Pioneer Power Solutions(PPSI) - 2025 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for Pioneer Power Solutions, Inc. for the quarter ended March 31, 2025, including statements of operations, balance sheets, cash flows, and changes in stockholders' equity, along with detailed notes. Key highlights include a significant increase in revenue but a decrease in gross profit, a net loss, and a strong cash position primarily from the PCEP sale, despite a large dividend payment Unaudited Condensed Consolidated Statements of Operations The company reported a net loss of $(929)K for Q1 2025, an improvement from $(1,035)K in Q1 2024. Revenue significantly increased by 103.3% to $6,740K, but gross profit decreased by 72.3% due to a higher cost of goods sold. Income from discontinued operations positively contributed to the net result Unaudited Condensed Consolidated Statements of Operations (in thousands) | Metric | Q1 2025 (in thousands) | Q1 2024 (in thousands) | Change (YoY) | | :-------------------------------- | :--------------------- | :--------------------- | :----------- | | Revenues | $6,740 | $3,315 | +103.3% | | Cost of goods sold | $6,592 | $2,780 | +137.1% | | Gross profit | $148 | $535 | -72.3% | | Operating loss from continuing operations | $(2,346) | $(1,726) | -35.9% | | Net loss | $(929) | $(1,035) | +10.2% | | Basic loss per share | $(0.09) | $(0.10) | +10.0% | | Diluted loss per share | $(0.09) | $(0.10) | +10.0% | - Income from discontinued operations was $1,147K in Q1 2025, up from $620K in Q1 2024, significantly offsetting the net loss[10] Unaudited Condensed Consolidated Balance Sheets Total assets decreased from $65,951K at December 31, 2024, to $47,476K at March 31, 2025, primarily driven by a significant reduction in cash and current liabilities. Stockholders' equity also saw a decrease during the period Unaudited Condensed Consolidated Balance Sheets (in thousands) | Metric | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | Change | | :-------------------------------- | :------------------------------ | :------------------------------- | :----- | | Cash | $25,840 | $41,622 | $(15,782) | | Total current assets | $38,626 | $56,657 | $(18,031) | | Total assets | $47,476 | $65,951 | $(18,475) | | Total current liabilities | $12,475 | $29,978 | $(17,503) | | Total liabilities | $12,963 | $30,522 | $(17,559) | | Total stockholders' equity | $34,513 | $35,429 | $(916) | - The significant decrease in current liabilities is largely due to the payment of a $16,665K dividend payable, which was present at December 31, 2024, but not at March 31, 2025[13] Unaudited Condensed Consolidated Statements of Cash Flows The company generated $1,502K cash from operating activities in Q1 2025, a significant improvement from cash used of $(1,950)K in Q1 2024. However, a large cash dividend payment led to substantial cash used in financing activities, resulting in an overall decrease in cash by $(15,782)K Unaudited Condensed Consolidated Statements of Cash Flows (in thousands) | Metric | Q1 2025 (in thousands) | Q1 2024 (in thousands) | Change | | :-------------------------------- | :--------------------- | :--------------------- | :----- | | Net cash provided by/(used in) operating activities | $1,502 | $(1,950) | +$3,452 | | Net cash used in investing activities | $(595) | $(213) | -$(382) | | Net cash used in/provided by financing activities | $(16,689) | $4,808 | -$(21,497) | | (Decrease) increase in cash | $(15,782) | $2,645 | -$(18,427) | | Cash, end of year | $25,840 | $6,227 | +$19,613 | - The primary driver for cash used in financing activities in Q1 2025 was a $16,665K payment of cash dividend[16] Unaudited Condensed Consolidated Statements of Changes in Stockholders' Equity Stockholders' equity decreased from $35,429K at January 1, 2025, to $34,513K at March 31, 2025, primarily due to the net loss incurred during the period, partially offset by stock-based compensation Unaudited Condensed Consolidated Statements of Changes in Stockholders' Equity (in thousands) | Metric | January 1, 2025 (in thousands) | March 31, 2025 (in thousands) | Change | | :-------------------------------- | :----------------------------- | :---------------------------- | :----- | | Total stockholders' equity | $35,429 | $34,513 | $(916) | | Net loss | - | $(929) | $(929) | | Stock-based compensation | - | $13 | $13 | Notes to Unaudited Condensed Consolidated Financial Statements The notes provide detailed explanations for the financial statements, covering business operations, accounting policies, revenue recognition, and segment information. They highlight the company's focus on Critical Power Solutions after the PCEP sale, its liquidity position, and the impact of macroeconomic risks 1. BUSINESS ORGANIZATION, NATURE OF OPERATIONS, RISKS AND UNCERTAINTIES Pioneer Power Solutions