and attested by the signature of the Secretary or an assistant secretary, or the Treasurer or an assistant treasurer; provided, however, that where any such bond, debenture or other corporate security shall be authenticated by the manual signature of a trustee under an indenture pursuant to which such bond, debenture or other corporate security shall be issued, the signature of the persons signing and attesting the corporate seal on such bond, debenture or other corporate security may be the imprinted facsimile of the signatures of such persons. Interest coupons appertaining to any such bond, debenture or other corporate security, authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an assistant treasurer of the corporation, or such other person as may be authorized by the Board of Directors, or bear imprinted thereon the facsimile signature of such person. In case any officer who shall have signed or attested any bond, debenture or other corporate security, or whose facsimile signature shall appear thereon has ceased to be an officer of the corporation before the bond, debenture or other corporate security so signed or attested shall have been delivered, such bond, debenture or other corporate security nevertheless may be adopted by the corporation and issued and delivered as though the person who signed the same or whose facsimile signature shall have been used thereon had not ceased to be such officer of the corporation.
ARTICLE 8
INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS
Section 8.1 Right to Indemnification.
Each person who was or is a party or is threatened to be made a party to or is involved (as a party, witness, or otherwise), in any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative (hereinafter a “Proceeding”), by reason of the fact that he, or a person of whom he is the legal representative, is or was a director, officer, employee, or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee, or agent of another corporation or of a partnership, joint venture, trust, or other enterprise, including service with respect to employee benefit plans, whether the basis of the Proceeding is alleged action in an official capacity as a director, officer, employee, or agent or in any other capacity while serving as a director, officer, employee, or agent (hereafter an “Agent”), shall be indemnified and held harmless by the corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended or interpreted (but, in the case of any such amendment or interpretation, only to the extent that such amendment or interpretation permits the corporation to provide broader indemnification rights than were permitted prior thereto) against all expenses, liability, and loss (including attorneys’ fees, judgments, fines, ERISA excise taxes or penalties, and amounts paid or to be paid in settlement, and any interest, assessments, or other charges imposed thereon, and any federal, state, local, or foreign taxes imposed on any Agent as a result of the actual or deemed receipt of any payments under this Article) reasonably incurred or suffered by such person in connection with investigating, defending, being a witness in, or participating in (including on appeal), or preparing for any of the foregoing in, any Proceeding (hereinafter “Expenses”); provided, however, that except as to actions to enforce indemnification rights pursuant to Section 8.3 of this Article, the corporation shall indemnify any Agent seeking indemnification in connection with a Proceeding (or part thereof) initiated by such person only if the Proceeding (or part thereof) was authorized by the Board of Directors of the corporation. The right to indemnification conferred in this Article shall be a contract right.
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Section 8.2 Authority to Advance Expenses.
Expenses incurred by an officer or director (acting in his capacity as such) in defending a Proceeding shall be paid by the corporation in advance of the final disposition of such Proceeding, provided, however, that if required by the Delaware General Corporation Law, as amended, such Expenses shall be advanced only upon delivery to the corporation of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the corporation as authorized in this Article or otherwise. Expenses incurred by other Agents of the corporation (or by the directors or officers not acting in their capacity as such, including service with respect to employee benefit plans) may be advanced upon such terms and conditions as the Board of Directors deems appropriate. Any obligation to reimburse the corporation for Expense advances shall be unsecured and no interest shall be charged thereon.
Section 8.3 Right of Claimant to Bring Suit.
If a claim under Section 8.1 or 8.2 of this Article is not paid in full by the corporation within 120 days after a written claim has been received by the corporation, the claimant may at any time thereafter bring suit against the corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense (including attorneys’ fees) of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending a Proceeding in advance of its final disposition where the required undertaking has been tendered to the corporation) that the claimant has not met the standards of conduct that make it permissible under the Delaware General Corporation Law for the corporation to indemnify the claimant for the amount claimed. The burden of proving such a defense shall be on the corporation. Neither the failure of the corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper under the circumstances because he has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the claimant had not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not met the applicable standard of conduct.
Section 8.4 Provisions Nonexclusive.
The rights conferred on any person by this Article shall not be exclusive of any other rights that such person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, agreement, vote of stockholders or disinterested directors, or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office. To the extent that any provision of the Certificate, agreement, or vote of the stockholders or disinterested directors is inconsistent with these bylaws, the provision, agreement, or vote shall take precedence.
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Section 8.5 Authority to Insure.
The corporation may purchase and maintain insurance to protect itself and any Agent against any Expense, whether or not the corporation would have the power to indemnify the Agent against such Expense under applicable law or the provisions of this Article.
Section 8.6 Survival of Rights.
The rights provided by this Article shall continue as to a person who has ceased to be an Agent and shall inure to the benefit of the heirs, executors, and administrators of such a person.
Section 8.7 Settlement of Claims.
The corporation shall not be liable to indemnify any Agent under this Article (a) for any amounts paid in settlement of any action or claim effected without the corporation’s written consent, which consent shall not be unreasonably withheld; or (b) for any judicial award if the corporation was not given a reasonable and timely opportunity, at its expense, to participate in the defense of such action.
Section 8.8 Effect of Amendment.
