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Pioneer Power Solutions(PPSI) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements and management's financial analysis Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements, including operations, balance sheets, cash flows, and equity changes, with accounting notes Unaudited Condensed Consolidated Statements of Operations This statement details the company's revenues, costs, and net loss for the three and six months ended June 30, 2025 and 2024 Unaudited Condensed Consolidated Statements of Operations (in thousands) | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenues | $8,370 | $3,395 | $15,110 | $6,710 | | Cost of goods sold | $7,056 | $2,754 | $13,648 | $5,534 | | Gross profit | $1,314 | $641 | $1,462 | $1,176 | | Operating expenses | $3,022 | $2,376 | $5,517 | $4,637 | | Operating loss from continuing operations | $(1,708) | $(1,735) | $(4,055) | $(3,461) | | Net loss | $(1,328) | $(2,283) | $(2,257) | $(3,318) | | Basic loss per share | $(0.12) | $(0.21) | $(0.21) | $(0.32) | | Diluted loss per share | $(0.12) | $(0.21) | $(0.21) | $(0.32) | Unaudited Condensed Consolidated Balance Sheets This statement presents the company's assets, liabilities, and stockholders' equity as of June 30, 2025, and December 31, 2024 Unaudited Condensed Consolidated Balance Sheets (in thousands) | Metric (in thousands) | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | Cash | $17,999 | $41,622 | | Total current assets | $29,324 | $56,657 | | Total assets | $39,115 | $65,951 | | Total current liabilities | $5,408 | $29,978 | | Total liabilities | $6,076 | $30,522 | | Total stockholders' equity | $33,039 | $35,429 | Unaudited Condensed Consolidated Statements of Cash Flows This statement outlines the company's cash flows from operating, investing, and financing activities for the six months ended June 30, 2025 and 2024 Unaudited Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(3,963) | $(1,379) | | Net cash used in investing activities | $(2,940) | $(614) | | Net cash (used in)/provided by financing activities | $(16,720) | $4,923 | | (Decrease)/increase in cash | $(23,623) | $2,930 | | Cash, end of year | $17,999 | $6,512 | Unaudited Condensed Consolidated Statement of Changes in Stockholders' Equity This statement details changes in common stock, additional paid-in capital, and accumulated deficit for the periods ended June 30, 2025 and 2024 Unaudited Condensed Consolidated Statement of Changes in Stockholders' Equity (in thousands, except shares) | Metric (in thousands, except shares) | June 30, 2025 | June 30, 2024 | | :----------------------------------- | :------------ | :------------ | | Common Stock Shares (outstanding) | 11,095,266 | 10,917,038 | | Additional paid-in capital | $35,285 | $38,724 | | Accumulated deficit | $(2,257) | $(22,947) | | Total stockholders' equity | $33,039 | $15,788 | Notes to Unaudited Condensed Consolidated Financial Statements This section provides detailed explanations of the company's accounting policies, business organization, revenue recognition, and other financial disclosures 1. BUSINESS ORGANIZATION, NATURE OF OPERATIONS, RISKS AND UNCERTAINTIES This note describes the company's business, its single operating segment, liquidity position, and key operational risks - Pioneer Power Solutions, Inc. designs, manufactures, services, and integrates distributed energy resources, power generation equipment, and mobile EV charging solutions, serving utility, industrial, and commercial markets18 - The Company operates as a single reportable segment: Critical Power Solutions, following the sale of its Electrical Infrastructure business in October 202419 - As of June 30, 2025, the Company had $17,999 thousand in cash and $23,916 thousand in working capital, primarily from the PCEP sale, and expects this to be sufficient to fund operations for the next twelve months2425 - The Company faces risks from rising interest rates, inflation, foreign currency fluctuations, geopolitical developments (Russia-Ukraine, Israel-Hamas conflicts), and changes in U.S. policy, which could impact demand, supply channels, and overall financial performance26 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note confirms no material changes to accounting policies and outlines the assessment of new accounting guidance - No material changes to significant accounting policies since the Annual Report for the year ended December 31, 202429 - The Company is assessing the impact of new accounting guidance: ASU 2023-09 (Income Tax Disclosures, effective Jan 1, 2025), ASU 2024-03/2025-01 (Expense Disaggregation Disclosures, effective after Dec 15, 2026/2027), and ASU 2025-04 (Share-Based Customer