designs, manufactures, services, and integrates distributed energy resources, power generation equipment, and mobile EV charging solutions. The company operates with one reportable segment, Critical Power Solutions, following the sale of its Electrical Infrastructure business. The company maintains a strong liquidity position, primarily from the PCEP sale, and expects to fund operations for the next twelve months, though macroeconomic factors pose risks - Pioneer's core business focuses on distributed energy resources, power generation equipment, and mobile EV charging solutions for utility, industrial, and commercial markets[20] - The company operates with a single reportable segment, Critical Power Solutions, after the sale of its Electrical Infrastructure business in October 2024[21][26] - As of March 31, 2025, the company had $25,840K cash and $26,151K working capital, primarily from the PCEP sale, and expects this to be sufficient for the next twelve months[26][28] - Macroeconomic factors like rising interest rates, inflation, and geopolitical conflicts pose risks to demand, supply channels, and overall financial performance[29] 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES No material changes to significant accounting policies were reported since the December 31, 2024 Annual Report, except for the ongoing assessment of new FASB ASUs related to income tax disclosures and expense disaggregation. The company also details its revenue recognition policy for bill and hold arrangements - No material changes to significant accounting policies since the last annual report[32] - The company is assessing the impact of new FASB ASUs 2023-09 (Income Taxes) and 2024-03/2025-01 (Expense Disaggregation Disclosures) on its consolidated financial statements[33][34] - Revenue from bill and hold arrangements is recognized when the customer obtains control, meeting specific criteria such as legal title transfer, payment obligation, and product identification[35][36] 3. REVENUES Total revenues for Q1 2025 significantly increased to $6,740K from $3,315K in Q1 2024, driven by strong product sales, particularly from mobile EV charging equipment, including $2,337K from bill and hold arrangements. Service revenue also grew. The company has significant customer concentration, with two customers accounting for 39% and 11% of Q1 2025 revenue Revenue by Discipline (in thousands) | Revenue Discipline | Q1 2025 (in thousands) | Q1 2024 (in thousands) | Change (YoY) | | :----------------- | :--------------------- | :--------------------- | :----------- | | Products | $3,773 | $1,109 | +240.2% | | Services | $2,444 | $1,881 | +29.9% | | Fixed lease revenue | $523 | $325 | +60.9% | | Total revenue | $6,740 | $3,315 | +103.3% | - Q1 2025 product revenue included $2,337K from bill and hold arrangements for mobile EV charging equipment, with no such arrangements in Q1 2024[43] - Customer concentration is high, with two customers contributing 39% and 11% of Q1 2025 revenue, and one customer representing 49% of outstanding receivables as of March 31, 2025[46] 4. INVENTORIES Total inventories increased slightly to $6,456K as of March 31, 2025, from $6,068K at December 31, 2024, primarily due to an increase in raw materials Inventories (in thousands) | Component | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | | :---------- | :---------------------------- | :------------------------------- | | Raw materials | $5,364 | $4,899 | | Work in process | $1,092 | $1,169 | | Total inventories | $6,456 | $6,068 | 5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Total accounts payable and accrued liabilities increased slightly to $4,720K as of March 31, 2025, from $4,543K at December 31, 2024. Accrued liabilities primarily consist of insurance, compensation, and warranty costs Accounts Payable and Accrued Liabilities (in thousands) | Component | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------------- | :---------------------------- | :------------------------------- | | Accounts payable | $3,376 | $3,054 | | Accrued liabilities | $1,344 | $1,489 | | Total accounts payable and accrued liabilities | $4,720 | $4,543 | - Accrued insurance decreased from $462K to $282K, while accrued warranty costs increased from $117K to $157K[52] 6. STOCK-BASED COMPENSATION Stock-based compensation expense significantly decreased to $13K in Q1 2025 from $225K in Q1 2024. As of March 31, 2025, 554,167 stock options were outstanding with a weighted average exercise price of $4.19 Stock-Based Compensation Expense (in thousands) | Metric | Q1 2025 (in thousands) | Q1 2024 (in thousands) | Change (YoY) | | :----------------------- | :--------------------- | :--------------------- | :----------- | | Stock-based compensation | $13 | $225 | -94.2% | - As of March 31, 2025, 554,167 stock options were