PIONEER POWER SOLUTIONS INC

Notes to Consolidated Financial Statements

1. BUSINESS ORGANIZATION, NATURE OF OPERATIONS, RISKS AND UNCERTAINTIES

Pioneer Power Solutions, Inc. and its wholly owned subsidiaries (referred to herein as the “Company” or “Pioneer”) design, manufacture, integrate, refurbish, service, distribute and sell electric power systems, distributed energy resources, power generation equipment and mobile electric vehicle (“EV”) charging solutions. The Company’s products and services are sold to a broad range of customers in the utility, industrial and commercial markets. The Company’s customers include, but are not limited to, electric, gas and water utilities, data center developers and owners, EV charging infrastructure developers and owners, and distributed energy developers. The Company is headquartered in Fort Lee, New Jersey and operates from three (3) additional locations in the United States for manufacturing, service and maintenance, engineering, sales and administration.

Nasdaq Listing

On September 24, 2013, the Company completed an underwritten public offering of 1,265,000 shares of its common stock at a gross sales price of $7.00 per share, resulting in net proceeds to the Company of approximately $7,900, after deducting underwriting discounts and commissions and other offering expenses. In connection with the public offering, the Company’s common stock began trading on the Nasdaq Capital Market under the symbol PPSI.

Segments

In determining operating and reportable segments in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 280, Segment Reporting (“ASC 280”), the Company concluded that it hastwo reportable segments, which are also its operating segments: Electrical Infrastructure Equipment (“Electrical Infrastructure”) and Critical Power Solutions (“Critical Power”). Financial information about the Company’s segments is presented in Note 13 - Business Segment, Geographic and Customer Information.

Basis of Presentation

The Company’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The Company believes 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 consolidated financial statements have been included.

These consolidated financial statements include the accounts of Pioneer and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

Liquidity

The accompanying consolidated 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 consolidated financial statements, as of the year ended December 31, 2023, the Company had $3,582 of cash on hand and working capital of $9,421. The cash on hand was generated primarily from the sale of common stock under the ATM Program (as defined below), payment of all unpaid principal and interest from the two subordinated promissory notes the Company received in connection with the sale of the transformer business units in August 2019 (the “Equity Transaction”) for an aggregate principal amount of $7,500 (the “Seller Notes”) during the year ended December 31, 2022, and cash flows from operating activities. On October 20, 2020, the Company entered into an At the Market Sale Agreement with H.C. Wainwright & Co., LLC (“Wainwright”), pursuant to which the Company may offer and sell our shares of common stock from time to time through Wainwright, acting as sales agent or principal (the “ATM Program”). Since October 20, 2020, and through December 31, 2023, the Company sold an aggregate of 916,059 shares of common stock for aggregate gross proceeds of approximately $8,904, before any sales agent fees and expenses payable by the Company under the ATM Program. During the year ended December 31, 2023, the Company sold an aggregate of 27,559 shares of common stock for an aggregate consideration of approximately $184, before any sales agent fees and expenses payable by the Company under the ATM Program.

The Company has historically met its cash needs through a combination of cash flows from operating activities and bank borrowings, the completion of the Equity Transaction, proceeds from the sale of the CleanSpark common stock and warrants to purchase CleanSpark common stock, sale of common stock under the ATM Program and collecting all unpaid principal and interest from the Seller Notes. Historically, the Company’s cash requirements were generally for operating activities, debt repayment, capital improvements and acquisitions. The Company expects to meet its cash needs with the working capital and cash flows from the Company’s operating activities. The Company expects its cash requirements to be generally for operating activities, product development and capital improvements. The Company expects that its current cash balance is sufficient to fund operations from the date our consolidated financial statements are issued.

On December 13, 2021, the Company filed a prospectus supplement to a prospectus which forms a part of its registration statement on Form S-3 (File No. 333-249569) (the “Prior Shelf Registration Statement”), that was declared effective by the SEC on October 27, 2020 (the “Prior ATM Prospectus”), in connection with the offer and sale of up to an aggregate offering amount of $8,600 of common stock that may be issued and sold under the ATM Program. Prior to the expiration of the Prior Shelf Registration Statement at the end of its three-year term, the Company sold an aggregate of 27,559 shares of common stock for an aggregate consideration of approximately $184, before any sales agent fees and expenses payable by us, under the Prior ATM Prospectus. On August 30, 2023, the Company filed a new registration statement on Form S-3 (File No. 333-274266) to replace the Prior Shelf Registration Statement, including a base prospectus which covers the offering, issuance and sale of up to $150,000 of common stock, preferred stock, warrants and/or units; and a sales agreement prospectus covering the offering, issuance and sale of up to a maximum aggregate offering price of $75,000 of common stock that may be issued and sold under the ATM Program (the “New ATM Prospectus”). The new registration statement was declared effective by the SEC on September 8, 2023. As of December 31, 2023, $75,000 of common stock remained available for issuance under the New ATM Prospectus.

As of the filing date of this Form 10-K, we became subject to the limitations of General Instruction I.B.6 of Form S-3, which limits the amount of funds we can raise through primary public offerings of securities in any twelve-calendar month period using a registration statement on Form S-3 to one-third of the aggregate market value of our common stock held by non-affiliates. Therefore, we will be limited in the amount of proceeds we are able to raise by selling our common stock using Form S-3, including under the New ATM Prospectus, until such time as our public float held by non-affiliates exceeds $75,000.

Risks and Uncertainties

The continuing impacts of the rising interest rates, inflation, changes in foreign currency exchange rates and geopolitical developments, such as the ongoing conflict between Russia and Ukraine, and the ongoing conflict between Israel and Hamas, have resulted, and may continue to result, in a global slowdown of economic activity, which may decrease demand for a broad variety of goods and services, including those provided by the Company’s clients, while also disrupting supply channels, sales channels and advertising and marketing activities for an unknown period of time. As a result of the current uncertainty in economic activity, the Company is unable to predict the potential size and duration of the impact on its revenue and its results of operations, if any. The extent of the potential impact of these macroeconomic factors on the Company’s operational and financial performance will depend on a variety of factors, including the extent of geopolitical disruption and its impact on the Company’s clients, partners, industry, and employees, all of which are uncertain at this time and cannot be accurately predicted. The Company continues to monitor the effects of these macroeconomic factors and intends to take steps deemed appropriate to limit the impact on its business. During the year ended December 31, 2023, the Company was able to operate substantially at capacity.