Payments, effective after Dec 15, 2026)303132 3. REVENUES This note details the company's principal products and services, disaggregated revenue by discipline, and significant customer concentration - The Company's principal products and services include distributed energy resources, power generation equipment, and mobile electric vehicle charging solutions, primarily from its Critical Power business3941 Disaggregated Revenue by Discipline (in thousands) | Revenue Discipline | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Products (ASC 606) | $4,213 | $838 | $7,985 | $1,947 | | Services (ASC 606) | $2,289 | $2,174 | $4,734 | $4,055 | | Sales-type lease revenue (ASC 842) | $1,410 | $- | $1,410 | $- | | Fixed lease revenue (ASC 842) | $458 | $383 | $981 | $708 | | Total Revenue | $8,370 | $3,395 | $15,110 | $6,710 | - Customer concentration risk is significant: for the three months ended June 30, 2025, two customers accounted for 31% and 19% of revenue; for the six months, two customers accounted for 34% and 13%. One customer represented 53% of total outstanding receivables as of June 30, 20255253 4. INVENTORIES This note provides a breakdown of the company's inventory components, including raw materials and work in process Inventory Components (in thousands) | Component | June 30, 2025 | December 31, 2024 | | :------------ | :------------ | :---------------- | | Raw materials | $4,235 | $4,899 | | Work in process | $1,548 | $1,169 | | Total inventories | $5,783 | $6,068 | 5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES This note details the composition of accounts payable and accrued liabilities, including insurance, compensation, and warranty costs Accounts Payable and Accrued Liabilities (in thousands) | Component | June 30, 2025 | December 31, 2024 | | :------------------------ | :------------ | :---------------- | | Accounts payable | $3,255 | $3,054 | | Accrued liabilities | $801 | $1,489 | | Total | $4,056 | $4,543 | - Accrued liabilities primarily consist of accrued insurance ($106 thousand vs $462 thousand), accrued compensation and benefits ($197 thousand vs $453 thousand), and accrued warranty costs ($212 thousand vs $117 thousand) as of June 30, 2025, and December 31, 2024, respectively60 6. STOCK-BASED COMPENSATION This note summarizes stock option activity and the associated stock-based compensation expense for the reporting periods Stock Option Activity (Six Months Ended June 30, 2025) | Metric | Value | | :------------------------ | :------------ | | Outstanding as of Jan 1, 2025 | 561,476 | | Forfeited/expired | (10,642) | | Outstanding as of June 30, 2025 | 550,834 | | Weighted average exercise price | $4.18 | | Weighted remaining contractual term | 4.80 years | | Aggregate intrinsic value | $199 | - Stock-based compensation expense was $2 thousand for Q2 2025 (down from $96 thousand in Q2 2024) and $15 thousand for YTD 2025 (down from $321 thousand in YTD 2024)61 7. INCOME TAXES This note explains the company's income tax provision, effective tax rate, and the impact of recent tax legislation - The Company recorded no income tax provision for the three and six months ended June 30, 2025, resulting in an effective tax rate (ETR) of 0%, primarily due to a full valuation allowance on deferred tax assets and non-deductible permanent items6267 - The Company applied the discrete method for interim income tax provision calculation due to earnings volatility and unreliable full-year forecasted income64 - The 'Make Rural America and Main Street Grow Again Act' (One Big Beautiful Bill Act), enacted July 4, 2025, includes retroactive provisions for 100% bonus depreciation and expensing R&D, but its effects are considered a nonrecognized subsequent event for Q2 2025 and are not expected to materially impact near-term cash tax obligations due to the Company's net operating loss position and valuation allowance656668 8. DISCONTINUED OPERATIONS This note details the sale of the Electrical Infrastructure segment and the resulting net income or loss from discontinued operations - On October 29, 2024, the Company sold its Electrical Infrastructure segment (PCEP) for $48,000 thousand cash and $2,000 thousand in equity, retaining an equity interest in Pioneer Investment LLC6972 - The Company finalized a net working capital adjustment with the PCEP buyer on April 16, 2025, resulting in a $1,147 thousand reduction in consideration due to the buyer and a payment of $2,200 thousand69 Net (Loss) Income from Discontinued Operations (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net (loss) income from discontinued operations | $(100) | $(568) | $1,047 | $52 | 9. EQUITY-METHOD INVESTMENT This note reports the income recognized from the company's