outstanding with a weighted average exercise price of $4.19 and a remaining compensation expense of $68K[53] 7. INCOME TAXES The company recorded no income tax provision for Q1 2025 and Q1 2024, resulting in a 0% effective tax rate. This is primarily due to a full valuation allowance on deferred tax assets and the application of the discrete method for interim tax provision calculation given earnings volatility - The effective tax rate was 0% for both Q1 2025 and Q1 2024, with no income tax benefit recognized despite pre-tax losses[54] - The 0% ETR is primarily due to a full valuation allowance on federal, state, and foreign deferred tax assets, non-deductible permanent items, and the absence of discrete benefits or tax rate changes[56][97] - The company applied the discrete method for interim income tax provision due to earnings volatility and the inability to estimate a reliable annual effective tax rate[57][93] 8. DISCONTINUED OPERATIONS The company finalized the sale of its Electrical Infrastructure segment (PCEP) on October 29, 2024. In Q1 2025, income from discontinued operations was $1,147K, primarily due to a reduction in consideration due to the buyer following the finalization of a net working capital adjustment - The Electrical Infrastructure segment was sold on October 29, 2024, for $48,000K cash and $2,000K in equity[58] Income from Discontinued Operations (in thousands) | Metric | Q1 2025 (in thousands) | Q1 2024 (in thousands) | | :-------------------------------- | :--------------------- | :--------------------- | | Revenues | $0 | $5,275 | | Gross profit | $0 | $1,193 | | Operating income from discontinued operations | $0 | $620 | | Net income from discontinued operations | $1,147 | $620 | - The $1,147K income from discontinued operations in Q1 2025 resulted from a reduction in consideration due to the buyer after finalizing the net working capital adjustment for the PCEP sale[58][96] 9. EQUITY-METHOD INVESTMENT Following the deconsolidation of PCEP, the company retained an equity interest in Pioneer Investment LLC. In Q1 2025, a loss of $57K from this equity method investee was recorded - The company holds an equity interest in Pioneer Investment LLC through Rollover Units, resulting from the PCEP sale[61][62] - A loss of $57K from the equity method investee was recorded in Q1 2025[61] 10. BASIC AND DILUTED EARNINGS (LOSS) PER SHARE Basic and diluted loss per share from continuing operations was $(0.19) in Q1 2025, compared to $(0.16) in Q1 2024. Total basic and diluted loss per share improved to $(0.09) from $(0.10) due to positive contributions from discontinued operations Basic and Diluted Earnings (Loss) Per Share | Metric | Q1 2025 | Q1 2024 | | :-------------------------------- | :------ | :------ | | Loss from continuing operations | $(0.19) | $(0.16) | | Earnings from discontinued operations | $0.10 | $0.06 | | Basic loss per share | $(0.09) | $(0.10) | | Diluted loss per share | $(0.09) | $(0.10) | - Weighted average common shares outstanding (basic) increased to 11,120,266 in Q1 2025 from 10,112,310 in Q1 2024[64] 11. BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION The company operates as a single reportable segment, Critical Power Solutions, which provides mobile EV charging equipment, power generation equipment, and aftermarket field services. Revenues are primarily from the United States, with a small portion from Canada. Customer concentration remains high - The company's sole reportable segment is Critical Power Solutions, offering mobile EV charging, power generation equipment, and related services[66] Revenue by Geographic Location (in thousands) | Geographic Location | Q1 2025 (in thousands) | Q1 2024 (in thousands) | | :------------------ | :--------------------- | :--------------------- | | United States | $6,625 | $3,315 | | Canada | $115 | $0 | | Total | $6,740 | $3,315 | - Two customers, Eneridge Inc. and Verizon Communications Inc., accounted for 39% and 11% of Q1 2025 revenues, respectively[69] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance and condition for the three months ended March 31, 2025, compared to the prior year. It highlights significant revenue growth in the Critical Power segment, a decrease in gross margin due to production costs, and an increased operating loss from continuing operations. The company's liquidity is strong due to the PCEP sale, but macroeconomic risks persist Special Note Regarding Forward-Looking Statements This section cautions readers that the report contains forward-looking statements subject to various risks and uncertainties, including general economic conditions, competition, key personnel loss, supply chain disruptions, and the ability to remediate material weaknesses in internal controls - Forward-looking statements are subject to risks such as general economic