There can be no assurance that precautionary measures, whether adopted by the Company or imposed by others, will be effective, and such measures could negatively affect its sales, marketing, and client service efforts, delay and lengthen its sales cycles, decrease its employees’, clients’, or partners’ productivity, or create operational or other challenges, any of which could harm its business and results of operations.

Rounding

All dollar amounts (except share and per share data) presented are stated in thousands of dollars, unless otherwise noted. Amounts may not foot due to rounding.

2. RESTATEMENT OF PREVIOUSLY ISSUED CONSOLIDATED FINANCIAL STATEMENTS

In connection with the preparation of our consolidated financial statements for the years ended December 31, 2023 and 2022, the Company identified errors related to revenue and cost recognition in its previously issued (i) consolidated financial statements as of and for the year ended December 31, 2022 included in its Annual Report on Form 10-K for the year ended December 31, 2022 (the “Annual Period”) and (ii) unaudited condensed consolidated financial statements for the quarters ended March 31, 2022 through September 30, 2023 included in its Quarterly Reports on Form 10-Q for the periods ended March 31, 2022, June 30, 2022, September 30, 2022, March 31, 2023, June 30, 2023 and September 30, 2023 (the “Interim Periods”, which, together with the Annual Period, the “Affected Periods”).

During 2022 and 2023, the Company recognized revenues associated with customer contracts with performance obligations satisfied over time (“Over Time Contracts”) using labor hours as the measure of progress. The Company’s underlying estimates of total labor hours required to complete Over Time Contracts were materially different from the actual labor hours required, which was determined to represent an error since the information underlying the estimate was known or knowable as of the balance sheet date and, as a result, the percentage of completion used to recognize revenue in the Affected Periods is materially different from the percentage of completion using actual labor hours incurred. As a result, the Company has restated revenues during the Affected Periods to adjust the percentage of completion based upon the actual labor hours incurred to complete each Over Time Contract (the “Revenues Adjustment”).

Additionally, the Company has determined that costs from Over Time Contracts should be recognized as incurred and, as a result, the Company has recorded an adjustment to its consolidated financial statements during the Affected Periods (together with the Revenues Adjustment, the “Restatement Adjustments”), as the Company was previously incorrectly deferring costs incurred to a future period.

The Company evaluated the materiality of these misstatements both qualitatively and quantitatively in accordance with Staff Accounting Bulletin (“SAB”) No. 99,Materiality, and SAB No. 108,Considering the Effects of Prior Year Misstatements in Current Year Financial Statements, and determined the effect of correcting these misstatements was material to the Affected Periods. As a result of the material misstatements, the Company has restated its consolidated financial statements for the Affected Periods in accordance with ASC 250, Accounting Changes and Error Corrections (the “Restated Consolidated Financial Statements”).

A reconciliation from the amounts previously reported for the Affected Periods to the restated amounts in the Restated Consolidated Financial Statements is provided for the impacted financial statement line items below for: (i) the consolidated balance sheet as of December 31, 2022; (ii) the consolidated statement of operations for the year ended December 31, 2022; (iii) the consolidated statement of changes in stockholders’ equity for the year ended December 31, 2022; and (iv) the consolidated statement of cash flows for the year ended December 31, 2022. The amounts labeled “Restatement Adjustments” represent the effects of the Restatement Adjustments.

The following table presents the effects of the Restatement Adjustments on the Company’s consolidated balance sheet as of December 31, 2022:

The following table presents the effects of the Restatement Adjustments on the Company’s consolidated statement of operations for the year ended December 31, 2022:

The following table presents the effects of the Restatement Adjustments on the Company’s consolidated statement of changes in stockholders’ equity for the year ended December 31, 2022:

The following table presents the effects of the Restatement Adjustments on the Company’s consolidated statement of cash flows for the year ended December 31, 2022:

The remainder of the notes to the Company’s consolidated financial statements have been updated and restated, as applicable, to reflect the impact of the Restatement Adjustments described above.

See Note 4 - Restatement of Previously Issued Unaudited Interim Condensed Consolidated Financial Statements for details of the effect of the Restatement Adjustments on the Interim Periods.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

The preparation of consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. The consolidated financial statements include estimates based on currently available information and management’s judgment as to the outcome of future conditions and circumstances. Significant estimates in these consolidated financial statements include, but are not limited to, measurement of revenue for contracts accounted for over time, accounts receivable reserves, inventory valuation, useful lives and impairment of long-lived assets, stock-based compensation and the valuation allowance related to the Company’s deferred tax assets. Changes in the status of certain facts or circumstances could result in material changes to the estimates used in the preparation of the consolidated financial statements and actual results could differ from the estimates and assumptions.

Revenue Recognition

Revenue is recognized when (1) a contract with a customer exists, (2) performance obligations promised in a contract are identified based on the products or services that will be transferred to the customer, (3) the transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring products or services to the customer, (4) the transaction price is allocated to the performance obligations in the contract and (5) the Company satisfies its performance obligation. The Company satisfies its performance obligations and, therefore, recognizes revenue, either over time or at a point in time, which is when the customer has obtained control of the good or service. Revenue from the sale of the Company’s electric power systems under its Electrical Infrastructure segment is recognized either over time or at a point in time and substantially all of the Company’s revenue from the sale of power generation equipment under its Critical Power segment is recognized at a point in time. Certain sales of highly customized electrical equipment under the Company’s Electrical Infrastructure segment are recognized over time when such equipment has no alternative use and the Company has an enforceable right to payment for performance completed to date. The Company’s measure of progress for such contracts is evaluated under the input method based on direct labor hours incurred relative to the estimated total direct labor hours required in order to complete the project. Any anticipated losses on contracts are fully recognized in the period in which the losses become evident. Service revenues include maintenance contracts that are recognized over time based on the contract term and repair services that are recognized as services are delivered.