equity method investment in Pioneer Investment LLC - The Company recorded income from its equity method investee (Pioneer Investment LLC) of $297 thousand for the three months ended June 30, 2025, and $240 thousand for the six months ended June 30, 202573 10. BASIC AND DILUTED (LOSS) EARNINGS PER SHARE This note presents the basic and diluted loss per share from continuing and discontinued operations, along with anti-dilutive securities Basic and Diluted Loss Per Share | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Loss per share from continuing operations (Basic & Diluted) | $(0.11) | $(0.16) | $(0.30) | $(0.32) | | (Loss) earnings per share from discontinued operations (Basic & Diluted) | $(0.01) | $(0.05) | $0.09 | $- | | Basic loss per share | $(0.12) | $(0.21) | $(0.21) | $(0.32) | | Diluted loss per share | $(0.12) | $(0.21) | $(0.21) | $(0.32) | Anti-Dilutive Securities Excluded from EPS Calculation | Security | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Stock options | 550,834 | 654,313 | 384,166 | 269,500 | 11. BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION This note identifies the company's single reportable segment, geographic revenue distribution, and customer concentration - The Company operates as a single reportable segment, Critical Power Solutions, which provides mobile high-capacity charging equipment, power generation equipment, and aftermarket field services76 Revenues by Geographic Location (in thousands) | Country | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | United States | $8,255 | $3,395 | $14,881 | $6,710 | | Canada | $115 | $- | $229 | $- | | Total | $8,370 | $3,395 | $15,110 | $6,710 | - Customer concentration remains high, with two customers accounting for 31% and 19% of revenues for the three months ended June 30, 2025, and 34% and 13% for the six months ended June 30, 20257980 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's analysis of financial performance, liquidity, and capital resources, highlighting revenue growth and profitability Business Overview This section outlines Pioneer Power Solutions' core business activities, including product development and market expansion strategies - 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 markets88 - The Company aims to grow through internal investments in product development and expansion of manufacturing, engineering, sales, and marketing personnel89 Recent Developments This section discusses the 'One Big Beautiful Bill Act' and its expected non-material impact on the company's tax obligations - The 'One Big Beautiful Bill Act,' enacted July 4, 2025, includes retroactive changes to U.S. corporate tax provisions, such as 100% bonus depreciation and expensing R&D expenditures91 - Due to the Company's net operating loss (NOL) position and full valuation allowance, these tax provisions are not expected to materially impact near-term cash tax obligations or financial statement income tax expense92 Description of Business Segment This section describes the company's single reportable segment, Critical Power Solutions, and its product and service offerings - Following the sale of the PCEP business unit in October 2024, the Company now operates with one reportable segment: Critical Power Solutions93 - The Critical Power business provides mobile EV charging solutions (e-Boost), power generation equipment, and services (preventative maintenance, repairs, fuel polishing, remote monitoring) under the Pioneer eMobility and Pioneer Critical Power (Titan) brand names93 Critical Accounting Estimates This section confirms no material changes to the company's critical accounting estimates during the reporting period - There were no material changes to the Company's critical accounting estimates during the three and six months ended June 30, 202594 RESULTS OF OPERATIONS This section analyzes the company's financial performance, including revenues, gross profit, operating expenses, and net loss for the reporting periods Overview of June 30, 2025, and 2024, Operating Results This overview summarizes the company's key operating metrics, including revenues, gross profit, operating expenses, and net loss Summary of Operating Results (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenues (Critical Power Solutions) | $8,370 | $3,395 | $15,110 | $6,710 | | Gross profit | $1,314 | $641 | $1,462 | $1,176 | | Total operating expenses | $3,022 | $2,376 | $5,517 | $4,637 | | Operating loss from continuing operations | $(1,708) | $(1,735) | $(4,055) | $(3,461) | | Net loss | $(1,328) | $(2,283) | $(2,257) | $(3,318) | Backlog This section reports the revenue backlog for the Critical Power business and its progression over recent quarters - Revenue backlog for