conditions, competition, loss of key personnel, supply chain disruptions, and the ability to maintain effective internal controls[74] - The company explicitly states it undertakes no obligation to publicly update or revise any forward-looking statement, except as required by law[76] Business Overview Pioneer Power Solutions designs, manufactures, integrates, services, and sells distributed energy resources, on-site power generation equipment, and mobile EV charging solutions to utility, industrial, and commercial markets. The company aims to grow through internal investments in product development and expansion of personnel - The company's business encompasses distributed energy resources, power generation equipment, and mobile EV charging solutions for diverse markets including government, delivery, school bus fleets, and EV charging developers[77] - Growth strategy involves internal investments in product development and expanding manufacturing, engineering, sales, and marketing personnel[78] Description of Business Segment Following the sale of its PCEP business unit in October 2024, Pioneer Power Solutions now operates with a single reportable segment: Critical Power Solutions. This segment focuses on mobile EV charging solutions (e-Boost), power generation equipment, and comprehensive field services (Titan) - The company now operates solely under the Critical Power Solutions segment after selling its PCEP business unit in October 2024[80] - The Critical Power business provides mobile EV charging solutions (e-Boost), power generation equipment, and services like preventative maintenance, repairs, fuel polishing, and remote monitoring[80] Critical Accounting Estimates The company states there were no material changes to its critical accounting estimates during the three months ended March 31, 2025, referring readers to the Annual Report on Form 10-K for a detailed description - No material changes to critical accounting estimates occurred during Q1 2025[81] RESULTS OF OPERATIONS The Critical Power Solutions segment experienced a significant revenue increase of 103.3% in Q1 2025, reaching $6,740K. However, gross profit declined by 72.3% to $148K due to higher production costs, leading to an increased operating loss from continuing operations of $(2,346)K. Net loss improved due to income from discontinued operations Overview of March 31, 2025, and 2024, Operating Results The Critical Power Solutions segment saw a significant revenue increase of 103.3% to $6,740K in Q1 2025, but gross profit declined by 72.3% to $148K due to higher cost of goods sold. This led to an increased operating loss from continuing operations of $(2,346)K Operating Results Overview (in thousands) | Metric | Q1 2025 (in thousands) | Q1 2024 (in thousands) | Change (YoY) | | :-------------------------------- | :--------------------- | :--------------------- | :----------- | | Critical Power Solutions Revenue | $6,740 | $3,315 | +103.3% | | Critical Power Solutions Gross profit | $148 | $535 | -72.3% | | Operating loss from continuing operations | $(2,346) | $(1,726) | -35.9% | | Net loss | $(929) | $(1,035) | +10.2% | Backlog The Critical Power business backlog increased by 54.6% to $23,231K as of March 31, 2025, compared to $15,022K at March 31, 2024, indicating strong future revenue potential for the continuing operations Order Backlog (in thousands) | Segment | March 31, 2025 (in thousands) | March 31, 2024 (in thousands) | Change (YoY) | | :---------------------- | :---------------------------- | :---------------------------- | :----------- | | Critical Power Solutions | $23,231 | $15,022 | +54.6% | | Discontinued operation | $0 | $30,889 | -100% | | Total order backlog | $23,231 | $45,911 | -49.4% | - The increase in Critical Power backlog reflects strong customer commitments for products and services[84][85] Revenue Total revenue for the Critical Power segment more than doubled in Q1 2025, reaching $6,740K, primarily driven by a 199.6% increase in equipment sales and rentals of mobile EV charging solutions (e-Boost). Service revenue also grew by 29.9% Revenue by Category (in thousands) | Category | Q1 2025 (in thousands) | Q1 2024 (in thousands) | Variance | % Change | | :--------- | :--------------------- | :--------------------- | :------- | :------- | | Equipment | $4,296 | $1,434 | $2,862 | 199.6% | | Service | $2,444 | $1,881 | $563 | 29.9% | | Total revenue | $6,740 | $3,315 | $3,425 | 103.3% | - The significant revenue growth was primarily attributed to increased sales and rentals of mobile EV charging solutions, e-Boost[86] Gross Profit and Margin Gross profit for the Critical Power segment decreased by 72.3% to $148K in Q1 2025, resulting in a gross margin of 2.2%, down from 16.1% in Q1 2024. This decline was mainly due to lower margins on initial units of a specific contract