Contract Estimates

Revenue from over time contracts is recognized proportionally over the term of the contract using an input method based on the proportion of labor hours incurred as compared to the total estimated labor hours for the fixed-fee contract performance obligations, which the Company considers the best available indicator of the pattern and timing in which contract performance obligations are fulfilled and control transfers to the customer. This percentage is multiplied by the contracted dollar amount of the project to determine the amount of revenue to recognize in an accounting period.

There are situations where the number of hours to complete projects may exceed the original estimate as a result of an increase in project scope or unforeseen events. The related impact on income is recognized using the cumulative catch-up method, which the Company recognizes in the current period.

Recognition of revenue on a contract requires estimates of the total labor hours at completion and the measurement of progress towards completion. Due to the long-term nature of many of the Company’s contracts, developing the estimated total labor hours at completion often requires judgment. Factors that must be considered in estimating the total labor hours to be completed include the nature and complexity of the work to be performed and the risk and impact of delayed performance.

At the outset of each contract, the Company gauges its complexity and perceived risks and establish an estimated total number of labor hours at completion in line with these expectations. The Company follows a standard contract review process in which the Company reviews the progress and performance on its ongoing contracts at least quarterly.

Cost of Goods Sold

Cost of goods sold primarily includes charges for materials, direct labor and related benefits, freight (inbound and outbound), direct supplies and tools, purchasing and receiving costs, inspection costs, internal transfer costs, warehousing costs and utilities related to production facilities and, where appropriate, an allocation of overhead. Cost of goods sold also includes indirect labor and infrastructure cost related to the provision of field services.

Fair Value of Financial Instruments

Fair value is defined as the amount that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and is measured using inputs in one of the following three categories:

Level 1 measurements are based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Valuation of these items does not entail a significant amount of judgment.

Level 2 measurements are based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active or market data other than quoted prices that are observable for the assets or liabilities.

Level 3 measurements are based on unobservable data that are supported by little or no market activity and are significant to the fair value of the assets or liabilities.

The Company’s financial instruments consist primarily of cash, accounts receivable, accounts payable and accrued liabilities. The carrying values of these financial instruments approximate their respective fair values due to the relatively short period of time between their origination and their expected realization or payment.

Concentrations

The Company manages its accounts receivable credit risk by performing credit evaluations and monitoring amounts due from the Company’s customers. The Company had certain customers whose revenue individually represented 10% or more of the Company’s total revenue, or whose accounts receivable balances individually represented 10% or more of the Company’s total accounts receivable, as follows:

At December 31, 2023, one customer represented approximately 23% of the Company’s accounts receivable. At December 31, 2022, three customers represented approximately 52%,15% and 12% of the Company’s accounts receivable.

For the year ended December 31, 2023, two customers represented approximately 42% and 20% of the Company’s revenue. For the year ended December 31, 2022, two customers represented approximately 43% and 10% of the Company’s revenue.

As of December 31, 2023, one of the Company’s suppliers represented 18% of the Company’s accounts payable. As of December 31, 2022, three of the Company’s suppliers represented 38% of the Company’s accounts payable.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents in the consolidated financial statements. At December 31, 2023 and 2022, the Company did not have any cash equivalents. The Company has cash on deposits in several financial institutions which may be in excess of Federal Deposit Insurance Corporation (“FDIC”) insurance limits. As of December 31, 2023 and 2022, the Company had balances of $3,332 and $10,046 in excess of the FDIC insured limits, respectively. The Company reduces exposure to credit risk by maintaining cash deposits with major financial institutions. The Company has not experienced losses in such accounts and periodically evaluates the creditworthiness of its financial institutions. While the Company does not anticipate any losses, liquidity issues, or capital resource constraints arising from the bank failures during 2023, it cannot predict at this time to what extent it or its collaborators, employees, suppliers, and/or vendors could be negatively impacted by such bank failures and other macroeconomic and geopolitical events. The Company reduces its credit risk by placing its cash and cash equivalents with major financial institutions.

Accounts Receivable

On January 1, 2023, the Company adopted ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments,” using a modified retrospective approach. The standard amends several aspects of the measurement of credit losses related to certain financial instruments, including the replacement of the existing incurred credit loss model and other models with the current expected credit losses model. The cumulative effect of adoption did not result in an adjustment to the allowance for credit loss, and accordingly, the Company’s accumulated deficit as of January 1, 2023.

The Company accounts for trade receivables at original invoice amount less an estimate made for expected credit losses. The Company’s allowance for expected credit losses on accounts receivable reflects management’s estimate of credit losses over the remaining expected life of such assets, measured primarily using historical experience, as well as current conditions and forecasts that affect the collectability of the reported amount. There was $97 and $788 of reserves for expected credit losses as of December 31, 2023 and 2022, respectively.

Long-Lived Assets

Depreciation and amortization for property and equipment is computed and included in cost of goods sold and in selling and administrative expense, as appropriate. Long-lived assets, consisting primarily of property and equipment, are stated at cost less accumulated depreciation. Property and equipment are depreciated using the straight-line method, based on the estimated useful lives of the assets (buildings -25 years, machinery and equipment -5 to 15 years, computer hardware and software -3 to 5 years, furniture & fixtures 5 to 7 years, leasehold improvements – term of lease). Depreciation commences in the year the assets are ready for their intended use.

The Company reviews all long-lived assets such as property and equipment whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. Recoverability of the assets that are held and used is measured by a comparison of the carrying amount of an asset to the estimated future cash flows expected to be generated by the asset or asset group. Impairment is measured by the amount by which the carrying value of the asset(s) exceed the fair value. There were no triggering events that would indicate impairment of long-lived assets at December 31, 2023 and 2022.