Any amendment, repeal, or modification of this Article shall not adversely affect any right or protection of any Agent existing at the time of such amendment, repeal, or modification.
Section 8.9 Subrogation.
In the event of payment under this Article, the corporation shall be subrogated to the extent of such payment to all of the rights of recovery of the Agent, who shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of such documents necessary to enable the corporation effectively to bring suit to enforce such rights.
Section 8.10 No Duplication of Payments.
The corporation shall not be liable under this Article to make any payment in connection with any claim made against the Agent to the extent the Agent has otherwise actually received payment (under any insurance policy, agreement, vote, or otherwise) of the amounts otherwise indemnifiable hereunder.
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ARTICLE 9
NOTICES
Whenever, under any provisions of these Bylaws, notice is required to be given to any stockholder, the same shall be given either (1) in writing, timely and duly deposited in the United States Mail, postage prepaid, and addressed to his last known post office address as shown by the stock record of the corporation or its transfer agent, or (2) by a means of electronic transmission that satisfies the requirements of Section 2.4(e) of these Bylaws, and has been consented to by the stockholder to whom the notice is given. Any notice required to be given to any director may be given by either of the methods hereinabove stated, except that such notice other than one which is delivered personally, shall be sent to such address or (in the case of electronic communication) such e-mail address, facsimile telephone number or other form of electronic address as such director shall have filed in writing or by electronic communication with the Secretary of the corporation, or, in the absence of such filing, to the last known post office address of such director. If no address of a stockholder or director be known, such notice may be sent to the office of the corporation required to be maintained pursuant to Section 1.2 of Article I hereof. An affidavit of mailing, executed by a duly authorized and competent employee of the corporation or its transfer agent appointed with respect to the class of stock affected, specifying the name and address or the names and addresses of the stockholder or stockholders, director or directors, to whom any such notice or notices was or were given, and the time and method of giving the same, shall be conclusive evidence of the statements therein contained. All notices given by mail, as above provided, shall be deemed to have been given as at the time of mailing and all notices given by means of electronic transmission shall be deemed to have been given as at the sending time recorded by the electronic transmission equipment operator transmitting the same. It shall not be necessary that the same method of giving notice be employed in respect of all directors, but one permissible method may be employed in respect of any one or more, and any other permissible method or methods may be employed in respect of any other or others. The period or limitation of time within which any stockholder may exercise any option or right, or enjoy any privilege or benefit, or be required to act, or within which any director may exercise any power or right, or enjoy any privilege, pursuant to any notice sent him in the manner above provided, shall not be affected or extended in any manner by the failure of such a stockholder or such director to receive such notice. Whenever any notice is required to be given under the provisions of the statutes or of the Certificate of Incorporation, or of these Bylaws, a waiver thereof in writing signed by the person or persons entitled to said notice, or a waiver by electronic transmission by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent thereto. Whenever notice is required to be given, under any provision of law or of the Certificate of Incorporation or Bylaws of the corporation, to any person with whom communication is unlawful, the giving of such notice to such person shall not be required and there shall be no duty to apply to any governmental authority or agency for a license or permit to give such notice to such person. Any action or meeting which shall be taken or held without notice to any such person with whom communication is unlawful shall have the same force and effect as if such notice had been duly given. In the event that the action taken by the corporation is such as to require the filing of a certificate under any provision of the Delaware General Corporation Law, the certificate shall state, if such is the fact and if notice is required, that notice was given to all persons entitled to receive notice except such persons with whom communication is unlawful.
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ARTICLE 10
AMENDMENTS
These Bylaws may be repealed, altered or amended or new Bylaws adopted by written consent of stockholders in the manner authorized by Section 2.11 of Article II, or at any meeting of the stockholders, either annual or special, by the affirmative vote of a majority of the stock entitled to vote at such meeting, unless a larger vote is required by these Bylaws or the Certificate of Incorporation. The Board of Directors shall also have the authority to repeal, alter or amend these Bylaws or adopt new Bylaws (including, without limitation, the amendment of any Bylaws setting forth the number of directors who shall constitute the whole Board of Directors) by unanimous written consent or at any annual, regular, or special meeting by the affirmative vote of a majority of the whole number of directors, subject to the power of the stockholders to change or repeal such Bylaws and provided that the Board of Directors shall not make or alter any Bylaws fixing the qualifications, classifications, or term of office of directors.
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CERTIFICATE OF SECRETARY
The undersigned, Secretary of PIONEER POWER SOLUTIONS, INC., a Delaware corporation, hereby certifies that the foregoing is a full, true and correct copy of the Bylaws of said corporation, with all amendments to date of this Certificate.
WITNESS the signature of the undersigned this 25th day of November, 2009.
/s/ David Davis
David Davis, Secretary
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Pioneer Power Solutions, Inc. 10-Q
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: November 14, 2022 | /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) |
Pioneer Power Solutions, Inc. 10-Q
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: November 14, 2022 | /s/ Walter Michalec |
| Walter Michalec | |
|
Chief Financial Officer (Principal Financial Officer duly authorized to sign on behalf of Registrant) |
Pioneer Power Solutions, Inc. 10-Q
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 September 30, 2022 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: November 14, 2022 | 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.
Pioneer Power Solutions, Inc. 10-Q
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 September 30, 2022 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: November 14, 2022 | 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.