the Critical Power business decreased by $9,366 thousand, or 34.4%, to $17,885 thousand as of June 30, 2025, compared to $27,251 thousand as of June 30, 202499 Backlog Progression (in thousands) | Quarter End | Critical Power Solutions | Discontinued operation | Total order backlog | | :--------------- | :----------------------- | :--------------------- | :------------------ | | June 30, 2025 | $17,885 | $- | $17,885 | | March 31, 2025 | $23,231 | $- | $23,231 | | December 31, 2024 | $19,762 | $- | $19,762 | | September 30, 2024 | $24,038 | $42,112 | $66,150 | | June 30, 2024 | $27,251 | $39,670 | $66,921 | Revenue This section analyzes the company's revenue growth by major product category, highlighting the impact of mobile EV charging solutions Revenue by Major Product Category (in thousands, except percentages) | Category | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Variance | % Change | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Variance | % Change | | :------- | :------------------------------- | :------------------------------- | :------- | :------- | :----------------------------- | :----------------------------- | :------- | :------- | | Equipment | $6,081 | $1,221 | $4,860 | 398.0% | $10,376 | $2,655 | $7,721 | 290.8% | | Service | $2,289 | $2,174 | $115 | 5.3% | $4,734 | $4,055 | $679 | 16.7% | | Total Revenue | $8,370 | $3,395 | $4,975 | 146.5% | $15,110 | $6,710 | $8,400 | 125.2% | - Total revenue from the Critical Power segment increased significantly by 146.5% to $8,370 thousand for Q2 2025 and by 125.2% to $15,110 thousand for YTD 2025, primarily driven by increased sales and rentals of mobile EV charging solutions (e-Boost)101102 Gross Profit and Margin This section examines changes in gross profit and margin, attributing decreases to an unfavorable sales mix and higher production costs Gross Profit and Margin (in thousands, except percentages) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Variance | % Change | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Variance | % Change | | :----- | :------------------------------- | :------------------------------- | :------- | :------- | :----------------------------- | :----------------------------- | :------- | :------- | | Gross profit | $1,314 | $641 | $673 | 105.0% | $1,462 | $1,176 | $286 | 24.3% | | Gross margin % | 15.7% | 18.9% | (3.2)% | | 9.7% | 17.5% | (7.8)% | | - Gross margin decreased to 15.7% for Q2 2025 (from 18.9%) due to an unfavorable sales mix, and to 9.7% for YTD 2025 (from 17.5%) primarily due to lower margins on initial eMobility units from higher production costs during process refinement103104 Operating Expenses This section analyzes changes in selling, general and administrative (SG&A) and research and development (R&D) expenses Operating Expenses (in thousands, except percentages) | Expense Category | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Variance | % Change | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Variance | % Change | | :--------------- | :------------------------------- | :------------------------------- | :------- | :------- | :----------------------------- | :----------------------------- | :------- | :------- | | Selling, general and administrative | $2,488 | $2,138 | $350 | 16.4% | $4,903 | $4,188 | $715 | 17.1% | | Research and development | $534 | $238 | $296 | 124.4% | $614 | $449 | $165 | 36.7% | | Total operating expense | $3,022 | $2,376 | $646 | 27.2% | $5,517 | $4,637 | $880 | 19.0% | - Selling, general and administrative (SG&A) expenses increased by 16.4% for Q2 2025 and 17.1% for YTD 2025, primarily due to higher trade show costs, commissions, and professional fees106107 - Research and development (R&D) expenses increased by 124.4% for Q2 2025 and 36.7% for YTD 2025, driven by development activities for mobile e-Boost EV charging solutions108 Operating Loss from Continuing Operations This section details the operating loss from continuing operations, noting the impact of sales, rentals, gross profit, and SG&A expenses Operating Loss from Continuing Operations (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Variance | % Change | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Variance | % Change | | :----- | :------------------------------- | :------------------------------- | :------- | :------- | :----------------------------- | :----------------------------- | :------- | :------- | | Operating loss from continuing operations | $(1,708) | $(1,735) | $27 | 1.6% | $(4,055) | $(3,461) | $(594) | (17.2)% | - Operating loss from continuing operations decreased by 1.6% for Q2 2025 due to increased sales and rentals, but increased by 17.2% for YTD 2025 primarily due to decreased gross profit and