Leases

The Company leases offices, facilities and equipment under operating and financing leases. The Company determines whether an arrangement is, or contains, a lease at contract inception. An arrangement contains a lease if the Company has the right to direct the use of and obtain substantially all of the economic benefits of an identified asset. Right-of-use assets and lease liabilities are recognized at lease commencement based on the present value of lease payments over the lease term. Leases with an initial term of 12 months or less are not recognized on the balance sheet and are recorded as short-term lease expense. The discount rate used to calculate present value is the Company’s incremental borrowing rate based on the lease term and the economic environment of the applicable country or region.

Certain leases contain renewal options or options to terminate prior to lease expiration, which are included in the measurement of right-of-use assets and lease liabilities when it is reasonably certain they will be exercised. The Company has elected to account for lease and non-lease components as a single lease component for its offices and manufacturing facilities. Some lease arrangements include payments that are adjusted periodically based on actual charges incurred for common area maintenance, utilities, taxes and insurance, or changes in an index or rate referenced in the lease. The fixed portion of these payments is included in the measurement of right-of-use assets and lease liabilities at lease commencement, while the variable portion is recorded as variable lease expense. The Company’s leases typically do not contain material residual value guarantees or restrictive covenants.

Deferred Financing Costs

Certain legal, accounting and other third-party fees that are directly associated with equity financings are capitalized as deferred financing costs and included as a non-current asset on the balance sheet until such financings are consummated. After consummation of the equity financing, these costs will be recorded in the stockholders’ equity section of the consolidated balance sheets as a reduction of additional paid-in capital generated as a result of the offering, to the extent there are sufficient proceeds. Should the equity financing no longer be considered probable of being consummated, all deferred financing costs would be charged to operating expenses in the consolidated statements of operations.

Income Taxes

The Company accounts for income taxes under the asset and liability method, based on the income tax laws and rates in the countries in which operations are conducted and income is earned. For the year ended December 31, 2023 and 2022, the Company operated solely in the United States. This approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities. Developing the provision for income taxes requires significant judgment and expertise in federal, international and state income tax laws, regulations and strategies, including the determination of deferred tax assets and liabilities and, if necessary, any valuation allowances that may be required for deferred tax assets. The Company records a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to be realized. The Company believes that the deferred asset, net recorded as of December 31, 2023 and 2022 is realizable through future reversals of existing taxable temporary differences. If the Company was to subsequently determine that it would be able to realize deferred tax assets in the future in excess of its net recorded amount, an adjustment to deferred tax assets would increase net income for the period in which such determination was made. The Company will continue to assess the adequacy of the valuation allowance on a quarterly basis. The Company’s tax filings are subject to audit by various taxing authorities.

The objective of accounting for income taxes is to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences or events that have been recognized in the Company’s consolidated financial statements or tax returns. The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position (see “Unrecognized Tax Benefits” below).

Income tax related interest and penalties are grouped with interest expense on the consolidated statement of operations.

Unrecognized Tax Benefits

The Company accounts for unrecognized tax benefits in accordance with FASB ASC “Income Taxes” (“ASC 740”). ASC 740 prescribes a recognition threshold that a tax position is required to meet before being recognized in the consolidated financial statements and provides guidance on de-recognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition issues. ASC 740 contains a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained upon ultimate settlement with a taxing authority, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement.

Additionally, ASC 740 requires the Company to accrue interest and related penalties, if applicable, on all tax positions for which reserves have been established consistent with jurisdictional tax laws. The Company’s policy is to recognize interest and penalties related to income tax matters as interest expense.

Share-Based Payments

The Company measures the cost of services received in exchange for an award of equity instruments based on the fair value of the award. The fair value of the award is measured on the grant date. The fair value amount is then recognized over the period during which services are required to be provided in exchange for the award, usually the vesting period, using the straight-line attribution approach. Upon the exercise of an award, the Company issues new shares of common stock out of its authorized shares.

The Company computes the fair value of stock options granted using the Black-Scholes option pricing model. Award forfeitures are accounted for at the time of occurrence. The expected term used for options is the estimated period of time that options granted are expected to be outstanding. The Company utilizes the “simplified” method under ASC 718 to develop an estimate of the expected term of “plain vanilla” option grants. The Company does not currently have a sufficient trading history to fully support its historical volatility calculations. Accordingly, the Company is utilizing an expected volatility figure based on a review of the historical volatility on a blended basis of its own stock as well as of comparable entities over a period of time equivalent to the expected life of the instrument being valued. The risk-free interest rate was determined from the implied yields from U.S. Treasury zero-coupon bonds with a remaining term consistent with the expected term of the instrument being valued.

Inventory

Inventory is stated at the lower of cost or net realizable value using a weighted average cost method and includes the cost of materials, labor and manufacturing overhead. The Company uses estimates in determining the level of reserves required to state inventory at the lower of cost or net realizable value. The Company estimates are based on market activity levels, production requirements, the physical condition of products and technological innovation. Changes in any of these factors may result in adjustments to the carrying value of inventory.

Income (Loss) Per Share

Basic income (loss) per share is computed by dividing the income or loss for the period by the weighted average number of vested common shares outstanding during the period. Diluted income (loss) per share is computed by dividing the income or loss for the period by the weighted average number of vested common shares outstanding, plus the number of additional common shares that would have been outstanding if the common share equivalents had been issued (computed using the treasury stock or if converted method), if dilutive.

Research and Development

Research and development include expenses incurred by the Company’s Critical Power segment related to developing the Company’s mobile e-Boost EV charging solutions. Research and development expenses are charged to operations as incurred.

Recently Issued Accounting Pronouncements

There have been no recent accounting pronouncements not yet adopted by the Company which would have a material impact on the Company’s consolidated financial statements.

Accounting Standards Update (“ASU”) 2023-03, “Presentation of Financial Statements (Topic 205), Income Statement - Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation - Stock Compensation (Topic 718): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 120, SEC Staff Announcement at the March 24, 2022 Emerging Issues Task Force (“EITF”) Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280 - General Revision of Regulation S-X: Income or Loss Applicable to Common Stock.” ASU 2023-03 amends the ASC for SEC updates pursuant to SEC Staff Accounting Bulletin No. 120; SEC Staff Announcement at the March 24, 2022 EITF Meeting; and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280 - General Revision of Regulation S-X: Income or Loss Applicable to Common Stock. These updates were immediately effective and did not have a significant impact on the Company’s consolidated financial statements.

4. RESTATEMENT OF PREVIOUSLY ISSUED UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following tables present the effects of the Restatement Adjustments described in Note 2 - Restatement of Previously Issued Consolidated Financial Statements on the Company’s unaudited interim condensed consolidated financial statements for the periods indicated.

The following tables present the effects of the Restatement Adjustments on the Company’s unaudited interim condensed consolidated balance sheets as of the dates indicated:

The following tables present the effects of the Restatement Adjustments on the Company’s unaudited interim condensed consolidated statements of operations for the periods indicated:

The following tables present the effects of the Restatement Adjustments on the Company’s unaudited interim condensed consolidated statements of changes in stockholders’ equity for the periods indicated:

The following tables present the effects of the Restatement Adjustments on the Company’s unaudited interim condensed consolidated statements of cash flows for the periods indicated:

5. REVENUES

Nature of the Company’s products and services

The Company’s principal products and services include electric power systems and equipment, distributed energy resources, power generation equipment and mobile EV charging solutions.

Products

The Company’s Electrical Infrastructure business provides electric power systems and equipment and distributed energy resources that help customers effectively and efficiently protect, control, transfer, monitor and manage their electric energy needs.

The Company’s Critical Power business provides customers with power generation equipment and the Company’s suite of mobile e-Boost electric vehicle charging solutions.

Services

Power generation systems represent considerable investments that require proper maintenance and service in order to operate reliably during a time of emergency. The Company’s power maintenance programs provide preventative maintenance, repair and support service for the Company’s customers’ power generation systems.

The timing of revenue recognition, customer billings and cash collections results in accounts receivable, contract assets and deferred revenue at the end of each reporting period. Contract assets include unbilled amounts typically resulting from revenue recognized exceeding amounts billed to customers for contracts utilizing an input method based on the proportion of labor hours incurred as compared to the total estimated labor hours for the fixed-fee contract performance obligations. The Company bills customers as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals, upon achievement of contractual milestones or upon deliveries.

The Company’s principal source of revenue is derived from sales of products and fees for services. The Company measures revenue based upon the consideration specified in the customer arrangement, and revenue is recognized when the performance obligations in the customer arrangement are satisfied. Changes in deferred revenue are generally as a result of the Company’s normal operating cycle and the effect of cumulative catch-up adjustments arising from a change in the measure of progress or a contract modification identified at each reporting period.

A performance obligation is a promise in a contract to transfer a distinct product or service to the customer. The transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when or as the customer receives the benefit of the performance obligation. Customers typically receive the benefit of the Company’s products when the risk of loss or control for the product transfers to the customer and for services as they are performed. Under ASC 606, revenue is recognized when a customer obtains control of promised products or services in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. To achieve this core principle, the Company applies the following five steps:

1)Identify the contract with a customer

A contract with a customer exists when (i) the Company enters into an enforceable contract with a customer that defines each party’s rights regarding the products or services to be transferred and identifies the payment terms related to these products or services, (ii) the contract has commercial substance and, (iii) the Company determines that collection of substantially all consideration for products or services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration. The Company applies judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors including the customer’s historical payment experience or, in the case of a new customer, published credit and financial information pertaining to the customer.

2)Identify the performance obligations in the contract

Performance obligations promised in a contract are identified based on the products or services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the product or service either on its own or together with other resources that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby the transfer of the products or services is separately identifiable from other promises in the contract. To the extent a contract includes multiple promised products or services, the Company must apply judgment to determine whether promised products or services are capable of being distinct and distinct in the context of the contract. If these criteria are not met the promised products or services are accounted for as a combined performance obligation.

3)Determine the transaction price

The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring products or services to the customer. The customer payments are generally due in 30 days.

4)Allocate the transaction price to performance obligations in the contract

If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price basis. The Company determines standalone selling price based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligations.

5)Recognize revenue when or as the Company satisfies a performance obligation

The Company satisfies performance obligations either over time or at a point in time. Revenue is recognized at the time the related performance obligation is satisfied by transferring a promised product or service to a customer.

The Company satisfies its performance obligations and, therefore, recognizes revenue, either over time or at a point in time, which is when the customer has obtained control of the good or service. Revenue from the sale of the Company’s electric power systems under its Electrical Infrastructure segment is recognized either over time ($23,758 and $8,049 (as restated) of revenue in 2023 and 2022, respectively) or at a point in time ($6,619 and $8,221 of revenue in 2023 and 2022, respectively) and substantially all of the Company’s revenue from the sale of power generation equipment under its Critical Power segment is recognized at a point in time. Certain sales of highly customized electrical equipment under the Company’s Electrical Infrastructure segment are recognized over time when such equipment has no alternative use and the Company has an enforceable right to payment for performance completed to date. The Company’s measure of progress for such contracts is evaluated under the input method based on direct labor hours incurred relative to the estimated total direct labor hours required in order to complete the project. When adjustments in estimated total labor hours at completion are determined, the related impact on income is recognized using the cumulative catch-up method, which the Company recognizes in the current period.

During the year ended December 31, 2023, the Company recognized $24,101 of equipment revenue over time. During the year ended December 31, 2022, the Company recognized approximately $8,049 of equipment revenue over time. Additionally, the Company recognized $9,614 and $10,440 of revenue at a point in time from the sale of its products during the year ended December 31, 2023 and 2022, respectively.