in the Pioneer eMobility business, reflecting higher production costs during process refinement Gross Profit and Margin (in thousands) | Metric | Q1 2025 (in thousands) | Q1 2024 (in thousands) | Variance | % Change | | :----------- | :--------------------- | :--------------------- | :------- | :------- | | Gross profit | $148 | $535 | $(387) | (72.3%) | | Gross margin % | 2.2% | 16.1% | (13.9%) | - | - The decrease in gross margin was primarily due to higher costs incurred during the early stages of production for a contract in the Pioneer eMobility business, as manufacturing processes were being refined[87] Operating Expenses Total operating expenses increased by 10.3% to $2,494K in Q1 2025. Selling, general, and administrative (SG&A) expenses rose by 17.8% due to higher professional fees, while research and development (R&D) expenses decreased by 62.1% as the company focused on developing mobile e-Boost EV charging solutions Operating Expenses (in thousands) | Expense Category | Q1 2025 (in thousands) | Q1 2024 (in thousands) | Variance | % Change | | :----------------------------- | :--------------------- | :--------------------- | :------- | :------- | | Selling, general and administrative | $2,414 | $2,050 | $364 | 17.8% | | Research and development | $80 | $211 | $(131) | (62.1%) | | Total operating expense | $2,494 | $2,261 | $233 | 10.3% | - SG&A as a percentage of revenue decreased to 35.8% in Q1 2025 from 61.8% in Q1 2024, reflecting the significant increase in total revenue[88] - R&D expenses were primarily related to developing mobile e-Boost EV charging solutions[89] Operating Loss from Continuing Operations The operating loss from continuing operations increased by 35.9% to $(2,346)K in Q1 2025, compared to $(1,726)K in Q1 2024. This deterioration was mainly driven by the decrease in gross profit and the increase in selling, general, and administrative expenses Operating Loss from Continuing Operations (in thousands) | Metric | Q1 2025 (in thousands) | Q1 2024 (in thousands) | Variance | % Change | | :-------------------------------- | :--------------------- | :--------------------- | :------- | :------- | | Operating loss from continuing operations | $(2,346) | $(1,726) | $(620) | (35.9%) | Non-Operating Income from Continuing Operations Interest income significantly increased to $247K in Q1 2025 from $31K in Q1 2024, primarily from cash on hand. Other non-operating income decreased, and no income tax provision was recorded due to a 0% effective tax rate Non-Operating Income (in thousands) | Metric | Q1 2025 (in thousands) | Q1 2024 (in thousands) | Change (YoY) | | :--------------- | :--------------------- | :--------------------- | :----------- | | Interest income | $247 | $31 | +$216 | | Other income, net | $23 | $40 | -$(17) | - The increase in interest income was primarily generated from the company's cash on hand[91] - No income tax provision was recorded for Q1 2025 or Q1 2024, resulting in a 0% effective tax rate due to a full valuation allowance on deferred tax assets and the use of the discrete method[92][93] Net Loss per Share from Continuing Operations Net loss from continuing operations per basic and diluted share was $(0.19) in Q1 2025, an increase from $(0.16) in Q1 2024, reflecting the higher operating loss Net Loss per Share from Continuing Operations | Metric | Q1 2025 | Q1 2024 | | :-------------------------------- | :------ | :------ | | Net loss from continuing operations per basic and diluted share | $(0.19) | $(0.16) | Income from Discontinued Operations Income from discontinued operations, net of tax, increased to $1,147K in Q1 2025 from $620K in Q1 2024. This increase was primarily due to the finalization of a net working capital adjustment related to the PCEP sale Income from Discontinued Operations, Net of Tax (in thousands) | Metric | Q1 2025 (in thousands) | Q1 2024 (in thousands) | Change (YoY) | | :-------------------------------- | :--------------------- | :--------------------- | :----------- | | Income from discontinued operations, net of tax | $1,147 | $620 | +$527 | - The income in Q1 2025 was primarily due to a $1,147K adjustment from finalizing the net working capital with the buyer of the PCEP Sale[96] LIQUIDITY AND CAPITAL RESOURCES As of March 31, 2025, the company had $25,840K in cash and $26,151K in working capital, primarily from the PCEP sale. Cash used in financing activities was substantial due to a one-time special cash dividend payment. The company expects its current cash balance to fund operations for the next twelve months, despite ongoing macroeconomic uncertainties General The company's liquidity is strong, with $25,840K cash on hand as of March 31, 2025, largely from the PCEP sale. A significant one-time cash dividend of $16,665K was paid in January 2025. Macroeconomic factors continue to pose risks to the company's revenue and operations - Cash on hand as of March 31, 2025, was $25,840K, primarily generated from the PCEP Sale[98] - A one-time special cash dividend of $16,665K was paid on January 7, 2025[98] - Macroeconomic factors like rising interest rates, inflation, and geopolitical conflicts continue to pose risks to the company's revenue and operations[99] Cash Provided by/ Used in Operating Activities Cash provided by operating activities significantly improved to $1,502K in Q1 2025, compared to cash used of $(1,950)K in Q1 2024, mainly due to working capital fluctuations Net Cash Provided by/(Used in) Operating Activities (in thousands) | Metric | Q1 2025 (in thousands) | Q1 2024 (in thousands) | Change (YoY) | | :-------------------------------- | :--------------------- | :--------------------- | :----------- | | Net cash provided by/(used in) operating activities | $1,502 | $(1,950) | +$3,452 | Cash Used in Investing Activities Cash used in investing activities increased to $595K in Q1 2025 from $213K in Q1 2024, primarily due to higher purchases of property and equipment Net Cash Used in Investing Activities (in thousands) | Metric | Q1 2025 (in thousands) | Q1 2024 (in thousands) | Change (YoY) | | :-------------------------------- | :--------------------- | :--------------------- | :----------- | | Net cash used in investing activities | $(595) | $(213) | -$(382) | Cash Used in/ Provided by Financing Activities Cash used in financing activities was $16,689K in Q1 2025, a significant shift from cash provided of $4,808K in Q1 2024. This change was primarily driven by the payment of a one-time special cash dividend Net Cash Used in/Provided by Financing Activities (in thousands) | Metric | Q1 2025 (in thousands) | Q1 2024 (in thousands) | Change (YoY) | | :-------------------------------- | :--------------------- | :--------------------- | :----------- | | Net cash used in/provided by financing activities | $(16,689) | $4,808 | -$(21,497) | - The substantial cash outflow in financing activities was mainly due to the $16,665K payment of a special cash dividend[104] Working Capital Working capital slightly decreased to $26,151K as of March 31, 2025, from $26,679K at December 31, 2024, despite a significant reduction in cash Working Capital and Cash on Hand (in thousands) | Metric | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | Change | | :-------------- | :---------------------------- | :------------------------------- | :----- | | Working capital | $26,151 | $26,679 | $(528) | | Cash on hand | $25,840 | $41,622 | $(15,782) | Assessment of Liquidity The company expects its current cash balance of $25,840K, primarily from the PCEP sale, along with cash flows from operations, to be sufficient to fund operations, capital improvements, and product development for the next twelve months - The company anticipates its current cash balance and operating cash flows will be sufficient to fund operations for the next twelve months[108] - Cash requirements are expected for operating activities, capital improvements, and product development, particularly for new initiatives[108] Capital Expenditures Capital expenditures, represented by additions to property and equipment, increased to $595K in Q1 2025 from $213K in Q1 2024 Additions to Property and Equipment (in thousands) | Metric | Q1 2025 (in thousands) | Q1 2024 (in thousands) | Change (YoY) | | :-------------------------------- | :--------------------- | :--------------------- | :----------- | | Additions to property and equipment | $595 | $213 | +$382 | Known Trends, Events, Uncertainties and Factors That May Affect Future Operations Future operating results are subject to quarterly variations due to the cyclical electrical equipment industry, changing customer requirements, and raw material price fluctuations. Geopolitical conflicts and global inflation continue to pose significant, unpredictable risks to the business and operations - Future operating results are subject to variability due to the cyclical nature of the electrical equipment industry, customer demands, and raw material price fluctuations (e.g., copper, steel, aluminum)[111] - Geopolitical conflicts (Russia-Ukraine, Israel-Hamas) and rising global inflation are significant, unpredictable factors that could adversely impact macroeconomic conditions and the company's business[111] - The company's sales are concentrated in industrial production and commercial construction markets, making it vulnerable to changes in these customer segments[111] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section states that there are no applicable quantitative and qualitative disclosures about market risk for the company - The company has no applicable quantitative and qualitative disclosures about market risk[112] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were not effective as of March 31, 2025, due to a material weakness in internal control over financial reporting related to insufficient accounting personnel and lack of segregation of duties. Remediation plans include engaging third parties, implementing a new ERP system, and hiring additional personnel Evaluation of Disclosure Controls and Procedures The CEO and CFO concluded that disclosure controls and procedures were not effective as of March 31, 2025, due to an identified material weakness. However, additional analyses confirmed that the financial statements fairly state the company's financial position - Disclosure controls and procedures were deemed not effective as of March 31, 2025, due to a material weakness[114] - Despite the material weakness, management concluded that the unaudited condensed interim consolidated financial statements fairly state the financial position, results of operations, and cash flows[114] Material Weakness in Internal Control over Financial Reporting A material weakness exists in internal control over financial reporting due to insufficient accounting personnel, leading to a lack of proper segregation of duties. This weakness was present as of December 31, 2024, and continued through March 31, 2025 - A material weakness in internal control over financial reporting exists due to insufficient accounting personnel and a lack of proper segregation of duties[116] - This material weakness was identified as of December 31, 2024, and persisted as of March 31, 2025[116] Management's Plan to Remediate the Material Weakness Management plans to remediate the material weakness by engaging external third parties, implementing a new ERP system to enforce segregation of duties, and hiring additional accounting and finance personnel - Remediation plans include engaging external third parties, implementing a new ERP system for systemic segregation of duties, and hiring additional accounting and finance personnel[117][120] - The company acknowledges that full implementation and testing of these remediation efforts will take time[118] Changes in Internal Control over Financial Reporting Other than the material weakness and remediation plans described, there were no other changes in internal control over financial reporting during Q1 2025 that materially affected or are reasonably likely to materially affect internal control over financial reporting - No other material changes in internal control over financial reporting occurred during Q1 2025, apart from the identified material weakness and remediation efforts[119] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is not currently aware of or a party to any material legal proceedings, nor any threatened or pending litigation that could have a material adverse effect on its business, financial condition, or operating results - The company is not involved in any material legal proceedings or aware of any threatened litigation that could adversely affect its business[122] Item 1A. Risk Factors This section supplements the risk factors from the annual report, highlighting a revised risk factor concerning customer concentration. A significant portion of revenues historically comes from a few customers, and the loss of business from these customers could materially impact financial results - A significant portion of the company's revenues is concentrated among a few customers, posing a risk if business from these customers is lost[124] - In Q1 2025, Eneridge Inc. and Verizon Communications Inc. accounted for 39% and 11% of sales, respectively[124] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section states that there were no unregistered sales of equity securities or use of proceeds to report - No unregistered sales of equity securities or use of proceeds occurred[125] Item 3. Defaults Upon Senior Securities This section states that there were no defaults upon senior securities to report - No defaults upon senior securities occurred[126] Item 4. Mine Safety Disclosures This section states that mine safety disclosures are not applicable to the company - Mine safety disclosures are not applicable[127] Item 5. Other Information This section states that there is no other information to report - No other information to report[128] Item 6. Exhibits This section lists the exhibits filed or furnished with the Quarterly Report on Form 10-Q, including certifications from the CEO and CFO, and XBRL-related documents - The exhibits include certifications from the CEO and CFO (Sarbanes-Oxley Act Sections 302 and 906) and Inline XBRL documents[131] SIGNATURES The report is signed by Nathan J. Mazurek, Chief Executive Officer, and Walter Michalec, Chief Financial Officer, on May 15, 2025, certifying its submission - The report was signed by the CEO and CFO on May 15, 2025[135]