higher SG&A expenses109110 Non-Operating Income from Continuing Operations This section reports on interest income and other non-operating income, including gains from equity method investments Non-Operating Income (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Interest Income | $183 | $20 | $431 | $51 | | Other Income, net | $297 | $- | $320 | $40 | - Interest income increased significantly due to cash on hand111 - Other income increased primarily due to a gain on the equity method investment113 Provision for Income Taxes This section explains the company's 0% effective tax rate, attributed to a full valuation allowance and discrete tax provision method - The Company recorded a 0% effective tax rate for both the three and six months ended June 30, 2025, and 2024, primarily due to a full valuation allowance on deferred tax assets and the use of the discrete method for tax provision calculation114115 Net Loss per Share from Continuing Operations This section presents the net loss from continuing operations and the corresponding basic and diluted loss per share Net Loss from Continuing Operations per Share | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net loss from continuing operations | $(1,228) | $(1,715) | $(3,304) | $(3,370) | | Basic and diluted loss per share from continuing operations | $(0.11) | $(0.16) | $(0.30) | $(0.32) | Income (loss) from Discontinued Operations This section reports the income or loss from discontinued operations, primarily influenced by the PCEP Sale working capital adjustment Income (Loss) from Discontinued Operations (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Loss from discontinued operations, net of tax | $(100) | $(568) | $1,047 | $52 | - The $1,047 thousand income from discontinued operations for the six months ended June 30, 2025, was primarily due to finalizing the net working capital adjustment from the PCEP Sale121 LIQUIDITY AND CAPITAL RESOURCES This section discusses the company's cash position, working capital, cash flow activities, and future funding expectations - As of June 30, 2025, the Company had $17,999 thousand in cash, primarily from the PCEP Sale, and paid a one-time special cash dividend of $16,665 thousand on January 7, 2025122 Cash Flow Summary (Six Months Ended June 30, in thousands) | Activity | 2025 | 2024 | | :------- | :-------- | :-------- | | Operating | $(3,963) | $(1,379) | | Investing | $(2,940) | $(614) | | Financing | $(16,720) | $4,923 | - Working capital decreased to $23,916 thousand as of June 30, 2025, from $26,679 thousand as of December 31, 2024129 - The Company expects its current cash balance and operating cash flows to be sufficient to fund operations for the next twelve months, with cash requirements primarily for operating activities, capital improvements, and product development131 Capital Expenditures This section reports the company's additions to property and equipment for the six months ended June 30, 2025 and 2024 Additions to Property and Equipment (in thousands) | Period | 2025 | 2024 | | :----- | :--- | :--- | | Six months ended June 30 | $740 | $614 | Known Trends, Events, Uncertainties and Factors That May Affect Future Operations This section identifies factors that may impact future operations, including industry cyclicality, raw material prices, geopolitical conflicts, and policy changes - Future operating results are subject to quarterly variations due to the cyclical nature of the electrical equipment industry, changing customer requirements, and fluctuations in raw material prices (copper, steel, aluminum)135 - Ongoing geopolitical conflicts (Russia-Ukraine, Israel-Hamas) and rising global inflation could adversely impact macroeconomic conditions, market volatility, and the Company's business135 - Changes in U.S. policy regarding tariffs, trade, taxation, and the regulatory environment may also affect the Company's operations135 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 reporting period - The Company has no applicable quantitative and qualitative disclosures about market risk136 Item 4. Controls and Procedures This section addresses the effectiveness of disclosure controls and internal control over financial reporting, identifying a material weakness and outlining remediation Evaluation of Disclosure Controls and Procedures This section concludes that disclosure controls were not effective due to a material weakness, despite management's additional financial analyses - Management, including the CEO and CFO, concluded that disclosure controls and procedures were not effective as of June 30, 2025, due to an identified material weakness137 - Despite the material weakness, management performed additional analyses and concluded that the