Service revenues include maintenance contracts that are recognized over time based on the contract term and repair services which are recognized as services are delivered. The Company recognized $7,778 and $7,389 of service revenue during the year ended December 31, 2023 and 2022, respectively. The Company bills customers as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals, upon achievement of contractual milestones or upon deliveries. Progress payments are paid by the customer over the duration of the contract. Amounts billed and due from customers, as well as the value of unbilled account receivables, are generally classified within current assets in the consolidated balance sheets. The customer payments are generally due in 30 days.

Under certain contracts, the Company may be entitled to invoice the customer and receive payments in advance of performing the related contract work. In those instances, the Company recognizes a liability for advance billings in excess of revenue recognized, which is referred to as deferred revenue. Payments received from customers in advance of revenue recognition are not considered a significant financing component because they are utilized to pay for contract costs within a one-year period or are requested by the Company to ensure the customers meet their payment obligations.

The change in deferred revenue as of December 31, 2023 was driven primarily by ordinary course contract activity and as a result of cumulative catch-up adjustments related to changes in measure of progress for over-time contracts. As of January 1, 2022, the Company had a deferred revenue balance of $2,423. For the years ended December 31, 2023 and 2022, the Company recognized revenue of $9,046 and $2,158 (as restated) respectively, related to amounts that were included in deferred revenue as of December 31, 2022 and 2021, respectively, resulting primarily from the progress made on the various active contracts during the respective reporting periods.

Unbilled receivables include amounts for work performed for which the Company has an unconditional right to receive payment and that are not subject to the completion of any other specific task, other than the billing itself.

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.

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 the years ended December 31, 2023 and 2022 were insignificant.

The following table presents the Company’s revenues disaggregated by revenue discipline:

6. INVENTORIES

The components of inventories are summarized below:

7. PROPERTY AND EQUIPMENT, NET

Property and equipment are summarized below:

Depreciation expense was $397 and $228 for the period ended December 31, 2023 and 2022, respectively.

8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

The components of accounts payable and accrued liabilities are summarized below:

Accrued liabilities primarily consist of accrued legal settlement costs, accrued sales commissions, accrued compensation and benefits, accrued sales and use taxes and accrued insurance. As of December 31, 2023, accrued legal settlement costs were $5,000, compared tono accrued legal settlement costs at December 31, 2022. See Note 8 for details. At December 31, 2023 and 2022, accrued sales commissions were $442 and $278, respectively. Accrued compensation and benefits at December 31, 2023 and 2022 were $294 and $213, respectively. Accrued sales and use taxes at December 31, 2023 and 2022 were $67 and $258, respectively, and there was $795 of accrued insurance at December 31, 2023 compared to $559 at December 31, 2022. The remainder of accrued liabilities are comprised of several insignificant accruals in connection with normal business operations.

9. COMMITMENTS AND CONTINGENCIES

Leases

The Company leases certain offices, facilities and equipment under operating and financing leases. The Company’s leases have remaining terms ranging from less than 1 year to 5 years some of which contain options to extend up to 5 years. As of December 31, 2023 and 2022, assets recorded under finance leases were $638 and $1,261, respectively, and accumulated amortization associated with finance leases were $235 and $534, respectively.

As of December 31, 2023 and 2022, assets recorded under operating leases were $2,248 and $2,248, respectively, and accumulated amortization associated with operating leases were $1,488 and $798, respectively. During the fourth quarter of 2022, the Company executed an extension of its operating lease for the corporate management and sales office in Fort Lee, New Jersey. After adjusting for a weighted average discount rate, the Company recognized a right-of-use asset and lease liability of approximately $275 within the consolidated balance sheets.

The components of the lease expense were as follows:

Other information related to leases was as follows:

Supplemental cash flows information:

Weighted average remaining lease term:

Weighted average discount rate:

Future minimum lease payments under non-cancellable leases as of December 31, 2023 were as follows:

Reported as of December 31, 2023:

Litigation and Claims

From time to time, the Company is a defendant or plaintiff in various legal actions that arise in the normal course of business. Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated.

On June 15, 2023, Terrence and Kay Mimick (the “Plaintiffs”) filed a complaint in the U.S. District Court, District of Nebraska naming the Company, its wholly-owned subsidiary, Pioneer Critical Power, Inc., and an individual acting in his capacity as an employee of the Company, collectively as defendants. Plaintiffs filed an amended complaint on July 7, 2023, alleging negligent driving, negligent entrustment, and negligent hiring, training and supervision, as a result of a car accident that occurred on September 9, 2019, and seeking special damages related to the injuries allegedly sustained by Plaintiffs. The amended complaint also named Titan Energy Systems, Inc. as a defendant instead of Pioneer Critical Power, Inc. On July 27, 2023, the defendants filed an Answer to Plaintiff’s Amended Complaint. On October 6, 2023, a mediation was held, but the parties did not reach a settlement. In June 2024 another mediation was held and the parties reached a settlement for all of the Plaintiffs’ claims. As of December 31, 2023, the Company recognized a liability of $5,000 related to this matter, which was included within accounts payable and accrued liabilities, with a corresponding insurance receivable of $5,000 related to the loss recovery, which was deemed to be probable and included within prepaid expenses and other current assets on the consolidated balance sheet.

The Company is not aware of any material proceedings in which any of its directors, officers or affiliates or any registered or beneficial shareholder of more than 5% of the Company’s common stock is an adverse party or has a material interest adverse to the Company’s interest.

10. NOTES RECEIVABLE, NET

In connection with the Equity Transaction, amongst other consideration, the Company received the Seller Notes for a total aggregate principal amount of $7,500, subject to certain adjustments. The Seller Notes accrue interest at a rate of 4.0% per annum, with a final payment of all unpaid principal and interest becoming fully due and payable at December 31, 2022. The Company determined the fair value of the Seller Notes based on market conditions and prevailing interest rates. During the fourth quarter of 2019, the Company and Pioneer Transformers L.P. (the “US Buyer”) and Pioneer Acquireco ULC (the “Canadian Buyer,” and together with the US Buyer, the “Buyer”), pursuant to that certain Stock Purchase Agreement dated June 28, 2019, completed the net working capital adjustment, which resulted in the Company paying the Buyer $1,800 in cash and reducing the principal amount of the $5,000 Seller Note to $3,200. During the second quarter of 2020, the Company recognized an additional reduction to the principal amount of the Seller Note of $194 for a valid claim paid by the Buyer on behalf of the Company. On December 15, 2022, the Company received in excess of $6,200 as a final payment of all unpaid principal and interest paying the Seller Notes in full.

11. STOCKHOLDERS’ EQUITY

Common Stock

The Company had 9,930,022 and 9,644,545 shares of common stock, $0.001 par value per share, outstanding as of December 31, 2023, and December 31, 2022, respectively.

Preferred Stock

The board of directors is authorized, subject to any limitations prescribed by law, without further vote or action by the shareholders, to issue from time to time up to 5,000,000 shares of preferred stock, $0.001 par value, in one or more series. Each such series of preferred stock shall have such number of shares, designations, preferences, voting powers, qualifications, and special or relative rights or privileges as shall be determined by the board of directors, which may include, among others, dividend rights, voting rights, liquidation preferences, conversion rights and preemptive rights.

12. STOCK-BASED COMPENSATION

Stock-Based Compensation

On May 11, 2011, the board of directors of the Company adopted the Pioneer Power Solutions, Inc. 2011 Long-Term Incentive Plan (the “2011 Plan”) which was subsequently approved by stockholders of the Company on May 31, 2011. The 2011 Plan replaced and superseded the 2009 Plan. The Company’s outside directors and employees, including the Company’s principal executive officer, principal financial officer and other named executive officers, and certain contractors were all eligible to participate in the 2011 Plan. The 2011 Plan allowed for the granting of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards, dividend equivalent rights, and other awards, which were granted singly, in combination, or in tandem, and upon such terms as determined by the Board or a committee of the Board that was designated to administer the Plan. Subject to certain adjustments, the maximum number of shares of the Company’s common stock that were available to be delivered pursuant to awards under the 2011 Plan was 700,000 shares. As of December 31, 2023, there were no shares available for future grants under the Company’s 2011 Long-Term Incentive Plan. The Company’s 2011 Long-Term Incentive Plan expired during the second quarter of 2021.

On October 13, 2021, the Company’s board of directors adopted the 2021 Long-Term Incentive Plan (the “2021 Plan”), subject to stockholder approval, which was obtained on November 11, 2021. The 2021 Plan supplemented the 2011 Plan, which expired on May 11, 2021, and which replaced and superseded the 2009 Plan, as noted above. The Company’s outside directors and its employees, including the principal executive officer, principal financial officer and other named executive officers, and certain contractors are all eligible to participate in the 2021 Plan. The 2021 Plan allows for the granting of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards, dividend equivalent rights, and other awards, which may be granted singly, in combination, or in tandem, and upon such terms as are determined by the Board or a committee of the board that is designated to administer the 2021 Plan. Subject to certain adjustments, the maximum number of shares of the Company’s common stock that may be delivered pursuant to awards under the 2021 Plan is 900,000 shares plus any increase by any Prior Plan Awards (as defined in the 2021 Plan) eligible for reuse, of which one hundred percent (100%) may be delivered pursuant to incentive stock options. As of December 31, 2023, there were 347,500 shares available for future grants under the Company’s 2021 Plan. The 2021 Plan was initially administered by the Company’s board of directors, but it has been administered by the compensation committee following the creation of such committee in the first quarter of 2022.

The fair value of the stock options granted was measured using the Black-Scholes valuation model with the following assumptions:

A summary of stock option activity for the year ended December 31, 2023 is presented below:

A summary of the weighted-average grant-date fair value of options, total intrinsic value of options exercised, and cash receipts from options exercised is shown below:

The following table presents information related to stock options as of December 31, 2023:

A summary of restricted stock unit (“RSU”) activity during the year ended December 31, 2023 is as follows:

During the year ended December 31, 2023, the Company issued 10,000 shares of its common stock for consulting services with a fair value of $65.

During the year ended December 31, 2023, the Company issued 100,000 shares of common stock to its Chief Executive Officer (“CEO”) in connection with the vesting of 100,000 RSUs on May 11, 2023. The fair value of the RSUs on the date of grant was $575, which was recognized immediately.

During the year ended December 31, 2023, the Company issued 250,000 shares of common stock to its Chief Financial Officer (“CFO”) in connection with the vesting of 125,000 RSUs on May 1, 2022, and 125,000 RSUs on May 1, 2023.

During the year ended December 31, 2023, the CEO and CFO each individually agreed to surrender shares of common stock to the Company, totaling an aggregate of 117,082 shares with a fair value of $720 in connection with income and payroll tax obligations paid by the Company in connection with the vesting of the above mentioned RSUs. The shares were cancelled and retired by the Company.

Stock based compensation expense recorded for the years ended December 31, 2023 and 2022 was approximately $1,471 and $1,002, respectively. At December 31, 2023, there was $413 of stock-based compensation expense remaining to be recognized in the consolidated statements of operations over a weighted average remaining period of 1.1 years.

13. INCOME TAXES

The components of loss before income taxes are summarized below:

The components of the income tax provision were as follows**:**

A reconciliation from the statutory U.S. income tax rate and the Company’s effective income tax rate, as computed on loss before taxes, is as follows:

The Company’s provision for income taxes reflects an effective tax rate on loss before income taxes of 0.0% in 2023, as compared to (0.1)% in 2022. The consistency in the Company’s effective tax rate during 2023 primarily reflects the increase in state taxes, the increase in the valuation allowance and increase in net operating losses.

The net deferred income tax asset (liability) was comprised of the following:

The tax effect of temporary differences between GAAP accounting and federal income tax accounting creating deferred income tax assets and liabilities were as follows:

As of December 31, 2023, the Company has $4,233 in foreign tax credits (“FTCs”) carryforward. These FTCs begin to expire in December 2024.

The assessment of the amount of value assigned to the Company’s deferred tax assets under the applicable accounting rules is judgmental. The Company is required to consider all available positive and negative evidence in evaluating the likelihood that the Company will be able to realize the benefit of its deferred tax assets in the future. Such evidence includes scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and the results of recent operations. Since this evaluation requires consideration of events that may occur some years into the future, there is an element of judgment involved. Realization of the Company’s deferred tax assets is dependent on generating sufficient taxable income in future periods. The Company does not believe that it is more likely than not that future taxable income will be sufficient to allow the Company to recover any of the value assigned to the Company’s deferred tax assets. Accordingly, the Company has provided for a valuation allowance of the Company’s FTCs as the Company does not anticipate generating sufficient foreign source income. In addition, the Company has provided for a full valuation allowance on the domestic deferred tax assets as the combined effect of future domestic source income and the future reversals of future tax assets and liabilities will likely be insufficient to realize the full benefits of the assets.

The Company has federal net operating loss (“NOLs”) carryforwards of approximately $18,228 as of December 31, 2023. The Federal NOLs were generated in the taxable years ending after December 31, 2017. As a result, the NOLs are eligible to be carried forward indefinitely, but generally may only offset up to 80% of federal taxable income earned in a taxable year.

The Company’s net operating losses may be subject to annual Section 382 limitations due to ownership changes that could impact the future realization. As of December 31, 2023, the Company has not experienced an ownership change within the meaning of Sec. 382(g) and will continue to monitor its cumulative ownership changes for purposes of Sec. 382. The Company has $12,467 of deferred tax assets on which it is taking a full valuation allowance. The total valuation allowance recorded is $12,378, representing an increase of $1,013 from December 31, 2022. The Company has approximately $4,233 of FTCs for which it has provided a full valuation allowance and $39 of research and development credits which expire in 2032.

The Company has interest expense subject to a tax deduction limitation under IRC 163(j). The new calculation arising from the 2017 tax reform requires an adjusted taxable income to be calculated by, among other things, adding back to taxable income any depreciation, amortization, or depletion deductions for the taxable years beginning after December 31, 2017, and before January 1, 2022, as well as removing any GILTI inclusions. When calculating the adjusted taxable income for this purpose, The Company did not have sufficient taxable income in previous years to deduct interest expense exceeding the limitation, therefore creating a carryover of business interest expense to future years. For the year ended December 31, 2023, the company was able to utilize their business interest income to support interest expense deductions, resulting in an interest expense deduction of $231 from prior year carryforwards. The amount available for carryover to future periods of IRC 163(j) as of December 31, 2023 is $2,897. This carryover is available indefinitely.

Management believes that an adequate provision has been made for any adjustments that may result from tax examinations. However, the outcome of tax audits cannot be predicted with certainty. If any issues addressed in the Company’s tax audits are resolved in a manner not consistent with management’s expectations, the Company could be required to adjust its provision for income taxes in the period such resolution occurs.

The tax years subject to examination by major tax jurisdiction include the years 2020 and forward by the U.S. Internal Revenue Service and most state jurisdictions.

14. BUSINESS SEGMENT, GEOGRAPHIC AND CUSTOMER 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. In determining operating and reportable segments in accordance with Financial Accounting Standards Board Accounting Standards Codification 280, Segment Reporting, the Company concluded that it has two reportable segments, which are also its operating segments: Electrical Infrastructure and Critical Power. The Critical Power reportable segment is the Company’s Titan Energy Systems, Inc. business unit. The Electrical Infrastructure reportable segment is the Company’s Pioneer Custom Electrical Products Corp. business unit.

The Electrical Infrastructure segment is involved in the design, manufacture and sale of electrical distribution and control equipment used primarily by large industrial and commercial operations to manage their electrical power distribution needs. The Critical Power segment is involved in the sale and service of power generation equipment and provides mobile high-capacity charging solutions, as well as aftermarket field-services, in order to help customers secure mobile fast-charging where fixed charging infrastructure does not exist.

The following tables present information about segment income (loss):

The following table presents information which reconciles segment assets to consolidated total assets:

Revenues are attributable to countries based on the location of the Company’s customers:

Approximately 42% and 20% of the Company’s sales during the year ended December 31, 2023 were made to Enchanted Rock Electric, LLC and Sequel Electrical Supply, LLC, respectively. Approximately 43% and 10% of the Company’s sales during the year ended December 31, 2022 were made to Enchanted Rock Electric, LLC and Southern California Gas Company, respectively.

The distribution of the Company’s property and equipment by geographic location is approximately as follows:

15. BASIC AND DILUTED LOSS PER COMMON SHARE

Basic and diluted loss per common share is calculated based on the weighted average number of vested shares outstanding during the period. The Company’s employee and director equity awards, as well as incremental shares issuable upon exercise of warrants, are not considered in the calculations if the effect would be anti-dilutive. The following table sets forth the computation of basic and diluted loss per share (in thousands, except per share data):

As of December 31, 2023 and 2022, basic and diluted loss per share excludes potentially dilutive common shares related to 332,500 and 670,667 shares underlying stock options, respectively, and 125,000 and 250,000 shares underlying nonvested RSUs, respectively, as their effect was anti-dilutive.

16. SUBSEQUENT EVENTS

Subsequent to December 31, 2023, the Company sold 919,557 shares of common stock under the ATM program (See liquidity section in Note 1 - Business Organization, Nature of Operations, Risks and Uncertainties) for total gross proceeds of approximately $4,986, at an average gross price of $5.5970 per share.

On May 1, 2024, the third tranche of RSUs under Mr. Michalec’s RSU Award vested and, as a result,125,000 shares of common stock were subsequently issued to Mr. Michalec. On June 7, 2024, Mr. Michalec surrendered 57,541 shares of common stock issued to him upon settlement of his vested RSUs to satisfy tax withholding obligations. The shares were cancelled and retired by the Company.