unaudited condensed consolidated financial statements fairly state the financial position, results of operations, and cash flows in conformity with U.S. GAAP137 Material Weakness in Internal Control over Financial Reporting This section identifies a material weakness in internal control over financial reporting due to insufficient accounting personnel and lack of segregation of duties - A material weakness in internal control over financial reporting exists due to the lack of sufficient accounting personnel, leading to an inability to maintain proper segregation of duties139 - This material weakness was present as of December 31, 2024, and continued to exist as of June 30, 2025139 Management's Plan to Remediate the Material Weakness This section outlines management's plan to remediate the material weakness through external engagement, ERP implementation, enhanced controls, and additional hiring - Management's remediation plan includes engaging external third parties, implementing a new ERP system for systemic enforcement of segregation of duties, enhancing process-level and general IT controls within the new ERP, and hiring additional accounting and finance personnel140143 - The Company is committed to a strong internal control environment, but full implementation and confirmation of effectiveness will take time, and the material weakness will persist until remediation steps are fully tested141 Changes in Internal Control over Financial Reporting This section confirms no other material changes in internal control over financial reporting beyond the identified material weakness - Other than the material weakness described, there have been no other changes in internal control over financial reporting during the three months ended June 30, 2025, that materially affected or are reasonably likely to materially affect internal control over financial reporting142 PART II. OTHER INFORMATION This section covers other required disclosures, including legal proceedings, risk factors, equity sales, defaults, and exhibits Item 1. Legal Proceedings The Company is not aware of any material legal proceedings or threatened litigation that could adversely affect its business - The Company is not aware of any material legal proceedings, threatened or pending litigation, or proceedings contemplated by governmental authorities that could have a material adverse effect on its business145 Item 1A. Risk Factors This section highlights significant customer concentration as a key risk that could adversely affect the company's business and financial results - A significant portion of the Company's revenues has historically been concentrated and derived from a few customers, posing a risk of adverse effects on business, financial condition, and operating results if business from these customers is lost147 - For the three months ended June 30, 2025, two customers accounted for 31% and 19% of revenues; for the six months, two customers accounted for 34% and 13% of revenues148 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section indicates that there were no unregistered sales of equity securities or use of proceeds to report for the period - There were no unregistered sales of equity securities or use of proceeds to report151 Item 3. Defaults Upon Senior Securities This section states that there were no defaults upon senior securities during the reporting period - There were no defaults upon senior securities152 Item 4. Mine Safety Disclosures This section indicates that mine safety disclosures are not applicable to the Company - Mine safety disclosures are not applicable to the Company153 Item 5. Other Information This section states that there is no other information to report for the period - There is no other information to report154 Item 6. Exhibits This section provides an index of exhibits filed or furnished with the Quarterly Report on Form 10-Q, including certifications and XBRL documents Exhibit Index | Exhibit No. | Description | | :---------- | :----------------------------------------------------------------------- | | 31.1* | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | 31.2* | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | 32.1** | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | | 32.2** | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | | 101.INS* | Inline XBRL Instance Document | | 101.SCH* | Inline XBRL Taxonomy Extension Schema Document | | 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | | 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | | 101.LAB* | Inline XBRL Taxonomy Extension Labels Linkbase Document | | 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | | 104* | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |